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) December 10, 2002
EQUITY ONE, INC.
- --------------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Maryland
- --------------------------------------------------------------------------------
(State or other jurisdiction of Incorporation)
001-13499 52-1794271
- --------------------------------------------------------------------------------
(Commission File Number) (IRS Employer Identification No.)
1696 N.E. Miami Gardens Drive, North Miami Beach, FL 33179
- --------------------------------------------------------------------------------
(Address of principal executive office)
(305) 947-1664
- --------------------------------------------------------------------------------
(Registrants Telephone Number, Including Area Code)
N/A
- --------------------------------------------------------------------------------
(Former Name or Former Address, if Changed Since Last Report)
EQUITY ONE, INC.
FORM 8-K
Index
Page
-------
Item 5. Other Events 1
Selected Consolidated Financial Data................................. 2
Management Discussion and Analysis of Financial Condition
and Results of Operations..................................... 4
Liquidity and Capital Resources................................. 10
Mortgage Indebtness ............................................ 12
Environmental Matters........................................... 16
Inflation and Recession Considerations.......................... 16
Quantitative and Qualitative Disclosures About Market Risk...... 16
Index To Financial Statements
Report of Independent Auditors.................................. F-1
Consolidated Balance Sheets..................................... F-2
Consolidated Statements of Operations .......................... F-4
Consolidated Statements of Comprehensive Income ................ F-6
Consolidated Statements of Stockholders' Equity ................ F-7
Consolidated Statements of Cash Flows .......................... F-8
Notes to Consolidated Financial Statements...................... F-10
Signature
Item 7. Exhibit
23.1 Consent of Independent Accountants
ITEM 5. OTHER EVENTS
Equity One, Inc. (the "Company") is filing this Form 8-K, which includes
the Company's consolidated financial statements that were originally filed in
Item 8 of its 2001 Annual Report on Form 10-K/A, to reflect the impact of (i)
the classification as discontinued operations of depreciable rental property
disposed of or designated as held for sale on or after January 1, 2002 pursuant
to the requirements of Statement of Financial Accounting Standards ("SFAS")
No.144, Accounting for the Impairment or Disposal or Long Lived Assets, and (ii)
the classification of debt extinguishments as ordinary operations pursuant to
SFAS No. 145, Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB
Statement No. 13, and Technical Corrections, for the three years ended December
31, 2001, 2000 and 1999, including Management's Discussion and Analysis of
Financial Condition and Results of Operations, and Selected Financial Data.
We adopted the provisions of SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets, effective January 1, 2002. This statement
addresses financial accounting and reporting for the impairment or disposal of
long-lived assets. It also retains the basic provision for presenting
discontinued operations in the statement of operations but broadened the scope
to include a component of an entity rather than a segment of a business.
Pursuant to the definition of a component of an entity in the pronouncement, the
sale of depreciable rental property is now considered a discontinued operation.
In a period in which a component of an entity either has been disposed of or is
classified as held for sale, the income statements for current and prior periods
shall report the results of operations of the component, including any gain or
loss recognized as discontinued operations.
The Company has modified the statements of operations for the three years
ended December 31, 2001, 2000, and 1999 to reflect the reclassification required
by this statement as we intend to effect a stock offering in connection with a
proposed merger with IRT Property Company and these financial statements will be
incorporated by reference in the registration statement to be filed in
connection therewith. Accordingly, the results of operations of the following
depreciable rental properties disposed of through September 30, 2002 or
classified as held for sale as of September 30, 2002, for which the Company has
no significant continuing involvement, are reflected as discontinued operations:
Gross Sales Price
--------------------------
Property Location Date Sold Square Sold Under
Feet/Acres (ac) Contract
- -------------------------- ------------------ ------------- ---------------- ----------- -----------
Equity One Office Miami Beach, FL February 28,780 $ 6,050
Olive Miami, FL February 6.79ac 1,900
Benbrook Fort Worth, TX February 247,422 2,590
Monclair apartments Miami Beach, FL June 9,375 2,450
Shops of Westbury Miami, FL July 33,706 5,200
Forest Edge Orlando, FL July 68,631 3,475
Northwest Crossing Dallas, TX September 33,366 2,350
Mariners Outparcel Spring Hill, FL -- .6ac $ 500
McMinn Plaza Athens, TN -- 107,200 6,000
----------- -----------
$ 24,015 $ 6,500
=========== ===========
We adopted the provisions of SFAS No. 145, Rescission of FASB Statements
No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections
which 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. It also
rescinds FASB Statement No. 44, Accounting for Intangible Assets or Motor
Carriers, and amends FASB Statement No. 13, Accounting for Leases. Finally SFAS
No. 145 amends other existing authoritative pronouncements to make various
technical corrections, clarify meanings, or describe their applicability under
changed conditions. The provisions related to the rescission of FASB Statement
No. 4 and its amendment Statement No. 64 are effective for fiscal years
beginning after May 15, 2002, with early application encouraged. Any gain or
loss on extinguishment of debt that was classified as an extraordinary item in
prior periods presented that does not meet the criteria in APB Opinion No. 30
for classification of an extraordinary item must be reclassified. We have
adopted SFAS No. 145 and reflected gains (losses) from extinguishment of debt as
part of ordinary income.
1
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated statement of operations data and balance sheet
data set forth below have been derived from our consolidated financial
statements, including the consolidated financial statements for the years ended
December 31, 2001, 2000 and 1999 contained elsewhere herein. The consolidated
financial statements as of and for the years ended December 31, 2001, 2000 and
1999 have been audited by Deloitte & Touche LLP, independent auditors. The data
set forth below should be read in conjunction with the consolidated financial
statements and related notes, and "Management's Discussion and Analysis of
Financial Condition and Results of Operations included elsewhere in this annual
report.
Year Ended December 31,
------------------------------------------------------------
2001 2000 1999 1998 1997
---- ---- ---- ---- ----
(in thousands other than per share, percentage and ratio data)
Statement of Operations Data:
Total revenues (1)........................... $ 80,207 $ 47,948 $ 26,035 $ 21,936 $ 19,533
-------- -------- -------- -------- --------
Property operating expenses.................. 24,067 13,091 6,702 5,611 4,917
Rental property depreciation and amortization 10,841 6,177 3,396 2,798 2,310
Interest expense............................. 20,756 12,336 4,851 4,667 5,306
Amortization of deferred financing fees...... 1,142 270 105 191 219
Put option expense........................... - - - 1,320 -
Loss on extinguishment of debt............... 1,546 - - - -
General and administrative expenses.......... 3,553 2,559 1,622 1,381 1,029
-------- -------- -------- ------- --------
Total costs and expenses.................. 61,905 34,433 16,676 15,968 13,781
-------- -------- -------- ------- --------
Other income (expenses)...................... (874) (1,755) 3,718 2,632 -
-------- -------- -------- ------- --------
Income from continuing operations............ $ 17,428 $ 11,760 $ 13,077 $ 8,600 $ 5,752
======== ======== ======== ======= ========
Net Income................................... $ 18,721 $ 12,555 $ 13,589 $ 9,065 $ 6,198
======== ======== ======== ======= ========
Basic earnings per share........................
Income from continuing operations............ $ 0.77 $ 0.82 $ 1.21 $ 0.96 $ 0.89
======== ======== ======== ======= ========
Net Income................................... $ 0.83 $ 0.88 $ 1.26 $ 1.01 $ 0.96
======== ======== ======== ======= ========
Diluted earnings per share:
Income from continuing operations............. $ 0.77 $ 0.82 $ 1.21 $ 0.95 $ 0.81
======== ======== ======== ======= ========
Net Income................................... $ 0.83 $ 0.87 $ 1.26 $ 1.00 $ 0.87
======== ======== ======== ======= ========
Balance Sheet Data:
Rental property, net......................... $627,687 $483,699 $204,919 $138,623 $119,250
Total assets................................. 668,536 542,817 212,497 152,955 126,903
Mortgage notes payable....................... 345,047 280,396 97,752 67,145 71,004
Total liabilities............................ 390,269 321,267 121,068 71,737 73,323
Minority interest in CEFUS................... - 33,887 - - -
Stockholders' equity......................... 278,267 187,663 91,429 81,218 53,580
2
Other Data:
EBITDA to interest coverage ratio (2)........ 2.5 2.6 3.6 3.2 2.6
Funds from operations (3).................... $ 29,385 $ 19,044 $ 13,354 $10,598 $ 8,576
Cash flows from:.............................
Operating activities..................... 32,804 15,506 20,169 3,697 8,843
Investing activities..................... (44,298) (11,165) (62,239) (23,824) (6,173)
Financing activities..................... 10,053 (2,421) 40,903 19,123 (2,023)
GLA (square feet) (at end of period)......... 8,637 3,169 2,836 2,078 2,004
Occupancy (at end of period)................. 86% 95% 95% 95% 93%
Dividends per share.......................... $ 1.06 $ 1.10 $ 1.02 $ 1.00 $ 0.95
_____________
(1) Excludes discontinued operations and real estate sales.
(2) EBITDA to interest coverage ratio is the ratio of continuing earnings
before interest, taxes, depreciation and amortization ("EBITDA") to
interest expense excluding the amortization of deferred financing costs.
The 2001 ratio excludes a $609 loss on the sale of real estate and the
$1,546 loss on extinguishment of debt from EBITDA, the 2000 ratio excludes
a $63 loss on the sale of real estate on EBITDA, the 1999 ratio excludes a
$3,800 gain on the sale of real estate from EBITDA, and the 1998 ratio
excludes a $2,600 gain on the sale of real estate and the $1,300 put option
expense from EBITDA. EBITDA is not intended to represent cash flow from
operations and should not be considered as an alternative to operating or
net income computed in accordance with GAAP, as an indicator of our
operating performance, as an alternative to cash flows from operating
activities (calculated in accordance with GAAP) or as a measure of
liquidity. We believe that EBITDA is a fairly standard measure in our
industry, commonly reported and widely used by analysts and investors as a
measure of profitability for companies with significant depreciation,
amortization and non-cash expenditures. Similarly, the EBITDA to interest
coverage ratio is commonly used along with cash flows from operating
activities (calculated in accordance with GAAP) as a measure of a companys
ability to pay its current interest obligation. However, not all companies
calculate EBITDA using the same methods; therefore, the EBITDA figures set
forth above may not be comparable to EBITDA reported by other companies.
(3) We define funds from operations ("FFO") consistent with the NAREIT
definition as net income before gains (losses) on the sale of real estate,
extraordinary items and minority interest (as well as expenses associated
with minority interests), plus real estate depreciation and amortization of
capitalized leasing costs. We believe that FFO should be considered along
with, but not as an alternative to, net income as defined by GAAP as a
measure of our operating performance. Our calculation of FFO may not be
comparable to similarly titled measures reported by other companies. FFO
does not represent cash generated from operating activities in accordance
with GAAP and is not necessarily indicative of funds available to fund our
needs. Our calculation of FFO may not be comparable to similarly titled
measures reported by other companies. We calculate FFO as follows:
Year Ended December 31,
2001* 2000 1999** 1998** 1997**
----- ---- ------ ------ -------
(in thousands)
Net income........................ $ 18,721 $ 12,555 $ 13,589 $ 9,065 $ 6,198
Depreciation of real estate assets 11,202 6,312 3,483 2,845 2,378
Share of joint venture real
estate depreciation............. 238 33 - - -
Deferred income tax (benefit)
expense......................... (374) 1,071 - - -
Put option expense................ - - - 1,320 -
Minority interest in consolidated
subsidiary...................... 99 - 96
- -
Interest on convertible
partnership units............... 259 20 - - -
Gain (loss) on sale of real estate 609 63 (3,814) (2,632) -
Minority interest in CEFUS share
of FFO adjustments.............. (1,369) (1,010) - - -
-------- -------- -------- ------- --------
FFO............................... $ 29,385 $ 19,044 $ 13,354 $10,598 $ 8,576
======== ======== ======== ======= ========
* Restated to conform with adoption of SFAS No. 145.
** Restated to conform to NAREIT's current FFO definition.
3
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
CAUTIONARY STATEMENT RELATING TO FORWARD LOOKING STATEMENTS
Certain information included and incorporated by reference in this Current
Report on Form 8-K may contain forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, or Securities Act, and
Section 21E of the Securities Exchange Act of 1934, as amended, or Exchange Act,
and as such may involve known and unknown risks, uncertainties and other factors
which may cause our actual results, performance or achievements to be materially
different from future results, performance or achievements expressed or implied
by such forward-looking statements. Forward-looking statements, which are based
on certain assumptions and describe our future plans, strategies and
expectations, are generally identifiable by use of the words "may," "will,"
"should," "expect," "anticipate," "estimate," "believe," "intend" or "project"
or the negative thereof or other variations thereon or comparable terminology.
Factors, which could have a material adverse effect on the operations and future
prospects of our company, include:
o our inability to identify properties to acquire or our inability to
successfully integrate acquired properties and operations, including our
inability to successfully integrate the business and operations of United
Investors Realty Trust and Centrefund Realty (U.S.) Corporation which we
acquired in the third quarter of 2001.
o the effect of general economic downturns on demand for and rents from
neighborhood and community shopping centers;
o changes in tax laws or regulations, especially those relating to REITs and
real estate in general;
o our failure to continue to qualify as a REIT under U.S. tax laws;
o the number, frequency and duration of tenant vacancies that we experience;
o the time and cost required to solicit new tenants and to obtain lease
renewals from existing tenants on terms that are favorable to us;
o tenant bankruptcies and closings;
o the general financial condition of, or possible mergers or acquisitions
involving, our tenants;
o competition from other real estate companies or from competing shopping
centers or other commercial developments;
o changes in interest rates and national and local economic conditions;
o the continued service of our senior executive officers;
o possible environmental liabilities;
o the availability, cost and terms of financing;
o the time and cost required to identify, acquire, construct or develop
additional properties that result in the returns anticipated or sought;
o the costs required to re-develop or renovate any of our current properties;
and
o the effect of natural disasters and other casualties.
You should also carefully consider any other factors contained in this
report, including the information incorporated by this report. You should not
rely on the information contained in any forward-looking statements, and you
should not expect us to update any forward-looking statements.
OVERVIEW
The following should be read in conjunction with our consolidated financial
statements, including the notes thereto, which are included elsewhere in this
current report.
We are a real estate investment trust, or REIT, that principally acquires,
renovates, develops and manages community and neighborhood shopping centers
primarily anchored by supermarkets or other necessity-oriented retailers such as
drug stores or discount retail stores. As of December 31, 2001, our portfolio
consisted of 85 properties, contained an aggregate of 8.6 million square feet of
gross leasable area, and was 86.1% occupied based on gross leasable area.
