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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
-----------------------
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): MAY 13, 2003
EQUITY ONE, INC.
(Exact name of registrant as specified in its charter)
MARYLAND
(State or other jurisdiction of incorporation)
001-13499
(Commission File Number)
52-1794271
(IRS Employer Identification Number)
1696 N.E. MIAMI GARDENS DRIVE, NORTH MIAMI BEACH, FLORIDA 33179
(Address of principal executive offices)
Registrant's telephone number, including area code: (305) 947-1664
NOT APPLICABLE
(Former Name or Former Address, if Changed Since Last Report)
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ITEM 5. OTHER EVENTS.
(a) Below are Unaudited Pro Forma Financial Data of Equity One, Inc.
for the year ended December 31, 2002.
UNAUDITED PRO FORMA FINANCIAL DATA
The unaudited pro forma condensed consolidated statement of operations
for the year ended December 31, 2002 is presented as if the following
transactions had occurred on January 1, 2002:
o The sale of 6,911,000 shares of Equity One common stock to
affiliated investors as part of the IRT transaction; and
o The merger of IRT with Equity One.
The following unaudited pro forma information is based upon the
historical combined results of operations of Equity One for the year period
ended December 31, 2002, giving effect to the transactions described above. The
unaudited pro forma condensed consolidated statement of operations should be
read in conjunction with the historical financial statements and notes thereto
of Equity One included in Equity One's Annual Report on Form 10-K for the year
ended December 31, 2002, and Equity One's Quarterly Report on Form 10-Q for the
three months ended March 31, 2003.
The unaudited pro forma condensed consolidated statement of operations
is not necessarily indicative of what the actual results of operations of Equity
One would have been assuming the transactions had been completed as set forth
above, nor do they purport to represent Equity One's results of operations for
future periods. Equity One has accounted for the merger utilizing the purchase
method of accounting. The pro forma adjustments relating to the merger are based
on Equity One's purchase price allocation and certain estimates. There can be no
assurance that the final adjustments will not be materially different from those
included herein.
2
EQUITY ONE, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2002
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
PRO FORMA
ADJUSTMENTS
EQUITY ONE IRT INCREASE CONSOLIDATED PRO
HISTORICAL HISTORICAL(1) (DECREASE) FORMA
------------ ------------- ------------- ----------------
Revenues:
Rental income................................. $ 99,261 $ 90,125 $ 189,386
Investment and other income.................. 2,717 413 3,130
------------- ------------ -------------- -------------
Total revenues.............................. 101,978 90,538 192,516
------------- ------------ -------------- -------------
Costs and expenses:
Property operating expenses................... 30,023 23,486 53,509
Interest expense.............................. 22,368 21,735 $ 155 (a) 44,258
Amortization of deferred financing fees...... 884 640 490 (b) 2,014
Rental property depreciation & amortization... 13,533 15,494 (3,943)(c) 25,084
Litigation settlement........................ 2,067 -- 2,067
General and administration expenses.......... 6,649 4,199 10,848
------------- ------------ -------------- -------------
Total costs and expenses................... 75,524 65,554 (3,298) 137,780
------------- ------------ -------------- -------------
Income before equity in income of joint
ventures, gain (loss) on extinguishment of
debt, gain on sale of properties and
outparcels, minority interest in earnings of
consolidated subsidiaries, and discontinued
operations................................... 26,454 24,984 3,298 54,736
Equity in income of joint ventures.............. 549 -- 549
Gain (loss) on extinguishment of debt........... 1,520 (156) 1,364
Gain on sale of properties and outparcels........ -- 1,101 1,101
Minority interest in earnings of consolidated
subsidiaries.................................. (101) (559) (660)
------------- ------------ -------------- -------------
Income from continuing operations................ 28,422 25,370 3,298 57,090
------------- ------------ -------------- -------------
Discontinued operations:
Income from rental properties sold or held for
sale, net of minority interests............ 2,248 865 3,113
Gain on disposal of real estate............... 9,264 5,103 14,367
------------- ------------ -------------- -------------
Income from discontinued operations............. 11,512 5,968 17,480
------------- ------------ -------------- -------------
Net income................................... $ 39,934 $ 31,338 $ 3,298 $ 74,570
============= ============ ============== =============
Basic earnings per share:
Income from continuing operations............. $ 0.87 $ 1.00
Income from discontinued operations.......... 0.35 0.31
------------- -------------
Total basic earnings per share............. $ 1.22 $ 1.31
============= =============
Number of shares used in computing basic earnings
per share.................................... 32,662 57,063(d)
============= =============
Diluted earnings per share:
Income from continuing operations............ $ 0.86 $ 0.97
Income from discontinued operations........... 0.34 0.30
------------- -------------
Total diluted earnings per share............ $ 1.20 $ 1.27
============= =============
Number of shares used in computing diluted
earnings per share........................... 33,443 58,869(d)
============= =============
(1) Certain reclassifications have been made to the historical presentation of
IRT in order to conform to the pro forma consolidated presentation.
3
EQUITY ONE, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2002
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(a) To reflect the adjustment in interest expense as follows:
Interest incurred on the additional borrowing on revolving credit facilities
(weighted average interest rate of 2.29%)........................................ $ 4,337
Amortization of excess fair value over historical cost of debt assumed............. (4,182)
------------
$ 155
============
Currently, the interest rate on the revolving credit facility
used to finance the merger costs is based on a spread over LIBOR; the
rates will periodically fluctuate. If the interest rate on the
revolving credit facilities increases or decreases by 12.5 basis
points, the following adjustment would be made to interest expense.
If the weighted average interest rate were 2.42% interest
would increase by $237.
If the weighted average interest rate were 2.17% interest would
decrease by $237.
(b) Adjustment to the amortization of deferred financing costs based on
Equity One's revolving credit facility.
(c) To reflect depreciation expense utilizing a 40 year life for buildings.
Depreciation expense is calculated based on a purchase price
allocation. The adjustment is calculated as follows:
Estimated fair market value of real estate assets..................................... $ 730,460
Less: Non depreciable real estate assets.............................................. (268,439)
------------
Depreciable land improvements and buildings.......................................... $ 462,030
============
Depreciable expense based on a 40 year life.......................................... $ 11,551
Less: Depreciation expense recorded by IRT........................................... 15,494
------------
Depreciation expense adjustment...................................................... $ (3,943)
============
(d) Pro forma income per common share is based upon the weighted-average
number of Equity One common shares assumed to be outstanding during
2002 and includes all shares issued in connection with the merger and
the private placement.
Number of shares:
Basic - average shares outstanding................................................. 57,063
Effect of dilutive securities:
Stock options...................................................................... 280
Unvested restricted stock.......................................................... 313
Convertible partnership units...................................................... 1,090
Conversion of 7.3% debentures...................................................... 123
------------
Diluted - average shares outstanding............................................... 58,869
============
4
(b) Below are the audited Consolidated Financial Statements of IRT
Property Company as of December 31, 2002 and 2001 and for each of the three
years in the period ended December 31, 2002.
IRT PROPERTY COMPANY AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
----
Independent Auditors' Report......................................................................... 6
Consolidated Balance Sheets:
December 31, 2002 and 2001...................................................................... 7
Consolidated Statements of Earnings:
For the Years Ended December 31, 2002, 2001 and 2000............................................ 8
Consolidated Statements of Changes in Shareholders' Equity:
For the Years Ended December 31, 2002, 2001 and 2000............................................ 9
Consolidated Statements of Cash Flows:
For the Years Ended December 31, 2002, 2001 and 2000............................................ 10
Notes to Consolidated Financial Statements:
As of December 31, 2002, 2001 and
for the years ended December 31, 2002, 2001 and 2000............................................ 11
5
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
IRT Property Company
Atlanta, Georgia
We have audited the accompanying consolidated balance sheets of IRT
Property Company (the "Company") (a Georgia corporation) and subsidiaries as of
December 31, 2002 and 2001, and the related consolidated statements of earnings,
changes in shareholders' equity and cash flows for each of the three years in
the period ended December 31, 2002. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of IRT Property Company and
subsidiaries as of December 31, 2002 and 2001, and the results of its operations
and its cash flows for each of the three years in the period ended December 31,
2002, in conformity with accounting principles generally accepted in the United
States of America.
As discussed in Note 26 to the consolidated financial statements, in 2002,
the Company changed its method of reporting discontinued operations to conform
with Statement of Financial Accounting Standards No. 144.
As discussed in Note 27 to the consolidated financial statements, on
February 12, 2003, the Company merged with and into Equity One, Inc.
