Form 10-K
Table of Contents
Index to Financial Statements

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

 

FORM 10-K

 

 

 

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2008

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

incorporation or organization)

 

(I.R.S. Employer

identification No.)

 

One Independent Drive, Suite 114

Jacksonville, Florida 32202

  (904) 598-7000
(Address of principal executive offices) (zip code)   (Registrant’s telephone No.)

 

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Name of each exchange

on which registered

Common Stock, $.01 par value   New York Stock Exchange
7.45% Series 3 Cumulative Redeemable Preferred Stock, $.01 par value   New York Stock Exchange
7.25% Series 4 Cumulative Redeemable Preferred Stock, $.01 par value   New York Stock Exchange
6.70% Series 5 Cumulative Redeemable Preferred Stock, $.01 par value   New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

 

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    YES  x    NO  ¨

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    YES  ¨    NO  x

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, and (2) has been subject to such filing requirements for the past 90 days.    YES  x     NO  ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer   x    Accelerated filer   ¨
Non-accelerated filer   ¨    Smaller reporting company   ¨

Indicate by check mark whether the registrant is a shell company.    YES  ¨    NO  x

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter. $4,258,715,940

The number of shares outstanding of the registrant’s voting common stock was 70,020,613 as of March 13, 2009.

Documents Incorporated by Reference

Portions of the registrant’s proxy statement in connection with its 2009 Annual Meeting of Stockholders are incorporated by reference in Part III.

 

 

 


Table of Contents
Index to Financial Statements

TABLE OF CONTENTS

 

Item No.

   Form 10-K
Report Page
PART I
1.    Business    1
1A.    Risk Factors    5
1B.    Unresolved Staff Comments    11
2.    Properties    12
3.    Legal Proceedings    28
4.    Submission of Matters to a Vote of Security Holders    28
PART II
5.    Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities    28
6.    Selected Financial Data    31
7.    Management’s Discussion and Analysis of Financial Condition and Results of Operations    35
7A.    Quantitative and Qualitative Disclosures about Market Risk    59
8.    Financial Statements and Supplementary Data    61
9.    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure    112
9A.    Controls and Procedures    112
9B.    Other Information    113
PART III
10.    Directors, Executive Officers and Corporate Governance    114
11.    Executive Compensation    114
12.    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters    115
13.    Certain Relationships and Related Transactions, and Director Independence    115
14.    Principal Accountant Fees and Services    115
PART IV
15.    Exhibits and Financial Statement Schedules    116
SIGNATURES
16.    Signatures    120


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Index to Financial Statements

Forward-Looking Statements

In addition to historical information, the following information contains forward-looking statements as defined under federal securities laws. These forward-looking statements include statements about anticipated changes in our revenues, the size of our development program, earnings per share, returns and portfolio value, and expectations about our liquidity. These statements are based on current expectations, estimates and projections about the industry and markets in which Regency Centers Corporation (“Regency” or “Company”) 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 including the impact of a slowing economy; financial difficulties of tenants; competitive market conditions, including timing and pricing of acquisitions and sales of properties and out-parcels; changes in expected leasing activity and market rents; timing of development starts and sales of properties and out-parcels; meeting development schedules; our inability to exercise voting control over the co-investment partnerships through which we own or develop many of our properties; weather; consequences of any armed conflict or terrorist attack against the United States; and the ability to obtain governmental approvals. For additional information, see “Risk Factors” elsewhere herein. The following discussion should be read in conjunction with the accompanying Consolidated Financial Statements and Notes thereto of Regency Centers Corporation appearing elsewhere within.

PART I

 

Item 1. Business

Regency is a qualified real estate investment trust (“REIT”), which began operations in 1993. Our primary operating and investment goal is long-term growth in earnings and total shareholder return, which we work to achieve by focusing on a strategy of owning, operating and developing high-quality community and neighborhood shopping centers that are tenanted by market-dominant grocers, category-leading anchors, specialty retailers and restaurants located in areas with above average household incomes and population densities. All of our operating, investing and financing activities are performed through our operating partnership, Regency Centers, L.P. (“RCLP” or “Partnership”), RCLP’s wholly owned subsidiaries, and through its investments in real estate partnerships with third parties (also referred to as co-investment partnerships or joint ventures). Regency currently owns 99% of the outstanding operating partnership units of RCLP. Because of our structure and certain public debt financing, RCLP is also a registrant.

At December 31, 2008, we directly owned 224 shopping centers (the “Consolidated Properties”) located in 24 states representing 24.2 million square feet of gross leasable area (“GLA”). Our cost of these shopping centers and those under development is $4.0 billion before depreciation. Through co-investment partnerships, we own partial interests in 216 shopping centers (the “Unconsolidated Properties”) located in 27 states and the District of Columbia representing 25.4 million square feet of GLA. Our investment in the partnerships that own the Unconsolidated Properties is $383.4 million. Certain portfolio information described below is presented (a) on a Combined Basis, which is a total of the Consolidated Properties and the Unconsolidated Properties, (b) for our Consolidated Properties only and (c) for the Unconsolidated Properties that we own through co-investment partnerships. We believe that presenting the information under these methods provides a more complete understanding of the properties that we wholly-own versus those that we indirectly own through entities we do not control, but for which we provide asset management, property management, leasing, investing and financing services. The shopping center portfolio that we manage, on a Combined Basis, represents 440 shopping centers located in 29 states and the District of Columbia and contains 49.6 million square feet of GLA.

We earn revenues and generate cash flow by leasing space in our shopping centers to market-leading grocers, major retail anchors, specialty side-shop retailers, and restaurants, including ground leasing or selling building pads (out-parcels) to these potential tenants. We experience growth in revenues by increasing occupancy and rental rates at currently owned shopping centers, and by acquiring and developing new shopping centers. Community and neighborhood shopping centers generate substantial daily traffic by conveniently offering necessities and services. This high traffic generates increased sales, thereby driving higher occupancy and rental-rate growth, which we expect will sustain our growth in earnings per share and increase the value of our portfolio over the long term.

We seek a range of strong national, regional and local specialty retailers, for the same reason that we choose to anchor our centers with leading grocers and major retailers who provide a mix of goods and services that meet consumer needs. We have created a formal partnering process, the Premier Customer Initiative (“PCI”), to promote mutually beneficial relationships with our specialty retailers. The objective of PCI is for us to build a base of

 

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specialty tenants who represent the “best-in-class” operators in their respective merchandising categories. Such retailers reinforce the consumer appeal and other strengths of a center’s anchor, help stabilize a center’s occupancy, reduce re-leasing downtime, reduce tenant turnover and yield higher sustainable rents.

The current economic recession is resulting in a higher level of retail store closings and is limiting the demand for leasing space in our shopping centers resulting in a decline in our occupancy percentages and rental revenues. Additionally, certain national tenants negotiate co-tenancy clauses into their lease agreements, which allow them to reduce their rents or close their stores in the event that a co-tenant closes its store. We believe that our investment focus on neighborhood and community shopping centers that conveniently provide daily necessities will help lessen the current economy’s negative impact to our shopping centers, although the negative impact could still be significant. We are closely monitoring the operating performance and tenants’ sales in our shopping centers including those tenants operating retail formats that are experiencing significant changes in competition, business practice, or reductions in sales.

We grow our shopping center portfolio through acquisitions of operating centers and new shopping center development, where we acquire the land and construct the building. Development is customer driven, meaning we generally have an executed lease from the anchor before we start construction. Developments serve the growth needs of our anchors and specialty retailers, resulting in modern shopping centers with long-term anchor leases that produce attractive returns on our invested capital. This development process can require three to five years from initial land or redevelopment acquisition through construction, lease-up and stabilization of rental income, but can take longer depending upon the size of the project. Generally, anchor tenants begin operating their stores prior to the completion of construction of the entire center, resulting in rental income during the development phase.

In the near term, reduced new store openings amongst retailers is resulting in reduced demand for new retail space and is causing corresponding reductions in new leasing rental rates and development pre-leasing. As a result, we are significantly reducing our development program by reducing the number of new projects started, phasing existing developments that lack retail demand, and reducing related general and administrative expense. Although our development program will continue to be a significant part of our business strategy, new development projects will be rigorously evaluated in regard to availability of capital, visibility of tenant demand to achieve 95% occupancy, and sufficient investment returns.

We intend to maintain a conservative capital structure to fund our growth program, which should preserve our investment-grade ratings. Our approach is founded on our self-funding capital strategy to fund our growth. The culling of non-strategic assets and our industry-leading co-investment partnership program are integral components of this strategy. We also develop certain retail centers because of their attractive profit margins with the intent of selling them to third parties upon completion. These sales proceeds are re-deployed into new, high-quality developments and acquisitions that are expected to generate sustainable revenue growth and attractive returns. To the extent that we are unable to execute our capital recycling program to generate adequate sources of capital, we will significantly reduce and even stop new investment activity until there is adequate visibility and reliability to sources of capital for Regency.

Joint venturing of shopping centers provides us with a capital source for new developments and acquisitions, as well as the opportunity to earn fees for asset and property management services. As asset manager, we are engaged by our partners to apply similar operating, investment, and capital strategies to the portfolios owned by the co-investment partnerships. Co-investment partnerships grow their shopping center investments through acquisitions from third parties or direct purchases from us. Although selling properties to co-investment partnerships reduces our direct ownership interest, we continue to share, to the extent of our remaining ownership interest, in the risks and rewards of shopping centers that meet our high quality standards and long-term investment strategy. We have no obligations or liabilities within the co-investment partnerships beyond our ownership interest.

The current lack of liquidity in the capital markets is having a corresponding effect on new investment activity in our co-investment partnerships. Our co-investment partnerships have significant levels of debt, 67.5% of which will mature through 2012, and are subject to significant refinancing risks. We anticipate that as real estate values decline, the refinancing of maturing loans, including those maturing in our joint ventures, will require us and our joint venture partners to contribute our respective pro-rata shares of capital in order to reduce refinancing requirements to acceptable loan to value levels required for new financings. While we have been successful refinancing maturing loans, the longer-term impact of the current economic crisis on our ability to access capital, including access by our joint venture partners, or to obtain future financing to fund maturing debt is unclear. While we believe that our partners have sufficient capital or access thereto for these future capital requirements, we can

 

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provide no assurance that the constrained capital markets will not inhibit their ability to access capital and meet their future funding requirements.

We expect that cash generated from operating activities will provide the necessary funds to pay our operating expenses, interest expense, scheduled principal payments on outstanding debt, and capital expenditures necessary to maintain our shopping centers. We expect to continue paying dividends to our shareholders based upon availability of cash flow and to maintain compliance with REIT tax laws. The Board of Directors determined that in light of the current recession and the strains it is placing on our business, they will not increase the dividend rate per share during 2009, and may find it necessary to reduce future dividends or pay a portion of the dividend in the form of stock. The Board of Directors is continuously reviewing Regency’s operations and will make decisions about future dividend payments on a quarterly basis.

Competition

We are among the largest owners of shopping centers in the nation based on revenues, number of properties, gross leasable area, and market capitalization. There are numerous companies and private individuals engaged in the ownership, development, acquisition, and operation of shopping centers which compete with us in our targeted markets. This results in competition for attracting anchor tenants, as well as the acquisition of existing shopping centers and new development sites. We believe that the principal competitive factors in attracting tenants in our market areas are location, demographics, rental costs, tenant mix, property age, and property maintenance. We believe that our competitive advantages include our locations within our market areas, the design quality of our shopping centers, the strong demographics surrounding our shopping centers, our relationships with our anchor tenants and our side-shop and out-parcel retailers, our PCI program that allows us to provide retailers with multiple locations, our practice of maintaining and renovating our shopping centers, and our ability to source and develop new shopping centers.

Changes in Policies

Our Board of Directors establishes the policies that govern our investment and operating strategies including, among others, development and acquisition of shopping centers, tenant and market focus, debt and equity financing policies, quarterly distributions to stockholders, and REIT tax status. The Board of Directors may amend these policies at any time without a vote of our stockholders.

Employees

Our headquarters are located at One Independent Drive, Suite 114, Jacksonville, Florida. We presently maintain 21 market offices nationwide where we conduct management, leasing, construction, and investment activities. At December 31, 2008, we had 511 employees and we believe that our relations with our employees are good.

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 our ability to sell or rent the property or borrow using the property as collateral. We have a number of properties that could require or are currently undergoing varying levels of environmental remediation. Environmental remediation is not currently expected to have a material financial impact on us due to reserves for remediation, insurance programs designed to mitigate the cost of remediation, and various state-regulated programs that shift the responsibility and cost to the state.

Executive Officers

The executive officers of the Company are appointed each year by the Board of Directors. Each of the executive officers has been employed by the Company in the position or positions indicated in the list and pertinent notes below. Each of the executive officers has been employed by the Company for more than five years.

 

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Name

   Age   

Title

  

Executive Officer in
Position Shown Since

Martin E. Stein, Jr.

   56    Chairman and Chief Executive Officer    1993

Mary Lou Fiala

   57    President and Chief Operating Officer    1999 (1)

Bruce M. Johnson

   61    Managing Director and Chief Financial Officer    1993 (2)

Brian M. Smith

   54    Managing Director and Chief Investment Officer    2005 (3)

 

(1)

In February 2009, Mary Lou Fiala, President and Chief Operating Officer of the Company since 1999, announced that she will retire from her position as Chief Operating Officer at the end of 2009. As part of the transition of her responsibilities in connection with her retirement later this year, Ms. Fiala gave up the position of President to Brian M. Smith, who was appointed to fill that position as described below. Ms. Fiala will remain as Chief Operating Officer until her retirement. The Corporate Governance and Nominating Committee intends to renominate Ms. Fiala as a director subsequent to her retirement.

(2)

In February 2009, Bruce M. Johnson, Managing Director and Chief Financial Officer of the Company since 1993, was appointed to Executive Vice President.

(3)

In February 2009, Brian M. Smith, Managing Director and Chief Investment Officer of the Company since 2005, was appointed to the position of President. Prior to serving as our Managing Director and Chief Investment Officer, from March 1999 to September 2005, Mr. Smith served as Managing Director of Investments for our Pacific, Mid-Atlantic, and Northeast divisions.

Company Website Access and SEC Filings

The Company’s website may be accessed at www.regencycenters.com. All of our filings with the Securities and Exchange Commission (“SEC”) can be accessed through our website promptly after filing; however, in the event that the website is inaccessible, we will provide paper copies of our most recent annual report on Form 10-K, the most recent quarterly report on Form 10-Q, current reports filed or furnished on Form 8-K, and all related amendments, excluding exhibits, free of charge upon request. These filings are also accessible on the SEC’s website at www.sec.gov.

General Information

The Company’s registrar and stock transfer agent is American Stock Transfer & Trust Company (“AST”), New York, New York. The Company offers a dividend reinvestment plan (“DRIP”) that enables its shareholders to reinvest dividends automatically, as well as to make voluntary cash payments toward the purchase of additional shares. For more information, contact AST’s Shareholder Services Group toll free at (866) 668-6550 or the Company’s Shareholder Relations Department.

The Company’s Independent Registered Public Accountants are KPMG LLP, Jacksonville, Florida. The Company’s General Counsel is Foley & Lardner LLP, Jacksonville, Florida.

Annual Meeting

The Company’s annual meeting will be held at The River Club, One Independent Drive, 35th Floor, Jacksonville, Florida, at 11:00 a.m. on Tuesday, May 5, 2009.

 

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Item 1A. Risk Factors

Risk Factors Related to Our Industry and Real Estate Investments

Our revenues and cash flow could be adversely affected by poor market conditions where properties are geographically concentrated.

Our performance depends on the economic conditions in markets in which our properties are concentrated. During the year ended December 31, 2008, our properties in California, Florida and Texas accounted for 58.9% of our consolidated net operating income. Our revenues and cash available for distribution to stockholders could be adversely affected by this geographic concentration if market conditions, such as supply of retail space or demand for shopping centers, deteriorate in California, Florida, and Texas relative to other geographic areas.

Loss of revenues from major tenants could reduce distributions to stockholders.

We derive significant revenues from anchor tenants such as Kroger, Publix and Safeway that occupy more than one center. Distributions to stockholders could be adversely affected by the loss of revenues in the event a major tenant:

 

   

becomes bankrupt or insolvent;

 

   

experiences a downturn in its business;

 

   

materially defaults on its leases;

 

   

does not renew its leases as they expire; or

 

   

renews at lower rental rates.

Vacated anchor space, including space owned by the anchor, can reduce rental revenues generated by the shopping center because of the loss of the departed anchor tenant’s customer drawing power. Most anchors have the right to vacate and prevent re-tenanting by paying rent for the balance of the lease term. If major tenants vacate a property, then other tenants may be entitled to terminate their leases at the property.

Downturns in the retailing industry likely will have a direct adverse impact on our revenues and cash flow.

Our properties consist primarily of grocery-anchored shopping centers. Our performance therefore is generally linked to economic conditions in the market for retail space. The market for retail space has been or could be adversely affected by any of the following:

 

   

weakness in the national, regional and local economies, which could adversely impact consumer spending and retail sales and in turn tenant demand for space and increased store closings;

 

   

consequences of any armed conflict involving, or terrorist attack against, the United States;

 

   

the adverse financial condition of some large retailing companies;

 

   

the ongoing consolidation in the retail sector;

 

   

the excess amount of retail space in a number of markets;

 

   

increasing consumer purchases through catalogs or the internet;

 

   

reduction in the demand by tenants to occupy our shopping centers as a result of reduced consumer demand for certain retail formats such as video rental stores;

 

   

the timing and costs associated with property improvements and rentals;

 

   

changes in taxation and zoning laws;

 

   

adverse government regulation.

 

   

the growth of super-centers, such as those operated by Wal-Mart, and their adverse effect on major grocery chains; and

 

   

the impact of increased energy costs on consumers and its consequential effect on the number of shopping visits to our centers;

To the extent that any of these conditions occur, they are likely to impact market rents for retail space, occupancy in the operating portfolios, our ability to recycle capital, and our cash available for distribution to stockholders.

 

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Unsuccessful development activities or a slowdown in development activities could reduce distributions to stockholders.

We actively pursue development activities as opportunities arise. Development activities require various government and other approvals for entitlements which can significantly delay the development process. We may not recover our investment in development projects for which approvals are not received. We incur other risks associated with development activities, including:

 

   

the ability to lease up developments to full occupancy on a timely basis;

 

   

the risk that anchor tenants will not open and operate in accordance with their lease agreement;

 

   

the risk that occupancy rates and rents of a completed project will not be sufficient to make the project profitable and available for contribution to our co-investment partnerships or sale to third parties;

 

   

the risk that the current size and continued growth in our development pipeline will strain the organization’s capacity to complete the developments within the targeted timelines and at the expected returns on invested capital;

 

   

the risk that we may abandon development opportunities and lose our investment in these developments;

 

   

the risk that development costs of a project may exceed original estimates, possibly making the project unprofitable;

 

   

delays in the development and construction process; and

 

   

the lack of cash flow during the construction period.

If developments are unsuccessful, funding provided from contributions to co-investment partnerships and sales to third parties may be materially reduced and our cash flow available for distribution to stockholders will be reduced. Our earnings and cash flow available for distribution to stockholders also may be reduced if we experience a significant slowdown in our development activities.

Uninsured loss may adversely affect distributions to stockholders.

We carry comprehensive liability, fire, flood, extended coverage, rental loss, and environmental insurance for our properties with policy specifications and insured limits customarily carried for similar properties. We believe that the insurance carried on our properties is adequate and in accordance with industry standards. There are, however, some types of losses, such as from hurricanes, terrorism, wars or earthquakes, which may be uninsurable, or the cost of insuring against such losses may not be economically justifiable. If an uninsured loss occurs, we could lose both the invested capital in and anticipated revenues from the property, but we would still be obligated to repay any recourse mortgage debt on the property. In that event, our distributions to stockholders could be reduced.

We face competition from numerous sources.

The ownership of shopping centers is highly fragmented, with less than 10% owned by real estate investment trusts. We face competition from other real estate investment trusts as well as from numerous small owners in the acquisition, ownership, and leasing of shopping centers. We compete to develop shopping centers with other real estate investment trusts engaged in development activities as well as with local, regional, and national real estate developers.

We compete in the acquisition of properties through proprietary research that identifies opportunities in markets with high barriers to entry and higher-than-average population growth and household income. We seek to maximize rents per square foot by (i) establishing relationships with supermarket chains that are first or second in their markets or other category-leading anchors and (ii) leasing non-anchor space in multiple centers to national or regional tenants. We compete to develop properties by applying our proprietary research methods to identify development and leasing opportunities and by pre-leasing a significant portion of a center before beginning construction.

There can be no assurance, however, that other real estate owners or developers will not utilize similar research methods and target the same markets and anchor tenants that we target. These entities may successfully

 

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control these markets and tenants to our exclusion. If we cannot successfully compete in our targeted markets, our cash flow, and therefore distributions to stockholders, may be adversely affected.

Costs of environmental remediation could reduce our cash flow available for distribution to stockholders.

Under various federal, state and local laws, an owner or manager of real property may be liable for the costs of removal or remediation of hazardous or toxic substances on the property. These laws often impose liability without regard to whether the owner knew of, or was responsible for, the presence of hazardous or toxic substances. The cost of any required remediation could exceed the value of the property and/or the aggregate assets of the owner.

We are subject to numerous environmental laws and regulations as they apply to our shopping centers pertaining to chemicals used by the dry cleaning industry, the existence of asbestos in older shopping centers, and underground petroleum storage tanks (UST’s). The presence of, or the failure to properly remediate, hazardous or toxic substances may adversely affect our ability to sell or lease a contaminated property or to borrow using the property as collateral. Any of these developments could reduce cash flow and distributions to stockholders.

Risk Factors Related to Our Co-investment Partnerships and Acquisition Structure

We do not have voting control over our joint venture investments, so we are unable to ensure that our objectives will be pursued.

We have invested as a co-venturer in the acquisition or development of properties. These investments involve risks not present in a wholly-owned project. We do not have voting control over the ventures. The co-venturer might (1) have interests or goals that are inconsistent with our interests or goals or (2) otherwise impede our objectives. The co-venturer also might become insolvent or bankrupt.

Our co-investment partnerships account for a significant portion of our revenues and net income in the form of management fees and are an important part of our growth strategy. The termination of our co-investment partnerships could adversely affect distributions to stockholders.

Our management fee income has increased significantly as our participation in co-investment partnerships has increased. If co-investment partnerships owning a significant number of properties were dissolved for any reason, we would lose the asset and property management fees from these co-investment partnerships, which could adversely affect our cash available for distribution to stockholders.

In addition, termination of the co-investment partnerships without replacing them with new co-investment partnerships could adversely affect our growth strategy. Property sales to the co-investment partnerships provide us with an important source of funding for additional developments and acquisitions. Without this source of capital, our ability to recycle capital, fund developments and acquisitions, and increase distributions to stockholders could be adversely affected.

Our co-investment partnerships have significant levels of debt, 67.5% of which will mature through 2012, and are subject to significant refinancing risks. We anticipate that as real estate values decline, the refinancing of maturing loans, including those maturing in our joint ventures, will require us and our joint venture partners to contribute our respective pro-rata shares of capital in order to reduce refinancing requirements to acceptable loan to value levels required for new financings. The long-term impact of the current economic crisis on our ability to access capital, including access by our joint venture partners, or to obtain future financing to fund maturing debt is unclear.

Our partnership structure may limit our flexibility to manage our assets.

We invest in retail shopping centers through Regency Centers, L.P., the operating partnership in which we currently own 99% of the outstanding common partnership units. From time to time, we acquire properties through our operating partnership in exchange for limited partnership interests. This acquisition structure may permit limited partners who contribute properties to us to defer some, if not all, of the income tax liability that they would incur if they sold the property for cash.

 

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Properties contributed to our operating partnership may have unrealized gains attributable to the difference between the fair market value and adjusted tax basis in the properties prior to contribution. As a result, our sale of these properties could cause adverse tax consequences to the limited partners who contributed them.

Generally, our operating partnership has no obligation to consider the tax consequences of its actions to any limited partner. However, our operating partnership may acquire properties in the future subject to material restrictions on refinancing or resale designed to minimize the adverse tax consequences to the limited partners who contribute those properties. These restrictions could significantly reduce our flexibility to manage our assets by preventing us from reducing mortgage debt or selling a property when such a transaction might be in our best interest in order to reduce interest costs or dispose of an under-performing property.

Risk Factors Related to Our Capital Recycling and Capital Structure

Lack of available credit could reduce capital available for new developments and other investments and could increase refinancing risks.

The lack of available credit in the commercial real estate market is causing a decline in the sale of shopping centers and their values. This reduces the available capital for new developments or other new investments, which is a key part of our capital recycling strategy. The lack of liquidity in the capital markets has also resulted in a significant increase in the cost to refinance maturing loans and a significant increase in refinancing risks. We anticipate that as real estate values decline, refinancing maturing secured loans, including those maturing in our joint ventures, may require us and our joint venture partners to contribute our respective pro-rata shares of capital in order to reduce refinancing requirements to acceptable loan to value levels required for new financings. At this time, it is unclear whether and to what extent the actions taken by the U.S. government currently being implemented or contemplated, will mitigate the effects of the economic crisis within the United States. While we currently have no immediate need to access the credit markets, the impact of the current economic crisis on our ability to access capital, including access by our joint venture partners, or to obtain future financing to fund maturing debt is unclear.

A reduction in the availability of capital, an increase in the cost of capital, and higher market capitalization rates could adversely impact Regency’s ability to recycle capital and fund developments and acquisitions, and could dilute earnings.

As part of our capital recycling program, we sell operating properties that no longer meet our investment standards. We also develop certain retail centers because of their attractive margins with the intent of selling them to co-investment partnerships or other third parties for a profit. These sale proceeds are used to fund the construction of new developments. An increase in market capitalization rates could cause a reduction in the value of centers identified for sale, which would have an adverse impact on our capital recycling program by reducing the amount of cash generated and profits realized. In order to meet the cash requirements of our development program, we may be required to sell more properties than initially planned, which would have a dilutive impact on our earnings.

Our debt financing may reduce distributions to stockholders.

We do not expect to generate sufficient funds from operations to make balloon principal payments when due on our debt. If we are unable to refinance our debt on acceptable terms, we might be forced (i) to dispose of properties, which might result in losses, or (ii) to obtain financing at unfavorable terms. Either could reduce the cash flow available for distributions to stockholders.

In addition, if we cannot make required mortgage payments, the mortgagee could foreclose on the property securing the mortgage, causing the loss of cash flow from that property. Furthermore, substantially all of our debt is cross-defaulted, which means that a default under one loan could trigger defaults under other loans.

Our organizational documents do not limit the amount of debt that may be incurred. The degree to which we are leveraged could have important consequences, including the following:

 

   

leverage could affect our ability to obtain additional financing in the future to repay indebtedness or for working capital, capital expenditures, acquisitions, development, or other general corporate purposes;

 

   

leverage could make us more vulnerable to a downturn in our business or the economy generally; and

 

8


Table of Contents
Index to Financial Statements
   

as a result, our leverage could lead to reduced distributions to stockholders.

Covenants in our debt agreements may restrict our operating activities and adversely affect our financial condition.

Our revolving line of credit and our unsecured notes contain customary covenants, including compliance with financial ratios, such as ratios of total debt to gross asset value and fixed charge coverage ratios. Our line of credit also restricts our ability to enter into a transaction that would result in a change of control. These covenants may limit our operational flexibility and our acquisition activities. Moreover, if we breach any of these covenants, the resulting default could cause the acceleration of our indebtedness, even in the absence of a payment default. If we are not able to refinance our indebtedness after a default, or unable to refinance our indebtedness on favorable terms, distributions to stockholders and our financial condition would be adversely affected.

We depend on external sources of capital, which may not be available in the future.

To qualify as a REIT, we must, among other things, distribute to our stockholders each year at least 90% of our REIT taxable income (excluding any net capital gains). Because of these distribution requirements, we likely will not be able to fund all future capital needs, including capital for acquisitions or developments, with income from operations. We therefore will have to rely on third-party sources of capital, which may or may not be available on favorable terms or at all. Our access to third-party sources of capital depends on a number of things, including the market’s perception of our growth potential and our current and potential future earnings. In addition, our line of credit imposes covenants that limit our flexibility in obtaining other financing, such as a prohibition on negative pledge agreements.

Additional equity offerings may result in substantial dilution of stockholders’ interests, and additional debt financing may substantially increase our degree of leverage.

Risk Factors Related to Interest Rates and the Market for Our Stock

Increased interest rates may reduce distributions to stockholders.

We are obligated on floating rate debt, and if we do not eliminate our exposure to increases in interest rates through interest rate protection or cap agreements, these increases may reduce cash flow and our ability to make distributions to stockholders.

Although swap agreements enable us to convert floating rate debt to fixed rate debt and cap agreements enable us to cap our maximum interest rate, they expose us to the risk that the counterparties to these hedge agreements may not perform, which could increase our exposure to rising interest rates. If we enter into swap agreements, decreases in interest rates will increase our interest expense as compared to the underlying floating rate debt. This could result in our making payments to unwind these agreements, such as in connection with a prepayment of the floating rate debt.

Increased market interest rates could reduce our stock prices.

The annual dividend rate on our common stock as a percentage of its market price may influence the trading price of our stock. An increase in market interest rates may lead purchasers to demand a higher annual dividend rate, which could adversely affect the market price of our stock. A decrease in the market price of our common stock could reduce our ability to raise additional equity in the public markets. Selling common stock at a decreased market price would have a dilutive impact on existing shareholders.

Risk Factors Related to Federal Income Tax Laws

If we fail to qualify as a REIT for federal income tax purposes, we would be subject to federal income tax at regular corporate rates.

We believe that we qualify for taxation as a REIT for federal income tax purposes, and we plan to operate so that we can continue to meet the requirements for taxation as a REIT. If we qualify as a REIT, we generally will not be subject to federal income tax on our income that we distribute currently to our stockholders. Many of the REIT requirements, however, are highly technical and complex. The determination that we are a REIT requires an

 

9


Table of Contents
Index to Financial Statements

analysis of various factual matters and circumstances, some of which may not be totally within our control and some of which involve questions of interpretation. For example, to qualify as a REIT, at least 95% of our gross income must come from specific passive sources, like rent, that are itemized in the REIT tax laws. There can be no assurance that the IRS or a court would agree with the positions we have taken in interpreting the REIT requirements. We also are required to distribute to our stockholders at least 90% of our REIT taxable income, excluding capital gains. The fact that we hold many of our assets through co-investment partnerships and their subsidiaries further complicates the application of the REIT requirements. Even a technical or inadvertent mistake could jeopardize our REIT status. Furthermore, Congress and the Internal Revenue Service might make changes to the tax laws and regulations, and the courts might issue new rulings, that make it more difficult, or impossible, for us to remain qualified as a REIT.

Also, unless the IRS granted us relief under certain statutory provisions, we would remain disqualified as a REIT for four years following the year we first failed to qualify. If we failed to qualify as a REIT, we would have to pay significant income taxes and this would likely have a significant adverse affect on the value of our securities. In addition, we would no longer be required to pay any dividends to stockholders.

Even if we qualify as a REIT for federal income tax purposes, we are required to pay certain federal, state and local taxes on our income and property. For example, if we have net income from “prohibited transactions,” that income will be subject to a 100% tax. In general, prohibited transactions include sales or other dispositions of property held primarily for sale to customers in the ordinary course of business. The determination as to whether a particular sale is a prohibited transaction depends on the facts and circumstances related to that sale. While we have undertaken a significant number of asset sales in recent years, we do not believe that those sales should be considered prohibited transactions, but there can be no assurance that the IRS would not contend otherwise.

In addition, any net taxable income earned directly by our taxable affiliates, including Regency Realty Group, Inc., our taxable REIT subsidiary, is subject to federal and state corporate income tax. Several provisions of the laws applicable to REIT’s and their subsidiaries ensure that a taxable REIT subsidiary will be subject to an appropriate level of federal income taxation. For example, a taxable REIT subsidiary is limited in its ability to deduct interest payments made to an affiliated REIT. In addition, a REIT has to pay a 100% penalty tax on some payments that it receives if the economic arrangements between the REIT, the REIT’s tenants and the taxable REIT subsidiary are not comparable to similar arrangements between unrelated parties. Finally, some state and local jurisdictions may tax some of our income even though as a REIT we are not subject to federal income tax on that income. To the extent that we and our affiliates are required to pay federal, state and local taxes, we will have less cash available for distributions to our stockholders.

A REIT may not own securities in any one issuer if the value of those securities exceeds 5% of the value of the REIT’s total assets or the securities owned by the REIT represent more than 10% of the issuer’s outstanding voting securities or 10% of the value of the issuer’s outstanding securities. An exception to these tests allows a REIT to own securities of a subsidiary that exceed the 5% value test and the 10% value tests if the subsidiary elects to be a “taxable REIT subsidiary.” We are not able to own securities of taxable REIT subsidiaries that represent in the aggregate more than 25% of the value of our total assets. We currently own more than 10% of the total value of the outstanding securities of Regency Realty Group, Inc., which has elected to be a taxable REIT subsidiary.

Risk Factors Related to Our Ownership Limitations, the Florida Business Corporation Act and Certain Other Matters

Restrictions on the ownership of our capital stock to preserve our REIT status could delay or prevent a change in control.

Ownership of more than 7% by value of our outstanding capital stock by certain persons is restricted for the purpose of maintaining our qualification as a REIT, with certain exceptions. This 7% limitation may discourage a change in control and may also (i) deter tender offers for our capital stock, which offers may be attractive to our stockholders, or (ii) limit the opportunity for our stockholders to receive a premium for their capital stock that might otherwise exist if an investor attempted to assemble a block in excess of 7% of our outstanding capital stock or to effect a change in control.

The issuance of our capital stock could delay or prevent a change in control.

Our articles of incorporation authorize our board of directors to issue up to 30,000,000 shares of preferred stock and 10,000,000 shares of special common stock and to establish the preferences and rights of any shares

 

10


Table of Contents
Index to Financial Statements

issued. The issuance of preferred stock or special common stock could have the effect of delaying or preventing a change in control even if a change in control were in our stockholders’ interest. The provisions of the Florida Business Corporation Act regarding control share acquisitions and affiliated transactions could also deter potential acquisitions by preventing the acquiring party from voting the common stock it acquires or consummating a merger or other extraordinary corporate transaction without the approval of our disinterested stockholders.

 

Item 1B. Unresolved Staff Comments

The Company has received no written comments regarding its periodic or current reports from the staff of the Securities and Exchange Commission that were issued 180 days or more preceding December 31, 2008 that remain unresolved.

 

11


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Index to Financial Statements
Item 2. Properties

The following table is a list of the shopping centers summarized by state and in order of largest holdings presented on a Combined Basis (includes properties owned by unconsolidated co-investment partnerships):

 

     December 31, 2008     December 31, 2007  

Location

   #
Properties
   GLA    % of
Total
GLA
    %
Leased
    #
Properties
   GLA    % of
Total
GLA
    %
Leased
 

California

   76    9,597,194    19.3 %   91.9 %   73    9,615,484    18.8 %   89.9 %

Florida

   60    6,050,697    12.2 %   93.9 %   60    6,137,127    12.0 %   94.2 %

Texas

   36    4,404,025    8.9 %   90.5 %   38    4,524,621    8.9 %   90.7 %

Virginia

   30    3,799,919    7.6 %   95.6 %   34    4,153,392    8.1 %   93.8 %

Illinois

   24    2,901,919    5.8 %   90.0 %   24    2,901,849    5.7 %   94.5 %

Georgia

   30    2,648,555    5.3 %   92.7 %   30    2,628,658    5.1 %   94.0 %

Ohio

   17    2,631,530    5.3 %   86.7 %   16    2,270,932    4.4 %   86.7 %

Colorado

   22    2,285,926    4.6 %   91.4 %   22    2,424,813    4.8 %   91.4 %

Missouri

   23    2,265,422    4.6 %   96.8 %   23    2,265,472    4.4 %   97.9 %

North Carolina

   15    2,107,442    4.2 %   91.9 %   16    2,180,033    4.3 %   92.7 %

Maryland

   16    1,873,759    3.8 %   94.0 %   18    2,058,337    4.0 %   95.0 %

Pennsylvania

   12    1,441,791    2.9 %   90.1 %   14    1,596,969    3.1 %   87.4 %

Washington

   13    1,255,836    2.5 %   97.0 %   14    1,332,518    2.6 %   98.5 %

Oregon

   11    1,087,738    2.2 %   97.1 %   11    1,088,697    2.1 %   96.9 %

Tennessee

   8    574,114    1.2 %   92.0 %   8    576,614    1.1 %   95.7 %

Massachusetts

   3    561,186    1.1 %   93.4 %   3    561,176    1.1 %   86.2 %

Nevada

   3    528,368    1.1 %   83.4 %   3    774,736    1.5 %   43.7 %

Arizona

   4    496,073    1.0 %   94.3 %   4    496,073    1.0 %   98.8 %

Minnesota

   3    483,938    1.0 %   92.9 %   3    483,938    1.0 %   96.2 %

Delaware

   4    472,005    0.9 %   95.2 %   5    654,779    1.3 %   89.7 %

South Carolina

   8    451,494    0.9 %   96.7 %   9    547,735    1.1 %   92.5 %

Kentucky

   3    325,853    0.7 %   90.2 %   3    325,792    0.6 %   88.1 %

Alabama

   3    278,299    0.6 %   78.3 %   2    193,558    0.4 %   83.5 %

Indiana

   6    273,279    0.6 %   76.4 %   6    273,256    0.5 %   81.9 %

Wisconsin

   2    269,128    0.5 %   97.7 %   2    269,128    0.5 %   97.7 %

Connecticut

   1    179,860    0.4 %   100.0 %   1    179,860    0.4 %   100.0 %

New Jersey

   2    156,482    0.3 %   96.2 %   2    156,482    0.3 %   95.2 %

Michigan

   2    118,273    0.2 %   84.9 %   4    303,457    0.6 %   89.6 %

New Hampshire

   1    84,793    0.2 %   80.4 %   1    91,692    0.2 %   74.8 %

Dist. of Columbia

   2    39,647    0.1 %   100.0 %   2    39,646    0.1 %   79.4 %
                                            

Total

   440    49,644,545    100.0 %   92.3 %   451    51,106,824    100.0 %   91.7 %
                                            

The Combined Properties include the consolidated and unconsolidated properties which are encumbered by notes payable of $240.3 million and mortgage loans of $2.7 billion, respectively.

 

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Index to Financial Statements
Item 2. Properties (continued)

 

The following table is a list of the shopping centers summarized by state and in order of largest holdings presented for Consolidated Properties (excludes properties owned by unconsolidated co-investment partnerships):

 

     December 31, 2008     December 31, 2007  

Location

   #
Properties
   GLA    % of
Total
GLA
    %
Leased
    #
Properties
   GLA    % of
Total
GLA
    %
Leased
 

California

   46    5,668,350    23.5 %   89.7 %   44    5,656,656    22.0 %   86.8 %

Florida

   41    4,198,414    17.4 %   94.4 %   42    4,376,530    17.0 %   94.4 %

Texas

   28    3,371,380    13.9 %   89.9 %   29    3,404,741    13.2 %   88.7 %

Ohio

   14    1,985,392    8.2 %   85.3 %   14    2,015,751    7.8 %   85.5 %

Georgia

   16    1,409,622    5.8 %   92.0 %   16    1,409,725    5.5 %   92.9 %

Colorado

   14    1,130,771    4.7 %   86.2 %   14    1,277,505    5.0 %   88.3 %

Virginia

   7    958,825    4.0 %   90.8 %   10    1,315,651    5.1 %   89.0 %

North Carolina

   9    951,177    3.9 %   94.6 %   10    1,023,768    4.0 %   93.5 %

Oregon

   8    733,068    3.0 %   98.4 %   8    734,027    2.8 %   97.4 %

Washington

   7    538,155    2.2 %   95.9 %   8    614,837    2.4 %   98.6 %

Tennessee

   7    488,049    2.0 %   91.2 %   7    490,549    1.9 %   95.1 %

Nevada

   2    429,304    1.8 %   81.1 %   2    675,672    2.6 %   35.6 %

Illinois

   3    414,996    1.7 %   84.7 %   3    414,996    1.6 %   92.2 %

Arizona

   3    388,440    1.6 %   93.0 %   3    388,440    1.5 %   99.0 %

Massachusetts

   2    375,907    1.6 %   90.5 %   2    375,897    1.5 %   79.4 %

Pennsylvania

   4    347,430    1.4 %   77.6 %   5    534,741    2.1 %   72.9 %

Delaware

   2    240,418    1.0 %   99.2 %   2    240,418    0.9 %   99.6 %

Michigan

   2    118,273    0.5 %   84.9 %   4    303,457    1.2 %   89.6 %

Maryland

   1    106,915    0.4 %   77.8 %   1    129,340    0.5 %   77.3 %

New Hampshire

   1    84,793    0.4 %   80.4 %   1    91,692    0.4 %   74.8 %

Alabama

   1    84,741    0.4 %   68.7 %   —      —      —       —    

South Carolina

   2    74,422    0.3 %   90.6 %   3    170,663    0.7 %   79.1 %

Indiana

   3    54,510    0.2 %   34.1 %   3    54,487    0.2 %   44.5 %

Kentucky

   1    23,184    0.1 %   33.6 %   1    23,122    0.1 %   —    
                                            

Total

   224    24,176,536    100.0 %   90.2 %   232    25,722,665    100.0 %   88.1 %
                                            

The Consolidated Properties are encumbered by notes payable of $240.3 million.

 

13


Table of Contents
Index to Financial Statements
Item 2. Properties (continued)

 

The following table is a list of the shopping centers summarized by state and in order of largest holdings presented for Unconsolidated Properties (only properties owned by unconsolidated co-investment partnerships):

 

     December 31, 2008     December 31, 2007  

Location

   #
Properties
   GLA    % of
Total
GLA
    %
Leased
    #
Properties
   GLA    % of
Total
GLA
    %
Leased
 

California

   30    3,928,844    15.4 %   94.9 %   29    3,958,828    15.6 %   94.4 %

Virginia

   23    2,841,094    11.2 %   97.2 %   24    2,837,741    11.2 %   96.0 %

Illinois

   21    2,486,923    9.8 %   90.9 %   21    2,486,853    9.8 %   94.9 %

Missouri

   23    2,265,422    8.9 %   96.8 %   23    2,265,472    8.9 %   97.9 %

Florida

   19    1,852,283    7.3 %   92.6 %   18    1,760,597    6.9 %   93.6 %

Maryland

   15    1,766,844    6.9 %   95.0 %   17    1,928,997    7.6 %   96.2 %

Georgia

   14    1,238,933    4.9 %   93.6 %   14    1,218,933    4.8 %   95.3 %

North Carolina

   6    1,156,265    4.5 %   89.7 %   6    1,156,265    4.6 %   92.0 %

Colorado

   8    1,155,155    4.5 %   96.4 %   8    1,147,308    4.5 %   94.8 %

Pennsylvania

   8    1,094,361    4.3 %   94.1 %   9    1,062,228    4.2 %   94.7 %

Texas

   8    1,032,645    4.0 %   92.6 %   9    1,119,880    4.4 %   96.6 %

Washington

   6    717,681    2.8 %   97.8 %   6    717,681    2.8 %   98.4 %

Ohio

   3    646,138    2.5 %   91.0 %   2    255,181    1.0 %   96.5 %

Minnesota

   3    483,938    1.9 %   92.9 %   3    483,938    1.9 %   96.2 %

South Carolina

   6    377,072    1.5 %   98.0 %   6    377,072    1.5 %   98.5 %

Oregon

   3    354,670    1.4 %   94.3 %   3    354,670    1.4 %   96.0 %

Kentucky

   2    302,669    1.2 %   94.6 %   2    302,670    1.2 %   94.8 %

Wisconsin

   2    269,128    1.1 %   97.7 %   2    269,128    1.1 %   97.7 %

Delaware

   2    231,587    0.9 %   91.1 %   3    414,361    1.6 %   83.9 %

Indiana

   3    218,769    0.9 %   87.0 %   3    218,769    0.9 %   91.2 %

Alabama

   2    193,558    0.8 %   82.5 %   2    193,558    0.8 %   83.5 %

Massachusetts

   1    185,279    0.7 %   99.4 %   1    185,279    0.7 %   100.0 %

Connecticut

   1    179,860    0.7 %   100.0 %   1    179,860    0.7 %   100.0 %

New Jersey

   2    156,482    0.6 %   96.2 %   2    156,482    0.6 %   95.2 %

Arizona

   1    107,633    0.4 %   98.9 %   1    107,633    0.4 %   98.1 %

Nevada

   1    99,064    0.4 %   93.0 %   1    99,064    0.4 %   98.9 %

Tennessee

   1    86,065    0.3 %   96.2 %   1    86,065    0.3 %   98.8 %

Dist. of Columbia

   2    39,647    0.2 %   100.0 %   2    39,646    0.2 %   79.4 %
                                            

Total

   216    25,468,009    100.0 %   94.3 %   219    25,384,159    100.0 %   95.2 %
                                            

The Unconsolidated Properties are encumbered by mortgage loans of $2.7 billion.