4
In September 2001, we made two strategic acquisitions, which nearly tripled
the size of our property portfolio. On September 20, 2001, we acquired
Centrefund Realty (U.S.) Corporation, or CEFUS, a wholly-owned subsidiary of one
of our affiliates, First Capital Realty Inc., an Ontario corporation whose
shares are traded on the Toronto Stock Exchange (TSE:FCR). As a result of this
transaction, we acquired 28 shopping centers and other retail properties which
contained an aggregate of approximately 3.2 million square feet of gross
leasable area and assumed additional indebtedness in the amount of approximately
$157 million. Because of the beneficial ownership of approximately 68% of First
Capital's common stock by Gazit-Globe (1982), Ltd., our majority beneficial
stockholder, the acquisition of CEFUS has been accounted for on a push-down
basis and partially in a manner similar to a pooling of interests. The
"push-down" component of the accounting treatment incorporates Gazit-Globe
(1982) Ltd.'s fair market valuation of the CEFUS assets and liabilities on
August 18, 2000. Our results for the period between August 18, 2000, the day
that Gazit-Globe acquired its beneficial interest in First Capital, and
September 19, 2001 have been restated to consolidate our operations with those
of CEFUS subject to a 31.93% minority interest in CEFUS. Our results from
September 20, 2001, the day we acquired CEFUS, eliminate this minority interest.
For a more complete discussion of this accounting treatment and the specific
impact it has had on our results of operations, see Note 1 to our consolidated
financial statements included elsewhere in this annual Form 8-K.
On September 21, 2001, we completed our acquisition of United Investors
Realty Trust, or UIRT, a Texas real estate investment trust. As a result of this
transaction, we acquired 22 shopping centers which contained an aggregate of
approximately 2 million square feet of gross leasable area and assumed
additional indebtedness in the aggregate amount of approximately $80 million.
The acquisition of UIRT was accounted for using the purchase method of
accounting and the results of UIRT are included in our consolidated financial
statements from the date we acquired it.
Our real estate portfolio has grown substantially during 2001 as a result
of these acquisitions. We intend to continue to expand our business by acquiring
and developing additional neighborhood and community shopping centers in the
near future primarily through a combination of individual property acquisitions,
development of new properties, property portfolio purchases and acquisitions of
other REITs and real estate companies.
SIGNIFICANT ACCOUNTING POLICIES AND ESTIMATES
Management's Discussion and Analysis of Financial Condition and Results of
Operations provides additional information related to our consolidated financial
statements, which have been prepared in accordance with accounting principles
generally accepted in the United States of America. The preparation of these
consolidated financial statements requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
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. On an ongoing basis, our management evaluates and if
necessary, adjusts its estimates and judgments, including those related to real
estate and development assets, revenue recognition in conjunction with providing
development, leasing and management services and equity in earnings of
unconsolidated joint ventures. Our management believes that the following
critical accounting policies, among others, affect its more significant
judgments and estimates used in the preparation of our consolidated financial
statements.
Real Estate and Development Assets
- ----------------------------------
We capitalize acquisition and construction costs, property taxes, interest
and other miscellaneous costs that are directly identifiable with a project,
from pre-acquisition until the time that construction is complete and the
development is ready for its intended use, in accordance with SFAS No. 67 and
SFAS No. 34. We allocate the capitalized project costs to the various components
of the project based on the components' relative fair value. Our cost allocation
method requires the use of management estimates regarding the fair market value
of each project component. Our management bases its estimates on current market
appraisals, comparable sales, existing sale and purchase contracts, historical
experience, and various other assumptions that are believed to be reasonable
under the circumstances, the results of which form the basis for making
judgments about the fair market value of real estate assets. Actual results may
differ from these estimates and anticipated returns on a project, as well as the
gain or loss on disposition of the individual project components, could vary
significantly from estimated amounts.
5
Our management reviews long-lived assets used in operations for impairment
when there is an event or change in circumstances that indicates that the
carrying amount of the asset may not be recoverable and the future undiscounted
cash flows expected to be generated by the asset are less than its carrying
amount. If such asset is considered to be impaired, we record impairment losses
and reduces the carrying amount of the impaired asset to an amount that reflects
the fair value of the asset at the time impairment is evident. Our impairment
review process relies on our management's judgment regarding the indicators of
impairment, the remaining life of the asset used to generate the asset's
undiscounted cash flows, and the fair value of the asset at a particular point
in time. Management uses historical experience, current market appraisals and
various other assumptions to form the basis for making judgments about the
impairment of real estate assets. Under different assumptions or conditions, the
asset impairment analysis may yield a different outcome, which would alter our
ultimate return on its assets, as well as the gain or loss on the eventual
disposition of the asset.
Revenue Recognition
- -------------------
We, as lessor, has retained substantially all the risks and benefits of
property ownership and accounts for our leases as operating leases. Revenue from
percentage rent is recognized when tenants' reported sales have reached certain
levels specified in the respective leases. Recoveries from tenants for real
estate taxes and other operating expenses are recognized as revenue in the
period when the applicable costs are incurred.
Investments in Unconsolidated Joint Ventures
- --------------------------------------------
We do not consider ourself to be in control of joint ventures when major
business decisions require the approval of at least one other managing equity
owner. Accordingly, we account for our joint ventures in which we do not retain
unilateral control under the equity method.
We calculate the equity in income or loss earned from our unconsolidated
joint ventures based on our estimate of each equity owner's economic ownership
which is estimated based on anticipated stabilized cash flows, as they would be
allocated to each equity owner based on how cash flow is distributed. Generally,
under the terms of the respective joint venture agreements, net ordinary cash
flow is distributed to each equity owner in accordance with such owner's equity
ownership percentages.
Accounting for Stock Options
- ----------------------------
We apply the intrinsic value method as prescribed by Accounting Principles
Board Opinion No. 25, Accounting for Stock Issued to Employees, and related
interpretations in measuring stock-based compensation, including options.
Accordingly, no compensation expense has been recognized for options granted
under our compensation plan as no grants were made at less than market value. In
accordance with SFAS No. 123, Accounting for Stock-Based Compensation,
compensation expense would be recognized based upon the fair value of the award
at the grant date.
DISCONTINUED OPERATIONS
We adopted the provisions of SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets, effective January 1, 2002. This standard
addresses financial accounting and reporting for the impairment or disposal on
long-lived assets. We also retain the basic provision for presenting
discontinued operations in the income statement but broadened the scope to
include a component of an entity rather than a segment of a business. Pursuant
to the definition of a component of an entity in the pronouncement, the sale of
depreciable rental property is now considered a discontinued operation.
Accordingly, the results of operations of depreciable rental properties disposed
of or classified as held for sale subsequent to January 1, 2002, for which we
have no significant continuing involvement, are reflected as discontinued
operations.
6
The operations of the following properties as of September 30, 2002 have
been reflected as discontinued operations in the consolidated financial
statements for each of the three years in the period ended December 31, 2001
included herein:
Gross Sales Price
------------------------
Square Feet/ Under
Property Location Date Sold Acres (ac) Sold Contract
-------------------- --------------- ----------- ------------ --------- ---------
Equity One Office Miami Beach, FL February 28,780 $ 6,050
Olive Miami, FL February 6.79ac 1,900
Benbrook Fort Worth, TX February 247,422 2,590
Monclair apartments Miami Beach, FL June 9,375 2,450
Shops of Westbury Miami, FL July 33,706 5,200
Forest Edge Orlando, FL July 68,631 3,475
Northwest Crossing Dallas, TX September 33,366 2,350
Mariners outparcel Spring Hill, FL -- .6ac $ 500
McMinn Plaza Athens, TN -- 107,200 6,000
---------- -----------
$24,015 $ 6,500
========== ===========
EXTINGUISHMENT OF DEBT
We adopted the provisions of SFAS No. 145, Rescission of FASB Statements
No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections
which 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. It also
rescinds FASB Statement No. 44, Accounting for Intangible Assets or Motor
Carriers, and amends FASB Statement No. 13, Accounting for Leases. Finally SFAS
No. 145 amends other existing authoritative pronouncements to make various
technical corrections, clarify meanings, or describe their applicability under
changed conditions. The provisions related to the rescission of FASB Statement
No. 4 and its amendment Statement No. 64 are effective for fiscal years
beginning after May 15, 2002, with early application encouraged. Any gain or
loss on extinguishment of debt that was classified as an extraordinary item in
prior periods presented that does not meet the criteria in APB Opinion No. 30
for classification of an extraordinary item must be reclassified. We have
adopted SFAS No. 145 and reflected gains (losses) from extinguishment of debt as
part of ordinary income.
RESULTS OF OPERATIONS
We derive substantially all of our revenues from rents received from
tenants under existing leases on each of our properties. These revenues include
fixed rents, recoveries of expenses that we have incurred and which we pass
through to the individual tenants and percentage rents that are based on
specified percentages of tenants' revenues, in each case as provided in the
particular leases.
Our primary cash expenses consist of our property operating expenses, which
include real estate taxes, repairs and maintenance, payroll, insurance,
utilities and other expenses, general and administrative expenses, which include
payroll, office expenses, professional fees and other administrative expenses,
and interest expense, primarily on mortgage indebtedness. In addition, we incur
substantial non-cash charges for depreciation and amortization on our
properties. We also capitalize certain expenses, such as taxes and interest,
incurred in respect of property under development or redevelopment until the
property is ready for its intended use.
Year Ended December 31, 2001 Compared To Year Ended December 31, 2000
Total revenues increased by $32.3 million, or 67.3%, to $80.2 million for
the year ended December 31, 2001 from $47.9 million for the year ended December
31, 2000. This increase was primarily due to an increase in revenues of $22.5
million resulting from the consolidation of the results of CEFUS for the entire
year of 2001 compared to the period from August 18, 2000 to December 31, 2000
for the prior year and an additional $6.3 million of revenues from the
acquisition of UIRT in September 2001. In addition, revenues increased by $2.5
million for the year ended December 31, 2001 compared to 2000 as a result of our
acquisition of two shopping centers and the completion of development projects
in 2001 and the latter part of 2000. Same property revenues increased by $1.0
million, or 3.7%, to $33.8 million for the year ended December 31, 2001 from
$32.6 million for the year ended December 31, 2000 as a result of higher rental
rates and the completion of additions to some of our properties. Finally,
investment revenue increased by $347,000 and management fees, consisting
primarily of real estate services
7
provided to third parties, increased by $567,000 for the year ended December 31,
2001 compared to the year ended December 31, 2000.
Property operating expenses increased by $11.0 million, or 83.8%, to $24.1
million for the year ended December 31, 2001 from $13.1 million for the year
ended December 31, 2000. The increase in property operating expenses was
primarily the result of $6.8 million of increased operating expenses from the
consolidation of CEFUS for the entire year 2001 compared to the shorter period
in 2000 and $1.9 million of operating expenses for UIRT from its acquisition
date. In addition, operating expenses increased by $401,000 for the year ended
December 31, 2001 compared to the year ended December 31, 2000 as a result of
our acquisition of two shopping centers and the completion of development
projects in 2001 and the latter part of 2000. Same property operating expenses
increased by $300,000, or 3.6%, to $8.7 million for the year ended December 31,
2001 from $8.4 million for the year ended December 31, 2000 as a result of
higher operating costs and the completion of additions to some of our
properties. Finally, property management expenses increased by $1.6 million for
the year ended December 31, 2001 compared to the year ended December 31, 2000 as
a result of managing a substantially larger portfolio of properties, of which
$1.1 million was due to an increase in employee salaries and benefits.
Rental property depreciation and amortization expense increased by $4.7
million, or 75.5%, to $10.8 million for the year ended December 31, 2001, from
$6.2 million for the year ended December 31, 2000. The increase resulted
primarily from depreciation and amortization expenses attributable to CEFUS and
UIRT in the amounts of $3.1 million and $731,000, respectively, and $683,000
attributable to our acquisition of new properties and completion of new
development projects.
Interest expense and amortization of deferred financing fees increased by
$9.3 million, or 73.7%, to $21.9 million for the year ended December 31, 2001
from $12.6 million for the year ended December 31, 2000. The increase was
primarily due to an increase in interest expense of $6.4 million and an increase
in amortization of deferred financing fees of $638,000 on indebtedness assumed
in connection with the acquisition of CEFUS and $1.3 million interest expense on
indebtedness assumed in connection with the acquisition of UIRT. In addition,
interest expense increased for the year ended December 31, 2001 as compared to
the year ended December 31, 2000 as a result of increased mortgage interest of
$1.3 million from the assumption of two loans, the closing of two new loans and
interest on convertible partnership units of $218,000, and decreased capitalized
interest expense of $79,000. These increased interest expenses were partially
offset by reductions of $644,000 due to decreased borrowing under our credit
facility with City National Bank of Florida.
General and administrative expenses increased by $994,000, or 38.8%, to
$3.6 million for the year ended December 31, 2001 from $2.6 million for the year
ended December 31, 2000. The increase was primarily the product of our growth.
Included in these expenses, compensation expenses increased by $245,000,
directors' fees increased by $136,000, professional fees increased by $134,000,
general and administrative costs increased by $76,000 related to inclusion of
CEFUS for a full twelve months, and all other costs increased $403,000.
Minority interest in CEFUS increased by $1.0 million to $1.6 million for
the year ended December 31, 2001 from $603,000 for the year ended December 31,
2000. This increase was a result of the consolidation of CEFUS for the period
from January 1 to September 19, 2001, subject to a minority interest as
described above, compared to the shorter period in 2000. In addition, we
recorded loss on extinguishment of debt of $1.5 million for the year ended
December 31, 2001 as a result of the payment of a prepayment penalty in
connection with the prepayment of a loan secured by one of our properties. The
increase in equity in income of unconsolidated subsidiaries of $489,000 for the
year ended December 31, 2001 relates primarily to our interest in the four joint
ventures acquired in the CEFUS acquisition and is attributable to the inclusion
of CEFUS's results for the full year in 2001, as well as commencement of
operations at these properties upon completion of development.
The income from depreciable rental properties sold and or held for sale as
of September 30, 2002 is reflected as discontinued operations for the year ended
December 31, 2001 and 2000. As of September 30, 2002, there were nine properties
being reported in discontinued operations producing income from discontinued
operations of $1.3 million for 2001 and $795,000 in 2000.
As a result of the foregoing, net income increased by $6.2 million, or
49.1%, to $18.7 million for the year ended December 31, 2001 compared to $12.6
million for the year ended December 31, 2000.
8
Year Ended December 31, 2000 Compared To Year Ended December 31, 1999 (continued
operations)
Total revenues increased by $21.9 million, or 84.2%, to $47.9 million for
the year ended December 31, 2000 from $26.0 million for the year ended December
31, 1999. This increase in revenue was primarily due to an increase in rental
revenues of $13.9 million resulting from the consolidation of the operations of
CEFUS for the period from August 18 to December 31, 2000. In addition, revenues
increased by $6 million for the year ended December 31, 2000 compared to the
year ended December 31, 1999 as a result of our acquisition of six properties
and the completion of certain development projects. Same property revenues,
including a termination fee of $1.1 million, increased by $2.0 million, or 8.3%,
to $26.2 million for the year ended December 31, 2000 from $24.2 million for the
year ended December 31, 1999 as a result of higher rental rates and completion
of additions to some of our properties. Finally, investment revenue increased by
$1.2 million, most of which can be attributed to the acquisition of CEFUS, and
management fees increased by $100,000 for the year ended December 31, 2000
compared to the year ended December 31, 1999. These increases were partially
offset by a reduction of rental revenue in the amount of $1.2 million due to the
sale of one of our properties during 2000.
