Prepared by R.R. Donnelley Financial -- Form 10-Q for quarter ended March 31, 2002
Table of Contents
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
 
FORM 10-Q
 
(Mark One)
 
x
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES  EXCHANGE ACT OF 1934
 
For the quarterly period ended March 31, 2002
 
OR
 
¨
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from                             to                             .
 
Commission file number 001-12844
 
JDN REALTY CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
 
Maryland
  
58-1468053
(State or other Jurisdiction of
incorporation or organization)
  
(I.R.S. Employer
Identification No.)
 
359 East Paces Ferry Road, NE, Suite 400, Atlanta, GA 30305
(Address of Principal Executive Offices) (Zip Code)
 
(404) 262-3252
(Registrant’s Telephone Number, including Area Code)
 
Not applicable
(Former Name, Former Address and Former Fiscal Year, if
Changed Since Last Report)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
 
Yes  x    No  ¨
 
As of April 30, 2002, 34,812,588 shares of the Registrant’s Common Stock, $.01 par value, were outstanding.

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FORWARD-LOOKING STATEMENTS IN FORM 10-Q
 
Management has included herein certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. When used, statements, which are not historical in nature, including the words “anticipate,” “estimate,” “should,” “expect,” “believe,” “intend” and similar expressions, are intended to identify forward-looking statements. Forward-looking statements are, by their nature, subject to known and unknown risks and uncertainties. Forward-looking statements include statements regarding future sales of real estate, future development activities, including the level of such activities with certain tenants, future redevelopment of shopping center properties and projected capital requirements for, number of, and timing of shopping centers to be delivered from the Company’s development pipeline, refinancing maturing debt obligations, availability of future financing sources and results of review of strategic and financing alternatives. Among the factors that could cause actual results to differ materially from those anticipated are the following: changes in the composition of senior management and the Board of Directors; the ability to attract and retain key employees; business conditions and the general economy, especially as they affect interest rates and value oriented retailers; the ability to release or retenant anchor spaces at shopping centers where anchor tenants either announced a store closing or negotiated early lease termination; the growth plans of the Company’s tenant customers and potential bankruptcy of tenants in the Company’s operating shopping centers; the federal, state and local regulatory environment; the ability to refinance maturing debt obligations on acceptable terms; the availability of debt and equity capital with acceptable terms and conditions including, without limitation, the availability of bank credit to fund development and redevelopment activities; the ability to sell operating shopping center properties and parcels of land as projected and upon economically favorable terms; the availability of new development opportunities; changes in the financial condition or corporate strategy of or business relations with primary retail tenants, or the loss of one or more of the Company’s primary retail tenants or their ability to pay rent; the ability to fund, complete and lease existing development and redevelopment projects on schedule and within budget; the ability to maintain or obtain all necessary licenses, permits and approvals required to conduct the Company’s business; tax legislation affecting the development business of JDN Realty Corporation and JDN Development Company, Inc.; and the ability of JDN Realty Corporation to maintain its qualification as a real estate investment trust (“REIT”). Other risks, uncertainties and factors that could cause actual results to differ materially from those projected are detailed from time to time in press releases and reports filed by JDN Realty Corporation with the Securities and Exchange Commission, including Forms 8-K, 10-Q and 10-K. See “Risk Factors” under Part I, Item 1 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2001. The Company assumes no obligation to publicly release any revisions to these forward-looking statements, which may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

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PART I
 
FINANCIAL INFORMATION
 
ITEM 1.    FINANCIAL STATEMENTS
 
      
Page No.
    
3
    
4
    
5
    
6

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Table of Contents
JDN REALTY CORPORATION
 
CONSOLIDATED BALANCE SHEETS
 
    
March 31, 2002
     
December 31, 2001
  
    
(Unaudited)
         
    
(In thousands)
  
ASSETS
                  
Shopping center properties, at cost:
                  
Land
   
$
323,511
 
   
$
289,296
 
Buildings and improvements
   
 
632,300
 
   
 
624,759
 
Property under development
   
 
142,140
 
   
 
188,484
 
    
  
    
 
1,097,951
 
   
 
1,102,539
 
Less: accumulated depreciation and amortization
   
 
(91,782
)
   
 
(88,152
)
Property held for sale
   
 
18,771
 
   
 
—  
 
    
  
Shopping center properties, net
   
 
1,024,940
 
   
 
1,014,387
 
Restricted cash—escrow
   
 
1,714
 
   
 
1,815
 
Accounts receivable
   
 
25,015
 
   
 
17,160
 
Investments in and advances to unconsolidated entities
   
 
12,095
 
   
 
12,628
 
Deferred costs, net of amortization
   
 
5,303
 
   
 
6,238
 
Other assets
   
 
12,982
 
   
 
13,235
 
    
  
    
$
1,082,049
 
   
$
1,065,463
 
    
  
LIABILITIES AND SHAREHOLDERS’ EQUITY
                  
Liabilities
                  
Unsecured notes payable
   
$
234,775
 
   
$
234,759
 
Secured line of credit and term loan
   
 
256,000
 
   
 
230,000
 
Mortgage notes payable
   
 
96,987
 
   
 
96,362
 
Accounts payable and accrued expenses
   
 
20,103
 
   
 
27,633
 
Other liabilities
   
 
13,245
 
   
 
14,191
 
    
  
Total liabilities
   
 
621,110
 
   
 
602,945
 
Third party investors’ interest
   
 
3,000
 
   
 
2,999
 
Shareholders’ Equity
                  
Preferrd stock, par value $.01 per share—authorized 20,000,000 shares: 9 3/8% Series A Cumulative Redeemable Preferred Stock, liquidation preference $25 per share, issued and outstanding 2,000,000 shares in 2001 and 2000, respectively
   
 
20
 
   
 
20
 
Common stock, par value $.01 per share—authorized 150,000,000 shares, issued and outstanding 34,796,073 and 34,795,045 shares in 2002 and 2001, respectively
   
 
348
 
   
 
348
 
Paid-in capital
   
 
472,844
 
   
 
475,264
 
Accumulated other comprehensive loss
   
 
(3,101
)
   
 
(4,266
)
Accumulated deficit
   
 
(12,172
)
   
 
(11,847
)
    
  
    
 
457,939
 
   
 
459,519
 
    
  
    
$
1,082,049
 
   
$
1,065,463
 
    
  
 
See Notes to Consolidated Financial Statements

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JDN REALTY CORPORATION
 
CONSOLIDATED STATEMENTS OF INCOME
 
(Unaudited)
 
    
Three Months Ended March 31,
  
    
2002
     
2001
  
    
(In thousand)
  
Revenues
                  
Minimum and percentage rents
   
$
21,806
 
   
$
22,558
 
Recoveries from tenants
   
 
3,568
 
   
 
3,851
 
Other revenue
   
 
2,972
 
   
 
67
 
    
  
Total revenues
   
 
28,346
 
   
 
26,476
 
Operating expenses:
                  
Operating and maintenance
   
 
2,473
 
   
 
2,746
 
Real estate taxes
   
 
2,301
 
   
 
