-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RuHoh87JD4z2crUluqrNZKyMSJ+HMfWfGeQmcWA2/LRFs82jorgI6IHFXf7CNiOL dOW8Shtw6PQu2GAclxWvog== 0000950170-00-000477.txt : 20000331 0000950170-00-000477.hdr.sgml : 20000331 ACCESSION NUMBER: 0000950170-00-000477 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000330 FILER: COMPANY DATA: COMPANY CONFORMED NAME: EQUITY ONE INC CENTRAL INDEX KEY: 0001042810 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 521794271 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 001-13499 FILM NUMBER: 586700 BUSINESS ADDRESS: STREET 1: 1600 N E MIAMI GARDENS DR SUITE 200 CITY: NORTH MIAMI BEACH STATE: FL ZIP: 33179 MAIL ADDRESS: STREET 1: 1600 N E MIAMI GARDENS DR SUITE 200 CITY: NORTH MIAMI BEACH STATE: FL ZIP: 33179 10-K405 1 ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 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, 1999 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ____________ TO ____________ Commission file number 001-13499 EQUITY ONE, INC. Exact name of Registrant as specified in its charter MARYLAND 52-1794271 (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) 1600 N.E. MIAMI GARDENS DRIVE, SUITE 200 NORTH MIAMI BEACH, FL 33179 (Address of principal executive offices) Registrant's telephone number: (305) 947-1664 Securities registered pursuant to Section 12(b) of the Act: NAME OF EACH EXCHANGE TITLE OF EACH CLASS ON WHICH REGISTERED ------------------- --------------------- NONE Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK, $.01 PAR VALUE Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark 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. [X] As of March 27, 2000 the aggregate market value of the voting stock of the Registrant held by non-affiliates of the Registrant was $30,489,159. As of March 27, 2000, the number of outstanding shares of Common Stock, par value $.01 per share, of the Registrant was 11,502,907. ================================================================================ EQUITY ONE, INC. TABLE OF CONTENTS PAGE ---- PART I ITEM 1. BUSINESS........................................................2 ITEM 2. PROPERTIES......................................................6 ITEM 3. LEGAL PROCEEDINGS..............................................19 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS............20 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS..........................................20 ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA.............................21 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS..........................22 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.........................................................27 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA....................28 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE..........................28 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.............28 ITEM 11. EXECUTIVE COMPENSATION.........................................28 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT...................................................28 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.................29 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.....................................................29 1 PART I ITEM 1. BUSINESS GENERAL Equity One, Inc. and subsidiaries (collectively the "Company") is a self-administered, self-managed real estate investment trust ("REIT") that principally acquires, renovates, develops and manages community and neighborhood shopping centers anchored by national and regional supermarket chains ("Supermarket Centers"). At December 31, 1999, the Company's portfolio consisted of 28 properties, located primarily in metropolitan areas of Florida, and included 20 Supermarket Centers, two drugstore anchored shopping centers, five other mixed-use office and retail properties (collectively, the "Existing Properties") and one new Supermarket Center development. The Existing Properties are located primarily in the Miami, Orlando and Jacksonville metropolitan areas of Florida and contain an aggregate of 2.8 million square feet of gross leasable area ("GLA"). The Company is currently developing several additions to its Existing Properties including the 52,911 square foot phase two of the Shops at Skylake, a Supermarket Center located in North Miami Beach, Florida; the 72,480 square foot new Supermarket Center located in Tallahassee, Florida; and several smaller development projects. The Company also owns an aggregate of 18.75 acres of land adjacent to certain of the Existing Properties and 4.4 acres of vacant land located in Southwest Miami-Dade County, Florida, substantially all of which is intended for retail development. The Company also has an option to purchase (the "Option") 10.0 acres of land in Southwest Miami-Dade County, Florida ("Coral Way"), which land is commercially zoned and has received county site plan approval for the development of up to a 100,000 square foot Supermarket Center, and 6.2 acres of vacant land adjacent to certain of the Existing Properties. The Option is exercisable by the Company until May 2003. The Company's Supermarket Centers are anchored by national and regional supermarkets such as Winn-Dixie, Publix, and Albertson's. Additional tenants which attract tenants and shoppers to the Company's Supermarket Centers (including national and regional supermarkets, "Anchor Tenants") include national retailers such as K-Mart, Home Depot Expo, Best Buy, AMC Theatre, Walgreens, and Eckerd. Non-Anchor Tenants of the Supermarket Centers include such well-known national and regional businesses as Einstein Bros. Bagels, Rainbow Shops, Boat US Marine, Little Caesars, Blockbuster Video, General Nutrition Center, Radio Shack, NationsBank, Play It Again Sports, and Chili's. The Company believes that Anchor Tenants offering daily necessity items generate regular consumer traffic and enhance the performance and stability of its properties. As of December 31, 1999, the Company's supermarket Anchor Tenants, other Anchor Tenants and non-Anchor Tenants contributed 22.9%, 14.2% and 62.9%, respectively, of the Company's aggregate annualized minimum rents and accounted for approximately 30.9%, 19.6% and 49.5%, respectively, of the Company's aggregate leased GLA. RECENT DEVELOPMENTS On December 7, 1999, the Company completed the sale of Four Corners Shopping Center, a 115,178 square foot Supermarket Center in Tomball, Texas for the sales price of approximately $7.7 million. The net proceeds from the sale were used to fund a portion of the $92 purchase price of Mandarin Landing, a 141,541 square foot Supermarket Center, in Jacksonville, Florida for approximately $9.2 million on December 9, 1999. Mandarin Landing is anchored by a Publix supermarket and an Eckerd drugstore. On January 6, 2000, the Company purchased the Pizza Hut out-parcel in its existing Beauclerc Village Shopping Center in Jacksonville, Florida for $300,000. On January 31, 2000, the Company financed its Park Promenade Shopping Center ("Park Promenade"), a Supermarket Center located in Orlando, Florida, by executing a fixed rate mortgage note in the aggregate amount of $6.5 million. The net proceeds from this mortgage financing were used to satisfy a portion of amounts outstanding under the Company's Master Revolving Credit Agreement ("Credit Agreement"). 2 On February 22, 2000 the Company instituted a Dividend Reinvestment and Stock Purchase Plan (the "Plan"). The primary purpose of the Plan is to give existing stockholders a convenient and economical way to reinvest all or a portion of their cash dividends in additional shares of the Company's common stock. A secondary purpose of the Plan is to provide the Company with an economical way to raise additional capital for general corporate purposes through sales of common stock to existing stockholders. BUSINESS AND GROWTH STRATEGIES The Company was organized in June 1992 under the laws of the State of Maryland to acquire Supermarket Centers in high growth, densely populated areas throughout the Southeast capable of generating stable cash flows and maintaining long-term value. The Company selects properties for acquisition or development which have, or are suitable for, supermarket and other Anchor Tenants, and are adaptable over time for expansion, renovation and redevelopment. In order to take advantage of property management operating efficiencies and present attractive leasing opportunities to tenants who seek multiple locations in an area, the Company also targets properties within close proximity to its other properties. All properties must be well located and have high visibility, open air designs, ease of entry and exit and ample parking. The Company acquires both Supermarket Centers that are substantially fully leased (i.e., existing tenants occupy 85% or more of GLA), appropriately tenanted and well maintained ("Performing Supermarket Centers"), and Supermarket Centers which are not Performing Supermarket Centers which meet the Company's turnaround criteria ("Underperforming Supermarket Centers"). In acquiring Performing Supermarket Centers, the Company requires attractive and sustainable rates of return, and in acquiring Underperforming Supermarket Centers, the Company seeks opportunities to increase revenues primarily through renovation and re-tenanting. The Company believes that its management team possesses the experience and expertise necessary to identify, acquire, renovate, develop and manage additional Supermarket Centers. The Company's principal senior executives and property managers average more than 15 years experience in the real estate industry and have acquired and managed all the Existing Properties. Management believes that it has cultivated strong relationships with supermarkets and other Anchor Tenants which, in combination with its in-depth knowledge of the Company's primary markets, have contributed substantially to the Company's success in identifying, acquiring and operating its properties. Since its formation, the Company has experienced sustained growth in its real estate portfolio, revenues and net income. From December 31, 1993 to December 31, 1999, the Company increased total real estate assets and GLA to $216.6 million and 2.8 million square feet, respectively, from $28.5 million and 600,000 square feet, respectively. For the year ended December 31, 1999, total revenues and net income increased to $31.0 million and $13.6 million, respectively, from $2.1 million and $49,000, respectively, for the year ended December 31, 1993. For a discussion of the growth in the Company's funds from operations, see "Selected Consolidated Financial Data." The Company intends to maximize total return to stockholders by increasing cash flow per share and maximizing the value of its real estate portfolio. The Company believes it can achieve this objective primarily through the acquisition, renovation, development and management of Supermarket Centers and other properties which meet the Company's investment criteria. The Company believes it has certain competitive advantages which enhance its ability to capitalize on acquisition opportunities, including: (i) management's significant local market experience and expertise; (ii) the Company's long standing relationships with real estate brokers, tenants and institutional and other real estate owners in its current target markets; (iii) a streamlined acquisition process; (iv) access to capital; and (v) the ability to offer cash and tax advantaged structures to sellers. The Company intends to maintain significant flexibility with respect to the form of its acquisition transactions, using cash available from operations or lines of credit for sellers who seek immediate liquidity, as well as tax-advantaged partnership structures to attract tax-motivated sellers. Such structures may include entering into joint ventures or other types of co-ownership with the sellers, whether in the form of a limited partnership or, a limited liability company, with the Company acquiring a controlling interests in such ventures. The sellers may be offered interests in the ventures which are convertible or exchangeable for shares of common stock or otherwise allow the seller to participate in the financial condition of the Company. The Company may in the future acquire all or substantially all of the securities of other REITs or similar entities when such investments would be consistent with the Company's investment objectives. The Company's principal business and growth strategies are as follows: 3 ACQUISITION OF PERFORMING SUPERMARKET CENTERS. The Company intends to acquire Performing Supermarket Centers that offer attractive and sustainable rates of return in areas throughout the Southeast having demographic characteristics similar to those of its present markets. Acquisitions of Performing Supermarket Centers in 1999 include Walden Woods Shopping Center ("Walden Woods"), Park Promenade Shopping Center, Pine Island Plaza ("Pine Island Plaza") and Ridge Plaza ("Ridge Plaza"). Acquisitions of Performing Supermarket Centers in 1998 include, Lantana Village Shopping Center ("Lantana Village") and Summerlin Square Shopping Center ("Summerlin Square"). The Company will target Performing Supermarket Centers which are adaptable to expansion, renovation and redevelopment, and in order to maximize property management efficiencies, present attractive leasing opportunities to tenants who seek multiple locations in one general area. The Company will seek Supermarket Centers which offer daily necessities and value-oriented merchandise and have high visibility, open-air designs, ease of entry and exit and ample parking. Given the Company's relationship with certain Anchor Tenants, particularly supermarkets, and its operational expertise, the Company anticipates that it will be able to enhance the performance of properties satisfying its acquisition criteria. When entering new markets, the Company considers its ability to increase and concentrate holdings in order to achieve economies of scale. The Company has developed an integrated methodology for sourcing and completing acquisitions. The Company believes it has favorable access to potential acquisition opportunities by virtue of its relationships with brokers, tenants, financial institutions, development agencies, contractors, and others involved in the real estate market. Additionally, the Company believes that as institutional investors in real estate become less willing to own and manage significant real estate assets and more comfortable with indirect investments, such investors will become significant sellers of properties and the Company will be an attractive purchaser in its target markets. The Company conducts its review procedures with the full participation of the Company's senior officers, which, combined with the Company's access to capital and knowledge of existing markets, allows the Company to make expedited determinations and consummate transactions quickly. When evaluating potential acquisitions and development projects, the Company considers such factors as (i) economic, demographic, and regulatory and zoning conditions in the property's local and regional market; (ii) the location, construction quality, and design of the property; (iii) the current and projected cash flow of the property and the potential to increase cash flow; (iv) Anchor Tenants' and other tenants' gross sales per square foot measured against industry standards; (v) the potential for capital appreciation of the property; (vi) the terms of tenant leases, including the relationship between the property's current rents and market rents and the ability to increase rents upon lease rollover; (vii) the occupancy and demand by tenants for properties of a similar type in the market area; (viii) the potential to complete a strategic renovation, expansion, or re-tenanting of the property; (ix) the property's current expense structure and the potential to increase operating margins; (x) the ability of the Company to subsequently sell or refinance the property; and (xi) competition from comparable retail properties in the market area. ACQUISITION OF UNDERPERFORMING SUPERMARKET CENTERS. The Company intends to acquire Underperforming Supermarket Centers that meet the Company's turnaround criteria, which include having the potential to increase revenues and operating cash flows through renovation and re-tenanting. Underperforming Supermarket Centers are typically undercapitalized, poorly managed and/or poorly maintained and may require significant capital improvements. The Company also requires attractive location and market demographics, favorable purchase terms, and the willingness of supermarket and other Anchor Tenants to commit to lease space. The Company believes that its market knowledge, strong relationships with supermarkets and other Anchor Tenants and its capabilities in renovation and redevelopment, are particularly integral to its ability to acquire and reposition Underperforming Supermarket Centers. When evaluating such acquisitions, the Company considers factors similar to those applied in the acquisition of Performing Supermarket Centers, and will complete acquisitions only after a completion of thorough due diligence process, including an in-depth study of the reasons for the center's failure to perform, the community demographics, the costs of renovation or redevelopment, and the willingness of acceptable Anchor Tenants and other tenants to commit to the site. Similarly, the Company believes that its competitive advantage is enhanced by its ability to conduct an efficient due diligence investigation and its ability to commit to, and fund, an acquisition that is structured so as to meet the requirements of a seller with respect to receiving cash or tax deferred benefits. Furthermore, the Company's relationships with Anchor Tenants who are familiar with the Company's commitment to quality construction, maintenance and operations aid it in obtaining preleasing expressions of interest before the Company's decision to acquire the property is made. 4 In addition, the acquisition of Underperforming Supermarket Centers frequently provides the Company with an opportunity to buy adjacent undeveloped land whose value is depressed by its proximity to the Underperforming Supermarket Center. The value of the undeveloped land can then be enhanced by the Company's rehabilitation program. REDEVELOPMENT AND DEVELOPMENT OF SUPERMARKET CENTERS. The Company will redevelop existing and develop new Supermarket Centers with characteristics similar to those of the Existing Properties. The Company will consider development only if the overall economics of developing a property appear to be more favorable than acquiring and/or redeveloping an existing property. For example, in August 1997 the Company acquired an existing community shopping center, which has been renamed the Shops at Skylake, and is being comprehensively redeveloped into a 280,000 square foot Supermarket Center. The first phase was completed in July 1999 and consisted of 94,921 square feet of retail space anchored by a 51,420 square foot Publix supermarket. Phase two is nearing completion and phase three is projected to be under construction by year-end 2000. Upon completion, the construction costs of the redevelopment are expected to total $19.5 million. In January 1999, the Company acquired 28 acres of undeveloped land in Tallahassee, Florida for the development of Forest Village Shopping Center, a 170,000 square foot Supermarket Center. The first phase will be completed in April 2000 and will consist of 72,480 square feet of retail space anchored by a Publix supermarket. In addition, at December 31, 1999 the Company owned 18.75 acres of land adjacent to certain of the Existing Properties, substantially all of which is intended for retail development. The Company has also exercised an option to purchase a parcel of vacant land across from its executive offices in Miami Beach, Florida where it plans to