Property operating expenses increased by $6.4 million, or 95.3%, to $13.1
million for the year ended December 31, 2000 from $6.7 million for the year
ended December 31, 1999. The increase in property operating expenses was
primarily the result of $4.2 million of increased operating expenses resulting
from the acquisition of CEFUS for the period from August 18 to December 31,
2000. In addition, property operating expenses increased by $1.4 million for the
year ended December 31, 2000 as compared to the year ended December 31, 1999 as
a result of our acquisition of six properties and the completion of certain
development projects. Same property operating expenses increased by $990,000, or
15.5%, to $7.4 million for the year ended December 31, 2000 from $6.4 million
for the year ended December 31, 1999 as a result of higher operating costs and
completion of additions to some of our properties, partially offset by a
reduction in operating expenses of $290,000 due to sale of one of our properties
during 2000.
Rental property depreciation and amortization expense increased by $2.8
million, or 81.9%, to $6.2 million for the year ended December 31, 2000, from
$3.4 million for the year ended December 31, 1999. The increase resulted
primarily from depreciation and amortization expenses attributable to the
acquisition of CEFUS in the amount of $2.1 million and our acquisition of new
properties and completion of new development projects in the amount of $715,000.
Interest expense and amortization of financing fees increased by $7.7
million, or 154.4%, to $12.6 million for the year ended December 31, 2000 from
$5.0 million for the year ended December 31, 1999. The increase was primarily
due to interest expense of $5.3 million and amortization of deferred financing
fees of $128,000 attributed to indebtedness assumed in connection with the
acquisition of CEFUS. In addition, mortgage interest increased by approximately
$2.1 million primarily due to a net increase in mortgage loans during 2000 of
$23.9 million relating to the acquisition of new properties, the completion of
phase one and phase two of the Shops at Skylake, and the September 1999
assumption of the Pine Island mortgage of $26.3 million offset by mortgage
amortization and certain mortgage repayments, an increase in interest payable
with respect to our line of credit of approximately $598,000 and an increase in
capitalized interest of $373,000 which reduced interest expense.
General and administrative expenses increased by $937,000, or 57.8%, to
$2.6 million for the year ended December 31, 2000 from $1.6 million for the year
ended December 31, 1999. The increase was primarily the product of increases in
compensation costs of $748,000, directors' fees of $78,000 and general and
administrative costs related to the acquisition of CEFUS of $198,000. All other
costs decreased by $87,000.
The income from depreciable rental properties sold and or held for sale as
of September 30, 2002 is reflected as discontinued operations for the years
ended December 31, 2000 and 1999. As of September 30, 2002, there were nine
properties being reported in discontinued operations producing income from
discontinued operations of $795,000 for 2000 and $512,000 for 1999.
As a result of the foregoing, net income decreased by $1 million, or 7.6%,
to $12.6 million for the year ended December 31, 2000 compared to $13.6 million
for the year ended December 31, 1999.
9
LIQUIDITY AND CAPITAL RESOURCES
We anticipate that cash generated from operating activities will provide
the necessary funds on a short-term basis for our operating expenses, interest
expense and scheduled principal and interest payments on outstanding
indebtedness, recurring capital expenditures necessary to properly maintain the
shopping centers and distributions to stockholders.
During 2001, we generated cash from operations of $32.8 million, reflecting
our net income of $18.7 million plus non-cash deductions to income, the most
significant of which were depreciation and amortization of $12.9 million,
minority interest in CEFUS of $1.6 million and a loss on the sale of real estate
of $609,000. In addition, operating cash benefited from, among other items, a
$3.9 million reduction in restricted cash resulting from the release of the
escrow on our loan related to our Skylake property, a $1.8 million reduction in
accounts and other receivables, $2.6 million decrease in notes receivable
resulting from repayments, a $1.6 million reduction in prepaid and other assets,
partially offset by an increase in deposits of $3 million and a reduction in
accounts payable and accrued expenses of $7.4 million.
We used $44.3 million of cash in investing activities, reflecting $37.4
million used for additions to property and $36.3 million of cash used in the
acquisition of UIRT. These uses were partially offset by proceeds from sales of
rental property of $22.3 million and $6.6 million from the sale of joint venture
interest, among other items.
We generated $10.1 million in cash from financing activities primarily
reflecting approximately $9.4 million in borrowings in excess of mortgage note
repayments, $19.9 million from the sale of common stock net of stock issuance
costs and the payment of $18.6 million in cash dividends to stockholders.
For 2001, we incurred cash payments for interest, net of capitalized
interest, of $20.5 million. Capitalized interest, which includes interest for
development properties and interest incurred to finance additions and
renovations until operational, amounted to $2.1 million.
Moreover, we expect to meet long-term liquidity requirements for maturing
debt, non-recurring capital expenditures and acquisition, renovation and
development of shopping centers from excess cash generated from operating
activities, working capital reserves, additional borrowings under our existing
credit facilities, long-term secured and unsecured indebtedness and through the
issuance of additional equity or debt securities in the private or public
markets.
Our total mortgage notes payable at December 31, 2001 and 2000 consisted of
the following:
(in thousands)
Mortgage Notes Payable 2001 2000
-------------------------- ---------- ---------
Fixed rate mortgage loans................................. $ 296,887 $ 243,279
Variable rate mortgage loans.............................. 48,160 37,117
---------- ----------
Total notes payable............................... $ 345,047 $ 280,396
========== ==========
Each of these loans is secured by a mortgage on one or more of certain of
our properties. As of December 31, 2001, the percentage of the total real estate
cost of our properties that was encumbered by debt was 55.9%. For a more
complete description of our mortgage indebtedness, see "Mortgage Indebtedness"
below.
At December 31, 2001, certain of the mortgages on our properties involving
an aggregate principal amount of approximately $123.4 million, excluding the
principal amount of $6.8 million which are scheduled to be repaid in 2002,
contain prohibitions on transfers of ownership which may have been violated by
our previous issuances of common stock or in connection with past acquisitions
and may be violated by transactions involving our capital stock in the future.
If a violation were established, it could serve as a basis for a lender to
accelerate amounts due under the affected mortgage. We are in the process of
obtaining the necessary consents from the lenders. Based on discussions with
various lenders to date, current credit market conditions and other factors, we
believe that such consents will be obtained or that the mortgages would not be
accelerated. Accordingly, we believe that the ultimate outcome of this matter
will not have a material adverse impact on our results of operations or
financial condition.
As of December 31, 2001, we had a $20.6 million credit agreement secured by
six properties with City National Bank of Florida, of which $1.4 million was
outstanding on that date. This facility accrues interest at 2.25%
10
over the thirty-day LIBOR rate, payable monthly, adjusted every six months, and
matures on May 4, 2002. In February 2002, the facility was reduced to an
availability of $10.8 million secured by five properties, and there was a zero
principal balance outstanding. This facility has also been used to provide a $1
million letter of credit in connection with the Pine Island/Ridge Plaza
financing and to support approximately $448,000 in escrows for property taxes on
the properties comprising its collateral, thereby reducing its gross
availability to approximately $9.4 million.
On September 17, 2001, we entered into a $30 million revolving line of
credit with Bank Leumi Le-Israel B.M. This facility accrues interest at 1.25%
over the 30 or 90-day LIBOR rate, at our option, and is payable monthly or
quarterly depending on our rate selection. The facility matures on September 16,
2002, with an option to extend it an additional 180 days. Under the Bank Leumi
credit agreement, as amended on February 18, 2002, we agreed not to mortgage or
encumber seven of our properties. The outstanding principal balance on this
facility was $26 million as of December 31, 2001, and was increased to $30
million as of March 1, 2002.
On February 27, 2002, we entered into a variable-rate revolving credit
facility with Wells Fargo under which we may borrow up to $29.4 million against
a borrowing base of five properties pledged to secure the facility. Borrowings
under the facility will bear interest, at our option, at the prime rate or based
on LIBOR plus a margin ranging from 1.15% if the ratio of our total liabilities
to gross asset value is less than 0.5, to 1.50% if the ratio of our total
liabilities to gross asset value is or exceeds 0.6. The entire principal amount
is due February 14, 2005. This new facility also prohibits stockholder
distributions in excess of 95% of funds from operations calculated at the end of
each fiscal quarter for the four fiscal quarters then ending. Notwithstanding
this limitation, we can make shareholder distributions to avoid income taxes on
asset sales. If a default under the facility exists, our ability to pay
dividends would be limited to the amount necessary to maintain our status as a
REIT.
The facility also contains financial covenants that require us to maintain:
o A consolidated net worth of not less than $251.4 million plus 90% of net
proceeds of equity issuances;
o A ratio of total liabilities to gross asset value of not more than 0.65;
o A ratio of EBITDA to interest expense of not less than 1.90;
o A ratio of EBITDA to fixed charges of not less than 1.65; and
o An occupancy rate on properties in the borrowing base of not less than 85%.
Our debt level could subject us to various risks, including the risk that
our cash flow will be insufficient to meet required payments of principal and
interest, and the risk that the resulting reduced financial flexibility could
inhibit our ability to develop or improve our rental properties, withstand
downturns in our rental income or take advantage of business opportunities. In
addition, because we currently anticipate that only a small portion of the
principal of our indebtedness will be repaid prior to maturity, it is expected
that it will be necessary to refinance the majority of our debt. Accordingly,
there is a risk that such indebtedness will not be able to be refinanced or that
the terms of any refinancing will not be as favorable as the terms of our
current indebtedness.
We expect to commence development in early 2002 of an 84,000 square foot
shopping center on a parcel of land located at the southeast corner of S.W.
147th Avenue and Coral Way in Miami-Dade County, Florida. We anticipate the cost
of development to be approximately $10 million, including the $2 million of
costs we incurred upon the exercise of our option to purchase from several of
our affiliates all of the outstanding shares of common stock of Equity One
(Coral Way), Inc. the sole asset of which consisted of this parcel of land. We
expect to commence development in late 2002 of a 25,000 square foot drug-store
anchored shopping center on a parcel of land we already own at the northeast
corner of S.W. 147th Avenue and Coral Way in Miami-Dade County, Florida at a
total cost of $2 million. Development of phase three of the Shops at Skylake,
totaling approximately 105,000 square feet is anticipated to commence and be
completed in 2003 at an estimated cost of approximately $7.3 million. We expect
to fund the costs of these development projects from cash flow from operations,
borrowings under our various revolving credit facilities and other sources of
cash, including obtaining permanent debt on certain unencumbered rental
properties.
11
On August 17, 2001, we sold 1,300,000 unregistered shares of our common
stock to Alony Hetz Properties & Investments Ltd. at a price of $10.875 per
share, resulting in net proceeds of $14.1 million. On September 17, 2001, we
sold 650,000 unregistered shares of our common stock to Alony Hetz at a price of
$10.875 per share, resulting in net proceeds of $7.1 million.
On January 18, 2002, we completed a private placement of 688,000 shares of
our common stock to a limited number of accredited investors. In connection with
the private placement, we sold an aggregate of 344,000 shares of our common
stock at a price of $12.80 per share to unaffiliated investors and 344,000
shares of our common stock at price of $13.05 per share to investors that are
affiliates of ours. The $8.9 million proceeds from the private placement were
raised for general corporate purposes.
In addition, on January 23, 2002, we filed a universal shelf registration
statement with the Securities and Exchange Commission, which will permit us,
from time to time, to offer and sell various types of securities, including
common stock, preferred stock, debt securities, depositary shares and warrants,
up to a value of $250 million. The registration statement provides us additional
flexibility in accessing capital markets to fund future growth and for general
corporate purposes.
We believe, based on currently proposed plans and assumptions relating to
our operations, that our existing financial arrangements, together with cash
flows from operations, will be sufficient to satisfy our cash requirements for a
period of at least twelve months. In the event that our plans change, our
assumptions change or prove to be inaccurate or cash flows from operations or
amounts available under existing financing arrangements prove to be insufficient
to fund our expansion and development efforts or to the extent we discover
suitable acquisition targets the purchase price of which exceed our existing
liquidity, we would be required to seek additional sources of financing. There
can be no assurance that any additional financing will be available on
acceptable terms, or at all and any equity financing could be dilutive to
existing shareholders. If adequate funds are not available, our business
operations could be materially adversely affected.
We believe that we qualify and intend to qualify as a REIT under the
Internal Revenue Code. As a REIT, we are allowed to reduce taxable income by all
or a portion of our distributions to stockholders. As distributions have
exceeded taxable income, no provision for federal income taxes has been made.
While we intend to continue to pay dividends to our stockholders, we also will
reserve such amounts of cash flow as we consider necessary for the proper
maintenance and improvement of our real estate, while still maintaining our
qualification as a REIT.
MORTGAGE INDEBTEDNESS
The following table sets forth certain information regarding our mortgage
indebtedness related to our properties as of December 31, 2001:
Balance at
December Interest Balance Due
31, 2001 Rate(1) Maturity Date at Maturity
-------------- -------- --------------- ------------
(in thousands) (in thousands)
Fixed Rate Mortgage Debt
Ft. Caroline $ 2,098 9.350% April 2002 $ 2,078
Village by the Parks 3,723 8.180% June 2002 3,687
Eustis Square 4,474 9.000% July 2002 4,344
Forest Edge 1,646 6.900% October 2002 1,567
Lantana 3,953 6.950% March 2005 3,498
Benchmark 3,466 9.250% July 2005 3,170
Sterling Plaza 4,175 8.750% September 2005 3,794
Townsend Square 4,989 8.500% October 2005 4,703
Green Oaks 3,172 8.375% November 2005 2,861
Melbourne Plaza 1,833 8.375% November 2005 1,654
Northwest Crossing 1,745 8.375% November 2005 1,574
Oak Hill 2,103 7.625% January 2006 1,713
Walden Woods 2,590 7.875% August 2006 2,071
Big Curve 5,658 9.190% October 2006 5,059
Highland Square 4,215 8.870% December 2006 3,743
Park Northern 2,463 8.370% December 2006 1,963
12
Balance at
December Interest Balance Due
31, 2001 Rate(1) Maturity Date at Maturity
-------------- -------- --------------- ------------
University Mall 12,837 8.440% December 2006 11,922
Rosemeade 3,305 8.295% December 2007 2,864
Colony Plaza 3,088 7.540% January 2008 2,834
Parkwood2 6,353 7.280% January 2008 5,805
Richwood2 3,273 7.280% January 2008 2,990
Mariners Crossing 3,468 7.080% March 2008 3,154
Commonwealth 2,967 7.000% March 2008 2,204
Pine Island/Ridge Plaza 25,588 6.910% July 2008 23,104
Shoppes at Westburry 2,330 7.300% October 2008 2,113
Shoppes of Northport 4,288 6.650% February 2009 3,526
Prosperity Centre 7,045 7.875% March 2009 4,137
Park Promenade 6,413 8.100% February 2010 5,833
Skipper Palms 3,611 8.625% March 2010 3,318
Jonathan's Landing 2,960 8.050% May 2010 2,639
Bluff's Square 10,232 8.740% June 2010 9,401
Kirkman Shoppes 9,662 8.740% June 2010 8,878
Ross Plaza 6,739 8.740% June 2010 6,192
Boynton Plaza 7,622 8.030% July 2010 6,902
Pointe Royale 4,974 7.950% July 2010 2,502
Plymouth Park East 1(3) 158 8.250% August 2010 113
Plymouth Park East 2(3) 474 8.250% August 2010 340
Plymouth Park North(3) 8,459 8.250% August 2010 6,076
Plymouth Park South(3) 632 8.250% August 2010 454
Plymouth Park Story North(3) 389 8.250% August 2010 279
Plymouth Park West(3) 2,528 8.250% August 2010 1,816
Shops at Skylake 15,275 7.650% August 2010 11,644
Minyard's 2,578 8.320% November 2010 2,175
Forest Village 4,575 7.270% April 2011 4,039
Boca Village 8,459 7.200% May 2011 7,466
Sawgrass Promenade 8,459 7.200% May 2011 7,466
Plaza del Rey 2,368 8.125% September 2011 -
Lake Mary 24,980 7.250% November 2011 21,973
Lake St. Charles 3,947 7.130% November 2011 3,461
Marco Island 9,000 6.700% January 2012 7,150
Summerlin Square 4,398 6.750% February 2014 -
Bird Ludlum 11,378 7.680% February 2015 -
West Lake 5,175 7.875% June 2016 130
Atlantic Village 4,597 6.850% November 2018 -
-------- --------------- -------------------
Total Fixed Rate Mortgage Debt (54 loans) $296,887 7.76% 7.32 years
-------- =============== ===================
(wtd-avg. rate) (wtd-avg. maturity)
Bank Variable Rate Mortgage Debt
First Union/Cashmere $ 5,198 LIBOR+165 March 2002 $ 5,220
Comerica/Copperfield(4) 8,000 LIBOR+141 October 2003 8,000
Bank of Nova Scotia/Oakbrook(5) 9,277 LIBOR+150 November 2003 9,277
Comerica/4 properties(6) 24,635 LIBOR+150 February 2004 24,635
Bank of America/Wurzbach 1,050 LIBOR+225 December 2004 1,011
--------
Total Variable Rate Mortgage Debt 48,160
--------
13
Balance at
December Interest Balance Due
31, 2001 Rate(1) Maturity Date at Maturity
----------- -------- --------------- ------------
Total Mortgage Notes Payable $ 345,047
---------
Variable Rate Revolving Credit Facilities
City National Bank(7) $ 1,409 LIBOR+225 May 2002 $ 1,409
Bank Leumi(8) 26,000 LIBOR+125 September 2002 26,000
---------
Total Variable Rate Revolving Credit Facilities $ 27,409
---------
Total Debt $ 372,456
=========
- ------------
(1) The rate in effect on December 31, 2001.
