Item 1. Business
The real estate business of Regency Centers Corporation ("Regency") was established in 1963 as a Jacksonville, Florida-based operator and developer of shopping centers. By the early 1990s, Regency had developed a successful track record of developing, owning and operating neighborhood and community shopping centers, which offered substantial cycle-resistant opportunities for growth. In 1993, Regency was formed as a Florida corporation, completed its initial public offering (NYSE: REG) and became a qualified self-administered, self-managed real estate investment trust (REIT).
Through a series of major strategic acquisitions in 1997, 1998 and 1999, Regency expanded its development and operational capabilities to have a nationwide scope. From 1993 to 2000, Regency's assets increased from $154 million to approximately $3 billion with 242 shopping centers in 22 states. The most significant of these transactions was Regency's acquisition of Pacific Retail Trust for approximately $1.157 billion in February 1999. At the date of the acquisition, Pacific Retail Trust was operating or had under development 71 retail shopping centers representing 8.4 million SF of gross leaseable area (GLA).
Regency previously operated under the name Regency Realty Corporation, but changed its name to Regency Centers Corporation in February 2001 to more appropriately acknowledge its brand and position in the shopping center industry. Regency invests in retail shopping centers through its partnership interest in Regency Centers, L.P., ("RCLP" or "Partnership") an operating partnership in which Regency currently owns approximately 98% of the outstanding common partnership units ("Units"). All of the acquisition, development, operations and financing activity of Regency including the issuance of Units or preferred units is executed by RCLP.
At December 31, 2000, Regency's GLA totals 27.8 million square feet of which 22.8 million is stabilized and 95.3 percent leased. Geographically, 23.5% of Regency's GLA is located in Florida, 17.7% in California, 15% in Texas, 9.2% in Georgia, 6.3% in Ohio, and 28.3% spread throughout 17 other states. Today, Regency is a leading owner, operator and developer of grocer-anchored, neighborhood shopping centers with high-quality specialty retailers located in prosperous trade areas.
See also footnote 3, Segments, to the consolidated financial statements included herein, for a related discussion of the Company's business.
Operating and Investment Philosophy
Our key operating and investment objective is to create long-term shareholder value by:
o focusing on high quality grocer-anchored neighborhood shopping centers in attractive markets;
o maximizing the value of the portfolio through our research-based investment strategies, our Preferred Customer Initiative program, and our customer-driven development program; and
o using conservative financial management and our substantial capital base to cost effectively access capital to fund our growth.
Grocer-Anchored Strategy
We focus our investment strategy on grocer-anchored neighborhood shopping centers that are located in infill locations or high growth corridors and are anchored by a dominant grocer in the local market. Regardless of the economic cycle, grocer sales have outpaced inflation in 10 of the last 15 years. More resistant to down cycles by the nature of their business, market-leading grocers generate continuous consumer traffic to our centers. Such significant traffic driven by necessity and convenience attracts and benefits our centers and side-shop tenants.
The average remaining lease term for Regency's grocer-anchored tenants is 14.5 years. Since these grocers can leverage their leadership positions in their respective markets to draw steady traffic, their commitment to signing long-term leases provides Regency with stability and sustainability of cash flow.
Our grocer-anchored centers are planned to serve neighborhoods and communities, and their carefully selected locations enable local shoppers to visit weekly, or even several times a week. As a result, a neighborhood center is a convenient, cost-effective distribution platform for food retailers. Moreover, a neighborhood center that is anchored by a leading grocer is highly resistant to competition from Internet e-tailers and mass merchandise stores, benefiting all of our tenants.
Grocer-anchored centers generate substantial daily traffic and offer sustainable competitive advantages to their tenants. This high traffic generates increased sales, thereby driving higher occupancy, higher rental rates, and higher rental rate growth for Regency -- meaning that we can sustain our cash flow growth and increase the value of our portfolio over the long term.
Ninety percent of Regency's grocer-anchored centers are anchored by one of the top three grocers in their local markets. Our anchor tenants include leading supermarket chains like Kroger, Publix, Safeway and Albertson's. With average annual sales for a Regency grocer of $22.4 million, our grocers outpace their respective chain averages by more than 20 percent and generate an average of more than 14,000 shopper visits each week, or more than 725,000 shopper visits annually.
Research Driven Market Selection
Grocer-anchored centers are best located in neighborhood trade areas with attractive demographics. The typical Regency center 3-mile population is approximately 75,000 strong with an average household income in excess of $71,000 and a projected 5-year population growth of more than 8 percent. The trade areas of Regency's centers are growing nearly twice as fast and household incomes are more than 30 percent greater than the national averages, translating into more retail buying power. Once specific markets are selected, Regency seeks the best location within the best neighborhoods, preferably occupying the dominant corner, close to residential communities, with excellent visibility for our tenants and easy access for neighborhood shoppers.
Premier Customer Initiative
For the same reason we choose to anchor our centers with leading grocers, we also seek a range of strong national, regional and local specialty tenants. We have created a formal partnering process -- the Premier Customer Initiative (PCI) -- to promote mutually beneficial relationships with our non-grocer specialty retailers. The objective of PCI is for Regency to build a base of specialty tenants who represent the "best-in-class" operators in their respective merchandising categories. Such tenants reinforce the consumer appeal and other strengths of a center's grocer-anchor, help to stabilize a center's occupancy, reduce releasing downtime, lower tenant turnover and yield higher sustainable rents. For these reasons, Regency is committed to giving these premier tenants all the support they require to realize their expansion and profit objectives. The PCI program does this by partnering with top neighborhood operators while they are in the strategic stage of store-location planning. Regency's industry expertise enables us to offer our prospective tenants current, in-depth data on key markets nationwide, as well as access to multiple prime locations in the best shopping centers, and in the top markets, with the leading grocer-anchors. Moreover, our PCI tenants benefit from employing standardized leases as they contract for space in multiple Regency locations.
Customer-driven Development
Development is customer-driven, meaning we have an executed lease from the anchor in hand before we purchase the land. As a result of commitments from our anchor tenants, and our well-established relationships with key specialty retailers, a significant percentage of the retail space is dedicated before construction begins. Developments serve the growth needs of our grocery and specialty retail customers, result in modern shopping centers with 20-year leases from the grocer-anchors and produce either attractive returns on invested capital or profits from sale.
Our development program significantly contributed to our overall growth during the year. In 2000 we completed 34 shopping center and build-to-suit developments that represented an investment of $236 million. On average, these newly completed developments are 96 percent leased. At December 31, 2000 we had 56 shopping center developments, re-developments, renovations and single-tenant projects still in progress. When complete, these projects will represent a total investment of $730 million, $418 million of which has already been funded.
Capital Strategy
We intend to maintain a conservative capital structure designed to fund our growth programs without returning to the equity markets or compromising our investment-grade ratings. This approach is founded on our self-funding business model, which relies on capital sourced from free-and-clear cash flow; developments for sale; dispositions of limited-growth, non-strategic assets; and joint ventures. We have the financial flexibility to follow this approach, with a debt-to-total asset ratio of approximately 41 percent, an interest coverage ratio of 3.0 times, a fixed charge coverage ratio of 2.1 times, and nearly 80 percent of our real estate assets and net operating income being unencumbered by mortgages.
During 2000, we sold 22 development properties that generated total proceeds in excess of $140 million. In addition, in December 2000, we sold two Regency core development properties to a joint venture between Regency and the highly respected Oregon Public Employees Retirement Fund (OPERF). These transactions collectively yielded more than $180 million in total proceeds, which generated $20 million in profits.
The OPERF joint venture represents a major co-investment partnership that is expected to produce substantial benefits for our Company. During the third quarter of 2000, we executed a letter of intent with the Oregon State Treasury, acting on behalf of OPERF, to form a co-investment partnership to invest in a $300 million portfolio of neighborhood and community shopping centers. The first phase of the joint venture was consummated with the formation of Columbia Regency Retail Partners, which purchased the two properties mentioned above. The next phase of the partnership is expected to close during the 1st quarter of 2001, when it will purchase three additional stabilized Regency developments, and OPERF will contribute three centers located in attractive infill markets. The partnership also plans to acquire $150 million of grocer-anchored shopping centers throughout the United States over the next 12 to 18 months. Regency will own 20 percent of the partnership and will be paid asset management fees, property management fees and incentive fees.
Risk Factors Relating to Ownership of Regency Common Stock
We are subject to certain business risks arising in connection with owning real estate which include, among others:
o the bankruptcy or insolvency of, or a downturn in the business of, any of our major tenants could reduce cash flow,
o the possibility that such tenants will not renew their leases as they expire or renew at lower rental rates could reduce cash flow,
o risks related to the internet and e-commerce reducing the demand for shopping centers,
o vacated anchor space will affect the entire shopping center because of the loss of the departed anchor tenant's customer drawing power,
o poor market conditions could create an over supply of space or a reduction in demand for real estate in markets where Regency owns shopping centers,
Risk Factors Relating to Ownership of Regency Common Stock (continued)
o Regency's rapid growth could place strains on its resources,
o risks relating to leverage, including uncertainty that Regency will be able to refinance its indebtedness, and the risk of higher interest rates,
o unsuccessful development activities could reduce cash flow,
o Regency's inability to satisfy its cash requirements for operations and the possibility that Regency may be required to borrow funds to meet distribution requirements in order to maintain its qualification as a REIT,
o potential liability for unknown or future environmental matters and costs of compliance with the Americans with Disabilities Act,
o the risk of uninsured losses, and
o unfavorable economic conditions could also result in the inability of tenants in certain retail sectors to meet their lease obligations and otherwise could adversely affect Regency's ability to attract and retain desirable tenants.
Compliance with Governmental Regulations
Under various federal, state and local laws, ordinances and regulations, we may be liable for the cost to remove or remediate certain hazardous or toxic substances at our shopping centers. These laws often impose liability without regard to whether the owner knew of, or was responsible for, the presence of the hazardous or toxic substances. The cost of required remediation and the owner's liability for remediation could exceed the value of the property and/or the aggregate assets of the owner. The presence of such substances, or the failure to properly remediate such substances, may adversely affect the owner's ability to sell or rent the property or borrow using the property as collateral. We have a number of properties that will require or are currently undergoing varying levels of environmental remediation. These remediations are not expected to have a material financial effect on Regency due to financial statement reserves, insurance programs designed to mitigate the cost of remediation and various state-regulated programs that shift the responsibility and cost to the state.