1,888
 
General and administrative
   
 
2,844
 
   
 
3,419
 
Corporate investigation and legal costs
   
 
—  
 
   
 
573
 
Impairment loss
   
 
200
 
   
 
—  
 
Depreciation and amortization
   
 
5,277
 
   
 
5,356
 
    
  
Total operating expenses
   
 
13,095
 
   
 
13,982
 
    
  
Income from continuing operations
   
 
15,251
 
   
 
12,494
 
Other income (expense):
                  
Interest expense, net
   
 
(7,668
)
   
 
(8,750
)
Other income (expense), net
   
 
(1,344
)
   
 
786
 
Equity in net income (loss) of unconsolidated entities
   
 
143
 
   
 
(313
)
    
  
Income from continuing operations before minority interest in net income of
consolidated subsidiaries and net gain on real estate sales
   
 
6,382
 
   
 
4,217
 
Minority interest in net income of consolidated subsidiaries
   
 
(40
)
   
 
(42
)
    
  
Income from continuing operations before net gain on real estate sales
   
 
6,342
 
   
 
4,175
 
Net gain on real estate sales
                  
Operating
   
 
—  
 
   
 
9,761
 
Non-operating
   
 
775
 
   
 
1,979
 
    
  
Income from continuing operations
   
 
7,117
 
   
 
15,915
 
Discontinued operations
                  
Income from operating properties sold or held for sale
   
 
267
 
   
 
196
 
Gain on disposal of operating properties, net of impairment loss
   
 
393
 
   
 
—  
 
    
  
Income before extraordinary item and cumulative effect of change in
accounting principle
   
 
7,777
 
   
 
16,111
 
Extraordinary item
   
 
—  
 
   
 
(1,608
)
    
  
Income before cumulative effect of change in accounting principle
   
 
7,777
 
   
 
14,503
 
Cumulative effect of change in accounting principle
   
 
(172
)
   
 
(280
)
    
  
Net income
   
 
7,605
 
   
 
14,223
 
Dividends to preferred shareholders
   
 
(1,172
)
   
 
(1,172
)
    
  
Net income attributable to common shareholders
   
$
6,433
 
   
$
13,051
 
    
  
Income per common share—basic:
                  
Income from continuing operations (net of preferred dividends)
   
$
0.17
 
   
 
0.45
 
Discontinued operations
   
 
0.02
 
   
 
0.01
 
Extraordinary item
   
 
—  
 
   
 
(0.05
)
Cumulative effect of change in accounting principle
   
 
—  
 
   
 
(0.01
)
    
  
Net income attributable to common shareholders
   
$
0.19
 
   
$
0.40
 
    
  
Income per common share—diluted:
                  
Income from continuing operations (net of preferred dividends)
   
$
0.17
 
   
 
0.45
 
Discontinued operations
   
 
0.02
 
   
 
0.01
 
Extraordinary item
   
 
—  
 
   
 
(0.05
)
Cumulative effect of change in accounting principle
   
 
—  
 
   
 
(0.01
)
    
  
Net income attributable to common shareholders
   
$
0.19
 
   
$
0.40
 
    
  
Dividends per common share
   
$
0.27
 
   
$
0.30
 
    
  
 
See Notes to Consolidated Financial Statements

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JDN REALTY CORPORATION
 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 
(Unaudited)
 
    
Three Months Ended March 31,
  
    
2002
     
2001
  
    
(In thousands)
  
Net cash provided by operating activities
   
$
5,854
 
   
$
8,706
 
Cash flows from investing activities:
                  
Development of shopping center properties
   
 
(28,569
)
   
 
(17,023
)
Improvements to shopping center properties
   
 
(348
)
   
 
(1,176
)
Investments in and advances to unconsolidated entities
   
 
391
 
   
 
(791
)
Proceeds from real estate sales
   
 
7,107
 
   
 
49,080
 
Other
   
 
95
 
   
 
(8
)
    
  
Net cash provided by (used in) investing activities
   
 
(21,324
)
   
 
30,082
 
Cash flows from financing activities:
                  
Proceeds from line of credit and term loan
   
 
69,000
 
   
 
250,400
 
Proceeds from mortgages and notes payable
   
 
7,701
 
   
 
—  
 
Principal payments on line of credit and term loan
   
 
(43,000
)
   
 
(269,000
)
Principal payments on mortgages and notes payable
   
 
(7,076
)
   
 
(4,094
)
Distributions paid to preferred shareholders
   
 
(1,172
)
   
 
(1,172
)
Distributions paid to common shareholders
   
 
(9,397
)
   
 
(9,863
)
Payments for deferred loan financing charges
   
 
(426
)
   
 
(5,634
)
Other
   
 
(160
)
   
 
—  
 
    
  
Net cash provided by (used in) financing activities
   
 
15,470
 
   
 
(39,363
)
    
  
Decrease in cash and cash equivalents
   
 
—  
 
   
 
(575
)
Cash and cash equivalents, beginning of period
   
 
—  
 
   
 
9,277
 
    
  
Cash and cash equivalents, end of period
   
$
—  
 
   
$
8,702
 
    
  
 
 
See Notes to Consolidated Financial Statements

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JDN REALTY CORPORATION
 
Notes to Consolidated Financial Statements
(Unaudited)
March 31, 2002
 
1.    THE COMPANY
 
JDN Realty Corporation (the “Company”) is a real estate company specializing in the development and asset management of retail shopping centers. As of March 31, 2002, the Company’s operating shopping centers and development projects were located in 21 states. The Company has elected to be taxed as a real estate investment trust (“REIT”).
 
2.    BASIS OF PRESENTATION
 
The accompanying financial statements represent the consolidated financial statements of the Company and its wholly-owned and majority-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) and certain reclassifications considered necessary for a fair presentation have been included. The consolidated balance sheet at December 31, 2001 has been derived from the audited consolidated financial statements at that date. Operating results for the three months ended March 31, 2002 are not necessarily indicative of the results that may be expected for the year ending December 31, 2002 or any other interim period. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2001.
 
3.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
Comprehensive Income.    Comprehensive income for the three months ended March 31, 2002 and 2001 was $7.6 million and $13.1 million, respectively. Comprehensive income is a measure of net income plus “other comprehensive income”, which is composed of fluctuations in the fair value of the Company’s two interest rate swaps.
 
Reclassifications.    Certain amounts as previously reported have been reclassified to conform to the current period’s presentation.
 
New Accounting Pronouncements.    In June 2001, the Financial Accounting Standards Board issued SFAS No. 142, Goodwill and Other Intangible Assets. SFAS No. 142, which is effective for the Company as of January 1, 2002, prohibits regular amortization of goodwill and requires at least an annual impairment analysis of all recorded goodwill. Upon adoption of SFAS No. 142, the Company recorded a cumulative effect of change in accounting principle of $172,000 related to impairment of the Company’s goodwill.
 
