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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
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Commission file number 001-13499
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EQUITY ONE, INC.
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(Exact name of Registrant as specified in its charter)
Maryland 52-1794271
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1696 N.E. Miami Gardens Drive, North Miami Beach, FL 33179
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(Address of principal executive office) (Zip code)
Registrant's telephone number, including area code: (305) 947-1664
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Securities registered pursuant to Section 12(b) of the Act:
Common Stock, $.01 Par Value New York Stock Exchange
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(Title of each class) (Name of exchange on which registered)
None
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Securities registered pursuant to Section 12(g)of the Act:
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). Yes [X] No
The aggregate market value of the voting and non-voting common equity held
by non-affiliates computed by reference to the price at which the common stock
was last sold as of June 28, 2002, the last business day of the registrant's
most recently completed second fiscal quarter was $177,549,488.
As of March 20, 2003, the number of outstanding shares of Common Stock par
value $.01 per share of the Registrant was 59,766,055.
DOCUMENTS INCORPORATED BY REFERENCE
Certain sections of the Registrant's definitive Proxy Statement for the
2003 Annual Meeting of Stockholders are incorporated by reference in Part III of
this Annual Report on Form 10-K to the extent stated herein.
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EQUITY ONE, INC.
TABLE OF CONTENTS
Page
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PART I
Item 1. Business......................................................2
Item 2. Properties...................................................14
Item 3. Legal Proceedings............................................29
Item 4. Submission of Matters to a Vote of Security
Holders....................................................29
PART II
Item 5. Market For Registrant's Common Equity and Related
Stockholder Matters........................................29
Item 6. Selected Financial Data......................................31
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations........................33
Item 7A. Quantitative and Qualitative Disclosures About Market Risk...48
Item 8. Financial Statements and Supplementary Data..................49
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure........................49
PART III
Item 10. Directors and Executive Officers of the Registrant...........50
Item 11. Executive Compensation.......................................50
Item 12. Security Ownership of Certain Beneficial Owners..............50
Item 13. Certain Relationships and Related Transactions...............50
Item 14. Controls and Procedures......................................50
PART IV
Item 15. Exhibits, Financial Statement Schedules and
Reports on Form 8-K........................................51
FORWARD-LOOKING INFORMATION
Certain matters discussed in this Annual Report on Form 10-K and the
information incorporated by reference herein contain "forward-looking
statements" for purposes on Section 27A of the Securities Act of 1933, as
amended and Section 21E of the Securities Exchange Act of 1934, as amended.
These forward-looking statements are based on current expectations and are not
guarantees of future performance.
All statements other than statements of historical facts are forward-
looking statements, and can be identified by the use of forward-looking
terminology such as "may," "will," "might," "would," "expect," "anticipate,"
"estimate," "would," "could," "should," "believe," "intend," "project,"
"forecast," "target," "plan," or "continue" or the negative of these words or
other variations or comparable terminology, are subject to certain risks, trends
and uncertainties that could cause actual results to differ materially from
those projected. Because these statements are subject to risks and
uncertainties, actual results may differ materially from those expressed or
implied by the forward-looking statements. We caution you not to place undue
reliance on those statements, which speakIIII only as of the date of this
report.
Among the factors that could cause actual results to differ materially are:
o general economic conditions, competition and the supply of and demand for
shopping center properties in our markets;
o management's ability to successfully combine and integrate the properties
and operations of separate companies that we have acquired in the past or
may acquire in the future;
o interest rate levels and the availability of financing;
o potential environmental liability and other risks associated with the
ownership, development and acquisition of shopping center properties;
o risks that tenants will not take or remain in occupancy or pay rent;
o greater than anticipated construction or operating costs;
o inflationary and other general economic trends;
o the effects of hurricanes and other natural disasters; and
o other risks detailed from time to time in the reports filed by us with the
Securities and Exchange Commission.
Except for ongoing obligations to disclose material information as required
by the federal securities laws, we undertake no obligation to release publicly
any revisions to any forward-looking statements to reflect events or
circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
PART I
ITEM 1. BUSINESS
General
We are a real estate investment trust, or REIT, that principally acquires,
renovates, develops and manages community and neighborhood shopping centers
located predominately in high growth markets in the southern United States. Our
shopping centers are primarily anchored by supermarkets or other
necessity-oriented retailers such as drug stores or discount retail stores.
As a result of our recently completed merger with IRT Property Company, or
IRT, our property portfolio, as of March 20, 2003, consists of 179 properties,
comprising 122 supermarket-anchored shopping centers, nine drug store-anchored
shopping centers, 41 other retail-anchored shopping centers, one self-storage
facility, one industrial and five retail developments, as well as
non-controlling interests in four unconsolidated joint ventures that own and
operate commercial properties. These properties are located in 12 states in the
southern United States and contain an aggregate of 18.5 million square feet of
gross leasable area, or GLA. Our portfolio includes shopping centers anchored by
national and regional supermarkets such as Albertsons, H.E.B., Kash N' Karry,
Kroger, Publix, Randall's and Winn-Dixie and other national retailers such as
Bed Bath & Beyond, Best Buy, Blockbuster, Eckerd, Home Depot Design Expo, Kmart,
Lowe's, and Walgreens.
We were established as a Maryland corporation in 1992, completed our
initial public offering in May 1998, and have elected to be taxed as a REIT
since 1995. We maintain our principal executive and management office at 1696
N.E. Miami Gardens Drive, North Miami Beach, Florida 33179 in the Shops at
Skylake.
In this annual report, unless stated otherwise or unless the content
requires otherwise, references to "we," "us" or "our" mean Equity One and IRT
combined. We also sometimes refer to Equity One and IRT collectively as the
"merged company."
Recent Developments and 2002 Overview
IRT Merger. On February 12, 2003, we completed our acquisition of IRT by
statutory merger. As a result of the merger, we acquired 92 properties
encompassing approximately 10 million square feet of gross leaseable area. See
"Item 2. - Properties" for a brief description of the merged company portfolio.
In connection with the merger, we paid aggregate cash consideration of
approximately $181 million, issued approximately 17.5 million shares of our
common stock valued at approximately $232 million and assumed approximately $337
million of mortgages, unsecured indebtedness and other liabilities, including
$150 million of IRT's senior unsecured notes. Upon completion of the merger, the
investment grade ratings of the senior unsecured notes were confirmed by Moody's
and Standard & Poor's at Baa3 and BBB-, respectively.
Revolving Credit Facility. On February 7, 2003, we entered into a $340
million unsecured revolving credit facility with Wells Fargo and 14 other
lenders. As of March 27, 2003, we had outstanding approximately $150 million
under the facility which was used in part to fund a portion of the costs of the
merger and to prepay certain indebtedness.
Equity Private Placement. Contemporaneously with the completion of the IRT
merger, we completed a private placement of 6,911,000 shares of our common stock
to a limited number of existing, affiliated investors at a price of $13.50 per
share. The proceeds from the private placement were used, along with a portion
of the proceeds from the Wells Fargo facility, to fund a portion of the costs of
the merger and to prepay certain indebtedness.
Issuance of Public Equity. On March 27, 2002, we completed a public
offering of 3.45 million shares of our common stock at a per share price of
$13.25. The net proceeds of approximately $42.9 million from this offering were
used to repay certain existing indebtedness.
Acquisitions. We intend to focus on retail properties and development
projects that generate stable cash flows and present opportunities for value
appreciation. During 2002, we acquired 11 properties for an aggregate
consideration of approximately $69.5 million. These properties consisted of six
supermarket anchored shopping centers, two drugstores anchored shopping centers,
and three parcels of land held for future development.
Dispositions. Generally, we hold our properties for investment and the
production of rental income until they no longer meet our investment criteria.
During 2002, we sold nine properties for aggregate consideration of
approximately $32.1 million.
During March 2003, we sold an additional two drug store anchored centers
for aggregate consideration of approximately $6.8 million.
Developments and Redevelopments. The following properties are currently
under development:
o Plaza Alegre, an 84,000 square foot, Publix supermarket-anchored
shopping center in southwest Miami-Dade County, Florida, that opened
March 2003;
o a complete redevelopment of University Mall in Pembroke Pines, Florida
incorporating a new Lowe's home improvement store, with completion
targeted in the fourth quarter of 2003; and
o a partial reconfiguration of the Oakbrook Square shopping center in
Palm Beach Gardens, Florida to accommodate a new Stein Mart store,
with completion targeted for the third quarter of 2003.
We are in the planning and permitting stage for several other developments
and redevelopments including:
o the development of a new 25,000 square foot CVS drugstore-anchored
center across the street from Plaza Alegre in Miami-Dade County,
Florida;
o the redevelopment of Salerno Village in Stuart, Florida to accommodate
a new and expanded Winn Dixie supermarket;
o the development of a 12 acre site adjacent to a master-planned
community in Homestead, Florida where we expect to develop a
supermarket anchored center;
o the development of a four acre site adjacent to our Cashmere Corners
property where we expect to commence construction of 20,000 square
feet of retail in the second quarter of 2003; and
o a 120,000 square foot addition to the Shops at Skylake in North Miami
Beach, Florida to accommodate a new L.A. Fitness Sports Center Club
and other tenants.
These five projects are scheduled for completion between the end of 2003
through 2005.
Business and Growth Strategies
Our business strategy has been and will continue to be to maximize
long-term shareholder value by generating sustainable cash flow growth and
increasing the long-term value of our real estate assets. To that end, we now
own and manage a portfolio of 179 properties including 172 supermarket and
necessity-oriented retailer anchored centers. In order to achieve our objectives
in the future, we intend to:
o maximize the value of our existing shopping centers by leasing and
re-leasing those properties at higher rental rates to creditworthy
tenants and renovating and developing those properties to make them
more attractive to such tenants;
o acquire additional neighborhood and community shopping centers in high
growth, high density metropolitan areas that are primarily anchored by
supermarkets or other necessity-oriented retailers;
o sell or dispose of properties that do not meet our investment
criteria, asset type or geographic focus; and
o capitalize on our substantial asset base to effectively access capital
to fund our growth.
Enhancing Portfolio Performance. We seek to maximize the value of our
existing shopping centers by leasing and re-leasing those properties at higher
rental rates to creditworthy tenants. These efforts improve the financial
performance of our shopping center portfolio. We believe that we have developed
strong, mutually beneficial relationships with creditworthy tenants,
particularly our anchor tenants, by consistently meeting or exceeding their
expectations and demands. Over the years, this strategy has allowed us to
leverage our relationship with existing tenants to lease and re-lease our
properties and therefore maintain or improve the financial performance of our
existing properties or properties we acquire. Moreover, we are in the process of
renovating or redeveloping a number of under-performing assets in order to make
them more attractive for leasing or re-leasing to creditworthy tenants.
Acquisition and Development of Shopping Centers. We intend to acquire
additional neighborhood and community shopping centers through individual
property acquisitions, development of new properties, property portfolio
purchases and acquisitions of other REITs and real estate companies, both
privately-held and publicly-traded.
We select properties for acquisition or development which have or are
suitable for supermarket or other anchor tenants that offer daily necessities
and value-oriented merchandise. The properties must be well-located, typically
in high growth, high-density metropolitan areas, and have high visibility, open
air designs, ease of entry and exit and ample parking. Although we focus
primarily on well-performing, supermarket-anchored properties with strong cash
flows, we also acquire under-performing assets, which are adaptable over time
for expansion, renovation or redevelopment. When evaluating potential
acquisitions, whether well-performing or under-performing, and development
projects, we consider factors such as:
o the location, construction quality, design and visibility of the
property;
o economic, demographic, regulatory and zoning conditions in the
property's local and regional market;
o the tenants' gross sales per square foot measured against industry
standards, and the rent payable by the tenants;
o competition from comparable retail properties in the market area and
the possibility of future competition;
o the current and projected cash flow of the property and the potential
to increase that cash flow;
o the terms of tenant leases, including the relationship between the
property's current rents and market rents and the ability to increase
rents upon lease rollover;
o the supply and demand by tenants for properties of a similar type in
the market area;
o the potential to complete a strategic renovation, expansion or
re-tenanting of the property;
o the property's current expense structure and the potential to increase
operating margins; and
o the potential for capital appreciation of the property.
When evaluating expansion, renovation and development possibilities, we
usually do not initiate construction until we have secured commitments from
anchor tenants. In addition, when evaluating acquisitions of portfolios of
properties, REITs or other real estate businesses, we review the component
properties against the criteria described above, as well as opportunities for
synergies and cost savings on a combined basis, the degree of geographic fit
with our existing markets and the extent of non-core assets included in the
acquisition. For instance, in September of 2001, we acquired 50 properties,
representing approximately 5.2 million square feet of gross leaseable area,
through our acquisitions of United Investors Realty Trust and Centerfund Realty
(U.S.) Corporation. For more information on these acquisitions, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" below.
We currently are focused on properties located in the southern region of
the United States. In addition, in making new real estate investments, we intend
to continue to place primary emphasis on obtaining 100% equity interests in
well-located, income-producing properties with attractive yields and potential
for increases in income and capital appreciation.
Selling Certain Assets. Generally, we hold our properties for investment
and for the production of rental income. Over time, when assets we acquire no
longer meet our investment criteria, or when sales provide the opportunity for
significant gains, we may attempt to sell or otherwise dispose of those assets.
Using our Capital to Expand Our Business. We intend to further grow and
expand our business by using cash flows from operations, by drawing on our
existing credit facilities or, if appropriate market conditions exist, by
accessing the capital markets to issue equity, debt or a combination thereof. In
addition, as we have in the past, we intend to utilize tax-advantaged structures
to acquire properties from sellers who wish to defer capital gains. Such
structures may include entering into a joint venture or other type of
co-ownership with a seller, whether in the form of a limited partnership or
limited liability company, in which we would acquire a controlling interest. We
may offer the seller an interest in the venture that is convertible or
exchangeable for shares of our common stock or otherwise allow the seller to
have an equity interest in our company. Competitive Strengths
We believe that we distinguish ourselves from other owners and operators of
community and neighborhood shopping centers in a number of ways, including:
o Shopping Centers Anchored by Supermarkets or Necessity-Oriented
Retailers. For the year ended December 31, 2002, the merged company's
shopping centers anchored by supermarkets or other necessity retailers
such as drug stores or discount retail stores accounted for
approximately 99.2% of our total annualized minimum rent. We believe
that supermarkets and other necessity-oriented retailers are more
resistant to economic downturns by the nature of their business and
generate frequent consumer traffic through our shopping centers. This
traffic enhances the quality, appeal and longevity of our shopping
centers and benefits our other tenants.
o Attractive Locations in High-Growth Areas. The merged company's
portfolio of properties is concentrated in high-density areas that are
experiencing high population growth such as Florida, Texas and
Georgia. After giving effect to the merger, as of December 31, 2002,
these states constitute 46.5%, 16.7% and 13.1% of our supermarket and
necessity-oriented anchored centers gross leaseable area,
respectively. The strong demographics of these and our other markets
provide our properties with a growing supply of shoppers and increased
demand for the goods and services of our tenants.
o Diverse Tenant Base. No single tenant represents more than 10.0% of
the merged company's annualized minimum rent and only one tenant,
Publix, represents more than 5.0% of such revenue. After giving effect
to the merger, as of December 31, 2002, Publix represented 8.0% of our
annualized minimum rent and we had over 3,000 leases with tenants,
including national and regional supermarket chains, drug stores,
discount retail stores, other nationally or regionally known stores, a
variety of other regional and local retailers and a number of local
service providers such as doctors, dentists, hair salons, restaurants
and others. We believe that this diversity of tenants enables us to
generate more stable cash flows over time and limits our exposure to
the financial conditions of any particular tenant.
o Seasoned Management Team. Our senior executives and managers average
more than 20 years of experience in the acquisition, management,
leasing, finance, redevelopment and construction of real estate or
retail properties. In particular, we believe that our in-depth market
knowledge and the long-term tenant relationships developed by our
senior management team provide us with a key competitive advantage.
o Property Acquisition Strengths. We believe we have certain competitive
advantages which enhance our ability to capitalize on acquisition
opportunities, including our long standing relationships with bankers,
brokers, tenants and institutional and other real estate owners in our
current target markets; our access to capital; our ability to offer
cash and tax advantaged structures to sellers; and our demonstrated
ability to conduct a rapid, efficient and effective due diligence
investigation of the property, portfolio or company.
o Strong Relationship with Tenants. We believe we have cultivated strong
relationships with supermarket and other anchor tenants, which, in
combination with our in-depth knowledge of our primary markets, have
contributed substantially to our success in identifying, acquiring and
operating our properties.
Financing Strategy
Our financing strategy is to maintain a strong and flexible financial
position by limiting our debt to a prudent level and minimizing our variable
interest rate exposure. We intend to finance future growth with the most
advantageous source of capital available to us at the time of an acquisition.
These sources may include selling common stock, preferred stock, debt
securities, depository shares or warrants through public offerings or private
placements, utilizing availability under our $340 million revolving credit
facility or incurring additional indebtedness through secured or unsecured
borrowings either at the parent level or through mortgages with recourse limited
to specific properties.
Risk Factors
You should carefully consider the risks described below. The trading price of
our common stock could decline due to any of these risks.
We are dependent upon certain key tenants, and adverse developments in the
business of these tenants could have a negative impact on our financial
condition.
We own shopping centers which are supported by "anchor" tenants which,
due to size, reputation or other factors, are particularly responsible for
drawing other tenants and shoppers to our centers. For instance, Publix is our
largest tenant and accounts for approximately 1.7 million square feet, or 9.3%,
of our gross leaseable area.
At any time, an anchor tenant or other tenant may experience a
downturn in its business that may weaken its financial condition. As a result,
tenants may delay lease commencement, fail to make rental payments when due or
declare bankruptcy. We are subject to the risk that these tenants may be unable
to make their lease payments or may decline to extend a lease upon its
expiration. Any tenant bankruptcies, leasing delays or failures to make rental
payments when due could result in the termination of the tenant's lease and
material losses to our business and harm to our operating results. For example,
in January 2002, Kmart Corporation, an anchor tenant in eleven of the merged
company's shopping centers, filed for bankruptcy protection and has subsequently
closed stores and terminated leases at four centers. Although we do not believe
that Kmart's bankruptcy will have a materially adverse impact on our financial
condition, if Kmart elects to close some or all of the remaining seven stores in
our centers, it would adversely affect our operating results, including funds
from operations.
In addition to the loss of rental payments, a lease termination by an
anchor tenant or a failure by that anchor tenant to occupy the premises could
result in lease terminations or reductions in rent by other tenants in the same
shopping center whose leases permit cancellation or rent reduction if an anchor
tenant's lease is terminated. Vacated anchor tenant space also tends to
adversely affect the entire shopping center because of the loss of the departed
anchor tenant's power to draw customers to the center. We cannot provide any
assurance that we will be able to quickly re-lease vacant space on favorable
terms, if at all. Any of these developments could adversely affect our financial
condition or results of operations.
Our growth may be impeded if we are not successful in identifying suitable
acquisitions that meet our criteria.
Our business strategy is to make future acquisitions of or investments
in additional real estate assets or other real estate companies. Integral to
this strategy will be our ability to expand in the future by identifying
suitable acquisition candidates or investment opportunities that meet our
criteria and are compatible with our growth strategy. We may not be successful
in identifying suitable real estate assets or other businesses that meet our
acquisition criteria or completing acquisitions or investments on satisfactory
terms. Failures in identifying or completing acquisitions could reduce the
number of acquisitions we are able to make and may slow our growth, which could
in turn harm our future stock price.
Future acquisitions of real estate assets or other real estate companies
may not yield the returns expected, may result in disruptions to our
business, may strain management resources and may result in stockholder
dilution.
Our acquisition strategy and our market selection process may not
ultimately be successful and may not provide positive returns on our capital. If
we acquire a business, we will be required to integrate the operations,
personnel and accounting and information systems of the acquired business and
train, retain and motivate any key personnel from the acquired business. In
addition, acquisitions may cause disruptions in our operations and divert
management's attention away from day-to-day operations, which could impair our
relationships with our current tenants and employees. The issuance of equity
securities in connection with any acquisition could be substantially dilutive to
our stockholders.
In February 2003, we acquired IRT Property Company. No assurance can
be given that we will be able to realize operational synergies or otherwise
reduce the operating expenses of the combined company. In addition, we may face
unanticipated costs as a result of this acquisition. If we do not achieve
operational synergies, cannot reduce the expenses of the combined company or if
we experience material, unanticipated costs or encounter adverse business
developments as a result of the acquisition, our results of operations could be
harmed and our stock price could decline.
We will face increasing competition for the acquisition of real estate
assets, which may impede our ability to make future acquisitions or may
increase the cost of these acquisitions.
We compete with many other entities engaged in real estate investment
activities for acquisitions of community and neighborhood shopping centers,
including institutional pension funds, other REITs and other owner-operators of
shopping centers. These competitors may drive up the price we must pay for real
estate assets or other real estate companies we seek to acquire, or may succeed
in acquiring those companies or assets themselves. In addition, potential
acquisition targets may find competitors to be more attractive suitors because
they may have greater resources, may be willing to pay more or may have a more
compatible operating philosophy. In particular, larger REITs may enjoy
significant competitive advantages that result from, among other things, a lower
cost of capital and enhanced operating efficiencies. In addition, the number of
entities and the amount of funds competing for suitable investment properties
may increase. Such competition may reduce the number of suitable properties and
increase the bargaining position of the owners of those properties. This will
result in increased demand for these assets, and, therefore, increased prices
paid for them. If we must pay higher prices for properties, our profitability
will be reduced, and our stockholders may experience a lower return on their
investment.
Geographic concentration of our properties will make our business
vulnerable to economic downturns in Florida.
Approximately 45% of our gross leasable area is located in Florida. As
a result, economic and real estate conditions in Florida will significantly
affect our revenues and the value of our properties. Business layoffs or
downsizing, industry slowdowns, changing demographics and other similar factors
may adversely affect the economic climate in Florida. Any resulting oversupply
or reduced demand for retail properties in Florida would adversely affect our
operating performances and limit our ability to make distributions to
stockholders.
We may be subjected to liability for environmental contamination for which
we do not have insurance and which might have a material adverse impact on
our financial condition and results of operations.
As an owner and operator of real estate and real estate-related facilities,
we may be liable for the costs of removal or remediation of hazardous or toxic
substances present at, on, under, in or released from our properties, as well as
for governmental fines and damages for injuries to persons and property. We may
be liable without regard to whether we knew of, or were responsible for, the
environmental contamination and with respect to properties previously owned by
IRT, whether the contamination occurred before or after the merger. We have
several properties in our portfolio that will require or are currently
undergoing varying levels of environmental remediation. We do not currently
maintain an umbrella environmental insurance policy covering all of our
properties, and, therefore, any liability, fine or damage will directly impact
our financial results.
Our investments in development and redevelopment projects may not yield
anticipated returns, which would harm our operating results and reduce the
amount of funds available for distributions to stockholders.
A component of our growth strategy is the development and
redevelopment of properties within our portfolio. In addition, we intend to
develop new shopping centers at other locations and pursue other development and
redevelopment activities as opportunities arise. There can be no assurance that
we will be able to do so successfully. Such activities may include expanding
and/or renovating properties or developing new sites. Expansion, renovation and
development projects generally require expenditures of capital, as well as
various governmental and other approvals, which we may not be able to obtain, or
may only obtain after delay and at substantial costs.
While our policies with respect to expansion, renovation and
development activities are intended to limit some of the risks otherwise
associated with such activities, such as initiating construction only after
securing commitments from anchor tenants, we will nevertheless be subject to
risks that construction costs of a property, due to factors such as cost
overruns, design changes and timing delays arising from a lack of availability
of materials and labor, weather conditions and other factors outside of our
control, may exceed original estimates, possibly making the property
uneconomical. Any substantial unanticipated delays or expenses could adversely
affect the investment returns from these redevelopment projects and harm our
operating results. In addition, occupancy rates and rents at a newly completed
property may not be sufficient to make the property profitable, construction and
permanent financing may not be available on favorable terms, or development,
construction and lease-up activities may not be completed on schedule, resulting
in increased debt service expense and construction costs.
We may experience difficulties and additional costs associated with renting
unleased space and space to be vacated in future years.