Competition
We believe the ownership of shopping centers is highly fragmented. Regency faces competition from other REITs in the development, acquisition, ownership and leasing of shopping centers as well as from numerous local, regional and national real estate developers and owners.
Changes in Policies
Our Board of Directors establishes the policies that govern our investment and operating strategies including, among others, debt and equity financing policies, quarterly distributions to shareholders, and REIT tax status. The Board of Directors may amend these policies at any time without a vote of Regency's shareholders.
Employees
Our headquarters are located at 121 West Forsyth St., Suite 200, Jacksonville, Florida. Regency presently maintains 18 offices in 11 states where it conducts management, leasing and development activities. At December 31, 2000, Regency had approximately 377 employees and believes that relations with its employees are good.
Item 2.
Item 2. Properties
The Company's properties summarized by state including their gross leasable areas (GLA) follows:
* Excludes properties under construction
The following table summarizes the largest tenants occupying the Company's shopping centers based upon a percentage of total annualized base rent exceeding .5% at December 31, 2000. The table includes 100% of the base rent from leases of properties owned by joint ventures.
Summary of Principal Tenants > .5% of Annualized Base Rent (including Properties Under Development)
Item 2. Properties (continued)
The Company's leases have lease terms generally ranging from three to five years for tenant space under 5,000 square feet. Leases greater than 10,000 square feet generally have lease terms in excess of five years, mostly comprised of anchor tenants. Many of the anchor leases contain provisions allowing the tenant the option of extending the term of the lease at expiration. The Company's leases provide for the monthly payment in advance of fixed minimum rentals, additional rents calculated as a percentage of the tenant's sales, the tenant's pro rata share of real estate taxes, insurance, and common area maintenance expenses, and reimbursement for utility costs if not directly metered.
The following table sets forth a schedule of lease expirations for the next ten years, assuming that no tenants exercise renewal options:
Future Percent of Minimum Percent of Lease Total Rent Total Expiration Expiring Company Expiring Minimum Year GLA GLA Leases Rent (2) ---- --- --- ------ --------
(1) 537,561 2.3% 7,054,826 2.7% 2001 1,617,159 7.0% 22,958,674 8.7% 2002 1,909,683 8.3% 25,755,163 9.8% 2003 2,055,595 8.9% 27,885,305 10.6% 2004 2,052,999 8.9% 29,313,096 11.1% 2005 2,300,866 10.0% 30,355,277 11.5% 2006 1,242,394 5.4% 13,142,805 5.0% 2007 1,027,047 4.5% 10,658,339 4.0% 2008 1,076,523 4.7% 9,299,925 3.5% 2009 740,800 3.2% 7,522,151 2.9% 2010 1,108,370 4.8% 12,240,647 4.6% ------------------------------------------------ 10 Yr. Total 15,668,997 67.9% $196,186,208 74.4% ------------------------------------------------
(1) leased currently under month to month rent or in process of renewal (2) total minimum rent includes current minimum rent and future contractual rent steps for all properties, but excludes additional rent such as percentage rent, common area maintenance, real estate taxes and insurance reimbursements
See the property table below and also see Item 7, Management's Discussion and Analysis for further information about the Company's properties.
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(1) Or latest renovation (2) Includes development properties. If development properties are excluded, the total percentage leased would be 95.3% for Company shopping centers. (3) Property under development or redevelopment. (4) Tenant owns its own building. (5) Owned by a partnership with outside investors in which the Partnership or an affiliate is the general partner.
Item 3.
Item 3. Legal Proceedings
The Company is, from time to time, a party to legal proceedings, which arise, in the ordinary course of its business. The Company is not currently involved in any litigation nor, to management's knowledge, is any litigation threatened against the Company, the outcome of which would, in management's judgement based on information currently available, have a material adverse effect on the financial position or results of operations of the Company.
Item 4.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted for stockholder vote during the fourth quarter of 2000.
PART Il
Item 5.
Item 5. Market for the Registrant's Common Equity and Related Shareholder Matters
There is no established public trading market for the units of partnership interest in the Partnership ("Units"), and Units may be transferred only with the consent of the general partner as provided in the Third Amended and Restated Agreement of Limited Partnership (the "Partnership Agreement"). As of December 31, 2000, Regency was the only holder of Class B Units, and there were approximately 50 holders of record in the aggregate of Original Limited Partnership Units, Additional Units and Series A, B, C, D, E and F Preferred Units, determined in accordance with Rule 12g5-1 under the Securities Exchange Act of 1934, as amended. To the Partnership's knowledge, there have been no bids for the Units and, accordingly, there is no available information with respect to the high and low quotation of the Units for any quarter since Regency became the general partner of the Partnership. Each outstanding Unit other than Class B Units and Series A, B, C, D, E and F Preferred Units may be exchangeable by its holder on a one share per one Unit basis, for the common stock of Regency or for cash, at Regency's election.
The Partnership Agreement provides that the Partnership will make priority distributions of Available Cash (as defined in the Partnership Agreement) first to Series A, C, D, E and F Preferred Units on each March 31, June 30, September 30 and December 31 in a distribution amount equal to 8.125%, 9.0%, 9.125%, 8.75% and 8.75% of the original capital contribution per Series A, C, D, E and F Preferred Units, respectively. The Partnership Agreement provides that the Partnership will make priority distributions of Available Cash (as defined in the Partnership Agreement) first to Series B Preferred Units on each March 1, June 1, September 1 and December 1 in a distribution amount equal to 8.75% of the original capital contribution per Series B Preferred Units. Subject to the prior right of the holders of Series A, B, C, D, E and F Preferred Units to receive all distributions accumulated on such Units in full, at the time of each distribution to holders of common stock of Regency, distributions of Available Cash will then be made to the holders of Original Units and Additional Units, first in an amount per Unit identical to the amount that is distributed with respect to each share of common stock. The Partnership Agreement provides that all remaining Available Cash will be distributed to the General Partner.
The Company's common stock is traded on the New York Stock Exchange ("NYSE") under the symbol "REG". The Company currently has approximately 3,500 shareholders. The following table sets forth the high and low prices and the cash dividends declared on the Company's common stock by quarter for 2000 and 1999.
The Partnership intends to pay regular quarterly distributions to its Unit holders in an amount per Unit identical to the per share amount distributed to holders of Regency common stock. Regency intends to pay regular quarterly distributions to its common stockholders. Future distributions will be declared and paid at the discretion of the Board of Directors, and will depend upon cash generated by operating activities, Regency's financial condition, capital requirements, annual distribution requirements under the REIT provisions of the Internal Revenue Code of 1986, as amended, and such other factors as the Board of Directors deems relevant. Regency anticipates that for the foreseeable future, cash available for distribution will be greater than earnings and profits due to non-cash expenses, primarily depreciation and amortization, to be incurred by Regency. Distributions by Regency to the extent of its current and accumulated earnings and profits for federal income tax purposes will be taxable to stockholders as ordinary dividend income. Distributions in excess of earnings and profits generally will be treated as a non-taxable return of capital. Such distributions have the effect of deferring taxation until the sale of a stockholder's common stock. In order to maintain its qualification as a REIT, Regency must make annual distributions to stockholders of at least 95% of its taxable income. Under certain circumstances, which management does not expect to occur, Regency could be required to make distributions in excess of cash available for distributions in order to meet such requirements. Regency currently maintains the Regency Centers Corporation Dividend Reinvestment and Stock Purchase Plan which enables its stockholders to automatically reinvest distributions, as well as, make voluntary cash payments towards the purchase of additional shares.
Under the loan agreement with the lenders of Regency's line of credit, distributions may not exceed 95% of Funds from Operations ("FFO") based on the immediately preceding four quarters. FFO is defined in accordance with the NAREIT definition as described in Regency's consolidated financial statements. Also, in the event of any monetary default, Regency will not make distributions to stockholders.
Item 5. Market for the Registrant's Common Equity and Related Shareholder Matters (continued)
The following describes the registrant's sales of unregistered securities during the periods covered by this report, each sold in reliance on Rule 506 of the Securities Act.
In May and September 2000, RCLP issued $70 million and $24 million of 8.75% Series E and Series F Cumulative Redeemable Preferred Units (the "Preferred Units"), respectively. The issues were sold to institutional investors in private placements for $100.00 per unit. The Preferred Units, which may be called by the Partnership at par on or after May and September, 2005 respectively, have no stated maturity or mandatory redemption, and pay a cumulative, quarterly dividend at an annualized rate of 8.75%. At any time after 10 years from the date of issuance, the Preferred Units may be exchanged for 8.75% Cumulative Redeemable Preferred Stock ("Preferred Stock") at an exchange rate of one share for one unit. The Preferred Units and the related Preferred Stock are not convertible into common stock of Regency. The net proceeds of these offerings were used to reduce the Line. In 1999, RCLP issued similar preferred units in several series in the amount of $210 million with an average fixed distribution rate of 8.93%. At December 31, 2000, the face value of total preferred units issued was $384 million with an average fixed distribution rate of 8.72% vs. $290 million with an average fixed distribution rate of 8.71% at December 31, 1999.
During 1998, Regency acquired 43 shopping centers and joint ventures for a total investment of $384.3 million. On June 30, 2000, Regency acquired the non-owned portion of five of the joint ventures for $4.4 million consisting of cash, common stock and Units.
Item 6.
Item 6. Selected Consolidated Financial Data (in thousands, except per share data and number of properties)
The following table sets forth Selected Financial Data on a historical basis for the five years ended December 31, 2000, for the Partnership. This information should be read in conjunction with the financial statements of the Company (including the related notes thereto) and Management's Discussion and Analysis of the Financial Condition and Results of Operations, each included elsewhere in this Form 10-K. This historical Selected Financial Data has been derived from the audited financial statements.
7. Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with the accompanying Consolidated Financial Statements and Notes thereto of Regency Centers Corporation ("Regency" or "Company") appearing elsewhere within.
Organization
Regency is a qualified real estate investment trust ("REIT") which began operations in 1993. Regency had previously operated under the name Regency Realty Corporation, but changed its name to Regency Centers Corporation in February 2001 to more appropriately acknowledge its brand and position in the shopping center industry. Regency invests in retail shopping centers through its partnership interest in Regency Centers, L.P., ("RCLP") an operating partnership in which Regency currently owns approximately 98% of the outstanding common partnership units ("Units"). All of the acquisition, development, operations and financing activity of Regency including the issuance of Units or preferred units is executed by RCLP.
During 2000, Regency transferred all of the assets and liabilities of eighteen shopping centers to the Partnership in exchange for common units. Seventeen of the properties were acquired in 1993, and one was acquired in 1998. Since the Partnership and the eighteen properties are under the common control of Regency, the transfer of the properties has been accounted for at historical cost in a manner similar to a pooling of interests, as if the Partnership had directly acquired the properties at their original acquisition dates. Accordingly, the Partnership's financial statements have been restated to include the assets, liabilities, units issued, and results of operations of the eighteen properties from the date they were acquired.
Shopping Center Business
Regency is a national owner, operator and developer of grocery-anchored neighborhood retail shopping centers. Regency's shopping centers summarized by state and in order by largest holdings including their gross leasable areas (GLA) follows:
* Excludes properties under construction
Regency is focused on building a platform of grocery anchored neighborhood shopping centers because grocery stores provide convenience shopping of daily necessities, foot traffic for adjacent local tenants, and should withstand adverse economic conditions. Regency's current investment markets have continued to offer stable economies, and accordingly, Regency expects to realize growth in net income as a result of increasing occupancy in the portfolio, increasing rental rates, development and acquisition of shopping centers in targeted markets, and redevelopment of existing shopping centers.
The following table summarizes the four largest grocery tenants occupying Regency's shopping centers at December 31, 2000:
(a) Includes tenant owned stores (b) Includes properties owned through joint ventures
Acquisition and Development of Shopping Centers
Regency has implemented a growth strategy dedicated to developing high-quality shopping centers. This development process can require 12 to 36 months from initial land or redevelopment acquisition through construction and lease-up and finally stabilized income, depending upon the size and type of project. Generally, anchor tenants begin operating their stores prior to construction completion of the entire center, resulting in rental income during the development phase. At December 31, 2000, Regency had 56 projects under construction or undergoing major renovations, which when complete will represent an investment of $730 million. Total cost necessary to complete these developments is estimated to be $311.5 million and will be expended through 2002. These developments are approximately 52% complete and over 50% pre-leased.
On August 3, 2000, Regency acquired the non-owned portion of two properties in one joint venture for $2.5 million in cash. The net assets of the joint venture were and continue to be consolidated by Regency. Prior to acquiring the non-owned portion, the joint venture partner's interest was reflected as limited partners' interest in consolidated partnerships in Regency's financial statements.
On June 30, 2000, Regency acquired the non-owned portion of nine properties in five joint ventures, previously accounted for using the equity method, for $4.4 million consisting of cash, common stock and Units. As a result, these joint ventures are wholly owned by Regency and are consolidated for financial reporting purposes as of the date of the acquisition.
On February 28, 1999, Regency acquired Pacific Retail Trust ("Pacific") for approximately $1.157 billion. At the date of the acquisition, Pacific was operating or had under development 71 retail shopping centers representing 8.4 million SF of gross leaseable area. During 1998, Regency acquired 43 shopping centers and joint ventures for a total investment of $384.3 million ("1998 Acquisitions") excluding contingent consideration. During 2000 and 1999, the Company paid contingent consideration of $5 million and $9 million, respectively, related to the 1998 Acquisitions. No additional contingent consideration is due related to any acquisitions of the Company.
Liquidity and Capital Resources
Management anticipates that cash generated from operating activities will provide the necessary funds on a short-term basis for its operating expenses, interest expense and scheduled principal payments on outstanding indebtedness, recurring capital expenditures necessary to properly maintain the shopping centers, and distributions to share and Unit holders. Net cash provided by operating activities was $178.5 million and $151.3 million for the years ended December 31, 2000 and 1999, respectively. Regency incurred capital expenditures of $19.1 million and $21.5 million during 2000 and 1999, respectively. Regency paid scheduled principal payments of $6.2 million and $6.1 million during 2000 and 1999, respectively. The Partnership paid distributions of $144.7 million and $113.1 million during 2000 and 1999, respectively, to its unitholders.
Management expects to meet long-term liquidity requirements for maturing debt, non-recurring capital expenditures, and acquisition, renovation and development of shopping centers from: (i) excess cash generated from operating activities, (ii) working capital reserves, (iii) additional debt borrowings, and (iv) additional equity raised in the private and public markets. Net cash used in investing activities was $335.3 million and $216.6 million during 2000 and 1999, respectively, primarily for the purposes discussed under Acquisition and Development of Shopping Centers. Net cash provided by financing activities was $203.6 million and $99.5 million during 2000 and 1999, respectively, primarily related to proceeds from the preferred unit and debt offerings completed during 2000 and 1999 further discussed below.
During 1999, the Board of Directors authorized the repurchase of approximately $65 million of Regency's outstanding shares through periodic open market transactions or privately negotiated transactions. At March 31, 2000, Regency had completed the program by purchasing 3.25 million shares.
Regency's outstanding debt at December 31, 2000 and 1999 consists of the following (in thousands):
2000 1999 Notes Payable: Fixed rate mortgage loans $ 270,491 382,715 Variable rate mortgage loans 40,640 11,376 Fixed rate unsecured loans 529,941 370,696 ------------ ------------ Total notes payable 841,072 764,787 Unsecured line of credit 466,000 247,179 ------------ ------------ Total $ 1,307,072 1,011,966 ============ ============
Mortgage loans are secured by certain real estate properties, and may be prepaid, but could be subject to a yield-maintenance premium. Mortgage loans are generally due in monthly installments of interest and principal and mature over various terms through 2019. Variable interest rates on mortgage loans are currently based on LIBOR plus a spread in a range of 125 basis points to 150 basis points. Fixed interest rates on mortgage loans range from 7.04% to 9.5%.
During 2000, Regency modified the terms of its unsecured line of credit (the "Line") by reducing the commitment to $625 million and extending the term. The Line matures in March 2002, but may be extended annually for one-year periods. Borrowings under the Line bear interest at a variable rate based on LIBOR plus 1% (7.875% at December 31, 2000) compared to LIBOR plus a 1.075% spread (7.575% at December 31, 1999), which is dependent on Regency maintaining its investment grade rating. Regency is required to comply and is in compliance with certain financial and other covenants customary with this type of unsecured financing. The Line is used primarily to finance the acquisition and development of real estate, but is also available for general working capital purposes.
Subsequent to December 31, 2000, Regency paid down the Line by $265 million from the proceeds of an unsecured debt offering for $220 million completed on January 22, 2001, and from the proceeds from the sale of two shopping centers to Columbia Regency Retail Partners, LLC ("Columbia") completed on December 31, 2000. Regency currently owns 10% of Columbia with the remaining 90% owned by Columbia PERFCO Partners, L.P., an affiliate of Oregon Public Employees Retirement Fund. Regency intends to sell three additional shopping centers to Columbia during 2001 upon completion of development.
On December 15, 2000, RCLP completed a $10 million unsecured debt offering with an interest rate of 8.0%. The notes were priced at 99.375%, and are due on December 15, 2010. On August 29, 2000, RCLP completed a $150 million unsecured debt offering with an interest rate of 8.45%. The notes were priced at 99.819%, and are due on September 1, 2010. On April 15, 1999, RCLP completed $250 million of unsecured debt offerings with interest rates of 7.4% to 7.75% due April 1, 2009. The net proceeds of these offerings were used to reduce the balance of the Line.
During 1999, Regency assumed debt with a fair value of $402.6 million related to the acquisition of real estate, which included debt premiums of $4.1 million based upon the above market interest rates of the debt instruments. Debt premiums are amortized over the terms of the related debt instruments.
In May and September 2000, RCLP issued $70 million and $24 million of 8.75% Series E and Series F Cumulative Redeemable Preferred Units (the "Preferred Units"), respectively. The issues were sold to institutional investors in private placements for $100.00 per unit. The Preferred Units, which may be called by the Partnership at par on or after May and September, 2005 respectively, have no stated maturity or mandatory redemption, and pay a cumulative, quarterly dividend at an annualized rate of 8.75%. At any time after 10 years from the date of issuance, the Preferred Units may be exchanged for 8.75% Cumulative Redeemable Preferred Stock ("Preferred Stock") at an exchange rate of one share for one unit. The Preferred Units and the related Preferred Stock are not convertible into common stock of Regency. The net proceeds of these offerings were used to reduce the Line. In 1999, RCLP issued similar preferred units in several series in the amount of $210 million with an average fixed distribution rate of 8.93%. At December 31, 2000, the face value of total preferred units issued was $384 million with an average fixed distribution rate of 8.72% vs. $290 million with an average fixed distribution rate of 8.71% at December 31, 1999.
As of December 31, 2000, scheduled principal repayments on notes payable and the Line were as follows (in thousands):
Scheduled Principal Term Loan Total Scheduled Payments by Year Payments Maturities Payments -------------------------- ------------ ----------- -------------
2001 $ 5,413 67,676 73,089 2002 (includes the Line) 4,719 510,084 514,803 2003 4,691 23,299 27,990 2004 5,066 199,897 204,963 2005 3,883 148,031 151,914 Beyond 5 Years 32,016 292,490 324,506 Unamortized debt premiums - 9,807 9,807 ------------ ----------- ------------- Total $ 55,788 1,251,284 1,307,072 ============ =========== =============
Unconsolidated partnerships and joint ventures had mortgage loans payable of $14.3 million at December 31, 2000, and Regency's proportionate share of these loans was $5.9 million.
