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, 2003
OR
[X] 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
As of June 30, 2003, the aggregate market value of the Common Stock held by
non-affiliates of the Registrant was $487,721,026.80 based upon the last
reported sale price of $16.40 per share on the New York Stock Exchange on such
date.
As of March 1, 2004, the number of outstanding shares of Common Stock par
value $.01 per share of the Registrant was 69,798,651.
DOCUMENTS INCORPORATED BY REFERENCE
Certain sections of the Registrant's definitive Proxy Statement for the
2004 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
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Page
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Part I
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Item 1. Business....................................................... 2
Item 2. Properties..................................................... 13
Item 3. Legal Proceedings.............................................. 27
Item 4. Submission of Matters to a Vote of Security Holders............ 28
Part II
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Item 5. Market For Registrant's Common Equity, Related Stockholder
Matters and Purchase of Equity Securities.................... 28
Item 6. Selected Financial Data........................................ 29
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................... 32
Item 7A. Quantitative and Qualitative Disclosures About Market Risk..... 50
Item 8. Financial Statements and Supplementary Data.................... 52
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure..................................... 52
Item 9A. Controls and Procedures........................................ 52
Part III
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Item 10. Directors and Executive Officers of the Registrant............. 52
Item 11. Executive Compensation......................................... 52
Item 12. Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters................... 52
Item 13. Certain Relationships and Related Transactions................. 53
Item 14. Principal Accountant Fees and Services......................... 53
Part IV
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Item 15. Exhibits, Financial Statement Schedules and Reports on
Form 8-K..................................................... 53
Signatures..................................................... 57
FORWARD-LOOKING INFORMATION
Certain matters discussed in this 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 speak only as of the date of this report.
Among the factors that could cause actual results to differ materially are:
o general economic conditions, and the effect of these conditions on
rental rates in the markets where our shopping centers are located;
o risks that tenants will not remain in occupancy or pay rent;
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 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.
Our property portfolio, as of December 31, 2003, consisted of 185
properties, comprising 123 supermarket-anchored shopping centers, 11 drug
store-anchored shopping centers, 44 other retail-anchored shopping centers, one
self-storage facility, one industrial and five retail developments, as well as
non-controlling interests in 2 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 19.9 million square feet of
gross leasable area, or GLA. Our portfolio includes shopping centers anchored by
national and regional supermarkets such as Albertsons, Food Lion, 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, Walgreens, and Wal-Mart.
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, Inc. and
our consolidated subsidiaries.
Recent Developments and 2003 Overview
IRT Merger
On February 12, 2003, we completed our acquisition of IRT Property Company
by statutory merger. As a result of the merger, we acquired 93 properties
comprising approximately 10 million square feet of gross leasable area. See
"Item 2. - Properties" for a description of the portfolio.
In connection with the merger, we paid aggregate cash consideration of
approximately $189.4 million, issued approximately 17.5 million shares of our
common stock valued at approximately $231.7 million and assumed approximately
$341.9 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 which has been used in part to fund a portion of the costs of the
merger, to prepay certain indebtedness and acquire additional properties. As of
December 31, 2003, we had outstanding $162.0 million under the facility.
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 advances
under the Wells Fargo facility, to fund a portion of the costs of the merger and
to prepay certain indebtedness.
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Public Issuance of Equity. In May 2003, we completed the sale of 3.0
million shares of our common stock at a price of $16.22 per share in an
underwritten public offering. The net proceeds of $48.7 million from the
offering were used for general corporate purposes, including the repayment of
debt and ongoing development activities.
In September 2003, we completed the sale of 3.0 million shares of our
common stock at a price of $17.05 per share in an underwritten public offering.
The net proceeds of $51.2 million from the offering were used for general
corporate purposes, including the repayment of debt, ongoing development
activities and the acquisition of additional shopping centers.
Acquisitions. We intend to focus on retail properties and development
projects that generate stable cash flows and present opportunities for value
appreciation. During 2003, we acquired 12 properties for an aggregate
consideration of approximately $211.0 million encompassing approximately 1.5
million square feet of gross leasable area. These properties consisted of 10
supermarket anchored shopping centers, one outparcel, and one parcel 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 2003, we sold 6 properties, a property held by a joint venture and a
joint venture interest, for aggregate consideration of approximately $33.3
million encompassing approximately 335,000 square feet of gross leasable area.
Developments and Redevelopments. As of December 31, 2003, we had over 25
development and redevelopment projects underway or in the planning stage
totaling approximately $74.7 million of asset value and requiring approximately
$32.5 million to complete based on current plans and estimates. These include:
o The reconfiguration of a portion of Oakbrook Square in Palm Beach
Gardens, Florida to accommodate a new Homegoods store, a new
out-parcel and a recently opened Stein Mart store;
o The complete redevelopment of Crossroads Square (formerly known as
University Mall) in Pembroke Pines, Florida, incorporating a new
Lowe's home improvement store, a new Eckerd drug store and the
refurbishing of the remainder of the center;
o The construction of a new 46,000 square foot L.A. Fitness Sports Club
as part of a 120,000 square foot addition to our Shops at Skylake in
North Miami Beach, Florida;
o The development of a new 25,000 square foot CVS drug store-anchored
center across the street from our recently completed Plaza Alegre
shopping center development in Miami, Florida;
o The redevelopment of Salerno Village in Stuart, Florida to accommodate
a new and expanded Winn Dixie supermarket;
o The development of two supermarket-anchored shopping centers, one in
Homestead, Florida and the other in McDonough, Georgia, both on
parcels we currently own and control;
o The reconfiguration of the former Gerland space at Copperfield
shopping center in Houston, Texas into multi-tenant space;
o The reconfiguration of a portion of Ambassador Row Courtyards in
Lafayette, Louisiana; and
o The redevelopment of a portion of Gulf Gate Plaza in Naples, Florida.
All of these developments and redevelopments are scheduled for completion
between early 2004 and the end of 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
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end, we now own and manage a portfolio of 185 properties including 178
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 credit worthy
tenants, by renovating and redeveloping those properties to make them
more attractive to such tenants;
o acquire and develop 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 credit worthy 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;
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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 February of 2003, we acquired 93 properties,
representing 10 million square feet of gross leasable area, in a statutory
merger with IRT Property Company. 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 our assets 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, 2003, shopping centers
anchored by supermarkets or other necessity retailers such as drug
stores or discount retail stores accounted for over 98% 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. Our portfolio of properties
is concentrated in high-density areas that are experiencing high
population growth such as Florida, Texas, Georgia, Louisiana, North
Carolina and South Carolina. As of December 31, 2003, these states
constitute 45.9%, 15.9%, 15.1%, 9.9%, 5.8% and 2.2% of our retail
properties' gross leasable 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. As of December 31, 2003, no single tenant
represented more than 10.0% of our annualized minimum rent and only
Publix, at 8.8%, represented more than 5.0% of such rent. As of
December 31, 2003, we had over 3,200 leases with tenants, including
national and regional supermarket chains, drug stores, discount retail
stores, other nationally or regionally known
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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, development 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 unsecured 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
any of our securities 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 2.0 million square feet, or 10.3%, of our
gross leasable 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 at ten of our shopping centers, filed for
bankruptcy protection and closed stores and terminated leases at four of our
centers. If Kmart elects to close some or all of the remaining six stores in our
centers and terminate the associated leases, it would adversely affect our
operating results, including funds from operations.
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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 investment 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 investment.
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.
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 45.9% 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.
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We may be subjected to liability for environmental contamination 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
companies we have acquired, whether the contamination occurred before or after
the acquisition. 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.
An important component of our growth strategy is the 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. However, we may not be able to do so
successfully. 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 associated investment 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, or development,
construction and lease-up activities may not be completed on schedule, resulting
in decreased operating income.
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 in the aggregate amount of
approximately $810 million. Our loan facilities require scheduled principal and
balloon payments. In addition, we may incur additional
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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 cannot 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
refinancing 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 refinancing, 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
securities.
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 and other securities to seek
alternative investments that offer a higher annual yield which would likely
adversely affect the market price of our common stock and other securities. 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 unsecured revolving credit facility with Wells Fargo, our senior
unsecured notes payable and much of our existing mortgage indebtedness contain
customary covenants and conditions, including, among others, 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. If we fail to make such repayment
in a timely manner, 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 totaled approximately $182.0 million as
of December 31, 2003. In the event that the holders declare defaults under the
mortgage documents, we could be required to prepay the remaining mortgages from
existing
9
resources, refinancing 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.
Our Chairman and Chief Executive Officer and his affiliates own
approximately 42% of our common stock and exercise significant control over
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 42% 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 of our company
