<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________________ to ______________________.
Commission file number 1-12844
--------------
JDN REALTY CORPORATION
----------------------
(Exact name of registrant as specified in its charter)
Maryland 58-1468053
- ----------------------------- --------------------------
(State of Jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
359 East Paces Ferry Road, NE, Suite 400, Atlanta, GA 30305
------------------------------------------------------------
(Address of principal executive offices - zip code)
(404) 262-3252
--------------
(Registrant's telephone number, including area code)
Not applicable
--------------
(Former name, former address and former fiscal year, if
changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--------- --------
As of May 6, 1999, 33,235,706 shares of the Registrant's Common Stock, $.01
par value, were outstanding.
<PAGE>
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Page No.
--------
Condensed Consolidated Balance Sheets - March 31, 1999 and
December 31, 1998 2
Condensed Consolidated Statements of Income - Three Months Ended
March 31, 1999 and 1998 3
Condensed Consolidated Statements of Cash Flow - Three Months
Ended March 31, 1999 and 1998 4
Notes to Condensed Consolidated Financial Statements 5
1
<PAGE>
JDN REALTY CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
---------------- ------------
(Unaudited)
(In thousands)
<S> <C> <C>
ASSETS
Shopping center properties, at cost:
Land $ 158,401 $ 153,111
Buildings and improvements 650,174 619,963
Property under development 76,010 74,192
--------------- -------------
884,585 847,266
Less: accumulated depreciation and amortization (61,264) (56,093)
--------------- -------------
Shopping center properties, net 823,321 791,173
Rents receivable 8,133 7,158
Investments in and advances to unconsolidated entities 173,135 151,040
Deferred costs, net of amortization 5,236 4,424
Other assets 13,802 15,127
---------------- -------------
$ 1,023,627 $ 968,922
=============== =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Unsecured notes payable $ 334,589 $ 234,573
Unsecured lines of credit 69,902 148,519
Mortgage notes payable 68,484 42,471
Accounts payable and accrued expenses 9,453 11,550
Other liabilities 10,007 10,764
--------------- -------------
Total liabilities 492,435 447,877
Third party investors' interest 3,000 3,000
Shareholders' Equity
Preferred stock, par value $.01 per share -
authorized 20,000,000 shares: 9 3/8% Series A
Cumulative Redeemable Preferred Stock,
liquidation preference $25 per share, issued and
outstanding 2,000,000 shares in 1999 and 1998,
respectively 20 20
Common stock, par value $.01 per share -
authorized 150,000,000 shares, issued and
outstanding 33,233,694 and 32,704,408 shares
in 1999 and 1998, respectively 332 327
Paid-in capital 534,929 524,787
Accumulated deficit (7,089) (7,089)
--------------- -------------
528,192 518,045
--------------- -------------
$ 1,023,627 $ 968,922
=============== =============
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
2
<PAGE>
JDN REALTY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
1999 1998
-------------- ------------
(In thousands)
<S> <C> <C>
Revenues:
Minimum and percentage rents $22,468 $15,317
Recoveries from tenants 3,212 1,668
Other revenue 10 61
------- -------
Total revenues 25,690 17,046
Operating expenses:
Operating and maintenance 2,156 1,161
Real estate taxes 1,637 924
General and administrative 2,167 1,526
Depreciation and amortization 5,279 3,499
------- -------
Total operating expenses 11,239 7,110
------- -------
Income from operations 14,451 9,936
Other income (expense):
Interest expense, net (3,817) (1,812)
Other income, net 420 161
Equity in net income of unconsolidated entities 1,147 856
------- -------
Income before minority interest in net income of
consolidated subsidiary 12,201 9,141
Minority interest in net income of consolidated subsidiary (50) (29)
------- -------
Net income 12,151 9,112
Dividends to preferred shareholders (1,172) -
------- -------
Net income attributable to common shareholders $10,979 $ 9,112
======= =======
Net income per common share:
Basic $ 0.33 $ 0.32
======= =======
Diluted $ 0.33 $ 0.31
======= =======
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
3
<PAGE>
JDN REALTY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
1999 1998
------------------ ------------------
(In thousands)
<S> <C> <C>
Net cash provided by operating activities $ 11,158 $ 8,633
Cash flows from investing activities:
Development of shopping center properties (35,386) (28,615)
Improvements to shopping center properties (277) (634)
Purchase of shopping center properties -- (62,785)
Investments in and advances to unconsolidated entities (20,948) (41,779)
Other 1,049 --
---------- ---------
Net cash used in investing activities (55,562) (133,813)
Cash flows from financing activities:
Proceeds from unsecured lines of credit 353,540 105,500
Proceeds from mortgage notes payable 26,454 --
Proceeds from issuance of unsecured notes payable -- 76,548
Principal payments on unsecured lines of credit (332,157) (126,000)
Principal payments on mortgage notes payable (195) (68)
Proceeds from issuance of common shares, net of
underwriting commissions and offering expenses 11,055 67,827
Dividends paid to preferred shareholders (1,172) --
Dividends paid to common shareholders (11,963) (10,104)
Other (1,158) --
---------- ---------
Net cash provided by financing activities 44,404 113,703
---------- ---------
Decrease in cash and cash equivalents -- (11,477)
Cash and cash equivalents, beginning of period -- 11,477
---------- ---------
Cash and cash equivalents, end of period $ -- $ --
========== =========
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
4
<PAGE>
JDN REALTY CORPORATION
Notes to Condensed Consolidated Financial Statements
(Unaudited)
March 31, 1999
1. THE COMPANY
JDN Realty Corporation (the "Company") is a real estate company which
specializes in the development and asset management of retail shopping centers
anchored by value-oriented retailers. As of March 31, 1999 the Company owned
and operated, either directly or through affiliated entities, a total of 98
shopping center properties and had 41 projects under construction. The Company
has elected to be taxed as a real estate investment trust ("REIT") for federal
income tax purposes.