 

14


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Index to Financial Statements
Item 2. Properties (continued)

The following table summarizes the largest tenants occupying our shopping centers for Consolidated Properties plus Regency’s pro-rata share of Unconsolidated Properties as of December 31, 2008 based upon a percentage of total annualized base rent exceeding ..5%.

 

Tenant

   GLA    Percent to
Company
Owned GLA
    Rent    Percentage of
Annualized
Base Rent
    Number of
Leased
Stores
   Anchor
Owned
Stores (a)

Kroger

   2,626,656    9.0 %   $ 24,585,984    5.71 %   57    9

Publix

   1,982,774    6.8 %     17,905,956    4.16 %   66    1

Safeway

   1,669,257    5.7 %     16,182,878    3.76 %   58    6

Supervalu

   937,795    3.2 %     10,510,610    2.44 %   33    3

CVS

   466,451    1.6 %     6,966,021    1.62 %   52    —  

Blockbuster Video

   295,762    1.0 %     6,296,522    1.46 %   80    —  

TJX Companies

   433,886    1.5 %     4,449,824    1.03 %   27    —  

Wells Fargo Bank

   71,798    0.2 %     3,606,331    0.84 %   51    —  

Starbucks

   103,040    0.4 %     3,436,229    0.80 %   97    —  

JPMorgan Chase Bank

   94,583    0.3 %     3,323,739    0.77 %   36    —  

Sears Holdings

   435,225    1.5 %     3,270,528    0.76 %   14    2

Walgreens

   207,823    0.7 %     3,149,986    0.73 %   20    —  

PETCO

   165,339    0.6 %     2,970,225    0.69 %   22    —  

Rite Aid

   221,440    0.8 %     2,966,555    0.69 %   32    —  

Schnucks

   309,522    1.1 %     2,695,784    0.63 %   31    —  

Bank of America

   70,644    0.2 %     2,680,761    0.62 %   31    —  

Hallmark

   156,512    0.5 %     2,676,729    0.62 %   59    —  

Subway

   89,453    0.3 %     2,539,466    0.59 %   115    —  

H.E.B.

   210,413    0.7 %     2,499,163    0.58 %   4    —  

Ross Dress For Less

   174,379    0.6 %     2,346,730    0.54 %   16    —  

The UPS Store

   94,034    0.3 %     2,336,115    0.54 %   110    —  

Harris Teeter

   182,108    0.6 %     2,315,621    0.54 %   7    —  

Best Buy

   113,280    0.4 %     2,310,476    0.54 %   7    —  

Stater Bros.

   151,151    0.5 %     2,300,289    0.53 %   5    —  

PetSmart

   149,326    0.5 %     2,276,767    0.53 %   11    —  

Whole Foods

   109,613    0.4 %     2,250,494    0.52 %   5    —  

Staples

   147,312    0.5 %     2,224,514    0.52 %   12    —  

Sports Authority

   129,427    0.4 %     2,211,673    0.51 %   4    —  

Michael’s

   194,815    0.7 %     2,188,080    0.51 %   13    —  

Target

   268,864    0.9 %     2,186,323    0.51 %   3    22

Ahold

   191,645    0.7 %     2,161,122    0.50 %   10    —  

 

(a) Stores owned by anchor tenant that are attached to our centers.

Regency’s leases have 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 leases provide for the monthly payment in advance of fixed minimum rent, 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 (“CAM”) expenses, and reimbursement for utility costs if not directly metered.

 

15


Table of Contents
Index to Financial Statements
Item 2. Properties (continued)

The following table sets forth a schedule of lease expirations for the next ten years and thereafter, assuming no tenants renew their leases:

 

Lease Expiration Year

   Expiring
GLA (2)
   Percent of
Total
Company
GLA (2)
    Minimum
Rent
Expiring
Leases (3)
   Percent of
Minimum
Rent (3)
 

(1)

   321,286    1.2 %   $ 5,883,035    1.4 %

2009

   1,925,845    7.4 %     37,125,786    8.6 %

2010

   2,431,621    9.4 %     45,949,295    10.7 %

2011

   2,954,151    11.4 %     52,293,040    12.1 %

2012

   3,227,004    12.5 %     58,804,328    13.7 %

2013

   2,537,624    9.8 %     49,051,657    11.4 %

2014

   1,256,946    4.9 %     20,669,720    4.8 %

2015

   750,931    2.9 %     12,577,954    2.9 %

2016

   739,725    2.9 %     12,526,878    2.9 %

2017

   1,242,402    4.8 %     21,744,597    5.0 %

2018

   1,340,798    5.2 %     21,291,183    4.9 %

Thereafter

   7,131,604    27.6 %     92,852,925    21.6 %
                        

Total

   25,859,937    100.0 %   $ 430,770,398    100.0 %
                        
 
  (1) leased currently under month to month rent or in process of renewal
  (2) represents GLA for Consolidated Properties plus Regency’s pro-rata share of Unconsolidated Properties
  (3) minimum rent includes current minimum rent and future contractual rent steps for the Consolidated Properties plus Regency’spro-rata share from Unconsolidated Properties, but excludes additional rent such as percentage rent, common area maintenance, real estate taxes and insurance reimbursements

 

16


Table of Contents
Index to Financial Statements

See the following Combined Basis property table and also see Item 7, Management’s Discussion and Analysis for further information about Regency’s properties.

 

Property Name

   Year
Acquired
   Year
Constructed (1)
   Gross
Leasable
Area
(GLA)
   Percent
Leased (2)
   

Grocer & Major Tenant(s)
>40,000sf

  

Drug Store & Other Anchors
> 10,000 Sq Ft

CALIFORNIA

Los Angeles/ Southern CA

4S Commons Town Center

   2004    2004    240,060    98.5 %   Ralphs, Jimbo’s...Naturally!    Bed Bath & Beyond, Cost Plus World Market, CVS, Griffin Ace Hardware

Amerige Heights Town Center (4)

   2000    2000    96,680    100.0 %   Albertsons, (Target)   

Bear Creek Village Center (4)

   2003    2004    75,220    96.3 %   Stater Bros.   

Brea Marketplace (4)

   2005    1987    193,172    93.1 %   Sprout’s Markets, Toys “R” Us    24 Hour Fitness, Circuit City, Big 5 Sporting Goods, Beverages & More!, Childtime Childcare

Campus Marketplace (4)

   2000    2000    144,289    98.1 %   Ralphs    Longs Drug, Discovery Isle Child Development Center

Costa Verde Center

   1999    1988    178,623    94.6 %   Bristol Farms    Bookstar, The Boxing Club, Pharmaca Integrative Pharmacy

El Camino Shopping Center

   1999    1995    135,728    100.0 %   Von’s Food & Drug    Sav-On Drugs

El Norte Pkwy Plaza

   1999    1984    90,679    95.5 %   Von’s Food & Drug    Longs Drug

Falcon Ridge Town Center Phase I (4)

   2003    2004    232,754    87.3 %   Stater Bros., (Target)    Sports Authority, Ross Dress for Less, Party City, Michaels, Pier 1 Imports

Falcon Ridge Town Center Phase II (4)

   2005    2005    66,864    100.0 %   24 Hour Fitness    CVS

Five Points Shopping Center (4)

   2005    1960    144,553    100.0 %   Albertsons    Longs Drug, Ross Dress for Less, Big 5 Sporting Goods

French Valley Village Center

   2004    2004    98,919    90.7 %   Stater Bros.    Sav-On Drugs

Friars Mission Center

   1999    1989    146,898    100.0 %   Ralphs    Longs Drug

Garden Village (4)

   2000    2000    112,767    98.4 %   Albertsons    Rite Aid

Gelson’s Westlake Market Plaza

   2002    2002    84,975    96.9 %   Gelson’s Markets   

Golden Hills Promenade (3)

   2006    2006    288,252    69.7 %   Lowe’s    Bed Bath & Beyond

Granada Village (4)

   2005    1965    224,649    72.3 %      Rite Aid, TJ Maxx, Stein Mart

Hasley Canyon Village

   2003    2003    65,801    97.5 %   Ralphs   

Heritage Plaza

   1999    1981    231,582    99.4 %   Ralphs    CVS, Hands On Bicycles, Total Woman, Ace Hardware

Highland Crossing (3)

   2007    2007    39,920    0.0 %   LA Fitness   

Indio-Jackson (3)

   2006    2006    230,382    49.5 %   (Home Depot), (WinCo)    CVS, 24 Hour Fitness, PETCO, Staples

Jefferson Square (3)

   2007    2007    38,013    74.7 %   Fresh & Easy    CVS

Laguna Niguel Plaza (4)

   2005    1985    41,943    97.9 %   (Albertsons)    CVS

Marina Shores (4)

   2008    2001    67,727    93.4 %      PETCO

Morningside Plaza

   1999    1996    91,211    95.1 %   Stater Bros.   

Murrieta Marketplace (3)

   2008    2008    233,194    77.8 %   (Target), Lowe’s    Staples

Navajo Shopping Center (4)

   2005    1964    102,138    98.4 %   Albertsons    Rite Aid, Kragen Auto Parts

Newland Center

   1999    1985    149,140    100.0 %   Albertsons   

Oakbrook Plaza

   1999    1982    83,279    96.4 %   Albertsons    (Longs Drug)

Park Plaza Shopping Center (4)

   2001    1991    194,396    95.6 %   Henry’s Marketplace    CVS, PETCO, Ross Dress For Less, Office Depot, Tuesday Morning

Plaza Hermosa

   1999    1984    94,940    100.0 %   Von’s Food & Drug    Sav-On Drugs

Point Loma Plaza (4)

   2005    1987    212,774    96.2 %   Von’s Food & Drug    Sport Chalet 5, 24 Hour Fitness, Jo-Ann Fabrics

Rancho San Diego Village (4)

   2005    1981    153,255    97.9 %   Von’s Food & Drug    (Longs Drug), 24 Hour Fitness

Rio Vista Town Center (3)

   2005    2005    79,519    64.4 %   Stater Bros.    (CVS)

Rona Plaza

   1999    1989    51,760    100.0 %   Superior Super Warehouse   

Santa Ana Downtown Plaza

   1999    1987    100,306    96.6 %   Food 4 Less    Famsa, Inc.

Seal Beach (4)

   2002    1966    96,858    89.1 %   Von’s Food & Drug    CVS

Shops of Santa Barbara

   2003    2004    46,118    84.0 %      Circuit City

Shops of Santa Barbara Phase II (3)

   2004    2004    51,848    57.3 %   Whole Foods   

Slauson & Central (3)

   2008    2008    77,300    58.2 %   Northgate Market   

Twin Oaks Shopping Center (4)

   2005    1978    98,399    100.0 %   Ralphs    Rite Aid

Twin Peaks

   1999    1988    198,140    97.6 %   Albertsons, Target   

Valencia Crossroads

   2002    2003    172,856    100.0 %   Whole Foods, Kohl’s   

Ventura Village

   1999    1984    76,070    97.3 %   Von’s Food & Drug   

Vine at Castaic (3)

   2005    2005    30,236    74.3 %     

Vista Village Phase I (4)

   2002    2003    129,009    99.4 %   Krikorian Theaters, (Lowe’s)   

Vista Village Phase II (4)

   2002    2003    55,000    45.5 %   Sprout’s Markets   

Vista Village IV

   2006    2006    11,000    100.0 %     

Westlake Village Plaza and Center

   1999    1975    190,519    99.0 %   Von’s Food & Drug    (CVS), Longs Drug, Total Woman

Westridge Village

   2001    2003    92,287    98.2 %   Albertsons    Beverages & More!

Woodman Van Nuys

   1999    1992    107,614    98.6 %   El Super   
San Francisco/ Northern CA

Applegate Ranch Shopping Center (3)

   2006    2006    158,825    55.8 %   (Super Target), (Home Depot)    Marshalls, PETCO, Big 5 Sporting Goods

Auburn Village (4)

   2005    1990    133,944    100.0 %   Bel Air Market    Dollar Tree, Goodwill Industries, (Longs Drug)

Bayhill Shopping Center (4)

   2005    1990    121,846    100.0 %   Mollie Stone’s Market    Longs Drug

 

17


Table of Contents
Index to Financial Statements

Property Name

   Year
Acquired
   Year
Constructed (1)
   Gross
Leasable
Area
(GLA)
   Percent
Leased (2)
   

Grocer & Major Tenant(s)
>40,000sf

  

Drug Store & Other Anchors
> 10,000 Sq Ft

CALIFORNIA (continued)

Blossom Valley

   1999    1990    93,316    100.0 %   Safeway    Longs Drug

Clayton Valley Shopping Center

   2003    2004    259,701    93.9 %   Fresh & Easy, Yardbirds Home Center    Longs Drugs, Dollar Tree, Ross Dress For Less

Clovis Commons

   2004    2004    174,990    93.1 %   (Super Target)    Petsmart, TJ Maxx, Office Depot, Best Buy

Corral Hollow (4)

   2000    2000    167,184    100.0 %   Safeway, Orchard Supply & Hardware    Longs Drug

Diablo Plaza

   1999    1982    63,265    100.0 %   (Safeway)    (Longs Drug), Jo-Ann Fabrics

El Cerrito Plaza (4)

   2000    2000    256,035    96.2 %   (Lucky’s)    (Longs Drug), Bed Bath & Beyond, Barnes & Noble, Jo-Ann Fabrics, PETCO, Ross Dress For Less

Encina Grande

   1999    1965    102,413    99.0 %   Safeway    Walgreens

Folsom Prairie City Crossing

   1999    1999    90,237    98.9 %   Safeway   

Gateway 101 (3)

   2008    2008    91,907    100.0 %   (Home Depot), (Best Buy), Sports Authority, Nordstrom Rack   

Loehmanns Plaza California

   1999    1983    113,310    98.0 %   (Safeway)    Longs Drug, Loehmann’s

Mariposa Shopping Center (4)

   2005    1957    126,658    100.0 %   Safeway    Longs Drug, Ross Dress for Less

Pleasant Hill Shopping Center (4)

   2005    1970    234,061    99.2 %   Target, Toys “R” Us    Barnes & Noble, Marshalls

Powell Street Plaza

   2001    1987    165,928    92.4 %   Trader Joe’s    Circuit City, Beverages & More!, Ross Dress For Less, Shane Company

Raley’s Supermarket (4)

   2007    1964    62,827    100.0 %   Raley’s   

San Leandro Plaza

   1999    1982    50,432    100.0 %   (Safeway)    (Longs Drug)

Sequoia Station

   1999    1996    103,148    100.0 %   (Safeway)    Longs Drug, Barnes & Noble, Old Navy, Wherehouse Music

Silverado Plaza (4)

   2005    1974    84,916    99.6 %   Nob Hill    Longs Drug

Snell & Branham Plaza (4)

   2005    1988    99,350    98.3 %   Safeway   

Stanford Ranch Village (4)

   2005    1991    89,875    95.1 %   Bel Air Market   

Strawflower Village

   1999    1985    78,827    97.6 %   Safeway    (Longs Drug)

Tassajara Crossing

   1999    1990    146,188    96.7 %   Safeway    Longs Drug, Ace Hardware

West Park Plaza

   1999    1996    88,103    98.0 %   Safeway    Rite Aid

Woodside Central

   1999    1993    80,591    100.0 %   (Target)    Chuck E. Cheese, Marshalls

Ygnacio Plaza (4)

   2005    1968    109,701    100.0 %      Sports Basement, Rite Aid
                      

Subtotal/Weighted Average (CA)

         9,597,194    91.9 %     
                      

FLORIDA

Ft. Myers / Cape Coral

Corkscrew Village

   2007    1997    82,011    93.6 %   Publix   

First Street Village (3)

   2006    2006    54,926    91.8 %   Publix   

Grande Oak

   2000    2000    78,784    100.0 %   Publix   
Jacksonville / North Florida

Anastasia Plaza (4)

   1993    1988    102,342    90.6 %   Publix   

Canopy Oak Center (3)(4)

   2006    2006    90,043    79.4 %   Publix   

Carriage Gate

   1994    1978    76,784    94.3 %      Leon County Tax Collector, TJ Maxx

Courtyard Shopping Center

   1993    1987    137,256    100.0 %   (Publix), Target   

Fleming Island

   1998    2000    136,662    91.8 %   Publix, (Target)    Stein Mart

Hibernia Pavilion (3)

   2006    2006    51,298    92.5 %   Publix   

Hibernia Plaza (3)

   2006    2006    8,400    33.3 %     

Horton’s Corner

   2007    2007    14,820    100.0 %      Walgreens

John’s Creek Center (4)

   2003    2004    75,101    98.1 %   Publix   

Julington Village (4)

   1999    1999    81,820    100.0 %   Publix    (CVS)

Millhopper Shopping Center

   1993    1974    84,065    100.0 %   Publix    CVS, Jo-Ann Fabrics

Newberry Square

   1994    1986    180,524    97.8 %   Publix, K-Mart    Jo-Ann Fabrics

Nocatee Town Center (3)

   2007    2007    69,806    77.8 %   Publix   

Oakleaf Commons (3)

   2006    2006    73,719    79.1 %   Publix    (Walgreens)

Ocala Corners (4)

   2000    2000    86,772    100.0 %   Publix   

Old St Augustine Plaza

   1996    1990    232,459    98.3 %   Publix, Burlington Coat Factory, Hobby Lobby    CVS

Palm Harbor Shopping Village (4)

   1996    1991    166,041    86.6 %   Publix    CVS, Bealls

Pine Tree Plaza

   1997    1999    63,387    91.3 %   Publix   

Plantation Plaza (4)

   2004    2004    77,747    100.0 %   Publix   

Shoppes at Bartram Park (4)

   2005    2004    119,959    89.9 %   Publix, (Kohl’s)    Toll Brothers

Shoppes at Bartram Park Phase II (3)(4)

   2008    2008    14,640    28.5 %      (Tutor Time)

Shops at John’s Creek

   2003    2004    15,490    89.5 %     

Starke

   2000    2000    12,739    100.0 %      CVS

 

18


Table of Contents
Index to Financial Statements

Property Name

   Year
Acquired
   Year
Constructed (1)
   Gross
Leasable
Area
(GLA)
   Percent
Leased (2)
   

Grocer & Major Tenant(s)
>40,000sf

  

Drug Store & Other Anchors
> 10,000 Sq Ft

FLORIDA (continued)

Vineyard Shopping Center (4)

   2001    2002    62,821    87.5 %   Publix   
Miami / Fort Lauderdale

Aventura Shopping Center

   1994    1974    102,876    95.1 %   Publix    CVS

Berkshire Commons

   1994    1992    106,354    96.7 %   Publix    Walgreens

Caligo Crossing (3)

   2007    2007    10,762    74.0 %   (Kohl’s)   

Five Corners Plaza (4)

   2005    2001    44,647    88.1 %   Publix   

Garden Square

   1997    1991    90,258    98.2 %   Publix    CVS

Naples Walk Shopping Center

   2007    1999    125,390    89.0 %   Publix   

Pebblebrook Plaza (4)

   2000    2000    76,767    100.0 %   Publix    (Walgreens)

Shoppes @ 104 (4)

   1998    1990    108,192    100.0 %   Winn-Dixie    Navarro Discount Pharmacies

Welleby Plaza

   1996    1982    109,949    96.9 %   Publix    Bealls
Tampa / Orlando

Beneva Village Shops

   1998    1987    141,532    78.5 %   Publix    Walgreens, Harbor Freight Tools

Bloomingdale Square

   1998    1987    267,736    96.4 %   Publix, Wal-Mart, Bealls    Ace Hardware

East Towne Center

   2002    2003    69,841    100.0 %   Publix   

Kings Crossing Sun City (4)

   1999    1999    75,020    97.3 %   Publix   

Lynnhaven (4)

   2001    2001    63,871    95.6 %   Publix   

Marketplace St Pete

   1995    1983    90,296    93.6 %   Publix    Dollar Duck

Merchants Crossing (4)

   2006    1990    213,739    93.6 %   Publix, Beall’s    Office Depot, Walgreens

Peachland Promenade (4)

   1995    1991    82,082    98.7 %   Publix   

Regency Square

   1993    1986    349,848    98.1 %   AMC Theater, Michaels, (Best Buy), (Macdill)    Dollar Tree, Marshalls, S & K Famous Brands, Shoe Carnival, Staples, TJ Maxx, PETCO, Hobbytown USA

Regency Village (4)

   2000    2002    83,170    88.0 %   Publix    (Walgreens)

Suncoast Crossing Phase I (3)

   2007    2007    108,434    93.2 %   Kohl’s   

Suncoast Crossing Phase II (3)

   2008    2008    9,450    0.0 %   (Target)   

Town Square

   1997    1999    44,380    100.0 %      PETCO, Pier 1 Imports

Village Center

   1995    1993    181,110    99.6 %   Publix    Walgreens, Stein Mart

Northgate Square

   2007    1995    75,495    100.0 %   Publix   

Westchase

   2007    1998    78,998    96.5 %   Publix   

Willa Springs

   2000    2000    89,930    94.2 %   Publix   
West Palm Beach / Treasure Cove

Boynton Lakes Plaza

   1997    1993    124,924    96.7 %   Winn-Dixie    Gold’s Gym, Walgreens

Chasewood Plaza

   1993    1986    155,603    95.5 %   Publix    Bealls, Books-A-Million

East Port Plaza

   1997    1991    149,363    91.7 %   Publix    Walgreens, Paradise Furniture

Island Crossing (4)

   2007    1996    58,456    100.0 %   Publix   

Martin Downs Village Center

   1993    1985    121,947    85.7 %      Bealls, Coastal Care

Martin Downs Village Shoppes

   1993    1998    48,937    96.4 %      Walgreens

Town Center at Martin Downs

   1996    1996    64,546    100.0 %   Publix   

Village Commons Shopping Center (4)

   2005    1986    169,053    88.3 %   Publix    CVS

Wellington Town Square

   1996    1982    107,325    98.0 %   Publix    CVS
                      

Subtotal/Weighted Average (FL)

         6,050,697    93.9 %     
                      

TEXAS

Austin

Hancock

   1999    1998    410,438    96.7 %   H.E.B., Sears    Twin Liquors, PETCO, 24 Hour Fitness

Market at Round Rock

   1999    1987    123,046    41.2 %     

North Hills

   1999    1995    144,020    96.3 %   H.E.B.   
Dallas / Ft. Worth

Bethany Park Place

   1998    1998    98,906    98.0 %   Kroger   

Cooper Street

   1999    1992    133,196    94.3 %   (Home Depot)    Office Max, K&G Men’s Company

Hickory Creek Plaza (3)

   2006    2006    28,134    24.4 %   (Kroger)   

Highland Village (3)

   2005    2005    351,662    82.6 %   AMC Theater    Barnes & Noble

Hillcrest Village

   1999    1991    14,530    100.0 %     

Keller Town Center

   1999    1999    114,937    94.2 %   Tom Thumb   

Lebanon/Legacy Center

   2000    2002    56,674    100.0 %   (Albertsons)   

Main Street Center (4)

   2002    2002    42,754    74.8 %   (Albertsons)   

Market at Preston Forest

   1999    1990    96,353    98.8 %   Tom Thumb   

Mockingbird Common

   1999    1987    120,321    98.3 %   Tom Thumb   

Preston Park

   1999    1985    239,333    88.1 %   Tom Thumb    Gap

Prestonbrook

   1998    1998    91,537    98.8 %   Kroger   

Prestonwood Park

   1999    1999    101,167    72.2 %   (Albertsons)   

Rockwall Town Center

   2002    2004    46,095    100.0 %   (Kroger)    (Walgreens)

 

19


Table of Contents
Index to Financial Statements

Property Name

   Year
Acquired
   Year
Constructed (1)
   Gross
Leasable
Area
(GLA)
   Percent
Leased (2)
   

Grocer & Major Tenant(s)
>40,000sf

  

Drug Store & Other Anchors
> 10,000 Sq Ft

TEXAS (continued)

Shiloh Springs

   1998    1998    110,040    94.7 %   Kroger   

Signature Plaza

   2003    2004    32,414    60.5 %   (Kroger)   

Trophy Club

   1999    1999    106,507    89.7 %   Tom Thumb    (Walgreens)
Houston

Alden Bridge

   2002    1998    138,953    97.7 %   Kroger    Walgreens

Atascocita Center

   2002    2003    97,240    94.3 %   Kroger   

Cochran’s Crossing

   2002    1994    138,192    95.4 %   Kroger    CVS

Fort Bend Center

   2000    2000    30,164    92.1 %   (Kroger)   

Indian Springs Center (4)

   2002    2003    136,625    100.0 %   H.E.B.   

Kleinwood Center (4)

   2002    2003    148,964    89.6 %   H.E.B.    (Walgreens)

Kleinwood Center II

   2005    2005    45,000    100.0 %   (LA Fitness)   

Memorial Collection Shopping Center (4)

   2005    1974    103,330    97.5 %   Randall’s Food    Walgreens

Panther Creek

   2002    1994    165,560    96.9 %   Randall’s Food    CVS, Sears Paint & Hardware

Sterling Ridge

   2002    2000    128,643    100.0 %   Kroger    CVS

Sweetwater Plaza (4)

   2001    2000    134,045    95.3 %   Kroger    Walgreens

Waterside Marketplace (3)

   2007    2007    24,859    60.7 %   (Kroger)   

Weslayan Plaza East (4)

   2005    1969    169,693    85.4 %      Berings, Ross Dress for Less, Michaels,Berings Warehouse, Chuck E. Cheese, The Next Level

Weslayan Plaza West (4)

   2005    1969    186,069    95.0 %   Randall’s Food    Walgreens, PETCO, Jo Ann’s, Office Max

Westwood Village (3)

   2006    2006    183,459    84.6 %   (Target)    Gold’s Gym, PetSmart, Office Max, Ross Dress For Less, TJ Maxx

Woodway Collection (4)

   2005    1974    111,165    93.4 %   Randall’s Food   
                      

Subtotal/Weighted Average (TX)

         4,404,025    90.5 %     
                      

VIRGINIA

Richmond

Gayton Crossing (4)

   2005    1983    156,917    93.0 %   Ukrop’s   

Hanover Village Shopping Center (4)

   2005    1971    96,146    86.5 %      Rite Aid, Tractor Supply Company

Village Shopping Center (4)

   2005    1948    111,177    100.0 %   Ukrop’s    CVS
Other Virginia

601 King Street (4)

   2005    1980    8,349    83.8 %     

Ashburn Farm Market Center

   2000    2000    91,905    98.5 %   Giant Food   

Ashburn Farm Village Center (4)

   2005    1996    88,897    97.3 %   Shoppers Food Warehouse   

Braemar Shopping Center (4)

   2004    2004    96,439    97.9 %   Safeway   

Brookville Plaza (4)

   2005    1996    63,665    94.8 %   Shoppers Food Warehouse    Sears

Centre Ridge Marketplace (4)

   2000    2000    104,100    100.0 %   Safeway    PETCO

Cheshire Station

   2006    2006    97,156    97.0 %   (Target)    PetSmart, Staples

Culpeper Colonnade (3)

   2007    1955    143,725    94.1 %      Direct Furniture

Fairfax Shopping Center

   2005    1990    85,482    80.2 %   Shoppers Food Warehouse   

Festival at Manchester Lakes (4)

   2004    2004    165,130    98.5 %   Shoppers Food Warehouse, (Target)    Rite Aid

Fortuna Center Plaza (4)

   2005    1977    90,131    100.0 %   Giant Food   

Fox Mill Shopping Center (4)

   2005    1972    103,269    100.0 %   Giant Food    CVS, HMY Roomstore, Total Beverage, Ross Dress for Less, Marshalls, PETCO

Greenbriar Town Center (4)

   2005    1960    343,006    99.3 %      Borders Books

Hollymead Town Center (4)

   2005    1966    153,739    96.1 %   Giant Food    CVS

Kamp Washington Shopping Center (4)

   2006    2005    71,825    95.8 %   Shoppers Food Warehouse    Advanced Design Group

Kings Park Shopping Center (4)

   2006    2005    74,702    100.0 %      ReMax

Lorton Station Marketplace (4)

   2003    2003    132,445    97.7 %   Safeway    Boat U.S.

Lorton Town Center (4)

   2005    1977    51,807    91.3 %   Giant Food   

Market at Opitz Crossing

   2005    2005    149,791    82.4 %   Harris Teeter   

Saratoga Shopping Center (4)

   2003    2004    113,013    97.8 %   Shoppers Food Warehouse   

Shops at County Center

   2007    2007    96,695    98.8 %   Wegmans    Staples, Ross Dress For Less, Bed Bath & Beyond, Michaels

Signal Hill (4)

   2005    1980    95,172    96.2 %   Giant Food    Washington Sports Club, Party Depot

Stonewall (3)

   2005    1952    294,071    89.6 %      CVS, Baileys Health Care

Town Center at Sterling Shopping Center (4)

   2005    1986    190,069    95.7 %   Safeway, (Target)   

Village Center at Dulles (4)

   1998    1991    298,271    98.4 %   Kroger   

Willston Centre I (4)

   2003    2004    105,376    94.1 %   Harris Teeter, (Target)    Petsmart

 

20


Table of Contents
Index to Financial Statements

Property Name

   Year
Acquired
   Year
Constructed (1)
   Gross
Leasable
Area
(GLA)
   Percent
Leased (2)
   

Grocer & Major Tenant(s)
>40,000sf

  

Drug Store & Other Anchors
> 10,000 Sq Ft

VIRGINIA (continued)

Willston Centre II (4)

   2005    1960    127,449    100.0 %      Borders Books
                      

Subtotal/Weighted Average (VA)

         3,799,919    95.6 %     
                      

ILLINOIS

Chicago

Baker Hill Center (4)

   2004    1998    135,355    95.1 %   Dominick’s   

Brentwood Commons (4)

   2005    1962    125,585    80.6 %   Dominick’s    Dollar Tree

Civic Center Plaza (4)

   2005    1989    264,973    99.0 %   Super H Mart, Home Depot    Murray’s Discount Auto, King Spa

Deer Grove Center (4)

   2004    1996    239,356    75.2 %   Dominick’s, (Target)    Michaels, PETCO, Factory Card Outlet, Dress Barn, Staples

Frankfort Crossing Shpg Ctr

   2003    1992    114,534    85.7 %   Jewel / OSCO    Ace Hardware

Geneva Crossing (4)

   2004    1997    123,182    91.5 %   Dominick’s    Goodwill

Heritage Plaza—Chicago (4)

   2005    2005    128,871    96.8 %   Jewel / OSCO    Ace Hardware

Hinsdale

   1998    1986    178,960    84.7 %   Dominick’s    Ace Hardware

McHenry Commons Shopping Center (4)

   2005    1988    100,526    17.6 %     

Oaks Shopping Center (4)

   2005    1983    135,005    87.3 %   Dominick’s   

Riverside Sq & River’s Edge (4)

   2005    1986    169,435    100.0 %   Dominick’s    Ace Hardware, Party City

Riverview Plaza (4)

   2005    1981    139,256    100.0 %   Dominick’s    Walgreens, Toys “R” Us

Shorewood Crossing (4)

   2004    2001    87,705    93.4 %   Dominick’s   

Shorewood Crossing II (4)

   2007    2005    86,276    98.1 %      Babies R Us, Staples, PETCO, Factory Card Outlet

Stearns Crossing (4)

   2004    1999    96,613    97.6 %   Dominick’s   

Stonebrook Plaza Shopping Center (4)

   2005    1984    95,825    100.0 %   Dominick’s   

Westbrook Commons

   2001    1984    121,502    83.8 %   Dominick’s   
Champaign/Urbana

Champaign Commons (4)

   2007    1990    88,105    98.4 %   Schnucks   

Urbana Crossing (4)

   2007    1997    85,196    96.7 %   Schnucks   
Springfield

Montvale Commons (4)

   2007    1996    73,937    98.1 %   Schnucks   
Other Illinois

Carbondale Center (4)

   2007    1997    59,726    100.0 %   Schnucks   

Country Club Plaza (4)

   2007    2001    86,867    98.4 %   Schnucks   

Granite City (4)

   2007    2004    46,237    100.0 %   Schnucks   

Swansea Plaza (4)

   2007    1988    118,892    97.1 %   Schnucks    Fashion Bug
                      

Subtotal/Weighted Average (IL)

         2,901,919    90.0 %     
                      

GEORGIA

Atlanta

Ashford Place

   1997    1993    53,449    69.6 %     

Briarcliff La Vista

   1997    1962    39,204    85.5 %      Michaels

Briarcliff Village

   1997    1990    187,156    86.5 %   Publix    Office Depot, Party City, PETCO, TJ Maxx

Buckhead Court

   1997    1984    48,338    94.8 %     

Buckhead Crossing (4)

   2004    1989    221,874    95.4 %      Office Depot, HomeGoods, Marshalls, Michaels, Hancock Fabrics, Ross Dress for Less

Cambridge Square

   1996    1979    71,474    99.9 %   Kroger   

Chapel Hill Centre

   2005    2005    66,970    100.0 %   (Kohl’s)   

Coweta Crossing (4)

   2004    1994    68,489    91.1 %   Publix   

Cromwell Square

   1997    1990    70,282    91.5 %      CVS, Hancock Fabrics, Antiques & Interiors of Sandy Springs

Delk Spectrum

   1998    1991    100,539    90.7 %   Publix    Eckerd

Dunwoody Hall

   1997    1986    89,351    100.0 %   Publix    Eckerd

Dunwoody Village

   1997    1975    120,598    88.0 %   Fresh Market    Walgreens, Dunwoody Prep

Howell Mill Village (4)

   2004    1984    97,990    96.0 %   Publix    Eckerd

King Plaza (4)

   2007    1998    81,432    89.0 %   Publix   

Lindbergh Crossing (4)

   2004    1998    27,059    100.0 %      CVS

Loehmanns Plaza Georgia

   1997    1986    137,139    98.5 %      Loehmann’s, Dance 101, Office Max

Lost Mountain Crossing (4)

   2007    1994    72,568    98.3 %   Publix   

Northlake Promenade (4)

   2004    1986    25,394    90.7 %     

Orchard Square (4)

   1995    1987    93,222    81.1 %   Publix    Harbor Freight Tools

Paces Ferry Plaza

   1997    1987    61,697    100.0 %      Harry Norman Realtors

Powers Ferry Kroger (4)

   2004    1983    45,528    100.0 %   Kroger   

Powers Ferry Square

   1997    1987    95,703    95.8 %      CVS, Pearl Arts & Crafts

Powers Ferry Village

   1997    1994    78,896    100.0 %   Publix    CVS, Mardi Gras

Rivermont Station

   1997    1996    90,267    76.8 %   Kroger   

 

21


Table of Contents
Index to Financial Statements

Property Name

   Year
Acquired
   Year
Constructed (1)
   Gross
Leasable
Area
(GLA)
   Percent
Leased (2)
   

Grocer & Major Tenant(s)
>40,000sf

  

Drug Store & Other Anchors
> 10,000 Sq Ft

GEORGIA (continued)

Rose Creek (4)

   2004    1993    69,790    98.6 %   Publix   

Roswell Crossing (4)

   2004    1999    201,979    94.3 %   Trader Joe’s, Pike Nurseries    PetSmart, Office Max, Walgreens, LA Fitness

Russell Ridge

   1994    1995    98,559    93.9 %   Kroger   

Thomas Crossroads (4)

   2004    1995    104,928    86.4 %   Kroger   

Trowbridge Crossing (4)

   2004    1998    62,558    100.0 %   Publix   

Woodstock Crossing (4)

   2004    1994    66,122    96.2 %   Kroger   
                      

Subtotal/Weighted Average (GA)

         2,648,555    92.7 %     
                      

OHIO

                
Cincinnati                 

Beckett Commons

   1998    1995    121,498    100.0 %   Kroger    Stein Mart

Cherry Grove

   1998    1997    195,513    96.1 %   Kroger    Hancock Fabrics, Shoe Carnival, TJ Maxx

Hyde Park

   1997    1995    396,810    95.4 %   Kroger, Biggs    Walgreens, Jo-Ann Fabrics, Ace Hardware, Michaels, Staples

Indian Springs Market Center (4)

   2005    2005    146,258    100.0 %   Kohl’s, (Wal-Mart Supercenter)    Office Depot, HH Gregg Appliances

Red Bank Village (3)

   2006    2006    186,160    81.5 %   Wal-Mart   

Regency Commons

   2004    2004    30,770    80.5 %     

Regency Milford Center (4)

   2001    2001    108,923    90.2 %   Kroger    (CVS)

Shoppes at Mason

   1998    1997    80,800    100.0 %   Kroger   

Sycamore Crossing & Sycamore Plaza (4)

   2008    1966    390,957    87.8 %   Fresh Market, Macy’s Furniture Gallery, Toys ‘R Us, Dick’s Sporting Goods    Barnes & Noble, Old Navy, Staples, Identity Salon & Day Spa

Westchester Plaza

   1998    1988    88,181    96.9 %   Kroger   
Columbus

East Pointe

   1998    1993    86,503    100.0 %   Kroger   

Kingsdale Shopping Center

   1997    1999    266,878    44.0 %   Giant Eagle   

Kroger New Albany Center

   1999    1999    91,722    91.7 %   Kroger   

Maxtown Road (Northgate)

   1998    1996    85,100    98.4 %   Kroger, (Home Depot)   

Park Place Shopping Center

   1998    1988    106,832    58.9 %      Big Lots

Windmiller Plaza Phase I

   1998    1997    140,437    98.5 %   Kroger    Sears Hardware

Wadsworth Crossing (3)

   2005    2005    108,188    83.3 %   (Kohl’s), (Lowe’s), (Target)    Office Max, Bed, Bath & Beyond, MC Sports, PETCO
                      

Subtotal/Weighted Average (OH)

         2,631,530    86.7 %     
                      

COLORADO

Colorado Springs

Cheyenne Meadows (4)

   1998    1998    89,893    100.0 %   King Soopers   

Falcon Marketplace (3)

   2005    2005    22,491    72.5 %   (Wal-Mart Supercenter)   

Marketplace at Briargate

   2006    2006    29,075    100.0 %   (King Soopers)   

Monument Jackson Creek

   1998    1999    85,263    100.0 %   King Soopers   

Woodmen Plaza

   1998    1998    116,233    87.5 %   King Soopers   
Denver

Applewood Shopping Center (4)

   2005    1956    375,622    96.4 %   King Soopers, Wal-Mart    Applejack Liquors, PetSmart, Wells Fargo Bank

Arapahoe Village (4)

   2005    1957    159,237    97.3 %   Safeway    Jo-Ann Fabrics, PETCO, Pier 1 Imports, Bottles Wine & Spirit

Belleview Square

   2004    1978    117,335    100.0 %   King Soopers   

Boulevard Center

   1999    1986    88,512    72.8 %   (Safeway)    One Hour Optical

Buckley Square

   1999    1978    116,147    90.6 %   King Soopers    Ace Hardware

Centerplace of Greeley (4)

   2002    2003    148,575    95.8 %   Safeway, (Target), (Kohl’s)    Ross Dress For Less, Famous Footwear

Centerplace of Greeley Phase III (3)

   2007    2007    94,090    76.6 %   Sports Authority    Best Buy

Cherrywood Square (4)

   2005    1978    86,162    94.9 %   King Soopers   

Crossroads Commons (4)

   2001    1986    112,887    95.2 %   Whole Foods    Barnes & Noble, Bicycle Village

Hilltop Village (4)

   2002    2003    100,029    95.9 %   King Soopers   

NorthGate Village (3)

   2008    2008    33,140    0.0 %   (King Soopers)   

South Lowry Square

   1999    1993    119,916    87.0 %   Safeway   

Littleton Square

   1999    1997    94,222    92.5 %   King Soopers    Walgreens

Lloyd King Center

   1998    1998    83,326    100.0 %   King Soopers   

 

22


Table of Contents
Index to Financial Statements

Property Name

   Year
Acquired
   Year
Constructed (1)
   Gross
Leasable
Area
(GLA)
   Percent
Leased (2)
   

Grocer & Major Tenant(s)
>40,000sf

  

Drug Store & Other Anchors
> 10,000 Sq Ft

COLORADO (continued)

Ralston Square Shopping Center (4)

   2005    1977    82,750    96.1 %   King Soopers   

Shops at Quail Creek (3)

   2008    2008    37,585    45.9 %   (King Soopers)   

Stroh Ranch

   1998    1998    93,436    97.8 %   King Soopers   
                      

Subtotal/Weighted Average (CO)

         2,285,926    91.4 %     
                      

MISSOURI

St. Louis

Affton Plaza (4)

   2007    2000    67,760    100.0 %   Schnucks   

Bellerive Plaza (4)

   2007    2000    115,208    91.2 %   Schnucks   

Brentwood Plaza (4)

   2007    2002    60,452    100.0 %   Schnucks   

Bridgeton (4)

   2007    2005    70,762    100.0 %   Schnucks, (Home Depot)   

Butler Hill Centre (4)

   2007    1987    90,889    97.0 %   Schnucks   

City Plaza (4)

   2007    1998    80,149    100.0 %   Schnucks   

Crestwood Commons (4)

   2007    1994    67,285    100.0 %   Schnucks, (Best Buy), (Gordman’s)   

Dardenne Crossing (4)

   2007    1996    67,430    100.0 %   Schnucks   

Dorsett Village (4)

   2007    1998    104,217    82.7 %   Schnucks, (Orlando Gardens Banquet Center)   

Kirkwood Commons (4)

   2007    2000    467,703    100.0 %   Wal-Mart, (Target), (Lowe’s)    TJ Maxx, Homegoods, Famous Footwear

Lake St. Louis (4)

   2007    2004    75,643    100.0 %   Schnucks   

O’Fallon Centre (4)

   2007    1984    71,300    90.2 %   Schnucks   

Plaza 94 (4)

   2007    2005    66,555    97.2 %   Schnucks   

Richardson Crossing (4)

   2007    2000    82,994    98.6 %   Schnucks   

Shackelford Center (4)

   2007    2006    49,635    97.4 %   Schnucks   

Sierra Vista Plaza (4)

   2007    1993    74,666    100.0 %   Schnucks   

Twin Oaks (4)

   2007    2006    71,682    98.3 %   Schnucks    (Walgreens)

University City Square (4)

   2007    1997    79,230    100.0 %   Schnucks   

Washington Crossing (4)

   2007    1999    117,626    95.9 %   Schnucks    Michaels, Altmueller Jewelry

Wentzville Commons (4)

   2007    2000    74,205    100.0 %   Schnucks, (Home Depot)   