Regency believes it qualifies and intends to qualify as a REIT under the Internal Revenue Code. As a REIT, Regency is allowed to reduce taxable income by all or a portion of its distributions to stockholders. As distributions have exceeded taxable income, no provision for federal income taxes has been made. While Regency intends to continue to pay dividends to its stockholders, it also will reserve such amounts of cash flow as it considers necessary for the proper maintenance and improvement of its real estate, while still maintaining its qualification as a REIT.
Regency's real estate portfolio has grown substantially during 2000 as a result of the development activity discussed above. Regency intends to continue to acquire and develop shopping centers in the near future, and expects to meet the related capital requirements from borrowings on the Line. Regency expects to repay the Line from time to time from additional public and private equity or debt offerings, such as those completed in previous years. Because acquisition and development activities are discretionary in nature, they are not expected to burden Regency's capital resources currently available for liquidity requirements. Regency expects that cash provided by operating activities, unused amounts available under the Line, and cash reserves are adequate to meet liquidity requirements.
Results from Operations
Comparison 2000 to 1999
Revenues increased $59.7 million or 20% to $361.6 million in 2000. The increase was due primarily to the Pacific acquisition which did not occur until February 28, 1999, revenues from newly completed developments that only partially operated during 1999, and from growth in rental rates and occupancy levels at the operating properties. Minimum rent increased $38.2 million or 18%, and recoveries from tenants increased $13.8 million or 25%. At December 31, 2000, Regency was operating or developing 242 shopping centers. Regency identifies its shopping centers as either development properties or stabilized properties. Development properties are defined as properties that are in the construction and initial lease-up process that are not yet 93% leased and occupied. Stabilized properties are all properties not identified as development. At December 31, 2000, Regency had 194 stabilized shopping centers that were 95.3% leased. At December 31, 1999, these properties were 94.2% leased. In 2000, rental rates grew by 8% from renewal leases and new leases replacing previously occupied spaces in the stabilized properties.
Service operations revenue includes fees earned in Regency's service operations segment which includes property management and leasing commissions earned from third parties, and development profits earned from the sale of shopping centers, build to suit properties, and land to third parties. Service operations revenue increased by $9.0 million to $27.2 million in 2000, or 49%. The increase was primarily due to a $11.1 million increase in development profits offset by a $2.1 million reduction in property management fees. During 2000 Regency continued to reduce the portfolio of properties managed for third party owners.
Operating expenses increased $27.8 million or 20% to $163.6 million in 2000. Combined operating and maintenance, and real estate taxes increased $14.8 million or 22% during 2000 to $82.3 million. The increase was primarily due to the Pacific acquisition, expenses incurred by newly completed developments that only partially operated during 1999, and general increases in operating expenses on the stabilized properties. General and administrative expenses were $19.9 million during 2000 vs. $19.3 million in 1999 or 3% higher as a result of general salary and benefit increases, and new employees hired in 2000. Depreciation and amortization increased $10.8 million during 2000 or 22% primarily due to the Pacific acquisition and developments that only partially operated during 1999.
Periodically, Regency identifies shopping centers that no longer meet its long-term investment standards, such as expected growth in revenue or market dominance. Once identified and marketed for sale, these properties are segregated on the balance sheet as operating properties held for sale. Regency also develops shopping centers and stand-alone retail stores for resale. Once completed, these developments are also included in operating properties held for sale. Operating properties held for sale are carried at the lower of cost or fair value less estimated selling costs. Depreciation and amortization are suspended during the period held for sale. During 2000 Regency evaluated seven shopping centers held for sale and determined that impairment had occurred. Accordingly a provision for loss on operating properties held for sale of $13.0 million was recorded.
Interest expense increased to $72.0 million in 2000 from $60.1 million in 1999 or 20%. The increase was primarily due to the assumption of debt from the Pacific acquisition, and higher interest costs related to interest rate increases on outstanding debt balances including the unsecured debt offerings completed in 2000 and 1999.
Preferred unit distributions increased $17.2 million to $29.6 million during 2000 as a result of the preferred units issued in 2000 and 1999. Average fixed distribution rates of the preferred units were 8.72% at December 31, 2000 vs. 8.71% at December 31, 1999.
Net income for common unitholders was $90.1 million in 2000 vs. $92.7 million in 1999, or a 3% decrease. The decline was primarily a result of the provision for loss on operating properties held for sale and increased preferred unit distributions, net of the acquisition and development activity described above. Diluted earnings per unit was $1.49 in 2000 vs. $1.61 in 1999, or 7.5% lower as a result of the decrease in net income.
Comparison 1999 to 1998
Revenues increased $158.6 million or 111% to $301.9 million in 1999. The increase was due primarily to the Pacific and the 1998 Acquisitions providing increases in revenues of $143.9 million during 1999. Minimum rent increased $114.7 million or 111%, and recoveries from tenants increased $31.8 million or 132%. At December 31, 1999, Regency was operating or developing 216 shopping centers of which 190 were stabilized properties. These stabilized properties were 95% leased at December 31, 1999, and 93.6% leased at December 31, 1998. On a same property basis (excluding Pacific, the 1998 Acquisitions, and four office buildings sold during 1998) gross rental revenues increased $8.9 million or 8%, primarily due to higher base rents. In 1999, rental rates grew by 7.8% from renewal leases and new leases replacing previously occupied spaces in the stabilized properties.
Service operations revenue increased by $6.3 million to $18.2 million in 1999, or 53%. The increase was primarily due to a $8.8 million increase in development profits offset by a $2.5 million reduction in property management fees. During 1999, Regency significantly reduced the portfolio of properties managed on behalf of third party owners.
Operating expenses increased $64.9 million or 91% to $135.8 million in 1999. Combined operating and maintenance, and real estate taxes increased $36.6 million or 118% during 1999 to $67.5 million. The increases are due to Pacific and the 1998 Acquisitions generating operating and maintenance expenses and real estate tax increases of $35.9 million during 1999. On a same property basis, operating and maintenance expenses and real estate taxes increased $879,000 or 3.4%. General and administrative expenses increased 32% during 1999 to $19.3 million due to the hiring of new employees and related office expenses necessary to manage the shopping centers acquired during 1999 and 1998. Depreciation and amortization increased $23.6 million during 1999 or 94% primarily due to Pacific and the 1998 Acquisitions.
Interest expense increased to $60.1 million in 1999 from $28.8 million in 1998 or 109% due to increased average outstanding loan balances related to the financing of the 1998 Acquisitions on the Line, the assumption of debt from the Pacific acquisition and the debt offerings completed in 1999.
Net income for common unitholders was $92.7 million in 1999 vs. $52.4 million in 1998, a $40.3 million or 77% increase primarily related to the acquisition activity discussed. Diluted earnings per share was $1.61 in 1999 vs. $1.75 in 1998 due to the increase in net income offset by the increase in weighted average common shares primarily related to the acquisition of Pacific.
New Accounting Standards and Accounting Changes
The Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities, an Amendment to FASB Statement No. 133" ("FAS 138"), which is effective for all fiscal quarters of all fiscal years beginning after June 15, 2000. FAS 138 and FAS 133 establish accounting and reporting standards for derivative instruments and hedging activities. FAS 138 and FAS 133 require entities to recognize all derivatives as either assets or liabilities in the balance sheet and measure those instruments at fair value. FAS 138 and FAS 133 will have no impact to the financial statements as Regency has no derivative instruments.
Environmental Matters
Regency, like others in the commercial real estate industry, is subject to numerous environmental laws and regulations. The operation of dry cleaning plants at Regency's shopping centers is the principal environmental concern. Regency believes that the tenants who operate these plants do so in accordance with current laws and regulations and has established procedures to monitor their operations. Additionally, Regency uses all legal means to cause tenants to remove dry cleaning plants from its shopping centers. Where available, Regency has applied and been accepted into state sponsored environmental programs. Regency has a blanket environmental insurance policy that covers it against third party liabilities and remediation costs on shopping centers that currently have no known environmental contamination. Regency has also placed environmental insurance on specific properties with known contamination in order to mitigate its environmental risk. Management believes that the ultimate disposition of currently known environmental matters will not have a material effect on the financial position, liquidity, or operations of Regency.
Inflation
Inflation has remained relatively low during 2000 and 1999 and has had a minimal impact on the operating performance of the shopping centers; however, substantially all of Regency's long-term leases contain provisions designed to mitigate the adverse impact of inflation. Such provisions include clauses enabling Regency to receive percentage rentals based on tenants' gross sales, which generally increase as prices rise, and/or escalation clauses, which generally increase rental rates during the terms of the leases. Such escalation clauses are often related to increases in the consumer price index or similar inflation indices. In addition, many of Regency's leases are for terms of less than ten years, which permits Regency to seek increased rents upon re-rental at market rates. Most of Regency's leases require the tenants to pay their share of operating expenses, including common area maintenance, real estate taxes, insurance and utilities, thereby reducing Regency's exposure to increases in costs and operating expenses resulting from inflation.
Item 7a.
Item 7a. Quantitative and Qualitative Disclosures about Market Risk
Market Risk
Regency is exposed to interest rate changes primarily as a result of its line of credit and long-term debt used to maintain liquidity and fund capital expenditures and expansion of Regency's real estate investment portfolio and operations. Regency's interest rate risk management objective is to limit the impact of interest rate changes on earnings and cash flows and to lower its overall borrowing costs. To achieve its objectives Regency borrows primarily at fixed rates and may enter into derivative financial instruments such as interest rate swaps, caps and treasury locks in order to mitigate its interest rate risk on a related financial instrument. Regency has no plans to enter into derivative or interest rate transactions for speculative purposes, and at December 31, 2000, Regency did not have any borrowings hedged with derivative financial instruments.
Regency's interest rate risk is monitored using a variety of techniques. The table below presents the principal amounts maturing (in thousands), weighted average interest rates of remaining debt, and the fair value of total debt (in thousands), by year of expected maturity to evaluate the expected cash flows and sensitivity to interest rate changes.
As the table incorporates only those exposures that exist as of December 31, 2000, it does not consider those exposures or positions, which could arise after that date. Regency's ultimate realized gain or loss with respect to interest rate fluctuations will depend on the exposures that arise during the period, Regency's hedging strategies at that time, and interest rates.