The Company owns an interest in JDN Development Company, Inc. ("Development
Company"), which is structured such that the Company owns 99% of the economic
interest while J. Donald Nichols, the Company's Chairman and Chief Executive
Officer, owns the remaining 1% and controls Development Company's operations and
activities through his voting common stock ownership. As of March 31, 1999, the
Company had invested $9.5 million in Development Company in the form of equity
capital, $124.7 million in the form of secured notes receivable and $31.2
million in the form of unsecured advances.
2. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Article
10 of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. The consolidated balance sheet at December 31, 1998 has been
derived from the audited consolidated financial statements at that date.
Operating results for the three month period ended March 31, 1999 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1999 or any other interim period. For further information, refer
to the consolidated financial statements and footnotes thereto included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1998.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Income Taxes. The Company has elected to be taxed as a REIT under the
Internal Revenue Code of 1986, as amended (the "Code"). As a result, the
Company will not be subject to federal income taxes to the extent that it
distributes annually at least 95% of its taxable income to its shareholders and
satisfies certain other requirements defined in the Code. Accordingly, no
provision has been made for federal income taxes in the accompanying condensed
consolidated financial statements for the periods presented.
Earnings Per Share. Basic and diluted earnings per share were computed in
accordance with the requirements of Statement of Financial Accounting Standards
No. 128.
Reclassifications. Certain amounts as previously reported have been
reclassified to conform to the current period's presentation.
5
<PAGE>
4. DISTRIBUTIONS
On March 2, 1999, the Company's Board of Directors declared a cash
distribution of $0.36 per share to common shareholders of record on March 12,
1999. This distribution was paid on March 23, 1999.
On March 2, 1999, the Company's Board of Directors declared a cash
distribution of $0.586 per share to holders of record of the Company's 9 3/8%
Series A Cumulative Redeemable Preferred Stock on March 15, 1999. This
distribution was paid on March 31, 1999.
5. TERM LOAN
On February 17, 1999, the Company executed a $100.0 million Term Loan
Credit Agreement with Wachovia Bank, N.A., as agent (the "Term Loan"). The Term
Loan is unsecured, bears interest at LIBOR plus 1.40% and matures on February
15, 2002. The net proceeds from the Term Loan were used to repay amounts
outstanding under the Company's unsecured lines of credit.
6. MORTGAGE NOTES PAYABLE
During March 1999, the Company closed two secured mortgage notes payable
with Northwestern Mutual Life Insurance Company. The first mortgage note
payable in the amount of $12.3 million is secured by a freestanding Lowe's store
located in Woodstock, Georgia. The note bears a fixed interest rate of 6.55%,
requires monthly payments of principal and interest in the amount of $94,051 and
matures on April 15, 2018. The second mortgage note payable in the amount of
$13.9 million is secured by a freestanding Lowe's store located in Alpharetta,
Georgia. The note bears a fixed interest rate of 6.62%, requires monthly
payments of principal and interest in the amount of $104,243 and matures on
April 15, 2019. The net proceeds from these two loans were used to repay
amounts outstanding under the Company's unsecured lines of credit.
7. OFFERING OF COMMON STOCK
On January 13, 1999, the Company issued 500,000 shares of its common stock,
which netted proceeds to the Company of approximately $11.1 million.
6
<PAGE>
8. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share (in thousands, except per share data):
Three months ended March 31,
1999 1998
- ----------------------------------------------------------------------
Numerator:
Net income $12,151 $ 9,112
Dividends to preferred shareholders (1,172) -
------- -------
Net income attributable to
common shareholders $10,979 $ 9,112
======= =======
Denominator:
Weighted-average shares outstanding 33,157 28,888
Unvested restricted stock outstanding (102) (15)
------- -------
Denominator for basic earnings
per share 33,055 28,873
Dilutive effect of stock options and
unvested restricted stock 488 548
------- -------
Denominator for diluted earnings
per share 33,543 29,421
======= =======
Net income per common share:
Basic $ 0.33 $ 0.32
======= =======
Diluted $ 0.33 $ 0.31
======= =======
Of total options outstanding, options to purchase 93,000 and -0- shares of
common stock for the three months ended March 31, 1999 and 1998, respectively,
were outstanding but were not included in the computation of diluted earnings
per share because the options' exercise prices were greater than the average
market price of the common shares and, therefore, the effect would be
antidilutive.