We plan to improve the performance of several properties by re-leasing
vacated space. However, our ability to rent unleased or vacated space in these
or other properties will be affected by many factors, including the property's
location, current market conditions and covenants found in certain leases
restricting the use of other space at a property. For instance, in some cases,
our tenant leases contain provisions giving the tenant the exclusive right to
sell particular types of merchandise or provide specific types of services
within the particular retail center, or limit the ability of other tenants to
sell that merchandise or provide those services. When re-leasing space after a
vacancy, these provisions may limit the number and types of prospective tenants
for the vacant space. The failure to lease or to re-lease on satisfactory terms
could harm our operating results.
In addition, if we are able to re-lease vacated space, there is no
assurance that rental rates will be equal to or in excess of current rental
rates. In addition, we may incur substantial costs in obtaining new tenants,
including brokerage commission fees paid by us in connection with new leases or
lease renewals, and the cost of making leasehold improvements.
We have substantial debt obligations which may reduce our operating
performance and put us at a competitive disadvantage.
We have outstanding debt and other liabilities after the merger with
IRT in the aggregate amount of approximately $800 million. The loan facilities
require scheduled principal and balloon payments. In addition, we may incur
additional indebtedness in the future. As a result, we are subject to the risks
normally associated with debt financing, including the risk that our cash flow
will be insufficient to meet required payments of principal and interest, the
risk that interest rates may increase on variable-rate debt and the risk that
indebtedness on our properties will not be refinanced at maturity or that the
terms of such refinancing will not be as favorable as the terms of such
indebtedness.
If our internally generated cash is adequate to repay only a portion
of our indebtedness prior to maturity, then we will be required to repay debt
through refinancings or equity offerings. If we are unable to refinance our
indebtedness on acceptable terms, or at all, we might be forced to dispose of
one or more of our properties upon disadvantageous terms, which might result in
losses and might adversely affect our cash available for distribution. If
prevailing interest rates or other factors at the time of refinancing result in
higher interest rates on refinancings, our interest expense would increase,
without a corresponding increase in our rental rates, which would adversely
affect our results of operations. Further, if one of our properties is mortgaged
to secure payment of indebtedness and we are unable to meet mortgage payments,
or if we are in default under the related mortgage or deed of trust, such
property could be transferred to the mortgagee, or the mortgagee could foreclose
upon the property, appoint a receiver and receive an assignment of rents and
leases or pursue other remedies, all with a consequent loss of income and asset
value. Foreclosure could also create taxable income without accompanying cash
proceeds, thereby hindering our ability to meet the REIT distribution
requirements under the Internal Revenue Code.
Changes in interest rates could adversely affect the market price of our
common stock.
The market price of our common stock is affected by the annual
distribution rate on the shares of our common stock. Increasing market interest
rates may lead prospective purchasers of our common stock to seek a higher
annual yield from their investments. Such an increase in market expectations or
requirements would likely adversely affect the market price of our common stock.
In addition, we have several variable rate loans, including our $340 million
revolving credit facility with Wells Fargo. As interest rates rise, more of our
funds from operations will be required to service that debt. Finally, increases
in interest rates may have the effect of depressing the market value of retail
properties such as ours, including the value of those properties securing our
indebtedness.
Our financial covenants may restrict our operating or acquisition
activities, which may harm our financial condition and operating results.
Our revolving credit facility with Wells Fargo, as well as much of our
existing mortgage indebtedness, contains customary covenants and conditions
typically found in similar credit facilities, including, among others, the
compliance with various financial ratios and restrictions upon the incurrence of
additional indebtedness and liens on our properties. Furthermore, the terms of
some of this indebtedness will restrict our ability to consummate transactions
that result in a change of control or to otherwise issue equity or debt
securities. The existing mortgages also contain customary negative covenants
such as those that limit our ability, without the prior consent of the lender,
to further mortgage the applicable property or to discontinue insurance
coverage. If we were to breach covenants in these debt agreements, the lender
could declare a default and require us to repay the debt immediately, and, if
the debt is secured, if we fail to make repayment the lender may be entitled to
take possession of any property securing the loan.
Certain of our indebtedness may currently be in default as a result of
prior issuances of our common stock or prior acquisitions which may serve
as a basis for our lenders to accelerate amounts due under the related
mortgages or demand payments or fees.
Certain of the mortgages on our properties contain prohibitions on
transfers of ownership interests in the mortgagor or its parent without the
prior written consent of the lenders, which provisions may have been violated by
previous transactions completed by us including the merger with IRT. A violation
could serve as a basis for the lenders to accelerate amounts due under the
related mortgages, demand payments or assess fees or penalties.
The outstanding amounts under the mortgages on the affected properties
covered by such restrictions on transfer total approximately $171 million as of
March 20, 2003. In the event that the holders declare defaults under the
mortgage documents, we could be required to prepay the remaining mortgages from
existing resources, refinancings of such mortgages, borrowings under our other
lines of credit or other sources of financing. The repayment of these mortgages
could have an adverse impact on the operations and affect our ability to make
distributions to stockholders in the anticipated amounts.
Our Chairman and Chief Executive Officer and his affiliates own
approximately 45% of our common stock and exercise significant control of
our company and may delay, defer or prevent us from taking actions that
would be beneficial to our other stockholders.
Chaim Katzman, our Chairman and Chief Executive Officer and our
largest stockholder, and his affiliates own approximately 45% of the outstanding
shares of our common stock. Accordingly, Mr. Katzman is able to exercise
significant control over the outcome of substantially all matters required to be
submitted to our stockholders for approval, including decisions relating to the
election of our board of directors and the determination of our day-to-day
corporate and management policies. In addition, Mr. Katzman is able to exercise
significant control over the outcome of any proposed merger or consolidation or
our company under Maryland law. Mr. Katzman's ownership interest in our company
may discourage third parties from seeking to acquire control of our company
which may adversely affect the market price of our common stock.
Several of our controlling stockholders have pledged their shares of our
stock as collateral under bank loans, foreclosure and disposition of which
could have a negative impact on our stock price.
Several of our affiliates stockholders that beneficially own a significant
interest in our company, including Gazit-Globe (1982), Ltd. and related
entities, have pledged a substantial portion of our stock that they own to
secure loans made to them by commercial banks. In the aggregate, these
stockholders have pledged more than 23.7 million shares, representing
approximately 40% of our total outstanding shares.
If a stockholder defaults on any of its obligations under these pledge
agreements or the related loan documents, these banks may have the right to sell
the pledged shares in one or more public or private sales that could cause our
stock price to decline. Many of the occurrences that could result in a
foreclosure of the pledged shares are out of our control and are unrelated to
our operations. Some of the occurrences that may constitute such an event of
default include:
o the stockholder's failure to make a payment of principal or interest
when due;
o the occurrence of another default that would entitle any of the
stockholder's other creditors to accelerate payment of any debts and
obligations owed to them by the stockholder;
o if the bank, in its absolute discretion, deems that a change has
occurred in the condition of the stockholder to which the bank has not
given its prior written consent;
o if the stockholder ceases to pay its debts or manage its affairs or
reaches a compromise or arrangement with its creditors; and
o if, in the opinion of the bank, the value of the pledged shares shall
be reduced or is likely to be reduced (for example, the price of our
common stock declines).
In addition, because so many shares are pledged to secure loans, the
occurrence of an event of default could result in a sale of pledged shares that
would trigger a change of control of our company, even when such a change may
not be in the best interests of our stockholders.
Our organizational documents contain provisions which may discourage the
takeover of our company, may make removal of our management more difficult
and may depress our stock price.
Our organizational documents contain provisions that may have an
anti-takeover effect and inhibit a change in our management. For instance, our
charter contains ownership limits and restrictions on transferability of shares
of our capital stock in order to protect our status as a REIT. These provisions
prevent any one stockholder from owning, actually or constructively, more than
9.9% of the value or number of outstanding shares of our capital stock without
our prior consent. In addition, our charter and bylaws contain other provisions
that may have the effect of delaying, deferring or preventing a change of
control or the removal of existing management and, as a result, could prevent
our stockholders from receiving a premium for their shares of common stock above
the prevailing market prices. These provisions include the ability to issue
preferred stock, staggered terms for our directors, advance notice requirements
for stockholder proposals, the absence of cumulative voting rights and
provisions relating to the removal of incumbent directors. Finally, Maryland law
also contains several statutes that restrict mergers and other business
combinations with an interested stockholder or that may otherwise have the
effect of preventing or delaying a change of control.
We may experience adverse consequences in the event we fail to qualify as a
REIT.
Although we believe that we have operated so as to qualify as a REIT
under the Internal Revenue Code since our REIT election in 1995, no assurance
can be given that we have qualified or will remain qualified as a REIT. In
addition, no assurance can be given that legislation, new regulations,
administrative interpretations or court decisions will not significantly change
the tax laws with respect to qualification as a REIT or the federal income tax
consequences of such qualification. Qualification as a REIT involves the
application of highly technical and complex provisions of the Internal Revenue
Code for which there are only limited judicial and administrative
interpretations. The determination of various factual matters and circumstances
not entirely within our control may affect our ability to qualify as a REIT. For
example, in order to qualify as a REIT, at least 95% of our gross income in any
year must be derived from qualifying sources and we must make distributions to
stockholders aggregating annually at least 90% of our REIT taxable income,
excluding capital gains. We intend to make distributions to our stockholders to
comply with the distribution provisions of the Internal Revenue Code. Although
we anticipate that our cash flows from operating activities will be sufficient
to enable us to pay our operating expenses and meet distribution requirements,
no assurances can be given in this regard.
If we were to fail to qualify as a REIT in any taxable year, we would be
subject to federal income tax, including any applicable alternative minimum tax,
on our REIT taxable income at regular corporate income tax rates, and would not
be allowed a deduction in computing our REIT taxable income for amounts
distributed to our stockholders. Moreover, unless entitled to relief under
certain statutory provisions, we also would be ineligible for qualification as a
REIT for the four taxable years following the year during which qualification
was lost. Such disqualification would reduce our net earnings available for
investment or distribution to our stockholders due to our additional tax
liability for the years involved.
Loss of Key Personnel Could Harm Our Business.
Our ability to successfully execute our acquisition and growth strategy
depends to a significant degree upon the continued contributions of Chaim
Katzman, our Chairman of the Board and Chief Executive Officer, Doron Valero,
our President and Chief Operating Officer, and Howard Sipzner, our Chief
Financial Officer. Pursuant to our employment agreements with Mr. Katzman, he is
only required to devote so much of his business time, attention, skill and
efforts as shall be required for the faithful performance of his duties.
Moreover, there is no guarantee that Mr. Katzman, Mr. Valero or Mr. Sipzner will
remain employed with us. While we have employment agreements with these
executives, we cannot guarantee that we will be able to retain their services.
The loss of the services of Messrs. Katzman, Valero and Sipzner could have a
material adverse effect on our results of operations.
Competition
There are numerous commercial developers, real estate companies, including
REITs such as Regency Realty Corporation, Weingarten Realty Investors and New
Plan Excel Realty Trust, and other owners of real estate in the areas in which
our properties are located that compete with us in seeking land for development,
properties for acquisition, financing and tenants. Many of such competitors have
substantially greater resources than we have. All of our existing properties are
located in developed areas that include other shopping centers and other retail
properties. The number of retail properties in a particular area could
materially adversely affect our ability to lease vacant space and maintain the
rents charged at our existing properties.
We believe that the principal competitive factors in attracting tenants in
our market areas are location, price, anchor tenants and maintenance of
properties. We also believe that our competitive advantages include the
favorable locations of our properties, our ability to provide a retailer with
multiple locations with anchor tenants and the practice of continuous
maintenance and renovation of our properties.
Regulations
Regulations. Retail properties are subject to various laws, ordinances and
regulations. We believe that each of our existing properties maintains all
required material operating permits and approvals.
Americans with Disabilities Act. Our properties are subject to the
Americans with Disabilities Act of 1990. Under this act, all places of public
accommodation are required to comply with federal requirements related to access
and use by disabled persons. The act has separate compliance requirements for
"public accommodations" and "commercial facilities" that generally require that
buildings and services, including restaurants and retail stores, be made
accessible and available to people with disabilities. The act's requirements
could require removal of access barriers and could result in the imposition of
injunctive relief, monetary penalties or, in some cases, an award of damages. We
believe that our properties are in substantial compliance with the requirements
under the American with Disabilities Act and have no reason to believe that
these requirements or the enforcement of these requirements will have a
materially adverse impact on our business.
Environmental Matters
Under various federal, state and local laws, ordinances and regulations, we
may be liable for the cost to remove or remediate certain hazardous or toxic
substances at our shopping centers. These laws often impose liability without
regard to whether we knew of, or were responsible for, the presence of the
hazardous or toxic substances. The cost of required remediation and our
liability for remediation could exceed the value of the property and/or our
aggregate assets. The presence of such substances, or the failure to properly
remediate such substances, may adversely affect our ability to sell or rent the
property or borrow using the property as collateral. We have several properties
that will require or are currently undergoing varying levels of environmental
remediation. In some cases, contamination has migrated or is expected to migrate
into the groundwater beneath our properties from adjacent properties, such as
service stations. In other cases, contamination has resulted from on-site uses
by current or former owners or tenants, such as gas stations or dry cleaners,
which have released pollutants such as gasoline or dry-cleaning solvents into
the soil or groundwater. We believe that, based on environmental studies
conducted to date, none of these environmental problems is likely to have a
material adverse effect on our financial condition. However, no assurances can
be given that environmental studies obtained by us reveal all environmental
liabilities, that any prior owner of land or a property owned or acquired by us
did not create any material environmental condition not known to us, or that a
material environmental condition does not otherwise exist, or may not exist in
the future.
Employees
At December 31, 2002, we had 95 full-time employees, and as of March 20,
2003, following our merger with IRT, we now have 190 full-time employees. Our
employees are not represented by any collective bargaining group, and we
consider our relations with our employees to be good.
Available Information
Our internet address is www.equityone.net. You can obtain on our website,
free of charge, a copy of our annual report on Form 10-K, our quarterly reports
on Form 10-Q, our Supplemental Information Package, our current reports on Form
8-K, and any amendments to those reports, as soon as reasonably practicable
after we electronically file such reports or amendments with the SEC. Copies are
also available free of charge by contacting our Investor Relations Department
at:
Equity One, Inc.
1696 N.E. Miami Gardens Drive,
North Miami Beach, Florida 33179
Attn: Investor Relations
(305) 947-1664
You may also read and copy any materials we file with the SEC at the SEC's
Public Reference Room at 450 Fifth Street, NW, Washington, DC 20549, or you may
obtain information by calling the SEC at 1-800-SEC-0300. The SEC maintains an
internet address at http://www.sec.gov that contains reports, proxy statements
and information statements, and other information in which you may obtain
additional information.
ITEM 2. PROPERTIES
Our portfolio consists primarily of shopping centers anchored by
supermarket and other necessity-oriented retailers and contains an aggregate of
approximately 18.5 million square feet of gross leasable area. Other than our
leasehold interests in our Green Oaks, Parkwood and Richwood shopping centers,
each of which is located in Dallas, Texas; and our McAlpin Square shopping
center located in Savannah, Georgia; our Plaza Acadienne shopping center located
in Eunice, Louisiana and our Shelby Plaza shopping center located in Shelby,
North Carolina, all of our other properties are owned in fee simple. In
addition, some of our properties are subject to mortgages as described under
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Mortgage Indebtedness."
The following table provides a brief description of the merged company's
properties as of December 31, 2002:
GLA Annualized Average Minimum Percent
(Sq.Ft.)at Minimum Rent Rent Per Leased Leased at
Year Dec. 31, Number of as of December 31, Sq. Ft. at Dec.31, Dec. 31, Anchor Stores and
Property Acquired 2002 Tenants(1) 2002(2) 2002 2002 Certain Tenants(3)
---------- ---------- ---------- ---------- ------------------ ----------------- --------- -----------------------
Supermarket and Other Necessity-Oriented Retailer Anchored Centers
- ------------------------------------------------------------------
FLORIDA (74 properties)
North Florida
(12 properties)
Atlantic Village 1995 100,559 25 $989,608 $10.23 96.2% Publix, Jo-Ann
Atlantic Beach Fabrics
Beauclerc 1998 70,429 12 $537,071 $7.63 100.0% Big Lots, Goodwill,
Village Bealls Outlet
Jacksonville
Commonwealth 1994 81,467 16 $649,698 $8.10 98.4% Winn-Dixie
Jacksonville
Forest Village 2000 71,526 17 $675,747 $10.32 91.5% Publix
Tallahassee
Fort Caroline 1994 74,546 13 $546,460 $7.43 98.7% Winn-Dixie, Eckerd*
Jacksonville (Bealls Outlet)
Losco Corners 2000 8,700 8 $159,905 $18.38 100.0% Winn-Dixie(4)
Jacksonville
Mandarin Landing 1999 141,565 37 $1,146,032 $8.84 91.6% Publix, Office Depot
Jacksonville Eckerd
Monument Point 1997 76,628 14 $497,468 $6.49 100.0% Winn-Dixie, Eckerd
Jacksonville
Oak Hill 1995 78,492 19 $535,058 $6.82 100.0% Publix, Walgreens*
Jacksonville (Bonus Dollar)
Parkmore Plaza 2003 159,067 13 $694,738 $4.40 99.3% Wal-Mart* (Bealls), Big
Milton Lots
Pensacola Plaza 1986 56,098 3 $218,988 $4.27 91.4% FoodWorld
Pensacola
South Beach 2003 289,964 50 $2,624,017 $9.28 97.5% Food Lion, K-Mart,
Regional Stein Mart, Bealls
Jacksonville
Beach
Central Florida (11 properties)
Alafaya Commons 2003 118,186 29 $1,216,072 $10.76 95.7% Publix
Orlando
Conway 2003 72,721 17 $810,301 $11.37 98.0% Publix
Orlando
Eckerd(4) 2002 12,739 1 $338,274 $26.55 100.0% Eckerd
Leesburg
Shoppes of 2002 69,037 13 $761,304 $11.03 100.0% Publix
Eastwood
Orlando
Eustis Square 1993 126,791 27 $742,506 $6.71 87.2% Publix, Walgreens*
Eustis (Bealls Outlet), Bealls
Department Store
Kirkman Shoppes 2001 88,820 32 $1,489,705 $17.46 96.1% Eckerd
Orlando
Lake Mary 1988 342,384 89 $3,924,813 $11.70 98.0% Albertsons, Kmart, Sun
Orlando Star Theatres, Euro
Fitness
Park Promenade 1999 125,818 27 $1,138,052 $9.35 96.7% Publix, Orange County
Orlando Library
Town & Country 2003 71,283 12 $472,035 $6.62 100.0% Albertsons
Kissimmee
Unigold 2003 102,985 20 $1,005,588 $10.18 95.9% Winn-Dixie
Winter Park
Walden Woods 1999 74,336 11 $239,510 $8.65 37.3% Walgreens
Plant City
Florida West Coast (7 properties)
Bay Pointe Plaza 2003 97,390 24 $931,772 $10.24 93.5% Public, Eckerd*(Bealls),
St. Petersburg West Marine
Carrollwood 2003 93,644 35 $872,923 $10.75 86.7% Eckerd
Tampa
Charlotte Square 2003 96,188 27 $676,117 $7.16 98.1% Publix
Port Charlotte
Chelsea Place 2003 81,144 18 $877,298 $10.81 100.0% Publix, Eckerd
New Port Richey
East Bay Plaza 1993 85,426 22 $475,857 $9.96 55.9% Albertsons(5), Family
Largo Dollar, Hollywood Video
Gulf Gate Plaza 2003 174,566 21 $862,659 $5.69 86.9% Bealls, JoAnn Fabrics,
Naples Publix*, Dockside Imp.,
Price Cutter
Lake St. Charles 2001 57,015 8 $555,201 $9.74 100.0% Kash N' Karry
Tampa
Florida West Coast (11 properties)
Lutz Lake 2003 64,985 15 $881,116 $13.56 100.0% Publix
Lutz
Marco Town Center 2001 109,430 45 $1,608,509 $15.98 92.0% Publix
Marco Island
Mariners Crossing 2001 85,507 15 $636,437 $7.92 94.0% Kash N' Karry
Spring Hill
North River 2003 177,128 16 $1,273,353 $7.19 100.0% K-Mart, Walgreens*,
Village Center (Dollar Tree) Bealls
Ellenton
Regency Crossing 2003 85,864 24 $850,398 $10.58 93.6% Publix
Port Richey
Ross Plaza 2001 85,359 20 $716,635 $9.98 84.1% Walgreens*, Ross Dress
Tampa for Less
Seven Hills 2003 64,590 12 $615,481 $9.53 100.0% Publix
Spring Hill
Shoppes of North 2000 84,705 22 $803,009 $9.48 100.0% Publix, Bealls Outlet
Port
North Port
Skipper Palms 2001 86,944 17 $715,205 $8.53 96.4% Winn-Dixie
Tampa
Summerlin Square 1998 109,156 28 $1,067,576 $10.64 91.9% Winn-Dixie, Eckerd
Fort Myers
Venice Plaza 2003 155,987 17 $649,911 $4.48 92.9% Kash N Karry, TJ Maxx,
Venice Appliance Elec Depot
Florida Treasure Coast (9 properties)
Bluff Square 2001 132,395 51 $1,507,511 $11.65 97.7% Publix, Walgreens
Jupiter
Cashmere Corners 2001 89,234 18 $703,013 $4.68 100.0% Albertsons
Port St. Lucie
Eckerd(4) 2002 10,908 1 $223,065 $20.45 100.0% Eckerd
Melbourne
Jonathan's Landing 2001 26,820 12 $480,867 $17.93 100.0% Albertsons(5)
Jupiter
New Smyrna Beach 2003 118,451 34 $1,111,199 $9.98 94.0% Walgreens* (Bealls)
Regional
New Smyrna Beach
Old King Commons 2003 84,759 19 $645,294 $7.73 98.5% Wal-Mart* (Scotty's,
Palm Coast Staples)
Ryanwood 2001 114,925 32 $1,016,861 $9.17 96.5% Publix, Bealls Outlet,
Vero Beach Books-A-Million
Salerno Village 2002 58,804 18 $370,206 $6.58 95.6% Winn Dixie, Eckerd
Stuart
Treasure Coast 2003 133,781 25 $1,104,516 $8.67 95.2% Winn Dixie, TJ Maxx
Vero Beach
South Florida/Atlantic Coast (24 properties)
Bird Ludlum 1994 192,282 49 $2,763,985 $14.59 98.5% Winn-Dixie, Eckerd,
Miami Goodwill
Boca Village 2001 93,428 22 $1,361,250 $14.57 100.0% Publix, Eckerd
Boca Raton
Boynton Plaza 2001 99,324 30 $881,522 $10.07 88.1% Publix, Eckerd
Boynton Beach
Countryside Shops 2003 173,161 44 $1,972,596 $11.67 97.6% Publix, Eckerd,
Cooper City Stein Mart
Greenwood 2003 128,532 34 $1,302,496 $11.29 89.8% Publix, Bealls, World
Palm Springs Savings Bank
Lago Mar 2003 82,613 21 $939,230 $12.48 91.1% Publix
Miami
Lantana Village 1998 175,480 25 $1,111,850 $6.44 98.4% K-Mart, Winn-Dixie, Rite-
Lantana Aid (5) (Dollar
Store)
Meadows 2002 75,524 21 $863,972 $12.01 95.2% Publix
Miami
Oakbrook 2001 220,747 35 $1,652,652 $12.55 59.6% Publix, Eckerd, Duffy's,
Palm Beach Steinmart (Opening May
Gardens 2003)
Pine Island 1999 254,907 47 $2,267,574 $9.21 96.6% Publix, Home Depot
Davie Design Expo, Rite Aid*
(Bealls Outlet)
Pine Ridge 2003 117,399 35 $1,446,541 $12.57 98.2% Fresh Market, Bed Bath
Square & Beyond
Coral Springs
Plaza Del Rey 1991 50,146 23 $626,025 $12.84 97.2% Navarro Pharmacy
Miami
Point Royale 1995 209,863 26 $1,277,794 $6.49 93.9% Winn-Dixie, Best Buy
Miami
Pompano 2001 80,697 1 $540,000 $6.69 100.0% Lowe's(6)
Pompano Beach
Prosperity Center 2001 122,106 9 $1,807,207 $14.80 100.0% Office Depot, Barnes
Palm Beach & Noble, Bed Bath &
Gardens Beyond, Carmine's, TJ
Maxx
Ridge Plaza 1999 155,204 29 $1,368,091 $9.03 97.6% AMC Theatre, Kabooms,
Davie Republic Security Bank,
Uncle Funnys, Round Up
Riverside Square 2003 103,241 33 $1,144,558 $11.84 93.6% Publix
Coral Springs
Sawgrass 2001 107,092 29 $1,196,577 $11.28 99.1% Publix, Blockbuster,
Promenade Walgreens
Deerfield Beach
Shoppes of Ibis 2002 79,420 18 $970,712 $12.22 100.0% Publix
West Palm Beach
Shops at Skylake 1997 174,199 45 $2,622,990 $15.23 98.9% Publix, Goodwill,
North Miami Blockbuster
Beach
Shoppes of 2003 126,638 38 $1,839,888 $15.38 94.4% Publix
Silverlakes
Pembroke Pines
Tamarac Town 2003 124,685 38 $1,190,051 $10.57 90.3% Publix
Square
Tamarac
University Mall 2001 249,508 25 $1,252,632 $5.92 84.7% Eckerd, Lowe's
Ft. Lauderdale (under construction)
West Lakes Plaza 1996 100,747 27 $1,077,845 $10.70 100.0% Winn-Dixie, Navarro
Miami Pharmacy
--------- --------- ----------- ------ ------
Subtotal Florida Properties 8,276,18 1,805 $77,126,847 $9.94 93.8%
(74 properties) --------- --------- ----------- ------ ------
TEXAS (31 properties)
Houston (15 properties)
Barker Cypress 2001 66,945 16 $804,066 $12.53 95.8% H.E.B.