develop a mixed-use office/retail tower with 70,000 square feet of GLA and a 250 car parking garage. The Company also owns 4.4 acres of vacant land located in Southwest Miami-Dade County, Florida which will be developed into a small retail center anchored by a drugstore. The Company has an Option to purchase Coral Way, which has received site plan approval for development of up to a 100,000 square foot Supermarket Center. Although the Company previously has concentrated on the acquisition of existing Supermarket Centers, the Company believes that, as a result of changing market conditions, development and redevelopment will provide significant growth opportunities in the future. Accordingly, it may acquire or option parcels of land that are likely to be subject to increased development in its target markets. In connection with its development activities, the Company has hired a Head of Development with 25 years of experience to lead its development department. INCREASING REVENUES AND INCREASING OPERATING MARGINS. The Company will continue to seek to improve the financial performance of its portfolio by increasing revenues (through increased occupancy and/or rental rates), maintaining high tenant retention rates (i.e., the percentage of tenants who renew their leases upon expiration), replacing certain existing tenants with more creditworthy tenants, and aggressively managing operating expenses. Most of the Company's lease agreements provide for percentage rents, indexed rent increases (based on CPI or other criteria) and/or have scheduled rent escalations. The Company believes that substantially all its properties are in desirable locations that are experiencing rising rents, low vacancy rates, and increased demand, which allows the Company to renew leases, or relet space under expired leases, at favorable rents. There is no assurance that such trends will continue because any significant increases in vacancy rates and/or decreases in demand could adversely affect the Company's ability to renew such leases or relet space under expired leases at favorable rates. Increased competition, changes in economic conditions and declines in tenant retention levels could adversely affect the Company's ability to improve the financial performance of its property portfolio. The Company has developed strong relationships with its Anchor Tenants by continually striving to promote tenant satisfaction by anticipating and responding to their requirements. A number of the Company's Anchor Tenants have evidenced this satisfaction by expanding their leased space within the Company's properties. For example, at Commonwealth Shopping Center ("Commonwealth"), the Company invested $1.3 million to expand Winn-Dixie's space by 12,000 square feet, and in return Winn-Dixie (i) increased its annual minimum rent by approximately $144,000, starting in March 1998 and (ii) extended its lease for an additional 20-year period. In addition, the Company seeks to increase operating results through the strategic renovation and/or expansion of properties that are typically adaptable for varied tenant layouts which can be reconfigured to accommodate new tenants or the changing space needs of existing tenants. For example, the Company is presently renovating a vacant office building at its Point Royale Shopping Center into an additional 10,000 square feet of retail space at an estimated construction cost of $750,000. The Company expects that this renovation should be completed in June 2000. 5 OTHER ACQUISITIONS. The Company may from time to time acquire or develop, on a highly selective basis, other types of income-producing commercial properties which present superior opportunities for a return on its investment in markets in which the Company has significant expertise. ITEM 2. PROPERTIES The Company maintains its principal executive office in an office building located on an outparcel at Shops at Skylake in North Miami Beach, Florida. The Company also maintains its principal management office in the Equity One Office Building, in Miami Beach, Florida. At December 31, 1999, the Company's Existing Properties, consisting primarily of Supermarket Centers, contained an aggregate of 2.8 million square feet of GLA. All of the Company's Supermarket Centers and drugstore anchored centers were developed after 1982. Management believes that the location and quality of its Existing Properties have enabled the Company to develop and retain an attractive and diverse tenant base. As of December 31, 1999, the Existing Properties were 94.9% leased to 1,012 tenants. 6 The following table provides a brief description of each of the Company's Existing Properties:
NET OPERATING AVERAGE GLA INCOME FOR MINIMUM (SQ. FT.) THE YEAR RENT PER PERCENT AT ENDED LEASED SQ. LEASED AT DATE DEC. 31, NUMBER OF DEC. 31, FT. AS OF DEC. 31, CERTAIN PROPERTY ACQUIRED 1999 TENANTS 1999 DEC. 31, 1999 1999 TENANTS - ------------------ ------------ ---------- -------------- ----------- --------------- ------------- -------------- SUPERMARKET AND DRUGSTORE ANCHORED CENTERS: SOUTH FLORIDA - ------------- Bird Ludlum August 192,327 47 $ 2,451,956 $13.30 97.2% Winn-Dixie, Shopping Center 1994 McDonalds, Miami, FL Eckerd, Blockbuster Video, Vision Works Lantana Village January 170,110 26 $ 954,832 $6.43 99.6% Winn-Dixie, Shopping Center 1998 K-Mart, Rite-Aid, Lantana, FL Denny's Pine Island Plaza August 254,907 46 $ 740,161 $8.65 95.6% Publix, Home Davie, FL 1999 Depot Expo, Bealls, Rite-Aid, Garcia's Plaza Del Rey December 50,146 20 $ 592,317 $12.27 96.4% Navarro, Rent A Shopping Center 1992 Center, Discount Miami, FL Auto Pointe Royale July 199,068 21 $ 1,106,662 $5.88 97.8% Winn-Dixie, Best Shopping Center 1995 Buy, Eckerd, Miami, FL Hollywood Video Ridge Plaza August 155,204 26 $ 440,530 $8.57 90.3% AMC Theatre, Davie, FL 1999 Kabooms, Republic Security Bank Shops at Skylake August 94,921(1) 17 $ 736,171 $13.89 97.0% Publix, Radio N. Miami Beach, FL 1997 Shack, Blockbuster Summerlin Square May 109,156 23 $ 918,085 $10.64 92.9% Winn-Dixie, Shopping Center 1998 Eckerd, Mobil, Fort Myers, FL Perkins West Lakes Plaza November 100,747 26 $ 860,202 $10.26 96.9% Winn-Dixie, Shopping Center 1996 Navarro Pharmacy Miami, FL CENTRAL FLORIDA - --------------- East Bay Plaza July 85,426 16 $ 386,488 $7.43 79.0% Albertson's (2), Shopping Center 1993 Scotty's, Largo, FL Hollywood Video, Boat America Eustis Square October 126,791 22 $ 698,233 $6.87 93.7% Publix, Bealls, Shopping Center 1993 Walgreens Eustis, FL Forest Edge December 68,631 12 $ 368,623 $6.89 100.0% Winn-Dixie, Shopping Center 1996 Rent-A-Center, Orlando, FL Auto Zone Lake Mary Shopping November 288,450 53 $ 3,017,912 $11.41 99.2% Albertson's, Center 1995 K-Mart, General Lake Mary, FL Cinema
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NET OPERATING AVERAGE GLA INCOME FOR MINIMUM (SQ. FT.) THE YEAR RENT PER PERCENT AT ENDED LEASED SQ. LEASED AT DATE DEC. 31, NUMBER OF DEC. 31, FT. AS OF DEC. 31, CERTAIN PROPERTY ACQUIRED 1999 TENANTS 1999 DEC. 31, 1999 1999 TENANTS - ------------------ ------------ ---------- -------------- ----------- --------------- ------------- -------------- SUPERMARKET AND DRUGSTORE ANCHORED CENTERS: Park Promenade January 125,818 25 $ 825,709 $8.96 87.5% Publix, Shopping Center 1999 Blockbuster Video Orlando, FL Walden Woods January 74,336 10 $ 375,851 $6.53 100.0% Winn-Dixie, Shopping Center 1999 Walgreens Plant City, FL NORTH FLORIDA - ------------- Atlantic Village June 100,559 25 $ 762,163 $9.40 95.3% Publix, GNC, Shopping Center 1995 JoAnne Fabrics Atlantic Beach, FL Beauclerc Village June 67,927 10 $ 349,648 $5.94 96.5% Discount Oak & Shopping Center 1998 More, Big Lots Jacksonville, FL Commonwealth February 81,467 13 $ 513,529 $7.96 89.5% Winn-Dixie, Shopping Center 1994 Rent-A-Center Jacksonville, FL Fort Caroline January 74,546 8 $ 438,814 $7.03 91.1% Winn-Dixie, Trading Post 1994 Eckerd, McDonalds Jacksonville, FL Mandarin Landing December1999 141,541 31 $ 73,125 $8.44 95.2% Publix, United Shopping Center Artist Theater, Jacksonville, FL Eckerd Monument Pointe January 75,128 15 $ 447,555 $6.38 100.0% Winn-Dixie, Eckerd Shopping Center 1997 Jacksonville, FL Oak Hill Shopping December 78,492 15 $ 402,047 $6.44 87.4% Publix, Center 1995 ---------- -------------- ------------ --------------- ----------- Walgreens, Family Jacksonville, FL Medical Center TOTAL/WEIGHTED AVERAGE 2,715,698 507 $17,460,616 $8.88 95.0% SUPERMARKET AND ---------- -------------- ------------ --------------- ----------- DRUGSTORE-ANCHORED CENTERS OTHER PROPERTIES: Diana Building February 18,707 4 $ 93,703 $13.66 93.5% Fat Tuesday's, West Palm Beach, FL 1995 Jester.com West Palm Beach, FL Equity One Office April 28,980 10 $ 262,502 $12.78 89.6% City of Miami Building 1992 Beach Parking Miami Beach, FL Department Mandarin May 52,880 472 $ 194,103 N/A 88.4% -- Mini-Storage 1994 Jacksonville, FL
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NET OPERATING AVERAGE GLA INCOME FOR MINIMUM (SQ. FT.) THE YEAR RENT PER PERCENT AT ENDED LEASED SQ. LEASED AT DATE DEC. 31, NUMBER OF DEC. 31, FT. AS OF DEC. 31, CERTAIN PROPERTY ACQUIRED 1999 TENANTS 1999 DEC. 31, 1999 1999 TENANTS - ------------------ ------------ ---------- -------------- ----------- --------------- ------------- -------------- OTHER PROPERTIES: Montclair Apartments August 9,375 18 $ 52,356 N/A 94.7% -- Restaurant Property May 10,000 1 $ 104,423 $12.00 100.0% LHD Restaurant Miami Beach, FL 1998 ---------- -------------- ----------- --------------- ------------- Corp., d/b/a El Novillo TOTAL/WEIGHTED AVERAGE 119,942 505 $ 707,087 $12.92 91.0% OTHER PROPERTIES ---------- -------------- ----------- --------------- ------------- TOTAL/WEIGHTED AVERAGE 2,835,640 1,012 $18,167,703 $ 8.96 94.9% ALL PROPERTIES ========== ============== =========== =============== ============= - ------------------------------- (1) Includes completion of phase one and certain out parcels. See "Redevelopment and Development Properties." (2) Albertson's is located on property contiguous to the Company's property which is not owned by the Company. Accordingly, Albertson's does not pay base rent or make payments to the Company for common area maintenance and similar charges at this location.
REDEVELOPMENT AND DEVELOPMENT PROPERTIES SHOPS AT SKYLAKE. In August 1997 the Company acquired an existing community shopping center located in North Miami Beach, Florida, for $11.8 million. The Company has demolished the former property and is developing a new Supermarket Center containing 280,000 square feet of GLA to be built in three phases. The 95,000 square foot phase one was completed in July 1999, and includes a 51,420 square foot Publix supermarket. The 53,000 square foot phase two, consisting of office and retail space, will open in the second quarter of 2000. Construction of phase three, comprising up to 132,000 square feet of retail space, is expected to commence by year-end 2000. Construction costs for phase one, including the Blockbuster and Radio Shack out parcel, totaled approximately $7.6 million; construction costs through December 31, 1999 for phase two totaled approximately $1.9 million with an estimated $2.2 million to complete; and phase three construction costs are projected to total approximately $7.8 million. LAND FOR DEVELOPMENT. The Company owns 18.75 acres of vacant land adjacent to certain of the Existing Properties, substantially all of which the Company intends to develop as retail space. The Company has commenced construction of 15,000 square feet of retail space on a portion of 5.0 acres adjacent to Lake Mary Shopping Center, and 10,000 square feet of retail space on 1.0 acre adjacent to Point Royale Shopping Center at estimated construction costs of $1.2 million and $750,000, respectively. Both of these development projects should be completed in the second quarter 2000. In January 1999, the Company acquired approximately 28 acres of undeveloped commercially zoned land in Tallahassee, Florida on which it is developing the Forest Village Shopping Center. The Company will complete the 72,480 square foot phase one, which includes a 37,866 square foot Publix supermarket on 13.0 acres of land in April 2000 at an estimated construction cost of approximately $6.1 million. Phase two is projected to be completed by June 2002 at an estimated construction cost of approximately $6.0 million. OPTION PROPERTY CORAL WAY. The Company has an Option, exercisable until May 2003, to acquire 10.0 acres of vacant land at Coral Way for $2.0 million. Coral Way is commercially zoned and has received county site plan approval for the development of up to a 100,000 square foot Supermarket Center. Coral Way is located in a newly rezoned high growth area of Southwest Miami-Dade County, Florida. The Company anticipates that it will exercise this Option and develop 9 this property as a Supermarket Center to be completed by March 2002, although there can be no assurance that it will do so. The acquisition and development costs of Coral Way are anticipated to be approximately $12.0 million. LAND FOR DEVELOPMENT. The Company also has an Option, exercisable until May 2003, to purchase 6.20 acres of vacant residentially zoned land adjacent to Bird Ludlum Shopping Center, for a purchase price of $1.1 million. The following table provides additional information with respect to the Company's properties held for redevelopment and development and properties, which the Company has an option to acquire:
NUMBER OF DEVELOPABLE CURRENT PROPERTY LOCATION ACREAGE PARCELS SQUARE FEET ZONING - --------------------------------------------- -------- ------- ------- ----------- ------ REDEVELOPMENT/DEVELOPMENT PROPERTIES Skylake (1) ................................. Miami-Dade, FL 16.00 1 188,000 Retail Adjacent to Commonwealth .................... Jacksonville, FL 0.50 1 6,000 Retail Adjacent to Fort Caroline ................... Jacksonville, FL 0.50 1 7,000 Retail Adjacent to Oak Hill ........................ Jacksonville, FL 0.25 1 6,000 Retail Adjacent to Lake Mary (2) ................... Lake Mary, FL 5.00 1 70,000 Retail Adjacent to Lantana Village ................. Lantana, FL 0.50 1 6,000 Retail Adjacent to Summerlin Square ................ Fort Myers, FL 10.50 2 95,000 Retail Adjacent to Pt. Royale (3) .................. Miami, FL 1.00 1 10,000 Retail Adjacent to Equity One Office Building ...... Miami Beach, FL 0.50 2 70,000 Office Vacant Land ................................. Miami-Dade, FL 4.40 2 30,000 Retail Vacant Land (4) ............................. Tallahassee, FL 15.00 1 100,000 Retail Vacant Land (5) ............................. Jacksonville, FL 0.60 1 8,700 Retail ------- ------- -------- Total--Redevelopment/Development Properties.. 54.75 15 596,700 ------- ------- -------- OPTION PROPERTIES Coral Way ................................... Miami-Dade, FL 10.00 1 100,000 Retail Adjacent to Bird Ludlum ..................... Miami, FL 6.20 1 150 Residential ------- ------- -------- Total--Option Properties .................... 16.20 2 100,150 ------- ------- -------- Total ....................................... 70.95 17 696,850 ======= ======= ======== - ----------------------------- (1) See "Additional Information Concerning the Existing Properties". (2) 15,000 of the 70,000 developable square feet are currently under construction. (3) The 10,000 developable square feet are currently under construction. (4) This 15 acres of commercially zoned land is adjacent to the Forest Village Shopping Center, which is currently under development as a 72,480 square foot Supermarket Center on 13 acres of land. (5) The 8,700 square feet are currently under development as a property known as Losco Corners. Losco Corners is located next to a Winn-Dixie in a shopping center not owned by the Company.
MAJOR TENANTS The following table sets forth the GLA of the Existing Properties, excluding Mandarin Mini-storage facility and the Montclair Apartments, leased to Supermarket Anchor Tenants, other Anchor Tenants and non-Anchor Tenants as of December 31, 1999.
SUPERMARKET ANCHOR OTHER ANCHOR NON-ANCHOR TENANTS TENANTS TENANTS TOTAL ------- ------- ------- ----- Existing Properties (sq. ft.) ........ 812,931 517,246 1,303,912 2,634,089 Percentage of Total Leased GLA ....... 30.86% 19.64% 49.50% 100.00%
10 The following table sets forth as of December 31, 1999, information regarding leases with the Company's ten largest tenants:
PERCENT OF AGGREGATE GLA ANNUALIZED ANNUALIZED MINIMUM TENANT (SQ. FT.) NUMBER OF STORES MINIMUM RENT RENT(1) - ------------------------------------ ---------- ---------------- -------------- ------------------- Winn-Dixie.......................... 450,919 10 $ 2,844,985 12.1% Publix(2)........................... 298,873 7 1,990,584 8.4% K-Mart.............................. 171,289 2 814,754 3.5% General Cinema...................... 35,712 1 633,888 2.7% Albertson's......................... 63,139 1 568,251 2.4% Eckerd.............................. 59,424 6 480,886 2.0% AMC Theatre......................... 27,000 1 378,000 1.6% Best Buy............................ 91,472 1 365,888 1.5% Walgreens........................... 46,193 4 358,337 1.5% Home Depot Expo..................... 86,156 1 323,085 1.4% ---------- ---------------- -------------- ------------------- Total.......................... 1,330,177 34 $ 8,758,658 37.1% ========== ================ ============== =================== - ------------------------- (1) Annualized minimum rent does not include Mandarin Mini-storage and Montclair apartments. (2) Does not include the Publix being developed at Forest Village, which will occupy 37,866 square feet of GLA for a lease term of 20 years.
LEASE EXPIRATIONS The following table sets forth the anticipated expirations of the Company's tenant leases at December 31, 1999 (excluding renewal options, the Mandarin mini-storage facility and the Montclair Apartments) for each year from 2000 through 2009 and thereafter:
PERCENT OF PERCENT OF ANNUALIZED AGGREGATE AVERAGE ANNUAL NUMBER OF GLA TOTAL MINIMUM RENT ANNUALIZED MINIMUM RENT YEAR LEASES (1) (SQ. FT.) OCCUPIED GLA AT EXPIRATION MINIMUM RENT PER SQ. FT. - ------------------------ -------------- -------------- -------------- -------------- ---------------- --------------- Month-to-month........... 4 11,200 0.40% $ 115,353 0.47% $ 10.30 2000..................... 91 204,132 7.36% 2,022,092 8.23% 9.91 2001 (2)................. 109 238,867 8.61% 2,699,383 10.98% 11.30 2002..................... 94 212,930 7.68% 2,371,895 9.65% 11.14 2003..................... 65 173,445 6.25% 2,279,268 9.27% 13.14 2004 (2)................. 68 312,253 11.26% 2,644,834 10.76% 8.47 2005 (2)................. 20 166,669 6.01% 1,197,429 4.87% 7.18 2006..................... 9 129,128 4.66% 934,260 3.80% 7.24 2007..................... 16 231,158 8.34% 2,391,011 9.73% 10.34 2008..................... 12 138,152 4.98% 1,305,336 5.34% 9.45 2009..................... 6 68,870 2.48% 1,005,232 4.09% 14.60 Thereafter............... 24 747,285 26.95% 5,612,237 22.84% 7.51 - ------------------------ -------------- -------------- -------------- -------------- ---------------- --------------- SUB-TOTAL/AVERAGE........ 518 2,634,089 94.98% $ 24,578,330 100.00% $ 9.33 - ------------------------ -------------- -------------- -------------- -------------- ---------------- --------------- Vacant................... 56 139,296 5.02% 0 NA NA - ------------------------ -------------- -------------- -------------- -------------- ---------------- --------------- TOTAL/AVERAGE............ 574 2,773,385 100.00% $ 24,578,330 100.00% $ 8.86 - ------------------------ -------------- -------------- -------------- -------------- ---------------- --------------- - ------------------------- (1) Does not include the Publix being developed at Forest Village, which will occupy 37,866 square feet of GLA. (2) Does not include four lease agreements with Walgreens expiring in the years 2019, 2024, 2031 and 2034, which Walgreens may terminate in 2005, 2004, 2001 and 2004, respectively, which had annual minimum rents of $82,285, $100,750, $87,352, $87,750.