The Company is the general partner in a limited partnership that issued
limited partnership units valued at $3.0 million in a limited partnership formed
to own and operate a shopping center in Milwaukee, Wisconsin. Subject to
certain conditions, the limited partnership units are exchangeable for cash or
139,535 shares of the Company's common stock beginning in February 1999. As of
March 31, 1999, none of the limited partnership units have been exchanged for
shares. Using the "if-converted" method, the effect of these units is
antidilutive; therefore, they have been excluded from the computation of
earnings per share.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Overview
JDN Realty Corporation (the "Company") is a real estate company which
specializes in the development and asset management of retail shopping centers
anchored by value-oriented retailers. As of March 31, 1999, the Company owned
and operated, either directly or through affiliated entities, a total of 98
shopping center properties and had 41 projects under construction. The Company
has elected to be taxed as a real estate investment trust ("REIT") for federal
income tax purposes.
The Company owns an interest in JDN Development Company, Inc. ("Development
Company"), which is structured such that the Company owns 99% of the economic
interest while J. Donald Nichols, the Company's Chairman and Chief Executive
Officer, owns the remaining 1% and controls Development Company's operations and
activities through his voting common stock ownership. Current tax laws restrict
the ability of REITs to engage in certain activities, such as the sale of
certain properties and third-party fee development; because it is not a REIT,
Development Company may engage in real estate development activities such as the
sale of all or a portion of a development project or the purchase, redevelopment
and sale of an existing real estate property. As of March 31, 1999, the Company
had invested $9.5 million in Development Company in the form of equity capital,
$124.7 million in the form of secured notes receivable and $31.2 million in the
form of unsecured advances.
Results of Operations
Comparison of the Three Months Ended March 31, 1999 to the Three Months Ended
March 31, 1998
During 1999 and 1998, the Company began operations at 28 properties which
it developed totaling 3.2 million square feet (the "Development Properties").
In addition, during 1999 and 1998, the Company acquired 11 shopping center
properties from third parties totaling 2.1 million square feet of gross leasable
area (the "Acquisition Properties"). As indicated below, the Company's results
of operations were affected by the Development Properties and the Acquisition
Properties.
Minimum and percentage rents increased $7.2 million or 46.7% to $22.5
million for the three months ended March 31, 1999 from $15.3 million for the
same period in 1998. Of this increase, $4.0 million relates to the Development
Properties and $2.6 million relates to the Acquisition Properties. The
remaining increase relates to an increase in minimum and percentage rents at
existing properties.
Recoveries from tenants increased $1.5 million or 92.6% to $3.2 million for
the three months ended March 31, 1999 from $1.7 million for the same period in
1998. Of this increase, $326,000 relates to the Development Properties and $1.1
million relates to the Acquisition Properties. The remaining increase relates
to an increase in recoverable expenses at existing properties.
Other revenue decreased $51,000 or 83.6% to $10,000 for the three months
ended March 31, 1999 from $61,000 for the same period in 1998. This decrease is
the result of a reduction in revenues associated with managing and leasing fewer
properties for third-party owners.
Operating and maintenance expenses increased $1.0 million or 85.7% to $2.2
million for the three months ended March 31, 1999 from $1.2 million for the same
period in 1998. Of this increase, $195,000 relates to the Development
Properties and $768,000 relates to the Acquisition Properties. The remaining
increase relates to increased operating and maintenance expenses at existing
properties.
Real estate taxes increased $713,000 or 77.2% to $1.6 million for the three
months ended March 31, 1999 from $924,000 for the same period in 1998. Of this
increase, $181,000 relates to the Development Properties and $399,000 relates to
the Acquisition Properties. The remaining increase in real estate taxes at
existing properties is due primarily to additional taxes associated with several
anchor tenant tracts for which the Company pays the property tax bill.
8
<PAGE>
General and administrative expenses increased $641,000 or 42.0% to $2.2
million for the three months ended March 31, 1999 from $1.5 million for the same
period in 1998. General and administrative expenses as a percent of minimum and
percentage rents decreased to 9.6% for the three months ended March 31, 1999
from 10.0% for the same period in 1998. The increase in absolute dollars
primarily reflects the cost of additional employees and other expenses
associated with the increased number of properties owned and operated by the
Company.
Depreciation and amortization expense increased $1.8 million or 50.9% to
$5.3 million for the three months ended March 31, 1999 from $3.5 million for the
same period in 1998. Of this increase, $878,000 relates to the Development
Properties and $797,000 relates to the Acquisition Properties. The remaining
increase primarily relates to furniture and fixtures purchased in association
with the Company's move to new corporate offices in 1998.