Houston
Beechcrest 2001 90,797 15 $804,699 $8.86 100.0% Randall's* (Viet Ho),
Houston Walgreens*
Benchmark 2001 58,384 5 $708,125 $12.13 100.0% Bally's Fitness
Crossing
Houston
Bissonnet 2001 15,542 8 $223,665 $14.39 100.0% Kroger(5)
Houston
Colony Plaza 2001 26,513 15 $445,063 $18.77 89.4%
Sugarland
Copperfield 2001 134,845 33 $937,156 $12.39 56.1% JoAnn Fabrics
Houston
Forestwood 2002 88,760 16 $920,385 $10.58 98.0% Kroger
Houston
Grogan's Mill 2001 118,493 26 $1,429,553 $12.19 98.9% Randall's(5), Petco
The Woodlands
Hedwig 2001 69,504 13 $970,578 $13.96 100.0% Warehouse Music, Ross
Houston Dress For Less
Highland Square 2001 64,171 27 $1,061,100 $16.59 99.7%
Sugarland
Market at First 2001 107,301 35 $1,679,726 $15.65 100.0% Kroger(5), TJ Maxx,
Colony Eckerd
Houston
Mason Park 2001 160,047 39 $1,441,658 $11.73 76.8% Kroger(5), Palais Royal,
Katy Petco, Walgreens* (Eloise
Collectibles)
Mission Bend 2001 131,575 27 $1,019,333 $8.44 91.8% Randall's
Houston
Spring Shadows 2001 39,611 16 $538,773 $14.21 95.7% H.E.B. (7), Dollar
Houston Tree, Hallmark
Steeplechase 2001 105,152 26 $1,169,989 $11.13 100.0% Randall's
Jersey Village
Dallas (13 properties)
Green Oaks 2001 65,091 33 $573,802 $10.94 80.6% Kroger(5)
Arlington
Melbourne 2001 47,517 18 $474,961 $11.09 90.1%
Plaza(5)
Hurst
Minyard's 2001 65,295 2 $399,648 $6.12 100.0% Minyards/Sack N Save
Garland
Parkwood 2001 81,590 20 $1,040,376 $12.75 100.0% Albertsons(5), Planet
Plano Pizza
Plymouth East 2001 56,435 10 $228,878 $4.17 97.3% Kroger
Irving
Plymouth North 2001 444,193 59 $1,691,066 $7.39 51.5% Dollar General, Thrift
Irving of America, US Postal
Service, Chateau Theatre,
Levines
Plymouth South 2001 49,102 7 $289,165 $6.86 85.8% Betcha Bingo
Irving
Plymouth West 2001 178,930 15 $763,071 $4.46 95.6% Tok Won Kim, Bargain
Irving City
Richwood 2001 54,872 28 $587,217 $12.97 82.5% Albertsons(5)
Richardson
Rosemeade Park 2001 49,554 18 $575,968 $11.92 97.5% Kroger(5), Allure Health
Carrolton and Spa
Sterling Plaza 2001 65,205 16 $924,590 $14.18 100.0% Bank One, Warehouse
Irving Entertainment
Townsend 2001 142,978 38 $1,099,530 $9.06 84.9% Albertsons(5), Bealls,
Desoto Victory Gym, Tutor Time
Village Park 2001 44,387 10 $537,347 $17.48 69.3% Petco
Arlington
San Antonio (3 properties)
Bandera Festival 2001 189,438 32 $1,052,861 $11.16 49.8% Bealls, Eckerd*
San Antonio (Scrapbook Haven)
Blanco Village 2002 108,325 16 $1,696,861 $15.66 100.0% H.E.B.
San Antonio
Wurzbach 2001 59,771 3 $170,729 $2.86 100.0% Albertsons*
San Antonio
---------- --------- ----------- ------ ------
Subtotal Texas Properties 2,980,323 642 $26,259,939 $10.62 83.0%
(31 properties) ---------- --------- ----------- ------ ------
GEORGIA (20 properties)
Atlanta Area (13 properties)
Chastain Square 2003 87,815 26 $1,254,783 $14.81 96.5% Publix
Atlanta
Commerce Crossing 2003 100,668 10 $364,764 $4.01 90.4% Wal-Mart
Georgia
Douglas Commons 2003 97,027 19 $946,838 $9.90 98.6% Kroger
Douglasville
Fairview Oaks 2003 77,052 13 $825,007 $10.71 100.0% Kroger
Ellenwood
Grassland 2003 90,906 14 $983,637 $11.29 95.9% Kroger
Crossing
Alpharetta
Mableton 2003 86,819 17 $799,412 $9.75 94.5% Publix
Crossing
Mableton
Macland 2003 79,699 17 $771,388 $10.02 96.6% Publix
Pointe
Marietta
Market Place 2003 73,686 22 $474,246 $15.30 42.1%
Norcross
Paulding Commons 2003 192,391 31 $1,505,336 $7.95 98.4% Kroger, K-Mart
Dallas
Powers Ferry 2003 83,101 22 $736,362 $10.52 84.2% Micro Center
Plaza
Marietta
Wesley Chapel 2003 170,792 25 $1,149,198 $6.73 100.0% Ingels, Wal-Mart, CVS
Crossing Drugs
Decatur
West Towne 2003 89,596 18 $471,717 $5.90 89.3% Big Lots, Eckerd*
Square
Rome
Williamsburg @ 2003 44,928 27 $751,439 $17.19 97.3%
Dunwoody
Dunwoody
Central Georgia
(5 Properties)
Daniel Village 2003 171,932 38 $1,256,446 $7.94 92.1% Bi-Lo, Eckerd Drug
Augusta
Heritage Walk 2003 159,991 12 $1,059,465 $6.62 100.0% Kroger, K-Mart
Milledgeville
Spalding Village 2003 235,318 29 $1,710,285 $7.39 98.4% Kroger, K-Mart, JC
Griffin Penney
Watson Central 2003 227,747 29 $1,067,821 $5.23 89.6% Winn-Dixie, Wal-Mart
Warner Robins
Walton Plaza 2003 43,460 7 $403,622 $9.29 100.0% Harris Teeter (Omni
Augusta Fitness)
South Georgia (2 properties)
Colony Square 2003 50,000 8 $319,697 $6.63 96.4% Food Lion
Fitzgerald
McAlpin Square 2003 172,125 25 $1,129,023 $6.95 94.3% Kroger, US Post Office,
Savannah Big Lots
--------- --------- ----------- ------ ------
Subtotal Georgia Properties 2,335,053 409 $17,980,486 $8.22 93.7%
(20 properties) --------- --------- ----------- ------ ------
ALABAMA (3 properties)
Madison Centre 2003 64,837 12 $593,181 $9.53 96.0% Publix, Rite Aid
Madison
Stadium Plaza 2003 70,475 20 $527,153 $7.48 100.0% Piggly Wiggly, CVS
Phenix City Drugs
West Gate Plaza 2003 64,378 9 $456,244 $7.09 100.0% Winn-Dixie, Rite Aid
Mobile
--------- --------- ----------- ------ ------
Subtotal Alabama Properties 199,690 41 $1,578,505 $8.00 98.8%
(3 properties) --------- --------- ----------- ------ ------
ARIZONA (3 properties)
Big Curve 2001 126,402 32 $1,168,553 $9.70 95.3% Albertsons(5), Walgreens,
Yuma Miller's Outpost
Park Northern 2001 126,852 25 $757,648 $6.51 91.8% Safeway, Bealls,
Phoenix Showbiz Pizza
Southwest 2001 93,518 18 $521,136 $10.55 52.8% Walgreens
Walgreens
Phoenix
--------- --------- ----------- ------ ------
Subtotal Arizona Properties 346,772 75 $2,447,337 $8.55 82.6%
(3 properties) --------- --------- ----------- ------ ------
KENTUCKY (1 property)
Scottsville 2003 38,450 12 $220,528 $6.89 83.2% Hancock Fabrics
Square
Bowling Green
LOUISIANA (14 properties)
Ambassador Row 2003 193,982 24 $1,556,489 $8.02 100.0% Hobby Lobby, Conn's
Lafayette Appliance, Big Lots,
Chuck E. Cheese's
Ambassador Row 2003 155,483 29 $1,189,371 $9.51 80.4% Marshalls, Bed Bath &
Courtyards Beyond, Gateway
Lafayette Computers, Hancock
Fabrics
Bluebonnet 2003 90,215 20 $679,541 $8.04 93.6% Matheme's, Rite Aid*
Village
Baton Rouge
The Boulevard 2003 68,012 15 $377,927 $8.30 67.0% Piccadilly
Lafayette
Country Club 2003 64,686 10 $335,733 $5.63 92.3% Winn-Dixie
Plaza
Slidell
The Crossing 2003 113,989 14 $643,049 $5.64 100.0% Albertsons, Campo
Slidell Electric, Piccadilly
Elmwood Oaks 2003 130,284 7 $1,252,442 $9.61 100.0% Wal-Mart* The
Hanahan Wherehouse, Advance
Auto* (Goodwill)
Millervillage 2003 94,559 14 $261,216 $8.25 33.5% Rite Aid
Baton Rouge
Pinhook Plaza 2003 194,725 31 $856,475 $6.20 71.0% Rite Aid
Lafayette
Plaza Acadienne 2003 105,419 8 $376,033 $3.57 100.0% Super 1 Store, Fred's,
Eunice Howard Brothers*
Sherwood South 2003 75,607 10 $462,159 $6.26 97.6% Piggly Wiggly, Burke's
Baton Rouge Outlet
Siegen Village 2003 174,578 18 $781,364 $10.03 44.6% Office Depot, Party City
Baton Rouge
Tarpon Heights 2003 56,605 9 $166,488 $5.84 50.4% Eckerd
Galliano
Village at 2003 144,638 12 $1,094,109 $7.56 100.0% Service Merch.*,
Northshore (Marshalls), Kirshman's,
Slidell Bed Bath & Beyond,
Office Depot
--------- --------- ----------- ------ ------
Subtotal Louisiana Properties 1,662,782 212 $10,032,396 $7.41 81.4%
(14 properties) --------- --------- ----------- ------ ------
MISSISSIPPI (1 property)
Shipyard Plaza 2003 66,857 7 $376,692 $5.63 100.0% Rite Aid, Big Lots
Pascagoula
NORTH CAROLINA
(12 properties)
Centre Pointe 2003 163,642 19 $723,076 $5.78 76.4% Wal-Mart*, (Belk's,
Plaza Goody's)
Asheville
Chestnut Square 2003 39,640 7 $263,936 $6.94 96.0% Food Lion, Eckerd*,
Brevard (Dollar General)
The Galleria 2003 92,344 43 $773,613 $9.55 87.7% Harris Teeter, Eckerd
Wrightsville
Beach
Parkwest 2003 85,602 19 $824,264 $9.79 98.4% Food Lion
Crossing
Durham
Plaza North 2003 47,240 9 $322,874 $8.31 94.9% Bi-Lo, CVS Drugs
Hendersonville
Providence 2003 85,930 26 $682,727 $8.31 95.6% Harris Teeter, Eckerd
Square
Charlotte
Riverview 2003 130,058 11 $804,936 $7.03 88.1% Kroger, Upchurch Drugs
Shopping Center
Durham
Salisbury 2003 76,970 18 $542,286 $8.22 85.7% Food Lion, CVS Drug
Marketplace
Salisbury
Shelby Plaza 2003 103,000 7 $310,770 $3.02 100.0% Big Lots, Aaron Rents*,
Shelby (Hancock Fabrics)
Stanley Market 2003 40,400 3 $220,306 $5.45 100.0% Winn-Dixie
Place
Stanley
Thomasville 2003 148,754 12 $892,119 $6.00 100.0% Ingles, K-Mart, CVS
Commons Drugs
Thomasville
Willowdale 2003 120,815 26 $917,886 $8.45 89.9% Harris Teeter, Carmike
Shopping Center Cinemas, Eckerd*,
Durham (Family Dollar)
---------- --------- ----------- ------ ------
Subtotal North Carolina
Properties 1,134,395 200 $7,278,773 $7.02 91.4%
(12 properties) ---------- --------- ----------- ------ ------
SOUTH CAROLINA
(4 properties)
Lancaster Plaza 2003 77,400 4 $102,000 $1.44 91.5% Bi-Lo
Lancaster
Lancaster 2003 29,047 3 $19,212 $6.00 11.0%
Shopping Center
Lancaster
North Village 2003 60,356 14 $487,035 $8.07 100.0% Bi-Lo
Center(6)
Durham
Spring Valley 2003 75,415 17 $688,211 $9.13 100.0% Bi-Lo, Eckerd
Columbia
---------- --------- ----------- ------ ------
Subtotal South Carolina
Properties 242,218 38 $1,296,458 $6.18 86.6%
(4 properties) ---------- --------- ----------- ------ ------
TENNESSEE (2 properties)
Forrest Gallery 2003 214,450 29 $1,112,572 $5.44 95.4% Kroger
Tullahoma
Smyrna Village 2003 83,334 13 $655,565 $8.30 94.8% Kroger
Smyrna
---------- --------- ----------- ------ ------
Subtotal Tennessee properties
(2 properties) 297,784 42 $1,768,137 $6.23 95.3%
---------- --------- ----------- ------ ------
VIRGINIA (2 properties)
Smyth Valley 2003 126,841 14 $735,867 $5.80 100.0% Ingles, Wal-Mart
Crossing
Marion
Waterlick Plaza 2003 98,694 24 $693,034 $8.56 82.1% Kroger, CVS Drugs
Lynchburg
---------- --------- ----------- ------ ------
Subtotal Virginia Properties
(2 properties) 225,535 38 $1,428,901 $6.88 92.2%
---------- --------- ----------- ------ ------
Total/Weighted Average
Supermarket and
Necessity-Oriented Retailer
Anchored Centers
(167 properties) 17,806,048 3,521 $147,794,999 $9.18 90.4%
---------- --------- ------------ ------ ------
Other Properties
- ----------------
El Novillo 2001 10,000 1 $140,815 $14.08 100.0% Jumbo Buffet
Miami Beach, FL
Epsilon 2001 18,707 5 $167,373 $16.40 54.6% Dax Bar & Grill
West Palm Beach,
FL
4101 South I-85 2003 188,514 9 $484,536 $3.26 78.8% -
Industrial
property
Charlotte, NC
Mandarin 1994 52,880 - N/A N/A N/A -
Mini-storage(8) Jacksonville, FL
Land Purchase-Leasebacks
Grand Marche 2003 200,585 N/A N/A N/A 100.0% Piggly Wiggly, Academy
Lafayette, LA Sports
Net Leased Wal-Marts
Wal-Mart Stores, 2003 54,223 1 $157,500 $2.90 100.0% Wal-Mart
Inc.
Mathews, LA
Wal-Mart Stores, 2003 53,571 1 $175,350 $3.27 100.0% Wal-Mart* (Sutherland
Inc. Lumber)
Marble Falls, TX
Developments and
Redevelopments
Cashmere(9) 2001 -- -- N/A N/A -- 4.0 acres
Port St. Lucie, FL
Coral Way N.E.(10) 1999 -- -- N/A N/A -- 4.0 acres
Miami, FL
Homestead(11) 2002 -- -- N/A N/A -- 12.0 acres
Homestead, FL
The Shops of 2003 -- -- N/A N/A -- 14.2 acres
Huntcrest(12)
Lawrenceville, GA
Miramar Park 2003 -- -- N/A N/A -- 2.0 acres
Plaza(13)
Miramar, FL
Plaza Alegre(14) 2002 -- -- N/A N/A -- 8.5 acres
Miami, FL
---------- --------- ------------ ------ ------
Total/Weighted Average
(180 properties) (15) 18,384,528 3,538 $148,920,573 $8.99 90.0%
---------- --------- ------------ ------ ------
<FN>
- -------------------
(1) Number of tenants includes both occupied and vacant units. (2) Calculated
by annualizing the tenant's monthly base rent payment at December 31, 2002,
excluding expense reimbursements, percentage rent payments and other
charges.
(3) Includes supermarket tenants and certain other tenants, as well as,
occupants that are on an adjacent or contiguous, separately owned parcel
and do not pay any rent or expense recoveries.
(4) Both Eckerd's were sold in March 2003. See "Business--Recent Developments
and 2002 Overview."
(5) This tenant is on an adjacent or contiguous, separately owned parcel and
does not pay rent or any expense recoveries to us.
(6) Lowe's has indicated its binding intent to exercise its option to purchase
the ground lease in April 2003.
(7) H.E.B. is currently expected to occupy this vacant space in late 2003. (8)
There are 534 storage spaces available at this property.
(9) This development property is a 4.0 acre site located adjacent to our
Cashmere retail center. Construction should commence in April 2003 of
20,000 square feet of retail space.
(10) This development property is a 4.0 acre site located at the northeast
corner of S.W. 147th Avenue and Coral Way. Construction should commence in
April 2003 on a 25,000 square foot drugstore anchored shopping center.
(11) This development property is a 12.0 acre site located 25 miles south of
Miami, FL. We expect to develop a supermarket-anchored shopping center in
2005.
(12) This development property is a 97,000 square foot shopping center. The
shopping center opened in January 2003.
(13) This development property is a 2.0 acre site.
(14) This development property is a 84,000 square foot shopping center located
on the southeast corner of S.W. 147th Avenue and Coral Way and is anchored
by 44,000 square foot Publix supermarket and a 14,000 square foot Goodwill
Superstore. The shopping center opened in March 2003.
(15) Weighted average minimum rent per leased square foot and weighted average
percent leased have been calculated excluding Mandarin Mini-storage and
development properties.
* Indicates a tenant that has closed its store and ceased to operate at the
property, but continues to pay rent under the terms of its lease. The
sub-tenant, if any, is shown in parentheses.
</FN>
Most of our leases provide for the monthly payment in advance of fixed
minimum rentals, the tenants' pro rata share of ad valorem taxes, insurance
(including fire and extended coverage, rent insurance and liability insurance)
and common area maintenance for the property. They may also provide for the
payment of additional rentals based on a percentage of the tenants' sales.
Utilities are generally paid directly by tenants except where common metering
exists with respect to a property. In this case, we make the payments for the
utilities and are reimbursed by the tenants on a monthly basis. Generally, our
leases prohibit the tenant from assigning or subletting its space. They also
require the tenant to use its space for the purpose designated in its lease
agreement and to operate its business on a continuous basis. Some of the lease
agreements with major tenants contain modifications of these basic provisions in
view of the financial condition, stability or desirability of those tenants.
Where a tenant is granted the right to assign its space, the lease agreement
generally provides that the original lessee will remain liable for the payment
of the lease obligations under that lease agreement.
Major Tenants
The following table sets forth as of December 31, 2002 the gross leasable
area, or "GLA" of the merged company's existing properties leased to tenants in
supermarket and necessity-oriented retailer anchored centers:
Supermarket Anchor Other Anchor Non-anchor
Tenants Tenants Tenants Total
Leased GLA (sq. ft.) 4,740,771 5,454,631 5,896,361 16,091,763
Percentage of Total Leased GLA 29.5% 33.9% 36.6% 100.0%
The following table sets forth as of December 31, 2002 the annual minimum
rent of the merged company's existing properties attributable to supermarket and
necessity-oriented retailer anchored tenants:
Supermarket Anchor Other Anchor Non-anchor
Tenants Tenants Tenants Total
Annual Minimum Rent ("AMR") $31,674,491 $31,354,116 $84,766,392 $147,794,999
Percentage of Total AMR 21.4% 21.2% 57.4% 100.0%
The following table sets forth as of December 31, 2002 information
regarding leases with the merged company's ten largest and other supermarket and
necessity-oriented retail tenants:
- --------------------------------------------------------------------------------
Average
Annualized Percent of Annual
Minimum Rent Aggregate Minimum Rent
Number of GLA Percent of at December Annualized per Square
Tenant Leases (square feet) Total GLA 31, 2002 Minimum Rent Foot
- ---------------------- --------- ------------- ----------- ------------- ------------ -------------
Publix 40 1,703,410 9.57% $ 11,883,421 8.04% $ 6.98
Kroger 14 740,617 4.16% 5,419,053 3.67% 7.32
Winn-Dixie 16 709,888 3.99% 4,526,746 3.06% 6.38
K-Mart 8 697,895 3.92% 3,721,823 2.52% 5.33
Wal-Mart 6 834,994 4.69% 3,687,045 2.49% 4.42
Eckerd 28 296,871 1.67% 2,577,607 1.74% 8.68
Blockbuster 24 141,479 0.79% 2,036,249 1.38% 14.39
Food Lion/Kash N Kary 8 286,444 1.61% 1,783,465 1.21% 6.23
Safeway, Randall's 5 250,734 1.41% 1,616,185 1.09% 6.45
Bed Bath & Beyond 4 133,038 0.74% 1,455,914 0.99% 10.94
--------- ------------- ----------- -------------- ------------ -------------
Subtotal/Average 153 5,795,370 32.55% 38,707,508 26.19% 6.68
Remaining Tenants 2,967 10,296,393 57.82% 109,087,491 73.81% 10.59
--------- ------------- ----------- ------------- ------------ -------------
Total/Average 3,120 16,091,763 90.37% $147,794,999 100.00% $ 9.18
========= ============= =========== ============= ============ =============
Lease Expirations
The following table sets forth the anticipated expirations of the merged
company's tenant leases in supermarket and necessity-oriented retail centers as
of December 31, 2002 for each year from 2003 through 2012 and thereafter:
Percent of
Aggregate Average Annual
Annualized Annualized Minimum Rent per
Number of GLA Percent of Minimum Rent at Minimum Rent at Square Foot at
Year Leases (square feet) Total GLA Expiration Expiration Expiration
- ------------------ ------------ ------------- ------------- ---------------- ---------------- -----------------
M-T-M 85 147,080 0.83% $ 1,698,509 1.11% $ 11.55
2003 583 1,490,682 8.37% 16,765,197 10.99% 11.25
2004 621 1,698,992 9.54% 19,560,293 12.82% 11.51
2005 663 1,903,742 10.68% 21,386,590 14.01% 11.23
2006 402 1,689,900 9.49% 17,642,730 11.56% 10.44
2007 362 1,761,067 9.89% 17,716,110 11.61% 10.06
2008 120 848,871 4.77% 7,770,537 5.09% 9.15
2009 52 939,635 5.28% 6,341,700 4.16% 6.75
2010 56 606,548 3.41% 4,918,945 3.22% 8.11
2011 38 802,387 5.51% 6,002,640 3.93% 7.48
2012 25 474,651 2.67% 4,524,254 2.96% 9.53
Thereafter 113 3,728,208 20.93% 28,274,678 18.53% 7.58
------------ ------------- ------------- ---------------- ---------------- -----------------
Sub-total/Average 3,120 16,091,763 90.37% 152,602,183 100.00% $ 9.48
Vacant 401 1,714,285 9.63% NA NA NA
------------ ------------- ------------- ---------------- ---------------- -----------------
Total/Average 3,521 17,806,048 100.00% $152,602,183 100.00% $ 8.57
============ ============= ============= ================ ================ ==================
Historically, we have not incurred substantial costs associated with tenant
improvements relating to lease expirations or renewals. Additionally, because
most leasing activities are performed in-house, we have not historically
incurred substantial costs associated with leasing commissions. No assurance can
be given that such expenses will not increase in the future.