Wildwood Crossing (4)

   2007    1997    108,200    85.1 %   Schnucks   

Zumbehl Commons (4)

   2007    1990    116,682    94.2 %   Schnucks    Ace Hardware
Other Missouri

Capital Crossing (4)

   2007    2002    85,149    98.6 %   Schnucks   
                      

Subtotal/Weighted Average (MO)

         2,265,422    96.8 %     
                      

NORTH CAROLINA

Charlotte

Carmel Commons

   1997    1979    132,651    100.0 %   Fresh Market    Chuck E. Cheese, Party City, Eckerd, Casual Furniture Marketplace

Cochran Commons (4)

   2007    2003    66,020    100.0 %   Harris Teeter    (Walgreens)
Greensboro

Harris Crossing (3)

   2007    2007    76,818    71.4 %   Harris Teeter   
Raleigh / Durham

Bent Tree Plaza (4)

   1998    1994    79,503    98.5 %   Kroger   

Cameron Village (4)

   2004    1949    635,918    85.6 %   Harris Teeter, Fresh Market    Eckerd, Talbots, Wake County Public Library, Great Outdoor Provision Co., Blockbuster Video, York Properties, The Junior League of Raleigh, K&W Cafeteria, Johnson-Lambe Sporting Goods, Pier 1 Imports, Pirate’s Chest Fine Antiques

Fuquay Crossing (4)

   2004    2002    124,774    93.5 %   Kroger    Peak’s Fitness, Dollar Tree

Garner Towne Square

   1998    1998    221,776    98.3 %   Kroger, (Home Depot), (Target)    Office Max, Petsmart, Shoe Carnival, United Artist Theater

Glenwood Village

   1997    1983    42,864    100.0 %   Harris Teeter   

Lake Pine Plaza

   1998    1997    87,690    98.4 %   Kroger   

Maynard Crossing

   1998    1997    122,782    95.0 %   Kroger   

Middle Creek Commons (3)

   2006    2006    73,635    79.6 %   Lowes Foods   

Shoppes of Kildaire (4)

   2005    1986    148,204    95.0 %   Trader Joe’s    Home Comfort Furniture, Gold’s Gym, Staples

Southpoint Crossing

   1998    1998    103,128    98.6 %   Kroger   

Sutton Square (4)

   2006    1985    101,846    89.5 %      Eckerd

 

23


Table of Contents
Index to Financial Statements

Property Name

   Year
Acquired
   Year
Constructed (1)
   Gross
Leasable
Area
(GLA)
   Percent
Leased (2)
   

Grocer & Major Tenant(s)
>40,000sf

  

Drug Store & Other Anchors
> 10,000 Sq Ft

NORTH CAROLINA (continued)

Woodcroft Shopping Center

   1996    1984    89,833    98.6 %   Food Lion    Triangle True Value Hardware
                      

Subtotal/Weighted Average (NC)

         2,107,442    91.9 %     
                      

MARYLAND

Baltimore

Elkridge Corners (4)

   2005    1990    73,529    100.0 %   Super Fresh    Rite Aid

Festival at Woodholme (4)

   2005    1986    81,028    96.5 %   Trader Joe’s   

Lee Airport (3)

   2005    2005    106,915    77.8 %   Giant Food, (Sunrise)   

Parkville Shopping Center (4)

   2005    1961    162,435    97.2 %   Super Fresh    Rite Aid, Parkville Lanes, Castlewood Realty

Southside Marketplace (4)

   2005    1990    125,146    95.3 %   Shoppers Food Warehouse    Rite Aid

Valley Centre (4)

   2005    1987    247,836    93.8 %      TJ Maxx, Sony Theatres, Ross Dress for Less, Homegoods, Staples, PetSmart
Other Maryland

Bowie Plaza (4)

   2005    1966    104,037    84.8 %   Giant Food    CVS

Clinton Park (4)

   2003    2003    206,050    94.1 %   Giant Food, Sears, (Toys “R” Us)   

Cloppers Mill Village (4)

   2005    1995    137,035    100.0 %   Shoppers Food Warehouse    CVS

Firstfield Shopping Center (4)

   2005    1978    22,328    86.6 %     

Goshen Plaza (4)

   2005    1987    45,654    96.9 %      CVS

King Farm Village Center (4)

   2004    2001    118,326    97.3 %   Safeway   

Mitchellville Plaza (4)

   2005    1991    156,125    90.8 %   Food Lion   

Takoma Park (4)

   2005    1960    106,469    99.5 %   Shoppers Food Warehouse   

Watkins Park Plaza (4)

   2005    1985    113,443    97.1 %   Safeway    CVS

Woodmoor Shopping Center (4)

   2005    1954    67,403    90.2 %      CVS
                      

Subtotal/Weighted Average (MD)

         1,873,759    94.0 %     
                      

PENNSYLVANIA

Allentown / Bethlehem

Allen Street Shopping Center (4)

   2005    1958    46,420    90.2 %   Ahart Market    Rite Aid

Lower Nazareth Commons (3)

   2007    2007    107,273    48.6 %   (Target), Sports Authority   

Stefko Boulevard Shopping Center (4)

   2005    1976    133,824    88.1 %   Valley Farm Market   
Harrisburg

Silver Spring Square

   2005    2005    314,449    97.0 %   Wegmans, (Target)    Ross Dress For Less, Bed Bath and Beyond, Best Buy, Office Max, Ulta, PETCO
Philadelphia

City Avenue Shopping Center (4)

   2005    1960    159,419    95.5 %      Ross Dress for Less, TJ Maxx, Sears

Gateway Shopping Center

   2004    1960    219,337    89.6 %   Trader Joe’s    Staples, TJ Maxx, Famous Footwear, Jo-Ann Fabrics

Kulpsville Village Center (3)

   2006    2006    14,820    100.0 %      Walgreens

Mayfair Shopping Center (4)

   2005    1988    112,276    94.4 %   Shop ‘N Bag    Rite Aid, Dollar Tree

Mercer Square Shopping Center (4)

   2005    1988    91,400    92.1 %   Genuardi’s   

Newtown Square Shopping Center (4)

   2005    1970    146,893    92.8 %   Acme Markets    Rite Aid

Warwick Square Shopping Center (4)

   2005    1999    89,680    96.5 %   Genuardi’s   
Other Pennsylvania

Hershey

   2000    2000    6,000    100.0 %     
                      

Subtotal/Weighted Average (PA)

         1,441,791    90.1 %     
                      

WASHINGTON

Portland

Orchards Market Center I (4)

   2002    2004    100,663    100.0 %   Sportsman’s Warehouse    Jo-Ann Fabrics, PETCO, (Rite Aid)

Orchards Market Center II (3)

   2005    2005    77,478    89.9 %   LA Fitness    Office Depot
Seattle

Aurora Marketplace (4)

   2005    1991    106,921    98.3 %   Safeway    TJ Maxx

Cascade Plaza (4)

   1999    1999    211,072    97.1 %   Safeway    Bally Total Fitness, Fashion Bug, Jo-Ann Fabrics, Ross Dress For Less, Big Lots

 

24


Table of Contents
Index to Financial Statements

Property Name

   Year
Acquired
   Year
Constructed (1)
   Gross
Leasable
Area
(GLA)
   Percent
Leased (2)
   

Grocer & Major Tenant(s)
>40,000sf

  

Drug Store & Other Anchors
> 10,000 Sq Ft

WASHINGTON (continued)

Eastgate Plaza (4)

   2005    1956    78,230    100.0 %   Albertsons    Rite Aid

Inglewood Plaza

   1999    1985    17,253    88.4 %     

James Center (4)

   1999    1999    140,240    94.5 %   Fred Myer    Rite Aid

Lynnwood—H Mart

   2007    2007    77,028    100.0 %   H Mart   

Overlake Fashion Plaza (4)

   2005    1987    80,555    100.0 %   (Sears)    Marshalls

Pine Lake Village

   1999    1989    102,953    94.0 %   Quality Foods    Rite Aid

Sammamish-Highlands

   1999    1992    101,289    100.0 %   (Safeway)    Bartell Drugs, Ace Hardware

Southcenter

   1999    1990    58,282    94.4 %   (Target)   

Thomas Lake

   1999    1998    103,872    97.3 %   Albertsons    Rite Aid
                      

Subtotal/Weighted Average (WA)

         1,255,836    97.0 %     
                      

OREGON

Portland

Cherry Park Market (4)

   1999    1997    113,518    88.8 %   Safeway   

Greenway Town Center (4)

   2005    1979    93,101    100.0 %   Unified Western Grocers    Rite Aid, Dollar Tree

Hillsboro Market Center (4)

   2000    2000    148,051    95.0 %   Albertsons    Petsmart, Marshalls

Hillsboro—Sports Authority/Best Buy

   2006    2006    76,483    100.0 %   Sports Authority    Best Buy

Murrayhill Marketplace

   1999    1988    148,967    98.2 %   Safeway    Segal’s Baby News

Sherwood Crossroads

   1999    1999    87,966    98.6 %   Safeway   

Sherwood Market Center

   1999    1995    124,259    99.0 %   Albertsons   

Sunnyside 205

   1999    1988    52,710    100.0 %     

Tanasbourne Market

   2006    2006    71,000    100.0 %   Whole Foods   

Walker Center

   1999    1987    89,610    100.0 %   Sports Authority   
Other Oregon

Corvallis Market Center (3)

   2006    2006    82,073    91.8 %      TJ Maxx, Michael’s
                      

Subtotal/Weighted Average (OR)

         1,087,738    97.1 %     
                      

TENNESSEE

Memphis

Collierville Crossing (4)

   2007    2004    86,065    96.2 %   Schnucks, (Target)   
Nashville

Harding Place

   2004    2004    4,848    0.0 %   (Wal-Mart)   

Lebanon Center (3)

   2006    2006    63,802    78.1 %   Publix   

Harpeth Village Fieldstone

   1997    1998    70,091    100.0 %   Publix   

Nashboro Village

   1998    1998    86,811    98.4 %   Kroger    (Walgreens)

Northlake Village I & II

   2000    1988    141,685    85.6 %   Kroger    CVS, PETCO

Peartree Village

   1997    1997    109,904    97.9 %   Harris Teeter    Eckerd, Office Max
Other Tennessee

Dickson Tn

   1998    1998    10,908    100.0 %      Eckerd
                      

Subtotal/Weighted Average (TN)

         574,114    92.0 %     
                      

MASSACHUSETTS

Boston

Shops at Saugus (3)

   2006    2006    94,204    81.8 %   Trader Joe’s    La-Z-Boy, PetSmart

Speedway Plaza (4)

   2006    1988    185,279    99.4 %   Stop & Shop, BJ’s Wholesale   

Twin City Plaza

   2006    2004    281,703    93.4 %   Shaw’s, Marshall’s    Rite Aid, K&G Fashion, Dollar Tree, Gold’s Gym
                      

Subtotal/Weighted Average (MA)

         561,186    93.4 %     
                      

NEVADA

Anthem Highlands Shopping Center

   2004    2004    93,516    85.9 %   Albertsons    CVS

Centennial Crossroads Plaza (4)

   2007    2002    99,064    93.0 %   Von’s Food & Drug, (Target)   

Deer Springs Town Center (3)

   2007    2007    335,788    79.8 %   (Target), Home Depot, Toys “R” Us    Party Superstores, PetSmart, Ross Dress For Less, Staples
                      

Subtotal/Weighted Average (NV)

         528,368    83.4 %     
                      

 

25


Table of Contents
Index to Financial Statements

Property Name

   Year
Acquired
   Year
Constructed (1)
   Gross
Leasable
Area
(GLA)
   Percent
Leased (2)
   

Grocer & Major Tenant(s)
>40,000sf

  

Drug Store & Other Anchors
> 10,000 Sq Ft

ARIZONA

Phoenix

Anthem Marketplace

   2003    2000    113,292    94.4 %   Safeway   

Palm Valley Marketplace (4)

   2001    1999    107,633    98.9 %   Safeway   

Pima Crossing

   1999    1996    239,438    93.0 %   Golf & Tennis Pro Shop, Inc.    Bally Total Fitness, E & J Designer Shoe Outlet, Paddock Pools Store, Pier 1 Imports, Stein Mart

Shops at Arizona

   2003    2000    35,710    88.6 %      Ace Hardware
                      

Subtotal/Weighted Average (AZ)

         496,073    94.3 %     
                      

MINNESOTA

Apple Valley Square (4)

   2006    1998    184,841    90.0 %   Rainbow Foods, Jo-Ann Fabrics, (Burlington Coat Factory)    PETCO

Colonial Square (4)

   2005    1959    93,200    94.0 %   Lund’s   

Rockford Road Plaza (4)

   2005    1991    205,897    94.9 %   Rainbow Foods    PetSmart, Homegoods, TJ Maxx
                      

Subtotal/Weighted Average (MN)

         483,938    92.9 %     
                      

DELAWARE

Dover

White Oak—Dover, DE

   2000    2000    10,908    100.0 %      Eckerd
Wilmington

First State Plaza (4)

   2005    1988    164,779    90.3 %   Shop Rite    Cinemark, Dollar Tree, US Post Office

Pike Creek

   1998    1981    229,510    99.2 %   Acme Markets, K-Mart    Rite Aid

Shoppes of Graylyn (4)

   2005    1971    66,808    92.9 %      Rite Aid
                      

Subtotal/Weighted Average (DE)

         472,005    95.2 %     
                      

SOUTH CAROLINA

Charleston

Merchants Village (4)

   1997    1997    79,724    97.0 %   Publix   

Orangeburg

   2006    2006    14,820    100.0 %      Walgreens

Queensborough Shopping Center (4)

   1998    1993    82,333    100.0 %   Publix   
Columbia

Murray Landing (4)

   2002    2003    64,359    97.8 %   Publix   

Rosewood Shopping Center (4)

   2001    2001    36,887    96.7 %   Publix   
Greenville

Fairview Market (4)

   2004    1998    53,888    97.4 %   Publix   
Other South Carolina

Buckwalter Village (3)

   2006    2006    59,602    88.3 %   Publix   

Surfside Beach Commons (4)

   2007    1999    59,881    97.8 %   Bi-Lo   
                      

Subtotal/Weighted Average (SC)

         451,494    96.7 %     
                      

KENTUCKY

Franklin Square (4)

   1998    1988    203,317    93.1 %   Kroger    Rite Aid, Chakeres Theatre, JC Penney, Office Depot

Silverlake (4)

   1998    1988    99,352    97.6 %   Kroger   

Walton Towne Center (3)

   2007    2007    23,184    33.6 %   (Kroger)   
                      

Subtotal/Weighted Average (KY)

         325,853    90.2 %     
                      

ALABAMA

Shoppes at Fairhope Village (3)

   2008    2008    84,741    68.7 %   Publix   

Southgate Village (4)

   2001    1988    75,092    100.0 %   Publix    Pet Supplies Plus

Valleydale Village Shop Center (4)

   2002    2003    118,466    71.4 %   Publix   
                      

Subtotal/Weighted Average (AL)

         278,299    78.3 %     
                      

 

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Table of Contents
Index to Financial Statements

Property Name

   Year
Acquired
   Year
Constructed (1)
   Gross
Leasable
Area

(GLA)
   Percent
Leased (2)
   

Grocer & Major Tenant(s)
>40,000sf

  

Drug Store & Other Anchors
> 10,000 Sq Ft

INDIANA

Chicago

Airport Crossing (3)

   2006    2006    11,945    11.3 %   (Kohl’s)   

Augusta Center

   2006    2006    14,537    70.1 %   (Menards)   
Evansville

Evansville West Center (4)

   2007    1989    79,885    91.9 %   Schnucks   
Indianapolis

Greenwood Springs

   2004    2004    28,028    25.0 %   (Gander Mountain), (Wal-Mart Supercenter)   

Willow Lake Shopping Center (4)

   2005    1987    85,923    74.4 %   (Kroger)    Factory Card Outlet

Willow Lake West Shopping Center (4)

   2005    2001    52,961    100.0 %   Trader Joe’s   
                      

Subtotal/Weighted Average (IN)

         273,279    76.4 %     
                      

WISCONSIN

Racine Centre Shopping Center (4)

   2005    1988    135,827    98.2 %   Piggly Wiggly    Office Depot, Factory Card Outlet, Dollar Tree

Whitnall Square Shopping Center (4)

   2005    1989    133,301    97.2 %   Pick ‘N’ Save    Harbor Freight Tools, Dollar Tree, Walgreens
                      

Subtotal/Weighted Average (WI)

         269,128    97.7 %     
                      

CONNECTICUT

Corbin’s Corner (4)

   2005    1962    179,860    100.0 %   Trader Joe’s    Toys “R” Us, Best Buy, Old Navy, Office Depot, Pier 1 Imports
                      

Subtotal/Weighted Average (CT)

         179,860    100.0 %     
                      

NEW JERSEY

Haddon Commons (4)

   2005    1985    52,640    93.4 %   Acme Markets    CVS

Plaza Square (4)

   2005    1990    103,842    97.6 %   Shop Rite   
                      

Subtotal/Weighted Average (NJ)

         156,482    96.2 %     
                      

MICHIGAN

Fenton Marketplace

   1999    1999    97,224    92.9 %   Farmer Jack    Michaels

State Street Crossing (3)

   2006    2006    21,049    48.3 %   (Wal-Mart)   
                      

Subtotal/Weighted Average (MI)

         118,273    84.9 %     
                      

NEW HAMPSHIRE

Merrimack Shopping Center

   2004    2004    84,793    80.4 %   Shaw’s   
                      

Subtotal/Weighted Average (NH)

         84,793    80.4 %     
                      

DISTRICT OF COLUMBIA

Shops at The Columbia (4)

   2006    2006    22,812    100.0 %   Trader Joe’s   

Spring Valley Shopping Center (4)

   2005    1930    16,835    100.0 %      CVS
                      

Subtotal/Weighted Average (DC)

         39,647    100.0 %     
                      

Total/Weighted Average

         49,644,545    92.3 %     
                      

 

(1) Or latest renovation.
(2) Includes development properties. If development properties are excluded, the total percentage leased would be 93.8% for Company shopping centers.
(3) Property under development or redevelopment.
(4) Owned by a co-investment partnership with outside investors in which RCLP or an affiliate is the general partner.

Note: Shadow anchor is indicated by parentheses.

 

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Index to Financial Statements
Item 3. Legal Proceedings

We are a party to various legal proceedings which arise in the ordinary course of our business. We are not currently involved in any litigation nor to our knowledge, is any litigation threatened against us, the outcome of which would, in our judgment based on information currently available to us, have a material adverse effect on our financial position or results of operations.

 

Item 4. Submission of Matters to a Vote of Security Holders

No matters were submitted for stockholder vote during the fourth quarter of 2008.

PART II

 

Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Our common stock is traded on the New York Stock Exchange (“NYSE”) under the symbol “REG”. As of February 24, 2009, we had approximately 20,500 stockholders of record. The following table sets forth the high and low prices and the cash dividends declared on our common stock by quarter for 2008 and 2007.

 

     2008    2007

Quarter Ended

   High
Price
   Low
Price
   Cash
Dividends
Declared
   High
Price
   Low
Price
   Cash
Dividends
Declared

March 31

   $ 67.08    52.86    .725    93.48    75.90    .66

June 30

     73.52    58.13    .725    85.30    67.64    .66

September 30

     73.10    51.67    .725    77.00    61.99    .66

December 31

     66.19    23.36    .725    80.68    61.41    .66

We intend to pay regular quarterly distributions to our common stockholders. Future distributions will be declared and paid at the discretion of our Board of Directors, and will depend upon cash generated by operating activities, our 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 our Board of Directors deem relevant. Distributions by us to the extent of our current and accumulated earnings and profits for federal income tax purposes will be taxable to stockholders as either ordinary dividend income or capital gain income if so declared by us. 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 our qualification as a REIT, we must make annual distributions to stockholders of at least 90% of our taxable income. Under certain circumstances, which we do not expect to occur, we could be required to make distributions in excess of cash available for distributions in order to meet such requirements. We currently maintain the Regency Centers Corporation Dividend Reinvestment and Stock Purchase Plan which enables our stockholders to automatically reinvest distributions, as well as make voluntary cash payments towards the purchase of additional shares.

Under the loan agreement of our line of credit, in the event of any monetary default, we may not make distributions to stockholders except to the extent necessary to maintain our REIT status.

 

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Table of Contents
Index to Financial Statements
Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities (continued)

There were no equity securities sold by the Company during the quarter ended December 31, 2008.

The following table provides information about the Company’s purchases of equity securities that are registered by the Company pursuant to Section 12 of the Exchange Act during the quarter ended December 31, 2008:

 

Period

   Total number
of shares
purchased (1)
   Average price
paid per
share
   Total number of
shares purchased as
part of publicly announced
plans or programs
   Maximum number or
approximate dollar
value of shares that may yet
be purchased under the
plans or programs

October 1 through October 31, 2008

   —        —      —      —  

November 1 through November 30, 2008

   —        —      —      —  

December 1 through December 31, 2008

   467    $ 40.09    —      —  
                 

Total

   467    $ 40.09    —      —  
                 

 

(1)

Represents shares delivered in payment of withholding taxes in connection with options exercised by participants under Regency’s Long-Term Omnibus Plan.

 

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Index to Financial Statements
Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities (continued)

The performance graph furnished below compares Regency’s cumulative total stockholder return since December 31, 2003. The stock performance graph should not be deemed filed or incorporated by reference into any other filing made by us under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent that we specifically incorporate the stock performance graph by reference in another filing.

LOGO

 

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Index to Financial Statements
Item 6. Selected Financial Data

(in thousands, except per share data, number of properties, and ratio of earnings to fixed charges)

The following table sets forth Selected Financial Data for Regency on a historical basis for the five years ended December 31, 2008. This historical Selected Financial Data has been derived from the audited consolidated financial statements as reclassified for discontinued operations. As previously disclosed in our Current Report on Form 8-K dated March 12, 2009, our Audit Committee determined on March 12, 2009, after discussions with management, that our previously-issued consolidated financial statements as of and for the quarter and nine months ended September 30, 2008, should no longer be relied upon because of an error in our calculation of the gain on sale of properties to certain co-investment partnerships (DIK-JVs). Such error came to light as a result of the determination that for certain of our co-investment partnerships, the in-kind liquidation provisions contained within such co-investment partnership agreements constitute in-substance call/put options, a form of continuing involvement under Statement of Financial Accounting Standards No. 66, “Accounting for Sales of Real Estate”. As a result, the Company has reevaluated its accounting policy for such sales and has adopted a Restricted Gain Method of gain recognition, as described more fully in our Critical Accounting Policies, which considers the Company’s ability to receive property previously sold to a co-investment partnership upon liquidation. The revised method of recognizing gain on sale of properties to co-investment partnerships with in-kind liquidation provisions has been applied in the preparation of the consolidated financial statements set forth in this Annual Report on Form 10-K. As a result, in the financial data presented below, the Company corrected its reported gains on sales of properties in 2005 and 2004. There was no impact to gains on sale of properties in 2007 or 2006. The Company also recorded a correction to previously reported real estate investments before accumulated depreciation, total assets, minority interests, and stockholders’ equity in 2004, 2005, 2006, and 2007 related to the cumulative correction of gains reported during the periods 2001 to 2005 as described in the notes below. This information should be read in conjunction with the consolidated financial statements of Regency (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.

 

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Index to Financial Statements
     2008    2007    2006    2005     2004
                    (as restated)     (as restated)

Operating Data:

             

Revenues

   $ 493,421    436,582    404,034    371,411     335,836

Operating expenses (a)

     277,064    247,835    231,857    197,561     187,291

Other expenses (income) (b)

     107,293    30,174    13,748    82,760     39,540

Minority interests (c) 

     5,152    6,097    10,568    9,948     21,983

Equity in income (loss) of investments in real estate partnerships (d)

     5,292    18,093    2,580    (2,907 )   9,962

Income from continuing operations (e)

     109,204    170,569    150,441    78,235     96,984

Income from discontinued operations

     26,984    33,082    68,070    69,505     40,911

Net income (f)

     136,188    203,651    218,511    147,740     137,895

Preferred stock dividends

     19,675    19,675    19,675    16,744     8,633

Net income for common stockholders (g)

     116,513    183,976    198,836    130,996     129,262

Income per common share - diluted:

             

Income from continuing operations (h)

   $ 1.28    2.18    1.90    0.93     1.43

Net income for common stockholders (i)

   $ 1.66    2.65    2.89    2.00     2.11

Other Information:

             

Common dividends declared per share

   $ 2.90    2.64    2.38    2.20     2.12

Common stock outstanding including exchangeable operating partnership units

     70,505    70,112    69,759    69,218     64,297

Combined Basis gross leasable area (GLA)

     49,645    51,107    47,187    46,243     33,816

Combined Basis number of properties owned

     440    451    405    393     291

Ratio of earnings to fixed charges

     1.6    2.1    2.2    1.9     2.0
     2008    2007    2006    2005     2004
          (as restated)    (as restated)    (as restated)     (as restated)

Balance Sheet Data:

             

Real estate investments before accumulated depreciation (j) (n)

   $ 4,425,895    4,367,191    3,870,629    3,744,429     3,317,904

Total assets (k) (n)

     4,142,375    4,114,773    3,643,546    3,587,976     3,230,793

Total debt

     2,135,571    2,007,975    1,575,386    1,613,942     1,493,090

Total liabilities

     2,380,093    2,194,244    1,734,572    1,739,225     1,610,743

Minority interests (l) (n)

     66,197    77,762    83,276    87,545     134,045

Stockholders’ equity (m) (n)

     1,696,085    1,842,767    1,825,698    1,761,206     1,486,005

 

(a)

Operating expenses - Impact to tax benefit for deferral of gains on sales to DIK-JVs

 

     2005     2004  

As previously reported and reclassified for discontinued operations

   $ 198,591     $ 189,026  

Correction

     (1,030 )     (1,735 )
                

As restated

   $ 197,561     $ 187,291  
                

 

(b)

Other expenses (income) - Deferral of gains on sales to DIK-JVs

 

     2005    2004  

As previously reported and reclassified for discontinued operations

   $ 66,521    $ 39,635  

Correction

     16,239      (95 )
               

As restated

   $ 82,760    $ 39,540  
               

(c) Minority interests - Impact to minority interest of exchangeable operating partnership units for deferral of gains on sales and reversal of recognition of gains to DIK-JVs

 

     2005     2004

As previously reported and reclassified for discontinued operations

   $ 10,249     $ 21,953

Correction

     (301 )     30
              

As restated

   $ 9,948     $ 21,983
              

 

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(d) Equity in income (loss) of investments in real estate partnerships - Reversal of recognition of previously deferred gains on subsequent sales to third parties from DIK-JVs

 

     2005     2004  

As previously reported

   $ (2,908 )   $ 10,194  

Correction

   $ 1     $ (232 )
                

As restated

   $ (2,907 )   $ 9,962  
                

 

(e)

Income from continuing operations - Deferral of gains on sales to and reversal of recognition of gains from DIK-JVs, net

 

     2005     2004

As previously reported and reclassified for discontinued operations

   $ 93,142     $ 95,416

Correction

     (14,907 )     1,568
              

As restated

   $ 78,235     $ 96,984
              

 

(f)

Net income - Deferral of gains on sales to and reversal of recognition of gains from DIK-JVs, net

 

     2005     2004

As previously reported and reclassified for discontinued operations

   $ 162,647     $ 136,327

Correction

     (14,907 )     1,568
              

As restated

   $ 147,740     $ 137,895
              

 

(g)

Net income for common stockholders - Deferral of gains on sales to and reversal of recognition of gains from DIK-JVs, net

 

     2005     2004

As previously reported and reclassified for discontinued operations

   $ 145,903     $ 127,694

Correction

     (14,907 )     1,568
              

As restated

   $ 130,996     $ 129,262
              

 

(h)

Income from continuing operations per common share - diluted - Deferral of gains on sales to and reversal of recognition of gains from DIK-JVs, net

 

     2005     2004

As previously reported and reclassified for discontinued operations

   $ 1.16     $ 1.40

Correction

     (0.23 )     0.03
              

As restated

   $ 0.93     $ 1.43
              

 

(i)

Net income for common stockholders per common share - diluted - Deferral of gains on sales to and reversal of recognition of gains from DIK-JVs, net

 

     2005     2004

As previously reported

   $ 2.23     $ 2.08

Correction

     (0.23 )     0.03
              

As restated

   $ 2.00     $ 2.11
              

 

(j)

Real estate investments before accumulated depreciation - Cumulative gross deferral of gains on sales to and reversal of recognition of gains from DIK-JVs

 

     2007     2006     2005     2004  

As previously reported

   $ 4,398,195     3,901,633     3,775,433     3,332,671  

Correction

     (31,004 )   (31,004 )   (31,004 )   (14,767 )
                          

As restated

   $ 4,367,191     3,870,629     3,744,429     3,317,904  
                          

 

(k)

Total assets - Cumulative deferral of gains on sales to and reversal of recognition of gains from DIK-JVs, net of tax benefit

 

     2007     2006     2005     2004  

As previously reported

   $ 4,143,012     3,671,785     3,616,215     3,243,824  

Correction

     (28,239 )   (28,239 )   (28,239 )   (13,031 )
                          

As restated

   $ 4,114,773     3,643,546     3,587,976     3,230,793  
                          

 

(l)

Minority interests - Cumulative impact of exchangeable operating partnership units for deferral of gains on sales to and reversal of recognition of gains from DIK-JVs

 

     2007     2006     2005     2004  

As previously reported

   $ 78,382     83,896     88,165     134,364  

Correction

     (620 )   (620 )   (620 )   (319 )
                          

As restated

   $ 77,762     83,276     87,545     134,045  
                          

 

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Index to Financial Statements

(m) Stockholders’ equity - Cumulative impact to net income for common stockholders for deferral of gains on sales to and reversal of recognition of gains from DIK-JVs, net

 

     2007     2006     2005     2004  

As previously reported

   $ 1,870,386     1,853,317     1,788,825     1,498,717  

Correction

     (27,619 )   (27,619 )   (27,619 )   (12,712 )
                          

As restated

   $ 1,842,767     1,825,698     1,761,206     1,486,005  
                          

 

(n)

2004 opening balance sheet data reflects cumulative prior period adjustments recorded to defer reported gains on sales of properties to and reverse recognition of previously deferred gains on subsequent sales to third parties from DIK-JVs in 2003 and prior. As a result of this adjustment, real estate investments before accumulated depreciation and total assets decreased $14.6 million, minority interests decreased approximately $349,000, and stockholders’ equity decreased $14.3 million.

 

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Index to Financial Statements
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview of Our Operating Strategy

Regency is a qualified real estate investment trust (“REIT”), which began operations in 1993. Our primary operating and investment goal is long-term growth in earnings and total shareholder return, which we work to achieve by focusing on a strategy of owning, operating and developing high-quality community and neighborhood shopping centers that are tenanted by market-dominant grocers, category-leading anchors, specialty retailers and restaurants located in areas with above average household incomes and population densities. All of our operating, investing and financing activities are performed through our operating partnership, Regency Centers, L.P. (“RCLP” or “Partnership”), RCLP’s wholly owned subsidiaries, and through its investments in real estate partnerships with third parties (also referred to as co-investment partnerships or joint ventures). Regency currently owns 99% of the outstanding operating partnership units of RCLP.

At December 31, 2008, we directly owned 224 shopping centers (the “Consolidated Properties”) located in 24 states representing 24.2 million square feet of gross leasable area (“GLA”). Our cost of these shopping centers and those under development is $4.0 billion before depreciation. Through co-investment partnerships, we own partial ownership interests in 216 shopping centers (the “Unconsolidated Properties”) located in 27 states and the District of Columbia representing 25.4 million square feet of GLA. Our investment in the partnerships that own the Unconsolidated Properties is $383.4 million. Certain portfolio information described below is presented (a) on a Combined Basis, which is a total of the Consolidated Properties and the Unconsolidated Properties, (b) for our Consolidated Properties only and (c) for the Unconsolidated Properties that we own through co-investment partnerships. We believe that presenting the information under these methods provides a more complete understanding of the properties that we wholly-own versus those that we indirectly own through entities we do not control, but for which we provide asset management, property management, leasing, investing and financing services. The shopping center portfolio that we manage, on a Combined Basis, represents 440 shopping centers located in 29 states and the District of Columbia and contains 49.6 million square feet of GLA.

We earn revenues and generate cash flow by leasing space in our shopping centers to market-leading grocers, major retail anchors, specialty side-shop retailers, and restaurants, including ground leasing or selling building pads (out-parcels) to these potential tenants. We experience growth in revenues by increasing occupancy and rental rates at currently owned shopping centers, and by acquiring and developing new shopping centers. Community and neighborhood shopping centers generate substantial daily traffic by conveniently offering necessities and services. This high traffic generates increased sales, thereby driving higher occupancy and rental-rate growth, which we expect will sustain our growth in earnings per share and increase the value of our portfolio over the long term.

We seek a range of strong national, regional and local specialty retailers, for the same reason that we choose to anchor our centers with leading grocers and major retailers who provide a mix of goods and services that meet consumer needs. We have created a formal partnering process, the Premier Customer Initiative (“PCI”), to promote mutually beneficial relationships with our specialty retailers. The objective of PCI is for us to build a base of specialty tenants who represent the “best-in-class” operators in their respective merchandising categories. Such retailers reinforce the consumer appeal and other strengths of a center’s anchor, help stabilize a center’s occupancy, reduce re-leasing downtime, reduce tenant turnover and yield higher sustainable rents.

The current economic recession is resulting in a higher level of retail store closings and is limiting the demand for leasing space in our shopping centers resulting in a decline in our occupancy percentages and rental revenues. Additionally, certain national tenants negotiate co-tenancy clauses into their lease agreements, which allow them to reduce their rents or close their stores in the event that a co-tenant closes their store. We believe that our investment focus on neighborhood and community shopping centers that conveniently provide daily necessities will help lessen the current economy’s negative impact to our shopping centers, although the negative impact could still be significant. We are

 

35


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Index to Financial Statements

closely monitoring the operating performance and tenants’ sales in our shopping centers including those tenants operating retail formats that are experiencing significant changes in competition, business practice, or reductions in sales.

We grow our shopping center portfolio through acquisitions of operating centers and new shopping center development, where we acquire the land and construct the building. Development is customer driven, meaning we generally have an executed lease from the anchor before we start construction. Developments serve the growth needs of our anchors and specialty retailers, resulting in modern shopping centers with long-term anchor leases that produce attractive returns on our invested capital. This development process can require three to five years from initial land or redevelopment acquisition through construction, lease-up and stabilization of rental income, but can take longer depending upon the size of the project. Generally, anchor tenants begin operating their stores prior to the completion of construction of the entire center, resulting in rental income during the development phase.

In the near term, reduced new store openings amongst retailers is resulting in reduced demand for new retail space and is causing corresponding reductions in new leasing rental rates and development pre-leasing. As a result, we are significantly reducing our development program by reducing the number of new projects started, phasing existing developments that lack retail demand, and reducing related general and administrative expense. Although our development program will continue to be a significant part of our business strategy, new development projects will be rigorously evaluated in regard to availability of capital, visibility of tenant demand to achieve 95% occupancy, and sufficient investment returns.

We intend to maintain a conservative capital structure to fund our growth program, which should preserve our investment-grade ratings. Our approach is founded on our self-funding capital strategy to fund our growth. The culling of non-strategic assets and our industry-leading co-investment partnership program are integral components of this strategy. We also develop certain retail centers because of their attractive profit margins with the intent of selling them to third parties upon completion. These sales proceeds are re-deployed into new, high-quality developments and acquisitions that are expected to generate sustainable revenue growth and attractive returns. To the extent that we are unable to execute our capital recycling program to generate adequate sources of capital, we will significantly reduce and even stop new investment activity until there is adequate visibility and reliability to sources of capital for Regency.

Joint venturing of shopping centers provides us with a capital source for new developments and acquisitions, as well as the opportunity to earn fees for asset and property management services. As asset manager, we are engaged by our partners to apply similar operating, investment, and capital strategies to the portfolios owned by the co-investment partnerships. Co-investment partnerships grow their shopping center investments through acquisitions from third parties or direct purchases from us. Although selling properties to co-investment partnerships reduces our direct ownership interest, we continue to share, to the extent of our ownership interest, in the risks and rewards of shopping centers that meet our high quality standards and long-term investment strategy. We have no obligations or liabilities within the co-investment partnerships beyond our ownership interest.

The current lack of liquidity in the capital markets is having a corresponding effect on new investment activity in our co-investment partnerships. Our co-investment partnerships have significant levels of debt, 67.5% of which will mature through 2012, and are subject to significant refinancing risks. We anticipate that as real estate values decline, the refinancing of maturing loans, including those maturing in our joint ventures, will require us and our joint venture partners to contribute our respective pro-rata shares of capital in order to reduce refinancing requirements to acceptable loan to value levels required for new financings. While we have been successful refinancing maturing loans, the longer-term impact of the current economic crisis on our ability to access capital, including access by our joint venture partners, or to obtain future financing to fund maturing debt is unclear. While we believe that our partners have sufficient capital or access thereto for these future capital requirements, we can provide no assurance that the constrained capital markets will not inhibit their ability to access capital and meet their future funding requirements.

 

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Shopping Center Portfolio

The following tables summarize general information related to our shopping center portfolio, which we use to evaluate and monitor our performance.

 

     December 31,
2008
    December 31,
2007
 

Number of Properties (a)

   440     451  

Number of Properties (b)

   224     232  

Number of Properties (c)

   216     219  

Properties in Development (a)

   45     49  

Properties in Development (b)

   44     48  

Properties in Development (c)

   1     1  

Gross Leasable Area (a)

   49,644,545     51,106,824  

Gross Leasable Area (b)

   24,176,536     25,722,665  

Gross Leasable Area (c)

   25,468,009     25,384,159  

Percent Leased (a)

   92.3 %   91.7 %

Percent Leased (b)

   90.2 %   88.1 %

Percent Leased (c)

   94.3 %   95.2 %

 

(a)

Combined Basis

(b)

Consolidated Properties

(c)

Unconsolidated Properties

We seek to reduce our operating and leasing risks through diversification which we achieve by geographically diversifying our shopping centers, avoiding dependence on any single property, market, or tenant, and owning a portion of our shopping centers through co-investment partnerships.

The following table summarizes our four largest grocery tenants occupying the shopping centers at December 31, 2008:

 

Grocery Anchor

   Number of
Stores (a)
   Percentage of
Company-
owned GLA (b)
    Percentage of
Annualized

Base Rent (b)
 

Kroger

   66    9.0 %   5.7 %

Publix

   67    6.8 %   4.2 %

Safeway

   64    5.7 %   3.8 %

Super Valu

   36    3.2 %   2.4 %

 

(a)

For the Combined Properties including stores owned by grocery anchors that are attached to our centers.

(b)

GLA and annualized base rent include the Consolidated Properties plus Regency’s pro-rata share of the Unconsolidated Properties.

Although base rent is supported by long-term lease contracts, tenants who file bankruptcy are given the right to cancel any or all of their leases and close related stores, or continue to operate. 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 closely monitoring industry trends and sales data to help us identify declines in retail categories or tenants who

 

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might be experiencing financial difficulties as a result of slowing sales, lack of credit, changes in retail formats or increased competition, especially in light of the current downturn in the economy. As a result of our findings, we may reduce new leasing, suspend leasing, or curtail the allowance for the construction of leasehold improvements within a certain retail category or to a specific retailer.

In October 2007, Movie Gallery filed for Chapter 11 bankruptcy protection. We currently have 21 Movie Gallery stores occupying our shopping centers. The annual base rent on a pro-rata basis associated with these 21 stores is approximately $1.2 million or less than 1%. At December 31, 2008, we were closely monitoring leases with 107 video rental stores including Movie Gallery representing $7.8 million of annual base rent on a pro-rata basis.

In May 2008, Linens-n-Things (“LNT”) filed for Chapter 11 bankruptcy protection. LNT has closed all five stores in our shopping centers. The annual base rent associated with these five stores is approximately $452,000 or less than 1% of our annual base rent on a pro-rata basis.

In November 2008, Circuit City filed for Chapter 11 bankruptcy protection. Circuit City has rejected all three leases in our shopping centers. The annual base rent associated with these stores is $1.1 million or less than 1% of our annual base rent on a pro-rata basis.

In November 2008, Brooke Investments filed for Chapter 11 bankruptcy protection. Brooke Investments has closed all five stores in our shopping centers. The annual base rent associated with these five stores is approximately $127,000 or less than 1% of our annual base rent on a pro-rata basis.

In December 2008, Bally’s Total Fitness filed for Chapter 11 bankruptcy protection. Bally’s Total Fitness has rejected one lease in our shopping centers. The annual base rent on a pro-rata basis associated with this store is approximately $331,000 or less than 1%.

In February 2009, S&K Menswear filed for Chapter 11 bankruptcy protection. S&K Menswear has rejected two leases in our shopping centers. The annual base rent on a pro-rata basis associated with these stores is approximately $89,000 or less than 1%.

We continue to monitor tenants who have announced store closings. Starbucks recently announced that it would close approximately 900 of its stores. Of the 900 stores, Starbucks has closed two stores in our shopping centers and four are expected to close. The annual base rent associated with these six stores is approximately $251,000 or less than 1% of our annual base rent on a pro-rata basis. Washington Mutual has also closed two stores in our shopping centers. The annual base rent on a pro-rata basis associated with these two stores is approximately $208,000 or less than 1%.

We expect as the current economic downturn continues, additional retailers will announce store closings and/or bankruptcies that could affect our shopping centers. We are not aware at this time of the bankruptcy of any other tenants in our shopping centers that would cause a significant reduction in our revenues. No tenant represents more than 6% of our annual base rent on a pro-rata basis.

Liquidity and Capital Resources

The following table summarizes net cash flows related to operating, investing, and financing activities for the years ended December 31, 2008, 2007, and 2006 (in thousands):

 

     2008     2007     2006  

Net cash provided by operating activities

   $ 219,169     218,167     211,659  

Net cash (used in) provided by investing activities

     (105,775 )   (412,161 )   43,387  

Net cash (used in) provided by financing activities

     (110,529 )   178,616     (263,458 )
                    

Net increase (decrease) in cash and equivalents

   $ 2,865     (15,378 )   (8,412 )
                    

 

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We expect that cash generated from operating activities will provide the necessary funds to pay our operating expenses, interest expense, scheduled principal payments on outstanding debt, and capital expenditures necessary to maintain our shopping centers. During 2008, 2007, and 2006, we incurred capital expenditures to maintain our shopping centers of $15.4 million, $15.1 million, and $14.0 million; we paid scheduled principal payments of $4.8 million, $4.5 million and $4.5 million to our lenders on mortgage loans; and we paid dividends to our stockholders and unit holders of $222.9 million, $204.3 million, and $185.2 million, respectively. During 2008 our annual dividend per common share increased by 9.8%. We expect to continue paying dividends to our shareholders based upon availability of cash flow and to maintain compliance with REIT tax laws. On February 3, 2009, the Board of Directors declared a quarterly cash dividend of $0.725 per share, payable on March 4, 2009 to shareholders of record on February 18, 2009 and determined that it in light of the current recession and the strains it is placing on our business, they will not increase the dividend rate per share during 2009, and may find it necessary to reduce future dividends or pay a portion of the dividend in the form of stock. The Board of Directors continuously reviews Regency’s operations and will make decisions about future dividend payments on a quarterly basis.