DELOITTE & TOUCHE LLP
Atlanta, Georgia
February 12, 2003
6
IRT PROPERTY COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 2002 and 2001
(In thousands, except share and per share amounts)
2002 2001
--------- ---------
ASSETS
Real estate investments:
Rental properties $ 673,886 $ 659,820
Properties under development 12,734 23,445
--------- ---------
686,620 683,265
Accumulated depreciation (121,623) (109,344)
--------- ---------
Net rental properties 564,997 573,921
Net investment in direct financing leases 2,034 2,174
Mortgage loans, net 58 314
--------- ---------
Net real estate investments 567,089 576,409
Cash and cash equivalents 4,445 2,457
Cash held in escrow 6,949 --
Prepaid expenses and other assets 14,953 11,634
--------- ---------
Total assets $ 593,436 $ 590,500
========= =========
LIABILITIES & SHAREHOLDERS' EQUITY
Liabilities:
Mortgage notes payable, net $ 136,988 $ 134,672
7.3% convertible subordinated debentures, net -- 23,275
Senior notes, net 149,803 124,760
Indebtedness to banks 15,000 51,654
Accrued interest 4,674 4,598
Accrued expenses and other liabilities 8,799 10,652
--------- ---------
Total liabilities 315,264 349,611
Commitments and contingencies (Note 13)
Minority interest payable 7,757 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;
34,229,136 and 33,234,206 shares issued in
2002 and 2001, respectively 34,229 33,234
Additional paid-in capital 289,769 272,172
Deferred compensation/stock loans (3,418) (1,732)
Treasury stock, at cost, 0 and 2,738,204 shares
in 2002 and 2001, respectively -- (22,783)
Cumulative distributions in excess of net earnings (50,165) (47,757)
--------- ---------
Total shareholders' equity 270,415 233,134
--------- ---------
Total liabilities and shareholders' equity $ 593,436 $ 590,500
========= =========
The accompanying notes are an integral part of these
consolidated balance sheets.
7
IRT PROPERTY COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
For the Years Ended December 31, 2002, 2001 and 2000
(In thousands, except per share amounts)
2002 2001 2000
-------- -------- --------
REVENUES:
Income from rental properties $ 90,125 $ 84,062 $ 82,601
Interest income 148 158 967
Interest on direct financing leases 265 385 542
-------- -------- --------
Total revenues 90,538 84,605 84,110
-------- -------- --------
EXPENSES:
Operating expenses of rental properties 23,486 21,175 20,105
Interest expense 21,735 22,489 21,713
Depreciation 15,494 14,774 14,057
Amortization of debt costs 640 641 541
General and administrative 4,199 4,570 3,507
-------- -------- --------
Total expenses 65,554 63,649 59,923
EQUITY IN LOSS OF UNCONSOLIDATED AFFILIATES -- (4) (56)
-------- -------- --------
Income from continuing operations before income
taxes, minority interest, gain on sales of
properties, discontinued operations and
extraordinary item 24,984 20,952 24,131
INCOME TAX PROVISION -- (53) --
MINORITY INTEREST OF UNITHOLDERS IN
OPERATING PARTNERSHIP (559) (509) (540)
GAIN ON SALES OF PROPERTIES AND OUTPARCELS 1,101 3,848 4,549
-------- -------- --------
Income from continuing operations 25,526 24,238 28,140
-------- -------- --------
DISCONTINUED OPERATIONS
Income from discontinued operations, net
of minority interest 865 982 899
Gain on sales of properties, net of
minority interest 5,103 -- --
-------- -------- --------
Income from discontinued operations 5,968 982 899
-------- -------- --------
Income before extraordinary item 31,494 25,220 29,039
EXTRAORDINARY ITEM
Loss on extinguishment of debt (156) -- --
-------- -------- --------
Net income $ 31,338 $ 25,220 $ 29,039
======== ======== ========
PER SHARE: (Note 21)
Income from continuing operations - basic $ 0.78 $ 0.80 $ 0.89
Income from discontinued operations - basic 0.19 0.03 0.03
-------- -------- --------
Income before extraordinary item 0.97 0.83 0.92
Extraordinary item - basic (0.01) -- --
-------- -------- --------
Net earnings - basic $ 0.96 $ 0.83 $ 0.92
======== ======== ========
Income from continuing operations - diluted $ 0.77 $ 0.80 $ 0.88
Income from discontinued operations - diluted 0.19 0.03 0.03
-------- -------- --------
Income before extraordinary item 0.96 0.83 0.91
Extraordinary item - diluted (0.01) -- --
-------- -------- --------
Net earnings - diluted $ 0.95 $ 0.83 $ 0.91
======== ======== ========
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING:
Basic 32,772 30,322 31,536
======== ======== ========
Diluted 33,095 33,301 34,432
======== ======== ========
The accompanying notes are an integral part of these consolidated statements.
8
IRT PROPERTY COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
For the Years Ended December 31, 2002, 2001 and 2000
(In thousands, except share amounts)
Cumulative
Total Shares Distributions
------------------ Additional Deferred in Excess Total
Common Treasury Common Paid-In Treasury Compensation/ Of Shareholders'
Stock Stock Stock Capital Stock Stock Loans Net Earnings Equity
--------- --------- --------- --------- --------- ------------- --------- -------------
BALANCE AT DECEMBER 31, 1999 33,234 (517) $ 33,234 $ 272,448 $ (4,026) $ (1,808) $ (43,645) $ 256,203
Net earnings -- -- -- -- -- -- 29,039 29,039
Dividends declared - $.94 per share -- 59 -- (16) 513 -- (29,782) (29,285)
Exercise of options, net -- 37 -- (8) 295 -- -- 287
Amortization of deferred compensation -- -- -- -- -- 122 -- 122
Issuance of restricted stock to
employees -- 25 -- 13 191 (204) --
Forfeiture of restricted stock -- (5) -- (2) (38) 40 -- --
Adjustment to minority interest
of unitholders in
operating partnership for
issuance of additional units -- -- -- (395) -- -- -- (395)
Acquisition of treasury stock -- (2,488) -- -- (20,818) -- -- (20,818)
------- --------- --------- --------- --------- --------- --------- ---------
BALANCE AT DECEMBER 31, 2000 33,234 (2,889) 33,234 272,040 (23,883) (1,850) (44,388) 235,153
Net earnings -- -- -- -- -- -- 25,220 25,220
Dividends declared - $.94 per share -- -- -- -- -- -- (28,589) (28,589)
Exercise of options, net -- 196 -- 114 1,486 -- -- 1,600
Shares issued pursuant to
the stock purchase plan -- 2 -- 5 19 -- -- 24
Amortization of deferred compensation -- -- -- -- -- 118 -- 118
Adjustment to minority interest
of unitholders in
operating partnership for
issuance of additional units -- -- -- 13 -- -- -- 13
Acquisition of treasury stock -- (47) -- -- (405) -- -- (405)
------- --------- --------- --------- --------- --------- --------- ---------
BALANCE AT DECEMBER 31, 2001 33,234 (2,738) 33,234 272,172 (22,783) (1,732) (47,757) 233,134
Net earnings -- -- -- -- -- -- 31,338 31,338
Dividends declared - $1.016 per share -- -- -- -- -- -- (33,746) (33,746)
Issuance of common stock 766 2,684 766 15,095 22,421 -- -- 38,282
Exercise of options, net 66 38 66 613 244 -- -- 923
Shares issued pursuant to
the stock purchase plan 3 1 3 18 9 -- -- 30
Issuance of restricted stock 160 -- 160 1,755 -- (1,915) -- --
Amortization of deferred compensation -- -- -- 55 -- 229 -- 284
Redemption of convertible debt -- 15 -- 61 109 -- -- 170
------- --------- --------- --------- --------- --------- --------- ---------
BALANCE AT DECEMBER 31, 2002 34,229 -- $ 34,229 $ 289,769 $ -- $ (3,418) $ (50,165) $ 270,415
======= ========= ========= ========= ========= ========= ========= =========
The accompanying notes are an integral part of these consolidated statements.
9
IRT PROPERTY COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 2002, 2001 and 2000
(In thousands)
2002 2001 2000
-------- -------- --------
Cash flows from operating activities:
Net earnings $ 31,338 $ 25,220 $ 29,039
Adjustments to reconcile earnings to net cash
from operating activities:
Depreciation 15,775 15,088 14,368
Gain on sale of operating properties (5,337) (2,498) (4,549)
Gain on sale of outparcels (1,101) (1,350) --
Extraordinary loss on extinguishment of debt 156 -- --
Minority interest of unitholders in partnership 2 (213) 288
Straight line rent adjustment (662) (533) (153)
Amortization of deferred compensation 284 118 122
Amortization of debt costs and discounts 668 673 700
Amortization of capitalized leasing income 140 152 166
Changes in assets and liabilities:
Increase in accrued interest on debentures
and senior notes 218 40 --
(Increase) decrease in interest receivable,
prepaid expenses and other assets (2,560) 476 (1,708)
(Decrease) increase in accrued expenses and
other liabilities (2,160) 2,317 143
-------- -------- --------
Net cash flows from operating activities 36,761 39,490 38,416
-------- -------- --------
Cash flows used in investing activities:
Additions to operating properties (7,510) (23,801) (19,424)
Additions to development properties (9,583) (13,443) --
Proceeds from sale of operating properties 14,404 11,196 16,719
Proceeds from sale of outparcels 7,246 2,113 --
Increase in cash held in escrow (6,949) -- --
Investment in unconsolidated affiliates -- -- (10,091)
Purchase of unconsolidated affiliate, net of assets acquired -- 177 --
Distribution from dissolution of unconsolidated affiliate -- 21 --
Funding of mortgage loans -- (516) (4,507)
Collections of mortgage loans 256 24 292
-------- -------- --------
Net cash flows used in investing activities (2,136) (24,229) (17,011)
-------- -------- --------
Cash flows used in financing activities:
Cash dividends (33,746) (28,589) (29,285)
Issuance of common stock 38,292 -- --
Purchase of treasury stock -- (405) (20,818)
Exercise of stock options 923 1,600 287
Issuance of shares under stock purchase plan 30 24 --
Proceeds from mortgage notes payable 7,500 20,740 --
Principal amortization of mortgage notes payable (2,799) (2,577) (2,134)
Repayment of mortgage notes payable (7,186) -- (3,521)
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) -- --
Repayment of 7.45% senior notes -- (50,000) --
Decrease in bank indebtedness (36,654) (3,346) 34,600
Payment of deferred financing costs (887) (1,082) (217)
-------- -------- --------
Net cash flows used in financing activities (32,637) (13,635) (21,088)
-------- -------- --------
Net increase in cash and cash equivalents 1,988 1,626 317
Cash and cash equivalents at beginning of period 2,457 831 514
-------- -------- --------
Cash and cash equivalents at end of period $ 4,445 $ 2,457 $ 831
======== ======== ========
Supplemental disclosures of cash flow information:
Total cash paid during period for interest $ 23,716 $ 23,937 $ 21,501
======== ======== ========
Issuance of restricted stock $ 1,915 $ -- $ 205
======== ======== ========
The accompanying notes are an integral part of these consolidated statements.