11 Historically, the Company has not incurred substantial costs associated with tenant improvements relating to lease expirations or renewals. Additionally, because leasing activities are performed in-house, the Company has not historically incurred substantial costs associated with leasing commissions. No assurance can be given that such expenses will not increase in the future. ADDITIONAL INFORMATION CONCERNING THE EXISTING PROPERTIES As of December 31, 1999, three of the Supermarket Centers, Bird Ludlum, Lake Mary, and Pine Island Plaza had either a book value equal to or greater than 10.0% of the Company's total assets, or gross revenues which accounted for more than 10.0% of the Company's aggregate gross revenues. BIRD LUDLUM. Bird Ludlum is a 192,327 square foot Supermarket Center occupied by 47 tenants, located at the intersection of Bird Road and Ludlum Road in Miami, Florida. Traffic count at the Bird Ludlum center averages approximately 85,000 vehicles per day. The property is located approximately one mile east of the Palmetto Expressway, a major Miami roadway. Bird Ludlum is located in a densely populated trade area of Miami with a population of over 158,000 within a three-mile radius, and a median household income of $51,621 per year. This property includes five out-parcel buildings, and has attracted a full range of national and regional chain store tenants including Winn-Dixie, Eckerd, Blockbuster, Radio Shack and Little Caesars. Outparcel buildings are occupied by Visionworks, McDonalds, Dairy Queen, Jiffy Lube and NationsBank. In 1996, the Company purchased 7.4 acres of vacant land adjacent to Bird Ludlum for a purchase price of $1.1 million. During early 1997, the Company utilized approximately 1.2 acres of this land to build a parking lot for 150 automobiles. The remaining 6.2 acres of vacant land was transferred to a partnership controlled by affiliates of the Company and is subject to an Option held by the Company to acquire the vacant land at a cost of $1.1 million up to 2003. Winn-Dixie, the only tenant which occupies more than 10.0% of the GLA at Bird Ludlum, occupies 44,400 square feet of GLA under a lease which expires in December 31, 2007, with five renewal options of five years each. The annual minimum rent payable by Winn-Dixie under this lease is $399,600. For the years ended June 30, 1997, 1998 and 1999, Winn-Dixie reported sales of $23.3 million, $24.8 million and $26.6, respectively. 12 The following table sets forth a schedule of lease expirations and other information concerning leases at Bird Ludlum, assuming none of the tenants exercise renewal options:
PERCENT OF AVERAGE ANNUALIZED AGGREGATE ANNUAL NUMBER OF GLA PERCENT OF MINIMUM RENT ANNUALIZED MINIMUM RENT YEAR LEASES (SQ. FT.) TOTAL GLA AT EXPIRATION MINIMUM RENT PER SQ. FT. - ------------------------ -------------- -------------- -------------- -------------- ---------------- --------------- Month-to-month........ 0 0 0.00% $ 0 0.00% $ 0.00 2000.................. 5 19,926 10.36% 222,391 8.39% 11.16 2001.................. 14 31,570 16.41% 408,726 15.41% 12.95 2002.................. 7 13,805 7.18% 241,191 9.09% 17.47 2003.................. 9 30,215 15.71% 478,448 18.04% 15.83 2004.................. 3 4,766 2.48% 73,612 2.78% 15.45 2005.................. 2 4,500 2.34% 81,396 3.07% 18.09 2006.................. 0 0 0.00% 0 0.00% 0.00 2007.................. 4 63,952 33.25% 834,634 31.47% 13.05 2008.................. 3 18,148 9.44% 311,621 11.75% 17.17 2009.................. 0 0 0.00% 0 0.00% 0.00 Thereafter............ 0 0 0.00% 0 0.00% 0.00 - ------------------------ -------------- -------------- -------------- -------------- ---------------- --------------- SUB-TOTAL/AVERAGE..... 47 186,882 97.17% $ 2,652,019 100.00% $ 14.19 - ------------------------ -------------- -------------- -------------- -------------- ---------------- --------------- Vacant................ 1 5,445 2.83% 0 NA NA - ------------------------ -------------- -------------- -------------- -------------- ---------------- --------------- TOTAL/AVERAGE......... 48 192,327 100.00% $ 2,652,019 100.00% $ 13.79 - ------------------------ -------------- -------------- -------------- -------------- ---------------- ---------------
The average annual rental income per square foot of GLA at Bird Ludlum for the years ended December 31, 1997, 1998 and 1999 was $17.00, $17.72 and $17.30, respectively. At the time of its acquisition by the Company, Bird Ludlum was 96.0% leased. For each of the years ended December 31, 1997, 1998 and 1999, the percentage of Bird Ludlum that was leased was 100.0%, 97.2%, and 97.2%, respectively. Depreciation (for tax purposes) on Bird Ludlum is as follows: (i) approximately $14.2 million of the basis is being depreciated on a straight line basis over 40 years, and (ii) approximately $1.3 million of the basis uses a 15-year Accelerated Cost Recovery System ("ACRS") depreciation. Depreciation for book purposes is calculated on a straight-line basis over 40 years. LAKE MARY. Lake Mary is a 288,450 square foot Supermarket Center occupied by 53 tenants which is at the southeast corner of Lake Mary Boulevard and Lake Emma Road in Lake Mary, Seminole County, Florida, in the Orlando metropolitan area. The shopping center is located in an area with a population of over 32,000 people within a three-mile radius and a median household income of $60,781 per year. The property was originally constructed during 1987 and 1988. Certain improvements and additions were made to Lake Mary in 1990. Lake Mary, which is situated on a 47.0 acre parcel, has attracted a full range of national and regional chain store tenants including K-Mart, Albertson's, General Cinema, Chili's, Burger King, Einstein Bros. Bagels, Carvel Ice Cream, Radio Shack, Little Caesars and H&R Block. Three tenants, K-Mart, Albertson's and General Cinema, each occupy in excess of 10.0% of the GLA at Lake Mary. K-Mart occupies 86,479 square feet of GLA under a lease which expires in August, 2013. The annual minimum rent is $497,254. For the years ended August 31, 1997, 1998 and 1999, K-Mart reported sales of $9.8 million, $11.9 million and $13.7 million, respectively. Albertson's occupies 63,139 square feet of GLA under a lease which expires in June 30, 2012, with four renewal options of five years each. The annual minimum rent under the Albertson's lease is $568,251, increasing to $599,820 in June 2002 and $631,390 in June 2007. For the years ended May 31, 1997, 1998 and 1999, Albertson's reported sales of $28.3 million, $29.5 million and $33.3 million, respectively. General Cinema occupies 35,712 square feet of GLA under a lease which expires May 31, 2010. The annual minimum rent is $633,888. For each of the years ended December 31, 1997, 1998 and 1999, General Cinema reported sales of $1.6 million. 13 The following table sets forth a schedule of lease expirations and other information concerning leases at Lake Mary, assuming none of the tenants exercise renewal options:
PERCENT OF AVERAGE ANNUALIZED AGGREGATE ANNUAL NUMBER OF GLA PERCENT OF MINIMUM RENT ANNUALIZED MINIMUM RENT YEAR LEASES (SQ. FT.) TOTAL GLA AT EXPIRATION MINIMUM RENT PER SQ. FT. - ------------------------ -------------- -------------- -------------- -------------- ---------------- --------------- Month-to-month........ 2 2,600 0.90% $ 39,000 1.16% $ 15.00 2000.................. 5 12,278 4.26% 157,437 4.70% 12.82 2001.................. 15 28,401 9.85% 390,295 11.64% 13.74 2002.................. 13 26,456 9.17% 411,465 12.28% 15.55 2003.................. 9 12,182 4.22% 186,584 5.57% 15.32 2004.................. 3 4,050 1.40% 53,238 1.59% 13.15 2005.................. 1 1,150 0.40% 18,687 0.56% 16.25 2006.................. 0 0 0.00% 0 0.00% 0.00 2007.................. 1 3,909 1.36% 138,000 4.12% 35.30 2008.................. 1 3,900 1.35% 114,527 3.42% 29.37 2009.................. 0 0 0.00% 0 0.00% 0.00 Thereafter............ 4 191,329 66.33% 1,842,532 54.96% 9.63 - ------------------------ -------------- -------------- -------------- -------------- ---------------- --------------- SUB-TOTAL/AVERAGE..... 54 286,255 99.24% $ 3,351,765 100.00% $ 11.71 - ------------------------ -------------- -------------- -------------- -------------- ---------------- --------------- Vacant................ 1 2,195 0.76% 0 NA NA - ------------------------ -------------- -------------- -------------- -------------- ---------------- --------------- TOTAL/AVERAGE......... 55 288,450 100.00% $ 3,351,765 100.00% $ 11.62 - ------------------------ -------------- -------------- -------------- -------------- ---------------- ---------------
The average rental income per square foot of GLA at Lake Mary for the years ended December 31, 1997, 1998 and 1999 was $12.95, $13.19 and $13.25, respectively. At the time of its acquisition by the Company, Lake Mary was 97.0% leased. For the years ended December 31, 1997, 1998 and 1999, the percentage of Lake Mary that was leased was 99.8%, 99.4% and 99.2%, respectively. Depreciation (for tax purposes) on Lake Mary is as follows: (i) approximately $11.3 million of the basis is being depreciated on a straight line basis over 40 years, and (ii) $2.0 million of the basis uses a 15-year ACRS depreciation. Depreciation for book purposes is calculated on a straight-line basis over 40 years. Lake Mary has five developable acres that will accommodate 70,000 square feet of retail space. Presently, 15,000 square feet are under construction and are scheduled to be completed in the second quarter of 2000. The remaining 55,000 square feet will not be developed until one or more tenants are identified. PINE ISLAND PLAZA. Pine Island Plaza is a 254,907 square foot Supermarket Center occupied by 46 tenants which is located at the intersection of I-595 and Pine Island Road in Davie, Broward County, Florida. The traffic count at Pine Island Plaza averages approximately 170,600 vehicles per day. The property was originally constructed in 1983 on 24.5 acres with a major renovation completed in 1998. The center is located in an area with a population of over 96,000 people within a three-mile radius having a median household income of $53,174 per year. The property includes a full range of national and regional tenants including: Publix, Home Depot Expo, Bealls, Rite Aid, Garcias, Radio Shack and First Union National Bank. Two tenants, Publix and Home Depot Expo, each occupy in excess of 10% of the GLA at Pine Island Plaza. Publix occupies 39,934 square feet under a lease that expires November 30, 2013 and has ten five year renewal options. The annual minimum rent under the Publix lease is $199,715. For the years ended December 31, 1997, 1998 and 1999, Publix reported sale of $29.2 million, $29.8 million, and $31.5 million, respectively. Home Depot Expo occupies 86,156 square feet of GLA under a lease that expires January 31, 2014. The current annual minimum rent for Home Depot Expo is $323,085, increasing to $366,163 in February 2004 and $409,236 in February 2009. 14 The following table sets forth a schedule of lease expirations and other information concerning leases at Pine Island Plaza, assuming none of the tenants exercise renewal options:
PERCENT OF ANNUALIZED AGGREGATE AVERAGE ANNUAL NUMBER OF GLA PERCENT OF MINIMUM RENT ANNUALIZED MINIMUM RENT YEAR LEASES (SQ. FT.) TOTAL GLA AT EXPIRATION MINIMUM RENT PER SQ. FT. - ------------------------ -------------- -------------- -------------- -------------- ---------------- ---------------- Month-to-month........... 0 0 0.00% $ 0 0.00% $ 0.00 2000.................. 3 8,975 3.52% 93,496 3.89% 10.42 2001.................. 7 12,325 4.84% 197,626 8.22% 16.03 2002.................. 8 17,701 6.95% 236,073 9.82% 13.34 2003.................. 16 50,012 19.62% 709,842 29.52% 14.19 2004.................. 7 15,025 5.89% 190,710 7.93% 12.69 2005.................. 1 1,275 0.50% 17,850 0.74% 14.00 2006.................. 0 0 0.00% 0 0.00% 0.00 2007.................. 0 0 0.00% 0 0.00% 0.00 2008.................. 0 0 0.00% 0 0.00% 0.00 2009.................. 2 12,270 4.81% 350,000 14.55% 28.52 Thereafter............ 2 126,099 49.47% 608,956 25.33% 4.83 - ------------------------ -------------- -------------- -------------- -------------- ---------------- ---------------- SUB-TOTAL/AVERAGE 46 243,682 95.60% $ 2,404,553 100.00% $ 9.87 - ------------------------ -------------- -------------- -------------- -------------- ---------------- ---------------- Vacant................ 2 11,225 4.40% 0 NA NA - ------------------------ -------------- -------------- -------------- -------------- ---------------- ---------------- TOTAL/AVERAGE............ 48 254,907 100.00% $ 2,404,553 100.00% $ 9.43 - ------------------------ -------------- -------------- -------------- -------------- ---------------- ----------------
At the time of its acquisition on August 26, 1999 Pine Island Plaza was 95.6% leased. For the years ended December 31, 1997, 1998 and 1999, the percentage of Pine Island Plaza that was leased was 96.5%, 98.4% and 95.6%, respectively. Additional information is presented below about each of the Company's other Existing Properties and other properties acquired since December 31, 1999: ATLANTIC VILLAGE. Atlantic Village is a 100,559 square foot Supermarket Center occupied by 25 tenants which is located in Atlantic Beach, Florida (in the Jacksonville metropolitan area). Atlantic Village is situated on 14.0 acres and is anchored by a Publix. For the year ended December 31, 1999, Publix reported sales of $22.8 million. BEAUCLERC VILLAGE. Beauclerc Village is a 67,927 square foot drug store anchored neighborhood shopping center occupied by 10 tenants located in Jacksonville, Florida. Beauclerc Village is situated on 6.0 acres and is anchored by a Walgreens. For the year ended December 31, 1999, Walgreens reported sales of $1.6 million. COMMONWEALTH. Commonwealth is an 81,467 square foot Supermarket Center occupied by 13 tenants which is located in Jacksonville, Florida. Commonwealth is situated on 12.8 acres and is anchored by a Winn-Dixie. For the year ended June 30, 1999, Winn-Dixie reported sales of $13.0 million. In February 1999, the Company invested $1.3 million to expand Winn-Dixie's space by 12,000 square feet and in return Winn-Dixie (i) increased its monthly minimum rent by approximately $12,000, starting March 1999 and (ii) extended its lease for an additional 20-year period. DIANA BUILDING. The Diana building is an 18,707 square foot mixed use (office/retail) property currently occupied by four tenants located in West Palm Beach, Florida. This property was purchased in 1995 and has been completely redeveloped by the Company. EAST BAY. East Bay is an 85,426 square foot Supermarket Center occupied by 16 tenants located in Largo, Florida (in the Tampa metropolitan area). East Bay is situated on 10.3 acres and is anchored by an Albertson's, Scotty's and Hollywood Video. Albertson's is located on property contiguous to the Company's property, which is not owned by the Company. 15 EQUITY ONE OFFICE BUILDING. The Equity One Office Building is a 28,980 square foot mixed use (office/retail) property occupied by 10 tenants, including the Company's property management and leasing operations, located in Miami Beach, Florida. The property is comprised of three parcels, which, in the aggregate, total 0.7 acres. Purchased in 1992, this property was completely redeveloped by the Company. The property is adjacent to the Miami Beach City Hall and proximate to the Miami Beach Convention Center. The Company exercised an option to purchase 0.5 acres of land adjacent to the Equity One Office Building and purchased the Montclair Apartment property across the street to complete the land assemblage for future redevelopment. EUSTIS SQUARE. Eustis Square is a 126,791 square foot Supermarket Center occupied by 22 tenants located in Eustis, Florida. Eustis Square is situated on 13.5 acres and is anchored by a Publix, Bealls and Walgreens. For the year ended December 31, 1999, Publix reported sales of $10.9 million. FOREST EDGE. Forest Edge is a 68,631 square foot Supermarket Center occupied by 12 tenants located in Orlando, Florida. Forest Edge is situated on 8.2 acres and is anchored by a Winn-Dixie and AutoZone. For the year ended June 30, 1999, Winn-Dixie reported sales of $11.4 million. FORT CAROLINE. Fort Caroline is a 74,546 square foot Supermarket Center occupied by 8 tenants which is located in Jacksonville, Florida. Fort Caroline is situated on 9.6 acres and is anchored by a Winn-Dixie. For the year ended June 30, 1999, Winn-Dixie reported sales of $12.8 million. LANTANA VILLAGE. Lantana Village is a 170,110 square foot Supermarket Center occupied by 26 tenants located in Lantana, Florida. Lantana Village is situated on 8.5 acres and is anchored by K-Mart and Winn-Dixie. For the year ended June 30, 1999, Winn-Dixie reported sales of $16.0 million. During 1999, the Company added 84,810 square feet to this property through the acquisition of the K-Mart anchor store which had been separately owned. MANDARIN LANDING. Mandarin Landing was purchased in December 1999 and is a 141,541 square foot Supermarket Center occupied by 31 tenants located in Jacksonville, Florida. Mandarin Landing is situated on 17.1 acres and is anchored by Publix, United Artist Theatre and Eckerd. For the year ended December 31, 1999, Publix reported sales of $14.1 million. MANDARIN MINI-STORAGE. Mandarin Mini-storage is a 52,880 square foot mini-storage facility occupied by 472 tenants located in Jacksonville, Florida. The property is situated on 2.8 acres directly behind the Mandarin Landing Supermarket Center. MONTCLAIR APARTMENTS. Montclair Apartments is a twenty one unit complex that is part of an assemblage of land being held for the redevelopment of a new office tower and parking garage. MONUMENT POINTE. Monument Pointe is a 75,128 square foot Supermarket Center occupied by 15 tenants located in Jacksonville, Florida. Monument Pointe is situated on 7.3 acres and is anchored by a Winn-Dixie and Eckerd. For the year ended June 30, 1999, Winn-Dixie reported sales of $16.3 million. OAK HILL. Oak Hill is a 78,492 square foot Supermarket Center occupied by 15 tenants located in Jacksonville, Florida. Oak Hill is situated on 11.7 acres and is anchored by a Publix and Walgreens. For the year ended December 31, 1999, Publix reported sales of $14.1 million. PARK PROMENADE. Park Promenade was purchased in January 1999 and is a 125,806 square foot Supermarket Center occupied by 25 tenants located in Orlando, Florida. Park Promenade is situated on 12.0 acres and is anchored by Publix and Blockbuster Video. For year ended December 31, 1999, Publix reported sales of $18.5 million. PLAZA DEL REY. Plaza Del Rey is a 50,146 square foot shopping center occupied by 20 tenants located in Miami-Dade County, Florida. Plaza Del Rey is situated on 4.6 acres and is anchored by a Navarro's drug store. For the year ended December 31, 1999, Navarro's reported sales of $10.4 million. POINTE ROYALE. Pointe Royale is a 199,068 square foot Supermarket Center occupied by 21 tenants located in Cutler Ridge, Miami-Dade County, Florida. Pointe Royale is situated on 14.5 acres and is anchored by a Best Buy and 16 Winn-Dixie. For the year ended June 30, 1999, Winn-Dixie reported sales of $16.7 million. The Company is redeveloping a currently vacant office building situated on the property into an additional 10,000 square feet of retail space at an estimated construction cost of $750,000. RESTAURANT PROPERTY. The Company purchased a 10,000 square foot restaurant property in Miami Beach, Florida for one of the Company's tenants, which is leasing the facility. This property is situated on 2.1 acres. RIDGE PLAZA. Ridge Plaza was purchased in August 1999 along with Pine Island Plaza, the adjacent property. Ridge Plaza is a 155,204 square foot shopping center with a total of 26 tenants that emphasize family entertainment. It is situated on 16.3 acres and is anchored by an AMC Theatre and Kabooms. For the year ended June 30, 1999, AMC Theatre reported sales of $1.4 million. SHOPS AT SKYLAKE. Skylake is a being developed into a 280,000 square foot Supermarket Center located in North Miami Beach, Florida, situated on 25.5 acres. The 94,921 foot phase one opened in July 1999 and includes a 51,420 square foot Publix supermarket and 16 additional tenants. The 53,000 square foot phase two will open in the second quarter 2000. Phase three, comprising up to 132,000 square feet is expected to commence construction at year end 2000. Total construction cost for the entire project is estimated at $19.5 million. SUMMERLIN SQUARE. Summerlin Square is a 109,156 square foot Supermarket Center occupied by 23 tenants located in Fort Myers, Florida. Summerlin Square is situated on 13.0 acres and is anchored by Winn-Dixie and Eckerd. For the year ended June 30, 1999, Winn-Dixie reported sales of $12.4 million. WALDEN WOODS. Walden Woods was purchased in January 1999 and is a 74,336 square foot Supermarket Center occupied by 10 tenants located in Plant City, Florida. Walden Woods is situated on 6.0 acres and is anchored by Winn-Dixie and Walgreens. For the year ended December 31, 1999, Winn-Dixie reported sales of $8.2 million. WEST LAKES. West Lakes is a 100,747 square foot Supermarket Center occupied by 26 tenants located in Kendall Lakes, Miami-Dade County, Florida. West Lakes is situated on 8.8 acres and is anchored by a Winn-Dixie and Navarro Pharmacy. For the year ended June 30, 1999, Winn-Dixie reported sales of $13.1 million. PROPERTY MANAGEMENT, LEASING AND RELATED SERVICE BUSINESS The Company's property management and substantially all of its leasing activities and operating and administrative functions (including leasing, construction, data processing, finance and accounting) are administered or coordinated by Company personnel. On-site functions such as maintenance, landscaping, sweeping, plumbing and electrical are subcontracted at each location, with the cost of these functions passed on to the tenants to the extent permitted by the underlying leases. Personnel from the Company's corporate headquarters conduct regular inspections of each property and maintain frequent contact with major tenants. The Company maintains an active leasing and maintenance program that, combined with the quality and locations of the properties, has made the Existing Properties attractive to tenants. The Company intends to continue to hold the properties for long-term investment and, accordingly, places a strong emphasis on quality construction and an on-going program of regular maintenance. The Existing Properties have been designed to require minimal ongoing capital expenditures. The Company's management information systems provide operating data necessary to make informed business decisions on a timely basis. These systems allow instant access to vacancies, lease data, tenants' sales history, cash flow budgets and forecasts to enable the Company to maximize cash flow from operations and closely monitor corporate expenses. In addition to managing the Existing Properties, the Company provides management and leasing services to certain third party owned properties. Services are provided to third-party owners pursuant to contracts that are of varying lengths of time and which generally provide for management fees of up to 4.0% of monthly base rent property receipts. The management contracts are typically cancelable upon 30 days' notice or upon certain events, including the sale of the property. Leasing fees typically range from $2 to $3 per square foot. During the years ended December 31, 1997, 1998 and 1999, the Company earned management fees of $247,782, $144,196 and $263,205, respectively, in connection with its management of third party owned properties. At present, the Company has no plans to expand these activities. 