United States
SECURITIES AND EXCHANGE COMMISSION
Washington DC 20549
FORM 10-Q
(Mark One)
[X] For the quarterly period ended March 31, 2003
-or-
[ ]Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from ________ to ________
Commission File Number 1-12298
REGENCY CENTERS CORPORATION
---------------------------
(Exact name of registrant as specified in its charter)
Florida 59-3191743
------- ----------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
121 West Forsyth Street, Suite 200
Jacksonville, Florida 32202
---------------------------
(Address of principal executive offices) (Zip Code)
(904) 598-7000
--------------
(Registrant's telephone number, including area code)
Unchanged
---------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No[ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes [X] No [ ]
(Applicable only to Corporate Registrants)
------------------------------------------
As of May 9, 2003, there were 60,453,022 shares outstanding of the Registrant's
common stock.
REGENCY CENTERS CORPORATION
Consolidated Balance Sheets
(unaudited)
March 31, December 31,
2003 2002
---- ----
Assets
Real estate investments at cost:
Land $ 742,842,191 715,255,513
Buildings and improvements 2,046,885,742 1,973,501,081
----------------- -----------------
2,789,727,933 2,688,756,594
Less: accumulated depreciation 261,251,148 244,595,928
----------------- -----------------
2,528,476,785 2,444,160,666
Properties in development 253,232,722 276,085,435
Operating properties held for sale - 5,658,905
Investments in real estate partnerships 125,136,875 125,482,151
----------------- -----------------
Net real estate investments 2,906,846,382 2,851,387,157
Cash and cash equivalents 28,273,745 56,447,329
Notes receivable 30,877,475 56,630,876
Tenant receivables, net of allowance for uncollectible accounts
of $3,734,842 and $4,258,891 at March 31, 2003
and December 31, 2002, respectively 34,775,383 47,983,160
Deferred costs, less accumulated amortization of $27,783,526 and
$25,588,464 at March 31, 2003 and December 31, 2002, respectively 36,930,152 37,367,196
Other assets 16,034,832 19,112,148
----------------- -----------------
$ 3,053,737,969 3,068,927,866
================= =================
Liabilities and Stockholders' Equity
Liabilities:
Notes payable $ 1,251,159,768 1,253,524,045
Unsecured line of credit 178,750,000 80,000,000
Accounts payable and other liabilities 58,204,057 83,977,263
Tenants' security and escrow deposits 9,185,789 8,847,603
----------------- -----------------
Total liabilities 1,497,299,614 1,426,348,911
----------------- -----------------
Preferred units 302,325,891 375,403,652
Exchangeable operating partnership units 29,914,215 30,629,974
Limited partners' interest in consolidated partnerships 16,358,120 14,825,256
----------------- -----------------
Total minority interest 348,598,226 420,858,882
----------------- -----------------
Stockholders' equity:
Series 2 cumulative convertible preferred stock and paid in capital, $.01
par value per share: 1,502,532 shares authorized; 450,400 shares issued
and outstanding at December 31, 2002;
liquidation preference $20.83 per share - 10,505,591
Common stock $.01 par value per share: 150,000,000 shares
authorized; 64,383,288 and 63,480,417 shares issued
at March 31, 2003 and December 31, 2002, respectively 643,833 634,804
Treasury stock; 3,978,837 and 3,923,381 shares held at
March 31, 2003 and December 31, 2002, respectively, at cost (77,748,094) (77,698,485)
Additional paid in capital 1,377,929,719 1,367,808,138
Distributions in excess of net income (92,985,329) (79,529,975)
----------------- -----------------
Total stockholders' equity 1,207,840,129 1,221,720,073
----------------- -----------------
Commitments and contingencies
$ 3,053,737,969 3,068,927,866
================= =================
See accompanying notes to consolidated financial statements
2
REGENCY CENTERS CORPORATION
Consolidated Statements of Operations
For the Three Months ended March 31, 2003 and 2002
(unaudited)
2003 2002
---- ----
Revenues:
Minimum rent $ 70,007,271 64,980,920
Percentage rent 306,801 593,031
Recoveries from tenants 20,908,683 18,916,420
Service operations revenue 3,937,115 2,022,609
Equity in income of investments in
real estate partnerships 2,335,979 1,065,511
------------------ ------------------
Total revenues 97,495,849 87,578,491
------------------ ------------------
Operating expenses:
Depreciation and amortization 18,819,364 16,066,340
Operating and maintenance 13,343,330 11,240,412
General and administrative 4,134,899 3,989,595
Real estate taxes 10,246,523 9,686,598
Other expenses 426,739 359,343
------------------ ------------------
Total operating expenses 46,970,855 41,342,288
------------------ ------------------
Other expense (income):
Interest expense, net of interest income of $892,666
and $841,638 in 2003 and 2002, respectively 20,632,944 19,622,302
Gain on sale of operating properties - (1,494,225)
------------------ ------------------
Total other expense 20,632,944 18,128,077
------------------ ------------------
Income before minority interests 29,892,050 28,108,126
Minority interest preferred units (10,782,379) (8,368,752)
Minority interest of exchangeable operating partnership units (453,273) (492,720)
Minority interest of limited partners (63,708) (109,112)
------------------ ------------------
Income from continuing operations 18,592,690 19,137,542
Discontinued operations, net:
Operating (loss) income from discontinued operations (41,661) 4,433,136
(Loss) gain on sale of operating properties and properties in development (626,577) 1,705,985
------------------ ------------------
(Loss) income from discontinued operations (668,238) 6,139,121
------------------ ------------------
Net income 17,924,452 25,276,663
Preferred stock dividends - (758,628)
------------------ ------------------
Net income for common stockholders $ 17,924,452 24,518,035
================== ==================
Income per common share - Basic:
Income from continuing operations $ 0.31 0.31
Discontinued operations $ (0.01) 0.11
------------------ ------------------
Net income for common stockholders per share $ 0.30 0.42
================== ==================
Income per common share - Diluted:
Income from continuing operations $ 0.31 0.31
Discontinued operations $ (0.01) 0.11
------------------ ------------------
Net income for common stockholders per share $ 0.30 0.42
================== ==================
See accompanying notes to consolidated financial statements
3
REGENCY CENTERS CORPORATION
Consolidated Statement of Stockholders' Equity
For the Three Months ended March 31, 2003
Additional Distributions Total
Series 2 Common Treasury Paid In in Excess of Stockholders'
Preferred Stock Stock Stock Capital Net Income Equity
--------------- -------- ------------ -------------- ------------- --------------
Balance at
December 31, 2002 $ 10,505,591 634,804 (77,698,485) 1,367,808,138 (79,529,975) 1,221,720,073
Common stock issued as
compensation or purchased by
directors or officers - 3,942 (532) 2,910,091 - 2,913,501
Common stock issued for exercise
of stock options, net of shares
cancelled - 501 (49,077) (3,746,300) - (3,794,876)
Common stock issued for
partnership units exchanged - 82 - 216,955 - 217,037
Common stock issued for
preferred stock exchanged (10,505,591) 4,504 - 10,501,087 - -
Reallocation of minority interest - - - 239,748 - 239,748
Cash dividends declared:
Common stock ($.52 per share) - - - - (31,379,806) (31,379,806)
Net income - - - - 17,924,452 17,924,452
------------- ---------- ------------- --------------- ------------- ---------------
Balance at
March 31, 2003 $ - 643,833 (77,748,094) 1,377,929,719 (92,985,329) 1,207,840,129
============= ========== ============= =============== ============= ===============
See accompanying notes to consolidated financial statements.