Interest expense, net of capitalized amounts, increased $2.0 million to
$3.8 million for the three months ended March 31, 1999 from $1.8 million for the
same period in 1998. This increase results primarily from an increase in
average debt balances between 1999 and 1998.
Other income, net increased $259,000 to $420,000 for the three months ended
March 31, 1999 from $161,000 for the same period in 1998. This increase results
from a decrease in amounts written off for development and acquisition projects
the Company determined not to pursue.
Equity in net income of unconsolidated entities increased $291,000 or 34.0%
to $1.1 million for the three months ended March 31, 1999 from $856,000 for the
same period in 1998. This increase results primarily from an increase in net
gains on land sales at Development Company.
Minority interest in net income of consolidated subsidiary increased
$21,000 or 72.4% to $50,000 for the three months ended March 31, 1999 from
$29,000 for the same period in 1998. Minority interest in net income of
consolidated subsidiary represents the third party investors' share of the net
income of a limited partnership, which owns and operates a shopping center
located in Milwaukee, Wisconsin.
Funds From Operations
Funds from operations ("FFO") is defined by the National Association of
Real Estate Investment Trusts, Inc. to mean net income, computed in accordance
with generally accepted accounting principles ("GAAP"), excluding gains or
losses from debt restructuring and sales of property, plus depreciation and
amortization of real estate assets, and after adjustments for unconsolidated
partnerships and joint ventures. The Company believes that FFO is helpful to
investors as a measure of the performance of an equity REIT because, along with
cash provided by operating activities, investing activities and financing
activities, it provides investors with an indication of the Company's ability to
make capital expenditures and to fund other cash needs. The Company's method of
calculating FFO may be different from methods used by other REITs and,
accordingly, may not be comparable to such other REITs. FFO does not represent
cash provided by operating activities as defined by GAAP, should not be
considered an alternative to net income (determined in accordance with GAAP) as
an indication of operating performance and is not indicative of cash available
to fund all cash flow needs, including the Company's ability to make cash
distributions.
9
<PAGE>
The Company has presented below the calculation of FFO for the periods
indicated:
<TABLE>
<CAPTION>
(Dollars in thousands) Three Months Ended March 31,
1999 1998
----------- -----------
<S> <C> <C>
Net income attributable to common shareholders $10,979 $ 9,112
Depreciation of real estate assets 4,973 3,320
Amortization of tenant allowances and tenant improvements 51 40
Amortization of deferred leasing commissions 123 54
Adjustments related to activities in unconsolidated entities 239 165
------- -------
FFO $16,365 $12,691
======= =======
</TABLE>
Leasing and Property Information
As of March 31, 1999, Wal-Mart, Lowe's and Kroger represented 16.0%, 13.9%
and 4.2%, respectively, of the combined annualized base rent of the Company,
Development Company and affiliated entities (collectively, "Combined Annualized
Base Rent"). In addition, at that date, anchor tenants represented 69.2% of
Combined Annualized Base Rent and national and regional tenants represented
86.9% of Combined Annualized Base Rent. As of March 31, 1999, properties owned
and operated by the Company, Development Company and affiliated entities were
96.4% leased.
On a same property basis, net operating income increased 1.5% between the
three months ended March 31, 1999 and the same period in 1998. Net operating
income represents property revenues less property expenses excluding interest
expense, depreciation and amortization.
As of March 31, 1999, the Company, Development Company and affiliated
entities operated in 15 states, and 40.3%, 15.4%, and 10.7% of Combined
Annualized Base Rent was represented by shopping center properties located in
Georgia, North Carolina and Tennessee, respectively.
Forward-Looking Statements
Management has included herein certain forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. When used,
statements which are not historical in nature including the words "anticipate,"
"estimate," "should," "expect," "believe," "intend" and similar expressions are
intended to identify forward-looking statements. Such statements are, by their
nature, subject to certain risks and uncertainties. Among the factors that
could cause actual results to differ materially from those projected are the
following: business conditions and the general economy, especially as they
affect interest rates and value-oriented retailers; the federal, state and local
regulatory environment; availability of debt and equity capital with favorable
terms and conditions including, without limitation, the availability of bank
credit facilities to fund development, redevelopment and acquisition activities;
availability of new development and acquisition opportunities; changes in the
financial condition or corporate strategy of the Company's primary retail
tenants and in particular Wal-Mart and Lowe's; the failure of the Company's
significant vendors or customers to accommodate the Year 2000 issue; ability to
complete and lease existing development and redevelopment projects on schedule
and within budget; and inability of the Company to maintain its qualification as
a REIT. Other risks, uncertainties and factors that could cause actual results
to differ materially than those projected are detailed from time to time in
reports filed by the Company with the Securities and Exchange Commission,
including Forms 8-K, 10-Q and 10-K.
