UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[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 1-7859
IRT PROPERTY COMPANY
--------------------
(Exact name of registrant as specified in its charter)
Georgia 58-1366611
-------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
200 Galleria Parkway, Suite 1400
Atlanta, Georgia 30339
---------------------------------------- -----------------------
(Address of principal executive offices) (Zip Code)
(770) 955-4406
----------------------------------------------------------------
(Registrant's telephone number, including area code)
N/A
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(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 [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at May 13, 2002
------------------------------ ------------------------------------
Common Stock, $1 Par Value 33,561,294 Shares
1
SPECIAL CAUTIONARY NOTICE REGARDING
FORWARD LOOKING STATEMENTS
This Quarterly Report on Form 10-Q for IRT Property Company (the
"Company"), including, but not limited to, the section herein entitled
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," may contain various "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, that are based on the Company's
beliefs and assumptions, as well as information currently available to the
Company. Readers can identify these forward-looking statements through the
Company's use of words such as "may," "will," "intend," "project," "would,"
"could," "should," "expect," "anticipate," "assume," "believe," "estimate,"
"continue" or other similar words. Forward-looking statements involve known and
unknown risks, uncertainties and other factors, which may be beyond the
Company's control. The Company's actual results may differ significantly from
those expressed or implied in such forward-looking statements. Factors that
might cause these differences include, but are not limited to:
- changes in tax laws or regulations, especially those relating to real
estate investment trusts and real estate in general;
- the number, frequency and duration of vacancies that the Company
experiences;
- the Company's ability to solicit new tenants and to obtain lease renewals
from existing tenants on terms that are favorable to the Company;
- tenant bankruptcies and closings;
- the general financial condition of, or possible mergers or acquisitions
involving, the Company's tenants and competitors;
- competition;
- changes in interest rates and national and local economic conditions;
- possible environmental liabilities;
- the availability, cost and terms of financing;
- the Company's ability to identify, acquire, construct or develop
additional properties that result in the returns anticipated or sought;
and
- the Company's ability to effectively integrate properties or portfolio
acquisitions or other mergers or acquisitions.
Readers should not rely on the information contained in any forward-looking
statements and should not expect the Company to update or revise any
forward-looking statements. With respect to such forward-looking statements,
the Company claims protection under the Private Securities Litigation Reform Act
of 1995. The information in this Report, including the information contained in
forward-looking statements, is also qualified by the special cautionary notice
regarding forward-looking statements and the information in the section entitled
"Risk Factors" contained in the Company's Annual Report on Form 10-K for the
year ended December 31, 2001 and other filings that the Company makes with the
Securities and Exchange Commission, which are incorporated herein by reference.
The documents that the Company files with the Securities and Exchange Commission
are available from the Company, and also may be examined at public reference
facilities maintained by the Securities and Exchange Commission or, to the
extent filed via EDGAR, accessed through the Internet website of the Securities
and Exchange Commission (http://www.sec.gov).
2
ITEM 1. FINANCIAL STATEMENTS
IRT PROPERTY COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
March 31, December 31,
2002 2001
------------ ------------
(Unaudited)
ASSETS
Real estate investments:
Rental properties $ 666,835 $ 659,820
Properties under development 27,506 22,599
------------ ----------
694,341 682,419
Accumulated depreciation (113,251) (109,344)
------------ ----------
Net rental properties 581,090 573,075
Net investment in direct financing leases 2,140 2,174
Mortgage loans, net 1,217 1,160
------------ ----------
Net real estate investments 584,447 576,409
Cash and cash equivalents 14 2,457
Prepaid expenses and other assets 11,767 11,634
------------ ----------
Total assets $ 596,228 $ 590,500
============ ==========
LIABILITIES & SHAREHOLDERS' EQUITY
Liabilities:
Mortgage notes payable, net $ 133,582 $ 134,672
7.3% convertible subordinated debentures, net - 23,275
Senior notes, net 149,771 124,760
Indebtedness to banks 60,047 51,654
Accrued interest 3,990 4,598
Accrued expenses and other liabilities 8,762 10,652
------------ ----------
Total liabilities 356,152 349,611
Commitments and contingencies (Note 7)
Minority interest payable 7,705 7,755
Shareholders' equity:
Preferred stock, $1 par value, authorized 10,000,000 shares;
none issued - -
Common stock, $1 par value, 150,000,000 shares authorized;
33,234,206 shares issued in 2001 and 2000, respectively 33,234 33,234
Additional paid-in capital 272,286 272,172
Deferred compensation/stock loans (1,703) (1,732)
Treasury stock, at cost, 2,738,204 and 2,889,276 shares
in 2001 and 2000, respectively (22,464) (22,783)
Cumulative distributions in excess of net earnings (48,982) (47,757)
------------ ----------
Total shareholders' equity 232,371 233,134
------------ ----------
Total liabilities and shareholders' equity $ 596,228 $ 590,500
============ ==========
The accompanying notes are an integral part of these consolidated balance
sheets.
3
IRT PROPERTY COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
FOR THE THREE MONTHS ENDED MARCH 31, 2002 AND 2001
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Three Months Ended
March 31,
------------------
2002 2001
-------- --------
REVENUES:
Income from rental properties $22,334 $21,254
Interest income 19 132
Interest on direct financing leases 122 190
Gain on sale of outparcels - 293
-------- --------
Total revenues 22,475 21,869
-------- --------
EXPENSES:
Operating expenses of rental properties 5,484 5,326
Interest expense 5,654 5,649
Depreciation 3,907 3,723
Amortization of debt costs 148 148
General and administrative 1,028 970
-------- --------
Total expenses 16,221 15,816
Equity in (losses) earnings of unconsolidated affiliates - (4)
-------- --------
Earnings before income taxes, minority interest,
and extraordinary item 6,254 6,049
Income tax provision (9) -
Minority interest of unitholders in operating partnership (142) (61)
-------- --------
Earnings before extraordinary item 6,103 5,988
EXTRAORDINARY ITEM:
Loss on extinguishment of debt (156) -
-------- --------
Net earnings $ 5,947 $ 5,988
======== ========
PER SHARE: (Note 8)
Earnings before extraordinary item - basic $ 0.20 $ 0.20
Extraordinary item - basic - -
-------- --------
Net earnings - basic $ 0.20 $ 0.20
======== ========
Earnings before extraordinary item - diluted $ 0.19 $ 0.19
Extraordinary item - diluted - -
-------- --------
Net earnings - diluted $ 0.19 $ 0.19
======== ========
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING:
Basic 30,443 30,213
======== ========
Diluted 31,415 31,064
======== ========
The accompanying notes are an integral part of these consolidated statements.