On January 1, 2002, the Company adopted SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. Under the new guidance, management reviews long-lived assets used in operations for impairment when there is an event or change in circumstances that indicates the carrying amount of the asset may not be recoverable and the future undiscounted cash flows expected to be generated by the asset are less than its carrying

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amount. If such assets are considered to be impaired, the Company records impairment losses and reduces the carrying amount of impaired assets to an amount that reflects the fair value of the assets at the time impairment is evident. Management also reviews estimated selling prices of assets held for sale and records impairment losses to reduce the carrying amount of assets held for sale when the carrying amounts exceed the estimated selling prices less costs to sell. Also, material long-lived assets held for sale are separately identified in the consolidated balance sheets and their related net operating income is segregated as income from discontinued operations in the consolidated statements of income. In addition, depreciation of long-lived assets held for sale is not recorded. If an asset held for sale reverts to an asset used in operations, the asset will be measured at the lower of the original carrying cost, adjusted for the forgone depreciation, or the fair value at the date of the decision to hold the asset. Adoption of SFAS No. 144 did not have a material effect on the Company.
 
4.    CONSTRUCTION LOAN
 
On March 22, 2002, the Company closed a construction loan secured by land and improvements in Grandville, Michigan (the “Grandville Loan”). The Grandville Loan provides for maximum borrowings of $20.2 million, of which $7.7 million was outstanding as of March 31, 2002. The Grandville Loan matures in March 2004, but may be extended to March 2006 provided certain leasing and development targets are met. The Grandville Loan bears interest at LIBOR plus 2%.
 
5.    SHOPPING CENTER DISPOSITIONS
 
During the three months ended March 31, 2002, the Company sold a 53,365 square foot shopping center to an unrelated party in Eastman, Georgia for $2.9 million. Additionally, as of March 31, 2002 the Company had one shopping center under contract to sell. On April 1, 2002, the Company sold this shopping center for $13.2 million. The Company recorded an impairment loss in the three months ended March 31, 2002 of $402,000 related to the disposition of this property, which is reflected in Gain on disposal of operating properties, net of impairment loss on the Company’s consolidated statements of income.
 
6.    CONTINGENCIES
 
On February 20, 2002, the SEC entered an Order accepting the terms of an offer of settlement previously submitted by the Company in connection with a formal investigation initiated by the SEC against the Company in 2000. Under the terms of the settlement, the Company agreed to entry of the Order, which does not include any monetary fine, directing it to cease and desist from committing or causing any violation or any future violation of certain provisions of the federal securities laws. The Company consented to the issuance of the Order without admitting or denying the findings sets forth in the SEC’s Order.
 
The Company is from time to time a party to other legal proceedings that arise in the ordinary course of its business. The Company is not currently involved in any litigation in addition to the lawsuits described above the outcome of which would, in management’s judgement based on information currently available, have a material adverse effect on the results of operations or financial condition of the Company, nor is management aware of any such litigation threatened against the Company.

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7.    EARNINGS PER SHARE
 
The following table sets forth the computation of basic and diluted earnings per share (in thousands, except per share data):
 
    
Three months ended March 31,
  
    
2002
     
2001
  
Numerator:
                  
Income before discontinued operations, extraordinary item and cumulative effect of change in accounting principle
   
$
7,117
 
   
$
15,915
 
Discontinued operations
   
 
660
 
   
 
196
 
Extraordinary item
   
 
—  
 
   
 
(1,608
)
Cumulative effect of change in accounting principle
   
 
(172
)
   
 
(280
)
    
  
Net income
   
 
7,605
 
   
 
14,223
 
Dividends to preferred shareholders
   
 
(1,172
)
   
 
(1,172
)
    
  
Net income attributable to common shareholders
   
$
6,433
 
   
$
13,051
 
    
  
Denominator:
                  
Weighted-average shares outstanding
   
 
34,803
 
   
 
32,866
 
Unvested restricted stock outstanding
   
 
(224
)
   
 
(351
)
    
  
Denominator for basic earnings per share
   
 
34,579
 
   
 
32,515
 
Dilutive effect of stock options and
unvested restricted stock
   
 
153
 
   
 
145
 
    
  
Denominator for diluted earnings per share
   
 
34,732
 
   
 
32,660
 
    
  
Income per common share—basic:
                  
Income before discontinued operations, extraordinary item and cumulative effect of change in accounting principle (net of preferred dividends)
   
$
0.17
 
   
$
0.45
 
Discontinued operations
   
 
0.02
 
   
 
0.01
 
Extraordinary item
   
 
—  
 
   
 
(0.05
)
Cumulative effect of change in accounting principle
   
 
—  
 
   
 
(0.01
)
    
  
Net income attributable to common shareholders
   
$
0.19
 
   
$
0.40
 
    
  
Income per common share—diluted:
                  
Income before discontinued operations, extraordinary item and cumulative effect of change in accounting principle (net of preferred dividends)
   
$
0.17
 
   
$
0.45
 
Discontinued operations
   
 
0.02
 
   
 
0.01
 
Extraordinary item
   
 
—  
 
   
 
(0.05
)
Cumulative effect of change in accounting principle
   
 
—  
 
   
 
(0.01
)
    
  
Net income attributable to common shareholders
   
$
0.19
 
   
$
0.40
 
    
  
 
Of total options outstanding, options to purchase 525,250 and 809,459 shares of common stock for the three months ended March 31, 2002 and 2001, respectively, were outstanding but were not considered in the computation of diluted earnings per share because the options’ exercise prices were higher than the average market price of the common shares for the applicable periods. Therefore, the effect of these options on earnings per share would be antidilutive.

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The Company is the general partner in a limited partnership that issued limited partnership units initially valued at $3.0 million in a limited partnership formed to own and operate a shopping center in Milwaukee, Wisconsin. Subject to certain conditions, the limited partnership units are exchangeable for cash or 139,535 shares of the Company’s common stock. As of March 31, 2002, none of the limited partnership units have been exchanged for shares. Using the “if-converted” method, the effect of these units is antidilutive; therefore, they have been excluded from the computation of earnings per share.

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ITEM 2.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
                   RESULTS OF OPERATIONS
 
Overview
 
JDN Realty Corporation is a real estate company specializing in the development and asset management of retail shopping centers. When referred to herein, the term “Company” represents JDN Realty Corporation and its wholly owned or majority-owned subsidiaries. As of March 31, 2002, the Company owned and operated, either directly or indirectly through an affiliated entity, 100 shopping center properties containing approximately 11.3 million square feet of gross leasable area (“Company GLA”) located in 20 states, with the highest concentrations of Company GLA in Georgia, Tennessee, and Wisconsin. The principal tenants of the Company’s properties include Lowe’s, Wal-Mart and Kohl’s. As of March 31, 2002, the Company had 16 projects under construction. JDN Realty Corporation was incorporated under Maryland law in 1993 and has elected to be treated as a real estate investment trust (“REIT”) for federal income tax purposes.
 
Results of Operations
 
Comparison of the Three Months Ended March 31, 2002 to the Three Months Ended March 31, 2001
 
During 2002 and 2001, the Company developed and began operations at 36 properties totaling approximately 4.0 million square feet (the “Development Properties”). During 2002 and 2001, the Company disposed of 18 properties totaling approximately 1.8 million square feet (the “Disposition Properties”). As indicated below, the Development Properties and the Disposition Properties affected the Company’s results of operations.
 
Minimum and percentage rents decreased $751,000 or 3.3% to $21.8 million for the three months ended March 31, 2002 from $22.6 million for the same period in 2001. Minimum and percentage rents decreased $2.8 million as a result of the Disposition Properties. This decrease is partially offset by a $2.1 million increase related to the Development Properties. The remaining $48,000 decrease is the result of a slight decrease in occupancy at existing properties.
 
Recoveries from tenants decreased $283,000 or 7.4% to $3.6 million for the three months ended March 31, 2002 from $3.8 million for the same period in 2001. Recoveries from tenants decreased $351,000 as a result of the Disposition Properties. This decrease is partially offset by a $239,000 increase related to the Development Properties. The remaining decrease primarily relates to net decreases in recoverable expenses at existing properties.
 
Other revenue increased $2.9 million to income of $3.0 million for the three months ended March 31, 2002 from $67,000 for the same period in 2001. Other revenue for the three months ended March 31, 2002 of $3.0 million represents lease termination fees at two of the Company’s shopping center properties and management fees earned on third-party management services. Other revenue for the three months ended March 31, 2001 of $67,000 represents management fees earned on third-party management services.
 
Operating and maintenance expenses decreased $273,000 or 9.9% to $2.4 million for the three months ended March 31, 2002 from $2.7 million for the same period in 2001. Operating and maintenance expenses decreased $230,000 as a result of the Disposition Properties. This decrease is partially offset by a $120,000 increase related to the Development Properties. The remaining decrease is a result of decreased operating and maintenance expenses at existing properties.
 
Real estate taxes increased $413,000 or 21.9% to $2.3 million for the three months ended March 31, 2002 from $1.9 million for the same period in 2001. Real estate taxes increased by $485,000 as a result of the Development Properties. This increase is partially offset by a $159,000 decrease related to the Disposition Properties. The remaining increase is a result of previously capitalized real estate taxes on non-income producing land that are now being expensed.

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General and administrative expenses decreased $575,000 or 16.8% to $2.9 million for the three months ended March 31, 2002 from $3.4 million over the same period in 2001. The decrease is primarily related to a decrease in salaries and related personnel expenses as well as a decrease in the use of temporary employees.
 
Corporate investigation and legal costs decreased $573,000 to $0 for the three months ended March 31, 2002 for the same period in 2001. The costs incurred in 2001 represent the professional fees incurred by the Company primarily as a result of the investigation by the SEC and the class action lawsuits. See “Contingencies” under Part I, Item 1 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2001.
 
Impairment loss for the three months ended March 31, 2002 of $200,000 represents a charge to reduce the basis of non-operating land held for sale to estimated fair value less costs to sell. There was no such impairment loss in the three months ended March 31, 2001.
 
Depreciation and amortization expense decreased $79,000 or 1.5% to $5.3 million for the three months ended March 31, 2002 from $5.4 million for the same period in 2001. Depreciation and amortization decreased $616,000 as a result of the Disposition Properties. This decrease is partially offset by a $333,000 increase related to the Development Properties. The remaining increase is a result of depreciation adjustments made in the first quarter 2001.
 
Interest expense, net of capitalized amounts, decreased $1.1 million or 12.4% to $7.6 million for the three months ended March 31, 2002 from $8.7 million for the same period in 2001. Of this decrease, $1.4 million relates to a reduction in the underlying LIBOR rate paid on the Company’s bank credit facilities and $322,000 relates to reduced amortization of deferred loan costs. The remaining increase primarily relates to a reduction in interest capitalized into construction projects.
 
Other income (expense), net decreased $2.1 million to net expense of $1.3 million for the three months ended March 31, 2002 from net income of $786,000 for the same period in 2001. Of this decrease, $1.1 million relates to an increase in provision for abandoned projects and $381,000 relates to a decrease in miscellaneous interest income. The remaining decrease primarily relates to a decrease in brokerage commissions and development fee revenue earned from third parties.
 
Equity in net income (loss) of unconsolidated entities increased $457,000 for the three months ended March 31, 2002. Of this increase, $248,000 relates to the Company’s portion of income from a limited liability company in which the Company obtained 49% economic interest in September 2001, and $120,000 relates to the disposition of a 50% interest in another limited liability company in May 2001. The remaining increase relates to the Company’s portion of income and losses incurred by the Company’s remaining four unconsolidated joint ventures.
 
Net gain on real estate sales decreased $10.9 million to a net gain of $775,000 for the three months ended March 31, 2002 from a net gain of $11.7 million for the same period in 2001. Net gain on real estate sales for the three months ended March 31, 2002 represents a net gain on the sale of six parcels of land. Net gain on real estate sales for the three months ended March 31, 2001 represents a net gain on the sale of six shopping centers and three parcels of land.
 
Significant Accounting Policies
 
In February 2002, the SEC issued Financial Reporting Release No. 60, Cautionary Advice Regarding Disclosure About Critical Accounting Policies (“FR-60”). FR-60 encouraged public companies to include a discussion of critical accounting policies or methods that require management’s most difficult, subjective or complex judgements. As these judgements increase in difficulty, subjectivity, or complexity, the certainty of financial statements may decrease. The footnotes to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2001 includes a summary of the significant accounting policies and methods used in the preparation of the Company’s consolidated financial statements. The following is a brief discussion of the more significant accounting policies and methods used by the Company.
 

11

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Allocation of Capitalized Project Costs: The Company capitalizes construction costs, property taxes, interest and other miscellaneous costs that are directly identifiable with a project from pre-acquisition until construction is complete and the development is ready for its intended use, in accordance with SFAS No. 67 and SFAS No. 34. The Company allocates the capitalized project costs to the various components of the project based on the components’ relative fair value. The Company’s cost allocation method requires the use of management estimates regarding the fair market value of each project component. Management bases its estimates on current market appraisals, comparable sales, existing sale and purchase contracts, historical experience, and various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the fair market value of real estate assets. Actual results may differ from these estimates under different assumptions or conditions, which would alter the gain or loss on disposition of the individual project components. The Company’s initial cost allocation is periodically revised to reflect current estimates and new information as to the realized values of the project’s components.
 
Impairment of Long-Lived Assets: In accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, management reviews long-lived assets used in operations for impairment when there is an event or change in circumstances that indicates the carrying amount of the asset may not be recoverable and the future undiscounted cash flows expected to be generated by the asset are less than its carrying amount. If such assets are considered to be impaired, the Company records impairment losses and reduces the carrying amount of impaired assets to an amount that reflects the fair value of the assets at the time impairment is evident. The Company’s impairment review process relies on management’s judgement regarding the indicators of impairment, the remaining lives of assets used to generate assets’ undiscounted cash flows, and the fair value of assets at a particular point in time. Management uses historical experience, current market appraisals, and various other assumptions to form the basis for making judgments about the impairment of real estate assets. Under different assumptions or conditions, the asset impairment analysis may yield a different outcome, which would alter the gain or loss on the eventual disposition of the asset.
 
Funds From Operations
 
Funds from operations (“FFO”) is defined by the National Association of Real Estate Investment Trusts, Inc. to mean net income, computed in accordance with generally accepted accounting principles (“GAAP”), excluding gains or losses from debt restructuring, sales of property, cumulative effect of changes in accounting principles and results of discontinued operations not related to real estate assets sold, transferred or held for sale, plus depreciation and amortization of real estate assets, and after adjustments for unconsolidated partnerships and joint ventures. The Company believes that FFO is helpful to investors as a measure of the performance of an equity REIT because, along with cash provided by operating activities, investing activities and financing activities, it provides investors with an indication of the Company’s ability to make capital expenditures and to fund other cash needs. The Company’s method of calculating FFO may be different from methods used by other REITs and, accordingly, may not be comparable to such other REITs. FFO does not represent cash provided by operating activities as defined by GAAP, should not be considered an alternative to net income (determined in accordance with GAAP) as an indication of operating performance and is not indicative of cash available to fund all cash flow needs, including the Company’s ability to make cash distributions. The Company has presented below the calculation of FFO for the periods indicated:
 

12

Table of Contents
 
(In thousands)
   
Three Months Ended
March 31,
  
    
2002
     
2001
  
Net income attributable common shareholders
   
$
6,433
 
   
$
13,061
 
Depreciation of real estate assets
   
 
4,890
 
   
 
4,995
 
Amortization of tenant allowances and tenant improvements
   
 
109
 
   
 
79
 
Amortization of deferred leasing costs
   
 
226
 
   
 
201
 
Net gain on operating real estate sales
   
 
—  
 
   
 
(9,761
)
Gain on disposal of operating properties, net of impairment loss
   
 
(393
)
   
 
—  
 
Extraordinary item
   
 
—  
 
   
 
1,608
 
Cumulative effect of change in accounting principle
   
 
172
 
   
 
280
 
Adjustments related to activities in unconsolidated entities
   
 
229
 
   
 
26
 
    
  
FFO
   
$
11,666
 
   
$
10,479
 
    
  
 
Leasing and Tenant Information
 
As of March 31, 2002, Lowe’s, Wal-Mart and Kohl’s Companies represented 16.0%, 5.0% and 3.4%, respectively, of the Company’s annualized base rent (“Company ABR”). In addition, at that date, anchor tenants represented 39.0% of Company ABR and national and regional tenants represented 83.2% of Company ABR. As of March 31, 2002, properties owned and operated by the Company and one affiliated entity were 93.2% leased. Occupancy decreased in the first quarter from 94.4% as of December 31, 2001 primarily as a result of early lease terminations of a 48,000 square foot anchor tenant at a shopping center located in Ft. Oglethorpe, Georgia and a 78,000 square foot tenant at a shopping center located in West Allis, Wisconsin.
 
As of March 31, 2002, the Company operated shopping center properties in 20 states. Shopping center properties located in Georgia, Tennessee, Wisconsin and North Carolina represented 38.6%, 10.0%, 6.6% and 5.2%, respectively, of Company ABR.
 
The Company derives the majority of its rental income and development activities from the retail industry and is therefore exposed to adverse trends or events affecting segments of the retail industry. As of March 31, 2002, the Company was exposed primarily to the following segments of the retail industry:

13

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Retail Segment
     
Percentage of
Company ABR
Home Improvement
     
16.0%
Supermarket
     
11.1%
Restaurant
     
9.5%
Discount
     
7.7%
Discount Department Stores
     
5.4%
Apparel
     
4.7%
Office Supplies
     
4.6%
Electronics
     
3.7%
Home Goods
     
3.3%
 
On January 22, 2002, Kmart Corporation, an anchor tenant in five of the Company’s wholly or jointly owned shopping centers, filed for Chapter 11 bankruptcy. As of March 31, 2002, Kmart has announced the store closing of one of the Company’s five leases, representing approximately $329,000 of Company ABR. Under Chapter 11 bankruptcy protection, Kmart has the ability to affirm or reject pre-petition lease agreements. The Company’s five Kmart leases represent approximately 2.9% of Company ABR and 4.3% of Company GLA. There can be no assurance that Kmart will accept the Company’s leases or that the leases will not be accepted under reduced rental rates. Rejection of any or all of the Company’s Kmart leases could have an adverse effect on the Company’s results of operations.
 
New Development Activities
 
The Company’s primary business has historically been to develop shopping centers anchored by value-oriented, necessity-item retailers such as Lowe’s, Wal-Mart, Kroger and Kohl’s. The Company expects to continue to pursue development opportunities with the types of retailers with which it has traditionally worked while increasing its focus on grocers and grocery-anchored shopping centers. The Company’s Investment Committee reviews and authorizes funds for new projects and substantial changes to existing projects to assure compliance with the Company’s investment objectives. The Investment Committee focuses primarily on developments for credit-worthy anchor tenants in high barrier-to-entry markets with demographic attributes that will result in favorable rates of returns on the Company’s investments. Management believes that the Company’s focus on location combined with developing for retailers who are leaders in their local markets will enable the Company to achieve rates of return on its investments in shopping center properties consistent with the Company’s objectives.
 
Management expects the Investment Committee to approve more projects in 2002 than it approved in 2001. However, there can be no assurance that the volume of the Company’s new development activities will increase as expected, which may have an adverse affect on the Company’s future revenue, growth rate of net income and FFO.

14

Table of Contents
 
Redevelopment Activities
 
The Company’s business strategy also includes the selective redevelopment, retenanting and expansion of shopping centers to increase cash flows and property values while simultaneously earning an appropriate return on the Company’s investment. The Company has historically been active in its tenant expansion plans as changing demographics and increased sales warrant expansion or relocation. Redevelopment projects have included the addition of anchor tenants, changes in the tenant mix and the reconfiguration of shopping centers. The Company has worked closely with several anchor tenants to enlarge their stores and enhance merchandising capabilities.
 
The Company is currently involved in shopping center redevelopments located in Milwaukee, Wisconsin, Pensacola, Florida and Ocala, Florida and retenanting of vacant anchor space in Denver, Colorado. Additionally, management is evaluating redevelopment or retenanting opportunities at four shopping centers in which anchor tenants have either announced a store closing or have negotiated early lease terminations. Redeveloping or retenanting is dependent on locating qualified tenants that have the ability to meet the terms as outlined in their respective leases. In the event the Company is unable to locate qualified tenants, or if rents achieved are less than rents received from previous tenants, the Company’s results of operations may be adversely affected and the Company may be forced to write down the value of one or more of its assets.
 
Liquidity and Capital Resources
 
Sources and Uses of Funds
 
Historically, the Company’s primary sources of funds have been cash provided by operating activities, proceeds from lines of credit, term debt, secured mortgage notes payable, debt and equity offerings, and sales of real estate. The Company’s primary uses of funds have historically been development and redevelopment and acquisition of shopping center properties, distributions to shareholders, repayment of outstanding indebtedness, repurchase of common stock, scheduled debt amortization, leasing costs and improvements to shopping center properties. The Company generally has used cash provided by operating activities and proceeds from land sales to fund its distributions to shareholders, leasing costs, capital improvements to existing properties and scheduled debt amortization. The Company has used proceeds from its lines of credit, term debt, secured mortgage notes payable, debt and equity offerings and real estate sales to repay outstanding indebtedness, to repurchase common stock and to fund its ongoing development, redevelopment and acquisition activities.
 
During the three months ended March 31, 2002, the Company incurred $28.6 million in development costs. The Company funded these development costs primarily with borrowings under its lines of credit and from construction loans.
 
Indebtedness
 
As of March 3 1, 2002, the Company’s indebtedness consisted of the following:
 

15

Table of Contents
 
    
Principal
Balance
   
Effective
Interest
Rate
       
Maturity
Date
     
Percent
of Total
Indebtedness
     
Months to Maturity
    
(in thousands)
                            
Fixed Rate
                                   
Mandatory Par Put Remarketed Securities (“MOPPRS”)
   
 
75,000
   
7.08%
(1)
     
31-Mar-03
     
12.8%
     
12
Mortgage note payable—Richmond, Kentucky
   
 
5,792
   
7.63%
(2)
     
01-Dec-03
     
1.0%
     
20
Seven Year Notes
   
 
74,917
   
7.10%
(1)
     
01-Aug-04
     
12.7%
     
28
Ten Year Notes
   
 
84,857
   
7.23%
(1)
     
01-Aug-07
     
14.4%
     
64
Mortgage note payable—Milwaukee, Wisconsin
   
 
3,996
   
7.75%
 
     
01-Aug-09
     
0.7%
     
88
Mortgage note payable—Marietta, Georgia
   
 
10,397
   
7.72%
(1)
     
15-Nov-17
     
1.8%
     
188
Mortgage note payable—Lilburn, Georgia
   
 
11,912
   
6.74%
(1)
     
10-Feb-18
     
2.0%
     
191
Mortgage note payable—Woodstock, Georgia
   
 
11,204
   
6.63%
(1)
     
15-Apr-18
     
1.9%
     
193
Mortgage note payable—Hendersonville, Tennessee
   
 
10,207
   
7.71%
(1)
     
15-Jan-19
     
1.7%
     
202
Mortgage note payable—Alpharetta, Georgia
   
 
12,778
   
6.70%
(1)
     
15-Apr-19
     
2.2%
     
205
    
  
           
    
    
 
301,060
   
7.15%
 
            
51.2%
     
66
Floating Rate (3)
                                   
Revolving Line of Credit
   
 
96,000
   
7.04%
(4)
     
31-Dec-02
     
16.3%
     
9
Term Loan
   
 
150,000
   
8.10%
(4)
     
31-Dec-02
     
25.5%
     
9
Swing Line of Credit
   
 
10,000
   
5.94%
 
     
31-Dec-02
     
1.7%
     
9
Denver, Colorado
   
 
23,000
   
4.86%
(5)
     
31-May-02
     
3.9%
     
2
Construction Loan—Grandville, Michigan
   
 
7,701
   
3.90%
(6)
     
20-Mar-04
     
1.3%
     
24
    
  
           
    
    
 
286,701
   
7.30%
 
            
48.8%
     
9
    
  
           
    
    
$
587,761
   
7.22%
 
            
100.0%
     
38
    
  
           
    
(1)
 
Represents stated rate plus amortization of deferred loan costs.
(2)
 
The interest rate on this note is adjusted on December 1 of each year.
(3)
 
Floating rate debt exposure is limited through investment in financial derivatives. As of March 31, 2002, the $150,000 term loan and $50,000 of the revolving line of credit were hedged with interest rate swaps that effectively fix the underlying LIBOR rate at 4.62% and 3.585%, respectively.
(4)
 
Represents stated rate of LIBOR plus 2.125% plus interest rate swap differential and amortization of deferred loan costs.
(5)
 
Represents stated rate of LIBOR plus 2.00% plus amortization of deferred loan costs.
(6)
 
Represents stated rate of LIBOR plus 2.00%.
 
The Revolving Line of Credit and Term Loan are part of a $300.0 million secured credit facility with a bank group (the “Secured Credit Agreement”) that is scheduled to mature December 31, 2002. The Company may extend the term until January 1, 2003 provided that the Company is in compliance with its terms.
 
Interest on loans made pursuant to the Secured Credit Agreement ranges from LIBOR plus 1.75% to LIBOR plus 2.25%, based upon the Company’s leverage and credit quality or, at the Company’s discretion, the agent’s prime lending rate. As of March 31, 2002, the Company had $44.0 million available under the Revolving Line of Credit.
 
The Secured Credit Agreement provides that the loans thereunder be secured by first priority security interests in certain of the Company’s retail shopping center properties. As of March 31, 2002, there were 52 properties valued at approximately $508.8 million securing these loans. The Secured Credit Agreement contains certain requirements for each property within the Borrowing Base Properties (as defined in the Secured Credit Agreement) and certain value and occupancy requirements for the Borrowing Base in the aggregate. The Company may, however, add, remove or substitute certain of its other properties as Borrowing Base Properties subject to the conditions set forth in the Secured Credit Agreement.
 
The Secured Credit Agreement contains financial covenants including, but not limited to, a liabilities-to-assets ratio, fixed charges coverage ratios and a net worth covenant. In addition, the Secured Credit Agreement r estricts the amount of distributions to the Company’s shareholders to 95% of the Company’s funds from operations (as defined in the Secured Credit Agreement), subject to certain exceptions, including additional distributions necessary to maintain its REIT status.
 
The Company maintains two interest rate swap contracts with notional amounts of $150 million and $50 million, respectively, that convert its variable interest payments on the term loan and $50 million of the revolving line of credit to fixed interest payments by effectively fixing the underlying LIBOR rate at 4.62% and 3.585%, respectively. These swaps have been designated and qualify under

16

Table of Contents
the provisions of SFAS No. 133 as cash flow hedges, and the Company has determined that they are effective in offsetting the variable interest cash flows on the related debt instruments. The fluctuations in the fair value of the interest rate swaps are included in accumulated other comprehensive loss, a component of shareholders’ equity, and other liabilities in the consolidated balance sheets.
 
On March 22, 2002, the Company closed a construction loan secured by land in Grandville, Michigan (the “Grandville Loan”). The Grandville Loan provides for maximum borrowings of $20.2 million, of which $7.7 million was outstanding as of March 31, 2002. The Grandville Loan matures in March 2004, but may be extended to March 2006 provided certain leasing and development targets are met. The Grandville Loan bears interest at LIBOR plus 2%.
 
Future Sources and Uses of Funds
 
The Company believes that cash provided by operating activities and land sales will be sufficient to fund its required distributions to shareholders, scheduled debt amortization, leasing costs and improvements to the Company’s operating shopping centers.
 
The most significant use of capital for the Company is its development activities. As of March 31, 2002, the Company had 16 projects under construction. The Company expects that the capital required to fund the future costs of these 16 projects, net of estimated construction reimbursements and expected land sales to retailers who will build and own their space in these projects, is approximately $83.4 million. These future costs are expected to be incurred during the remainder of 2002 through 2004. This projected capital requirement includes a number of assumptions including commitments by anchor and secondary anchor tenants. If some or all of these tenants do not execute leases, management anticipates that the amount required to finance these projects will be less. In addition, the Company intends to commence construction of other projects in 2002 requiring additional capital during the remainder of 2002 through 2004.
 
The Company expects the sale of all or portions of operating shopping center properties in addition to the sale of various parcels of land adjacent to its operating properties to be a significant source of capital for the Company to fund its development activities. As of March 31, 2002, the Company had one shopping center under contract to sell for $13.2 million. The Company is marketing additional shopping centers for sale that are expected to close during the remainder of 2002. Additionally, as of March 31, 2002, the Company had eight vacant land parcels with an aggregate book value of approximately $5.9 million under contract to sell for aggregate net proceeds of approximately $7.0 million. The closing of these transactions is dependent upon, among other things, completion of due diligence and the ability of some of the purchasers to successfully obtain financing. Therefore, there can be no assurance that any of these transactions will close when expected or at all.
 
The Company also expects to utilize construction loans on certain development projects to help fund its development activities. On March 22, 2002 and April 12, 2002, the Company closed on construction loans on projects in Grandville, Michigan and Mesquite, Texas, respectively. In addition, the Company expects to close two more construction loans in the second quarter of 2002. Collectively, these loans are expected to net proceeds of $65.5 million. The ability to close future construction loans is dependent upon a number of factors, including achievement of adequate pre-leasing and satisfaction of any environmental, title or other issues with respect to the underlying real estate. In addition to construction loans, the Company may issue equity securities to help fund its development and redevelopment activities.
 
In addition to its operating and development liquidity needs, significant amounts of Company debt will mature in 2002 and 2003. The Secured Credit Agreement ($256.0 million outstanding at March 31, 2002) and a $23.0 million loan secured by a shopping center in Denver, Colorado mature in 2002. In addition, in March 2003, $75.0 million in unsecured notes payable are subject to mandatory tender. The Company expects to refinance the $23.0 million loan on a long-term basis during the second quarter of

17

Table of Contents
2002. The Company expects to refinance the Secured Credit Agreement prior to its maturity with members of its existing bank group. The Company is evaluating its alternatives with respect to the maturity of the $75.0 million in unsecured notes. The Company expects to repay this unsecured note obligation with anticipated availability under its Revolving Line of Credit arising as a result of the refinancing. In addition, in order to create availability under the Revolving Line of Credit, the Company may choose one or more of the following options:
 
 
•
 
The sale of one or more of its development projects;
 
 
•
 
The sale of additional operating properties;
 
 
•
 
The closing of long-term mortgage loans on one or more of its unencumbered shopping centers.
 
In addition, the Company may consider issuing common or preferred equity securities.
 
As previously announced, the Company is continuing to review its various strategic and financing alternatives with the assistance of its financial advisor, Lazard Freres & Co. These alternatives could include merger with another company, sale of assets or stock to another entity, refinancing with debt or equity, various joint venture structures or the continued operation of the Company on an independent basis. There can be no assurance that any strategic or financing transaction, including any merger or sale of the Company, will be consummated, and there is no assurance regarding the terms or conditions, including any consideration that might be received by the Company or its shareholders, in any such transaction.
 
Based on the information above, management believes that the Company will generate funds sufficient to complete its current and future development pipeline and to refinance maturing obligations. However, if the Company is unsuccessful in raising capital adequate to fund its development activities or refinance its maturing debt obligations, it will be required to discontinue the funding of some or all of its projects and will be required to liquidate some or all of its projects or some of its operating assets on potentially unfavorable terms. These unfavorable terms could result in significant losses upon liquidation and would have an adverse impact on future rental income, FFO and the Company’s ability to continue the level of its current distributions to holders of its common stock.

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Table of Contents
 
As of March 31, 2002, the Company’s debt requires the following payments in the future:
 
 
Year
   
Expiring
Debt
   
Percent of
Debt Expiring
  
    
(Dollars in thousands)
  
2002
   
$
280,810
   
47.8%
(1)
2003
   
 
83,056
   
14.1%
 
2004
   
 
85,189
   
14.4%
 
2005
   
 
2,761
   
0.5%
 
2006
   
 
2,963
   
0.5%
 
2007
   
 
88,038
   
15.0%
 
2008
   
 
3,414
   
0.6%
 
2009
   
 
3,428
   
0.6%
 
2010
   
 
3,181
   
0.5%
 
2011
   
 
3,411
   
0.6%
 
Thereafter
   
 
31,510
   
5.4%
 
    
  
    
$
587,761
   
100.0%
 
    
  
(1)
 
The Secured Credit Agreement, representing $256,000 of debt maturing in 2002 may be extended by the Company until January 1, 2003 provided the Company is in compliance with the terms of the agreement.
 
With respect to maturing obligations beyond 2003, management will evaluate various alternatives and select the best available options based on market conditions at the time. There can be no assurance, however, that the debt or equity capital markets will be favorable or available in the future, and unfavorable or unavailable markets could limit the Company’s ability to continue to operate its business as it has in the past, complete development projects or repay or refinance maturing debt.
 
Derivatives and Market Risk
 
The Company is exposed to market risk from changes in interest rates on its indebtedness, which could impact its financial condition and results of operations. The Company manages its exposure to these market risks through its regular operating and financing activities. The Company manages its ratio of fixed to floating rate debt with the objective of achieving a mix that management believes is appropriate. The Company has and may from time to time in the future enter into interest rate swap agreements or interest rate cap agreements in an attempt to hedge its exposure to fluctuating interest rates. Management does not foresee or expect any significant changes in its exposure to interest rate fluctuations or in how such exposure is managed in the near future. The Company intends to use derivative financial instruments as risk management tools and not for speculative or trading purposes.

19

Table of Contents
 
As of March 31, 2002, the Company had two interest rate swap agreements and one interest rate cap agreement as described below:
 
Description of Agreement
   
Notional Amount
   
Strike Price
     
Effective Date
   
Termination Date
   
Fair Value
  
    
(in thousands)
                    
(in thousands)
  
LIBOR, 30-day “Rate Cap”
   
$
100,000
   
7.25
%
   
8/20/2000
   
8/21/2002
   
$
—  
 
LIBOR, 30-day “Rate Swap”
   
$
150,000
   
4.62
%
   
3/29/2001
   
12/31/2002
   
$
(2,663
)
LIBOR, 30-day “Rate Swap”
   
$
50,000
   
3.59
%
   
9/11/2001
   
12/31/2002
   
$
(438
)
 
The Company’s future earnings, cash flows and fair values of financial instruments are primarily dependent upon market rates of interest such as LIBOR.
 
Contingencies
 
See “Contingencies” under Part I, Item 1 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2001 and Note 6 to the consolidated financial statements in Part I, Item 1 of this report for further discussion.
 
Inflation
 
The Company’s leases generally contain provisions designed to mitigate the adverse impact of inflation on net income. These provisions include clauses enabling the Company to pass through to tenants certain operating costs, including real estate taxes, common area maintenance, utilities and insurance, thereby reducing the Company’s exposure to increases in certain costs and operating expenses resulting from inflation. Certain of the Company’s leases contain clauses enabling the Company to receive percentage rents based on tenants’ gross sales, which generally increase as prices rise, and, in certain cases, escalation clauses, which generally increase rental rates during the terms of the leases. In addition, many of the Company’s non-anchor leases are for terms of less than ten years, which permits the Company to seek increased rents upon re-leasing at higher market rates.

20

Table of Contents
 
ITEM 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
See “Derivatives and Market Risk” in Part I, Item 2 and Note 3 to the consolidated financial statements in Part I, Item 1 of this report.

21

Table of Contents
 
PART II
 
OTHER INFORMATION
 
ITEM 1.     LEGAL PROCEEDINGS
 
See Note 6 to the consolidated financial statements in Part I, Item 1 of this report.
 
ITEM 2.     CHANGES IN SECURITIES AND USE OF PROCEEDS
 
Not applicable
 
ITEM 3.     DEFAULTS UPON SENIOR SECURITIES
 
Not applicable
 
ITEM 4.     SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
 
None
 
ITEM 5.     OTHER INFORMATION
 
None
 
ITEM
 
6.     EXHIBITS AND REPORTS ON FORM 8-K
 
(a)    Exhibits
 
3.1
   
Articles of Restatement of JDN Realty Corporation (1)
3.2
   
Articles of Merger of JDN Enterprises, Inc. with and into the Company (2)
3.3
   
Amended and Restated Bylaws of the Company, as amended (3)
3.4
   
Form of Articles Supplementary of JDN Realty Corporation classifying the 9 3/8% Series A Cumulative Redeemable Preferred Stock (4)
4.1
   
Specimen Common Stock Certificate (5)
4.2
   
Form of the Company’s 9 3/8% Series A Cumulative Redeemable Preferred Stock Certificate (4)
4.3
   
Form of 6.918% Madatory Par Put Remarketed Securities (SM) (“MOPPRS(SM)”) due March 31, 2013 (6)
4.4
   
Form of 6.80% Global Note due August 1, 2004 (7)
4.5
   
Form of 6.95% Global Note due August 1, 2007 (7)
4.6
   
Form of Articles Supplementary of JDN Realty Corporation classifying the 9 3/8% Series A Cumulative Redeemable Preferred Stock (4)
23
   
Consent of Ernst & Young, LLP
(1)
 
Filed as an exhibit to the Company’s filing on Form 8-K dated November 7, 1996, previously filed pursuant to the Securities Exchange Act of 1934, and hereby incorporated by reference.
(2)
 
Filed as an exhibit to the Company’s Registration Statement on Form S-11 (No. 33-73710) previously filed pursuant to the Securities Act of 1933 and hereby incorporated by reference.
(3)
 
Filed as an exhibit to the Company’s filing on Form 10-K for the year ended December 31, 2001, previously filed pursuant to the Securities Exchange Act of 1934 and hereby incorporated by reference.

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(4)
 
Filed as an exhibit to the Company’s filing on Form 8-A dated September 17, 1998, previously filed pursuant to the Securities Exchange Act of 1934 and hereby incorporated by reference.
(5)
 
Filed as an exhibit to the Company’s Registration Statement on Form S-3 (No. 333-22339) previously filed pursuant to the Securities Act of 1933 and hereby incorporated by reference.
(6)
 
Filed as an exhibit to the Company’s filing on Form 8-K dated April 1, 1998, previously filed pursuant to the Securities Exchange Act of 1934 and hereby incorporated by reference.
(7)
 
Filed as an exhibit to the Company’s filing on Form 8-K dated August 1, 1997, previously filed pursuant to the Securities Exchange Act of 1934 and hereby incorporated by reference.
 
(b)    Reports on Form 8-K
 
 During the three months ended March 31, 2002, the Company filed the following report on Form 8-K:
 
Form 8-K dated February 5, 2002 containing a press release related to the Company’s strategic alternatives

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SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
           
JDN REALTY CORPORATION
             
Date:  May 6, 2002
          
By:  /s/ Craig Macnab
           
Craig Macnab
President and Chief Executive Officer
Date:  May 6, 2002
          
By:  /s/ John D. Harris
           
John D. Harris, Jr.
Senior Vice President and Chief Financial Officer

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INDEX TO EXHIBITS
 
Exhibit Number
     
Exhibit
3.1
     
Articles of Restatement of JDN Realty Corporation (1)
3.2
     
Articles of Merger of JDN Enterprises, Inc. with and into the Company (2)
3.3
     
Amended and Restated Bylaws of the Company, as amended (3)
3.4
     
Form of Articles Supplementary of JDN Realty Corporation classifying the 9 3/8% Series A
Cumulative Redeemable Preferred Stock (4)
4.1
     
Specimen Common Stock Certificate (5)
4.2
     
Form of the Company’s 9 3/8% Series A Cumulative Redeemable Preferred Stock Certificate (4)
4.3
     
Form of 6.918% Madatory Par Put Remarketed Securitiessm (“MOPPRSsm” ) due
March 31, 2013 (6)
4.4
     
Form of 6.80% Global Note due August 1, 2004 (7)
4.5
     
Form of 6.95% Global Note due August 1, 2007 (7)
4.6
     
Form of Articles Supplementary of JDN Realty Corporation classifying the 9 3/8% Series A Cumulative Redeemable Preferred Stock (4)
23
     
Consent of Ernst & Young, LLP
(1)
 
Filed as an exhibit to the Company's filing on Form 8-K dated November 7, 1996, previously filed pursuant to the Securities Exchange Act of 1934, and hereby incorporated by reference.
(2)
 
Filed as an exhibit to the Company's Registration Statement on Form S-11 (No. 33-73710) previously filed pursuant to the Securities Act of 1933 and hereby incorporated by reference.
(3)
 
Filed as an exhibit to the Company's filing on Form 10-K for the year ended December 31, 2001, previously filed pursuant to the Securities Exchange Act of 1934 and hereby incorporated by reference.
(4)
 
Filed as an exhibit to the Company's filing on Form 8-A dated September 17, 1998, previously filed pursuant to the Securities Exchange Act of 1934 and hereby incorporated by reference.
(5)
 
Filed as an exhibit to the Company's Registration Statement on Form S-3 (No. 333-22339) previously filed pursuant to the Securities Act of 1933 and hereby incorporated by reference.
(6)
 
Filed as an exhibit to the Company's filing on Form 8-K dated April 1, 1998, previously filed pursuant to the Securities Exchange Act of 1934 and hereby incorporated by reference.
(7)
 
Filed as an exhibit to the Company's filing on Form 8-K dated August 1, 1997, previously filed pursuant to the Securities Exchange Act of 1934 and hereby incorporated by reference.

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