Item 8.
Item 8. Consolidated Financial Statements and Supplementary Data
The Consolidated Financial Statements and supplementary data included in this Report are listed in Part IV, Item 14(a).
Item 9.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
PART III
Item 10.
Item 10. Directors and Executive Officers of the Registrant
Information concerning the directors of Regency is incorporated herein by reference to Regency's definitive proxy statement to be filed with the Securities and Exchange Commission within 120 days after the end of the fiscal year covered by this Form 10-K with respect to its 2001 Annual Meeting of Shareholders. The following provides information concerning the executive officers of Regency.
MARTIN E. STEIN, JR. Mr. Stein, age 48, is Chairman of the Board and Chief Executive Officer of Regency. He served as President of Regency from its initial public offering in October 1993 until December 31, 1998. Mr. Stein also served as President of Regency's predecessor real estate division since 1981, and Vice President from 1976 to 1981. He is a director of Patriot Transportation Holding, Inc., a publicly held transportation and real estate company, and Stein Mart, Inc.
MARY LOU FIALA. Ms. Fiala, age 49, became President and Chief Operating Officer of Regency in January 1999. Before joining Regency she was Managing Director - Security Capital U.S. Realty Strategic Group from March 1997 to January 1999. Ms. Fiala was Senior Vice President and Director of Stores, New England - Macy's East/ Federated Department Stores from 1994 to March 1997. From 1976 to 1994, Ms. Fiala held various merchandising and store operations positions with Macy's/Federated Department Stores.
BRUCE M. JOHNSON Mr. Johnson, age 53, has been Managing Director and Chief Financial Officer of Regency since its initial public offering in October 1993. Mr. Johnson also served as Executive Vice President of Regency's predecessor real estate division since 1979.
Item 11.
Item 11. Executive Compensation
Incorporated herein by reference to Regency's definitive proxy statement to be filed with the Securities and Exchange Commission within 120 days after the end of the fiscal year covered by this Form 10-K with respect to its 2001 Annual Meeting of Shareholders.
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Incorporated herein by reference to Regency's definitive proxy statement to be filed with the Securities and Exchange Commission within 120 days after the end of the fiscal year covered by this Form 10-K with respect to its 2001 Annual Meeting of Shareholders.
Item 13.
Item 13. Certain Relationships and Related Transactions
Incorporated herein by reference to Regency's definitive proxy statement to be filed with the Securities and Exchange Commission within 120 days after the end of the fiscal year covered by this Form 10-K with respect to its 2001 Annual Meeting of Shareholders.
PART IV
Item 14.
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) Financial Statements and Financial Statement Schedules:
RCLP's 2000 financial statements and financial statement schedule, together with the report of KPMG LLP are listed on the index immediately preceding the financial statements at the end of this report.
(b) Reports on Form 8-K:
None
(c) Exhibits:
2. Agreement and Plan of Merger dated as of September 23, 1998 between Regency Centers Corporation and Pacific Retail Trust (incorporated by reference to Exhibit 2.1 to the registration statement on Form S-4 of Regency Centers Corporation, No. 333-65491)
3. Articles of Incorporation and Bylaws
(i) Restated Articles of Incorporation of Regency Centers Corporation as amended to date. (incorporated by reference to Regency's Form 10-K filed on March 19, 2001.)
(ii) Restated Bylaws of Regency Centers Corporation, (incorporated by reference to Exhibit 10 of the Company's Form 10-Q filed November 7, 2000).
4. (a) See exhibits 3(i) and 3(ii) for provisions of the Articles of Incorporation and Bylaws of Regency Centers Corporation defining rights of security holders.
(b) Indenture dated July 20, 1998 between Regency Centers, L.P., the guarantors named therein and First Union National Bank, as trustee (incorporated by reference to Exhibit 4.1 to the registration statement on Form S-4 of Regency Centers, L.P., No. 333-63723).
(c) Indenture dated March 9, 1999 between Regency Centers, L.P., the guarantors named therein and First Union National Bank, as trustee (incorporated by reference to Exhibit 4.1 to the registration statement on Form S-3 of Regency Centers, L.P., No. 333-72899)
10. Material Contracts
~(a) Regency Centers Corporation 1993 Long Term Omnibus Plan, as amended (incorporated by reference to Regency's Form 10-K filed on March 19, 2001.)
~*(b) Form of Stock Purchase Award Agreement
~*(c) Form of Management Stock Pledge Agreement, relating to the Stock Purchase Award Agreement filed as Exhibit 10(b)
~*(d) Form of Promissory Note, relating to the Stock Purchase Award Agreement filed as Exhibit 10(b)
~*(e) Form of Option Award Agreement for Key Employees
~*(f) Form of Option Award Agreement for Non-Employee Directors
~*(g) Annual Incentive for Management Plan
~*(h) Form of Director/Officer Indemnification Agreement
- ------------------------- ~ Management contract or compensatory plan or arrangement filed pursuant to S-K 601(10)(iii)(A).
* Included as an exhibit to Pre-effective Amendment No. 2 to the Company's registration statement on Form S-11 filed October 5, 1993 (33-67258), and incorporated herein by reference
~*(i) Form of Non-Competition Agreement between Regency Centers Corporation and Joan W. Stein, Robert L. Stein, Richard W. Stein, the Martin E. Stein Testamentary Trust A and the Martin E. Stein Testamentary Trust B.
(j) The following documents relating to the purchase by Security Capital U.S. Realty and Security Capital Holdings, S.A. of up to 45% of the Registrant's outstanding common stock:
++ (i) Stock Purchase Agreement dated June 11, 1996.
++ (ii) Stockholders' Agreement dated July 10, 1996.
(A) First Amendment of Stockholders' Agreement dated February 10, 1997 (incorporated by reference to the Company's Form 8-K report filed March 14, 1997)
(B) Amendment No. 2 to Stockholders' Agreement dated December 4, 1997 (incorporated by reference to Exhibit 6.2 to Schedule 13D/A filed by Security Capital U.S. Realty on December 11, 1997)
- -------------------------- ~ Management contract or compensatory plan or arrangement filed pursuant to S-K 601(10)(iii)(A). * Included as an exhibit to Pre-effective Amendment No. 2 to the Company's registration statement on Form S-11 filed October 5, 1993 (33-67258), and incorporated herein by reference ++ Filed as appendices to the Company's definitive proxy statement dated August 2, 1996 and incorporated herein by reference.
(C) Amendment No. 3 to Stockholders Agreement dated September 23, 1998 (incorporated by reference to Exhibit 8.2 to Schedule 13D/A filed by Security Capital U.S. Realty on October 2, 1998)
++ (iii) Registration Rights Agreement dated July 10, 1996.
(k) Stock Grant Plan adopted on January 31, 1994 to grant stock to employees (incorporated by reference to the Company's Form 10-Q filed May 12, 1994).
~@ (l) Criteria for Restricted Stock Awards under 1993 Long Term Omnibus Plan.
~@ (m) Form of 1996 Stock Purchase Award Agreement.
@ (n) Form of 1996 Management Stock Pledge Agreement relating to the Stock Purchase Award Agreement filed as Exhibit 10(o).
~@ (o) Form of Promissory Note relating to 1996 Stock Purchase Award Agreement filed as Exhibit 10(o).
(p) Third Amended and Restated Agreement of Limited Partnership of Regency Centers, L.P., as amended.
(q) Second Amended and Restated Credit Agreement dated as of July 21, 2000 by and among Regency Centers, L.P., a Delaware limited partnership (the "Borrower"), Regency Realty Corporation, a Florida corporation (the "Parent"), each of the financial institutions initially a signatory hereto together with their assignees, (the "Lenders"), and Wells Fargo Bank, National Association, as contractual representative of the Lenders to the extent and in the manner provided, (incorporated by reference to Exhibit 10 of the Company's Form 10-Q filed November 7, 2000).
~(r) Change of Control Agreement dated as of June 1, 2000 by and between REGENCY REALTY CORPORATION, a Florida corporation (the "Company") and Mary Lou Fiala and Bruce M. Johnson (incorporated by reference to Regency's Form 10-K filed on March 19, 2001.)
21. Subsidiaries of the Registrant (incorporated by reference to Regency's Form 10-K filed on March 19, 2001.)
- -------------------------- ~ Management contract or compensatory plan or arrangement filed pursuant to S-K 601(10)(iii)(A). ++ Filed as appendices to the Company's definitive proxy statement dated August 2, 1996 and incorporated herein by reference. @ Filed as an exhibit to the Company's Form 10-K filed March 25, 1997 and incorporated herein by reference.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
REGENCY REALTY CORPORATION
Date: March 16, 2001 By: /s/ Martin E. Stein, Jr. ------------------------ Martin E Stein, Jr., Chairman of the Board and Chief Executive Officer
Date: March 16, 2001 By: /s/ Bruce M. Johnson -------------------- Bruce M. Johnson, Managing Director and Principal Financial Officer
Date: March 16, 2001 By: /s/ J. Christian Leavitt ------------------------ J. Christian Leavitt, Senior Vice President, Finance and Principal Accounting Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated:
Date: March 16, 2001 /s/ Martin E. Stein, Jr. ------------------------ Martin E. Stein, Jr., Chairman of the Board and Chief Executive Officer
Date: March 16, 2001 /s/ Mary Lou Fiala Mary Lou Rogers, President, Chief Operating Officer and Director
Date: March 16, 2001 /s/ Raymond L. Bank ------------------- Raymond L. Bank, Director
Date: March 16, 2001 /s/ C. Ronald Blankenship ------------------------- C. Ronald Blankenship, Director
Date: March 16, 2001 /s/ A. R. Carpenter ------------------- A. R. Carpenter, Director
Date: March 16, 2001 /s/ J. Dix Druce, Jr. --------------------- J. Dix Druce, Jr., Director
Date: March 16, 2001 /s/ John T. Kelley ------------------ John T. Kelley, Director
Date: March 16, 2001 /s/ Douglas S. Luke ------------------- Douglas S. Luke, Director
Date: March 16, 2001 /s/ John C. Schweitzer ---------------------- John C. Schweitzer, Director
Date: March 16, 2001 /s/ Thomas G. Wattles --------------------- Thomas G. Wattles, Director
Date: March 16, 2001 /s/ Terry N. Worrell -------------------- Terry N. Worrell, Director
REGENCY CENTERS, L.P.