which, under our charter, the affirmative vote of the holders of a majority of
the outstanding shares of our common stock in such instances. 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 affiliated 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 25.0 million shares, representing
approximately 36% 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
10
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,
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 90% 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 net
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
assurance 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 taxable income at regular corporate income tax rates, and we would not be
allowed a deduction in computing our 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 Executive
Vice President and 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.
11
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, 2003, we had 207 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. Also,
available on our website, free of charge, are copies of our Corporate Governance
Guidelines and the charters for each of the committees of our Board of Directors
- - the Audit Committee, the Corporate Governance and Nominating Committee and the
Compensation Committee. A copy of our Code of Ethics will be available, free of
charge, on our website on or before our 2004 Annual Meeting of Stockholders.
Copies are also available free of charge by contacting our Investor Relations
Department at:
12
Equity One, Inc.
1696 N.E. Miami Gardens Drive,
North Miami Beach, Florida 33179
Attn: Investor Relations Department
(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 19.9 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, our McAlpin Square shopping center
located in Savannah, Georgia, our Plaza Acadienne shopping center located in
Eunice, Louisiana, our Shelby Plaza shopping center located in Shelby, North
Carolina, our Park Northern shopping center located in Arizona and El Novillo
located in Florida, 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 our properties as of December 31, 2003:
GLA Annualized Average Minimum Percent
(Sq.Ft.)at Minimum Rent Rent Per Leased Leased at
Year Dec. 31 Number of as of December Sq. Ft. at Dec. 31, Anchor Stores and
Property Acquired 2003 Tenants(1) 31, 2003(2) Dec. 31, 2003 2003 Certain Tenants(3)
------------- -------- --------- ---------- -------------- --------------- --------- --------------------------
ALABAMA (2 properties)
Madison Centre 2003 64,837 12 $597,364 $9.57 96.3% Publix, Rite Aid
Madison
West Gate Plaza 2003 64,378 9 $454,703 $7.12 99.2% Winn Dixie, Rite Aid
Mobile
--------- -------- ---------- --------- ---------
Subtotal Alabama Properties 129,215 21 $1,052,067 $8.33 97.8%
(2 properties) --------- -------- ---------- --------- ---------
ARIZONA (2 properties)
Big Curve 2001 126,402 33 $1,161,662 $9.84 93.4% Albertsons(4), Walgreens*,
Yuma Miller's Outpost
Park Northern 2001 126,852 25 $812,155 $6.80 94.1% Safeway, Bealls, Chuck E
Phoenix Cheese, Life Skills Center
--------- -------- ---------- --------- ---------
Subtotal Arizona Properties 253,254 58 $1,973,817 $8.31 93.7%
(2 properties) --------- -------- ---------- --------- ---------
FLORIDA (71 properties)
North Florida (13 properties)
Atlantic Village 1995 100,559 25 $930,740 $9.85 94.0% Publix, Jo-Ann Fabrics
Atlantic Beach
Beauclerc Village 1998 70,429 11 $425,350 $7.23 83.5% Big Lots, Goodwill,
Jacksonville Bealls Outlet
13
GLA Annualized Average Minimum Percent
(Sq.Ft.)at Minimum Rent Rent Per Leased Leased at
Year Dec. 31 Number of as of December Sq. Ft. at Dec. 31, Anchor Stores and
Property Acquired 2003 Tenants(1) 31, 2003(2) Dec. 31, 2003 2003 Certain Tenants(3)
------------- -------- --------- ---------- -------------- --------------- --------- --------------------------
Commonwealth 1994 81,467 16 $646,392 $8.30 95.6% Winn-Dixie/Save Rite
Jacksonville
Forest Village 2000 71,526 17 $716,838 $10.39 96.5% Publix
Tallahassee
Fort Caroline 1994 74,546 13 $470,753 $7.16 88.2% Winn-Dixie, Eckerd*
Jacksonville (Bealls Outlet)
Losco Corners 2000 8,700 7 $150,635 $17.31 100.0% Winn-Dixie(4)
Jacksonville
Mandarin Landing 1999 141,565 37 $1,248,525 $9.10 96.9% Publix, Office Depot,
Jacksonville Eckerd
Middle Beach 2003 69,277 9 $648,069 $9.35 100.0% Publix, Movie Gallery
Jacksonville
Monument Point 1997 75,128 12 $498,955 $6.64 100.0% Winn-Dixie, Eckerd
Jacksonville
Oak Hill 1995 78,492 19 $541,737 $6.90 100.0% Publix, Walgreens*
Jacksonville
Parkmore Plaza 2003 159,067 13 $714,185 $4.56 98.5% 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 $2,545,091 $9.15 95.9% Food Lion, Kmart, Stein
Regional Mart, Bealls
Jacksonville Beach
Central Florida (9 properties)
Alafaya Commons 2003 123,133 29 $1,321,418 $11.62 92.4% Publix
Orlando
Conway Crossing 2003 76,321 18 $845,930 $11.31 98.0% Publix
Orlando
Shoppes of 2002 69,037 13 $772,624 $11.19 100.0% Publix
Eastwood
Orlando
Hunters Creek 2003 68,032 11 $686,395 $10.49 96.2% Winn-Dixie
Orlando
Kirkman Shoppes 2001 88,820 30 $1,297,346 $15.43 94.7% Eckerd
Orlando
Lake Mary 1988 342,384 87 $3,698,239 $11.19 96.5% Albertsons, Kmart, Euro
Orlando Fitness, Sun Star
Theatres
Park Promenade 1999 125,818 26 $1,158,825 $9.41 97.9% Orange County Library
Orlando Blockbuster, Goodwill
Town & Country 2003 72,043 13 $518,288 $7.19 100.0% Albertsons
Kissimmee
Unigold 2003 106,185 20 $955,644 $10.14 88.8% Winn-Dixie
Winter Park
14
GLA Annualized Average Minimum Percent
(Sq.Ft.)at Minimum Rent Rent Per Leased Leased at
Year Dec. 31 Number of as of December Sq. Ft. at Dec. 31, Anchor Stores and
Property Acquired 2003 Tenants(1) 31, 2003(2) Dec. 31, 2003 2003 Certain Tenants(3)
------------- -------- --------- ---------- -------------- --------------- --------- --------------------------
Florida West Coast (15 properties)
Bay Pointe Plaza 2003 103,986 24 $919,362 $9.60 92.1% Publix, Eckerd* (Bealls
St. Petersburg Outlet), West Marine
Carrollwood 2003 94,203 36 $873,356 $10.86 85.4% Publix, Eckerd
Tampa
Charlotte Square 2003 96,188 27 $742,556 $7.87 98.1% Publix, Seafood Buffet,
Port Charlotte Pet Supermarket
Chelsea Place 2003 81,144 18 $888,975 $10.96 100.0% Publix, Eckerd
New Port Richey
Lake St. Charles 2001 57,015 8 $539,481 $9.67 97.9% Kash N' Karry
Tampa
Lutz Lake 2003 64,985 15 $887,635 $13.66 100.0% Publix
Lutz
Marco Town Center 2001 109,830 45 $1,611,728 $15.54 94.4% Publix
Marco Island
Mariners Crossing 2001 85,507 16 $626,750 $7.75 94.6% Kash N' Karry
Spring Hill
North River Village 2003 177,128 16 $1,280,847 $7.23 100.0% Publix, Kmart,
Ellenton Walgreens*, (Dollar
Tree), Bealls Outlet
Regency Crossing 2003 85,864 24 $815,717 $10.82 87.8% Publix
Port Richey
Ross Plaza 2001 85,359 20 $779,172 $9.46 96.5% Walgreens*, Ross Dress
Tampa for Less
Seven Hills 2003 64,590 12 $622,864 $9.64 100.0% Publix
Spring Hill
Shoppes of North 2000 84,705 22 $806,858 $9.70 98.2% Publix, Bealls Outlet
Port
North Port
Skipper Palms 2001 88,000 17 $707,464 $8.53 94.3% Winn-Dixie
Tampa
Summerlin Square 1998 109,156 28 $944,376 $10.14 85.4% Winn-Dixie, Eckerd
Fort Myers
Florida Treasure Coast (8 properties)
Bluff Square 2001 132,395 48 $1,521,014 $11.54 99.5% Publix, Walgreens
Jupiter
15
GLA Annualized Average Minimum Percent
(Sq.Ft.)at Minimum Rent Rent Per Leased Leased at
Year Dec. 31 Number of as of December Sq. Ft. at Dec. 31, Anchor Stores and
Property Acquired 2003 Tenants(1) 31, 2003(2) Dec. 31, 2003 2003 Certain Tenants(3)
------------- -------- --------- ---------- -------------- --------------- --------- --------------------------
Cashmere Corners 2001 89,234 18 $708,840 $7.94 100.0% Albertsons
Port St. Lucie
Jonathan's Landing 2001 26,820 12 $493,645 $18.41 100.0% Albertsons(4),
Jupiter Blockbuster
New Smyrna Beach 2003 118,451 34 $1,140,471 $9.98 96.5% Publix, Walgreens*
Regional (Bealls Outlet), Bealls
New Smyrna Beach Home Outlet
Old King Commons 2003 84,759 19 $670,958 $7.92 100.0% Wal-Mart* (Scotty's,
Palm Coast Staples)
Ryanwood 2001 114,925 32 $1,075,880 $9.46 99.0% Publix, Bealls Outlet,
Vero Beach Books-A-Million
Salerno Village 2002 58,804 19 $371,637 $6.70 94.3% Winn Dixie, Eckerd
Stuart
Treasure Coast 2003 133,781 25 $1,063,966 $8.55 93.0% Winn Dixie, TJ Maxx
Vero Beach
South Florida/Atlantic Coast (26 properties)
Bird Ludlum 1994 192,282 47 $2,648,292 $14.24 96.7% Winn-Dixie, Eckerd,
Miami Blockbuster, Goodwill
Boca Village 2001 93,428 22 $1,335,900 $14.65 97.6% Publix, Eckerd
Boca Raton
Boynton Plaza 2001 99,324 29 $980,682 $10.60 93.1% Publix, Eckerd
Boynton Beach
Countryside Shops 2003 179,561 46 $2,188,362 $12.19 100.0% Publix, Eckerd, Stein
Cooper City Mart
Crossroads Square 2001 269,653 28 $1,651,886 $6.87 89.2% Lowe's, Eckerd
Pembroke Pines
El Novillo 2001 10,000 1 $150,540 $15.05 100.0% Jumbo Buffet
Miami Beach
Epsilon 2001 18,707 5 $72,243 $15.72 24.6%
West Palm Beach
Greenwood 2003 132,325 35 $1,421,215 $11.67 92.0% Publix, Bealls, World
Palm Springs Savings Bank
Lago Mar 2003 82,613 21 $939,811 $12.33 92.3% Publix
Miami
Lantana Village 1998 175,480 26 $1,134,217 $6.53 99.0% Winn-Dixie, Kmart, Rite
Lantana Aid(4) (Dollar Store)
Meadows 2002 75,524 20 $919,169 $12.33 98.7% Publix
Miami
Pine Island 1999 254,907 46 $2,341,617 $9.49 96.8% Publix, Home Depot Expo,
Davie Bealls Outlet
Pine Ridge Square 2003 117,399 35 $1,520,522 $13.05 99.2% Fresh Market, Bed Bath
Coral Springs & Beyond, Off Main
Furniture
Plaza Alegre 2003 91,611 21 $1,278,658 $14.73 94.8% Publix, Goodwill
Miami
16
GLA Annualized Average Minimum Percent
(Sq.Ft.)at Minimum Rent Rent Per Leased Leased at
Year Dec. 31 Number of as of December Sq. Ft. at Dec. 31, Anchor Stores and
Property Acquired 2003 Tenants(1) 31, 2003(2) Dec. 31, 2003 2003 Certain Tenants(3)
------------- -------- --------- ---------- -------------- --------------- --------- --------------------------
Plaza Del Rey 1991 50,146 23 $651,201 $12.99 100.0% Navarro Pharmacy
Miami
Point Royale 1995 209,863 26 $1,286,002 $6.53 93.9% Winn-Dixie, Best Buy,
Miami Eckerd* (Linen
Supermarket)
Prosperity Center 2001 122,106 9 $1,866,235 $15.28 100.0% Office Depot, Barnes
Palm Beach Gardens & Noble, Bed Bath &
Beyond, Carmine's, TJ
Maxx
Ridge Plaza 1999 155,204 29 $1,304,784 $8.89 94.5% Publix, AMC Theatre,
Davie Kabooms, Wachovia*
(United Collection), Uncle
Funny's, Round Up
Riverside Square 2003 110,541 36 $1,353,481 $13.35 91.7% Publix, Tuesday
Coral Springs Morning
Sawgrass Promenade 2001 107,092 29 $1,070,585 $10.79 92.7% Publix, Walgreens,
Deerfield Beach Blockbuster
Sheridan Plaza 2003 455,864 66 $5,974,380 $13.48 97.2% Publix, Ross Dress For
Hollywood Less, Bed Bath &
Beyond, Office Depot,
AMC Theater, Eckerd,
Spirit of America*
Shoppes of Ibis 2002 79,420 18 $985,088 $12.40 100.0% Publix
West Palm Beach
Shops at Skylake 1997 174,199 46 $2,631,692 $15.19 99.4% Publix, Goodwill,
North Miami Blockbuster
Beach
Shoppes of 2003 126,788 37 $2,014,766 $16.06 99.0% Publix
Silverlakes
Pembroke Pines
Tamarac Town 2003 127,635 39 $1,056,525 $10.35 79.9% Publix
Square
Tamarac
West Lakes Plaza 1996 100,747 27 $1,094,703 $10.87 100.0% Winn-Dixie, Navarro
Miami Pharmacy
--------- -------- ----------- --------- ---------
Subtotal Florida Properties 8,107,839 1,781 $80,977,075 $10.45 95.5%
(71 properties) --------- -------- ----------- --------- ---------
GEORGIA (24 properties)
Atlanta Area (18 properties)
BridgeMill 2004 89,102 30 $1,257,934 $14.87 94.9% Publix
Canton
Butler Creek 2003 95,597 20 $971,052 $10.60 95.8% Kroger
Acworth
Chastain Square 2003 91,637 27 $1,322,640 $15.84 91.1% Publix
Atlanta
Commerce Crossing 2003 100,668 10 $366,624 $4.03 90.4% Ingles, Wal-Mart*
Commerce
17
GLA Annualized Average Minimum Percent
(Sq.Ft.)at Minimum Rent Rent Per Leased Leased at
Year Dec. 31 Number of as of December Sq. Ft. at Dec. 31, Anchor Stores and
Property Acquired 2003 Tenants(1) 31, 2003(2) Dec. 31, 2003 2003 Certain Tenants(3)
------------- -------- --------- ---------- -------------- --------------- --------- --------------------------
Douglas Commons 2003 97,027 19 $945,752 $10.00 97.5% Kroger
Douglasville
Fairview Oaks 2003 77,052 13 $858,074 $11.14 100.0% Kroger
Ellenwood
Grassland Crossing 2003 90,906 14 $951,596 $11.37 92.1% Kroger
Alpharetta
Hamilton Ridge 2003 89,496 21 $1,089,628 $12.91 94.3% Kroger
Buford
Mableton Crossing 2003 86,819 18 $858,934 $10.03 98.6% Kroger
Mableton
Macland 2003 79,699 17 $657,938 $9.55 86.4% Publix
Pointe
Marietta
Market Place 2003 77,706 23 $581,596 $7.67 97.6% Peachtree Cinema
Norcross
Paulding Commons 2003 192,391 31 $1,551,961 $8.07 100.0% Kroger, Kmart
Dallas
Powers Ferry Plaza 2003 86,473 24 $752,100 $10.42 83.4% Micro Center
Marietta
Presidential 2003 396,408 40 $3,962,634 $10.00 100.0% Publix, Bed Bath &
Markets Beyond, GAP, Shoe
Snellville Carnival, Marshalls,
Carmike Cinema
Shops of Huntcrest 2003 97,040 26 $1,066,392 $12.25 89.7% Publix
Lawrenceville
Wesley Chapel 2003 170,792 25 $1,141,424 $6.73 99.3% Ingels, Wal-Mart, CVS
Crossing Pharmacy
Decatur
West Towne Square 2003 89,596 18 $453,427 $5.46 92.6% Big Lots, Eckerd*
Rome
Williamsburg @ 2003 44,928 27 $704,851 $17.27 90.8%
Dunwoody
Dunwoody
Central Georgia (4 Properties)
Daniel Village 2003 171,932 39 $1,237,491 $7.84 91.9% Bi-Lo, Eckerd*, St.