At December 31, 2008 we had 45 properties under construction or undergoing major renovations on a Combined Basis, which when completed, will represent a net investment of $993.2 million after projected sales of adjacent land and out-parcels. This compares to 49 properties that were under construction at December 31, 2007 representing an investment of $1.1 billion upon completion. We estimate that we will earn an average return on investment from our current development projects of 7.5% on a fully allocated basis including direct internal costs and the cost to acquire any residual ownership interests held by minority development partners. Average returns have declined over previous years primarily as a result of higher costs associated with the acquisition of land and construction. Returns are also being pressured by reduced competition among retailers resulting in declining rental rates. Costs necessary to complete the current development projects, net of reimbursements and projected land sales, are estimated to be approximately $141.9 million and will likely be expended through 2012. The costs to complete these developments will be funded from our $941.5 million Unsecured credit facilities (defined under Notes Payable), which had $643.8 million of available funding at December 31, 2008. The Unsecured credit facilities mature in 2011 but $600.0 million contains a one year extension option as discussed further below.

Our strategy is to continue growing our shopping center portfolio by investing in shopping centers through new development or by acquiring existing centers, while at the same time selling non-performing shopping centers and a percentage of our completed developments as a means to generate the capital required by this new investment activity. In the near term, reduced store demand or failures among national retailers is resulting in reduced demand for new retail space and is causing corresponding reductions in new leasing rental rates and development pre-leasing. As a result, we have significantly reduced our development program by reducing the number of new projects started, phasing existing developments that lack retail demand, and reducing related general and administrative expense. Also, to the extent that we are unable to execute our capital recycling program in the current economic environment in order to generate new capital, or we find it necessary to provide financing to buyers of our shopping centers resulting in reduced sales proceeds, we will significantly reduce, and if necessary, stop new investment activity until the capital markets become less volatile.

We expect to repay maturing secured mortgage loans and credit lines primarily from similar new issues. We have $25.1 million of secured mortgage loans maturing through 2010. Our joint ventures have $936.5 million of secured mortgage loans and credit lines maturing through 2010, and our pro-rata share is $248.8 million. We believe that in order to refinance the maturing joint venture loans, we, along with our partners, will likely be required to contribute our pro-rata share based on our respective ownership interest percentage of the capital necessary to reduce the refinancing amounts to acceptable loan to value levels required for this type of financing in the current capital markets environment. Currently, the expected partner capital requirements for maturing debt in our joint ventures is estimated to be in a range of 20% - 30% of the loan balances at maturity based upon prevailing market terms at the time of refinancing. We would fund our pro-rata share of a capital call, if any, from our Unsecured credit facilities. We believe that our partners have sufficient capital or access thereto for these future capital

 

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requirements, however, we can provide no assurance that the current economic crisis will not inhibit their ability to access capital and meet their future funding requirements. A more detailed loan maturity schedule is included below under Notes Payable.

We would expect that maturing unsecured public debt would be repaid from the proceeds of similar new unsecured issues in the future if those capital markets are available, although in the current environment, new issues are significantly more expensive than historical issues. To the extent that issuing unsecured debt in the public markets is cost prohibitive or unavailable, we believe that we have sufficient unsecured assets that we could finance with secured mortgages and repay the unsecured public debt. We have $50.0 million and $160.0 million of public debt maturing in 2009 and 2010, respectively. The joint ventures are not rated and therefore do not issue and have no unsecured public debt outstanding.

Although common or preferred equity raised in the public markets is a funding option, given the state of the current capital markets, our access to these markets may be limited. When the conditions for the issuance of equity are more favorable, we might consider issuing equity to fund new investment opportunities, fund our development program or repay maturing debt, which would result in dilution to our existing shareholders. We would also consider issuing equity as part of a financing plan to maintain our leverage ratios at acceptable levels as determined by our Board of Directors. At December 31, 2008, we had an unlimited amount available under our shelf registration for equity securities and RCLP had an unlimited amount available under its shelf registration for debt.

Investments in Real Estate Partnerships

We account for certain investments in real estate partnerships using the equity method. We have determined that these investments are not variable interest entities as defined in Financial Accounting Standards Board (“FASB”) Interpretation No. 46(R) “Consolidation of Variable Interest Entities” (“FIN 46(R)”) and do not require consolidation under Emerging Issues Task Force Issue No. 04-5 “Determining Whether a General Partner, or the General Partners as a Group, Controls a Limited Partnership or Similar Entity When the Limited Partners Have Certain Rights” (“EITF 04-5”) or the American Institute of Certified Public Accountants’ (“AICPA”) Statement of Position 78-9, “Accounting for Investments in Real Estate Ventures” (“SOP 78-9”), and therefore are subject to the voting interest model in determining our basis of accounting. Major decisions, including property acquisitions not meeting pre-established investment criteria, dispositions, financings, annual budgets and dissolution of the ventures are subject to the approval of all partners.

We account for profit recognition on sales of real estate in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 66, “Accounting for Sales of Real Estate” (“Statement 66”). Recognition of gains from sales to co-investment partnerships is recorded on only that portion of the sales not attributable to our ownership interest unless there are certain provisions in the partnership agreement which allow the Company a unilateral right to initiate a distribution in kind (“DIK”) upon liquidation, as described further below under our Critical Accounting Policies and Note 1(b) Summary of Significant Accounting Policies in our Consolidated Financial Statements each included herein. The presence of such DIK provisions requires that we apply a more restrictive method of gain recognition (“Restricted Gain Method”) on sales of properties to these co-investment partnerships. This method considers our potential ability to receive property through a DIK on which partial gain has been recognized, and ensures maximum gain deferral upon sale to a partnership containing these unilateral DIK rights (“DIK-JV”). We have concluded, through consultation with our auditors and the staff of the Securities and Exchange Commission (SEC), that these dissolution provisions constitute in-substance call/put options under the guidance of Statement 66, and represent a form of continuing involvement with respect to property that we sold to these DIK-JV’s.

The operations and gains related to properties sold to our investments in all real estate partnerships are not recorded as discontinued operations because we continue to provide to these shopping centers property management services under market rate agreements with our co-investment partnerships. For those properties acquired by the joint venture from unrelated parties, we are required to

 

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contribute our pro-rata share based on our ownership interest of the purchase price to the partnerships.

At December 31, 2008, we had investments in real estate partnerships of $383.4 million. The following table is a summary of unconsolidated combined assets and liabilities of these co-investment partnerships and our pro-rata share (see note below) at December 31, 2008 and 2007 (dollars in thousands):

 

     2008     2007  

Number of Joint Ventures

     19       19  

Regency’s Ownership

     16.35%-50 %     16.35%-50 %

Number of Properties

     216       219  

Combined Assets

   $ 4,862,730     $ 4,767,553  

Combined Liabilities

     2,973,410       2,889,238  

Combined Equity

     1,889,320       1,878,315  

Regency’s Share of (1):

    

Assets

   $ 1,171,218     $ 1,151,872  

Liabilities

     705,452       692,804  

 

(1)      Pro-rata financial information is not, and is not intended to be, a presentation in accordance with U.S. generally accepted accounting principles. However, management believes that providing such information is useful to investors in assessing the impact of its investments in real estate partnership activities on the operations of Regency, which includes such items on a single line presentation under the equity method in its consolidated financial statements.

           

Investments in real estate partnerships are primarily composed of co-investment partnerships where we invest with three co-investment partners and an open-end real estate fund (“Regency Retail Partners” or the “Fund”), as further described below. In addition to earning our pro-rata share of net income or loss in each of these partnerships, we receive market-based fees for asset management, property management, leasing, investment, and financing services. During 2008, 2007, and 2006, we received fees from these co-investment partnerships of $31.7 million, $29.1 million, and $22.1 million, respectively. Our investments in real estate partnerships as of December 31, 2008 and 2007 consist of the following (in thousands):

 

     Ownership     2008    2007
                (as restated)

Macquarie CountryWide-Regency (MCWR I)

   25.00 %   $ 11,137    15,463

Macquarie CountryWide Direct (MCWR I)

   25.00 %     3,760    4,061

Macquarie CountryWide-Regency II (MCWR II)

   24.95 %     197,602    214,450

Macquarie CountryWide-Regency III (MCWR III)

   24.95 %     623    812

Macquarie CountryWide-Regency-DESCO (MCWR-DESCO)

   16.35 %     21,924    29,478

Columbia Regency Retail Partners (Columbia)

   20.00 %     29,704    29,978

Columbia Regency Partners II (Columbia II)

   20.00 %     12,858    20,326

Cameron Village LLC (Cameron)

   30.00 %     19,479    20,364

RegCal, LLC (RegCal)

   25.00 %     13,766    17,113

Regency Retail Partners (the Fund)

   20.00 %     23,838    13,296

Other investments in real estate partnerships

   50.00 %     48,717    36,565
             

Total

     $ 383,408    401,906
             

Investments in real estate partnerships are reported net of deferred gains of $87.2 million and $69.5 million at December 31, 2008 and 2007, respectively. After applying the Restricted Gain Method, cumulative deferred gains in 2007 have increased by $30.5 million to correct gains from partial sales recorded during the periods 2001 to 2005 and have been noted as restated. Cumulative deferred gain amounts related to each co-investment partnership are described below.

 

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We co-invest with the Oregon Public Employees Retirement Fund (“OPERF”) in three co-investment partnerships, two of which we have ownership interests of 20% (“Columbia” and “Columbia II”) and one in which we have an ownership interest of 30% (“Cameron”). Our investment in the three co-investment partnerships with OPERF totals $62.0 million and represents 1.5% of our total assets at December 31, 2008. At December 31, 2008, the Columbia co-investment partnerships had total assets of $762.7 million and net income of $11.0 million. Our share of the co-investment partnerships’ total assets and net income was $164.8 million and $2.2 million, respectively, which represents 4.0% of our total assets and 1.9% of our net income available for common stockholders, respectively.

As of December 31, 2008, Columbia owned 14 shopping centers, had total assets of $321.9 million, and net income of $10.2 million for the year ended. We have a unilateral DIK right to liquidate the partnership; therefore, we have applied the Restricted Gain Method to determine the amount of gain that we recognize on property sales to Columbia. During 2006 to 2008, we did not sell any properties to Columbia. Since its inception in 2001, we have recognized gain of $2.0 million on partial sales to Columbia and deferred gain of $4.3 million. In December 2008, we earned and recognized a $19.7 million Portfolio Incentive Return fee from OPERF based on Columbia’s outperformance of the cumulative NCREIF index since the inception of the partnership and a hurdle rate as outlined in the partnership agreement.

As of December 31, 2008, Columbia II owned 16 shopping centers, had total assets of $327.5 million, and net income of $1.1 million for the year ended. During 2008, Columbia II purchased one operating property from a third party for a purchase price of $28.5 million and we contributed $5.7 million for our proportionate share. We have a unilateral DIK right to liquidate the partnership; therefore, we have applied the Restricted Gain Method to determine the amount of gain that we recognize on property sales to Columbia II. In September 2008, Columbia II acquired three completed development properties from us for a purchase price of $83.4 million, and as a result, we recognized gain of $9.1 million and deferred gain of $15.7 million. As more thoroughly described in Note 18 to our accompanying consolidated financial statements, the amount of gain previously recorded during September 2008 was subsequently adjusted by a reduction of $10.6 million. During 2006 and 2007, we did not sell any properties to Columbia II. Since the inception of Columbia II in 2004, we have recognized gain of $9.1 million on partial sales to Columbia II and deferred gain of $15.7 million. During 2008, Columbia II sold one shopping center to an unrelated party for $13.8 million and recognized a gain of approximately $256,000.

As of December 31, 2008, Cameron owned one shopping center, had total assets of $113.3 million, and a net loss of approximately $187,000 for the year ended. The partnership agreement does not contain any DIK provisions that would require us to apply the Restricted Gain Method. Since its inception in 2004, we have not sold any properties to Cameron.

We co-invest with the California State Teachers’ Retirement System (“CalSTRS”) in a joint venture (“RegCal”) in which we have a 25% ownership interest. As of December 31, 2008, RegCal owned seven shopping centers, had total assets of $158.1 million, and net income of $5.9 million for the year ended. RegCal’s total assets and net income represent 1% and 1.3% of our total assets and net income available for common stockholders, respectively. We have a unilateral DIK right to liquidate the partnership; therefore, we have applied the Restricted Gain Method to determine the amount of gain that we recognize on property sales to RegCal. During 2006 to 2008, we did not sell any properties to RegCal. Since its inception in 2004, we have recognized gain of $10.1 million on partial sales to RegCal and deferred gain of $3.4 million. During 2008, RegCal sold one shopping center to an unrelated party for $9.5 million and recognized a gain of $4.2 million.

We co-invest with Macquarie CountryWide Trust of Australia (“MCW”) in five co-investment partnerships two in which we have an ownership interest of 25% (collectively “MCWR I”), two in which we have an ownership interest of 24.95% (“MCWR II” and “MCWR III”), and one in which we have an ownership interest of 16.35% (“MCWR-DESCO”). Our investment in the five co-investment partnerships with MCW totals $235.0 million and represents 5.7% of our total assets at December 31, 2008. At December 31, 2008, MCW had total assets of $3.4 billion and net income of $11.6 million. Our share of

 

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the co-investment partnerships’ total assets and net income was $823.9 million and $2.1 million, respectively, which represents 19.9% of our total assets and 1.8% of our net income available for common stockholders, respectively.

As of December 31, 2008, MCWR I owned 42 shopping centers, had total assets of $593.9 million, and net income of $11.1 million for the year ended. We have a unilateral DIK right to liquidate the partnership; therefore, we have applied the Restricted Gain Method to determine the amount of gain we recognize on property sales to MCWR I. During 2006 to 2008, we did not sell any properties to MCWR I. Since its inception in 2001, we have recognized gains of $27.5 million on partial sales to MCWR I and deferred gains of $46.9 million. Subsequent to December 31, 2008, under the terms of the MCWR I partnership agreement, MCW elected to dissolve the partnership. In January 2009, we began liquidating the partnership through a DIK, which provides for distributing the properties to each partner under an alternating selection process, ultimately in proportion to the value of each partner’s respective partnership interest as determined by appraisal. The total value of the properties based on appraisals, net of debt, is estimated to be approximately $482.7 million. The properties which we receive through the DIK will be recorded at the amount of the carrying value of our equity investment, net of deferred gain. The dissolution is expected to be completed during 2009 subject to required lender consents for ownership transfer.

As of December 31, 2008, MCWR II owned 85 shopping centers, had total assets of $2.4 billion and net income of $5.6 million for the year ended. During 2008, MCWR II sold a portfolio of seven shopping centers to an unrelated party for $108.1 million and recognized a gain of $8.9 million. At December 31, 2008, the partnership agreement did not contain any DIK provisions that would require us to apply the Restricted Gain Method. However, in January 2009, the partnership agreement was amended to include DIK provisions; therefore, we will apply the Restricted Gain Method if additional properties are sold to MCWR II in the future. During the period 2006 to 2008, we did not sell any properties to MCWR II. Since its inception in 2005, we have recognized gain of $2.3 million on partial sales to MCWR II and deferred gain of approximately $766,000. In June 2008, we earned additional acquisition fees of $5.2 million (the “Contingent Acquisition Fees”) deferred from the original acquisition date since we achieved the cumulative targeted income levels specified in the Amended and Restated Income Target Agreement between Regency and MCW dated March 22, 2006. The Contingent Acquisition Fees recognized were limited to that percentage of MCWR II, or 75.05%, of the joint venture not owned by us and amounted to $3.9 million.

As of December 31, 2008, MCWR III owned four shopping centers, had total assets of $67.5 million, and a net loss of approximately $238,000 for the year ended. At December 31, 2008, the partnership agreement did not contain any DIK provisions that would require us to apply the Restricted Gain Method. However, in January 2009, the partnership agreement was amended to include DIK provisions; therefore, we will apply the Restricted Gain Method if additional properties are sold to MCWR III in the future. Since its inception in 2005, we have recognized gain of $14.1 million on partial sales to MCWR III and deferred gain of $4.7 million.

As of December 31, 2008, MCWR-DESCO owned 32 shopping centers, had total assets of $395.6 million and recorded a net loss of $4.9 million for the year ended primarily related to depreciation and amortization expense, but produced positive cash flow from operations. The partnership agreement does not contain any DIK provisions that would require us to apply the Restricted Gain Method. Since its inception in 2007, we have not sold any properties to MCWR-DESCO.

We co-invest with Regency Retail Partners (the “Fund”), an open-ended, infinite life investment fund in which we have an ownership interest of 20%. As of December 31, 2008, the Fund owned nine shopping centers, had total assets of $381.2 million, and recorded a net loss of $2.1 million for the year ended. The Fund represents 1.8% and less than 1% of our total assets and net income available for common stockholders, respectively. During 2008, the Fund purchased one shopping center from a third party for $93.3 million that included $66.0 million of assumed mortgage debt and we contributed $18.7 million for our proportionate share of the purchase price. During 2008, the Fund also acquired one property in development from us for a sales price of $74.5 million and we recognized a gain of $4.7

 

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million after excluding our ownership interest. The partnership agreement does not contain any DIK provisions that would require us to apply the Restricted Gain Method. Since its inception in 2006, we have recognized gains of $71.6 million on partial sales to the Fund and deferred gains of $17.9 million.

Contractual Obligations

We have debt obligations related to our mortgage loans, unsecured notes, and our Unsecured credit facilities as described further below. We have shopping centers that are subject to non-cancelable long-term ground leases where a third party owns and has leased the underlying land to us to construct and/or operate a shopping center. In addition, we have non-cancelable operating leases pertaining to office space from which we conduct our business. The table excludes reserves for approximately $3.2 million related to environmental remediation as discussed below under Environmental Matters as the timing of the remediation is not currently known. The table also excludes obligations related to construction or development contracts because payments are only due upon satisfactory performance under the contract. Costs necessary to complete the 49 development projects currently in process are estimated to be $141.9 million and will likely be expended through 2012.

The following table of Contractual Obligations summarizes our debt maturities including interest, (excluding recorded debt premiums or discounts that are not obligations), and our obligations under non-cancelable operating and ground leases as of December 31, 2008 including our pro-rata share of obligations within unconsolidated co-investment partnerships excluding interest (in thousands):

 

     2009    2010    2011    2012    2013    Beyond 5
years
   Total

Notes Payable:

                    

Regency (1)

   $ 179,973    283,837    632,038    315,670    80,233    1,114,734    2,606,485

Regency’s share of JV (2)

     30,382    195,461    126,401    91,182    8,997    210,174    662,597

Operating Leases:

                    

Regency

     5,433    5,436    5,415    5,025    4,820    14,262    40,391

Regency’s share of JV

     —      —      —      —      —      —      —  

Ground Leases:

                    

Regency

     1,828    1,867    1,921    1,896    1,905    53,083    62,500

Regency’s share of JV

     398    400    400    400    402    14,949    16,949
                                    

Total

   $ 218,014    487,001    766,175    414,173    96,357    1,407,202    3,388,922
                                    

 

(1)

Amounts include interest payments

(2)

Amounts exclude interest payments

Off-Balance Sheet Arrangements

We do not have off-balance sheet arrangements, financings, or other relationships with unconsolidated entities or other persons, also known as variable interest entities.

Notes Payable

Outstanding debt at December 31, 2008 and 2007 consists of the following (in thousands):

 

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     2008    2007

Notes payable:

     

Fixed rate mortgage loans

   $ 235,150    196,915

Variable rate mortgage loans

     5,130    5,821

Fixed rate unsecured loans

     1,597,624    1,597,239
           

Total notes payable

     1,837,904    1,799,975

Unsecured credit facilities

     297,667    208,000
           

Total

   $ 2,135,571    2,007,975
           

During 2008, we placed a $62.5 million mortgage loan on a property. The loan has a nine-year term and is interest only at an all-in coupon rate of 6.0% (or 230 basis points over an interpolated 9-year US Treasury).

On March 5, 2008, we entered into a Credit Agreement with Wells Fargo Bank and a group of other banks to provide us with a $341.5 million, three-year term loan facility (the “Term Facility”). The Term Facility includes a term loan amount of $227.7 million plus a $113.8 million revolving credit facility that is accessible at our discretion. The term loan has a variable interest rate equal to LIBOR plus 105 basis points which was 3.300% at December 31, 2008 and the revolving portion has a variable interest rate equal to LIBOR plus 90 basis points. The proceeds from the funding of the Term Facility were used to reduce the balance on the unsecured line of credit (the “Line”). The balance on the term loan was $227.7 million at December 31, 2008.

During 2007, we entered into a new loan agreement under the Line with a commitment of $600.0 million and the right to expand the Line by an additional $150.0 million subject to additional lender syndication. The Line has a four-year term with a one-year extension at our option and a current interest rate of LIBOR plus 40 basis points subject to maintaining our corporate credit and senior unsecured ratings at BBB+.

Contractual interest rates were 1.338% and 5.425% at December 31, 2008 and 2007, respectively based on LIBOR plus 40 basis points and LIBOR plus 55 basis points, respectively. The balance on the Line was $70.0 million and $208.0 million at December 31, 2008 and 2007, respectively.

Including both the Line commitment and the Term Facility (collectively, “Unsecured credit facilities”), we have $941.5 million of total capacity and the spread paid is dependent upon our maintaining specific investment-grade ratings. We are also required to comply with certain financial covenants such as Minimum Net Worth, Ratio of Total Liabilities to Gross Asset Value (“GAV”) and Ratio of Recourse Secured Indebtedness to GAV, Ratio of Earnings Before Interest Taxes Depreciation and Amortization (“EBITDA”) to Fixed Charges, and other covenants customary with this type of unsecured financing. As of December 31, 2008, we are in compliance with all financial covenants for our Unsecured credit facilities. Our Unsecured credit facilities are used primarily to finance the acquisition and development of real estate, but are also available for general working-capital purposes.

Notes payable consist of secured mortgage loans and unsecured public debt. Mortgage loans may be prepaid, but could be subject to yield maintenance premiums. Mortgage loans are generally due in monthly installments of principal and interest, and mature over various terms through 2018, whereas, interest on unsecured pubic debt is payable semi-annually and the debt matures over various terms through 2017. We intend to repay mortgage loans at maturity with proceeds from the Unsecured credit facilities. Fixed interest rates on mortgage notes payable range from 5.22% to 8.95% and average 6.32%. We have one variable rate mortgage loan with an interest rate equal to LIBOR plus 100 basis points that matures in 2009.

At December 31, 2008, 85.8% of our total debt had fixed interest rates, compared with 89.4% at December 31, 2007. We intend to limit the percentage of variable interest rate debt to be no more than 30% of total debt, which we believe to be an acceptable risk. Currently, our variable rate debt represents

 

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14.2% of our total debt. Based upon the variable interest rate debt outstanding at December 31, 2008, if variable interest rates were to increase by 1%, our annual interest expense would increase by $3.0 million.

The carrying value of our variable rate notes payable and the Unsecured credit facilities are based upon a spread above LIBOR which is lower than the spreads available in the current credit market, causing the fair value of such variable rate debt to be below its carrying value. The fair value of fixed rate loans are estimated using cash flows discounted at current market rates available to us for debt with similar terms and maturities. Fixed rate loans assumed in connection with real estate acquisitions are recorded in the accompanying consolidated financial statements at fair value at the time of acquisition. Based on the estimates used, the fair value of notes payable and the Unsecured credit facilities is approximately $1.3 billion at December 31, 2008.

As of December 31, 2008, scheduled principal repayments on notes payable and the Unsecured credit facilities were as follows (in thousands):

 

Scheduled Principal Payments by Year:

   Scheduled
Principal
Payments
   Mortgage
Loan
Maturities
    Unsecured
Maturitiesa
    Total  

2009

     4,832    8,077     50,000     62,909  

2010

     4,880    17,043     160,000     181,923  

2011

     4,744    11,276     537,667     553,687  

2012

     5,027    —       250,000     255,027  

2013

     4,712    16,353     —       21,065  

Beyond 5 Years

     13,897    150,159     900,000     1,064,056  

Unamortized debt discounts, net

     —      (719 )   (2,377 )   (3,096 )
                         

Total

   $ 38,092    202,189     1,895,290     2,135,571  
                         

 

a

Includes unsecured public debt and Unsecured credit facilities

Our investments in real estate partnerships had notes payable of $2.8 billion at December 31, 2008, which mature through 2028, of which 94.0% had weighted average fixed interest rates of 5.4% and the remaining had variable interest rates based on LIBOR plus a spread in a range of 50 to 200 basis points. Our pro-rata share of these loans was $664.1 million. The loans are primarily non-recourse, but for those that are guaranteed by a joint venture, our liability does not extend beyond our ownership interest in the joint venture. As of December 31, 2008, scheduled principal repayments on notes payable held by our investments in real estate partnerships were as follows (in thousands):

 

Scheduled Principal Payments by Year:

   Scheduled
Principal
Payments
   Mortgage
Loan
Maturities
   Unsecured
Maturities
   Total    Regency’s
Pro-Rata
Share

2009

   $ 4,824    138,800    12,848    156,472    30,382

2010

     4,569    695,563    89,333    789,465    195,461

2011

     3,632    506,846    —      510,478    126,401

2012

     4,327    408,215    —      412,542    91,182

2013

     4,105    32,447    —      36,552    8,997

Beyond 5 Years

     29,875    849,714    —      879,589    210,174

Unamortized debt premiums, net

     —      7,352    —      7,352    1,462
                          

Total

   $ 51,332    2,638,937    102,181    2,792,450    664,059
                          

We are exposed to capital market risk such as changes in interest rates. In order to manage the volatility related to interest rate risk, we originate new debt with fixed interest rates, or we may enter into interest rate hedging arrangements. We do not utilize derivative financial instruments for trading or speculative purposes. We account for derivative instruments under Statement of Financial Accounting Standards (“SFAS”) No. 133, “Accounting for Derivative Instruments and Hedging Activities” as amended

 

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(“Statement 133”). On March 10, 2006, we entered into four forward-starting interest rate swaps totaling $396.7 million with fixed rates of 5.399%, 5.415%, 5.399%, and 5.415%. We designated these swaps as cash flow hedges to fix the rate on $400.0 million of new financing expected to occur in 2010 and 2011, and these proceeds will be used to repay maturing debt at that time. The change in fair value of these swaps from inception was a liability of $83.7 million at December 31, 2008. The valuation of these derivative instruments is determined using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves, foreign exchange rates, and implied volatilities. To comply with the provisions of SFAS No. 157, “Fair Value Measurements” (“Statement 157”) as amended by FASB Staff Position “Effective Date of FASB Statement No. 157” (“FSP FAS 157-2”), we incorporate credit valuation adjustments to appropriately reflect both our nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. Although we have determined that the majority of the inputs used to value our derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with our derivatives utilize Level 3 inputs, such as estimates of current credit spreads, to evaluate the likelihood of default by ourselves and our counterparties.

Equity Transactions

From time to time, we issue equity in the form of exchangeable operating partnership units or preferred units of RCLP, or in the form of common or preferred stock of Regency Centers Corporation as follows:

Preferred Units

We have issued Preferred Units through RCLP in various amounts since 1998, the net proceeds of which were used to reduce the balance of the Line. We issue Preferred Units primarily to institutional investors in private placements. Generally, the Preferred Units may be exchanged by the holders for Cumulative Redeemable Preferred Stock after a specified date at an exchange rate of one share for one unit. The Preferred Units and the related Preferred Stock are not convertible into our common stock. At December 31, 2008 and 2007, only the Series D Preferred Units were outstanding with a face value of $50.0 million and a fixed distribution rate of 7.45%. These Units may be called by us beginning September 29, 2009, and have no stated maturity or mandatory redemption. Included in the Series D Preferred Units are original issuance costs of $842,023 that will be expensed if they are redeemed in the future.

As of December 31, 2008 and 2007, we had 468,211 and 473,611 redeemable operating partnership units (“OP Units”) outstanding, respectively. The redemption value of the redeemable OP Units is based on the closing market price of Regency’s common stock, which was $46.70 per share as of December 31, 2008 and $64.49 per share as of December 31, 2007, aggregated $21.9 million and $30.5 million, respectively.

Preferred Stock

The Series 3, 4, and 5 preferred shares are perpetual, are not convertible into our common stock, and are redeemable at par upon our election beginning five years after the issuance date. None of the terms of the Preferred Stock contain any unconditional obligations that would require us to redeem the securities at any time or for any purpose. Terms and conditions of the three series of Preferred stock outstanding as of December 31, 2008 are summarized as follows:

 

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Series

   Shares
Outstanding
   Liquidation
Preference
   Distribution
Rate
    Callable
By Company

Series 3

   3,000,000    $ 75,000,000    7.45 %   04/03/08

Series 4

   5,000,000      125,000,000    7.25 %   08/31/09

Series 5

   3,000,000      75,000,000    6.70 %   08/02/10
                
   11,000,000    $ 275,000,000     
                

On January 1, 2008, we split each share of existing Series 3 and Series 4 Preferred Stock, each having a liquidation preference of $250 per share and a redemption price of $250 per share into ten shares of Series 3 and Series 4 Stock, respectively, each having a liquidation preference and a redemption price of $25 per share. We then exchanged each Series 3 and 4 Depositary Share into shares of New Series 3 and 4 Stock, respectively, which have the same dividend rights and other rights and preferences identical to the depositary shares.

Common Stock

At December 31, 2008, 75,634,881 common shares had been issued. The carrying value of the Common stock was $756,349 with a par value of $.01.

Critical Accounting Policies and Estimates

Knowledge about our accounting policies is necessary for a complete understanding of our financial results, and discussion 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, but not limited to, our judgments about historical results, current economic activity, and industry accounting standards. They 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.

Revenue Recognition and Tenant Receivables – Tenant receivables represent revenues recognized in our financial statements, and include base rent, percentage rent, and expense recoveries from tenants for common area maintenance costs, insurance and real estate taxes. We analyze tenant receivables, historical bad debt levels, customer credit-worthiness and current economic trends when evaluating the adequacy of our allowance for doubtful accounts. In addition, we analyze the accounts of tenants in bankruptcy, and we estimate the recovery of pre-petition and post-petition claims. Our reported net income is directly affected by our estimate of the recoverability of tenant receivables.

Recognition of Gains from the Sales of Real Estate – We account for profit recognition on sales of real estate in accordance with Statement 66. In summary, profits from sales of real estate are not recognized under the full accrual method by us unless a sale is consummated; the buyer’s initial and continuing investment is adequate to demonstrate a commitment to pay for the property; a receivable, if applicable, is not subject to future subordination; we have transferred to the buyer the usual risks and rewards of ownership; and we do not have substantial continuing involvement with the property.

We sell shopping center properties to joint ventures in exchange for cash equal to the fair value of the percentage interest owned by our partners. We have accounted for those sales as “partial sales” and recognized gains on those partial sales in the period the properties were sold to the extent of the percentage interest sold under the guidance of Statement 66, and in the case of certain partnerships, we apply a more restrictive method of recognizing gains, as discussed further below. The gains and operations are not recorded as discontinued operations because we continue to manage these shopping centers.

 

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Five of our joint ventures (“DIK-JV”) give either partner the unilateral right to elect to dissolve the partnership and, upon such an election, receive a distribution in-kind (“DIK”) of the assets of the partnership equal to their respective ownership interests. The liquidation procedures would require that all of the properties owned by the partnership be appraised to determine their respective and collective fair values. As a general rule, if we initiate the liquidation process, our partner has the right to choose the first property that it will receive in liquidation with the Company having the right to choose the next property that it will receive in liquidation; if our partner initiates the liquidation process, the order of the selection process is reversed. The process then continues with alternating selection of properties by each partner until the balance of each partner’s capital account on a fair value basis has been distributed. After the final selection, to the extent that the fair value of properties in the DIK-JV are not distributable in a manner that equals the balance of each partner’s capital account, a cash payment would be made by the partner receiving a fair value in excess of its capital account to the other partner. The partners may also elect to liquidate some or all of the properties through sales rather than through the DIK process.

We have concluded that these DIK dissolution provisions constitute in-substance call/put options under the guidance of Statement 66, and represent a form of continuing involvement with respect to property that we sold to these partnerships, limiting our recognition of gain related to the partial sale. To the extent that the DIK-JV owns more than one property and we are unable to obtain all of the properties we sold to the DIK-JV in liquidation, we apply a more restrictive method of gain recognition (“Restricted Gain Method”) which considers our potential ability to receive property through a DIK on which partial gain has been recognized, and ensures, as discussed below, maximum gain deferral upon sale to a DIK-JV. We have applied the Restricted Gain Method to partial sales of property to partnerships that contain such unilateral DIK provisions.

Under current guidance, (Statement 66, paragraph 25), profit shall be recognized by a method determined by the nature and extent of the seller’s continuing involvement and the profit recognized shall be reduced by the maximum exposure to loss. We have concluded that the Restricted Gain Method accomplishes this objective.

Under the Restricted Gain Method, for purposes of gain deferral, we consider the aggregate pool of properties sold into the DIK-JV as well as the aggregate pool of properties which will be distributed in the DIK process. As a result, upon the sale of properties to a DIK-JV, we perform a hypothetical DIK liquidation assuming that we would choose only those properties that we have sold to the DIK-JV in an amount equivalent to our capital account. For purposes of calculating the gain to be deferred, the Company assumes that it will select properties upon a DIK liquidation that generated the highest gain to the Company when originally sold to the DIK-JV and includes for such determination the fair value in properties that could be received in excess of its capital account. The DIK deferred gain is calculated whenever a property is sold to the DIK-JV by us. During the years when there are no property sales, the DIK deferred gain is not recalculated.

Because the contingency associated with the possibility of receiving a particular property back upon liquidation, which forms the basis of the Restricted Gain Method, is not satisfied at the property level, but at the aggregate level, no gain or loss is recognized on property sold by the DIK-JV to a third party or received by the Company upon actual dissolution. Instead, the property received upon actual dissolution is recorded at the Company’s historical cost investment in the DIK-JV, reduced by the deferred gain.

Capitalization of Costs – We capitalize the acquisition of land, the construction of buildings and other specifically identifiable development costs incurred by recording them into properties in development in our accompanying Consolidated Balance Sheets and account for them in accordance with SFAS No. 67, “Accounting for Costs and Initial Rental Operations of Real Estate Projects” (“Statement 67”) and EITF 97-11, “Accounting for Internal Costs Relating to Real Estate Property Acquisitions” (“EITF 97-11”). In summary, Statement 67 establishes that a rental project changes from non-operating to operating when it is substantially completed and held available for occupancy. At that time, costs should no longer be capitalized. Other development costs include pre-development costs essential to the development of the property, as well as, interest, real estate taxes, and direct employee

 

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costs incurred during the development period. Pre-development costs are incurred prior to land acquisition during the due diligence phase and include contract deposits, legal, engineering and other professional fees related to evaluating the feasibility of developing a shopping center. At December 31, 2008 we had $7.7 million of capitalized pre-development costs of which $3.0 million represented refundable contract deposits. If we determine that the development of a specific project undergoing due diligence is no longer probable, we immediately expense all related capitalized pre-development costs not considered recoverable. During 2008 and 2007, we expensed pre-development costs of $15.5 million and $5.3 million, respectively, recorded in other expenses in the accompanying Consolidated Statements of Operations. As a result of the economic downturn primarily during the month of December 2008, we evaluated our pre-development costs and determined that certain projects were no longer likely to be executed; therefore, we expensed those costs resulting in significantly higher expensed amounts in 2008 than in 2007. In accordance with SFAS No. 34, “Capitalization of Interest Cost” (“Statement 34”), interest costs are capitalized into each development project based on applying our weighted average borrowing rate to that portion of the actual development costs expended. We cease interest cost capitalization when the property is no longer being developed or is available for occupancy upon substantial completion of tenant improvements, but in no event would we capitalize interest on the project beyond 12 months after substantial completion of the building shell. During 2008 we capitalized interest of $36.5 million on our development projects. We have a large staff of employees (the “Investment Group”) who support our development program. All direct internal costs attributable to these development activities are capitalized as part of each development project. During 2008 and 2007, we capitalized $27.8 million and $39.0 million, respectively, of direct costs incurred by the Investment Group. The capitalization of costs is directly related to the actual level of development activity occurring. As a result of the current economic downturn, development activity slowed during 2008 resulting in a reduction in capitalized costs which increased general and administrative expenses. Also, if accounting standards issued in the future were to limit the amount of internal costs that may be capitalized we could incur a significant increase in our operating expenses and a reduction in net income.

Real Estate Acquisitions - Upon acquisition of operating real estate properties, we estimate the fair value of acquired tangible assets (consisting of land, building and improvements), and identified intangible assets and liabilities (consisting of above- and below-market leases, in-place leases and tenant relationships) and assumed debt in accordance with SFAS No. 141, “Business Combinations” (“Statement 141”). Based on these estimates, we allocate the purchase price to the applicable assets acquired and liabilities assumed. We utilize methods similar to those used by independent appraisers in estimating the fair value of acquired assets and liabilities. We evaluate the useful lives of amortizable intangible assets each reporting period and account for any changes in estimated useful lives over the revised remaining useful life.

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 to determine whether impairment exists and if so, to what extent. Depending on the asset, we use varying methods to determine fair value of the asset. If we determine that the carrying amount of a property is not recoverable and exceeds its fair value, we will write down the asset to fair value. For properties to be “held and used” for long term investment we estimate undiscounted future cash flows over the expected investment term including the estimated future value of the asset upon sale at the end of the investment period. Future value is generally determined by applying a market-based capitalization rate to the estimated future net operating income in the final year of the expected investment term. If after applying this method a property is determined to be impaired, we determine the provision for impairment based upon applying a market capitalization rate to current estimated net operating income as if the sale were to occur immediately. For properties “held for sale”, we estimate current resale values by market through appraisal information and other market data less expected costs to sell. In accordance with Accounting Principles Board Opinion No. 18 “The Equity Method of Accounting for Investments in Common Stock” (“APB 18”), a loss in value of an investment under the equity method of accounting, which is other than a temporary decline, must be recognized. In the case of our investments in unconsolidated real estate partnerships, we calculate the present value of our

 

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investment by discounting estimated future cash flows over the expected term of investment. These methods of determining fair value can fluctuate 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. The significant economic downturn that began during the fourth quarter of 2008 and the corresponding rise in capitalization rates caused us to evaluate our properties for impairment including our investments in unconsolidated real estate partnerships. As a result of our analysis, we recorded an additional $33.1 million provision for impairment during the three months ended December 31, 2008 in addition to the $1.8 million recorded through September 30, 2008. In summary, during the year we recorded $20.6 million related to eight shopping centers, $7.2 million related to several land parcels, $6.0 million related to our investment in two partnerships, and $1.1 million related to a note receivable. If capitalization rates continue to rise in the future, or if a property categorized as “held and used” were changed to “held for sale”, we could record additional impairments in subsequent periods.

Discontinued Operations – The application of current accounting principles that govern the classification of any of our properties as held-for-sale on the balance sheet, or the presentation of results of operations and gains on the sale of these properties as discontinued, requires management to make certain significant judgments. In evaluating whether a property meets the criteria set forth by SFAS No. 144 “Accounting for the Impairment and Disposal of Long-Lived Assets” (“Statement 144”), we make a determination as to the point in time whether it is probable that a sale will be consummated. Given the nature of real estate sales contracts, it is not unusual for such contracts to allow potential buyers a period of time to evaluate the property prior to formal acceptance of the contract. In addition, certain other matters critical to the final sale, such as financing arrangements often remain pending even upon contract acceptance. As a result, properties under contract may not close within the expected time period, or may not close at all. Therefore, any properties categorized as held-for-sale represent only those properties that management has determined are probable to close within the requirements set forth in Statement 144. In order to determine if the results of operations and gain on sale should be reflected as discontinued operations, prior to the sale, we evaluate the extent of involvement and significance of cash flows the sale will have with a property after the sale. Consistent with Statement 144, any property sold in which we have significant continuing involvement or cash flows (most often sales to co-investment partnerships in which we continue to manage the property) is not considered to be discontinued. In addition, any property which we sell to an unrelated third party, but which we retain a property management function, is not considered discontinued. Therefore, based on our evaluation of Statement 144 and in accordance with EITF 03-13 “Applying the Conditions in Paragraph 42 of FASB Statement No. 144 in Determining Whether to Report Discontinued Operations” (“EITF 03-13”), only properties sold, or to be sold, to unrelated third parties, where we will have no significant continuing involvement or significant cash flows are classified as discontinued. In accordance with EITF 87-24 “Allocation of Interest to Discontinued Operations” (“EITF 87-24”), its operations, including any mortgage interest and gain on sale, are reported in discontinued operations so that the operations are clearly distinguished. Prior periods are also reclassified to reflect the operations of these properties as discontinued operations. When we sell operating properties to our joint ventures or to third parties, and will have continuing involvement, the operations and gains on sales are included in income from continuing operations.

Investments in Real Estate Partnerships – In addition to owning real estate directly, we invest in real estate through our co-investment partnerships. Joint venturing provides us with a capital source to acquire real estate, and to earn our pro-rata share of the net income or loss from the co-investment partnerships in addition to fees for services. As asset and property manager, we conduct the business of the Unconsolidated Properties held in the co-investment partnerships in the same way that we conduct the business of the Consolidated Properties that are wholly-owned; therefore, the Critical Accounting Policies as described are also applicable to our investments in the co-investment partnerships. We account for all investments in which we do not have a controlling financial ownership interest using the equity method. We have determined that these investments are not variable interest entities as defined in FIN 46(R) and do not require consolidation under EITF 04-5 or SOP 78-9, and therefore, are subject to the voting interest model in determining our basis of accounting. Decisions, including property acquisitions and dispositions, financings, certain leasing arrangements, annual budgets and dissolution of the ventures are subject to the approval of all partners, or in the case of the Fund, its advisory committee.

 

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Income Tax Status - The prevailing assumption underlying the operation of our business is that we will continue to operate in order to qualify as a REIT, as defined under the Internal Revenue Code (the “Code”). We are required to meet certain income and asset tests on a periodic basis to ensure that 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. We evaluate the transactions that we enter into and determine their impact 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 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, however, we reassess such positions at each reporting period.

Recent Accounting Pronouncements

In April 2008, the FASB issued FASB Staff Position (FSP) No. FAS 142-3 “Determination of the Useful Life of Intangible Assets” (“FAS 142-3”). This FSP amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under Statement 142. The intent of this FSP is to improve the consistency between the useful life of a recognized intangible asset under Statement 142 and the period of expected cash flows used to measure the fair value of the asset under FASB Statement No. 141R, and other U.S. generally accepted accounting principles. This FSP is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. Early adoption is prohibited. The impact of adopting this statement is not considered to be material.

In March 2008, the FASB issued SFAS No. 161 “Disclosures about Derivative Instruments and Hedging Activities” (“Statement 161”). This Statement amends Statement 133 and changes the disclosure requirements for derivative instruments and hedging activities. Entities are required to provide enhanced disclosures about (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under Statement 133 and its related interpretations, and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. This Statement is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. This Statement encourages, but does not require, comparative disclosures for earlier periods at initial adoption. We are currently evaluating the impact of adopting this statement although the impact is not considered to be material as only further disclosure is required.

In February 2008, the FASB amended Statement 157 with FSP FAS 157-2 “Effective Date of FASB Statement No. 157” (FSP FAS 157-2) to delay the effective date of Statement 157 for nonfinancial assets and nonfinancial liabilities to be effective for financial statements issued for fiscal years beginning after November 15, 2008. We do not believe the adoption of FSP FAS 157-2 for our nonfinancial assets and liabilities will have a material impact on our financial statements.

In December 2007, the FASB issued SFAS No. 160 “Noncontrolling Interests in Consolidated Financial Statements” (“Statement 160”). This Statement, among other things, establishes accounting and reporting standards for a parent company’s ownership interest in a subsidiary (previously referred to as a minority interest). This Statement is effective for financial statements issued for fiscal years beginning on or after December 15, 2008 with early adoption prohibited. Once adopted, we will report minority interest as a component of equity in our Consolidated Balance Sheets.