Insurance
Our tenants are generally responsible under their leases for providing
adequate insurance on the property they lease. We believe that our properties
are covered by adequate fire, flood and property insurance, all provided by
reputable companies. However, certain of our properties are not covered by
disaster insurance with respect to certain hazards (such as hurricanes) for
which coverage is not available or available only at rates, which in our opinion
are not economically justifiable.
Unconsolidated Joint Venture Investments
As of December 31, 2002, we owned non-controlling interests in four
unconsolidated joint ventures, as follows:
o We own a 50.1% interest in the joint venture which owns Park Place, a
retail shopping center located in Plano, Texas that was 100% occupied
as of December 31, 2002. We plan to develop two parcels adjacent to
the property at a cost of $2.6 million with the target completion date
of December 2003. The property is encumbered by a $15.0 million
interest only loan, maturing April 2005, bearing interest at LIBOR +
1.40%. We have guaranteed this loan.
o We own a 50% interest in the joint venture which owns City Centre, an
office/retail center located in Palm Beach Gardens, Florida that was
93% occupied as of December 31, 2002. It is encumbered by an 8.54%
fixed-rate mortgage loan with a balance of $13.0 million, maturing in
April 2010.
o We own a 50% interest in the joint venture which owns a parcel of
land, adjacent to City Centre that is held for future development.
o We own a 50% interest in the joint venture which owns Oaks Square, a
retail center located in Gainesville, Florida that was 100% occupied
as of December 31, 2002. The property is encumbered by a 7.63%
fixed-rate mortgage loan with a balance of $16.6 million, maturing in
December 2010.
ITEM 3. LEGAL PROCEEDINGS
Following our execution of the merger agreement with IRT in October 2002,
three IRT shareholders filed three separate purported class action and
derivative suits in the Superior Court of Cobb County, State of Georgia, against
IRT, IRT's board of directors and Equity One alleging claims of breach of
fiduciary duty by the defendant directors, unjust enrichment and irreparable
harm. The complaints sought declaratory relief, an order enjoining consummation
of the merger, and unspecified damages. Although the Georgia court did not grant
the plaintiffs the equitable relief requested and permitted the completion of
the merger, two of these lawsuits, Greaves v. IRT Property Company, et. al. and
Phillips v. IRT Property Company, et. al., are still pending and second amended
complaints have been filed in each such suit. The third lawsuit was voluntarily
dismissed. Although we believe that these suits are without merit and intend to
continue to defend them vigorously, there can be no assurance that the pending
litigation will be resolved in our favor.
Except for these two suits, neither we nor our properties are subject to
any litigation which we believe will have a material adverse affect on our
business financial conditional or results of operations or cash flows.
Furthermore, to the best of our knowledge, except as described above with
respect to environmental matters, there is no litigation threatened against us
or any of our properties, other than routine litigation and administrative
proceedings arising in the ordinary course of business, which collectively are
not expected to have a material adverse effect on our business, financial
condition, results of operations or cash flows.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted for stockholder vote during the fourth quarter of
2002.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market Information and Dividends
Our common stock began trading on the New York Stock Exchange, or NYSE, on
May 18, 1998, under the symbol "EQY." On March 5, 2003, we had 991 stockholders
of record representing 14,864 beneficial owners. The following table sets forth
for the periods indicated the high and low sales prices as reported by the NYSE
and the distributions declared by us:
Distributions
High Low Declared
---------- -------------- ------------------
First Quarter, 2001 $ 11.0000 $ 9.7000 $ 0.26
Second Quarter, 2001 12.5300 10.0100 0.26
Third Quarter, 2001 11.9800 10.6400 0.27
Fourth Quarter, 2001 14.1000 11.5200 0.27
First Quarter, 2002 $ 14.6000 $ 13.3000 $ 0.27
Second Quarter, 2002 14.2500 13.2500 0.27
Third Quarter, 2002 14.1400 12.0800 0.27
Fourth Quarter, 2002 13.7500 11.8500 0.27
Dividends paid during 2002 and 2001 totaled $35.8 million and $18.6
million, respectively. Future declarations of dividends will be made by us at
the discretion of our board of directors and will depend upon our earnings,
financial condition and such other factors as our board of directors deems
relevant. In order to qualify for the beneficial tax treatment accorded to real
estate investment trusts under the Internal Revenue Code of 1986, or the Code,
we are currently required to make distributions to holders of our shares in an
amount at least equal to 90% of our "real estate investment trust taxable
income," as defined in Section 857 of the Code.
Sale of Unregistered Securities
On January 18, 2002, we sold 688,000 unregistered shares of our common
stock to a limited number of accredited investors. In connection with this
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 a price of $13.05 per share to investors that were our
affiliates, resulting in aggregate net proceeds of approximately $8.9 million.
Each of these issuances was exempt from registration pursuant to the
exemption provided by Section 4(2) of the Securities Act of 1933. In each case
we exercised reasonable care to insure that the purchasers did not acquire these
shares with a view to their distribution.
Equity Compensation Plan Information
The following table sets forth information regarding securities authorized
for issuance under equity compensation plans as of December 31, 2002. The data
set forth below include equity compensation plans of IRT assumed by us in the
merger as if the merger had been completed on December 31, 2002.
- ------------------------------- ------------------------- ------------------------ --------------------------
Number of securities
remaining available for
Number of securities to Weighted-average future issuance under
be issued upon exercise exercise price of equity compensation plans
of outstanding options, outstanding options, (excluding securities
Plan category warrants and rights warrants and rights reflected in column (a))
- ------------------------------- ------------------------- ------------------------ --------------------------
(a) (b) (c)
- ------------------------------- ------------------------- ------------------------ --------------------------
Equity compensation plans
approved by security 1,787,207(2) $11.50 (3) 1,715,045
holders(1)
- ------------------------------- ------------------------- ------------------------ --------------------------
Equity compensation plans
not approved by security 0 0 0
holders
- ------------------------------- ------------------------- ------------------------ --------------------------
Total 1,787,207 $11.50 1,715,045
- ------------------------------- ------------------------- ------------------------ --------------------------
<FN>
(1) Includes information related to our 1995 Stock Option Plan and 2000
executive Incentive Compensation Plan and the IRT 1989 Stock Option Plan
and 1998 Long-Term Incentive Plan.
(2) Includes options to purchase 827,457 shares of common stock issuable upon
the exercise of options assumed in the IRT merger.
(3) Weighted average price of assumed IRT options is $11.17 per share.
</FN>
ITEM 6. SELECTED FINANCIAL DATA
The selected consolidated operating 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, 2002,
2001 and 2000 contained elsewhere herein. The consolidated financial statements
as of and for the years ended December 31, 2002, 2001 and 2000 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,
------------------------------------------------------------------------------
2002 2001 2000 1999 1998
------------- ------------ ------------ ------------- ------------
(in thousands other than per share, percentage and ratio data)
Statement of Operations Data:
(1)(2)
Total revenues................. $ 103,009 $ 79,877 $ 47,850 $ 26,035 $ 21,936
------------- ------------ ------------ ------------- ------------
Property operating expenses.... 30,044 23,196 12,645 6,702 5,611
Rental property depreciation
and amortization.............. 13,684 11,488 6,517 3,396 2,798
Interest expense............... 22,368 20,770 12,348 4,851 4,667
Amortization of deferred
financing fees................ 884 1,128 258 105 191
Litigation settlement.......... 2,067 -- -- -- --
General and administrative
expenses...................... 6,649 3,553 2,559 1,622 1,381
------------- ------------ ------------ ------------- ------------
Total costs and expenses....... 75,696 60,135 34,327 16,676 14,648
------------- ------------ ------------ ------------- ------------
Other income (expense)......... 1,968 (2,420) (1,755) 3,718 1,320
------------- ------------ ------------ ------------- ------------
Income from continuing $ 29,281 $ 17,322 $ 11,768 $ 13,077 $ 8,600
operations....................
============= ============ ============ ============= ============
Net income $ 39,934 $ 18,721 $ 12,555 $ 13,589 $ 9,065
============= ============ ============ ============= ============
Basic earnings per share:
Income from continuing
operations.................... $ 0.90 $ 0.77 $ 0.82 $ 1.21 $ 0.96
============= ============ ============ ============= ============
Net income..................... $ 1.22 $ 0.83 $ 0.88 $ 1.26 $ 1.01
============= ============ ============ ============= ============
Diluted earnings per share:
Income from continuing
operations.................... $ 0.88 $ 0.77 $ 0.82 $ 1.21 $ 0.95
============= ============ ============ ============= ============
Net income..................... $ 1.20 $ 0.83 $ 0.87 $ 1.26 $ 1.00
============= ============ ============ ============= ============
Balance Sheet Data: (2)
Total rental properties, after
accumulated depreciation..... $ 678,431 $ 627,687 $ 483,699 $ 204,919 $ 138,623
Total assets................... 730,069 668,536 542,817 212,497 152,955
Mortgage notes payable........... 332,143 345,047 280,396 97,752 67,145
Total liabilities................ 375,969 386,400 317,392 120,079 71,737
Minority interest in equity of
consolidated subsidiary......... 3,869 3869 3,875 989 --
Minority interest in CEFUS....... -- -- 33,887 -- --
Shareholders' equity............. 350,231 278,267 187,663 90,440 81,218
Other Data:(2)
Funds from operations(3)....... $ 45,487 $ 29,848 $ 19,266 $ 13,354 $ 10,598
Cash flows from:
Operating activities......... 45,613 28,214 20,293 20,169 3,697
Investing activities......... (57,536) (42,435) (11,679) (62,239) (23,824)
Financing activities......... 13,961 12,780 (6,694) 40,903 19,123
GLA (square feet) at end of
period....................... 8,530 8,637 3,169 2,836 2,078
Occupancy at end of period..... 89% 86% 95% 95% 95%
Dividends per share............ $ 1.08 $ 1.06 $ 1.10 $ 1.02 $ 1.00
<FN>
- --------------------------
(1) Restated to reflect the reporting of discontinued operations.
(2) Prior year data has been reclassified to conform to the current periods'
presentation.
(3) Funds from Operations ("FFO") is a widely used performance measure for real
estate companies and is provided here as a supplemental measure of
operating performance to net income calculated in accordance with generally
accepted accounting principles ("GAAP"). FFO is defined generally and
calculated by us 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. A reconciliation
of FFO to net income is as follows:
</FN>
Year Ended December 31,
2002 2001 2000 1999 1998
-------- -------- -------- -------- --------
(in thousands)
Net income ..................... $ 39,934 $ 18,721 $ 12,555 $ 13,589 $ 9,065
Rental property depreciation and
amortization .................. 13,810 11,665 6,534 3,483 2,845
Depreciation attributable to
joint ventures ............... 647 238 33 -- --
Deferred income tax (benefit) .. --
expense ...................... -- (374) 1,071 --
Put option expense ............. -- -- -- -- 1,320
Minority interest in
consolidated subsidiary ...... 101 99 -- 96
Interest on convertible
partnership units ............ 259 259 20 -- --
(Gain) loss on sale of real
estate ....................... (9,264) 609 63 (3,814) (2,632)
Minority interest in CEFUS
share of FFO adjustments ..... -- (1,369) (1,010) -- --
-------- -------- -------- -------- --------
FFO ............................ $ 45,487 $ 29,848 $ 19,266 $ 13,354 $ 10,598
======== ======== ======== ======== ========
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Overview
The following should be read in conjunction with our consolidated financial
statements, including the notes thereto, which are included elsewhere in this
annual report.
We operate as a real estate investment trust, or REIT, that principally
acquires, renovates, develops and manages community and neighborhood shopping
centers located predominately in high growth markets in the southern United
States. Our shopping centers are primarily anchored by supermarkets or other
necessity-oriented retailers such as drug stores or discount retail stores. As
of December 31, 2002, our portfolio consisted of 88 properties, comprising 55
supermarket-anchored shopping centers, nine drug store-anchored shopping
centers, 19 other retail-anchored shopping centers, one self-storage facility
and four retail developments, as well as non-controlling interests in four
unconsolidated joint ventures that own and operate commercial properties. Before
giving effect to the IRT merger, as of December 31, 2002, our existing
properties were located primarily in metropolitan areas of Florida and Texas,
contained an aggregate of 8.5 million square feet of gross leasable area, and
were 88.9% occupied based on gross leasable area; compared to 8.6 million square
feet of gross leaseable area, and 86.2% occupied as of December 31, 2001.
In September 2001, we acquired Centrefund Realty (U.S.) Corporation, or
CEFUS, and United Investors Realty Trust, or UIRT. As a result of these
acquisitions, we acquired 50 shopping centers and other retail properties which
contained an aggregate of approximately 5.2 million square feet of gross
leasable area. The acquisition of CEFUS has been accounted for on a push-down
basis and partially in a manner similar to a pooling of interests. See the
discussion of this policy in the section below entitled "-- Significant
Accounting Policies and Estimates." 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.
During 2002, we sold an office building, an apartment complex, one 6.8-acre
parcel of undeveloped land and six shopping centers that no longer meet our
investment criteria. We also acquired six shopping centers, two free-standing
drugstores and three parcels of undeveloped land totaling approximately 27.4
acres.
On February 12, 2003, we completed our acquisition of IRT Property Company,
or IRT, by statutory merger. As a result of the merger, we acquired 92
properties encompassing approximately 10 million square feet of gross leaseable
area and including 66 supermarket anchored shopping centers, two drug store
anchored shopping center, 21 other retail-anchored shopping centers an
industrial property and two development projects. In connection with the merger,
we paid aggregate cash consideration of approximately $181 million, issued
approximately 17.5 million shares of our common stock valued at approximately
$232 million and assumed approximately $337 million of mortgages, unsecured
indebtedness and other liabilities, including $150 million of IRT's senior
unsecured indebtedness.
The merger is being accounted for as a purchase as such term is used under
accounting principles generally accepted in the United States of America.
Accordingly, IRT's consolidated results of operations will be included in our
consolidated results of operations from the closing of the merger and our
consolidated financial statements for 2002 fiscal year and earlier periods
reported upon in this annual report do not reflect the effects of the merger.
As a result of our recently completed merger with IRT Property Company, our
property portfolio, as of March 20, 2003, consists of 179 properties, comprising
122 supermarket-anchored shopping centers, nine drug store-anchored shopping
centers, 41 other retail-anchored shopping centers, one self-storage facility,
one industrial and five retail developments, as well as non-controlling
interests in four unconsolidated joint ventures that own and operate commercial
properties. These properties are located in 12 states in the southern United
States and contain an aggregate of 18.5 million square feet of gross leasable
area, or GLA.
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.
Critical 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, 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. 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 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 Statement of Financial Accounting Standards ("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. 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.
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
reduce 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 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 the ultimate return on
our assets, as well as the gain or loss on the eventual disposition of the
asset.
Revenue Recognition. We, as lessor, retain substantially all the risks and
benefits of property ownership and account 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 ourselves
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 each equity owners' 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.
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, 2002 Compared To Year Ended December 31, 2001
Total revenues increased by $23.1 million, or 29.0%, to $103.0 million for
the year ended December 31, 2002 from $79.9 million in 2001. This increase was
primarily due to the increase in revenue of $16.2 million relating to the
properties acquired in the UIRT transaction in September 2001, an increase of
$4.2 million as a result of the 2002 acquisitions of six shopping centers and
two drugstores, and an increase in same property revenues of $1.7 million, or
4.8%, to $36.8 million for the year ended December 31, 2002 from $35.1 million
for the year ended December 31, 2001 primarily as a result of higher rental
rates and occupancy. Revenues also increased for termination fees of $1.2
million and an increase in other income of $762,000. These increases were
partially offset by a decrease in third party management and leasing fees of
$649,000 and a decrease in investment income of $298,000.
Property operating expenses increased by $6.8 million, or 29.5%, to $30.0
million for the year ended December 31, 2002 from $23.2 million for 2001. This
increase was primarily due to an increase in property operating expenses of $3.1
million relating to properties acquired in the UIRT transaction. Operating
expenses also increased by $1.3 million as a result of the property acquisitions
mentioned above, an increase in same property operating expenses of $801,000, or
8.3%, to $10.4 million for the year ended December 31, 2002 from $9.6 million
for the year ended December 31, 2001 as a result of higher operating costs.
Included in property operating expenses, property management expenses increased
by $1.6 million for the year ended December 31, 2002 compared to the year ended
December 31, 2001 as a result of managing a larger portfolio of properties, of
which $833,000 was due to an increase in salaries and benefits.
Interest expense increased by $1.6 million, or 7.7%, to $22.4 million for
the year ended December 31, 2002 from $20.8 million for 2001. Amortization of
deferred financing fees decreased by $244,000, or 21.6% to $884,000 for the year
ended December 31, 2002 from $1.1 million for 2001. The net increase in interest
expense was primarily due to an increase in interest expense of $3.5 million
relating to the assumption of mortgage loans in the acquisition of UIRT. In
addition, interest increased $1.2 million from the closing of four new loans and
increased $503,000 from higher average balances on the revolving credit
facilities. These increases were partially offset by the repayment of nine loans
which reduced interest by $1.9 million, an increase in capitalized interest of
$273,000 related to increased development activity, lower interest rates on the
variable rate mortgages which reduced interest incurred by $1.4 million and
reduced interest on all other loans of $30,000.
Rental property depreciation and amortization increased by $2.2 million, or
19.1%, to $13.7 million for the year ended December 31, 2002 from $11.5 million
for 2001. This increase was primarily due to an increase in depreciation and
amortization of $1.4 million relating to the acquisition of UIRT and a $796,000
increase related to property acquisitions and capital improvements.
General and administrative expenses increased by $3.1 million, or 87.1%, to
$6.6 million for the year ended December 31, 2002 from $3.5 million for 2001.
The primary reason for the increase in general and administrative expenses
relates to our growth, as reflected by an increase in compensation and employee
related expenses of $1.8 million, an increase in professional fees of $332,000,
the write-off of previously capitalized pre-acquisition due diligence costs for
projects that did not materialize totaling $695,000, an increase in public
relations costs of $223,000 and an increase in all other expenses of $46,000.
During 2001, we recorded the following related to the acquisition of CEFUS:
minority interest of $1.6 million, a loss on sale of real estate of $609,000 and
a current and deferred income tax benefit of $967,000 which we no longer record
because CEFUS operated as a C corporation rather than as a REIT. In addition, we
prepaid a mortgage and incurred a loss on early debt extinguishment of $1.5
million. During 2002, we settled an outstanding mortgage note payable at less
than fair value and recognized a gain on early debt extinguishment of $1.5
million. In addition, we settled a lawsuit which was related to one of the
properties acquired from UIRT for $2.1 million, including legal fees. All other
income/loss items primarily relate to earnings from joint ventures.
Operating income from properties sold during 2002 is reflected as
discontinued operations of $1.4 million for the year ended December 31, 2002 and
$1.4 million for the year ended December 31, 2001. The sale of these properties
produced a gain of $9.3 million.
As a result of the foregoing, net income increased by $21.2 million, or
113.3%, to $39.9 million for the year ended December 31, 2002 compared to $18.7
million for 2001.
Year Ended December 31, 2001 Compared To Year Ended December 31, 2000
Total revenues increased by $32.0 million, or 66.9%, to $79.9 million for
the year ended December 31, 2001 from $47.9 million in 2000. This increase was
primarily due to an increase in revenues of $21.5 million resulting from the
consolidation of the results of CEFUS for all of 2001 compared to the period
from August 18, 2000 to December 31, 2000 for the prior year and an additional
$6.0 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 $1.2 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 provided to third
parties, increased by $567,000 for the year ended December 31, 2001 compared to
the year ended December 31, 2000, partially offset by reduction of termination
fees of $142,000.
Property operating expenses increased by $10.6 million, or 83.4%, to $23.2
million for the year ended December 31, 2001 from $12.6 million for the year
ended December 31, 2000. The increase in property operating expenses was
primarily the result of $6.5 million of increased operating expenses from the
consolidation of CEFUS for all of 2001 compared to the shorter period in 2000
and $1.8 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.
Interest expense increased by $8.4 million, or 68.2%, to $20.7 million for
the year ended December 31, 2001 from $12.3 million for the year ended December
31, 2000. Amortization of deferred financing fees increased by $870,000, or
337.2%, to $1.1 million for the year ended December 31, 2001 from $258,000 in
2001. The net increase in interest expense was primarily due to an increase in
interest expense of $6.2 million on indebtedness assumed in connection with the
acquisition of CEFUS and $1.2 million of 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 an
increase of $218,000 in interest on convertible partnership units 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
revolving credit facility with City National Bank of Florida.
Rental property depreciation and amortization expense increased by $5.0
million, or 76.3%, to $11.5 million for the year ended December 31, 2001, from
$6.5 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 $3.4 million and $781,000, respectively, and $683,000
attributable to our acquisition of new properties and completion of new
development.
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, 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 those properties upon completion of development.
The income from depreciable rental properties sold and or held for sale as
of December 31, 2002 is reflected as discontinued operations for the year ended
December 31, 2001 and 2000. As of December 31, 2002, there were nine properties
being reported in discontinued operations producing income from discontinued
operations of $1.4 million for 2001 and $787,000 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 $12.5
million for the year ended December 31, 2000.
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, scheduled payments on outstanding indebtedness, recurring capital
expenditures necessary to properly maintain the shopping centers and
distributions to stockholders.
During 2002, we generated cash from operations of $45.6 million, reflecting
our net income of $39.9 million plus an add back for non-cash deductions to
income, the most significant of which were depreciation and amortization of
$14.9 million, partially offset by gain on debt extinguishment of $1.5 million
and a gain on the disposal of real estate of $9.3 million. In addition,
operating cash benefited from, among other items, a $4.1 million increase in
accounts payable and accrued expenses and $943,000 of other liabilities,
partially offset by an increase in accounts and other receivables and other
assets of $3.4 million.
We used $57.5 million of cash in investing activities, reflecting $85.5
million used for acquisitions of properties, payment of leasing costs of $1.7
million and escrowed funds on the sale of properties to utilize tax deferred
exchanges for $4.2 million. These uses were partially offset by proceeds from
the disposal of properties of $27.2 million, receipt of $871,000 in
distributions received from joint ventures, proceeds from repayments of notes
receivable of $5.1 million and $762,000 of proceeds from the sale of securities
available for sale.
We generated $14.0 million in cash from financing activities reflecting
$66.5 million in net proceeds from issuance of common stock. This was partially
offset by $11.2 million in repayments in excess of mortgage note borrowings,
$4.4 million in net repayments on revolving credit facilities, $1.1 million in
payments of financing fees and $35.8 million in cash dividends to shareholders.
During 2002, we incurred cash payments for interest, net of capitalized
interest, of $22.8 million. Capitalized interest, which includes interest for
development properties and additions and renovations to rental properties,
totaled $2.4 million.
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, 2002 and 2001
consisted of the following:
(in thousands)
Mortgage Notes Payable 2002 2001
-------------------------------------- ---------- ----------
Fixed rate mortgage loans............. $ 307,508 $ 296,887
Variable rate mortgage loans.......... 24,635 48,160
---------- ----------
Total mortgage notes payable.... $ 332,143 $ 345,047
========== ==========
Each of these loans is secured by a mortgage on one or more of our
properties. As of December 31, 2002, the percentage of the total real estate
cost of our properties that was encumbered by debt was 49.4%. For a more
complete description of our mortgage indebtedness, see "--Mortgage Indebtedness"
below.
The merger with IRT has increased our outstanding indebtedness, as of
December 31, 2002, as follows:
o Mortgage notes payable of approximately $136 million, bearing interest
at an effective rate of 7.53%
o Senior unsecured debt of $150 million, bearing interest at rates
ranging from 7.25% to 7.84%
o Revolving credit facility of $15 million, bearing interest at LIBOR
plus 1.05%
Certain of the mortgages on the merged company properties involving an
aggregate principal amount of approximately $171 million 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 will 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, financial condition or
cash flows.
