<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 June 30, 2000
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 001-12844
----------------------
JDN REALTY CORPORATION
--------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Maryland 58-1468053
------------------------------- ---------------------------------
(State or other Jurisdiction of I.R.S. Employer Identification No.
Employer Identification No.)
incorporation or organization)
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 July 31, 2000, 32,840,659 shares of the Registrant's Common Stock,
$.01 par value, were outstanding.
<PAGE>
FORWARD-LOOKING STATEMENTS IN FORM 10-Q
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. Forward-looking statements
include, for example, statements regarding JDN Realty Corporation's liquidity,
the availability of capital resources, capital expenditures, continuing
relationships with tenants and vendors, and litigation. Forward-looking
statements are, by their nature, subject to known and unknown risks and
uncertainties. Among the factors that could cause actual results to differ
materially from those anticipated are the following: changes in the composition
of senior management and the Board of Directors described in this report and in
JDN Realty Corporation's Annual Report on Form 10-K for the year ended December
31, 1999; any additional future changes in the composition of senior management
and the Board of Directors; a decrease in the number of development assignments
from Wal-Mart and Lowe's; the ability to attract and retain key employees; the
impact of restated financial statements, in JDN Realty Corporation's Annual
Report on Form 10-K for the year ended December 31, 1999 and in JDN Realty
Corporation's Quarterly Report on Form 10-Q for the quarter ended March 31,
2000; any future default under any of JDN Realty Corporation's or JDN
Development Company, Inc.'s bank credit facilities and the impact of special
terms and conditions of such facilities, including the reduced availability and
increased interest costs thereunder; business conditions and the general
economy, especially as they affect interest rates and value-oriented retailers;
the federal, state and local regulatory environment; the ability to refinance
maturing debt obligations on acceptable terms; the availability of debt and
equity capital with acceptable terms and conditions including, without
limitation, the availability of bank credit to fund development activities; the
ability to sell operating shopping center properties and parcels of land on
schedule and upon economically favorable terms; the availability of partners for
joint venture projects and the ability to negotiate favorable joint venture
terms; the availability of new development opportunities; changes in the
financial condition or corporate strategy of or business relations with primary
retail tenants, in particular those of Wal-Mart and Lowe's; the outcome and
costs of pending litigation and investigations; the ability to fund, complete
and lease existing development and redevelopment projects on schedule and within
budget; tax legislation affecting the development business of JDN Realty
Corporation and JDN Development Company, Inc.; and the ability of JDN Realty
Corporation to maintain its qualification as a REIT. Other risks, uncertainties
and factors that could cause actual results to differ materially from those
projected are detailed from time to time in press releases and reports filed by
JDN Realty Corporation with the Securities and Exchange Commission, including
Forms 8-K, 10-Q and 10-K. For example, see "Risk Factors" under Item 1 of the
Company's Annual Report on Form 10-K for the year ended December 31, 1999.
1
<PAGE>
PART I
FINANCIAL INFORMATION
<TABLE>
<CAPTION>
ITEM 1. FINANCIAL STATEMENTS
Page No.
--------
<S> <C>
Condensed Consolidated Balance Sheets - June 30, 2000 and December 31, 1999 3
Condensed Consolidated Statements of Income - Three Months Ended June 30, 2000
and 1999 4
Condensed Consolidated Statements of Income - Six Months Ended June 30, 2000
and 1999 5
Condensed Consolidated Statements of Cash Flows - Six Months Ended June 30,
2000 and 1999 6
Notes to Condensed Consolidated Financial Statements 7
</TABLE>
2
<PAGE>
JDN REALTY CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
-------------- ---------------
(Unaudited)
(In thousands)
<S> <C> <C>
ASSETS
Shopping center properties held for use in operations, at cost:
Land $ 190,775 $ 189,506
Buildings and improvements 585,720 644,089
-------------- ---------------
776,495 833,595
Less: accumulated depreciation and amortization (68,490) (69,321)
-------------- ---------------
Shopping center properties held for use in operations, net 708,005 764,274
Shopping center properties under development 70,236 104,609
Shopping center properties held for sale 63,726 22,463
-------------- ---------------
Total shopping center properties 841,967 891,346
Cash and cash equivalents 3,705 2,076
Proceeds receivable from deferred exchange -- 40,476
Rents receivable 8,396 10,272
Investments in and advances to unconsolidated entities 237,487 154,438
Deferred costs, net of amortization 6,339 5,099
Other assets 13,285 13,088
-------------- ---------------
$ 1,111,179 $ 1,116,795
============== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Unsecured notes payable $ 234,666 $ 234,635
Lines of credit and term loan 247,000 235,000
Mortgage notes payable 99,339 101,247
Accounts payable and accrued expenses 12,067 16,328
Other liabilities 6,683 9,500
-------------- ---------------
Total liabilities 599,755 596,710
Third party investors' interest 3,505 4,256
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
2000 and 1999, respectively 20 20
Common stock, par value $.01 per share -
authorized 150,000,000 shares, issued and outstanding
32,568,417 and 33,401,468 shares in 2000 and 1999, respectively 326 334
Paid-in capital 510,602 518,504
Accumulated deficit (3,029) (3,029)
-------------- ---------------
507,919 515,829
-------------- ---------------
$ 1,111,179 $ 1,116,795
============== ===============
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
3
<PAGE>
JDN REALTY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended June 30,
2000 1999
---------- ------------
(restated)
(In thousands)
Revenues:
Minimum and percentage rents $ 23,423 $ 22,805
Recoveries from tenants 2,853 3,133
Other revenue -- 2
---------- ------------
Total revenues 26,276 25,940
Operating expenses:
Operating and maintenance 1,931 1,907
Real estate taxes 1,532 1,741
General and administrative 2,111 1,873
Corporate investigation and legal costs 760 --
Depreciation and amortization 5,553 5,498
---------- ------------
Total operating expenses 11,887 11,019
---------- ------------
Income from operations 14,389 14,921
Other income (expense):
Interest expense, net (6,896) (4,141)
Other income, net 252 348
Equity in net income of unconsolidated
entities 1,210 1,026
---------- ------------
Income before minority interest in net
income of consolidated subsidiaries and
net gain on real estate sales 8,955 12,154
Minority interest in net income of
consolidated subsidiaries (42) (55)
---------- ------------
Income before net gain on real estate sales 8,913 12,099
Net gain on real estate sales 1,691 --
---------- ------------
Net income 10,604 12,099
Dividends to preferred shareholders (1,172) (1,172)
---------- ------------
Net income attributable to common
shareholders $ 9,432 $ 10,927
========== ============
Net income per common share:
Basic $ 0.29 $ 0.33
========== ============
Diluted $ 0.29 $ 0.32
========== ============
Dividends per common share $ 0.300 $ 0.395
========== ============
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
4
<PAGE>
JDN REALTY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30,
2000 1999
---------- ----------
(restated)
(In thousands)
<S> <C> <C>
Revenues:
Minimum and percentage rents $ 46,485 $ 45,273
Recoveries from tenants 5,947 6,345
Other revenue -- 12
-------- --------
Total revenues 52,432 51,630
Operating expenses:
Operating and maintenance 4,137 4,063
Real estate taxes 3,073 3,378
General and administrative 4,203 4,040
Corporate investigation and legal costs 2,250 --
Impairment losses on shopping centers held for sale 1,289 --
Depreciation and amortization 10,957 10,777
-------- --------
Total operating expenses 25,909 22,258
-------- --------
Income from operations 26,523 29,372
Other income (expense):
Interest expense, net (12,638) (8,118)
Other income, net 509 768
Equity in net income of unconsolidated entities 1,877 2,114
-------- --------
Income before minority interest in net income of
consolidated subsidiaries and net gain on real estate sales 16,271 24,136
Minority interest in net income of consolidated subsidiaries (138) (105)
-------- --------
Income before net gain on real estate sales 16,133 24,031
Net gain on real estate sales 8,529 --
-------- --------
Net income 24,662 24,031
Dividends to preferred shareholders (2,344) (2,344)
-------- --------
Net income attributable to common shareholders $ 22,318 $ 21,687
======== ========
Net income per common share:
Basic $ 0.69 $ 0.66
======== ========
Diluted $ 0.69 $ 0.65
======== ========
Dividends per common share $ 0.695 $ 0.755
======== ========
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
5
<PAGE>
JDN REALTY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30,
2000 1999
------------- -------------
(In thousands)
<S> <C> <C>
Net cash provided by operating activities $ 27,526 $ 31,800
Cash flows from investing activities:
Development of shopping center properties (13,052) (66,938)
Improvements to shopping center properties (3,745) (1,012)
Investments in and advances to unconsolidated entities (81,923) (25,340)
Proceeds from real estate sales 56,607 --
Other (1,276) 1,008
--------- ---------
Net cash used in investing activities (43,389) (92,282)
Cash flows from financing activities:
Proceeds from lines of credit 117,996 422,405
Proceeds from mortgages and notes payable -- 39,454
Principal payments on lines of credit (105,996) (382,968)
Principal payments on mortgages and notes payable (1,336) (587)
Proceeds from issuance of common shares, net of
underwriting commissions and offering expenses -- 11,165
Repurchases of common stock (6,843) --
Distributions paid to preferred shareholders (2,344) (2,344)
Distributions paid to common shareholders (22,791) (25,094)
Proceeds from deferred exchange of properties 40,476 --
Other (1,670) (1,549)
--------- ---------
Net cash provided by financing activities 17,492 60,482
--------- ---------
Increase in cash and cash equivalents 1,629 --
Cash and cash equivalents, beginning of period 2,076 --
--------- ---------
Cash and cash equivalents, end of period $ 3,705 $ --
========= =========
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
6
<PAGE>
JDN REALTY CORPORATION
Notes to Condensed Consolidated Financial Statements
(Unaudited)
June 30, 2000
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, necessity item retailers. As of June 30, 2000, the
Company's operating shopping centers and development projects were located in 20
states. The Company has elected to be taxed as a real estate investment trust
("REIT").