Augusta Joseph Home Health
Care
Spalding Village 2003 235,318 28 $1,098,648 $7.65 61.0% Kroger, JC Penney
Griffin
Walton Plaza 2003 43,460 8 $415,007 $9.55 100.0% Harris Teeter* (Omni
Augusta Fitness)
Watson Central 2003 227,747 27 $938,516 $4.85 85.0% Winn-Dixie, Wal-Mart*
Warner Robins (Big Lots)
18
GLA Annualized Average Minimum Percent
(Sq.Ft.)at Minimum Rent Rent Per Leased Leased at
Year Dec. 31 Number of as of December Sq. Ft. at Dec. 31, Anchor Stores and
Property Acquired 2003 Tenants(1) 31, 2003(2) Dec. 31, 2003 2003 Certain Tenants(3)
------------- -------- --------- ---------- -------------- --------------- --------- --------------------------
South Georgia (2 properties)
Colony Square 2003 50,000 8 $322,476 $6.69 96.4% Food Lion
Fitzgerald
McAlpin Square 2003 176,807 26 $1,214,646 $7.28 94.4% Kroger, US Post Office
Savannah Big Lots, In Fashion
Menswear Outlet
--------- -------- ----------- --------- ---------
Subtotal Georgia Properties 2,958,601 539 $24,721,341 $9.10 91.8%
(24 properties) --------- -------- ----------- --------- ---------
KENTUCKY (1 property)
Scottsville Square 2003 38,450 12 $212,861 $6.87 80.6% Hancock Fabrics, Zap
Bowling Green
--------- -------- ----------- --------- ---------
Subtotal Kentucky Properties 38,450 12 $212,861 $6.87 80.6%
(1 property) --------- -------- ----------- --------- ---------
LOUISIANA (15 properties)
Ambassador Row 2003 193,978 25 $1,509,855 $7.90 98.5% Hobby Lobby*, Conn's
Lafayette Appliances, Big Lots,
Chuck E. Cheese
Bluebonnet Village 2003 90,215 22 $610,915 $8.47 80.0% Matherne's
Baton Rouge
The Boulevard 2003 68,012 15 $340,837 $8.15 61.5% Piccadilly, Harbor Freight
Lafayette Tools
Country Club Plaza 2003 64,686 11 $352,235 $5.76 94.6% Winn-Dixie, Dollar
Slidell General
The Crossing 2003 113,989 15 $631,864 $5.62 98.7% Albertsons, A-1 Home
Slidell Appliance, Piccadilly
Elmwood Oaks 2003 133,995 9 $1,192,284 $9.58 92.9% Wal-Mart* (Academy
Hanahan Sports, Dollar Tree),
Advance Auto*
(Goodwill)
Grand Marche 2003 200,585 1 $27,500 $0.14 100.0% Academy Sports, JoAnn
(land lease) Fabrics
Lafayette
Millervillage 2003 94,559 14 $290,416 $8.12 37.8% Rite Aid
Baton Rouge
Pinhook Plaza 2003 194,725 31 $442,357 $8.48 26.8% Rite Aid
Lafayette
Plaza Acadienne 2003 105,419 8 $381,104 $3.62 100.0% Super 1 Store, Fred's,
Eunice Howard Brothers*
Sherwood South 2003 77,107 10 $462,699 $6.14 97.7% Piggly Wiggly*, Burke's
Baton Rouge Outlet, Harbor Freight
Tools, Blockbuster
Siegen Village 2003 174,578 22 $1,291,372 $8.15 90.8% Office Depot, Big Lots,
Baton Rouge Dollar Tree, Stage, Party
City
Tarpon Heights 2003 56,605 10 $262,268 $4.80 96.5% Eckerd, Stage, Dollar
Galliano General
19
GLA Annualized Average Minimum Percent
(Sq.Ft.)at Minimum Rent Rent Per Leased Leased at
Year Dec. 31 Number of as of December Sq. Ft. at Dec. 31, Anchor Stores and
Property Acquired 2003 Tenants(1) 31, 2003(2) Dec. 31, 2003 2003 Certain Tenants(3)
------------- -------- --------- ---------- -------------- --------------- --------- --------------------------
Village at 2003 144,638 12 $1,106,635 $7.65 100.0% Service Merchandise*,
Northshore (Marshalls, Dollar Tree)
Slidell Kirschman's, Bed Bath &
Beyond
Wal-Mart 2003 54,223 1 $157,500 $2.90 100.0% Wal-Mart
Mathews
--------- -------- ----------- --------- ---------
Subtotal Louisiana Properties 1,767,314 206 $9,059,841 $6.10 84.0%
(16 properties) --------- -------- ----------- --------- ---------
MISSISSIPPI (1 property)
Shipyard Plaza 2003 66,857 7 $382,536 $5.72 100.0% Rite Aid, Big Lots
Pascagoula
--------- -------- ----------- --------- ---------
Subtotal Mississippi 66,857 7 $382,536 $5.72 100.0%
Properties (1 property) --------- -------- ----------- --------- ---------
NORTH CAROLINA
(12 properties)
Centre Pointe 2003 163,642 19 $714,150 $5.71 76.4% Wal-Mart*, (Belk's,
Plaza Goody's)
Asheville
Chestnut Square 2003 39,640 7 $261,660 $6.88 96.0% Food Lion*, Eckerd*,
Brevard (Dollar General)
Galleria 2003 92,114 40 $741,955 $9.39 85.7% Harris Teeter, Eckerd
Wrightsville Beach
Parkwest Crossing 2003 85,602 18 $843,220 $10.01 98.4% Food Lion
Durham
Plaza North 2003 47,240 9 $334,277 $7.26 97.5% Bi-Lo*, CVS Pharmacy
Hendersonville
Providence Square 2003 85,930 25 $664,123 $8.22 94.1% Harris Teeter*, Eckerd
Charlotte
Riverview 2003 127,106 11 $839,571 $7.20 91.7% Kroger, Upchurch Drugs,
Shopping Center Riverview Furniture
Durham
Salisbury 2003 82,578 17 $724,326 $9.22 95.2% Food Lion, CVS Pharmacy
Marketplace
Salisbury
Shelby Plaza 2003 103,200 8 $298,046 $3.13 92.2% Big Lots, Aaron
Shelby Rents*, (Hancock
Fabrics)
Stanley Market 2003 40,400 3 $220,692 $5.46 100.0% Winn-Dixie, Family
Place Dollar
Stanley
Thomasville 2003 148,754 12 $894,987 $6.02 100.0% Ingles, Kmart, CVS
Commons Pharmacy
Thomasville
Willowdale 2003 120,984 26 $970,076 $8.74 91.7% Harris Teeter, Carmike
Shopping Center Cinemas, Eckerd*
Durham (Family Dollar)
20
GLA Annualized Average Minimum Percent
(Sq.Ft.)at Minimum Rent Rent Per Leased Leased at
Year Dec. 31 Number of as of December Sq. Ft. at Dec. 31, Anchor Stores and
Property Acquired 2003 Tenants(1) 31, 2003(2) Dec. 31, 2003 2003 Certain Tenants(3)
------------- -------- --------- ---------- -------------- --------------- --------- --------------------------
Subtotal North Carolina
Properties --------- -------- ----------- --------- ---------
(12 properties) 1,137,190 195 $7,507,083 $7.19 91.8%
--------- -------- ----------- --------- ---------
SOUTH CAROLINA
(6 properties)
Belfair Towne 2003 125,389 29 $1,621,157 $13.87 93.2% Kroger
Village
Bluffton
Lancaster Plaza 2003 77,400 4 $102,000 $1.44 91.5% Bi-Lo
Lancaster
Lancaster 2003 29,047 2 $30,012 $6.00 17.2%
Shopping Center
Lancaster
North Village 2003 60,356 14 $496,371 $8.22 100.0% Bi-Lo, Dollar General,
Center Gold's Gym
Durham
Spring Valley 2003 75,415 17 $657,127 $9.10 95.8% Bi-Lo, Eckerd
Columbia
Woodruff 2003 68,055 10 $669,405 $10.01 98.2% Publix
Greenville
Subtotal South Carolina --------- -------- ----------- --------- ---------
Properties
(6 properties) 435,662 76 $3,576,072 $9.12 90.0%
--------- -------- ----------- --------- ---------
TENNESSEE (2 properties)
Forrest Gallery 2003 214,450 30 $1,180,928 $5.60 98.4% Kroger, Wal-Mart*
Tullahoma (Tractor Supply, Goodwill,
Hastings Music)
Smyrna Village 2003 83,334 12 $582,528 $7.98 87.6% Kroger
Smyrna
Subtotal Tennessee properties --------- -------- ----------- --------- ---------
(2 properties) 297,784 42 $1,763,456 $6.21 95.4%
--------- -------- ----------- --------- ---------
TEXAS (30 properties)
Houston (16 properties)
Barker Cypress 2001 66,945 17 $778,239 $12.44 93.5% H.E.B.
Houston
Beechcrest 2001 90,647 16 $809,503 $8.93 100.0% Randall's* (Viet Ho),
Houston Walgreens*
Benchmark Crossing 2001 58,384 5 $708,130 $12.13 100.0% Bally's Fitness
Houston
Bissonnet 2001 15,542 8 $185,003 $16.17 73.6% Kroger (4),Blockbuster
Houston
Colony Plaza 2001 26,513 15 $455,101 $18.27 94.0% Albertsons (Velocity
Sugarland Sports)
Forestwood 2002 88,760 16 $986,838 $11.34 98.0% Kroger
Houston
21
GLA Annualized Average Minimum Percent
(Sq.Ft.)at Minimum Rent Rent Per Leased Leased at
Year Dec. 31 Number of as of December Sq. Ft. at Dec. 31, Anchor Stores and
Property Acquired 2003 Tenants(1) 31, 2003(2) Dec. 31, 2003 2003 Certain Tenants(3)
------------- -------- --------- ---------- -------------- --------------- --------- --------------------------
Grogan's Mill 2001 118,493 26 $1,320,598 $11.85 94.0% Randall's* (99(cent)Store),
The Woodlands Petco
Hedwig 2001 69,504 13 $741,612 $14.31 74.5% Ross Dress For Less
Houston
Highland Square 2001 64,171 27 $1,089,298 $17.03 99.7%
Sugarland
Market at First 2001 107,301 35 $1,656,314 $15.91 97.0% Kroger, TJ Maxx, Eckerd
Colony
Houston
Mason Park 2001 160,047 39 $1,414,132 $11.89 74.3% Kroger, Walgreens*
Katy (Eloise Collectibles),
Palais Royal, Petco
Mission Bend 2001 131,575 27 $1,104,447 $9.02 93.1% Randall's, Remarkable
Houston Furniture
Spring Shadows 2001 106,995 18 $990,456 $9.54 97.1% H.E.B.
Houston
Steeplechase 2001 105,152 26 $1,095,948 $11.02 94.6% Randall's
Jersey Village
Wal-Mart Stores, 2003 53,571 1 $175,350 $3.27 100.0% Wal-Mart* (Sutherland
Inc. Lumber)
Marble Falls
Dallas (13 properties)
Green Oaks 2001 65,091 34 $611,168 $10.87 86.4% Kroger
Arlington
Melbourne Plaza(5) 2001 47,517 18 $470,945 $11.12 89.2%
Hurst
Minyard's 2001 65,295 2 $399,648 $6.12 100.0% Minyards/Sack N Save
Garland
Parkwood 2001 81,590 18 $1,013,125 $13.20 94.0% Albertsons, Planet Pizza
Plano
Plymouth Park East 2001 56,435 10 $235,585 $4.29 97.3% Kroger
Irving
Plymouth Park 2001 444,541 58 $1,641,884 $7.18 51.5% Blockbuster, Dollar
North General, Thrift Store, Post
Irving Office, Chateau Theatre,
Levines
Plymouth Park 2001 49,102 7 $236,555 $6.44 74.8% Betcha Bingo
South
Irving
Plymouth Park West 2001 178,930 15 $577,092 $3.52 91.7% Bargain City, Dollar Store,
Irving Fashion Depot
Richwood 2001 54,871 28 $512,083 $13.38 69.7% Albertsons(4), Blockbuster
Richardson
Rosemeade Park 2001 51,234 18 $431,716 $12.90 65.3% Kroger(4), Blockbuster
Carrolton
22
GLA Annualized Average Minimum Percent
(Sq.Ft.)at Minimum Rent Rent Per Leased Leased at
Year Dec. 31 Number of as of December Sq. Ft. at Dec. 31, Anchor Stores and
Property Acquired 2003 Tenants(1) 31, 2003(2) Dec. 31, 2003 2003 Certain Tenants(3)
------------- -------- --------- ---------- -------------- --------------- --------- --------------------------
Sterling Plaza 2001 65,765 16 $754,740 $15.80 72.6% Bank One, Irving City
Irving Library
Townsend 2001 146,953 38 $1,126,713 $8.85 86.7% Albertsons(4), Bealls,
Desoto Victory Gym, Dollar
General
Village by the 2001 44,523 10 $680,922 $16.55 92.4% Petco, Movie Trading
Park
Arlington
San Antonio (2 properties)
Blanco Village 2002 108,325 16 $1,698,811 $15.68 100.0% H.E.B.