INDEX TO FINANCIAL STATEMENT
Regency Centers, L.P.
Independent Auditors' Report.................................................F-2
Consolidated Balance Sheets as of December 31, 2000 and 1999.................F-3
Consolidated Statements of Operations for the years ended December 31, 2000, 1999, and 1998........................................F-4
Consolidated Statements of Stockholders' Equity for the years ended December 31, 2000, 1999 and 1998.............................F-5
Consolidated Statements of Cash Flows for the years ended December 31, 2000, 1999, and 1998........................................F-6
Notes to Consolidated Financial Statements...................................F-8
Financial Statement Schedule
Independent Auditors' Report on Financial Statement Schedule...............S-1
Schedule III - Regency Centers, L.P. Combined Real Estate and Accumulated Depreciation - December 31, 2000........................S-2
All other schedules are omitted because they are not applicable or because information required therein is shown in the consolidated financial statements or notes thereto.
Independent Auditors' Report
The Unitholders of Regency Centers, L.P. and the Board of Directors of Regency Centers Corporation:
We have audited the accompanying consolidated balance sheets of Regency Centers, L.P. as of December 31, 2000 and 1999, and the related consolidated statements of operations, changes in partners' capital, and cash flows for each of the years in the three-year period ended December 31, 2000. These consolidated financial statements are the responsibility of Regency's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Regency Centers, L.P. as of December 31, 2000 and 1999, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2000 in conformity with accounting principles generally accepted in the United States of America.
KPMG LLP
Jacksonville, Florida January 30, 2001
REGENCY CENTERS, L.P. Consolidated Balance Sheets December 31, 2000 and 1999
REGENCY CENTERS, L.P. Consolidated Statements of Operations For the Years ended December 31, 2000, 1999 and 1998
See accompanying notes to consolidated financial statements
REGENCY CENTERS, L.P. Consolidated Statements of Changes in Partners' Capital For the Years ended December 31, 2000, 1999 and 1998
See accompanying notes to consolidated financial statements
REGENCY CENTERS, L.P. Consolidated Statements of Cash Flows For the Years ended December 31, 2000, 1999 and 1998
REGENCY CENTERS, L.P. Consolidated Statements of Cash Flows For the Years ended December 31, 2000, 1999 and 1998 (continued)
REGENCY CENTERS, L.P.
Notes to Consolidated Financial Statements
December 31, 2000
1. Summary of Significant Accounting Policies
(a) Organization and Principles of Consolidation
Regency Centers, L.P. ("RCLP" or "Partnership") is the primary entity through which Regency Centers Corporation ("Regency" or "Company"), a self-administered and self-managed real estate investment trust ("REIT"), conducts all of its business and owns all of its assets.
The Partnership was formed in 1996 for the purpose of acquiring certain real estate properties. The historical financial statements of the Partnership reflect the accounts of the Partnership since its inception, together with the accounts of certain predecessor entities (including Regency Centers, Inc., a wholly-owned subsidiary of Regency through which Regency owned a substantial majority of its properties), which were merged with and into the Partnership as of February 26, 1998. At December 31, 2000, Regency owns approximately 98% of the outstanding common units of the Partnership.
During 2000, Regency transferred all of the assets and liabilities of eighteen shopping centers to the Partnership in exchange for common units. Seventeen of the properties were acquired in 1993, and one was acquired in 1998. Since the Partnership and the eighteen properties are under the common control of Regency, the transfer of the properties has been accounted for at historical cost in a manner similar to a pooling of interests, as if the Partnership had directly acquired the properties at their original acquisition dates. Accordingly, the Partnership's financial statements have been restated to include the assets, liabilities, units issued, and results of operations of the eighteen properties from the date they were acquired.
The Partnership's ownership interests are represented by Units, of which there are six series of preferred Units, common Units owned by the limited partners and common Units owned by Regency. Each outstanding common Unit owned by a limited partner is exchangeable, on a one share per one Unit basis, for the common stock of Regency or for cash at Regency's election.
The accompanying consolidated financial statements include the accounts of the Partnership, its wholly owned subsidiaries, and its majority owned or controlled subsidiaries and partnerships. All significant intercompany balances and transactions have been eliminated in the consolidated financial statements.
REGENCY CENTERS, L.P.
Notes to Consolidated Financial Statements
December 31, 2000
(b) Revenues
The Partnership leases space to tenants under agreements with varying terms. Leases are accounted for as operating leases with minimum rent recognized on a straight-line basis over the term of the lease regardless of when payments are due. Accrued rents are included in tenant receivables. Minimum rent has been adjusted to reflect the effects of recognizing rent on a straight-line basis.
Substantially all of the lease agreements contain provisions which provide additional rents based on tenants' sales volume (contingent or percentage rent) or reimbursement of the tenants' share of real estate taxes and certain common area maintenance (CAM) costs. These additional rents are recognized as the tenants achieve the specified targets as defined in the lease agreements.
Service operations revenue includes property management fees and leasing commissions earned from third parties, and development profits from the sale of shopping centers, build to suit properties, and land to third parties.
(c) Real Estate Investments
Land, buildings and improvements are recorded at cost. All direct and indirect costs clearly associated with the acquisition, development and construction of real estate projects are capitalized as buildings and improvements.
Maintenance and repairs which do not improve or extend the useful lives of the respective assets are reflected in operating and maintenance expense. The property cost includes the capitalization of interest expense incurred during construction based on average outstanding expenditures.
Depreciation is computed using the straight line method over estimated useful lives of up to forty years for buildings and improvements, term of lease for tenant improvements, and three to seven years for furniture and equipment.
Operating properties held for sale include properties that no longer meet the Partnership's long-term investment standards such as expected growth in revenue or market dominance. Once identified and marketed for sale, these properties are segregated on the balance sheet as operating properties held for sale. The Partnership also develops shopping centers and stand-alone retail stores for resale. Once completed, these developments are also included in operating properties held for sale. Operating properties held for sale are carried at the lower of cost or fair value less estimated selling costs. Depreciation and amortization are suspended during the period held for sale. During 2000, the Partnership evaluated seven shopping centers held for sale and determined that impairment had occurred. Accordingly a provision for loss on operating properties held for sale of $13.0 million was recorded. The results of operations from these seven properties was $6.8 million for the year ended December 31, 2000.
The Partnership reviews its real estate investments for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.
REGENCY CENTERS, L.P.
Notes to Consolidated Financial Statements
December 31, 2000
(d) Income Taxes
The Partnership is not liable for federal income taxes and each partner reports its allocable share of income and deductions on its respective return; accordingly no provision for income taxes is required in the consolidated financial statements.
Regency believes it qualifies and intends to continue to qualify as a REIT under the Internal Revenue Code (the "Code"). As a REIT, Regency is allowed to reduce taxable income by all or a portion of its distributions to stockholders. As distributions have exceeded taxable income, no provision for federal income taxes has been made in the accompanying consolidated financial statements.
Earnings and profits, which determine the taxability of dividends to stockholders, differ from net income reported for financial reporting purposes primarily because of different depreciable lives and cost bases of the shopping centers, and other timing differences.
In July 2000, two subsidiaries of the Partnership, Regency Realty Group, Inc., ("RRG") and PRT Development Corporation ("PRTDC") merged with RRG being the surviving entity. RRG is subject to federal and state income taxes and files separate tax returns. RRG, including historical amounts of PRTDC, had taxable income of $2,245,101, $5,029,438, and $774,756 for the years ended December 31, 2000, 1999 and 1998, respectively. RRG incurred federal and state income tax of $890,318, $2,011,629 and $223,657 in 2000, 1999 and 1998, respectively.
The Partnership and RRG plan to jointly elect for RRG to be treated as a Taxable REIT Subsidiary of the Partnership as such term is defined in Section 856(l) of the Code. Such election, if made, will be effective for the tax year beginning January 1, 2001, and is not expected to impact the tax treatment of either Regency or RRG.
At December 31, 2000 and 1999, the net book basis of real estate assets exceeds the tax basis by approximately $170 million and $197 million, respectively, primarily due to the difference between the cost basis of the assets acquired and their carryover basis recorded for tax purposes.
The following summarizes the tax status of dividends paid by Regency during the years ended December 31 (unaudited):
2000 1999 1998 ---- ---- ----
Dividend per share $ 1.92 1.84 1.76 Ordinary income 82% 75% 71% Capital gain 5% 2% 2% Return of capital 11% 23% 27% Unrecaptured Section 1250 gain 2% - -
REGENCY CENTERS, L.P.
Notes to Consolidated Financial Statements
December 31, 2000
(e) Deferred Costs
Deferred costs include deferred leasing costs and deferred loan costs, net of amortization. Such costs are amortized over the periods through lease expiration or loan maturity. Deferred leasing costs consist of internal and external commissions associated with leasing the Partnership's shopping centers. Deferred leasing costs were $15.3 million and $7.1 million at December 31, 2000 and 1999, respectively. Deferred loan costs consists of initial direct and incremental costs associated with financing activities. Deferred loan costs were $6.0 million and $5.4 million at December 31, 2000 and 1999, respectively.
(f) Earnings Per Unit
Basic net income per unit is computed based upon the weighted average number of common units outstanding during the year. Diluted net income per unit also includes common unit equivalents for options to purchase additional units and contingently issuable units when dilutive. See note 7 for the calculation of earnings per unit.
(g) Cash and Cash Equivalents
Any instruments which have an original maturity of ninety days or less when purchased are considered cash equivalents.