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, 1999 has been
derived from the audited consolidated financial statements at that date.
Operating results for the three and six month periods ended June 30, 2000 are
not necessarily indicative of the results that may be expected for the year
ending December 31, 2000 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, 1999.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition. On June 26, 2000, the Securities and Exchange
Commission (the "SEC") released Staff Accounting Bulletin No. 101B which
deferred the effective date of Staff Accounting Bulletin No. 101 ("SAB 101"),
Revenue Recognition, until the fourth quarter of 2000. SAB 101 requires that
lessors cannot recognize contingent rent as income until the contingency is
resolved. The Company's percentage rental income related to tenant sales meets
this definition. Presently, the Company estimates and recognizes such revenues,
which are based on tenants achieving certain sales thresholds, when the
thresholds are met or achievement of the sales threshold is probable. The
Company will record a cumulative effect adjustment in the fourth quarter of 2000
upon adoption of SAB 101.
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% (90% after December 31, 2000) 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.
7
<PAGE>
4. SPECIAL COMMITTEE INVESTIGATION
In February 2000, the Company announced that it had discovered undisclosed
compensation arrangements with two executive officers of the Company, both of
whom were also officers of JDN Development Company, Inc. ("JDN Development"),
additional unauthorized benefits to these same two executive officers, and
undisclosed related party transactions involving these two officers and the
former chairman and Chief Executive Officer of the Company. As a result of this
discovery, a special committee of the Board of Directors (the "Special
Committee") was formed to, among other things, conduct an inquiry into these
matters.
The undisclosed compensation arrangements and unauthorized benefits were
not recorded or disclosed in the Company's or JDN Development's accounting
records and previously issued financial statements as of and for the years ended
December 31, 1994 through 1998. As a result, the Company restated its financial
statements for the years ended December 31, 1994 through 1998. In addition, the
Company restated its quarterly results for each quarter in 1998 and for the
first three quarters of 1999. The restatements reflect additional expenses in
the Company or JDN Development at the time of the compensation or unauthorized
benefit. These amounts also changed the gains or losses on subsequent sales at
the projects involved; such changes are included in the restated financial
statements.
A summary of the findings of the Special Committee, which has concluded its
investigation, is included in the Company's Annual Report on Form 10-K for the
year ended December 31, 1999.
Four executive officers of the Company resigned in the first and second
quarters of 2000. During the first and second quarters of 2000, the Company and
JDN Development recorded the forfeiture of unvested restricted stock of these
four executive officers effective on their termination dates. During the second
quarter of 2000, the Company and JDN Development executed severance agreements
with these four executive officers.
The costs of the investigation and other related litigation are being
expensed as incurred. The Company and JDN Development have expensed $2.3 million
and $665,000, respectively, in the six months ended June 30, 2000.
See Note 5 for discussion of the related impact to the Company's credit
agreements.
The following is a reconciliation of net income previously reported to
restated net income.
8
<PAGE>
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, 1999 June 30, 1999
---------------------- ---------------------
(In thousands)
<S> <C> <C>
Net income as previously reported $ 12,325 $ 24,476
Adjustment to equity in net income of:
JDN Development Company, Inc. (59) (118)
Other (167) (327)
---------------------- ---------------------
Net income - restated 12,099 24,031
Dividends to preferred shareholders (1,172) (2,344)
---------------------- ---------------------
Net income attributable to common
shareholders - restated $ 10,927 $ 21,687
====================== =====================
Income per share - basic
Net income as previously reported $ 0.34 $ 0.67
Effect of restated net income (0.01) (0.01)
---------------------- ---------------------
Net income attributable to common
shareholders - restated $ 0.33 $ 0.66
====================== =====================
Income per share - diluted
Net income as previously reported $ 0.33 $ 0.66
Effect of restated net income (0.01) (0.01)
---------------------- ---------------------
Net income attributable to common
shareholders - restated $ 0.32 $ 0.65
====================== =====================
</TABLE>
5. CREDIT AGREEMENTS
As a result of the unrecorded and undisclosed transactions discussed
in Note 4 above, it was determined that the Company had breached certain non-
financial and non-operating covenants contained in its $200.0 million unsecured
line of credit (the "Revolving Line of Credit") and $100.0 million term loan
(the "Term Loan") (collectively the "Credit Agreements"). On March 2, 2000, the
Company entered into a Continued Funding Agreement and an Interim Agreement with
the bank groups which suspended the breach of these covenants and permitted the
Company to access credit on an unsecured basis under the Revolving Line of
Credit from February 14, 2000 until these agreements expired on April 14, 2000.
The Company's $20.0 million swing line of credit was terminated effective April
14, 2000. The Company incurred fees of $531,000 in the first quarter of 2000
related to the Continued Funding Agreement and the Interim Agreement and
recorded these fees as deferred loan costs. These fees were amortized in the
first and second quarters of 2000.
From April 15, 2000 to May 23, 2000, the Company was in default under
the Credit Agreements and incurred interest at the default rate, which ranged
from 11.0% to 11.5% during that period. On May 23, 2000, the Company entered
into a Second Amended and Restated Credit Agreement (the "Secured Line of
Credit") and an Amended and Restated Term Loan Agreement (the "Secured Term
Loan"), each effective as of May 19, 2000 (the Secured Line of Credit and the
Secured Term Loan collectively referred to herein as the "Secured Credit
Agreements"). Significant changes in the Secured Line of Credit as compared to
the Revolving Line of Credit include the following:
. Reduced maximum borrowings allowed from $200.0 million to $175.0
million;
. Changed the maturity date from May 2002 to June 2001;
. Changed the facility from unsecured to secured;
. Increased the borrowing rate from LIBOR plus 1.15% to LIBOR plus
2.50% once certain post-closing conditions are met, and LIBOR
plus 2.25% thereafter;
9
<PAGE>
. Increased the facility fee payable quarterly from .15% to .35% of the
maximum loan amount;
. Increased the limit on the ratio of Consolidated Liabilities to Gross
Asset Value from 55% to 60%, and deleted the covenants limiting the
ratios of Unencumbered Assets to Total Unsecured Funded Debt and
Unsecured NOI to Unsecured Interest Expense; all as defined; and
. Further restricted the Company's ability to pay distributions to
shareholders.
The Secured Term Loan amended the Term Loan to, among other things,
increase the borrowing rate from LIBOR plus 1.40% to LIBOR plus 2.50% (reduces
to LIBOR plus 2.25% once certain post-closing conditions are met), change the
maturity date from February 2002 to June 2001 and change the facility from
unsecured to secured.
The Secured Credit Agreements provide that the loans thereunder will be
secured by first priority security interests in the Borrowing Base Properties,
as defined in the Secured Credit Agreements. The Borrowing Base Properties
consist of 50 properties valued at approximately $450.6 million. Generally, each
Borrowing Base Property must maintain occupancy and leasing percentages of 80%
or higher and in the aggregate 60% of the value of the Borrowing Base Properties
(based upon a 10% capitalization rate on annualized Net Operating Income, as
defined) must be equal to or exceed the "Commitments", as defined in the Secured
Credit Agreements.
The Company has agreed in the Secured Credit Agreements not to purchase or
finance the purchase of its common or preferred equity securities (except, in
the case of its common stock, as may be required to fund employee benefit plans
in the ordinary course of business or to satisfy the requirements of stock
option plans) or debt securities, or to make any voluntary prepayment of such
debt securities other than with proceeds of the sale of shopping center
properties not included in the Borrowing Base Properties. In addition, the
Secured Credit Agreements restrict the amount of distributions to common and
preferred shareholders to 100% of REIT taxable income, as defined in the Code,
for the year ended December 31, 2000 and to 95% of REIT taxable income for the
year ended December 31, 2001. The Company paid the banks up-front fees of $1.8
million in connection with the Secured Credit Agreements. The Company also
incurred $497,000 in costs to secure the Borrowing Base Properties. These fees
and costs were recorded as deferred financing costs in the second quarter of
2000 with the related amortization to be recorded over the life of the Secured
Credit Facilities. In addition, in the second quarter of 2000, the Company wrote
off $159,000 in unamortized deferred financing costs related to the Revolving
Line of Credit as a result of the modifications.