In December 2007, the FASB issued SFAS No. 141(R) “Business Combinations” (“Statement 141(R)”). This Statement, among other things, establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree. This Statement also establishes disclosure requirements of the acquirer to enable users of the financial statements to evaluate the effect of the business combination. This Statement is effective for financial statements issued for fiscal years beginning on or after December 15, 2008 and early adoption is prohibited. The impact on our financial

 

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statements and the financial statements of our co-investment partnerships will be reflected at the time of any acquisition after the implementation date that meets the requirements above.

Results from Operations – 2008 vs. 2007

Comparison of the years ended December 31, 2008 to 2007:

At December 31, 2008, on a Combined Basis, we were operating or developing 440 shopping centers, as compared to 451 shopping centers at December 31, 2007. We identify our shopping centers as either properties in development or operating properties. Properties in development are defined as properties that are in the construction or initial lease-up process and have not reached their initial full occupancy (reaching full occupancy generally means achieving at least 95% leased and rent paying on newly constructed or renovated GLA). At December 31, 2008, on a Combined Basis, we were developing 45 properties, as compared to 49 properties at December 31, 2007.

Our revenues increased by $56.8 million, or 13.0% to $493.4 million in 2008 as summarized in the following table (in thousands):

 

     2008    2007    Change  

Minimum rent

   $ 334,332    308,720    25,612  

Percentage rent

     4,260    4,661    (401 )

Recoveries from tenants and other income

     98,797    90,137    8,660  

Management, acquisition, and other fees

     56,032    33,064    22,968  
                  

Total revenues

   $ 493,421    436,582    56,839  
                  

The increase in revenues was primarily related to higher minimum rent from (i) growth in rental rates from the renewal of expiring leases or re-leasing vacant space in the operating properties, (ii) minimum rent generated from shopping center acquisitions in 2007, and (iii) recently completed shopping center developments commencing operations in the current year. In addition to collecting minimum rent from our tenants, we also collect percentage rent based upon their sales volumes. Recoveries from tenants represent reimbursements from tenants for their pro-rata share of the operating, maintenance, and real estate tax expenses that we incur to operate our shopping centers. Recoveries increased as a result of an increase in our operating expenses.

We earn fees, at market-based rates, for asset management, property management, leasing, acquisition, and financing services that we provide to our co-investment partnerships and third parties summarized as follows (in thousands):

 

     2008    2007    Change  

Asset management fees

   $ 11,673    11,021    652  

Property management fees

     16,132    13,865    2,267  

Leasing commissions

     2,363    2,319    44  

Acquisition and financing fees

     5,455    5,055    400  

Portfolio Incentive Return Fee

     19,700    —      19,700  

Other third party fees

     709    804    (95 )
                  
   $ 56,032    33,064    22,968  
                  

The increase in management, acquisition, and other fees is primarily related to the recognition of a $19.7 million Portfolio Incentive Return fee in December 2008. The fee was earned by the Company based upon Columbia outperforming the NCREIF index since the inception of the partnership and a cumulative hurdle rate outlined in the partnership agreement. Asset and property management fees increased during 2008 as a result of providing those management services to MCWR-DESCO, a joint venture formed in 2007.

Our operating expenses increased by $29.2 million, or 11.8%, to $277.1 million in 2008 related to increased operating and maintenance costs and depreciation expense as further described below. The

 

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following table summarizes our operating expenses (in thousands):

 

     2008    2007    Change  

Operating, maintenance and real estate taxes

   $ 108,006    97,635    10,371  

Depreciation and amortization

     104,739    89,539    15,200  

General and administrative

     49,495    50,580    (1,085 )

Other expenses, net

     14,824    10,081    4,743  
                  

Total operating expenses

   $ 277,064    247,835    29,229  
                  

The increase in depreciation and amortization expense is primarily related to acquisitions in 2007 and recently completed developments commencing operations in the current year. The increase in operating, maintenance, and real estate taxes was primarily due to acquisitions in 2007, recently completed developments commencing operations in the current year, and to general increases in expenses incurred by the operating properties. On average, approximately 79% of these costs are recovered from our tenants through recoveries included in our revenues. General and administrative expense declined as a result of reducing incentive compensation directly tied to performance targets associated with reductions in new development and reduced earnings metrics, both of which have been directly impacted by the current economic downturn. During 2008, we also recorded restructuring charges of $2.4 million for employee severance and benefits related to employee reductions across various functional areas in general and administrative expense. The increase in other expenses is related to expensing more pre-development costs in 2008 than in 2007 directly related to a slowing development program in the current economic environment.

The following table presents the change in interest expense from 2008 to 2007 (in thousands):

 

     2008     2007     Change  

Interest on Unsecured credit facilities

   $ 12,655     10,117     2,538  

Interest on notes payable

     121,335     110,775     10,560  

Capitalized interest

     (36,510 )   (35,424 )   (1,086 )

Interest income

     (4,696 )   (3,079 )   (1,617 )
                    
   $ 92,784     82,389     10,395  
                    

Interest on Unsecured credit facilities increased during 2008 by $2.5 million due to the increase in the outstanding balance under the Unsecured credit facilities. Interest expense on notes payable increased during 2008 by $10.6 million due to higher outstanding debt balances including the issuance of $400.0 million of unsecured debt in September 2007, the acquisition of shopping centers in 2007, and the mortgage debt placed on a consolidated joint venture in 2008. The higher development project costs also resulted in an increase in capitalized interest.

Gains on sale of real estate included in continuing operations were $20.3 million in 2008 as compared to $52.2 million in 2007. Included in 2008 gains are a $5.3 million gain from the sale of 12 out-parcels for net proceeds of $38.2 million, a $1.2 million gain recognized on two out-parcels originally deferred at the time of sale, and a $13.8 million gain (net of the greater of our ownership interest or the gain deferral under the Restricted Gain Method described in our Critical Accounting Policies) from the sale of four properties in development to joint ventures for net proceeds of $110.5 million. Included in 2007 gains are a $7.2 million gain from the sale of 27 out-parcels for net proceeds of $55.9 million, a $40.9 million gain from the sale of five properties in development to the Fund for net proceeds of $102.8 million, a $2.2 million gain related to the partial sale of our interest in the Fund, and a $1.9 million gain from our share of a contractual earn out payment related to a property previously sold to a joint venture. There were no property sales to DIK-JV’s in 2007.

During 2008, we established a provision for impairment of approximately $34.9 million as described above in our Critical Accounting Policies under Valuations of Real Estate. Included in the

 

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provision is $27.8 million for estimated impairment losses on eight operating properties, one large parcel of land held for future development, along with several smaller land out-parcels; $6.0 million on two of our investments in real estate partnerships; and $1.1 million related to a note receivable.

Our equity in income (loss) of investments in real estate partnerships decreased $12.8 million during 2008 as follows (in thousands):

 

     Ownership     2008     2007     Change  

Macquarie CountryWide-Regency (MCWR I)

   25.00 %   $ 488     9,871     (9,383 )

Macquarie CountryWide Direct (MCWR I)

   25.00 %     697     457     240  

Macquarie CountryWide-Regency II (MCWR II)

   24.95 %     (672 )   (3,236 )   2,564  

Macquarie CountryWide-Regency III (MCWR III)

   24.95 %     203     67     136  

Macquarie CountryWide-Regency-DESCO (MCWR-DESCO)

   16.35 %     (823 )   (465 )   (358 )

Columbia Regency Retail Partners (Columbia)

   20.00 %     2,105     2,440     (335 )

Columbia Regency Partners II (Columbia II)

   20.00 %     169     189     (20 )

Cameron Village LLC (Cameron)

   30.00 %     (65 )   (74 )   9  

RegCal, LLC (RegCal)

   25.00 %     1,678     662     1,016  

Regency Retail Partners (the Fund)

   20.00 %     (233 )   326     (559 )

Other investments in real estate partnerships

   50.00 %     1,745     7,856     (6,111 )
                      

Total

     $ 5,292     18,093     (12,801 )
                      

The decrease in our equity in income (loss) of investments in real estate partnerships is primarily related to higher gains recorded in 2007 from the sale of shopping centers sold by MCWR I, as well as, the sale of a shopping center owned by a joint venture classified above in other investments in real estate partnerships.

Income from discontinued operations was $27.0 million for the year ended December 31, 2008 related to the sale of seven properties in development and three operating properties sold to unrelated parties for net proceeds of $86.2 million, including the operations of shopping centers sold or classified as held-for-sale in 2008. Income from discontinued operations was $33.1 million for the year ended December 31, 2007 related to the sale of four properties in development and three operating properties to unrelated parties for net proceeds of $112.3 million and including the operations of shopping centers sold or classified as held-for-sale in 2008 and 2007. In compliance with Statement 144, if we sell a property or classify a property as held-for-sale, we are required to reclassify its operations into discontinued operations for all prior periods which results in a reclassification of amounts previously reported as continuing operations into discontinued operations. Our income from discontinued operations is shown net of minority interest of exchangeable operating partnership units of approximately $180,000 and $268,000 for the years ended December 31, 2008 and 2007, respectively and income taxes of $2.0 million for the year ended December 31, 2007.

Net income for common stockholders for the year ended decreased $67.5 million to $116.5 million in 2008 as compared with $184.0 million in 2007 primarily related to lower gains recognized from the sale of real estate and the provision for impairment recorded in 2008 as discussed previously. Diluted earnings per share was $1.66 in 2008 as compared to $2.65 in 2007 or 37.4% lower.

Results from Operations – 2007 vs. 2006

Comparison of the years ended December 31, 2007 to 2006:

Our revenues increased by $32.5 million, or 8.1% to $436.6 million in 2007 as summarized in the following table (in thousands):

 

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     2007    2006    Change

Minimum rent

   $ 308,720    284,751    23,969

Percentage rent

     4,661    4,430    231

Recoveries from tenants and other income

     90,137    83,048    7,089

Management, acquisition, and other fees

     33,064    31,805    1,259
                

Total revenues

   $ 436,582    404,034    32,548
                

The increase in revenues was primarily related to higher minimum rent from (i) growth in rental rates from the renewal of expiring leases or re-leasing vacant space in the operating properties, (ii) minimum rent generated from shopping center acquisitions, and (iii) recently completed shopping center developments commencing operations in the current year. In addition to collecting minimum rent from our tenants, we also collect percentage rent based upon their sales volumes. Recoveries increased as a result of an increase in our operating expenses

We earn fees, at market-based rates, for asset management, property management, leasing, acquisition and financing services that we provide to our co-investment partnerships and third parties summarized as follows (in thousands):

 

     2007    2006    Change  

Asset management fees

   $ 11,021    5,977    5,044  

Property management fees

     13,865    11,041    2,824  

Leasing commissions

     2,319    2,210    109  

Acquisition and financing fees

     5,055    11,683    (6,628 )

Other third party fees

     804    894    (90 )
                  
   $ 33,064    31,805    1,259  
                  

Asset management fees were higher in 2007 because the agreement to provide asset management services to MCWR II did not commence until December 2006; and the closing and related commencement of the agreements with the Fund did not occur until December 2006. Property management fees increased in 2007 as a result of providing property management services to MCWR-DESCO and the Fund. Acquisition and financing fees earned in 2007 include a $3.2 million acquisition fee from MCWR-DESCO related to the acquisition of 32 retail centers described above. Acquisition and financing fees earned in 2006 include fees earned as part of the acquisition of the First Washington portfolio by MCWR II.

Our operating expenses increased by $16.0 million, or 6.9%, to $247.8 million in 2007 related to increased operating and maintenance costs, general and administrative costs, and depreciation expense, as further described below. The following table summarizes our operating expenses (in thousands):

 

     2007    2006    Change  

Operating, maintenance and real estate taxes

   $ 97,635    89,406    8,229  

Depreciation and amortization

     89,539    81,028    8,511  

General and administrative

     50,580    45,495    5,085  

Other expenses, net

     10,081    15,928    (5,847 )
                  

Total operating expenses

   $ 247,835    231,857    15,978  
                  

The increase in operating, maintenance, and real estate taxes was primarily due to acquisitions and completed developments commencing operations in 2007, and to general increases in expenses incurred by the operating properties. On average, approximately 79% of these costs are recovered from our tenants through recoveries included in our revenues. The increase in general and administrative expense was related to annual salary increases and higher costs associated with incentive compensation, in addition to, increased staffing and recruiting costs to manage the growth in our shopping center development program. The increase in depreciation and amortization expense was

 

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primarily related to acquisitions and recently completed developments commencing operations in 2007, net of properties sold. The decrease in other expenses was related to lower income tax expense incurred by Regency Realty Group, Inc. (“RRG”), our taxable REIT subsidiary. RRG is subject to federal and state income taxes and files separate tax returns.

The following table presents the change in interest expense from 2007 to 2006 (in thousands):

 

     2007     2006     Change  

Interest on Unsecured credit facilities

   $ 10,117     7,557     2,560  

Interest on notes payable

     110,775     99,975     10,800  

Capitalized interest

     (35,424 )   (23,952 )   (11,472 )

Interest income

     (3,079 )   (4,232 )   1,153  
                    
   $ 82,389     79,348     3,041  
                    

Interest expense on the Unsecured credit facilities and notes payable increased during 2007 by $13.4 million due to higher outstanding debt balances including the issuance of $400.0 million of unsecured debt in June 2007, increased development activity and the acquisition of shopping centers. The higher development project costs also resulted in an increase in capitalized interest.

Gains from the sale of real estate included in continuing operations were $52.2 million in 2007 as compared to $65.6 million in 2006. Included in 2007 gains are a $7.2 million gain from the sale of 27 out-parcels for net proceeds of $55.9 million, a $40.9 million gain from the sale of five properties in development to the Fund for net proceeds of $102.8 million, a $2.2 million gain related to the partial sale of our ownership interest in the Fund, and a $1.9 million gain from our share of a contractual earn out payment related to a property previously sold to a joint venture. Included in 2006 gains are a $20.2 million gain from the sale of 30 out-parcels for net proceeds of $53.5 million, a $35.9 million gain from the sale of six shopping centers to co-investment partnerships for net proceeds of $122.7 million; as well as a $9.5 million gain related to the partial sale of our ownership interest in MCWR II. There were no sales to DIK-JV’s in 2007 or 2006.

Our equity in income (loss) of investments in real estate partnerships increased approximately $15.5 million during 2007 as follows (in thousands):

 

     Ownership     2007     2006     Change  

Macquarie CountryWide-Regency (MCWR I)

   25.00 %   $ 9,871     4,747     5,124  

Macquarie CountryWide Direct (MCWR I)

   25.00 %     457     615     (158 )

Macquarie CountryWide-Regency II (MCWR II)

   24.95 %     (3,236 )   (7,005 )   3,769  

Macquarie CountryWide-Regency III (MCWR III)

   24.95 %     67     (38 )   105  

Macquarie CountryWide-Regency-DESCO (MCWR-DESCO)

   16.35 %     (465 )   —       (465 )

Columbia Regency Retail Partners (Columbia)

   20.00 %     2,440     2,350     90  

Columbia Regency Partners II (Columbia II)

   20.00 %     189     62     127  

Cameron Village LLC (Cameron)

   30.00 %     (74 )   (119 )   45  

RegCal, LLC (RegCal)

   25.00 %     662     517     145  

Regency Retail Partners (the Fund)

   20.00 %     326     7     319  

Other investments in real estate partnerships

   50.00 %     7,856     1,444     6,412  
                      

Total

     $ 18,093     2,580     15,513  
                      

The increase in our equity in income (loss) of investments in real estate partnerships is primarily related to growth in rental income generally realized in all of the joint venture portfolios and higher gains from the sale of shopping centers sold by MCWR I, as well as, the sale of a shopping center owned by a joint venture classified above in Other investments.

Income from discontinued operations was $33.1 million for the year ended December 31, 2007 related to the sale of four development properties and three operating properties to unrelated parties for

 

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net proceeds of $112.3 million, and including the operations of shopping centers sold or classified as held-for-sale in 2008 and 2007. Income from discontinued operations was $68.1 million for the year ended December 31, 2006 related to the sale of three development properties and eight operating properties to unrelated parties for net proceeds of $149.6 million, and including the operations of shopping centers sold or classified as held-for-sale in 2008, 2007, and 2006. In compliance with Statement 144, if we sell an asset in the current year, we are required to reclassify its operations into discontinued operations for all prior periods. This practice results in a reclassification of amounts previously reported as continuing operations into discontinued operations. Our income from discontinued operations is shown net of minority interest of exchangeable operating partnership units totaling approximately $268,000 and $896,000 for the years ended December 31, 2007 and 2006, respectively, and income taxes totaling $2.0 million for the year ended December 31, 2007.

Net income for common stockholders decreased $14.8 million to $184.0 million in 2007 as compared with $198.8 million in 2006 primarily related to lower gains recognized from the sale of 15 properties as compared to 22 in 2006. Diluted earnings per share was $2.65 in 2007 as compared to $2.89 in 2006 or 8.3% lower.

Environmental Matters

We are subject to numerous environmental laws and regulations as they apply to our shopping centers pertaining to chemicals used by the dry cleaning industry, the existence of asbestos in older shopping centers, and underground petroleum storage tanks. We believe that the tenants who currently operate dry cleaning plants or gas stations do so in accordance with current laws and regulations. Generally, we use all legal means to cause tenants to remove dry cleaning plants from our shopping centers or convert them to non-chlorinated solvent systems. Where available, we have applied and been accepted into state-sponsored environmental programs. We have a blanket environmental insurance policy that covers us against third-party liabilities and remediation costs on shopping centers that currently have no known environmental contamination. We have also placed environmental insurance, where possible, on specific properties with known contamination, in order to mitigate our environmental risk. We monitor the shopping centers containing environmental issues and in certain cases voluntarily remediate the sites. We also have legal obligations to remediate certain sites and we are in the process of doing so. We estimate the cost associated with these legal obligations to be approximately $3.2 million, all of which has been reserved. We believe that the ultimate disposition of currently known environmental matters will not have a material effect on our financial position, liquidity, or operations; however, we can give no assurance that existing environmental studies with respect to our shopping centers have revealed all potential environmental liabilities; that any previous owner, occupant or tenant did not create any material environmental condition not known to us; that the current environmental condition of the shopping centers will not be affected by tenants and occupants, by the condition of nearby properties, or by unrelated third parties; or that changes in applicable environmental laws and regulations or their interpretation will not result in additional environmental liability to us.

Inflation

Inflation has been historically low and has had a minimal impact on the operating performance of our shopping centers; however, more recent data suggests inflation has been increasing and may become a greater concern in the current economy. 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 rent 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 ten years, which permits us to seek increased rents upon re-rental at market rates. Most of our leases require tenants to pay their pro-rata share of operating expenses, including common-area maintenance, real estate taxes, insurance and utilities, thereby reducing our exposure to increases in costs and operating expenses resulting from inflation.

 

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Item 7A. Quantitative and Qualitative Disclosures about Market Risk

Market Risk

We are exposed to two significant components of interest rate risk. Our Line has a variable interest rate that is based upon LIBOR plus a spread of 40 basis points and the term loan within our Term Facility has a variable interest rate based upon LIBOR plus a spread of 105 basis points. LIBOR rates charged on our Unsecured credit facilities change monthly. Based upon the current balance of our Unsecured credit facilities, a 1% increase in LIBOR would equate to an additional $3.0 million of interest costs per year. The spread on the Unsecured credit facilities is dependent upon maintaining specific credit ratings. If our credit ratings were downgraded, the spread on the Unsecured credit facilities would increase, resulting in higher interest costs. We are also exposed to higher interest rates when we refinance our existing long-term fixed rate debt. The objective of our interest rate risk management is to limit the impact of interest rate changes on earnings and cash flows and to lower our overall borrowing costs. To achieve these objectives, we borrow primarily at fixed interest rates and may enter into derivative financial instruments such as interest rate swaps, caps, or treasury locks in order to mitigate our interest rate risk on a related financial instrument. We do not enter into derivative or interest rate transactions for speculative purposes.

We have $428.3 million of fixed rate debt maturing in 2010 and 2011 that have a weighted average fixed interest rate of 8.07%, which includes $400.0 million of unsecured long-term debt. During 2006 we entered into four forward-starting interest rate swaps (the “Swaps”) totaling $396.7 million with fixed rates of 5.399%, 5.415%, 5.399%, and 5.415%. We designated these Swaps as cash flow hedges to fix the future interest rates on $400.0 million of the financing expected to occur in 2010 and 2011. As a result of a decline in 10 year Treasury interest rates since the inception of the Swaps, the fair value of the Swaps as of December 31, 2008 is reflected as a liability of $83.7 million in our accompanying consolidated balance sheet. It remains highly probable that the forecasted transactions will occur as projected at the inception of the Swaps and therefore, the change in fair value of the Swaps is reflected in accumulated other comprehensive income (loss) in the accompanying consolidated financial statements. To the extent that future 10-year Treasury rates (at the future settlement dates) are higher than current rates, this liability will decline. If a liability exists at the dates the Swaps are settled, the liability will be amortized over the term of the respective debt issuances as additional interest expense in addition to the stated interest rates on the new issuances. In the case of $196.7 million of the Swaps, we continue to expect to issue new secured or unsecured debt for a term of 7 to 12 years during the period between June 30, 2009 and June 30, 2010. In the case of $200.0 million of the Swaps, we continue to expect to issue new debt for a term of 7 to 12 years during the period between March 30, 2010 and March 30, 2011. We continuously monitor the capital markets and evaluate our ability to issue new debt to repay maturing debt or fund our commitments. Based upon the current capital markets, our current credit ratings, and the number of high quality, unencumbered properties that we own which could collateralize borrowings, we expect that we will successfully issue new secured or unsecured debt to fund our obligations. However, in the current environment, we expect interest rates on new issuances to be significantly higher than on historical issuances. An increase of 1.0% in the interest rate of new debt issues above that of maturing debt would result in additional annual interest expense of $4.3 million in addition to the impact of the annual amortization that would be incurred as a result of settling the Swaps.

Our 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) as of December 31, 2008, by year of expected maturity to evaluate the expected cash flows and sensitivity to interest rate changes. Although the average interest rate for variable rate debt is included in the table, those rates represent rates that existed at December 31, 2008 and are subject to change on a monthly basis.

The table incorporates only those exposures that exist as of December 31, 2008 and does not consider those exposures or positions that could arise after that date. Since firm commitments are not presented, the table has limited predictive value. As a result, our ultimate realized gain or loss with

 

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respect to interest rate fluctuations will depend on the exposures that arise during the period, our hedging strategies at that time, and actual interest rates.

 

     2009     2010     2011     2012     2013     Thereafter     Total    Fair Value

Fixed rate debt

   $ 57,780     181,923     256,020     255,027     21,065     1,064,056     1,835,871    1,043,017

Average interest rate for all fixed rate debt (a)

     6.36 %   6.14 %   5.81 %   5.59 %   5.56 %   5.65 %   —      —  

Variable rate LIBOR debt

   $ 5,129     —       297,667     —       —       —       302,796    285,920

Average interest rate for all variable rate debt (a)

     1.34 %   1.34 %   —       —       —       —       —      —  

 

(a)

Average interest rates at the end of each year presented.

The fair value of total debt in the table above is $1.3 billion versus the face value of $2.1 billion, which suggests that as new debt is issued in the future to repay maturing debt, the cost of new debt issuances will be higher than the current cost of existing debt.

 

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Item 8. Consolidated Financial Statements and Supplementary Data

Regency Centers Corporation

Index to Financial Statements

 

Regency Centers Corporation

  

Reports of Independent Registered Public Accounting Firm

   62

Consolidated Balance Sheets as of December 31, 2008 and 2007

   64

Consolidated Statements of Operations for the years ended December 31, 2008, 2007, and 2006

   65

Consolidated Statements of Stockholders’ Equity and Comprehensive Income (Loss) for the years ended December  31, 2008, 2007, and 2006

   66

Consolidated Statements of Cash Flows for the years ended December 31, 2008, 2007, and 2006

   67

Notes to Consolidated Financial Statements

   69

Financial Statement Schedule

  

Schedule III - Regency Centers Corporation Combined Real Estate and Accumulated Depreciation - December 31, 2008

   107

All other schedules are omitted because of the absence of conditions under which they are required, materiality or because information required therein is shown in the consolidated financial statements or notes thereto.

 

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Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders

Regency Centers Corporation:

We have audited the accompanying consolidated balance sheets of Regency Centers Corporation and subsidiaries as of December 31, 2008 and 2007, and the related consolidated statements of operations, stockholders’ equity and comprehensive income (loss), and cash flows for each of the years in the three-year period ended December 31, 2008. In connection with our audits of the consolidated financial statements, we also have audited financial statement Schedule III. These consolidated financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). 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 Corporation and subsidiaries as of December 31, 2008 and 2007, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2008, in conformity with U.S. generally accepted accounting principles. Also 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.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Regency Centers Corporation’s internal control over financial reporting as of December 31, 2008, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated March 17, 2009 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

 

/s/ KPMG LLP

March 17, 2009

Jacksonville, Florida

Certified Public Accountants

 

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Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders

Regency Centers Corporation:

We have audited Regency Centers Corporation’s internal control over financial reporting as of December 31, 2008, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Regency Centers Corporation’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, Regency Centers Corporation maintained, in all material respects, effective internal control over financial reporting as of December 31, 2008, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Regency Centers Corporation as of December 31, 2008 and 2007, and the related consolidated statements of operations, stockholders’ equity and comprehensive income (loss), and cash flows for each of the years in the three-year period ended December 31, 2008 and the related financial statement schedule, and our report dated March 17, 2009 expressed an unqualified opinion on those consolidated financial statements.

 

/s/ KPMG LLP

March 17, 2009

Jacksonville, Florida

Certified Public Accountants

 

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Index to Financial Statements

REGENCY CENTERS CORPORATION

Consolidated Balance Sheets

December 31, 2008 and 2007

(in thousands, except share data)

 

     2008     2007  
           (as restated)  

Assets

    

Real estate investments at cost (notes 3, 4, 5, and 15):

    

Land

   $ 923,062     968,859  

Buildings and improvements

     1,974,093     2,090,497  
              
     2,897,155     3,059,356  

Less: accumulated depreciation

     554,595     497,498  
              
     2,342,560     2,561,858  

Properties in development

     1,078,885     905,929  

Operating properties held for sale, net

     66,447     —    

Investments in real estate partnerships

     383,408     401,906  
              

Net real estate investments

     3,871,300     3,869,693  

Cash and cash equivalents

     21,533     18,668  

Notes receivable (note 6)

     31,438     44,543  

Tenant receivables, net of allowance for uncollectible accounts of $1,593 and $2,482 at December 31, 2008 and 2007, respectively

     84,096     75,441  

Other receivables (note 5)

     19,700     —    

Deferred costs, less accumulated amortization of $51,549 and $43,470 at December 31, 2008 and 2007, respectively

     57,477     52,784  

Acquired lease intangible assets, less accumulated amortization of $11,204

    

and $7,362 at December 31, 2008 and 2007, respectively (note 7)

     12,903     17,228  

Other assets

     43,928     36,416  
              

Total assets

   $ 4,142,375     4,114,773  
              

Liabilities, Minority Interests, and Stockholders’ Equity

    

Liabilities:

    

Notes payable (note 9)

   $ 1,837,904     1,799,975  

Unsecured credit facilities (note 9)

     297,667     208,000  

Accounts payable and other liabilities

     141,395     154,643  

Derivative instruments, at fair value (notes 10 and 11)

     83,691     9,836  

Acquired lease intangible liabilities, less accumulated accretion of $8,829 and $6,371 at December 31, 2008 and 2007, respectively (note 7)

     7,865     10,354  

Tenants’ security and escrow deposits

     11,571     11,436  
              

Total liabilities

     2,380,093     2,194,244  
              

Minority interests:

    

Preferred units (note 12)

     49,158     49,158  

Exchangeable operating partnership units, aggregate redemption value of $21,865 and $30,543 at December 31, 2008 and 2007, respectively (note 11)

     9,059     10,212  

Limited partners’ interest in consolidated partnerships

     7,980     18,392  
              

Total minority interests

     66,197     77,762  
              

Commitments and contingencies (notes 15 and 16)

    

Stockholders’ equity (notes 10, 12, 13, and 14):

    

Preferred stock, $.01 par value per share, 30,000,000 shares authorized; 11,000,000 Series 3-5 shares issued and outstanding at December 31, 2008 with liquidation preferences of $25 per share and 800,000 Series 3 and 4 shares and 3,000,000 Series 5 shares issued and outstanding at December 31, 2007 with liquidation preferences of $250 and $25 per share, respectively

     275,000     275,000  

Common stock $.01 par value per share, 150,000,000 shares authorized; 75,634,881 and 75,168,662 shares issued at December 31, 2008 and 2007, respectively

     756     752  

Treasury stock at cost, 5,598,211 and 5,530,025 shares held at December 31, 2008 and 2007, respectively

     (111,414 )   (111,414 )

Additional paid in capital

     1,778,265     1,766,280  

Accumulated other comprehensive loss

     (91,465 )   (18,916 )

Distributions in excess of net income

     (155,057 )   (68,935 )
              

Total stockholders’ equity

     1,696,085     1,842,767  
              

Total liabilities, minority interests, and stockholders’ equity

   $ 4,142,375     4,114,773  
              

See accompanying notes to consolidated financial statements.

 

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REGENCY CENTERS CORPORATION

Consolidated Statements of Operations

For the years ended December 31, 2008, 2007, and 2006

(in thousands, except per share data)

 

     2008     2007     2006  

Revenues:

      

Minimum rent (note 15)

   $ 334,332     308,720     284,751  

Percentage rent

     4,260     4,661     4,430  

Recoveries from tenants and other income

     98,797     90,137     83,048  

Management, acquisition, and other fees

     56,032     33,064     31,805  
                    

Total revenues

     493,421     436,582     404,034  
                    

Operating expenses:

      

Depreciation and amortization

     104,739     89,539     81,028  

Operating and maintenance

     59,368     54,232     49,022  

General and administrative

     49,495     50,580     45,495  

Real estate taxes

     48,638     43,403     40,384  

Other expenses

     14,824     10,081     15,928  
                    

Total operating expenses

     277,064     247,835     231,857  
                    

Other expense (income):

      

Interest expense, net of interest income of $4,696, $3,079 and $4,232 in 2008, 2007 and 2006, respectively

     92,784     82,389     79,348  

Gain on sale of operating properties and properties in development

     (20,346 )   (52,215 )   (65,600 )

Provision for impairment

     34,855     —       —    
                    

Total other expense (income)

     107,293     30,174     13,748  
                    

Income before minority interests and equity in income of investments in real estate partnerships

     109,064     158,573     158,429  

Minority interest of preferred units

     (3,725 )   (3,725 )   (3,725 )

Minority interest of exchangeable operating partnership units

     (726 )   (1,382 )   (1,980 )

Minority interest of limited partners

     (701 )   (990 )   (4,863 )

Equity in income of investments in real estate partnerships (note 5)

     5,292     18,093     2,580  
                    

Income from continuing operations

     109,204     170,569     150,441  

Discontinued operations, net (note 4):

      

Operating income from discontinued operations

     9,603     7,797     9,703  

Gain on sale of operating properties and properties in development

     17,381     25,285     58,367  
                    

Income from discontinued operations

     26,984     33,082     68,070  
                    

Net income

     136,188     203,651     218,511  

Preferred stock dividends

     (19,675 )   (19,675 )   (19,675 )
                    

Net income for common stockholders

   $ 116,513     183,976     198,836  
                    

Income per common share - basic (note 14):

      

Continuing operations

   $ 1.28     2.18     1.91  

Discontinued operations

     0.38     0.47     1.00  
                    

Net income for common stockholders per share

   $ 1.66     2.65     2.91  
                    

Income per common share - diluted (note 14):

      

Continuing operations

   $ 1.28     2.18     1.90  

Discontinued operations

     0.38     0.47     0.99  
                    

Net income for common stockholders per share

   $ 1.66     2.65     2.89  
                    

See accompanying notes to consolidated financial statements.

 

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REGENCY CENTERS CORPORATION

Consolidated Statements of Stockholders’ Equity and Comprehensive Income (Loss)

For the years ended December 31, 2008, 2007, and 2006

(in thousands, except per share data)

 

    Preferred
Stock
  Common
Stock
  Treasury
Stock
    Additional
Paid In
Capital
    Accumulated
Other
Comprehensive
Loss
    Distributions
in Excess of
Net Income
    Total
Stockholders’
Equity
 

Balance at December 31, 2005, as previously reported

  $ 275,000   733   (111,414 )   1,713,620     (11,692 )   (77,422 )   1,788,825  

Restatement adjustments (note 2)

    —     —     —       —       —       (27,619 )   (27,619 )
                                       

Balance at December 31, 2005, as restated

  $ 275,000   733   (111,414 )   1,713,620     (11,692 )   (105,041 )   1,761,206  

Comprehensive Income (note 10):

             

Net income

    —     —     —       —       —       218,511     218,511  

Amortization of loss on derivative instruments

    —     —     —       —       1,306     —       1,306  

Change in fair value of derivative instruments

    —     —     —       —       (2,931 )   —       (2,931 )
                 

Total comprehensive income

              216,886  

Restricted stock issued, net of amortization (note 13)

    —     3   —       16,581     —       —       16,584  

Common stock redeemed for taxes withheld for stock based compensation, net

    —     3   —       1,169     —       —       1,172  

Tax benefit for issuance of stock options

    —     —     —       1,624     —       —       1,624  

Common stock issued for partnership units exchanged

    —     5   —       21,490     —       —       21,495  

Reallocation of minority interest

    —     —     —       (10,283 )   —       —       (10,283 )

Cash dividends declared:

             

Preferred stock

    —     —     —       —       —       (19,675 )   (19,675 )

Common stock ($2.38 per share)

    —     —     —       —       —       (163,311 )   (163,311 )
                                       

Balance at December 31, 2006, as restated

  $ 275,000   744   (111,414 )   1,744,201     (13,317 )   (69,516 )   1,825,698  

Comprehensive Income (note 10):

             

Net income

    —     —     —       —       —       203,651     203,651  

Amortization of loss on derivative instruments

    —     —     —       —       1,306     —       1,306  

Change in fair value of derivative instruments

    —     —     —       —       (6,905 )   —       (6,905 )
                 

Total comprehensive income

              198,052  

Restricted stock issued, net of amortization (note 13)

    —     2   —       17,723     —       —       17,725  

Common stock redeemed for taxes withheld for stock based compensation, net

    —     3   —       (3,738 )   —       —       (3,735 )

Tax benefit for issuance of stock options

    —     —     —       1,909     —       —       1,909  

Common stock issued for partnership units exchanged

    —     3   —       8,604     —       —       8,607  

Reallocation of minority interest

    —     —     —       (2,419 )   —       —       (2,419 )

Cash dividends declared:

             

Preferred stock

    —     —     —       —       —       (19,675 )   (19,675 )

Common stock ($2.64 per share)

    —     —     —       —       —       (183,395 )   (183,395 )
                                       

Balance at December 31, 2007, as restated

  $ 275,000   752   (111,414 )   1,766,280     (18,916 )   (68,935 )   1,842,767  

Comprehensive Income (note 10):

             

Net income

    —     —     —       —       —       136,188     136,188  

Amortization of loss on derivative instruments

    —     —     —       —       1,306     —       1,306  

Change in fair value of derivative instruments

    —     —     —       —       (73,855 )   —       (73,855 )
                 

Total comprehensive income

              63,639  

Restricted stock issued, net of amortization (note 13)

    —     3   —       8,190     —       —       8,193  

Common stock redeemed for taxes withheld for stock based compensation, net

    —     1   —       814     —       —       815  

Tax benefit for issuance of stock options

    —     —     —       2,285     —       —       2,285  

Common stock issued for partnership units exchanged

    —     —     —       232     —       —       232  

Reallocation of minority interest

    —     —     —       464     —       —       464  

Cash dividends declared:

             

Preferred stock

    —     —     —       —       —       (19,675 )   (19,675 )

Common stock ($2.90 per share)

    —     —     —       —       —       (202,635 )   (202,635 )
                                       

Balance at December 31, 2008

  $ 275,000   756   (111,414 )   1,778,265     (91,465 )   (155,057 )   1,696,085  
                                       

See accompanying notes to consolidated financial statements.

 

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REGENCY CENTERS CORPORATION

Consolidated Statements of Cash Flows

For the years ended December 31, 2008, 2007, and 2006

(in thousands)

 

     2008     2007     2006  

Cash flows from operating activities:

      

Net income

   $ 136,188     203,651     218,511  

Adjustments to reconcile net income to net cash provided by operating activities:

      

Depreciation and amortization

     107,846     93,508     87,413  

Deferred loan cost and debt premium amortization

     4,287     3,249     4,411  

Above and below market lease intangibles amortization and accretion

     (2,376 )   (1,926 )   (1,387 )

Stock-based compensation, net of capitalization

     5,950     11,572     11,096  

Minority interest of preferred units

     3,725     3,725     3,725  

Minority interest of exchangeable operating partnership units

     907     1,650     2,876  

Minority interest of limited partners

     701     990     4,863  

Equity in income of investments in real estate partnerships

     (5,292 )   (18,093 )   (2,580 )

Net gain on sale of properties

     (37,843 )   (79,627 )   (124,781 )

Provision for impairment

     34,855     —       500  

Distribution of earnings from operations of investments in real estate partnerships

     30,730     30,547     28,788  

Changes in assets and liabilities:

      

Tenant receivables

     (28,833 )   (10,040 )   (10,284 )

Deferred leasing costs

     (6,734 )   (8,126 )   (5,587 )

Other assets

     (12,839 )   (15,861 )   (3,508 )

Accounts payable and other liabilities

     (12,423 )   2,101     (2,638 )

Tenants’ security and escrow deposits

     320     847     241  
                    

Net cash provided by operating activities

     219,169     218,167     211,659  
                    

Cash flows from investing activities:

      

Acquisition of operating real estate

     —       (63,117 )   (19,337 )

Development of real estate including acquisition of land

     (388,783 )   (619,282 )   (399,680 )

Proceeds from sale of real estate investments

     274,417     270,981     455,972  

Collection of notes receivable

     28,287     545     14,770  

Investments in real estate partnerships

     (48,619 )   (42,660 )   (21,790 )

Distributions received from investments in real estate partnerships

     28,923     41,372     13,452  
                    

Net cash (used in) provided by investing activities

     (105,775 )   (412,161 )   43,387  
                    

Cash flows from financing activities:

      

Net proceeds from common stock issuance

     1,020     2,383     5,994  

Distributions to limited partners in consolidated partnerships, net

     (14,134 )   (4,632 )   (2,619 )

Distributions to exchangeable operating partnership unit holders

     (1,363 )   (1,572 )   (2,270 )

Distributions to preferred unit holders

     (3,725 )   (3,725 )   (3,725 )

Dividends paid to common stockholders

     (198,165 )   (179,325 )   (159,507 )

Dividends paid to preferred stockholders

     (19,675 )   (19,675 )   (19,675 )

Proceeds from issuance of fixed rate unsecured notes

     —       398,108     —    

Proceeds from (repayment of) unsecured credit facilities, net

     89,667     87,000     (41,000 )

Proceeds from notes payable

     62,500     —       —    

Repayment of notes payable

     (19,932 )   (89,719 )   (36,131 )

Scheduled principal payments

     (4,806 )   (4,545 )   (4,516 )

Payment of loan costs

     (1,916 )   (5,682 )   (9 )
                    

Net cash (used in) provided by financing activities

     (110,529 )   178,616     (263,458 )
                    

Net increase (decrease) in cash and cash equivalents

     2,865     (15,378 )   (8,412 )

Cash and cash equivalents at beginning of the year

     18,668     34,046     42,458  
                    

Cash and cash equivalents at end of the year

   $ 21,533     18,668     34,046  
                    

 

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REGENCY CENTERS CORPORATION

Consolidated Statements of Cash Flows

For the years ended December 31, 2008, 2007, and 2006

(in thousands)

 

     2008     2007     2006  

Supplemental disclosure of cash flow information:

      

Cash paid for interest (net of capitalized interest of $36,510, $35,424, and $23,952 in 2008, 2007, and 2006, respectively)

   $ 94,632     82,833     82,285  
                    

Supplemental disclosure of non-cash transactions:

      

Common stock issued for partnership units exchanged

   $ 232     8,607     21,495  
                    

Mortgage loans assumed for the acquisition of real estate

   $ —       42,272     44,000  
                    

Real estate contributed as investments in real estate partnerships

   $ 6,825     11,007     15,967  
                    

Notes receivable taken in connection with sales of properties in development and out-parcels

   $ 16,294     25,099     490  
                    

Change in fair value of derivative instruments

   $ (73,855 )   (6,905 )   (2,931 )
                    

Common stock issued for dividend reinvestment plan

   $ 4,470     4,070     3,804  
                    

Stock-based compensation capitalized

   $ 3,606     7,565     6,854  
                    

See accompanying notes to consolidated financial statements.

 

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Index to Financial Statements

Regency Centers Corporation

Notes to Consolidated Financial Statements

December 31, 2008

 

1. Summary of Significant Accounting Policies

 

  (a) Organization and Principles of Consolidation

General

Regency Centers Corporation (“Regency” or the “Company”) began its operations as a Real Estate Investment Trust (“REIT”) in 1993 and is the managing general partner of its operating partnership, Regency Centers, L.P. (“RCLP” or the “Partnership”). Regency currently owns approximately 99% of the outstanding common partnership units (“Units”) of the Partnership. Regency engages in the ownership, management, leasing, acquisition, and development of retail shopping centers through the Partnership, and has no other assets or liabilities other than through its investment in the Partnership. At December 31, 2008, the Partnership directly owned 224 retail shopping centers and held partial interests in an additional 216 retail shopping centers through investments in real estate partnerships (also referred to as co-investment partnerships or joint ventures).

Estimates, Risks, and Uncertainties

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires Regency’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. The most significant estimates in the Company’s financial statements relate to the carrying values of its investments in real estate including its shopping centers, properties in development and its unconsolidated investments in real estate partnerships, tenant receivables, net, and derivative instruments. Each of these items could be significantly affected by the current economic recession.

Because of the adverse conditions that exist in the real estate markets, as well as, the credit and financial markets, it is possible that the estimates and assumptions that have been utilized in the preparation of the consolidated financial statements could change significantly. Specifically as it relates to the Company’s business, the current economic recession is expected to result in a higher level of retail store closings nationally, which could reduce the demand for leasing space in the Company’s shopping centers and result in a decline in occupancy and rental revenues in its real estate portfolio. The lack of available credit in the commercial real estate market is causing a decline in the values of commercial real estate nationally and the Company’s ability to sell shopping centers to raise capital. A reduction in the demand for new retail space and capital availability have caused the Company to significantly reduce its new shopping center development program until markets become less volatile.

Consolidation

The accompanying consolidated financial statements include the accounts of the Company, the Partnership, its wholly owned subsidiaries, and joint ventures in which the Partnership has a controlling ownership interest. The equity interests of third parties held in the Partnership or its controlled joint ventures are included under the heading Minority Interests in the Consolidated Balance Sheets as preferred units, exchangeable operating partnership

 

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Regency Centers Corporation

Notes to Consolidated Financial Statements

December 31, 2008

 

units, or limited partners’ interest in consolidated partnerships. All significant inter-company balances and transactions are eliminated in the consolidated financial statements.

Investments in real estate partnerships not controlled by the Company are accounted for under the equity method. The Company has evaluated its investment in the real estate partnerships and has concluded that they are not variable interest entities as defined in Financial Accounting Standards Board (“FASB”) Interpretation No. 46(R) “Consolidation of Variable Interest Entities” (“FIN 46(R)”). Further, the venture partners in the real estate partnerships have significant ownership rights, including approval over operating budgets and strategic plans, capital spending, sale or financing, and admission of new partners. Upon formation of the investment in real estate partnership, the Company also became the managing member, responsible for the day-to-day operations of the partnership. The Company evaluated its investment in the partnership and concluded that the partner has substantive participating rights and, therefore, the Company has concluded that the equity method of accounting is appropriate for these investments and they do not require consolidation under Emerging Issues Task Force Issue No. 04-5 “Determining Whether a General Partner, or the General Partners as a Group, Controls a Limited Partnership or Similar Entity When the Limited Partners Have Certain Rights” (“EITF 04-5”), or the American Institute of Certified Public Accountants’ (“AICPA”) Statement of Position 78-9, “Accounting for Investments in Real Estate Ventures” (“SOP 78-9”). Under the equity method of accounting, investments in the real estate partnerships are initially recorded at cost, subsequently increased for additional contributions and allocations of income, and reduced for distributions received and allocations of loss. These investments are included in the consolidated financial statements as investments in real estate partnerships.