(h) Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires the Partnership's management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities, at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
(i) Stock Option Plan
Regency and the Partnership apply the provisions of SFAS No. 123, "Accounting for Stock Based Compensation", which allows companies a choice in the method of accounting for stock options. Entities may recognize as expense over the vesting period the fair value of all stock-based awards on the date of grant or continue to apply the provisions of APB Opinion No. 25 and provide pro forma net income and pro forma earnings per share disclosures for employee stock option grants made as if the fair-value-based method defined in SFAS No. 123 had been applied. APB Opinion No. 25 "Accounting for Stock Issued to Employees" and related interpretations state that compensation expense would be recorded on the date of grant only if the current market price of the underlying stock exceeded the exercise price. Regency has elected to continue to apply the provisions of APB Opinion No. 25 and provide the pro forma disclosure provisions of SFAS No. 123.
REGENCY CENTERS, L.P.
Notes to Consolidated Financial Statements
December 31, 2000
(j) Reclassifications
Certain reclassifications have been made to the 1999 amounts to conform to classifications adopted in 2000.
2. Acquisitions of Shopping Centers
On August 3, 2000, the Partnership acquired the non-owned portion of two properties in one joint venture for $2.5 million in cash. The net assets of the joint venture were and continue to be consolidated by the Partnership. Prior to acquiring the non-owned portion, the joint venture partner's interest was reflected as limited partners' interest in consolidated partnerships in the Partnership's financial statements.
On February 28, 1999, Regency acquired Pacific Retail Trust ("Pacific") for approximately $1.157 billion. The operating results of Pacific are included in the Partnership's consolidated financial statements from the date each property was acquired. The following unaudited pro forma information presents the consolidated results of operations as if the acquisition of Pacific had occurred on January 1, 1999. Such pro forma information reflects adjustments to 1) increase depreciation, interest expense, and general and administrative costs and 2) adjust the weighted average common units issued to acquire the properties. Pro forma revenues would have been $324.7 million as of December 31, 1999. Pro forma net income for common unitholders would have been $99.2 million as of December 31, 1999. Pro forma basic net income per unit and pro forma diluted net income per unit would have been $1.58 and $1.58, respectively, as of December 31, 1999. This data does not purport to be indicative of what would have occurred had the Pacific acquisition been made on January 1, 1999, or of results which may occur in the future.
During 2000 and 1999, the Partnership paid contingent consideration of $5 million and $9 million, respectively, related to the acquisition of 43 shopping centers and joint ventures acquired during 1998. No additional contingent consideration is due related to any acquisitions of the Partnership.
REGENCY CENTERS, L.P.
Notes to Consolidated Financial Statements
December 31, 2000
3. Segments
The Partnership was formed, and currently operates, for the purpose of 1) operating and developing Partnership owned retail shopping centers (Retail segment), and 2) providing services including property management and commissions earned from third parties, and development related profits and fees earned from the sales of shopping centers and build to suit properties to third parties (Service operations segment). The Partnership had previously operated four office buildings that were sold during 1998 (Office buildings segment). The Partnership's reportable segments offer different products or services and are managed separately because each requires different strategies and management expertise. There are no material inter-segment sales or transfers.
The Partnership assesses and measures operating results starting with net operating income for the Retail and Office Buildings segments and income for the Service operations segment and converts such amounts into a performance measure referred to as Funds From Operations ("FFO"). The operating results for the individual retail shopping centers have been aggregated since all of the Partnership's shopping centers exhibit highly similar economic characteristics as neighborhood shopping centers, and offer similar degrees of risk and opportunities for growth. FFO as defined by the National Association of Real Estate Investment Trusts consists of net income (computed in accordance with generally accepted accounting principles) excluding gains (or losses) from debt restructuring and sales of income producing property held for investment, plus depreciation and amortization of real estate, and adjustments for unconsolidated investments in real estate partnerships and joint ventures. The Partnership further adjusts FFO by distributions made to holders of Units and preferred stock that results in a diluted FFO amount. The Partnership considers diluted FFO to be the industry standard for reporting the operations of real estate investment trusts ("REITs"). Adjustments for investments in real estate partnerships are calculated to reflect diluted FFO on the same basis. While management believes that diluted FFO is the most relevant and widely used measure of the Partnership's performance, such amount does not represent cash flow from operations as defined by generally accepted accounting principles, should not be considered an alternative to net income as an indicator of the Partnership's operating performance, and is not indicative of cash available to fund all cash flow needs. Additionally, the Partnership's calculation of diluted FFO, as provided below, may not be comparable to similarly titled measures of other REITs.
The accounting policies of the segments are the same as those described in note 1. The revenues, diluted FFO, and assets for each of the reportable segments are summarized as follows for the years ended December 31, 2000, 1999, and 1998. Assets not attributable to a particular segment consist primarily of cash and deferred costs.
REGENCY CENTERS, L.P.
Notes to Consolidated Financial Statements
December 31, 2000
REGENCY CENTERS, L.P.
Notes to Consolidated Financial Statements
December 31, 2000
4. Investments in Real Estate Partnerships
The Partnership accounts for all investments in which it owns less than 50% and does not have controlling financial interest using the equity method. The Partnership's combined investment in these partnerships was $85.2 million and $66.9 million at December 31, 2000 and 1999, respectively. Net income is allocated to the Partnership in accordance with the respective partnership agreements. On June 30, 2000, the Partnership acquired the non-owned portion of nine joint ventures, previously accounted for using the equity method, for $4.4 million consisting of cash, common stock and Units. As a result, these joint ventures are wholly-owned by the Partnership and are consolidated for financial reporting purposes as of the date of acquisition.
On December 31, 2000, the Partnership contributed $4.5 million to Columbia Regency Retail Partners, LLC ("Columbia") representing a 10% equity interest. The remaining 90% of Columbia is owned by Columbia PERFCO Partners, L.P., an affiliate of Oregon Public Employees Retirement Fund. Columbia was formed for the purpose of investing in grocery anchored shopping centers.
5. Notes Payable and Unsecured Line of Credit
The Partnership's outstanding debt at December 31, 2000 and 1999 consists of the following (in thousands):
On December 15, 2000, the Partnership completed a $10 million unsecured private debt offering with an interest rate of 8.0%. The notes were priced at 99.375%, are due on December 15, 2010 and are guaranteed by Regency. On August 29, 2000, the Partnership completed a $150 million unsecured debt offering with an interest rate of 8.45%. The notes were priced at 99.819%, are due on September 1, 2010 and are guaranteed by Regency. The net proceeds of the offerings were used to reduce the balance of the unsecured line of credit (the "Line").
REGENCY CENTERS, L.P.
Notes to Consolidated Financial Statements
December 31, 2000
5. Notes Payable and Unsecured Line of Credit (continued)
In July 2000, the Partnership modified the terms of its Line by reducing the commitment to $625 million. The Line matures in March 2002, but may be extended annually for one-year periods. Borrowings under the Line bear interest at a variable rate based on LIBOR plus a 1% spread (7.875% at December 31, 2000) compared to LIBOR plus a 1.075% spread (7.575% at December 31, 1999), and is dependent on Regency maintaining its investment grade rating. The Partnership is required to comply and is in compliance with certain financial and other covenants customary with this type of unsecured financing. The Line is used primarily to finance the acquisition and development of real estate, but is also available for general working capital purposes.
Subsequent to December 31, 2000, the Partnership paid down the Line by $265 million from the proceeds of an unsecured debt offering for $220 million completed on January 22, 2001, and from the proceeds from the sale of two shopping centers to Columbia completed on December 31, 2000.
Mortgage loans are secured by certain real estate properties, and may be prepaid, but could be subject to a yield-maintenance premium. Mortgage loans are generally due in monthly installments of interest and principal and mature over various terms through 2019. Variable interest rates on mortgage loans are currently based on LIBOR plus a spread in a range of 125 basis points to 150 basis points. Fixed interest rates on mortgage loans range from 7.04% to 9.5%.
During 1999, the Partnership assumed debt with a fair value of $402.6 million related to the acquisition of real estate, which included debt premiums of $4.1 million based upon the above market interest rates of the debt instruments. Debt premiums are amortized over the terms of the related debt instruments.
On April 15, 1999, the Partnership completed a $250 million unsecured debt offering in two tranches. The Partnership issued $200 million 7.4% notes due April 1, 2004, priced at 99.922% to yield 7.42%, and $50 million 7.75% notes due April 1, 2009, priced at 100%. The net proceeds of the offering were used to reduce the balance of the Line.
As of December 31, 2000, scheduled principal repayments on notes payable and the Line were as follows (in thousands):
REGENCY CENTERS, L.P. Notes to Consolidated Financial Statements
December 31, 2000
5. Notes Payable and Unsecured Line of Credit (continued)
Unconsolidated partnerships and joint ventures had mortgage loans payable of $14.3 million at December 31, 2000, and the Partnership's proportionate share of these loans was $5.9 million.
The fair value of the Partnership's notes payable and Line are estimated based on the current rates available to the Partnership for debt of the same remaining maturities. Variable rate notes payable, and the Line, are considered to be at fair value since the interest rates on such instruments reprice based on current market conditions. Notes payable with fixed rates, that have been assumed in connection with acquisitions, are recorded in the accompanying financial statements at fair value. The Partnership considers the carrying value of all other fixed rate notes payable to be a reasonable estimation of their fair value based on the fact that the rates of such notes are similar to rates available to the Partnership for debt of the same terms.
6. Regency's Stockholders' Equity and Partners' Capital
Allocation of profits and losses and distributions to unitholders are made in accordance with the partnership agreement. Distributions to Limited Partners are made in the same amount as the dividends declared and paid on Regency common stock. Distributions to the General Partner are made at the General Partner's discretion.
The following represent equity transactions initiated by Regency and the Partnership. The proceeds from such transactions are the primary source of capital from which the Partnership acquires and develops new real estate.
