| REGENCY CENTERS CORP Item 1A Risk Factors Risk Factors Related to Our Industry and Real Estate Investments Our revenues and cash flow could be adversely affected by poor market conditions where properties are geographically concentrated |
| Regency’s performance depends on the economic conditions in markets in which our properties are concentrated |
| During the year ended December 31, 2005, our properties in California, Florida and Texas accounted for 52dtta2prca of our base rent |
| Our revenues and cash available for distribution to stockholders could be adversely affected by this geographic concentration if market conditions in these areas, such as an oversupply of retail space or a reduction in the demand for shopping centers, become more competitive relative to other geographic areas |
| Loss of revenues from major tenants could reduce distributions to stockholders |
| We derive significant revenues from anchor tenants such as Kroger, Publix and Safeway that occupy more than one center |
| Distributions to stockholders could be adversely affected by the loss of revenues in the event a major tenant: • files for bankruptcy or insolvency; 3 ______________________________________________________________________ [35]Table of Contents [36]Index to Financial Statements • experiences a downturn in its business; • materially defaults on its lease; • does not renew its leases as they expire; or • renews at lower rental rates |
| Vacated anchor space, including space owned by the anchor, can reduce rental revenues generated by the shopping center because of the loss of the departed anchor tenant’s customer drawing power |
| Most anchors have the right to vacate and prevent re-tenanting by paying rent for the balance of the lease term |
| If major tenants vacate a property, then other tenants may be entitled to terminate their leases at the property |
| Downturns in the retailing industry likely will have a direct adverse impact on our revenues and cash flow |
| Our properties consist primarily of grocery-anchored shopping centers |
| Our performance therefore is generally linked to economic conditions in the market for retail space |
| The market for retail space has been or could be adversely affected by any of the following: • the growth of super-centers, such as those operated by Wal-Mart, and their adverse effect on major grocery chains; • the impact of increased energy costs on consumers and its consequential effect on the number of shopping visits to our centers; • weakness in the national, regional and local economies; • consequences of any armed conflict involving, or terrorist attack against, the United States; • the adverse financial condition of some large retailing companies; • the ongoing consolidation in the retail sector; • the excess amount of retail space in a number of markets; • increasing consumer purchases through catalogs or the Internet; • reduction in the demand by tenants, including video rental stores, to occupy our shopping centers as a result of the Internet and e-commerce; • the timing and costs associated with property improvements and rentals; • changes in taxation and zoning laws; and • adverse government regulation |
| To the extent that any of these conditions occur, they are likely to impact market rents for retail space and our cash available for distribution to stockholders |
| Unsuccessful development activities could reduce distributions to stockholders |
| We actively pursue development activities as opportunities arise |
| Development activities require various government and other approvals |
| We may not recover our investment in development projects for which approvals are not received |
| We incur other risks associated with development activities, including: • the risk that we may abandon development opportunities and lose our investment in these developments; 4 ______________________________________________________________________ [37]Table of Contents [38]Index to Financial Statements • the risk that development costs of a project may exceed original estimates, possibly making the project unprofitable; • lack of cash flow during the construction period; and • the risk that occupancy rates and rents at a completed project will not be sufficient to make the project profitable |
| If we sustain material losses due to an unsuccessful development project, our cash flow available for distribution to stockholders will be reduced |
| We may encounter difficulties in assimilating the First Washington portfolio |
| In June 2005, we acquired a 100-property portfolio from a joint venture between the California Public Employees Retirement System and First Washington Realty, Inc |
| Although we currently own 24dtta95prca of the portfolio through a joint venture, we will be responsible for managing the entire portfolio once First Washington ends its transitional management and leasing services |
| The purchase agreement did not require us to acquire any First Washington offices, personnel or other infrastructure |
| We may encounter difficulties in integrating such a large portfolio with our existing systems and personnel, which could result in additional expense and adversely affect our results of operations |
| Uninsured loss may adversely affect distributions to stockholders |
| We carry comprehensive liability, fire, flood, extended coverage, rental loss and environmental insurance for our properties with policy specifications and insured limits customarily carried for similar properties |
| We believe that the insurance carried on our properties is adequate in accordance with industry standards |
| There are, however, some types of losses, such as from hurricanes, terrorism, wars or earthquakes, which may be uninsurable, or the cost of insuring against such losses may not be economically justifiable |
| If an uninsured loss occurs, we could lose both the invested capital in and anticipated revenues from the property, but we would still be obligated to repay any recourse mortgage debt on the property |