4
IRT PROPERTY COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2002 AND 2001
(UNAUDITED)
(IN THOUSANDS)
Three Months Ended
March 31,
-------------------
2002 2001
--------- --------
Cash flows from operating activities:
Net earnings $ 5,947 $ 5,988
Adjustments to reconcile earnings to net cash from operating activities:
Depreciation 3,907 3,723
Gain on sale of outparcels - (293)
Extraordinary loss on extinguishment of debt 156 -
Minority interest of unitholders in partnership (50) (131)
Straight line rent adjustment (175) (111)
Amortization of deferred compensation 29 30
Amortization of debt costs and discounts 149 159
Amortization of capitalized leasing income 34 51
Changes in assets and liabilities:
Increase in accrued interest on debentures and senior notes (655) (853)
(Increase) decrease in interest receivable, prepaid expenses
and other assets (14) 829
Decrease in accrued expenses and other liabilities (1,839) (680)
--------- --------
Net cash flows from operating activities 7,489 8,712
--------- --------
Cash flows used in investing activities:
Additions to operating properties, net (2,214) (925)
Additions to development properties, net (4,907) (1,610)
Proceeds from sale of outparcels, net - 348
Purchase of unconsolidated affiliate, net of assets acquired - 177
Distribution from dissolution of unconsolidated affiliate - 21
Funding of mortgage loans (59) (114)
Collections of mortgage loans, net 2 2
--------- --------
Net cash flows used in investing activities (7,178) (2,101)
--------- --------
Cash flows (used in) provided by financing activities:
Cash dividends, net (7,172) (7,120)
Purchase of treasury stock - (405)
Exercise of stock options 252 69
Issuance of shares under stock purchase plan 11 -
Principal amortization of mortgage notes payable (693) (601)
Repayment of mortgage notes payable (5,198) -
Proceeds from 7.84% senior notes issuance 25,000 -
Proceeds from 7.77% senior notes issuance - 50,000
Repayment of 7.3% convertible subordinated debentures (23,110) -
Increase in bank indebtedness 8,393 2,000
Payment of deferred financing costs (237) (897)
--------- --------
Net cash flows (used in) provided by financing activities (2,754) 43,046
--------- --------
Net (decrease) increase in cash and cash equivalents (2,443) 49,657
Cash and cash equivalents at beginning of period 2,457 831
--------- --------
Cash and cash equivalents at end of period $ 14 $50,488
========= ========
Supplemental disclosures of cash flow information:
Total cash paid during period for interest $ 6,450 $ 6,627
========= ========
Non-cash transaction:
Assumption of mortgage in connection with acquisition $ 4,800 $ -
========= ========
The accompanying notes are an integral part of these consolidated statements.
5
IRT PROPERTY COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2002 AND 2001
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1. UNAUDITED FINANCIAL STATEMENTS
These consolidated financial statements for interim periods are unaudited
and should be read in conjunction with the Company's Annual Report on Form 10-K
for the year ended December 31, 2001. The accompanying consolidated financial
statements include the accounts of IRT Property Company and its wholly-owned
subsidiaries, IRT Management Company ("IRTMC"), VW Mall, Inc., IRT Alabama, Inc.
("IRTAL") and IRT Capital Corporation II ("IRTCCII"), and its majority-owned
subsidiary, IRT Partners L.P. ("LP") (collectively, the "Company"). Intercompany
transactions and balances have been eliminated in the consolidation. In the
opinion of management, all adjustments (which include only normal recurring
adjustments) necessary to a fair presentation of the financial statements as of
March 31, 2002 and 2001 have been recorded. The results of operations for the
interim periods presented are not necessarily indicative of the results that may
be expected for future interim periods or for the full year.
2. RENTAL PROPERTIES
The rental property acquired in 2002 is summarized below.
SHOPPING CENTER ACQUISITIONS
Date Square Year Built/ % Leased Total Initial
Acquired Property Name City, State Footage Renovated at Acquisition Cost Cash Paid
-------- ----------------- ----------- ------- ---------- --------------- -------------- ----------
2/19/02 Parkwest Crossing Durham, NC 85,602 1991 100% $6,620 $ 1,946
In connection with the acquisition of Parkwest Crossing, the Company
assumed a $4,800, 8.1% mortgage. See note 4.
3. ADVANCES TO AFFILIATES
As of March 31, 2002, LP, IRTCCII, IRTAL and IRTMC guaranteed the Company's
indebtedness under the Company's existing unsecured revolving term loan and its
other senior debt. The guarantees are joint and several and full and
unconditional.
GUARANTORS
---------------------------- CONSOLIDATED
IRT PROPERTY COMBINED IRT ELIMINATING IRT PROPERTY
COMPANY SUBSIDIARIES PARTNERS, LP ENTRIES COMPANY
------------- ------------- ------------- ------------- -------------
AS OF MARCH 31, 2002
ASSETS
Net rental properties $ 399,285 $ 30,393 $ 151,412 $ - $ 581,090
Investment in affiliates 124,107 - - (124,107) -
Other assets 35,563 36,558 21,308 (78,291) 15,138
------------- ------------- ------------- ------------- -------------
Total assets 558,955 66,951 172,720 (202,398) 596,228
============= ============= ============= ============= =============
LIABILITIES
Mortgage notes payable 87,436 4,072 42,074 - 133,582
Senior Notes, net 149,771 - - - 149,771
Indebtedness to banks 60,047 - - - 60,047
Other liabilities 63,495 25,392 2,155 (70,585) 20,457
------------- ------------- ------------- ------------- -------------
Total liabilities 360,749 29,464 44,229 (70,585) 363,857
------------- ------------- ------------- ------------- -------------
SHAREHOLDERS' EQUITY
Total shareholders' equity 198,206 37,487 128,491 (131,813) 232,371
------------- ------------- ------------- ------------- -------------
Total liabilities and shareholders' equity $ 558,955 $ 66,951 $ 172,720 $ (202,398) $ 596,228
============= ============= ============= ============= =============
6
GUARANTORS
---------------------------- CONSOLIDATED
IRT PROPERTY COMBINED IRT ELIMINATING IRT PROPERTY
COMPANY SUBSIDIARIES PARTNERS, LP ENTRIES COMPANY
------------- ------------- ------------- ------------- -------------
AS OF DECEMBER 31, 2001
ASSETS
Net rental properties $ 399,312 $ 28,138 $ 145,625 $ - $ 573,075
Investment in affiliates 122,168 - - (122,168) -
Other assets 35,677 33,488 21,248 (72,988) 17,425
------------- ------------- ------------- ------------- -------------
Total assets 557,157 61,626 166,873 (195,156) 590,500
============= ============= ============= ============= =============
LIABILITIES
Mortgage notes payable 93,115 4,093 37,464 - 134,672
Senior Notes, net 124,760 - - - 124,760
Indebtedness to banks 51,654 - - - 51,654
Other liabilities 84,928 24,431 2,154 (65,233) 46,280
------------- ------------- ------------- ------------- -------------
Total liabilities 354,457 28,524 39,618 (65,233) 357,366
------------- ------------- ------------- ------------- -------------
SHAREHOLDERS' EQUITY
Total shareholders' equity 202,700 33,102 127,255 (129,923) 233,134
------------- ------------- ------------- ------------- -------------
Total liabilities and shareholders' equity $ 557,157 $ 61,626 $ 166,873 $ (195,156) $ 590,500
============= ============= ============= ============= =============
GUARANTORS
------------------------------ CONSOLIDATED
IRT PROPERTY COMBINED IRT ELIMINATING IRT PROPERTY
COMPANY SUBSIDIARIES PARTNERS, LP ENTRIES COMPANY
-------------- -------------- -------------- ------------- --------------
FOR THE THREE MONTHS ENDED MARCH 31, 2002
REVENUES
Income from rental properties $ 15,516 $ 427 $ 6,391 $ - $ 22,334
Interest Income 133 (80) 79 (113) 19
Interest on direct financing leases 122 - - - 122
Other income 27 2,511 - (2,538) -
-------------- -------------- -------------- ------------- --------------
Total revenues 15,798 2,858 6,470 (2,651) 22,475
-------------- -------------- -------------- ------------- --------------
EXPENSES
Operating expenses of rental properties 3,662 110 1,712 - 5,484
Interest expense 4,935 66 766 (113) 5,654
Depreciation 2,805 66 1,036 - 3,907
Amortization of debt costs 143 1 4 - 148
General and administrative 696 60 272 - 1,028