San Antonio
Wurzbach 2001 59,771 3 $170,729 $2.86 100.0% Albertsons*
San Antonio
--------- -------- ----------- --------- ---------
Subtotal Texas Properties 2,783,543 580 $24,072,685 $10.26 84.3%
(30 properties) --------- -------- ----------- --------- ---------
VIRGINIA (2 properties)
Smyth Valley 2003 126,841 14 $741,643 $5.85 100.0% Ingles, Wal-Mart
Crossing
Marion
Waterlick Plaza 2003 98,694 24 $681,667 $8.72 79.2% Kroger, CVS Drugs
Lynchburg
Subtotal Virginia Properties --------- -------- ----------- --------- ---------
(2 properties) 225,535 38 $1,423,310 $6.94 90.9%
--------- -------- ----------- --------- ---------
Total/Weighted Average
Supermarket and
Necessity-Oriented Retailer
Anchored Centers
(168 properties) 18,201,244 3,555 $156,722,144 $9.40 91.6%
---------- -------- ------------ --------- ---------
DEVELOPMENTS AND
REDEVELOPMENTS (14)
Ambassador Row 2003 158,783 30 $1,126,788 $8.75 81.1% Marshalls, Bed Bath &
Courtyard Beyond, Hancock Fabrics
Lafayette, LA
Bandera Festival 2001 195,438 34 $1,127,572 $10.91 52.9% Bealls, Eckerd*
San Antonio, TX (Scrapbook Haven),
Blockbuster
Cashmere(5) 2001 4.0 acres -- N/A N/A --
Port St. Lucie, FL
Copperfield 2001 132,960 33 $997,733 $12.77 58.8% JoAnn Fabrics
Houston, TX
CVS Plaza(6) 2003 Dev. 4.0 acres -- N/A N/A --
Miami, FL
23
GLA Annualized Average Minimum Percent
(Sq.Ft.)at Minimum Rent Rent Per Leased Leased at
Year Dec. 31 Number of as of December Sq. Ft. at Dec. 31, Anchor Stores and
Property Acquired 2003 Tenants(1) 31, 2003(2) Dec. 31, 2003 2003 Certain Tenants(3)
------------- -------- --------- ---------- -------------- --------------- --------- --------------------------
East Bay Plaza 1993 85,426 23 $503,009 $10.00 58.9% Albertsons(4), Family
Largo Dollar, Hollywood Video
Eustis Square 1993 126,791 27 $570,412 $6.72 67.0% Save-a-Lot, Walgreens*
Eustis (Bealls Outlet)
Gulf Gate Plaza 2003 201,620 21 $839,569 $6.50 64.0% Bealls Outlet, JoAnn
Naples Fabrics, Dockside Imp.,
Miramar Outparcel Held for 2.0 acres -- N/A N/A --
Miramar, FL Sale
Oakbrook 2003 Redev. 212,074 32 $1,943,143 $13.41 68.3% Publix, Duffy's,
Palm Beach Stein Mart, Eckerd
Gardens, FL
Venice Plaza 2003 159,473 18 $538,077 $5.23 64.6% Kash N Karry, TJ Maxx
Venice
Walden Woods 2003 Redev. 74,336 13 $395,702 $6.49 82.0% Walgreens, Dollar
Plant City, FL Tree, Aaron Rents
Waterstone(7) 2004 Dev. 12.0 acres -- N/A N/A --
Homestead, FL
Westbridge(8) 2005 Dev. 13.5 acres -- -- -- --
McDonough, GA
Total Developments & --------- -------- ----------- --------- ---------
Redevelopments (14) 1,346,901 231 $8,042,005 $9.10 65.6%
--------- -------- ----------- --------- ---------
Total Retail Properties --------- -------- ------------ --------- ---------
(182 properties) 19,548,145 3,786 $164,764,149 $9.38 89.8%
--------- -------- ------------ --------- ---------
Other Properties
- ----------------
4101 South I-85 2003 188,513 10 $386,977 -- 73.7% -
Industrial property
Charlotte, NC
Mandarin 1994 52,880 534 N/A N/A 97.7% -
Mini-storage(9)
Jacksonville, FL
Southwest 2001 93,402 18 $533,890 -- 52.8% Walgreens
Walgreens**
Phoenix, AZ
Grand Total ---------- -------- ----------- --------- ---------
(185 properties) 19,882,940 4,348 $165,685,016 N/A 89.5%
---------- -------- ----------- --------- ---------
- -----------------------------
(1) Number of tenants includes both occupied and vacant units.
(2) Calculated by annualizing the tenant's monthly base rent payment at
December 31, 2003, 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) This tenant is on adjacent or contiguous, separately owned parcel.
(5) This development property is a 4.0 acre site located adjacent to our
Cashmere retail center.
(6) This development property is a 4.0 acre site located at the northeast
corner of S.W. 147th Avenue and Coral Way. Construction has commenced on a
25,000 square foot drugstore anchored shopping center.
(7) 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
2004.
(8) This development property is a 13.5 acre site located in Georgia. We expect
to develop a supermarket-anchored center in 2005.
(9) There are 534 storage spaces available at this property.
24
* 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.
** This property was sold in February 2004.
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, 2003 the gross leasable
area, or "GLA" of our existing properties leased to tenants in supermarket
retail properties:
Supermarket Other Anchor Non-anchor
Anchor Tenants Tenants Tenants Total
-------------- ----------- ----------- ----------
Leased GLA (sq. ft.) 5,475,680 5,530,083 6,555,469 17,561,232
Percentage of Total Leased GLA 31.2% 31.5% 37.3% 100%
The following table sets forth as of December 31, 2003 the annual minimum
rent at expiration of our existing properties attributable to tenants in retail
properties:
Supermarket Other Anchor Non-anchor
Anchor Tenants Tenants Tenants Total
-------------- ----------- ----------- ----------
Annual Minimum Rent ("AMR") $ 36,441,509 $ 36,647,127 $ 97,193,231 $170,281,867
Percentage of Total AMR 21.4% 21.5% 57.1% 100%
The following table sets forth as of December 31, 2003 information
regarding leases with our ten largest tenants in retail properties:
Annualized Percent of Average
Minimum Aggregate Annual
Percent Rent at Annualized Minimum
Number GLA of Total December 31, Minimum Rent per
Tenant of Leases (square feet) GLA 2003 Rent Square Foot
- --------------------------- --------- ------------- ---------- --------------- ------------ --------------
Publix..................... 45 2,004,580 10.3% $ 14,465,152 8.8% $ 7.22
Kroger..................... 16 863,800 4.4% 6,641,730 4.0% 7.69
Winn-Dixie................. 17 761,143 3.9% 4,949,604 3.0% 6.50
Wal-Mart................... 11 834,994 4.3% 3,687,045 2.2% 4.42
Kmart...................... 6 524,937 2.7% 2,795,865 1.7% 5.33
Blockbuster................ 28 164,370 0.8% 2,473,635 1.5% 15.05
Eckerd..................... 27 267,696 1.4% 2,340,273 1.4% 8.74
Food Lion/Kash N Karry..... 8 297,802 1.5% 1,962,601 1.2% 6.59
Bed Bath & Beyond.......... 6 202,658 1.0% 1,930,031 1.2% 9.52
H.E. Butt Grocery.......... 3 178,608 0.9% 1,793,855 1.1% 10.04
------ ------------- ---------- --------------- ------------ --------------
Subtotal top ten tenants.... 167 6,100,588 31.2% $ 43,039,791 26.1% $ 7.06
====== ============= ========== =============== ============ ==============
25
Lease Expirations
The following tables sets forth the anticipated expirations of our tenant
leases in retail properties as of December 31, 2003 for each year from 2004
through 2013 and thereafter:
All Tenants
Percent of
Aggregate Average Annual
Annualized Annualized Minimum Rent per
Number of GLA Percent of Minimum Rent Minimum Rent Square Foot at
Year Leases (square feet) Total GLA at Expiration at Expiration Expiration
- -------------------- ------------ ------------- ------------- ----------------- ----------------- -------------------
M-T-M 139 256,499 1.3% $ 2,070,839 1.2% $ 8.07
2004 683 1,832,226 9.4% 20,380,475 12.0% 11.12
2005 692 1,934,905 9.9% 22,704,655 13.3% 11.73
2006 636 2,010,762 10.3% 23,909,760 14.0% 11.89
2007 391 1,805,775 9.2% 18,987,563 11.2% 10.51
2008 370 1,552,500 7.9% 17,767,725 10.4% 11.44
2009 87 1,113,334 5.7% 8,180,793 4.8% 7.35
2010 65 658,679 3.4% 6,267,312 3.7% 9.51
2011 41 995,273 5.1% 7,069,214 4.2% 7.10
2012 35 855,976 4.4% 6,935,610 4.1% 8.10
2013 29 487,129 2.5% 4,047,408 2.4% 8.31
Thereafter 120 4,058,174 20.7% 31,960,513 18.7% 7.88
------------ ------------- ------------- ----------------- ----------------- -------------------
Sub-total/Average 3,288 17,561,232 89.8% 170,281,867 100.0% 9.70
Vacant 498 1,986,913 10.2% NA NA NA
------------ ------------- ------------- ----------------- ----------------- -------------------
Total/Average 3,786 19,548,145 100.0% $170,281,867 100.0% $ 8.71
============ ============= ============= ================= ================= ===================
Anchor Tenants (10,000 sq. ft. or greater)
Percent of
Aggregate Average Annual
Annualized Annualized Minimum Rent per
Number of GLA Percent of Minimum Rent Minimum Rent Square Foot at
Year Leases (square feet) Total GLA at Expiration at Expiration Expiration
- -------------------- ------------ ------------- ------------- ----------------- ----------------- -------------------
M-T-M - - 0.0% $ - 0.0% $ -
2004 24 559,258 4.6% 3,082,495 4.2% 5.51
2005 25 506,953 4.2% 2,569,957 3.5% 5.07
2006 30 721,681 5.9% 4,498,458 6.2% 6.23
2007 36 954,354 7.8% 6,021,393 8.2% 6.31
2008 29 725,470 6.0% 4,632,700 6.3% 6.39
2009 22 915,025 7.5% 5,212,627 7.1% 5.70
2010 20 534,248 4.4% 3,881,940 5.3% 7.27
2011 21 934,311 7.7% 5,694,087 7.8% 6.09
2012 19 787,899 6.5% 5,508,061 7.5% 6.99
2013 11 412,940 3.4% 2,560,624 3.5% 6.20
Thereafter 87 3,953,624 32.4% 29,426,294 40.4% 7.44
------------ ------------- ------------- ----------------- ----------------- -------------------
Sub-total/Average 324 11,005,763 90.4% 73,088,636 100.0% $ 6.64
Vacant 37 1,167,252 9.6% NA NA NA
------------ ------------- ------------- ----------------- ----------------- -------------------
Total/Average 361 12,173,015 100.0% $73,088,636 100.0% $ 6.00
============ ============= ============= ================= ================= ===================
26
Local Tenants (less than 10,000 sq. ft.)
Percent of
Aggregate Average Annual
Annualized Annualized Minimum Rent per
Number of GLA Percent of Minimum Rent Minimum Rent Square Foot at
Year Leases (square feet) Total GLA at Expiration at Expiration Expiration
- -------------------- ------------ ------------- ------------- ----------------- ----------------- -------------------
M-T-M 139 256,499 3.5% $ 2,070,839 2.1% $ 8.07
2004 659 1,272,968 17.3% 17,297,980 17.8% 13.59
2005 667 1,427,952 19.4% 20,134,698 20.7% 14.10
2006 606 1,289,081 17.5% 19,411,302 20.0% 15.06
2007 355 851,421 11.5% 12,966,170 13.3% 15.23
2008 341 827,030 11.2% 13,135,025 13.5% 15.88
2009 65 198,309 2.7% 2,968,166 3.1% 14.97
2010 45 124,431 1.7% 2,385,372 2.5% 19.17
2011 20 60,962 0.8% 1,375,127 1.4% 22.56
2012 16 68,077 0.9% 1,427,549 1.5% 20.97
2013 18 74,189 1.0% 1,486,784 1.5% 20.04
Thereafter 33 104,550 1.4% 2,534,219 2.6% 24.24
------------ ------------- ------------- ----------------- ----------------- -------------------
Sub-total/Average 2,964 6,555,469 88.9% 97,193,231 100.0% 14.83
Vacant 461 819,661 11.1% NA NA NA
------------ ------------- ------------- ----------------- ----------------- -------------------
Total/Average 3,425 7,375,130 100.0% $ 97,193,231 100.0% $ 13.18
============ ============= ============= ================= ================= ===================
We may incur substantial expenditures in connection with the re-leasing of
our retail space, principally in the form of tenant improvements and leasing
commissions. The amounts of these expenditures can vary significantly, depending
on negotiations with tenants and the willingness of tenants to pay higher base
rents over the life of the leases. We also incur expenditures for certain
recurring capital expenses.
Insurance
Our tenants are generally responsible under their leases for providing
adequate insurance on the spaces 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, 2003, we owned non-controlling interests in two
unconsolidated joint ventures, as follows:
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, 2003. 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.
ITEM 3. LEGAL PROCEEDINGS
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.
27
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted for stockholder vote during the fourth quarter of
2003.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
PURCHASE OF EQUITY SECURITIES
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 1, 2004, we had approximately
2,000 stockholders of record representing approximately 15,000 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, 2002 $ 14.60 $13.30 $ 0.27
Second Quarter, 2002 $ 14.25 $13.25 $ 0.27
Third Quarter, 2002 $ 14.14 $12.08 $ 0.27
Fourth Quarter, 2002 $ 13.75 $11.85 $ 0.27
First Quarter, 2003 $ 15.30 $12.92 $ 0.27
Second Quarter, 2003 $ 17.26 $15.32 $ 0.27
Third Quarter, 2003 $ 17.82 $16.43 $ 0.28
Fourth Quarter, 2003 $ 17.50 $16.40 $ 0.28
Dividends paid during 2003 and 2002 totaled $70.7 million and $35.8
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 equal to at least 90% of our "real estate investment trust taxable
income," as defined in Section 857 of the Code.
Equity Compensation Plan Information
The following table sets forth information regarding securities authorized
for issuance under equity compensation plans as of December 31, 2003.
- --------------------------------| -------------------------|------------------------------|--------------------------------|
| | | Number of securities |
| | | remaining available for |
| Number of securities to | | future issuance under equity|
| be issued upon exercise | Weighted-average exercise | compensation plans (excluding |
| of outstanding options, | price of outstanding options,| securities reflected in |
Plan category | warrants and rights | warrants and rights | column (a)) |
- --------------------------------|--------------------------|------------------------------|--------------------------------|
| (a) | (b) | (c) |
- --------------------------------|--------------------------|------------------------------|--------------------------------|
Equity compensation plans | 1,700,898(2) | $13.21 | 447,099(3) |
approved by security holders(1) | | | |
- --------------------------------|--------------------------|------------------------------|--------------------------------|
Equity compensation plans not | | | |
approved by security holders | - | - | - |
- --------------------------------|--------------------------|------------------------------|--------------------------------|
Total | 1,700,898 | $13.21 | 447,099 |
- --------------------------------|--------------------------|------------------------------|--------------------------------|
(1) Includes information related to our 1995 Stock Option Plan, 2000 Executive
Incentive Compensation Plan, 1989 IRT Stock Option Plan and 1998 IRT
Long-Term Incentive Plan.
(2) Includes options to purchase 205,148 shares of common stock issuable upon
the exercise of options assumed in the IRT merger.
(3) Also excludes shares of restricted stock and other awards granted prior to
December 31, 2003 under the plan.
28
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, 2003,
2002 and 2001 contained elsewhere herein. The consolidated financial statements
as of and for the years ended December 31, 2003, 2002 and 2001 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,
------------------------------------------------------------------------------
2003 2002 2001 2000 1999
------------- ------------ ------------ ------------- -----------
(in thousands other than per share, percentage and ratio data)
Statement of Operations Data:
(1)(2)
Total rental income.............. $ 189,976 $ 98,904 $ 77,404 $ 46,465 $ 25,451
------------- ------------ ------------ ------------ ------------
Property operating expenses...... 54,866 30,763 24,124 13,187 6,512
Interest expense................. 37,826 22,106 20,909 12,426 5,086
Amortization of deferred
financing fees................. 1,111 884 1,114 248 -
Rental property depreciation and
amortization................... 27,598 13,303 10,798 6,167 3,396
Litigation settlement............ - 2,067 - - -
General and administrative
expenses....................... 11,046 6,649 3,553 2,559 1,622
------------- ------------ ------------ ------------ -----------
Total costs and expenses......... 132,447 75,772 60,498 34,587 16,616
------------- ------------ ------------ ------------ ------------
Other income and expenses........ 1,027 4,222 609 793 4,418
------------- ------------ ------------ ------------ ------------
Income before discontinued
operations and minority
interest....................... $ 58,556 $ 27,354 $ 17,515 $ 12,671 $ 13,253
============= ============ ============ ============ ============
Net income....................... $ 63,647 $ 39,934 $ 18,721 $ 12,555 $ 13,589
============= ============ ============ ============ ============
Basic earnings per share:
Income before discontinued
operations................... $ 0.96 $ 0.84 $ 0.77 $ 0.82 $ 1.21
============= ============ ============ ============ ============
Net income..................... $ 1.06 $ 1.22 $ 0.83 $ 0.88 $ 1.26
============= ============ ============ ============ ============
Diluted earnings per share:
Income before discontinued
operations................... $ 0.95 $ 0.82 $ 0.77 $ 0.82 $ 1.21
============= ============ ============ ============ ============
Net income..................... $ 1.05 $ 1.20 $ 0.83 $ 0.87 $ 1.26
============= ============ ============ ============ ============
(continued)
29
Year Ended December 31,
-------------------------------------------------------------------------------
2003 2002 2001 2000 1999
------------- ------------ ------------ ------------- -----------
(in thousands other than per share, percentage and ratio data)
Balance Sheet Data: (2)
Total rental properties, net
of accumulated depreciation.. $ 1,617,299 $ 678,431 $ 627,687 $ 483,699 $ 204,919
Total assets................... 1,677,386 730,069 668,536 542,817 212,497
Mortgage notes payable........... 459,103 332,143 345,047 280,396 97,752
Total liabilities................ 834,162 375,969 386,400 317,392 121,068
Minority interest................ 12,672 3,869 3,869 37,762 989
Shareholders' equity............. 830,552 350,231 278,267 187,663 90,440
Other Data:(2)
Funds from operations(3)........ $ 89,870 $ 45,487 $ 29,848 $ 19,266 $ 13,354
Cash flows from:
Operating activities.......... 78,262 45,613 28,214 20,293 20,169
Investing activities.......... (326,160) (51,439) (42,435) (11,679) (62,239)
Financing activities.......... 245,920 7,864 12,780 (6,694) 40,903
GLA (square feet) at end of
period........................ 19,883 8,530 8,637 3,169 2,836
Occupancy at end of period..... 90% 89% 86% 95% 95%
Dividends per share............ $ 1.10 $ 1.08 $ 1.06 $ 1.10 $ 1.02
(continued)
<FN>
- --------------------------
(1) Restated to reflect the reporting of discontinued operations.
(2) Prior year data has been reclassified to conform to the current period's
presentation.
(3) We believe Funds From Operations ("FFO") (combined with the primary GAAP
presentations) is a useful supplemental measure of our operating
performance that is a recognized metric used extensively by the real estate
industry, in particular, REITs. Accounting for real estate assets using
historical cost accounting under accounting principles generally accepted
in the United States of America ("GAAP") assumes that the value of real
estate diminishes predictably over time. The National Association of Real
Estate Investment Trusts ("NAREIT") stated in its April 2002 White Paper on
Funds from Operations "since real estate values...have historically risen
or fallen with market conditions, many industry investors have considered
presentations of operating results for real estate companies that use
historical cost accounting to be insufficient by themselves."
FFO, as defined by NAREIT, is "net income (computed in accordance with
GAAP), excluding (gains or losses) from sales of property, plus
depreciation and amortization, and after adjustments for unconsolidated
partnerships and joint ventures. Adjustments for unconsolidated
partnerships and joint ventures will be calculated to reflect funds from
operations on the same basis." We believe that financial analysts,
investors and stockholders are better served by the clearer presentation of
comparable period operating results generated from our FFO measure. Our
method of calculating FFO may be different from methods used by other REITs
and accordingly, may not be comparable to such other REITs.
FFO is presented to assist investors in analyzing our performance and to
provide an indication of our ability to fund capital expenditures,
distribution requirements and other cash needs. FFO (i) does not represent
cash flow from operations as defined by GAAP, (ii) is not indicative of
cash available to fund all cash flow needs and liquidity, including the
ability to make distributions, and (iii) should not be considered as an
alternative to net income (which is determined in accordance with GAAP) for
purposes of evaluating our operating performance. We believe net income is
the most directly comparable GAAP measure to FFO.
</FN>
30
The following table illustrates the calculation of funds from operations
for the five years ended December 31, 2003:
Year Ended December 31,
-----------------------------------------------------------------------
2003 2002 2001 2000 1999
----------- ----------- ---------- ----------- ------------
Net income................................. $ 63,647 $ 39,934 $ 18,721 $12,555 $13,589
Adjustments:
Rental property depreciation and
amortization, including discontinued
operations............................. 28,007 13,810 11,665 6,534 3,483
(Gain) loss on disposal of income
producing properties................... (3,083) (9,264) 609 63 (3,814)
Minority interest, excluding CEFUS....... 803 101 99 - 96
Other Items:
Interest on convertible partnership
units.................................. 43 259 259 20 -
Deferred income tax (benefit)
expense................................ - - (374) 1,071 -
Minority interest in CEFUS share of
FFO adjustments........................ - - (1,369) (1,010) -
Pro-rata share of real estate
depreciation from joint ventures....... 453 647 238 33 -
----------- ----------- ---------- ----------- ------------
Funds from operations...................... $ 89,870 $ 45,487 $ 29,848 $19,266 $13,354
=========== =========== ========== =========== ============
The following table reflects the reconciliation of FFO per diluted share to
earnings per diluted share, the most directly comparable GAAP measure, for the
periods presented:
Year Ended December 31,
-----------------------------------------------------------------------
2003 2002 2001 2000 1999
----------- ----------- ---------- ---------- ----------
Earnings per diluted share*............... $.1.05 $ 1.20 $ 0.83 $ 0.87 $ 1.26
Adjustments:
Rental property depreciation and
amortization, including
discontinued operations................ 0.45 0.41 0.52 0.45 0.32
(Gain) loss on disposal of income
producing properties.................. (0.05) (0.27) 0.03 0.01 (0.35)
Minority interest........................ 0.01 - - - 0.01
Other items:
Deferred income tax (benefits)
expense............................... - - (0.02) 0.07 -
Minority interest in CEFUS share of
FFO adjustments....................... - - (0.06) (0.07) -
Pro-rata share of real estate
depreciation from joint ventures... - 0.02 0.01 - -
----------- ----------- ---------- ---------- ----------
Funds from operations per diluted share.. $ 1.46 $ 1.36 $ 1.31 $ 1.33 $ 1.24
=========== =========== ========== ========== ==========
* Earnings per diluted share reflect the add-back of interest on convertible
partnership units and the minority interest(s) in earnings of consolidated
subsidiaries which are convertible to shares of our common stock.
(concluded)
31
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, 2003, our portfolio consisted of 185 properties, comprising 123
supermarket-anchored shopping centers, 11 drug store-anchored shopping centers,
44 other retail-anchored shopping centers, one self-storage facility, one
industrial and five retail developments, as well as non-controlling interests in
two unconsolidated joint ventures that own and operate commercial properties.
We believe we distinguish ourselves by owning and operating shopping
centers anchored by supermarkets or necessity-oriented retailers in high density
areas that are experiencing high population growth. Our goal is to own and
operate properties containing dominant supermarket operators and a diverse
tenant mix. We believe that these characteristics combine to reduce the
vulnerability of our properties to economic downturns, enhance consumer traffic
through our properties and generate more stable cash flows over time. We derive
substantially all of our revenue from tenants under existing leases at our
properties.
Our business is generally dependent on the performance of the economy in
the areas in which we own properties. Changes in the economic environment tend
to have a direct effect on our tenants' businesses and, therefore, their ability
to continue to pay us rent. In 2003, the overall U.S. economy began to
demonstrate sustained economic growth. This growth, as well as the prevailing
low interest rate environment, contributed to the growth in our cash flows and
allowed us to increase the occupancy rates at our centers for the year. We have
followed a disciplined approach and taken advantage of the improving economic
environment in our markets. First, we continue to concentrate on shopping
centers in the southern region of the United States by acquiring new centers in
high growth, high density areas, developing and redeveloping centers in these
areas and selling properties that no longer meet our investment criteria.
Second, we also have repaid certain high interest rate mortgage debt and
obtained a variable rate unsecured revolving credit facility on what we consider
to be favorable financial and legal terms. Third, we were able to access the
capital markets for additional equity financing.
The highlights of our 2003 activity reflect this strategy.
o We completed a statutory merger with IRT Property Company acquiring 93
properties comprising approximately 10 million square feet of gross
leasable area located in ten states in the southern region of the United
States. We now have shopping centers in twelve states primarily in Florida,
Texas, Georgia, North Carolina, South Carolina and Louisiana.
o We acquired an additional 10 supermarket anchored centers, an outparcel and
land held for future development for approximately $211.0 million.
o We sold 6 properties, a property held by a joint venture and a joint
venture interest for gross proceeds of $33.3 million.
o We completed the development of a supermarket anchored shopping center
containing 91,000 square feet of gross leasable area and have over 25
development and redevelopments underway.
o We completed two public equity offerings of our common stock, raising
proceeds of $99.9 million and issuing 6.0 million shares of our common
stock.
32
o We entered into a $340 million unsecured revolving credit facility and
prepaid $54.8 million of fixed and variable rate debt. Our fixed rate
mortgage debt outstanding of $459.1 million is at a weighted average
interest rate of 7.45%, our $150.0 million fixed rate senior unsecured
notes are at a weighted average interest rate of 7.55% and our variable
rate revolving credit facility has an interest rate currently at 2.06%
including the effect of interest swaps.
o We increased the base rental rate by 3.1% on 284 lease renewals aggregating
674,889 square feet to $12.30 per square foot. We executed 367 new leases
totaling 1,144,882 square feet at an average rate of $10.89 per square foot
and we increased our occupancy rate to 91.6% in the portfolio.
However, our long-term operating cash flow is dependent on the continued
occupancy of our properties, the rents that we are able to charge to our tenants
and the ability of these tenants to make their rental payments. Therefore, the
main long-term threat to our business is our dependence on the viability of our
anchor and other tenants. General economic downturns and competition from
national and regional supercenters, such as Wal-Mart or other discount
retailers, may have an increasing adverse impact on the business of our tenants
by taking customers or reducing operating margins. For instance, Winn-Dixie
Stores Inc., which has supermarkets in 17 of our centers, has recently announced
deteriorating operating results and has had the rating on its senior notes
downgraded. However, we believe that these risks are mitigated by concentrating
on high-density, urban areas, leasing to the dominant supermarket operators in
the markets in which we own properties and maintaining a diverse tenant mix. We
are not currently aware of any pending tenant bankruptcies that are likely to
materially affect our rental revenues.
We are optimistic that we are well positioned to take advantage of the
sustained growth of the economy and continuing low interest rate environment
while our largely fixed rate indebtedness protects us from increases in interest
rates in the near term.
Short-Term Liquidity Needs
As of December 31, 2003, we had $966,000 in cash and $150.6 million
available to be drawn under our revolving credit facilities. Our cash flow
generated by operations was $78.3 million for the year ended December 31, 2003.
Our short-term liquidity requirements consist primarily of funds necessary
to pay for operating and other expenses directly associated with our portfolio
of properties, general and administrative expenses (including payroll and
related costs), interest expense and scheduled principal payments on our
outstanding debt, capital expenditures incurred to facilitate the leasing of
space (e.g., tenant improvements and leasing commissions), development and
redevelopment activities, quarterly dividends paid to our common shareholders
and distributions made to holders of operating partnership units.