10
<PAGE>
Liquidity and Capital Resources
Sources and Uses of Funds
- -------------------------
Historically, the Company's primary sources of funds have been cash
provided by operating activities and proceeds from lines of credit, debt
offerings and equity offerings. The Company's primary uses of funds have been
development, redevelopment and acquisition of shopping center properties,
distributions to shareholders, scheduled debt amortization and capital
improvements to its existing shopping center properties. The Company generally
has used cash provided by operating activities to fund its distributions to
shareholders, capital improvements to existing properties and scheduled debt
amortization. The Company has used proceeds from its lines of credit to finance
its development, redevelopment and acquisition activities. The Company has used
proceeds from debt and equity offerings to repay outstanding indebtedness and to
fund its ongoing development, redevelopment and acquisition activities.
During the first quarter of 1999, the Company funded $35.4 million in
development costs and advanced $20.9 million to Development Company to fund its
development and redevelopment activities.
To fund its development activity, the Company completed a public offering
of common stock, closed an unsecured term loan (the "Term Loan") and closed two
secured loans for net proceeds of approximately $25.7 million. In January 1999,
the Company issued 500,000 shares of its common stock, which netted proceeds to
the Company of approximately $11.1 million. In February 1999, the Company closed
the Term Loan in the amount of $100.0 million with Wachovia Bank, N. A., as
agent. The Term Loan is unsecured, bears interest at LIBOR plus 1.40% and
matures in February 2002. In March 1999, the Company closed two secured mortgage
notes payable with Northwestern Mutual Life Insurance Company. The first
mortgage note payable in the amount of $12.3 million is secured by a
freestanding Lowe's store located in Woodstock, Georgia. This note bears a fixed
interest rate of 6.55%, requires monthly payments of principal and interest in
the amount of $94,051 and matures on April 15, 2018. The second mortgage note
payable in the amount of $13.9 million is secured by a freestanding Lowe's store
located in Alpharetta, Georgia. This note bears a fixed interest rate of 6.62%,
requires monthly payments of principal and interest in the amount of $104,243
and matures on April 15, 2019. The net proceeds from these three transactions
were used to repay amounts outstanding under the Company's unsecured lines of
credit.
During 1998, the Company entered into a Distribution Agreement with a group
of agents led by Merrill Lynch relating to the proposed issue and sale from time
to time of up to $505.5 million of the Company's Medium-Term Notes Due Nine
Months or More From the Date of Issue (the "Medium-Term Notes Program"). The
aggregate offering under the Medium-Term Notes Program is subject to reduction
as a result of the sale by the Company of other securities described in its
Prospectus dated October 30, 1997. The Medium-Term Notes Program provides an
additional facility for funding the Company's acquisition and development
activities. As of March 31, 1999, the Company had $265.8 million registered and
available for issue under the Medium-Term Notes Program.
11
<PAGE>
Indebtedness
- ------------
The Company's total indebtedness as of March 31, 1999, consisted of the
following:
<TABLE>
<CAPTION>
Effective Percent
Principal Interest Maturity of Total
Balance Rate Date Indebtedness
-------------- --------- ---------- ------------
(in thousands)
<S> <C> <C> <C> <C>
Fixed Rate
- ----------
Mortgage note payable - Denver, Colorado $ 24,084 6.81% 17-Jul-01 5.1%
MandatOry Par Put Remarketed Securities (1) 75,000 6.58%(2) 31-Mar-03 15.9%
Mortgage note payable - Richmond, Kentucky 6,253 6.88%(3) 01-Dec-03 1.3%
Seven Year Notes 74,811 7.10%(2) 01-Aug-04 15.8%
Ten Year Notes 84,778 7.23%(2) 01-Aug-07 17.9%
Mortgage note payable - Milwaukee, Wisconsin 5,064 7.75% 01-Aug-09 1.1%
Mortgage note payable - Jackson, Mississippi 6,983 9.25%(4) 01-Mar-17 1.5%
Mortgage note payable - Woodstock, Georgia 12,250 6.55% 15-Apr-18 2.6%
Mortgage note payable - Alpharetta, Georgia 13,850 6.62% 15-Apr-19 2.9%
-------- ---- -----
303,073 7.00% 64.1%
Floating Rate
- -------------
Revolving Line of Credit 14,902 6.17%(5) 01-Sep-99 3.2%
Unsecured Line of Credit 55,000 6.60%(5) 22-May-01 11.6%
Term Loan 100,000 6.52%(6) 15-Feb-02 21.1%
-------- ---- -----
169,902 6.52% 35.9%
-------- ---- -----
$472,975 6.83% 100.0%
======== ==== =====
- ------------
</TABLE>
(1) Represents notes payable with a stated rate of 6.918% and a stated maturity
date of March 31, 2013. These notes are subject to mandatory tender on
March 31, 2003.
(2) Represents stated rate plus amortization of deferred loan costs.
(3) The interest rate on this note is adjusted on December 1 of each year.
(4) The note can be prepaid after March 1, 2002 with 90 days written notice to
the Lender. The Company will not incur any prepayment penalties in
association with the loan prepayment after this date.