-------------- -------------- -------------- ------------- --------------
Total expenses 12,241 303 3,790 (113) 16,221
-------------- -------------- -------------- ------------- --------------
Equity in earnings (losses) of affiliates 2,546 - - (2,546) -
-------------- -------------- -------------- ------------- --------------
Earnings before income taxes, minority
interest, gain on sales of properties and
extraordinary item 6,103 2,555 2,680 (5,084) 6,254
Income tax provision - (9) - - (9)
Minority interest in operating partnership - - - (142) (142)
Gain on sales of properties - - - - -
-------------- -------------- -------------- ------------- --------------
Earnings before extraordinary item 6,103 2,546 2,680 (5,226) 6,103
Extraordinary item - loss on extinguishment
of debt (156) - - - (156)
-------------- -------------- -------------- ------------- --------------
Net Earnings $ 5,947 $ 2,546 $ 2,680 $ (5,226) $ 5,947
============== ============== ============== ============= ==============
Net cash flows provided by (used in)
operating activities $ 4,624 $ 2,233 $ 3,341 $ (2,709) $ 7,489
============== ============== ============== ============= ==============
Net cash flows (used in) provided by
investing activities $ (2,836) $ (2,320) $ (2,022) $ - $ (7,178)
============== ============== ============== ============= ==============
Net cash flows (used in) provided by
financing activities $ (4,320) $ 46 $ (1,189) $ 2,709 $ (2,754)
============== ============== ============== ============= ==============
7
GUARANTORS
------------------------------ CONSOLIDATED
IRT PROPERTY COMBINED IRT ELIMINATING IRT PROPERTY
COMPANY SUBSIDIARIES PARTNERS, LP ENTRIES COMPANY
------------- -------------- -------------- ------------- --------------
FOR THE THREE MONTHS ENDED MARCH 31, 2001
REVENUES
Income from rental properties $ 15,236 $ 278 $ 5,740 $ - $ 21,254
Interest Income 132 - - - 132
Interest on direct financing leases 190 - - - 190
Other income 29 2,569 293 (2,598) 293
------------- -------------- -------------- ------------- --------------
Total revenues 15,587 2,847 6,033 (2,598) 21,869
------------- -------------- -------------- ------------- --------------
EXPENSES
Operating expenses of rental properties 3,709 66 1,551 - 5,326
Interest expense 4,959 68 622 - 5,649
Depreciation 2,735 28 960 - 3,723
Amortization of debt costs 147 1 - - 148
General and administrative 690 39 241 - 970
------------- -------------- -------------- ------------- --------------
Total expenses 12,240 202 3,374 - 15,816
------------- -------------- -------------- ------------- --------------
Equity in earnings (losses) of affiliates 2,641 (3) - (2,642) (4)
------------- -------------- -------------- ------------- --------------
Earnings before income taxes, minority
interest and gain on sales of properties 5,988 2,642 2,659 (5,240) 6,049
Income tax provision - - - - -
Minority interest in operating partnership - - - (61) (61)
------------- -------------- -------------- ------------- --------------
Net Earnings $ 5,988 $ 2,642 $ 2,659 $ (5,301) $ 5,988
============= ============== ============== ============= ==============
Net cash flows provided by (used in)
operating activities $ 5,872 $ 1,975 $ 3,653 $ (2,788) $ 8,712
============= ============== ============== ============= ==============
Net cash flows (used in) provided by
investing activities $ 7,159 $ (954) $ (7,394) $ (912) $ (2,101)
============= ============== ============== ============= ==============
Net cash flows (used in) provided by
financing activities $ 43,194 $ (972) $ (2,896) $ 3,720 $ 43,046
============= ============== ============== ============= ==============
4. MORTGAGE NOTES PAYABLE
On February 19, 2002, the Company assumed a non-recourse, secured loan
totaling $4,800, in connection with the acquisition of Parkwest Crossing. The
secured loan has a fixed interest rate of 8.1%. The loan is due and payable
September 1, 2010 and the principal amortization is based on a thirty year
amortization schedule. Costs associated with assuming the secured loan totaled
$56 and is being amortized over the term of the loan.
On March 1, 2002, the Company prepaid a 9.63% secured loan of approximately
$5,198. The loan was due on June 1, 2002.
5. 7.3% CONVERTIBLE SUBORDINATED DEBENTURES
On January 24, 2002, the Company redeemed all of the outstanding 7.3%
convertible subordinated debentures due August 15, 2003 at par plus accrued
interest. Prior to redemption, 165 bonds were converted into 14,659 shares of
common stock. The Company paid $23,110 to redeem the remaining bonds
outstanding.
6. SENIOR NOTES
On January 23, 2002, pursuant to the Medium Term Note Program (the "MTN
Program") established in 2001, the Company issued $25,000 of 7.84% senior
unsecured notes due January 23, 2012. Interest on these senior notes is payable
semi-annually on January 23 and July 23. Costs associated with the issuance of
these senior notes totaled approximately $262 and are being amortized over the
life of the notes.
8
7. COMMITMENTS AND CONTINGENCIES
Certain of the Company's properties have environmental concerns that have
been or are being addressed. The Company maintains limited insurance coverage
for this type of environmental risk. Although no assurance can be given that
Company properties will not be affected adversely in the future by environmental
problems, the Company presently believes that there are no environmental matters
that are reasonably likely to have a material adverse effect on the Company's
financial position.
8. EARNINGS PER SHARE
Basic earnings per share is computed by dividing net earnings by the
weighted average number of shares outstanding during the period. The effects of
the conversion of the operating partnership units held by the minority interest
are dilutive for the three months ended March 31, 2002 and 2001 and have been
included in the calculation of diluted earnings per share for those periods. For
the three months ended March 31, 2002 and 2001, the effects of the conversion of
the 7.3% debentures have been excluded from the calculation of diluted earnings
per share as they are anti-dilutive for those periods. The effects of certain
stock options and non-vested restricted stock, using the treasury stock method,
have been included in the calculation of diluted earnings per share, as they are
dilutive for all periods presented.
Per Share
Income Shares Amount
------- ------ ---------
(In thousands except per share amounts)
For the three months ended March 31, 2002
----------------------------------------------------------
Basic net earnings available to shareholders $ 5,947 30,443 $ 0.20
=========
Options outstanding - 144
Restricted Stock - 12
Minority interest of unitholders in operating partnership 142 816
Diluted net earnings available to shareholders $ 6,089 31,415 $ 0.19
======= ====== =========
For the three months ended March 31, 2001
----------------------------------------------------------
Basic net earnings available to shareholders $ 5,988 30,213 $ 0.20
=========
Options outstanding - 28
Restricted Stock - 7
Minority interest of unitholders in operating partnership 61 816
Diluted net earnings available to shareholders $ 6,049 31,064 $ 0.19
======= ====== =========
9. SUBSEQUENT EVENTS
On April 18, 2002, the Company completed construction on Conway Crossing, a
72,720-square-foot shopping center located in Orlando, Florida. Conway Crossing
is anchored by a 44,270-square-foot Publix Supermarket and includes 28,450
square feet of specialty shops.
On May 3, 2002, the Company completed a public offering of 3,000,000, or
3,450,000 shares if the underwriters exercise their over-allotment option in
full (collectively, the "Shares"), of the Company's $1.00 par value common
stock. The Shares were priced at $11.79 and the net proceeds of the offering to
the Company, after the underwriters' discount, will be approximately $33.3
million, or $38.3 million if the underwriters exercise their over-allotment
option in full.
9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(Dollars in thousands, except per share amounts)
The following discussion and analysis should be read in conjunction with
the consolidated financial statements and notes thereto included elsewhere in
this report.