4
REGENCY CENTERS CORPORATION
Consolidated Statements of Cash Flows
For the Three Months ended March 31, 2003 and 2002
(unaudited)
2003 2002
---- ----
Cash flows from operating activities:
Net income $ 17,924,452 25,276,663
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 18,863,396 17,309,433
Deferred loan cost and debt premium amortization 531,666 585,517
Stock based compensation 2,869,211 2,011,989
Minority interest preferred units 10,782,379 8,368,752
Minority interest of exchangeable operating partnership units 436,701 650,779
Minority interest of limited partners 63,708 109,112
Equity in income of investments in real estate partnerships (2,335,979) (1,065,511)
Loss (gain) on sale of operating properties 642,116 (3,158,438)
Distributions from operations of investments in real estate partnerships 2,098,640 1,252,724
Changes in assets and liabilities:
Tenant receivables 12,875,773 1,406,622
Deferred leasing costs (2,237,496) (2,912,407)
Other assets 2,539,765 (679,629)
Accounts payable and other liabilities (31,384,142) (22,859,020)
Tenants' security and escrow deposits 378,327 264,514
----------------- -----------------
Net cash provided by operating activities 34,048,517 26,561,100
----------------- -----------------
Cash flows from investing activities:
Acquisition and development of real estate (99,041,877) (49,238,640)
Proceeds from sale of real estate 31,579,912 46,703,287
Investments in real estate partnerships (766,994) (14,412,286)
Capital improvements (2,840,094) (3,656,100)
Proceeds from sale of investments in real estate partnerships - 2,388,319
Repayment (funding) of notes receivable, net 25,753,401 (1,059,208)
Distributions received from investments in real estate partnerships 1,349,609 3,819,442
----------------- -----------------
Net cash used in investing activities (43,966,043) (15,455,186)
----------------- -----------------
Cash flows from financing activities:
Net proceeds from common stock issuance 968,460 3,500,499
Repurchase of common stock - (2,725,000)
Partial redemption of preferred units (75,750,000) -
Conversion of exchangeable operating partnership units - (83,232)
Distributions to exchangeable operating partnership unit holders (695,676) (760,672)
Distributions to preferred unit holders (8,110,140) (8,368,752)
Dividends paid to common stockholders (31,379,806) (29,459,582)
Dividends paid to preferred stockholders - (758,628)
Net proceeds from fixed rate unsecured notes - 249,625,000
Proceeds (repayment) of unsecured line of credit, net 98,750,000 (184,000,000)
Repayment of notes payable (507,000) (32,921,532)
Scheduled principal payments (1,531,896) (1,417,068)
Deferred loan costs - (1,925,926)
----------------- -----------------
Net cash used in financing activities (18,256,058) (9,294,893)
----------------- -----------------
Net (decrease) increase in cash and cash equivalents (28,173,584) 1,811,021
Cash and cash equivalents at beginning of period 56,447,329 27,853,264
----------------- -----------------
Cash and cash equivalents at end of period $ 28,273,745 29,664,285
================= =================
5
REGENCY CENTERS CORPORATION
Consolidated Statements of Cash Flows
For the Three Months ended March 31, 2003 and 2002
(unaudited)
continued
2003 2002
---- ----
Supplemental disclosure of cash flow information - cash paid for interest (net
of capitalized interest of $2,784,675 and $3,797,547
in 2003 and 2002, respectively) $ 29,264,211 31,534,965
================= =================
Supplemental disclosure of non-cash transactions:
Real estate contributed from limited partners' in consolidated partnerships $ 1,469,156 -
================= =================
See accompanying notes to consolidated financial statements.
6
Regency Centers Corporation
Notes to Consolidated Financial Statements
March 31, 2003
1. Summary of Significant Accounting Policies
(a) Organization and Principles of Consolidation
The accompanying consolidated financial statements include the
accounts of Regency Centers Corporation, its wholly-owned
qualified REIT subsidiaries, and partnerships in which it has
voting control (the "Company" or "Regency"). All significant
intercompany balances and transactions have been eliminated in
the consolidated financial statements. The Company owns
approximately 98% of the outstanding common units ("Units") of
Regency Centers, L.P., ("RCLP"). Regency invests in real estate
through its partnership interest in RCLP. Generally all of the
acquisition, development, operations and financing activity of
Regency, including the issuance of Units or preferred units, are
executed by RCLP. The equity interests of third parties held in
RCLP and the majority owned or controlled partnerships are
included in the consolidated financial statements as preferred or
exchangeable operating partnership units and limited partners'
interest in consolidated partnerships. The Company is a qualified
real estate investment trust ("REIT"), which began operations in
1993 as Regency Realty Corporation and changed its name to
Regency Centers Corporation in 2001.
The financial statements reflect all adjustments that are of a
normal recurring nature, and in the opinion of management, are
necessary to properly state the results of operations and
financial position. Certain information and footnote disclosures
normally included in financial statements prepared in accordance
with accounting principles generally accepted in the United
States of America have been condensed or omitted although
management believes that the disclosures are adequate to make the
information presented not misleading. The financial statements
should be read in conjunction with the financial statements and
notes thereto included in the Company's December 31, 2002 Form
10-K filed with the Securities and Exchange Commission.
(b) Revenues
The Company 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 that
provide additional rents based on tenants' sales volume
(contingent or percentage rent) and reimbursement of the tenants'
share of real estate taxes and certain common area maintenance
("CAM") costs. Percentage rents are recognized when the tenants
achieve the specified targets as defined in their lease
agreements and recovery of real estate taxes and CAM costs are
recognized when earned.
Service operations revenue includes management fees, commission
income, and gains or losses from the sale of land and development
properties without significant operations. Service operations
revenue does not include gains or losses from the sale of
operating properties. The Company accounts for profit recognition
on sales of real estate in accordance with the Financial
Accounting Standards Board ("FASB") Statement No. 66,
7
Regency Centers Corporation
Notes to Consolidated Financial Statements
March 31, 2003
(b) Revenues (continued)
"Accounting for Sales of Real Estate." In summary, profits from
sales will not be recognized by the Company unless a sale has
been consummated; the buyer's initial and continuing investment
is adequate to demonstrate a commitment to pay for the property;
the Company has transferred to the buyer the usual risks and
rewards of ownership; and the Company does not have substantial
continuing involvement with the property.
(c) Real Estate Investments
Land, buildings and improvements are recorded at cost. All direct
and indirect costs related to development activities are
capitalized. Included in these costs are interest and real estate
taxes incurred during construction as well as estimates for the
portion of internal costs that are incremental, and deemed
directly or indirectly related to development activity.
