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Section 1: 8-K/A (AMENDMENT NO. 1 TO FORM 8-K)

Amendment No. 1 to Form 8-K

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 8-K/A

 

 

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): February 24, 2017

 

 

REGENCY CENTERS CORPORATION

REGENCY CENTERS, L.P.

(Exact name of registrant as specified in its charter)

 

LOGO

 

 

 

Florida (Regency Centers

Corporation)

Delaware (Regency Centers, L.P.)

 

001-12298 (Regency Centers Corporation)

0-24763 (Regency Centers, L.P.)

 

59-3191743 (Regency Centers Corporation)

59-3429602 (Regency Centers, L.P.)

(State or other jurisdiction

of incorporation)

  (Commission File Number)  

(IRS Employer

Identification No.)

One Independent Drive, Suite 114

Jacksonville, Florida

  33202
(Address of principal executive offices)   (Zip Code)

Registrant’s telephone number, including area code: (904) 598-7000

 

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 

 


Explanatory Note

As previously disclosed in the Current Report on Form 8-K filed by Regency Centers Corporation (“Regency” or the “Company”) and Regency Centers, L.P. on March 1, 2017 (the “Initial Form 8-K”), on March 1, 2017, Regency completed its previously announced merger with Equity One, Inc., with Regency continuing as the surviving corporation of the merger.

This Amendment No. 1 to the Initial Form 8-K amends the Initial Form 8-K to include the pro forma financial information required by Item 9.01(b).

 

Item 9.01. Financial Statements and Exhibits.

 

  (b) Pro Forma Financial Information.

The following information is attached hereto as Exhibits 99.1 and 99.2 respectively, and is incorporated herein by reference:

 

  i. Unaudited pro forma condensed combined financial statements (and related notes) of Regency Centers Corporation for the year ended December 31, 2016.

 

  ii. Unaudited pro forma condensed combined financial statements (and related notes) of Regency Centers, L.P. for the year ended December 31, 2016.

 

  (d) Exhibits.

 

Exhibit No.

  

Exhibit Description

99.1    Unaudited pro forma condensed combined financial statements (and related notes) of Regency Centers Corporation for the year ended December 31, 2016.
99.2    Unaudited pro forma condensed combined financial statements (and related notes) of Regency Centers, L.P. for the year ended December 31, 2016.

 

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, each Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

REGENCY CENTERS CORPORATION
/s/ J.Christian Leavitt
Name:   J. Christian Leavitt
Title:   Senior Vice President and Treasurer

REGENCY CENTERS, L.P.

By: Regency Centers Corporation, its general partner

/s/ J.Christian Leavitt
Name:   J. Christian Leavitt
Title:   Senior Vice President and Treasurer

Dated: March 27, 2017

 

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EXHIBIT INDEX

 

Exhibit No.

  

Exhibit Description

99.1    Unaudited pro forma condensed combined financial statements (and related notes) of Regency Centers Corporation for the year ended December 31, 2016.
99.2    Unaudited pro forma condensed combined financial statements (and related notes) of Regency Centers, L.P. for the year ended December 31, 2016.

 

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Section 2: EX-99.1 (EX-99.1)

EX-99.1

EXHIBIT 99.1

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

On March 1, 2017, pursuant to the terms and subject to the conditions set forth in the Agreement and Plan of Merger, dated as of November 14, 2016 (the “merger agreement”), by and between Regency Centers Corporation (“Regency”) and Equity One, Inc. (“Equity One”), Equity One merged with and into Regency (the “merger”), with Regency continuing as the surviving corporation.

At the effective time of the merger, each share of Equity One common stock, par value $0.01 per share (the “Equity One common stock”), issued and outstanding immediately prior to the effective time of the merger (other than any shares owned directly by Regency or Equity One and in each case not held on behalf of third parties) was converted into the right to receive 0.45 (the “exchange ratio”) of a newly issued share of Regency common stock, par value $0.01 per share (the “Regency common stock”). No fractional shares of Regency common stock were issued in the merger, and Equity One stockholders became entitled to receive cash in lieu of any fractional shares in accordance with the merger agreement.

The following unaudited pro forma condensed combined financial statements as of December 31, 2016 and for the year then ended have been prepared (i) as if the merger occurred on December 31, 2016 for purposes of the unaudited pro forma condensed combined balance sheet and (ii) as if the merger occurred on January 1, 2016 for purposes of the unaudited pro forma condensed combined statement of operations for the year ended December 31, 2016.

The fair value of assets acquired and liabilities assumed as a result of the merger and related adjustments incorporated into the unaudited pro forma condensed combined financial statements are based on preliminary estimates and information currently available. The amount of the equity issued in connection with the merger and the assignment of fair value to assets and liabilities of Equity One has not been finalized and is subject to change. The amount of the equity issued in connection with the merger was based on the number of Equity One shares outstanding immediately prior to the effective time of the merger, converted pursuant to the exchange ratio, and the fair value of the assets and liabilities assumed was based on the actual net tangible and intangible assets and liabilities of Equity One that existed at the effective time of the merger.

Actual amounts recorded in connection with the merger may change based on any increases or decreases in the fair value of the assets acquired and liabilities assumed upon completion of the final valuation, and may result in variances to the amounts presented in the unaudited pro forma condensed combined balance sheet and/or unaudited pro forma condensed combined statement of operations. Assumptions and estimates underlying the adjustments to the unaudited pro forma condensed combined financial statements are described in the accompanying notes. These adjustments are based on available information and assumptions that management of Regency considers to be reasonable. The unaudited pro forma condensed combined financial statements do not purport to: (1) represent Regency’s actual financial position had the merger occurred on December 31, 2016; (2) represent the results of Regency’s operations that would have actually occurred had the merger occurred on January 1, 2016; or (3) project Regency’s financial position or results of operations as of any future date or for any future period, as applicable.

During the period from January 1, 2016 to December 31, 2016, Regency and Equity One acquired and disposed of various real estate operating properties. None of the assets acquired or disposed by the respective companies during this period exceeded the significance level that requires the presentation of pro forma financial information pursuant to Regulation S-X, Article 11. As such, the following unaudited pro forma condensed combined statement of operations for the year ended December 31, 2016 does not include pro forma adjustments to present the impact of these insignificant acquisitions and dispositions as if they occurred on January 1, 2016. In addition, the pro forma financial statements include the balances and operations associated with properties that were expected to sell prior to the effective time of the merger, but for which no factually supportable evidence exists for pro forma adjustments to reflect sales of such properties.

The unaudited pro forma condensed combined financial statements have been developed from, and should be read in conjunction with, (i) the consolidated financial statements of Regency and accompanying notes thereto included in Regency’s annual report filed on Form 10-K for the year ended December 31, 2016, (ii) the consolidated financial statements of Equity One and accompanying notes thereto included in Equity One’s annual report filed on Form 10-K for the year ended December 31, 2016, and (iii) the accompanying notes to the unaudited pro forma condensed combined financial statements. In Regency’s opinion, all adjustments necessary to reflect the merger with Equity One, and the issuance of Regency’s shares of common stock have been made.


UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET

AS OF DECEMBER 31, 2016

(in thousands, except share data)

 

        Regency
Centers
Corporation
 Historical (1) 
     Equity One
 Historical (1) 
     Pro Forma
 Adjustments 
         Note    
2
     Regency
Centers
  Corporation  
Pro Forma
 

Assets

               

Real estate investments at cost:

               

Land, including amounts held for future development

 

$

    1,660,424          1,580,076          1,148,017           A        4,388,517    

Buildings and improvements

      3,092,197          1,947,214          1,218,026           A        6,257,437    

Properties in development

      180,878          124,031          (10,344)          A        294,565    
   

 

 

    

 

 

    

 

 

       

 

 

 
      4,933,499          3,651,321          2,355,699           A        10,940,519    

Less: accumulated depreciation

      1,124,391          493,162          (493,162)          A        1,124,391    
   

 

 

    

 

 

    

 

 

       

 

 

 
      3,809,108          3,158,159          2,848,861             9,816,128    

Properties held for sale

      -              32,630          -               A        32,630    

Investments in real estate partnerships

      296,699          61,796          44,120           B        402,615    
   

 

 

    

 

 

    

 

 

       

 

 

 

Net real estate investments

      4,105,807          3,252,585          2,892,981             10,251,373    

Cash and cash equivalents

      13,256          16,650          (5,860)          C        24,046    

Restricted cash

      4,623          1,495          -                 6,118    

Tenant receivables, net

      111,722          45,305          (33,606)          D        123,421    

Deferred leasing costs, less accumulated amortization

      69,000          44,039          (44,039)          E        69,000    

Acquired lease intangible assets, less accumulated amortization

      118,831          101,867          310,793           A        531,491    

Trading securities held in trust, at fair value

      28,588          -              -                 28,588    

Goodwill

      -              5,719          (5,719)          F        -        

Other assets

      37,079          26,944          (7,409)          G        56,614    
   

 