(2) The mortgage balances for Parkwood and Ridgewood represent the future
minimum lease payments (net of imputed interest) attributable to lease
payments on these two properties, both of which are owned pursuant to
capital lease obligations.
(3) All of the Plymouth loans are with Sun Life of Canada. In the case of
Plymouth Park North and East, the collateral has been split into two parts;
hence the two individual loans.
(4) The floating rate is LIBOR plus 141 basis points, but has been fixed at
6.49% (5.08% plus 1.41%) through October 30, 2003. This loan was repaid in
full on January 18, 2002 without any prepayment penalty.
(5) The Oakbrook loan was repaid in full on February 15, 2002, without any
prepayment penalty, and the collateral was pledged to secure the new Wells
Fargo facility, described above.
(6) This Comerica facility is secured by Grogans Mill ($7,995), Steeplechase
($6,305), Mission Bend ($6,370) and Beechcrest ($3,965). The floating rate
is LIBOR plus 150 basis points, but has been fixed at 6.88% (5.38% plus
1.50%) through February 19, 2002, after which the rate will float at LIBOR
+ 200 basis points.
(7) This facility was authorized to $20,640 as of December 31, 2001, and was
secured by Mandarin Landing and Mini-Storage, Skylake Phase III land,
Montclair Apartments, Beauclerc Village and East Bay Plaza. Effective
February 4, 2002, the line was extended for an additional 90 days, with
advances limited to $17,826 due to the sale of the Equity One Building
subsequently further reduced to $10,826 when Mandarin Landing was released
and pledged to Wells Fargo in connection with the new facility described
above.
(8) The Bank Leumi facility is secured by negative pledges on Hedwig, McMinn,
Southwest Walgreens, Albertsons Bissonnet, Albertsons Spring Shadows,
Bandera, Market at First Colony and Mason Park. On February 18, 2002, the
Albertsons Bissonet, Albertsons Spring Shadows and Hedwig properties were
released by Bank Leumi and were pledged to secure the new Wells Fargo
facility described above. In their place, the negative pledge was extended
to our Ryanwood and Pompano properties.
In addition to ongoing amortization payments throughout the terms of the
mortgages, our mortgage indebtedness outstanding at December 31, 2001 (including
the balance on our revolving credit facilities) will require approximate balloon
principal payments as follows:
Balloon
Year Due Payments
-------- ---------
2002 $ 44,282
2003 17,277
2004 25,646
2005 21,254
2006 26,470
2007 2,864
2008 42,217
2009 7,663
2010 68,564
2011 44,410
Thereafter 7,280
---------
Total $307,927
======= =========
We may not have sufficient funds on hand to repay these balloon amounts at
maturity. Therefore, we expect to refinance this indebtedness either through
additional mortgage financing secured by individual properties or groups of
properties, by unsecured private or public debt offerings or by additional
equity offerings. Our results of operations could be affected if the cost of
refinancing debt is greater or lesser than existing debt. If refinancing debt is
not available, our business would be adversely affected.
14
The following table sets forth certain information regarding our
indebtedness related to our joint venture properties as of December 31, 2001:
Balance at
December Balance Due
31, 2001 Interest Rate Maturity Date at Maturity
---------- ------------- -------------- -------------
Joint Venture Debt
Park Place* $13,951 LIBOR+1.85% April 2002 $13,951
City Centre 13,079 8.54% April 2010 11,989
Oaks Square 16,786 7.63% December 2010 14,805
________________________
* Guaranteed by CEFUS, our wholly owned subsidiary.
NEW ACCOUNTING STANDARDS AND ACCOUNTING CHANGES
In June 1998, the Financial Accounting Standards Board, or FASB, issued
Statement of Financial Accounting Standards ("SFAS") No. 133, Accounting for
Derivative Instruments and Hedging Activities. The effective date of this
statement, as amended by SFAS No. 137, Accounting for Derivative Instruments and
Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133 -
An Amendment of FASB Statement No. 133, is for fiscal years beginning after June
15, 2000. SFAS No. 133 requires us to recognize all derivatives on the balance
sheet at fair value. Derivatives that are not hedges must be adjusted to fair
value through income. If the derivative is a hedge, depending on the nature of
the hedge, a change in the fair value of the derivative will either be offset
against the change in the fair value of the hedged asset, liability or firm
commitment through earnings or recognized in other comprehensive income until
the hedged item is recognized in earnings. We adopted SFAS No. 133 on January 1,
2001. The adoption of SFAS No. 133 had no effect on our results of operations or
financial position.
In June 2001, FASB approved the issuance of SFAS No. 141, Business
Combinations, and SFAS No. 142, Goodwill and Other Intangible Assets. These
standards, which were issued in July 2001, established accounting and reporting
for business combinations. SFAS No. 141 requires all business combinations
entered into subsequent to June 30, 2001 to be accounted for using the purchase
method of accounting. SFAS No. 142 provides that goodwill and other intangible
assets with indefinite lives will not be amortized, but will be tested for
impairment at least annually. SFAS No. 142 is effective for fiscal years
beginning after December 15, 2001. We adopted SFAS No. 142 on January 1, 2002 at
which time goodwill amortization ceased. We are currently evaluating the impact
of the new accounting standards on existing goodwill and other intangible
assets. For the year ended December 31, 2001, goodwill amortization was $69,000.
In August 2001, FASB issued SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets, which supersedes, but does not replace, SFAS No.
121, Accounting for the Impairment of Long-Lived Assets to be Disposed Of, as
well as other earlier related pronouncements, either in whole or in part. SFAS
No. 144 is effective for financial statements issued for fiscal years beginning
after December 15, 2001 and interim periods within those fiscal years, though
earlier application is encouraged. This standard addresses financial accounting
and reporting for the impairment or disposal on long-lived assets. It also
retains the basic provision for presenting discontinued operations in the income
statement but broadened the scope to include a component of an entity rather
than a segment of a business. Pursuant to the definition of a component of an
entity in the pronouncement, the sale of depreciable rental property is now
considered a discontinued operation. We adopted the provisions of SFAS No. 144,
Accounting for the Impairment or Disposal of Long-Lived Assets effective January
1, 2002. Accordingly, the results of operations of depreciable rental properties
disposed of or classified as held for sale subsequent to January 1, 2002, for
which we have no significant continuing involvement, are reflected as
discontinued operations. See the introductory discussion to this "Item 5. Other
Events" section.
We adopted the provisions of SFAS No. 145, Rescission of FASB Statements
No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections
which 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. It also
rescinds FASB Statement No. 44, Accounting for Intangible Assets or Motor
Carriers, and amends FASB Statement No. 13, Accounting for Leases. Finally SFAS
No. 145 amends other existing authoritative pronouncements to make various
technical corrections, clarify meanings, or describe their applicability under
changed conditions. The provisions related to the rescission of FASB Statement
No. 4 and its amendment Statement No. 64 are effective for fiscal years
beginning after May 15,
15
2002, with early application encouraged. Any gain or loss on extinguishment of
debt that was classified as an extraordinary item in prior periods presented
that does not meet the criteria in APB Opinion No. 30 for classification of an
extraordinary item shall be reclassified. We have adopted SFAS No. 145 and have
reflected gains (losses) from extinguishment of debt as part of ordinary income.
See the introductory discussion to this "Item 5. Other Events" section.
ENVIRONMENTAL MATTERS
We, like others in the commercial real estate industry, are subject to
numerous environmental laws and regulations. The operation of dry cleaning
facilities at our shopping centers is the principal environmental concern. We
believe that the tenants who operate these facilities do so in accordance with
current laws and regulations and we have established procedures to monitor their
operations. Additionally, we use all legal means to cause tenants to remove dry
cleaning plants from our shopping centers. Where available, we have applied and
been accepted into state sponsored environmental programs. We believe that the
ultimate disposition of currently known environmental matters will not have a
material effect on our financial position, liquidity or operations.
INFLATION AND RECESSION CONSIDERATIONS
Most of our leases contain provisions designed to partially mitigate the
adverse impact of inflation. Most of our leases require the tenant to pay its
share of operating expenses, including common area maintenance, real estate
taxes and insurance, thereby reducing our exposure to increases in costs and
operating expenses resulting from inflation. A small portion of our leases also
include clauses enabling us to receive percentage rents based on a tenant's
gross sales above predetermined levels, which sales generally increase as prices
rise, or escalation clauses which are typically related to increases in the
Consumer Price Index or similar inflation indices.
Our financial results are affected by general economic conditions in the
markets in which our properties are located. An economic recession, or other
adverse changes in general or local economic conditions could result in the
inability of some of our existing tenants to meet their lease obligations and
could otherwise adversely affect our ability to attract or retain tenants.
Supermarkets, drugstores and other anchor tenants that offer day-to-day
necessities rather than luxury items anchor our existing properties. These types
of tenants, in our experience, generally maintain more consistent sales
performance during periods of adverse economic conditions.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The primary market risk to which we have exposure is interest rate risk.
Changes in interest rates can affect our net income and cash flows. As changes
in market conditions occur, interest rates can either increase or decrease, and
interest expense from the variable component of our debt balances will move in
the same direction. With respect to our investment portfolio, changes in
interest rates generally do not affect our interest income as our investments
are predominantly in equity securities. In addition, most of our mortgage notes
payable currently have fixed interest rates and therefore changes in interest
rates generally do not have a material effect on our operations. However, some
mortgage notes that we assumed in connection with our acquisition of CEFUS and
UIRT do have variable rates. In addition, each of our City National, Bank Leumi
and Wells Fargo facilities have a variable-rate component and we may enter into
additional variable-rate facilities in the future. Therefore, increases in
interest rates could in the future have a materially adverse impact on our
results of operations. Moreover, increases in long-term real estate mortgage
rates that may occur over a decade or more may decrease the overall value of
real estate. We estimate the fair value of our long term, fixed rate mortgage
loans generally using discounted cash flow analysis based on current borrowing
rates for similar types of debt. At December 31, 2001, the fair value of the
mortgage loans was estimated to be approximately $302.7 million compared to a
carrying value amount of approximately $296.9 million.
If the weighted average interest rate on our fixed rate debt at December
31, 2001 were 100 basis points higher or lower, the fair market value would be
approximately $280.9 million and approximately $310.9 million, respectively.
If the weighted average interest rate on our variable rate debt at December
31, 2001 were 100 basis points higher or lower, annual interest expense would be
increased or decreased by approximately $756,000.
Our objective in managing our exposure to interest rate changes is to limit
the impact of interest rate changes on earnings and cash flows. We may use a
variety of financial instruments to reduce our interest rate risk, including
interest rate swap agreements whereby we exchange our variable interest costs on
a defined amount of principal for another party's obligation to pay fixed
interest on the same amount of
16
principal, or interest rate caps, which will set
a ceiling on the maximum variable interest rate we will incur on the amount of
debt subject to the cap and for the time period specified in the interest rate
cap. As of December 31, 2001, we have no material market risk sensitive
instruments.
17
EQUITY ONE, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
- --------------------------------------------------------------------------
Page
Financial Statements:
Independent Auditors' Report F-1
Consolidated Balance Sheets F-2 - F-3
Consolidated Statements of Operations F-4 - F-5
Consolidated Statements of Comprehensive Income F-6
Consolidated Statements of Stockholders' Equity F-7
Consolidated Statements of Cash Flows F-8 - F-9
Notes to the Consolidated Financial Statements F-10 - F-29
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
of Equity One, Inc.:
We have audited the accompanying consolidated balance sheets of Equity One, Inc.
and subsidiaries (the "Company") as of December 31, 2001 and 2000, and the
related consolidated statements of operations, comprehensive income,
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 2001. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on the
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 the Company at December 31, 2001
and 2000 and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 2001 in conformity with accounting
principles generally accepted in the United States of America.