10
IRT PROPERTY COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2002 AND 2001 AND FOR THE YEARS ENDED
DECEMBER 31, 2002, 2001 AND 2000
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1. ORGANIZATION AND NATURE OF OPERATIONS
IRT Property Company, individually and collectively with its subsidiaries
("IRT" or the "Company"), was founded in 1969 and became a public company in May
1971 (NYSE: IRT). As more fully discussed in Note 27, on February 12, 2003, the
Company merged with and into Equity One, Inc., with the Company ceasing to exist
as a separate corporate entity. The Company is an owner, operator, redeveloper
and developer of high quality, well located neighborhood and community shopping
centers. As of December 31, 2002 the Company's portfolio consists of 86 shopping
centers, three shopping center investments, two development properties, one
industrial property and two mortgage loans. The 86 shopping centers and the
three shopping center investments total approximately 9.7 million square feet of
retail space and are located in 11 southeastern states. IRT shopping centers are
anchored by necessity-oriented retailers such as supermarkets, drug stores,
national value retailers and department stores.
The Company has four wholly owned subsidiaries. VW Mall, Inc. ("VWM") was
formed in July 1994 but is currently inactive. IRT Alabama, Inc. ("IRTAL") was
formed in August 1997 to purchase Madison Centre in Madison, Alabama, which it
continues to own, but it conducts no significant operations beyond this
property. IRT Management Company ("IRTMC") was formed in 1990 and currently
holds 93.4% of the operating units of IRT Partners L.P. ("LP").
IRT Capital Corporation II ("IRTCCII") is a taxable real estate investment
trust ("REIT") subsidiary and was formed under the laws of Georgia in 1999.
IRTCCII elected on March 15, 2001 to become a taxable REIT subsidiary pursuant
to the Tax Relief Extension Act of 1999 as amended (the "REIT Modernization Act
of 1999"). Although IRTCCII is primarily used by the Company to develop
properties, it also has the ability to buy and sell properties, provide equity
to developers and perform third-party management, leasing and brokerage
operations.
The Company also serves as general partner of LP, a Georgia limited
partnership formed in 1998 to enhance the Company's acquisition opportunities
through a "downreit" structure. This structure offers potential investors the
ability to make a tax-deferred contribution of their real estate investment in
exchange for Operating Partnership Units ("OP Units") of LP. OP Units receive
the same distributions as the Company's common stock and are redeemable for
shares of the Company's common stock. IRT and IRTMC, together, owned
approximately 1% and 93.4%, respectively, of LP as of December 31, 2002. The
accounts of LP are included in the accompanying consolidated financial
statements.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
IRT, its wholly owned subsidiaries, majority-owned and controlled subsidiaries
and the partnership. Prior to 2001, the Company had investments in affiliates
over which the Company did not exercise control, and therefore accounted for the
investments by the equity method. Intercompany transactions and balances have
been eliminated in consolidation.
11
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America 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 impairment evaluation of operating and
development properties and other long-term assets, determination of useful lives
of assets subject to depreciation or amortization and valuation adjustments to
tenant-related accounts. Actual results could differ from those estimates.
REVENUE RECOGNITION
Leases with tenants are accounted for as operating leases. Rental revenue
for leases entered into after January 1, 2000 is recognized on a straight-line
basis over the initial lease term. Rental revenue for leases entered into prior
to January 1, 2000, is accounted for based on contractual rental obligations,
which is not materially different from revenue recorded on a straight-line basis
for any interim or annual period. Certain tenants are required to pay percentage
rents based on their gross sales exceeding specified amounts. This percentage
rental revenue is recorded upon collection, which is not materially different
from recognizing such percentage rental revenue on an accrual basis. 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 specific valuation adjustments (bad debt reserves) to
tenant-related revenue based upon the tenant's credit and business risk.
Other nonrental revenue is recognized as revenue when earned.
Gain on sales of real estate assets is recognized at the time title to the
asset is transferred to the buyer, subject to the adequacy of the buyer's
initial and continuing investment and the assumption by the buyer of all future
ownership risks of the property. The gain on sales of operating properties is
calculated based on the net carrying value of the property at the time of sale.
The net carrying value represents the cost of acquisition, renovation or
betterment of the property less the accumulated depreciation of such costs.
Gains on sales of operating properties are included in discontinued operations.
For gains on outparcel sales, the gain is calculated based on the value assigned
to the outparcel lot through specific identification of costs or the relative
sales value of the outparcel lot to the entire property.
RENTAL PROPERTIES AND PROPERTIES UNDER DEVELOPMENT
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 16 to 40 years for
significant improvements and buildings. Tenant improvements are depreciated on a
straight-line basis over the life of the related lease.
Properties under development are stated at cost. Depreciation does not
begin until the asset is placed in service. Acquisition, development and
construction costs are capitalized, including predevelopment costs, interest and
salaries. Predevelopment costs include costs for zoning, planning, development
feasibility studies and other costs directly related to the development
property. Unsuccessful predevelopment efforts and their related costs are
expensed when it is probable development efforts will not continue. Interest
costs and salaries directly attributable to the development process are
capitalized for the period of development to ready the property for its intended
use.
12
The Company periodically evaluates the carrying value of its long-lived
assets, including operating and development 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. If an impairment exists, the asset is written down
to its estimated fair value and an impairment loss is recognized.
CASH EQUIVALENTS AND CASH HELD IN ESCROW
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents.
When appropriate, the Company enters into tax-free exchanges under Section
1031 of the Internal Revenue Code of 1986, as amended (the "Code"). As of
December 31, 2002, cash was held in escrow pending the execution of such an
exchange.
DEFERRED LEASING COSTS
Internal and external commission costs incurred in obtaining tenant leases
are included in prepaid expenses and other assets. The costs are amortized on a
straight-line basis over the terms of the related leases. Upon lease
cancellation or termination, unamortized costs are charged to operations.
DEBT ISSUE AND DEFERRED FINANCE COSTS
Costs related to the issuance of debt instruments and loan costs incurred
in obtaining long-term financing are included within prepaids and other assets.
The costs are capitalized and amortized over the life of the related issue or
financing on a straight-line basis, which approximates the effective interest
method. Upon conversion, in the event of redemption or prepayment, applicable
unamortized costs are charged to shareholders' equity or to operations,
respectively.
INCOME TAXES
The Company has elected since its inception to be treated as a REIT under
the Code. In accordance with the Code, a REIT must distribute at least 90% (95%
prior to 2001) of its taxable income to its shareholders each year and meet
certain other qualifications prescribed by the Code. If all qualifications are
met, the Company will not be taxed on that portion of its taxable income which
is distributed to its shareholders. IRT intends to continue to elect to be
treated and to continue to qualify as a REIT under the Code.
If the Company fails to qualify as a REIT in any taxable year, the Company
will be subject to federal income tax, at regular corporate tax rates, on its
taxable income. The Company may be disqualified from treatment as a REIT for the
four taxable years following the year during which its REIT qualification is
lost. Even if the Company maintains its qualification for taxation as a REIT,
the Company also may be subject to certain state and local taxes on its income
and property and to federal income and excise taxes on its undistributed income.
The Company has one wholly owned subsidiary, IRTCCII, that elected on March
15, 2001 to become a taxable REIT subsidiary pursuant to the REIT Modernization
Act of 1999. The services provided by this subsidiary and the sales of the
subsidiary's properties generate taxable income and are taxed at regular
corporate income tax rates. The corresponding income tax is expensed.
13
EARNINGS PER SHARE
Basic EPS excludes dilution and is computed by dividing net earnings by the
weighted average number of shares outstanding for the period. Diluted EPS
reflects the potential dilution that could occur if securities or other
contracts to issue common shares were exercised or converted into common shares
and then shared in the earnings of the Company.
STOCK-BASED COMPENSATION
The Company accounts for its stock-based compensation plans under
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" ("APB No. 25"). The Company has adopted the disclosure option of SFAS
No. 123, "Accounting for Stock-Based Compensation." SFAS No. 123 requires
companies that do not choose to account for stock-based compensation as
prescribed by the statement to disclose the pro forma effects on net income and
earnings per share as if SFAS No. 123 had been adopted. Additionally, certain
other disclosures are required with respect to stock-based compensation and the
assumptions used to determine the pro forma effects of SFAS No. 123.
The Company accounts for its stock-based compensation plans under APB No.