 

    

 

 

    

 

 

       

 

 

 

Total assets

 

$

    4,488,906          3,494,604          3,107,141             11,090,651    
   

 

 

    

 

 

    

 

 

       

 

 

 

Liabilities and Equity

               

Liabilities:

               

Mortgage notes payable

 

$

    467,094          255,646          -                 722,740    

Unsecured senior notes payable

      900,000          500,000          250,000           H        1,650,000    

Term loans

      265,000          550,000          (250,000)          H        565,000    

Unsecured credit facilities

      15,000          118,000          -                 133,000    
   

 

 

    

 

 

    

 

 

       

 

 

 
      1,647,094          1,423,646          -                 3,070,740    

Unamortized debt issuance costs and premium/discount on notes payable, net

      (4,674)         (8,008)         12,755           H        73    
   

 

 

    

 

 

    

 

 

       

 

 

 

Total notes payable

      1,642,420          1,415,638          12,755           H        3,070,813    

Accounts payable and other liabilities

      138,936          66,357          112,493           I        317,786    

Acquired lease intangible liabilities, less accumulated accretion

      54,180          151,761          444,400           A        650,341    

Tenants’ security, escrow deposits and prepaid rent

      28,868          20,561          -                 49,429    
   

 

 

    

 

 

    

 

 

       

 

 

 

Total liabilities

      1,864,404          1,654,317          569,648             4,088,369    

Commitments and contingencies

      -              -              -                 -        

Equity:

               

Stockholders’ equity:

               

Preferred stock

      325,000          -              -                 325,000    

Common stock

      1,045          1,449          (795)          J        1,699    

Treasury stock at cost

      (17,062)         -              -                 (17,062)   

Additional paid-in capital

      3,294,923          2,304,395          2,166,354           J        7,765,672    

Accumulated other comprehensive loss

      (18,346)         (4,213)         4,213           K        (18,346)   

Distributions in excess of net income

      (994,259)         (461,344)         367,721           L        (1,087,882)   
   

 

 

    

 

 

    

 

 

       

 

 

 

Total stockholders’ equity

      2,591,301          1,840,287          2,537,493             6,969,081    

Noncontrolling interests:

               

Exchangeable operating partnership units

      (1,967)         -              -                 (1,967)   

Limited partners’ interests in consolidated partnerships

      35,168          -              -                 35,168    
   

 

 

    

 

 

    

 

 

       

 

 

 

Total noncontrolling interests

      33,201          -              -                 33,201    

Total equity

      2,624,502          1,840,287          2,537,493             7,002,282    
   

 

 

    

 

 

    

 

 

       

 

 

 

Total liabilities and equity

 

$

    4,488,906          3,494,604          3,107,141                 11,090,651    
   

 

 

    

 

 

    

 

 

       

 

 

 

See accompanying notes

 

(1) Historical financial information of Regency and Equity One is derived from their respective Annual Reports filed on Form 10-K for the year ended December 31, 2016. Certain Equity One amounts have been reclassified to conform to Regency’s financial statement presentation.


UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS

FOR THE YEAR ENDED DECEMBER 31, 2016

(in thousands, except share data)

 

        Regency
Centers
    Corporation    
Historical (1)
     Equity One
 Historical (1) 
     Pro Forma
 Adjustments 
       Note  
3
     Regency
Centers
 Corporation 
Pro

Forma
 

Revenues:

               

Minimum rent

 

$

    444,305          287,487          31,193          a          762,985    

Percentage rent

      4,128          5,126          -                 9,254    

Recoveries from tenants and other income

      140,611          81,585          -                 222,196    

Management, transaction, and other fees

      25,327          1,140          -                 26,467    
   

 

 

    

 

 

    

 

 

       

 

 

 

Total revenues

      614,371          375,338          31,193             1,020,902    

Operating expenses:

               

Depreciation and amortization

      162,327          106,017          93,449          b          361,793    

Operating and maintenance

      95,022          59,893          -                 154,915    

General and administrative

      65,327          27,473          -                 92,800    

Real estate taxes

      66,395          43,041          -                 109,436    

Other operating expenses

      14,081          5,505          (12,044)         c          7,542    
   

 

 

    

 

 

    

 

 

       

 

 

 

Total operating expenses

      403,152          241,929          81,405             726,486    

Other expense (income):

               

Interest expense, net

      90,712          48,603          689          d          140,004    

Provision for impairment

      4,200          3,121          -                 7,321    

Early extinguishment of debt

      14,240          14,650          -                 28,890    

Net investment (income) loss

      (1,672)         (909)         -                 (2,581)   

Loss on derivative instruments

      40,586          -              -                 40,586    
   

 

 

    

 

 

    

 

 

       

 

 

 

Total other expense

      148,066          65,465          689             214,220    
   

 

 

    

 

 

    

 

 

       

 

 

 

Income (loss) from operations before equity in income of investments in real estate partnerships

      63,153          67,944          (50,901)            80,196    

Equity in income of investments in real estate partnerships

      56,518          2,711          (1,117)         e          58,112    

Income tax expense (benefit) of taxable REIT subsidiaries

      -              1,485          (627)         f          858    
   

 

 

    

 

 

    

 

 

       

 

 

 

Income from operations

      119,671          69,170          (51,391)            137,450    

Gain on sale of real estate, net of tax

      47,321          3,670          -                 50,991    
   

 

 

    

 

 

    

 

 

       

 

 

 

Net income

      166,992          72,840          (51,391)            188,441    

Noncontrolling interests:

               

Exchangeable operating partnership units

      (257)         -              47          g          (210)   

Limited partners’ interests in consolidated partnerships

      (1,813)         -              -                 (1,813)   
   

 

 

    

 

 

    

 

 

       

 

 

 

Income attributable to noncontrolling interests

      (2,070)         -              47             (2,023)   
   

 

 

    

 

 

    

 

 

       

 

 

 

Net income attributable to the Company

      164,922          72,840          (51,344)            186,418    

Preferred stock dividends

      (21,062)         -              -                 (21,062)   
   

 

 

    

 

 

    

 

 

       

 

 

 

Net income attributable to common stockholders

  $     143,860          72,840          (51,344)            165,356    
   

 

 

    

 

 

    

 

 

       

 

 

 

Income per common share - basic

 

$

    1.43          0.51                0.99    

Income per common share - diluted

 

$

    1.42          0.51                0.99    

Weighted average shares - basic

      100,863          142,492             h          166,234    
   

 

 

    

 

 

          

 

 

 

Weighted average shares - diluted

      101,285          143,167             h          166,656    
   

 

 

    

 

 

          

 

 

 

See accompanying notes

 

(1) Historical financial information of Regency and Equity One is derived from their respective Annual Reports filed on Form 10-K for the year ended December 31, 2016. Certain Equity One amounts have been reclassified to conform to Regency’s financial statement presentation.


NOTES TO UNAUDITED PRO FORMA

CONDENSED COMBINED FINANCIAL STATEMENTS

(in thousands unless otherwise noted)

Note 1: Overview

For purposes of the unaudited pro forma condensed combined financial statements (the “pro forma financial statements”), Regency has assumed a total purchase price for the merger of approximately $4.5 billion, which consists primarily of shares of Regency common stock issued in exchange for shares of Equity One common stock, plus $6.0 million of cash consideration. The total purchase price was calculated based on the closing price of Regency’s common stock on March 1, 2017, which was $68.40. At the effective time of the merger, each share of Equity One common stock, issued and outstanding immediately prior to the effective time of the merger (other than any shares owned directly by Regency or Equity One and in each case not held on behalf of third parties) was converted into 0.45 of a share of newly issued shares of Regency common stock, resulting in the issuance of approximately 65.4 million Regency common shares, determined as follows (shares in thousands):

 

Equity One common stock outstanding as of March 1, 2017

                 144,623   

Equity One share based awards exchanged

     647   
  

 

 

 

Total Equity One shares converted to Regency common stock

     145,270   

Exchange rate

     0.45   
  

 

 

 

Regency common stock issued

     65,372   
  

 

 

 

The pro forma financial statements have been prepared using the acquisition method of accounting under GAAP, which we refer to as acquisition accounting, with Regency as the acquiring entity. Accordingly, under acquisition accounting, the total purchase price is allocated to the acquired net tangible and identifiable intangible assets and liabilities assumed of Equity One based on their respective fair values, as further described below.