17 COMPETITION There are numerous commercial developers, real estate companies, including REITs such as Regency Realty Corporation and IRT Property Company, and other owners of real estate in the areas in which the Company's properties are located that compete with the Company in seeking land for development, properties for acquisition, financing and tenants. Many of such competitors have substantially greater resources than the Company. All of the Company's Existing Properties are located in developed areas that include other Supermarket Centers. The number of retail properties in a particular area could materially adversely affect the Company's ability to lease vacant space and maintain the rents charged at the Supermarket Centers or at any newly acquired property or properties. REGULATIONS AND INSURANCE REGULATIONS. Retail properties are subject to various laws, ordinances and regulations. The Company believes that each of the Existing Properties maintains all required material operating permits and approvals. INSURANCE. Under their leases, the Company's tenants are generally responsible for providing adequate insurance on the property they lease. The Company believes that its properties are covered by adequate fire, flood and property insurance provided by reputable companies. However, certain of the Company's properties are not covered by disaster insurance with respect to certain hazards (such as hurricanes) for which coverage is not available or available only at rates which, in the opinion of the Company, are not economically justifiable. ENVIRONMENTAL MATTERS Under various federal, state and local laws, ordinances and regulations, including, without limitation, CERCLA, Chapter 403 of the Florida Statutes, the Florida Dry Cleaning Contamination Clean-Up Act and the Miami-Dade County (Florida) Pollution Protection Ordinance, an owner or operator of real estate may be required to investigate and clean up hazardous or toxic substances or petroleum product releases at such property and may be held liable to a governmental entity or to third parties for property damage and for investigation and clean-up costs incurred by such parties in connection with contamination. Many such laws, including CERCLA, typically impose such liability without regard for whether the owner knew of, or was responsible for, the presence of such hazardous or toxic substances and the liability under such laws has been interpreted to be joint and several unless divisible and there is a reasonable basis for allocation of responsibility. The cost of investigation, remediation or removal of such substances may be substantial, and the presence of such substances, or the failure to properly remediate such substances, may adversely affect the owner's ability to sell or rent such property or to borrow using such property as collateral. Persons who arrange for the disposal or treatment of hazardous or toxic substances may also be liable for the costs of removal or remediation of such substances at a disposal or treatment facility, whether or not such facility is owned or operated by such person. Some environmental laws create a lien on a contaminated site in favor of the government for damages and costs it incurs in connection with the contamination. The owner of a contaminated site also may be subject to common law claims by third parties based on damages and costs resulting from environmental contamination emanating from such site. In connection with the (direct or indirect) ownership, operation, management and development of real properties, the Company is generally considered an owner or operator of such properties or as having arranged for the disposal or treatment of hazardous or toxic substances and, therefore, potentially liable for removal or remediation costs, as well as certain other related costs, including governmental fines and injuries to persons and property. Certain federal, state and local laws, regulations and ordinances also govern the removal, encapsulation or disturbance of asbestos-containing materials ("ACMs") when such materials are in poor condition or in the event of construction, remodeling, renovation or demolition of a building. Such laws may impose liability for release of ACMs and may permit third parties to seek recovery from owners or operators of such properties for personal injury associated with ACMs. Some of the environmental site assessments conducted at the Existing Properties to date indicate that a number of the Existing Properties contain ACMs. The Company is not aware, however, of any ACMs at the properties that are friable or in otherwise poor condition. 18 The Company believes that the environmental studies conducted to date have not revealed any significant environmental liability that would have a material adverse effect on the Company's financial condition, results of operations, liquidity and funds from operations (the "FFO"); however, no assurance can be given that environmental studies obtained by the Company reveal all environmental liabilities, that any prior owner of land or a property owned or acquired by the Company did not create any material environmental condition not known to the Company, or that a material environmental condition does not otherwise exist (or may not exist in the future). Tenants at the Company's properties include plant-on-premises dry cleaners, gasoline service stations and tire centers, photo development firms and other retailers which use hazardous substances in their businesses. Although leases with such tenants contain provisions intended to minimize environmental risks and to shift the financial risks to the tenants, there is no assurance that the Company will not incur liability in this regard. A limited monitoring program with respect to groundwater testing has been implemented at Plaza Del Rey based on questions raised by environmental studies conducted at the time of purchase. Groundwater impacts have also been detected at Atlantic Village, which is located in an area where a former municipal landfill was operated. Buried refuse consistent with known landfill parameters has been identified by the Company's consultants on the Atlantic Village site. While these sites are not regarded by management as significant environmental risks, if a material environmental condition does in fact exist (or exists in the future) at these or other properties, it could have a significant adverse impact upon the Company's financial condition, results of operations, liquidity and FFO. No assurance can be given that the environmental studies that were performed at the properties would disclose all environmental liabilities thereon, that any prior owner thereof did not create a material environmental condition not known to the Company or that a material environmental condition does not otherwise exist as to any of the properties. As noted, tenants at the shopping centers include plant-on-premises dry cleaners. As a result of environmental site assessments conducted in the past few months, low levels of perchloroethylene have been detected in soils at the Company's Commonwealth, Fort Caroline and Eustis Square properties. The Company understands that the owners of these cleaners are applying to participate in the state-funded dry cleaner's program. In connection with the Company's acquisition of Skylake, a Phase two Environmental Site Assessment dated July 15, 1997 has revealed the existence of perchloroethylene at levels above regulatory limits caused by a dry cleaning business operated on the premises. The Company has learned that the site is included in the Florida Dry Cleaners State Program, and as a condition to the Company's purchase of the property, the seller agreed to pay all remediation costs, which environmental consultants have estimated to be approximately $250,000. The seller placed $500,000 into an escrow account at closing to pay for the remediation costs. Based on the remediation cost estimates, guarantees by the seller to pay for the clean-up and the establishment of the escrow account, the Company has concluded that the property does not pose a material environmental liability. EMPLOYEES At December 31, 1999, the Company had 38 full-time employees. The Company's employees are not represented by a collective bargaining group, and the Company considers its relations with its employees to be good. ITEM 3. LEGAL PROCEEDINGS On February 26, 1998, Albertson's commenced an action against a subsidiary of the Company (the "Subsidiary") in the Circuit Court for the Eleventh Judicial District in and for Miami-Dade County, Florida, alleging breach of a letter agreement and seeking injunctive relief and the payment of damages in excess of $10,000,000 representing lost profits and other damages. This action was commenced in response to the Subsidiary's entering into a lease agreement with Publix respecting Publix's lease of anchor space at Skylake. Among other things, the complaint alleged that Albertson's and the Subsidiary entered into a letter agreement which the parties intended to be memorialized into a formal lease agreement and as to which the parties intended to be bound. In February, 1999, Albertson's voluntarily dismissed its complaint relating to this action in its entirety. Except as described above, neither the Company nor the Company's properties are subject to any material litigation. Furthermore, to the Company's knowledge, except as described above, there is no litigation threatened against the Company or any of its properties, other than routine litigation and administrative proceedings arising in the ordinary 19 course of business, which collectively are not expected to have a material adverse effect on the business, financial condition, results of operations or cash flows of the Company. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's Common Stock began trading on the New York Stock Exchange ("NYSE") on May 18, 1998, under the symbol "EQY". On February 15, 2000, the Company had 166 stockholders of record representing 1,253 beneficial owners. The following table sets forth for the periods indicated the high and low sales prices as reported by the NYSE and the distributions declared by the Company.
DISTRIBUTIONS HIGH LOW DECLARED -------------- ------------ ------------ Second Quarter 1998, (from May 18, 1998) ................. $ 10.4375 $ 9.5625 $ 0.13 Third Quarter, 1998 ...................................... 10.6250 8.3125 0.25 Fourth Quarter, 1998...................................... 9.8125 8.6250 0.25 First Quarter, 1999 ...................................... 9.6875 8.6250 0.25 Second Quarter, 1999 ..................................... 11.0000 8.5625 0.25 Third Quarter, 1999....................................... 12.1250 9.7500 0.26 Fourth Quarter, 1999...................................... 10.6250 9.5000 0.26
Dividends paid during 1999 totaled approximately $11.2 million. Future declaration of dividends will be made by the Company at the discretion of the Board of Directors and will depend upon the earnings of the Company, its financial condition and such other factors as the Board of Directors deem relevant. In order to qualify for the beneficial tax treatment accorded to real estate investment trusts under the Internal Revenue Code of 1986, as amended (the "Code"), the Company is required to make distributions to holders of its shares in an amount at least equal to 95% of the Company's "real estate investment trust taxable income," as defined in Section 857 of the Code. 20 ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) The summary consolidated financial data and balance sheet data set forth below have been derived from the consolidated financial statements of the Company, including the consolidated financial statements for the years ended December 31, 1997, 1998 and 1999 contained elsewhere herein. The consolidated financial statements as of and for the years ended December 31, 1995, 1996, 1997, 1998 and 1999 have been audited by Deloitte & Touche LLP, independent auditors. The data set forth below should be read in conjunction with the consolidated financial statements and related notes, and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere herein.
YEAR ENDED DECEMBER 31, ----------------------------------------------------------------- 1999 1998 1997 1996 1995 ----------------------------------------------------------------- STATEMENT OF OPERATIONS DATA: Total revenues ......................................... $ 30,977 $ 25,626 $ 20,545 $ 16,714 $ 11,348 Operating expenses ..................................... 7,082 5,965 5,245 4,370 3,293 Depreciation and amortization .......................... 3,502 2,881 2,392 2,067 1,496 Interest ............................................... 5,086 5,014 5,681 5,380 3,498 Put option expense ..................................... -- 1,320 -- -- -- General and administrative expense ..................... 1,622 1,381 1,029 977 549 Minority interest in earnings of consolidated subsidiary 96 -- -- -- -- --------- --------- --------- --------- --------- Total expenses .................................. 17,388 16,561 14,347 12,794 8,836 --------- --------- --------- --------- --------- Net income ............................................. $ 13,589 $ 9,065 $ 6,198 $ 3,920 $ 2,512 ========= ========= ========= ========= ========= Basic earnings per share (1) ........................... $ 1.26 $ 1.01 $ 0.96 $ 0.79 $ 0.56 ========= ========= ========= ========= ========= Diluted earnings per share (1) ......................... $ 1.26 $ 1.00 $ 0.87 $ 0.69 $ 0.47 ========= ========= ========= ========= ========= BALANCE SHEET DATA: Total rental properties, before accumulated depreciation $ 216,588 $ 148,087 $ 126,441 $ 106,706 $ 92,770 Total assets ........................................... 212,497 152,955 126,903 111,822 94,470 Mortgage notes payable ................................. 97,752 67,145 71,004 66,831 60,583 Total liabilities ...................................... 121,068 71,737 73,323 68,727 64,331 Shareholders' equity ................................... 91,429 81,218 53,580 43,095 29,139 OTHER DATA: Ratio of earnings to fixed charges (2) ................. 2.71 2.58 2.09 1.73 1.72 Funds from operations (3) .............................. $ 13,578 $ 10,580 $ 8,220 $ 6,136 $ 3,973 Cash flows from: Operating activities ................................ 20,169 3,697 8,843 6,680 3,469 Investing activities ................................ (62,239) (23,824) (6,173) (18,277) (37,211) Financing activities ................................ 40,903 19,123 (2,023) 12,778 27,441 Gross leasable area (square feet) (at end of period) ... 2,836 2,078 2,004 1,807 1,670 Occupancy (at end of period) ........................... 95% 95% 93% 91% 90% - ------------------------- (1) Calculated in accordance with SFAS No. 128. (2) For the purposes of calculating the ratio of earnings to fixed charges, earnings include pre-tax income plus interest expense, amortization of interest previously capitalized, and amortization of financing costs. Fixed charges include all interest costs consisting of interest expense, interest capitalized, and amortization of financing costs. (3) In March 1995, the National Association of Real Estate Investment Trusts ("NAREIT") adopted the NAREIT White Paper on Funds from Operations (the "White Paper") which provided additional guidance on the calculation of funds from operations. The White Paper defines funds from operations as net income (loss) (computed in accordance with generally accepted accounting principles ("GAAP"), excluding gains (or losses) from debt restructuring and sales of property, plus real estate related depreciation and amortization and after adjustments for unconsolidated partnerships and joint ventures ("FFO"). Management believes FFO is helpful to investors as a measure of the performance of an equity REIT because, along with cash flows from operating activities, financing activities and investing activities, it provides investors with an understanding of the ability of the Company to incur and service debt and make capital expenditures. The Company computes FFO in accordance with standards established by the White Paper, which may differ from the methodology for calculating FFO utilized by other equity REITs, and, accordingly, may not be comparable to such other REITs. Further, FFO does not represent amounts available for management's discretionary use because of needed capital replacement or expansion, debt service obligations, or other commitments and uncertainties. The Company believes that in order to facilitate a clear understanding of the consolidated historical operating results of the Company, FFO should be examined in conjunction with the income (loss) as presented in the audited consolidated financial statements and information included elsewhere in this Prospectus. FFO should not be considered as an alternative to net income (determined in accordance with GAAP) as an indication of the Company's financial performance or to cash flows from operating activities (determined in accordance with GAAP) as a measure of the Company's liquidity, nor is it indicative of funds available to fund the Company's cash needs, including its ability to make distributions. FFO is derived from historical net income as follows:
DECEMBER 31, --------------------------------------------------------------- 1999 1998 1997 1996 1995 -------- -------- -------- -------- -------- Net income ............ $ 13,589 $ 9,065 $ 6,198 $ 3,920 $ 2,512 Add: Real estate depreciation and amortization ...... 3,426 2,933 2,378 2,037 1,461 Non-recurring items* (3,437) (1,418) (356) 179 -- -------- -------- -------- -------- -------- FFO ................... $13,578 $ 10,580 $ 8,220 $ 6,136 $ 3,973 ======== ======== ======== ======== ======== Diluted FFO per share . $ 1.25 $ 1.17 $ 1.22 $ 1.09 $ 0.75 ======== ======== ======== ======== ======== - ------------------------- * Reflects pre-payment penalties, write-offs of unamortized loan costs related to repayment of debt, lease termination fees, gain on sale of real estate, put option expense and minority interest.