25, under which no compensation cost has been recognized for stock option
grants. Had compensation cost for these plans been determined consistent with
SFAS No. 123, the Company's net income and earnings per share would have been
reduced to the following pro forma amounts:
2002 2001 2000
---------------- ------------- --------------
Net earnings:
As reported $ 31,338 $ 25,220 $ 29,039
Pro forma $ 31,246 $ 25,080 $ 28,932
EPS - basic:
As reported $ 0.96 $ 0.83 $ 0.92
Pro forma $ 0.95 $ 0.83 $ 0.92
EPS - diluted:
As reported $ 0.95 $ 0.83 $ 0.91
Pro forma $ 0.94 $ 0.82 $ 0.90
Because the SFAS No. 123 method of accounting has not been applied to
options granted prior to January 1, 1995, the resulting pro forma compensation
cost may not be representative of that to be expected in future years.
SEGMENT REPORTING
In 1998, the Company adopted SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information." This statement established standards for
reporting financial and descriptive information about operating segments in
annual financial statements. Operating segments are defined as components of an
enterprise about which separate financial information is available that is
evaluated regularly by the chief operating decision maker in deciding how to
allocate resources and in assessing performance. The Company's chief operating
decision maker is its senior management group.
14
The Company owns and operates retail shopping centers in the southeastern
United States. Such shopping centers generate rental and other revenue through
the leasing of shop spaces to a diverse base of tenants. The Company evaluates
the performance of each of its shopping centers on an individual basis due to
specific geographical market demographics and local competitive forces. However,
because the shopping centers have generally similar economic characteristics and
tenants, the shopping centers have been aggregated into one reportable segment.
DERIVATIVE FINANCIAL INSTRUMENTS
In June 1998, SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities," was issued. This statement, as amended, establishes
accounting and reporting standards requiring that every derivative instrument
(including certain derivative instruments embedded in other contracts) be
recorded in the balance sheet as either an asset or liability measured at its
fair market value. SFAS No. 133 requires that changes in the derivative's fair
market value be recognized currently in earnings unless specific hedge
accounting criteria are met. Special accounting for qualifying hedges allows a
derivative's gains and losses to offset related results on the hedged item in
the income statement and requires that a company must formally document,
designate, and assess the effectiveness of transactions that receive hedge
accounting. The Company adopted this statement on January 1, 2001. The Company
did not hold and has not engaged in transactions using derivative financial
instruments. The adoption of this statement did not have a material effect on
the Company's balance sheets or statements of earnings.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 2001, SFAS No. 141, "Business Combinations," was issued. This
statement eliminates pooling of interests accounting and requires all business
combinations initiated after June 30, 2001 to be accounted for using the
purchase method. The Company adopted this standard on July 1, 2001 and adoption
of this standard did not have a significant effect on the Company's financial
statements.
In June 2001, SFAS No. 142, "Goodwill and Other Intangible Assets," was
issued establishing accounting and reporting standards that address how goodwill
and intangible assets should be accounted for within the financial statements.
The statement requires companies to not amortize goodwill and intangible assets
with infinite lives, but to test such assets for impairment on a regular basis.
An intangible asset that has an indefinite life should be amortized over its
useful life and evaluated for impairment on a regular basis. This statement is
effective for fiscal years beginning after December 15, 2001. The Company
adopted this standard on January 1, 2002 and adoption of this standard did not
have a significant effect on the Company's financial statements.
In August 2001, SFAS No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets," was issued establishing new rules and clarifying
implementation issues with SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of," by allowing a
probability-weighted cash flow estimation approach to measure the impairment
loss of a long-lived asset. The statement also established new standards for
accounting for discontinued operations. Transactions that qualify for reporting
in discontinued operations include the disposal of a component of an entity's
operations that comprises operations and cash flows that can be clearly
distinguished, operationally and for financial reporting purposes, from the rest
of the entity. The statement is effective for fiscal years beginning after
December 15, 2001. The Company adopted this standard on January 1, 2002. The
disposition of operating properties is reported as discontinued operations.
In April 2002, SFAS No. 145, "Rescission of FASB Statements No. 4, 44, and
64, Amendment of FASB Statement No. 13, and Technical Corrections," was issued.
This Statement rescinds FASB Statement No. 4, "Reporting Gains and Losses from
Extinguishment of Debt," and an amendment of that Statement, FASB Statement No.
64, "Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements." This
Statement also rescinds FASB Statement No. 44, "Accounting for Intangible Assets
of Motor Carriers." This Statement
15
amends FASB Statement No. 13, "Accounting for Leases," to eliminate an
inconsistency between the required accounting for sale-leaseback transactions
and the required accounting for certain lease modifications that have economic
effects that are similar to sale-leaseback transactions. This Statement also
amends other existing authoritative pronouncements to make various technical
corrections, clarify meanings, or describe their applicability under changed
conditions. The Company anticipates that extraordinary losses from
extinguishment of debt in prior periods will be reclassified as an operating
expense when SFAS No. 145 is adopted on January 1, 2003.
In June 2002, SFAS No. 146, "Accounting for Costs Associated with Exit or
Disposal Activities," was issued which nullifies Emerging Issues Task Force
("EITF") Issue No. 94-3, "Liability Recognition for Certain Employee Termination
Benefits and Other Costs to Exit and Activity (including Certain Costs Incurred
in a Restructuring)." The adoption of SFAS No. 146 had no effect on the
financial position and results of operations of the Company.
In December 2002, SFAS 148, "Accounting for Stock-Based Compensations -
Transition and Disclosure", was issued which is an amendment of SFAS 123",
Accounting for Stock-Based Compensation. " This statement amends SFAS No. 123 to
provide alternative methods of transition for an entity that voluntarily changes
to the fair value based method of accounting for stock-based employee
compensation. It also amends the disclosure provisions of that statement to
require prominent disclosure about the effects on reported net income of an
entity's accounting policy decisions with respect to stock-based employee
compensation.
In November 2002, the FASB issued FASB Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others an Interpretation of SFAS No. 5, 57, and
107, " and recession of FASB Interpretation No. 34. The interpretation
elaborates on the disclosures to be made by a guarantor in its financial
statements. It also requires a guarantor to recognize a liability for the fair
value of the obligation undertaken in issuing the guarantee at the inception of
a guarantee. This interpretation had no effect on the financial position and
results of operations of the Company.
In January 2003, the FASB issued FIN No. 46, "Consolidation of Variable
Interest Entities. " FIN No. 46 clarifies the application of Accounting Research
Bulletin ("ARB") No. 51, "Consolidated Financial Statements, " to certain
entities in which equity investors do not have characteristics of controlling
financial interest or do not have sufficient equity at risk for the entity to
finance its activities without additional subordinated financial support from
other parties. The application of the majority voting interest requirement in
ARB 51 to certain types of entities may not identify the party with a
controlling financial interest because the controlling financial interest may be
achieved through arrangements that do not involve a controlling interest. FIN
No. 46 applies immediately to variable interest entities created after January
31, 2003 and to fiscal years beginning after June 15, 2003 for variable interest
entities acquired before February 1, 2003. The adoption of FIN No. 46 will not
have an impact on the Company's financial statements.
RECLASSIFICATION OF AMOUNTS
Certain prior year amounts in the consolidated financial statements have
been reclassified to conform with the reporting requirements of discontinued
operations in accordance with SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets." See Note 26.
16
3. RENTAL PROPERTIES
Buildings and related improvements are depreciated on a straight-line basis
for a period of 16 to 40 years. Tenant improvements are depreciated on a
straight-line basis over the life of the related lease. Rental properties are
comprised of the following:
December 31,
--------------------------------------
2002 2001
------------------ -----------------
Land covered by purchase-leaseback agreement $ 250 $ 250
Land related to building and improvements 156,839 153,300
Building and improvements 501,463 493,188
Tenant improvements 15,334 13,082
----------------- -----------------
Total rental properties $ 673,886 $ 659,820
================= =================
Upon expiration of the lease for land covered by the purchase-leaseback
agreement, all improvements on the land will become the property of the Company.
During 2001, the Company had an additional land purchase-leaseback agreement.
The lessee of this agreement had the option, subject to certain conditions, to
repurchase the land, which was exercised in 2001, resulting in a gain to the
Company of $347, included in the gain on sale of operating properties and
outparcels in the accompanying Consolidated Statements of Earnings.
Rental properties acquired and disposed in 2002, 2001 and 2000 are
summarized below. In connection with the acquisition of Parkwest Crossing in
2002, the Company assumed a $4,800, 8.1% mortgage. See Note 8. In addition, see
Note 7 for additional disclosure of a property disposition in 2001.
SHOPPING CENTER ACQUISITIONS
Date Square Year Built/ % Leased Total Initial
Acquired Property Name City, State Footage Renovated at Acquisition Cost Paid
- -------- ------------------- ----------- ------- ----------- -------------- ------------- ------
(unaudited)
2002 ACQUISITIONS
2/19/02 Parkwest Crossing Durham, NC 85,602 1991 100% $ 6,620 $ 1,946
2001 ACQUISITIONS
4/12/01 Unigold Shopping Center Orlando, FL 102,985 1987 97% $ 8,000 $ 7,903
11/30/01 Carrollwood Center Tampa, FL 96,242 1971/1996 85% 6,763 6,763
------- ----------------------
199,227 $ 14,763 $ 14,666
======= ======================
2000 ACQUISITIONS
12/28/00 Pine Ridge Square Coral Springs, FL 117,399 1986 100% $ 11,600 $ 11,438
17
Date Square Sales Net Gain
Sold Property Name City, State Footage Price Proceeds (Loss)(1)
- -------- --------------------------- -------------------- --------- ------ -------- ------
(unaudited)
2002 DISPOSITIONS
9/25/02 Forest Hills Centre Wilson, NC 74,180 $ 6,850 $ 6,513 $ 2,185
11/14/02 Asheville Plaza Asheville, NC 49,800 950 950 723
11/26/02 Lexington Shopping Center Lexington, VA 36,535 2,915 2,912 1,167
12/12/02 Lawrence Commons Lawrenceburg, TN 52,295 4,219 4,029 1,252
----------------------------------------------
212,810 $ 14,934 $ 14,404 $ 5,337
==============================================
2001 DISPOSITIONS
4/18/01 Eden Center Eden, NC 56,355 $ 3,950 $ 3,830 $ 742
5/31/01 Chadwick Square Hendersonville, NC 32,100 2,401 2,351 366
6/8/01 Ft. Walton Beach Plaza Ft. Walton Beach, FL 48,248 1,650 1,515 (135)
----------------------------------------------
136,703 $ 8,001 $ 7,696 $ 973
==============================================
2000 DISPOSITIONS
1/14/00 Palm Gardens Largo, FL 49,890 $ 1,500 $ 1,389 $ 804
8/1/00 Palm Gardens (2) 651 651
2/18/00 Westgate Square Sunrise, FL 104,853 11,355 10,271 1,934
8/31/00 Abbeville Abbeville, SC 59,525 177 135 (5)
10/3/00 Carolina Place Hartsville, SC 36,560 2,104 2,016 228
12/29/00 Chester Plaza Chester, SC 71,443 2,250 2,257 937
----------------------------------------------
322,271 $ 17,386 $ 16,719 $ 4,549
==============================================
(1) Calculation is based upon financial information prior to accounting for
discontinued operations under SFAS No. 144 "Accounting for the Impairment or
Disposal of Long-Lived Assets." See Note 26 for more information.
(2) Represents additional sale proceeds received subsequent to the sale of the
property.
4. PROPERTIES UNDER DEVELOPMENT
Development properties consisted of the following:
December 31,
---------------------------------------
2002 2001
------------------ ------------------
Land related to building and improvements $ 4,581 $ 11,491
Building and improvements 8,153 11,108
Development agreements and loans - 846
------------------ ------------------
Total properties under development $ 12,734 $ 23,445
================== ==================
At December 31, 2002, the Company has the following developments.
o The Shops at Huntcrest, in Lawrenceville, Georgia, will be a 97,000
square foot shopping center anchored by a 54,340 square foot Publix.
o Miramar, located in Broward County, Florida, consists of one
outparcel.
18
In December 2002, IRTCCII sold approximately 21 acres of the 23 acre
development, Miramar, for $6,600, resulting in a gain of approximately $615. The
gain is included in the gain on sales of properties and outparcels on the
Consolidated Statements of Earnings.
During 2002, IRTCCII completed two development properties. Conway Crossing,
located in Orlando, Florida, consists of a 44,270 square foot Publix with 28,740
additional square feet of shop space, and was substantially completed in April
2002. Lutz Lake Crossing, in Tampa, Florida, has approximately 68,000 square
feet of retail space, anchored by a 44,270 square foot Publix and was
substantially complete in May 2002. The costs of these development properties
were approximately $5,885 and $8,400, respectively.
In 2001, IRTCCII completed Regency Square, a 85,864 square foot shopping
center, located in Port Richey, Florida and anchored by a 44,270 square foot
Publix. The total cost of the development property was approximately $9,817.
Costs capitalized for development properties include, but are not limited
to, interest and internal development costs. Amounts capitalized for interest in
2002, 2001 and 2000 were $703, $776 and $906, respectively. Internal development
costs capitalized in 2002, 2001 and 2000 were $429, $642 and $276, respectively.
5. DEVELOPMENT AGREEMENTS AND LOANS
The Company enters into agreements and loans to develop shopping centers
with local developers. The loans generally consist of the Company committing to
loan a fixed amount, at a specified interest rate, for the development of the
shopping center. The loan is secured by the development property and is due upon
completion of the shopping center.
Additionally, the Company could enter into a separate agreement to purchase
the completed shopping center. Generally, the purchase price to the Company is
based on the shopping center's net operating income and an implied rate of
return at the time when the developer meets certain budgetary and leasing
requirements. The developer is responsible for all construction matters as well
as initial leasing efforts.
As of December 31, 2002, the Company was not involved in any development
agreements or loans.
In December 2002, the Company called a development loan on Freehome
Village, located in Cherokee County, Georgia. The loan originated in October
2000 and prior to repayment, the loan had an interest rate at the one month
London Interbank Offering Rate ("LIBOR") plus a premium of 3% and $925 was
outstanding. Interest capitalized from this loan was $55, $53 and $17 for 2002,
2001 and 2000, respectively. The Company recognized income of approximately $88
due to the repayment of the loan.
During 2001, the Company completed one development agreement and loan,
Chastain Square II. This agreement was to expand a currently owned shopping
center by 13,500 square feet. The Company made the development loan pursuant to
a January 2000 development agreement with the developer. The Company loaned the
developer a total of $3,645, which was repaid upon completion of the expansion.
This loan had an interest rate of the one month LIBOR plus a premium of 2.5%.
Interest capitalized from this loan was $189 and $218 for 2001 and 2000,
respectively. The Company then purchased the expansion, under the terms of the
agreement, for approximately $4,155.
19
6. WHOLLY OWNED SUBSIDIARIES AND AFFILIATES
IRT Capital Corporation ("IRTCC") was formed under the laws of Georgia in
1996 and subsequently dissolved in January 2001. This taxable subsidiary of the
Company had the ability to develop properties, buy and sell properties, provide
equity to developers and perform third-party management, leasing and brokerage.
The Company held 96% of the nonvoting common stock and 1% of the voting common
stock of IRTCC. The remaining common stock was held by a former member of the
Board of Directors and a former executive officer of the Company. In January
2001, the Company purchased the remaining outstanding common stock from the
former member of the Board of Directors and the former executive officer of the
Company for $16. Subsequent to IRTCC becoming wholly owned, the Company
dissolved IRTCC and recognized a $4 loss. The loss upon dissolution is included
within the accompanying Consolidated Statements of Earnings. Prior to IRTCC
becoming wholly owned and consolidated, it was accounted for by the Company
under the equity method.
IRTCCII was formed under the laws of Georgia in 1999 and is used by the
Company primarily to develop properties. IRTCCII elected on March 15, 2001 to
become a taxable REIT subsidiary pursuant to the REIT Modernization Act of 1999.
In conjunction with the election, the Company made IRTCCII wholly owned by
purchasing the remaining outstanding common stock of IRTCCII for $2. Prior to
March 15, 2001, the Company held 96% of the non voting common stock and 1% of
the voting common stock of IRTCCII. The remaining common stock was held by an
executive officer and a director of the Company. IRTCCII was accounted for by
the Company under the equity method prior to it becoming wholly owned and
consolidated as of March 15, 2001. As a result of obtaining control, the Company
consolidates IRTCCII. Due to consolidation, net rental properties of the Company
increased $17,989, cash increased $177, other assets increased $220 and
liabilities increased $1,073.
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
guarantees are joint and several and full and unconditional.
7. NET INVESTMENT IN DIRECT FINANCING LEASES
At December 31, 2002, two retail facilities are leased to Wal-Mart Stores,
Inc. Rental income, including percentage rent, from these leases totaled $265,
$281 and $402 in 2002, 2001 and 2000, respectively.
The Company sold, in May 2001, ten branch bank buildings acquired in a 1984
merger. These facilities were leased to The Old Phoenix National Bank at a total
annual rental of $313. For 2001, the Company recognized rental income of $104.
The Company sold the bank buildings for $3,500 and recognized a gain on the sale
of $1,525.
Of the total rental income on direct financing leases, $140, $152 and $166
was recorded as amortization of capitalized leasing income in 2002, 2001 and
2000, respectively.
The Company is to receive minimum lease payments of $333 per year during
2003 through 2007 and a total of $999 thereafter through the remaining lease
terms.
8. MORTGAGE LOANS
As of December 31, 2002, the Company has two mortgage loans, Cypress Chase
"A" Condominiums and Mill Creek Club Condominiums. The Cypress Chase "A"
Condominium loan has an interest rate of 10.0% and is due in May 2009. The Mill
Creek Club Condominium loan is a participating mortgage of which the Company has
a 50.0% interest. The loans associated with the Company's interest are due in
2017 and have
20
interest rates ranging from 9.0% to 9.5%. As of December 31, 2002, the balance
outstanding on these two mortgage loans was approximately $82.
In June 2001, the Company entered into a second mortgage in the amount of
$250, with an interest rate of 7.0%, in connection with the sale of an operating
property. The loan was paid in its entirety in July 2002.
The Company's investments in mortgage loans, all of which are secured by
real estate investments, are summarized by type of loan at December 31, 2002 and
2001, as follows:
2002 2001
-------------------------------------- ------------------------------------
Number Amount Number Amount
of Loans Outstanding of Loans Outstanding
------------------ ------------------ -------------- -------------------
First Mortgage 1 $ 68 1 $ 76
Mortgage Participation 1 14 1 16
Second Mortgage -- -- 1 250
------------------ ------------------ -------------- -------------------
2 82 3 342
Less: Interest discounts and
negative goodwill -- (24) -- (28)
------------------ ------------------ -------------- -------------------
Mortgage Loans, net 2 $ 58 3 $ 314
================== ================== ============== ===================
Annual principal payments applicable to mortgage loan investments in the
next five years and thereafter are as follows:
Year Amount
--------------- -------------
2003 $ 6
2004 6
2005 7
2006 8
2007 9
Thereafter 22
------------
$ 58
============
Based on current rates at which similar loans would be made, the estimated
fair value of mortgage loans was approximately $131 and $375 at December 31,
2002 and 2001, respectively.