To the extent identified, certain reclassifications have been reflected in the pro forma adjustments to conform Equity One’s financial statement presentation to that of Regency. However, the unaudited pro forma financial statements may not reflect all adjustments necessary to conform the accounting policies of Equity One to those of Regency due to limitations on the availability of information currently available or known.

The pro forma adjustments represent Regency’s management’s estimates based on information currently available and are subject to change as additional information becomes available and additional analyses are performed. The pro forma financial statements do not reflect the impact of possible revenue or earnings enhancements, cost savings from operating efficiencies or synergies, or asset dispositions. Also, the pro forma financial statements do not reflect possible adjustments related to restructuring or integration activities that have yet to be determined or transaction or other costs following the merger that are not expected to have a continuing impact. Further, one-time transaction-related expenses incurred prior to, or concurrent with, closing the merger are not included in the pro forma statement of operations.

The pro forma statement of operations for the year ended December 31, 2016 combine the historical condensed combined statement of operations of Regency and Equity One, giving effect to the merger as if it had been consummated on January 1, 2016, the beginning of the earliest period presented. The pro forma balance sheet combines the historical consolidated balance sheet of Regency and the historical consolidated balance sheet of Equity One as of December 31, 2016, giving effect to the merger as if it had been consummated on December 31, 2016.

Purchase Price

The total purchase price of approximately $4.5 billion was determined based on the number of Equity One’s shares of common stock as of March 1, 2017. For purposes of the pro forma financial statements, such shares of common stock are assumed to be outstanding as of the pro forma closing date of December 31, 2016. The stock price used for the total purchase price is the closing price of Regency’s common stock on March 1, 2017 ($68.40 per share), the closing date of the merger.

The total purchase price described above has been allocated to Equity One’s tangible and intangible assets acquired and liabilities assumed for purposes of these pro forma financial statements, based on their estimated relative fair values assuming the merger was completed on the pro forma balance sheet date presented. The assignment of fair values to Equity One assets acquired and liabilities assumed has not been finalized. The final allocation will be based upon valuations and other analysis for which there is currently insufficient information to make a definitive allocation. Accordingly, the purchase price allocation adjustments are preliminary and have been made solely for the purpose of providing pro forma financial statements. The final purchase price allocation will be determined after a complete and thorough analysis. As a result, the final acquisition accounting adjustments,


including those resulting from conforming Equity One’s accounting policies to those of Regency’s, could differ materially from the pro forma adjustments presented herein. The total purchase price of Equity One (as calculated in the manner described above) is allocated to the assets and liabilities to be assumed on the following preliminary basis:

 

Land

  $     2,728,093    

Building and improvements

      3,165,240    

Properties in development

      113,687    

Properties held for sale

      32,630    

Investments in unconsolidated real estate partnerships

      105,916    
   

 

 

 

Real estate assets

      6,145,566    

Cash, accounts receivable and other assets

      49,379    

Intangible assets

      412,660    

Notes payable

              (1,433,891)   

Accounts payable, other liabilities and tenant security deposits and prepaid rent

      (100,290)   

Intangible liabilities

      (596,161)   
   

 

 

 

Total purchase price

  $     4,477,263    
   

 

 

 

Note 2. Adjustments to the Unaudited Pro Forma Condensed Combined Balance Sheet

The unaudited pro forma condensed combined balance sheet as of December 31, 2016 reflects the following adjustments:

A. Tangible and Intangible Real Estate Assets and Liabilities

The real estate assets acquired and liabilities assumed in connection with the merger are reflected in the unaudited pro forma condensed combined balance sheet of Regency at a preliminary fair market value. The preliminary fair market value is based, in part, on a valuation prepared by Regency with assistance of a third party valuation advisor. The acquired assets and assumed liabilities for an acquired operating property generally include, but are not limited to: land, buildings and improvements, identified tangible and intangible assets and liabilities associated with in-place leases, including tenant improvements, leasing costs, value of above-market and below-market leases, and value of acquired in-place leases.

The adjustments reflected in the unaudited condensed combined balance sheet for real estate assets, intangible assets and intangible liabilities represent the differences between the preliminary fair market value of condensed combined properties acquired by Regency in connection with the merger, and Equity One’s historical balances, which are presented as follows:

 

         Fair Market
Value
     Equity One
Historical
     Adjustments as a
Result of Merger 
 

Land

  $     2,728,093        1,580,076        1,148,017   

Buildings and improvements

      3,165,240        1,947,214        1,218,026   

Properties in development

      113,687        124,031        (10,344)  

Intangible assets, net

      412,660        101,867        310,793   

Intangible liabilities, net

      596,161        151,761        444,400   

Regency’s methodology includes estimating an “as-if vacant” fair value of the physical property, which includes land, building, and improvements. In addition, Regency determines the estimated fair value of identifiable intangible assets and liabilities, considering the following categories: (i) value of in-place leases, and (ii) above- and below-market value of in-place leases.

The value of in-place leases is estimated based on the value associated with the costs avoided in originating leases compared to the acquired in-place leases as well as the value associated with lost rental and recovery revenue during the assumed lease-up period. The value of in-place leases is recorded to amortization expense over the remaining expected term of the respective leases.

Above-market and below-market in-place lease values for acquired properties are recorded based on the present value of the difference between (i) the contractual amounts to be paid pursuant to the in-place leases and (ii) management’s estimate of fair market lease rates for comparable in-place leases, measured over a period equal to the remaining non-cancelable term of the lease, including below-market renewal options, if applicable. The value of above-market leases is amortized as a reduction of minimum rent over the remaining terms of the respective leases and the value of below-market leases is accreted to minimum rent over the remaining terms of


the respective leases, including below-market renewal options, if applicable. Regency does not assign value to customer relationship intangibles if it has pre-existing business relationships with the major retailers at the acquired property since they do not provide incremental value over Regency’s existing relationships.

Equity One’s historical accumulated depreciation is eliminated since the assets are presented at estimated fair value.

B. Investment in Real Estate Partnerships

Represents the difference between the preliminary fair market value of Equity One’s real estate partnerships, acquired by Regency in connection with the merger, and Equity One’s historical value as of December 31, 2016 (for more information, see note A on preliminary fair market values of properties acquired in the merger). A fair market value adjustment for debt held by the joint ventures is included. The fair value of debt was estimated based upon contractual future cash flows discounted using borrowing spreads and market interest rates that would have been available for debt with similar terms and maturities.

C. Cash

The adjustment to cash represents the cash consideration paid at the effective time of the merger, as discussed further in Note 1.

D. Tenant Receivables, net

Tenant receivables include straight line rent receivable. Straight-lining of rent pursuant to the underlying leases associated with the real estate acquired in connection with the merger will commence at the effective time of the merger; therefore the balance of straight line rent included on Equity One’s historical balance sheet has been eliminated.

E. Deferred Leasing Costs, net

Deferred leasing costs, net, represent direct salaries, third-party fees and other costs incurred by Equity One to originate a lease which were capitalized and amortized against the respective leases using the straight-line method over the term of the related lease. The value to Regency of in-place leases is considered an intangible asset and included in the purchase price allocation above, see note A. As such, the net carrying value of Equity One’s deferred leasing costs has been eliminated.

F. Goodwill

Equity One had $5.7 million of goodwill in its historical balance sheet from prior business combinations, which has been eliminated.

The allocation of the purchase price has been performed on a preliminary basis and will not be finalized until several months following closing of the merger. Based on management’s preliminary estimate of fair value of the identifiable assets and liabilities, no goodwill or bargain purchase option is recorded as a result of this transaction. As more information is available and the purchase price allocation is finalized, this may change.

G. Other Assets

Unamortized debt issuance costs of $5.3 million were included within other assets in Equity One’s historical balance sheet related to the unsecured revolving credit facility, which was paid in full by Regency upon acquisition. As such, the historical unamortized debt issuance costs have been eliminated.

The carrying value of the net deferred tax assets decreased by $1.9 million from the fair market value adjustments related to real estate assets. Additionally, the $0.2 million fair value of one of Equity One’s interest rate swaps on their term loan, which was not assumed, was eliminated.

H. Notes Payable

Regency assumed Equity One’s unsecured senior notes payable and mortgage notes payable. These notes payable assumed by Regency have been adjusted by $10.3 million, to reflect the estimated fair value at December 31, 2016.

The balance outstanding on Equity One’s unsecured revolving credit facility was repaid with funds from Regency’s unsecured line of credit. Additionally, the balance on Equity One’s $250 million and $300 million term loans were also repaid at closing from a new ten-year unsecured debt offering and a new term loan, respectively.


Debt issuance costs and debt premium / discounts of $8.0 million were included within notes payable, within Equity One’s historical balance sheet. Since the notes payable assumed in the merger are presented at fair value, the historical unamortized debt issuance costs and debt premium / discount have been eliminated, and new costs of $5.5 million to assume the debt have been recognized.