OVERVIEW
IRT Property Company ("IRT" or the "Company") was founded in 1969 and
became a public company in May 1971 (NYSE: IRT). The Company is an owner,
operator, redeveloper and developer of high quality, well located neighborhood
and community shopping centers throughout the southeastern United States. The
Company's portfolio consists of 88 shopping centers, three shopping center
investments, four development properties, one industrial property and four
mortgage loans. The 88 shopping centers and the three shopping center
investments total approximately 9.7 million square feet of retail space and are
located in eleven southeastern states. IRT shopping centers are anchored by
necessity-oriented retailers such as supermarkets, drug stores, national value
retailers and department stores.
GEOGRAPHIC MARKETS
The Company owns and operates 88 shopping centers in ten states primarily
located in Florida (25), Georgia (20), Louisiana (14) and North Carolina (14).
The following table summarizes the Company's shopping centers by state for total
gross leasable area ("GLA") and rental income for the three months ended March
31, 2002 and for the year ended December 31, 2001:
% OF GLA % OF RENTAL INCOME
------------------------- -------------------------
MARCH 31, DECEMBER 31, MARCH 31, DECEMBER 31,
2002 2001 2002 2001
---------- ------------- ---------- -------------
Florida 32.0% 32.3% 39.2% 38.4%
Georgia 24.7% 25.1% 24.7% 25.6%
Louisiana 17.6% 17.8% 14.1% 14.4%
North Carolina 13.4% 12.5% 11.2% 11.2%
Tennessee 3.7% 3.7% 3.5% 3.2%
Virginia 2.8% 2.8% 2.2% 2.3%
South Carolina 2.6% 2.6% 2.1% 2.0%
Alabama 2.1% 2.1% 2.1% 2.2%
Mississippi 0.7% 0.7% 0.5% 0.3%
Kentucky 0.4% 0.4% 0.4% 0.4%
---------- ------------- ---------- -------------
100.0% 100.0% 100.0% 100.0%
========== ============= ========== =============
10
TENANTS AND LEASING
The Company's 88 shopping centers are anchored by necessity-oriented
retailers such as supermarkets, drug stores, national value retailers and
department stores. The Company's five largest tenants, as a percentage of
revenues, are Publix (8.4%), Kroger (7.1%), Wal-Mart (4.6%), Kmart (4.3%) and
Winn Dixie (2.6%). As of March 31, 2002, of the Company's 9.7 million square
feet of retail space, approximately 2.8 million, or 28.4%, was leased to grocery
stores. Including anchor tenants, the Company has over 1,000 different tenants.
The following table represents the percent leased and the average base rent per
square foot by state as of the three months ended March 31, 2002 and for the
year ended December 31, 2001:
AVERAGE BASE RENT
% LEASED PER SQUARE FOOT
------------------------- -------------------------
MARCH 31, DECEMBER 31, MARCH 31, DECEMBER 31,
2002 2001 2002 2001
---------- ------------- ---------- -------------
Florida 94% 92% $ 9.02 $ 9.10
Georgia 94% 95% 8.20 8.19
Louisiana 87% 87% 7.28 7.22
North Carolina 94% 94% 6.93 6.64
Tennessee 97% 97% 6.62 6.60
Virginia 92% 92% 6.97 6.93
South Carolina 95% 95% 6.09 6.06
Alabama 99% 98% 7.92 7.90
Mississippi 100% 100% 5.62 5.62
Kentucky 91% 94% 7.81 7.81
---------- ------------- ---------- -------------
Total of all properties 93% 93% $ 7.96 $ 7.94
========== ============= ========== =============
The overall percent leased remained constant at 93% for both the three
months ended March 31, 2002 and for the year ended December 31, 2001. This was
due to the releasing of a former Jitney Jungle locations of approximately 49,968
square feet in 2002, partially offset by lease expirations for several small
shop tenants.
Base rent per square foot increased from $7.94 per square foot for the year
ended December 31, 2001 to $7.96 per square foot for the three months ended
March 31, 2002 due to increased renewal rental rates and higher rates on the new
properties. The Company renewed leases during 2002 at an average increase of
5.5% in rental revenues. The Company also completed one development and
purchased two properties during 2001, which have higher base rents per square
foot.
The necessity-oriented retailers, such as those occupying the Company's
properties, typically perform well in an economic recession; however, adverse
changes in general or local economic conditions could result in the inability of
some existing tenants to meet their lease obligations and could adversely affect
the Company's ability to attract or retain tenants.
In October 1999, a grocery anchor, Jitney Jungle, filed for reorganization
under Chapter 11 of the United States Bankruptcy Code. At the time of filing,
the Company had leases with Jitney Jungle at 10 store locations. Jitney Jungle
disavowed two of these leases at the time of the bankruptcy filing. During 2000,
Jitney Jungle rejected three additional leases, and in January 2001 the
remaining five leases were rejected by the bankruptcy court. As of March 31,
2002, of the 10 original Jitney Jungle locations, three are fully leased to
grocery operators, three are fully leased to other national tenants and one is
partially leased to a national tenant. The Company is negotiating with retailers
for two of the remaining three locations.
11
On January 22, 2002, one of the Company's anchor tenants, Kmart
Corporation, filed for bankruptcy protection. The Company has eight stores
leased to Kmart, which accounted for 4.3% of the Company's total revenues for
the three months ended March 31, 2002. On March 8, 2002, Kmart Corporation
announced nationwide store closings that included two stores in IRT's portfolio.
The two stores, located at Pinhook Plaza and Siegen Village in Louisiana, are
scheduled to close when store-closing inventory sales are completed. Rental
income from these two stores in 2001 was approximately $730, including base
rents and all related charges of property taxes and common area maintenance. The
Company is aggressively marketing these locations to prospective tenants and
presently believes revenue lost when the stores close will not have a material
adverse affect on the Company.
Other tenants have also filed for protection under bankruptcy laws,
however; the Company presently believes the potential financial losses likely
will not be significant with regard to the Company's overall portfolio of
tenants.
As of March 31, 2002, our leases with anchor tenants had a weighted average
life of 7.38 years. Anchor tenants are defined as supermarkets, drug stores,
national value retailers, department stores and other tenants leasing in excess
of 10,000 square feet which, in management's opinion, have the
traffic-generating qualities necessary to be considered an anchor. Our leases
with shop tenants, which include all other tenants except anchors, had a
weighted average life of 2.42 years as of March 31, 2002. The following table
represents anchor and shop tenant lease expirations as of March 31, 2002:
APPROXIMATE ANNUALIZED
NUMBER OF LEASED BASE RENT AVERAGE
LEASE YEAR LEASES AREA IN UNDER EXPIRING BASE RENT
EXPIRATION EXPIRING SQUARE FEET LEASES PER SQUARE FOOT
---------- --------- ----------- --------------- ----------------
2002 228 507,580 $ 5,586,631 $ 11.01
2003 315 874,178 8,901,464 10.18
2004 290 799,948 8,350,768 10.44
2005 231 911,063 7,937,761 8.71
2006 187 892,075 8,300,336 9.30
2007 88 726,618 5,200,781 7.16
2008 22 405,751 2,444,934 6.03
2009 26 784,006 4,188,050 5.34
2010 20 313,860 2,077,786 6.62
2011 17 496,761 3,202,601 6.45
2012 14 421,395 2,956,503 7.02
Thereafter 50 1,725,695 12,121,532 7.02
--------- ----------- --------------- ----------------
Total 1,488 8,858,930 $ 71,269,147 $ 8.04
========= =========== =============== ================
12
CRITICAL ACCOUNTING POLICIES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Significant estimates and assumptions within the
financial statements include valuation adjustments to tenant related accounts,
determination of useful lives of assets subject to depreciation or amortization
and impairment evaluation of operating and development properties and other
long-term assets. However, application of these accounting policies involves the
exercise of judgment and use of assumptions as to future uncertainties and, as a
result, actual results could differ significantly from those estimates.