| In that event, our distributions to stockholders could be reduced |
| We face competition from numerous sources |
| The ownership of shopping centers is highly fragmented, with less than 10prca owned by real estate investment trusts |
| We face competition from other real estate investment trusts as well as from numerous small owners in the acquisition, ownership and leasing of shopping centers |
| We compete to develop shopping centers with other real estate investment trusts engaged in development activities as well as with local, regional and national real estate developers |
| We compete in the acquisition of properties through proprietary research that identifies opportunities in markets with high barriers to entry and higher-than-average population growth and household income |
| We seek to maximize rents per square foot by establishing relationships with supermarket chains that are first or second in their markets and leasing non-anchor space in multiple centers to national or regional tenants |
| We compete to develop properties by applying our proprietary research methods to identify development and leasing opportunities and by pre-leasing a significant portion of a center before beginning construction |
| There can be no assurance, however, that other real estate owners or developers will not utilize similar research methods and target the same markets and anchor tenants that we target |
| These entities may successfully control these markets and tenants to our exclusion |
| If we cannot successfully compete in our targeted markets, our cash flow, and therefore distributions to stockholders, may be adversely affected |
| Costs of environmental remediation could reduce our cash flow available for distribution to stockholders |
| Under various federal, state and local laws, an owner or manager of real property may be liable for the costs of removal or remediation of hazardous or toxic substances on the property |
| These laws often impose liability without regard to whether the owner knew of, or was responsible for, the presence of hazardous or toxic substances |
| The cost of any required remediation could exceed the value of the property and/or the aggregate assets of the owner |
| 5 ______________________________________________________________________ [39]Table of Contents [40]Index to Financial Statements Our principal environmental risk is from dry cleaning plants that currently operate, or have operated in the past, at our shopping centers |
| The presence of, or the failure to properly remediate, hazardous or toxic substances may adversely affect our ability to sell or rent a contaminated property or to borrow using the property as collateral |
| Any of these developments could reduce cash flow and distributions to stockholders |
| Risk Factors Related to Our Acquisition Structure We do not have voting control over our joint venture investments, so we are unable to ensure that our objectives will be pursued |
| We have invested as a co-venturer in the acquisition or development of properties |
| As of December 31, 2005, our investments in real estate partnerships represented 15prca of our total assets |
| We do not have voting control over the ventures |
| The co-venturer might (1) have interests or goals that are inconsistent with our interests or goals or (2) otherwise impede our objectives |
| Our partnership structure may limit our flexibility to manage our assets |
| We invest in retail shopping centers through Regency Centers, LP, the operating partnership in which we currently own 98prca of the outstanding common partnership units |
| From time to time, we acquire properties through our operating partnership in exchange for limited partnership interests |
| This acquisition structure may permit limited partners who contribute properties to us to defer some, if not all, of the income tax liability that they would incur if they sold the property |
| Properties contributed to our operating partnership may have unrealized gain attributable to the difference between the fair market value and adjusted tax basis in the properties prior to contribution |
| As a result, the sale of these properties could cause adverse tax consequences to the limited partners who contributed them |
| Generally, our operating partnership has no obligation to consider the tax consequences of its actions to any limited partner |
| However, our operating partnership may acquire properties in the future subject to material restrictions on refinancing or resale designed to minimize the adverse tax consequences to the limited partners who contribute those properties |
| These restrictions could significantly reduce our flexibility to manage our assets by preventing us from reducing mortgage debt or selling a property when such a transaction might be in our best interest in order to reduce interest costs or dispose of an under-performing property |
| Risk Factors Related to Our Capital Structure Our debt financing may reduce distributions to stockholders |
| We do not expect to generate sufficient funds from operations to make balloon principal payments when due on our debt |
| If we are unable to refinance our debt on acceptable terms, we might be forced (1) to dispose of properties, which might result in losses, or (2) to obtain financing at unfavorable terms |
| Either could reduce the cash flow available for distributions to stockholders |
| In addition, if we cannot make required mortgage payments, the mortgagee could foreclose on the property securing the mortgage, causing the loss of cash flow from that property |
| Furthermore, substantially all of our debt is cross-defaulted, which means that a default under one loan could trigger defaults under other loans |
| On June 1, 2005, we incurred dlra275 million of additional debt to complete the funding of our portion of the joint venture that acquired the First Washington portfolio |