I. Accounts Payable and Accrued Expenses

Represents the following pro forma adjustments:

         As of December 31, 2016        

Non-recurring transaction costs

   $ 93,623    

Accrue debt issuance costs

    5,498    

Adjust deferred tax liabilities for fair value of real estate acquired

    14,522    

Eliminate Equity One’s interest rate swap on term loan not assumed

    (1,150)   
 

 

 

 

Pro forma adjustments to Accounts payable and other liabilities

   $ 112,493    
 

 

 

 

The non-recurring transaction costs include those estimated remaining transaction costs to be paid by Regency or Equity One directly attributable to the merger. These remaining transaction costs, consisting primarily of fees for investment bankers, legal, accounting, tax and other professional services, are estimated to be approximately $93.6 million and will impact the results of operations and be recognized when incurred. These are factually supportable because such amounts are based on reliable, documented evidence such as invoices for costs incurred to date and estimates from third parties for additional costs expected to be incurred with the merger. Such costs are non-recurring in nature and directly related to the merger and, therefore, are reflected as a reduction to equity and not included in the unaudited pro forma condensed combined statement of operations.

J. Common Stock and Additional Paid-in Capital

Represents the issuance of shares of Regency common stock with a par value of $0.01 per share and a market value of $68.40 per share as of March 1, 2017, the effective date of the merger, and the date that Equity One common stock converted to Regency common stock, at a conversion ratio of 0.45 to 1.0, to holders of Equity One common stock at the effective time of the merger.

            As of December 31, 2016    
 

 

Outstanding shares of Equity One common stock (in 000s)

   $   144,623  

Equity One equity-based awards converted into Equity One common stock (in 000s)

    647 
 

 

Outstanding shares of Equity One common stock (in 000s)

    145,270 
 

 

Exchange Ratio

    0.45 
 

 

Shares of Regency common stock issued – pro forma basis (in 000s)

    65,372 

Regency par value per share

   $   0.01  
 

 

Par value of Regency common stock issued – pro forma basis (in 000s)

   $   654  

Par value of Equity One common stock – historical basis (in 000s)

   $   (1,449) 
 

 

Pro forma adjustment to common stock (in 000s)

   $   (795) 
 

 

   

Shares of Regency common stock issued – pro forma basis (in 000s)

    65,372 

Additional paid-in capital ($68.40 per shares less $0.01 par value per share)

   $   68.39  
 

 

Additional paid-in capital Regency stock issued – pro forma basis (in 000s)

   $   4,470,749 

Equity One additional paid-in capital – historical basis (in 000s)

   $   (2,304,395) 
 

 

Pro forma adjustments to additional paid-in capital (in 000s)

   $   2,166,354 
 

 

   

The amount of Equity One common stock converted to Regency common stock is preliminary based on estimated shares outstanding and converted at the closing date and are subject to adjustment as final share counts are reconciled.

K. Accumulated Other Comprehensive Loss

Accumulated other comprehensive loss (“AOCL”) included in Equity One’s historical balance sheet represents the effective portion of their interest rate swaps. Equity One’s historical balances in AOCL are eliminated upon acquisition. Regency terminated Equity One’s interest rate swaps on the term loan at the closing of the merger.

L. Distributions in Excess of Cumulative Net Income

Represents the elimination of Equity One’s accumulated deficit of $461.3 million as of December 31, 2016 and an adjustment of $93.6 million to increase distributions in excess of cumulative net income for non-recurring transaction costs directly attributable to


the merger that have not yet been expensed in the historical statement of operations or accrued in the historical balance sheets used as the starting point for the pro forma financial statements (for more information, see note 2. I).

Note 3. Adjustments to the Unaudited Pro Forma Condensed Combined Statement of Operations for the year ended December 31, 2016

The historical amounts include Regency’s and Equity One’s actual operating results for the periods presented. The pro forma adjustments to historical amounts are presented in the unaudited pro forma condensed combined statement of operations for the year ended December 31, 2016, based on the March 1, 2017 effective date of the merger. The following are the explanations for the adjustments included in the unaudited pro forma condensed combined statement of operations for the year ended December 31, 2016:

Merger Adjustments

a. Minimum Rent

The historical minimum rent for Regency and Equity One represent contractual, straight-line rents and amortization of above and below-market rents associated with the leases in effect during the periods presented. The adjustments included in the unaudited pro forma condensed combined statement of operations are presented to adjust contractual rental property revenue to a straight-line basis and to amortize above and below-market rents in accordance with Accounting Standards Codification 805-10, Business Combinations, as if the merger had occurred on January 1, 2016. The above and below-market rents are amortized or accreted to revenue over the remaining terms of the respective leases, which generally range from three to 20 years.

The following table summarizes the adjustments made to minimum rent for the real estate properties acquired as part of the merger for the year ended December 31, 2016:

        Year Ended December 31, 2016    
 

 

Pro forma straight-line rent

   $   16,239 

Pro forma (above)/below market rent

    33,233 

Elimination of Equity One’s straight line rent

    (4,840) 

Elimination of Equity One’s (above) below market rent

    (13,439) 
   

 

Total

   $   31,193 
 

 

b. Depreciation and Amortization Expense

Depreciation and amortization is calculated, for purposes of the unaudited pro forma condensed combined statement of operations, based on estimated useful lives for building and site improvements, and the remaining contractual, in-place lease term for intangible lease assets and liabilities. Regency uses the straight-line method for all depreciation and amortization. The useful life of a particular building depends upon a number of factors including the condition of the building upon acquisition. For purposes of the unaudited pro forma condensed combined statement of operations, the useful life for buildings is 40 years; the useful life for site improvements is 15 years; and the general range of remaining contractual, in-place lease terms is three to nine years. As Regency would have commenced depreciation and amortization on January 1, 2016, the assumed acquisition date for the pro forma condensed combined statement of operations, the depreciation and amortization expense included in the Equity One historical financial statements has been reversed so as to reflect the depreciation and amortization that Regency would have recorded.

The following table summarizes pro forma depreciation and amortization by asset category for the properties acquired in the merger that would have been recorded for the year ended December 31, 2016 less the reversal of depreciation and amortization included in Equity One’s historical financial statements:

 

      Year Ended December 31, 2016    

Building and improvements

   $ 79,471   

In-place leases

    119,995   

Less: Equity One historical depreciation and amortization

    (106,017)   
 

 

 

 

Total

   $ 93,449   
 

 

 

 

c. Other Operating Expenses

Represents the elimination of merger related transaction costs, which are considered non-recurring in nature and directly related to the merger.


d. Interest Expense

The adjustments to interest expense related to the merger represent the (1) change in interest expense attributable to repayment of Equity One’s unsecured revolving credit facility with proceeds from Regency’s unsecured line of credit and the repayment of both of Equity One’s term loans with proceeds from a new term loan and new ten-year unsecured borrowings by Regency (2) amortization of deferred financing costs related to the issuance of new debt or assumption of Equity One’s debt, (3) amortization of above-market debt values created by marking the assumed Equity One debt to fair market value, (4) elimination of the impact of Equity One’s interest rate swaps that were not assumed by Regency, and (5) elimination of Equity One’s historic amortization of deferred financing costs and premium/discount on notes payable (for more information, see note 2. H above).

For purposes of pro forma adjustments, Regency’s unsecured line of credit bears interest at London Interbank Offered Rate (which we refer to as “LIBOR”) plus a spread of 0.925%.