6. SHOPPING CENTER DISPOSITIONS
During the second quarter of 2000, the Company sold the following shopping
center properties:
10
<PAGE>
Location Disposition Company GLA Sales Price
Location Date (square feet)
---------------------------------------------------------------------------
Cordele, Georgia 5/22/00 26,350 $ 2,100,000
Cumming, Georgia (1) 6/6/00 202,847 12,857,579
Buford, Georgia (1) 6/28/00 205,330 13,606,552
-------------- ------------
434,527 $ 28,564,131
============== ============
(1) Sale of only the Wal-Mart at this location. These sales prices are before
a $1.8 million reduction negotiated as a part of the tenant settlement described
in Note 2 to the consolidated financial statements filed in the Company's Annual
Report on Form 10-K for the year ended December 31, 1999. This reduction was
accrued and expensed in 1999 as part of the tenant settlement.
7. CONTINGENCIES
Since the Company's announcement of the undisclosed compensation
arrangements and unauthorized transactions described in Note 4, a number of
class action lawsuits have been filed against the Company. One or more of these
suits also names as defendants JDN Development and certain current and former
officers and directors of JDN Development and/or the Company.
The class actions filed in federal court allege violations of the
federal securities laws and allege, that by failing to report the undisclosed
compensation, unauthorized benefits and related party transactions to the public
in the Company's financial statements, public filings, and otherwise, the
defendants made or participated in making material misstatements or omissions
which caused the plaintiffs to purchase the Company's stock at artificially
inflated prices. The plaintiffs seek compensatory damages of an indeterminate
amount, interest, attorneys' fees, experts' fees and other costs and
disbursements. The federal class actions have now been consolidated and are
pending in the United States District Court for the Northern District of
Georgia.
A class action lawsuit was also filed by the Company's shareholders
against the Company, JDN Development, and four former officers and directors of
these companies in the Superior Court of Fulton County, Georgia. The complaint
contains substantially the same factual allegations asserted in the federal
class actions, but purports to seek relief under state law. The complaint
contains claims of common law fraud, conversion and purported violations of
Georgia's Racketeer Influenced and Corrupt Organizations Act. In that action,
the plaintiffs seek compensatory and punitive damages, attorneys' fees and
expenses, interest and equitable relief. The case has been removed to federal
court, and the Company and JDN Development have moved to consolidate the case
with the other class actions. The plaintiffs have moved to remand the case to
state court, and are opposing consolidation.
Two lawsuits were filed in July 2000 against the Company as a nominal
defendant, as well as individual defendants J. Donald Nichols, Elizabeth L.
Nichols, Craig Macnab, Philip G. Satre, William G. Byrnes, Haywood D. Cochrane,
Jr., William B. Greene, Jeb L. Hughes, C. Sheldon Whittelsey, IV and William J.
Kerley in the United States District Court for the Northern District of Georgia,
Atlanta Division. Each of these individuals are current or former executives or
directors of the Company or JDN Development. The plaintiffs purport to bring
these suits as derivative actions. The complaints allege that the individual
defendants, from 1994 through 1999, violated certain duties in connection with
the previously undisclosed compensation arrangements. The complaints also allege
claims for breach of fiduciary duty, abuse of control, waste of corporate
assets, unjust enrichment and gross mismanagement. The plaintiffs, on behalf of
the Company, seek injunctive relief, compensatory and punitive damages and
disgorgement of all profits and gains by the individual defendants.
The Company believes that it has meritorious defenses to the claims
brought in the federal and state class action lawsuits, but there can be no
assurance that such defenses will be successful or that the lawsuits will not
have a material adverse effect on the Company's financial position, results of
operations and cash flows. In addition, the timing of the final resolution of
these proceedings is uncertain.
The Company may also be subject to regulatory proceedings initiated by
the SEC or other regulatory agencies. The Company has voluntarily produced
11
<PAGE>
certain documents and other information regarding the compensation arrangements,
unauthorized benefits and related party transactions discussed in Part 1 of this
report, and the Company is cooperating with the SEC in responding to this
request. Regulatory agencies and self-regulatory organizations such as the SEC,
the New York Stock Exchange, the Internal Revenue Service and state tax
authorities may seek to impose fines, penalties or other remedies against the
Company. The imposition of any such fines, penalties or other remedies could
have a material adverse impact on the Company.
In an unrelated lawsuit, on February 2, 2000, Dogwood Drive LLC,
("Dogwood") filed suit against the Company and WHF, Inc. ("WHF"), a wholly-owned
subsidiary of JDN Development which, until April 1999, owned a 72% interest in
Dogwood and served as the operating member of the entity. The suit was filed in
the Superior Court of Gwinnett County, Georgia. The complaint asserts, among
other things, breach of fiduciary duty against WHF and improper receipt of funds
by the Company. The Company believes that it and WHF have meritorious defenses
to the claims and intends to vigorously defend the suit.
On April 28, 2000, Lake Lucerne Estates Civic Club, Inc., a nonprofit
homeowners association located in Gwinnett County, Georgia, and a number of
individual plaintiffs, filed suit against JDN Development, Lowe's Companies,
Inc. and Haygood Contracting, Inc. The suit was filed in the Superior Court of
Fulton County, Georgia. The complaint asserts trespass, nuisance and negligence
against JDN Development in connection with the development of a shopping center
anchored by Lowe's. JDN Development has filed defensive pleadings denying
liability, and discovery is now being conducted by both sides.
The Company is from time to time a party to other legal proceedings which
arise in the ordinary course of its business. The Company is not currently
involved in any litigation in addition to the lawsuits described above, the
outcome of which would, in management's judgement based on information currently
available, have a material adverse effect on the results of operations or
financial condition of the Company nor is management aware of any such
litigation threatened against the Company.
12
<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):
JDN Realty Corporation
EPS Footnote
<TABLE>
<CAPTION>
Three months ended June 30, Six months ended June 30,
2000 1999 2000 1999
------------------------------------------------------------------------------------------------------------------------------
(restated) (restated)
<S> <C> <C> <C> <C>
Numerator:
Net income $ 10,604 $ 12,099 $ 24,662 $ 24,031
Dividends to preferred shareholders (1,172) (1,172) (2,344) (2,344)
-------------- ------------ ------------ -----------
Net income attributable to
common shareholders $ 9,432 $ 10,927 $ 22,318 $ 21,687
============== ============ ============ ===========
Denominator:
Weighted-average shares outstanding 32,737 33,239 32,853 33,106
Unvested restricted stock outstanding (420) (83) (533) (93)
-------------- ------------ ------------ -----------
Denominator for basic earnings
per share 32,317 33,156 32,320 33,013
Dilutive effect of stock options and
unvested restricted stock 113 523 75 505
-------------- ------------ ------------ -----------
Denominator for diluted earnings
per share 32,430 33,679 32,395 33,518
============== ============ ============ ===========
Net income per common share:
Basic $ 0.29 $ 0.33 $ 0.69 $ 0.66
============== ============ ============ ===========
Diluted $ 0.29 $ 0.32 $ 0.69 $ 0.65
============== ============ ============ ===========
</TABLE>
Of total options outstanding, options to purchase 1,267,921 and 93,000
shares of common stock for the three months ended June 30, 2000 and 1999,
respectively, were outstanding but were not included in the computation of
diluted earnings per share because the options' exercise prices were higher than
the average market price of the common shares. Therefore, the effect of these
options on earnings per share would be antidilutive.
The Company is the general partner in a limited partnership that issued
limited partnership units initially 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. As of June 30, 2000,
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.
13
<PAGE>
9. SUBSEQUENT EVENT
In July 2000, Elizabeth L. Nichols announced her resignation as a
Director of the Company effective August 20, 2000 and as President of the
Company effective September 1, 2000. The Company and Ms. Nichols entered into a
separation agreement that, among other things, terminated her employment
agreement and provided for the following: cash payments totaling approximately
$2.0 million; immediate vesting of 137,318 shares of unvested restricted stock
previously issued under the 1998 Deferred Bonus Plan and the 1999 Long-Term
Incentive Plan; forfeiture of 225,000 options to purchase common stock of the
Company at $20.75 per share; and extension of the expiration date to June 30,
2001 of 240,208 options to purchase common stock of the Company at amounts
ranging from $13.50 to $14.67 per share.
Amounts related to this separation agreement will be recorded as
expenses in the third quarter of 2000.
14
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Overview
JDN Realty Corporation is a real estate company which specializes in
the development and asset management of retail shopping centers anchored by
value-oriented, necessity item retailers. When referred to herein, the term
"Company" represents JDN Realty Corporation and its wholly owned or majority-
owned subsidiaries. As of June 30, 2000, the Company and JDN Development
Company, Inc. ("JDN Development") owned and operated, either directly or
indirectly through affiliated entities, 114 shopping center properties
containing approximately 12.3 million square feet of gross leasable area
("Company GLA") located in 18 states, with the highest concentrations in
Georgia, North Carolina, and Tennessee. The principal tenants of the Company's
and JDN Development's properties include Wal-Mart, Lowe's, and Kroger. As of
June 30, 2000, no single property accounted for 10% or more of the combined
total assets or total revenues of the Company and JDN Development. As of June
30, 2000, the Company and JDN Development, either directly or indirectly through
affiliated entities or joint ventures, had 34 projects under construction. The
Company was incorporated under Maryland law in 1993 and has elected to be
treated as a real estate investment trust ("REIT") for federal income tax
purposes.