In May and September 2000, the Partnership issued $70 million and $24 million of 8.75% Series E and Series F Cumulative Redeemable Preferred Units (the "Preferred Units"), respectively. The issues were sold to institutional investors in private placements for $100.00 per unit. The Preferred Units, which may be called by the Partnership at par on or after May and September 2005, respectively, have no stated maturity or mandatory redemption, and pay a cumulative, quarterly dividend at an annualized rate of 8.75%. At any time after 10 years from the date of issuance, the Preferred Units may be exchanged for 8.75% Cumulative Redeemable Preferred Stock ("Preferred Stock") at an exchange rate of one share for one unit. The Preferred Units and the related Preferred Stock are not convertible into common stock of Regency. The net proceeds of these offerings were used to reduce the Line. In 1999, the Partnership issued similar preferred units in several series in the amount of $210 million with an average fixed distribution rate of 8.93%. At December 31, 2000, the face value of total preferred units issued was $384 million with an average fixed distribution rate of 8.72% vs. $290 million with an average fixed distribution rate of 8.71% at December 31, 1999.
REGENCY CENTERS, L.P.
Notes to Consolidated Financial Statements
December 31, 2000
6. Regency's Stockholders' Equity and Partners' Capital (continued)
Terms and conditions of the Preferred Units are summarized as follows:
As part of the acquisition of Pacific, Regency issued Series 1 and Series 2 preferred stock. During 1999, a holder of Series 2 preferred stock converted all of their shares into 14,987 shares of common stock. During 2000, the remaining Series 1 preferred stock was converted into 537,107 shares of Series 2 preferred stock. Series 2 preferred stock is convertible into common stock on a one-for-one basis. The Series 2 preferred shares are entitled to quarterly dividends in an amount equal to the common dividend and are cumulative. Regency may redeem the preferred stock any time after October 20, 2010 at a price of $20.83 per share, plus all accrued but unpaid dividends.
During 1999, the Board of Directors authorized the repurchase of approximately $65 million of Regency's outstanding shares through periodic open market transactions or privately negotiated transactions. At March 31, 2000, Regency had completed the program by purchasing 3.25 million shares.
During 1999, 2,500,000 shares of Class B common stock converted into 2,975,468 shares of common stock.
On June 11, 1996, Regency entered into a Stockholders Agreement with a subsidiary of Security Capital Group Incorporated ("SCG") granting it certain rights such as purchasing common stock, nominating representatives to Regency's Board of Directors, and subjecting SCG to certain restrictions including voting and ownership restrictions. In conjunction with the acquisition of Pacific in 1999, SCG exchanged their Pacific shares for 22.6 million Regency common shares.
REGENCY CENTERS, L.P.
Notes to Consolidated Financial Statements
December 31, 2000
7. Earnings Per Unit
The following summarizes the calculation of basic and diluted earnings per unit for the years ended December 31, 2000, 1999 and 1998 (in thousands except per unit data):
The Class B common stock dividends are deducted from income in computing earnings per unit since the proceeds of this offering were transferred to and reinvested by the Partnership. In addition, the Series 1 and Series 2 Preferred stock dividends are also deducted from net income in computing earnings per unit since the properties acquired with these preferred shares were contributed to the Partnership. Accordingly, the payment of Class B common, Series 1 and Series 2 Preferred stock dividends are deemed to be preferential to the distributions made to common unitholders.
REGENCY CENTERS, L.P.
Notes to Consolidated Financial Statements
December 31, 2000
8. Long-Term Stock Incentive Plans
Regency is committed to contribute to the Partnership all proceeds from the exercise of options or other stock-based awards granted under Regency's Stock Option and Incentive Plan. Regency's ownership in the Partnership will be increased based on the amount of proceeds contributed to the Partnership.
In 1993, Regency adopted a Long-Term Omnibus Plan (the "Plan") pursuant to which the Board of Directors may grant stock and stock options to officers, directors and other key employees. The Plan provides for the issuance of up to 12% of Regency's common shares outstanding not to exceed 8.5 million shares. Stock options are granted with an exercise price equal to the stock's fair market value at the date of grant. All stock options granted have ten year terms, and contain vesting terms of one to five years from the date of grant.
At December 31, 2000, there were approximately 2 million shares available for grant under the Plan. The per share weighted-average fair value of stock options granted during 2000 and 1999 was $2.18 and $1.23 on the date of grant using the Black Scholes option-pricing model with the following weighted-average assumptions: 2000 - expected dividend yield 8.1%, risk-free interest rate of 6.7%, expected volatility 20%, and an expected life of 6.0 years; 1999 - expected dividend yield 9.2%, risk-free interest rate of 5.7%, expected volatility 21%, and an expected life of 5.3 years. Regency applies APB Opinion No. 25 in accounting for its Plan and, accordingly, no compensation cost has been recognized for its stock options in the consolidated financial statements.
Had the Partnership determined compensation cost based on the fair value at the grant date for its stock options under SFAS No. 123, the Partnership's net income for common unitholders would have been reduced to the pro forma amounts indicated below (in thousands except per unit data):
REGENCY CENTERS, L.P.
Notes to Consolidated Financial Statements
December 31, 2000
8. Long-Term Stock Incentive Plans (continued)
Stock option activity during the periods indicated is as follows:
The following table presents information regarding all options outstanding at December 31, 2000:
Weighted Average Weighted Number of Remaining Range of Average Options Contractual Exercise Exercise Outstanding Life Prices Price -------------- -------------- ---------------- ------------- 412,823 8.32 $ 16.75 - 19.81 $ 19.73 1,410,239 7.72 20.83 - 23.19 21.87 1,767,715 6.37 25.00 - 27.69 25.68 ----------------- -------------- ------------------ ------------- 3,590,777 7.12 $ 16.75 - 27.69 $ 23.50 ================= ============== ================== =============
REGENCY CENTERS, L.P.
Notes to Consolidated Financial Statements
December 31, 2000
8. Long-Term Stock Incentive Plans (continued)
The following table presents information regarding options currently exercisable at December 31, 2000: Weighted Number of Range of Average Options Exercise Exercise Exercisable Prices Price --------------- ----------------- -------------- 135,850 $ 16.75 - 19.81 $ 19.55 653,789 20.83 - 23.19 21.96 1,176,409 25.00 - 27.69 25.62 --------------- ------------------- --------------- 1,966,048 $ 16.75 - 27.69 $ 23.98 =============== =================== ===============
Also as part of the Plan, officers and other key employees have received loans to purchase stock with market rates of interest, have been granted restricted stock, and have been granted dividend equivalents. During 2000, 1999, and 1998, the Partnership charged $3,423,079, $1,030,645, and $1,322,164, respectively, to income on the consolidated statements of operations related to the Plan.
9. Operating Leases
The Partnership's properties are leased to tenants under operating leases with expiration dates extending to the year 2032. Future minimum rents under noncancelable operating leases as of December 31, 2000, excluding tenant reimbursements of operating expenses and excluding additional contingent rentals based on tenants' sales volume are as follows:
Year Ending December 31, Amount --------------------------- ----------------
2001 $ 248,534,659 2002 237,070,457 2003 214,939,060 2004 184,882,360 2005 156,602,001 Thereafter 1,033,051,454 -----------------
Total $ 2,075,079,991 =================
The shopping centers' tenant base includes primarily national and regional supermarkets, drug stores, discount department stores and other retailers and, consequently, the credit risk is concentrated in the retail industry. There were no tenants which individually represented 10% or more of the Partnership's combined minimum rent.
REGENCY CENTERS, L.P.
Notes to Consolidated Financial Statements
December 31, 2000
10. Contingencies
The Partnership, like others in the commercial real estate industry, is subject to numerous environmental laws and regulations. The operation of dry cleaning plants at the Partnership's shopping centers is the principal environmental concern. The Partnership believes that the tenants who operate these plants do so in accordance with current laws and regulations and has established procedures to monitor their operations. Additionally, the Partnership uses all legal means to cause tenants to remove dry cleaning plants from its shopping centers. Where available, the Partnership has applied and been accepted into state sponsored environmental programs. The Partnership has a blanket environmental insurance policy that covers it against third party liabilities and remediation costs on shopping centers that currently have no known environmental contamination. The Partnership has also placed environmental insurance on specific properties with known contamination in order to mitigate its environmental risk. Management believes that the ultimate disposition of currently known environmental matters will not have a material effect on the financial position, liquidity, or operations of the Partnership. At December 31, 2000 and 1999, the Partnership had recorded environmental liabilities of $2.1 million and $2.6 million, respectively.
11. Market and Dividend Information (Unaudited)
Regency's common stock is traded on the New York Stock Exchange ("NYSE") under the symbol "REG". Regency currently has approximately 3,500 shareholders. The following table sets forth the high and low prices and the cash dividends declared on Regency's common stock by quarter for 2000 and 1999:
REGENCY CENTERS, L.P.
Notes to Consolidated Financial Statements
December 31, 2000
12. Summary of Quarterly Financial Data (Unaudited)
Presented below is a summary of the consolidated quarterly financial data for the years ended December 31, 2000 and 1999 (amounts in thousands, except per unit data):
Independent Auditors' Report
On Financial Statement Schedule
The Unitholders of Regency Centers, L.P. and the Board of Directors of Regency Centers Corporation
Under date of January 30, 2001, we reported on the consolidated balance sheets of Regency Centers, L.P. as of December 31, 2000 and 1999, and the related consolidated statements of operations, changes in partners' capital, and cash flows for each of the years in the three-year period ended December 31, 2000, as contained in the annual report on Form 10-K for the year 2000. In connection with our audits of the aforementioned consolidated financial statements, we also audited the related financial statement schedule as listed in the accompanying index on page of the annual report on Form 10-K for the year 2000. This financial statement schedule is the responsibility of the Partnership's management. Our responsibility is to express an opinion on the financial statement schedule based on our audits.
In our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
KPMG LLP
Jacksonville, Florida January 30, 2001
S-1
REGENCY CENTERS CORPORATION
Combined Real Estate and Accumulated Depreciation December 31, 2000
REGENCY CENTERS CORPORATION
Combined Real Estate and Accumulated Depreciation December 31, 2000
Depreciation and amortization of the Company's investment in buildings and improvements reflected in the statements of operation is calculated over the estimated useful lives of the assets as follows:
Buildings and improvements up to 40 years
The aggregate cost for Federal income tax purposes was approximately $2.3 billion at December 31, 2000.
The changes in total real estate assets for the period ended December 31, 2000, 1999 and 1998:
The changes in accumulated depreciation for the period ended December 31, 2000, 1999 and 1998: