"The Branch properties are an excellent strategic fit with our core portfolio, featuring primarily grocery-anchored shopping centers in mature, infill markets with average household incomes of approximately $85,000. It is a strong portfolio with solid real estate fundamentals and significant growth prospects," said Chairman and Chief Executive Officer Martin E. Stein, Jr. "Even more importantly, the transaction represents a considerable expansion of our joint venture program, which is one of the key tenets of our strategy to enhance our sustainable FFO per share growth rate, while generating attractive returns on invested capital."
Portfolio Summary and Transaction Details
The Branch portfolio includes 25 retail properties in Georgia, North Carolina, South Carolina and Tennessee. "The portfolio offers a unique opportunity to solidify our presence in two attractive Southeast markets - Atlanta and Raleigh," said Mary Lou Fiala, President and Chief Operating Officer of Regency. Over 87% of the gross leasable area is located in these two markets.
Cameron Village, the property to be acquired by the joint venture with OPERF, is one of the top shopping centers in the Southeast. This 630,000 square foot retail center occupies six city blocks in Raleigh, North Carolina. "The center is anchored by two grocers, Harris Teeter and Fresh Market, the county public library, a number of strong specialty retailers and features the strongest line up of local retailers in the Raleigh area. Cameron Village has a long history and is the heart and soul of Raleigh retailing," added Ms. Fiala. The property has developed from a collection of small retailers, to an early predecessor of the regional mall, and now has come full circle back to its originally intended design as a mixed collection of high quality fashion, food and outstanding local retailers. At closing, OPERF/Regency will pay approximately $118.3 million for Cameron Village. As a result of the inherent strength of the center, below market rental rates for a substantial portion of the space and planned renovations, the initial return of 5.5%-6% is expected to increase by a compounded annual growth rate in excess of 5% over the next ten years. Simultaneous with closing, the venture will place $47.3 million of debt on the property.
The joint venture with MCW will pay approximately $281 million to acquire the remaining 24 properties, a 7.4% cap rate. The acquisition will be funded by a combination of $140.5 million of equity, the assumption of $102.5 million of secured debt at a weighted average fixed interest rate of 7.09% and $38 million of bridge financing. Even though the portfolio is currently 98.7% leased, it is still expected to generate over 2% annual growth in net operating income. Seventeen of the 24 properties are grocery-anchored. Fourteen of the 17 grocery-anchored centers are anchored by two leading grocers - Kroger and Publix. The MCW/Regency joint venture has targeted to sell four of the properties and one of the land parcels after closing, as these assets do not meet the venture's long-term investment strategy.
Given the uncertainty in the timing of closing primarily due to the loan assumption process, Regency will discuss the 2004 and 2005 impact to earnings and other key metrics after closing the transaction on its third quarter earnings conference call.
Regency Centers Corporation (NYSE: REG)
Regency is the leading national owner, operator, and developer focused on grocery-anchored, neighborhood retail centers. Regency's total assets before depreciation are $3.5 billion. As of June 30, 2004, the Company owned 260 retail properties, including those held in joint ventures, totaling 30 million square feet located in high growth markets throughout the United States. Upon completion of the transaction, Regency is expected to own 291 retail properties, including those held in joint ventures, totaling nearly 34 million square feet located in high growth markets throughout the United States. Operating as a fully integrated real estate company, Regency is a qualified real estate investment trust that is self-administered and self-managed.
In addition to historical information, the information in this press release contains forward-looking statements under the federal securities law. These statements are based on current expectations, estimates and projections about the industry and markets in which Regency operates, management's beliefs and assumptions. Forward-looking statements are not guarantees of future performance and involve certain known and unknown risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements. Such risks and uncertainties include, but are not limited to, changes in national and local economic conditions, financial difficulties of tenants, competitive market conditions including pricing of acquisitions and sales of properties and out parcels, changes in expected leasing activity and market rents, timing of acquisitions, development starts and sales of properties and out parcels, weather, obtaining governmental approvals and meeting development schedules.
During the quarter, Regency's corporate representatives may reiterate these forward-looking statements during private meetings with investors, investment analysts, the media and others. At the same time, Regency will keep this information publicly available on its web site www.regencycenters.com.