(5) Stated rate of LIBOR plus 1.00% plus amortization of deferred loan costs.
(6) Stated rate of LIBOR plus 1.40% plus amortization of deferred loan costs.
As of March 31, 1999, the Company had $145.0 million available under the
Unsecured Line of Credit and $5.1 million available under the Revolving Line of
Credit.
Derivatives and Market Risk
- ---------------------------
The Company is exposed to market risk from changes in interest rates on its
indebtedness, which could impact its financial condition and results of
operations. The Company manages its exposure to these market risks through its
regular operating and financing activities. The Company manages its ratio of
fixed to floating rate debt with the objective of achieving a mix that
management believes is appropriate. The Company has and may from time to time
in the future enter into interest rate swap agreements in which it agrees to
exchange combinations of fixed and/or variable interest rates on agreed upon
notional amounts. Effective as of March 31, 1999, the Company had one interest
rate swap agreement as described below. Management does not foresee or expect
any significant changes in its exposure to interest rate fluctuations or in how
such exposure is managed in the near future. The Company intends to use
derivative financial instruments as risk management tools and not for
speculative or trading purposes. Under the terms of the Company's interest rate
swap agreement, the Company pays a fixed rate of 6.48% and receives a variable
rate equal to the rate for the one-month LIBOR rate based on the notional amount
in the contract of $50.0 million. The maturity date of the swap agreement is
January 1, 2001.
Future Sources and Uses of Funds
- --------------------------------
As of March 31, 1999, the Company, Development Company and affiliated
entities had 41 projects under construction which are expected to add
approximately 3.3 million square feet of gross leasable area which the Company
expects to own. Of this 3.3 million square feet, the Company expects to place
approximately 1.3 million square feet into operations during the remainder of
1999. Of these projects under construction, 14 are located in Georgia, five
each in North Carolina and Tennessee, four in Florida, three in Kentucky, and
two each in Alabama, Pennsylvania and Texas. Of the total square feet
12
<PAGE>
under construction, 68.8% is either leased or committed to be leased by
retailers. Additional funding needed to complete the construction of these
projects is estimated to be $146.9 million.
Management expects to fund the remaining costs of its current development
projects and the costs of any future development projects or acquisitions with a
combination of one or more of the following:
. advances under the unsecured lines of credit;
. additional issuances of securities under the Medium-Term Notes Program;
. issuances of common or preferred stock;
. issuances of debt securities;
. issuances of limited partnership units in DownREIT structures;
. advances under secured financings;
. advances under term loans with financial institutions;
. proceeds from asset sales or tax deferred exchanges;
. proceeds from the contribution of assets to one or more joint ventures in
which the Company, Development Company or affiliated entities
participate.
The Company is currently negotiating a joint venture with an institutional
investor which could provide up to $200.0 million in capital to the Company.
Under the proposed terms, the Company would contribute a pool of existing
shopping centers and shopping centers under construction to the joint venture
and retain an ownership interest in the joint venture. The Company is in the
preliminary stages of structuring one or more transactions of this nature and
there can be no assurance that any such transactions will be consummated.
The Company is also currently negotiating the acquisition of a real estate
development and property management company in the Denver, Colorado area. Under
the proposed term of this transaction, Development Company, through a newly
formed wholly-owned subsidiary, would acquire 100% of the outstanding stock of
the target company for cash consideration of approximately $1.0 million. The
Company expects this acquisition to close in May 1999; however, there can be no
assurance that this transaction will be consummated.
In order for the Company to continue to qualify as a REIT, it must annually
distribute to its shareholders at least 95% of its taxable income. Management
believes that the Company will meet this requirement in 1999 with cash generated
by operating activities. In addition, management believes that cash generated
by operating activities will be adequate to fund improvements to the Company's
shopping center properties, leasing costs and scheduled debt amortization in
1999.
In order to meet the Company's long-term liquidity requirements, management
anticipates that the Company's cash from operating activities will continue to
increase as a result of new developments, redevelopments, acquisitions and
improved operations at existing centers. These activities should enable the
Company to make its distributions to shareholders, maintain and improve its
properties, make scheduled debt payments and obtain debt or equity financing for
its development, redevelopment and acquisition projects. With the exception of
three amortizing mortgage loans totaling $33.1 million, all of the Company's
debt requires balloon payments in the future. The Revolving Line of Credit
matures in 1999; a mortgage note payable of $24.1 million matures in 2001; the
Unsecured Line of Credit matures in 2001; the Term Loan matures in 2002; the
MOPPRS are subject to mandatory tender in 2003; a mortgage note payable of $6.3
million matures in 2003; the Seven Year Notes mature in 2004; the Ten Year Notes
mature in 2007; and a mortgage note payable of $5.1 million matures in 2009.
Management intends to refinance or repay these maturing debt instruments with
proceeds from other sources of capital at or prior to their respective
maturities. Management will evaluate various alternatives and select the best
options based on market conditions at the time. Management expects to seek
additional equity financing when market conditions are favorable in order to
maintain its debt-to-total-market-capitalization ratio within acceptable limits.