Deloitte & Touche LLP
Certified Public Accountants
Miami, Florida
March 8, 2002, except for Notes 5, 6, 14 and 15, as to which the date is
December 4, 2002
F-1
EQUITY ONE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2001 AND 2000
(In Thousands, Except Per Share Amounts)
- -------------------------------------------------------------------------------
2001 2000
--------- ---------
ASSETS
RENTAL PROPERTY:
Land, buildings, and equipment ................................................. $ 605,820 $ 468,957
Building improvements .......................................................... 17,513 10,901
Land held for development ...................................................... 23,420 13,468
Construction in progress ....................................................... 5,416 8,202
--------- ---------
Total rental property .......................................................... 652,169 501,528
Less: accumulated depreciation ................................................. (28,031) (17,829)
Property held for sale ......................................................... 3,549 --
--------- ---------
Rental property, net ........................................................... 627,687 483,699
CASH AND CASH EQUIVALENTS ...................................................... 906 2,347
CASH HELD IN ESCROW ............................................................ 1,715 4,273
SECURITIES AVAILABLE FOR SALE .................................................. 1,681 1,403
ACCOUNTS AND OTHER RECEIVABLES (net of allowance for doubtful
accounts of $759 and $437 for 2001 and 2000, respectively) ..................... 5,564 5,822
NOTES RECEIVABLE ............................................................... 9,697 12,259
DUE FROM RELATED PARTIES ....................................................... 57 9,361
DEPOSITS ....................................................................... 6,219 822
PREPAID AND OTHER ASSETS ....................................................... 2,855 5,062
DEFERRED EXPENSES (net of accumulated amortization of
$1,924 and $938 for 2001 and 2000, respectively) ............................... 3,132 3,734
INVESTMENTS IN JOINT VENTURES .................................................. 7,742 11,707
GOODWILL (net of accumulated amortization of $404 and
$348 for 2001 and 2000, respectively) .......................................... 1,281 1,352
DEFERRED INCOME TAX ASSETS ..................................................... -- 976
--------- ---------
TOTAL .......................................................................... $ 668,536 $ 542,817
========= =========
(Continued)
F-2
EQUITY ONE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2001 AND 2000
(In Thousands, Except Per Share Amounts)
- --------------------------------------------------------------------------------
2001 2000
--------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
NOTES PAYABLE
Mortgage notes payable $ 345,047 $ 280,396
Revolving credit facilities 27,409 4,243
--------- ---------
Total notes payable 372,456 284,639
OTHER LIABILITIES
Accounts payable and accrued expenses 8,987 14,650
Tenants' security deposits 4,090 1,476
Minority interest in equity of consolidated subsidiaries 3,869 3,875
Deferred rental income 766 662
Due to related parties 101 15,965
--------- ---------
Total liabilities 390,269 321,267
--------- ---------
COMMITMENTS AND CONTINGENT LIABILITIES (Note 9)
MINORITY INTEREST IN CEFUS - 33,887
--------- ---------
STOCKHOLDERS' EQUITY:
Preferred stock, $0.01 par value - 5,000 shares authorized but unissued - -
Common stock, $0.01 par value - 40,000 shares authorized,
28,781 and 12,786 shares issued and outstanding for
2001 and 2000, respectively 288 128
Additional paid-in capital 283,619 105,368
Equity related to step acquisition - 82,123
Retained earnings 1,808 1,709
Accumulated other comprehensive loss (34) (311)
Unamortized restricted stock compensation (1,836) (809)
Notes receivable from issuance of common stock (5,578) (545)
--------- ---------
Total stockholders' equity 278,267 187,663
--------- ---------
TOTAL $ 668,536 $ 542,817
========= =========
(Concluded)
See accompanying notes to the consolidated financial statements.
F-3
EQUITY ONE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
(In Thousands, Except Per Share Amounts)
- --------------------------------------------------------------------------------
2001 2000 1999
------ ------ ------
RENTAL INCOME:
Minimum rental ............................................................... $ 58,874 $ 35,835 $ 20,326
Expense recoveries ........................................................... 17,509 9,424 4,936
Percentage rent payments ..................................................... 967 746 169
------- ------- -------
Total rental income ..................................................... 77,350 46,005 25,431
------- ------- -------
MANAGEMENT FEES .............................................................. 927 360 263
------- ------- -------
INVESTMENT REVENUE:
Gain on sale of securities ................................................... 33 -- --
Interest and dividends ....................................................... 1,897 1,583 341
------- ------- -------
Total investment revenue ..................................................... 1,930 1,583 341
------- ------- -------
Total revenues ............................................................... 80,207 47,948 26,035
------- ------- -------
COSTS AND EXPENSES:
Property operating expenses .................................................. 24,067 13,091 6,702
Interest expense ............................................................. 20,756 12,336 4,851
Amortization of deferred financing fees ...................................... 1,142 270 105
Rental property depreciation and amortization ................................ 10,841 6,177 3,396
General and administrative expenses .......................................... 3,553 2,559 1,622
------- ------- -------
Total costs and expenses ..................................................... 60,359 34,433 16,676
------- ------- -------
INCOME BEFORE (LOSS)/GAIN ON SALE OF REAL ESTATE, LOSS ON
EXTINGUISHMENT OF DEBT, EQUITY IN INCOME OF
JOINT VENTURES, MINORITY INTEREST IN EARNINGS OF
CONSOLIDATED SUBSIDIARY, INCOME TAXES, MINORITY
INTEREST IN CEFUS AND DISCONTINUED OPERATIONS ................................ 19,848 13,515 9,359
(LOSS)/GAIN ON SALE OF REAL ESTATE ........................................... (609) (63) 3,814
LOSS ON EXTINGUISHMENT OF DEBT ............................................... (1,546) -- --
EQUITY IN INCOME OF JOINT VENTURES ........................................... 494 5 --
MINORITY INTEREST IN EARNINGS OF CONSOLIDATED SUBSIDIARY ..................... (99) -- (96)
------- ------- -------
INCOME BEFORE INCOME TAXES, MINORITY INTEREST IN CEFUS
AND DISCONTINUED OPERATIONS .................................................. 18,088 13,457 13,077
------- ------- -------
INCOME TAX BENEFIT/(EXPENSE)
Current ...................................................................... 593 (23) --
Deferred ..................................................................... 374 (1,071) --
------- ------- -------
Total income tax benefit/(expense) ........................................... 967 (1,094) --
------- ------- -------
INCOME BEFORE MINORITY INTEREST IN CEFUS AND
DISCONTINUED OPERATIONS ...................................................... 19,055 12,363 13,077
MINORITY INTEREST IN CEFUS ................................................... (1,627) (603) --
------- ------- -------
INCOME FROM CONTINUING OPERATIONS ............................................ 17,428 11,760 13,077
DISCONTINUED OPERATIONS
Income from rental properties sold or held for sale .......................... 1,293 795 512
------- ------- -------
NET INCOME ................................................................... $ 18,721 $ 12,555 $ 13,589
======== ======== ========
(Continued)
F-4
EQUITY ONE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
(In Thousands, Except Per Share Amounts)
- --------------------------------------------------------------------------------
2001 2000 1999
------ ------ ------
EARNINGS PER SHARE:
BASIC EARNINGS PER SHARE
Income from continuing operations.. $ 0.77 $ 0.82 $ 1.21
Income from discontinued operations 0.06 0.06 0.05
------ ------ ------
Net income ........................ $ 0.83 $ 0.88 $ 1.26
------ ------ ------
NUMBER OF SHARES USED IN COMPUTING
BASIC EARNINGS PER SHARE .......... 22,414 14,285 10,805
====== ====== ======
DILUTED EARNINGS PER SHARE
Income from continuing operations . $ 0.77 $ 0.82 $ 1.21
Income from discontinued operations 0.06 0.05 0.05
------ ------ ------
Net income ........................ $ 0.83 $ 0.87 $ 1.26
====== ====== ======
NUMBER OF SHARES USED IN COMPUTING
DILUTED EARNINGS PER SHARE ........ 23,037 14,504 10,901
====== ====== ======
(Concluded)
See accompanying notes to the consolidated financial statements.
F-5
EQUITY ONE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
(In Thousands, Except Per Share Amounts)
- --------------------------------------------------------------------------------
2001 2000 1999
------ ------ ------
NET INCOME $ 18,721 $ 12,555 $ 13,589
-------- -------- --------
OTHER COMPREHENSIVE INCOME (LOSS):
Net unrealized holding gain (loss) on securities available for sale 310 208 (421)
Reclassification adjustment for gains included in net income (33) - -
-------- -------- --------
TOTAL 277 208 (421)
-------- -------- --------
COMPREHENSIVE INCOME $ 18,998 $ 12,763 $ 13,168
======== ======== ========
See accompanying notes to the consolidated financial statements.
F-6
EQUITY ONE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
(In Thousands, Except Per Share Amounts)
- --------------------------------------------------------------------------------
Accumulated Notes
Other Receivable
Equity Compre- Unamortize from the Total
Additional Related to hensive Restricted Issuance of Stock-
Common Paid-in Step Retained (Loss)/ Stock Com- Common holders'
Stock Capital Acquisition Earnings Income pensation Stock Equity
------ --------- ----------- -------- -------- --------- ---------- --------
BALANCE, DECEMBER 31, 1998 $ 102 $ 81,214 $ - $ - $ (98) $ - $ - $ 81,218
Issuance of common stock 11 8,737 (545) 8,203
Reduction of stock issuance cost 39 39
Net income 13,589 13,589
Dividends paid (11,199) (11,199)
Net unrealized holding loss
on securities available for sale (421) (421)
------ --------- ------ ------- ------ -------- -------- --------
BALANCE, DECEMBER 31, 1999 113 89,990 - 2,390 (519) - (545) 91,429
Issuance of common stock 15 15,530 (809) 14,736
Equity related to step acquisition 82,123 82,123
Stock issuance cost (152) (152)
Net income 12,555 12,555
Dividends paid (13,236) (13,236)
Net unrealized holding gain
on securities available for sale 208 208
------ --------- ------ ------- ------ -------- -------- --------
BALANCE, DECEMBER 31, 2000 128 105,368 82,123 1,709 (311) (809) (545) 187,663
Issuance of common stock
CEFUS transaction 105 120,540 (82,123) 38,522
UIRT transaction 29 31,450 31,479
Alony Hetz 20 21,187 21,207
Other issuances 6 6,550 (1,027) (5,033) 496
Stock issuance cost (1,476) (1,476)
Net income 18,721 18,721
Dividends paid (18,622) (18,622)
Net unrealized holding gain
on securities available for sale 277 277
------ --------- ------ ------- ------ -------- -------- --------
BALANCE, DECEMBER 31, 2001 $ 288 $ 283,619 $ - $ 1,808 $ (34) $ (1,836) $ (5,578) $ 278,267
===== ========= ====== ======= ====== ======== ======== =========
See accompanying notes to the consolidated financial statements.
F-7
EQUITY ONE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
(In Thousands, Except Per Share Amounts)
- --------------------------------------------------------------------------------
2001 2000 1999
------ ------ ------
OPERATING ACTIVITIES:
Net income $ 18,721 $ 12,555 $ 13,589
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 12,926 6,921 3,607
Provision for losses on accounts receivable 322 261 64
Loss (gain) on sale of real estate 609 63 (3,814)
Equity in income of unconsolidated entities (494) (5) -
Minority interest in earnings of consolidated subsidiary 99 - 96
Minority interest in CEFUS 1,627 603 -
Deferred income tax (benefit) expense (374) 1,071 -
Changes in assets and liabilities:
Restricted cash 3,871 (4,273) 6,780
Accounts and other receivables 1,757 1,455 (1,072)
Notes receivable 2,643 - -
Deposits (2,975) (115) (178)
Prepaid and other assets 1,550 429 104
Accounts payable and accrued expenses (7,389) (4,061) 452
Deferred rental income (405) 414 96
Tenants' security deposits 206 202 439
Due from related parties 110 (14) 6
------- ------- -------
Net cash provided by operating activities 32,804 15,506 20,169
------- ------- -------
INVESTING ACTIVITIES:
Additions to rental property (37,409) (11,944) (69,949)
Proceeds from sales of rental property 22,276 - 7,716
Proceeds from sales of joint venture interest 6,630 - -
Distributions from joint ventures 287 2,057 -
Purchases of securities - (44) (4,733)
Sales and prepayments of securities - 67 4,727
Purchase of UIRT, including transaction costs, net of cash acquired (36,294) - -
Cash acquired in CEFUS acquisition - 1,995 -
Due to / from affiliates 212 (3,296) -
------- ------- -------
Net cash used in investing activities (44,298) (11,165) (62,239)
------- ------- -------
FINANCING ACTIVITIES:
Repayments of mortgage notes payable (64,664) (13,229) (3,462)
Borrowings under mortgage notes payable 64,884 26,366 31,234
Borrowings/ (repayments) under credit agreements 9,210 (15,232) 18,915
Due to affiliates - (1,490) -
Deferred financing expenses (540) (190) (628)
Stock subscription and issuance of common stock 21,366 14,736 8,203
Stock issuance (costs)/reduction (1,476) (152) 39
Cash dividends paid to stockholders (18,622) (13,236) (11,199)
Payment of put option - - (2,127)
Change in minority interest (105) 6 (72)
------- ------- -------
Net cash provided by (used in) financing activities 10,053 (2,421) 40,903
------- ------- -------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (1,441) 1,920 (1,167)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 2,347 427 1,594
------- ------- -------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 906 $ 2,347 $ 427
======== ======== ========
(Continued)
F-8
EQUITY ONE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
(In Thousands, Except Per Share Amounts)
- --------------------------------------------------------------------------------
2001 2000 1999
------- ------- -------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest, net of amount capitalized $ 20,457 $ 12,216 $ 4,780
======== ======== ========
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Change in unrealized holding gain (loss) on securities available for sale $ 277 $ 208 $ (421)
========= ======== ========
Issuance of restricted stock $ 1,525 $ 1,208
========= ======== ========
Common stock issued for notes receivable $ 5,033 $ 545
========= ========
Sale of joint venture interest in settlement of notes receivable $ 1,438
=========
Issuance of CEFUS common stock in settlement of affiliated debt $ 3,345
=========
Purchase of minority interest in CEFUS $ 40,893
=========
The Company acquired all the outstanding capital stock of UIRT:
Fair value of assets acquired $ 147,640
Liabilities assumed 79,867
Common stock issued 31,479
---------
Cash paid for acquisition, including transaction costs $ 36,294
=========
The Company acquired 68.07% of the outstanding capital stock of CEFUS:
Fair value of assets acquired $ 315,195
Liabilities assumed 198,480
Minority interest 34,592
---------
Equity related to step acquisition $ 82,123
=========
Acquisition of rental property $ 7,250 $ 3,800
Change in minority interest 2,880 965
--------- --------
Assumption of mortgage note payable $ 4,370 $ 2,835
========= ========
(Concluded)
See accompanying notes to the consolidated financial statements.
F-9
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, Except Per Share Amounts)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General
Equity One, Inc. was incorporated in Maryland on June 15, 1992, as a
wholly-owned subsidiary of Gazit Holdings, Inc., a wholly-owned subsidiary
of Gazit, Inc. Equity One, Inc., its related real estate joint ventures and
subsidiaries ("the Company") was formed for the purpose of holding various
real estate investments located in the United States of America. As of
December 31, 2001 (and pursuant to a prior transfer of interests between
Gazit, Inc. and Gazit-Globe (1982) Ltd. ("Gazit-Globe") whereby Gazit
became a wholly-owned subsidiary of Gazit-Globe), Gazit-Globe's direct and
indirect beneficial ownership of the Company's common stock is
approximately 66%.
On September 20, 2001, the Company completed the acquisition of Centrefund
Realty (U.S.) Corporation ("CEFUS") from First Capital Realty Inc. ("FCR"),
formerly known as Centrefund Realty Corporation, for approximately $281,000
(including assumed debt). As provided for in the stock exchange agreement,
the Company issued 10,500 shares of its common stock to subsidiaries of FCR
and assumed $149,021 of CEFUS's outstanding debt. The acquisition of CEFUS
has been treated as a step transaction and partially accounted for on a
push-down basis and partially in a manner similar to a pooling of
interests, due to the acquisition by Gazit-Globe, the majority stockholder
of the Company, of a 68.07% controlling interest in Centrefund Realty
Corporation on August 18, 2000. As a result of the CEFUS acquisition, the
Company acquired 28 shopping centers and other retail properties.