JDN Development was formed in December 1994 to engage primarily in the
development of shopping center properties. JDN Development was initially
structured such that the Company owned 99% of the economic interest while J.
Donald Nichols, the Company's former Chief Executive Officer, owned the
remaining 1% of the economic interest and controlled JDN Development's
operations and activities through his voting common stock ownership. On May 19,
2000, Mr. Nichols sold his voting common stock in JDN Development to W. Fred
Williams, President of JDN Development.
Because it is not a REIT, JDN Development may engage in certain
activities in which the Company cannot engage, such as sales of all or portions
of development projects and third-party fee development. Because of recent
legislation amending the tax laws applicable to REITs, the ownership structure
of JDN Development and the manner in which the Company conducts its development
business may change significantly before April 30, 2001. See "Federal Income Tax
Legislative Developments" below.
As of June 30, 2000, the Company had invested $4.0 million in JDN
Development in the form of equity capital, $124.3 million in the form of secured
notes receivable and $56.3 million in the form of unsecured advances. As of June
30, 2000, the Company guaranteed one loan of JDN Development in the amount of
approximately $3.5 million. The loan is secured by property owned by JDN
Development and is due in September 2000.
Results of Operations
Comparison of the Three Months Ended June 30, 2000 to the Three Months Ended
June 30, 1999
During 2000 and 1999, the Company began operations at 35 properties
which it developed totaling 2.8 million square feet (the "Development
Properties"). During 2000 and 1999, the Company disposed of 11 properties
totaling 2.1 million square feet (the "Disposition Properties"). As indicated
below, the Company's results of operations were affected by the Development
Properties and the Disposition Properties.
Minimum and percentage rents increased $618,000 or 2.7% to $23.4
million for the three months ended June 30, 2000 from $22.8 million for the same
period in 1999. Minimum and percentage rents increased by $3.7 million as a
result of the Development Properties. This increase is offset by a $3.0 million
decrease related to the Disposition Properties. The remaining decrease relates
to a decrease in minimum and percentage rents at existing properties.
Recoveries from tenants decreased $280,000 or 9.0% to $2.9 million for
the three months ended June 30, 2000 from $3.1 million for the same period in
1999. Recoveries from tenants increased by
15
<PAGE>
$270,000 as a result of the Development Properties. This increase is offset by a
$252,000 decrease related to the Disposition Properties. The remaining decrease
relates to net decreases in recoveries from tenants at existing properties
caused by net decreases in recoverable expenses.
Operating and maintenance expenses increased $24,000 or 1.3% to $1.9
million for the three months ended June 30, 2000 from $1.9 million for the same
period in 1999. Operating and maintenance expenses increased by $137,000 as a
result of the Development Properties. This increase is offset by a $145,000
decrease related to the Disposition Properties. The remaining increases are a
result of increased operating and maintenance expenses at existing properties.
Real estate taxes decreased $209,000 or 12.0% to $1.5 million for the
three months ended June 30, 2000 from $1.7 million for the same period in 1999.
Real estate taxes increased by $166,000 as a result of the Development
Properties. This increase is offset by a $140,000 decrease related to the
Disposition Properties. The remaining decrease relates to reductions in real
estate taxes at existing properties.
General and administrative expenses increased $238,000 or 12.7% for the
three months ended June 30, 2000 over the same period in 1999. General and
administrative expenses as a percent of minimum and percentage rents increased
to 9.0% for the three months ended June 30, 2000 from 8.2% for the same period
in 1999. The increase in general and administrative expenses as a percentage of
minimum and percentage rents is a result of a reduction in capitalized costs
related to development projects.
Corporate investigation and legal costs incurred during the three
months ended June 30, 2000 of $760,000 represent the accounting and legal costs
incurred by the Company primarily as a result of the Special Committee
investigation. For more information regarding the investigation by the Special
Committee, see Note 4 in Item 1 of this report.
Depreciation and amortization expense increased $56,000 or 1.0% to
$5.6 million for the three months ended June 30, 2000 from $5.5 million for the
same period in 1999. Depreciation and amortization increased by $775,000 as a
result of the Development Properties. This increase is offset by a $750,000
decrease related to the Disposition Properties. The remaining increase primarily
relates to the amortization of computer software.
Interest expense, net of capitalized amounts, increased $2.8 million or
66.5% to $6.9 million for the three months ended June 30, 2000 from $4.1 million
for the same period in 1999. This increase results from an increase in average
debt balances between 2000 and 1999, an increase in interest rates on the
Company's lines of credit and term loan and an increase in amortization of
deferred loan costs (see Note 5 in Item 1 of this report).
Other income, net decreased $96,000 or 27.5% to $252,000 for the three
months ended June 30, 2000 from $348,000 for the same period in 1999. This
decrease results primarily from the write-off of deferred costs related to the
modification of the Company's Credit Agreements (see Note 4 in Item 1 of this
report).
Equity in net income of unconsolidated entities increased $184,000 or
17.9% to $1.2 million for the three months ended June 30, 2000 from $1.0 million
for the same period in 1999. This increase results primarily from an increase in
net gains on land sales by JDN Development, offset by other unusual items as
follows (amounts are before tax effect): $1.1 million in write off of abandoned
projects, $1.2 million in impairment losses, $904,000 in income from the
severance agreements and other amounts related to the resignation of four
executive officers, and $665,000 in costs related to the special committee's
investigation and lawsuits.
Minority interest in net income of consolidated subsidiary decreased
$13,000 or 23.6% to $42,000 for the three months ended June 30, 2000 from
$55,000 for the same period in 1999. This decrease results from a decrease in
net income allocated to the third-party investors in a consolidated limited
partnership.
Net gain on real estate sales for the three months ended June 30, 2000
of $1.7 million represents a gain on the sale of three shopping center
properties.
16
<PAGE>
Comparison of the Six Months Ended June 30, 2000 to the Six Months Ended June
30, 1999
Minimum and percentage rents increased $1.2 million or 2.7% to $46.5
million for the six months ended June 30, 2000 from $45.3 million for the same
period in 1999. Minimum and percentage rents increased by $7.4 million as a
result of the Development Properties. This increase is offset by a $5.6 million
decrease related to the Disposition Properties. The remaining decrease relates
primarily to adjustments in the six months ended June 30, 1999 to the allowance
for doubtful accounts which had the effect of increasing minimum and percentage
rents during that period.
Recoveries from tenants decreased $398,000 or 6.3% to $5.9 million for
the six months ended June 30, 2000 from $6.3 million for the same period in
1999. Recoveries from tenants increased by $452,000 as a result of the
Development Properties. This increase is offset by a $531,000 decrease related
to the Disposition Properties. The remaining decrease relates to net decreases
in recoveries from tenants at existing properties caused by net decreases in
recoverable expenses.
Operating and maintenance expenses increased $74,000 or 1.8% to $4.1
million for the six months ended June 30, 2000 from $4.1 million for the same
period in 1999. Operating and maintenance expenses increased by $339,000 as a
result of the Development Properties. This increase is offset by a $258,000
decrease related to the Disposition Properties. The remaining decrease is a
result of decreased operating and maintenance expenses at existing properties.
Real estate taxes decreased $305,000 or 9.0% to $3.1 million for the
six months ended June 30, 2000 from $3.4 million for the same period in 1999.
Real estate taxes increased by $222,000 as a result of the Development
Properties. This increase is offset by a $318,000 decrease related to the
Disposition Properties. The remaining decrease relates to reductions in real
estate taxes at existing properties.
General and administrative expenses increased $163,000 or 4.0% for the
six months ended June 30, 2000 over the same period in 1999. General and
administrative expenses as a percent of minimum and percentage rents increased
slightly to 9.0% for the six months ended June 30, 2000 from 8.9% for the six
months ended June 30, 1999.
Corporate investigation costs incurred during the six months ended June
30, 2000 of $2.3 million represent the accounting and legal costs incurred by
the Company primarily as a result of the Special Committee investigation. For
more information regarding the investigation by the Special Committee, see Note
4 in Item 1 of this report.
Impairment losses on shopping centers held for sale for the six months
ended June 30, 2000 of $1.3 million represent charges to record shopping centers
held for sale to their estimated fair value less costs to sell.
Depreciation and amortization expense increased $180,000 or 1.7% to
$11.0 million for the six months ended June 30, 2000 from $10.8 million for the
same period in 1999. Depreciation and amortization increased by $1.5 million as
a result of the Development Properties. This increase is offset by a $1.4
million decrease related to the Disposition Properties. The remaining increase
primarily relates to the amortization of computer software.