Historically, we have satisfied these requirements principally through cash
generated from operations. We believe that cash generated from operations and
borrowings under our unsecured revolving credit facilities will be sufficient to
meet our short-term liquidity requirements; however, there are certain factors
that may have a material adverse effect on our cash flow.
Our current development plans include over 25 development and redevelopment
projects, the aggregate cost of which (including costs incurred in prior years
on these projects) is expected to be approximately $107.2 million of which $32.5
million remains unfunded based on our current plans. We intend to fund these
costs from our unsecured revolving credit facilities.
We may incur significant expenditures in connection with the re-leasing of
our retail space, principally in the form of tenant improvements and leasing
commissions. The amounts of these expenditures can vary significantly, depending
on negotiations with tenants and the willingness of tenants to pay higher base
rents over the life of the leases. We also incur expenditures for certain
recurring capital expenses. We expect to pay for re-leasing and recurring
capital expenditures out of cash from operations.
33
As a REIT, we are required to distribute at least 90% of our taxable income
to our stockholders on an annual basis. Therefore, as a general matter, it is
unlikely that we will be able to retain any substantial cash balances that could
be used to meet our liquidity needs. Instead, these needs must be met with cash
generated from current operations and external sources of capital.
During 2003, we paid dividends on our common stock in an amount equal to
$1.10 per share. The maintenance of these dividends is subject to various
factors, including the discretion of our Board of Directors, our ability to pay
dividends under Maryland law, the availability of cash to make the necessary
dividend payments and the effect of REIT distribution requirements. We also make
regular distributions on units in partnerships that we control.
Long-Term Liquidity Needs
Our long-term liquidity requirements consist primarily of funds necessary
to pay for the principal amount of our long-term debt as it matures, significant
non-recurring capital expenditures that need to be made periodically at our
properties, development and redevelopment projects that we undertake at our
properties and the costs associated with acquisitions of properties or other
companies. Historically, we have satisfied these requirements principally
through what we believe to be the most advantageous source of capital available
at the time, which has included the incurrence of new debt through borrowings
under credit facilities and the issuance of debt securities, sales of common
stock, capital raised through the disposition of assets, repayment by third
parties of notes receivable and joint venture capital transactions. We believe
that these sources of capital will continue to be available in the future to
fund our long-term capital needs; however, there are certain factors that may
have a material adverse effect on our ability to access these capital sources.
Our ability to incur additional debt is dependent upon a number of factors,
including our degree of leverage, the value of our unencumbered assets, our
credit rating and borrowing restrictions imposed by existing lenders. Currently,
we have investment grade credit ratings for our unsecured senior debt from two
major rating agencies - Standard & Poor's and Moody's Investors Service. A
downgrade in outlook or rating by a rating agency can occur at any time if the
agency perceives an adverse change in our financial condition, results of
operations or ability to service debt. If such a downgrade occurs, it would
increase the interest rate currently payable under our existing credit
facilities, it likely would increase the costs associated with obtaining future
financing, and it potentially could adversely affect our ability to obtain
future financing. The indentures under which our publicly traded debt securities
are issued also contain certain restrictions on our ability to incur debt and
other financial covenants.
The following table sets forth certain information regarding future
contractual obligations as of December 31, 2003 (in thousands):
Payments due by period
----------------------
Less than More than
Contractual Obligation Total 1 year 1-3 years 3-5 years 5 years
- ---------------------- ---------- ---------- ----------- ----------- -----------
Mortgage notes payable:
Scheduled amortization........... $ 116,468 $ 9,432 $ 19,762 $ 20,263 $ 67,011
Balloon payments................. 342,635 2,727 54,851 42,968 242,089
---------- ---------- ----------- ----------- -----------
Total mortgage obligations...... 459,103 12,159 74,613 63,231 309,100
---------- ---------- ----------- ----------- -----------
Unsecured revolving credit
facilities....................... 162,000 - 162,000 - -
Unsecured senior notes............. 150,000 - 50,000 75,000 25,000
Capital leases..................... - - - - -
Operating leases................... 346 277 57 12 -
Development and redevelopment...... 32,487 25,274 7,213 - -
---------- ---------- ----------- ----------- -----------
Total contractual obligations...... $ 803,936 $ 37,710 $ 293,883 $ 138,243 $ 334,100
========== ========== =========== =========== ===========
34
Off Balance Sheet Arrangements
We have an off balance sheet joint venture and other unconsolidated
arrangements with varying structures. As of December 31, 2003, our off balance
sheet arrangements were as follows:
o Letters of credit totaling $1.4 million have been provided as security
for certain performance requirements.
o Our unconsolidated joint venture, PG Partners, has aggregate
outstanding indebtedness of approximately $12.9 million, bearing fixed
rate interest at 8.5% and maturing April 2010. Principal and interest
payments of $102,000 are due monthly which are paid out of operating
cash flow from the property. Our investment in this joint venture is
$2.9 million.
o We have committed to fund $32.5 million, based on current plans and
estimates, in order to complete pending development and redevelopment
projects. These obligations, comprised principally of construction
contracts, are generally due as the work is performed and are expected
to be financed by our available credit facilities.
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 affect its more significant judgments and estimates used in
the preparation of our consolidated financial statements.
Real Estate Properties and Development Assets. We capitalize acquisition
and construction costs, property taxes, interest and other miscellaneous costs
that are directly identifiable with a project, from pre-acquisition until the
time that construction is complete and the development is ready for its intended
use, in accordance with 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 values. 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, replacement cost, 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
values 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
35
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.
Business Combinations. We allocate the purchase price of acquired companies
and properties to the tangible and intangible assets acquired and liabilities
assumed, based on their estimated fair values. Fair value is defined as the
amount at which that asset could be bought or sold in a current transaction
between willing parties (other than in a forced or liquidation sale). In order
to allocate the purchase price of acquired companies and properties to the
tangible and intangible assets acquired, we identify and estimate the fair value
of the land, buildings, and improvements, review the leases to determine the
existence of, and estimate the fair value of, any contractual or other legal
rights and investigation of the existence of, and estimate the fair value of,
any other identifiable intangible assets. Such valuations require management to
make significant estimates and assumptions, especially with respect to
intangible assets.
The cost approach is used as the primary method to estimate the fair value
of buildings, improvements and other assets. The market value approach is used
as the primary method to estimate the fair value of land. The determination of
the fair value of contractual intangibles is based on the costs to originate a
lease including commissions and legal costs to the extent that such costs are
not already incurred with a new lease that has been negotiated in connection
with the purchase of a property. In-place lease values are based on our
evaluation of the specific characteristics of each lease and our overall
relationship with each tenant. Among the factors considered in the allocation of
these values include the nature of the existing relationship with the tenant,
the tenant's credit quality, the expectation of lease renewals, the estimated
carrying costs of the property during a hypothetical expected lease-up period,
current market conditions and costs to execute similar leases. Estimated
carrying costs include real estate taxes, insurance, other property operating
costs and estimates of lost rentals at market rates during the hypothetical
expected lease-up periods, under specific market conditions. Above-market,
below-market and in-place lease values are determined based on the present value
(using discount rate reflecting the risks associated with the leases acquired)
of the difference between (i) the contractual amounts to be paid pursuant to the
leases negotiated and in-place at the time of acquisition and (ii) management's
estimate of fair market lease rates for the property or equivalent property,
measured over a period equal to the remaining non-cancelable term of the lease.
The value of contractual intangibles is amortized over the remaining term of
each lease.
Critical estimates in valuing certain of the intangible assets and our
assumptions on what marketplace participants would use in making estimates of
fair value, include but are not limited to: future expected cash flows,
estimated carrying costs, estimated origination costs, lease up periods, and the
tenant risk attributes, as well as assumptions about the period of time the
acquired lease will continue to be used in the our portfolio; and discount rates
used in these calculations. Management's estimates of fair value are based upon
assumptions believed to be reasonable, but which are inherently uncertain and
unpredictable. Assumptions may not always reflect unanticipated events and
changes in circumstances that may occur. In making such estimates, management
uses a number of sources, including appraisals that may be obtained in
connection with the acquisition or financing of the respective property or other
market data. Management also considers information obtained in its
pre-acquisition due diligence and market and leasing activities in estimating
the fair value of tangible and intangible assets acquired.
Goodwill. Effective January 1, 2002, we adopted Statement of Financial
Accounting Standards No. 142 (SFAS No. 142), Goodwill and Other Intangible
Assets. Under Statement 142, we are required to perform annual impairment tests
of its goodwill and intangible assets and more frequently in certain
circumstances. Management has elected to test for goodwill impairment in
November of each year. The goodwill impairment test is a two-step process, which
requires management to make judgments in determining what assumptions to use in
the calculation. The first step of the process consists of estimating the fair
value of each reporting unit and comparing those estimated fair values with the
carrying values, which include the allocated goodwill. If the estimated fair
value is less than the carrying value, a second step is performed to compute the
amount of the impairment by determining an "implied fair value" of goodwill. The
determination of a reporting unit's "implied fair value" of goodwill requires us
to allocate the estimated fair value of the reporting unit to the assets and
liabilities of the reporting unit. Any unallocated fair value represents the
"implied fair value" of goodwill, which is compared to its corresponding
carrying value.
36
The key assumptions we made to determine the fair value of our reporting
units (each property is considered a reporting unit under SFAS No. 142) included
(a) net operating income; (b) cash flows; and (c) estimated the fair value,
which was based on our experience in evaluating acquisitions and market
conditions. A variance in the net operating income or discount rate could have
had a significant impact on the amount of the goodwill impairment charge
recorded.
Management cannot predict the occurrence of certain future events that
might adversely effect the reported value of goodwill that totaled $14.0 million
at December 31, 2003. Such events include, but are not limited to, strategic
decisions made in response to economic and competitive conditions, the impact of
the economic environment on our tenants, or a material negative change in its
relationships with significant tenants.
Revenue Recognition. As lessor, we retain substantially all the risks and
benefits of property ownership and account for our leases as operating leases.
Rental income is recognized over the lease term on a straight-line basis as it
becomes receivable according to the provisions of the lease. 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.
We maintain an allowance for doubtful accounts for estimated losses
resulting from the inability of tenants to make required rent payments. The
computation of this allowance is based on the tenants' payment history and
current credit quality. If our estimate of collectibility differs from the cash
received the timing and amount of our reported revenue could be impacted.
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 the two 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
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 93
properties encompassing approximately 10 million square feet of gross leasable
area and including 64 supermarket anchored shopping centers, four drug store
anchored shopping center, 22 other retail-anchored shopping centers, an
industrial property and two development projects. In connection with the merger,
we paid aggregate cash consideration of approximately $189.4 million, issued
approximately 17.5 million shares of our common stock and assumed approximately
$341.9 million of mortgages, unsecured indebtedness and other liabilities,
including $150 million of IRT's senior unsecured indebtedness. The acquisition
of IRT was accounted for using the purchase method of accounting and the results
of IRT are included in our consolidated financial statements since February 12,
2003.
37
During 2003, we sold 7 properties (including a property held by an
unconsolidated joint venture) and a joint venture interest that no longer met
our investment criteria. We also acquired ten retail properties, one outparcel
and a property held for future development.
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. Our results
for the period between August 18, 2000, the day our affiliate, Gazit-Group
(1988) Ltd., acquired its beneficial interest in First Capital Realty Inc., and
September 19, 2001 have been restated to consolidate our operations with those
of CEFUS subject to a 31.93% minority interest in CEFUS. Our results from
September 20, 2001, the day we acquired CEFUS, eliminate this minority interest.
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 since September 21, 2001.
We derive substantially all of our revenues from rents received from
tenants under existing leases on each of our properties. These revenues include
fixed base 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, management expenses,
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 unsecured
senior debt and revolving credit facilities 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, 2003 Compared to Year Ended December 31, 2002.
Total rental income increased by $91.1 million, or 92.0%, to $190.0 million
in 2003 from $98.9 million in 2002. The following factors accounted for this
difference:
o The acquisition of IRT increased rental income by approximately $78.3
million;
o Properties acquired during 2003 increased rental income by
approximately $6.9 million;
o The full year 2003 benefited from properties acquired during 2002
which increased rental income by approximately $3.9 million;
o Same property rental income increased by $2.1 million in 2002 due to
higher tenant expense and rental income;
o These increases were offset by a $70,000 decrease in rental income
from under development and redevelopment properties.
Property operating expenses increased by $24.1 million, or 78.2%, to $54.9
million for 2003 from $30.8 million in 2002. The following factors accounted for
this difference:
o The acquisition of IRT increased operating expenses by approximately
$20.3 million;
o Properties acquired during 2003 increased operating expenses by
approximately $1.9 million;
o Properties acquired during 2002 increased the full year operating
expenses by $901,000; and
38
o Same property operating expenses increased by $978,000 as a result of
property maintenance expenses.
Rental property depreciation and amortization increased by $14.3 million,
or 107.5%, to $27.6 million for 2003 from $13.3 million in 2002. The following
factors accounted for this difference:
o The acquisition of IRT increased depreciation and amortization by
approximately $10.8 million;
o Properties acquired during 2003 increased depreciation and
amortization by $1.2 million;
o Properties acquired during 2002 increased the full year depreciation
expense by $539,000; and
o Completed development and redevelopment activities increased
depreciation and amortization by $1.7 million.