Additional discussion of accounting policies that we consider to be
significant, including further discussion of the critical accounting policies
described below, are included in the notes to the consolidated financial
statements in Item 8 of this report.
Revenue Recognition
Leases with tenants are accounted for as operating leases. Rental revenue
is recognized on a straight-line basis over the initial lease term. Certain
tenants are required to pay percentage rents based on their gross sales
exceeding specified amounts. This percentage rental revenue is recorded upon
collection. The Company receives reimbursements from tenants for real estate
taxes, common area maintenance and other recoverable costs. These tenant
reimbursements are recognized as revenue in the period the related expense is
recorded.
The Company makes valuation adjustments to all tenant related revenue based
upon the tenant's credit and business risk. The Company suspends the accrual of
income on specific investments where interest, reimbursement or rental payments
are delinquent sixty days or more. These valuation adjustments are estimates
that affect the Company's net earnings since an increase or decrease in the
valuation adjustments directly leads to a decrease or increase in net earnings,
respectively.
Rental Properties
Rental properties are stated at cost less accumulated depreciation. Costs
incurred for the acquisition, renovation, and betterment of the properties are
capitalized and depreciated over their estimated useful lives. Recurring
maintenance and repairs are charged to expense as incurred. Depreciation is
computed on a straight-line basis generally for a period of sixteen to forty
years for buildings and significant improvements. Tenant improvements are
depreciated on a straight-line basis over the life of the related lease.
13
When costs are capitalized, the Company must make a judgment of the useful
life of the asset for purposes of determining the amount of yearly depreciation,
which affects net earnings. If the useful life were increased, yearly
depreciation would be reduced, thus increasing net earnings.
Impairment of Properties
The Company, periodically evaluates the carrying value of its long-lived
assets, including operating properties, in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 144, "Accounting for the Impairment
or Disposal of Long-Lived Assets." Impairment is based on whether it is probable
that undiscounted future cash flows from each property will be less than its net
book value. The Company assesses whether there are any indicators that the value
of the asset may be impaired. In addition, judgments are made in calculating the
undiscounted cash flows using a probability-weighted cash flow estimation
approach to measure the impairment loss of a long-lived asset. These assessments
and judgments could have a material impact on net earnings since, if an
impairment exists, the asset is written down to its estimated fair value and an
impairment loss is recognized thereby reducing net earnings.
RESULTS OF OPERATIONS
COMPARISON OF THE THREE MONTHS ENDED MARCH 31, 2002 TO THE THREE MONTHS ENDED
2001
Revenues
Total revenues increased $606, or 2.8%, to $22,475 in 2002 primarily due to
an increase in income from rental properties of $1,080, which was partially
offset by decreases in interest income of $113, interest on direct financing
leases of $68 and gains on sale of outparcels of $293.
Income from rental properties increased $1,080, or 5.1%, to $22,334 in
2002. Included in income from rental properties is minimum rent, percentage rent
and other rental income. Minimum rents increased $881, or 5.2%, primarily due to
an increase in rental rates per square foot from $7.94 in 2001 to $7.96 in 2002
and the core portfolio of properties contributing $679, or an increase of 3.2%,
over 2001. The core portfolio is defined as properties held in the same
corresponding period from the current and prior year, excluding those properties
sold or acquired during the same corresponding period. Income from rental
properties increased $631 due to one property acquired in 2002 and two
properties acquired in 2001 which was partially offset by a $229 decrease in
income attributable to the sale of four properties in 2001. Percentage rent,
based on tenant's gross sales exceeding specified amounts, decreased $159, or
26.8%, to $434 for 2002 due to several anchor tenants closing in 2001. Other
rental income such as tenant reimbursements, tenant allowances (bad debt
reserves) and lease cancellation fees, increased $358, or 9.7%, to $4,045. This
increase was partially due to an increase in tenant reimbursements for common
area maintenance ("CAM") of $276, or 7.5%. Tenant allowances decreased $58, or
37.1%, from 2001 and represented only 0.4% of rental income in 2002. Lease
cancellation fees decreased $85, or 94.3%, due to the one-time lease termination
fee of an anchor in 2001.
Interest income decreased $113, or 85.6%, to $19 in 2002 from $132 in 2001.
The decrease was due to interest charged on a development loan that was repaid
in 2001 and a decrease in interest on cash investments.
Interest on direct financing leases decreased $68, or 35.8%, due to the
sale of one direct financing lease investment in May 2001.
In 2001, the Company sold a land outparcel that was located at one of the
Company's shopping centers, resulting in a gain of $293. No such outparcel
sales occurred in 2002.
14
Expenses
Total expenses increased $405, or 2.6%, to $16,221 in 2002 due to increases
in operating expenses of rental properties of $158, interest expense of $5,
depreciation of $184 and administrative expenses of $58.
Operating expenses of rental properties increased $158, or 3.0%, to $5,484
in 2002. This increase was partially due to an increase of real estate taxes of
$159, or 8.3%, over 2001 as a result of increased property values. Insurance
costs increased by $288, or 96.7%, over 2001 due to a general and ordinary
increase in premiums. The Company amortizes lease fees that are capitalized and
the amortization expense increased $34, or 11.9%, in 2002 due to increased
leasing activity in 2001 in connection with the releasing of the former Jitney
Jungle stores. During 2002, the Company executed over 250,000 square feet of new
or renewed leases. Tenant reimbursable operating expenses decreased $225, or
12.8%, primarily due to lower operating and maintenance costs. Overall, the
operating expenses of properties increased due to core portfolio operating
expenses increasing $31, or 0.6%, over 2001 and the one property acquired in
2002 with the three properties acquired during 2001 increasing expenses $189.
These increases were partially offset by a decrease in expenses of $61 from the
sales of four properties during 2001.
Interest expense increased $5, or 0.1%, in 2002 primarily due to the higher
interest rate on the three mortgage notes obtained in the second quarter of 2001
and the new senior unsecured notes issued in January 2002. This interest
increase was partially offset by a decrease of $404 on bank interest due to a
lower effective interest rate of 3.95% in 2002 as compared to 7.65% in 2001.
The net increase of $184, or 4.9%, in depreciation expense in 2002 was due
to the acquisition of a shopping center in the first quarter of 2002 and two
shopping centers during 2001, net of the effect of the disposition of three
properties in 2001.
Amortization of debt costs was consistent due to the $25,000 of 7.84%
senior notes issued in January 2002 and the $50,000 of 7.77% senior notes issued
in March 2001, offset by the write-off of costs relating to the redemption of
the 7.3% convertible bonds in January 2002.
General and administrative expenses increased $58, or 6.0%, to $1,028 in
2002. $199 of this increase relates to salary expenses for additional personnel,
primarily for development efforts, partially offset by a $85 increase of
capitalized development costs, as compared to 2001, and a decrease in office
expenses of $68 over 2001. Total general and administrative expenses as a
percentage of total revenues was 4.6% and 4.4% for 2002 and 2001, respectively.
Other
Income taxes were $9 in 2002 compared to no income tax expense in 2001 due
to a subsidiary not having taxable income until the second quarter of 2001.
Minority interest expense increased $81, or 133.0%, to $142 in 2002.
Minority interest represents the interest of an unaffiliated limited partner in
the earnings of a partnership with the Company. Due to the Company acquiring one
property in 2002 and two properties in 2001 for inclusion in the partnership,
the net earnings of the partnership have increased and the Company has increased
its percentage ownership of the partnership from 93.0% in 2001 to 94.4% in 2002.