Ownership of the Company

Regency has a single class of common stock outstanding and three series of preferred stock outstanding (“Series 3, 4, and 5 Preferred Stock”). The dividends on the Series 3, 4, and 5 Preferred Stock are cumulative and payable in arrears on the last day of each calendar quarter. The Company owns corresponding Series 3, 4, and 5 preferred unit interests (“Series 3, 4, and 5 Preferred Units”) in the Partnership that entitle the Company to income and distributions from the Partnership in amounts equal to the dividends paid on the Company’s Series 3, 4, and 5 Preferred Stock.

Ownership of the Operating Partnership

The Partnership’s capital includes general and limited common Partnership Units, Series 3, 4, and 5 Preferred Units owned by the Company, and Series D Preferred Units owned by institutional investors.

At December 31, 2008, the Company owned approximately 99% or 70,036,670 Partnership Units of the total 70,504,881 Partnership Units outstanding. Each outstanding common Partnership Unit not owned by the Company is exchangeable for one share of Regency common stock or can be redeemed for cash, at the Company’s discretion (see Note 1(l)). The Company revalues the minority interest associated with the Partnership Units each quarter to maintain a proportional relationship between the book value of equity associated with common stockholders relative to that of the Partnership Unit holders since both have equivalent rights and the Partnership Units are convertible into shares of common stock on a one-for-one basis.

 

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Index to Financial Statements

Regency Centers Corporation

Notes to Consolidated Financial Statements

December 31, 2008

 

Net income and distributions of the Partnership are allocable first to the Preferred Units, and the remaining amounts to the general and limited Partnership Units in accordance with their ownership percentage. The Series 3, 4, and 5 Preferred Units owned by the Company are eliminated in consolidation.

 

  (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. The Company estimates the collectibility of the accounts receivable related to base rents, straight-line rents, expense reimbursements, and other revenue taking into consideration the Company’s experience in the retail sector, available internal and external tenant credit information, payment history, industry trends, tenant credit-worthiness, and remaining lease terms. In some cases, primarily relating to straight-line rents, the collection of these amounts extends beyond one year. Substantially all of the lease agreements with anchor tenants contain provisions that provide for additional rents based on tenants’ sales volume (percentage rent) and reimbursement of the tenants’ share of real estate taxes, insurance, and common area maintenance (“CAM”) costs. Percentage rents are recognized when the tenants achieve the specified targets as defined in their lease agreements. Recovery of real estate taxes, insurance, and CAM costs are recognized as the respective costs are incurred in accordance with the lease agreements.

As part of the leasing process, the Company may provide the lessee with an allowance for the construction of leasehold improvements. These leasehold improvements are capitalized and recorded as tenant improvements, and depreciated over the shorter of the useful life of the improvements or the lease term. If the allowance represents a payment for a purpose other than funding leasehold improvements, or in the event the Company is not considered the owner of the improvements, the allowance is considered to be a lease incentive and is recognized over the lease term as a reduction of rental revenue. Factors considered during this evaluation include, among other things, who holds legal title to the improvements as well as other controlling rights provided by the lease agreement and provisions for substantiation of such costs (e.g. unilateral control of the tenant space during the build-out process). Determination of the appropriate accounting for the payment of a tenant allowance is made on a lease-by-lease basis, considering the facts and circumstances of the individual tenant lease. Recognition of lease revenue commences when the lessee is given possession of the leased space upon completion of tenant improvements when the Company is the owner of the leasehold improvements. However, when the leasehold improvements are owned by the tenant, the lease inception date is the date the tenant obtains possession of the leased space for purposes of constructing its leasehold improvements.

The Company accounts for profit recognition on sales of real estate in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 66, “Accounting for Sales of Real Estate” (“Statement 66”). In summary, profits from sales of real estate are not recognized under the full accrual method by the Company unless a sale is consummated; the buyer’s initial and continuing investment is adequate to demonstrate a commitment to pay for the property; the Company’s receivable, if applicable, is not subject to future subordination; 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.

 

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Index to Financial Statements

Regency Centers Corporation

Notes to Consolidated Financial Statements

December 31, 2008

 

The Company sells shopping center properties to joint ventures in exchange for cash equal to the fair value of the percentage interest owned by its partners. The Company accounts for those sales as “partial sales” and recognizes gains on those partial sales in the period the properties were sold to the extent of the percentage interest sold under the guidance of Statement 66, and in the case of certain partnerships, applies a more restrictive method of recognizing gains, as discussed further below. The gains and operations are not recorded as discontinued operations because the Company continues to manage these shopping centers.

Five of the Company’s joint ventures (“DIK-JV”) give either partner the unilateral right to elect to dissolve the partnership and, upon such an election, receive a distribution in-kind (“DIK”) of the assets of the partnership equal to their respective ownership interests, which could include properties the Company sold to the partnership. The liquidation procedures would require that all of the properties owned by the partnership be appraised to determine their respective and collective fair values. As a general rule, if the Company initiates the liquidation process, its partner has the right to choose the first property that it will receive in liquidation with the Company having the right to choose the next property that it will receive in liquidation. If the Company’s partner initiates the liquidation process, the order of the selection process is reversed. The process then continues with alternating selection of properties by each partner until the balance of each partner’s capital account on a fair value basis has been distributed. After the final selection, to the extent that the fair value of properties in the DIK-JV are not distributable in a manner that equals the balance of each partner’s capital account, a cash payment would be made by the partner receiving a fair value in excess of its capital account to the other partner. The partners may also elect to liquidate some or all of the properties through sales rather than through the DIK process.

The Company has concluded that these DIK dissolution provisions constitute in-substance call/put options under the guidance of Statement 66, and represent a form of continuing involvement with respect to property that the Company has sold to these partnerships, limiting the Company’s recognition of gain related to the partial sale. To the extent that the DIK-JV owns more than one property and the Company is unable to obtain all of the properties it sold to the DIK-JV in liquidation, the Company applies a more restrictive method of gain recognition (“Restricted Gain Method”) which considers the Company’s potential ability to receive property through a DIK on which partial gain has been recognized, and ensures, as discussed below, maximum gain deferral upon sale to a DIK-JV. The Company has applied the Restricted Gain Method to partial sales of property to partnerships that contain unilateral DIK provisions.

Under current guidance, (Statement 66, paragraph 25), profit shall be recognized by a method determined by the nature and extent of the seller’s continuing involvement and the profit recognized shall be reduced by the maximum exposure to loss. The Company has concluded that the Restricted Gain Method accomplishes this objective.

Under the Restricted Gain Method, for purposes of gain deferral, the Company considers the aggregate pool of properties sold into the DIK-JV as well as the aggregate pool of properties which will be distributed in the DIK process. As a result, upon the sale of properties to a DIK-JV, the Company performs a hypothetical DIK liquidation assuming that it would choose only those properties that it has sold to the DIK-JV in an amount equivalent to its capital account. For purposes of calculating the gain to be deferred, the Company assumes that it will select properties upon a DIK liquidation that generated the highest gain to the Company

 

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Index to Financial Statements

Regency Centers Corporation

Notes to Consolidated Financial Statements

December 31, 2008

 

when originally sold to the DIK-JV. The DIK deferred gain is calculated whenever a property is sold to the DIK-JV by the Company. During the years when there are no property sales, the DIK deferred gain is not recalculated.

Because the contingency associated with the possibility of receiving a particular property back upon liquidation, which forms the basis of the Restricted Gain Method, is not satisfied at the property level, but at the aggregate level, no gain or loss is recognized on property sold by the DIK-JV to a third party or received by the Company upon actual dissolution. Instead, the property received upon actual dissolution is recorded at the Company’s historical cost investment in the DIK-JV, reduced by the deferred gain.

The Company has been engaged under agreements with its joint venture partners to provide asset management, property management, leasing, investing, and financing services for such ventures’ shopping centers. The fees are market-based, generally calculated as a percentage of either revenues earned or the estimated values of the properties managed, and are recognized as services are rendered, when fees due are determinable and collectibility is reasonably assured.

 

  (c) Real Estate Investments

Land, buildings, and improvements are recorded at cost. All specifically identifiable costs related to development activities are capitalized into properties in development on the accompanying Consolidated Balance Sheets. Properties in development are defined as properties that are in the construction or initial lease-up process and have not reached their initial full occupancy (reaching full occupancy generally means achieving at least 95% leased and rent paying on newly constructed or renovated GLA) and are accounted for in accordance with SFAS No. 67, “Accounting for Costs and Initial Rental Operations of Real Estate Projects” (“Statement 67”). In summary, Statement 67 establishes that a rental project changes from non-operating to operating when it is substantially completed and available for occupancy. At that time, costs should no longer be capitalized. The capitalized costs include pre-development costs essential to the development of the property, development costs, construction costs, interest costs, real estate taxes, and allocated direct employee costs incurred during the period of development. In accordance with SFAS No. 34, “Capitalization of Interest Cost” (“Statement 34”), interest costs are capitalized into each development project based on applying the Company’s weighted average borrowing rate to that portion of the actual development costs expended. The Company ceases interest cost capitalization when the property is no longer being developed or is available for occupancy upon substantial completion of tenant improvements, but in no event would the Company capitalize interest on the project beyond 12 months after substantial completion of the building shell.

The Company incurs costs prior to land acquisition including contract deposits, as well as legal, engineering, and other external professional fees related to evaluating the feasibility of developing a shopping center. These pre-development costs are included in properties in development in the accompanying Consolidated Balance Sheets. At December 31, 2008, and 2007, the Company had capitalized pre-development costs of $7.7 million and $22.7 million, respectively, of which approximately $3.0 million and $10.8 million, respectively, were refundable deposits. If the Company determines that the development of a particular shopping center is no longer probable, any related pre-development costs previously capitalized are immediately expensed in other expenses in the accompanying Consolidated

 

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Index to Financial Statements

Regency Centers Corporation

Notes to Consolidated Financial Statements

December 31, 2008

 

Statements of Operations. During 2008, 2007, and 2006, the Company expensed pre-development costs of $15.5 million, $5.3 million, and $2.4 million, respectively, in other expenses in the accompanying Consolidated Statements of Operations.

Maintenance and repairs that do not improve or extend the useful lives of the respective assets are recorded in operating and maintenance expense.

Depreciation is computed using the straight-line method over estimated useful lives of up to 40 years for buildings and improvements, the shorter of the useful life or the lease term for tenant improvements, and three to seven years for furniture and equipment.

The Company and the real estate partnerships allocate the purchase price of assets acquired (net tangible and identifiable intangible assets) and liabilities assumed based on their relative fair values at the date of acquisition pursuant to the provisions of SFAS No. 141, “Business Combinations” (“Statement 141”). Statement 141 provides guidance on the allocation of a portion of the purchase price of a property to intangible assets. The Company’s methodology for this allocation includes estimating an “as-if vacant” fair value of the physical property, which is allocated to land, building, and improvements. The difference between the purchase price and the “as-if vacant” fair value is allocated to intangible assets. There are three categories of intangible assets to be considered: (i) value of in-place leases, (ii) above and below-market value of in-place leases, and (iii) customer relationship value.

The value of in-place leases is estimated based on the value associated with the costs avoided in originating leases compared to the acquired in-place leases as well as the value associated with lost rental and recovery revenue during the assumed lease-up period. The value of in-place leases is recorded to amortization expense over the remaining initial term of the respective leases in accordance with SFAS No. 142, “Goodwill and Other Intangible Assets” (“Statement 142”).

Above-market and below-market in-place lease values for acquired properties are recorded based on the present value of the difference between (i) the contractual amounts to be paid pursuant to the in-place leases and (ii) management’s estimate of fair market lease rates for comparable in-place leases, measured over a period equal to the remaining non-cancelable term of the lease. The value of above-market leases is amortized as a reduction of minimum rent over the remaining terms of the respective leases as required by Statement 142. The value of below-market leases is accreted as an increase to minimum rent over the remaining terms of the respective leases, including below-market renewal options, if applicable, as required by Statement 142. The Company does not allocate value to customer relationship intangibles if it has pre-existing business relationships with the major retailers in the acquired property since they do not provide incremental value over the Company’s existing relationships.

 

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Index to Financial Statements

Regency Centers Corporation

Notes to Consolidated Financial Statements

December 31, 2008

 

The Company and its investments in real estate partnerships follow the provisions of SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (“Statement 144”). In accordance with Statement 144, the Company classifies an operating property or a property in development as held-for-sale when the Company determines that the property is available for immediate sale in its present condition, the property is being actively marketed for sale, and management believes it is probable that a sale will be consummated within one year. Given the nature of all real estate sales contracts, it is not unusual for such contracts to allow prospective buyers a period of time to evaluate the property prior to formal acceptance of the contract. In addition, certain other matters critical to the final sale, such as financing arrangements, often remain pending even upon contract acceptance. As a result, properties under contract may not close within the expected time period, or may not close at all. Therefore, any properties categorized as held-for-sale represent only those properties that management has determined are probable to close within the requirements set forth in Statement 144. Operating properties held-for-sale are carried at the lower of cost or fair value less costs to sell. The recording of depreciation and amortization expense is suspended during the held-for-sale period.

In accordance with Statement 144 and EITF 03-13 “Applying the Conditions in Paragraph 42 of FASB Statement 144 in Determining Whether to Report Discontinued Operations” (“EITF 03-13”), when the Company sells a property or classifies a property as held-for-sale and will not have significant continuing involvement in the operation of the property, the operations of the property are eliminated from ongoing operations and classified in discontinued operations. In accordance with EITF 87-24 “Allocation of Interest to Discontinued Operations” (“EITF 87-24”), its operations, including any mortgage interest and gain on sale, are reported in discontinued operations so that the operations are clearly distinguished. Prior periods are also reclassified to reflect the operations of these properties as discontinued operations. When the Company sells operating properties to its joint ventures or to third parties, and will continue to manage the properties, the operations and gains on sales are included in income from continuing operations.

The Company reviews its real estate portfolio including the properties owned through investments in real estate partnerships for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. For properties to be “held and used” for long term investment, the Company estimates undiscounted future cash flows over the expected investment term including the estimated future value of the asset upon sale at the end of the investment period. Future value is generally determined by applying a market based capitalization rate to the estimated future net operating income in the final year of the expected investment term. If after applying this method a property is determined to be impaired, the Company determines the provision for impairment based upon applying a market capitalization rate to current estimated net operating income as if the sale were to occur immediately. For properties “held for sale”, the Company estimates current resale values by market through appraisal information and other market data less expected costs to sell. These methods of determining fair value can fluctuate significantly as a result of a number of factors, including changes in the general economy of those markets in which the Company operates, tenant credit quality, and demand for new retail stores. The significant economic downturn that began during the fourth quarter of 2008 and the corresponding rise in market capitalization rates caused the Company to evaluate its real estate investments for impairment. As a result, the Company recorded an additional $33.1 million provision for impairment during the three months ended December 31, 2008 in addition to the $1.8 million recorded through September 30, 2008. In summary, during 2008

 

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Index to Financial Statements

Regency Centers Corporation

Notes to Consolidated Financial Statements

December 31, 2008

 

the Company recorded $20.6 million related to eight shopping centers, $7.2 million related to several land parcels, and $1.1 million related to a note receivable. In accordance with Accounting Principles Board Opinion No. 18 “The Equity Method of Accounting for Investments in Common Stock” (“APB 18”), a loss in value of an investment under the equity method of accounting, which is other than a temporary decline, must be recognized. To evaluate the Company’s investment in real estate partnerships, the Company calculates the fair value of the investment by discounting estimated future cash flows over the expected term of the investment. As a result, during 2008 the Company established a $6.0 million provision for impairment on two investments in real estate partnerships. During 2006, the Company established a provision for impairment of $500,000 and the amount is now included in discontinued operations.

 

  (d) Income Taxes

The Company believes it qualifies, and intends to continue to qualify, as a REIT under the Internal Revenue Code (the “Code”). As a REIT, the Company will generally not be subject to federal income tax, provided that distributions to its stockholders are at least equal to REIT taxable income.

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the estimated tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using the enacted tax rates in effect for the year in which these temporary differences are expected to be recovered or settled.

Earnings and profits, which determine the taxability of dividends to stockholders, differs from net income reported for financial reporting purposes primarily because of differences in depreciable lives and cost bases of the shopping centers, as well as other timing differences. See Note 8 for further discussion.

 

  (e) Deferred Costs

Deferred costs include leasing costs and loan costs, net of accumulated amortization. Such costs are amortized over the periods through lease expiration or loan maturity, respectively. If the lease is terminated early or if the loan is repaid prior to maturity, the remaining leasing costs or loan costs are written off. Deferred leasing costs consist of internal and external commissions associated with leasing the Company’s shopping centers. Net deferred leasing costs were $46.8 million and $41.2 million at December 31, 2008 and 2007, respectively. Deferred loan costs consist of initial direct and incremental costs associated with financing activities. Net deferred loan costs were $10.7 million and $11.6 million at December 31, 2008 and 2007, respectively.

 

  (f) Earnings per Share and Treasury Stock

The Company calculates earnings per share in accordance with SFAS No. 128, “Earnings per Share” (“Statement 128”). Basic earnings per share of common stock is computed based upon the weighted average number of common shares outstanding during the period. Diluted earnings per share reflects the conversion of obligations and the assumed exercises of securities including the effects of shares issuable under the Company’s share-based

 

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Index to Financial Statements

Regency Centers Corporation

Notes to Consolidated Financial Statements

December 31, 2008

 

payment arrangements, if dilutive. See Note 14 for the calculation of earnings per share (“EPS”).

Repurchases of the Company’s common stock are recorded at cost and are reflected as treasury stock in the accompanying Consolidated Statements of Stockholders’ Equity and Comprehensive Income (Loss). Regency’s outstanding shares do not include treasury shares.

 

  (g) Cash and Cash Equivalents

Any instruments which have an original maturity of 90 days or less when purchased are considered cash equivalents. At December 31, 2008 and 2007, $8.7 million and $8.0 million, respectively of cash was restricted through escrow agreements required for a development and certain mortgage loans.

 

  (h) Notes Receivable

The Company records notes receivable at cost on the accompanying Consolidated Balance Sheets and interest income is accrued as earned in interest expense, net in the accompanying Consolidated Statements of Operations. If a note receivable is past due, meaning the debtor is past due per contractual obligations, the Company will no longer accrue interest income. However, in the event the debtor subsequently becomes current, the Company will resume accruing interest. The Company evaluates the collectibility of both interest and principal for all notes receivable to determine whether impairment exists using the present value of expected cash flows discounted at the note receivable’s effective interest rate or in accordance with SFAS No. 114, “Accounting by Creditors for Impairment of a Loan—Income Recognition and Disclosures” (“Statement 114”) as amended by SFAS No. 118, “Accounting by Creditors for Impairment of a Loan—Income Recognition and Disclosures” (“Statement 118”) which is based on observable market prices. In the event the Company determines a note receivable or a portion thereof is considered uncollectible, the Company records an allowance for credit loss. The Company estimates the collectibility of notes receivable taking into consideration the Company’s experience in the retail sector, available internal and external credit information, payment history, market and industry trends, and debtor credit-worthiness. See Note 6 for further discussion.

 

  (i) Stock-Based Compensation

Regency grants stock-based compensation to its employees and directors. When Regency issues common shares as compensation, it receives a like number of common units from the Partnership. Regency is committed to contribute to the Partnership all proceeds from the exercise of stock options or other share-based awards granted under Regency’s Long-Term Omnibus Plan (the “Plan”). Accordingly, Regency’s ownership in the Partnership will increase based on the amount of proceeds contributed to the Partnership for the common units it receives. As a result of the issuance of common units to Regency for stock-based compensation, the Partnership accounts for stock-based compensation in the same manner as Regency.

The Company recognizes stock-based compensation in accordance with SFAS No. 123(R) “Share-Based Payment” (“Statement 123(R)”) which requires companies to measure the cost of stock-based compensation based on the grant-date fair value of the award. The cost

 

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Index to Financial Statements

Regency Centers Corporation

Notes to Consolidated Financial Statements

December 31, 2008

 

of the stock-based compensation is expensed over the vesting period. See Note 13 for further discussion.

 

  (j) 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 from sales are reinvested into higher quality retail shopping centers through acquisitions or new developments, which management believes will meet its expected rate of return. It is management’s intent that all retail shopping centers will be owned or developed for investment purposes; however, the Company may decide to sell all or a portion of a development upon completion. The Company’s revenue and net income are generated from the operation of its investment portfolio. The Company also earns fees from third parties for services provided to manage and lease retail shopping centers owned through joint ventures.

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 an 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 and economics of the centers, tenants and operational processes, as well as long-term average financial performance. In addition, no single tenant accounts for 6% or more of revenue and none of the shopping centers are located outside the United States.

 

  (k) Derivative Financial Instruments

The Company accounts for all derivative financial instruments in accordance with SFAS No. 133 “Accounting for Derivative Instruments and Hedging Activities” (“Statement 133”) as amended by SFAS No. 149 “Amendment of Statement 133 on Derivative Instruments and Hedging Activities” (“Statement 149”). Statement 133 requires that all derivative instruments, whether designated in hedging relationships or not, be recorded on the balance sheet at their fair values. Gains or losses resulting from changes in the fair values of those derivatives are accounted for depending on the use of the derivative and whether it qualifies for hedge accounting. The Company’s use of derivative financial instruments is to mitigate its interest rate risk on a related financial instrument or forecasted transaction through the use of interest rate swaps. The Company designates these interest rate swaps as cash flow hedges.

Statement 133 requires that changes in fair value of derivatives that qualify as cash flow hedges be recognized in other comprehensive income (“OCI”) while the ineffective portion of the derivative’s change in fair value be recognized in the income statement as interest expense. Upon the settlement of a hedge, gains and losses remaining in OCI are amortized over the underlying term of the hedge transaction. The Company formally documents all relationships between hedging instruments and hedged items, as well as its risk

 

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Regency Centers Corporation

Notes to Consolidated Financial Statements

December 31, 2008

 

management objectives and strategies for undertaking various hedge transactions. The Company assesses, both at inception of the hedge and on an ongoing basis, whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in the cash flows and/or forecasted cash flows of the hedged items.

In assessing the valuation of the hedges, the Company uses standard market conventions and techniques such as discounted cash flow analysis, option pricing models, and termination costs at each balance sheet date. All methods of assessing fair value result in a general approximation of value, and such value may never actually be realized. See Notes 10 and 11 for further discussion.

 

  (l) Redeemable Minority Interests

EITF Topic D-98 “Classification and Measurement of Redeemable Securities” (“EITF Topic D-98”) clarifies Rule 5-02.28 of Regulation S-X and requires securities that are redeemable for cash or other assets to be classified outside of permanent equity if they are redeemable (i) at a fixed or determinable price on a fixed or determinable date; (ii) at the option of the holder; or (iii) upon the occurrence of an event that is not solely within the control of the issuer. Minority interest in the operating partnership is classified as exchangeable operating partnership units (“OP Units”) in Regency’s accompanying Consolidated Balance Sheets. The holders may redeem these OP Units for a like number of shares of common stock of Regency or cash, at the Company’s discretion. See Note 11 for further discussion.

 

  (m) Financial Instruments with Characteristics of Both Liabilities and Equity

The Company accounts for minority interest in consolidated entities in accordance with SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity” (“Statement 150”) which requires companies having consolidated entities with specified termination dates to treat minority owners’ interests in such entities as liabilities in an amount based on the fair value of the entities. See Note 11 for further discussion.

 

  (n) Assets and Liabilities Measured at Fair Value

On January 1, 2008, the Company adopted SFAS No. 157, “Fair Value Measurements” (“Statement 157”) as amended by FASB Staff Position “Effective Date of FASB Statement No. 157” (“FSP FAS 157-2”). Statement 157 emphasizes that fair value is a market-based measurement, not an entity-specific measurement. Therefore, a fair value measurement should be determined based on the assumptions that market participants would use in pricing the asset or liability. As a basis for considering market participant assumptions in fair value measurements, Statement 157 establishes a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within Levels 1 and 2 of the hierarchy) and the reporting entity’s own assumptions about market participant assumptions (unobservable inputs classified within Level 3 of the hierarchy). The three levels of inputs used to measure fair value are as follows:

 

   

Level 1 - Quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access.

 

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Regency Centers Corporation

Notes to Consolidated Financial Statements

December 31, 2008

 

   

Level 2 - Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly.

 

   

Level 3 - Unobservable inputs for the asset or liability, which are typically based on the Company’s own assumptions, as there is little, if any, related market activity.

In January 2008, the Company adopted SFAS No. 159 “The Fair Value Option for Financial Assets and Financial Liabilities” (“Statement 159”). This Statement permits entities to choose to measure many financial instruments and certain other items at fair value that are not currently required to be measured at fair value. Although Statement 159 was adopted, the Company did not elect to measure any other financial statement items at fair value. See Note 11 for all fair value measurements of assets and liabilities made on a recurring and nonrecurring basis.

 

  (o) Recent Accounting Pronouncements

In April 2008, the FASB issued FASB Staff Position (FSP) No. FAS 142-3 “Determination of the Useful Life of Intangible Assets” (“FAS 142-3”). This FSP amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under Statement 142. The intent of this FSP is to improve the consistency between the useful life of a recognized intangible asset under Statement 142 and the period of expected cash flows used to measure the fair value of the asset under FASB Statement No. 141R, and other U.S. generally accepted accounting principles. This FSP is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. Early adoption is prohibited. The impact of adopting this statement is not considered to be material.

In March 2008, the FASB issued SFAS No. 161 “Disclosures about Derivative Instruments and Hedging Activities” (“Statement 161”). This Statement amends Statement 133 and changes the disclosure requirements for derivative instruments and hedging activities. Entities are required to provide enhanced disclosures about (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under Statement 133 and its related interpretations, and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. This Statement is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. This Statement encourages, but does not require, comparative disclosures for earlier periods at initial adoption. The Company is currently evaluating the impact of adopting this statement although the impact is not considered to be material as only further disclosure is required.

In February 2008, the FASB amended Statement 157 with FSP FAS 157-2 “Effective Date of FASB Statement No. 157” (FSP FAS 157-2) to delay the effective date of Statement 157 for nonfinancial assets and nonfinancial liabilities to be effective for financial statements issued for fiscal years beginning after November 15, 2008. The Company does not believe the adoption of FSP FAS 157-2 for its nonfinancial assets and liabilities will have a material impact on its financial statements.

In December 2007, the FASB issued SFAS No. 160 “Noncontrolling Interests in Consolidated Financial Statements” (“Statement 160”). This Statement, among other things,

 

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Regency Centers Corporation

Notes to Consolidated Financial Statements

December 31, 2008

 

establishes accounting and reporting standards for a parent company’s ownership interest in a subsidiary (previously referred to as a minority interest). This Statement is effective for financial statements issued for fiscal years beginning on or after December 15, 2008 with early adoption prohibited. Once adopted, the Company will report minority interest as a component of equity in the Consolidated Balance Sheets.

In December 2007, the FASB issued SFAS No. 141(R) “Business Combinations” (“Statement 141(R)”). This Statement, among other things, establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree. This Statement also establishes disclosure requirements of the acquirer to enable users of the financial statements to evaluate the effect of the business combination. This Statement is effective for financial statements issued for fiscal years beginning on or after December 15, 2008 and early adoption is prohibited. The impact on the Company’s financial statements and its co-investment partnerships’ financial statements will be reflected at the time of any acquisition after the implementation date that meets the requirements above.

 

  (p) Reclassifications

Certain reclassifications have been made to the 2007 and 2006 amounts to conform to classifications adopted in 2008.

 

2. Restatement of Consolidated Financial Statements

As described further in Note 1(b), certain of the Company’s co-investment partnership agreements contain unilateral DIK provisions. Such provisions constitute in-substance call/put options on properties sold to co-investment partnerships with unilateral DIK provisions and are a form of continuing involvement under Statement 66. As a result, the Company has adopted and applied the Restricted Gain Method, which maximizes gain deferral on partial sales of real estate to DIK-JV’s. The Company previously recognized gains from such sales to all co-investment partnerships to the extent of the percentage interest sold and deferred gains to the extent of the Company’s ownership interest in the co-investment partnerships.

The Company also previously recognized any remaining deferred gain as equity in income of investments in real estate partnerships when a property was sold by a co-investment partnership to a third party. This policy will no longer be applied to any DIK-JV. Instead, the property received upon dissolution will be recorded at the Company’s investment in the DIK-JV, reduced by the deferred gain. The Company sold properties to DIK-JV’s during 2008 and the years 2001 to 2005. The Company did not sell any properties to DIK-JV’s during 2007 or 2006.

The Company’s January 1, 2006 opening balance of distributions in excess of net income has been restated in the accompanying Consolidated Statements of Stockholders’ Equity and Comprehensive Income (Loss) by $27.6 million related to additional gain deferrals on partial sales to DIK-JV’s of $27.1 million, net of tax and minority interest in exchangeable operating partnership units, and the reversal of gains of approximately $511,000 associated with subsequent DIK-JV property sales to third parties to reflect the retrospective application of the Restricted Gain Method. The Company’s December 31, 2007 accompanying Consolidated Balance Sheet has been corrected to reflect the adjustments associated with the application of the Restricted Gain Method prior to 2006; accordingly, its investments in real estate partnerships has been decreased

 

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Index to Financial Statements

Regency Centers Corporation

Notes to Consolidated Financial Statements

December 31, 2008

 

by $31.0 million, its net deferred tax asset recorded in other assets has been increased by $2.8 million, its minority interest in exchangeable partnership units has been decreased by approximately $620,000, and its distributions in excess of net income have been decreased by $27.6 million. There was no effect on the accompanying Consolidated Statements of Operations or the Consolidated Statements of Cash Flows for 2007 or 2006.

During 2007 and 2006, the Company recognized deferred gains of $2.1 million and approximately $117,000, respectively, related to the subsequent sale of four properties by DIK-JV’s to third parties. As a result, during the fourth quarter of 2008 the Company recorded a cumulative adjustment as an immaterial out-of-period correction to its equity in income of real estate partnerships of $2.2 million to reverse the recognition of previously deferred gains. As further described in Note 18, the Company also corrected the gains reported in its September 30, 2008 Form 10-Q by a reduction of $10.6 million, net of minority interest in exchangeable operating partnership units, or $.15 per diluted share related to partial sales to a DIK-JV that occurred in September 2008.

 

3. Real Estate Investments

During 2008, the Company did not have any acquisition activity other than through its investments in real estate partnerships. During 2007, the Company acquired five shopping centers for a purchase price of $106.0 million which included the assumption of $42.3 million in debt, recorded net of a $1.2 million debt discount. Acquired lease intangible assets and acquired lease intangible liabilities of $9.3 million and $4.7 million, respectively, were recorded for these acquisitions. The acquisitions in 2007 were accounted for in accordance with the provisions of Statement 141 and their results of operations are included in the consolidated financial statements from the date of acquisition.

 

4. Discontinued Operations

The Company maintains a conservative capital structure to fund its growth program without compromising its investment-grade ratings. This approach is founded on a self-funding business model which utilizes center “recycling” as a key component and requires ongoing monitoring of each center to ensure that it meets Regency’s investment standards. This recycling strategy calls for the Company to sell non-strategic assets and re-deploy the proceeds into new, high-quality developments and acquisitions that are expected to generate sustainable revenue growth and more attractive returns.

During 2008, the Company sold 100% of its ownership interest in seven properties in development and three operating properties for net proceeds of $86.2 million. The combined operating income and gains on sales of these properties and properties classified as held-for-sale were reclassified to discontinued operations. The revenues from properties included in discontinued operations were $17.7 million, $19.3 million, and $28.4 million for the years ended December 31, 2008, 2007, and 2006, respectively. The operating income and gains on sales of properties included in discontinued operations are reported both net of minority interest of exchangeable operating partnership units and income taxes, if the property is sold by the TRS, and are summarized as follows for the years ended December 31, 2008, 2007, and 2006, respectively (in thousands):

 

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Table of Contents
Index to Financial Statements

Regency Centers Corporation

Notes to Consolidated Financial Statements

December 31, 2008

 

      2008    2007    2006
      Operating
Income
   Gain on
sale of
Properties
   Operating
Income
   Gain on
sale of
Properties
   Operating
Income
   Gain on
sale of
Properties

Operations and gain

   $ 9,667    17,497    7,941    27,411    9,785    59,181

Less: Minority interest

     64    116    59    209    82    814

Less: Income taxes

     —      —      85    1,917    —      —  
                               

Discontinued operations, net

   $ 9,603    17,381    7,797    25,285    9,703    58,367
                               

 

5. Investments in Real Estate Partnerships

The Company’s investments in real estate partnerships were $383.4 million and $401.9 million (as restated) at December 31, 2008 and 2007, respectively. Net income or loss from these partnerships, which includes all operating results and gains 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 or loss are recorded in equity in income of investments in real estate partnerships in the accompanying Consolidated Statements of Operations. The difference between the carrying amount of these investments and the underlying equity in net assets was $77.3 million and $58.1 million at December 31, 2008 and 2007, respectively. The net difference is accreted to income over the expected useful lives of the properties and other intangible assets, which range in lives from 10 to 40 years.

Cash distributions of earnings from operations from investments in real estate partnerships are presented in cash flows provided by operating activities in the accompanying Consolidated Statements of Cash Flows. Cash distributions from the sale of a property or loan proceeds received from the placement of debt on a property included in investments in real estate partnerships are presented in cash flows provided by investing activities in the accompanying Consolidated Statements of Cash Flows.

Investments in real estate partnerships are primarily composed of co-investment partnerships where the Company invests with three co-investment partners and an open-end real estate fund (“Regency Retail Partners” or the “Fund”), as further described below. In addition to earning its pro-rata share of net income or loss in each of these partnerships, the Company receives market-based fees for asset management, property management, leasing, investment, and financing services. During 2008, 2007, and 2006, the Company received fees from these co-investment partnerships of $31.7 million, $29.1 million, and $22.1 million, respectively. Investments in real estate partnerships as of December 31, 2008 and 2007 consist of the following (in thousands):

 

83


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Index to Financial Statements

Regency Centers Corporation

Notes to Consolidated Financial Statements

December 31, 2008

 

      Ownership     2008    2007
                (as restated)

Macquarie CountryWide-Regency (MCWR I)

   25.00 %   $ 11,137    15,463

Macquarie CountryWide Direct (MCWR I)

   25.00 %     3,760    4,061

Macquarie CountryWide-Regency II (MCWR II)

   24.95 %     197,602    214,450

Macquarie CountryWide-Regency III (MCWR III)

   24.95 %     623    812

Macquarie CountryWide-Regency-DESCO (MCWR-DESCO)

   16.35 %     21,924    29,478

Columbia Regency Retail Partners (Columbia)

   20.00 %     29,704    29,978

Columbia Regency Partners II (Columbia II)

   20.00 %     12,858    20,326

Cameron Village LLC (Cameron)

   30.00 %     19,479    20,364

RegCal, LLC (RegCal)

   25.00 %     13,766    17,113

Regency Retail Partners (the Fund)

   20.00 %     23,838    13,296

Other investments in real estate partnerships

   50.00 %     48,717    36,565
             

Total

     $ 383,408    401,906
             

Investments in real estate partnerships are reported net of deferred gains of $88.3 million and $69.5 million at December 31, 2008 and 2007, respectively. After applying the Restricted Gain Method as described in Note 1(b) and Note 2, cumulative deferred gains in 2007 have increased by $30.5 million to correct gains from partial sales recorded during the periods 2001 to 2005 and have been noted as restated. Cumulative deferred gain amounts related to each co-investment partnership are described below.

The Company co-invests with the Oregon Public Employees Retirement Fund (“OPERF”) in three co-investment partnerships, two of which the Company has ownership interests of 20% (“Columbia” and “Columbia II”) and one in which the Company has an ownership interest of 30% (“Cameron”). The Company’s investment in the three co-investment partnerships with OPERF totals $62.0 million (as restated) and represents 1.5% of the Company’s total assets at December 31, 2008. At December 31, 2008, the Columbia co-investment partnerships had total assets of $762.7 million and net income of $11.0 million and the Company’s share of its total assets and net income was $164.8 million and $2.2 million, respectively.

As of December 31, 2008, Columbia owned 14 shopping centers, had total assets of $321.9 million, and net income of $10.2 million for the year ended. The Company has a unilateral DIK right to liquidate the partnership; therefore, the Company has applied the Restricted Gain Method to determine the amount of gain that the Company recognizes on property sales to Columbia. During 2006 to 2008, the Company did not sell any properties to Columbia. Since its inception in 2001, the Company has recognized gain of $2.0 million on partial sales to Columbia and deferred gain of $4.3 million. In December 2008, the Company earned and recognized a $19.7 million Portfolio Incentive Return fee from OPERF based on Columbia’s outperformance of the cumulative NCREIF index since the inception of the partnership and a cumulative hurdle rate as outlined in the partnership agreement.

As of December 31, 2008, Columbia II owned 16 shopping centers, had total assets of $327.5 million, and net income of $1.1 million for the year ended. During 2008, Columbia II purchased one operating property from a third party for a purchase price of $28.5 million and the Company contributed $5.7 million for its proportionate share. The Company has a unilateral DIK right to liquidate the partnership; therefore, the Company has applied the Restricted Gain Method to determine the amount of gain that the Company recognizes on property sales to Columbia II. In

 

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Table of Contents
Index to Financial Statements

Regency Centers Corporation

Notes to Consolidated Financial Statements

December 31, 2008

 

September 2008, Columbia II acquired three completed development properties from the Company for a purchase price of $83.4 million, and as a result, the Company recognized gain of $9.1 million and deferred gain of $15.7 million. As more thoroughly described in Note 18 to the accompanying consolidated financial statements, the amount of gain previously recorded during September 2008 was subsequently adjusted by a reduction of $10.6 million and the Company will file a Form 10Q/A to correct its previous filing. During 2006 and 2007, the Company did not sell any properties to Columbia II. Since the inception of Columbia II in 2004, the Company has recognized gain of $9.1 million on partial sales to Columbia II and deferred $15.7 million. During 2008, Columbia II sold one shopping center to an unrelated party for $13.8 million and recognized a gain of approximately $256,000.

As of December 31, 2008, Cameron owned one shopping center, had total assets of $113.3 million, and a net loss of approximately $187,000 for the year ended. The partnership agreement does not contain any DIK provisions that would require the Company to apply the Restricted Gain Method. Since its inception in 2004, the Company has not sold any properties to Cameron.

The Company co-invests with the California State Teachers’ Retirement System (“CalSTRS”) in a joint venture (“RegCal”) in which the Company has a 25% ownership interest. As of December 31, 2008, RegCal owned seven shopping centers, had total assets of $158.1 million, and net income of $5.9 million for the year ended. The Company has a unilateral DIK right to liquidate the partnership; therefore, the Company has applied the Restricted Gain Method to determine the amount of gain that the Company recognizes on property sales to RegCal. During 2006 to 2008, the Company did not sell any properties to RegCal. Since its inception in 2004, the Company has recognized gain of $10.1 million on partial sales to RegCal and deferred gain of $3.4 million. During 2008, RegCal sold one shopping center to an unrelated party for $9.5 million and recognized a gain of $4.2 million.

The Company co-invests with Macquarie CountryWide Trust of Australia (“MCW”) in five co-investment partnerships, two in which the Company has an ownership interest of 25% (collectively “MCWR I”), two in which the Company has an ownership interest of 24.95% (“MCWR II” and “MCWR III”), and one in which the Company has an ownership interest of 16.35% (“MCWR-DESCO”). The Company’s investment in the five co-investment partnerships with MCW totals $235.0 million and represents 5.7% of the Company’s total assets at December 31, 2008. At December 31, 2008, the MCW co-investment partnerships had total assets of $3.4 billion and net income of $11.6 million and the Company’s share of its total assets and net income was $823.9 million and $2.1 million, respectively.

As of December 31, 2008, MCWR I owned 42 shopping centers, had total assets of $593.9 million, and net income of $11.1 million for the year ended. The Company has a unilateral DIK right to liquidate the partnership; therefore, the Company has applied the Restricted Gain Method to determine the amount of gain the Company recognizes on property sales to MCWR I. During 2006 to 2008, the Company did not sell any properties to MCWR I. Since its inception in 2001, the Company has recognized gains of $27.5 million on partial sales to MCWR I and deferred gains of $46.9 million. Subsequent to December 31, 2008, under the terms of the MCWR I partnership agreement, MCW elected to dissolve the partnership. In January 2009, the Company began liquidating the partnership through a DIK, which provides for distributing the properties to each partner under an alternating selection process, ultimately in proportion to the value of each partner’s respective partnership interest as determined by appraisal. Total value of the properties based on appraisals, net of debt, is estimated to be approximately $482.7 million. The properties which the Company receives through the DIK will be recorded at the amount of the carrying value

 

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Table of Contents
Index to Financial Statements

Regency Centers Corporation

Notes to Consolidated Financial Statements

December 31, 2008

 

of the Company’s equity investment, net of deferred gain. The dissolution is expected to be completed during 2009 subject to required lender consents for ownership transfer.

As of December 31, 2008, MCWR II owned 85 shopping centers, had total assets of $2.4 billion and net income of $5.6 million for the year ended. During 2008, MCWR II sold a portfolio of seven shopping centers to an unrelated party for $108.1 million and recognized a gain of $8.9 million. At December 31, 2008, the partnership agreement did not contain any DIK provisions that would require the Company to apply the Restricted Gain Method. However, in January 2009, the partnership agreement was amended to include DIK provisions; therefore, the Company will apply the Restricted Gain Method if additional properties are sold to MCWR II in the future. During the period 2006 to 2008, the Company did not sell any properties to MCWR II. Since its inception in 2005, the Company has recognized gain of $2.3 million on partial sales to MCWR II and deferred gain of approximately $766,000. In June 2008, the Company earned additional acquisition fees of $5.2 million (the “Contingent Acquisition Fees”) deferred from the original acquisition date since the Company achieved the cumulative targeted income levels specified in the Amended and Restated Income Target Agreement between Regency and MCW dated March 22, 2006. The Contingent Acquisition Fees recognized were limited to that percentage of MCWR II, or 75.05%, of the joint venture not owned by the Company and amounted to $3.9 million.

As of December 31, 2008, MCWR III owned four shopping centers, had total assets of $67.5 million, and a net loss of approximately $238,000 for the year ended. At December 31, 2008, the partnership agreement did not contain any DIK provisions that would require the Company to apply the Restricted Gain Method. However, in January 2009, the partnership agreement was amended to include DIK provisions; therefore, the Company will apply the Restricted Gain Method if additional properties are sold to MCWR III in the future. Since its inception in 2005, the Company has recognized gain of $14.1 million on partial sales to MCWR III and deferred gain of $4.7 million.

As of December 31, 2008, MCWR-DESCO owned 32 shopping centers, had total assets of $395.6 million and recorded a net loss of $4.9 million for the year ended primarily related to depreciation and amortization expense, but produced positive cash flow from operations. The partnership agreement does not contain any DIK provisions that would require the Company to apply the Restricted Gain Method. Since its inception in 2007, the Company has not sold any properties to MCWR-DESCO.