21 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis should be read in conjunction with "Selected Consolidated Financial Data" and the Company's consolidated financial statements, and the notes thereto, appearing elsewhere herein. Certain statements made in this report may constitute "forward-looking statements" within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. For additional information, see Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, Forward-Looking Statements. The Company receives income primarily from rental revenue (including recoveries from tenants) from the Existing Properties. As a result of the Company's acquisition and redevelopment programs, the financial data shows increases in total revenue from year to year, largely attributable to the acquisitions of properties placed into operation during the year, and the benefit of a full period of rental and other revenues for properties acquired or placed into operation in the current or preceding year. The following table sets forth for the years ended December 31, 1999, 1998 and 1997, respectively, information regarding the nature and composition of the Company's revenues and expenses expressed as a percentage of the Company's total revenues which are set forth in the consolidated financial statements included elsewhere herein. For purposes of the following table, "Aggregate minimum rental revenue" is the fixed base rental amount in effect throughout the relevant periods. "Percentage rent" represents additional rent paid by tenants based upon the achievement of certain specified levels of gross sales. "Recoveries from tenants" are the tenants' share of real estate taxes, insurance and common area maintenance expenses. The information set forth below presents an analysis of certain trends relating to the components of the Company's revenues and expenses: 22
YEAR ENDED DECEMBER 31, ------------------------------ 1999 1998 1997 ------ ------ ------ Aggregate minimum rental revenue ....................... 68.01% 68.25% 73.36% Percentage rent ........................................ 0.55 0.45 0.84 Recoveries from tenants ................................ 16.56 16.97 18.03 Gain on sale of real estate ............................ 12.31 10.27 -- Other income ........................................... 2.57 4.06 7.77 ------- ------- ------- Total Revenues ......................................... 100.00% 100.00% 100.00% ------- ------- ------- Operating expenses ..................................... 22.86% 23.28% 25.53% Depreciation and amortization .......................... 11.30 11.24 11.64 Interest ............................................... 16.42 19.57 27.65 General and administrative expenses .................... 5.24 5.39 5.01 Put option expense ..................................... -- 5.15 -- Minority interest in earnings of consolidated subsidiary 0.31 -- -- ------- ------- ------- Total costs and expenses ............................... 56.13% 64.63% 69.83% ------- ------- ------- Net income ............................................. 43.87% 35.37% 30.17% ======= ======= =======
RESULTS OF OPERATIONS YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998 Total revenues increased by approximately $5.4 million, or 20.9%, to $31.0 million in 1999 from $25.6 million in 1998. This increase was primarily the result of new revenues generated from acquisitions, a development property completed and generating revenues and the gain on the sale of one of the Companies properties. During 1999, the Company acquired the following properties: Walden Woods (January 1999), Park Promenade (January 1999), K-Mart lease at Lantana Village (April 1999), Pine Island Plaza (August 1999), Ridge Plaza (August 1999) and Mandarin Landing (December 1999). These acquisitions contributed to the Company's increased revenues by approximately $3.8 million. During 1998, the Company acquired the following properties that resulted in a net increase in 1999 revenues of approximately $828,000: Summerlin Square (May 1998), a restaurant property (May 1998), Beauclerc Village (June 1998) and Montclair Apartments (August 1998). The completion of phase one at Skylake in July 1999 contributed approximately $532,000 to the increase in revenues. Finally, the gain on the December 1999 sale of Four Corners Shopping Center of approximately $3.8 million exceeded the 1998 gain on the sale of Parker Towne Center by approximately $1.2 million, but Parker Towne Center reported approximately $782,000 of rental revenue in 1998 that was not reported in 1999 resulting in a net increase of approximately $400,000. Operating expenses increased by approximately $1.1 million, or 18.7%, to $7.1 million in 1999 from $6.0 million in 1998. This increase was primarily the result of new operating expenses generated from acquisitions and a development property completed and generating operating expenses. The 1999 acquisitions discussed above resulted in operating expenses increasing by approximately $1.0 million, and the 1998 acquisitions discussed above resulted in a $182,000 increase in operating expenses which was offset by a reduction of approximately $159,000 of operating expense relating to the sale of Parker Towne Center. The remaining increase can be attributed to an increase in the operating expenses of the manangement company and a small decrease in the operating expenses of existing properties. However, operating expenses as a percentage of revenues decreased from 23.3% in 1998 to 22.9% in 1999. 23 Depreciation and amortization increased by approximately $621,000, or 21.6%, to $3.5 million in 1999 from $2.9 million in 1998 primarily as a result of an increase in depreciable assets resulting from the Company's acquisitions discussed above. Interest expense increased by approximately $72,000, or 1.4%, to $5.1 million in 1999 from $5.0 million in 1998. The increase was primarily due to the following factors: (1) a net increase of approximately $30.6 million in mortgage notes that resulted in an increase in interest expense of approximately $1.0 million, (2) an increase in interest payable with respect to the Company's line of credit of approximately $431,000, (3) an increase of $1.2 million to a total of approximately $1.8 million in capitalized interest attributable to development projects which reduced interest expense and (4) a decline in the interest expense on existing mortgage notes of approximately $161,000. General and administrative expenses increased by approximately $242,000, or 17.5%, to $1.6 million in 1999 from $1.4 million in 1998. The increase was primarily the result of managing the Company's growth and of absorbing the costs of operating as public company, as compensation costs increased by $132,000 and printing and promotion increased by $145,000. As a percentage of rental revenue, general and administrative expenses decreased from 5.4% in 1998 to 5.2% in 1999. As a result of the foregoing, net income increased by $4.5 million, or 49.9%, to $13.6 million in 1999 from $9.1 million in 1998, and FFO increased by $3.0 million, or 28.3%, to $13.6 million in 1999 from $10.6 million in 1998. YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997 Total revenues increased by approximately $5.1 million, or 24.8% to $25.6 million in 1998 from $20.5 million in 1997. This increase was primarily the result of a $2.6 million gain on the sale of Parker Towne Center in October 1998, as well as the operations of Lantana Village (acquired in January 1998); Summerlin Square (acquired in May 1998); Beauclerc Village (acquired in June 1998); and a restaurant property (acquired in May 1998). Of such increase, approximately $994,000, $726,000, $315,000 and $111,000 were attributable to Lantana Village, Summerlin Square, Beauclerc Village and the restaurant property, respectively. The remaining increase was attributable to increased occupancy at the Company's Existing Properties. Operating expenses increased by approximately $720,000, or 13.7%, to $6.0 million in 1998 from $5.2 million in 1997, primarily as a result of the operations of Lantana Village, Summerlin Square, Beauclerc Village and the restaurant property. Notwithstanding the foregoing, as a percentage of revenue, operating expenses decreased from 25.5% in 1997 to 23.3% in 1998. Depreciation and amortization increased by approximately $489,000, or 20.9%, to $2.9 million in 1998 from $2.4 million in 1997 from primarily as a result of an increase in depreciable assets resulting from the company's acquisitions of Lantana Village, Summerlin Square, Beauclerc Village and the restaurant property and from capital expenditures incurred by the Company in connection with tenant and leasehold improvements. Interest expense decreased by approximately $667,000 or 11.7% to $5.0 million in 1998 from $5.7 million in 1997. This decrease was primarily due to an increase of approximately $488,000 in capitalized interest, to $633,000 in 1998 from $145,000 in 1997, as a result of the commencement of the redevelopment of Skylake, the use of proceeds derived from the Company's IPO to pay off certain loans, and the refinancing of certain other loans at lower interest rates. This achieved a net reduction in mortgage notes payable of $3.2 million and an overall reduction in recurring interest costs of $358,000 before considering prepayment penalties of $119,000 and the write-off of unamortized loan costs of $88,000. General and administrative expenses increased by approximately $352,000, or 34.2% to $1.4 million in 1998 from $1.0 million in 1997. As a percentage of revenue, general and administrative expenses increased from 5.0% in 1997 to 5.4% in 1998. A substantial portion of this increase is attributable to a $216,000 increase in professional and legal fees. Professional fees increased due to the increased costs of becoming a public company, including stock exchange listing fees, public relations and other consulting fees. Legal fees increased due to the lawsuit relating to Skylake, which lawsuit has been voluntarily dismissed by the plaintiff. 24 As a result of the foregoing, net income increased by $2.9 million, or 46.3%, to $9.1 million in 1998 from $6.2 million in 1997, and FFO increased by $2.4 million, or 28.7%, to $10.6 million in 1998 from $8.2 million in 1997. YEAR 2000 COSTS During 1998 and 1999 the Company conducted a study of its functional application systems to determine its compliance with year 2000 issues and, to the extent of noncompliance, the required remediation. As a result of such study, the Company acquired software upgrades and had its operating systems tested to insure year 2000 compliance. The expenses incurred by the Company in order to become year 2000 compliant, including computer software costs, were approximately $25,000. Costs other than software have been expensed as incurred. The Company did not experience any adverse year 2000 problems nor any from third party entities with whom the Company had a relationship, such as banks, tenants or suppliers. The Company does not intend to spend any additional amounts related to year 2000 issues. MORTGAGE INDEBTEDNESS The following table sets forth certain information regarding mortgage indebtedness of the Company related to the Existing Properties as of December 31, 1999 (Dollars in thousands):
PROJECTED ANNUAL INTEREST INTEREST PAYMENTS BALANCE DUE RATE (%) AMOUNT FOR YEAR 2000 MATURITY DATE AT MATURITY ------ ------- ------ ------------- ------- SOUTH FLORIDA Bird Ludlam......................... 7.680 $ 12,306 $ 930 February 2015 $ 0 Lantana............................. 6.950 4,201 288 February 2005 3,498 Plaza Del Rey....................... 8.125 2,662 211 September 2011 0 Pointe Royal........................ 7.950 5,352 419 July 2010 2,502 Summerlin Square.................... 6.750 4,835 320 February 2014 0 West Lakes.......................... 7.880 5,524 429 June 2016 130 CENTRAL FLORIDA Eustis Square....................... 9.000 4,938 435 July 2002 4,344 Forest Edge......................... 6.900 1,837 124 October 2002 1,567 Lake Mary........................... 7.850 12,118 937 December 2010 5,569 Pine Island/Ridge Plaza............. 6.910 26,149 1,829 July 2008 23,104 Walden Woods........................ 7.875 2,764 215 August 2006 2,071 NORTH FLORIDA Atlantic Village.................... 6.850 4,869 329 November 2018 0 Commonwealth........................ 7.000 3,152 218 February 2008 2,216 Fort Caroline....................... 9.350 2,244 207 March 2009 1,280 Monument Pointe..................... 10.060 2,544 253 June 2001 2,464 Oak Hill............................ 7.625 2,257 170 January 2006 1,713 ------ ------- ------ ------- TOTAL/WEIGHTED AVERAGE 7.473 $97,752 $7,314 $50,458 ====== ======= ====== =======
The Company's mortgage indebtedness outstanding at December 31, 1999 will require balloon principal payments of approximately $2.5 million, $5.9 million, $3.5 million, $3.8 million, $25.3 million, $1.3 million, $8.1 million and $130,000 in 2001, 2002, 2005, 2006, 2008, 2009, 2010, and 2016 respectively, in addition to normal amortization throughout the terms of the mortgages. The Company may not have sufficient funds on hand to repay these balloon amounts at maturity. Therefore, the Company expects to refinance this indebtedness either through additional mortgage financing secured by individual properties or groups of properties, by unsecured private or public debt offerings or by additional equity offerings. In addition to the aforementioned mortgage indebtedness, the Company has borrowed $19.5 million under a Credit Agreement that is secured by the following properties: Shops at Skylake, East Bay Plaza, Beauclerc Village and the Equity One Office Building. The Credit Agreement is presently committed to fund $22,050,000 and is due in full on February 4, 2002. 25 LIQUIDITY AND CAPITAL RESOURCES Historically, the principal sources of funding for the Company's operations, including the renovation, expansion, development and acquisition of shopping centers have been operating cash flows, the issuance of equity securities and mortgage loans. The Company's principal demands for liquidity are maintenance, repair and tenant improvements of existing properties, acquisitions and development activities, debt service and repayment obligations and distributions to its stockholders. As of December 31, 1999, the Company had total mortgage indebtedness of $97.8 million, all of which was fixed rate mortgage indebtedness bearing interest at a weighted average annualized rate of 7.5% and collateralized by 16 of the Existing Properties. In order to meet the Company's expansion objectives, the Company secured a $35.0 million Credit Agreement with City National Bank of Florida on February 4, 1999. On November 29, 1999, the limitation on advances under this Agreement was increased from $16.6 million to approximately $22.1 million, with future increases conditioned on the posting of additional collateral. As of December 31,1999 the Credit Agreement was secured by mortgages on Skylake, East Bay Plaza, Beauclerc Village and Equity One Office Building. The Credit Agreement accrues interest at 225 basis points over the thirty day LIBOR rate, payable monthly, adjusted every six months and matures February 4, 2002. Advances under the Credit Agreement will be used to fund property acquisitions, development activities and other Company activities. As of March 6, 2000, the outstanding balance under the Credit Agreement had been reduced to $13.9 million from $19.5 million as of December 31, 1999. The terms of the Credit Agreement allow the lender to cease funding and/or accelerate the maturity date if neither Mr. Katzman nor Mr. Valero remains as the executives in control of the Company. The Credit Agreement also limits the amount that can be borrowed for the purchase of vacant land and contains other customary conditions and covenants, including, among other things, the payment of commitment fees and the required delivery of various title, insurance, zoning and environmental assurances on the secured properties, and a prohibition on secondary financing on any of the secured properties. As of December 31, 1999, the percentage of the total real estate cost of the Company's Existing Properties that were encumbered by debt was 61.0%. None of the existing mortgages are subject to cross default provisions of mortgages on other properties nor are any cross-collateralized. However, in connection with the Company's acquisition of Lake Mary, the Company has provided a $1.5 million letter of credit to secure certain obligations, which letter of credit is collateralized by the mixed-use property located in West Palm Beach, Florida. The Company has two major construction projects underway. The Skylake development project will add an aggregate of 280,000 square feet of retail space to the company's portfolio. Phase one was completed in July 1999, phase two should be completed during the second quarter of 2000 and it is anticipated that construction of the third phase will commence by year end 2000. It is anticipated that the future funding required for this project will be approximately $10.0 million. The other project is Forest Village, a new development that would add up to 172,480 square feet of retail space to the Company's portfolio. The first phase consisting of 72,480 square feet, will be completed in the second quarter of 2000, and has a remaining net construction cost of approximately $422,000. Phase two is anticipated to be completed in 2002 at an estimated construction cost of $6.0 million. These construction costs will be funded from borrowings under the Credit Agreement and other sources of cash, including obtaining permanent debt on certain unencumbered existing properties. Upon stabilization, management expects these developments to have a positive effect on cash generated by operating activities and FFO. On February 22, 2000 the Company instituted a Dividend Reinvestment and Stock Purchase Plan that allows its shareholders to reinvest all or a portion of their cash dividends in additional shares of the Company's common stock and to purchase shares of the Company's common stock. The purchase price for which the reinvested dividends can acquire common stock is equal to 100% of the average of the daily high and low sales price for a share of common stock on the investment date. On March 8, 2000 Gazit (1995), Inc., MGN (USA), Inc. and Globe-Reit Investment, Ltd., affiliates of the Company, enrolled in the plan with respect to the majority of their shares of common stock; it is expected that these affiliates will reinvest cash dividends totaling approximately $1.7 million for the purchase of the Company's authorized but unissued shares of common stock at the end of the first quarter 2000. While the affiliates have expressed a desire to participate in the plan no assurances can be made that they will continue to do so. The Company believes, based on currently proposed plans and assumptions relating to its operations, that the Company's existing financial arrangements, together with cash flows from operations, will be sufficient to satisfy its 26 cash requirements for a period of at least 12 months. In the event that the Company's plans change, its assumptions change or prove to be inaccurate or cash flow from operations or amounts available under existing financing arrangements prove to be insufficient to fund the Company's expansion and development efforts, the Company would be required to seek additional sources of financing. There can be no assurance that any additional financing will be available to the Company on acceptable terms, or at all. If adequate funds are not available, the Company's business operations could be materially adversely affected. During the year ended December 31, 1999, the Company declared quarterly cash dividends of $0.25, $0.25, $0.26 and $0.26 per outstanding share of common stock. The dividends were paid to shareholders of record on March 30, 1999, June 30, 1999, September 30, 1999 and December 30, 1999, respectively. INFLATION Most of the Company's leases contain provisions designed to partially mitigate the adverse impact of inflation. Such provisions include clauses enabling the Company to receive percentage rents based on a tenant's gross sales above predetermined levels, which sales generally increase as prices rise, or escalation clauses which are typically related to increases in the Consumer Price Index or similar inflation indices. Most of the Company's leases require the tenant to pay its share of operating expenses, including common area maintenance, real estate taxes and insurance, thereby reducing the Company's exposure to increases in costs and operating expenses resulting from inflation. The Company's financial results are affected by general economic conditions in the markets in which its properties are located. An economic recession, or other adverse changes in general or local economic conditions, could result in the inability of some existing tenants of the Company to meet their lease obligations and could otherwise adversely affect the Company's ability to attract or retain tenants. The properties are typically anchored by supermarkets, drug stores and other consumer necessity and service retailers that offer day-to-day necessities rather than luxury items. These types of tenants, in the experience of the Company, generally maintain more consistent sales performance during periods of adverse economic conditions. FORWARD-LOOKING STATEMENTS Certain statements made in this report may constitute "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act") and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Such forward-looking statements include statements regarding the intent, belief or current expectations of the Company and its management and involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, among other things, the following: maintaining REIT status, general economic and business conditions, which will, among other things, affect the demand for retail space or retail goods, availability and creditworthiness of prospective tenants, lease rents and the terms and availability of financing; adverse changes in the real estate markets including, among other things, competition with other companies; risks of real estate markets including, development and acquisition; governmental actions and initiatives; and environment/safety requirements. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The primary market risk to which the Company has exposure is interest rate risk. Changes in interest rates can affect the Company's net income and cash flows. As changes in market conditions occur, interest rates can either increase or decrease. As interest rates move, interest expense from the variable component of the Company's debt balances will move in the same direction. With respect to its investment portfolio, changes in interest rates generally do not affect the Company's interest income as its investments are predominantly in equity securities. With respect to its mortgage notes payable, changes in interest rates generally do not affect the Company's interest expense as its mortgage notes payable are predominantly fixed-rate. However, at December 31, 1999, the Company was obligated in the amount of $19.5 million under the Credit Agreement, a variable-rate note payable, that is subject to interest rate risk. 27 The Company's objective in managing its exposure to interest rate changes is to limit the impact of interest rate changes on earnings and cash flows. The Company may use a variety of financial instruments to reduce its interest rate risk, including interest rate swap agreements whereby the Company exchanges its variable interest costs on a defined amount of principal for another party's obligation to pay fixed interest on the same amount of principal, or interest rate caps, which will set a ceiling on the maximum variable interest rate the Company will incur on the amount of debt subject to the cap and for the time period specified in the interest rate cap. At the present time, the Company has not executed or entered into any such financial instruments. The Company has tested its sensitivity to changes in interest rates and believes any impact would be moderate. In addition, a significant portion of the Company's debt is not subject to interest rate fluctuations because it bears interest at fixed rates. The Company has no material market risk sensitive instruments. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The financial statements and supplementary data required by Regulation S-X are included in this Annual Report on Form 10-K commencing on page F-1. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III Certain information required by Part III is omitted from this report since the Company plans to file with the Securities and Exchange Commission a definitive proxy statement for its 2000 Annual Meeting of Stockholders (the "Proxy Statement") no later than 120 days after the end of the fiscal year covered by this report, and certain information included therein is incorporated herein by reference. ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Incorporated by reference from the Company's definitive proxy statement to be filed within 120 days after the end of the Registrant's fiscal year, covered by this Form 10-K. ITEM 11. EXECUTIVE COMPENSATION Incorporated by reference from the Company's definitive proxy statement to be filed within 120 days after the end of the Registrant's fiscal year, covered by this Form 10-K. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Incorporated by reference from the Company's definitive proxy statement to be filed within 120 days after the end of the Registrant's fiscal year, covered by this Form 10-K. 28 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Incorporated by reference from the Company's definitive proxy statement to be filed within 120 days after the end of the Registrant's fiscal year, covered by this Form 10-K PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) The following consolidated financial information is included as a separate section of this Annual Report on Form 10-K. 1. Financial Statements: PAGE(S) ------- Independent Auditors' Report F-1 Balance Sheets F-2 Statements of Operations F-4 Statements of Stockholders' Equity F-6 Statements of Cash Flows F-7 Notes to Financial Statements F-9 2. Report of Deliotte & Touche LLP, Independent Auditors S-1 Schedule III-Real Estate Investments and Accumulated Depreciation S-2 Schedules I, II, IV and V are not required to be filed. 3. Exhibits EXHIBIT NO. DESCRIPTION ----------- ----------- 3.1 Articles of Amendment and Restatement of the Company. (1) 3.2 Amended and Restated Bylaws of the Company. (1) 4.1 Form of Common Stock Certificate. (1) 10.1 Form of Indemnification Agreement. (1) 10.2 Employment Agreement, dated as of January 1, 1996 by and between the Company and Chaim Katzman. (1) 10.3 Employment Agreement, dated as of January 1, 1996 by and between the Company and Doron Valero (1) 10.4 Form of 1995 Stock Option Plan, as amended. (1) 10.5 Form of Stock Option Agreement. (1) 10.6 Registration Rights Agreement, dated as of January 1, 1996 by and among the Company, Chaim Katzman, Gazit Holdings, Inc., Dan Overseas Ltd., Glob Reit Investments, Ltd., Eli Makavy, Doron Valero and David Wulkan. (1) 29 EXHIBIT NO. DESCRIPTION ----------- ----------- 10.7 Stock Pledge Agreement, dated June 17, 1996, by and between Chaim Katzman and the Company. (1) 10.8 Promissory Note, in the amount of $1,128,750 from Chaim Katzman, payable to the Company. (1) 10.9 Stock Pledge Agreement, dated December 30, 1996, by and between the Company and Doron Valero. (1) 10.10 Promissory Note, in the amount of $396,000 from Doron Valero payable to the Company.(1) 10.11 Use Agreement, regarding use of facilities, by and between Gazit (1995), Inc. and the Company, dated January 1, 1996.(1) 10.12 Pledge Agreement, dated November 9, 1995 among Equity One (Lake Mary), Inc. and The Mutual Life Insurance Company of New York.(1) 10.13 Note Secured by First Real Estate Lien, dated November 9, 1995 in the amount of $13,422,500 from Equity One (Lake Mary), Inc. in favor of The Mutual Life Insurance Company of New York.(1) 10.14 Purchase and Sale Agreement, dated October 24, 1995 by and between 1740 Ventures, Inc. and Equity One (Lake Mary), Inc.(1) 10.15 Florida Real Estate Mortgage and Security Agreement, dated November 9, 1995 by and between Equity One (Lake Mary), Inc. and The Mutual Life Insurance Company of New York.(1) 10.16 Agreement for Purchase and Sale, dated June 12, 1997 by and between Equity One (Gamma) Inc. and Isidoro Lerman, Trustee.(1) 10.17 Contract for Sale and Purchase, dated March 31, 1997 by and among Equity One (Gamma) Inc., Angel Pena and Hermilio Concepcion.(1) 10.18 Property Management Agreement, dated as of January 1, 1996, by and between the Company and Global Realty and Management, Inc.(1) 10.19 Agreement for Purchase and Sale (Lantana Village Square), dated September 24, 1997, between Equity One (Gamma) Inc. and Commercial Ventures Services, Inc.(1) 10.20 Mortgage Promissory Note, dated August 19, 1997, by and between Equity One (Skylake) Inc. and Isidoro Lerman, as Trustee.(1) 10.21 Mortgage, dated August 19, 1997, by and between Equity One (Skylake) Inc. and Isidoro Lerman, as Trustee.(1) 10.22 Settlement Agreement, dated March 6, 1999 among Gazit Inc., Danbar Resources and Development Ltd. and Dan Overseas Ltd.(1) 10.23 Mortgage and Security Agreement, dated February 27, 1999, by and between Equity One (Commonwealth) Inc. and Principal Mutual Life Insurance Company.(1) 10.24 Secured Promissory Note, dated February 27, 1999 in the amount of $3,300,000 by and between Equity One (Commonwealth) Inc. and Principal Mutual Life Insurance Company.(1) 30 EXHIBIT NO. DESCRIPTION ----------- ----------- 10.25 Mortgage and Securities Agreement, dated as of February 18, 1999, by and between Equity One (Lantana) Inc. and Principal Mutual Life Insurance Company.(1) 10.26 Secured Promissory Note, dated February 18, 1999 in the amount of $2,700,000 by and between Equity One (Lantana) Inc. and Principal Mutual Life Insurance Company.(1) 10.27 Agreement for Purchase and Sale Between Equity One (Gamma) Inc. and Sunrise Limited Partnership, dated March 12, 1999. (Summerlin Square). (2) 10.28 Bill of Sale Between Sunrise Limited Partnership and Equity One (Summerlin) Inc., dated June 5, 1999 (Summerlin Square). (2) 10.29 Escrow Agreement Between Sunrise Limited Partnership and Equity One (Gamma) Inc., dated March 12, 1999 (Summerlin Square). (2) 10.30 Agreement for Purchase and Sale, dated August 19, 1998 Between Equity (Parker Towne Center), Inc. and Dunhill Partners. (3) 10.31 Promissory Note, dated October 30, 1998 issued by Equity One (Atlantic Village), Inc. to Southern Farm Bureau Life Insurance Company. (3) 10.32 Mortgage Security Agreement and Assignment of Leases, dated October 30, 1999 between Equity One (Atlantic Village), Inc. and Southern Farm Bureau Life Insurance Company. (3) 23.1 Consent of Deloitte & Touche LLP, Certified Public Accountants. 27.1 Financial Data Schedule. (1) Previously filed with the Company's Registration Statement on Form S-11 (Registration No. 333-3397) and incorporated herein by reference. (2) Previously filed with the Company's quarterly report on Form 10-Q filed on August 12, 1999, and incorporated herein by reference. (3) Previously filed with the Company's quarterly report on Form 10-Q filed on November 16, 1999, and incorporated herein by reference. 31 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. EQUITY ONE, INC. Date: March 30, 2000 By: /s/ Chaim Katzman ------------------------------------- Chaim Katzman Chairman of the Board, President 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 in the capacities, and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ Chaim Katzman Chairman of the Board, President, March 30, 2000 - ----------------------------------- Chief Executive Officer (Principal Chaim Katzman Executive Officer) /s/ Doron Valero - ----------------------------------- Senior Vice President, Chief March 30, 2000 Doron Valero Operating Officer and Director /s/ Howard M. Sipzner - ----------------------------------- Chief Financial Officer March 30, 2000 Howard M. Sipzner /s/ Peter Sackmann Controller March 30, 2000 - ----------------------------------- Peter Sackmann /s/ Noam Ben Ozer Director March 30, 2000 - ----------------------------------- Noam Ben Ozer /s/ Dr. Shaiy Pilpel Director March 30, 2000 - ----------------------------------- Dr. Shaiy Pilpel /s/ Robert Cooney Director March 30, 2000 - ----------------------------------- Robert Cooney /s/ Ronald Chase Director March 30, 2000 - ----------------------------------- Ronald Chase
EQUITY ONE, INC. AND SUBSIDIARIES TABLE OF CONTENTS - -------------------------------------------------------------------------------- PAGE INDEPENDENT AUDITORS' REPORT F-1 Consolidated balance sheets, as of December 31, 1999 and 1998, and the related consolidated statements of operations, comprehensive income, stockholders' equity and cash flows for the years ended December 31, 1999, 1998 and 1997: Consolidated Balance Sheets F-2 - F-3 Consolidated Statements of Operations F-4 Consolidated Statements of Comprehensive Income F-5 Consolidated Statements of Stockholders' Equity F-6 Consolidated Statements of Cash Flows F-7 - F-8 Notes to the Consolidated Financial Statements F-9 - F-24 INDEPENDENT AUDITORS' REPORT To the Board of Directors and Stockholders of Equity One, Inc.: We have audited the accompanying consolidated balance sheets of Equity One, Inc. and subsidiaries (the "Company") as of December 31, 1999 and 1998, and the related consolidated statements of operations, comprehensive income, stockholders' equity and cash flows for each of the three years in the period ended December 31, 1999. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. 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, such consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 1999 and 1998 and the results of its operations and its cash flows for the each of the three years in the period ended December 31, 1999 in conformity with generally accepted accounting principles. Deloitte & Touche LLP Certified Public Accountants Miami, Florida February 16, 2000
EQUITY ONE, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1999 AND 1998 (IN THOUSANDS EXCEPT SHARE DATA) - ----------------------------------------------------------------------------------------------------- ASSETS 1999 1998 RENTAL PROPERTY (Notes 1, 4): Land, buildings, and equipment $ 186,154 $ 134,330 Building improvements 6,311 6,580 Land held for development 15,401 2,680 Construction in progress 8,722 4,497 --------- --------- Total rental property 216,588 148,087 Less: accumulated depreciation (11,669) (9,464) --------- --------- Rental property, net 204,919 138,623 CASH AND CASH EQUIVALENTS (Note 1) 427 1,594 RESTRICTED CASH (Note 1) -- 6,780 SECURITIES AVAILABLE FOR SALE (Notes 1, 2) 1,218 1,633 ACCOUNTS AND OTHER RECEIVABLES (net of allowance for doubtful accounts of $176 and $113 for 1999 and 1998, respectively) (Note 3) 2,209 1,142 DUE FROM RELATED PARTIES (Note 12) 33 39 DEPOSITS (Note 1) 707 529 PREPAID AND OTHER ASSETS 567 671 DEFERRED EXPENSES (net of accumulated amortization of $429 and $265 for 1999 and 1998, respectively) (Note 1) 1,723 1,200 GOODWILL (net of accumulated amortization of $298 and $248 for 1999 and 1998, respectively) (Note 1) 694 744 --------- --------- TOTAL $ 212,497 $ 152,955 ========= ========= (Continued)
F-2
EQUITY ONE, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1999 AND 1998 (IN THOUSANDS EXCEPT SHARE DATA) - ----------------------------------------------------------------------------------------------------- LIABILITIES: Accounts payable and accrued expenses $ 1,330 $ 868 Deferred rental income 248 152 Note payable (Note 5) -- 560 Credit agreement (Note 5) 19,475 -- Mortgage notes payable (Note 5) 97,752 67,145 Put option liability (Note 6) -- 2,127 Tenants' security deposits 1,274 885 Minority interest in equity of consolidated subsidiary (Note 1) 989 -- --------- --------- Total liabilities 121,068 71,737 --------- --------- COMMITMENTS AND CONTINGENT LIABILITIES (Note 9) STOCKHOLDERS' EQUITY: Preferred stock, $0.01 par value - 5,000,000 shares authorized but unissued (Note 6) Common stock, $0.01 par value - 40,000,000 shares authorized, 11,299,222 and 10,238,528 shares issued and outstanding for 1999 and 1998, respectively (Note 6) 113 102 Additional paid-in capital 89,990 81,214 Retained earnings 2,390 -- Accumulated other comprehensive income (519) (98) Notes receivable from issuance of common stock (545) -- --------- --------- Total stockholders' equity 91,429 81,218 --------- --------- TOTAL $ 212,497 $ 152,955 ========= ========= (Concluded) See accompanying notes to the consolidated financial statements.
F-3
EQUITY ONE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (IN THOUSANDS EXCEPT PER SHARE AMOUNTS) - --------------------------------------------------------------------------------------------------- 1999 1998 1997 RENTAL INCOME (Notes 1, 9) $ 26,822 $ 22,598 $ 19,816 -------- -------- -------- GAIN ON SALE OF REAL ESTATE 3,814 2,632 -- -------- -------- -------- INVESTMENT REVENUE: Interest 98 162 424 Dividends 243 234 224 Realized gain on securities, net (Note 2) -- -- 81 -------- -------- -------- Total investment revenue 341 396 729 -------- -------- -------- Total revenues 30,977 25,626 20,545 -------- -------- -------- COSTS AND EXPENSES: Operating expenses (Note 10) 7,082 5,965 5,245 Depreciation (Notes 1, 4) 3,452 2,831 2,342 Interest (Note 5) 5,086 5,014 5,681 Put option expense (Note 6) -- 1,320 -- General and administrative expenses (Notes 11, 12) 1,622 1,381 1,029 Amortization expense - goodwill 50 50 50 Minority interest in earnings of consolidated subsidiary 96 -- -- -------- -------- -------- Total costs and expenses 17,388 16,561 14,347 -------- -------- -------- NET INCOME $ 13,589 $ 9,065 $ 6,198 ======== ======== ======== EARNINGS PER SHARE (Notes 1, 8): BASIC EARNINGS PER SHARE $ 1.26 $ 1.01 $ 0.96 ======== ======== ======== NUMBER OF SHARES USED IN COMPUTING BASIC EARNINGS PER SHARE 10,805 8,979 6,446 ======== ======== ======== DILUTED EARNINGS PER SHARE $ 1.26 $ 1.00 $ 0.87 ======== ======== ======== NUMBER OF SHARES USED IN COMPUTING DILUTED EARNINGS PER SHARE 10,901 9,074 7,106 ======== ======== ======== See accompanying notes to the consolidated financial statements.
F-4
EQUITY ONE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (IN THOUSANDS) - --------------------------------------------------------------------------------------------------- 1999 1998 1997 NET INCOME $ 13,589 $ 9,065 $ 6,198 -------- -------- -------- OTHER COMPREHENSIVE INCOME - Net unrealized holding loss on securities available for sale (421) (98) -- -------- -------- -------- Total (421) (98) -- -------- -------- -------- COMPREHENSIVE INCOME $ 13,168 $ 8,967 $ 6,198 ======== ======== ======== See accompanying notes to the consolidated financial statements.
F-5
EQUITY ONE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (In Thousands) - -------------------------------------------------------------------------------------------------------------- NOTES ACCUMULATED RECEIVABLE TOTAL ADDITIONAL OTHER FROM STOCK- COMMON PAID-IN RETAINED COMPREHENSIVE ISSUANCE OF HOLDERS' STOCK CAPITAL EARNINGS INCOME COMMON STOCK EQUITY BALANCE, DECEMBER 31, 1996 $ 58 $ 44,562 $ (1,525) $ 43,095 Issuance of common stock 11 10,596 10,607 Net income $ 6,198 6,198 Dividends paid (122) (6,198) (6,320) ----- -------- -------- ------ ---------- -------- BALANCE, DECEMBER 31, 1997 69 55,036 (1,525) 53,580 ----- -------- -------- ------ ---------- -------- Issuance of common stock 33 34,088 34,121 Stock issuance costs (1,087) (1,087) Put option liability (Note 6) (807) (807) Property and notes receivable distributed (4,758) 1,525 (3,233) Net income 9,065 9,065 Dividends paid (8,973) (8,973) Distribution to stockholders - exercise of land purchase options (Note 4) (1,258) (92) (1,350) Net unrealized holding loss on securities available for sale $ (98) (98) ----- -------- -------- ------ ---------- -------- BALANCE, DECEMBER 31, 1998 102 81,214 -- (98) -- 81,218 ----- -------- -------- ------ ---------- -------- Issuance of common stock 11 8,737 8,748 Notes receivable from issuance of common stock (545) (545) Stock issuance cost 39 39 Net income 13,589 13,589 Dividends paid (11,199) (11,199) Net unrealized holding loss on securities available for sale (421) (421) ----- -------- -------- ------ ---------- -------- BALANCE, DECEMBER 31, 1999 $ 113 $ 89,990 $ 2,390 $ (519) $ (545) $ 91,429 ===== ======== ======== ====== ========== ======== See accompanying notes to the consolidated financial statements.
F-6
EQUITY ONE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (IN THOUSANDS) - -------------------------------------------------------------------------------------------------------------------- 1999 1998 1997 OPERATING ACTIVITIES: Net income $ 13,589 $ 9,065 $ 6,198 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 3,607 3,072 2,611 Provision for losses on accounts receivable 64 84 29 Gain on sales of securities -- -- (81) Gain on sale of real estate (3,814) (2,632) -- Put option expense -- 1,320 -- Minority interest in earnings of consolidated subsidiary 96 -- -- Changes in assets and liabilities: Restricted cash 6,780 (6,780) -- Accounts and other receivables (1,072) (357) (121) Deposits (178) 114 (79) Prepaid and other assets 104 (261) (133) Accounts payable and accrued expenses 452 19 331 Deferred rental income 96 (122) 22 Tenants' security deposits 439 166 70 Due from related party 6 9 (4) -------- -------- -------- Net cash provided by operating activities 20,169 3,697 8,843 -------- -------- -------- INVESTING ACTIVITIES: Acquisition of land held for development (3,565) -- -- Acquisition of rental property (62,043) (22,227) (6,386) Acquisition of building improvements (116) (3,244) (1,507) Construction costs incurred (4,225) (4,103) (2,094) Sale of rental property 7,716 6,740 -- Purchases of securities (4,733) (1,715) (5,237) Sales and prepayments of securities 4,727 29 9,801 Change in deposits for acquisition of rental property -- 696 (750) -------- -------- -------- Net cash used in investing activities (62,239) (23,824) (6,173) -------- -------- -------- FINANCING ACTIVITIES: Repayments of mortgage notes payable (3,462) (16,559) (19,455) Borrowings under mortgage notes payable 31,234 12,700 13,880 Borrowings under note payable 18,915 560 -- Deferred financing expenses (628) (513) (735) Stock subscription and issuance 8,203 34,121 10,607 Stock issuance costs 39 (863) -- Cash dividends paid to stockholders (11,199) (8,973) (6,320) Distribution to stockholders -- (1,350) -- Payment of put option (2,127) -- -- Change in minority interest (72) -- -- -------- -------- -------- Net cash provided by (used in) financing activities 40,903 19,123 (2,023) -------- -------- -------- NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (1,167) (1,004) 647 CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 1,594 2,598 1,951 -------- -------- -------- CASH AND CASH EQUIVALENTS, END OF YEAR $ 427 $ 1,594 $ 2,598 ======== ======== ======== (Continued)
F-7
EQUITY ONE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (IN THOUSANDS) - -------------------------------------------------------------------------------------------------------------------- 1999 1998 1997 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid for interest, net of amount capitalized $ 4,780 $ 4,769 $ 5,476 ======== ======== ======== SUPPLEMENTAL SCHEDULE OF CASH AND NONCASH INVESTING AND FINANCING ACTIVITIES: Change in unrealized holding loss on securities available for sale $ (421) $ (98) ======== ======== Common stock issued for notes receivable $ 545 ======== Acquisition of rental property $ 15,402 Cash paid for rental property (5,654) -------- Assumption of mortgage note payable $ 9,748 ======== Put option liability charged to stockholders' equity $ 807 ======== Property and notes receivable distributed to stockholders $ 4,758 ======== Acquisition of rental property $ 3,800 Change in minority interest 965 -------- Assumption of mortgage note payable $ 2,835 ======== (Concluded) See accompanying notes to the consolidated financial statements.