On February 7, 2003 we entered into a $340 million unsecured revolving
credit facility with a group of banks for which Wells Fargo Bank, National
Association is the sole lead arranger and administrative agent. This facility
bears interest at our option at (i) LIBOR plus 0.65% to 1.35%, depending on the
credit ratings of our senior unsecured long term indebtedness or (ii) at the
greater of (x) Wells Fargo's prime rate and (y) the Federal Funds Rate plus
0.5%. The facility also includes a competitive bid option which allows us to
conduct auctions among the participating banks for borrowings in an amount not
to exceed $150 million, a $25 million swing line facility for short term
borrowings and a $20 million letter of credit commitment. The facility expires
February 12, 2006 with a one year extension option. In addition, the facility
contains customary covenants, including financial covenants regarding debt
levels, total liabilities, interest coverage, EBITDA levels, unencumbered
properties, permitted investments and others. The 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 stockholder 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 unless the default is a payment default or bankruptcy event in which
case we would be prohibited from paying any dividends. The facility is
guaranteed by several of our wholly-owned subsidiaries. On February 12, 2003,
the date of the IRT merger, we borrowed $175.0 million to fund $94.9 million for
the cash portion of the IRT merger with the remaining funds prepaying a variable
rate mortgage facility, both the Bank Leumi and our prior secured Wells Fargo
revolving credit facilities, various other mortgage loans and transaction costs
related to the IRT merger.
As a result of our merger with IRT, we assumed IRT's obligations relating
to $150 million principal amount of Senior Notes, bearing interest at fixed
annual interest rates ranging from 7.25% to 7.84% and maturing between 2006 and
2012. One of the notes interest rate is dependent on our senior unsecured debt
rating. These notes have also been guaranteed by several of our wholly-owned
subsidiaries.
We have debt and other liabilities outstanding after the merger with IRT in
the aggregate amount of approximately $890 million.
As of December 31, 2002, we had a $10.4 million credit agreement secured by
four properties with City National Bank of Florida. In February 2003, this
credit agreement was restructured to a $5 million unsecured credit agreement in
connection with the execution of the new Wells Fargo facility.
As of December 31, 2002, we had $30.0 million revolving line of credit with
Bank Leumi Le-Israel B.M. In February 2003, this credit facility was retired
with execution of the new Wells Fargo facility.
As of December 31, 2002, we had a variable-rate revolving credit facility
with Wells Fargo under which we could borrow up to $41.3 million against a
borrowing base of six properties pledged to secure the facility. In February
2003, this credit facility was retired with the execution of the new Wells Fargo
facility.
As of December 31, 2002, we had accounts payable and accrued expenses
outstanding of approximately $15 million relating to increased operating costs,
real estate taxes and construction payables.
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 have entered into a ground lease with a drug store and expect to
commence development in early 2003 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
$2.0 million. Development of phase three of the Shops at Skylake, totaling
approximately 120,000 square feet is anticipated to be completed in late 2003 at
an estimated cost of approximately $6.2 million. Development of 20,000 square
feet of retail space on our four acre site at Port St. Lucie, Florida, adjacent
to our Cashmere Corners retail Center, at a cost of $1.8 million is expected to
be completed in late 2003. In addition, as of December 31, 2002, in order to
complete the construction of other in progress development projects, we have
committed to fund construction costs of $11.5 million. These obligations,
comprise principally of construction contracts and are generally due as the work
is performed. We expect to fund the costs of the development projects from cash
flow from operations, borrowings under our various revolving credit facilities
and other sources of cash.
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 Equity One's
mortgage indebtedness related to our properties as of December 31, 2002:
Balance at
December 31, Interest Balance Due
2002 Rate(1) Maturity Date at Maturity
------------ ---------- -------------- -----------
(in thousands)
Fixed Rate Mortgage Debt
Lantana $ 3,816 6.950% March 2005 $ 3,498
Benchmark 3,393 9.250% July 2005 3,170
Sterling Plaza 4,083 8.750% September 2005 3,794
Townsend Square 4,922 8.500% October 2005 4,703
Green Oaks 3,100 8.375% November 2005 2,861
Melbourne Plaza 1,792 8.375% November 2005 1,654
Oak Hill(*) 2,016 7.625% January 2006 1,713
Walden Woods 2,492 7.875% August 2006 2,071
Big Curve 5,552 9.190% October 2006 5,059
Highland Square 4,135 8.870% December 2006 3,743
Park Northern 2,377 8.370% December 2006 1,963
University Mall 12,680 8.440% December 2006 1,922
Rosemeade 3,244 8.295% December 2007 2,864
Colony Plaza 3,053 7.540% January 2008 2,834
Parkwood(2) 6,277 7.280% January 2008 5,805
Richwood(2) 3,234 7.280% January 2008 2,990
Commonwealth 2,864 7.000% February 2008 2,204
Mariners Crossing 3,425 7.080% March 2008 3,154
Pine Island/Ridge Plaza 25,274 6.910% July 2008 3,104
Forestwood 7,425 5.070% January 2009 6,406
Shoppes of Northport 4,201 6.650% February 2009 3,526
Prosperity Centre 6,730 7.875% March 2009 4,137
Shoppes of Ibis 6,031 6.730% September 2009 4,680
Park Promenade 6,360 8.100% February 2010 5,833
Skipper Palms 3,585 8.625% March 2010 3,318
Jonathan's Landing 2,932 8.050% May 2010 2,639
Bluff's Square 10,162 8.740% June 2010 9,401
Kirkman Shoppes 9,596 8.740% June 2010 8,878
Ross Plaza 6,693 8.740% June 2010 6,192
Boynton Plaza 7,561 8.030% July 2010 6,902
Pointe Royale 4,763 7.950% July 2010 2,502
Plymouth Park East 1(3) 154 8.250% August 2010 113
Plymouth Park East 2(3) 463 8.250% August 2010 340
Plymouth Park North(3) 8,260 8.250% August 2010 6,076
Plymouth Park South(3) 617 8.250% August 2010 454
Plymouth Park Story North(3) 380 8.250% August 2010 279
Plymouth Park West 2,468 8.250% August 2010 1,816
Shops at Skylake 14,964 7.650% August 2010 1,644
Minyard's 2,546 8.320% November 2010 2,175
Forest Village 4,533 7.270% April 2011 4,039
Boca Village 8,382 7.200% May 2011 7,466
Sawgrass Promenade 8,382 7.200% May 2011 7,466
Plaza del Rey(*) 2,202 8.125% September 2011 --
Lake Mary 24,763 7.250% November 2011 1,973
Lake St. Charles 3,911 7.130% November 2011 3,461
Marco Island 8,875 6.700% January 2012 7,150
Cashmere 5,343 5.880% November 2012 4,084
Eastwood 6,366 5.880% November 2012 4,866
Meadows 6,690 5,870% November 2012 5,113
Summerlin Square 4,156 6.750% February 2014 --
Bird Ludlum 10,857 7.680% February 2015 --
West Lake(*) 4,979 7.875% June 2016 130
Atlantic Village(*) 4,449 6.850% November 2018 --
-------- -------------- -------------------
Total Fixed Rate Mortgage Debt
(53 loans) 307,508 7.52% 6.37 years
============== ===================
(wtd-avg.rate)
(wtd-avg.maturity)
Variable Rate Mortgage Debt
Comerica/4 properties(4)(*) 24,635 LIBOR+150 February 2004 $ 24,635
--------
Total Mortgage Notes Payable 332,143
--------
Variable Rate Revolving Credit
Facilities
City National Bank(5) -- LIBOR+225 May 2003 --
Bank Leumi(6)(*) -- LIBOR+125 March 2003 --
Wells Fargo(7)(*) 23,000 LIBOR+125 February 2005 $ 23,000
--------
Total Variable Rate Revolving Credit
Facilities $ 23,000
--------
Total Debt $355,143
========
- -----------------------
<FN>
(1) The rate in effect on December 31, 2002.
(2) The mortgage balances for Parkwood and Richwood 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) This Comerica facility is secured by Grogans Mill ($7,995), Steeplechase
($6,305), Mission Bend ($6,370) and Beechcrest ($3,965). The floating
interest rate is LIBOR plus 150 basis points.(*)
(5) This facility was authorized to $10,403 as of December 31, 2002, and was
secured by Mandarin Mini-Storage, Skylake Phase III land, Beauclerc Village
and East Bay Plaza. We have two, 364-day extension options for an extended
maturity of May, 2005. This facility was restructured to a $5 million
unsecured credit facility upon the execution of the $340 million credit
facility with Wells Fargo.
(6) The Bank Leumi facility is secured by negative pledges on Ryanwood,
Pompano, Southwest Walgreens, Bandera, Market at First Colony and Mason
Park.(*)
(7) This facility is secured by Blanco Village, Oakbrook, Mandarin Landing,
Hedwig, Bissonet and Spring Shadows. The rate on the facility is LIBOR plus
a range of 115 to 150 depending on overall leverage. As of December 31,
2002, the rate was LIBOR+125. (*) (*) These loans were repaid with proceeds
from the equity private placement and new credit facility with Wells Fargo.
</FN>
Our mortgage and outstanding revolving credit facilities indebtedness
outstanding at December 31, 2002 will require approximate balloon and scheduled
principal payments as follows:
Schedule Balloon
Year Due Amortization Payments Total
--------------- ------------ --------- --------
2003 $ 6,288 $ -- $ 6,288
2004 6,762 24,635 31,397
2005 7,040 42,680 49,720
2006 6,978 26,470 33,448
2007 6,855 2,864 9,719
2008 6,592 40,104 46,696
2009 5,977 18,749 24,726
2010 5,011 68,564 73,575
2011 3,716 44,410 48,126
2012 2,790 21,212 24,002
Thereafter 7,316 130 7,446
--------------- ---------- -------- --------
Total $ 65,325 $289,818 $355,143
=============== ========== ======== ========
The following table sets forth certain information regarding indebtedness
related to our joint venture properties as of December 31, 2002:
Joint Venture Debt
Balance at Balance Due
December 31, 2002 Interest Rate Maturity Date at Maturity
----------------- ------------- ------------- -----------
Joint Venture Debt
Park Place* $15,000 LIBOR+1.40% April 2005 $15,000
City Centre 12,983 8.54% April 2010 11,989
Oaks Square 16,642 7.63% December 2010 15,011
<FN>
- ------------------------
* Guaranteed by Equity One.
</FN>
The following table sets forth certain information regarding IRT's
mortgage indebtedness related to the properties of IRT as of December 31, 2002:
Interest Balance at
Description Rate Maturity Date December 31,
2002
------------------------------ -------- ----------------- ----------------
Fixed Rate Debt (in thousands)
Mortgage notes payable:
Elmwood Oaks 8.38% June, 2005 $ 7,500
Shoppes at Lago Mar 7.50% April, 2006 5,293
North Village Center(1) 8.13% March, 2009 1,677
Tamarac Town Square 9.19% October, 2009 6,284
Spalding Village 8.19% September, 2010 10,820
Parkwest Crossing 8.10% September, 2010 4,769
Charlotte Square 9.19% February, 2011 3,673
Pine Ridge Square 7.02% May, 2011 7,431
Heritage Walk 7.25% May, 2011 7,101
MacLand Pointe 7.25% May, 2011 5,918
Riverside Square 9.19% March, 2012 7,789
Lutz Lake 6.28% December, 2012 7,500
Village of Northshore 9.00% July, 2013 4,411
Treasure Coast 8.00% April, 2015 5,055
Shoppes of Silverlakes 7.75% July, 2015 2,924
Grassland Crossing 7.87% December, 2016 6,130
Mableton Crossing 6.85% August, 2018 4,245
Douglas Commons 6.50% February, 2024 5,220
Paulding Commons 6.50% February, 2024 6,805
Wesley Chapel Crossing 6.50% February,2024 3,496
Fairview Oaks 6.50% February,2024 4,940
Madison Centre 6.50% February,2024 4,008
Chastain Square 6.50% February,2024 4,008
Daniel Village 6.50% February,2024 4,381
Siegen Village 6.50% February,2024 4,428
Interest Premium - - 1,182
---------
Mortgage notes payable 7.53% (2) 136,988
Other Fixed Rate Debt:
7.84% Senior unsecured notes 7.84% January, 2012 25,000
7.77% Senior unsecured notes 7.77% April, 2006 50,000
7.25% Senior unsecured notes 7.25% August, 2007 75,000
---------
Total Fixed Rate Debt 7.49% 286,988
Variable Rate Debt
Revolving Credit Facility
(LIBOR + 1.05%) 2.71% (2) May, 2005 15,000
---------
Total debt 7.26% (2) $301,988
=========
<FN>
(1) Although the Company owns a 49.5% interest in North Village Center, 100% of
the mortgage is recorded for financial reporting purposes.
(2) Average rates on outstanding loans as of December 31, 2002 where indicated.
</FN>
IRT's mortgage and outstanding revolving credit facilities indebtedness
outstanding at December 31, 2002 will require approximate balloon and scheduled
principal payments as follows:
Scheduled Balloon
Year Due: Amortization Payments Total
------------- ------------- ----------
2003 $ 2,965 - $ 2,965
2004 3,192 - 3,192
2005 3,448 $ 22,500 25,948
2006 3,586 54,797 58,383
2007 3,773 75,000 78,773
Thereafter 50,715 82,012 132,727
------------- ------------- ----------
$ 67,679 $ 234,309 $ 301,988
============= ============= ==========
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 new
debt is greater or lesser than existing debt. If new debt is not available, our
business would be adversely affected.
New Accounting Standards
In June 2001, the Financial Accounting Standards Board ("FASB") approved
the issuance of SFAS No. 141, Business Combinations, and SFAS No. 142, Goodwill
and Other Intangible Assets. These standards 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. The Company adopted SFAS No. 142 on
January 1, 2002 and no longer amortizes goodwill. The Company has performed an
impairment test of the goodwill and other intangible assets as of January 1,
2002 and November 30, 2002 and has determined that the assets are not impaired.
In August 2001, the 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,
although earlier application is encouraged. The Company adopted SFAS No. 144
effective January 1, 2002 and has reflected the operations of property held for
sale and disposed of properties as discontinued operations, along with any gain
on dispositions.
In April 2002, the 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 adopted SFAS No. 145 as of July 2002,
and has reflected gains (losses) from extinguishment of debt as part of ordinary
income.
In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated
with Exit or Disposal Activities. This Statement requires recording costs
associated with exit or disposal activities at their fair values when a
liability has been incurred. Under previous guidance, certain exit costs were
accrued upon management's commitment to an exit plan, which is generally before
an actual liability has been incurred. Adoption of this Statement is to be
applied prospectively to exit or disposal activities initiated after December
31, 2002.
In November 2002, FASB issued FASB Interpretation No. 45 ("FIN 45"),
Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Other's (an interpretation of FASB
Statements No. 5, 57 and 107 and rescission of FASB Interpretation No. 34). FIN
45 clarifies the requirements of FASB Statement No. 5, Accounting for
Contingencies. It requires that upon issuance of a guarantee, the guarantor must
recognize a liability for the fair value of the obligation it assumes under that
guarantee regardless of whether or not the guarantor receives separate
identifiable consideration (i.e., a premium). We have adopted the new disclosure
requirements, which are effective beginning with 2002 calendar year-end
financials. FIN 45's provisions for initial recognition and measurement are
effective on a prospective basis to guarantees issued or modified after December
31, 2002. The adoption of FIN 45 is not expected to have a material impact on
our financial statements.
In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based
Compensation-Transition and Disclosure. This Statement provides alternative
methods of transition for a voluntary change to the fair value based method of
accounting for stock-based employee compensation and amends the disclosure
requirement of SFAS No. 123, Accounting for Stock-Based Compensation, to require
prominent disclosure in both annual and interim financial statements about the
method of accounting for stock-based employee compensation, description of the
transition method utilized and the effect of the method used on reported
results. SFAS No. 148 is effective for financial statements issued for fiscal
years ending after December 15, 2002 and, as it relates to Opinion No. 28,
Interim Financial Reporting, the interim periods beginning after December 15,
2002, although earlier application is encouraged. 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 stock-based compensation. The Company has adopted the disclosure
requirements of SFAS No. 148 in its financial statements for 2002.
In January 2003, FASB issued FASB Interpretation No. 46, Consolidation of
Variable Interest Entities ("FIN 46"), an interpretation of ABR 51. FIN 46
provides guidance on identifying entities for which control is achieved through
means other than through voting rights, variable interest entities ("VIE"), and
how to determine when and which business enterprises should consolidate the VIE.
In addition, FIN 46 requires both the primary beneficiary and all other
enterprises with a significant variable interest in a VIE to make additional
disclosures. The transitional disclosure requirements will take effect almost
immediately and are required for all financial statements initially issued after
January 31, 2003. The consolidated provisions of FIN 46 are effective
immediately for variable interests in VIEs created after January 31, 2003. For
variable interests in VIEs created before February 1, 2003, the provisions of
FIN 46 are effective for the first interim period beginning after June 15, 2003.
The adoption of FIN 46 is not expected to have a material impact on our
financial statements.
Environmental Matters
We 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 have also placed environmental insurance on specific properties
with known contamination in order to mitigate our environmental risk. 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.
ITEM 7A. 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. In addition,
each of our revolving credit 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 and cash flows. 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, 2002, the
fair value of the fixed rate mortgage notes payable was estimated to be
approximately $348.5 million compared to a carrying value amount of
approximately $307.5 million.
If the weighted average interest rate on our fixed rate debt at December
31, 2002 were 100 basis points higher or lower, the fair market value would be
approximately $293.2 million and approximately $323.4 million, respectively.
If the weighted average interest rate on our variable rate debt at December
31, 2002 were 100 basis points higher or lower, annual interest expense would be
increased or decreased by approximately $476,000.
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 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, 2002, we have no market risk sensitive instruments.
Off Balance Sheet Commitments
We have off balance sheet joint ventures and other unconsolidated
arrangements with varying structures. As of December 31, 2002, the Company's off
balance sheet commitments were as follows:
o We have has aggregate revolving credit facilities available of $81.7
million of which $23.0 million was outstanding as of December 31,
2002.
o Letters of credit totaling $1.1 million have been provided as security
for certain performance criteria.
o The Company's unconsolidated joint ventures have aggregate outstanding
indebtedness of approximately $45 million, of which the Company has
guaranteed a $15 million loan for one of the unconsolidated joint
ventures. The Company's investment in these joint ventures is $7.4
million.
o The Company has committed to fund the construction costs of $11.5
million in order to complete our started development projects. These
obligations, comprise principally of construction contracts, are
generally due as the work is performed and are expected to be financed
by the available credit facilities.
For more information regarding our off balance sheet joint ventures and
other unconsolidated arrangements please refer to Note 4 of our Consolidated
Financial Statements contained in this annual report and incorporated herein by
reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data required by Regulation S-X
are included in this Annual Report on Form 10-K commencing on page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Incorporated by reference from our definitive proxy statement to be filed
within 120 days after the end of our fiscal year covered by this Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
Incorporated by reference from our definitive proxy statement to be filed
within 120 days after the end of our fiscal year covered by this Form 10-K.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated by reference from our definitive proxy statement to be filed
within 120 days after the end of our fiscal year covered by this Form 10-K.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated by reference from our definitive proxy statement to be filed
within 120 days after the end our fiscal year covered by this Form 10-K.
ITEM 14. CONTROLS AND PROCEDURES
We have evaluated the design and operation of our disclosure controls and
procedures to determine whether they are effective in ensuring that the
disclosure of required information is timely made in accordance with the
Securities Exchange Act of 1934, or the Exchange Act, and the rules and forms of
the Securities and Exchange Commission. This evaluation was made under the
supervision and with the participation of management, including our Chief
Executive Officer and Chief Financial Officer, within the 90-day period prior to
the filing of this annual report. Our Chief Executive Officer and Chief
Financial Officer have concluded, based on their review, that our disclosure
controls and procedures, as defined at Exchange Act Rules 13a-14(c) and
15d-14(c), are effective to ensure that information required to be disclosed by
us in reports that we file under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in Securities and
Exchange Commission rules and forms. In addition, no significant changes were
made to our internal controls or in other factors that could significantly
affect these controls subsequent to the date of their evaluation.
Our management, including our Chief Executive Officer and Chief Financial
Officer, however, does not expect that our disclosure controls or our internal
controls will prevent all errors and fraud. A control system, no matter how well
operated, can provide only reasonable, not absolute, assurance that the
objectives of the control system are met. Further, the design of a control
system must reflect the fact that there are resource constraints, and the
benefits of controls must be considered relative to their costs. Because of the
inherent limitations in all control systems, no evaluation of controls can
provide absolute assurance that all control issues and instances of fraud, if
any, have been detected. The design of any system of controls also is based in
part upon assumptions about the likelihood of future events, and there can be no
assurance that any design will succeed in achieving its stated goals under all
potential future conditions. Moreover, controls may become inadequate because of
changes in conditions, or the degree of compliance with the policies or
procedures may deteriorate. Because of the inherent limitations in a
cost-effective control system, misstatements due to error or fraud may occur and
not be detected.
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following consolidated financial information is included as a
separate section of this Form 10-K:
1. Financial Statements: PAGE
Independent Auditors' Report....................... F-1
Balance Sheets..................................... F-2 - F3
Statements of Operations........................... F-4 - F-5
Statements of Comprehensive Income................. F-6
Statements of Stockholders' Equity................. F-7
Statements of Cash Flows........................... F-8 - F-9
Notes to Financial Statements...................... F-10 - F-29
2. Report of Deloitte & Touch LLP, Independent
Auditors Schedule III - Real Estate Investments
and Accumulated Depreciation........................ S-1
Schedules I, II, IV and V are not required to
be filed............................................ S-2
3. Exhibits: See (c) below
(b) Reports on Form 8-K:
Form 8-K filed on October 30, 2002 regarding the acquisition of IRT
Property Company, a Georgia corporation, by the statutory merger of
IRT with and into Equity One.
Form 8-K filed on December 4, 2002 regarding a litigation matter.
Form 8-K filed on December 23, 2002 regarding the settlement of the
previously disclosed litigation matter
(c) Exhibits: The following exhibits are filed as part of, or incorporated
by reference into, this annual report.
EXHIBIT NO. DESCRIPTION
- ---------- -----------
2.1 Agreement and Plan of Merger dated October 28, 2002 between the
Company and IRT Property Company (2)
3.1 Composite Charter of the Company (Exhibit 3.1) (3)
3.2 Amended and Restated Bylaws of the Company (Exhibit 3.2;
Amendment No. 5) (10)
4.1 Indenture dated November 9, 1995 between the Company, as
successor-by-merger to IRT Property Company, and SunTrust Bank,
as Trustee (4)
4.2 Supplemental Indenture No. 1 dated March 26, 1996 between the
Company, as successor-by-merger to IRT Property Company, and
SunTrust Bank, as Trustee (5)
4.3 Supplemental Indenture No. 2 dated August 15, 1997 between the
Company, as successor-by-merger to IRT Property Company, and
SunTrust Bank, as Trustee (6)
4.4 Supplemental Indenture No. 3 dated September 9, 1998 between the
Company, as successor-by-merger to IRT Property Company, and
SunTrust Bank, as Trustee (Exhibit 4.1) (7)
4.5 Supplemental Indenture No. 4 dated November 1, 1999 between the
Company, as successor-by-merger to IRT Property Company, and
SunTrust Bank, as Trustee (Exhibit 4.7) (8)
4.6 Supplemental Indenture No. 5 dated February 12, 2003 between the
Company and SunTrust Bank, as Trustee (Exhibit 4.1) (9)
4.7 Indenture dated September 9, 1998 between the Company, as
successor-by-merger to IRT Property Company, and SunTrust Bank,
as Trustee (Exhibit 4.2) (7)
4.8 Supplemental Indenture No. 1 dated September 9, 1998 between the
Company, as successor-by-merger to IRT Property Company, and
SunTrust Bank, as Trustee (Exhibit 4.3) (7)
4.9 Supplemental Indenture No. 2 dated November 1, 1999 between the
Company, as successor-by-merger to IRT Property Company, and
SunTrust Bank, as Trustee (Exhibit 4.5) (8)
4.10 Supplemental Indenture No. 3 dated February 12, 2003 between the
Company and SunTrust Bank, as Trustee (Exhibit 4.2) (9)
10.1 Form of Indemnification Agreement. (Exhibit 10.1; Amendment
No. 2) (10)
10.2 1995 Stock Option Plan, as amended (11)*
10.3 Amended and Restated 2000 Executive Incentive Plan (12)*
10.4 IRT 1989 Stock Option Plan, assumed by the Company (13)*
10.5 IRT 1998 Long-Term Incentive Plan, assumed by the Company (14)*
10.6 Registration Rights Agreement, dated as of January 1, 1996 by and
among the Company, Chaim Katzman, Gazit Holdings, Inc., Dan
Overseas Ltd., Globe Reit Investments, Ltd., Eli Makavy, Doron
Valero and David Wulkan, as amended. (Exhibit 10.6, Amendment
No.3) (10)
10.7 Stock Exchange Agreement dated May 18, 2001 among the Company,
First Capital Realty Inc. and First Capital America Holding Corp.