Due to the early extinguishment of the 7.3% convertible debentures in
January 2002, the Company recognized an extraordinary loss on the unamortized
debt issue costs. No such transaction occurred in 2001.
15
Net Earnings
Net earnings decreased $41, or 0.7%, to $5,947 in 2002 from $5,988 in 2001.
The decrease was attributable to a one time extraordinary loss on the
extinguishment of debt and higher operating expenses of the properties along
with higher general and administrative expenses. These increases in expenses
were partially offset by an increase in revenues primarily from the increase in
base rents per square foot and rental revenues.
COMPARISON OF THE THREE MONTHS ENDED MARCH 31, 2001 TO THE THREE MONTHS ENDED
MARCH 31, 2000
Revenues
Total revenues increased $401, or 1.9%, to $21,869 in 2001. This increase
is due to a $190 increase in income in rental properties, a $2 increase in
interest on direct financing leases and a $293 increase in other income. These
increases were partially offset by a $84 decrease in interest income.
Income from rental properties increased $190, or 0.9%, to $21,254 in 2001.
Included in income from rental properties is minimum rent, percentage rent and
other rental income. Minimum rents decreased $31, or 0.2%, primarily from the
decrease in income of $240 related to the sales of five properties in 2000. This
decrease was partially offset by an increase in revenues related to an
acquisition in 2000 of $457 and an increase in rental rates per square foot from
$7.75 in 2000 to $7.87 in 2001. Percentage rent, based on tenant's gross sales
exceeding specified amounts, decreased $15, or 2.5%, to $593 for 2001. Other
rental income, such as tenant reimbursements, tenant allowances and lease
cancellation fees, increased $236, or 6.8%, to $3,687. This increase was
partially due to an increase in tenant reimbursements for CAM of $195, or 5.6%.
Tenants reimburse us for specific expenses relating to the property such as
maintenance, taxes and insurance. Tenant allowances increased $57, or 56.6%,
from 2000 and represented only 0.7% of rental income in 2001. Lease cancellation
fees increased $80 to $90 in 2001 due to a termination of an anchor tenant. The
core portfolio's income decreased by $27, or 0.1%.
Interest income decreased $84, or 38.9%, to $132 in 2000 from $216 in 2000.
The decrease was due to a new loan pursuant to lower interest rates on loans for
development.
Interest on direct financing leases increased $2, or 1.1%, due to normal
recurring principal amortization of the direct financing leases.
Other income in 2001 of $293 represented the gain on an outparcel sale of
approximately $348. No such sales occurred in 2000.
Expenses
Total expenses increased $1,108, or 7.5%, to $15,816 in 2001 due to
increases in operating expenses of rental properties of $502, interest expense
of $248, depreciation of $151, amortization of debt costs of $16 and general and
administrative expenses of $191.
Operating expenses of rental properties increased $502, or 10.4%, to $5,326
in 2001. This increase was partially due to an increase in insurance costs of
$44, or 17.2%, over 2000 and an increase in the amortization of lease fees of
$117, or 69.1%, over 2000. The increase in lease fees is due to the acquisition
in 2000 as well as re-leasing of two of the former Jitney Jungle stores during
2000. Overall, the operating expenses of rental properties increased due to the
core portfolio operating expenses increasing $425, or 9.0%, over 2000 and due to
the property acquired during 2000 increasing expenses $158. These increases were
offset by a decrease in expenses of $81 from the sales of five properties during
2000.
Interest expense increased $248, or 4.6%, in 2001 primarily due to an
increase in bank indebtedness interest of $315 or 88.7%. The Company had average
borrowings under its bank credit facility of approximately $54,253 and $19,659
at effective interest rates of 7.7% and 7.3%, for 2001 and 2000, respectively.
16
The net increase of $151, or 4.2%, in depreciation expense in 2001 was due
to the acquisition of a shopping center in the fourth quarter of 2000, net of
the effect of the disposition of two properties in the first quarter of 2000.
Amortization of debt costs increased $16, or 12.1%, primarily due to the
costs associated with increasing the Company's credit facilities.
General and administrative expenses increased $191, or 24.5%, to $970 in
2001 primarily due to an increase in non-capitalizable development activities.
Total general and administrative expenses as a percentage of total revenues were
4.4% and 3.6% for 2001 and 2000, respectively.
Other
Equity in losses of unconsolidated affiliates decreased $6 to $4 in 2001
due to the dissolution of an unconsolidated subsidiary.
Minority interest expense decreased $98, or 61.6%, to $61 in 2001. Minority
interest represents the interest of an unaffiliated limited partner in the
earnings of a partnership with the Company. The Company increased its percentage
ownership of the partnership from 92.9% in 2000 to 93.0% in 2001.
Gains on sales of properties decreased $2,738 in 2001. The Company sold two
investments in limited growth, or tertiary, markets during 2000 for
approximately $11,660. In 2001, no such sales had occurred.
Net Earnings
Net earnings decreased $3,340, or 35.8%, to $5,985 in 2001 from $9,328 in
2000. The decrease was attributable to no property sales in 2001, an increase in
operating expenses and interest expense partially offset by a gain on the sale
of an outparcel.
LIQUIDITY AND CAPITAL RESOURCES
The Company presently expects cash from operating activities to be its
primary source of funds to pay dividends, mortgage note payments and certain
capital improvements on properties. Net cash from operating activities was
$7,490 in 2002 as compared to $8,712 in 2001, a decrease of 14.0%. The decrease
in cash flow is due to a decrease in accrued expenses for 2002, the rental
income from two acquisitions in 2001 and one in 2000. Dividends paid during 2002
and 2001 were $7,172 and $7,120, respectively. Mortgage principal payments for
2002 and 2001 were $693 and $601, respectively. Total capital expenditures on
operating properties for 2002 and 2001 were $394 and $925, respectively.
Other planned activities, including property acquisitions, new
developments, certain capital improvement programs and debt repayments, are
expected to be funded to the extent necessary by bank borrowings, mortgage
financing, periodic sales or exchanges of existing properties, the issuance of
OP Units and public or private offerings of stock or debt. Net cash used in
investing activities was $7,178 in 2002, as compared to $2,101 in 2001, an
increase of $5,077, or 241.6%. This increase in cash used in investing
activities was due to an acquisition in 2002 and an increase in capital
expenditures relating to the development program of $3,297 in 2001 to $4,907 in
2002 as the Company completed one development and was concluding another
development.
Net cash used in financing activities decreased to $2,754 in 2002 from cash
flows provided by financing activities of $43,046 in 2001, a decrease of
$45,800. This decrease was due to the Company issuing $50,000 of senior notes
in 2001 and $25,000 of senior notes in 2002 offset by the redemption of the
convertible debentures of $23,110.
17
In May 1998, the Company filed a shelf registration statement covering up to
$300,000 of common stock, preferred stock, depositary shares, debt securities
and warrants. In January 2001, the Company filed a new shelf registration
statement to replace and update the 1998 shelf registration statement. The
Company presently intends to use the net proceeds of any offerings under such
shelf registration for general corporate purposes, which may include, without
limitation, repayment of maturing obligations, redemption of outstanding
indebtedness or other securities, financing future acquisitions and for working
capital.