To reflect the events of August 18, 2000, the Company recorded equity
related to step acquisition in the consolidated financial statements
equivalent to 68.07% of the value of the consideration paid to subsidiaries
of FCR (the "Equity Related to Step Acquisition"). In addition, the Company
recorded a minority interest equivalent to 31.93% of the value of the net
assets acquired on August 18, 2000 (the "31.93% Minority Interest"), which
was eliminated on September 20, 2001 when the acquisition of CEFUS was
completed.
The results for the year ended December 31, 2000 have been restated to
incorporate the results of CEFUS for the period from August 18, 2000 to
December 31, 2000. The results for the year ended December 31, 2001 have
been adjusted to incorporate the results of CEFUS for the period January 1,
2001 to September 19, 2001. The restatement consolidates the operations of
the Company and CEFUS between August 18, 2000 and September 19, 2001,
subject to a 31.93% minority interest in CEFUS (the "CEFUS Accounting
Treatment"). During the period from August 18, 2000 to September 19, 2001,
CEFUS operated under the control of FCR as a subchapter C-corporation under
the Internal Revenue Code (the "Code") and recorded current and deferred
income taxes in connection with its operations. These taxes are reflected
in the financial statements as a deferred income tax asset (the "Future
Income Tax Assets") and as current or deferred tax expenses or tax benefits
in connection with the CEFUS Accounting Treatment. Effective September 20,
2001, the Company no longer recorded any provision for income taxes
consistent with the acquisition of 100% of CEFUS, and the Company's intent
to operate CEFUS as a qualified REIT subsidiary. In addition, with the
September 20, 2001 acquisition of 100% of CEFUS, the Company has eliminated
the Equity Related to Step Acquisition, the 31.93% Minority Interest and
the deferred income tax
F-10
assets, and has recorded in their place the issuance of 10,500 shares of
the Company's common stock.
The effect of the CEFUS Accounting Treatment on the 2001 and 2000 financial
statements is as follows:
Year Ended
December 31,
--------------------------
2001 2000
---------- ----------
Revenues:
Equity One (includes CEFUS since September 20, 2001)........ $ 54,448 $ 33,232
CEFUS revenues prior to September 20, 2001.................. 25,759 14,716
---------- ----------
Total revenues................................................ $ 80,207 $ 47,948
========== ==========
Net Income:
Equity One (includes CEFUS since September 20, 2001)........ $ 15,253 $ 11,269
CEFUS net income prior to September 20, 2001................ 3,468 1,286
---------- ----------
Total net income.............................................. $ 18,721 $ 12,555
========== ==========
On September 21, 2001, the Company completed the acquisition of United
Investors Realty Trust ("UIRT"), a Texas-based REIT, for $147,640
(including assumed debt). As a result of the transaction with UIRT, the
Company issued 2,896 shares of its common stock, paid $32,876 in cash
consideration to former UIRT shareholders and assumed approximately $79,867
of UIRT's outstanding debt. The acquisition of UIRT was accounted for using
the purchase method and the results of UIRT are included in the Company's
financial statements from the date of its acquisition. As a result of this
transaction, the Company acquired 22 shopping centers.
The following unaudited supplemental pro forma information is presented to
reflect the effects of the UIRT and CEFUS acquisitions, including the
issuance of the common stock and the impact on the Company's results, as if
the transactions have occurred on January 1, 2000. The pro forma financial
information is presented for informational purposes only and may not be
indicative of what actual results of operations would have been had the
acquisition occurred as indicated nor does it purport to represent the
result of the operations for future periods:
For the year ended For the year ended
December 31, 2001 December 31, 2000
(unaudited) (unaudited)
------------------ ------------------
Pro forma revenues............................... $ 95,907 $ 94,593
========= =========
Pro forma income from continuing operations...... $ 21,400 $ 23,841
========= =========
Pro forma net income............................. $ 22,893 $ 25,193
========= =========
Pro forma basic earnings per share
Income from continuing operations............ $ 0.79 $ 0.93
Income from discontinuing operations......... 0.06 0.05
--------- ---------
Net Income $ 0.85 $ 0.98
========= =========
Pro forma diluted earnings per share
Income from continuing operations............ $ 0.78 $ 0.93
Income for discontinuing operations.......... 0.06 0.04
--------- ---------
Net Income $ 0.84 $ 0.97
========= =========
F-11
As of December 31, 2001, the Company owned a total of 85 rental properties,
primarily located in metropolitan areas of Florida and Texas, encompassing
55 supermarket-anchored shopping centers, 6 drug store-anchored shopping
centers, 18 other retail-anchored shopping centers, 5 commercial properties
and one drug store-anchored development, as well as interests in 3 real
estate joint ventures which own and operate commercial real estate
properties. Publix Supermarkets, Inc. and Winn-Dixie Stores Inc., the
Company's two largest tenants, rent approximately 7.6% and 5.9% of the
Company's total rentable square footage, respectively, which accounts for
5.5% and 4.4%, respectively, of the Company's total annualized minimum rent
at December 31, 2001.
Basis of Consolidation
The consolidated financial statements include the accounts of Equity One,
Inc. and its wholly-owned subsidiaries and those partnerships where the
Company has financial and operating control. All subsidiaries are
hereinafter referred to as "the consolidated companies "or the" Company."
All intercompany transactions have been eliminated. The Company has a 50%
investment in three joint ventures and a 50.1% interest in one joint
venture for which it does not have financial or operating control and
accordingly uses the equity method of accounting for these joint ventures.
Rental Property
Rental property is stated at cost. Renovations, which extend or improve the
useful life of the asset are capitalized. Expenditures for maintenance and
repairs are charged to operating expense as incurred. Depreciation is
provided for using the straight-line method as follows:
Buildings........................... 30 - 40 years
Building Improvements............... 5 - 20 years
Tenant Improvements................. Over the terms of the related lease
Equipment........................... 5 - 7 years
Land Held for Development
Land held for development is stated at cost. Interest, real estate taxes
and other costs directly related to the properties and projects under
development are capitalized until the property is ready for its intended
use. Similar costs related to properties not under development are expensed
as incurred.
Long-Lived Assets
Long-lived assets, such as property, land held for development, certain
identifiable intangibles, and goodwill related to those assets to be held
and used are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amounts of an asset may not be
recoverable. The management periodically assesses the recoverability of the
long-lived assets based on management's expectations of future
profitability and undiscounted cash flows of the related operations. These
factors, along with plans with respect to the operations, are considered in
assessing the recoverability of long-lived assets. If the Company
determines that the carrying amount is impaired, the long-lived assets are
written down to their recoverable value with a corresponding charge to
earnings. During the periods presented, no such impairment was incurred.
Cash and Cash Equivalents
For purposes of the statements of cash flows, the Company considers cash
and investments with an initial maturity of three months or less to be cash
equivalents.
F-12
Restricted Cash
Restricted cash at December 31, 2000 consists of cash held in escrow by
lenders pending the achievement of certain conditions, and at December 31,
2001 consists of cash escrowed in anticipation of the execution of a
tax-free exchange under Section 1031 of the Code.
Investment Securities
As of December 31, 2001 and 2000, all of the securities are classified as
securities available for sale and are carried at fair value. Unrealized
gains and losses are reported as a separate component of stockholders'
equity in accumulated other comprehensive income or loss until realized.
Deposits
Deposits are comprised of funds held by various institutions for future
payments of property taxes and insurance, utility and other service
deposits.
Deferred Expenses
Deferred expenses consist of loan origination and other fees directly
related to rental property financing with third parties. The fees are being
amortized using the straight-line method over the term of the notes,
ranging from 3 to 20 years.
Goodwill
Goodwill has been recorded to reflect the excess of cost over the fair
value of net assets acquired in the acquisitions of Global Realty and
Management, Inc. and CEFUS. Goodwill is amortized on a straight-line basis
over 20 years in the case of the Global Realty and Management acquisition
and over 35 years in the case of CEFUS. Amortization expense amounted to
$69, $50 and $50 for the years ended December 31, 2001, 2000 and 1999,
respectively.
Minority Interest
On January 1, 1999, Equity One (Walden Woods) Inc., a wholly-owned
subsidiary, entered into a limited partnership as a general partner. An
income producing shopping center ("Walden Woods Village") was contributed
by its owners (the "Minority Partners"), and the Company contributed 93,656
shares of common stock (the "Walden Woods Shares") to the limited
partnership at an agreed-upon price of $10.30 per share. Based on this per
share price and the net value of property contributed by the Minority
Partners, each of the partners received 93,656 limited partnership units.
The Company has entered into a Redemption Agreement with the Minority
Partners whereby the Minority Partners can request that the Company
purchase either their limited partnership units or any shares of common
stock which they received in exchange for their partnership units at a
price of $10.30 per unit or per share no earlier than two years nor later
than fifteen years after the exchange date of January 1, 1999. As a result
of the Redemption Agreement, the Company has consolidated the accounts of
the partnership with the Company's financial data. In addition, under the
terms of the limited partnership agreement, the Minority Partners do not
have an interest in the Walden Woods Shares except to the extent of
dividends. Accordingly, a preference in earnings has been allocated to the
Minority Partners to the extent of the dividends declared. The Walden Woods
Shares are not considered outstanding in the consolidated financial
statements, and are excluded from the share count in the calculation of
primary earnings per share.
On December 5, 2000, Equity One (North Port), Inc., a wholly-owned
subsidiary, entered into a limited partnership (the "Shoppes of North Port,
Ltd.") as a general partner. An income producing shopping center ("Shoppes
of North Port") was contributed by its owners (the "North Port Minority
F-13
Partners") and the Company contributed an income producing property to a
limited liability company wholly owned by the Shoppes of North Port, Ltd.
Both the North Port Minority Partners and the general partner were issued
partnership operating units ("OPU") based on the net value of the
properties contributed. The North Port Minority Partners received 261,850
OPU which can be redeemed for the Company's common stock on a one-for-one
basis or cash at an agreed upon price of $11.00 per share no earlier than
December 10, 2001, nor later than three and one half years thereafter. As a
result of the Redemption Agreement, the Company has consolidated the
accounts of the partnership with the Company's financial data. The North
Port Minority Partners are to receive a preferred quarterly distribution
equal to a 9.0% annual return on their initial capital contribution. This
amount is reflected as interest expense in the consolidated financial
statements.
Rental Income
Rental income is comprised of minimum rents, expense reimbursements and
percentage rent payments. Rental income is recognized as earned. Expense
reimbursements are recognized in the period the applicable costs are
incurred. Percentage rent payments based on a tenant's revenues exceeding
certain thresholds are accrued when a tenant reports revenues exceeding the
established thresholds.
Management Fees
Management fees consist of fees earned in connection with certain
third-party leasing activities and other third-party management activities.
Management fees are recognized when earned.
Income Taxes
The Company elected to be taxed as a real estate investment trust (REIT)
under the Code, commencing with its taxable year ended December 31, 1995.
To qualify as a REIT, the Company must meet a number of organizational and
operational requirements, including a requirement that it currently
distribute at least 90% of its REIT taxable income to its stockholders. It
is management's current intention to adhere to these requirements and
maintain the Company's REIT status. As a REIT, the Company generally will
not be subject to corporate level federal income tax on taxable income it
distributes currently to its stockholders. If the Company fails to qualify
as a REIT in any taxable year, it will be subject to federal income taxes
at regular corporate rates (including any applicable alternative minimum
tax) and may not be able to qualify as a REIT for four subsequent taxable
years. Even if the Company qualifies for taxation as a REIT, the Company
may be subject to certain state and local taxes on its income and property,
and to federal income and excise taxes on its undistributed taxable income.
During the period from August 18, 2000 to September 19, 2001, CEFUS, a
wholly owned subsidiary of FCR, was taxed as a Corporation and accordingly
recorded current and deferred income taxes. Deferred income taxes reflect
the net tax effects of temporary differences between the carrying amounts
of the assets and liabilities for financial reporting purposes and the
amounts used for income tax purposes. These taxes are reflected in the
accompanying consolidated financial statements as deferred tax assets and
as the current and deferred components of the income tax benefit/expense.
In addition to the deferred tax items and the income tax benefit/expense,
certain corporate tax attributes will carry over to the Company as a result
of this transaction (for example, net operating losses, alternative minimum
tax credit carryforwards, etc.). Net operating losses available to the
Company are estimated to be approximately $18,000, but their utilization is
limited subject to the provisions of the Code.
F-14
As a result of the acquisition of CEFUS, the Code imposes a tax on the
built-in gain of C corporation (i.e. CEFUS) assets that become assets of a
REIT (i.e. Company) in a carryover-basis transaction. The estimated
built-in gain at the date of acquisition is approximately $47,000. In lieu
of the tax imposed on the transferor C corporation (i.e. CEFUS), the
Company can elect to be subject to a Ten-Year Rule, which defers
recognition of the built-in gain tax liability if the asset subject to the
tax is not disposed of within ten years from the date of the acquisition.
In addition to the Ten-Year Rule, the Company has the ability to utilize
like-kind exchanges, carry-over C corporation tax attributes, and other tax
planning strategies to mitigate the potential recognition of built-in gain
tax. If the Company were to be subject to any taxes as a result of this
contingency, such taxes would be recorded as a cost of the acquisition.
Segment Information
The Company operates in one reportable segment as an owner and operator of
commercial rental properties. Rental operations are provided to tenants
through the Company's properties located primarily in Florida and Texas.
Each of these properties provides management with monthly financial
statements. All of the properties have been aggregated into one reporting
segment due to their similar tenant and operating characteristics.
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. Actual
results could differ from those estimates.
New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, Accounting
for Derivative Instruments and Hedging Activities. The effective date of
this statement, as amended by SFAS No. 137, Accounting for Derivative
Instruments and Hedging Activities - Deferral of the Effective Date of FASB
Statement No. 133 - An Amendment of FASB Statement No. 133, is for fiscal
years beginning after June 15, 2000. SFAS No. 133 requires the Company to
recognize all derivatives on the balance sheet at fair value. Derivatives
that are not hedges must be adjusted to fair value through income. If the
derivative is a hedge, depending on the nature of the hedge, a change in
the fair value of the derivative will either be offset against the change
in the fair value of the hedged asset, liability or firm commitment through
earnings or recognized in other comprehensive income until the hedged item
is recognized in earnings. The Company adopted SFAS No. 133 on January 1,
2001. The adoption of this statement had no effect on the Company's results
of operations or financial position.
In June 2001, FASB approved the issuance of SFAS No. 141, Business
Combinations, and SFAS No. 142, Goodwill and Other Intangible Assets. These
standards, which were issued in July 2001, established accounting and
reporting for business combinations. SFAS No. 141 requires all business
combinations entered into subsequent to June 30, 2001 to be accounted for
using the purchase method of accounting. SFAS No. 142 provides that
goodwill and other intangible assets with indefinite lives will not be
amortized, but will be tested for impairment at least annually. SFAS No.
142 is effective for fiscal years beginning after December 15, 2001. The
Company adopted SFAS No. 142 on January 1, 2002 at which time goodwill
amortization ceased. The Company is currently evaluating the impact of the
new accounting standards on existing goodwill and other intangible assets.
During the year ended December 31, 2001, goodwill amortization was $69.