Maintenance and repairs that do not improve or extend the useful
lives of the respective assets are reflected in operating and
maintenance expense.
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.
On January 1, 2002, the Company adopted SFAS No. 144, "Accounting
for the Impairment or Disposal of Long-Lived Assets" ("Statement
144"). In accordance with Statement 144, operating properties
held for sale includes only those properties available for
immediate sale in their present condition and for which
management believes it is probable that a sale of the property
will be completed within one year. Operating properties held for
sale are carried at the lower of cost or fair value less costs to
sell. Depreciation and amortization are suspended during the
period held for sale.
The Company reviews its real estate portfolio for impairment
whenever events or changes in circumstances indicate that the
carrying amount may not be recoverable. Regency determines
whether impairment has occurred by comparing the property's
carrying value to an estimate of the future undiscounted cash
flows. In the event impairment exists, assets are written down to
fair value for held and used assets and fair value less costs to
sell for held for sale assets.
The Company's properties generally have operations and cash flows
that can be clearly distinguished from the rest of the Company.
In accordance with Statement 144, the operations and gains on
sales reported in discontinued operations include those operating
properties and properties in development for which operations and
cash flows can be clearly distinguished. The operations from
these properties have been eliminated from ongoing operations and
the Company will not have continuing involvement after
disposition. Prior periods have been restated to reflect the
operations of these properties as discontinued operations. The
operations and gains on sales of operating properties sold to
real estate partnerships in which the Company has some continuing
involvement are reported as income from continuing operations.
8
Regency Centers Corporation
Notes to Consolidated Financial Statements
March 31, 2003
(d) Deferred Costs
Deferred costs include deferred leasing costs, leasing
intangibles acquired in business combinations 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 Company's shopping centers. Leasing
intangibles represent costs associated with acquiring properties
with in-place leases. Net deferred leasing costs and leasing
intangibles were $26.9 million and $23.7 million at March 31,
2003 and December 31, 2002, respectively. Deferred loan costs
consist of initial direct and incremental costs associated with
financing activities. Net deferred loan costs were $10 million
and $13.3 million at March 31, 2003 and December 31, 2002,
respectively.
(e) Earnings per Share and Treasury stock
Basic net income per share of common stock is computed based upon
the weighted average number of common shares outstanding during
the year. Diluted net income per share also includes common share
equivalents for stock options, exchangeable operating partnership
units, and preferred stock when dilutive. See note 6 for the
calculation of earnings per share.
Repurchases of the Company's common stock (net of shares retired)
are recorded at cost and are reflected as Treasury stock in the
consolidated statements of stockholders' equity.
(f) Stock-Based Compensation
In December 2002, the FASB issued SFAS No. 148, "Accounting for
Stock-Based Compensation - Transition and Disclosure" ("Statement
148"). Statement 148 provides alternative methods of transition
for a voluntary change to the fair value based method of
accounting for stock-based employee compensation. In addition,
Statement 148 amends the disclosure requirements of Statement No.
123, "Accounting for Stock-Based Compensation" ("Statement 123"),
to require more prominent and frequent disclosures in financial
statements about the effects of stock-based compensation. The
transition guidance and annual disclosure provisions of Statement
148 are effective for fiscal years ending after December 15, 2002
and the interim disclosure provisions are effective for periods
beginning after December 15, 2002. As permitted under Statement
123 and Statement 148, the Company will continue to follow the
accounting guidelines pursuant to Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees"
("Opinion 25"), for stock-based compensation and to furnish the
pro forma disclosures as required under Statement 148.
The Company applies Opinion 25 in accounting for its stock-based
compensation plans, and accordingly, no compensation cost has
been recognized for its stock options in the consolidated
financial statements. Had the Company determined compensation
cost based on the fair value at the grant date for its
stock-based employee awards under Statement 123, the Company's
net income for common stockholders for the three months ended
March 31, 2003 and 2002 would have been reduced to the pro forma
amounts indicated on the following page (in thousands except per
share data):
9
Regency Centers Corporation
Notes to Consolidated Financial Statements
March 31, 2003
(f) Stock-Based Compensation (continued)
2003 2002
---- ----
Net income for common stockholders
as reported: $ 17,924 24,518
Add: stock-based employee compensation
expense included in reported net income 2,869 2,012
Deduct: total stock-based employee
compensation expense determined under
fair value based methods for all awards (4,095) (3,034)
-------------- ---------------
Pro forma net income $ 16,698 23,496
============== ===============
Earnings per share:
Basic - as reported $ 0.30 0.42
============== ===============
Basic - pro forma $ 0.28 0.41
============== ===============
Diluted - as reported $ 0.30 0.42
============== ===============
Diluted - pro forma $ 0.28 0.40
============== ===============
(g) Consolidation of Variable Interest Entities
In January 2003, the FASB issued Interpretation No. 46
"Consolidation of Variable Interest Entities" ("Interpretation
46"), which is intended to clarify the application of Accounting
Research Bulletin No. 51, "Consolidated Financial Statements", to
certain entities in which equity investors do not have the
characteristics of a controlling financial interest or do not
have sufficient equity at risk for the entity to finance its
activities without additional subordinated financial support from
other parties, or variable interest entities, as defined in the
interpretation. Interpretation 46 requires that certain variable
interest entities be consolidated into the majority variable
interest holder's financial statements and is applicable
immediately to all variable interest entities created after
January 31, 2003, and as of the first interim period beginning
after June 15, 2003 to those variable interest entities created
before February 1, 2003. The Company did not create any variable
interest entities after January 31, 2003. The Company is
continuing to evaluate the applicability of this interpretation
to its structures created before February 1, 2003, but does not
believe its adoption will have a material effect on the financial
statements.
(h) Segment reporting
The Company's business is investing in retail shopping centers
through direct ownership or through joint ventures. The Company
actively manages its portfolio of retail shopping centers and may
from time to time make decisions to sell lower performing
properties, or developments not meeting its long-term investment
objectives. The proceeds of sales are invested into higher
quality retail shopping centers through acquisitions or new
developments, which management believes will meet its planned
rate of return. It is management's intent that all retail
shopping centers will be owned or developed for investment
purposes. The Company's revenue and net income is generated from
the operation of its investment portfolio. The Company will also
earn incidental fees from third parties for services provided to
manage and lease retail shopping centers owned through joint
ventures.
10
Regency Centers Corporation
Notes to Consolidated Financial Statements
March 31, 2003
(h) Segment reporting (continued)
The Company's portfolio is located throughout the United States;
however, management does not distinguish or group its operations
on a geographical basis for purposes of allocating resources or
measuring performance. The Company reviews operating and
financial data for each property on an individual basis,
therefore, the Company defines its operating segment as its
individual properties. No individual property constitutes more
than 10% of the Company's combined revenue, net income or assets,
and thus the individual properties have been aggregated into one
reportable segment based upon their similarities with regard to
both the nature of the centers, tenants and operational
processes, as well as, long-term average financial performance.
In addition, no single tenant accounts for 10% or more of revenue
and none of the shopping centers are located outside the United
States.
(i) Reclassifications
Certain reclassifications have been made to the 2002 amounts to
conform to classifications adopted in 2003.