Interest expense, net of capitalized amounts, increased $4.5 million or
55.7% to $12.6 million for the six months ended June 30, 2000 from $8.1 million
for the same period in 1999. This increase results from an increase in average
debt balances between 2000 and 1999, an increase in interest rates on the
Company's lines of credit and term loan and an increase in amortization of
deferred loan costs (see Note 5 in Item 1 of this report).
Other income, net decreased $259,000 or 33.7% to $509,000 for the six
months ended June 30, 2000 from $768,000 for the same period in 1999. This
decrease results primarily from the write-off of deferred costs related to the
modification of the Company's Credit Agreements (see Note 4 in Item 1 of this
report).
Equity in net income of unconsolidated entities decreased $237,000 or
11.2% to $1.9 million for the six months ended June 30, 2000 from $2.1 million
for the same period in 1999. This decrease results
17
<PAGE>
primarily from a decrease in net gains on land sales by JDN Development offset
by other unusual items as follows (amounts are before tax effect): $1.1 million
in write off of abandoned projects, $1.2 million in impairment losses, $929,000
in income from the severance agreements and other amounts related to the
resignation of the four executive officers, and $665,000 in costs related to the
Special Committee's investigation and lawsuits.
Minority interest in net income of consolidated subsidiary increased
$33,000 or 30.1% to $138,000 for the six months ended June 30, 2000 from
$105,000 for the same period in 1999. This increase results from an increase in
net income allocated to the third-party investors in a consolidated limited
partnership.
Net gain on real estate sales for the six months ended June 30, 2000 of
$8.5 million represents gains on the sale of six shopping center properties.
Tenant Settlement
In April 2000, the Company announced the discovery of discrepancies in
cost and other information underlying certain leases and real estate sales
agreements with the Company's two largest tenants, Wal-Mart and Lowe's
(collectively, the "Major Anchor Tenants"). The Company, JDN Development and the
Major Anchor Tenants entered into an Estoppel and Release on May 23, 2000 (the
"Settlement Agreement") which settled potential claims resulting from these
discrepancies. Material terms of the Settlement Agreement include the following:
. The Company, JDN Development and the Major Anchor Tenants
reaffirmed the terms of all existing leases without modification,
restatement or adjustment;
. The Company, JDN Development and the Major Anchor Tenants
reaffirmed all previously consummated real estate sales
transactions without modification, restatement or adjustment; and
. The Company and JDN Development agreed to pay the Major Anchor
Tenants an aggregate of $10.0 million, $5.0 million to each of
the Major Anchor Tenants.
As an inducement to enter into the Settlement Agreement, JDN
Development agreed to pay an additional $350,000 to Lowe's. As a further
inducement to enter into the Settlement Agreement, the Company and JDN
Development agreed to reduce the aggregate selling price by $2.75 million of
three Supercenters which the Company and JDN Development intended to sell to
Wal-Mart. All of these Supercenter sales closed in June 2000.
On May 23, 2000, the Company and JDN Development paid $10.4 million in
cash to the Major Anchor Tenants as a result of the Settlement Agreement.
The Company and JDN Development accrued and expensed the costs
associated with the Settlement Agreement in the fourth quarter of 1999. Of the
$13.1 million in costs of the Settlement Agreement, the Company incurred $5.6
million, which was included in settlement expenses on the Company's statement of
income, and JDN Development incurred $7.5 million before income tax effect,
which was included in equity in net income of unconsolidated entities on the
Company's statement of income.
Separation Agreements
During the second quarter of 2000, the Company entered into separation
agreements with William J. Kerley and J. Donald Nichols related to their
respective resignations. The Company recorded expenses associated with these
agreements in the amount of approximately $400,000. These amounts
18
<PAGE>
were included in general and administrative expenses in the statement of income.
JDN Development recorded expenses associated with these agreements in the amount
of $175,000. In connection with the resignations of Mr. Kerley and Mr. Nichols,
the Company recorded as income previously expensed amounts associated with
unvested shares of restricted stock which were forfeited by these individuals
pursuant to their separation agreements. These amounts decreased general and
administrative expenses by approximately $356,000.
During the second quarter of 2000, the Company and JDN Development
entered into a separation agreement with Jeb L. Hughes and C. Sheldon
Whittelsey, IV related to their respective resignations. Pursuant to the terms
of this agreement, Messrs. Hughes and Whittelsey forfeited all unvested shares
of restricted stock and conveyed land to JDN Development valued at approximately
$888,000. In addition, JDN Development recorded as income approximately $191,000
of previously expensed amounts associated with the forfeiture of restricted
stock.
During the third quarter of 2000, the Company entered into a
separation agreement with Elizabeth L. Nichols related to the announcement of
her resignation as Director and President of the Company. The Company will
record amounts associated with this separation agreement, which include cash
payments of approximately $2.0 million and the value of 137,318 shares of
restricted stock which vest upon her resignation, in the third quarter of 2000.
Funds From Operations
Funds from operations ("FFO") is defined by the National Association
of Real Estate Investment Trusts, Inc. ("NAREIT") 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, to incur and service debt, 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.
The Company has presented below the calculation of FFO for the periods
indicated:
19
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended June 30,
(In thousands) 2000 1999
------------------ ------------------
(restated)
<S> <C> <C>
Net income attributable to common shareholders $ 9,432 $ 10,927
Depreciation of real estate assets 5,155 5,183
Amortization of tenant allowances and tenant improvements 57 53
Amortization of deferred leasing commissions 132 127
Net gain on real estate sales (1,691) --
Adjustments related to activities in unconsolidated entities (2,145) 197
---------------- -----------------
FFO $ 10,940 $ 16,487
================ =================
Six Months Ended June 30,
2000 1999
------------------ ------------------
(restated)
Net income attributable to common shareholders $ 22,318 $ 21,687
Depreciation of real estate assets 10,234 10,156
Amortization of tenant allowances and tenant improvements 116 104
Amortization of deferred leasing commissions 252 250
Impairment losses on shopping centers held for sale 1,289 --
Net gain on real estate sales (8,529) --
Adjustments related to activities in unconsolidated entities (1,959) 436
---------------- -----------------
FFO $ 23,721 $ 32,633
================ =================
</TABLE>
In October 1999, NAREIT approved the recommendations of its Best
Financial Practices Council with respect to clarifying the definition of FFO.
According to these recommendations, effective January 1, 2000, FFO should
include all operating results, both recurring and non-recurring, except those
results defined as "extraordinary items" under GAAP and gains and losses from
sales of depreciable operating property. Examples of non-recurring items
include, but are not limited to, the following:
. gains and losses on derivative and hedging arrangements;
. costs of abandoned transactions;
. provisions for potential losses, other than those related to
depreciable operating property;
. merger integration and REIT conversion costs;
. costs of unusual compensation or severance arrangements; and
. debt restructuring costs (except those defined as "extraordinary"
under GAAP).
The Company has historically calculated FFO consistent with the new
definition of FFO. Therefore, the Company does not expect the new definition of
FFO to have a material effect on its historical or prospective reporting of FFO.
Leasing and Property Information
As of June 30, 2000, Lowe's, Wal-Mart and Kroger represented 17.6%,
8.4% and 3.0%, respectively, of the combined annualized base rent of the
Company, JDN Development and affiliated entities (collectively, "Combined
Annualized Base Rent"). In addition, at that date, anchor tenants represented
45.4% of Combined Annualized Base Rent and national and regional tenants
represented 85.1% of Combined Annualized Base Rent. As of June 30, 2000,
properties owned and operated by the Company, JDN Development and affiliated
entities were 95.8% leased.
As of June 30, 2000, the Company, JDN Development and affiliated
entities operated in 18 states. Shopping center properties located in Georgia,
North Carolina and Tennessee represented 39.7%, 8.3%, and 12.0%, respectively,
of Combined Annualized Base Rent.
20
<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, term debt,
secured mortgage notes payable, debt offerings, equity offerings and selected
shopping center sales. The Company's primary uses of funds have historically
been development, redevelopment and acquisition of shopping center properties,
distributions to shareholders, repayment of outstanding indebtedness, repurchase
of common stock, 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, term debt, secured mortgage
notes payable, debt and equity offerings and shopping center sales to repay
outstanding indebtedness, to repurchase common stock and to fund its ongoing
development, redevelopment and acquisition activities .
During the first six months of 2000, the Company incurred $13.1
million in development costs and advanced $81.9 million to JDN Development and
unconsolidated development partnerships to fund their development activities. To
fund this development activity, the Company sold all or portions of six shopping
centers for net proceeds of approximately $56.6 million. In addition, the
Company utilized approximately $40.5 million of the proceeds being held by a
qualified intermediary in connection with a deferred exchange which qualifies
under Section 1031 of the Code to fund its development activities.
In November 1999, the Company announced that its Board of Directors
had authorized the repurchase of up to 3.0 million shares of its outstanding
common stock. The Company has, however, discontinued this common stock
repurchase program (see discussion of the Secured Credit Agreements below).
During the first quarter of 2000, the Company repurchased a total of 423,500
shares for approximately $6.8 million at an average price of approximately
$16.13 per share under this program before it was discontinued.