F-15
In August 2001, FASB issued SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets, which supersedes, but does not replace, SFAS
No. 121, Accounting for the Impairment of Long-Lived Assets to be Disposed
Of, as well as other earlier related pronouncements, either in whole or in
part. SFAS No. 144 is effective for financial statements issued for fiscal
years beginning after December 15, 2001, and interim periods within those
fiscal years, though earlier application is encouraged. This standard
addresses financial accounting and reporting for the impairment or disposal
on long-lived assets. It also retains the basic provision for presenting
discontinued operations in the income statement but broadened the scope to
include a component of an entity rather than a segment of a business.
Pursuant to the definition of a component of an entity in the
pronouncement, the sale of depreciable rental property is now considered a
discontinued operation. Accordingly, the results of operations of
depreciable rental properties disposed of or classified as held for sale
subsequent to January 1, 2002, for which the Company has no significant
continuing involvement, are reflected as discontinued operations.
In April 2002, FASB issued SFAS No. 145, Rescission of FASB Statements No.
4, 44 and 64, Amendment of FASB Statement No. 13, and Technical
Corrections, which 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. It also rescinds FASB Statement No. 44, Accounting for
Intangible Assets or Motor Carriers, and amends FASB Statement No. 13,
Accounting for Leases. Finally SFAS No. 145 amends other existing
authoritative pronouncements to make various technical corrections, clarify
meanings, or describe their applicability under changed conditions. The
provisions related to the rescission of FASB Statement No. 4 and its
amendment Statement No. 64 are effective for fiscal years beginning after
May 15, 2002. The Company has adopted SFAS No. 145 and reflected gains
(losses) from extinguishment of debt as part of ordinary income.
Fair Value of Financial Instruments
The estimated fair values of financial instruments have been determined by
the Company using available market information and appropriate valuation
methods. Considerable judgment is required in interpreting market data to
develop the estimates of fair value. Accordingly, the estimates presented
herein are not necessarily indicative of the amounts the Company could
realize in a current market exchange. The use of different market
assumptions and/or estimation methods may have a material effect on the
estimated fair value amounts. The Company has used the following market
assumptions and/or estimation methods:
Cash and Cash Equivalents and Accounts and Other Receivable - The carrying
amounts reported in the balance sheets for these financial instruments
approximate fair value because of their short maturities.
Securities Available for Sale - Fair values are based on quoted market
prices, dealer quotes, and independent pricing services.
Notes Receivable - The fair value is estimated by using the current rates
at which similar loans would be made. The carrying amounts reported in the
balance sheets approximate fair value.
Mortgage Notes Payable and Line of Credit Agreements - The estimated fair
value at December 31, 2001 and 2000 was $352,898 and $286,411,
respectively, calculated based on the net present value of payments over
the term of the notes using estimated market rates for similar notes
payable.
Reclassifications
Certain prior year amounts have been reclassified to conform with the 2001
financial presentation.
F-16
2. ACCOUNTS AND OTHER RECEIVABLES
Composition in the consolidated balance sheets:
December 31,
-----------------
2001 2000
---- ----
Tenants.................................................................. $ 5,513 $ 5,735
Other.................................................................... 810 524
Allowance for doubtful accounts.......................................... (759) (437)
------- -------
Total accounts and other receivables..................................... $ 5,564 $ 5,822
======= =======
3. NOTES RECEIVABLE
Composition in the consolidated balance sheets:
December 31,
----------------
2001 2000
---- ----
Mortgage notes receivable, bearing interest at 9% and 10% per annum,
due December 2002 and March 2006...................................... $ 6,471 $ -
Loan receivable from a partner in a Joint Venture to fund
development activities, bearing interest at the Company's cost of
funds up to 10% per annum, due upon refinancing or sale of the
property.............................................................. 2,940 12,213
Other.................................................................... 286 46
------- -------
Total notes receivable................................................... $ 9,697 $12,259
======= =======
F-17
4. RENTAL PROPERTY
Composition in the consolidated balance sheets:
Land, Property
Buildings Building Land Held For Construction Held For
And Equipment Improvements Development In Progress Sale Total
------------- ------------ ----------- ----------- -------- -----
Cost
Balance as of
December 31, 2000... $468,957 $ 10,901 $ 13,468 $ 8,202 - $501,528
Additions in the
reporting year...... 160,115 6,800 9,952 4,996 $ 3,549 185,412
Dispositions in
reporting year...... (23,252) (188) - (7,782) - (31,222)
--------- --------- --------- -------- -------- --------
Balance as of
December 31, 2001... 605,820 17,513 23,420 5,416 3,549 655,718
--------- --------- --------- -------- -------- --------
Accumulated Depreciation
Balance as of
December 31, 2000... 16,114 1,715 17,829
Depreciation for the
year................ 10,001 1,042 11,043
Reduction of
depreciation........ (840) (1) (841)
--------- --------- --------
Balance as of
December 31, 2001... 25,275 2,756 28,031
--------- --------- --------
Net rental property as
of December 31, 2001 $580,545 $ 14,757 $ 23,420 $ 5,416 $ 3,549 $627,687
========= ========= ========= ======== ======== ========
Net rental property as
of December 31, 2000 $452,843 $ 9,186 $ 13,468 $ 8,202 $ - $483,699
========= ========= ========= ======== ======== ========
5. DISCONTINUED OPERATIONS
The Company adopted the provisions of SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets, effective January 1, 2002. This
standard addresses financial accounting and reporting for the impairment or
disposal on long-lived assets. It also retains the basic provision for
presenting discontinued operations in the income statement but broadened the
scope to include a component of an entity rather than a segment of a business.
Pursuant to the definition of a component of an entity in the pronouncement, the
sale of depreciable rental property is now considered a discontinued operation.
Accordingly, the results of operations of depreciable rental properties disposed
of through September 30, 2002 or classified as held for sale as of September 30
2002, for which the Company has no significant continuing involvement, are
reflected as discontinued operations.
F-18
The following table reflects properties being reported in discontinued
operations. The operations of these properties have been reflected as
discontinued operations in the consolidated financial statements for each of the
three years ended December 31, 2001 included herein:
Gross Sales Price
------------------------
Square Feet/ Under
Property Location Date Sold Acres (ac) Sold Contract
------------------- ---------------- ---------- ------------ -------- -----------
Equity One Office Miami Beach, FL February 28,780 $ 6,050
Olive Miami, FL February 6.79ac 1,900
Benbrook Fort Worth, TX February 247,422 2,590
Monclair apartments Miami Beach, FL June 9,375 2,450
Shops of Westbury Miami, FL July 33,706 5,200
Forest Edge Orlando, FL July 68,631 3,475
Northwest Crossing Dallas, TX September 33,366 2,350
Mariners outparcel Spring Hill, FL -- .6ac $ 500
McMinn Plaza Athens, TN -- 107,200 6,000
--------- ---------
$ 24,015 $ 6,500
========= =========
6. EXTINGUISHMENT OF DEBT
The Company adopted SFAS No. 145, Rescission of FASB Statements No. 4, 44
and 64, Amendment of FASB Statement No. 13, and Technical Corrections which
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. It also rescinds FASB
Statement No. 44, Accounting for Intangible Assets or Motor Carriers, and amends
FASB Statement No. 13, Accounting for Leases. Finally SFAS No. 145 amends other
existing authoritative pronouncements to make various technical corrections,
clarify meanings, or describe their applicability under changed conditions. The
provisions related to the rescission of FASB Statement No. 4 and its amendment
Statement No. 64 are effective for fiscal years beginning after May 15, 2002,
with early application encouraged. Any gain or loss on extinguishment of debt
that was classified as an extraordinary item in prior periods presented that
does not meet the Criteria in APB Opinion No. 30 for classification of an
extraordinary item must be reclassified. The Company has adopted SFAS No. 145
and reflected gains (losses) from extinguishment of debt as part of ordinary
income.
F-19
7. NOTES PAYABLE
Composition in the consolidated balance sheets:
December 31,
-------------------------
2001 2000
--------- -------
Fixed rate mortgage loans
Various mortgage notes payable secured by rental properties,
bearing interest at 6.65% to 9.35% per annum, with
maturity dates ranging from April 2002 through November
2018...................................................... $296,887 $243,279
Variable rate mortgage loans
Various mortgage notes payable secured by rental properties,
bearing interest from LIBOR plus 1.41% to LIBOR plus
2.25% (the interest rates at December 31, 2001 ranged
from 4.19% to 6.89%), with maturity dates ranging from
October 2003 to December 2004............................. 48,160 37,117
-------- --------
Total mortgage notes payable................................. 345,047 280,396
-------- --------
Revolving credit facilities
Line of credit of $20,600, subsequently reduced to $10,800
due to disposition and transfer of secured properties,
with a bank, bearing interest at LIBOR plus 2.25% matures
May 2002. The credit agreement is secured by various
rental properties......................................... 1,409 4,243
Line of credit of $30,000 with a bank, bearing interest at
LIBOR plus 1.25%, matures September 2002. The credit
agreement is secured by various rental properties......... 26,000 --
-------- --------
Total revolving credit facilities............................ 27,409 4,243
-------- --------
Total notes payable.......................................... $372,456 $284,639
======== ========
F-20
Principal maturities of the notes payable as of December 31, 2001 are as
follows:
Year ending
December 31, Amount
------------------------- -----------
2002................... $ 49,844
2003................... 23,109
2004................... 31,804
2005................... 27,634
2006................... 32,703
Thereafter............. 207,362
-----------
Total.................. $ 372,456
===========
As of December 31, 2001, certain of the mortgages on the Company's
properties involving an aggregate principal amount of approximately
$123,400, excluding the principal amount of $6,800 which is scheduled to be
repaid in 2002, contain prohibitions on transfers of ownership which may
have been violated by the Company's previous issuances of common stock or
in connection with past acquisitions and may be violated by transactions
involving the Company's capital stock in the future. If a violation were
established, it could serve as a basis for a lender to accelerate amounts
due under the affected mortgage. The Company is in the process of obtaining
the necessary consents from the lenders. Based on discussions with various
lenders to date, current credit market conditions and other factors, the
Company believes that such consents will be obtained or that the mortgages
would not be accelerated. Accordingly, the Company believes that the
ultimate outcome of this matter will not have a material impact on the
Company's results of operations or financial condition.
The Company intends to monitor and manage interest rate costs on its
variable rate debt. The Company may, from time to time, enter into interest
rate hedge agreements to manage interest costs and risk associated with
changing interest rates. There were no rate hedge agreements outstanding as
of December 31, 2001 and 2000.
During 2001, the Company paid $1,546 as a prepayment penalty for early
extinguishment of debt. (See note 6)
Interest costs incurred were $24,345 and $14,988 in the years ended
December 31, 2001 and 2000, respectively, of which $2,102 and $2,181 were
capitalized in the years ended December 31, 2001 and 2000, respectively.
8. Stockholders' Equity
As of December 31, 2001 and 2000, the Company has authority to issue 40,000
shares of common stock and 5,000 shares of preferred stock.
During 2001, the Company issued 145 shares of restricted stock to its
employees and directors. The Company also issued 925 shares of common stock
to Alony Hetz Properties & Investments, Ltd. ("Alony Hetz") under a
subscription agreement at $10.875 per share, and Alony Hetz exercised
warrants to purchase 1,025 shares of common stock at the exercise price of
$10.875 per share. Additional shares were issued for the acquisition of
CEFUS and UIRT as discussed in Note 1.
During 2001, two officers exercised stock options to purchase 503 shares of
common stock the exercise price for which was paid with promissory notes
totaling $5,033. These notes are full recourse promissory notes bearing
interest at 5% and are secured by the stock issued upon exercise
F-21
of the options. Interest is payable quarterly and principal is due
September 30, 2006. The notes have been reflected in the consolidated
financial statements as a reduction of stockholders' equity.
During 1999, two officers exercised warrants to purchase 92 shares of
common stock the exercise price for which was paid with promissory notes
totaling $545. These notes are full recourse promissory notes bearing
interest at 6.35% and are collateralized by the stock issued upon exercise
of the stock options. Interest is payable quarterly and principal is due
December 30, 2002. The notes have been reflected in the consolidated
financial statements as a reduction of stockholders' equity.
During 2001, the Company paid cash dividends of $0.26, $0.26, $0.27 and
$0.27 per share on March 30, June 29, September 28 and December 31,
respectively. Gross dividends paid were $18,622 for the year ended December
31, 2001.
During 2000, the Company paid cash dividends of $0.26, $0.26, $0.26 and
$0.32 per share on March 31, June 30, September 29 and December 29,
respectively. Gross dividends paid were $13,236 for the year ended December
31, 2000.
During 1999, the Company paid cash dividends of $0.25, $0.25, $0.26 and
$0.26 per share on March 30, June 30, September 30 and December 30,
respectively. Gross dividends paid were $11,199 for the year ended December
31, 1999.
9. BENEFIT PLANS
Stock-Based Compensation
On October 23, 1996, the Company adopted the Equity One, Inc. 1995 Stock
Option Plan (the "Plan"), which was amended December 10, 1998. The purpose
of the Plan is to further the growth of the Company by offering an
incentive to directors, officers and other key employees of the Company,
and to increase the interest of these employees in the Company through
additional ownership of its common stock. The effective date of the Plan is
January 1, 1996. The maximum number of shares of common stock as to which
options may be granted to this Plan is 1,000 shares, which shall be reduced
each year by the required or discretionary grant of options. The term of
each option shall be determined by the Compensation Committee of the
Company (the "Committee"), but in no event shall be longer than ten years
from the date of the grant. The vesting of the options shall be determined
by the Committee, in its sole and absolute discretion, at the date of grant
of the option.
On June 23, 2000, the Company, with shareholder approval, adopted the
Equity One 2000 Executive Incentive Compensation Plan (the "2000 Plan").
The terms of the 2000 Plan provide for grants of stock options, stock
appreciation rights ("SARs"), restricted stock, deferred stock, other
stock-related awards and performance or annual incentive awards that may be
settled in cash, stock or other property. The persons eligible to receive
an award under the 2000 Plan are the officers, directors, employees and
independent contractors of the Company and its subsidiaries.
During the term of the 2000 Plan, the total number of shares of Common
Stock that may be subject to awards may not exceed 1,000 shares, plus (i)
the number of shares with respect to which options previously granted under
the 1995 Stock Option Plan terminate without being exercised, and (ii) the
number of shares that are surrendered in payment of the exercise price for
any awards or any tax withholding requirements.