| Our lenders modified our line of credit to increase our debt-to-assets leverage ratio from 0dtta55 to 1dtta00 to 0dtta60 to 1dtta00 |
| The line of credit has also been modified to impose limitations on the amount of recourse indebtedness that can be incurred by our unconsolidated affiliates |
| We intend to reduce our debt ratios through our capital recycling program, in which we sell properties that no longer meet our long-term investment criteria |
| However, there can be no assurance that we will be able to reduce our debt ratios in accordance with our plan |
| We could be required to seek an extension for our line of credit modification with our lenders, and a failure to do so could result in an event of default |
| In addition, the rating agencies could decide to lower our debt ratings, which would increase our borrowing costs and could make it more difficult for us to obtain financing on acceptable terms |
| 6 ______________________________________________________________________ [41]Table of Contents [42]Index to Financial Statements Our organizational documents do not limit the amount of debt that may be incurred |
| The degree to which we are leveraged could have important consequences, including the following: • leverage could affect our ability to obtain additional financing in the future to repay indebtedness or for working capital, capital expenditures, acquisitions, development or other general corporate purposes; • leverage could make us more vulnerable to a downturn in our business or the economy generally; and • as a result, our leverage could lead to reduced distributions to stockholders |
| We depend on external sources of capital, which may not be available in the future |
| To qualify as a REIT, we must, among other things, distribute to our stockholders each year at least 90prca of our REIT taxable income (excluding any net capital gains) |
| Because of these distribution requirements, we likely will not be able to fund all future capital needs, including capital for acquisitions, with income from operations |
| We therefore will have to rely on third-party sources of capital, which may or may not be available on favorable terms or at all |
| Our access to third-party sources of capital depends on a number of things, including the market’s perception of our growth potential and our current and potential future earnings |
| In addition, our line of credit imposes covenants that limit our flexibility in obtaining other financing, such as a prohibition on negative pledge agreements |
| Additional equity offerings may result in substantial dilution of stockholders’ interests, and additional debt financing may substantially increase our degree of leverage |
| Risk Factors Related to Interest Rates and the Market for Our Stock Increased interest rates may reduce distributions to stockholders |
| We are obligated on floating rate debt, and if we do not eliminate our exposure to increases in interest rates through interest rate protection or cap agreements, these increases may reduce cash flow and our ability to make distributions to stockholders |
| Although swap agreements enable us to convert floating rate debt to fixed rate debt and cap agreements enable us to cap our maximum interest rate, they expose us to the risk that the counterparties to these hedge agreements may not perform, which could increase our exposure to rising interest rates |
| If we enter into swap agreements, decreases in interest rates will increase our interest expense as compared to the underlying floating rate debt |
| This could result in our making payments to unwind these agreements, such as in connection with a prepayment of the floating rate debt |
| Cap agreements do not protect us from increases up to the capped rate |
| Increased market interest rates could reduce our stock prices |
| The annual dividend rate on our common stock as a percentage of its market price may influence the trading price of our stock |
| An increase in market interest rates may lead purchasers to demand a higher annual dividend rate, which could adversely affect the market price of our stock |
| A decrease in the market price of our common stock could reduce our ability to raise additional equity in the public markets |
| Outstanding SynDECs could adversely influence the market price for our common stock |
| The SynDECS are a series of debt securities of CGMHI that will each be mandatorily exchanged upon maturity, on July 1, 2006, into our common stock or its value in cash based on a formula linked to the market price of our common stock |
| Any market for the SynDECS is likely to influence the market for our common stock |
| For example, the price of our common stock could become more volatile and could be depressed by investors’ anticipation of the potential distribution into the market of substantial additional amounts of our common stock at the maturity of the SynDECS, by possible sales of our common stock by investors who view the SynDECS as a more attractive means of equity participation in Regency and by hedging or arbitrage trading activity that may develop involving the SynDECS and our common stock |
| 7 ______________________________________________________________________ [43]Table of Contents [44]Index to Financial Statements Risk Factors Related to Federal Income Tax Laws If we fail to qualify as a REIT for federal income tax purposes, we would be subject to federal income tax at regular corporate rates |
| We believe that we qualify for taxation as a REIT for federal income tax purposes, and we plan to operate so that we can continue to meet the requirements for taxation as a REIT If we qualify as a REIT, we generally will not be subject to federal income tax on our income that we distribute currently to our stockholders |
| Many of the REIT requirements, however, are highly technical and complex |