F-8 EQUITY ONE, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA) - -------------------------------------------------------------------------------- 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES GENERAL - Equity One, Inc. (the "Company") was incorporated in Maryland on June 15, 1992, as a wholly-owned subsidiary of Gazit Holdings, Inc., a wholly-owned subsidiary of Gazit, Inc. During 1996, as a result of a merger, Gazit Holdings, Inc. transferred all of its stock ownership to Gazit (1995), Inc. ("Gazit"), a wholly-owned subsidiary of Gazit, Inc. (see Note 6). Since 1993, additional shares of stock were issued to both affiliated and unaffiliated entities. As of December 31, 1998 (and pursuant to a transfer of interests between Gazit, Inc. and Globe-Reit Investments, Ltd. ("Globe") whereby Gazit became a wholly-owned subsidiary of Globe), Globe's holdings (directly and indirectly) in the Company approximated 58%. The Company was formed for the purpose of holding various real estate subsidiaries located in the United States of America ("U.S." or "United States"). The Company completed its Initial Public Offering ("IPO") on May 19, 1998 of 4,700,000 common shares, $0.01 par value per share. Of the shares sold in the offering, 3,330,398 shares, generating net proceeds of approximately $33,500, were sold by the Company and 1,369,602 shares were sold by a stockholder of the Company. All of the common shares were sold at $11.00 per share. The Company currently owns and operates twenty-seven properties in Florida. Winn-Dixie Stores Inc. and Publix Supermarkets, Inc. rent approximately 16% and 11% of the total rentable square footage, respectively. BASIS OF CONSOLIDATION - The consolidated financial statements include the accounts of Equity One, Inc. and its wholly-owned subsidiaries. All subsidiaries hereinafter are referred to as "the consolidated companies." All intercompany transactions have been eliminated. MINORITY INTEREST - On January 1, 1999, a wholly-owned subsidiary of the Company, Equity One (Walden Woods) Inc., entered into a limited partnership as a general partner. An income producing shopping center ("Walden Woods Village") was contributed by its owners (the "Minority Partners") and the Company contributed 93,656 shares of common stock to the limited partnership at an agreed-upon price of $10.30 per share. Based on this per share price and the net value of property contributed by the Minority Partners, each of the partners received 93,656 limited partnership units. The Company and the Minority Partners have entered into a Redemption Agreement whereby the Minority Partners can request that the Company purchase back all or part of the common stock at $10.30 per share no earlier than two years nor later than fifteen years after the exchange date of January 1, 1999. As a result of the Redemption Agreement, the minority interest has been presented as a liability. In addition, under the terms of the limited partnership agreement, the Minority Partners do not have an interest in the common stock of the Company except to the extent of dividends declared on such common stock. Accordingly, a preference in earnings has been allocated to the Minority Partners to the extent of the dividends declared. F-9 The shares of the Company held by the consolidated limited partnership are not considered outstanding in the consolidated financial statements. CASH AND CASH EQUIVALENTS - For purposes of the statements of cash flows, the Company considers certificates of deposit with an initial maturity of three months or less to be cash equivalents. Cash and cash equivalents consist of the following as of December 31, 1999 and 1998: 1999 1998 Cash $ 427 $1,461 Certificates of deposit -- 133 ------ ------ Total $ 427 $1,594 ====== ====== RESTRICTED CASH - At December 31, 1998, $6,780 of cash was received from the sale of a property and was being held in escrow to accomplish a like-kind exchange which occurred in 1999, pursuant to Internal Revenue Code ("IRC") Section 1031. INVESTMENT SECURITIES - As of December 31, 1999 and 1998, all of the Company's securities are classified as securities available for sale and are carried at fair value. Unrealized gains and losses are reported as a separate component of stockholders' equity in accumulated other comprehensive income until realized. DEPOSITS - Deposits are comprised of funds held by various institutions for future payments of taxes and insurance, utility and other service deposits and deposits for acquisition of rental property. RENTAL PROPERTY - Rental property is stated at cost. Major renewals and betterments are capitalized. Maintenance, repairs and minor renewals are charged to operating expense as incurred. Depreciation is provided for using the straight-line method over the estimated useful lives of the assets which range from 5 to 40 years, except for building improvements related to leasehold improvements which are depreciated over the lesser of the assets' useful lives or the terms of the related leases. LAND HELD FOR DEVELOPMENT - Land held for development is stated at cost (which is not in excess of fair value less costs to sell). Interest, real estate taxes and other costs directly related to the properties and projects under development are capitalized until the property is ready for its intended use. Similar costs related to properties not under development are expensed as incurred. Fair value is based upon the ultimate realizable value of the Company's land held for development and is dependent upon future economic, market and entitlement conditions. Such economic, market, and entitlement conditions may affect management's development plans. Accordingly, ultimate realization could be materially different from amounts presently estimated. LONG-LIVED ASSETS - The Company's long-lived assets, such as property, certain identifiable intangibles, and goodwill related to those assets to be held and used are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amounts of an asset may not be recoverable. The Company periodically assesses the recoverability of the long-lived assets based on its expectations of future profitability and undiscounted cash flow of the related operations. These factors, along with F-10 management's plans with respect to the operations, are considered in assessing the recoverability of long-lived assets. If the Company determines, based on such measures, that the carrying amount is impaired, the long-lived assets will be written down to its recoverable value with corresponding charge to earnings. During the periods presented, no such impairment was incurred. DEFERRED EXPENSES - Deferred expenses consist of loan origination and other fees directly related to rental property financing with third parties. The fees are being amortized using the straight-line method over the term of the notes, ranging from 3 to 30 years. GOODWILL - Goodwill arising from the excess of cost over fair value of net assets acquired in the acquisition of Global Realty and Management, Inc. (see Note 6) is amortized on a straight-line basis over a period of 20 years. Amortization expense amounted to $50 for each of the years ended December 31, 1999, 1998 and 1997. RENTAL INCOME - Rental income is comprised of minimum rentals and contingent rentals. Contingent rentals are generally received from tenants based on their gross sales. For the years ended December 31, 1999, 1998 and 1997, contingent rentals recognized by the Company were approximately $169, $127 and $172, respectively. INCOME TAXES - There is no provision for income tax expense as a result of the Company changing to real estate investment trust ("REIT") status effective January 1, 1995. The Company is not taxed on its taxable operating income if it distributes such income to stockholders in conformity with the requirements of the Internal Revenue Code and meets certain other requirements. Company management is of the opinion that they are complying with the requirements of REIT status; and hence starting from January 1, 1995, the Company is a REIT for income tax purposes. The Company intends to continue to meet such requirements and distribute any of its future taxable operating income in conformity with such requirements. Distributed capital gains on sales of real estate are not subject to tax; however, undistributed capital gains are taxed as capital gain. USE OF ESTIMATES - The preparation of financial statements in conformity with generally accepted accounting principles requires 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. NEW ACCOUNTING PRONOUNCEMENTS - In February 1997, SFAS No. 128, EARNINGS PER SHARE, was issued. SFAS No. 128, which supersedes APB Opinion No. 15 and was adopted by the Company as of December 31, 1997, requires a dual presentation of basic and diluted earnings per share on the face of the income statement. Basic earnings per share excludes dilution and is computed by dividing income or loss attributable to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity. The 1996 earnings per share data have been restated to conform with this pronouncement. F-11 In February 1997, SFAS No. 129, DISCLOSURE OF INFORMATION ABOUT CAPITAL STRUCTURE, was issued. SFAS No. 129, which applies to all entities that have issued securities, requires in summary form the pertinent rights and privileges of the various securities outstanding. Examples of information to be disclosed are dividends and liquidation preferences, participation rights, call prices and dates, conversion or exercise prices or rates and pertinent dates, sinking-fund requirements, unusual voting rights, and significant terms of contracts to issue additional shares. The Company adopted SFAS No. 129 in 1997, and the effects of adoption are reflected in the consolidated financial statements. In June 1997, SFAS No. 130, REPORTING COMPREHENSIVE INCOME, was issued. This standard requires disclosure of total nonowner changes in partner's capital, which is defined as net income plus direct adjustments to partners' capital such as equity and cash investment adjustments. This standard also requires reclassification of comparative financial statements for all earlier periods presented. The Company adopted SFAS No. 130 in 1998, and has presented consolidated statements of comprehensive income herein. In June 1997, SFAS No. 131, DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION, was issued and is effective beginning in 1998. This statement requires public business enterprises to report financial and descriptive information about reportable operating segments and about certain geographic information. The Company operates in one reportable segment: real estate income producing properties. The Company adopted SFAS No. 131 in 1998 with no material impact on the consolidated financial statements or accompanying notes. FAIR VALUE OF FINANCIAL INSTRUMENTS - The estimated fair values of financial instruments have been determined by the Company using available market information and appropriate valuation methods. Considerable judgment is required in interpreting market data to develop the estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts the Company could realize in a current market exchange. The use of different market assumptions and/or estimation methods may have a material effect on the estimated fair value amounts. The Company has used the following market assumptions and/or estimation methods: CASH AND CASH EQUIVALENTS - The carrying amounts reported in the consolidated balance sheets are reasonable estimates of fair value. INVESTMENT SECURITIES - Fair values are based on quoted market prices, dealer quotes, and independent pricing services. The carrying value approximates fair value due to the nature of the investments. MORTGAGE NOTES PAYABLE - The estimated fair value at December 31, 1999 and 1998 was $94,339 and $60,926, respectively, calculated based on the net present value of payments over the term of the notes using estimated market rates for similar notes payable. F-12 2. SECURITIES AVAILABLE FOR SALE Composition in the consolidated balance sheets: 1999 1998 Equity securities $ 1,218 $ 1,617 Mortgage-backed securities -- 16 ------- ------- Total $ 1,218 $ 1,633 ======= ======= As of December 31, 1999 and 1998, gross unrealized gains were $0 and $0, respectively, and gross unrealized losses were $421 and $98, respectively. For the years ended December 31, 1999, 1998 and 1997, the Company had gross securities sales of $4,710, $0 and $8,815, resulting in gross realized gains of $0, $0 and $116, and gross realized losses of $0, $0 and $35, respectively. 3. ACCOUNTS AND OTHER RECEIVABLES Composition in the consolidated balance sheets: 1999 1998 Tenants $ 2,278 $ 1,150 Accrued interest receivable - institutions 48 63 Employee loans and advances 59 42 Allowance for doubtful accounts (176) (113) ------- ------- Total $ 2,209 $ 1,142 ======= ======= 4. RENTAL PROPERTY Composition in the consolidated balance sheets:
LAND LAND, HELD BUILDINGS CONSTRUCTION FOR AND BUILDING IN COST DEVELOPMENT EQUIPMENT IMPROVEMENTS PROGRESS TOTAL Balance at beginning of year $ 2,680 $ 134,330 $ 6,580 $ 4,497 $ 148,087 Additions in the reporting year 12,721 62,504 375 12,179 87,779 Dispositions in the reporting year (10,680) (644) (7,954) (19,278) --------- --------- --------- --------- --------- Balance at end of year 15,401 186,154 6,311 8,722 216,588 --------- --------- --------- --------- --------- ACCUMULATED DEPRECIATION Balance at beginning of year 8,541 923 9,464 Depreciation for the year 2,999 454 3,453 Reduction of depreciation (976) (272) (1,248) --------- --------- --------- --------- --------- Balance at end of year -- 10,564 1,105 -- 11,669 --------- --------- --------- --------- --------- Undepreciated balance as of December 31, 1999 $ 15,401 $ 175,590 $ 5,206 $ 8,722 $ 204,919 ========= ========= ========= ========= ========= Undepreciated balance as of December 31, 1998 $ 2,680 $ 125,789 $ 5,657 $ 4,497 $ 138,623 ========= ========= ========= ========= =========
F-13 Certain of the Company's rental property serves as collateral to recourse mortgage notes payable totaling $97,752 and $67,145 as of December 31, 1999 and 1998, respectively (see Note 5). Immediately prior to the consummation of the IPO in 1998, the Company adopted a plan to distribute certain assets to its stockholders. The plan provided for the transfer, to a newly formed limited partnership, of 16.7 acres of land with a book value at December 31, 1997 of $3,211 and notes receivable from issuance of common stock totaling $1,525. The Company then distributed all of the partnership interests to its stockholders, and the book value of the assets has been treated as a distribution and charged to additional paid-in capital. The Company retained an option for five years to repurchase the land at option prices totaling $5,650. In December 1998, the Company exercised an option to acquire land at a price of $1,700. The land was recorded at its original historical cost prior to distribution of $350, and $1,350 was charged to retained earnings and additional paid-in capital. Assets are depreciated on a straight-line basis, based on the following annual percentages: Buildings 2.50% - 3.33% Building/leasehold improvements 2.50% - 20.00% Equipment 14.00% - 20.00% F-14 5. NOTES PAYABLE Composition in the consolidated balance sheets:
1999 1998 ---- ---- Mortgage payable, 8.125%, payable in monthly installments of $29 including interest, unpaid balance due August 31, 2011, collateralized by rental property $ 2,662 $ 2,783 Mortgage payable, 9%, payable in monthly installments of $55 including interest, unpaid balance due July 1, 2002, collateralized by rental property 4,938 5,125 Mortgage payable, 7.68%, through February 15, 2015 payable in monthly installments of $115 including interest, unpaid balance due February 15, 2015, collateralized by rental property 12,306 12,709 Mortgage payable, 6.95%, payable in monthly installments of $34 including interest, unpaid balance due February 15, 2005, collateralized by rental property 4,201 4,311 Mortgage payable, 7.00%, payable in monthly installments of $26 including interest, unpaid balance due March 1, 2008, collateralized by rental property 3,152 3,235 Mortgage payable, 6.375%, payable in monthly installments of $8 including interest, unpaid balance due May 10, 1999, collateralized by rental property -- 1,192 Mortgage payable, 6.85% and 8.15%, payable in monthly installments of $38 and $47 including interest, for 1998 and 1997, respectively, unpaid balance due November 1, 2018, collateralized by rental property 4,869 4,990 Mortgage payable, 7.625%, payable in monthly installments of $20 including interest, unpaid balance due January 1, 2006, collateralized by rental property 2,257 2,321 Mortgage payable, 9.35%, payable in monthly installments of $23 including interest, unpaid balance due March 1, 2009, collateralized by rental property 2,244 2,308
F-15
1999 1998 ---- ---- Mortgage payable, 7.95%, payable in monthly installments of $50 including interest, unpaid balance due July 15, 2010, collateralized by rental property $ 5,352 $ 5,519 Mortgage payable, 7.85%, payable in monthly installments of $111 including interest, unpaid balance due December 1, 2010, collateralized by rental property 12,118 12,459 Mortgage payable, 6.90% and 8.25%, payable in monthly installments of $18 and $19 including interest, for 1998 and 1997, respectively, unpaid balance due October 1, 2002, collateralized by rental property 1,837 1,923 Mortgage payable, 7.875%, through July 1, 2006 payable in monthly installments of $50 including interest, at which time the lender will adjust the rate of interest equal to the sum of Moody's "A" corporate bond index daily rate plus .375%, rounded to the next highest one-eighth percentage rate. The unpaid balance is due June 30, 2016, collateralized by rental property. 5,524 5,679 Mortgage payable, 10.06%, payable in monthly installments of $26 including interest, unpaid balance due June 1, 2001, collateralized by rental property 2,544 2,591 Mortgage payable, 6.75%, payable in monthly installments of $44, including interest, unpaid balance due January 1, 2014, collateralized by rental property 4,835 -- Mortgage payable, 7.88%, payable in monthly installments of $25, including interest, unpaid balance due August 1, 2006, collateralized by rental property 2,764 -- Mortgage payable, 6.91%, payable in monthly installments of $175, including interest, unpaid balance due July 1, 2008, collateralized by rental property 26,149 -- ------- ------- Total $97,752 $67,145 ======= =======
F-16
1999 1998 ------ ------ Credit agreement, 225 basis points over LIBOR, interest payable monthly, commitment of $22,050, unpaid balance due February 4, 2002, collateralized by rental property $19,475 -- ======= Note payable, 0.5% over Bank basis rate (8.25% at December 31, 1998), commitment of $2,000, payable February 21, 1999 -- $ 560 ======= Principal maturities of the mortgage notes payable as of December 31, 1999 are as follows: YEAR ENDING DECEMBER 31, 2000 $ 2,747 2001 5,398 2002 8,890 2003 2,987 2004 3,215 Thereafter 74,515 ------- Total $97,752 =======