The following table summarizes the adjustments to the unaudited pro forma condensed combined statement of operations for the year ended December 31, 2016:

 

        Year Ended December 31,
2016
 

 

Pro forma increase in interest expense from repaying Equity One’s revolving credit facility and term loans with Regency’s line of credit, new ten-year unsecured debt, and new term loan

   $   8,892 

Pro forma amortization of deferred financing costs to issue or assume debt

    333 

Pro forma amortization of above-market debt

    (3,400)
 

 

Total

    5,825

Eliminate historical Equity One interest expense attributable to interest rate swaps not assumed by Regency

    (3,019)

Eliminate historical Equity One amortization of deferred financing costs and premium/discount on notes payable, net

    (2,117)
 

 

Change in interest expense

   $   689
 

 


The current underlying variable rate (1 month LIBOR), as used in these pro forma adjustments, was 0.79%. An increase (decrease) of 0.125% in LIBOR would increase (decrease) annual pro forma interest expense by $0.5 million.

e. Equity in Income of Investments in Real Estate Partnerships

Represents the additional depreciation and amortization expense recognized for basis differences arising between the fair value of underlying assets versus carryover basis.

f. Income Tax Expense (Benefit) of Taxable REIT Subsidiaries

Represents the reduction in deferred tax expense within Equity One’s taxable REIT subsidiaries resulting from the change in depreciation and amortization of the acquired real estate assets.

g. Net Income Attributable to Noncontrolling Interests

Represents the pro forma adjustments to net income allocable to Regency’s exchangeable operating partnership (“EOP”) units arising from the (1) other pro forma adjustments to net income and (2) reduction in EOP ownership interest after issuance of additional common stock from the merger.

h. Weighted-Average Shares

The unaudited pro forma adjustment to shares outstanding used in the calculation of basic and diluted earnings per share are based on the combined basic and diluted weighted-average shares, after giving effect to the exchange ratio, as follows (for more information, see note 2. J above):

 

        Year Ended December 31,    
2016
 

Regency weighted-average common shares outstanding - historical basis

    100,863   

Shares of common stock issued to Equity One stockholders - pro forma basis

    65,371   
 

 

 

 

Weighted-average shares of common stock - basic

    166,234   
 

 

 

 

Incremental shares to be issued under Treasury Stock method for unvested restricted stock and forward equity offering

   

 

422 

 

 

 

 

 

 

 

Weighted-average shares of common stock - diluted

    166,656   
 

 

 

 
(Back To Top)

Section 3: EX-99.2 (EX-99.2)

EX-99.2

EXHIBIT 99.2

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

On March 1, 2017, pursuant to the terms and subject to the conditions set forth in the Agreement and Plan of Merger, dated as of November 14, 2016 (the “merger agreement”), by and between Regency Centers Corporation (the “Parent Company”) and Equity One, Inc. (“Equity One”), Equity One merged with and into the Parent Company (the “merger”), with the Parent Company continuing as the surviving corporation.

The Parent Company is a real estate investment trust (“REIT”) and is the general partner of Regency Centers, L.P. (the “Operating Partnership” or “Regency”). The Parent Company engages in the ownership, management, leasing, acquisition, and development of retail shopping centers through the Operating Partnership, and has no other assets or liabilities other than through its investment in the Operating Partnership and as acquired in connection with the merger. The Parent Company guarantees all of the unsecured debt of the Operating Partnership. The Operating Partnership’s capital includes general and limited common Partnership Units. As of December 31, 2016, the Parent Company owned approximately 99.9% of the outstanding common Partnership Units of the Operating Partnership with the remaining limited Partnership Units held by third parties (“Exchangeable operating partnership units” or “EOP units”). Net income and distributions of the Operating Partnership are allocable to the general and limited common Partnership Units in accordance with their ownership percentages.

At the effective time of the merger, each share of Equity One common stock, par value $0.01 per share (the “Equity One common stock”), issued and outstanding immediately prior to the effective time of the merger (other than any shares owned directly by the Parent Company or Equity One and in each case not held on behalf of third parties) was converted into the right to receive 0.45 (the “exchange ratio”) of a newly issued share of Parent Company common stock, par value $0.01 per share (the “Parent Company common stock”). No fractional shares of Parent Company common stock were issued in the merger, and Equity One stockholders became entitled to receive cash in lieu of any fractional shares in accordance with the merger agreement.

The following unaudited pro forma condensed combined financial statements as of December 31, 2016 and for the year then ended have been prepared (i) as if the merger occurred on December 31, 2016 for purposes of the unaudited pro forma condensed combined balance sheet and (ii) as if the merger occurred on January 1, 2016 for purposes of the unaudited pro forma condensed combined statement of operations for the year ended December 31, 2016.

The fair value of assets acquired and liabilities assumed as a result of the merger and related adjustments incorporated into the unaudited pro forma condensed combined financial statements are based on preliminary estimates and information currently available. The amount of the equity issued in connection with the merger and the assignment of fair value to assets and liabilities of Equity One has not been finalized and is subject to change. The amount of the equity issued in connection with the merger was based on the number of Equity One shares outstanding immediately prior to the effective time of the merger, converted pursuant to the exchange ratio, and the fair value of the assets and liabilities assumed was based on the actual net tangible and intangible assets and liabilities of Equity One that existed at the effective time of the merger.

Actual amounts recorded in connection with the merger may change based on any increases or decreases in the fair value of the assets acquired and liabilities assumed upon completion of the final valuation, and may result in variances to the amounts presented in the unaudited pro forma condensed combined balance sheet and/or unaudited pro forma condensed combined statement of operations. Assumptions and estimates underlying the adjustments to the unaudited pro forma condensed combined financial statements are described in the accompanying notes. These adjustments are based on available information and assumptions that management of Regency considers to be reasonable. The unaudited pro forma condensed combined financial statements do not purport to: (1) represent Regency’s actual financial position had the merger occurred on December 31, 2016; (2) represent the results of Regency’s operations that would have actually occurred had the merger occurred on January 1, 2016; or (3) project Regency’s financial position or results of operations as of any future date or for any future period, as applicable.

During the period from January 1, 2016 to December 31, 2016, Regency and Equity One acquired and disposed of various real estate operating properties. None of the assets acquired or disposed by the respective companies during this period exceeded the significance level that requires the presentation of pro forma financial information pursuant to Regulation S-X, Article 11. As such, the following unaudited pro forma condensed combined statement of operations for the year ended December 31, 2016 does not include pro forma adjustments to present the impact of these insignificant acquisitions and dispositions as if they occurred on January 1, 2016. In addition, the pro forma financial statements include the balances and operations associated with properties that were expected to sell prior to the effective time of the merger, but for which no factually supportable evidence exists for pro forma adjustments to reflect sales of such properties.

The unaudited pro forma condensed combined financial statements have been developed from, and should be read in conjunction with, (i) the consolidated financial statements of Regency and accompanying notes thereto included in Regency’s annual report filed on Form 10-K for the year ended December 31, 2016, (ii) the consolidated financial statements of Equity One and accompanying notes thereto included in Equity One’s annual report filed on Form 10-K for the year ended December 31, 2016, and


(iii) the accompanying notes to the unaudited pro forma condensed combined financial statements. In Regency’s opinion, all adjustments necessary to reflect the merger with Equity One, and the issuance of the Parent Company’s shares of common stock have been made.


UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET

AS OF DECEMBER 31, 2016

(in thousands, except share data)

 

            Regency  
  Centers, L.P.  
  Historical  (1)  
       Equity One  
  Historical (1)  
       Pro Forma  
  Adjustments  
      Note 
 2  
       Regency  
  Centers, L.P.  

  Pro Forma  
 

Assets

               

Real estate investments at cost:

               

Land, including amounts held for future development

      $      1,660,424          1,580,076          1,148,017          A          4,388,517    

Buildings and improvements

      3,092,197          1,947,214          1,218,026          A          6,257,437    

Properties in development

      180,878          124,031          (10,344)         A          294,565    
   

 

 

    

 

 

    

 

 

       

 

 

 
      4,933,499          3,651,321          2,355,699          A          10,940,519    

Less: accumulated depreciation

      1,124,391          493,162          (493,162)         A          1,124,391    
   

 

 

    

 

 

    

 

 

       

 

 

 
      3,809,108          3,158,159          2,848,861             9,816,128    

Properties held for sale

      -              32,630          -              A          32,630    

Investments in real estate partnerships

      296,699          61,796          44,120          B          402,615    
   

 

 

    

 

 

    

 

 

       

 

 

 

Net real estate investments

      4,105,807          3,252,585          2,892,981             10,251,373    

Cash and cash equivalents

      13,256          16,650          (5,860)         C          24,046    

Restricted cash

      4,623          1,495          -                 6,118    

Tenant receivables, net

      111,722          45,305          (33,606)         D          123,421    

Deferred leasing costs, less accumulated amortization

      69,000          44,039          (44,039)         E          69,000    

Acquired lease intangible assets, less accumulated amortization

      118,831          101,867          310,793          A          531,491    

Trading securities held in trust, at fair value

      28,588          -              -                 28,588    

Goodwill

      -              5,719          (5,719)         F          -        

Other assets

      37,079          26,944          (7,409)         G          56,614    
   

 

 

    

 

 

    

 

 

       

 

 

 

Total assets

      $      4,488,906          3,494,604          3,107,141             11,090,651    
   

 

 

    

 

 

    

 

 

       

 

 

 

Liabilities and Equity

               

Liabilities:

               

Mortgage notes payable

      $      467,094          255,646          -                 722,740    

Unsecured senior notes payable

      900,000          500,000          250,000          H          1,650,000    

Term loans

      265,000          550,000          (250,000)         H          565,000    

Unsecured credit facilities

      15,000          118,000          -                 133,000    
   

 

 

    

 

 

    

 

 

       

 

 