Interest expense increased by $15.7 million, or 71.1%, to $37.8 million for
2003 from $22.1 million in 2002. This difference was primarily due to:
o An increase in interest expense of $15.0 million as a result of the
assumption of mortgage loans and senior unsecured debt in the
acquisition of IRT;
o Interest incurred on the debt related to the acquisition of properties
during 2003 of $822,000, offset by a $1.3 million decrease in same
property interest expense, related to the repayment of certain
existing mortgage notes;
o An increase in revolving credit facility interest of $1.9 million
primarily related to the acquisition of IRT, the 2003 acquisition of
properties and repayment of various mortgage loans;
o An increase of $7.2 million related to interest on the unsecured
senior notes; and
o A decrease in interest expense attributable to capitalized interest of
$3.8 million related to development and redevelopment activities.
General and administrative expenses increased by $4.4 million, or 66.7%, to
$11.0 million for 2003 from $6.6 million in 2002. Compensation and employer
related expenses increased by $3.1 million and other general office expenses
increased by $1.4 million. These expense increases were primarily due to the
increase in staffing resulting from the IRT acquisition.
Investment income decreased by $543,000 due to the principal repayments
received on notes receivable and repayments by stockholders of loans related to
previous stock purchases.
During 2003, we settled certain mortgage notes at a discount and recognized
a loss on the extinguishment of debt of approximately $623,000.
We sold seven properties (including a property held by a joint venture), a
joint venture interest and have two properties that are held for sale at
December 31, 2003. The operating results of these properties of $2.8 million are
being reflected as income from rental properties sold or held for sale. The
sales of the properties and joint venture interest produced a gain of $3.1
million for 2003. The 2002 discontinued operations reflect a reclassification of
operations for properties sold during 2002 and 2003. We recognized a gain of
$9.2 million in 2002 related to a gain on the disposal of properties sold during
2002.
Minority interest increased by $702,000 related to the interests that were
part of the acquisition of IRT.
As a result of the foregoing, net income increased by $23.7 million, or
59.4%, to $63.6 million for 2003 from $39.9 million in 2002.
39
Year Ended December 31, 2002 Compared to Year Ended December 31, 2001.
Total rental income increased by $21.5 million, or 27.8%, to $98.9 million
in 2002 from $77.4 million in 2001. The following factors accounted for this
difference:
o The acquisition of UIRT increased rental income by approximately $16.2
million; and
o Properties acquired during 2002 increased rental income by
approximately $4.2 million.
Property operating expenses increased by $6.6 million, or 27.5%, to $30.7
million for 2002 from $24.1 million in 2001. The following factors accounted for
this difference:
o The acquisition of UIRT increased operating expenses by approximately
$3.1 million;
o Properties acquired during 2002 increased operating expenses by
approximately $1.3 million; and
o Property management expenses increased by $1.6 million as a result of
managing a larger portfolio of properties, of which $833,000 was due
to an increase in salaries and benefits.
Rental property depreciation and amortization increased by $2.5 million, or
23.2%, to $13.3 million for 2002 from $10.8 million in 2001. The following
factors accounted for this difference:
o The acquisition of UIRT increased depreciation and amortization by
approximately $1.4 million; and
o Properties acquired during 2002 increased depreciation and
amortization by approximately $796,000.
Interest expense increased by $1.2 million, or 5.7%, to $22.1 million for
2002 from $20.9 million in 2001. This difference was primarily due to:
o An increase in interest expense of $3.5 million as a result of the
assumption of mortgage loans in the acquisition of UIRT;
o Interest incurred on the debt related to the acquisition of properties
during 2002 of $1.2 million;
o An increase in revolving credit facility interest of $503,000
primarily related to higher average balances; and
o These increases in interest expense were partially offset by the
repayment of nine loans which reduced interest by $1.9 million and an
increase in capitalized interest related to development activity
decreasing interest expense by $273,000.
General and administrative expenses increased by $3.1 million, or 87.1%, to
$6.6 million for 2002 from $3.5 million in 2001. Compensation and employer
related expenses increased by $1.8 million and other general office expenses
increased by $1.3 million, of which $332,000 was related to professional fees,
$695,000 was related to the write-off of previously capitalized pre-acquisition
due diligence costs for projects that did not materialize, and $223,000 was
related to an increase in public relations costs. These expense increases were
due to the increase in staffing resulting from the CEFUS and UIRT acquisitions.
During 2002, we settled a mortgage note at a discount and recognized a gain
on the extinguishment of debt of $1.5 million.
Minority interest decreased by $1.5 million due to the elimination of the
minority interests in the acquisition of CEFUS in 2001.
40
As a result of the foregoing, net income increased by $21.2 million, or
113.4%, to $39.9 million for 2002 from $18.7 million in 2001.
Liquidity And Capital Resources
We anticipate that cash flows from operating activities will continue to
provide adequate capital for dividend payments in accordance with the IRS' REIT
requirements and our operating needs. Depending on capital market conditions, we
anticipate using cash on hand, borrowings under our existing unsecured revolving
credit facilities, issuance of unsecured public debt and equity as well as other
similar financing, to provide the necessary capital to achieve growth.
CASH FLOWS
- ----------
Our net cash provided by operations was $78.3 million for the year ended
December 31, 2003 This amount included net income of $63.6 million and
adjustments for non-cash and gain on sale items of $25.0 million, offset by an
increase in operating assets over operating liabilities of $10.3 million. Our
2003 operating cash number compares to net cash provided by operations of $45.6
million for the year ended December 31, 2002. This amount included net income of
$39.9 million, adjustments for non-cash items which increased cash flow of $4.9
million, and an increase in operating liabilities over operating assets of
$764,000.
Our net cash used in investing activities was $326.2 million for the year
ended December 31, 2003. This amount included the acquisition of one parcel of
land held for future development, an outparcel, and ten shopping centers for
$156.9 million, construction, development and other capital improvements of
$28.8 million and the acquisition of IRT for $187.6 million, net of cash
received, and leasing costs of $4.5 million. These amounts were offset by the
proceeds from the sale of seven properties (including a property held by a joint
venture) and a joint venture interests of $31.7 million, utilization of
available funds escrowed in connection with the deferred taxable gains from the
sale of properties of $12.9 million, proceeds from repayment of notes receivable
of $5.1 million and proceeds from other sources of $1.9 million. Our cash used
for investment in 2003 compares to net cash used in investing activities of
$51.4 million for the year ended December 31, 2002. This amount included the
acquisition of two drugstores, five shopping centers and three parcels of land
for $63.7 million; the construction, development and other capital improvements
of $15.8 million, an increase in escrowed funds for sale of properties to
utilize tax deferred exchanges for $4.2 million, and leasing costs of $1.6
million. These amounts were offset by proceeds from the sale of one parcel of
land and eight properties of $27.2 million, proceeds from payments of notes
receivable of $5.1 million and proceeds from other sources of $1.6 million.
Our net cash provided by financing activities was $245.9 million for the
year ended December 31, 2003. This amount included net borrowings on the
revolving credit facilities of $139.0 million, less the pay down of $8.0 million
on the credit facility assumed in the IRT merger, net proceeds from the
issuances of common stock of $247.5 million, and proceeds from repayment of
notes receivable of $3.5 million. These amounts were offset by the repayment of
ten mortgage notes in the aggregate amount of $55.4 million and monthly
principal payments on mortgage notes of $8.2 million, cash dividends paid to
common stockholders of $70.7 million, and other miscellaneous uses of $1.8
million. Our cash used by financing in 2003 compares to net cash used in
financing activities of $7.9 million for the year ended December 31, 2002. This
amount includes net proceeds from issuance of common stock of $66.5 million, and
new mortgage note borrowings of $25.9 million, offset by the repayment of ten
mortgage notes for $37.7 million and monthly principal payments on mortgage
notes of $5.5 million, net repayments on the revolving credit facility of $4.4
million, cash dividends paid to common stockholders of $35.8 million, and other
miscellaneous uses of $1.1 million.
DEBT
- ----
On February 7, 2003, we entered into a $340 million unsecured revolving
credit facility with a syndicate 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 notes 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
41
allows us to conduct auctions among the participating banks for borrowings in an
amount not to exceed $150.0 million, a $25.0 million swing line facility for
short term borrowings, a $20.0 million letter of credit commitment and may, at
our request, be increased up to a total commitment of $400.0 million. 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 most of our wholly-owned subsidiaries.
As of December 31, 2003, we had $162 million outstanding on this credit
facility. The weighted average interest rate, including the interest rate swaps
as of December 31, 2003 was 2.06%.
As of December 31, 2003, we had a $5.0 million unsecured credit facility
with City National Bank of Florida, of which no funds had been drawn. This
facility provides security of $1.4 million in outstanding letters of credit.
Our revolving credit facility balances as of December 31, 2003 and December
31, 2002 consisted of the following:
December 31, December 31,
2003 2002
---------------- ----------------
(in thousands)
Revolving Credit Facilities
Wells Fargo (unsecured)..................... $ 162,000 -
Wells Fargo (secured) (retired)............. - $ 23,000
City National Bank (unsecured).............. - -
---------------- ----------------
Total revolving credit facilities........ $ 162,000 $ 23,000
================ ================
As of December 31, 2003, the gross availability under the various credit
facilities was approximately $345 million, resulting in additional borrowing
capacity of $145.6 million, net of letters of credit.
Our mortgage and unsecured senior notes payable balances as of December 31,
2003 and 2002 consisted of the following:
December 31, December 31,
2003 2002
---------------- ----------------
(in thousands)
Mortgage and Unsecured Senior Notes Payable
Fixed rate mortgage loans............................. $ 459,103 $ 307,508
Unsecured senior notes payable........................ 150,000 -
Variable rate mortgage loans (retired)................ - 24,635
Unamortized premium on notes payable.................. 24,218 -
--------------- ---------------
Total mortgage and unsecured senior notes
payable......................................... $ 633,321 $ 332,143
=============== ===============
As a result of our merger with IRT, we assumed IRT's obligations relating
to $150.0 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. The interest rate of one series of these senior notes is subject to a 50
basis point increase if we do not maintain an investment grade debt rating.
These notes have also been guaranteed by most of our wholly-owned subsidiaries.
Each of the existing mortgage loans is secured by a mortgage on one or more
of certain of our properties. Certain of the mortgage loans involving an
aggregate principal balance of approximately $182.0
42
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. To date, no lender
has notified us that it intends to accelerate its mortgage. Based on discussions
with various lenders, current credit market conditions and other factors, we
believe that the mortgages will not be accelerated. Accordingly, we believe that
the violations of these prohibitions will not have a material adverse impact on
our results of operations or financial condition.
As of December 31, 2003, our total debt of $771.1 million, divided by our
gross real estate assets of $1.6 billion equals 48.2%.
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.