21
<PAGE>
Indebtedness
------------
As of June 30, 2000, the Company's indebtedness consisted of the
following:
<TABLE>
<CAPTION>
Effective Percent
Principal Interest Maturity of Total Months to
Balance Rate Date Indebtedness Maturity
---------- -------- -------- ------------ ---------
(in thousands)
<S> <C> <C> <C> <C> <C>
Fixed Rate
----------
Mortgage note payable - Denver, Colorado $ 22,374 6.81% 17-Jul-01 3.8% 13
MandatOry Par Put Remarketed Securities ("MOPPRS")(1) 75,000 6.58% (2) 31-Mar-03 12.9% 33
Mortgage note payable - Richmond, Kentucky 6,065 7.75% (3) 01-Dec-03 1.0% 41
Seven Year Notes 74,855 7.10% (2) 01-Aug-04 12.9% 49
Ten Year Notes 84,811 7.23% (2) 01-Aug-07 14.6% 85
Mortgage note payable - Milwaukee, Wisconsin 4,649 7.75% 01-Aug-09 0.8% 109
Mortgage note payable - Jackson, Mississippi 6,783 9.25% (4) 01-Mar-17 1.2% 200
Mortgage note payable - Marietta, Georgia 10,876 7.66% (2) 15-Nov-17 1.9% 209
Mortgage note payable - Lilburn, Georgia 12,610 6.70% (2) 10-Feb-16 2.2% 212
Mortgage note payable - Woodstock, Georgia 11,857 6.55% (2) 15-Apr-18 2.0% 214
Mortgage note payable - Hendersonville, Tennessee 10,677 7.66% (2) 15-Jan-19 1.8% 223
Mortgage note payable - Alpharella, Georgia 13,448 6.62% (2) 15-Apr-19 2.3% 226
---------- ------ ----- ---
334,005 7.07% 57.5% 86
Floating Rate
-------------
Term Loan 100,000 10.44% (5) 14-Jun-01 17.2% 11
Revolving Line of Credit 147,000 10.26% (5) 14-Jun-01 25.3% 11
---------- ------ ------ ---
247,000 10.33% 42.5% 11
---------- ------ ------ ---
$ 581,005 8.46 100.0% 54
========== ====== ====== ===
</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 of 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) Represents stated rule of LIBOR plus 2.50% plus amortization of deferred
loan cost.
As a result of the unrecorded and undisclosed transactions described in
Note 4 to Item 1 of this report, it was determined that the Company had breached
certain non-financial and non-operating covenants contained in the Revolving
Line of Credit and the Term Loan (collectively the "Credit Agreements"). On
March 2, 2000, the Company entered into a continued funding agreement and an
interim agreement with the bank groups which suspended the breach of these
covenants and permitted the Company to access credit on an unsecured basis under
the Revolving Line of Credit from February 14, 2000 until these agreements
expired on April 14, 2000.
From April 15, 2000 to May 23, 2000, the Company was in default under the
Credit Agreements and incurred interest at the default rate, which from 11.0% to
11.5% during the period. On May 23, 2000, the Company closed a Second Amended
and Restated Credit Agreement (the "Secured Line of Credit") and an Amended and
Restated Term Loan Agreement (the "Secured Term Loan"), each effective as of May
19, 2000 (the Secured Line of Credit and the Secured Term Loan collectively
referred to herein as the "Secured Credit Agreement"). Significant changes in
the Secured Line of Credit as compared to the Revolving Line of Credit include
the following:
. Reduced maximum borrowings allowed from $200.0 million to $175.0 million;
. Changed the maturity date from May 2002 to June 2001;
. Changed the facility from unsecured to secured;
22
<PAGE>
. Increased the borrowing rate from LIBOR plus 1.15% to LIBOR plus 2.50%
once certain post-closing conditions are met, and LIBOR plus 2.25%
thereafter;
. Increased the facility fee payable quarterly from .15%
to .35% of the maximum loan amount;
. Increased the limit on the ratio of Consolidated Liabilities to Gross
Asset Value from 0.55:1.00 to 0.60:1.00, and deleted the covenants
limiting the ratios of Unencumbered Assets to Total Unsecured Funded
Debt and Unsecured NOI to Unsecured Interest Expense; and
. Further restricted the Company's ability to pay distributions to
shareholders.
The Secured Term Loan amended the Term Loan to, among other things,
increase the borrowing rate from LIBOR plus 1.40% to LIBOR plus 2.50% (reduces
to LIBOR plus 2.25% once certain post-closing conditions are met), change the
maturity date from February 2002 to June 2001 and change the facility from
unsecured to secured.
The Secured Credit Agreements provide that the loans thereunder will be
secured by first priority security interests in the Borrowing Base Properties,
as defined in the Secured Credit Agreements. The Borrowing Base Properties
consist of 50 properties valued at approximately $450.6 million. Generally, each
Borrowing Base Property must maintain occupancy and leasing percentages of 80%
or higher and in the aggregate 60% of the value of the Borrowing Base Properties
(based upon a 10% capitalization rate on annualized Net Operating Income, as
defined) must be equal to or exceed the "Commitments", as defined in the Secured
Credit Agreements.
The Company has agreed in the Secured Credit Agreements not to purchase or
finance the purchase of its common or preferred equity securities (except, in
the case of its common stock, as may be required to fund employee benefit plans
in the ordinary course of business or to satisfy the requirements of stock
option plans) or debt securities, or to make any voluntary prepayment of such
debt securities other than with proceeds of the sale of shopping center
properties not included in the Borrowing Base Properties. In addition, the
Secured Credit Agreements restrict the amount of distributions to common and
preferred shareholders to 100% of REIT taxable income, as defined in the Code,
for the year ended December 31, 2000 and to 95% of REIT taxable income for the
year ended December 31, 2001. The Company paid the banks up-front fees of $1.8
million in connection with the Secured Credit Agreements and incurred $497,000
in costs to secure the Borrowing Base Properties.
Future Sources and Uses of Funds
--------------------------------
During July 2000, the Company closed the sale of a Wal-Mart Supercenter for
gross proceeds of approximately $13.7 million. The Company used these proceeds
to reduce amounts outstanding on its Revolving Line of Credit and to fund its
ongoing development projects.
As of July 31, 2000, the Company, JDN Development and affiliated entities
had 34 projects under construction. In addition, the Company and JDN Development
intend to commence construction during the remainder of 2000 on approximately
seven additional projects. The Company expects that the capital required to fund
the future costs of these 41 projects, net of construction reimbursements and
land sales to retailers who will build and own their space in these shopping
centers, is approximately $117.9 million. As of July 31, 2000, the Company had
$51.0 million available under its Secured Line of Credit.
The Company believes that it will be unable to fund any of these remaining
costs with issuances of unsecured debt, public issuances of common stock or
preferred stock as a result of, among other things, unfavorable capital markets
for the foreseeable future. Because of the delay in filing the Company's Annual
Report on Form 10-K for the year ended December 31, 1999, and the delay in
filing its Form 10-Q for the three months ended March 31, 2000, the Company is
not currently eligible to issue securities under its existing shelf registration
statement on Form S-3 or to utilize Form S-3 for any future securities issuances
until it has made timely filings of periodic reports with the SEC for at least
twelve months. In addition, the Company's medium-term note program has been
terminated. Therefore, even if capital markets were to become more favorable for
the issuance of securities, public issuances of debt or equity securities would
be more costly and require additional time to consummate.
Furthermore, the Company is limited on the amount of secured debt
outstanding at any given time to 40% of its Adjusted Total Assets, as defined in
the applicable indenture. As of June 30, 2000, the
23
<PAGE>
Company's ratio of secured debt to Adjusted Total Assets was 28.8%. Therefore,
the Company has only a limited ability to fund its development projects with
proceeds from secured indebtedness.
The Company and JDN Development expect to fund the majority of the
remaining amounts of their development projects from the sale of all or portions
of operating shopping center properties. As of July 31, 2000, the Company
and JDN Development have been negotiating the sale of all or portions of 10
shopping centers with an aggregate net book value of approximately $61.9 million
for estimated aggregate proceeds of approximately $70.9 million. Seven of these
properties include the sale of a Wal-Mart Supercenter, a Lowe's store or both.
The Company expects the remaining properties to be sold in the third and fourth
quarters of 2000. The closing of these transactions is dependent upon, among
other things, completion of due diligence and the ability of some of the
purchasers to successfully obtain financing. Therefore, there can be no
assurance that any of these transactions will close when expected or at all, nor
can there be any assurance that, if closed, the transactions will produce
sufficient liquidity to enable the Company to fund the remaining amounts of its
development projects. In addition, as a part of its normal development process,
the Company and JDN Development expect to sell various outparcels of land at its
centers.
The Company is in the process of engaging a financial advisor to assist in
the identification of alternative sources of capital to fund its development
projects. These alternative means could include, for example, the formation of
joint ventures with institutional investors or other partners with available
capital at attractive rates.