2. Discontinued Operations
During 2003, the Company sold three operating properties for proceeds of
$13.2 million and their net income and the loss on the sale of $451,986
is included in discontinued operations. The revenues from the properties
disposed of were $236,806 and $8.9 million for the three months ended
March 31, 2003 and 2002, respectively. The operating (loss) income from
these properties was ($41,661) and $4.5 million for the three months
ended March 31, 2003 and 2002, respectively. Operating (loss) income and
losses or gains on sales in discontinued operations are shown net of
minority interest of exchangeable operating partnership units totaling
($16,572) and $158,059 for the three months ended March 31, 2003 and
2002, respectively.
3. Investments in Real Estate and Real Estate Partnerships
During 2003, the Company acquired one grocery-anchored shopping center
for $15.1 million. The 2003 acquisition was accounted for as purchase and
the results of its operations are included in the consolidated financial
statements from the date of the acquisition. Acquisitions (either
individually or in the aggregate) were not significant to the operations
of the Company in the periods in which they were acquired or the period
preceding the acquisition.
The Company accounts for all investments in which it owns 50% or less and
does not have a controlling financial interest using the equity method.
The Company's combined investment in these partnerships was $125.1
million and $125.5 million at March 31, 2003 and December 31, 2002,
respectively. Net income, which includes all operating results, as well
as gains and losses on sales of properties within the joint ventures, is
allocated to the Company in accordance with the respective partnership
agreements. Such allocations of net income are recorded in equity in
income of investments in real estate partnerships in the accompanying
consolidated statements of operations.
The Company has a 25% equity interest in Macquarie CountryWide-Regency,
LLC, ("MCWR"), a joint venture with an affiliate of Macquarie CountryWide
Trust of Australia, a Sydney, Australia-based property trust focused on
investing in grocery-anchored shopping centers. During 2002, the
11
Regency Centers Corporation
Notes to Consolidated Financial Statements
March 31, 2003
3. Investments in Real Estate and Real Estate Partnerships (continued)
Company received a note receivable from MCWR of $25.1 million for the
acquisition of shopping centers which has an interest rate of LIBOR plus
1.5% and was repaid in full on April 22, 2003.
The Company also has a 20% equity interest in Columbia Regency Retail
Partners, LLC ("Columbia"), a joint venture with the Oregon State
Treasury that was formed for the purpose of investing in retail shopping
centers.
With the exception of Columbia and MCWR, both of which intend to continue
expanding their investment in shopping centers, the investments in real
estate partnerships represent single asset entities formed for the
purpose of developing or owning retail based commercial real estate.
The Company's investments in real estate partnerships as of March 31,
2003 and December 31, 2002 consist of the following (in thousands):
Ownership 2003 2002
--------- ---- ----
Columbia Regency Retail Partners, LLC 20% $ 42,270 42,413
RRG-RMC Tracy, LLC 50% 23,842 23,269
Macquarie CountryWide-Regency, LLC 25% 21,568 22,281
OTR/Regency Texas Realty Holdings, L.P. 30% 16,057 15,992
Tinwood, LLC 50% 10,351 10,983
Regency Woodlands/Kuykendahl, Ltd. 50% 8,362 7,973
Jog Road, LLC 50% 2,687 2,571
------------- -------------
$ 125,137 125,482
============= =============
Summarized financial information for the unconsolidated investments on a
combined basis, is as follows (in thousands):
March 31, December 31,
2003 2002
---- ----
Balance Sheet:
Investment in real estate, net $ 544,450 553,118
Other assets 26,817 15,721
-------------------- -------------------
Total assets $ 571,267 568,839
==================== ===================
Notes payable $ 170,349 167,071
Other liabilities 11,288 10,386
Equity and partners' capital 389,630 391,382
-------------------- -------------------
Total liabilities and equity $ 571,267 568,839
==================== ===================
Unconsolidated partnerships and joint ventures had notes payable of
$170.3 million at March 31, 2003 and the Company's proportionate share of
these loans was $40.5 million.
12
Regency Centers Corporation
Notes to Consolidated Financial Statements
March 31, 2003
3. Investments in Real Estate and Real Estate Partnerships (continued)
The revenues and expenses on a combined basis are summarized as follows
for the three months ended March 31, 2003 and 2002:
2003 2002
---- ----
Statement of Operations:
Total revenues $ 16,242 9,268
Total expenses 9,573 4,506
------------------- ------------------
Net income $ 6,669 4,762
=================== ==================
4. Notes Payable and Unsecured Line of Credit
The Company's outstanding debt at March 31, 2003 and December 31, 2002
consists of the following (in thousands):
2003 2002
---- ----
Notes Payable:
Fixed rate mortgage loans $ 227,702 229,551
Variable rate mortgage loans 24,440 24,998
Fixed rate unsecured loans 999,018 998,975
--------------- ---------------
Total notes payable 1,251,160 1,253,524
Unsecured line of credit 178,750 80,000
--------------- ---------------
Total $ 1,429,910 1,333,524
=============== ===============
Interest rates paid on the unsecured line of credit (the "Line"), which
are based on LIBOR plus .85%, were 2.225% and 2.288% at March 31, 2003
and December 31, 2002, respectively. The spread that the Company pays on
the Line is dependent upon maintaining specific investment grade ratings.
The Company 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.
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
130 basis points to 175 basis points. Fixed interest rates on mortgage
loans range from 6.64% to 9.5%.
13
Regency Centers Corporation
Notes to Consolidated Financial Statements
March 31, 2003
4. Notes Payable and Unsecured Line of Credit (continued)
As of March 31, 2003, 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
-------------------------- -------------- --------------- ---------------
2003 $ 3,672 22,704 26,376
2004 (includes the Line) 5,241 399,282 404,523
2005 4,045 147,746 151,791
2006 3,359 24,093 27,452
2007 2,768 25,699 28,467
Beyond 5 Years 19,181 766,310 785,491
Unamortized debt premiums - 5,810 5,810
-------------- --------------- ---------------
Total $ 38,266 1,391,644 1,429,910
============== =============== ===============
5. Stockholders' Equity and Minority Interest
(a) The Company, through RCLP, has issued Cumulative Redeemable
Preferred Units ("Preferred Units") in various amounts since
1998. The issues were sold primarily to institutional investors
in private placements for $100 per unit. The Preferred Units,
which may be called by RCLP at par after certain dates, have no
stated maturity or mandatory redemption, and pay a cumulative,
quarterly dividend at fixed rates. At any time after ten years
from the date of issuance, the Preferred Units may be exchanged
by the holder for 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 the Company. The net
proceeds of these offerings were used to reduce the Line. At
March 31, 2003 and December 31, 2002 the face value of total
Preferred Units issued was $309 million and $384 million,
respectively with an average fixed distribution rate of 8.72%.
During the first quarter, the Company redeemed $35 million of
Series C 9% Preferred Units and $40 million of Series E 8.75%
Preferred Units. The redemptions were portions of each series and
the Company paid a 1% premium on the face value of the redeemed
units totaling $750,000. The redemption was funded from proceeds
from our Line.