9. MORTGAGE NOTES PAYABLE
Mortgage notes payable are collateralized by various real estate
investments having a net carrying value of approximately $208,366 at December
31, 2002. These notes have stated interest rates ranging from 6.28% to 9.625%
and are due in monthly installments with maturity dates ranging from 2005 to
2024.
In February 2002, the Company assumed a nonrecourse, 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 30-year amortization schedule.
Costs associated with assuming the secured loan totaled $56 and are being
amortized over the term of the loan.
In March 2002, the Company prepaid a 9.63% secured loan of approximately
$5,198. The loan was due on June 1, 2002.
21
In September 2002, the Company prepaid a 7.65% secured loan of
approximately $1,989. The loan was due on December 1, 2002.
In December 2002, IRTCCII entered into a $7,500, 6.28% secured loan on a
property. The loan is due and payable on December 1, 2012 and only interest
payments are due until January 1, 2008. Costs associated with obtaining the
secured loan totaled $109 and are being amortized over the term of the loan.
In April 2001, the Company entered into three notes 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 30-year amortization
schedule. The notes bear interest at a weighted average interest rate of 7.17%
and range from 7.02% to 7.25%. Costs associated with obtaining the secured notes
totaled $366 and are being amortized over the term of the loans.
During 2000, the Company made a scheduled balloon payment at maturity of
$3,521 on a note bearing interest at 7.75%.
Future principal amortization and balloon payments applicable to mortgage
notes payable at December 31, 2002 are as follows:
Principal Balloon
Year Amortization Payments Total
- ---------------- -------------------- --------------- ----------------
2003 $ 2,846 $ -- $ 2,846
2004 3,066 -- 3,066
2005 3,314 7,500 10,814
2006 3,445 4,797 8,242
2007 3,624 -- 3,624
Thereafter 50,256 56,958 107,214
-------------------- --------------- ----------------
$ 66,551 $ 69,255 135,806
==================== ===============
Interest Premium 1,182
----------------
$ 136,988
================
The $1,182 of interest premium as of December 31, 2002 relates to the fair
value adjustment of the three mortgages assumed from the minority interest
holder in connection with the formation of LP in 1998.
Based on the borrowing rates currently available to the Company for notes
with similar terms and maturities, the estimated fair value of mortgage notes
payable was approximately $149,139 and $137,522 at December 31, 2002 and 2001,
respectively.
10. CONVERTIBLE SUBORDINATED DEBENTURES
Effective August 31, 1993, the Company issued $86,250 of 7.3% convertible
subordinated debentures due August 15, 2003, none of which are outstanding as of
December 31, 2002. In January 2002, the Company redeemed all of the outstanding
debentures at par plus accrued interest for $23,110.
Interest on the debentures was payable semi-annually on February 15 and
August 15. The debentures were convertible at any time prior to maturity into
common stock of the Company at $11.25 per share, subject to adjustment in
certain events. Costs associated with the issuance of the debentures were
approximately $3,701 and were being amortized over the life of the debentures.
As a result of the redemption, the Company recognized a $156 extraordinary loss
on the extinguishment of the unamortized debt costs.
22
Prior to redemption, 165 bonds were converted into 14,659 shares of common
stock. No debentures were converted during 2001 or 2000.
Based on the closing market price of the debentures at December 31, 2001,
the estimated fair value of the debentures was approximately $23,828.
11. SENIOR NOTES
On March 26, 1996, the Company issued $50,000 of 7.45% senior notes. These
notes were due April 1, 2001 and were repaid on such date. These senior notes
were issued at a discount of $84 which was amortized over the life of the notes
on a straight-line basis for financial reporting purposes. Net proceeds from the
issuance totaled approximately $49,394. Interest on the 7.45% senior notes was
payable semi-annually on April 1 and October 1. Costs associated with the
issuance of these senior notes totaled approximately $522 and were amortized
over the life of the notes.
On August 15, 1997, the Company issued $75,000 of 7.25% senior notes due
August 15, 2007. These senior notes were issued at a discount of $426 which is
being amortized over the life of the notes on a straight-line basis for
financial reporting purposes. Net proceeds from the issuance totaled $73,817.
Interest on the 7.25% senior notes is payable semi-annually on February 15 and
August 15. Costs associated with the issuance of these senior notes totaled
approximately $757 and are being amortized over the life of the notes.
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 and are unconditionally
guaranteed as to the payment of principal, premium, if any, and interest, if
any, by each of LP, IRTMC, IRTAL and IRTCCII.
On March 29, 2001, pursuant to the MTN Program, the Company issued $50,000
of 7.77% senior notes due April 1, 2006. Net proceeds from the issuance totaled
$49,324. Interest on these senior notes is payable semi-annually on April 1 and
October 1. Costs associated with the issuance of these senior notes totaled
approximately $676 and are being amortized over the life of the notes.
On January 23, 2002, pursuant to the MTN Program, 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 $306
and are being amortized over the life of the notes.
12. INDEBTEDNESS TO BANKS
On November 1, 1999, the Company obtained a $100,000 unsecured revolving
loan facility ("Revolving Loan"), with an original maturity date of 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. In addition to the
new Revolving Loan, the Company secured a $5,000 unsecured swing line, scheduled
to mature on October 31, 2000. In October 2000, the Company extended the
maturity date of the Revolving Loan and swing line credit facility to November
1, 2003 and the Company secured an option to increase the Revolving Loan at its
discretion by $50,000. On May 29, 2002, the Company amended and renewed the
existing $100,000 unsecured line of credit, as well as extended the Company's
option to expand the line by $50,000, until May 29, 2005.
23
Under the Revolving Loan, the Company may elect to pay interest at either
the lender's prime, adjusted daily or the LIBOR plus the "Applicable Margin"
based upon the rating of the senior unsecured debt obligations of the Company.
The Applicable Margin ranges from 0.95% to 1.40%. The Applicable Margin prior to
the amendment on May 29, 2002 was 1.15%. Effective on the date of the amendment
the Applicable Margin decreased to 1.05%. At December 31, 2002, the weighted
average interest rate was 2.71% on outstanding borrowings under the Revolving
Loan. The terms of the Revolving Loan and swing line credit facility require the
Company to pay an annual facility fee equal to 0.2% of the total commitment. The
terms also include certain customary operational and financial covenants, which
the Company was in compliance with as of December 31, 2002 and 2001.
LP, IRTCCII, IRTAL and IRTMC guarantee the Company's indebtedness on the
Revolving Loan and swing line credit facility.
The following data is presented with respect to the Revolving Loan and
swing line credit facility in 2002 and 2001:
2002 2001
--------------- --------------
Available balance at year end $ 15,000 $ 53,346
Average borrowing for the period $ 32,518 $ 43,355
Maximum amount outstanding during the period $ 60,047 $ 57,000
Average interest rate for the period 3.89% 6.48%
Interest rate at year end 2.71% 3.67%
The Company incurred facility fees of approximately $211, $224, and $202
for the years ended December 31, 2002, 2001 and 2000, respectively.
13. COMMITMENTS AND CONTINGENCIES
The Company has entered into change in control employment agreements with
certain key executives. Under each agreement in the event employment is
terminated following a "Change In Control," the Company is committed to pay
certain benefits, including the payment of each employee's base salary through
the expiration of each agreement.
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.
Following the execution of the merger agreement with IRT in October 2002
(see Note 27), three IRT shareholders filed three separate purported class
action and derivative suits in the Superior Court of Cobb County, State of
Georgia, against IRT, IRT's board of directors and the Company alleging claims
of breach of fiduciary duty by the defendant directors, unjust enrichment and
irreparable harm. The complaints sought declaratory relief, an order enjoining
consummation of the merger, and unspecified damages. Although the Georgia court
did not grant the plaintiffs the equitable relief requested and permitted the
completion of the merger, two of these lawsuits, Greaves v. IRT Property
Company, et. al. and Phillips v. IRT Property Company, et. al., are still
pending and second amended complaints have been filed in each case and the other
was voluntarily dismissed. Management believes there will be no material effect
on the Company's financial statements as a result of these suits.
24
14. MINORITY INTEREST
Minority interest for the years ended December 31, 2002 and 2001 represents
a 5.59% and 5.66% interest, respectively, in the results of the LP which are
owned by a third party. In 1998, LP was formed with a contribution of three
Florida shopping centers by an unaffiliated limited partner and a contribution
of 20-shopping centers by the Company. Subsequent to the formation of LP, the
Company has contributed cash to acquire eight shopping centers and LP has
divested of eight shopping centers. At December 31, 2002 and 2001, 815,852 OP
Units were held by the limited partner. The unaffiliated limited partner has the
option to require LP to redeem its OP Units at any time, in which event LP has
the option to purchase the OP Units for cash or convert them into one share of
the Company's common stock for each OP Unit.
Adjustments have been made to the minority interest balance in LP to
properly reflect its ownership interest in the Company. During 2002, 2001 and
2000, adjustments of $0, $13 and $(395) were recorded, respectively. The
adjustments are a result of the purchase or issuance of additional shares of
common stock and OP units.