On March 23, 2001, the Company established a Medium Term Note Program (the
"MTN Program"), pursuant to the Company's shelf registration statement filed in
January 2001. The MTN Program allows the Company, from time to time, to issue
and sell up to $100,000 of medium term notes. Medium term notes have a maturity
of nine months or more from the date of issuance. On March 29, 2001, pursuant to
the MTN Program, the Company issued $50,000 of 7.77% medium term notes due April
1, 2006. Net proceeds from the issuance totaled $49,328 and were used to
substantially repay the $50,000 of 7.45% senior notes that were due on April 1,
2001. On January 23, 2002, an additional $25,000 of 7.84% medium term notes were
issued to redeem the 7.3% convertible subordinated debentures. These new notes
are due on January 23, 2012. As a result, the Company has $25,000 of medium term
notes available for issuance under its MTN Program. As of March 31, 2002, the
Company had issued $75,000 in debt securities from the shelf registration.
The Company also issued 3,000,000 shares at an offering price of $11.79 per
share for total proceeds, before expenses, of $35,370 under the shelf
registration statement in May 2002. As a result, $189,630 of securities remain
available for issuance under the shelf registration statement.
At December 31, 2001, the Company also had outstanding $75,000 of 7.25%
senior notes due August 15, 2007 that were issued on August 15, 1997.
On January 24, 2002, the Company redeemed all of the outstanding 7.3%
convertible subordinated debentures at par for $23,220. Prior to redemption, 165
bonds were converted into 14,659 shares of common stock.
The Company uses secured borrowings to meet capital requirements. As of
March 31, 2002 the Company had $133,582 in mortgage notes payable at a weighted
average interest rate of 7.60%, which are due in monthly installments with
maturity dates ranging from 2002 to 2024.
In February 2002, the Company assumed a non-recourse, secured loan totaling
$4,800, in connection with the acquisition of Parkwest Crossing. The secured
loan has a fixed interest rate of 8.1%. The loan is due and payable in eight
years and the principal amortization is based on a thirty year amortization
schedule.
On March 1, 2002, the Company prepaid a 9.63% secured loan of approximately
$5,198. The loan was due on June 1, 2002.
In February 2002, the Company entered into three secured mortgages totaling
$20,740, secured by first mortgages on three properties. These notes are due and
payable in ten years and the principal amortization is based on a thirty year
amortization schedule. The notes bear interest at a weighted average interest
rate of 7.17% and range from 7.02% to 7.25%.
18
Future principal amortization and balloon payments applicable to mortgage
notes payable at March 31, 2002 are as follows:
Scheduled Balloon
Amortization Payments Total
------------- --------- --------
2002 2,116 1,978 4,094
2003 2,965 60,047 63,012
2004 3,192 - 3,192
2005 3,448 7,500 10,948
2006 3,586 54,797 58,383
Thereafter 53,991 150,009 204,000
------------- --------- --------
$ 69,298 $ 274,331 $343,629
============= ========= ========
On November 1, 1999, the Company obtained a $100,000 unsecured revolving
loan facility (the "Revolving Loan"), which was scheduled to mature on November
1, 2002. This Revolving Loan replaced the Company's previous credit facility and
is led by a different financial institution and further backed by a syndicate of
four other financial institutions. Not later than November 1 of each year
commencing in 2000, the Company may request to extend the maturity date for an
additional 12-month period beyond the existing maturity date. The interest rate
is, at the option of the Company, either prime, fluctuating daily, or LIBOR plus
the "Applicable Margin" (currently 115 basis points), which is subject to
adjustment based upon the rating of the senior unsecured long-term debt
obligations of the Company. The Company may borrow, repay and/or reborrow under
this loan at any time. In addition, the Company secured a $5,000 unsecured swing
line, bearing interest at LIBOR plus the Applicable Margin, scheduled to mature
on October 31, 2000. In October 2000, the Company requested and was approved an
extension of the maturity date of the Revolving Loan and the swing line to
November 1, 2003. The Company also secured an option to increase the Revolving
Loan at its discretion by $50,000. As of May 1, 2002, the Company has also
received commitments from its bank group to extend the existing $100 million
unsecured line of credit, as well as extending the Company's option to expand
the line by $50 million, for an additional three years. The terms of the
Company's credit facilities and other instruments and agreements relating to our
indebtedness include certain customary operational and financial covenants,
which the Company was in compliance with as of March 31, 2002.
As of March 31, 2002 and December 31, 2001, the borrowings under the
Company's credit facilities totaled $60,047 and $51,654, respectively. The
average interest rates for 2002 and 2001 were 3.95% and 6.48%, respectively. At
March 31, 2002, the weighted average interest rate was 3.17% on outstanding
borrowings under the Revolving Loan.
LP, IRTCCII, IRTAL and IRTMC guarantee the Company's indebtedness under the
Company's existing unsecured revolving term loan and its other senior debt.
The Company presently believes that based on currently proposed plans and
assumptions relating to its operations, the Company's existing financial
arrangements, together with cash flows from operations, will be sufficient to
satisfy its foreseeable cash requirements for the next year. At March 31, 2002
the Company's market capitalization was approximately $696,172, of which 49%, or
$343,400, was from financing sources. It is the Company's present intention to
have access to the capital resources necessary to expand and develop its
business while maintaining its investment grade ratings with Moody's Investor
Services and Standard and Poor's. Accordingly, the Company may, from time to
time, seek to obtain funds through additional security offerings or debt
financings in a manner consistent with its current debt capitalization policy.
19
INFLATION AND ECONOMIC FACTORS
The effects of inflation upon the Company's results of operations and
investment portfolio are varied. From the standpoint of revenues, inflation has
the dual effect of both increasing the tenant revenues upon which percentage
rentals are based and allowing increased fixed rentals as rental rates rise
generally to reflect higher construction costs on new properties. This positive
effect is partially offset by increasing operating and interest expenses, but
usually not to the extent of the increases in revenues.
The Federal Reserve regulates the supply of money through various means,
including open market dealings in United States government securities, the
discount rate at which banks may borrow from the Federal Reserve, and the
reserve requirements on deposits. Such activities affect the availability and
cost of credit, generally, and the Company's costs under its bank credit
facilities, in particular.
ENVIRONMENTAL FACTORS
Certain of the Company's properties have environmental concerns that have
been or are being addressed. The North Carolina Department of Environment,
Health and Natural Resources ("DEHNR") informed the Company, by letter dated
November 30, 2000, that the Company's Industrial property in Charlotte, North
Carolina ("Industrial Property"), continues to be included on the North Carolina
Inactive Hazardous Waste Sites Priority List ("Priority List"). According to
DEHNR, the Priority List is a list of sites in North Carolina where uncontrolled
disposal, spills, or releases of hazardous substances have been identified. The
Company also has been informed by a third-party consultant that hazardous
substances may be present in groundwater under the Industrial Property in excess
of regulatory limits. DEHNR indicated in its November 30 letter that it was
simply notifying the Company of the inclusion of the Industrial Property on the
Priority List, and that the letter was not an order to conduct any work, but
that the Company was invited to consider a voluntary cleanup.
The Company has begun investigating this matter, including the basis for
inclusion of the Industrial Property on the Priority List and the scope and
source of any such hazardous substances in groundwater (which may be a result
of, among other things, prior ownership and usage of the Industrial Property or
contaminants from other nearby properties), and whether its insurance will cover
these costs in whole or in part. Depending on the results of this investigation,
notification of DEHNR may be required and certain corrective actions performed.
Based on information presently available, the Company presently believes that
the costs of any such corrective action is not expected to have a material
adverse effect on the Company.
Since January 1, 2000, the Company has maintained environmental and
pollution legal liability insurance coverage to attempt to mitigate the
associated risks. Although no assurance can be given that Company properties
will not be affected adversely in the future by environmental problems, the
Company presently believes that there are no environmental matters that are
reasonably likely to have a material adverse effect on the Company's financial
position.