 
      1,647,094          1,423,646          -                 3,070,740    

Unamortized debt issuance costs and premium/discount on notes payable, net

      (4,674)         (8,008)         12,755          H          73    
   

 

 

    

 

 

    

 

 

       

 

 

 

Total notes payable

      1,642,420          1,415,638          12,755          H          3,070,813    

Accounts payable and other liabilities

      138,936          66,357          112,493          I          317,786    

Acquired lease intangible liabilities, less accumulated accretion

      54,180          151,761         444,400          A          650,341    

Tenants’ security, escrow deposits and prepaid rent

      28,868          20,561          -                 49,429    
   

 

 

    

 

 

    

 

 

       

 

 

 

Total liabilities

      1,864,404          1,654,317          569,648             4,088,369    

Commitments and contingencies

      -              -              -                 -        

Capital:

               

Partners’ capital:

               

Preferred units of general partner

      325,000          -              -                 325,000    

General partners

      2,284,647          1,844,500          2,533,280          J          6,662,427    

Limited partners

      (1,967)         -              -                 (1,967)   

Accumulated other comprehensive loss

      (18,346)         (4,213)         4,213          K          (18,346)   
   

 

 

    

 

 

    

 

 

       

 

 

 

Total partners’ capital

      2,589,334          1,840,287          2,537,493             6,967,114    

Noncontrolling interests:

               

Limited partners’ interests in consolidated partnerships

      35,168          -              -                 35,168    
   

 

 

    

 

 

    

 

 

       

 

 

 

Total capital

      2,624,502          1,840,287          2,537,493             7,002,282    
   

 

 

    

 

 

    

 

 

       

 

 

 

Total liabilities and capital

      $      4,488,906          3,494,604          3,107,141             11,090,651    
   

 

 

    

 

 

    

 

 

       

 

 

 

See accompanying notes

 

(1) Historical financial information of Regency and Equity One is derived from their respective Annual Reports filed on Form 10-K for the year ended December 31, 2016. Certain Equity One amounts have been reclassified to conform to Regency’s financial statement presentation.


UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS

FOR THE YEAR ENDED DECEMBER 31, 2016

(in thousands, except share data)

 

             Regency  
    Centers, L.P.    
  Historical (1)  
      Equity One 
 Historical (1) 
      Pro Forma 
 Adjustments 
     Note 
 3 
       Regency  
  Centers,  

  L.P.  
  Pro Forma  
 

Revenues:

               

Minimum rent

       $      444,305          287,487          31,193         a        762,985    

Percentage rent

       4,128          5,126          -              9,254    

Recoveries from tenants and other income

       140,611          81,585          -              222,196    

Management, transaction, and other fees

       25,327          1,140          -              26,467    
    

 

 

    

 

 

    

 

 

      

 

 

 

Total revenues

       614,371          375,338          31,193            1,020,902    

Operating expenses:

               

Depreciation and amortization

       162,327          106,017          93,449         b        361,793    

Operating and maintenance

       95,022          59,893          -              154,915    

General and administrative

       65,327          27,473          -              92,800    

Real estate taxes

       66,395          43,041          -              109,436    

Other operating expenses

       14,081          5,505          (12,044)        c        7,542    
    

 

 

    

 

 

    

 

 

      

 

 

 

Total operating expenses

       403,152          241,929          81,405            726,486    

Other expense (income):

               

Interest expense, net

       90,712          48,603          689         d        140,004    

Provision for impairment

       4,200          3,121          -               7,321    

Early extinguishment of debt

       14,240          14,650          -               28,890    

Net investment (income) loss

       (1,672)         (909)         -               (2,581)   

Loss on derivative instruments

       40,586          -             -               40,586    
    

 

 

    

 

 

    

 

 

      

 

 

 

Total other expense

       148,066          65,465          689            214,220    
    

 

 

    

 

 

    

 

 

      

 

 

 

Income (loss) from operations before equity in income of investments in real estate partnerships

       63,153          67,944          (50,901 )          80,196    

Equity in income of investments in real estate partnerships

       56,518          2,711          (1,117)        e        58,112    

Income tax expense (benefit) of taxable REIT subsidiaries

       -             1,485          (627)        f        858    
    

 

 

    

 

 

    

 

 

      

 

 

 

Income from operations

       119,671          69,170          (51,391)           137,450    

Gain on sale of real estate, net of tax

       47,321          3,670          -               50,991    
    

 

 

    

 

 

    

 

 

      

 

 

 

Net income

       166,992          72,840          (51,391)           188,441    

Limited partners’ interests in consolidated partnerships

       (1,813)         -             -               (1,813)   
    

 

 

    

 

 

    

 

 

      

 

 

 

Net income attributable to the Partnership

       165,179          72,840          (51,391)           186,628    

Preferred unit distributions

       (21,062)         -             -               (21,062)   
    

 

 

    

 

 

    

 

 

      

 

 

 

Net income attributable to common unit holders

       $      144,117          72,840          (51,391)           165,566    
    

 

 

    

 

 

    

 

 

      

 

 

 

Income per common unit - basic

       $      1.43          0.51               1.00    

Income per common unit - diluted

       $      1.42          0.51               0.99    

Weighted average units - basic

       101,017          142,492            g        166,388    
    

 

 

    

 

 

         

 

 

 

Weighted average units - diluted

       101,439          143,167            g        166,810    
    

 

 

    

 

 

         

 

 

 

See accompanying notes

 

(1) Historical financial information of Regency and Equity One is derived from their respective Annual Reports filed on Form 10-K for the year ended December 31, 2016. Certain Equity One amounts have been reclassified to conform to Regency’s financial statement presentation.


NOTES TO UNAUDITED PRO FORMA

CONDENSED COMBINED FINANCIAL STATEMENTS

(in thousands unless otherwise noted)

Note 1: Overview

For purposes of the unaudited pro forma condensed combined financial statements (the ‘pro forma financial statements”), Regency has assumed a total purchase price for the merger of approximately $4.5 billion, which consists primarily of shares of Parent Company common stock issued in exchange for shares of Equity One common stock, plus $6.0 million of cash consideration. The total purchase price was calculated based on the closing price of the Parent Company’s common stock on March 1, 2017, which was $68.40. At the effective time of the merger, each share of Equity One common stock, issued and outstanding immediately prior to the effective time of the merger (other than any shares owned directly by the Parent Company or Equity One and in each case not held on behalf of third parties) was converted into 0.45 of a share of newly issued shares of Parent Company common stock, resulting in the issuance of approximately 65.4 million Parent Company common shares, determined as follows (shares in thousands):

 

Equity One common stock outstanding as of March 1, 2017

     144,623    

Equity One share based awards exchanged

     647    
  

 

 

 

Total Equity One shares converted to Parent Company common stock

     145,270    

Exchange rate

     0.45    
  

 

 

 

Parent Company common stock issued

     65,372    
  

 

 

 

The pro forma financial statements have been prepared using the acquisition method of accounting under GAAP, which we refer to as acquisition accounting, with the Parent Company as the acquiring entity. Accordingly, under acquisition accounting, the total purchase price is allocated to the acquired net tangible and identifiable intangible assets and liabilities assumed of Equity One based on their respective fair values, as further described below.

To the extent identified, certain reclassifications have been reflected in the pro forma adjustments to conform Equity One’s financial statement presentation to that of Regency. However, the unaudited pro forma financial statements may not reflect all adjustments necessary to conform the accounting policies of Equity One to those of Regency due to limitations on the availability of information currently available or known.

The pro forma adjustments represent Regency’s management’s estimates based on information currently available and are subject to change as additional information becomes available and additional analyses are performed. The pro forma financial statements do not reflect the impact of possible revenue or earnings enhancements, cost savings from operating efficiencies or synergies, or asset dispositions. Also, the pro forma financial statements do not reflect possible adjustments related to restructuring or integration activities that have yet to be determined or transaction or other costs following the merger that are not expected to have a continuing impact. Further, one-time transaction-related expenses incurred prior to, or concurrent with, closing the merger are not included in the pro forma statement of operations.

The pro forma statement of operations for the year ended December 31, 2016 combine the historical condensed combined statement of operations of Regency and Equity One, giving effect to the merger as if it had been consummated on January 1, 2016, the beginning of the earliest period presented. The pro forma balance sheet combines the historical consolidated balance sheet of Regency and the historical consolidated balance sheet of Equity One as of December 31, 2016, giving effect to the merger as if it had been consummated on December 31, 2016.

Purchase Price

The total purchase price of approximately $4.5 billion was determined based on the number of Equity One’s shares of common stock as of March 1, 2017. For purposes of the pro forma financial statements, such shares of common stock are assumed to be outstanding as of the pro forma closing date of December 31, 2016. The stock price used for the total purchase price is the closing price of the Parent Company’s common stock on March 1, 2017 ($68.40 per share), the closing date of the merger.