The Company also records a minority interest for the limited partners'
share of equity in two properties. The two properties in which the Company has a
general partner interest are Venice Plaza (75% interest) and North Village
Center (49.5% interest). The aggregate balance of the minority interest in these
properties as of December 31, 2002 and 2001 is $631 and $528, respectively, and
is included within accrued expenses and other liabilities on the accompanying
Consolidated Balance Sheets.
15. COMMON STOCK
In May 2002, the Company completed an offering of 3,450,000 shares of
common stock at $11.79 per share. Net proceeds to the Company were approximately
$38,292.
16. DEFERRED COMPENSATION AND STOCK LOANS
On May 30, 2002, 160,000 restricted shares of common stock were granted to
certain Company officers as incentives for future services. The restricted
shares vest proportionately over four years from the date of grant. The
restricted shares were valued at the closing price of the Company's common stock
on May 30, 2002 of $11.97.
On January 7, 2000, 25,001 restricted shares of common stock were granted
to certain Company officers as incentives for future services. The restricted
shares vest ratably over 9 years from the date of grant. The restricted shares
were valued at the closing price of the Company's common stock on January 7,
2000 of $8.1875.
On June 18, 1998, 119,760 restricted shares of common stock were granted
and 119,760 shares (the "Loan Shares") were issued pursuant to nonrecourse loans
due June 18, 2008. The loans were made to certain Company officers as incentives
for future services. The restricted shares vest ratably over ten years from the
date of grant. The restricted shares and the Loan Shares were valued at the
closing price of the Company's common stock on June 18, 1998 of $10.437.
25
Compensation expense recognized for the three years in the period ended
December 31, 2002 for the restricted stock grants was as follows:
Grant Date 2002 2001 2000
--------------------------- ------------------- --------------- ---------------
May 30, 2002 $ 111,720 $ -- $ --
June 18, 1998 252,258 100,000 100,000
January 7, 2000 17,690 17,690 22,745
------------------ --------------- ---------------
Total $ 381,668 $ 117,690 $ 122,745
================== =============== ===============
17. TREASURY STOCK
In November 1999, the Board of Directors authorized the Company to
repurchase up to $25,000 of its common stock through the open market or in
privately negotiated transactions. During 2001 and 2000, the Company repurchased
47,000 and 2,488,701 shares, for a cost of $405 and $20,818, respectively,
including commissions and other costs.
On January 16, 2001, the Company completed the stock repurchase program.
The Company repurchased a total of 3,028,276 shares at an average price of $8.26
per share.
In May 2002, the Company reissued 2,683,812 treasury shares as a result of
the common stock offering of $11.79 per share.
18. RENTAL INCOME
Leases with tenants are accounted for as operating leases. Certain tenants
are required to pay percentage rents based on gross sales exceeding stated
amounts. The Company receives reimbursements from tenants for real estate taxes,
common area maintenance and other recoverable costs. Rents from tenants are
summarized as follows:
2002 2001 2000
---------------- ---------------- --------------
Minimum rental income $ 71,044 $ 67,531 $ 65,915
Percentage rental income 783 896 1,016
Other rental income 18,298 15,635 15,670
---------------- ---------------- --------------
Total rental income $ 90,125 $ 84,062 $ 82,601
================ ================ ==============
26
Minimum rents to be received from tenants on noncancellable operating
leases for the Company's shopping center, industrial, and land
purchase-leaseback investments at December 31, 2002 are as follows:
YEAR AMOUNT
- ---------------- ---------------
2003 $ 69,167
2004 62,883
2005 54,576
2006 43,967
2007 35,054
Thereafter 183,684
---------------
$ 449,331
===============
19. INCOME TAXES
The Company has a subsidiary, IRTCCII, that elected on March 15, 2001 to
become a taxable REIT subsidiary pursuant to the REIT Modernization Act of 1999
and, in addition, became wholly owned by the Company simultaneously with the
election. The services provided by this subsidiary and the sales of the
subsidiary's properties generate taxable income and are taxed at regular
corporate income tax rates. The corresponding income tax is expensed. The
subsidiary had income tax expense of $451 and $53 for 2002 and 2001,
respectively. Tax expense for 2002 is included in the net gain on Sales of
Outparcels.
20. CASH DISTRIBUTIONS AND DIVIDEND REINVESTMENT PLAN
The Company has elected since inception to be treated as a REIT under the
Code. In accordance with the Code, a REIT must distribute at least 90% (95%
prior to 2001) of its taxable income to its shareholders each year. See Note 2
for additional disclosure. The differences between taxable income as reported on
the Company's tax return (estimated 2002 and actual 2001 and 2000) and net
earnings as reported on the Consolidated Statements of Earnings are as follows:
2002 2001 2000
---------------- -------------- --------------
Net earnings available to common shareholders $ 31,338 $ 25,220 $ 29,039
Rental income timing differences (853) 1,041 (628)
Taxable direct financing lease income 140 152 171
Depreciation timing differences on real estate 1,440 1,285 1,032
Minority interest adjustments (810) 524 (172)
Taxable gain (loss) on sale of operating properties (1,186) 1,824 (1,638)
Elimination of earnings for taxable REIT subsidiary (805) (54) --
Taxable loss (gain) for unconsolidated affiliates -- -- 56
Miscellaneous timing differences (92) (234) 66
--------------- -------------- --------------
Taxable income available to common shareholders $ 29,172 $ 29,758 $ 27,926
=============== ============== ==============
27
The following is a reconciliation between dividends declared and dividends
applied in 2001 and 2000 and estimated to be applied in 2002 to meet REIT
distribution requirements:
2002 2001 2000
---------------- -------------- --------------
Dividends Declared $ 33,746 $ 28,589 $ 29,782
Dividends on Restricted Stock 97
Portion of dividends declared in current year,
and paid in current year, which was applied
to the prior year distribution requirements (1,169) -- (140)
Portion of dividends declared in subsequent
year, and paid in subsequent year, which
will apply to current year -- 1,169 --
---------------- -------------- --------------
Dividends applied to meet current year
REIT distribution requirements $ 32,674 $ 29,758 $ 29,642
================ ============== ==============
The taxability of per share distributions paid to shareholders during the
years ended December 31, 2002, 2001 and 2000 was as follows:
2002 2001 2000
------------------------------ ------------------------ -------------------------
AMOUNT PERCENTAGE AMOUNT PERCENTAGE AMOUNT PERCENTAGE
---------- ----------- -------- ---------- -------- ------------
Ordinary income $ 0.79 77.8% $ 0.77 81.8% $ 0.79 83.7%
Capital gains 0.09 9.3% 0.17 18.2% 0.09 9.8%
Return of capital 0.13 12.9% -- 0.0% 0.06 6.5%
-------- ----- --------- ------- -------- -----
Total rental income $ 1.01 100.0% $ 0.94 100.0% $ 0.94 100.0%
======== ===== ========= ======= ======== =====
The Company has a Dividend Reinvestment Plan (the "DRIP") which allows
shareholders, who own at least 100 shares of the Company's common stock, to
elect to reinvest all or a portion of their distributions in newly issued shares
of common stock of the Company. The Company did not receive any proceeds under
the DRIP in 2002 and 2001 as shares were purchased on the open market to fund
the DRIP. In 2000, the Company issued 59,089 treasury shares and received net
proceeds of $497.
21. EARNINGS PER SHARE
Basic earnings per share were computed by dividing net earnings by the
weighted average number of shares of common stock outstanding during the year.
Diluted earnings per share includes the effects of stock options, restricted
stock, the conversion of the 7.3% subordinated debentures and the conversion of
the OP Units.
The effects of the exercise of certain stock options and issuances of
restricted stock, using the treasury stock method, have been included in the
diluted earnings per share calculation for the year ended December 31, 2002 and
2001. However, the effects of the restricted stock for the year ended December
31, 2000 were antidilutive and excluded from the calculation.
The effects of the conversion of the 7.3% subordinated debentures have been
included in the calculation of diluted earnings per share, as they are dilutive
for the year ended December 31, 2002, 2001 and 2000.
28
The effects of the conversion of the OP Units have been included in the
calculation of diluted earnings per share, as they are dilutive for the years
ended December 31, 2001 and 2000. However, the effects of the conversion of the
OP Units for the year ended December 31, 2002 were antidilutive and excluded
from the calculation.
PER SHARE
INCOME SHARES AMOUNT
------------- -------------------- ----------------
(in thousands)
For the fiscal year ended December 31, 2002
Basic net earnings available to shareholders $ 31,338 32,772 $ 0.96
================
Options outstanding -- 170
Restricted stock -- 17
Conversion of 7.3% debentures 115 136
------------- --------------------
Diluted net earnings available to shareholders $ 31,453 33,095 $ 0.95
============= ==================== ================
For the fiscal year ended December 31, 2001
Basic net earnings available to shareholders $ 25,220 30,322 $ 0.83
================
Options outstanding -- 91
Restricted stock -- 3
Minority interest of unitholders in operating partnership 554 816
7.3% Convertible Debentures 1,799 2,069
------------- --------------------
Diluted net earnings available to shareholders $ 27,573 33,301 $ 0.83
============= ==================== ================
For the fiscal year ended December 31, 2000
Basic net earnings available to shareholders $ 29,039 31,536 $ 0.92
================
Options outstanding -- 11
Minority interest of unitholders in operating partnership 568 816
7.3% Convertible Debentures 1,799 2,069
------------- --------------------
Diluted net earnings available to shareholders $ 31,406 34,432 $ 0.91
============= ==================== ================
22. STOCK OPTION AND PURCHASE PLANS
Effective May 8, 1989, the Company adopted and its shareholders approved
the 1989 Stock Option Plan (the "1989 Plan"). The 1989 Plan includes provisions
for a) the granting of both Incentive Stock Options ("ISOs") (as defined in
Section 422A of the Code) and nonqualified options to officers and employees and
b) the automatic granting of nonqualified options for 1,250 shares to each
nonemployee director upon the election and each annual re-election of each
nonemployee director. Under the terms of the 1989 Plan, the option price shall
be no less than the fair market value of the optioned shares at the date of
grant. The options are automatically vested and expire after ten years. There is
a maximum of 1,062,500 shares of common stock reserved under the 1989 Plan.