(1)
10.8 Use Agreement, regarding use of facilities, by and between Gazit
(1995), Inc. and the Company, dated January 1, 1996. (Exhibit
10.15, Amendment No. 1) (10)
10.9 Stock Pledge Agreement, dated June 17, 1996, by and between Chaim
Katzman and the Company. (Exhibit 10.7; Amendment No. 2) (10)*
10.10 Promissory Note, in the amount of $1,128,750 from Chaim Katzman
payable to the Company. (Exhibit 10.8; Amendment No. 3) (10)*
10.11 Stock Pledge Agreement, dated December 30, 1996, by and between
the Company and Doron Valero. (Exhibit 10.9; Amendment No. 2)
(10)*
10.12 Promissory Note, in the amount of $396,000 from Doron Valero
payable to the Company. (Exhibit 10.10; Amendment No. 3) (10)*
10.13 Subscription Agreement dated October 4, 2000 made by Alony Hetz
Properties & Investments, Ltd. (Exhibit 10.13) (15)
10.14 Stockholders Agreement October 4, 2000 among the Company, Alony
Hetz Properties & Investments, Ltd., Gazit-Globe (1982), Ltd.,
M.G.N. (USA), Inc. and Gazit (1995), Inc. (Exhibit 10.14) (15)
10.15 First Amendment to Stockholders Agreement dated December 19, 2001
among the Company Alony Hetz Properties & Investments, Ltd.,
Gazit-Globe (1982), Ltd., M.G.N. (USA), Inc. and Gazit (1995),
Inc. (Exhibit 10.15) (15)
10.16 Second Amendment to Stockholders Agreement dated October 28, 2002
among the Company Alony Hetz Properties & Investments, Ltd.,
Gazit-Globe (1982), Ltd., M.G.N. (USA), Inc. and Gazit (1995),
Inc. (16)
10.17 Amended and Restated Employment Agreement dated effective as of
January 1, 2002 between the Company and Chaim Katzman (Exhibit
10.1) (3)*
10.18 Amended and Restated Employment Agreement dated effective as of
January 1, 2002 between the Company and Doron Valero (Exhibit
10.2) (3)*
10.19 First Amended Employment Agreement dated April 6, 2000 between
Howard Sipzner and the Company (17)*
10.20 Stock Pledge Agreement, dated September 18, 2001, by and between
Chaim Katzman and the Company. (Exhibit 10.16) (15)*
10.21 Promissory Note, in the amount of $2,879,840 from Chaim Katzman
payable to the Company. (Exhibit 10.17) (15)*
10.22 Stock Pledge Agreement, dated September 18, 2001, by and between
Doron Valero and the Company (Exhibit 10.18 ) (15)*
10.23 Promissory Note, in the amount of $2,153,470 from Doron Valero
payable to the Company. (Exhibit 10.19) (15)*
10.24 Promissory Note in the amount of 437,500 from Alan Merkur,
payable to the Company (Exhibit 10.3) (3)*
10.25 Pledge Agreement dated June 15, 2002 between the Company and Alan
Merkur (Exhibit 10.3) (3)*
10.26 Promissory Note in the amount of $150,000 from Barbara Miller
payable to the Company (Exhibit 10.4) (3)*
10.27 Pledge Agreement dated June 15, 2002 between the Company and
Barbara Miller (Exhibit 10.4) (3)* 10.28 Promissory Note, in the
amount of $866,250, from Howard Sipzner payable to the Company
(18) 10.29 Pledge Agreement dated June 15, 2002 between the
Company and Howard Sipzner (18) 10.30 Registration Rights
Agreement dated October 28, 2002 between the Company and certain
Purchasers (Exhibit 99.3) (2)
10.31 Credit Agreement, dated February 7, 2003, among the Company, each
of the financial institutions initially a signatory thereto;
Commerzbank AG New York and Grand Cayman Branches, Keybank
National Association and Southtrust Bank, as Documentary Agents;
and Wells Fargo Bank, National Association, as Sole Lead Arranger
and Administration Agent (Exhibit 10.1) (9)
12.1 Ratios of Earnings to Fixed Charges
21.1 List of Subsidiaries of the Registrant
23.1 Consent of Deloitte & Touche LLP
99.1 Certification of Chaim Katzman as Chief Executive Officer
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
99.2 Certification of Howard M. Sipzner as Chief Financial Officer
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
*Identifies employee agreements, management contracts, compensatory plans or
other arrangements.
- ---------------------
(1) Previously filed as Appendix A to our definitive Proxy Statement for the
Special Meeting of Stockholders held on September 6, 2001 and incorporated
herein by reference.
(2) Previously filed as Exhibit 2.1 to our Current Report on Form 8-K filed on
October 30, 2002, and incorporated by reference herein.
(3) Previously filed as an exhibit to our Quarterly Report on Form 10-Q for the
period ended June 30, 2002, and incorporated by reference herein.
(4) Previously filed by IRT Property Company as Exhibit 4(c) to IRT's Form 10-K
filed on February 16, 1996, and incorporated by reference herein.
(5) Previously filed by IRT Property Company as Exhibit 4 to IRT's Current
Report on Form 8-K filed on March 26, 1996, and incorporated by reference
herein.
(6) Previously filed by IRT Property Company as Exhibit 4 to IRT's Current
Report on Form 8-K filed on August 13, 1997, and incorporated by reference
herein.
(7) Previously filed by IRT Property Company as an exhibit to IRT's Current
Report on Form 8-K filed on September 15, 1998, and incorporated by
reference herein.
(8) Previously filed by IRT Property Company as an exhibit to IRT's Current
Report on Form 8-K filed on November 12, 1999, and incorporated by
reference herein.
(9) Previously filed as an exhibit to our Current Report on Form 8-K filed on
February 20, 2003, and incorporated by reference herein.
(10) Previously filed with our Registration Statement on Form S-11, as amended
(Registration No. 333-3397), and incorporated herein by reference.
(11) Previously filed with our definitive Proxy Statement for the Annual Meeting
of Stockholders held on June 30, 1999, and incorporated herein by
reference.
(12) Previously filed with our definitive Proxy Statement for the Annual Meeting
of Stockholders held on May 24, 2002, and incorporated herein by reference.
(13) Previously filed by IRT Property Company as an exhibit to IRT's Current
Report on Form 8-K filed on March 22, 1989, and incorporated herein by
reference.
(14) Previously filed by IRT Property Company with IRT's definitive Proxy
Statement for the Annual Meeting of Stockholders held on May 22, 1998, and
incorporated herein by reference.
(15) Previously filed with our Form 10-K/A filed on March 18, 2002, and
incorporated herein by reference. (16) Previously filed as Exhibit 10.1 to
our Quarterly Report on Form 10-Q for the period ended September 30, 2002,
and incorporated by reference herein.
(17) Previously filed as Exhibit 10.14 with our Form 10-K405/A filed on April
20, 2001, and incorporated herein by reference.
(18) Previously filed as Exhibit 10.1 to our Quarterly Report on Form 10-Q for
the period ended March 31, 2002, and incorporated by reference herein.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Date: March 31, 2003 EQUITY ONE, INC.
By: /s/ Chaim Katzman
---------------------
Chaim Katzman
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant in
the capacities, and on the dates indicated.
SIGNATURE TITLE DATE
- --------- ----- ----
/s/ Chaim Katzman Chairman of the Board and March 31, 2003
- ----------------- Chief Executive Officer
Chaim Katzman (Principal Executive Officer)
/s/ Doron Valero President, Chief Operating Officer March 31, 2003
- ---------------- and Director
Doron Valero
/s/ Howard M. Sipzner Treasurer and Chief Financial Officer March 31, 2003
- --------------------- (Principal Accounting and
Howard M. Sipzner Financial Officer)
/s/ Noam Ben Ozer Director March 31, 2003
- -----------------
Noam Ben Ozer
/s/ Dr. Shaiy Pilpel Director March 31, 2003
- --------------------
Dr. Shaiy Pilpel
/s/ Robert Cooney Director March 31, 2003
- -----------------
Robert Cooney
Director March 31, 2003
- --------------
Dori Segal
/s/ Nathan Hetz Director March 31, 2003
- ---------------
Nathan Hetz
Director March 31, 2003
- ------------------
Peter Linneman
/s/ Patrick Flinn Director March 31, 2003
- -----------------
Patrick Flinn
CERTIFICATE OF CHIEF EXECUTIVE OFFICER
I, Chaim Katzman, Chief Executive Officer of Equity One, Inc., certify that:
1. I have reviewed this annual report on Form 10-K of Equity One, Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and we have:
a. designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
annual report is being prepared;
b. evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this annual report (the "Evaluation Date"); and
c. presented in this annual report our conclusion about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date.
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function):
a. all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b. any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in
this annual report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: March 31, 2003 /s/ CHAIM KATZMAN
---------------------------------
Chaim Katzman
Chief Executive Officer
CERTIFICATE OF CHIEF FINANCIAL OFFICER
I, Howard M. Sipzner, Chief Financial Officer of Equity One, Inc., certify that:
1. I have reviewed this annual report on Form 10-K of Equity One, Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and we have:
a. designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
annual report is being prepared;
b. evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this annual report (the "Evaluation Date"); and
c. presented in this annual report our conclusion about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date.
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function):
a. all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b. any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in
this annual report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: March 31, 2003 /s/ HOWARD M. SIPZNER
-------------------------------
Howard M. Sipzner
Chief Financial Officer
EQUITY ONE, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
Page
-------------
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, 2002 and 2001, 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, 2002. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
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, 2002
and 2001 and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 2002 in conformity with accounting
principles generally accepted in the United States of America.
Deloitte & Touche LLP
Certified Public Accounts
Miami, Florida
February 17, 2003
F-1
EQUITY ONE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2002 AND 2001
(In thousands, except per share amounts)
2002 2001
----------- ----------
ASSETS
RENTAL PROPERTY:
Land, buildings, and equipment .............................................. $ 664,157 $ 605,820
Building improvements ....................................................... 18,784 17,513
Land held for development ................................................... 16,434 23,420
Construction in progress .................................................... 19,489 5,416
--------- ---------
718,864 652,169
Less: accumulated depreciation .............................................. (40,433) (28,031)
Property held for sale ...................................................... -- 3,549
--------- ---------
Rental property, net ..................................................... 678,431 627,687
CASH AND CASH EQUIVALENTS ...................................................... 2,944 906
CASH HELD IN ESCROW ............................................................ 5,933 1,715
SECURITIES AVAILABLE FOR SALE .................................................. 921 1,681
ACCOUNTS AND OTHER RECEIVABLES (net of allowances for doubtful accounts of $619 3 2
and $759 for 2002 and 2001, respectively) ................................... 7,05 5,26
NOTES RECEIVABLE ............................................................... 8,428 9,697
INVESTMENTS IN JOINT VENTURES .................................................. 7,420 7,742
DEPOSITS ....................................................................... 6,806 6,219
DEFERRED EXPENSES (net of accumulated amortization of $2,994 and $1,924 for 2002
and 2001, respectively) ..................................................... 5,263 3,883
GOODWILL ....................................................................... 2,276 1,281
OTHER ASSETS ................................................................... 4,594 2,463
--------- ---------
TOTAL .......................................................................... $ 730,069 $ 668,536
========= =========
(continued)
F-2
EQUITY ONE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2002 AND 2001
(In thousands, except per share amounts)
2002 2001
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
NOTES PAYABLE
Mortgage notes payable ..................................................... $ 332,143 $ 345,047
Revolving credit facilities ................................................ 23,000 27,409
--------- ---------
Total notes payable ..................................................... 355,143 372,456
OTHER LIABILITIES
Accounts payable and accrued expenses ...................................... 14,760 8,987
Tenant security deposits ................................................... 4,342 4,090
Other liabilities .......................................................... 1,724 867
--------- ---------
Total liabilities ....................................................... 375,969 386,400
--------- ---------
MINORITY INTEREST IN EQUITY OF CONSOLIDATED SUBSIDIARY ........................ 3,869 3,869
--------- ---------
COMMITMENTS AND CONTINGENT LIABILITIES
STOCKHOLDERS' EQUITY:
Preferred stock, $0.01 par value - 10,000 shares authorized but unissued ... -- --
Common stock, $0.01 par value - 100,000 shares authorized, 34,540 and 28,781 5 8
shares issued and outstanding for 2002 and 2001, respectively ........... 34 28
Additional paid-in capital ................................................. 355,450 283,619
Retained earnings .......................................................... 5,969 1,808
Accumulated other comprehensive loss ....................................... (46) (34)
Unamortized restricted stock compensation .................................. (4,375) (1,836)
Notes receivable from issuance of common stock ............................. (7,112) (5,578)
--------- ---------
Total stockholders' equity .............................................. 350,231 278,267
--------- ---------
TOTAL ......................................................................... $ 730,069 $ 668,536
========= =========
See accompanying notes to the consolidated financial statements. (Concluded)
F-3
EQUITY ONE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
(In thousands, except per share amounts)
2002 2001 2000
--------- --------- ---------
RENTAL INCOME:
Minimum rental .......................................................... $ 73,567 $ 57,593 $ 34,572
Expense recoveries ...................................................... 22,983 17,400 9,392
Termination fees ........................................................ 2,235 1,015 1,157
Percentage rent payments ................................................ 1,507 967 746
--------- --------- ---------
Total rental income ................................................... 100,292 76,975 45,867
MANAGEMENT FEES ............................................................. 278 927 360
INVESTMENT INCOME ........................................................... 1,632 1,930 1,583
OTHER INCOME ................................................................ 807 45 40
--------- --------- ---------
Total revenues ........................................................ 103,009 79,877 47,850
COSTS AND EXPENSES:
Property operating expenses .............................................. 30,044 23,196 12,645
Interest expense ......................................................... 22,368 20,770 12,348
Amortization of deferred financing fees .................................. 884 1,128 258
Rental property depreciation and amortization ............................ 13,684 11,488 6,517
Litigation settlement .................................................... 2,067 -- --
General and administrative expenses ...................................... 6,649 3,553 2,559
--------- --------- ---------
Total costs and expenses ............................................. 75,696 60,135 34,327
--------- --------- ---------
INCOME BEFORE GAIN/(LOSS) ON EXTINGUISHMENT OF DEBT, LOSS ON SALE OF
REAL ESTATE, EQUITY IN INCOME OF JOINT VENTURES, MINORITY
INTEREST IN EARNINGS OF CONSOLIDATED SUBSIDIARY, INCOME TAXES,
MINORITY INTEREST IN CEFUS AND DISCONTINUED OPERATIONS ................... 27,313 19,742 13,523
GAIN/(LOSS) ON EXTINGUISHMENT OF DEBT ....................................... 1,520 (1,546) --
LOSS ON SALE OF REAL ESTATE ................................................. -- (609) (63)
EQUITY IN INCOME OF JOINT VENTURES .......................................... 549 494 5
MINORITY INTEREST IN EARNINGS OF CONSOLIDATED SUBSIDIARY .................... (101) (99) --
--------- --------- ---------
INCOME BEFORE INCOME TAXES, MINORITY INTEREST IN CEFUS AND
DISCONTINUED OPERATIONS .................................................. 29,281 17,982 13,465
--------- --------- ---------
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 ........ 29,281 18,949 12,371
MINORITY INTEREST IN CEFUS .................................................. -- (1,627) (603)
--------- --------- ---------
INCOME FROM CONTINUING OPERATIONS ........................................... 29,281 17,322 11,768
DISCONTINUED OPERATIONS
Income from rental properties sold or held for sale ...................... 1,389 1,399 787
Gain on disposal of real estate .......................................... 9,264 -- --
--------- --------- ---------
Total income from discontinued operations .............................. 10,653 1,399 787
--------- --------- ---------
NET INCOME .................................................................. $ 39,934 $ 18,721 $ 12,555
========= ========= =========
(continued)
F-4
EQUITY ONE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
(In thousands, except per share amounts)
2002 2001 2000
---------- ----------- ---------
EARNINGS PER SHARE:
BASIC EARNINGS PER SHARE
Income from continuing operations ..................................... $ 0.90 $ 0.77 $ 0.82
Income from discontinued operations ................................... 0.32 0.06 0.06
---------- ---------- ---------
Total basic earnings per share ...................................... $ 1.22 $ 0.83 $ 0.88
========== ========== =========
NUMBER OF SHARES USED IN COMPUTING
BASIC EARNINGS PER SHARE .............................................. 32,662 22,414 14,285
========== ========== =========
DILUTED EARNINGS PER SHARE
Income from continuing operations ..................................... $ 0.88 $ 0.77 $ 0.82
Income from discontinued operations ................................... 0.32 0.06 0.05
---------- ---------- ---------
Total diluted earnings per share .................................... $ 1.20 $ 0.83 $ 0.87
========== ========== =========
NUMBER OF SHARES USED IN COMPUTING
DILUTED EARNINGS PER SHARE ............................................ 33,443 23,037 14,504
========== ========== =========
(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, 2002, 2001 AND 2000
(In thousands, except per share amounts)
2002 2001 2000
-------- -------- --------
NET INCOME .............................................................. $ 39,934 $ 18,721 $ 12,555
-------- -------- --------
OTHER COMPREHENSIVE (LOSS) INCOME:
Net unrealized holding (loss) gain on securities available for sale .. (12) 310 208
Reclassified adjustment for gains included in net income ............. -- (33) --
-------- -------- --------
TOTAL ................................................................ (12) 277 208
-------- -------- --------
COMPREHENSIVE INCOME .................................................... $ 39,922 $ 18,998 $ 12,763
======== ======== ========
See accompanying notes to the consolidated financial statements.
F-6
EQUITY ONE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
(In thousands, except per share amounts)
Accumu-
lated Unamor- Notes
Equity Other tized Receivable
Addit- Related to Compre- Restricted from the Total
ional Step hensive Stock Issuance of Stock-
Common Paid-In Acquisi- Retained (Loss)/ Compen- Common holders'
Stock Capital tion Earnings Inocme sated Stock Equity
------ --------- ---------- --------- -------- --------- ----------- ---------
BALANCE,
JANUARY 1, 2000............$ 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
Issuance of common stock... 57 73,359 - - - (2,539) (1,534) 69,343
Stock issuance cost........ - (1,528) - - - - - (1,528)
Net income................. - - - 39,934 - - - 39,934
Dividends paid............. - - - (35,773) - - - (35,773)
Net unrealized holding
loss on securities
available for sale........ - - - - (12) - - (12)
------ --------- --------- --------- -------- --------- ---------- ---------
BALANCE,
DECEMBER 31, 2002..........$ 345 $ 355,450 $ - $ 5,969 $ (46) $ (4,375) $ (7,112) $ 350,231
====== ========= ========= ========= ======== ========= ========== =========
See accompanying notes to the consolidated financial statements.
F-7
EQUITY ONE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
(In thousands, except per share amounts)
2002 2001 2000
--------- -------- --------
OPERATING ACTIVITIES:
Net income .................................................................... $ 39,934 $ 18,721 $ 12,555
Adjustments to reconcile net income to net cash provided by operating
activities:
Rental property depreciation and amortization ............................ 13,684 11,488 6,517
Amortization of deferred financing fees .................................. 884 1,128 258
Depreciation and amortization included in discontinued operations ........ 346 310 146
Provision for losses on accounts receivable .............................. 524 322 261
(Gain) loss on disposal of real estate ................................... (9,264) 609 63
Gain on securities available for sale .................................... (14) -- --
(Gain) loss on debt extinguishment ....................................... (1,520) 1,546 --
Equity in income of joint ventures ....................................... (549) (494) (5)
Minority interest in earnings of consolidated subsidiary ................. 101 99 --
Minority interest in CEFUS ............................................... -- 1,627 603
Deferred income tax (benefit) expense .................................... -- (374) 1,071
Changes in assets and liabilities:
Accounts and other receivables .......................................... (2,618) 1,757 1,455
Deposits ................................................................ (487) (2,975) (115)
Other assets ............................................................ (730) 1,928 943
Accounts payable and accrued expenses ................................... 4,127 (7,389) (4,061)
Tenants' security deposits .............................................. 252 206 202
Other liabilities ....................................................... 943 (295) 400
-------- -------- --------
Net cash provided by operating activities ..................................... 45,613 28,214 20,293
-------- -------- --------
INVESTING ACTIVITIES:
Additions to and purchase of rental property ............................... (85,554) (37,409) (11,944)
Proceeds from disposal of rental property .................................. 27,195 22,276 --
Proceeds from sales of joint venture interest .............................. -- 6,630 --
Increase in deferred leasing expenses ...................................... (1,660) (378) (514)
Increase in cash held in escrow ............................................ (4,218) (402) --
Distributions received from joint ventures ................................. 871 287 2,057
Proceeds from repayments of notes receivable ............................... 5,068 2,643 --
Sale of securities available for sale ...................................... 762 -- 23
Cash used in the purchase of UIRT .......................................... -- (36,294) --
Cash acquired in acquisitions .............................................. -- -- 1,995
Due to (from) affiliates ................................................... -- 212 (3,296)
-------- -------- --------
Net cash used in investing activities ................................... (57,536) (42,435) (11,679)
-------- -------- --------
FINANCING ACTIVITIES:
Repayments of mortgage notes payable ....................................... (43,156) (66,210) (13,229)
Borrowings under mortgage notes payable .................................... 31,947 64,884 26,366
Decrease (increase) in restricted cash ..................................... -- 4,273 (4,273)
Net (repayments) borrowings under revolving credit facilities .............. (4,409) 9,210 (15,232)
Increase in deferred financing expenses .................................... (1,058) (540) (190)
Advances to affiliates ..................................................... -- -- (1,490)
Proceeds from stock subscription and issuance of common stock .............. 67,982 21,366 14,736
Stock issuance costs ....................................................... (1,471) (1,476) (152)
Cash dividends paid to stockholders ........................................ (35,773) (18,622) (13,236)
Distributions to minority interest ......................................... (101) (105) 6
-------- -------- --------
Net cash provided by (used in) financing activities ........................... 13,961 12,780 (6,694)
-------- -------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS .......................... 2,038 (1,441) 1,920
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR .................................. 906 2,347 427
-------- -------- --------
CASH AND CASH EQUIVALENTS, END OF YEAR ........................................ $ 2,944 $ 906 $ 2,347
======== ======== ========
(Continued)
F-8
EQUITY ONE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
(In thousands, except per share amounts)
2002 2001 2000
--------- --------- ---------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest, net of amount capitalized................. $ 22,772 $ 20,457 $ 12,216
========= ========= =========
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING
AND FINANCING ACTIVITIES:
Unrealized (loss) gain on securities available for sale.............. $ (12) $ 277 $ 208
========= ========= =========
Issuance of restricted stock......................................... $ 3,900 $ 1,525 $ 1,208
========= ========= =========
Common stock issued for notes receivable............................. $ 1,534 $ 5,033
========= =========
Note receivable from sale of land.................................... $ 3,900
=========
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 for $67,773,
including transaction costs:
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
Change in minority interest.......................................... (2,880)
---------
Assumption of mortgage note payable.................................. $ 4,370
=========
(Concluded)
See accompanying notes to the consolidated financial statements.
F-9
QUITY ONE, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001, AND 2000
(In thousands, except per share amounts)
- ----------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General
Equity One, Inc. operates as a self-managed real estate investment trust
("REIT") that principally acquires, renovates, develops and manages
community and neighborhood shopping centers located predominately in high
growth markets in the southern United States. These shopping centers are
primarily anchored by supermarkets or other necessity-oriented retailers
such as drugstores or discount retail stores.