The total purchase price described above has been allocated to Equity One’s tangible and intangible assets acquired and liabilities assumed for purposes of these pro forma financial statements, based on their estimated relative fair values assuming the merger was completed on the pro forma balance sheet date presented. The assignment of fair values to Equity One assets acquired and liabilities assumed has not been finalized. The final allocation will be based upon valuations and other analysis for which there is currently insufficient information to make a definitive allocation. Accordingly, the purchase price allocation adjustments are preliminary and have been made solely for the purpose of providing pro forma financial statements. The final purchase price


allocation will be determined after a complete and thorough analysis. As a result, the final acquisition accounting adjustments, including those resulting from conforming Equity One’s accounting policies to those of Regency’s, could differ materially from the pro forma adjustments presented herein. The total purchase price of Equity One (as calculated in the manner described above) is allocated to the assets and liabilities to be assumed on the following preliminary basis:

 

Land

    $       2,728,093    

Building and improvements

      3,165,240    

Properties in development

      113,687    

Properties held for sale

      32,630    

Investments in unconsolidated real estate partnerships

      105,916    
   

 

 

 

Real estate assets

      6,145,566    

Cash, accounts receivable and other assets

      49,379    

Intangible assets

      412,660    

Notes payable

      (1,433,891)   

Accounts payable, other liabilities and tenant security deposits and prepaid rent

      (100,290)   

Intangible liabilities

      (596,161)   
   

 

 

 

Total purchase price

    $       4,477,263    
   

 

 

 

Note 2. Adjustments to the Unaudited Pro Forma Condensed Combined Balance Sheet

The unaudited pro forma condensed combined balance sheet as of December 31, 2016 reflects the following adjustments:

A. Tangible and Intangible Real Estate Assets and Liabilities

The real estate assets acquired and liabilities assumed in connection with the merger are reflected in the unaudited pro forma condensed combined balance sheet of Regency at a preliminary fair market value. The preliminary fair market value is based, in part, on a valuation prepared by Regency with assistance of a third party valuation advisor. The acquired assets and assumed liabilities for an acquired operating property generally include, but are not limited to: land, buildings and improvements, identified tangible and intangible assets and liabilities associated with in-place leases, including tenant improvements, leasing costs, value of above-market and below-market leases, and value of acquired in-place leases.

The adjustments reflected in the unaudited condensed combined balance sheet for real estate assets, intangible assets and intangible liabilities represent the differences between the preliminary fair market value of condensed combined properties acquired by Regency in connection with the merger, and Equity One’s historical balances, which are presented as follows:

 

           Fair Market
Value
      Equity One 
 Historical 
     Adjustments as a
Result of Merger
 

Land

  $        2,728,093        1,580,076        1,148,017    

Buildings and improvements

       3,165,240        1,947,214        1,218,026    

Properties in development

       113,687        124,031        (10,344)   

Intangible assets, net

       412,660        101,867        310,793    

Intangible liabilities, net

       596,161        151,761        444,400    

Regency’s methodology includes estimating an “as-if vacant” fair value of the physical property, which includes land, building, and improvements. In addition, Regency determines the estimated fair value of identifiable intangible assets and liabilities, considering the following categories: (i) value of in-place leases, and (ii) above- and below-market value of in-place leases.

The value of in-place leases is estimated based on the value associated with the costs avoided in originating leases compared to the acquired in-place leases as well as the value associated with lost rental and recovery revenue during the assumed lease-up period. The value of in-place leases is recorded to amortization expense over the remaining expected term of the respective leases.

Above-market and below-market in-place lease values for acquired properties are recorded based on the present value of the difference between (i) the contractual amounts to be paid pursuant to the in-place leases and (ii) management’s estimate of fair market lease rates for comparable in-place leases, measured over a period equal to the remaining non-cancelable term of the lease, including below-market renewal options, if applicable. The value of above-market leases is amortized as a reduction of minimum rent over the remaining terms of the respective leases and the value of below-market leases is accreted to minimum rent over the


remaining terms of the respective leases, including below-market renewal options, if applicable. Regency does not assign value to customer relationship intangibles if it has pre-existing business relationships with the major retailers at the acquired property since they do not provide incremental value over Regency’s existing relationships.

Equity One’s historical accumulated depreciation is eliminated since the assets are presented at estimated fair value.

B. Investment in Real Estate Partnerships

Represents the difference between the preliminary fair market value of Equity One’s real estate partnerships, acquired by Regency in connection with the merger, and Equity One’s historical value as of December 31, 2016 (for more information, see note A on preliminary fair market values of properties acquired in the merger). A fair market value adjustment for debt held by the joint ventures is included. The fair value of debt was estimated based upon contractual future cash flows discounted using borrowing spreads and market interest rates that would have been available for debt with similar terms and maturities.

C. Cash

The adjustment to cash represents the cash consideration paid at the effective time of the merger, as discussed further in Note 1.

D. Tenant Receivables, net

Tenant receivables include straight line rent receivable. Straight-lining of rent pursuant to the underlying leases associated with the real estate acquired in connection with the merger will commence at the effective time of the merger; therefore the balance of straight line rent included on Equity One’s historical balance sheet has been eliminated.

E. Deferred Leasing Costs, net

Deferred leasing costs, net, represent direct salaries, third-party fees and other costs incurred by Equity One to originate a lease which were capitalized and amortized against the respective leases using the straight-line method over the term of the related lease. The value to Regency of in-place leases is considered an intangible asset and included in the purchase price allocation above, see note A. As such, the net carrying value of Equity One’s deferred leasing costs has been eliminated.

F. Goodwill

Equity One had $5.7 million of goodwill in its historical balance sheet from prior business combinations, which has been eliminated.

The allocation of the purchase price has been performed on a preliminary basis and will not be finalized until several months following closing of the merger. Based on management’s preliminary estimate of fair value of the identifiable assets and liabilities, no goodwill or bargain purchase option is recorded as a result of this transaction. As more information is available and the purchase price allocation is finalized, this may change.

G. Other Assets

Unamortized debt issuance costs of $5.3 million were included within other assets in Equity One’s historical balance sheet related to the unsecured revolving credit facility, which was paid in full by Regency upon acquisition. As such, the historical unamortized debt issuance costs have been eliminated.

The carrying value of the net deferred tax assets decreased by $1.9 million from the fair market value adjustments related to real estate assets. Additionally, the $0.2 million fair value of one of Equity One’s interest rate swaps on their term loan, which was not assumed, was eliminated.

H. Notes Payable

Regency assumed Equity One’s unsecured senior notes payable and mortgage notes payable. These notes payable assumed by Regency have been adjusted by $10.3 million, to reflect the estimated fair value at December 31, 2016.

The balance outstanding on Equity One’s unsecured revolving credit facility was repaid with funds from Regency’s unsecured line of credit. Additionally, the balance on Equity One’s $250 million and $300 million term loans were also repaid at closing from a new ten-year unsecured debt offering and a new term loan, respectively.


Debt issuance costs and debt premium / discounts of $8.0 million were included within notes payable, within Equity One’s historical balance sheet. Since the notes payable assumed in the merger are presented at fair value, the historical unamortized debt issuance costs and debt premium / discount have been eliminated, and new costs of $5.5 million to assume the debt have been recognized.

I. Accounts Payable and Accrued Expenses

Represents the following pro forma adjustments:

 

          As of December 31, 2016        

Non-recurring transaction costs

    $ 93,623    

Accrue debt issuance costs

    5,498    

Adjust deferred tax liabilities for fair value of real estate acquired

    14,522    

Eliminate Equity One’s interest rate swap on term loan not assumed

    (1,150)   
 

 

 

 

Pro forma adjustments to Accounts payable and other liabilities

    $ 112,493    
 

 

 

 

The non-recurring transaction costs include those estimated remaining transaction costs to be paid by Regency or Equity One directly attributable to the merger. These remaining transaction costs, consisting primarily of fees for investment bankers, legal, accounting, tax and other professional services, are estimated to be approximately $93.6 million and will impact the results of operations and be recognized when incurred. These are factually supportable because such amounts are based on reliable, documented evidence such as invoices for costs incurred to date and estimates from third parties for additional costs expected to be incurred with the merger. Such costs are non-recurring in nature and directly related to the merger and, therefore, are reflected as a reduction to equity and not included in the unaudited pro forma condensed combined statement of operations.

J. General Partners’ Capital

Represents the issuance of shares of Parent Company common stock with a par value of $0.01 per share and a market value of $68.40 per share as of March 1, 2017, the effective date of the merger, and the date that Equity One common stock converted to Parent Company common stock, at a conversion ratio of 0.45 to 1.0, to holders of Equity One common stock at the effective time of the merger.