Interest costs incurred under the notes payable were $6,789 and $5,456 of which $1,808 and $633 were capitalized in the years ended December 31, 1999 and 1998, respectively. 6. STOCKHOLDERS' EQUITY The Company had a two-for-one stock split on July 15, 1997 and changed the par value of its common and preferred stock from $1.00 to $0.01. All share and per share data and stockholders' equity accounts for 1997 have been restated to reflect the stock split and change in par value. As of December 31, 1999 and 1998, the Company has authority to issue 45,000,000 shares, of which 5,000,000 are shares of preferred stock. On December 30, 1996, Class B warrants totaling 906,124 were exchanged proportionately for 1,340,000 Class C warrants at an exercise price of $8.25 per share and expire on December 31, 1999. During 1997, all Class A warrants were exercised at $5.125 per share and during 1999, all Class C warrants were exercised at $8.25 per share. During 1998, the Company has granted a stockholder an option to put 293,430 shares of common stock issuable upon exercise of Series C warrants to the Company at a price of $15.50 per share or to put the Series C warrants to the Company at a price of $7.25 per warrant, which equals the put option price of $15.50 per warrant less the Series C warrant exercise price of $8.25 per warrant. The put option was exercisable in whole or in part by the former stockholder from December 1, 1999 until December 15, 1999. For the year ended December 31, 1998, the Company has recognized $1,320 as a current period expense and $807 as a reduction of paid-in capital related to the Company's IPO. In December 1999, the shareholder exercised 293,430 C warrants at $7.25 per warrant. F-17 During 1999, the Company paid cash dividends of $.25, $.25, $.26 and $.26 per share on March 24, June 5, September 17 and December 17, respectively, to all shareholders of record on those dates. Gross dividends paid were $11,199 for the year ended December 31, 1999. During 1998, the Company paid cash dividends of $.25, $.13, $.12, $.25 and $.25 per share on March 24, May 18, June 29, October 6 and December 23, respectively, to all stockholders of record on those dates. Gross dividends paid were $8,973 for the year ended December 31, 1998. During 1997, the Company paid cash dividends of $.215, $.225, $.2625 and $.25 per share on March 31, June 18, September 30 and December 31, respectively, to all stockholders of record on those dates. Gross dividends paid were $6,320 for the year ended December 31, 1997. Effective January 1, 1994, the Company acquired Global Realty and Management, Inc. ("Global"), the property manager for all Florida rental properties held by the Company. The acquisition was accounted for as a purchase. The outstanding common stock of Global was exchanged for 144,000 shares of the Company's common stock and 48,000 Class B warrants to purchase the Company's common stock at $8.25 per share through December 31, 1996. In November 1998, Global changed its name to Equity One Realty and Management, Inc. The former stockholder of Global was granted an option to "put" his newly acquired Company stock to the Company for $1,000 for a five-year period. During 1996, the Company canceled the put option in exchange for a similar put option to be issued by certain stockholders of the Company. On December 30, 1996, the former stockholder exercised the 48,000 Class B warrants to purchase the Company's common stock at $8.25 per share. The Company provided a $396 loan for a six-year period for the purpose of exercising the Class B warrants held by the former stockholder. The loan bears interest at 5.25% per year. The loan was offset against stockholders' equity and distributed immediately prior to the IPO (see Note 4). Additionally, the Company entered into an employment agreement with the former stockholder for a period of 7 years with an option to extend the agreement for another 7 years. The former stockholder is entitled to remuneration of $180 per year, effective January 1, 1996, and options to purchase 150,000 shares in the Company at an exercise price of $12.375 per share under the Company's 1995 Stock Option Plan (the "Plan"). During 1996, two officers, including the former stockholder of Global discussed above, exercised stock options for promissory notes. These notes were full recourse promissory notes bearing interest at 5.25% and 6.86%, respectively, and were collateralized by the stock issued upon exercise of the stock options. Immediately prior to the IPO, the notes were distributed to certain shareholders (see Note 4). During 1999, two officers exercised stock options for promissory notes totaling $545. These notes are full resource promissory notes bearing interest at $6.35% and are collateralized by the stock issued upon exercise of the stock options. Interest is payable quarterly and principal is due December 30, 2002. The notes have been reflected in the consolidated financial statements as a reduction of stockholders' equity. F-18 7. STOCK-BASED COMPENSATION On October 23, 1996, the Company adopted the Equity One, Inc. 1995 Stock Option Plan (the "Plan"), which was amended December 10, 1998 and is described below. The Company applies the intrinsic value method in accounting for the Plan. The purpose of the Plan is to further the growth of the Company, by offering an incentive to directors, officers and other key employees of the Company, and to increase the interest of these employees in the Company, through additional ownership of its common stock. The effective date of the Plan is January 1, 1996. The maximum number of shares of common stock as to which options may be granted to this Plan is 1,000,000 shares, which shall be reduced each year by the required or discretionary grant of options. The term of each option shall be determined by the Stock Option Committee of the Company (the "Committee"), but in no event shall be longer than ten years from the date of the grant. The vesting of the options shall be determined by the Committee, in its sole and absolute discretion, at the date of grant of the option. During 1996, the Company issued 450,000 options under the Plan to two officers and two non-employee members of the Board of the Company at an exercise price of $12.375 per share, fair market value on the date of grant as determined by an independent valuation, which shall vest over a four-year period, 112,500 shares each year, commencing on January 1, 1997, and on the first day of each year, until all options vest. The per share option price is subject to a downward adjustment to the extent that dividends declared and paid by the Company in each year subsequent to 1995 exceed dividends declared and paid by the Company in the year ended December 31, 1995. During 1998, 100,000 of these options were forfeited. On December 10, 1998, the Plan was amended (the "Amendment") for the two officers by adjusting the option exercise price to $10.00 per share, increasing their original number of options from 350,000 shares to 503,331 shares and eliminating the downward adjustment. On December 31, 1996, the Company issued 48,000 options under the Plan to one officer of the Company at an exercise price of $8.25 per share, fair market value on the date of grant as determined by an independent valuation. These options were fully vested as of December 31, 1996 and were exercised during December 1999 (see Note 6). During 1997, the Company issued 146,000 options under the Plan to certain employees, at an exercise price of $12.375 per share, fair market value on the date of grant as determined by an independent valuation, which shall vest over a period of three to four years, commencing on January 1, 1998, and on the first day of each year, until all options vest. During 1998, 160,000 options were forfeited, including the 100,000 options discussed above. The Amendment reduced the exercise price from $12.375 to $10.00 per share on 46,000 options in addition to those discussed above. The Company applies Accounting Principles Board Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO Employees, and related interpretations in measuring stock-based compensation, including options. Accordingly, no compensation expense has been recognized for options granted under the Plan. Had compensation expense been determined based upon the fair value at the grant date for awards under the Plan consistent with SFAS No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION, the Company's net income and earnings per share on a pro forma basis, using a recent independent valuation, would have been: F-19
1999 1998 1997 Net income As reported $ 13,589 $ 9,065 $6,198 Pro forma - basic $ 13,062 $ 9,033 $6,198 Pro forma - diluted $ 13,157 $ -- $ -- Basic earnings per share As reported $ 1.26 $ 1.01 $ 0.96 Pro forma $ 1.21 $ 1.01 $ 0.96 Diluted earnings per share As reported $ 1.26 $ 1.00 $ 0.87 Pro forma $ 1.21 $ 1.00 $ 0.87
In accordance with SFAS No. 123, the following is a summary of the Company's stock option activity for the years ended December 31, 1999, 1998 and 1997:
1999 1998 1997 ---------------------- --------------------- ------------------- WEIGHTED WEIGHTED WEIGHTED AVERAGE AVERAGE AVERAGE STOCK EXERCISE STOCK EXERCISE STOCK EXERCISE OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE -------- --------- -------- -------- -------- -------- Outstanding, beginning of year 777,331 $ 10.407 644,000 $ 11.840 498,000 $ 11.819 Granted 58,000 10.078 293,331 11.040 146,000 12.375 Forfeited (50,000) 11.825 (160,000) 12.375 - - Exercised (48,000) 8.250 - - - - -------- --------- -------- -------- -------- -------- Outstanding, end of year 737,331 $ 10.448 777,331 $ 10.407 644,000 $ 11.840 ======== ========= ======== ======== ======== ======== Exercisable, end of year 446,999 $ 10.213 327,416 $ 9.852 160,500 $ 10.914 ======== ========= ======== ========= ======== ======== Weighted average fair value of options granted under SFAS No. 123 during the year $ 1.358 $ 0.920 $ 0.000 ========= ========= ========
The following table summarizes information about the stock option plan as of December 31, 1998:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE0 --------------------------------------------------------------------- WEIGHTED AVERAGE WEIGHTED WEIGHTED REMAINING AVERAGE AVERAGE Range of Number Contractual Life Exercise Number Exercise Exercise Price Outstanding (in years) Price Exercisable Price ----------------- ---------------- ------------------ --------------- --------------- -------------- $ 10.000 557,331 6.2 $ 10.000 406,999 $ 10.000 10.438 50,000 9.7 10.438 - 10.438 12.375 130,000 7.9 12.375 40,000 12.375
The fair value of each option grant was estimated on the grant date using the Black-Scholes option-pricing model with the following assumptions:
1999 1998 1997 ------------------- ------------------ ------------------- Dividend yield 10.25% 7.42% - 8.71% 6.30% - 7.42% Risk-free interest rate 6.42% - 6.51% 4.53% - 5.65% 6.14% - 6.23% Expected option life (years) 5 3 3 Expected volatility 23.00% 0% - 32.23% 0%
F-20 8. EARNINGS PER SHARE In accordance with SFAS No. 128, the following is a reconciliation of the numerators and denominators of the basic and diluted per-share computations for income for the years ended December 31, 1999, 1998 and 1997:
FOR THE YEAR ENDED DECEMBER 31, 1999 ---------------------------------------- INCOME SHARES PER SHARE (NUMERATOR) (DENOMINATOR) AMOUNT ---------------------------------------- NET INCOME $ 13,589 ========== BASIC EPS Income available to common stockholders $ 13,589 10,804,574 $ 1.26 ========== ---------- ========== EFFECT OF DILUTIVE SECURITIES Walden Woods Village, Ltd. 95 93,656 Employee restricted stock -- 3,123 ---------- ---------- 95 96,779 ---------- ---------- DILUTED EPS Income available to common stockholders + assumed conversions $ 13,684 10,901,353 $ 1.26 ========== ========== ========== FOR THE YEAR ENDED DECEMBER 31, 1998 ---------------------------------------- INCOME SHARES PER SHARE (NUMERATOR) (DENOMINATOR) AMOUNT ---------------------------------------- NET INCOME $ 9,065 ========== BASIC EPS Income available to common stockholders $ 9,065 8,979,364 $ 1.01 ========== ---------- ========== EFFECT OF DILUTIVE SECURITIES Series C Warrants 90,793 Stock Options 4,304 ---------- 95,097 ========== DILUTED EPS Income available to common stockholders + assumed conversions $ 9,065 9,074,461 $ 1.00 ========== ========== ==========
F-21
FOR THE YEAR ENDED DECEMBER 31, 1999 ---------------------------------------- INCOME SHARES PER SHARE (NUMERATOR) (DENOMINATOR) AMOUNT ---------------------------------------- NET INCOME $ 6,198 ========= BASIC EPS Income available to common stockholders $ 6,198 6,446,320 $ 0.96 ========= --------- ========== EFFECT OF DILUTIVE SECURITIES Series A Warrants 142,955 Series C Warrants 466,909 Stock Options 50,133 --------- 659,997 DILUTED EPS Income available to common stockholders + assumed conversions $ 6,198 7,106,317 $ 0.87 ========= ========= ==========
9. FUTURE MINIMUM RENTAL INCOME, COMMITMENTS AND CONTINGENT LIABILITIES Future minimum rental income under noncancelable operating leases approximates the following as of December 31, 1998: YEAR ENDING DECEMBER 31, 1999 $ 22,701 2000 20,191 2001 18,011 2002 15,736 2003 13,460 Thereafter 64,490 -------- Total $154,589 ======== During 1996, the Company pledged a letter of credit for $1,500 as additional security on one of its properties. As of December 31, 1999, this pledged letter of credit remains outstanding. The letter of credit is collateralized by rental property. In February 1998, a prospective anchor tenant (the "Plaintiff") filed a claim against the Company for breach of contract relating to a proposed lease agreement with the Plaintiff. On March 10, 1999, the Plaintiff filed a Notice of Voluntary Dismissal of this action without prejudice. The Company is subject to other litigation in the normal course of business, none of which, in the opinion of management, will have a material adverse effect on the financial condition or results of operations of the Company. F-22 10. OPERATING EXPENSES Composition in the consolidated statements of operations: 1999 1998 1997 Commissions $ 252 $ 308 $ 175 Payroll 602 467 350 Insurance expense 519 464 386 Real estate property tax 2,913 2,425 2,152 Repairs and maintenance 1,533 1,205 1,061 Utilities 522 508 488 Other 741 588 633 ------ ------ ------ Total $7,082 $5,965 $5,245 ====== ====== ====== 11. GENERAL AND ADMINISTRATIVE EXPENSES Composition in the consolidated statements of operations: 1999 1998 1997 Office expenses $ 130 $ 86 $ 101 Professional fees 314 323 101 Management fees 13 93 64 Payroll 796 628 618 Other 369 251 145 ------ ------ ------ Total $1,622 $1,381 $1,029 ====== ====== ====== 12. RELATED PARTY TRANSACTIONS The Company provided an affiliated entity, Gazit (1995), Inc., with office space, office services and certain management and consulting services for which the Company receives a management fee. For the years ended December 31, 1999, 1998 and 1997, such fees totaled $10, $10 and $10, respectively, and are included as an offset in general and administrative expenses in the accompanying consolidated statements of operations. The Company entered into consulting agreements with two directors of Danbar to provide consulting services. Each director is entitled to receive $30 per year, effective as of January 1, 1996, and options to purchase 50,000 shares each under the Plan described above. On May 18, 1998, both consulting agreements were terminated and the option to purchase 50,000 shares were forfeited. On December 10, 1998, the Company exercised an option to purchase land from a partnership controlled by affiliates of the Company, including two officers of the Company (see Note 4). As of December 31, 1999, 1998 and 1997, balances due from related parties are non-interest bearing with no specified due dates. F-23 For the years ended December 31, 1999, 1998 and 1997, the Company had compensated Chaim Katzman, President, Doron Valero, Vice President, and significant stockholders $361 and $289 in 1999, respectively, $269 and $302 in 1998, respectively, and $254 and $191 in 1997, respectively. Warrants have been issued to certain officers, directors and affiliates (see Note 6). F-24 * * * * * * INDEPENDENT AUDITOR'S REPORT To the Board of Directors and Stockholders of Equity One, Inc. We have audited the consolidated financial statements of Equity One, Inc., and subsidiaries (the "Company") as of December 31, 1999 and 1998, and for each of the three years in the period ended December 31, 1999, and have issued our report thereon dated February 16, 2000, such report is included elsewhere in this Form 10-K. Our audits also included the consolidated financial statement schedule of the Company, listed in Item 14. This consolidated financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, such consolidated financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. Deloitte & Touche, LLP February 16, 2000 S-1 SCHEDULE III REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION DECEMBER 31, 1999 (DOLLARS IN THOUSANDS)
GROSS AMOUNTS INITIAL COST CAPITALIZED AT WHICH CARRIED TO COMPANY SUBSEQUENT AT THE CLOSE OF THE PERIOD PROPERTY LOCATION ENCUMBRANCES LAND BUILDING & TO ACQUISTION LAND IMPROVEMENTS IMPROVEMENT IMPROVEMENTS SOUTH FLORIDA Bird Ludlum Shopping Center Miami, FL $12,306 $ 4,080 $16,318 $ 91 $ 4,088 $16,409 Diana Building W. Palm Beach, FL 0 123 493 909 123 1,402 Equity One Office Building(1) Miami Beach, FL 0 229 423 757 229 1,180 Lantana Village Shopping Center Lantana, FL 4,201 1,350 5,400 2,703 1,350 8,103 Montclair Apartments Miami, FL 0 199 801 0 199 801 Pine Island/Ridge Plaza Shopping Center Davie, FL 26,149 12,462 20,309 150 12,462 20,459 Plaza Del Rey Shopping Center Miami, FL 2,662 740 2,961 147 740 3,108 Point Royale Shopping Center Miami, FL 5,352 3,161 5,005 175 3,161 5,180 Restaurant Properties Miami, FL 0 250 1,000 0 250 Skylake Shopping Center(1) Miami, FL 0 4,873 0 8,149 5,832 7,190 Summerlin Square Shopping Center Fort Myers, FL 4,835 1,043 7,989 93 1,043 8,082 West Lakes Plaza Shopping Center Miami, FL 5,524 2,142 5,789 44 2,141 5,933 CENTRAL FLORIDA East Bay Plaza Shopping Center(1) Largo, FL 0 314 1,296 551 325 1,836 Eustis Square Shopping Center Eustis, FL 4,938 1,450 5,799 52 1,463 5,838 Forest Edge Shopping Center Orlando, FL 1,837 1,250 1,850 6 1,250 1,856 Lake Mary Shopping Center Lake Mary, FL 12,118 5,578 13,878 47 5,578 13,925 Park Promenade Shopping Center Orlando, FL 0 2,810 6,444 58 2,810 6,502 Walden Woods Shopping Center Plant City, FL 2,764 950 2,850 6 950 2,856 NORTH FLORIDA Atlantic Village Shopping Center Atlantic Beach, FL 4,869 1,190 4,760 876 1,190 5,636 Beauclerc Village(1) Shopping Center Jacksonville, FL 0 560 2,242 4 561 2,245 Commonwealth Shopping Center Jacksonville, FL 3,152 730 2,920 1,406 730 4,326 Fort Caroline Trading Post Jacksonville, FL 2,244 738 2,432 541 738 2,973 Mandarin Landing Shopping Center Jacksonville, FL 0 4,443 4,747 0 4,443 4,747 Mandarin Mini Storage Jacksonville, FL 0 362 1,448 5 362 1,453 Monument Point Shopping Center Jacksonville, FL 2,544 1,336 2,330 87 1,336 2,417 Oak Hill Village Shopping Center Jacksonville, FL 2,257 690 2,760 37 690 2,797 -------- ------- -------- ------- ------- -------- SUBTOTAL $ 97,752 $53,053 $122,244 $16,894 $54,044 $138,254 Credit Agreement(1) $ 19,475 -- -- -- -- -- -------- ------- -------- ------- ------- -------- TOTAL $117,227 $53,053 $122,244 $16,894 $54,044 $138,254 ======== ======= ======== ======= ======= ======== (1) Properties encumbered under the Credit Agreement.
S-2 SCHEDULE III REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION--(CONTINUED) DECEMBER 31, 1999 (DOLLARS IN THOUSANDS)
PROPERTY TOTAL ACCUMULATED DATE DEPRECIABLE DEPRECIATION ACQUIRED LIVES SOUTH FLORIDA Bird Ludlum Shopping Center $ 20,497 $2,262 AUGUST 11, 1994 40 Diana Building 1,525 131 FEBRUARY 15, 1995 40 Equity One Office Building 1,409 187 APRIL 10, 1992 40 Lantana Village Shopping Center 9,453 278 JANUARY 6, 1998 40 Montclair Apartments 1,000 27 AUGUST 31, 1998 40 Pine Island/Ridge Plaza Shopping Center 32,921 180 AUGUST 26, 1999 40 Plaza Del Rey Shopping Center 3,848 932 AUGUST 22, 1991 30 Point Royale Shopping Center 8,341 595 JULY 27, 1995 40 Restaurant Properties 1,250 50 APRIL 30, 1998 40 Skylake Shopping Center 13,022 89 AUGUST 19, 1997 40 Summerlin Square Shopping Center 9,125 327 JUNE 10, 1998 40 West Lakes Plaza Shopping Center 8,074 499 NOVEMBER 6, 1996 40 CENTRAL FLORIDA East Bay Plaza Shopping Center 2,161 539 JULY 27, 1993 30 Eustis Square Shopping Center 7,301 1,216 OCTOBER 22, 1993 30 Forest Edge Shopping Center 3,106 139 DECEMBER 31, 1996 40 Lake Mary Shopping Center 19,503 1,470 NOVEMBER 9, 1995 40 Park Promenade Shopping Center 9,312 148 JANUARY 31, 1999 40 Walden Woods Shopping Center 3,806 72 JANUARY 1, 1999 40 NORTH FLORIDA Atlantic Village Shopping Center 6,826 639 JUNE 30,1995 40 Beauclerc Village Shopping Center 2,806 91 MAY 15, 1998 40 Commonwealth Shopping Center 5,056 548 FEBRUARY 28, 1994 40 Fort Caroline Trading Post 3,711 428 JANUARY 24, 1994 40 Mandarin Landing Shopping Center 9,190 7 DECEMBER 9, 1999 40 Mandarin Mini Storage 1,815 205 MAY 10, 1994 40 Monument Point Shopping Center 3,753 184 JANUARY 31, 1997 40 Oak Hill Village Shopping Center 3,487 291 DECEMBER 7, 1995 40 -------- ------- SUBTOTAL $192,298 $11,534 -- -- -------- ------- TOTAL $192,298 $11,534 ======== =======
S-3 SCHEDULE III REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION DECEMBER 31, 1999 (DOLLARS IN THOUSANDS) Reconciliation of Property and Improvements:
1999 1998 1997 --------- --------- --------- Beginning balance $ 140,764 $ 123,447 $ 105,239 Acquisitions 55,015 20,834 15,388 Improvements 7,843 4,411 2,820 Disposition (11,324) (7,928) -- --------- --------- --------- Ending Balance $ 192,298 $ 140,764 $ 123,447 ========= ========= ========= Reconciliation of Accumulated Depreciation: Beginning balance $ 9,410 $ 7,144 $ 4,815 Depreciation expense 3,420 2,824 2,329 Disposition (1,248) (558) -- --------- --------- --------- Ending Balance $ 11,582 $ 9,410 $ 7,144 ========= ========= =========
S-4 EXHIBIT INDEX EXHIBIT NO. DESCRIPTION - ----------- ----------- 23.1 Consent of Deloitte & Touche LLP, Certified Public Accountants 27 Financial Data Schedule EX-23.1 2 EXHIBIT 23.1 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in Registration Statement No. 333-30894 of Equity One, Inc. on Form S-3 of our reports dated February 16, 2000 appearing in the Annual Report on Form 10-K of Equity One, Inc. for the year ended December 31, 1999, and to the reference to us under the heading "Experts" in the Prospectus, which is part of this Registration Statement. DELOITTE & TOUCHE LLP Certified Public Accountants Miami, Florida March 30, 2000 EX-27 3
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-K. 12-MOS DEC-31-1999 JAN-01-1999 DEC-31-1999 427,000 1,218,000 2,209,000 0 0 0 216,588,000 11,669,000 212,497,000 0 0 0 0 113,000 91,316,000 212,497,000 30,977,000 30,977,000 0 0 12,302,000 0 5,086,000 13,589,000 0 0 0 0 0 13,589,000 1.26 1.26
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