Terms and conditions of the Preferred Units are summarized as
follows:
Units Issue Amount Distribution Callable Exchangeable
Series Outstanding Price Outstanding Rate by Company by Unitholder
- ----------------------------------------------------------------------------------------------------------------------
Series A 1,600,000 $ 50.00 $ 80,000,000 8.125% 06/25/03 06/25/08
Series B 850,000 100.00 85,000,000 8.750% 09/03/04 09/03/09
Series C 400,000 100.00 40,000,000 9.000% 09/03/04 09/03/09
Series D 500,000 100.00 50,000,000 9.125% 09/29/04 09/29/09
Series E 300,000 100.00 30,000,000 8.750% 05/25/05 05/25/10
Series F 240,000 100.00 24,000,000 8.750% 09/08/05 09/08/10
-----------------
-------------
3,890,000 $ 309,000,000
============= =================
14
Regency Centers Corporation
Notes to Consolidated Financial Statements
March 31, 2003
5. Stockholders' Equity and Minority Interest (continued)
(b) Security Capital owns approximately 56.7% of the outstanding
common stock of Regency; however, its ability to exercise voting
control over these shares is limited by the Stockholders
Agreement by and among Regency, Security Capital Holdings S.A.,
Security Capital U.S. Realty and The Regency Group, Inc. dated as
of July 10, 1996, as amended, including amendments to reflect
Security Capital's purchase of Security Capital Holdings S.A. and
the liquidation of Security Capital U.S. Realty (as amended, the
"Stockholders Agreement").
Effective May 14, 2002, an indirect wholly-owned subsidiary of GE
Capital merged into Security Capital with Security Capital
surviving as an indirect wholly-owned subsidiary of GE Capital.
On April 10, 2003, the standstill between Security Capital and
Regency contained in the Stockholders Agreement expired.
Other provisions of the Stockholders Agreement remain in effect
after the end of the standstill, including restrictions that will
apply until Security Capital ceases to own at least 10% or 15%
(depending on the provision in question) of Regency's common
stock on a fully diluted basis for 180 consecutive days. For
example, so long as Security Capital does not drop below the 15%
ownership level, it may not transfer shares in a negotiated
transaction that would result in any transferee beneficially
owning more than 9.8% of Regency's capital stock unless Regency
approves the transfer, in its sole discretion. Until its
ownership drops below 15%, Security Capital has the right under
the Stockholders Agreement to nominate the lesser of (1) three
directors, or (2) its proportionate share based on its stock
ownership.
(c) During the first quarter of 2003, the holder of the Series 2
preferred stock converted all of their remaining 450,400
preferred shares into common stock at a conversion ratio of 1:1.
(d) On April 3, 2003, the Company received proceeds from a $75
million offering of depositary shares representing Series 3
Cumulative Preferred Stock. The shares are redeemable at par at
Regency's election on or after April 3, 2008, pay a 7.45% annual
dividend and have a liquidation value of $25 per depositary
share. The proceeds from this offering were used to reduce the
Line.
15
REGENCY CENTERS CORPORATION
Notes to Consolidated Financial Statements
March 31, 2003
6. Earnings per Share
The following summarizes the calculation of basic and diluted earnings
per share for the three months ended March 31, 2003 and 2002 (in
thousands except per share data):
2003 2002
---- ----
Numerator:
Income from continuing operations $ 18,592 19,138
Discontinued operations (668) 6,139
------------------ ------------------
Net income 17,924 25,277
Less: Preferred stock dividends - 759
------------------ ------------------
Net income for common stockholders - Basic 17,924 24,518
Add: Minority interest of exchangeable operating
partnership units - continuing operations 453 493
Minority interest of exchangeable operating
partnership units - discontinued operations (16) 158
------------------ ------------------
Net income for common stockholders - Diluted $ 18,361 25,169
================== ==================
Denominator:
-------------
Weighted average common shares
outstanding for Basic EPS 60,165 57,856
Exchangeable operating partnership units 1,496 1,542
Incremental shares to be issued under
common stock using the Treasury stock method 437 392
------------------ ------------------
Weighted average common shares outstanding
for Diluted EPS 62,098 59,790
================== ==================
Income per common share - Basic
Income from continuing operations $ 0.31 0.31
Discontinued operations $ (0.01) 0.11
------------------ ------------------
Net income for common stockholders
per share $ 0.30 0.42
================== ==================
Income per common share - Diluted
Income from continuing operations $ 0.31 0.31
Discontinued operations $ (0.01) 0.11
------------------ ------------------
Net income for common stockholders
per share $ 0.30 0.42
================== ==================
The Series 2 preferred stock is not included in the above calculation for
periods prior to the conversion in the fourth quarter of 2002 because its
effects were anti-dilutive.
16
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
- --------------------------------------------------------------------------------
In addition to historical information, the following information
contains forward-looking statements under the federal securities laws. These
statements are based on current expectations, estimates and projections about
the industry and markets in which Regency operates, and management's beliefs and
assumptions. Forward-looking statements are not guarantees of future performance
and involve certain known and unknown risks and uncertainties that could cause
actual results to differ materially from those expressed or implied by such
statements. Such risks and uncertainties include, but are not limited to,
changes in national and local economic conditions; financial difficulties of
tenants; competitive market conditions, including pricing of acquisitions and
sales of properties and out-parcels; changes in expected leasing activity and
market rents; timing of acquisitions, development starts and sales of properties
and out-parcels; weather; the ability to obtain governmental approvals; and
meeting development schedules. 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. We invest in retail shopping centers through our
partnership interest in Regency Centers, L.P., ("RCLP") an operating partnership
in which Regency currently owns approximately 98% of the outstanding common
partnership units ("Common Units"). Regency's acquisition, development,
operations and financing activities, including the issuance of Common Units or
Cumulative Redeemable Preferred Units ("Preferred Units"), are generally
executed by RCLP.