The Company co-invests with Regency Retail Partners (the “Fund”), an open-ended, infinite life investment fund in which the Company has an ownership interest of 20%. As of December 31, 2008, the Fund owned nine shopping centers, had total assets of $381.2 million, and recorded a net loss of $2.1 million for the year ended. During 2008, the Fund purchased one shopping center from a third party for $93.3 million that included $66.0 million of assumed mortgage debt and the Company contributed $18.7 million for the Company’s proportionate share of the purchase price. During 2008, the Fund also acquired one property in development from the Company for a sales price of $74.5 million and the Company recognized a gain of $4.7 million after excluding its ownership interest. The partnership agreement does not contain any DIK provisions that would require the Company to apply the Restricted Gain Method. Since its inception in 2006, the Company has recognized gains of $71.6 million on partial sales to the Fund and deferred gains of $17.9 million.

Summarized financial information for the investments in real estate partnerships on a combined basis, is as follows (in thousands):

 

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Index to Financial Statements

Regency Centers Corporation

Notes to Consolidated Financial Statements

December 31, 2008

 

      December 31,
2008
   December 31,
2007

Investment in real estate, net

   $ 4,518,388    4,422,533

Acquired lease intangible assets, net

     186,141    197,495

Other assets

     158,201    147,525
           

Total assets

   $ 4,862,730    4,767,553
           

Notes payable (a)

   $ 2,792,450    2,719,473

Acquired lease intangible liabilities, net

     97,146    86,031

Other liabilities

     83,814    83,734

Members’ or partners’ capital

     1,889,320    1,878,315
           

Total liabilities and capital

   $ 4,862,730    4,767,553
           
 
 

(a)

Includes $12.1 million note payable to the Company at December 31, 2007, as discussed in Note 6.

Investments in real estate partnerships had notes payable of $2.8 billion and $2.7 billion as of December 31, 2008 and 2007, respectively, and the Company’s proportionate share of these loans was $664.1 million and $653.3 million, respectively. The loans are primarily non-recourse, but for those that are guaranteed by a joint venture, Regency’s liability does not extend beyond its ownership percentage of the joint venture.

As of December 31, 2008, scheduled principal repayments on notes payable of the investments in real estate partnerships were as follows (in thousands):

 

Scheduled Principal Payments by Year:

   Scheduled
Principal
Payments
   Mortgage
Loan
Maturities
   Unsecured
Maturities
   Total    Regency’s
Pro-Rata
Share

2009

   $ 4,824    138,800    12,848    156,472    30,382

2010

     4,569    695,563    89,333    789,465    195,461

2011

     3,632    506,846    —      510,478    126,401

2012

     4,327    408,215    —      412,542    91,182

2013

     4,105    32,447    —      36,552    8,997

Beyond 5 Years

     29,875    849,714    —      879,589    210,174

Unamortized debt premiums, net

     —      7,352    —      7,352    1,462
                          

Total

   $ 51,332    2,638,937    102,181    2,792,450    664,059
                          

The revenues and expenses for the investments in real estate partnerships on a combined basis for the years ended December 31, 2008, 2007, and 2006, respectively, are summarized as follows (in thousands):

 

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Index to Financial Statements

Regency Centers Corporation

Notes to Consolidated Financial Statements

December 31, 2008

 

      2008     2007     2006  

Total revenues

   $ 488,481     452,068     413,642  
                    

Operating expenses:

      

Depreciation and amortization

     182,844     176,597     173,812  

Operating and maintenance

     70,158     64,917     57,844  

General and administrative

     9,518     9,893     6,839  

Real estate taxes

     63,393     53,845     48,983  
                    

Total operating expenses

     325,913     305,252     287,478  
                    

Other expense (income):

      

Interest expense, net

     146,765     135,760     125,378  

Gain on sale of real estate

     (14,461 )   (38,165 )   (9,225 )

Other income

     139     138     162  
                    

Total other expense (income)

     132,443     97,733     116,315  
                    

Net income

   $ 30,125     49,083     9,849  
                    

 

6. Notes Receivable

The Company had notes receivable outstanding of $31.4 million and $44.5 million at December 31, 2008 and 2007, respectively. The notes receivable have fixed interest rates ranging from 6.0% to 10.0% with maturity dates through November 2014. On January 28, 2008, the Company received $12.1 million from the Fund as repayment of a loan with an original maturity date of March 31, 2008 which was provided to facilitate the Company’s sale of a shopping center in December 2007. In September 2008, the Company recorded a provision for impairment of $1.1 million related to a $3.6 million note receivable.

 

7. Acquired Lease Intangibles

The Company had acquired lease intangible assets, net of amortization, of $12.9 million and $17.2 million at December 31, 2008 and 2007, respectively, of which $12.5 million and $16.7 million, respectively relates to in-place leases. These in-place leases had a remaining weighted average amortization period of 7.2 years and the aggregate amortization expense recorded for these in-place leases was $4.2 million, $4.3 million, and $3.8 million for the years ended December 31, 2008, 2007, and 2006, respectively. The Company had above-market lease intangible assets, net of amortization, of approximately $442,000 and $555,000 at December 31, 2008 and 2007, respectively. The remaining weighted average amortization period was 4.3 years and the aggregate amortization expense recorded as a reduction to minimum rent for these above-market leases was approximately $113,000, $115,000, and $82,000 for the years ended December 31, 2008, 2007, and 2006, respectively.

The Company had acquired lease intangible liabilities, net of accretion, of $7.9 million and $10.4 million as of December 31, 2008 and 2007, respectively. The remaining weighted average accretion period is 7.1 years and the aggregate amount accreted as an increase to minimum rent for these below-market rents was $2.5 million, $2.0 million, and $1.5 million for the years ended December 31, 2008, 2007, and 2006, respectively.

 

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Table of Contents
Index to Financial Statements

Regency Centers Corporation

Notes to Consolidated Financial Statements

December 31, 2008

 

The estimated aggregate amortization and net accretion amounts from acquired lease intangibles for each of the next five years are as follows (in thousands):

 

Year Ending December 31,

   Amortization
Expense
   Minimum
Rent, Net

2009

   $ 2,092    1,817

2010

     2,039    1,008

2011

     1,854    747

2012

     1,759    700

2013

     1,468    639

 

8. Income Taxes

The net book basis of the Company’s real estate assets exceeds the tax basis by approximately $97.5 million and $161.2 million at December 31, 2008 and 2007, 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 during the respective years:

 

     2008     2007     2006  

Dividend per share

   $ 2.90     2.64     2.38  

Ordinary income

     73 %   85 %   64 %

Capital gain

     16 %   11 %   21 %

Return of capital

     5 %   —       —    

Uncaptured Section 1250 gain

     6 %   4 %   15 %

Regency Realty Group, Inc. (“RRG”), a wholly-owned subsidiary of RCLP, is a Taxable REIT Subsidiary (“TRS”) as defined in Section 856(l) of the Code. RRG is subject to federal and state income taxes and files separate tax returns. Income tax expense is included in other expenses in the accompanying Consolidated Statements of Operations and consists of the following for the years ended December 31, 2008, 2007, and 2006 (in thousands):

 

     2008     2007    2006

Income tax (benefit) expense:

       

Current

   $ 88     5,669    10,256

Deferred

     (1,688 )   530    1,516
                 

Total income tax (benefit) expense

   $ (1,600 )   6,199    11,772
                 

Income tax (benefit) expense is included in either other expenses if the related income is from continuing operations or discontinued operations on the Consolidated Statements of Operations as follows for the years ended December 31, 2008, 2007, and 2006 (in thousands):

 

     2008     2007    2006

Income tax (benefit) expense from:

       

Continuing operations

   $ (1,600 )   4,197    11,772

Discontinued operations

     —       2,002    —  
                 

Total income tax (benefit) expense

   $ (1,600 )   6,199    11,772
                 

 

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Index to Financial Statements

Regency Centers Corporation

Notes to Consolidated Financial Statements

December 31, 2008

 

Income tax (benefit) expense differed from the amounts computed by applying the U.S. Federal income tax rate of 34% to pretax income of RRG for the years ended December 31, 2008, 2007, and 2006, respectively as follows (in thousands):

 

     2008     2007    2006

Computed expected tax (benefit) expense

   $ (2,324 )   3,974    4,094

Increase in income tax resulting from state taxes

     (197 )   443    456

All other items

     921     1,782    7,222
                 

Total income tax (benefit) expense

   $ (1,600 )   6,199    11,772
                 

All other items principally represent the tax effect of gains associated with the sale of properties to unconsolidated ventures.

RRG had net deferred tax assets of $17.1 million and $11.6 million (as restated) at December 31, 2008 and 2007, respectively. The majority of the deferred tax assets relate to deferred gains, deferred interest expense, and tax costs capitalized on projects under development. No valuation allowance was provided and the Company believes it is more likely than not that the future benefits associated with these deferred tax assets will be realized.

Included in the income tax (benefit) expense disclosed above, the Company has approximately $600,000 of state income tax expense at RCLP for the Texas Gross Margin Tax recorded in other expenses in the accompanying Consolidated Statements of Operations in both 2007 and 2008.

The Company accounts for uncertainties in income tax law in accordance with FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109” (“FIN 48”). Under FIN 48, tax positions shall initially be recognized in the financial statements when it is more likely than not the position will be sustained upon examination by the tax authorities. Such tax positions shall initially and subsequently be measured as the largest amount of tax benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with the tax authority assuming full knowledge of the position and relevant facts. The Company believes that it has appropriate support for the income tax positions taken and to be taken on its tax returns and that its accruals for tax liabilities are adequate for all open tax years (after 2004 for federal and state) based on an assessment of many factors including past experience and interpretations of tax laws applied to the facts of each matter.

During 2008, the Internal Revenue Service (“IRS”) commenced an examination of the Company’s U.S. income tax returns for 2006 and 2007 which should be complete by June 2009. The IRS has not proposed any significant adjustments to the open tax years under audit.

 

9. Notes Payable and Unsecured Credit Facilities

The Company’s outstanding debt at December 31, 2008 and 2007 consists of the following (in thousands):

 

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Table of Contents
Index to Financial Statements

Regency Centers Corporation

Notes to Consolidated Financial Statements

December 31, 2008

 

      2008    2007

Notes payable:

     

Fixed rate mortgage loans

   $ 235,150    196,915

Variable rate mortgage loans

     5,130    5,821

Fixed rate unsecured loans

     1,597,624    1,597,239
           

Total notes payable

     1,837,904    1,799,975

Unsecured credit facilities

     297,667    208,000
           

Total

   $ 2,135,571    2,007,975
           

During 2008, the Company placed a $62.5 million mortgage loan on a property. The loan has a nine-year term and is interest only at an all-in coupon rate of 6.0% (or 230 basis points over an interpolated 9-year US Treasury).

On March 5, 2008, Regency entered into a Credit Agreement with Wells Fargo Bank and a group of other banks to provide the Company with a $341.5 million, three-year term loan facility (the “Term Facility”). The Term Facility includes a term loan amount of $227.7 million plus a $113.8 million revolving credit facility that is accessible at the Company’s discretion. The term loan has a variable interest rate equal to LIBOR plus 105 basis points which was 3.330% at December 31, 2008 and the revolving portion has a variable interest rate equal to LIBOR plus 90 basis points. The proceeds from the funding of the Term Facility were used to reduce the balance on the unsecured line of credit (the “Line”). The balance on the Term Facility was $227.7 million at December 31, 2008.

During 2007, RCLP completed the sale of $400.0 million of ten-year senior unsecured notes. The 5.875% notes are due June 15, 2017 and were priced at 99.527% to yield 5.938%. The net proceeds were used to reduce the unsecured line of credit (the “Line”).

On February 12, 2007, Regency entered into a new loan agreement under the Line with a commitment of $600.0 million and the right to expand the Line by an additional $150.0 million subject to additional lender syndication. The Line has a four-year term with a one-year extension at the Company’s option and a current interest rate of LIBOR plus 40 basis points subject to maintaining corporate credit and senior unsecured ratings at BBB+.

Contractual interest rates were 1.338% and 5.425% at December 31, 2008 and 2007, respectively, based on LIBOR plus 40 basis points and LIBOR plus 55 basis points, respectively. The balance on the Line was $70.0 million and $208.0 million at December 31, 2008 and 2007, respectively.

Including both the Line commitment and the Term Facility (collectively, “Unsecured credit facilities”), Regency has $941.5 million of total capacity and the spread paid is dependent upon the Company maintaining specific investment-grade ratings. The Company is also required to comply with certain financial covenants such as Minimum Net Worth, Ratio of Total Liabilities to Gross Asset Value (“GAV”) and Ratio of Recourse Secured Indebtedness to GAV, Ratio of Earnings Before Interest Taxes Depreciation and Amortization (“EBITDA”) to Fixed Charges, and other covenants customary with this type of unsecured financing. As of December 31, 2008, the Company is in compliance with all financial covenants for the Unsecured credit facilities. The Unsecured credit facilities are used primarily to finance the acquisition and development of real estate, but are also available for general working-capital purposes.

 

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Index to Financial Statements

Regency Centers Corporation

Notes to Consolidated Financial Statements

December 31, 2008

 

Notes payable consist of secured mortgage loans and unsecured public debt. Mortgage loans may be prepaid, but could be subject to yield maintenance premiums. Mortgage loans are generally due in monthly installments of principal and interest, and mature over various terms through 2018, whereas, interest on unsecured public debt is payable semi-annually and the debt matures over various terms through 2017. The Company intends to repay mortgage loans at maturity with proceeds from the Unsecured credit facilities. Fixed interest rates on mortgage notes payable range from 5.22% to 8.95% and average 6.32%. As of December 31, 2008, the Company had one variable rate mortgage loan with an interest rate equal to LIBOR plus 100 basis points maturing in 2009.

As of December 31, 2008, scheduled principal repayments on notes payable and the Unsecured credit facilities were as follows (in thousands):

 

Scheduled Principal Payments by Year:

   Scheduled
Principal
Payments
   Mortgage
Loan
Maturities
    Unsecured
Maturities (a)
    Total  

2009

     4,832    8,077     50,000     62,909  

2010

     4,880    17,043     160,000     181,923  

2011

     4,744    11,276     537,667     553,687  

2012

     5,027    —       250,000     255,027  

2013

     4,712    16,353     —       21,065  

Beyond 5 Years

     13,897    150,159     900,000     1,064,056  

Unamortized debt discounts, net

     —      (719 )   (2,377 )   (3,096 )
                         

Total

   $ 38,092    202,189     1,895,290     2,135,571  
                         
 
 

(a)

Includes unsecured public debt and Unsecured credit facilities

 

10. Derivative Financial Instruments

The Company uses derivative instruments primarily to manage exposures to interest rate risks. In order to manage the volatility relating to interest rate risk, the Company may enter into interest rate hedging arrangements from time to time. None of the Company’s derivatives are designated as fair value hedges and the Company does not utilize derivative financial instruments for trading or speculative purposes.

All interest rate swaps qualify for hedge accounting under Statement 133 as cash flow hedges. Realized losses associated with the swaps settled in 2004 and 2005 and unrealized gains or losses associated with the swaps entered into in 2006 have been included in Accumulated other comprehensive loss in the accompanying Consolidated Statements of Stockholders’ Equity and Comprehensive Income (Loss). Unrealized gains or losses will not be amortized until such time that the probable debt issuances are completed in 2010 and 2011 as long as the swaps continue to qualify for hedge accounting. The unamortized balance of the realized losses is being amortized as additional interest expense over the original ten year terms of the hedged loans. The adjustment to interest expense recorded in 2008, 2007, and 2006 related to previously settled swaps is $1.3 million and the unamortized balance at December 31, 2008 and 2007 is $7.8 million and $9.1 million, respectively.

Terms and conditions for the outstanding derivative financial instruments designated as cash flow hedges as of December 31, 2008 were as follows (dollars in thousands):

 

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Index to Financial Statements

Regency Centers Corporation

Notes to Consolidated Financial Statements

December 31, 2008

 

Notional Value

   Interest Rate     Maturity    Fair Value  
$ 98,350    5.399 %   01/15/20    $ (21,604 )
  100,000    5.415 %   09/15/20      (20,251 )
  98,350    5.399 %   01/15/20      (21,625 )
  100,000    5.415 %   09/15/20      (20,211 )
                 
$ 396,700         $ (83,691 )
                 

The Company has $428.3 million of fixed rate debt maturing in 2010 and 2011 that has a weighted average fixed interest rate of 8.07%, which includes $400.0 million of unsecured long-term debt. During 2006 the Company entered into four forward-starting interest rate swaps (the “Swaps”) totaling $396.7 million with fixed rates of 5.399%, 5.415%, 5.399%, and 5.415%. The Company designated these Swaps as cash flow hedges to fix the future interest rates on $400.0 million of the financing expected to occur in 2010 and 2011. As a result of a decline in 10 year Treasury interest rates since the inception of the Swaps, the fair value of the Swaps as of December 31, 2008 is reflected as a liability of $83.7 million in the Company’s accompanying Consolidated Balance Sheets. It remains highly probable that the forecasted transactions will occur as projected at the inception of the Swaps and therefore, the change in fair value of the Swaps is reflected in accumulated other comprehensive loss in the accompanying consolidated financial statements. To the extent that future 10-year treasury rates (at the future settlement dates) are higher than current rates, this liability will decline. If a liability exists at the dates the Swaps are settled, the liability will be amortized over the term of the respective debt issuances as additional interest expense in addition to the stated interest rates on the new issuances. In the case of $196.7 million of the Swaps, Regency continues to expect to issue new secured or unsecured debt for a term of 7 to 12 years during the period between June 30, 2009 and June 30, 2010. In the case of $200.0 million of the Swaps, Regency continues to expect to issue new debt for a term of 7 to 12 years during the period between March 30, 2010 and March 30, 2011. The Company continuously monitors the capital markets and evaluates its ability to issue new debt to repay maturing debt or fund its commitments. Based upon the current capital markets, Regency’s current credit ratings, and the number of high quality, unencumbered properties that it owns which could collateralize borrowings, the Company expects that it will successfully issue new secured or unsecured debt to fund its obligations. However, in the current environment, interest rates on new issuances are expected to be significantly higher than on historical issuances. An increase of 1.0% in the interest rate of new debt issues above that of maturing debt would result in additional annual interest expense of $4.3 million in addition to the impact of the annual amortization that would be incurred as a result of settling the Swaps.

 

11. Fair Value Measurements

Derivative Financial Instruments

The valuation of these instruments is determined using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves, and implied volatilities. To comply with the provisions of Statement 157, the Company incorporates credit valuation adjustments to appropriately reflect both its own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements.

Although the Company has determined that the majority of the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with its

 

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Index to Financial Statements

Regency Centers Corporation

Notes to Consolidated Financial Statements

December 31, 2008

 

derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by itself and its counterparties.

As of December 31, 2008 the Company’s liabilities measured at fair value on a recurring basis, aggregated by the level in the fair value hierarchy within which those measurements fall were as follows (in thousands):

 

     Fair Value Measurements Using:

Liabilities

   Balance     Quoted
Prices in
Active
Markets for
Identical
Liabilities
(Level 1)
   Significant
Other
Observable
Inputs (Level 2)
    Significant
Unobservable
Inputs (Level 3)

Derivative financial instruments

   $ (83,691 )   —      (86,542 )   2,851

The following disclosures represent additional fair value measurements of assets and liabilities that are not recognized in the accompanying consolidated financial statements.

Notes Payable

The carrying value of the Company’s variable rate notes payable and the Unsecured credit facilities are based upon a spread above LIBOR which is lower than the spreads available in the current credit markets, causing the fair value of such variable rate debt to be below its carrying value. The fair value of fixed rate loans are estimated using cash flows discounted at current market rates available to the Company for debt with similar terms and maturities. Fixed rate loans assumed in connection with real estate acquisitions are recorded in the accompanying consolidated financial statements at fair value at the time of acquisition. Based on the estimates used by the Company, the fair value of notes payable and the Unsecured credit facilities was approximately $1.3 billion and $1.5 billion at December 31, 2008 and 2007.

Minority Interests

As of December 31, 2008 and 2007, Regency had 468,211 and 473,611 redeemable OP Units outstanding, respectively. The redemption value of the redeemable OP Units is based on the closing market price of Regency’s common stock, which was $46.70 and $64.49 per share as of December 31, 2008 and 2007, respectively, an aggregated redemption value of $21.9 million and $30.5 million, respectively.

At December 31, 2008, the Company held a majority interest in four consolidated entities with specified termination dates through 2049. The minority owners’ interests in these entities will be settled upon termination by distribution or transfer of either cash or specific assets of the underlying entities. The estimated fair value of minority interests in entities with specified termination dates was approximately $9.5 million and $10.2 million at December 31, 2008 and 2007, respectively. Their related carrying value was $6.3 million and $5.7 million as of December 31, 2008 and 2007, respectively which is recorded in limited partners’ interest in consolidated partnerships in the accompanying Consolidated Balance Sheets.

 

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Index to Financial Statements

Regency Centers Corporation

Notes to Consolidated Financial Statements

December 31, 2008

 

12. Stockholders’ Equity and Minority Interest

Preferred Units

At December 31, 2008 and 2007, the face value of the Series D Preferred Units was $50.0 million with a fixed distribution rate of 7.45% and recorded in the accompanying Consolidated Balance Sheets net of original issuance costs.

Terms and conditions for the Series D Preferred Units outstanding as of December 31, 2008 and 2007 are summarized as follows:

 

Units
Outstanding

   Amount
Outstanding
   Distribution
Rate
    Callable
by Company
   Exchangeable
by Unit holder
500,000    $ 50,000,000    7.45 %   09/29/09    01/01/16

The Preferred Units, which may be called by Regency (through RCLP) at par beginning September 29, 2009, have no stated maturity or mandatory redemption and pay a cumulative, quarterly dividend at a fixed rate. The Preferred Units may be exchanged by the holder for Cumulative Redeemable Preferred Stock (“Preferred Stock”) at an exchange rate of one unit for one share. The Preferred Units and the related Preferred Stock are not convertible into common stock of the Company.

Preferred Stock

The Series 3, 4, and 5 preferred shares are perpetual, are not convertible into common stock of the Company, and are redeemable at par upon Regency’s election beginning five years after the issuance date. None of the terms of the Preferred Stock contain any unconditional obligations that would require the Company to redeem the securities at any time or for any purpose. Terms and conditions of the three series of Preferred stock outstanding as of December 31, 2008 are summarized as follows:

 

Series

   Shares
Outstanding
   Liquidation
Preference
   Distribution
Rate
   

Callable
By Company

Series 3

   3,000,000    $ 75,000,000    7.45 %   04/03/08

Series 4

   5,000,000      125,000,000    7.25 %   08/31/09

Series 5

   3,000,000      75,000,000    6.70 %   08/02/10
                
   11,000,000    $ 275,000,000     
                

On January 1, 2008, the Company split each share of existing Series 3 and Series 4 Preferred Stock, each having a liquidation preference of $250 per share, and a redemption price of $250 per share into ten shares of Series 3 and Series 4 Stock, respectively, each having a liquidation preference of $25 per share and a redemption price of $25 per share. The Company then exchanged each Series 3 and 4 Depositary Share into shares of New Series 3 and 4 Stock, respectively, which have the same dividend rights and other rights and preferences identical to the depositary shares.

Common Stock

 

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Index to Financial Statements

Regency Centers Corporation

Notes to Consolidated Financial Statements

December 31, 2008

 

At December 31, 2008 and 2007, 75,634,881 and 75,168,662 common shares had been issued, respectively. The carrying values of the Common stock were $756,349 and $751,687 with a par value of $.01 and were recorded on the accompanying Consolidated Balance Sheets as of December 31, 2008 and 2007, respectively.

 

13. Stock-Based Compensation

The Company recorded stock-based compensation in general and administrative expenses in the accompanying Consolidated Statements of Operations for the years ended December 31, 2008, 2007, and 2006 as follows, the components of which are further described below (in thousands):

 

     2008    2007    2006

Restricted stock

   $ 8,193    17,725    16,584

Stock options

     988    1,024    960

Directors’ fees paid in common stock

     375    389    406
                

Total

   $ 9,556    19,138    17,950
                

The recorded amounts of stock-based compensation expense represent amortization of deferred compensation related to share-based payments in accordance with Statement 123(R). During 2008, compensation expense declined as a result of the Company reducing estimated payout amounts related to incentive compensation tied directly to Company performance. The Company recorded a cumulative adjustment during 2008 of $12.7 million relating to this change in estimate of which $4.1 million had been previously capitalized. Compensation expense specifically identifiable to development and leasing activities is capitalized and included above. During the three years ended December 31, 2008, 2007, and 2006 compensation expense of approximately $3.6 million, $7.6 million, and $6.9 million, respectively, was capitalized.

The Company established the Plan under which the Board of Directors may grant stock options and other stock-based awards to officers, directors, and other key employees. The Plan allows the Company to issue up to 5.0 million shares in the form of common stock or stock options, but limits the issuance of common stock excluding stock options to no more than 2.75 million shares. At December 31, 2008, there were approximately 2.3 million shares available for grant under the Plan either through options or restricted stock. The Plan also limits outstanding awards to no more than 12% of outstanding common stock.

Stock options are granted under the Plan with an exercise price equal to the stock’s price at the date of grant. All stock options granted have ten-year lives, contain vesting terms of one to five years from the date of grant and some have dividend equivalent rights. Stock options granted prior to 2005 also contained “reload” rights, which allowed an option holder the right to receive new options each time existing options were exercised, if the existing options were exercised under specific criteria provided for in the Plan. In 2005 and 2007, the Company acquired the “reload” rights of existing employees’ and directors’ stock options from the option holders, substantially canceling all of the “reload” rights on existing stock options in exchange for new options. These new stock options vest 25% per year and are expensed ratably over a four-year period beginning in year of grant in accordance with Statement 123(R). Options granted under the reload buy-out plan do not earn dividend equivalents.

 

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Index to Financial Statements

Regency Centers Corporation

Notes to Consolidated Financial Statements

December 31, 2008

 

The fair value of each option award is estimated on the date of grant using the Black-Scholes-Merton closed-form (“Black-Scholes”) option valuation model. Expected volatilities are based on historical volatility of the Company’s stock and other factors. The Company uses historical data and other factors to estimate option exercises and employee terminations within the valuation model. The expected term of options granted is derived from the output of the option valuation model and represents the period of time that options granted are expected to be outstanding. The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant. The Company believes that the use of the Black-Scholes model meets the fair value measurement objectives of Statement 123(R) and reflects all substantive characteristics of the instruments being valued. No stock options were granted during 2008. The following table represents the assumptions used for the Black-Scholes option-pricing model for options granted in the respective year:

 

     2007     2006  

Per share weighted average value

   $ 8.27     8.35  

Expected dividend yield

     3.0 %   3.8 %

Risk-free interest rate

     4.7 %   4.9 %

Expected volatility

     19.8 %   20.0 %

Expected term in years

     2.4     2.1  

The following table reports stock option activity during the year ended December 31, 2008:

 

     Number of
Options
   Weighted
Average
Exercise
Price
   Weighted
Average
Remaining
Contractual
Term

(in years)
   Aggregate
Intrinsic
Value

(in thousands)
 

Outstanding - December 31, 2007

   717,561    $ 50.05      

Less: Exercised

   129,381      44.88      

Less: Forfeited

   3,207      51.36      

Less: Expired

   10,946      48.07      
                 

Outstanding - December 31, 2008

   574,027    $ 51.24    4.9    (2,606 )
                 

Vested and expected to vest - December 31, 2008

   574,027    $ 51.24    4.9    (2,606 )
                       

Exercisable - December 31, 2008

   394,007    $ 50.20    4.3    (1,379 )
                       

The weighted-average grant price for stock options granted during the years 2007 and 2006 was $88.49 and $70.98, respectively. The total intrinsic value of options exercised during the years ended December 31, 2008, 2007, and 2006 was $2.3 million, $20.2 million, and $17.3 million, respectively. As of December 31, 2008, there was approximately $88,000 of unrecognized compensation cost related to non-vested stock options granted under the Plan all of which is expected to be recognized in 2009. The Company received cash proceeds for stock option exercises of $1.0 million, $2.4 million, and $6.0 million for the years ended December 31, 2008,

 

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Index to Financial Statements

Regency Centers Corporation

Notes to Consolidated Financial Statements

December 31, 2008

 

2007, and 2006, respectively. The Company issues new shares to fulfill option exercises from its authorized shares available.

The following table presents information regarding non-vested option activity during the year ended December 31, 2008:

 

     Non-vested
Number of
Options
   Weighted
Average
Grant-Date
Fair Value

Non-vested at December 31, 2007

   392,534    $ 6.04

Less: Forfeited

   3,207      5.90

Less: 2008 Vesting

   209,307      5.95
           

Non-vested at December 31, 2008

   180,020    $ 6.04
           

The Company grants restricted stock under the Plan to its employees as a form of long-term compensation and retention. The terms of each grant vary depending upon the participant’s responsibilities and position within the Company. The Company’s stock grants can be categorized into three types: (a) 4-year vesting, (b) performance-based vesting, and (c) 8-year cliff vesting.

 

   

The 4-year vesting grants vest 25% per year beginning on the date of grant. These grants are not subject to future performance measures, and if such vesting criteria are not met, the compensation cost previously recognized would be reversed.

 

   

Performance-based vesting grants are earned subject to future performance measurements, which include individual goals, annual growth in earnings, compounded three-year growth in earnings, and a three-year total shareholder return peer comparison (“TSR Grant”). Once the performance criteria are met and the actual number of shares earned is determined, certain shares will vest immediately while others will vest over an additional service period.

 

   

The 8-year cliff vesting grants fully vest at the end of the eighth year from the date of grant; however, as a result of the achievement of future performance, primarily growth in earnings, the vesting of these grants may be accelerated over a shorter term.

Performance-based vesting grants and 8-year cliff vesting grants are currently only granted to the Company’s senior management. The Company considers the likelihood of meeting the performance criteria based upon managements’ estimates and analysis of future earnings growth from which it determines the amounts recognized as expense on a periodic basis. The Company determines the grant date fair value of TSR Grants based upon a Monte Carlo Simulation model. Compensation expense is measured at the grant date and recognized over the vesting period.

 

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Index to Financial Statements

Regency Centers Corporation

Notes to Consolidated Financial Statements

December 31, 2008

 

The following table reports non-vested restricted stock activity during the year ended December 31, 2008:

 

     Number of
Shares
   Intrinsic
Value
(in thousands)
   Weighted
Average
Grant
Price

Non-vested at December 31, 2007

   622,751       $ 65.15

Add: Granted

   245,843         63.76

Less: Vested and Distributed

   221,213         55.80

Less: Forfeited

   138,608         71.91
          

Non-vested at December 31, 2008

   508,773    $ 23,760    $ 66.19
          

The weighted-average grant price for restricted stock granted during the years 2008, 2007, and 2006 was $63.76, $84.52 and $63.75, respectively. The total intrinsic value of restricted stock vested during the years ended December 31, 2008, 2007, and 2006 was $23.8 million, $29.7 million and $26.3 million, respectively. As of December 31, 2008, there was $16.4 million of unrecognized compensation cost related to non-vested restricted stock granted under the Plan, when recognized is recorded in additional paid in capital of the accompanying Consolidated Statements of Stockholders’ Equity and Comprehensive Income (Loss). This unrecognized compensation cost is expected to be recognized over the next four years, through 2012. The Company issues new restricted stock from its authorized shares available at the date of grant.

The Company maintains a 401 (k) retirement plan covering substantially all employees, which permits participants to defer up to the maximum allowable amount determined by the IRS of their eligible compensation. This deferred compensation, together with Company matching contributions equal to 100% of employee deferrals up to a maximum of $3,700 of their eligible compensation, is fully vested and funded as of December 31, 2008. Costs related to the matching portion of the plan were approximately $1.5 million, $1.3 million, and $1.1 million for the years ended December 31, 2008, 2007, and 2006, respectively.

 

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Regency Centers Corporation

Notes to Consolidated Financial Statements

December 31, 2008

 

14. Earnings per Share

The following summarizes the calculation of basic and diluted earnings per share for the three years ended December 31, 2008, 2007, and 2006, respectively (in thousands except per share data):

 

     2008    2007    2006

Numerator:

        

Income from continuing operations

   $ 109,204    170,569    150,441

Discontinued operations

     26,984    33,082    68,070
                

Net income

     136,188    203,651    218,511

Less: Preferred stock dividends

     19,675    19,675    19,675
                

Net income for common stockholders

     116,513    183,976    198,836

Less: Dividends paid on unvested restricted stock

     733    842    978
                

Net income for common stockholders – basic

     115,780    183,134    197,858

Add: Dividends paid on Treasury Method restricted stock

     —      49    164
                

Net income for common stockholders – diluted

   $ 115,780    183,183    198,022
                

Denominator:

        

Weighted average common shares outstanding for basic EPS

     69,578    68,954    68,037

Incremental shares to be issued under common stock options and unvested restricted stock

     84    244    395
                

Weighted average common shares outstanding for diluted EPS

     69,662    69,198    68,432
                

Income per common share – basic

        

Income from continuing operations

   $ 1.28    2.18    1.91

Discontinued operations

     0.38    0.47    1.00
                

Net income for common stockholders per share

   $ 1.66    2.65    2.91
                

Income per common share – diluted

        

Income from continuing operations

   $ 1.28    2.18    1.90

Discontinued operations

     0.38    0.47    0.99
                

Net income for common stockholders per share

   $ 1.66    2.65    2.89
                

 

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Regency Centers Corporation

Notes to Consolidated Financial Statements

December 31, 2008

 

15. Operating Leases

Future minimum rents under non-cancelable operating leases as of December 31, 2008, excluding both tenant reimbursements of operating expenses and additional percentage rent based on tenants’ sales volume, are as follows (in thousands):

 

Year Ending December 31,

   Amount

2009

   $ 320,707

2010

     301,027

2011

     264,606

2012

     221,395

2013

     177,638

Thereafter

     1,067,278
      

Total

   $ 2,352,651
      

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 that individually represented more than 6% of the Company’s annualized future minimum rents.

The Company has shopping centers that are subject to non-cancelable long-term ground leases where a third party owns and has leased the underlying land to Regency to construct and/or operate a shopping center. Ground leases expire through 2085 and in most cases provide for renewal options. In addition, the Company has non-cancelable operating leases pertaining to office space from which it conducts its business. Office leases expire through 2017 and in most cases provide for renewal options. Leasehold improvements are capitalized, recorded as tenant improvements, and depreciated over the shorter of the useful life of the improvements or the lease term. The following table summarizes the future obligations under non-cancelable operating leases as of December 31, 2008 (in thousands):

 

Year Ending December 31,

   Amount

2009

   $ 7,261

2010

     7,303

2011

     7,336

2012

     6,921

2013

     6,725

Thereafter

     67,345
      

Total

   $ 102,891
      

 

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Regency Centers Corporation

Notes to Consolidated Financial Statements

December 31, 2008

 

16. Commitments and Contingencies

The Company is involved in litigation on a number of matters and is subject to certain claims which arise in the normal course of business, none of which, in the opinion of management, is expected to have a material adverse effect on the Company’s consolidated financial position, results of operations, or liquidity. The Company is also subject to numerous environmental laws and regulations as they apply to real estate pertaining to chemicals used by the dry cleaning industry, the existence of asbestos in older shopping centers, and underground petroleum storage tanks. The Company believes that the tenants who currently operate dry cleaning plants or gas stations do so in accordance with current laws and regulations. The Company has placed environmental insurance, when possible, on specific properties with known contamination, in order to mitigate its environmental risk. The Company monitors the shopping centers containing environmental issues and in certain cases voluntarily remediates the sites. The Company also has legal obligations to remediate certain sites and is in the process of doing so. The Company estimates the cost associated with these legal obligations to be approximately $3.2 million, all of which has been reserved in accounts payable and other liabilities on the accompanying Consolidated Balance Sheets. The Company believes that the ultimate disposition of currently known environmental matters will not have a material effect on its financial position, liquidity, or operations; however, it can give no assurance that existing environmental studies with respect to the shopping centers have revealed all potential environmental liabilities; that any previous owner, occupant or tenant did not create any material environmental condition not known to it; that the current environmental condition of the shopping centers will not be affected by tenants and occupants, by the condition of nearby properties, or by unrelated third parties; or that changes in applicable environmental laws and regulations or their interpretation will not result in additional environmental liability to the Company.

 

17. Restructuring Charges

In November 2008, the Company announced a restructuring plan designed to further align employee headcount with the Company’s projected workload. As a result, the Company recorded restructuring charges of $2.4 million for employee severance and benefits related to employee reductions across various functional areas in general and administrative expenses in the accompanying Consolidated Statements of Operations. The restructuring charges included severance benefits for 50 employees with no future service requirement and were completed by January 2009 using cash from operations. The charges for the year ended December 31, 2008 associated with the restructuring program are as follows:

 

     Total
Restructuring
Charge
   2008
Payments
   Accrual at
December 31,
2008
   Due within 12
months

Severance

   2,086    1,040    1,046    1,046

Health insurance

   150    —      150    150

Placement services

   187    136    51    51
                   

Total

   2,423    1,176    1,247    1,247
                   

 

102


Table of Contents
Index to Financial Statements

Regency Centers Corporation

Notes to Consolidated Financial Statements

December 31, 2008

 

18. Summary of Quarterly Financial Data (Unaudited)

The following table sets forth selected Quarterly Financial Data for Regency on a historical basis as of and for each of the quarters and years ended December 31, 2008 and 2007 and has been derived from the accompanying consolidated financial statements as reclassified for discontinued operations. As previously disclosed in the Company’s Current Report on Form 8-K dated March 12, 2009, the Company’s Audit Committee determined on March 12, 2009, after discussions with management, that the Company’s previously-issued consolidated financial statements as of and for the quarter and nine months ended September 30, 2008 should no longer be relied upon because of an error in the Company’s calculation of the gain on the sale of properties to certain co-investment partnerships. Such error came to light as a result of the determination that for certain of the Company’s co-investment partnerships, the in-kind liquidation provisions contained within such co-investment partnership agreements constitute in-substance call/put options, a form of continuing involvement under Statement 66. As a result, the Company has reevaluated its accounting policy for such sales and has adopted a Restricted Gain Method of gain recognition, as described more fully in Note 1(b), which considers the Company’s ability to receive property previously sold to a co-investment partnership upon liquidation. The revised method of recognizing gain on sale of properties to co-investment partnerships with in-kind liquidation provisions has been applied in the preparation of the accompanying consolidated financial statements. As a result, in the financial data presented below, the Company restated its reported gains on sales of properties in the quarter and nine months ended September 30, 2008 and reduced net income for those periods by $10.6 million or $.15 per share as detailed below. The Company also recorded a correction to previously reported assets ($28.2 million reduction), minority interests ($620,000 reduction), and stockholders’ equity ($27.6 million reduction) in the 2006 opening consolidated balance sheet related to the cumulative correction of gains reported as described in the note below. There was also no effect on the operating, financing or investing cash flows in the accompanying Consolidated Statements of Cash Flows for any quarter of any year previously presented.

 

103


Table of Contents
Index to Financial Statements

Regency Centers Corporation

Notes to Consolidated Financial Statements

December 31, 2008

 

2008:

   First
Quarter
    Second
Quarter
    Third Quarter     Fourth
Quarter
 
       Reported     Adj.     Restated    

Operating Data:

            

Revenues as originally reported

   $ 119,648     123,381     122,798     —       122,798     137,562  

Reclassified to discontinued operations

     (4,143 )   (3,406 )   (2,419 )   —       (2,419 )   —    
                                      

Adjusted Revenues

   $ 115,505     119,975     120,379     —       120,379     137,562  
                                      

Operating expenses as originally reported

   $ 68,824     68,287     70,154     —       70,154     75,519  

Reclassified to discontinued operations

     (2,401 )   (2,090 )   (1,229 )   —       (1,229 )   —    
                                      

Adjusted Operating expenses

   $ 66,423     66,197     68,925     —       68,925     75,519  
                                      

Other expenses as originally reported

   $ 20,320     23,453     (1,606 )   10,716     9,110     54,410  

Reclassified to discontinued operations

     —       —       —       —       —       —    
                                      

Adjusted Other expenses

   $ 20,320     23,453     (1,606 )   10,716     9,110     54,410  
                                      

Minority interests as originally reported

   $ (1,402 )   (1,366 )   (1,419 )   71     (1,348 )   (1,064 )

Reclassified to discontinued operations

     12     7     9     —       9     —    
                                      

Adjusted Minority interests

   $ (1,390 )   (1,359 )   (1,410 )   71     (1,339 )   (1,064 )
                                      

Equity in income of investments in real estate partnerships

   $ 2,635     1,122     1,817     —       1,817     (282 )
                                      

Income from continuing operations as originally reported

   $ 31,737     31,397     54,648     (10,645 )   44,003     6,287  

Reclassified to discontinued operations

     (1,730 )   (1,309 )   (1,181 )     (1,181 )   —    
                                      

Adjusted Income from continuing operations

   $ 30,007     30,088     53,467     (10,645 )   42,822     6,287  
                                      

Income from discontinued operations as originally reported

   $ (99 )   5,388     4,816     —       4,816     12,659  

Reclassified to discontinued operations

     1,730     1,309     1,181     —       1,181     —    
                                      

Adjusted Income from discontinued operations

   $ 1,631     6,697     5,997     —       5,997     12,659  
                                      

Net income

   $ 31,638     36,785     59,464     (10,645 )   48,819     18,946  
                                      

Preferred stock dividends

   $ (4,919 )   (4,919 )   (4,919 )   —       (4,919 )   (4,918 )
                                      

Net income for common stockholders

   $ 26,719     31,866     54,545     (10,645 )   43,900     14,028  
                                      

Net income per share:

            

Basic

   $ 0.38     0.45     0.78     (0.15 )   0.63     0.20  
                                      

Diluted

   $ 0.38     0.45     0.78     (0.15 )   0.63     0.20  
                                      

Balance Sheet Data:

            

Total assets (a)

   $ 4,167,473     4,248,030     4,192,880     (10,716 )   4,182,164    

Total debt

   $ 2,108,500     2,194,662     2,137,007     —       2,137,007    

Total liabilities

   $ 2,277,344     2,371,115     2,313,813     —       2,313,813    

Minority interests (a)

   $ 77,403     67,117     67,223     (71 )   67,152    

Stockholders’ equity (a)

   $ 1,812,726     1,809,798     1,811,844     (10,645 )   1,801,199    

 

104


Table of Contents
Index to Financial Statements

Regency Centers Corporation

Notes to Consolidated Financial Statements

December 31, 2008

 

2007:

   First
Quarter
    Second
Quarter
    Third
Quarter
    Fourth
Quarter
 

Operating Data:

        

Revenues as originally reported

   $ 106,715     108,760     116,980     119,796  

Reclassified to discontinued operations

     (3,882 )   (3,888 )   (4,028 )   (3,871 )
                          

Adjusted Revenues

   $ 102,833     104,872     112,952     115,925  
                          

Operating expenses as originally reported

   $ 58,755     61,065     63,611     73,671  

Reclassified to discontinued operations

     (2,364 )   (2,275 )   (2,321 )   (2,308 )
                          

Adjusted Operating expenses

   $ 56,391     58,790     61,290     71,363  
                          

Other expenses as originally reported

   $ (6,256 )   16,862     15,023     4,650  

Reclassified to discontinued operations

     (110 )   6     —       —    
                          

Adjusted Other expenses

   $ (6,366 )   16,868     15,023     4,650  
                          

Minority interests as originally reported

   $ (1,749 )   (1,434 )   (1,448 )   (1,520 )

Reclassified to discontinued operations

     72     (95 )   33     44  
                          

Adjusted Minority interests

   $ (1,677 )   (1,529 )   (1,415 )   (1,476 )
                          

Equity in income of investments in real estate partnerships

   $ 3,788     780     1,677     11,847  
                          

Income from continuing operations as originally reported

   $ 56,255     30,179     38,575     51,802  

Reclassified to discontinued operations

     (1,336 )   (1,714 )   (1,674 )   (1,519 )
                          

Adjusted Income from continuing operations

   $ 54,919     28,465     36,901     50,283  
                          

Income from discontinued operations as originally reported

   $ 733     19,105     3,324     3,678  

Reclassified to discontinued operations

     1,336     1,714     1,674     1,519  
                          

Adjusted Income from discontinued operations

   $ 2,069     20,819     4,998     5,197  
                          

Net income

   $ 56,988     49,284     41,899     55,480  
                          

Preferred stock dividends

   $ (4,919 )   (4,919 )   (4,919 )   (4,919 )
                          

Net income for common stockholders

   $ 52,069     44,365     36,980     50,561  
                          

Net income per share:

        

Basic

   $ 0.75     0.64     0.53     0.73  
                          

Diluted

   $ 0.75     0.64     0.53     0.73  
                          

Balance Sheet Data (as restated):

        

Total assets (a)

   $ 3,748,695     3,961,573     4,064,846    

Total debt

   $ 1,674,932     1,840,524     1,952,030    

Total liabilities

   $ 1,837,702     2,032,833     2,159,333    

Minority interests (a)

   $ 78,425     77,350     74,056    

Stockholders’ equity (a)

   $ 1,832,568     1,851,390     1,831,457    

 

(a)

The balance sheet data reflects cumulative prior period adjustments from such balance sheets as previously filed in each respective Form 10-Q recorded to defer reported gains on sales of properties to and reverse recognition of previously deferred gains associated with subsequent sales to third parties from DIK-JVs in 2005 and prior. As a result of this adjustment, total assets decreased $28.2 million, minority interests decreased approximately $620,000, and stockholders’ equity decreased $27.6 million as of the end of each quarter presented.