   

      As of December 31, 2016      

 

Outstanding shares of Equity One common stock (in 000s)

   $     144,623    

Equity One equity-based awards converted into Equity One common stock (in 000s)

      647    
 

 

 

Outstanding shares of Equity One common stock (in 000s)

      145,270    
 

 

 

Exchange Ratio

      0.45    
 

 

 

Regency partnership units issued – pro forma basis (in 000s)

      65,372    

Regency par value per unit

   $     0.01    
 

 

 

Par value of Regency partnership units issued – pro forma basis (in 000s)

   $     654    

Par value of Equity One common stock – historical basis (in 000s)

   $     (1,449)    
 

 

 

Pro forma adjustment to general partner capital (in 000s)

   $     (795)    
 

 

 
 

Regency partnership units issued – pro forma basis (in 000s)

      65,372    

Additional paid-in capital per share ($68.40 per shares less $0.01 par value per share)

   $     68.39    
 

 

 

Additional paid-in capital Regency partnership units issued – pro forma basis (in 000s)

   $     4,470,749    

Equity One additional paid-in capital – historical basis (in 000s)

   $     (2,304,395)    
 

 

 

Pro forma adjustments to additional paid-in capital (in 000s)

   $     2,166,354    
 

 

 
   

Elimination of Equity One’s historic accumulated deficit (in 000s)

   $     461,344    

Accrual of transaction costs (in 000s)

      (93,623)    
 

 

 

Pro forma adjustments to general partner capital (in 000s)

      367,721    
 

 

 
   

Total pro forma adjustments to general partner capital (in 000s)

   $     2,533,280    
 

 

 
   

The amount of Equity One common stock converted to Parent Company common stock is preliminary based on estimated shares outstanding and converted at the closing date and are subject to adjustment as final share counts are reconciled.

The adjustment also includes the elimination of Equity One’s accumulated deficit of $461.3 million as of December 31, 2016 and an adjustment of $93.6 million to increase distributions in excess of cumulative net income for non-recurring transaction costs directly attributable to the merger that have not yet been expensed in the historical statement of operations or accrued in the historical balance sheets used as the starting point for the pro forma financial statements (for more information, see note 2. I).

K. Accumulated Other Comprehensive Loss

Accumulated other comprehensive loss (“AOCL”) included in Equity One’s historical balance sheet represents the effective portion of their interest rate swaps. Equity One’s historical balances in AOCL are eliminated upon acquisition. The Parent Company terminated Equity One’s interest rate swaps on the term loan at the closing of the merger.

Note 3. Adjustments to the Unaudited Pro Forma Condensed Combined Statement of Operations for the year ended December 31, 2016

The historical amounts include Regency’s and Equity One’s actual operating results for the periods presented. The pro forma adjustments to historical amounts are presented in the unaudited pro forma condensed combined statement of operations for the year ended December 31, 2016, based on the March 1, 2017 effective date of the merger. The following are the explanations for the adjustments included in the unaudited pro forma condensed combined statement of operations for the year ended December 31, 2016:

Merger Adjustments

a. Minimum Rent

The historical minimum rent for Regency and Equity One represent contractual, straight-line rents and amortization of above and below-market rents associated with the leases in effect during the periods presented. The adjustments included in the unaudited pro forma condensed combined statement of operations are presented to adjust contractual rental property revenue to a straight-line basis and to amortize above and below-market rents in accordance with Accounting Standards Codification 805-10, Business Combinations, as if the merger had occurred on January 1, 2016. The above and below-market rents are amortized or accreted to revenue over the remaining terms of the respective leases, which generally range from three to 20 years.


The following table summarizes the adjustments made to minimum rent for the real estate properties acquired as part of the merger for the year ended December 31, 2016:

 

   

    Year Ended December 31, 2016    

 

Pro forma straight-line rent

   $     16,239    

Pro forma (above)/below market rent

      33,233    

Elimination of Equity One’s straight line rent

      (4,840)    

Elimination of Equity One’s (above) below market rent

      (13,439)    
   

 

 

 

Total

   $     31,193    
 

 

 

b. Depreciation and Amortization Expense

Depreciation and amortization is calculated, for purposes of the unaudited pro forma condensed combined statement of operations, based on estimated useful lives for building and site improvements, and the remaining contractual, in-place lease term for intangible lease assets and liabilities. Regency uses the straight-line method for all depreciation and amortization. The useful life of a particular building depends upon a number of factors including the condition of the building upon acquisition. For purposes of the unaudited pro forma condensed combined statement of operations, the useful life for buildings is 40 years; the useful life for site improvements is 15 years; and the general range of remaining contractual, in-place lease terms is three to nine years. As Regency would have commenced depreciation and amortization on January 1, 2016, the assumed acquisition date for the pro forma condensed combined statement of operations, the depreciation and amortization expense included in the Equity One historical financial statements has been reversed so as to reflect the depreciation and amortization that Regency would have recorded.

The following table summarizes pro forma depreciation and amortization by asset category for the properties acquired in the merger that would have been recorded for the year ended December 31, 2016 less the reversal of depreciation and amortization included in Equity One’s historical financial statements:

 

      Year Ended December 31, 2016    

Building and improvements

   $ 79,471    

In-place leases

    119,995    

Less: Equity One historical depreciation and amortization

    (106,017)    
 

 

 

 

Total

   $ 93,449    
 

 

 

 

c. Other Operating Expenses

        Represents the elimination of merger related transaction costs, which are considered non-recurring in nature and directly related to the merger.

d. Interest Expense

The adjustments to interest expense related to the merger represent the (1) change in interest expense attributable to repayment of Equity One’s unsecured revolving credit facility with proceeds from Regency’s unsecured line of credit and the repayment of both of Equity One’s term loans with proceeds from a new term loan and new ten-year unsecured borrowings by Regency, (2) amortization of deferred financing costs related to the issuance of new debt or assumption of Equity One’s debt, (3) amortization of above-market debt values created by marking the assumed Equity One debt to fair market value, (4) elimination of the impact of Equity One’s interest rate swaps that were not assumed by Regency, and (5) elimination of Equity One’s historic amortization of deferred financing costs and premium/discount on notes payable (for more information, see note 2. H above).

For purposes of pro forma adjustments, Regency’s unsecured line of credit bears interest at London Interbank Offered Rate (which we refer to as “LIBOR”) plus a spread of 0.925%.


The following table summarizes the adjustments to the unaudited pro forma condensed combined statement of operations for the year ended December 31, 2016:

 

   

Year Ended December 31,
2016

 

Pro forma increase in interest expense from repaying Equity One’s revolving credit facility and term loans with Regency’ line of credit, new ten-year unsecured debt, and new term loan

   $     8,892    

Pro forma amortization of deferred financing costs to issue or assume debt

      333    

Pro forma amortization of above-market debt

      (3,400)   
 

 

 

Total

      5,825    

Eliminate historical Equity One interest expense attributable to interest rate swaps not assumed by Regency

      (3,019)   

Eliminate historical Equity One amortization of deferred financing costs and premium/discount on notes payable, net

     

 

(2,117) 

 

 

 

 

 

 

Change in interest expense

   $     689   
 

 

 
   


The current underlying variable rate (1 month LIBOR), as used in these pro forma adjustments, was 0.79%. An increase (decrease) of 0.125% in LIBOR would increase (decrease) annual pro forma interest expense by $0.5 million.

e. Equity in Income of Investments in Real Estate Partnerships

Represents the additional depreciation and amortization expense recognized for basis differences arising between the fair value of underlying assets versus carryover basis.

f. Income Tax Expense (Benefit) of Taxable REIT Subsidiaries

Represents the reduction in deferred tax expense within Equity One’s taxable REIT subsidiaries resulting from the change in depreciation and amortization of the acquired real estate assets.

g. Weighted-Average Units

The unaudited pro forma adjustment to units outstanding used in the calculation of basic and diluted earnings per unit are based on the combined basic and diluted weighted average units, after giving effect to the exchange ratio, as follows (for more information, see note 2. J above):

 

        Year Ended December 31,    
2016    
 

Regency weighted-average common units outstanding - historical basis

    101,017   

Common units issued to Parent Company to issue shares of common stock to Equity One stockholders - pro forma basis

   

 

65,371 

 

 

 

 

 

 

 

Weighted-average common units - basic

    166,388   
 

 

 

 

Incremental units to be issued under Treasury Stock method for unvested restricted stock and forward equity offering of the Parent Company

   

 

422 

 

 

 

 

 

 

 

Weighted-average common units - diluted

    166,810   
 

 

 

 
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