Shopping Center Business
- ------------------------
We are a national owner, operator and developer of grocery-anchored
neighborhood retail shopping centers. A list of our shopping centers including
those partially owned through joint ventures, summarized by state and in order
of largest holdings, including their GLA follows:
March 31, 2003 December 31, 2002
Location # Properties GLA % Leased * # Properties GLA % Leased *
-------- ------------ --- ---------- ------------ --- ----------
Florida 52 6,100,565 92.9% 53 6,193,550 91.9%
California 44 5,342,704 98.6% 43 5,125,030 99.1%
Texas 40 5,123,143 92.6% 40 5,123,197 93.6%
Georgia 24 2,431,517 93.9% 24 2,437,712 93.9%
Ohio 14 1,901,604 90.8% 14 1,901,684 91.4%
Colorado 14 1,523,911 98.2% 15 1,538,570 98.0%
North Carolina 10 1,050,043 98.4% 12 1,225,201 97.6%
Washington 9 986,374 98.4% 9 986,374 98.9%
Oregon 10 896,739 93.9% 9 822,115 93.7%
Virginia 7 854,302 99.2% 7 872,796 96.8%
Alabama 7 644,896 93.1% 7 644,896 94.3%
Arizona 6 525,701 95.9% 6 525,701 96.3%
Tennessee 6 444,234 97.7% 6 444,234 95.3%
Illinois 3 408,211 94.9% 2 300,477 96.1%
South Carolina 5 339,926 99.1% 5 339,256 99.1%
Kentucky 2 301,025 96.5% 2 304,659 96.6%
Michigan 3 279,265 93.2% 3 279,265 92.6%
Delaware 2 240,418 99.5% 2 240,418 99.0%
New Jersey 1 88,993 - 1 88,993 -
Missouri 1 82,498 92.9% 1 82,498 92.9%
Pennsylvania 1 6,000 100.0% 1 6,000 100.0%
----------------- --------------- ---------------- ---------------- --------------- ---------------
Total 261 29,572,069 94.9% 262 29,482,626 94.8%
================= =============== ================ ================ =============== ===============
* Excludes pre-stabilized properties under development
17
We are focused on building a portfolio of grocery-anchored
neighborhood shopping centers that are positioned to withstand adverse economic
conditions by providing consumers with convenient shopping for daily necessities
and adjacent local tenants with foot traffic. Regency's current investment
markets are stable, and we expect 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 our shopping centers, including those partially owned through joint
ventures at March 31, 2003:
Percentage of Percentage of
Grocery Number of Company- Annualized Average Remaining
Anchor Stores (a) owned GLA Base Rent Lease Term
------ ---------- ------------- ------------- ------------------
Kroger 61 11.9% 9.1% 15 yrs
Publix 52 8.1% 6.0% 13 yrs
Safeway 46 5.8% 4.7% 11 yrs
Albertsons 24 3.3% 2.8% 15 yrs
(a) Includes grocery-tenant-owned stores
Acquisition and Development of Shopping Centers
- -----------------------------------------------
We have implemented a growth strategy dedicated to developing and
acquiring high-quality shopping centers. Our development program makes a
significant contribution to our overall growth. Development is customer-driven,
meaning we generally have an executed lease from the grocery-anchor before we
begin construction. Developments serve the growth needs of our grocery and
specialty retail customers, result in modern shopping centers with 20-year
leases from the grocery anchors, and produce either attractive returns on
invested capital or profits from sale. This development process can require 12
to 36 months from initial land or redevelopment acquisition through
construction, lease-up and stabilization, 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 March 31, 2003, we had 31 projects under construction or undergoing
major renovations, which, when completed, are expected to represent an
investment of $545.5 million before the estimated reimbursement of certain
tenant-related costs and projected sales proceeds from adjacent land and
out-parcels of $112.7 million. Costs necessary to complete these developments
will be $260 million, are generally already committed as part of existing
construction contracts, and will be expended through 2005. These developments
are approximately 52% complete and 69% pre-leased.
Regency has a 20% equity interest in and serves as property manager for
Columbia Regency Retail Partners, LLC ("Columbia"), a joint venture with the
Oregon State Treasury that was formed for the purpose of investing in retail
shopping centers. At March 31, 2003, Columbia owned 12 shopping centers with a
net book value of $283.8 million.
Regency has a 25% equity interest in and serves as property manager for
Macquarie CountryWide-Regency, LLC, ("MCWR") a joint venture with an affiliate
of Macquarie CountryWide Trust of Australia, a Sydney, Australia-based
property trust focused on investing in grocery-anchored shopping centers.
During 2002, the Company received a note receivable from MCWR of $25.1 million
for the acquisition of shopping centers which has an interest rate of LIBOR
plus 1.5% and was repaid in full on April 22, 2003. At March 31, 2003, MCWR
owned 15 shopping centers with a net book value of $171.1 million.
18
Columbia and MCWR intend to continue to acquire retail shopping
centers, some of which they may acquire directly from Regency. For those
properties acquired from third parties, Regency is required to provide its pro
rata share of the purchase price.
Liquidity and Capital Resources
We expect that the cash generated from revenues will provide the
necessary funds on a short-term basis to pay our operating expenses, interest
expense, scheduled principal payments on outstanding indebtedness, recurring
capital expenditures necessary to maintain our shopping centers properly, and
distributions to stock and unit holders. Net cash provided by operating
activities was $34 million and $26.6 million for the three months ended March
31, 2003 and 2002, respectively. During the first three months of 2003 and 2002,
respectively, we incurred capital expenditures of $2.8 million and $3.7 million
to improve our shopping center portfolio, paid scheduled principal payments of
$1.5 million and $1.4 million to our lenders, and paid dividends and
distributions of $40.2 million and $39.3 million to our share and unit holders.
Although base rent is supported by long-term lease contracts, tenants
who file bankruptcy have the right to cancel their leases and close the related
stores. In the event that a tenant with a significant number of leases in our
shopping centers files bankruptcy and cancels its leases, we could experience a
significant reduction in our revenues. We are not currently aware of any current
or pending bankruptcy of any of our tenants that would cause a significant
reduction in our revenues, and no tenant represents more than 10% of our annual
base-rental revenues.
We expect to meet long-term capital requirements for maturing debt, the
acquisition of real estate, and the renovation or development of shopping
centers from: (i) cash generated from operating activities after the payments
described above, (ii) proceeds from the sale of real estate, (iii) joint
venturing of real estate, (iv) increases in debt, and (v) equity raised in the
private or public markets. Additionally, the Company has the right to call and
repay at par outstanding preferred units five years after their issuance date,
at the Company's discretion. The sources of repaying preferred units would
include those listed above.
During the first quarter, the Company redeemed $35 million of Series C
9% Preferred Units and $40 million of Series E 8.75% Preferred Units in a
negotiated transaction. The redemptions were portions of each series and we paid
a 1% premium on the face value of the redeemed units totaling $750,000 and also
granted a put to the holder of the units for a 60-day period to redeem up to an
additional $25 million on the same terms and conditions. At the time of
redemption, $1.9 million of previously deferred costs related to the original
preferred units' issuance were recognized in minority interest preferred units.
The redemption was funded from proceeds from our Line.
On April 3, 2003, the Company received proceeds from a $75 million
offering of depositary shares representing Series 3 Cumulative Preferred Stock.
The shares are redeemable at par at Regency's election on or after April 3,
2008, pay a 7.45% annual dividend and have a liquidation value of $25 per
depositary share. The proceeds from this offering were used to reduce the Line.
Our commitment to maintaining a high-quality portfolio dictates that we
continually assess the value of all of our properties and sell to third parties
those operating properties that no longer meet our long-term investment
standards. We may also sell a portion of an operating or development property to
one of our joint ventures, which may provide Regency with a capital source for
new development and acquisitions, as well as market-based fees that we may earn
as the asset manager. By selling a property to a joint venture, Regency owns
less than 100% of the property, generally 20% to 50%, and shares the risks and
rewards of the property with its partner.
Proceeds from the sale or joint venturing of properties are included in
net investing activities on the Consolidated Statement of Cash Flows. During the
first quarter of 2003 net proceeds from the sale or joint venturing of real
estate was $31.6 million, compared to $46.7 million during the first quarter of
2002. Net cash used in investing activities was $44 million and $15.5 million
for the three months ended March 31, 2003 and 2002, respectively. Net cash used
in financing activities was $18.3 million and $9.3 million for the three months
ended March 31, 2003 and 2002, respectively.