 

105


Table of Contents
Index to Financial Statements

Regency Centers Corporation

Notes to Consolidated Financial Statements

December 31, 2008

 

19. Subsequent Events

Subsequent to December 31, 2008, under the terms of the MCWR I partnership agreement, MCW elected to dissolve the partnership. See Note 5 for further discussion.

 

106


Table of Contents
Index to Financial Statements

REGENCY CENTERS CORPORATION

Combined Real Estate and Accumulated Depreciation

December 31, 2008

(in thousands)

 

    Initial Cost   Cost
Capitalized
    Total Cost       Total Cost
Net of
   

Shopping
Centers (a)

  Land   Building &
Improvements
  Subsequent to
Acquisition (b)
    Land   Building &
Improvements
  Properties
held for Sale
  Total   Accumulated
Depreciation
  Accumulated
Depreciation
  Mortgages

4S Commons Town Center

  28,009   32,692   5,889     30,760   35,830   —     66,590   3,832   62,758   62,500

Alden Bridge

  12,937   10,146   1,976     13,810   11,249   —     25,059   3,508   21,551   —  

Anthem Highlands Shopping Ctr

  8,643   11,981   —       8,643   11,981   —     20,624   765   19,859   —  

Anthem Marketplace

  6,846   13,563   1     6,714   13,696   —     20,410   2,597   17,813   —  

Ashburn Farm Market Center

  9,869   4,747   31     9,835   4,812   —     14,647   1,851   12,796   —  

Ashford Place

  2,804   9,944   (299 )   2,584   9,865   —     12,449   3,855   8,594   3,089

Atascocita Center

  1,008   2,237   7,031     3,997   6,279   —     10,276   1,164   9,112   —  

Augusta Center

  5,141   2,438   283     5,142   2,720   —     7,862   180   7,682   —  

Aventura Shopping Center

  2,751   9,318   1,141     2,751   10,459   —     13,210   7,410   5,800   —  

Beckett Commons

  1,625   5,845   5,115     1,625   10,960   —     12,585   2,723   9,862   —  

Belleview Square

  8,132   8,610   1,146     8,132   9,756   —     17,888   1,951   15,937   8,716

Beneva Village Shops

  2,484   8,851   1,311     2,484   10,162   —     12,646   2,925   9,721   —  

Berkshire Commons

  2,295   8,151   1,400     2,295   9,551   —     11,846   3,689   8,157   —  

Bethany Park Place

  4,605   5,792   607     4,290   6,714   —     11,004   3,164   7,840   —  

Bloomingdale Square

  3,862   14,101   889     3,940   14,912   —     18,852   4,497   14,355   —  

Blossom Valley

  7,804   10,321   622     7,804   10,943   —     18,747   2,879   15,868   —  

Boulevard Center

  3,659   9,658   1,129     3,659   10,787   —     14,446   2,950   11,496   —  

Boynton Lakes Plaza

  2,783   10,043   1,038     2,628   11,236   —     13,864   3,412   10,452   —  

Briarcliff La Vista

  694   2,463   829     694   3,292   —     3,986   1,577   2,409   —  

Briarcliff Village

  4,597   16,304   8,532     4,597   24,836   —     29,433   9,869   19,564   —  

Buckhead Court

  1,738   6,163   948     1,417   7,432   —     8,849   3,177   5,672   —  

Buckley Square

  2,970   5,126   852     2,970   5,978   —     8,948   1,829   7,119   —  

Cambridge Square

  792   2,916   1,413     774   4,347   —     5,121   1,492   3,629   —  

Carmel Commons

  2,466   8,903   3,645     2,466   12,548   —     15,014   3,953   11,061   —  

Carriage Gate

  741   2,495   2,571     833   4,974   —     5,807   2,747   3,060   —  

Chapel Hill Centre

  3,932   3,897   —       3,932   3,897   —     7,829   104   7,725   —  

Chasewood Plaza

  1,675   11,391   12,375     4,612   20,829   —     25,441   9,154   16,287   —  

Cherry Grove

  3,533   12,710   3,152     3,533   15,862   —     19,395   4,426   14,969   —  

Cheshire Station

  10,182   8,443   (385 )   9,896   8,344   —     18,240   3,760   14,480   —  

Clayton Valley Shopping Center

  22,826   31,423   5,362     24,189   35,422   —     59,611   4,722   54,889   —  

Clovis Commons

  11,097   22,699   9,996     11,100   32,692   —     43,792   2,537   41,255   —  

Cochran’S Crossing

  13,154   10,066   2,249     13,154   12,315   —     25,469   3,711   21,758   —  

Cooper Street

  2,079   10,682   (2,788 )   —     —     9,973   9,973   —     9,973   —  

Corkscrew Village

  7,436   8,904   71     8,407   8,004   —     16,411   504   15,907   9,291

Costa Verde Center

  12,740   25,261   1,607     12,740   26,868   —     39,608   8,191   31,417   —  

Courtyard Shopping Center

  1,762   4,187   (78 )   5,867   4   —     5,871   —     5,871   —  

Cromwell Square

  1,772   6,285   659     1,772   6,944   —     8,716   2,684   6,032   —  

Delk Spectrum

  2,985   11,049   952     2,985   12,001   —     14,986   3,445   11,541   —  

Diablo Plaza

  5,300   7,536   645     5,300   8,181   —     13,481   2,227   11,254   —  

Dickson Tn

  675   1,568   —       675   1,568   —     2,243   361   1,882   —  

Dunwoody Hall

  1,819   6,451   5,836     2,529   11,577   —     14,106   4,255   9,851   —  

Dunwoody Village

  2,326   7,216   9,734     3,342   15,934   —     19,276   5,843   13,433   —  

East Pointe

  1,868   6,743   308     1,730   7,189   —     8,919   2,432   6,487   —  

East Port Plaza

  3,257   11,611   (1,560 )   3,257   10,051   —     13,308   2,416   10,892   —  

East Towne Center

  2,957   4,881   57     2,957   4,938   —     7,895   1,245   6,650   —  

El Camino Shopping Center

  7,600   10,852   686     7,600   11,538   —     19,138   3,173   15,965   —  

El Norte Pkwy Plaza

  2,834   6,332   1,038     2,834   7,370   —     10,204   2,071   8,133   —  

Encina Grande

  5,040   10,379   1,193     5,040   11,572   —     16,612   3,080   13,532   —  

Fairfax Shopping Center

  15,193   11,260   153     15,239   11,367   —     26,606   1,413   25,193   —  

 

107


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Index to Financial Statements

REGENCY CENTERS CORPORATION

Combined Real Estate and Accumulated Depreciation

December 31, 2008

(in thousands)

 

    Initial Cost   Cost
Capitalized
    Total Cost       Total Cost
Net of
   

Shopping

Centers (a)

  Land   Building &
Improvements
  Subsequent to
Acquisition (b)
    Land   Building &
Improvements
  Properties
held for Sale
  Total   Accumulated
Depreciation
  Accumulated
Depreciation
  Mortgages

Fenton Marketplace

  3,020   10,153   (2,365 )   2,298   8,510   —     10,808   1,918   8,890   —  

Fleming Island

  3,077   6,292   5,295     3,077   11,587   —     14,664   2,964   11,700   1,848

Fort Bend Center

  6,966   4,197   (5,394 )   2,594   3,175   —     5,769   1,348   4,421   —  

Fortuna

  8,336   6,898   (13,209 )   2,025   —     —     2,025   —     2,025   —  

Frankfort Crossing Shpg Ctr

  8,325   6,067   1,090     7,417   8,065   —     15,482   2,610   12,872   —  

French Valley Village Center

  11,792   16,919   69     11,924   16,856   —     28,780   2,131   26,649   —  

Friars Mission Center

  6,660   27,277   744     6,660   28,021   —     34,681   6,947   27,734   792

Gardens Square

  2,074   7,615   720     2,136   8,273   —     10,409   2,476   7,933   —  

Garner Towne Square

  5,591   19,897   1,969     5,591   21,866   —     27,457   5,700   21,757   —  

Gateway Shopping Center

  51,719   4,545   3,535     52,665   7,134   —     59,799   3,349   56,450   20,060

Gelson’S Westlake Market Plaza

  2,332   8,316   3,662     3,157   11,153   —     14,310   2,003   12,307   —  

Glenwood Village

  1,194   4,235   1,146     1,194   5,381   —     6,575   2,224   4,351   —  

Greenwood Springs

  2,720   3,043   16     2,720   3,059   —     5,779   483   5,296   —  

Hancock

  8,232   24,249   4,011     8,232   28,260   —     36,492   7,824   28,668   —  

Harding Place

  545   567   (464 )   26   622   —     648   44   604   —  

Harpeth Village Fieldstone

  2,284   5,559   3,884     2,284   9,443   —     11,727   2,613   9,114   —  

Hasley Canyon Village

  6,163   6,569   1,094     6,180   7,646   —     13,826   1,424   12,402   —  

Heritage Land

  12,390   —     —       12,390   —     —     12,390   —     12,390   —  

Heritage Plaza

  —     23,676   2,421     —     26,097   —     26,097   7,264   18,833   —  

Hershey

  7   807   1     7   808   —     815   166   649   —  

Hillcrest Village

  1,600   1,798   111     1,600   1,909   —     3,509   484   3,025   —  

Hillsboro Mervyn’S

  12,483   5,957   —       —     —     18,440   18,440   —     18,440   —  

Hinsdale

  4,218   15,040   3,185     5,734   16,709   —     22,443   4,562   17,881   —  

Horton’S Corner

  3,137   2,779   —       3,137   2,779   —     5,916   25   5,891   —  

Hyde Park

  9,240   33,340   7,134     9,809   39,905   —     49,714   12,235   37,479   —  

Inglewood Plaza

  1,300   1,862   297     1,300   2,159   —     3,459   605   2,854   —  

Keller Town Center

  2,294   12,239   602     2,294   12,841   —     15,135   3,258   11,877   —  

Kingsdale Shopping Center

  3,867   14,020   1,005     —     —     18,892   18,892   —     18,892   —  

Kleinwood Ii

  3,569   5,015   (762 )   2,985   4,837   —     7,822   344   7,478   —  

Kroger New Albany Center

  2,770   6,379   1,294     3,844   6,599   —     10,443   2,622   7,821   5,130

Lake Pine Plaza

  2,008   6,909   723     2,008   7,632   —     9,640   2,117   7,523   —  

Lebanon/Legacy Center

  3,906   7,391   490     3,913   7,874   —     11,787   2,337   9,450   —  

Legacy West

  1,770   —     —       1,770   —     —     1,770   —     1,770   —  

Littleton Square

  2,030   8,255   604     2,030   8,859   —     10,889   2,214   8,675   —  

Lloyd King Center

  1,779   8,855   1,205     1,779   10,060   —     11,839   2,720   9,119   —  

Loehmanns Plaza

  3,982   14,118   4,570     3,983   18,687   —     22,670   6,360   16,310   —  

Loehmanns Plaza California

  5,420   8,679   771     5,420   9,450   —     14,870   2,576   12,294   —  

Loveland Shopping Center

  157   —     —       157   —     —     157   —     157   —  

Lynnwood - H-Mart

  7,644   1,957   31     —     —     9,632   9,632   —     9,632   —  

Macarthur Park Repurchase

  1,930   —     (1,058 )   872   —     —     872   —     872   —  

Market At Opitz Crossing

  9,902   8,339   909     9,902   9,248   —     19,150   2,659   16,491   11,710

Market At Preston Forest

  4,400   10,753   692     4,400   11,445   —     15,845   2,742   13,103   —  

Market At Round Rock

  2,000   9,676   (2,166 )   —     —     9,510   9,510   —     9,510   —  

Marketplace At Briargate

  1,625   4,289   677     1,706   4,885   —     6,591   314   6,277   —  

Marketplace Shopping Center

  1,287   4,663   846     1,287   5,509   —     6,796   1,933   4,863   —  

Martin Downs Town Center

  1,364   4,985   202     1,364   5,187   —     6,551   1,609   4,942   —  

Martin Downs Village Center

  2,000   5,133   4,447     2,438   9,142   —     11,580   4,815   6,765   —  

Martin Downs Village Shoppes

  700   1,208   3,874     817   4,965   —     5,782   2,076   3,706   —  

Maxtown Road (Northgate)

  1,753   6,244   424     1,769   6,652   —     8,421   1,922   6,499   —  

 

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Index to Financial Statements

REGENCY CENTERS CORPORATION

Combined Real Estate and Accumulated Depreciation

December 31, 2008

(in thousands)

 

    Initial Cost   Cost
Capitalized
    Total Cost       Total Cost
Net of
   

Shopping

Centers (a)

  Land   Building &
Improvements
  Subsequent to
Acquisition (b)
    Land   Building &
Improvements
  Properties
held for Sale
  Total   Accumulated
Depreciation
  Accumulated
Depreciation
  Mortgages

Maynard Crossing

  4,066   14,084   1,507     4,066   15,591   —     19,657   4,318   15,339   —  

Merrimack Shopping Center

  7,819   2,499   —       7,819   2,499   —     10,318   844   9,474   —  

Millhopper Shopping Center

  1,073   3,594   1,764     1,073   5,358   —     6,431   3,569   2,862   —  

Mockingbird Common

  3,000   9,676   1,052     3,000   10,728   —     13,728   3,023   10,705   —  

Monument Jackson Creek

  2,999   6,476   289     2,999   6,765   —     9,764   2,486   7,278   —  

Morningside Plaza

  4,300   13,120   831     4,300   13,951   —     18,251   3,600   14,651   —  

Murrayhill Marketplace

  2,600   15,753   2,718     2,670   18,401   —     21,071   5,239   15,832   8,239

Naples Walk

  16,377   15,000   350     18,173   13,554   —     31,727   779   30,948   17,621

Nashboro Village

  1,824   7,168   510     1,824   7,678   —     9,502   1,892   7,610   —  

Newberry Square

  2,341   8,467   1,754     2,412   10,150   —     12,562   4,786   7,776   —  

Newland Center

  12,500   12,221   (1,524 )   12,500   10,697   —     23,197   3,346   19,851   —  

North Hills

  4,900   18,972   802     4,900   19,774   —     24,674   4,894   19,780   5,085

Northgate Square

  3,688   9,951   64     5,011   8,692   —     13,703   491   13,212   6,545

Northlake Village

  2,662   9,685   1,599     2,662   11,284   —     13,946   2,620   11,326   —  

Oakbrook Plaza

  4,000   6,366   302     4,000   6,668   —     10,668   1,931   8,737   —  

Old St Augustine Plaza

  2,047   7,355   4,371     2,368   11,405   —     13,773   3,662   10,111   —  

Orangeburg & Central

  2,067   2,355   33     2,071   2,384   —     4,455   110   4,345   —  

Paces Ferry Plaza

  2,812   9,968   2,671     2,812   12,639   —     15,451   4,718   10,733   —  

Panther Creek

  14,414   12,079   2,669     14,414   14,748   —     29,162   4,475   24,687   9,842

Park Place Shopping Center

  2,232   7,974   (2,947 )   2,232   5,027   —     7,259   2,819   4,440   —  

Peartree Village

  5,197   8,733   11,013     5,197   19,746   —     24,943   6,120   18,823   10,307

Phenix Crossing

  1,544   —     —       1,544   —     —     1,544   —     1,544   —  

Pike Creek

  5,077   18,860   1,868     5,153   20,652   —     25,805   6,052   19,753   —  

Pima Crossing

  5,800   24,892   3,251     5,800   28,143   —     33,943   7,190   26,753   —  

Pine Lake Village

  6,300   10,522   469     6,300   10,991   —     17,291   2,711   14,580   —  

Pine Tree Plaza

  539   1,996   4,353     668   6,220   —     6,888   1,725   5,163   —  

Plaza Hermosa

  4,200   9,370   739     4,200   10,109   —     14,309   2,564   11,745   —  

Powell Street Plaza

  8,248   29,279   1,437     8,248   30,716   —     38,964   5,466   33,498   —  

Powers Ferry Square

  3,608   12,791   5,253     3,687   17,965   —     21,652   6,833   14,819   —  

Powers Ferry Village

  1,191   4,224   448     1,191   4,672   —     5,863   1,790   4,073   2,449

Prairie City Crossing

  3,944   11,258   1,994     4,164   13,032   —     17,196   2,554   14,642   —  

Preston Park

  6,400   46,896   7,921     6,400   54,817   —     61,217   14,366   46,851   —  

Prestonbrook

  4,704   10,762   225     7,069   8,622   —     15,691   3,405   12,286   —  

Prestonwood Park

  8,077   14,938   (6,604 )   7,399   9,012   —     16,411   4,204   12,207   —  

Regency Commons

  3,917   3,584   32     3,917   3,616   —     7,533   628   6,905   —  

Regency Square

  578   18,157   11,226     4,770   25,191   —     29,961   14,117   15,844   —  

Rivermont Station

  2,887   10,445   203     2,887   10,648   —     13,535   3,127   10,408   —  

Rockwall Town Center

  4,438   5,140   —       4,438   5,140   —     9,578   679   8,899   —  

Rona Plaza

  1,500   4,356   561     1,500   4,917   —     6,417   1,271   5,146   —  

Russell Ridge

  2,153   —     6,984     2,234   6,903   —     9,137   2,548   6,589   5,387

Sammamish-Highlands

  9,300   7,553   522     9,300   8,075   —     17,375   2,055   15,320   —  

San Leandro Plaza

  1,300   7,891   335     1,300   8,226   —     9,526   2,187   7,339   —  

Santa Ana Downtown Plaza

  4,240   7,319   1,195     4,240   8,514   —     12,754   2,556   10,198   —  

Sequoia Station

  9,100   17,900   456     9,100   18,356   —     27,456   4,608   22,848   —  

Sherwood Crossroads

  2,731   3,612   2,748     2,731   6,360   —     9,091   1,062   8,029   —  

Sherwood Market Center

  3,475   15,898   464     3,475   16,362   —     19,837   4,310   15,527   —  

Shiloh Springs

  4,968   7,859   4,608     5,739   11,696   —     17,435   5,565   11,870   —  

Shoppes At Mason

  1,577   5,358   327     1,577   5,685   —     7,262   1,576   5,686   —  

Shoppes Of Grande Oak

  5,569   5,900   (393 )   5,091   5,985   —     11,076   1,946   9,130   —  

 

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Index to Financial Statements

REGENCY CENTERS CORPORATION

Combined Real Estate and Accumulated Depreciation

December 31, 2008

(in thousands)

 

    Initial Cost   Cost
Capitalized
    Total Cost       Total Cost
Net of
   

Shopping

Centers (a)

  Land   Building &
Improvements
  Subsequent to
Acquisition (b)
    Land     Building &
Improvements
  Properties
held for Sale
  Total   Accumulated
Depreciation
  Accumulated
Depreciation
  Mortgages

Shops At Arizona

  3,293   2,320   693     3,063     3,243   —     6,306   827   5,479   —  

Shops At County Center

  9,766   10,863   597     9,957     11,269   —     21,226   975   20,251   —  

Shops At John’S Creek

  1,863   2,015   (1 )   1,863     2,014   —     3,877   316   3,561   —  

Shops Of Santa Barbara

  9,477   1,331   —       9,477     1,331   —     10,808   1,497   9,311   —  

Signature Plaza

  2,055   4,159   80     2,396     3,898   —     6,294   855   5,439   —  

South Lowry Square

  3,420   9,934   525     3,434     10,445   —     13,879   2,685   11,194   —  

South Mountain

  934   —     (788 )   146     —     —     146   —     146   —  

Southcenter

  1,300   12,251   499     1,300     12,750   —     14,050   3,226   10,824   —  

Southpoint Crossing

  4,399   11,116   1,132     4,412     12,235   —     16,647   3,182   13,465   —  

Starke

  71   1,674   9     71     1,683   —     1,754   342   1,412   —  

Sterling Ridge

  12,846   10,085   2,077     12,846     12,162   —     25,008   3,659   21,349   —  

Strawflower Village

  4,060   7,233   851     4,060     8,084   —     12,144   2,185   9,959   —  

Stroh Ranch

  4,138   7,111   1,220     4,280     8,189   —     12,469   2,955   9,514   —  

Sunnyside 205

  1,200   8,703   756     1,200     9,459   —     10,659   2,484   8,175   —  

Tanasbourne Market

  3,269   10,861   —       3,269     10,861   —     14,130   377   13,753   —  

Tassajara Crossing

  8,560   14,900   564     8,560     15,464   —     24,024   3,856   20,168   —  

Thomas Lake

  6,000   10,302   326     6,000     10,628   —     16,628   2,773   13,855   —  

Town Square

  438   1,555   7,022     883     8,132   —     9,015   2,506   6,509   —  

Trace Crossing

  4,356   4,896   (8,973 )   279     —     —     279   —     279   —  

Trophy Club

  2,595   10,467   556     2,595     11,023   —     13,618   2,671   10,947   —  

Twin City Plaza

  17,174   44,849   (553 )   17,245     44,225   —     61,470   3,669   57,801   43,647

Twin Peaks

  5,200   25,120   707     5,200     25,827   —     31,027   6,476   24,551   —  

Valencia Crossroads

  17,913   17,357   310     17,921     17,659   —     35,580   6,218   29,362   —  

Ventura Village

  4,300   6,351   297     4,300     6,648   —     10,948   1,728   9,220   —  

Village Center

  3,885   10,799   3,332     3,885     14,131   —     18,016   4,595   13,421   —  

Vista Village Iv

  2,281   2,712   59     2,287     2,765   —     5,052   420   4,632   —  

Walker Center

  3,840   6,418   814     3,840     7,232   —     11,072   1,924   9,148   —  

Welleby Plaza

  1,496   5,372   2,415     1,496     7,787   —     9,283   3,592   5,691   —  

Wellington Town Square

  1,914   7,198   5,060     2,041     12,131   —     14,172   3,365   10,807   —  

West Park Plaza

  5,840   4,992   767     5,840     5,759   —     11,599   1,435   10,164   —  

Westbrook Commons

  3,366   11,928   (177 )   3,366     11,751   —     15,117   2,809   12,308   —  

Westchase

  4,390   9,119   66     5,302     8,273   —     13,575   444   13,131   8,743

Westchester Plaza

  1,857   6,456   1,116     1,857     7,572   —     9,429   2,753   6,676   —  

Westlake Plaza And Center

  7,043   25,744   1,451     7,043     27,195   —     34,238   7,586   26,652   —  

Westridge Village

  9,516   10,789   621     9,529     11,397   —     20,926   2,495   18,431   —  

White Oak - Dover, De

  2,147   2,927   139     2,144     3,069   —     5,213   1,901   3,312   —  

Willa Springs

  2,004   9,267   212     2,144     9,339   —     11,483   2,351   9,132   —  

Windmiller Plaza Phase I

  2,620   11,191   2,068     2,638     13,241   —     15,879   3,746   12,133   —  

Woodcroft Shopping Center

  1,419   5,212   1,072     1,419     6,284   —     7,703   2,145   5,558   —  

Woodman Van Nuys

  5,500   6,835   360     5,500     7,195   —     12,695   1,968   10,727   —  

Woodmen Plaza

  6,014   10,078   2,547     7,621     11,018   —     18,639   5,123   13,516   —  

Woodside Central

  3,500   8,846   439     3,499     9,286   —     12,785   2,336   10,449   —  

Properties In Development

  —     —     1,078,685     (200 )   1,078,885   —     1,078,685   11,561   1,067,124   —  
                                           
  934,401   1,780,990   1,327,096     923,062     3,052,978   66,447   4,042,487   554,595   3,487,892   241,001
                                           

 

(a) See Item 2. Properties for geographic location and year acquired.
(b) The negative balance for costs capitalized subsequent to acquisition could include out-parcels sold, provision for impairment recorded and development transfers subsequent to the initial costs.

 

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Index to Financial Statements

REGENCY CENTERS CORPORATION

Combined Real Estate and Accumulated Depreciation

December 31, 2008

(in thousands)

 

Depreciation and amortization of the Company’s investment in buildings and improvements reflected in the statements of operations 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 $3.4 billion at December 31, 2008.

The changes in total real estate assets for the years ended December 31, 2008, 2007, and 2006:

 

     2008     2007     2006  

Balance, beginning of year

   $ 3,965,285     3,467,543     3,229,816  

Developed or acquired properties

     365,267     545,814     426,583  

Improvements

     15,995     18,022     16,876  

Sale of properties

     (202,758 )   (66,094 )   (179,624 )

Properties held for sale

     (66,447 )   —       (25,608 )

Provision for impairment

     (34,855 )   —       (500 )
                    

Balance, end of year

   $ 4,042,487     3,965,285     3,467,543  
                    

The changes in accumulated depreciation for the years ended December 31, 2008, 2007, and 2006:

 

           2008                 2007                 2006        

Balance, beginning of year

   $ 497,498     427,389     380,613  

Depreciation for year

     88,509     76,069     71,847  

Sale of properties

     (19,771 )   (5,960 )   (20,907 )

Accumulated depreciation related to properties held for sale

     (11,641 )   —       (4,164 )
                    

Balance, end of year

   $ 554,595     497,498     427,389  
                    

 

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Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

 

Item 9A. Controls and Procedures

Management’s Consideration of Controls over Property Sales to Co-Investment Partnerships

As a result of the error correction and restatement described in Note 2 to the accompanying Notes to the Consolidated Financial Statements, the Company re-evaluated the effectiveness of internal controls related to accounting for gains on property sales to co-investment partnerships prior to the filing of this Form 10-K. As part of the re-evaluation, we considered the internal controls necessary to effectively ensure that complex business transactions are properly accounted for under generally accepted accounting principles (GAAP). Relevant internal controls should ensure that:

 

   

Complex business transactions and provisions are identified.

 

   

Appropriate personnel discuss important accounting matters.

 

   

Relevant GAAP is identified, including any significant guidance changes.

 

   

Professional judgment is exercised in applying GAAP to complex business transactions.

 

   

Professional judgment is evaluated objectively by the Audit Committee.

The Company identified internal controls related to gains on sales to co-investment partnerships and re-evaluated the effectiveness of those controls in achieving the objectives noted above. The controls identified include:

 

   

Appropriate accounting personnel review co-investment partnership agreements prior to execution and amendments thereafter and property sales and distributions from co-investment partnerships to identify accounting implications.

 

   

Accounting personnel communicate with senior management to identify all relevant matters.

 

   

Experienced accounting personnel review GAAP to identify relevant guidance.

 

   

Management reviews GAAP guidance internally to determine how to appropriately account for complex transactions.

 

   

After internal discussions, management consults with appropriate accounting and legal experts, determines the appropriate application of GAAP and prepares financial statements.

 

   

Senior management communicates to the Audit Committee any significant changes in accounting policies as a result of new transactions or changes in GAAP. The Committee reviews management’s assessment and concurs, if in agreement. Any differences in assessment would be re-evaluated by management and resubmitted to the Committee.

After re-evaluating the design and operating effectiveness of the controls noted above, management has determined that we have effective internal controls to ensure that complex business transactions are properly accounted for under GAAP. Management has determined that the restatement as described in Note 18 does not indicate a material weakness in our internal control over financial reporting. Management has determined the restatement of quarterly financial information and cumulative balance sheet information was the result of a misinterpretation of relevant guidance in an area where clear guidance is not available and no consensus on accounting treatment has been established among accounting or industry experts. Therefore, the Company applied its judgment based on the best information available.

In evaluating the gain treatment, the Company properly identified provisions with significant accounting implications; identified relevant GAAP, including SFAS No. 66; discussed important accounting matters with internal personnel, and accounting and legal experts; and exercised professional judgment in applying GAAP to the partial gains on property sales to co-investment partnerships.

 

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The Company has concluded that the controls noted above provide reasonable assurance that GAAP will be applied appropriately to future complex business transactions.

Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the Exchange Act). Based on this evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this annual report on Form 10-K to ensure information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time period specified in the SEC’s rules and forms. These disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed by us in the reports we file or submit is accumulated and communicated to management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure.

Management’s Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f). Under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation under the framework in Internal Control - Integrated Framework, our management concluded that our internal control over financial reporting was effective as of December 31, 2008.

KPMG LLP, an independent registered public accounting firm, has audited the consolidated financial statements included in this annual report on Form 10-K and, as part of their audit, has issued a report, included herein, on the effectiveness of our internal control over financial reporting.

Regency’s system of internal control over financial reporting was designed to provide reasonable assurance regarding the preparation and fair presentation of published financial statements in accordance with accounting principles generally accepted in the United States. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance and may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Changes in Internal Controls

In connection with the preparation of the year-end financial statements, management updated its policies and procedures to implement the Restricted Gain Method as described in Note 1(b) to the accompanying Notes to the Consolidated Financial Statements. The Restricted Gain Method ensures maximum gain deferral on property sales to certain co-investment partnership with distribution-in-kind provisions upon liquidation. The policy and procedure updates consist of new procedures and end user computing applications for the calculation of gain, and monitoring for distributions-in-kind and compliance with the new policies.

Other than described above, there have been no changes in the Company’s internal controls over financial reporting identified in connection with this evaluation that occurred during the fourth quarter of 2008 and that have materially affected, or are reasonably likely to materially affect, the Company’s internal controls over financial reporting.

 

Item 9B. Other Information

Not applicable

 

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PART III

 

Item 10. Directors, Executive Officers and Corporate Governance

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 2009 Annual Meeting of Stockholders.

Information regarding executive officers is included in Part I of this Form 10-K as permitted by General Instruction G(3).

Audit Committee, Independence, Financial Experts. 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 2009 Annual Meeting of Stockholders.

Compliance with Section 16(a) of the Exchange Act. Information concerning filings under Section 16(a) of the Exchange Act by the directors or executive officers 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 2009 Annual Meeting of Stockholders.

Code of Ethics. We have adopted a code of ethics applicable to our Board of Directors, principal executive officers, principal financial officer, principal accounting officer and persons performing similar functions. The text of this code of ethics may be found on our web site at “www.regencycenters.com.” We intend to post notice of any waiver from, or amendment to, any provision of our code of ethics on our web site.

 

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 2009 Annual Meeting of Stockholders.

 

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Index to Financial Statements
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Equity Compensation Plan Information

 

     (a)    (b)    (c)

Plan Category

   Number of
securities
to be issued
upon
exercise of
outstanding
options,
warrants
and rights
   Weighted-
average
exercise
price of
outstanding
options,
warrants
and
rights(1)
   Number of
securities
remaining
available for
future
issuance
under equity
compensation
plans
(excluding
securities
reflected in
column (2)

Equity compensation plans approved by security holders

   574,027    $ 51.24   

Equity compensation plans not approved by security holders

   N/A      N/A    N/A
                

Total

   574,027    $ 51.24   
                

 

(1)

The weighted average exercise price excludes stock rights awards, which we sometimes refer to as unvested restricted stock.

(2)

Our Long Term Omnibus Plan, as amended and approved by stockholders at our 2003 annual meeting, provides for the issuance of up to 5.0 million shares of common stock or stock options for stock compensation; however, outstanding unvested grants plus vested but unexercised options cannot exceed 12% of our outstanding common stock and common stock equivalents (excluding options and other stock equivalents outstanding under the plan). The plan permits the grant of any type of share-based award but limits restricted stock awards, stock rights awards, performance shares, dividend equivalents settled in stock and other forms of stock grants to 2.75 million shares, of which 779,715 shares were available at December 31, 2008 for future issuance.

Information about security ownership 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 2009 Annual Meeting of Stockholders.

 

Item 13. Certain Relationships and Related Transactions, and Director Independence

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 2009 Annual Meeting of Stockholders.

 

Item 14. Principal Accountant Fees and Services

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 2009 Annual Meeting of Stockholders.

 

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Index to Financial Statements

PART IV

 

Item 15. Exhibits and Financial Statement Schedules

 

   (a)    Financial Statements and Financial Statement Schedules:
      Regency’s 2008 financial statements and financial statement schedule, together with the reports of KPMG LLP are listed on the index immediately preceding the financial statements in Item 8, Consolidated Financial Statements and Supplemental Data.
   (b)    Exhibits:
2.    (a)    Purchase and Sale Agreement among Macquarie CountryWide-Regency II, LLC, Macquarie CountryWide Trust, Regency Centers Corporation, USRP Texas GP, LLC, Eastern Shopping Center Holdings, LLC, First Washington Investment I, LLC and California Public Employees’ Retirement System dated February 14, 2005 (incorporated by reference to Exhibit 10.1 to the Company’s Form 10-Q filed May 10, 2005).
3.    Articles of Incorporation and Bylaws
      (i)    Restated Articles of Incorporation of Regency Centers Corporation incorporated by reference to Exhibit 3.1 of the Company’s Form 8-K filed February 19, 2008.
      (ii)    Amended and Restated Bylaws of Regency Centers Corporation (incorporated by reference to Exhibit 3.2(b) to the Company’s Form 8-K report filed November 7, 2008).
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 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).
   (c)    Indenture dated December 5, 2001 between Regency Centers, L.P., the guarantors named therein and First Union National Bank, as trustee (incorporated by referenced to Exhibit 4.4 of Form 8-K of Regency Centers, L.P. filed December 10, 2001, File No. 0-24763).
      (i)    First Supplemental Indenture dated as of June 5, 2007 among Regency Centers, L.P., Regency as guarantor and U.S. Bank National Association, as successor to Wachovia Bank, National Association (formerly known as First Union National Bank), as Trustee (incorporated by reference to Exhibit 4.1 to Regency Centers, L.P.’s Form 8-K filed June 5, 2007).
   (d)    Indenture dated July 18, 2005 between Regency Centers, L.P., the guarantors named therein and Wachovia Bank, National Association, as trustee (incorporated by referenced to Exhibit 4.1 of Form S-4 of Regency Centers, L.P. filed August 5, 2005, No. 333-127274).
10.    Material Contracts
   (a)    Regency Centers Corporation Long Term Omnibus Plan (incorporated by reference to Exhibit 10.9 to the Company’s Form 10-Q filed May 8, 2008).

 

~    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.

 

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~    (b)    Form of Stock Rights Award Agreement pursuant to the Company’s Long-Term Omnibus Plan (incorporated by reference to Exhibit 10(b) to the Company’s Form 10-K filed March 10, 2006).
~       (i)    Form of 409A Amendment to Stock Rights Award Agreements.
~    (c)    Form of Nonqualified Stock Option Agreement pursuant to the Company’s Long-Term Omnibus Plan (incorporated by reference to Exhibit 10(c) to the Company’s Form 10-K filed March 10, 2006).
~       (i)    Form of 409A Amendment to Stock Option Agreements.
~    (d)    Stock Rights Award Agreement dated as of December 17, 2002 between the Company and Martin E. Stein, Jr. (incorporated by reference to Exhibit 10(d) to the Company’s Form 10-K filed March 12, 2004).
~    (e)    Stock Rights Award Agreement dated as of December 17, 2002 between the Company and Mary Lou Fiala (incorporated by reference to Exhibit 10(e) to the Company’s Form 10-K filed March 12, 2004).
~    (f)    Stock Rights Award Agreement dated as of December 17, 2002 between the Company and Bruce M. Johnson (incorporated by reference to Exhibit 10(f) to the Company’s Form 10-K filed March 12, 2004).
~*    (i)    Form of Director/Officer Indemnification Agreement.
~    (j)    Amended and Restated Deferred Compensation Plan dated May 6, 2003 (incorporated by reference to Exhibit 10(k) to the Company’s Form 10-K filed March 12, 2004).
   (l)    Fourth Amended and Restated Agreement of Limited Partnership of Regency Centers, L.P., as amended (incorporated by reference to Exhibit 10(m) to the Company’s Form 10-K filed March 12, 2004).
      (i)    Amendment to Fourth Amended and Restated Agreement of Limited Partnership of Regency Centers, L.P. relating to 6.70% Series 5 Cumulative Redeemable Preferred Units, effective as of July 28, 2005 (incorporated by reference to Exhibit 3.3 to the Company’s Form 8-K filed August 1, 2005).
      (ii)    Amended and Restated Amendment dated January 1, 2008 to Fourth Amended and Restated Agreement of Limited Partnership Relating to 7.45% Series 3 Cumulative Redeemable Preferred Units (incorporated by reference to Exhibit 10.1 of Regency Centers, L.P.’s Form 8-K filed January 7, 2008).
      (iii)    Amended and Restated Amendment dated January 1, 2008 to Fourth Amended and Restated Agreement of Limited Partnership Relating to 7.25% Series 4 Cumulative Redeemable Preferred Units (incorporated by reference to Exhibit 10.1 of Regency Centers, L.P.’s Form 8-K filed January 7, 2008).
   (m)    Second Amended and Restated Credit Agreement dated as of February 9, 2007 by and among Regency Centers, L.P., Regency, each of the financial institutions initially a signatory thereto, and Wells Fargo Bank, National Association (incorporated by reference to Exhibit 10.1 of the Company’s Form 10-Q filed May 9, 2007).

 

~    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.

 

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      (i)    First Amendment to Second Amended and Restated Credit Agreement (incorporated by reference to Exhibit 10.2 to the Company’s Form 10-Q filed May 8, 2008).
   (n)    Credit Agreement dated as of March 5, 2008 by and among Regency Centers, L.P., Regency, each of the financial institutions party thereto and Wells Fargo Bank, National Association (incorporated by reference to Exhibit 10.1 to the Company’s Form 10-Q filed May 8, 2008).
   (o)    2008 Amended and Restated Severance and Change of Control Agreement dated as of January 1, 2008 by and between the Company and Martin E. Stein, Jr. (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed January 7, 2008).
~    (p)    2008 Amended and Restated Severance and Change of Control Agreement dated as of January 1, 2008 by and between the Company and Mary Lou Fiala (incorporated by reference to Exhibit 10.2 of the Company’s Form 8-K filed January 7, 2008).
~    (q)    2008 Amended and Restated Severance and Change of Control Agreement dated as of January 1, 2008 by and between the Company and Bruce M. Johnson (incorporated by reference to Exhibit 10.3 of the Company’s Form 8K filed January 7, 2008).
~    (r)    2008 Amended and Restated Severance and Change of Control Agreement effective January 1, 2008 by and between the Company and Brian M. Smith (incorporated by reference to Exhibit 10.4 of the Company’s Form 8-K filed January 7, 2008).
~       (i)    Addendum No. 1 dated March 17, 2008 to 2008 Amended and Restated Severance and Control Agreement dated as of January 1, 2008 by and between Regency Centers Corporation and Brian M. Smith (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed March 21, 2008).
~    (s)    Personalized Relocation Terms Document for Brian M. Smith dated March 17, 2008 (incorporated by reference to Exhibit 10.2 to the Company’s Form 8-K filed March 21, 2008).
~    (t)    Regency Centers Corporation 2005 Deferred Compensation Plan (incorporated by reference to Exhibit 10(s) to the Company’s Form 8-K filed December 21, 2004).
      (i)    First Amendment to Regency Centers Corporation 2005 Deferred Compensation Plan dated December, 2005 (incorporated by reference to Exhibit 10(q)(i) to the Company’s Form 10-K filed March 10, 2006).
   (u)    Amended and Restated Limited Liability Company Agreement of Macquarie CountryWide-Regency II, LLC dated as of June 1, 2005 by and among Regency Centers, L.P., Macquarie CountryWide (US) No. 2 LLC, Macquarie-Regency Management, LLC, Macquarie CountryWide (US) No. 2 Corporation and Macquarie CountryWide Management Limited (incorporated by reference to Exhibit 10.3 to the Company’s Form 10-Q filed August 8, 2005).
   (v)    Purchase Agreement and Amendment to Amended and Restated Limited Liability Agreement relating to Macquarie CountryWide-Regency II, L.L.C. dated as of January 13, 2006 among Macquarie CountryWide (U.S.) No. 2 LLC, Regency Centers, L.P., and Macquarie-Regency Management, LLC (incorporated by reference to Exhibit 10.1 to Form 10-Q filed May 8, 2006).
   (w)    Limited Partnership Agreement dated as of December 21, 2006 of RRP Operating, LP (incorporated by reference to Exhibit 10(u) to Regency’s Form 10-K filed February 27, 2007).

 

~    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.

 

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Index to Financial Statements
21. Subsidiaries of the Registrant.

 

23. Consent of KPMG LLP.

 

31.1 Rule 13a-14 Certification of Chief Executive Officer.

 

31.2 Rule 13a-14 Certification of Chief Financial Officer.

 

32.1 Section 1350 Certification of Chief Executive Officer.

 

32.2 Section 1350 Certification of Chief Financial Officer.

 

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Index to Financial Statements

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 CENTERS CORPORATION
 

/s/ Martin E. Stein, Jr.

March 17, 2009   Martin E. Stein, Jr., Chairman of the Board and Chief Executive 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.

 

 

/s/ Martin E. Stein, Jr.

March 17, 2009   Martin E. Stein, Jr., Chairman of the Board and Chief Executive Officer
 

/s/ Mary Lou Fiala

March 17, 2009   Mary Lou Fiala, Vice Chairman and Chief Operating Officer
 

/s/ Brian M. Smith

March 17, 2009   Brian M. Smith, President, Managing Director, and Chief Investment Officer
 

/s/ Bruce M. Johnson

March 17, 2009   Bruce M. Johnson, Executive Vice President, Managing Director, Chief Financial Officer (Principal Financial Officer), and Director
 

/s/ J. Christian Leavitt

March 17, 2009   J. Christian Leavitt, Senior Vice President, Secretary, and Treasurer (Principal Accounting Officer)
 

/s/ Raymond L. Bank

March 17, 2009   Raymond L. Bank, Director
 

/s/ C. Ronald Blankenship

March 17, 2009   C. Ronald Blankenship, Director
 

/s/ A. R. Carpenter

March 17, 2009   A. R. Carpenter, Director

 

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/s/ J. Dix Druce

March 17, 2009   J. Dix Druce, Director
 

/s/ Douglas S. Luke

March 17, 2009   Douglas S. Luke, Director
 

/s/ John C. Schweitzer

March 17, 2009   John C. Schweitzer, Director
 

/s/ Thomas G. Wattles

March 17, 2009   Thomas G. Wattles, Director
 

/s/ Terry N. Worrell

March 17, 2009   Terry N. Worrell, Director

 

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