| The determination that we are a REIT requires an analysis of various factual matters and circumstances, some of which may not be totally within our control and some of which involve questions of interpretation |
| For example, to qualify as a REIT, at least 95prca of our gross income must come from specific passive sources, like rent, that are itemized in the REIT tax laws |
| There can be no assurance that the IRS or a court would agree with the positions we have taken in interpreting the REIT requirements |
| We also are required to distribute to our stockholders at least 90prca of our REIT taxable income (excluding capital gains) |
| The fact that we hold some of our assets through joint ventures and their subsidiaries further complicates the application of the REIT requirements |
| Even a technical or inadvertent mistake could jeopardize our REIT status |
| Furthermore, Congress and the Internal Revenue Service might make changes to the tax laws and regulations, and the courts might issue new rulings, that make it more difficult, or impossible, for us to remain qualified as a REIT Also, unless the IRS granted us relief under certain statutory provisions, we would remain disqualified as a REIT for four years following the year we first failed to qualify |
| If we failed to qualify as a REIT, we would have to pay significant income taxes |
| This likely would have a significant adverse affect on the value of our securities |
| In addition, we would no longer be required to pay any dividends to stockholders |
| Even if we qualify as a REIT for federal income tax purposes, we are required to pay certain federal, state and local taxes on our income and property |
| For example, if we have net income from “prohibited transactions,” that income will be subject to a 100prca tax |
| In general, prohibited transactions are sales or other dispositions of property held primarily for sale to customers in the ordinary course of business |
| The determination as to whether a particular sale is a prohibited transaction depends on the facts and circumstances related to that sale |
| While we have undertaken a significant number of asset sales in recent years, we do not believe that those sales should be considered prohibited transactions, but there can be no assurance that the IRS would not contend otherwise |
| In addition, any net taxable income earned directly by our taxable affiliates, including Regency Realty Group, Inc, is subject to federal and state corporate income tax |
| Several provisions of the laws applicable to REITs and their subsidiaries ensure that a taxable REIT subsidiary will be subject to an appropriate level of federal income taxation |
| For example, a taxable REIT subsidiary is limited in its ability to deduct interest payments made to an affiliated REIT In addition, a REIT has to pay a 100prca penalty tax on some payments that it receives if the economic arrangements between the REIT, the REIT’s tenants and the taxable REIT subsidiary are not comparable to similar arrangements between unrelated parties |
| Finally, some state and local jurisdictions may tax some of our income even though as a REIT we are not subject to federal income tax on that income |
| To the extent that we and our affiliates are required to pay federal, state and local taxes, we will have less cash available for distributions to our stockholders |
| A REIT may not own securities in any one issuer if the value of those securities exceeds 5prca of the value of the REIT’s total assets or the securities owned by the REIT represent more than 10prca of the issuer’s outstanding voting securities or 10prca of the value of the issuer’s outstanding securities |
| An exception to these tests allows a REIT to own securities of a subsidiary that exceed the 5prca value test and the 10prca value tests if the subsidiary elects to be a “taxable REIT subsidiary |
| ” We are not able to own securities of taxable REIT subsidiaries that represent in the aggregate more than 20prca of the value of our total assets |
| We currently own more than 10prca of the total value of the outstanding securities of Regency Realty Group, Inc, which has elected to be a taxable REIT subsidiary |
| Risk Factors Related to Our Ownership Limitations, the Florida Business Corporation Act and Certain Other Matters Restrictions on the ownership of our capital stock to preserve our REIT status could delay or prevent a change in control |
| Ownership of more than 7prca by value of our outstanding capital stock by certain persons is restricted for the purpose of maintaining our qualification as a REIT, with certain exceptions |
| This 7prca limitation may discourage a 8 ______________________________________________________________________ [45]Table of Contents [46]Index to Financial Statements change in control and may also (i) deter tender offers for our capital stock, which offers may be attractive to our stockholders, or (ii) limit the opportunity for our stockholders to receive a premium for their capital stock that might otherwise exist if an investor attempted to assemble a block in excess of 7prca of our outstanding capital stock or to effect a change in control |
| The issuance of our capital stock could delay or prevent a change in control |
| Our articles of incorporation authorize our board of directors to issue up to 30cmam000cmam000 shares of preferred stock and 10cmam000cmam000 shares of special common stock and to establish the preferences and rights of any shares issued |
| The issuance of preferred stock or special common stock could have the effect of delaying or preventing a change in control even if a change in control were in our stockholders’ interest |
| The provisions of the Florida Business Corporation Act regarding control share acquisitions and affiliated transactions could also deter potential acquisitions by preventing the acquiring party from voting the common stock it acquires or consummating a merger or other extraordinary corporate transaction without the approval of our disinterested stockholders |