Effective June 18, 1998, the Company adopted and its shareholders approved
the 1998 Long-Term Incentive Plan (the "1998 Plan"). The 1998 Plan includes
provisions for the granting of ISOs, nonqualified options, stock appreciation
rights, performance shares, restricted stock, dividend equivalents and other
stock-based awards. Under the terms of the 1998 Plan, the option exercise price
shall be no less than the fair market value of the optioned shares at the date
of the grant. The options are automatically vested and expire after ten years.
There is a maximum of 1,625,000 shares of common stock reserved under the 1998
Plan.
29
The Company also adopted the IRT Property Company 2000 Employee Stock
Purchase Plan (the "ESPP"), approved by the shareholders on May 16, 2000. The
ESPP allows eligible employees to acquire shares of the Company's stock on a
quarterly basis through payroll deductions. A maximum of 300,000 shares of
common stock are reserved for issuance under the ESPP. The purchase price of the
shares of common stock are 90% of the lesser of the closing price of a share of
common stock on the first trading day of the purchase period or the last trading
day of the purchase period.
The Company initiated the ESPP in 2001 and there were two purchase periods
in 2001, which ended on September 30 and December 31, respectively. For the
purchase period ended September 30, 2001, 1,159 shares were purchased at a price
of $9.72 per share. For the purchase period ended December 31, 2001, 1,380
shares were purchased at a price of $9.36 per share.
For 2002, there were four purchase periods which ended on March 31, June
30, September 30 and December 31. For the purchase period ended March 31, 1,168
shares were purchased at a price of $9.50 per share. For the purchase period
ended June 30, 891 shares were purchased at a price of $10.575 per share. For
the purchase period ended September 30, 851 shares were purchased at a price of
$10.575 per share. For the purchase period ended December 31, 1,042 shares were
purchased at a price of $10.62 per share.
Under SFAS No. 123, the fair value of each option grant and stock purchase
right is estimated as of the date of grant and date of purchase, respectively,
using the Black-Scholes option pricing model. The weighted average fair value of
options granted is $0.50, $0.40 and $0.46 for 2002, 2001 and 2000, respectively.
The weighted average fair value of the rights to purchase stock pursuant to the
ESPP were $0.31 and $1.98 for 2002 and 2001, respectively. The following
weighted-average assumptions were used for option grants and stock purchase
rights in 2002, 2001 and 2000, respectively:
2002 2001 2000
---------------- -------------- --------------
Risk free interest rate 4.44% 4.98% 6.71%
Expected dividend yield 9.45% 11.10% 12.03%
Expected volatility 18.00% 21.00% 21.00%
Expected annual forfeiture rate 10.00% 0.00% 5.00%
Expected lives (in years) 5 5 5
30
Details of the stock option activity during 2002, 2001 and 2000 are as
follows:
NUMBER OF SHARES
------------------------------------ OPTION PRICE
EMPLOYEES DIRECTORS PER SHARE
----------------- --------------- --------------------
Options outstanding at December 31, 1999 507,868 62,500 $7.63 - $13.38
Granted 321,393 -- $7.81 - $8.63
Granted -- 5,000 $8.75
Exercised (36,800) -- $7.81
Expired unexercised (107,032) (10,000) $7.81 - $12.50
----------------- ---------------
Options outstanding at December 31, 2000 685,429 57,500 $7.63 - $13.38
Granted 317,627 -- $8.31
Granted -- 25,000 $10.30
Exercised (204,818) -- $7.81 - $10.13
Expired unexercised (25,000) (6,250) $7.625 - $10.25
----------------- ---------------
Options outstanding at December 31, 2001 773,238 76,250 $7.81 - $13.38
Granted 162,350 -- $10.55
Granted -- 25,000 $11.97
Exercised (109,900) (7,500) $7.81 - $12.00
Expired unexercised (20,500) (1,250) $10.00 - $11.69
----------------- ---------------
Options outstanding at December 31, 2002 805,188 92,500 $7.81 - $13.38
================= ===============
The following table summarizes information about stock options outstanding
and exercisable at December 31, 2002:
NUMBER WEIGHTED AVERAGE WEIGHTED
RANGE OF OUTSTANDING REMAINING AVERAGE
EXERCISE PRICES AND EXERCISABLE CONTRACTUAL LIFE EXERCISE PRICE
-------------------------- ------------------------ ---------------------------- ------------------
$ 7.81 - $ 8.75 355,438 7.54 years $ 8.39
$ 9.25 - $ 9.75 160,000 3.90 years $ 9.56
$ 10.13 - $ 10.75 221,100 7.26 years $ 10.49
$ 11.38 - $ 11.97 139,150 5.38 years $ 11.64
$ 12.00 - $ 13.38 22,000 0.28 years $ 12.55
-------------------------- ------------------------ ---------------------------- ------------------
$ 7.81 - $ 13.38 897,688 6.31 years $ 9.72
========================== ======================== ============================ ==================
23. EMPLOYEE RETIREMENT BENEFITS
Under the Company's 401(k) Plan, employees who annually work over 1,750
hours and are at least 18 years of age are eligible for participation in the
Plan. Employees may elect to make contributions to the Plan as defined by the
Internal Revenue Code. The Company matches 100% of such contributions up to 6%
of the individual participant's compensation, based on the length of service.
The Company contributed approximately $208, $192 and $184 to the 401(k) Plan in
2002, 2001 and 2000, respectively.
31
24. SUMMARY OF NONCASH INVESTING AND FINANCING ACTIVITIES
Significant noncash transactions for the years ended December 31, 2002,
2001 and 2000 were as follows:
2002 2001 2000
---------------- ------------------ ------------------
Adjustment for minority interest ownership of LP $ -- $ 13 $ (395)
Issuance of employee restricted stock $ 1,915 $ -- $ 204
Mortgages assumed in purchase of rental properties $ 4,800 $ -- $ --
25. RELATED PARTY TRANSACTIONS
Beginning in 2000, the Company provides management services for two
shopping centers owned principally by real estate joint ventures in which an
officer of the Company has economic interests. Such services are performed
pursuant to management agreements which provide for fees based upon a percentage
of gross revenues from the properties and other direct costs incurred in
connection with management of the centers. The Consolidated Statements of
Earnings include management fee income from these management services of $79,
$100 and $14 for the years ended December 31, 2002, 2001 and 2000.
26. DISCONTINUED OPERATIONS
The Company adopted SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets," effective January 1, 2002. SFAS No. 144 requires
the Company to report in discontinued operations the results of operations of a
property that has either been disposed or is classified as held for sale, unless
certain conditions are met. SFAS No. 144 further requires the Company to
reclassify results of operations from a property disposed of or held for sale
subsequent to December 31, 2001 as income from discontinued operations during
prior reported periods.
The Company classified the results of operations from four properties sold
during 2002 as income from discontinued operations for the three years in the
period ended December 31, 2002 in the accompanying Consolidated Statements of
Earnings. The effect of the adoption of SFAS No. 144 on the consolidated
statements of earnings is shown below.
2002 2001 2000
------------ ------------- -------------
Income from rental properties $ 1,487 $ 1,702 $ 1,622
------------ ------------- -------------
Operating expenses of rental properties 257 300 300
Interest Expense 46 61 56
Depreciation 281 314 311
------------ ------------- -------------
Total expenses 584 675 667
Minority interest (38) (45) (56)
------------ ------------- -------------
Income from discontinued operations $ 865 $ 982 $ 899
============ ============= =============
32
27. SUBSEQUENT EVENTS
On February 12, 2003, Equity One, Inc. and the Company completed the merger
transaction pursuant to which the Company merged with and into Equity One, Inc.,
with the Company ceasing to exist as a separate corporate entity. Following the
merger, the Company's stock is no longer separately traded on the New York Stock
Exchange or any other exchange and represents only the right to receive merger
consideration provided pursuant to the merger agreement. Finally, following the
merger, the Company's status as a reporting person under the Securities Exchange
Act of 1934 was terminated and it no longer files separate reports with the
Securities and Exchange Commission.
* * * * * *
33
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements of Business Acquired.
Not applicable
(b) Pro Forma Financial Information
Not applicable
(c) Exhibits.
23.1 Consent of Deloitte & Touche LLP.
34
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
Equity One has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
EQUITY ONE, INC.
Date: May 13, 2003 By: /s/ Howard M. Sipzner
--------------------------------------
Howard M. Sipzner
Chief Financial Officer
35
INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT
- -------------- ----------------------
23.1 Consent of Deloitte & Touche LLP
36