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. Equity One, Inc. and
subsidiaries are hereinafter referred to as "the consolidated companies "or
"the Company." 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. All significant intercompany transactions and
balances have been eliminated in consolidation.
As of December 31, 2002, the Company owned a total of 88 properties,
encompassing 55 supermarket-anchored shopping centers, nine drug
store-anchored shopping centers, 19 other retail-anchored shopping centers,
one self-storage facility and four retail developments, as well as
non-controlling interests in four joint ventures which own and operate
commercial real estate properties.
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 approximately $149,021 of CEFUS's outstanding debt. The
acquisition of CEFUS was 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 (1982) Ltd., the Company's majority shareholder,
of a 68.07% controlling interest in Centrefund Realty Corporation on August
18, 2000.
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 were 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 were
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. 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 assets, and has recorded in their place the issuance of 10,500 shares
of the Company's common stock.
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 $36,294 in cash
consideration to former UIRT shareholders including transaction costs 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 consolidated financial statements from the
date of its acquisition.
Rental Property
Income producing property is stated at cost and includes all costs related
to acquisition, development and construction, including tenant
improvements, interest incurred during development, costs of predevelopment
and certain direct and indirect costs of development. Costs incurred during
the predevelopment stage are capitalized once management has identified a
site, determined that the project is feasible and it is probable that the
Company is able to proceed with the project. Expenditures for ordinary
maintenance and repairs are expensed to operations as they are incurred.
Significant renovations and improvements, which improve or extend the
useful life of assets, are capitalized.
Income producing properties are individually evaluated for impairment when
various conditions exist that may indicate that it is probable that the sum
of expected future cash flows (on an undiscounted basis) from a property
are less than its historical net cost basis. Upon determination that a
permanent impairment has occurred, the Company records an impairment charge
equal to the excess of historical cost basis over fair value. In addition,
the Company writes off costs related to predevelopment projects when it
determines that it will no longer pursue the project.
Depreciation expense is computed using the straight-line method over the
estimated useful lives of the assets, as follows:
Buildings 30-40 years
Building improvements 5-20 years
Tenant improvements Over the term 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 it is probable that the sum of expected
undiscounted cash flows of the related operations are less than historical
net cost basis. 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 fair value with a corresponding
charge to earnings. During the periods presented, no such impairment was
incurred.
Cash and Cash Equivalents
The Company considers highly liquid investments with an initial maturity of
three months or less to be cash equivalents.
Cash Held in Escrow
Escrowed cash consists of cash being held in anticipation of the execution
of tax-free exchanges under Section 1031 of the Internal Revenue Code.
Investment Securities
As of December 31, 2002 and 2001, 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 composed of funds held by various institutions for future
payments of property taxes, insurance and improvements, utility and other
service deposits.
Deferred Expenses
Deferred expenses consist of loan origination fees, other fees directly
related to rental property financing with third parties and leasing costs.
The loan costs are amortized over the term of the loan, which approximates
the effective interest method. The leasing costs are being amortized using
the straight-line method over the term of the leases.
Goodwill
Goodwill has been recorded to reflect the excess of cost over the fair
value of net assets acquired in various acquisitions. The Company adopted
Statement of Financial Accounting Standard ("SFAS") No. 142 on January 1,
2002 and no longer amortizes goodwill. The Company will perform annual
impairment tests and has performed impairment tests of the goodwill and
other intangible assets as of January 1, 2002 and November 30, 2002 and
determined that the assets are not impaired. For the years ended December
31, 2001 and 2000, goodwill amortization was $69 and $50, 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
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 comprises minimum rents, expense reimbursements and
percentage rent payments. Rental income is recognized as earned. Expense
reimbursements are recognized in the period that the applicable costs are
incurred. The Company accounts for these leases as operating leases as the
Company has retained substantially all risks and benefits of property
ownership. Percentage rent is recognized when the tenant's reported sales
have reached certain levels specified in the respective lease.
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 current and deferred
components of the income tax benefit/expense. In addition, 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 carry- forwards, etc.). Net operating losses available to the
Company are estimated to be approximately $11,973, but their utilization is
limited subject to the provisions of the Code Sections 381 and 382.
As a result of the acquisition of CEFUS, Code Section 1374 imposes a tax on
the net built-in gain of C corporation (i.e. CEFUS) assets that become
assets of a REIT (i.e. the Company) in a carryover-basis transaction. The
estimated net built-in gain at the date of acquisition is approximately
$29,974. 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 and eliminates recognition of the built-in gain tax liability if the
assets subject to the tax are 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.
Segment Information
The Company operates in one reportable segment as an owner and operator of
commercial rental properties. As of December 31, 2002, 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 2001, Financial Accounting Standards Board ("FASB") approved the
issuance of SFAS No. 141, Business Combinations, and SFAS No. 142, Goodwill
and Other Intangible Assets. These standards 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. The Company
adopted SFAS No. 142 on January 1, 2002 and no longer amortizes goodwill.
The Company has performed an impairment test of the goodwill and other
intangible assets as of January 1, 2002 and November 30, 2002 and has
determined that the assets are not impaired. For the years ended December
31, 2001 and 2000, goodwill amortization was $69 and $50, respectively.
In August 2001, the 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, although earlier application is encouraged. The
Company adopted SFAS No. 144 effective January 1, 2002 and has reflected
the operations of property held for sale and disposed of properties as
discontinued operations, along with any gain on dispositions.
In April 2002, the 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 adopted SFAS No. 145 as of July 2002 and has
reflected gains (losses) from extinguishment of debt as part of ordinary
income.
In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated
with Exit or Disposal Activities. This Statement requires recording costs
associated with exit or disposal activities at their fair values when a
liability has been incurred. Under previous guidance, certain exit costs
were accrued upon management's commitment to an exit plan, which is
generally before an actual liability has been incurred. Adoption of this
Statement is to be applied prospectively to exit or disposal activities
initiated after December 31, 2002. The adoption of this statement is not
expected to have a material impact on the Company's financial statements.
In November 2002, FASB issued FASB Interpretation No. 45 ("FIN 45"),
Guarantor's Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantee's of Indebtedness of Other's (an
interpretation of FASB Statements No. 5, 57 and 107 and rescission of FASB
Interpretation No. 34). FIN 45 clarifies the requirements of FASB Statement
No. 5, Accounting for Contingencies. It requires that upon issuance of a
guarantee, the guarantor must recognize a liability for the fair value of
the obligation it assumes under that guarantee regardless of whether or not
the guarantor receives separate identifiable consideration (i.e., a
premium). We have adopted the new disclosure requirements, which are
effective beginning with 2002 calendar year-end financials. FIN 45's
provisions for initial recognition and measurement are effective on a
prospective basis to guarantees issued or modified after December 31, 2002.
The adoption of FIN 45 is not expected to have a material impact on the
Company's financial statements.
In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based
Compensation-Transition and Disclosure. This Statement provides alternative
methods of transition for a voluntary change to the fair value based method
of accounting for stock-based employee compensation and amends the
disclosure requirement of SFAS No. 123, Accounting for Stock-Based
Compensation, to require prominent disclosure in both annual and interim
financial statements about the effect of the method used on reported
results. SFAS No. 148 is effective for financial statements issued for
fiscal years ending after December 15, 2002 and, as it relates to Opinion
No. 28, Interim Financial Reporting, the interim periods beginning after
December 15, 2002, although earlier application is encouraged. 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 stock-based compensation. The Company has
adopted the disclosure requirements of SFAS No. 148 in its financial
statements for 2002.
In January 2003, FASB issued FASB Interpretation No. 46, Consolidation of
Variable Interest Entities, ("FIN 46") an interpretation of ABR 51. FIN 46
provides guidance on identifying entities for which control is achieved
through means other than through voting rights, variable interest entities
("VIE"), and how to determine when and which business enterprises should
consolidate the VIE. In addition, FIN 46 requires both the primary
beneficiary and all other enterprises with a significant variable interest
in a VIE to make additional disclosures. The transitional disclosure
requirements will take effect almost immediately and are required for all
financial statements initially issued after January 31, 2003. The
consolidated provisions of FIN 46 are effective immediately for variable
interests in VIEs created after January 31, 2003. For variable interests in
VIEs created before February 1, 2003, the provisions of FIN 46 are
effective for the first interim period beginning after June 15, 2003. The
adoption of FIN 46 is not expected to have a material impact on the
Company's financial statements.
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 that 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 Receivables - 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
interest rates at which similar loans would be made. The carrying amounts
reported in the balance sheets approximate fair value.
Mortgage Loans Payable - The estimated fair value at December 31, 2002 and
2001 was $373,166 and $325,489, respectively, calculated based on the net
present value of payments over the term of the loans using estimated market
rates for similar mortgage loans.
Revolving Credit Facilities - 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.
Reclassifications
Certain prior year amounts have been reclassified to conform with the 2002
financial presentation.
2. ACCOUNTS AND OTHER RECEIVABLES
Composition in the consolidated balance sheets:
December 31,
-----------------------
2002 2001
---------- ---------
Tenants........................................ $ 6,568 $ 5,211
Other.......................................... 1,104 810
Allowance for doubtful accounts................ (619) (759)
---------- ---------
Total accounts and other receivables........... $ 7,053 $ 5,262
========== =========
3. NOTES RECEIVABLE
Composition in the consolidated balance sheets: December 31,
--------------------
2002 2001
-------- --------
Mortgage notes receivable, bearing interest at 8% to 9% per annum,
due from July 2003 to March 2006.......................................... $ 5,406 $ 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.......... 2,601 2,940
Other....................................................................... 421 286
Total notes receivable...................................................... $ 8,428 $ 9,697
======== ========
4. INVESTMENTS IN JOINT VENTURES
A summary of the Company's investments in joint ventures at December 31,
2002 and 2001 is as follows (all investments in unconsolidated entities are
accounted for under the equity method):
December 31, December 31,
Entity Location Ownership 2002 2001
- --------------------- ------------------------ ----------- ------------- -------------
PG Partners Palm Beach Gardens, FL 50.0% $ 2,823 $ 2,937
Parcel F, LLC Palm Beach Gardens, FL 50.0% 228 228
Oaksquare JV Gainesville, FL 50.0% 1,243 1,452
------------- -------------
Investments in joint ventures $ 7,420 $7,742
============= =============
A summary of unaudited financial information for all four joint ventures
being reported on the equity method of accounting is as follows:
As of As of
Condensed Balance Sheet December 31, 2002 December 31, 2001
-------------------------------------- ------------------ -------------------
Assets:
Rental properties, net............ $ 47,309 $ 47,771
Cash and cash equivalents......... 690 368
Other assets...................... 1,170 888
---------------- ----------------
Total assets...................... $ 49,169 $ 49,027
================ ================
Liabilities and Ventures' Equity:
Mortgage notes.................... $ 44,625 $ 43,816
Other liabilities................. 651 1,018
Ventures' equity.................. 3,893 4,193
---------------- ----------------
Total ............................ $ 49,169 $ 49,027
================ ================
The Company's investments in joint ventures, as reported on its
consolidated balance sheets, differ from its proportionate share of
the joint ventures' underlying net assets due to basis differentials.
This basis differential of approximately $5,000 as of December 31,
2002 and 2001 is being depreciated over the useful lives of the
related assets.
As of December 31, 2002, the Company has guaranteed a mortgage note
payable of $15,000 for one of its joint ventures.
Year Ended
December 31, 2002
------------------------------------
Condensed Statements of Operations 2002 2001 2000
---------------------------------- ---------- ---------- ----------
Revenues:
Rental revenues................................ $ 7,176 $ 6,376 $ 943
Other revenues................................. 12 125 18
---------- ---------- ----------
Total revenues............................... 7,188 6,501 961
---------- ---------- ----------
Expenses:
Operating expenses............................. 1,742 1,399 241
Interest expense............................... 2,932 3,285 567
Depreciation................................... 1,291 579 100
Other expense.................................. 125 250 43
---------- ---------- -----------
Total expense................................ 6,090 5,513 951
---------- ---------- -----------
Net income..................................... $ 1,098 $ 988 $ 10
========== ========== ===========
The Company's equity in income of joint ventures... $ 549 $ 494 $ 5
========== ========== ===========
Significant accounting policies used by the unconsolidated joint ventures
are similar to those used by the Company.
5. NOTES PAYABLE
Composition in the consolidated balance sheets:
December 31,
----------------------------
2002 2001
------------- -------------
Fixed rate mortgage loans
Various mortgage notes payable secured by rental properties, bearing
interest at 5.07% to 9.25% per annum, maturing from
February 2005 through November 2018.............................. $ 307,508 $ 296,887
Variable rate mortgage loans
Mortgage note payable secured by rental properties, bearing
interest of LIBOR plus 1.50% (the interest rate at December 31,
2002 was 3.32%), maturing February 2004.......................... 24,635 48,160
------------- -------------
Total mortgage notes payable........................................ 332,143 345,047
------------- -------------
Revolving credit facilities
Line of credit of $10,403, with a bank, bearing interest at LIBOR plus
2.25% maturing May 2003. The credit agreement is secured by
various rental properties........................................ - 1,409
Line of credit of $30,000 with a bank, bearing interest at LIBOR
plus 1.25%, maturing March 2003. The credit agreement is
secured by various rental properties............................. - 26,000
Line of credit of $41,300 with a bank, bearing interest at LIBOR
plus 1.25%, maturing February 2005. The credit agreement is
secured by various rental properties............................. 23,000 -
------------- -------------
Total revolving credit facilities................................... 23,000 27,409
------------- -------------
Total notes payable................................................. $ 355,143 $ 372,456
============= =============
Principal maturities (including scheduled amortization payments) of the
notes payable as of December 31, 2002 are as follows:
Year ending
December 31, Amount
---------------------------- ------------
2003..................... $ 6,288
2004..................... 31,397
2005..................... 49,720
2006..................... 33,448
2007..................... 9,719
Thereafter............... 224,571
------------
Total.................... $ 355,143
============
Certain of the mortgages on the Company's properties involving an aggregate
principal amount of approximately $50,000 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 operation or financial
conditions, cash flows.
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, 2002 and 2001.
Interest costs incurred were $25,955, $24,345 and $14,988 in the years
ended December 31, 2002, 2001 and 2000, respectively, of which $2,375,
$2,102 and $2,181 were capitalized in the years ended December 31, 2002,
2001 and 2000, respectively.
6. DEBT EXTINGUISHMENT
The Company settled an outstanding mortgage note payable at less than face
value during 2002 and recognized a gain of $1,520 on an early
extinguishment of debt. During 2001, the Company prepaid a mortgage and
incurred a loss of $1,546 on an early extinguishment of debt. The Company
has adopted SFAS No. 145, Rescission of FASB Statements No. 4, 44 and 64,
Amendment of FASB Statement No. 13, and Technical Corrections, and is
reporting gains and losses on extinguishment of debt as part of ordinary
income as they no longer meet the criteria for extraordinary gain (loss)
accounting treatment.
7. DISPOSITIONS
The Company has adopted SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets, effective January 1, 2002, and has included
the operations of properties sold and held for sale, as well as the gain on
sale of sold properties identified for sale on or after January 1, 2002, as
discontinued operations for all periods presented. The Company expects to
reclassify historical operating results whenever necessary in order to
comply with the requirements of SFAS No. 144.
The following table reflects properties being reported in discontinued
operations for the years ended December 31, 2002, 2001 and 2000:
Square Feet/ Gross Sales
Property Location Date Sold Acres (ac) Price
---------------------- ------------------ ------------- ------------- ------------
Equity One Office Miami Beach, FL February 28,780 $ 6,050
Olive land Miami, FL February 6.79ac 1,900
Benbrook Fort Worth, TX February 247,422 2,590
Montclair apartments Miami Beach, FL June 9,375 2,450
Shoppes of Westburry Miami, FL July 33,706 5,220
Forest Edge Orlando, FL July 68,631 3,475
Northwest Crossing Dallas, TX September 33,366 2,350
McMinn Plaza Athens, TN November 107,200 6,200
Woodforest Houston, TX December 12,741 1,850
------------
$32,085
============
During January 2003, Lowe's home improvement centers indicated its binding
intent to exercise its option to purchase its ground lease in April 2003 at
the Pompano Beach, Florida location. This property has a gross leaseable
area of 81,000 square feet and a net book value of $2,903.
As of December 31, 2001, a retail property and an office building were
classified as property held for sale and were subsequently sold in 2002.
These properties have an aggregate gross leasable area of 276 square feet
and an aggregate net book value of $3,549.
8. ACQUISITIONS
The following table reflects properties acquired since January 1, 2002:
SquareFeet/
Property Location Date Purchased Acres (ac) Purchase Price
------------- ------------------- -------------- ---------- --------------
Eckerd Melbourne, FL February 10,908 $ 2,479
Eckerd Leesburg, FL February 12,739 3,677
Coral Way S.E. Miami, FL February 8.9ac 2,000
Olive land Miami, FL February 6.79ac 1,000
Homestead retail land Homestead, FL May 12.1ac 1,800
Blanco Village San Antonio, TX May 108,325 18,800
Meadows Miami, FL May 75,524 8,925
Salerno Village Stuart, FL May 58,804 2,600
Eastwood Orlando, FL June 69,037 8,630
Shoppes of Ibis West Palm Beach, FL July 79,420 9,250
Forestwood Houston, TX December 88,760 10,355
------------
$ 69,516
============
9. Stockholders' Equity and earnings per share
The following table reflects the change in number of shares of common stock
outstanding for the year ended December 31, 2002:
Common Options
Stock Exercised Total
--------- ---------- ---------
Board of Directors/Corporate Secretary......... 13 * 5 18
Officers....................................... 253 * 161 414
Employees...................................... 7 * 8 15
Security offerings............................. 4,138 - 4,138
Dividend Reinvestment and Stock Purchase Plan.. 1,174 - 1,174
--------- --------- ---------
Total................................... 5,585 174 5,759
========= ========= =========
* Reflects shares of "restricted stock" which are subject to
forfeiture and vest over a period of two to five years.
On March 27, 2002, the Company completed a public offering of 3,450 shares
of our common stock at a per share price of $13.25.
On January 18, 2002, the Company sold 688 unregistered shares of our common
stock to a limited number of accredited investors. In connection with this
private placement, the Company sold an aggregate of 344 shares of common
stock at a price of $12.80 per share to unaffiliated investors and 344
shares of our common stock at a price of $13.05 per share to investors that
are affiliates, resulting in aggregate net proceeds of approximately
$8,900.
The following table reports dividends paid for the twelve months ended
December 31, 2002 and 2001: 2002 2001
--------------------- ---------- --------- ------------------ ----------
Date Per Share Amount Date Per Share Amount
--------------------- ---------- --------- ------------------ ---------- ---------
March 28............. $ 0.27 $ 8,015 March 30.......... $ 0.26 $ 3,342
June 28.............. $ 0.27 9,124 June 29........... $ 0.26 3,359
September 30......... $ 0.27 9,298 September 28...... $ 0.27 4,151
December 31.......... $ 0.27 9,336 December 31....... $ 0.27 7,770
--------- ---------
Total $35,773 Total $18,622
========= =========
The following is a reconciliation of the amounts of net income and shares
of common stock used in calculating basic and diluted per-share income
("EPS") for the years ended December 31, 2002, 2001 and 2000:
For the Year Ended December 31, 2002
-------------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
--------------- ---------------- ------------
Net Income $ 39,934
===========
Basic EPS
Income attributable to common stockholders .......... $ 39,934 32,662 $ 1.22
----------- ---------- ==========
Effect of Dilutive Securities
Walden Woods Village, Ltd. .......................... 101 94
Unvested restricted stock ........................... -- 298
Converted partnership units ......................... 259 262
Stock options ....................................... -- 127
----------- ----------
360 781
----------- ----------
Diluted EPS
Income attributable to common stockholders
assuming conversions ............................. $ 40,294 33,443 $ 1.20
=========== =========== ==========
For the Year Ended December 31, 2001
-------------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
--------------- ---------------- ------------
$ 18,721
Net Income ===========
Basic EPS
Income attributable to common stockholders..... $ 18,721 22,414 $ 0.83
----------- ---------- ==========
Effect of Dilutive Securities
Walden Woods Village, Ltd...................... 99 94
Unvested restricted stock...................... - 192
Converted partnership units.................... 259 262
Stock options.................................. - 75
----------- ----------
358 623
----------- ----------
Diluted EPS
Income attributable to common stockholders $ 19,079
assuming conversions.............................. 23,037 $ 0.83
=========== =========== ==========
Options to purchase 30 shares of common stock at $12.38 per share were
outstanding at December 31, 2001 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
-------------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
--------------- ---------------- ------------
$12,555
Net Income ===========
Basic EPS
Income attributable to common stockholders..... $ 12,555 14,285 $ 0.88
----------- ---------- ==========
Effect of Dilutive Securities
Walden Woods Village, Ltd...................... - 94
Unvested restricted stock...................... - 122
Converted partnership units.................... 20 3
----------- ----------
20 219
----------- ----------
Diluted EPS
Income attributable to common stockholders $ 12,575
assuming conversions............................. 14,504 $ 0.87
----------- ---------- ==========
Options to purchase 953 shares of common stock from $9.90 to $12.38 per
share were outstanding at December 31, 2000 but were not included in the
computation of diluted EPS because the option prices were greater than the
average market price of common shares.
For the years ended December 31, 2001 and 2000, basic and diluted earnings
per share have been adjusted so that the weighted average number of shares
used in those calculations include the effect of the assumed issuance on
August 18, 2000 of 68.07% of the 10,500 shares which were issued in
connection with the CEFUS acquisition on September 20, 2001. This
adjustment is in accordance with the CEFUS Accounting Treatment described
in Note 1.
10. 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 incentives
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 was January
1, 1996. The maximum number of shares of common stock as to which options
may be granted under this Plan is 1,000 shares, which is reduced each year
by the required or discretionary grant of options. The term of each option
is determined by the Compensation Committee of the Company (the
"Committee"), but in no event can longer than ten years from the date of
the grant. The vesting of the options is 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, as amended by the shareholders on May 24,
2002, the total number of shares of Common Stock that may be issuable under
the 2000 Plan is 2,500 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 stock-based compensation,
including options. Accordingly, no compensation expense has been recognized
for options granted under either of the Plans 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:
Year Ended December 31,
--------------------------------------------------
2002 2001 2000
--------------- -------------- -------------
Net income As reported........ $39,934 $18,721 $12,555
Pro forma.......... 39,191 18,483 11,820
Basic earnings per share As reported........ $ 1.22 $ 0.83 $ 0.88
Pro forma.......... 1.20 0.82 0.83
Diluted earnings per As reported........ $ 1.20 $ 0.83 $ 0.87
share Pro forma.......... 1.18 0.82 0.82
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, 2002, 2001 and 2000:
2002 2001 2000
--------- ----------- -------------
Dividend Yield.................. 7.9% 7.5% 10.6%
Risk-free interest rate......... 4.3% 4.3% - 5.1% 5.3% - 6.0%
Expected option life (years).... 10 7 7
Expected volatility............. 24% 25% 17%
In accordance with SFAS No. 123, the following is a summary of the
Company's stock option activity for the years ended December 31, 2002, 2001
and 2000:
2002 2001 2000
---------------------- ---------------------- ----------------------
Weighted Weighted Weighted
Average Average Average
Stock Exercise tock Exercise Stock Exercise
Options Price Options Price Options Price
--------- --------- --------- --------- --------- --------
Outstanding at the 625 $ 10.12 953 $ 10.08 737 $ 10.45
beginning of year
Granted............. 509 13.25 175 10.00 332 9.95
Forfeited........... - - - - (116) 12.05
Exercised........... (174) 10.15 503 10.00 - -
--------- --------- --------- --------- --------- --------
Outstanding at the 960 $ 11.78 625 $ 10.12 953 $10.08
end of year.......
========= ========= ========= ========= ========= ========
Exercisable, 541 $ 11.78 325 $ 10.23 716 $10.08
end of year.......