19
Outstanding debt at March 31, 2003 and December 31, 2002 consists of the
following (in thousands):
2003 2002
---- ----
Notes Payable:
Fixed-rate mortgage loans $ 227,702 229,551
Variable-rate mortgage loans 24,440 24,998
Fixed-rate unsecured loans 999,018 998,975
-------------- ---------------
Total notes payable 1,251,160 1,253,524
Unsecured line of credit 178,750 80,000
-------------- ---------------
Total $ 1,429,910 1,333,524
============== ===============
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 130 basis points to 175
basis points. Fixed interest rates on mortgage loans range from 6.64% to 9.5%.
Interest rates paid on the Line, which are based on LIBOR plus .85%, at
March 31, 2003 and December 31, 2002 were 2.225% and 2.288%, respectively. The
spread that we pay on the Line is dependent upon maintaining specific
investment-grade ratings. We are also required to comply, and are 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.
As of March 31, 2003, 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
-------------------------- -------------- --------------- ---------------
2003 $ 3,672 22,704 26,376
2004 (includes the Line) 5,241 399,282 404,523
2005 4,045 147,746 151,791
2006 3,359 24,093 27,452
2007 2,768 25,699 28,467
Beyond Five years 19,181 766,310 785,491
Unamortized debt premiums - 5,810 5,810
-------------- --------------- ---------------
Total $ 38,266 1,391,644 1,429,910
============== =============== ===============
Unconsolidated partnerships and joint ventures in which we have an
investment had notes and mortgage loans payable of $170.3 million at March 31,
2003 and the Company's proportionate share of these loans was $40.5 million.
RCLP has issued Preferred Units in various amounts since 1998, the net
proceeds of which we used to reduce the balance of the Line. RCLP sold the
issues primarily to institutional investors in private placements. The Preferred
Units, which may be called by RCLP after certain dates ranging from 2003 to
2005, have no stated maturity or mandatory redemption, and they pay a
cumulative, quarterly dividend at fixed rates ranging from 8.125% to 9.125%. At
any time after 10 years from the date of issuance, the Preferred Units may be
exchanged by the holders for 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 Regency common stock. At
March 31, 2003 and December 31, 2002 the face value of total Preferred Units
issued was $309 million and $384 million, respectively with an average fixed
distribution rate of 8.72%.
20
We intend to continue growing our portfolio through acquisitions and
developments, either directly or through our joint venture relationships.
Because acquisition and development activities are discretionary in nature, they
are not expected to burden the capital resources we have 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.
Critical Accounting Policies and Estimates
- ------------------------------------------
Knowledge about our accounting policies is necessary for a complete
understanding of our financial results, and discussions and analysis of these
results. The preparation of our financial statements requires that we make
certain estimates that impact the balance of assets and liabilities at a
financial statement date and the reported amount of income and expenses during a
financial reporting period. These accounting estimates are based upon our
judgments and are considered to be critical because of their significance to the
financial statements and the possibility that future events may differ from
those judgments, or that the use of different assumptions could result in
materially different estimates. We review these estimates on a periodic basis to
ensure reasonableness. However, the amounts we may ultimately realize could
differ from such estimates.
Capitalization of Costs - We have an investment services group with an
established infrastructure that supports the due diligence, land acquisition,
construction, leasing and accounting of our development properties. All direct
and indirect costs related to these activities are capitalized. Included in
these costs are interest and real estate taxes incurred during construction as
well as estimates for the portion of internal costs that are incremental, and
deemed directly or indirectly related to our development activity. If future
accounting standards limit the amount of internal costs that may be capitalized,
or if our development activity were to decline significantly without a
proportionate decrease in internal costs, we could incur a significant increase
in our operating expenses.
Valuation of Real Estate Investments - Our long-lived assets, primarily
real estate held for investment, are carried at cost unless circumstances
indicate that the carrying value of the assets may not be recoverable. We review
long-lived assets for impairment whenever events or changes in circumstances
indicate such an evaluation is warranted. The review involves a number of
assumptions and estimates used in determining whether impairment exists.
Depending on the asset, we use varying methods such as i) estimating future cash
flows, ii) determining resale values by market, or iii) applying a
capitalization rate to net operating income using prevailing rates in a given
market. These methods of determining fair value can fluctuate up or down
significantly as a result of a number of factors including changes in the
general economy of those markets in which we operate, tenant credit quality, and
demand for new retail stores. If we determine that impairment exists due to the
inability to recover an asset's carrying value, a provision for loss is recorded
to the extent that the carrying value exceeds estimated fair value.
Income Tax Status - The prevailing assumption underlying the operation
of our business is that we will continue to operate so as to qualify as a REIT,
defined under the Internal Revenue Code. Certain income and asset tests are
required to be met on a periodic basis to ensure we continue to qualify as a
REIT. As a REIT, we are allowed to reduce taxable income by all or a portion of
our distributions to stockholders. As we evaluate each transaction entered into,
we determine the impact that these transactions will have on our REIT status.
Determining our taxable income, calculating distributions, and evaluating
transactions requires us to make certain judgments and estimates as to the
positions we take in our interpretation of the Internal Revenue Code. Because
many types of transactions are susceptible to varying interpretations under
federal and state income tax laws and regulations, our positions are subject to
change at a later date upon final determination by the taxing authorities.
21
Results from Operations
- -----------------------
Comparison of March 31, 2003 to March 31, 2002
At March 31, 2003, we were operating or developing 261 shopping
centers. We identify our 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 fully leased
(fully leased generally means greater than 90% leased) and occupied. Stabilized
properties are those properties that are generally greater than 90% leased and,
if they were developed, are more than three years beyond their original
development start date. At March 31, 2003, we had 230 stabilized shopping
centers that were 94.9% leased.
Revenues increased $9.9 million, or 11%, to $97.5 million in 2003. This
increase was due primarily to our realization of a full year of revenues from
new 2002 developments and from growth in rental rates of the operating
properties. In 2003, rental rates grew by 9.7% from renewal leases and new
leases replacing previously occupied spaces in the stabilized properties.
Minimum rent increased $5 million, or 8%, and recoveries from tenants increased
$2 million, or 11%.
Service operations revenue includes management fees, commission income,
and gains or losses from the sale of land and development properties without
significant operations. Service operations revenue does not include gains or
losses from the sale of non-development operating properties. The Company
accounts for profit recognition on sales of real estate in accordance with
Financial Accounting Standards Board ("FASB") Statement No. 66, "Accounting for
Sales of Real Estate." Profits from sales of real estate will not be recognized
by the Company unless a sale has been consummated; the buyer's initial and
continuing investment is adequate to demonstrate a commitment to pay for the
property; the Company has transferred to the buyer the usual risks and rewards
of ownership; and the Company does not have substantial continuing involvement
with the property.