20
FUNDS FROM OPERATIONS
The Company defines funds from operations, consistent with the National
Association of Real Estate Investment Trusts ("NAREIT") definition, as net
earnings on real estate investments less gains (losses) on sale of properties
and extraordinary items plus depreciation and amortization of capitalized
leasing costs. Interest and amortization of issuance costs related to
convertible subordinated debentures and minority interest expenses are added
back to funds from operations when assumed conversion of the debentures and OP
Units is dilutive. The conversion of the debentures and the OP Units are
dilutive and therefore assumed for the three months ended March 31, 2002 and
2001. Management believes funds from operations should be considered along with,
but not as an alternative to, net earnings as defined by generally accepted
accounting principles as a measure of the Company's operating performance. Funds
from operations does not represent cash generated from operating activities in
accordance with generally accepted accounting principles and is not necessarily
indicative of cash available to fund cash needs.
The following data is presented with respect to the calculation of funds
from operations under the NAREIT definition for the three months ended March 31,
2002 and 2001 (in thousands except per share amounts):
Three Months Ended
March 31,
------------------
2002 2001
------- -------
NET EARNINGS $ 5,947 $ 5,988
Extraordinary loss on extinguishment of debt 156 -
Gain on sales of properties - -
Depreciation * 3,852 3,655
Amortization of capitalized leasing fees * 318 287
------- -------
FUNDS FROM OPERATIONS 10,273 9,930
Interest on convertible debentures 109 425
Amortization of convertible debenture costs 7 25
Amounts attributable to minority interests 202 133
------- -------
FULLY DILUTED FUNDS FROM OPERATIONS $10,591 $10,513
======= =======
FULLY DILUTED FUNDS FROM OPERATIONS PER SHARE $ 0.33 $ 0.32
======= =======
APPLICABLE WEIGHTED AVERAGE SHARES 31,966 33,133
======= =======
* Net of amounts attributable to minority interests
21
Additional Information: The following data is presented with respect to amounts
incurred for improvements to the Company's real estate investments, for the
straight line rent adjustment, for leasing fees paid and for principal
amortization of mortgage notes payable during the three months ended March 31,
2002 and 2001 (in thousands).
Three Months Ended
March 31,
------------------
2002 2001
------- -------
Straight line rent adjustment $ 175 $ 111
======= =======
Revenue-generating capital expenditures
Tenant Improvements - Anchors $ - $ 141
Tenant Improvements - Non anchors 205 395
------- -------
Total revenue-generating capital expenditures** $ 205 $ 536
======= =======
Non revenue-generating capital expenditures $ 119 $ 388
======= ========
Lease fee payments $ 326 $ 476
======= ========
Scheduled principal amortization $ 693 $ 601
======= ========
** Includes tenant improvements and capital expenditures to prepare spaces for
leasing. Excludes expansions.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
Not applicable.
Item 2. Changes in Securities and Use of Proceeds.
Not applicable.
Item 3. Default Upon Senior Securities.
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
Not applicable.
Item 5. Other Information.
Not applicable.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
3.1 Amended and Restated Articles of Incorporation (incorporated by
reference to Exhibit 3(a) to the Company's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1997).
3.2 Articles of Amendment to the Amended and Restated Articles of
Incorporation (incorporated by reference to Exhibit 3.1 to the
Company's Current Report on Form 8-K filed on June 9, 1999)
3.3 By-Laws, as amended (incorporated by reference to Exhibit 3 to
the Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1995)
3.4 Amendments to By-laws (incorporated by reference to Exhibit 3.1
to the Company's Current Report on Form 8-K filed on August 21,
1998).
3.5 Amendment to the By-laws (incorporated by reference to Exhibit
4.5 to the Company's Registration Statement on Form S-3
(333-53638) dated January 12, 2001).
4.1 Indenture, dated August 15, 1993, by and between the Company and
Trust Company Bank, as Trustee, relating to the Company's 7.3%
Convertible Subordinated Debentures due August 15, 2003
(incorporated by reference to the Company's Annual Report on Form
10-K for the year ended December 31, 1993).
4.2 Form of 7.3% Convertible Subordinated Debenture (included as a
part of Exhibit 4.1 above).
4.3 Indentures, dated as of November 9, 1995, by and between the
Company and SunTrust Bank, Atlanta, Georgia, as Trustee, relating
to the Company's Senior Debt Securities and
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Subordinated Debt Securities (incorporated by reference to the
Company's Annual Report on Form 10-K for the year ended December
31, 1995).
4.4 First Supplemental Indenture, dated as of March 26, 1996, by and
between IRT Property Company and SunTrust Bank, Atlanta, Georgia,
as Trustee (incorporated by reference to the Company's Current
Report on Form 8-K dated March 26, 1996).
4.5 Supplemental Indenture No. 2, dated August 15, 1997, by and
between IRT Property Company and SunTrust Bank, Atlanta, Georgia,
as Trustee (incorporated by reference to the Company's Current
Report on Form 8-K dated August 15, 1997).
4.6 Supplemental Indenture No. 3, dated September 9, 1998, by and
between IRT Property Company and SunTrust Bank, Atlanta, Georgia,
as Trustee (incorporated by reference to the Company's Current
Report on Form 8-K dated September 15, 1998).
4.7 Indenture, dated as of September 9, 1998, by and between the
Company and SunTrust Bank, Atlanta, Georgia, as Trustee, relating
to Senior Debt Securities (incorporated by reference to the
Company's Current Report on Form 8-K dated September 15, 1998).
4.8 Indenture, dated as of September 9, 1998, by and between the
Company and SunTrust Bank, Atlanta, Georgia, as Trustee, relating
to Subordinated Debt Securities (incorporated by reference to the
Company's Form 8-K dated September 15, 1998).
4.9 Supplemental Indenture No. 1, dated September 9, 1998, by and
between the Company, IRT Partners, L.P. and SunTrust Bank,
Atlanta, Georgia, as Trustee, to the Indenture dated September 9,
1998, relating to Senior Debt Securities (incorporated by
reference to the Company's Form 8-K dated September 15, 1998).
4.10 IRT Property Company Stock Certificate Legend Regarding the
Shareholder Rights Agreement (incorporated by reference to the
Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1999).
4.11 Supplemental Indenture No. 2, dated as of November 1, 1999, by
and among IRT Property Company, as issuer, IRT Capital
Corporation II, IRT Management Company, IRT Alabama, Inc., and
IRT Partners L.P., as guarantors, and SunTrust Bank, Atlanta,
Georgia, as trustee (Registration Statement No. 333-48571)
(incorporated by reference to Exhibit 4.5 to the Company's
Current Report on Form 8-K dated November 12, 1999).
4.12 Supplemental Indenture No. 4, dated as of November 1, 1999, by
and among IRT Property Company, an issuer, IRT Capital
Corporation II, IRT Management Company, IRT Alabama, Inc., and
IRT Partners L.P., as guarantors, and SunTrust Bank, Atlanta,
Georgia, as trustee (Registration Statement No. 333-48571)
(incorporated by reference to Exhibit 4.7 to the Company's
Current Report on Form 8-K dated November 12, 1999).
(b) Reports on Form 8-K.
During the three month period ended March 31, 2002, the Company
filed the following Current Reports on Form 8-K:
- Current Report on Form 8-K filed on January 23, 2002; and
- Current Report on Form 8-K filed on January 28, 2002.
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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 by the undersigned,
thereunto duly authorized.
IRT PROPERTY COMPANY
Date: May 14, 2002 /s/ Thomas H. McAuley
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Thomas H. McAuley
President & Chief Executive Officer
Date: May 14, 2002 /s/ James G. Levy
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James G. Levy
Executive Vice President &
Chief Financial Officer
25