========= ========= ========= ========= ========= ========
Weighted average
fair value of
options granted
during the year... $ 1.69 $ 2.39 $ 0.92
========= ========= ========
The following table summarizes information about outstanding stock options
as of December 31, 2002:
Options Outstanding Options Exercisable
------------------------------------------------------------------- ---------------------
Weighted Average
Remaining
Number Contractual Life Number
Exercise Price Outstanding (in years) Exercisable
---------------------------- ----------------- ------------------ -----------------
$ 9.90 88 6.7 44
$10.00 298 6.7 167
$10.44 50 6.7 37
$12.38 15 4.0 15
$13.25 506 9.6 278
$13.44 3 9.6 -
----------------- -----------------
960 541
================= =================
Restricted Stock Grants
The Company grants restricted stock to its officers, directors, and other
employees. Vesting periods for the restricted stock are determined by the
Company's Compensation Committee. As of December 31, 2002, the Company had
330 shares of non-vested restricted stock grants outstanding. The vesting
of the 330 shares is as follows:
Year Ending December 31, Number of Shares
------------------------------- ------------------------
2003.................... 135
2004.................... 75
2005.................... 43
2006.................... 39
2007.................... 38
------------------------
Total 330
========================
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, 2002, 2001 and 2000 (inception) were
$67, $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.
11. FUTURE MINIMUM RENTAL INCOME, COMMITMENTS AND CONTINGENT LIABILITIES
Future minimum rental income under noncancelable operating leases
approximates the following as of December 31, 2002:
Year ending
December 31, Amount
------------------------ ------------
2003................... $74,315
2004................... 64,942
2005................... 53,621
2006................... 43,740
2007................... 35,047
Thereafter............. 171,310
------------
Total.................. $ 442,975
============
As of December 31, 2002 and 2001, the Company has pledged letters of credit
for $1,128 and $2,000, respectively, as additional security for financing.
The Company has guaranteed a mortgage note payable for one of its joint
ventures of approximately $15,000.
The Company is subject to litigation in the normal course of business, none
of which as of December 31, 2002 in the opinion of management will have a
material adverse effect on the financial condition, results of operations,
or cash flows of the Company.
12. RELATED PARTY TRANSACTIONS
As of December 31, 2002 and 2001, the Company had outstanding loans to
various executives in connection with their exercises of options to
purchase shares of the Company's common stock. The notes bear interest at
rates ranging from 5% to 6.35%. Interest is payable quarterly and the
entire principal is due between 2006 and 2009. Investment income earned on
the loans was $337 and $97 for the years ended December 31, 2002 and 2001,
respectively.
On January 18, 2002, the Company sold 688 unregistered shares of common
stock to a limited number of accredited investors. In connection with this
private placement, the Company sold an aggregate of 344 shares of common
stock at a price of $12.80 per share to unaffiliated investors and 344
shares of common stock at a price of $13.05 per share to investors that are
affiliates, resulting in aggregate net proceeds of approximately $8,900.
13. SUBSEQUENT EVENTS
On February 12, 2003, the Company completed a statutory merger with IRT
Property Company ("IRT"). In connection with the merger, the Company
acquired 92 properties that comprise an aggregate of approximately 10,000
square feet of gross leasable area. The aggregate purchase price for the
acquisition was approximately $762,000 (including transaction costs and
assumed debt), consisting of approximately $181,200 in cash, issuance of
approximately 17,500 shares of the Company's common stock valued at
approximately $231,700 and assumption of approximately $337,300 of
outstanding debt and other liabilities.
The cash portion of the purchase price was partially financed by proceeds
of $93,200 from a private placement offering of 6,911 shares of the
Company's common stock at a price of $13.50 per share. The balance of the
cash consideration was funded from a new revolving credit facility.
On February 7, 2003, the Company entered into a $340,000 unsecured
revolving credit facility. The facility has an initial term of three years
with a one-year extension option, and bears interest of LIBOR plus 0.65% to
1.35%, depending on the credit ratings of the Company's senior unsecured
long-term indebtedness. The Company used available funds under this credit
facility to pay part of the cash consideration to be paid to the IRT
shareholders, to pay transaction expenses and to repay certain outstanding
indebtedness.
After the merger, the Company's combined portfolio of neighborhood shopping
centers anchored by national and regional supermarket chains and other
necessity-oriented retailers such as drug stores or discount stores are
located in twelve states in the southern United States. After giving effect
to the merger, as of December 31, 2002, the Company's portfolio would have
comprised 180 properties totaling approximately 18,400 square feet, and
include 121 supermarket-anchored shopping centers, eleven
drugstore-anchored shopping centers, 40 other retail-anchored shopping
centers, one self storage facility, one industrial and six retail
developments, as well as non-controlling interests in four unconsolidated
joint ventures.
The following table summarizes the estimated fair values of the assets
acquired and liabilities assumed from IRT. The Company is in the process of
valuing certain assets and liabilities; thus, the allocation of the
purchase price is subject to refinement.
As of
December 31, 2002
----------------
Rental property ................................... $ 713,871
Cash and cash equivalents ......................... 11,394
Accounts receivable ............................... 4,703
Deposits .......................................... 1,009
Other assets ...................................... 107
Costs over fair value of net assets acquired ...... 31,412
--------
Total assets acquired ...................... 762,496
--------
Notes payable ..................................... 314,091
Other liabilities ................................. 23,241
--------
Total liabilities assumed .................. 337,332
--------
Net assets acquired ........................ $425,164
========
Following the execution of the merger agreement with IRT in October 2002,
three IRT shareholders filed three separate purported class action and
derivative suits in the Superior Court of Cobb County, State of Georgia,
against IRT, IRT's board of directors and the Company alleging claims of
breach of fiduciary duty by the defendant directors, unjust enrichment and
irreparable harm. The complaints sought declaratory relief, an order
enjoining consummation of the merger, and unspecified damages. Although the
Georgia court did not grant the plaintiffs the equitable relief requested
and permitted the completion of the merger, two of these lawsuits, Greaves
v. IRT Property Company, et. al. and Phillips v. IRT Property Company, et.
al., are still pending and second amended complaints have been filed in
each case and the other was voluntarily dismissed. Although management
believes that these suits are without merit and intends to continue to
defend them vigorously, there can be no assurance that the pending
litigation will be resolved in the Company's favor.
14. QUARTERLY FINANCIAL DATA (unaudited)
First Second Third Fourth
Quarter(1) Quarter(1) Quarter(1) Quarter(1) Total(2)
---------- ---------- ---------- ---------- --------
2002:
Total revenues........................... $ 25,249 $ 24,205 $ 25,832 $ 27,723 $103,009
Income from continuing operations...... 7,134 6,366 9,647 6,134 29,281
Net income............................. $ 13,267 $ 8,438 $ 10,926 $ 7,303 $ 39,934
Basic per share data
Income from continuing operations.... $ 0.24 $ 0.19 $ 0.28 $ 0.18 $ 0.90
Net Income........................... $ 0.45 $ 0.25 $ 0.32 0.21 1.22
Diluted per share data
Income from continuing operations..... $ 0.24 $ 0.19 $ 0.28 0.18 $ 0.88
Net income............................ $ 0.44 $ 0.25 $ 0.32 $ 0.21 $ 1.20
2001:
Total revenues........................... $ 18,672 $ 18,085 $ 19,407 $ 23,713 $ 79,877
Income from continuing operations...... 3,686 3,440 5,548 4,648 17,322
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..... $ 0.18 $ 0.17 $ 0.25 $ 0.16 $ 0.77
Net income............................ $ 0.20 $ 0.19 $ 0.27 $ 0.17 $ 0.83
------------------
<FN>
(1) Restated to reflect the reporting of discontinued operations. (2) The sum of
quarterly earnings per share amounts may differ from annual
earnings per share.
</FN>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of Equity One, Inc.
We have audited the consolidated financial statements of Equity One, Inc. and
subsidiaries (the "Company") as of December 31, 2002 and 2001, and for each of
the three years in the period ended December 31, 2002, and have issued our
report thereon dated February 17, 2003; such report is included elsewhere in
this Form 10-K. Our audits also included the consolidated financial statement
schedule of the Company, listed in Item 14. This consolidated financial
statement schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion based on our audits. In our opinion,
such consolidated financial statement schedule, when considered in relation to
the basic consolidated financial statements taken as a whole, presents fairly in
all material respects the information set forth therein.
Deloitte & Touche LLP
Certified Public Accountants
Miami, Florida
February 17, 2003
S-1
SCHEDULE III
Equity One, Inc.
REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION
12/31/2002
(in thousands)
INITIAL COST TO COMPANY
-----------------------
CAPITALIZED
SUBSEQUENT TO
ENCUM- BUILDING & ACQUISITION OR
PROPERTY LOCATION BRANCES LAND IMPROVEMENTS IMPROVEMENTS
-------- -------- --------- ---- ------------- --------------
INCOME PRODUCING PROPERTIES
NORTH FLORIDA
Atlantic Village Shopping Center Atlantic Beach $4,449 $1,190 $4,760 $948
Oak Hill Village Shopping Center Jacksonville 2,016 690 2,760 56
Fort Caroline Trading Post Jacksonville - 738 2,432 548
Commonwealth Shopping Center Jacksonville 2,864 730 2,920 1,439
Beauclerc Village Shopping Center Jacksonville - 560 2,242 693
Mandarin Mini-storage Jacksonville - 362 1,448 24
Monument Point Shopping Center Jacksonville - 1,336 2,330 99
Forest Village Shopping Center Tallahassee 4,533 725 - 7,970
Losco Shopping Center Jacksonville - 250 - 718
Mandarin Landing Shopping Center Jacksonville - 4,443 4,747 1,222
CENTRAL FLORIDA
Walden Woods Shopping Center Plant City 2,492 950 2,850 94
Eustis Square Shopping Center Eustis - 1,450 5,799 94
Eckerds Leesburg Leesburg - 682 3,013 2
Lake Mary Shopping Center Lake Mary 24,763 5,578 13,878 6,065
Park Promenade Shopping Center Orlando 6,360 2,810 6,444 437
Kirkman Shoppes Orlando 9,596 3,237 9,714 33
Eastwood Orlando 6,366 1,680 6,976 55
FLORIDA WEST COAST
East Bay Plaza Shopping Center Largo - 314 1,296 597
Summerlin Square Shopping Center Fort Myers 4,156 1,043 7,989 1,257
Mariners Crossing Shopping Center Spring Hill 3,425 1,511 4,447 9
Ross Plaza Tampa 6,693 2,115 6,346 25
Marco Town Center Marco Island 8,875 3,872 11,966 531
Shoppes of North Port North Port 4,201 1,452 5,807 25
Lake St. Charles Tampa 3,911 1,256 3,768 12
Skipper Palms Tampa 3,585 1,302 3,940 13
GROSS AMOUNTS AT WHICH
CARRIED AT CLOSE OF PERIOD
- --------------------------
ACCUMULATED DEPRECIABLE
LAND IMPROVEMENTS TOTAL DEPRECIATION DATEA ACQUIRED LIFE
---- ------------ ----- ------------- --------------- -----------
$1,190 $5,708 $6,898 $1,280 June 30, 1995 40
690 2,816 3,506 510 December 7, 1995 40
738 2,980 3,718 652 January 24, 1994 40
730 4,359 5,089 977 February 28, 1994 40
651 2,844 3,495 353 May 15, 1998 40
362 1,472 1,834 321 May 10, 1994 40
1,336 2,429 3,765 375 January 31, 1997 40
3,222 5,473 8,695 308 January 28, 1999 40
253 715 968 40 May 17, 1999 40
4,443 5,969 10,412 587 December 10, 1999 40
950 2,944 3,894 297 January 1, 1999 40
1,463 5,880 7,343 1,825 October 22, 1993 40
684 3,013 3,697 60 February 26,2002 40
7,092 18,429 25,521 2,732 November 9, 1995 40
2,810 6,881 9,691 748 January 31, 1999 40
3,237 9,747 12,984 689 August 15, 2000 33
1,688 7,023 8,711 89 June 28, 2002 40
325 1,882 2,207 833 July 27, 1993 30
2,187 8,102 10,289 953 June 10, 1998 40
1,511 4,456 5,967 257 September 12, 2000 40
2,115 6,371 8,486 450 August 15, 2000 33
3,872 12,497 16,369 758 August 15, 2000 37
1,452 5,832 7,284 302 December 5, 2000 40
1,268 3,768 5,036 121 August 15, 2000 40
1,314 3,941 5,255 132 September 21, 2001 40
(continue)
S-2
SOUTH FLORIDA
INITIAL COST TO COMPANY
-----------------------
CAPITALIZED
SUBSEQUENT TO
ENCUM- BUILDING & ACQUISITION OR
PROPERTY LOCATION BRANCES LAND IMPROVEMENTS IMPROVEMENTS
-------- -------- --------- ---- ------------- --------------
Bird Ludlum Shopping Center Miami 10,857 4,080 16,318 485
Bluff Square Jupiter 10,162 3,232 9,917 184
Boca Village Boca Raton 8,382 3,385 10,174 57
Boynton Plaza Boynton Beach 7,561 2,943 9,100 28
Cashmere Corners Port St. Lucie 5,343 1,436 5,530 135
Eckerds Melbourne Melbourne - 686 1,807 2
Epsilon West Palm Beach - 123 493 947
Shoppes of Ibis West Palm Beach 6,031 3,001 6,299 26
Jonathan's Landing Jupiter 2,932 1,146 3,442 -
Lantana Village Shopping Center Lantana 3,816 1,350 7,978 144
Meadows Miami 6,690 2,303 6,670 36
Oakbrook Palm Beach Gardens - 4,915 8,718 -
Pompano (Equity One) Pompano Beach - 900 2,005 113
Plaza Del Rey Shopping Center Miami 2,202 740 2,961 163
Point Royale Shopping Center Miami 4,763 3,720 5,005 1,208
West Lakes Plaza Shopping Center Miami 4,979 2,141 5,789 402
Shops at Skylake N. Miami Beach 14,964 7,630 - 20,730
El Novillo Miami - 250 1,000 151
Ridge Plaza Shopping Center Davie - 3,905 7,450 513
Pine Island Shopping Center Davie 25,274 8,557 12,860 93
Salerno Village West Palm Beach - 1,000 811 15
Sawgrass Promenade Deerfield Beach 8,382 3,280 9,851 165
Prosperity Centre Palm Beach Garden 6,730 4,597 13,838 2
University Mall Ft. Lauderdale 12,680 8,462 4,405 855
Ryanwood Vero Beach - 2,281 6,880 6
Equity One 2,596
TEXAS
Albertson's Bissonnet Houston - 445 1,335 5
Albertson's Spring Shadows Houston - 1,206 3,619 12
Benchmark Crossing Houston 3,393 1,459 4,377 14
Colony Plaza Houston 3,053 970 2,909 9
Forestwood Houston 7,425 2,659 7,678 -
Hedwig Houston - 1,875 5,625 18
Highland Square Houston 4,135 1,923 5,768 20
Market at First Colony Houston - 3,292 9,906 115
Mason Park Houston - 2,524 7,578 71
Copperfield Houston - 780 2,468 11
Grogan's Mill Houston 7,995 3,117 9,373 13
Mission Bend Houston 6,370 2,514 7,854 142
Steeplechase Houston 6,305 2,666 8,021 111
Beechcrest Houston 3,965 1,408 4,291 -
Barker Cypress Houston - 1,676 5,029 244
GROSS AMOUNTS AT WHICH
CARRIED AT CLOSE OF PERIOD
- --------------------------
ACCUMULATED DEPRECIABLE
LAND IMPROVEMENTS TOTAL DEPRECIATION DATEA ACQUIRED LIFE
---- ------------ ----- ------------- --------------- -----------
4,088 16,795 20,883 3,553 August 11, 1994 40
3,232 10,101 13,333 723 August 15, 2000 33
3,385 10,231 13,616 640 August 15, 2000 37
2,943 9,128 12,071 643 August 15, 2000 33
1,435 5,666 7,101 230 August 15, 2000 40
688 1,807 2,495 38 February 20, 2002 40
123 1,440 1,563 254 February 15, 1995 40
3,002 6,324 9,326 80 July 10, 2002 40
1,146 3,442 4,588 216 August 15, 2000 37
1,350 8,122 9,472 948 January 6, 1998 40
2,303 6,706 9,009 103 May 23, 2002 40
4,915 8,718 13,633 514 August 15, 2000 36
900 2,118 3,018 101 January 27, 2001 40
740 3,124 3,864 1,243 August 22, 1991 40
3,720 6,213 9,933 1,086 July 27, 1995 40
2,141 6,191 8,332 1,000 November 6, 1996 40
12,048 16,312 28,360 1,085 August 19, 1997 40
250 1,151 1,401 241 April 30, 1998 40
3,905 7,963 11,868 727 August 15, 2000 40
8,557 12,953 21,510 1,134 August 26, 1999 40
1,009 817 1,826 15 May 6, 2002 40
3,280 10,016 13,296 718 August 15, 2000 32
4,597 13,840 18,437 893 August 15, 2000 36
9,315 4,407 13,722 184 August 15, 2000 40
2,281 6,886 9,167 204 August 15, 2000 40
2,596 2,596 825 Various
450 1,335 1,785 43 September 21, 2001 40
1,218 3,619 4,837 116 August 15, 2000 40
1,473 4,377 5,850 140 September 21, 2001 40
979 2,909 3,888 93 September 21, 2001 40
2,659 7,678 10,337 8 December 6, 2002 40
1,893 5,625 7,518 180 September 21, 2001 40
1,941 5,770 7,711 185 September 21, 2001 40
3,323 9,990 13,313 335 September 21, 2001 40
2,548 7,625 10,173 245 September 21, 2001 40
780 2,479 3,259 258 August 15, 2000 34
3,117 9,386 12,503 591 August 15, 2000 37
2,514 7,996 10,510 498 August 15, 2000 37
2,666 8,132 10,798 515 August 15, 2000 37
1,408 4,291 5,699 268 August 15, 2000 37
1,676 5,273 6,949 139 August 15, 2000 40
(continue)
S-3
INITIAL COST TO COMPANY
-----------------------
CAPITALIZED
SUBSEQUENT TO
ENCUM- BUILDING & ACQUISITION OR
PROPERTY LOCATION BRANCES LAND IMPROVEMENTS IMPROVEMENTS
-------- -------- --------- ---- ------------- --------------
DALLAS
Green Oaks Dallas 3,100 1,045 3,134 42
Melbourne Plaza Dallas 1,792 932 2,796 17
Parkwood Dallas 6,277 2,222 6,668 29
Richwood Dallas 3,234 1,170 3,512 33
Rosemeade Park Dallas 3,244 1,175 3,525 14
Plymouth South Dallas 617 528 1,585 16
Plymouth North Dallas 8,640 1,639 5,408 6,651
Plymouth East Two Dallas 617 472 472 944
Plymouth West Dallas 2,468 981 2,944 18
Sterling Plaza Dallas 4,083 1,834 5,504 64
Minyard's (Garland) Dallas 2,546 885 2,666 (1)
Townsend Dallas 4,922 2,247 6,793 17
Village Park (Wimbledon) Dallas - 1,671 5,066 86
SAN ANTONIO
Bandera Festival San Antonio - 2,629 7,890 446
Blanco Village San Antonio - 5,723 10,559 -
Wurzbach San Antonio - 389 1,226 -
ARIZONA
Big Curve Yuma 5,552 2,403 7,206 33
Park Northern Phoenix 2,377 1,058 3,176 16
Southwest Walgreen's Phoenix - 1,177 3,531 11
---------------------------------------------------
TOTAL INCOME PRODUCING PROPERTIES 332,143 175,033 446,665 61,243
---------------------------------------------------
LAND HELD FOR/UNDER DEVELOPMENT
Bissonnet Houston - 103 - 3
Blanco Village San Antonio - 2,614 - 117
Cashmere Corners Port St. Lucie - 386 - 49
Cashmere Corners JV 2 Port St. Lucie - 790 - 200
Centrefund PGA Palm Beach Gardens - - - 27
Copperfield Houston - 3,135 - 523
Coral Way Miami - 988 - 564
Homestead Homestead - 1,811 - 112
Lake Mary Lake Mary - - - 2
Lake St Charles Tampa - 206 - -
Mariners Crossing Spring Hill - - - 12
Meadows Miami - - - 3
Oakwood North Palm Beach - 200 7,369 313
Plaza Alegre Miami - 2,000 - 7,253
Prosperity Palm Beach Gardens - - - 51
Salerno Village Palm Beach Gardens - 807 - 219
GROSS AMOUNTS AT WHICH
CARRIED AT CLOSE OF PERIOD
- --------------------------
ACCUMULATED DEPRECIABLE
LAND IMPROVEMENTS TOTAL DEPRECIATION DATEA ACQUIRED LIFE
---- ------------ ----- ------------- --------------- -----------
1,054 3,167 4,221 102 September 21, 2001 40
941 2,804 3,745 90 September 21, 2001 40
2,243 6,676 8,919 214 September 21, 2001 40
1,181 3,534 4,715 115 September 21, 2001 40
1,186 3,528 4,714 113 September 21, 2001 40
528 1,601 2,129 104 September 21, 2001 36
3,065 10,633 13,698 520 September 21, 2001 36
472 1,416 1,888 91 September 21, 2001 36
981 2,962 3,943 191 September 21, 2001 36
1,834 5,568 7,402 348 August 15, 2000 37
885 2,665 3,550 163 August 15, 2000 38
2,247 6,810 9,057 427 August 15, 2000 37
1,671 5,152 6,823 328 August 15, 2000 36
2,653 8,312 10,965 271 September 21, 2001 40
5,723 10,559 16,282 174 May 10, 2002 40
389 1,226 1,615 73 August 15, 2000 38
2,426 7,216 9,642 232 September 21, 2001 40
1,067 3,183 4,250 103 August 15, 2000 40
1,188 3,531 4,719 113 September 21, 2001 40
- -------------------------------------------------
187,315 495,626 682,941 40,433
- -------------------------------------------------
103 3 106 - September 21, 2001
2,614 117 2,731 - May 10, 2002
386 49 435 - August 15, 2000
790 200 990 - August 15, 2000
27 27 - August 15, 2000
3,135 523 3,658 - August 15, 2000
988 564 1,552 - July 23, 1999
1,811 112 1,923 - April 10, 1992
- 2 2 - November 9, 1995
206 - 206 - November 9, 1995
- 12 12 - August 15, 2000
- 3 3 - May 23, 2002
200 7,682 7,882 - September 12, 2000
2,000 7,253 9,253 - February 26, 2002
- 51 51 - August 15, 2000
807 219 1,026 - May 6, 2002
(continue)
S-4
INITIAL COST TO COMPANY
-----------------------
CAPITALIZED
SUBSEQUENT TO
ENCUM- BUILDING & ACQUISITION OR
PROPERTY LOCATION BRANCES LAND IMPROVEMENTS IMPROVEMENTS
-------- -------- --------- ---- ------------- --------------
Spring Shadows Houston - - - 1
Shoppes at Skylake Miami - 3,179 - 2,169
Southwest Walgreen's Phoenix - - - 29
Texas CP Land Texas - 206 - 9
University Mall (Pembroke) Pembroke - - - 473
---------------------------------------------------
TOTAL LAND HELD FOR/UNDER DEVELOPMENT - 16,425 7,369 12,129
---------------------------------------------------
Credit Agreement - - - -
Wells Fargo 23,000 - - -
---------------------------------------------------
Total $355,143 $191,458 $454,034 $73,372
---------------------------------------------------
GROSS AMOUNTS AT WHICH
CARRIED AT CLOSE OF PERIOD
- --------------------------
ACCUMULATED DEPRECIABLE
LAND IMPROVEMENTS TOTAL DEPRECIATION DATEA ACQUIRED LIFE
---- ------------ ----- ------------- --------------- -----------
- 1 1 - September 21, 2001
3,179 2,169 5,348 - August 19, 1997
- 29 29 - August 15, 2000
215 - 215 - June 10, 1998
- 473 473 - September 21, 2001
- -------------------------------------------------
16,434 19,489 35,923 -
- -------------------------------------------------
- - - -
- - - -
- -------------------------------------------------
203,749 $515,115 $718,864 $40,433
- -------------------------------------------------
(continued)
S-5
INDEX TO EXHIBITS
-----------------
EXHIBIT NO. DESCRIPTION
- ---------- -----------
12.1 Statements regarding Computations of Ratios.
21.1 List of Subsidiaries of the Registrant.
23.1 Consent of Deloitte & Touche LLP.
99.1 Certification of Chaim Katzman as Chief Executive Officer pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002
99.2 Certification of Howard M. Sipzner as Chief Financial Officer
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
* * * * *