There can be no assurance that debt or equity markets will
13
<PAGE>
be favorable in the future, and unfavorable markets could limit the Company's
ability to grow its business or repay or refinance maturing debt.
Certain Federal Income Tax Considerations
On April 28, 1999, the Real Estate Investment Trust Modernization Act of
1999 (the "RMA"), H.R. 1616, was introduced in the House of Representatives.
The RMA contains certain provisions that, if enacted, would significantly modify
the REIT-related provisions of the Internal Revenue Code of 1986, as amended
(the "Code"). In addition to the provisions that may directly affect the
Company (discussed in detail below), the RMA also contains provisions related to
the following: (i) special foreclosure rules for healthcare REITs; (ii)
clarification of the definition of independent contractors and (iii)
modification of the earnings and profits rules.
Taxable REIT Subsidiaries
- -------------------------
Under the RMA, a REIT would be permitted to operate taxable REIT
subsidiaries through which the REIT could provide "non-customary" and other
currently prohibited services with respect to REIT tenants and other customers.
Many REITs, including the Company, currently own interests in subsidiaries,
which conduct such activities. The RMA would prohibit new investments in such
subsidiaries by limiting a REIT's ownership in these subsidiaries to 10% of
voting stock or 10% of the value of the subsidiaries. A REIT would be allowed
to retain its current ownership in such a subsidiary as long as the subsidiary
does not engage in a substantial new line of business or acquire any substantial
asset. The RMA provides a three year period during which an existing subsidiary
may be converted, tax-free, into a taxable REIT subsidiary. The value of the
stock of all taxable REIT subsidiaries, as well as any grandfathered
subsidiaries, would be limited, along with other non-real estate assets, to 25%
of the value of the REIT's total assets. The RMA would also limit the
deductibility of intercompany interest between a REIT and its taxable REIT
subsidiaries (similar to the "earnings stripping" rules of Code Section 163(j))
and impose a 100% tax on non-arms length payments (a safe harbor for which is
provided in the RMA) between a taxable REIT subsidiary and its affiliated REIT
or that REIT's tenants.
Distribution Requirements
- -------------------------
Currently, in order to continue to maintain its qualification as a REIT, a
REIT is required to distribute annually 95% of its REIT taxable income. The RMA
would reduce the required distribution from 95% to 90% for taxable years
beginning after the date of enactment of the RMA.
If Congress enacts the provision related to taxable REIT subsidiaries, the
ownership structure of Development Company would likely be restructured as a
taxable REIT subsidiary. Management believes that, if the RMA is enacted in its
current form, the activities conducted by Development Company would not change
materially. For financial reporting purposes, the Company would likely change
its accounting for Development Company from the equity method to the
consolidated method. Management does not believe, however, that these changes
would modify the way the Company conducts its business, nor would they have a
material effect on the results of operations or financial condition of the
Company.
Introduction of the RMA represents only the first step in a complicated
legislative process. At this time, it is uncertain whether Congress will enact
any or all of these provisions or additional provisions.
14
<PAGE>
Year 2000 Readiness Disclosure
Like most businesses, the Company is reliant upon technology to operate and
manage its business. Many computer systems process dates using two digits to
identify the year, and some systems are unable to properly process dates
beginning with the year 2000. As a result of this potential problem, the
Company began to assess its exposure to this issue in 1997. As a result of its
ongoing assessment, the Company believes that it has identified all of its
information technology ("IT") and non-IT systems with exposure to the Year 2000
problem. The Company's critical IT systems include, but are not limited to,
accounting and reporting applications and all IT hardware, such as desktop
computers, laptop computers and data networking equipment. The Company's
critical non-IT systems include, but are not limited to, telephone systems, fax
machines, copy machines as well as HVAC systems at the Company's properties.
All of the Company's accounting and reporting software has been purchased from
third-party vendors. The Company has requested and received certifications from
its third-party vendors that all of its critical IT software is Year 2000
compliant. The Company is currently in the process of determining its exposure
to any critical non-IT systems that are not Year 2000 compliant and will develop
a contingency plan if one becomes necessary.
The Company is undergoing an IT systems needs assessment unrelated to Year
2000 issues which may result in new accounting and reporting hardware and
software being installed. The Company will ensure that all newly installed
hardware and software are Year 2000 compliant.
The Company cannot ensure that various third parties with which it deals
will be Year 2000 compliant. Failure of various third parties such as banks,
significant tenants and vendors to adequately address the Year 2000 problem
could have an adverse impact on the Company's business. This impact could
include the inability of the Company's banks to process receipt or disbursement
of checks for a period of time, the inability to receive payments from its
significant tenants for a period of time and the inability of its vendors to
provide services or materials to complete its development projects on time and
within budget. The Company has reviewed publicly available information on the
Year 2000 readiness of its banks and significant tenants and, based solely on a
review of this information, has noted nothing indicating their failure to be
Year 2000 compliant in all material respects. The Company is not aware of any
other significant suppliers or vendors with a Year 2000 issue that would
materially impact the Company's results of operations, liquidity or capital
resources. There can be no assurances, however, that the systems of other
companies on which the Company relies will be timely converted and would not
have an adverse effect on the Company's systems. The Company will continue to
monitor the state of Year 2000 readiness of these and other significant third
parties, and will develop a contingency plan if one becomes necessary.
The Company believes it has an effective program in place that will resolve
the Year 2000 issues in a timely manner. Aside from catastrophic failure of
banks, utility companies or governmental agencies, the Company believes that it
could continue its normal business operations even if compliance by the Company
or its vendors, suppliers and customers is delayed. Aside from a catastrophic
failure that would affect most businesses, the Company does not believe that the
Year 2000 issue will materially impact its results of operations, liquidity or
capital resources.
Historic costs of addressing and solving the Company's Year 2000 problems
have not been, and estimated costs are not expected to be, material.
Inflation
The Company's leases generally contain provisions designed to mitigate the
adverse impact of inflation on net income. These provisions include clauses
enabling the Company to pass through to tenants certain operating costs,
including real estate taxes, common area maintenance, utilities and insurance,
thereby reducing the Company's exposure to increases in costs and operating
expenses resulting from inflation. Certain of the Company's leases contain
clauses enabling the Company to receive percentage rents based on tenants' gross
sales, which generally increase as prices rise, and, in
15
<PAGE>
certain cases, escalation clauses, which generally increase rental rates during
the terms of the leases. In addition, many of the Company's non-anchor leases
are for terms of less than ten years, which permits the Company to seek
increased rents upon re-leasing at higher market rates.
16
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
During the three months ended March 31, 1999, there were no material
changes to the quantitative and qualitative disclosures about market risks
presented in the Company's Annual Report on Form 10-K for the year ended
December 31, 1998.
17
<PAGE>
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
12 Statement re: Computation of Ratio of Earnings to Fixed
Charges
27 Financial Data Schedule
(b) Reports on Form 8-K
During the three months ended March 31, 1999, the Company filed
the following reports on Form 8-K:
(i) Form 8-K dated January 13, 1999 containing Terms Agreement
with BT Alex. Brown Incorporated (the "Underwriter")
relating to the sale by the Company to the Underwriter of
500,000 shares of the Company's Common Stock, par value $.01
per share, at a price of $22.25 per share.
(ii) Form 8-K dated February 4, 1999 containing additional
operational information of the Company for the three months
and year ended December 31, 1998.
18
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
May 13, 1999 /s/ J. Donald Nichols
- ------------ ---------------------
(Date) J. Donald Nichols
Chief Executive Officer
May 13, 1999 /s/ William J. Kerley
- ------------ ---------------------
(Date) William J. Kerley
Senior Vice President and Chief Financial Officer
19
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number Exhibit
- ------ -------
12 Statement re: Computation of Ratio of Earnings to Fixed Charges
27 Financial Data Schedule
20
<PAGE>
JDN Realty Corporation
Computation of Ratio of Earnings to Fixed Charges
Exhibit 12
- ----------
Three months ended
March 31,
1999 1998
------- -------
Fixed Charges:
Interest Expense (including
amortization of deferred debt cost) $ 6,358 $ 3,355
Interest Capitalized 1,474 1,304
------- -------
Total Fixed Charges $ 7,832 $ 4,659
======= =======
Earnings:
Net (loss) before income tax benefit,
net gain (loss) on real estate sales
extraordinary items and
cumulative effect of change in
accounting principle $12,151 $ 9,112
Fixed Charges 7,832 4,659
Capitalized Interest (1,474) (1,304)
------- -------
Total Earnings $18,509 $12,467
======= =======
Ratio of Earnings to Fixed Charges 2.36 2.68
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998
<PERIOD-START> JAN-01-1999 JAN-01-1998
<PERIOD-END> MAR-31-1999 MAR-31-1998
<CASH> 0 0
<SECURITIES> 0 0
<RECEIVABLES> 8,133 4,373
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 0 0
<PP&E> 884,585 646,669
<DEPRECIATION> 61,264 41,719
<TOTAL-ASSETS> 1,023,627 730,562
<CURRENT-LIABILITIES> 0 0
<BONDS> 334,589 234,526
0 0
20 0
<COMMON> 332 310
<OTHER-SE> 527,840 438,114
<TOTAL-LIABILITY-AND-EQUITY> 1,023,627 730,562
<SALES> 0 0
<TOTAL-REVENUES> 25,690 17,046
<CGS> 0 0
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 11,239 7,110
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 3,817 1,812
<INCOME-PRETAX> 12,151 9,112
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 12,151 9,112
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 10,979 9,112
<EPS-PRIMARY> 0.33 0.32
<EPS-DILUTED> 0.33 0.31
</TABLE>