The Company applies the intrinsic value method as prescribed by Accounting
Principles Board Opinion No. 25, Accounting for Stock Issued to Employees,
and related interpretations in measuring
F-22
stock-based compensation, including options. Accordingly, no compensation
expense has been recognized for options granted under the Plan as no grants
were made at less than market value. Had compensation expense been
determined based upon the fair value at the grant date for awards under the
Plan consistent with SFAS No. 123, Accounting for Stock-Based Compensation,
the Company's net income and earnings per share on a pro forma basis would
have been:
2001 2000 1999
-------- -------- --------
Net income As reported............. $18,721 $12,555 $13,589
Pro forma............... 18,483 11,820 13,062
Basic earnings per share As reported............. $ 0.83 $ 0.88 $ 1.26
Pro forma............... 0.82 0.83 1.21
Diluted earnings per As reported............. $ 0.83 $ 0.87 $ 1.26
share Pro forma............... 0.82 0.82 1.21
The fair value of each option grant was estimated on the grant date using
the Black-Scholes option-pricing model with the following assumptions for
the years ended December 31, 2001, 2000 and 1999:
2001 2000 1999
-------- -------- --------
Dividend Yield................... 7.5% 10.6% 10.3%
Risk-free interest rate.......... 4.3% - 5.1% 5.3% - 6.0% 6.4% - 6.5%
Expected option life (years)..... 7 7 5
Expected volatility.............. 25% 17% 23%
In accordance with SFAS No. 123, the following is a summary of the
Company's stock option activity for the years ended December 31, 2001, 2000
and 1999:
2001 2000 1999
----------------------- ---------------------- ---------------------
Weighted Weighted Weighted
Average Average Average
Stock Exercise Stock Exercise Stock Exercise
Options Price Options Price Options Price
------- ----- ------- ----- ------- -----
Outstanding beginning of
year..................... 953 $10.08 737 $10.45 777 $10.41
Granted..................... 175 10.00 332 9.95 58 10.38
Forfeited................... -- -- (116) 12.05 (50) 11.83
Exercised................... (503) 10.00 -- -- (48) 8.25
----- ------ ---- ------ ----- ------
Outstanding end of year..... 625 $10.12 953 $10.08 737 $10.45
===== ====== ===== ====== ===== ======
Exercisable, end of year.... 325 $10.23 716 $10.08 447 $10.21
===== ====== ===== ====== ===== ======
Weighted average fair value
of options granted
during the year.......... $2.39 $ 0.92 $ 1.36
====== ====== ====
F-23
The following table summarizes information about outstanding stock options
as of December 31, 2001:
Options Outstanding Options Exercisable
--------------------------------------------------------------- --------------------
Weighted Average
Remaining
Contractual Life
Exercise Price Number Outstanding (in years) Number Exercisable
---------------- ------------------ ----------------- ------------------
$ 9.90 175 7.7 88
$ 10.00 370 7.3 182
$ 10.44 50 7.7 25
$ 12.38 30 5.0 30
-------- -------
625 325
======== =======
401(k) Plan
The Company has a 401(k) defined contribution plan (the "401(k) Plan")
covering substantially all of the officers and employees of the Company
which permits participants to defer up to a maximum of 15% of their
compensation. The Company matches 50% of the employees' contribution up to
a maximum of 3% of an employees' annual compensation. Employees'
contributions vest immediately and the Company's matching contributions
vest pro rata over three years. The Company's contributions to the 401(k)
Plan for the year ended December 31, 2001 and 2000 (inception) were $49 and
$10, respectively. The 401(k) Plan invests the Company's matching
contributions by purchasing publicly traded shares of the Company's common
stock.
10. EARNINGS PER SHARE
The following is a reconciliation of the amounts of net income and shares
of common stock used in calculating basic and diluted per-share net income
("EPS") for the years ended December 31, 2001, 2000 and 1999:
For the Year Ended December 31, 2001
--------------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------- ---------
Net income $18,721
=======
Basic EPS
Income available to common stockholders....... $18,721 22,414 $0.83
------- ------ =====
Effect of Dilutive Securities
Walden Woods Village, Ltd..................... 99 94
Employee restricted stock..................... - 192
Convertible partnership units................. 259 262
Stock Options................................. - 75
------- ------
358 623
======= ======
Diluted EPS
Income available to common stockholders
assumed conversions........................... $19,079 23,037 $0.83
======== ====== =====
F-24
Options to purchase 30 shares of common stock at $12.38 per share were
outstanding at year end but were not included in the computation of diluted
EPS because the option price was greater than the average market price of
common shares. For the Year Ended December 31, 2000
For the Year Ended December 31, 2000
-----------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------- ----------
Net Income $12,555
===========
Basic EPS
Income available to common stockholders......... 12,555 14,285 $0.88
----------- -------- ---------
Effect of Dilutive Securities
Walden Woods Village, Ltd....................... -- 94
Employee restricted stock....................... -- 122
Convertible partnership units.................. 20 3
---------- --------
20 219
---------- --------
Diluted EPS
Income available to common stockholders
assumed conversions............................ $12,575 14,504 $0.87
========== ======== =========
Options to purchase 953 shares of common stock from $9.90 to $12.38 per
share were outstanding at year end but were not included in the computation
of diluted EPS because the option price was greater than the average market
price of common shares.
For the Year Ended December 31, 1999
-----------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------- ----------
Net income $13,589
==========
Basic EPS
Income available to common stockholders......... $13,589 10,805 $1.26
---------- ------------- =========
Effect of Dilutive Securities
Walden Woods Village, Ltd....................... 95 94
Employee restricted stock....................... - 2
---------- ---------
95 96
---------- ---------
Diluted EPS
Income available to common stockholders assumed
conversions..................................... $13,684 10,901 $1.26
========== ======== =========
Options to purchase 737 shares of common stock from $10.00 to $12.38 per
share were outstanding at year end but were not included in the computation
of diluted EPS because the option price was greater than the average market
price of common shares.
F-25
11. FUTURE MINIMUM RENTAL INCOME, COMMITMENTS AND CONTINGENT LIABILITIES
Future minimum rental income under noncancelable operating leases
approximates the following as of December 31, 2001:
Year ending
December 31, Amount
-------------------------- -----------
2002................... $ 69,412
2003................... 60,190
2004................... 49,975
2005................... 40,057
2006................... 31,177
Thereafter............. 145,011
----------
Total.................. $ 395,822
==========
As of December 31, 2001 and 2000, the Company has pledged letters of credit
for $2,000 and $1,500, respectively, as additional security for financing.
The Company has guaranteed the mortgage note payable for one of its joint
ventures of approximately $14,000.
The Company is subject to litigation in the normal course of business, none
of which as of December 31, 2001 in the opinion of management, will have a
material adverse effect on the financial condition or results of operations
of the Company.
12. RELATED PARTY TRANSACTIONS
The Company provided an affiliated entity with office space, office
services and certain management and consulting services for which the
Company receives a management fee. For the years ended December 31, 2001,
2000 and 1999, such fees totaled $40, $40 and $10, respectively, and are
included as an offset in general and administrative expenses in the
accompanying consolidated statements of operations.
As of December 31, 2001 and 2000, balances due from and to related parties
are non-interest bearing with no specified due dates. During 2001, amounts
due from and to related parties were offset by the issuance of common stock
of CEFUS.
13. SUBSEQUENT EVENTS
In January 2002, the Company completed a private placement of 688 shares of
common stock to a limited number of accredited investors, half of which was
purchased by investors that are affiliates of the Company, with gross
proceeds of $8,892. The proceeds will be used for general corporate
purposes.
In January 2002, the Company filed a shelf registration statement with the
Securities and Exchange Commission, which will permit the Company from time
to time, to offer and sell various securities up to a value of $250,000.
In February 2002, the Company completed the sale of an office building,
located in Florida, for $6,050.
F-26
In February 2002, the Company entered into a variable-rate revolving credit
facility with a bank for $29,400. The line of credit is secured by various
rental properties and has a maturity date of February 2005. The loan has
covenants and other restrictions on the Company.
In February 2002, the Company completed the acquisition of two
free-standing drug-stores located in Florida, for purchase prices of $2,400
and $3,800.
In February 2002, the Company exercised existing options and acquired two
parcels of land located in Florida. The Company paid approximately $2,000
and approximately $1,000 to purchase the parcels.
In February 2002, the Company completed the sale of a retail center,
located in Texas, for $1,100.
14. PROPOSED MERGER
On October 28, 2002, the Company and IRT Property Company ("IRT") executed
a merger agreement pursuant to which the Company will acquire IRT. In
connection with the merger, each IRT shareholder may elect to receive for
each share of IRT common stock either $12.15 in cash or 0.9 shares of the
Company's common stock, or a combination thereof. The terms of the merger
agreement further provide that the holders of no more than 50% of IRT's
outstanding common stock may elect to receive cash.
The Company intends to finance the cash portion of the acquisition through
the private placement of up to 6,911 shares of its common stock at a price
of $13.30 per share, which could be adjusted to a maximum of $13.50 per
share. The balance of the cash consideration, if any, is expected to be
funded from available credit facilities. Assuming a 50% cash election by
the IRT shareholders and a closing price of the Company's common stock of
$13.59 per share, the transaction values IRT at $730,000, including the
assumption of $297,000 of IRT debt and transaction costs.
IRT is an owner, operator, redeveloper and developer of neighborhood and
community shopping centers throughout the southeastern United States. As of
September 30, 2002, IRT's portfolio consisted of 89 shopping centers, three
shopping center investments, two development properties, one industrial
property and three mortgage loans. The 89 shopping centers and the three
shopping center investments total approximately 9.8 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.
Completion of the transaction, which is expected to take place in the first
quarter of 2003, is subject to the approval of the Company's and IRT's
shareholders and other customary conditions. The boards of each of IRT and
the Company have unanimously approved the transaction. Additionally,
holders of approximately 75% of the Company's common stock and
approximately 8% of IRT's common stock have agreed to vote their shares in
favor of the transactions contemplated by the merger. On the 4th business
day prior to the shareholder meetings, the Company holders may terminate
their voting agreements, and IRT's board may withdraw or modify its
recommendation of the merger, if the Company's weighted average stock price
for the 30 preceding trading days is less than $12.06 or less than $11.00
for the three preceding trading days. In addition, on the 4th business day
prior to the shareholder meetings the Company holders may terminate their
voting agreements if IRT's weighted average stock price for the 30
preceding trading days is less than $10.935 or less than $9.935 for the
three preceding trading days.
No assurances can be given by the Company that the merger will be
consummated according to the terms set forth in the merger agreement, if at
all. Either IRT or the Company may terminate the
F-27
merger agreement if the merger is not consummated by March 31, 2003. IRT
will be required to pay a $15 million break-up fee to the Company under
certain circumstances.
On October 31, 2002, Janet Herszenhorn, an individual stockholder of IRT,
purporting to represent a class of holders of IRT common stock, filed a
putative class action lawsuit in the Superior Court of Cobb County,
Georgia, against IRT, the Company, and each of the directors of IRT. The
complaint alleges, among other things, that IRT and its individual
directors breached their fiduciary duties by agreeing to the merger between
the Company and IRT. The complaint seeks injunctive relief, an order
enjoining consummation of the merger and unspecified damages.
On October 31, 2002, John Greaves, an individual stockholder of IRT,
purporting to represent a class of holders of IRT common stock, also filed
a putative class action lawsuit in the Superior Court of Cobb County,
Georgia, against IRT, each of the directors of IRT and the Company. The
complaint alleges, among other things, that IRT and its individual
directors breached their fiduciary duties by agreeing to the merger between
the Company and IRT and that Equity One aided and abetted such breach. The
complaint seeks injunctive relief, an order enjoining consummation of the
merger and unspecified damages.
On November 7, 2002, Maxine Phillips, an individual stockholder of IRT,
purporting to represent a class of holders of IRT common stock, also filed
a putative class action lawsuit in the Superior Court of Cobb County,
Georgia, against IRT, each of the directors of IRT and the Company. The
complaint alleges, among other things, that IRT and its individual
directors breached their fiduciary duties by agreeing to the merger between
the Company and IRT and that Equity One aided and abetted such breach. The
complaint seeks injunctive relief, an order enjoining consummation of the
merger and unspecified damages.
Although the Company believes (and has been advised by IRT that it
believes) that these suits are without merit and (together with IRT and the
directors of IRT) intends to defend itself vigorously, there can be no
assurance that the pending litigation will not interfere with the
consummation of the merger. The Company and IRT do not expect that these
suits will interfere with the scheduling of their respective shareholder
meetings or the consummation of the merger, if approved.
15. TEXAS LITIGATION
On November 26 and 27, 2002, a Fort Bend County, Texas jury entered a
verdict against UIRT, Ltd., a wholly-owned subsidiary of the Company, and
Donna Egan, an employee of a third-party management company that managed
UIRT's properties prior to the acquisition by the Company of its successor,
United Investors Realty Trust. The jury found that these defendants had
tortiously interfered with a purported leasehold relationship between the
plaintiff and a former tenant that moved its offices to a UIRT property.
The jury awarded the plaintiff compensatory damages in the amount of
approximately $896,000, including an amount for lost rent of approximately
$145,000, and exemplary damages against each defendant of $7.5 million. In
connection with the litigation, the Company agreed to indemnify Ms. Egan
for her liability in the case, if any.
The judge presiding over the case has not yet entered a judgment on the
jury's verdict, and the Company expects to file appropriate prejudgment
motions seeking rectification of the jury's decision. The Company has been
advised by counsel that, at a minimum, the exemplary damages awarded by the
jury are far in excess of the maximum permitted by Texas law. In addition,
the Company's counsel also believes that numerous other aspects of the
verdict are in error, including a key finding by the jury that there was a
continuing long-term lease between the plaintiff and its former tenant.
While there can be no guarantees, based upon counsel's assessment, the
Company
F-28
believes that this case will ultimately not have a material adverse effect
on the Company's results of operations and financial condition.
16. QUARTERLY FINANCIAL DATA (unaudited)
First Second Third Fourth
Quarter Quarter Quarter Quarter Total(1)
---------- ----------- --------- ----------- ---------
2001:
Total revenues........................... $ 18,828 $ 18,239 $ 19,358 $ 23,782 $ 80,207
Income from continuing operations........ 3,785 3,443 5,529 4,671 17,428
Net income............................... $ 4,024 $ 3,775 $ 5,826 $ 5,096 $ 18,721
Basic per share data
Income from continuing operations...... $ 0.19 $ 0.17 $ 0.26 $ 0.16 $ 0.77
Net Income............................. $ 0.20 $ 0.19 $ 0.27 $ 0.18 $ 0.83
Diluted per share data
Income from continuing operations..... $ 0.19 $ 0.17 $ 0.26 $ 0.16 $ 0.77
Net income............................ $ 0.20 $ 0.19 $ 0.27 $ 0.17 $ 0.83
2000:
Total revenues........................... $ 7,797 $ 7,687 $ 12,565 $ 19,899 $ 47,948
Income from continuing operations........ 2,460 2,644 2,815 3,841 11,760
Net income............................... $ 2,623 $ 2,787 $ 3,003 $ 4,142 $ 12,555
Basic per share data.....................
Income from continuing operations..... $ 0.22 $ 0.23 $ 0.19 $ 0.20 $ 0.82
Net income............................ $ 0.23 $ 0.24 $ 0.20 $ 0.21 $ 0.88
Diluted per share data
Income from continuing operations..... $ 0.22 $ 0.22 $ 0.19 $ 0.20 $ 0.82
Net income............................ $ 0.23 $ 0.24 $ 0.20 $ 0.21 $ 0.87
- --------------------------------------------------------------------------------
(1) The sum of the quarterly earnings per share amounts may differ from annual
earnings per share.
* * * * *
F-29
ITEM 7. EXHIBITS
23.1 Consent of Independent Auditors
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
EQUITY ONE, INC.
Date: December 10, 2002 /s/ HOWARD M. SIPZNER
_________________________________
Howard M.
Sipzner
Chief Financial Officer
(Principal Accounting and Financial Officer)
INDEX TO EXHIBITS
EXHIBIT DESCRIPTION
23.1 Consent of Independent Auditors