If the Company is unsuccessful in raising capital adequate to fund its
development activities, it would be required to discontinue the funding of some
or all of its projects and would be required to liquidate some or all of its
projects on potentially unfavorable terms. These unfavorable terms could result
in significant losses upon liquidation and would have an adverse impact on
future rental income, funds from operations and the Company's ability to
continue the level of its current dividend payment to holders of the Company's
common stock.
In order for the Company to continue to qualify as a REIT, it must annually
distribute to its shareholders at least 95% (or 90% after December 31, 2000) of
its taxable income (excluding any net capital gains). Management believes that
the Company will be able to meet this requirement in 2000 with cash provided by
operating activities. In addition, management believes that cash provided by
operating activities will be adequate to fund improvements to the Company's
shopping center properties, leasing costs and scheduled debt amortization in
2000.
As a result of the undisclosed compensation and the related party
transactions described in Note 4 to Item 1 of this report, the Company is
subject to, and may become subject to additional, legal proceedings, and may
also become the subject of governmental regulatory proceedings. These
proceedings may result in liabilities, fines, penalties or other remedies that,
if material in amount could adversely affect the Company's liquidity and reduce
its capital resources.
As of June 30, 2000, the Company's debt requires the following payments in
the future:
24
<PAGE>
(Dollars in thousands)
Percent of Debt
Year Total Expiring
-----------------------------------------------------------------------------
2000 $ 1,407 0.2%
2001 270,557 46.6%
2002 1,476 0.3%
2003 81,786 14.1%
2004 76,289 13.1%
2005 1,539 0.3%
2006 1,655 0.3%
2007 86,592 14.9%
2008 1,919 0.3%
2009 1,823 0.3%
2010 1,834 0.3%
Thereafter 54,128 9.3%
----------- -------------
$ 581,005 100.0%
=========== =============
A significant portion of the Company's debt matures in June 2001.
Management anticipates beginning the process for refinancing these obligations
in the second half of 2000. With respect to its other maturing obligations,
management will evaluate various alternatives and select the best available
options based on market conditions at the time. There can be no assurance,
however, that the debt or equity capital markets will be favorable or available
in the future, and unfavorable or unavailable markets could limit the Company's
ability to continue to operate its business as it has in the past, complete
development projects or repay or refinance maturing debt.
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 or interest rate cap
agreements in an attempt to hedge its exposure to increasing interest rates.
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.
As of June 30, 2000, the Company had one interest rate swap agreement and
one interest rate cap agreement as described below:
25
<PAGE>
<TABLE>
<CAPTION>
Effective Termination
Description of Agreement Notional Amount Strike Price Date Date
------------------------ --------------- ------------ --------- -----------
<S> <C> <C> <C> <C>
LIBOR, 30-day "Rate Cap" $ 100,000,000 6.500% 8/21/99 (1) 8/21/00
LIBOR, 30-day "Rate Swap" $ 50,000,000 6.485% 2/11/97 1/1/01
</TABLE>
(1) The Company paid a one-time $88,000 fee.
The Company's future earnings, cash flows and fair values of financial
instruments are primarily dependent upon market rates of interest such as LIBOR.
Contingencies
See Part II, Item 1 "Legal Proceedings" of this report for a discussion
of contingencies related to ongoing legal proceedings involving the Company.
The Company expects to incur legal and professional fees during the year
ended December 31, 2000 in amounts significantly in excess of those incurred in
previous years as a result of the litigation noted above and as a result of the
special committee's investigation. The Company records these expenses as they
are incurred. For the period from January 1, 2000 to June 30, 2000, the Company
and JDN Development have expensed approximately $2.9 million in legal and
professional fees related to the special committee's investigation and class
action lawsuits. The Company cannot reasonably predict, with any degree of
certainty, the additional legal and professional fees which will be incurred
related to the litigation, the special committee's investigation, or any other
related investigation by the SEC, the New York Stock Exchange, Internal Revenue
Service or any other regulatory body.
Federal Income Tax Legislative Developments
The Ticket to Work and Work Incentives Improvement Act of 1999, which
included the Tax Relief Extension Act of 1999 (the "Act"), was recently enacted
and contains several provisions affecting REITs. The new provisions are
generally not effective until January 1, 2001 and significantly modify the REIT-
related provisions of the Code. In addition to the provisions that may directly
affect the Company (discussed below), the Act 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.
See "Federal Income Tax and ERISA Considerations" filed as an Exhibit to
the Company's Annual Report on Form 10-K for the year ended December 31, 1999.
Investment Limitations
----------------------
The Act modifies the REIT asset test by adding a requirement that except
for (i) "Safe Harbor Debt" and (ii) the ownership of stock in "taxable REIT
subsidiaries," a REIT cannot own more than 10 percent of the total value of the
securities of any corporation. "Safe Harbor Debt" is non-contingent, non-
convertible debt ("straight debt") which satisfies one of the following three
requirements: (a) the straight debt is issued by an individual, (b) all of the
securities of the issuer owned by the REIT is "straight debt" or (c) the issuer
is a partnership in which the REIT owns at least 20% of the partnership's
profits.
Taxable REIT Subsidiaries
-------------------------
A REIT will be permitted to operate a "taxable REIT subsidiary" which can
provide a limited amount of services to tenants and other customers of the REIT
(even if such services were not considered customarily furnished in connection
with the rental of real property) and can manage or operate
26
<PAGE>
properties, generally for third parties, without causing the rents received by
the REIT from such parties not to be treated as rent from real properties. Many
REITs, including the Company, currently own interests in subsidiaries which
conduct such activities. The new provisions prohibit new investments in such
subsidiaries by limiting a REIT's ownership in these subsidiaries to 10% of
voting securities and 10% of the value of the subsidiaries. Grandfather
protection is provided with respect to the 10% value test for securities of a
corporation held by a REIT on July 12, 1999. However, such protection would
cease to apply to securities of a corporation if such corporation after July 12,
1999 engages in a substantial new line of business or acquires any substantial
asset, other than in a reorganization or in a transaction qualifying under
Section 1031 or 1033 of the Code, and also ceases to apply after the acquisition
of additional securities of the corporation by the REIT after July 12, 1999. The
Act provides a three-year period, beginning January 1, 2001, during which an
existing grandfathered subsidiary may be converted, tax-free, into a taxable
REIT subsidiary.
The value of the securities of all taxable REIT subsidiaries, as well as
any grandfathered subsidiaries, cannot exceed 20% of the total value of the
REIT's assets. In addition, interest paid by a taxable REIT subsidiary to the
related REIT is subject to the earnings stripping rules contained in Section
163(j) of the Code and therefore the taxable REIT subsidiary cannot deduct
interest in any year that would exceed 50% of the subsidiary's adjusted gross
income. If any amount of interest, rent, or other deductions of the taxable REIT
subsidiary to be paid to the REIT is determined not to be at arm's length, an
excise tax of 100% is imposed on the portion that is determined to be excessive.
However, rent received by a REIT will not fail to qualify as rents from real
property by reason of the fact that all or any portion of such rent is
predetermined for purposes of the excise tax.
The Company has made no decision at this time with regard to any actions it
may take relating to the investment limitations and taxable REIT subsidiary
provisions of the Act. However, because the Company currently has an economic
interest in JDN Development which is more than 10% of JDN Development's value,
the Company will have to restructure the ownership of JDN Development or JDN
Development must elect to be a taxable REIT subsidiary of the Company on or
before April 30, 2001.
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
(excluding net capital gain). The Act reduces the required distribution from 95%
to 90% effective for taxable years beginning after December 31, 2000. The
Secured Credit Agreements restrict the Company's ability to pay cash
distributions.
Rents from Personal Property
----------------------------
A REIT may treat rent from personal property as rent from real property so
long as the rent from personal property does not exceed 15% of the total rent
from both real and personal property for the taxable year. This rule is
currently determined by comparing the basis of the personal property to the
total basis of the real and personal property. The Act provides that this
determination will be made by comparing the fair market value of the personal
property to the fair market value of the real and personal property.
Budget Proposals
----------------
In February 2000, the Clinton Administration announced its proposals for
the fiscal year 2001 federal budget. The REIT provisions of the proposed budget
would (i) provide an additional requirement that an entity will not qualify as a
REIT if one person, including an entity, directly or constructively owns stock
possessing 50% or more of the voting power or value of the REIT's stocks, and
(ii) generally extend the 4% excise tax on delayed distributions by REITs to
cases where the REIT timely distributes less than 98% of its ordinary income or
capital gain net income for a taxable year. The excise tax does not currently
apply if the REIT timely distributes at least 85% of its ordinary income and 95%
of its capital gain net income.
27
<PAGE>
It cannot be predicted whether, when, in what form, or with what effective
dates other legislative proposals applicable to the Company or its shareholders
will become law.
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 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.
28
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
During the six months ended June 30, 2000, 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, 1999.
29
<PAGE>
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Litigation
On February 14, 2000, the Company announced that it had discovered certain
undisclosed compensation arrangements and related party transactions, which were
not accurately recorded in the accounting records of JDN Development and the
Company and were not accurately recorded or disclosed in the audited financial
statements of the Company as of and for the years ended December 31, 1994
through 1998.