Service operations revenue increased $1.9 million to $3.9 million in
2003, or 95%. The increase was primarily due to a $2.3 million increase in gains
from the sale of land and outparcels and an $813,785 increase in management fees
primarily related to the Columbia and MCWR joint ventures, offset by a $1.2
million dollar decrease resulting from selling fewer developments during 2003
than in 2002.
Operating expenses increased $5.6 million, or 14%, to $50 million in
2003. Combined operating, maintenance, and real estate taxes increased $2.7
million, or 13%, during 2003 to $23.6 million. The increase was primarily due to
new developments that incurred expenses for only a portion of the previous year,
and general increases in operating expenses on the stabilized properties.
General and administrative expenses were $4.1 million during 2003 compared with
$4 million in 2002, or 4% higher, as a result of general salary and benefit
increases. Depreciation and amortization increased $2.8 million during 2003
related to higher acquisition and development activity.
Net interest expense increased to $20.6 million in 2003 from $19.6
million in 2002, or 5%. The increase was primarily due to higher debt balances
in 2003 than 2002. Average interest rates on outstanding debt declined to 6.84%
at March 31, 2003 from 6.90% at March 31, 2002.
The loss from discontinued operations was $668,238 in 2003 primarily
due to the sale of three properties with a combined loss on sale of $451,986.
The restated 2002 operating income from discontinued operations is $4.4 compared
to $1.5 million originally reported in 2002 due to the reclassification of $2.9
million of operating income for properties sold in 2002 and 2003 in conformance
with the adoption of SFAS No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets" ("Statement 144") in January 2002. Operating (loss) or income
and loss or gains on sales from discontinued operations are shown net of
minority interest of exchangeable partnership units totaling ($16,572) and
$158,059 for the three months ended March 31, 2003 and 2002, respectively.
22
Net income for common stockholders was $17.9 million in 2003 compared
with $24.5 million in 2002, or a 27% decrease due to the reduction of gain on
sale of operating properties of $1.5 million, increased depreciation expense and
$2.7 million related to the redemption of preferred units previously discussed.
Diluted earnings per share were $0.30 in 2003 compared with $0.42 in 2002, or
29%.
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 our shopping centers is the principal environmental concern. We
believe that the tenants who operate these plants do so in accordance with
current laws and regulations and have established procedures to monitor their
operations. Additionally, we use all legal means to cause tenants to remove dry
cleaning plants from our shopping centers. Where available, we have applied and
been accepted into state-sponsored environmental programs. We have a blanket
environmental insurance policy that covers Regency against third-party
liabilities and remediation costs on shopping centers that currently have no
known environmental contamination. We have also placed environmental insurance
on specific properties with known contamination in order to mitigate Regency's
environmental risk. We believe that the ultimate disposition of currently known
environmental matters will not have a material effect on Regency's financial
position, liquidity, or operations.
Inflation
- ---------
Inflation has remained relatively low and has had a minimal impact on
the operating performance of our shopping centers; however, substantially all of
our long-term leases contain provisions designed to mitigate the adverse impact
of inflation. Such provisions include clauses enabling us 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 our
leases are for terms of less than 10 years, which permits us to seek increased
rents upon re-rental at market rates. Most of our leases require tenants to pay
their share of operating expenses, including common area maintenance, real
estate taxes, and insurance and utilities, thereby reducing our exposure to
increases in costs and operating expenses resulting from inflation.
23
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Market Risk
-----------
Regency is exposed to interest rate changes primarily as a result of
the line of credit and long-term debt used to maintain liquidity, fund capital
expenditures and expand Regency's real estate investment portfolio. 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.
Regency's interest rate risk is monitored using a variety of
techniques. The table below presents the principal cash flows (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.
Fair
2003 2004 2005 2006 2007 Thereafter Total Value
---- ---- ---- ---- ---- ---------- ----- -----
Fixed rate debt $ 16,749 210,960 151,791 27,452 28,467 785,491 1,220,910 1,224,643
Average interest rate for all debt 7.59% 7.62% 7.61% 7.62% 7.60% 7.63% - -
Variable rate LIBOR debt $ 9,627 193,563 - - - - 203,190 203,190
Average interest rate for all debt 2.04% 2.04% - - - - - -
As the table incorporates only those exposures that exist as of March
31, 2003, it does not consider those exposures or positions, which could arise
after that date. Moreover, because firm commitments are not presented in the
table above, the information presented therein has limited predictive value. As
a result, Regency's ultimate realized gain or loss with respect to interest rate
fluctuations will depend on the exposures that arise during the period, its
hedging strategies at that time, and interest rates.
Item 4. Controls and Procedures
Under the supervision and with the participation of the Company's
management, including the Company's Chief Executive Officer, Chief Operating
Officer and Chief Financial Officer, the Company has evaluated the effectiveness
of the design and operation of its disclosure controls and procedures within 90
days of the filing date of this quarterly report, and, based on their
evaluation, the Chief Executive Officer, Chief Operating Officer and Chief
Financial Officer have concluded that these disclosure controls and procedures
are effective. There were no significant changes in our internal controls or in
other factors that could significantly affect these controls subsequent to the
date of their evaluation.
24
Part II
Item 6 Exhibits and Reports on Form 8-K
(a) Exhibits
99.1 Certification of Regency Centers Corporation's Chief Executive
Officer Pursuant to 18 U.S.C. Section 1350 (as adopted by
Section 906 of the Sarbanes-Oxley Act of 2002)
99.2 Certification of Regency Centers Corporation's Chief Financial
Officer Pursuant to 18 U.S.C. Section 1350 (as adopted by
Section 906 of the Sarbanes-Oxley Act of 2002)
99.3 Certification of Regency Centers Corporation's Chief Operating
Officer Pursuant to 18 U.S.C. Section 1350 (as adopted by
Section 906 of the Sarbanes-Oxley Act of 2002)
(b) Reports on Form 8-K
None
25
SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Date: May 9, 2003 REGENCY CENTERS CORPORATION
By: /s/ J. Christian Leavitt
-------------------------
Senior Vice President,
and Chief Accounting Officer
26
CERTIFICATION
I, Martin E. Stein, Jr., Chairman and Chief Executive Officer of Regency Centers
Corporation (the "registrant"), certify that:
1. I have reviewed this quarterly report on Form 10-Q of Regency Centers
Corporation;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's Board of Directors (or persons
performing the equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
/s/ Martin E. Stein, Jr.
- ------------------------
Martin E. Stein, Jr.
May 8, 2003
27
CERTIFICATION
I, Bruce M. Johnson, Managing Director and Chief Financial Officer of Regency
Centers Corporation (the "registrant"), certify that:
1. I have reviewed this quarterly report on Form 10-Q of Regency Centers
Corporation;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's Board of Directors (or persons
performing the equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
/s/ Bruce M. Johnson
- --------------------
Bruce M. Johnson
May 8, 2003
28
CERTIFICATION
I, Mary Lou Fiala, President and Chief Operating Officer of Regency Centers
Corporation (the "registrant"), certify that:
1. I have reviewed this quarterly report on Form 10-Q of Regency Centers
Corporation;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's Board of Directors (or persons
performing the equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
/s/ Mary Lou Fiala
- ------------------
Mary Lou Fiala
May 8, 2003
29