Since the Company's announcement on February 14, 2000, a number of class
action lawsuits have been filed against the Company in federal and state court.
One or more of these suits also names as defendants JDN Development and certain
current and former officers and directors of JDN Development and/or the Company,
including Jeb L. Hughes, C. Sheldon Whittelsey, IV, J. Donald Nichols, Elizabeth
L. Nichols, William J. Kerley, Leilani L. Jones, Craig Macnab and Haywood D.
Cochrane, Jr.
The class actions filed in federal court allege violations of the federal
securities laws and allege that, by failing to report the undisclosed
compensation, unauthorized benefits and related party transactions to the public
in the Company's financial statements, public filings, and otherwise, the
defendants made or participated in making material misstatements or omissions
which caused the plaintiffs to purchase the Company's stock at an artificially
inflated price. The plaintiffs seek compensatory damages of an indeterminate
amount, interest, attorneys' fees, experts' fees and other costs and
disbursements. The federal class actions have now been consolidated and are
pending in the United States District Court for the Northern District of
Georgia.
A class action lawsuit was also filed by the Company's shareholders against
the Company, JDN Development and four former officers and directors of these
companies (Jeb L. Hughes, C. Sheldon Whittelsey, IV, J. Donald Nichols and
William J. Kerley) in the Superior Court of Gwinnett County, Georgia. The
complaint contains substantially the same factual allegations asserted in the
federal class actions, but purports to seek relief under state law. The
complaint contains claims of common law fraud, conversion and purposed
violations of Georgia's Racketeer Influenced and Corrupt Organizations Act. In
that action, the plaintiffs seek compensatory and punitive damages, attorneys'
fees and expenses, interest and equitable relief. The case has now been removed
to federal court, and the Company and JDN Development have moved to consolidate
the case with the other class actions. The plaintiffs have moved to remand the
case to state court, and are opposing consolidation.
Another class action lawsuit has been filed by several individual holders
of the Company's preferred stock against J. Donald Nichols and Elizabeth L.
Nichols, alleging violations of the federal securities laws. The Company and JDN
Development have not been named as defendants in this lawsuit, which is pending
in the United States District Court for the Middle District of Tennessee.
Two lawsuits were filed in July 2000 against the Company as a nominal
defendant, as well as individual defendants J. Donald Nichols, Elizabeth L.
Nichols, Craig Macnab, Philip G. Satre, William G. Byrnes, Haywood D. Cochrane,
Jr., William B. Greene, Jeb L. Hughes, C. Sheldon Whittelsey, IV and William J.
Kerley in the United States District Court for the Northern District of Georgia,
Atlanta Division. The Plaintiffs purport to bring the suit as a derivative
action. The complaints allege that the individual defendants, from 1994 through
1999, violated certain duties in connection with the previously undisclosed
compensation arrangements. The complaints also allege claims for breach of
fiduciary duty, abuse of control, waste of corporate assets, unjust enrichment
and gross mismanagement. The plaintiffs, on behalf of the Company, seek
injunctive relief, compensatory and punitive damages and disgorgement of all
profits and gains by the individual defendants.
The Company believes that it has meritorious defenses to the claims brought
against it in the federal and state class action lawsuits, but there can be no
assurance that such defenses will be successful or that the lawsuits will not
have a material adverse effect on the Company's financial position, results of
operations and cash flows. In addition, the timing of the final resolution of
these proceedings is uncertain.
30
<PAGE>
The Company may also be subject to regulatory proceedings initiated by the
SEC or other regulatory agencies. The SEC has contacted the Company and has
requested the voluntary production of certain documents and other information
regarding the compensation arrangements, unauthorized benefits and related party
transactions discussed in Part 1 of this report, and the Company is cooperating
with the SEC in responding to this request. Regulatory agencies and self-
regulatory organizations such as the SEC, the New York Stock Exchange, the
Internal Revenue Service and state tax authorities may seek to impose fines,
penalties or other remedies against the Company. The imposition of any such
fines, penalties or other remedies could have a material adverse impact on the
Company.
In an unrelated lawsuit, on February 2, 2000, Dogwood Drive LLC,
("Dogwood") filed suit against the Company and WHF, Inc. ("WHF"), a wholly-owned
subsidiary of JDN Development which, until April 1999, owned a 72% interest in
Dogwood and served as the operating member of the entity. The suit was filed in
the Superior Court of Gwinnett County, Georgia. The complaint asserts, among
other things, breach of fiduciary duty against WHF and improper receipt of funds
by the Company. The Company believes that it and WHF have meritorious defenses
to the claims and intends to vigorously defend the suit.
On April 28, 2000, Lake Lucerne Estates Civic Club, Inc., a nonprofit
homeowners association located in Gwinnett County, Georgia, and a number of
individual plaintiffs, filed suit against JDN Development, Lowe's Companies,
Inc. and Haygood Contracting, Inc. The suit was filed in the Superior Court of
Fulton County, Georgia. The complaint asserts trespass, nuisance and negligence
against JDN Development in connection with the development of a shopping center
anchored by Lowe's. JDN Development has filed defensive pleadings denying
liability, and discovery is now being conducted by both sides.
The Company is from time to time a party to other legal proceedings which
arise in the ordinary course of its business. The Company is not currently
involved in any litigation in addition to the lawsuits described above, the
outcome of which would, in management's judgement based on information currently
available, have a material adverse effect on the results of operations or
financial condition of the Company nor is management aware of any such
litigation threatened against the Company.
The Company's forward-looking statements relating to the above described
litigation reflect management's best judgement of the status of the litigation
to date and facts currently known to the Company and its management and, as a
result, involve a number of risks and uncertainties, including the possible
disclosure of new facts and information adverse to the Company in the discovery
process and the inherent uncertainties associated with litigation.
Indemnification and Advances
The Company's Charter provides that the Company shall indemnify and advance
expenses to its officers and directors to the fullest extent permitted by law
for any liability arising from claims against them in their capacities as such
unless (a) the indemnitee is adjudged to be liable to the Company in a
proceeding by or in the right of the Company, (b) the indemnitee is charged with
receipt of improper personal benefit, whether or not involving action in the
indemnitee's official capacity, and the indemnitee is adjudged to be liable on
the basis that personal benefit was improperly received, or (c) it is
established that (i) the act or omission of the indemnitee was material to the
matter giving rise to the proceeding and the act or omission was committed in
bad faith or was the result of active and deliberate dishonesty, or (ii) the
indemnitee actually received an improper personal benefit in money, property or
services. In addition to the rights provided pursuant to state law and the
Company's Charter, certain current and former officers and directors of the
Company have contractual rights to indemnification and advancement of expenses
which are identical to the rights provided by state law and the Company's
Charter, pursuant to indemnification agreements between each of these
individuals and the Company. Each such indemnification agreement provides that
the Company shall advance expenses to the indemnitee in advance of the final
disposition of a lawsuit upon receipt of a written undertaking by or on behalf
of the indemnitee to repay any such amount if it is ultimately determined that
the indemnitee is not entitled to indemnification under the terms of the
Agreement.
31
<PAGE>
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
See Note 5 in Part I, Item 1 of this report.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 Severance Agreement by and between Elizabeth L. Nichols and
the Company dated as of July 26, 2000
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 June 30, 2000, the Company filed
the following reports on Form 8-K:
(i) Form 8-K dated April 12, 2000 containing a press release
related to the Special Committee investigation, the delay
of the Company's annual report, management changes and
discussions with bank groups.
(ii) Form 8-K dated April 13, 2000 containing a press release
related to the resignation of J. Donald Nichols from
remaining positions with the Company and JDN Development
Company, Inc.
(iii) Form 8-K dated April 17, 2000 containing a press release
related to the expiration of funding agreements and the
engagement of a financial advisor.
(iv) Form 8-K dated May 23, 2000 containing (1) Tenant Estoppel
and Release dated May 23, 2000, (2) Second Amended and
Restated Credit Agreement dated as of May 19, 2000 between
the Company and Wachovia Bank, N.A., as Agent for the Bank
Group, (3) $100,000,000 Amended and Restated Term Loan
Agreement dated as of May 19, 2000 among the Company,
Wachovia Bank, as Agent for the bank group and PNC Bank,
National Association, as Documentation Agent and (4) a
press release related thereto.
(v) Form 8-K dated June 16, 2000 relating to the Company's
quarterly earnings conference call for the quarter and
year ended December 31, 1999.
32
<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.
August 14, 2000 /s/ Craig Macnab
-------------------------- -------------------------
(Date) Craig Macnab
Chief Executive Officer
August 14, 2000 /s/ John D. Harris, Jr.
-------------------------- -------------------------
(Date) John D. Harris, Jr.
Vice President and Interim
Chief Financial Officer
33
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number Exhibit
------ -------
10.1 Severance Agreement by and between Elizabeth L. Nichols and the
Company dated as of July 26, 2000
12 Statement re: Computation of Ratio of Earnings to Fixed Charges
27 Financial Data Schedule
34