Mortgage Indebtedness
The following table sets forth certain information regarding our mortgage
indebtedness related to our properties as of December 31, 2003:
Balance at
December 31, Balance Due
Property 2003 Interest Rate(1) Maturity Date at Maturity
-------- ------------ ---------------- --------------- -----------
Fixed Rate Mortgage Debt
Middle Beach $ 2,808 7.375% 08/15/04 $ 2,727
Lantana Village 3,669 6.950% 02/15/05 3,498
Woodruff 3,096 7.580% 05/10/05 2,913
Elmwood Oaks 7,500 8.375% 06/01/05 7,500
Benchmark Crossing 3,313 9.250% 08/01/05 3,170
Sterling Plaza 3,982 8.750% 09/01/05 3,794
Townsend Square 4,848 8.500% 10/01/05 4,703
Green Oaks 3,022 8.375% 11/01/05 2,861
Melbourne Plaza 1,747 8.375% 11/01/05 1,654
Walden Woods 2,387 7.875% 08/01/06 2,071
Big Curve 5,437 9.190% 10/01/06 5,059
Highland Square 4,047 8.870% 12/01/06 3,743
Park Northern 2,284 8.370% 12/01/06 1,963
Crossroads Square f/k/a University Mall 12,510 8.440% 12/01/06 11,922
Rosemeade 3,179 8.295% 12/01/07 2,864
Colony Plaza 3,015 7.540% 01/01/08 2,834
Parkwood (2) 6,196 7.280% 01/01/08 5,805
Richmond (2) 3,192 7.280% 01/01/08 2,990
Commonwealth 2,754 7.000% 02/15/08 2,217
Mariners Crossing 3,380 7.080% 03/01/08 3,154
Pine Island/Ridge Plaza 24,938 6.910% 07/01/08 23,104
Forestwood 7,286 5.070% 01/01/09 6,406
43
Balance at
December 31, Balance Due
Property 2003 Interest Rate(1) Maturity Date at Maturity
-------- ------------ ---------------- --------------- -----------
Shoppes of North Port $ 4,108 6.650% 02/08/09 $ 3,526
Prosperity Centre 6,390 7.875% 03/01/09 4,137
North Village Center 1,463 8.130% 03/15/09 -
Shoppes of Ibis 5,865 6.730% 09/01/09 4,680
Tamarac Town Square 6,206 9.190% 10/01/09 5,583
Park Promenade 6,302 8.100% 02/01/10 5,833
Skipper Palms 3,556 8.625% 03/01/10 3,318
Jonathan's Landing 2,901 8.050% 05/01/10 2,639
Bluff's Square 10,086 8.740% 06/01/10 9,401
Kirkman Shoppes 9,524 8.740% 06/01/10 8,878
Ross Plaza 6,642 8.740% 06/01/10 6,192
Boynton Plaza 7,494 8.030% 07/01/10 6,902
Pointe Royale 4,533 7.950% 07/15/10 2,502
Plymouth Park East 1 (3) 150 8.250% 08/01/10 113
Plymouth Park East 2 (3) 451 8.250% 08/01/10 340
Plymouth Park North (3) 8,043 8.250% 08/01/10 6,076
Plymouth Park South (3) 601 8.250% 08/01/10 455
Plymouth Park Story North (3) 370 8.250% 08/01/10 280
Plymouth Park West (3) 2,404 8.250% 08/01/10 1,816
Shops at Skylake 14,628 7.650% 08/01/10 11,644
Parkwest Crossing 4,728 8.100% 09/01/10 4,352
Spalding Village 10,537 8.190% 09/01/10 7,932
Minyards 2,511 8.320% 11/01/10 2,175
Charlotte Square 3,614 9.190% 02/01/11 2,992
Forest Village 4,488 7.270% 04/01/11 4,044
Boca Village 8,298 7.200% 05/01/11 7,466
MacLand Pointe 5,859 7.250% 05/01/11 5,267
Pine Ridge Square 7,354 7.020% 05/01/11 6,579
Sawgrass Promenade 8,298 7.200% 05/01/11 7,466
Presidential Markets 27,420 7.650% 06/01/11 24,863
Lake Mary 24,529 7.250% 11/01/11 21,973
Lake St. Charles 3,873 7.130% 11/01/11 3,461
Belfair Towne Village 11,379 7.320% 12/01/11 9,322
Marco Town Center 8,731 6.700% 01/01/12 7,150
Riverside Square 7,694 9.190% 03/01/12 6,458
Cashmere 5,245 5.880% 11/01/12 4,084
Eastwood 6,250 5.880% 11/01/12 4,866
Meadows 6,568 5.870% 11/01/12 5,113
Lutz Lake 7,500 6.280% 12/01/12 7,012
Summerlin Square 3,898 6.750% 02/01/14 -
Bird Ludlum 10,296 7.680% 02/15/15 -
Treasure Coast 4,804 8.000% 04/01/15 -
Shoppes of Silverlakes 2,781 7.750% 07/01/15 30
Grassland Crossing 5,985 7.870% 12/01/16 2,601
Mableton Crossing 4,157 6.850% 08/15/18 1,869
44
Balance at
December 31, Balance Due
Property 2003 Interest Rate(1) Maturity Date at Maturity
-------- ------------ ---------------- --------------- -----------
BridgeMill $ 9,555 7.940% 05/05/21 $ 3,761
Chastain Square 3,918 6.500% 02/28/24 57
Daniel Village 4,282 6.500% 02/28/24 62
Douglas Commons 5,102 6.500% 02/28/24 74
Fairview Oaks 4,829 6.500% 02/28/24 71
Madison Centre 3,918 6.500% 02/28/24 58
Paulding Commons 6,651 6.500% 02/28/24 97
Siegen Village 4,328 6.500% 02/28/24 63
Wesley Chapel Crossing 3,416 6.500% 02/28/24 50
----------- ---------------- ------------------ -----------
Total Fixed Rate Mortgage Debt
(76 loans).............................. 459,103 7.45% 6.48 years $ 342,635
----------- ================ ================== ===========
(wtd.-avg. rate) (wtd.-avg.maturity)
Fixed Rate Unsecured Senior Notes
Payable
7.77% senior notes 50,000 7.77% April 2006 $ 50,000
7.25% senior notes 75,000 7.25% August 2007 75,000
7.84% senior notes 25,000 7.84% January 2012 25,000
----------- ---------------- -----------
Total Fixed Rate Unsecured Senior Notes
Payable .............................. 150,000 7.55% 3.96 years $ 150,000
----------- ================ ================== ===========
(wtd.-avg. rate) (wtd.-avg.maturity)
Unsecured Variable Rate Revolving
Credit Facilities
Wells Fargo(4) 162,000 2.06% February 2006 $ 162,000
City National Bank - LIBOR + 2.25% August 2004
-----------
Total Unsecured Variable Rate
Revolving Credit Facilities........... 162,000
-----------
Total Debt.............................. $ 771,103
===========
<FN>
-----------------------
(1) The rate in effect on December 31, 2003.
(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) The indicated rate includes the effect of interest rate swaps, if any.
</FN>
Our mortgage and outstanding revolving credit facilities indebtedness
outstanding at December 31, 2003 will require approximate balloon and scheduled
principal payments as follows:
Secured Debt Unsecured Debt
------------------------------ -----------------------------
Revolving
Schedule Balloon Credit Senior
Year Due Amortization Payments Facilities Notes Total
- -------------- ------------ ------------- ------------- ------------ ----------
2004 $ 9,432 $ 2,727 $ - $ - $ 12,159
2005 9,777 30,093 - - 39,870
2006 9,985 24,758 162,000 50,000 246,743
2007 10,097 2,864 - 75,000 87,961
2008 10,166 40,104 - - 50,270
2009 9,550 24,332 - - 33,882
45
Secured Debt Unsecured Debt
------------------------------ -----------------------------
Revolving
Schedule Balloon Credit Senior
Year Due Amortization Payments Facilities Notes Total
- -------------- ------------ ------------- ------------- ------------ ----------
2010 $ 8,452 80,848 $ - $ - $ 89,300
2011 6,592 93,433 - - 100,025
2012 5,290 34,683 - 25,000 64,973
Thereafter 37,127 8,793 - - 45,920
- -------------- ------------ ------------ ------------- ------------ ----------
Total $ 116,468 $ 342,635 $ 162,000 $ 150,000 $ 771,103
============ ============ ============= ============ ==========
The following table sets forth certain information regarding indebtedness
related to our joint venture properties as of December 31, 2003:
Joint Venture Debt
Balance at Balance Due
December 31, 2003 Interest Rate Maturity Date at Maturity
----------------- ------------- ------------- -----------
Joint Venture Debt
City Centre $12,878 8.54% April 2010 $ 11,989
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 financing is not available,
we could be required to sell assets and our business would be adversely
affected.
DEVELOPMENT ACTIVITY
- --------------------
As of December 31, 2003, we have over 25 development and redevelopment
projects underway or in the planning stage totaling approximately $74.7 million
of asset value and requiring approximately $32.5 million to complete based on
current plans and estimates. These include:
o The reconfiguration of a portion of Oakbrook Square in Palm Beach
Gardens, Florida to accommodate a new Homegoods store, a new
out-parcel and a recently opened Stein Mart store;
o The complete redevelopment of Crossroads Square (formerly known as
University Mall) in Pembroke Pines, Florida, incorporating a new
Lowe's home improvement store, a new Eckerd drug store and the
refurbishing of the remainder of the center;
o The construction of a new 46,000 square foot L.A. Fitness Sports Club
as part of an up to 120,000 square foot addition to our Shops at
Skylake in North Miami Beach, Florida;
o The development of a new 25,000 square foot CVS drug store-anchored
center across the street from our recently completed Plaza Alegre
shopping center development in Miami, Florida;
o The redevelopment of Salerno Village in Stuart, Florida to accommodate
a new and expanded Winn Dixie supermarket;
o The development of two supermarket-anchored shopping centers, one in
Homestead, Florida and the other in McDonough, Georgia, both on
parcels we currently own and control;
o The reconfiguration of the former Gerland space at Copperfield in
Houston, Texas into multi-tenant space;
o The reconfiguration of a portion of Ambassador Row Courtyards in
Lafayette, Louisiana; and
o The redevelopment of a portion of Gulf Gate Plaza in Naples, Florida.
46
All of these developments and redevelopments are scheduled for completion
between early 2004 and the end of 2005.
EQUITY
- ------
On January 23, 2002, we filed a universal shelf registration statement with
the Securities and Exchange Commission, which will permit us, from time to time,
to offer and sell various types of securities, including common stock, preferred
stock, debt securities, depositary shares and warrants, up to a value of $250
million.
On February 12, 2003, we completed a private placement of 6.911 million
shares of our common stock. Three affiliated investors, AH Investments US LP,
Silver Maple (2001), Inc. and M.G.N. (USA) Inc. purchased 1.6 million, 1.0
million, and 4.3 million shares of common stock, respectively, at $13.50 per
share. The net proceeds of $93 million in cash were used to fund a portion of
the cost of the acquisition of IRT. The foregoing issuances were made pursuant
to an exemption under Section 4(2) of the Securities Act of 1933, as amended.
In May 2003, we completed the sale of 3.0 million shares of common stock at
a price of $16.22 per share in an underwritten public offering. The net proceeds
of $48.7 million from the offering were used for general corporate purposes,
including the repayment of debt, ongoing development activities and the
acquisition of additional shopping centers.
In July 2003, we filed a second universal shelf registration statement with
the Securities and Exchange Commission, which will permit us, from time to time,
to offer and sell various types of securities, including common stock, preferred
stock, debt securities, depositary shares and warrants, up to a value of $600
million. The registration statement provides us additional flexibility in
accessing capital markets to fund future growth and for general corporate
purposes. In conjunction with the $155 million balance from our prior universal
shelf registration, and after taking into account our public offering in
September 2003 of $52 million, we now have approximately $703.0 million of
availability under our existing shelf registration statements.
In September 2003, we completed the sale of 3.0 million shares of common
stock at a price of $17.05 per share in an underwritten public offering. The net
proceeds of $51.2 million from the offering were used for general corporate
purposes, including the repayment of debt and ongoing development activities.
For the year ended December 31, 2003 we issued 895,312 shares of our common
stock pursuant to the exercise of stock options at prices ranging from $8.69 to
$14.87 per share. We also issued 2.8 million shares of common stock at prices
ranging from $12.76 to $17.11 per share pursuant to our Divided Reinvestment and
Stock Purchase Plan. As of December 31, 2003, we have 2.1 million shares
remaining for sale under our Dividend Reinvestment and Stock Purchase Plan.
FUTURE CAPITAL REQUIREMENTS
- ---------------------------
We believe, based on currently proposed plans and assumptions relating to
our operations, that our existing financial arrangements, together with cash
generated from our 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 exceeds 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 future equity financing could
be dilutive to existing stockholders. If adequate funds are not available, our
business operations could be materially adversely affected.
47
DISTRIBUTIONS
- -------------
We believe that we currently qualify, and intend to continue to qualify in
the future, 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
and other corporate purposes, while still maintaining our qualification as a
REIT. Our cash distributions for the year ended December 31, 2003 were $70.7
million.
New Accounting Standards
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. We adopted SFAS No. 145 as of July 2002 and have
reflected gains (losses) from extinguishment of debt as part of ordinary income.
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 adopted the disclosure
requirements in 2002 and the initial recognition and measurement provisions in
2003. The adoption of FIN 45 did not 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. 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. We have adopted
the disclosure requirements of SFAS No. 148 in our financial statements as of
December 31, 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 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 or annual period ending after December 15, 2003.
We have evaluated the effect of FIN 46 and have determined where we are primary
beneficiary and have consolidated those VIE's. Where we have determined that we
are not the
48
primary beneficiary of the VIE, we report the VIE under the equity method. The
adoption of FIN 46 did not require a change in the accounting treatment of any
VIE's. We have not become a party to any VIE's during 2003.
In April 2003, FASB issued SFAS No. 149, Amendment of Statement 133 on
Derivative Instruments and Hedging Activities, which clarifies the accounting
and reporting for derivative instruments, including derivative instruments that
are embedded in contracts. This statement is effective for contracts entered
into or modified after June 30, 2003. We have adopted this pronouncement
beginning July 1, 2003. The adoption of SFAS No. 149 did not have a material
impact on our financial condition or results of operations.
In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity. This statement
establishes standards for the classification and measurement of financial
instruments that possess characteristics similar to both liability and equity
instruments. SFAS No. 150 also addresses the classification of certain financial
instruments that include an obligation to issue equity shares. On October 29,
2003, the FASB voted to defer, for an indefinite period, the application of the
guidance in FASB Statement No. 150, Accounting for Certain Financial Instruments
with Characteristics of Both Liabilities and Equity. The FASB has also decided
to defer the application of the aspect of certain provisions of statement 150
until it could consider some of the resulting implementation issues. We have
adopted certain provisions of SFAS No. 150 which did not have a material impact
on our financial position or results of operations. We are still evaluating the
potential impact of the provisions of SFAS 150 that have been deferred to future
periods.
In December 2003, the FASB issued Statement No. 132 (SFAS No. 132) (revised
2003), Employers' Disclosures about Pensions and Other Postretirement Benefits.
This Statement revises employers' disclosures about pension plans and other
postretirement benefit plans. It does not change the measurement or recognition
provisions of FASB Statements No. 87, Employers' Accounting for Pensions, No.88,
Employers' Accounting for Settlements and Curtailments of Defined Benefit
Pension Plans and for Termination Benefits, and No. 106, Employers' Accounting
for Postretirement Benefits Other Than Pensions. This Statement retains the
disclosure requirements contained in SFAS No. 132, Employers' Disclosures about
Pensions and Other Postretirement Benefits, which it replaces. It requires
additional disclosures about the assets, obligations, cash flows, and net
periodic benefit cost of defined benefit pension plans and other postretirement
benefit plans. The adoption of SFAS No. 132 (revised) did not 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 require that the tenants who operate these facilities
do so in material compliance 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
49
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 on the variable component of our debt will move in the same
direction. With respect to our mortgage and senior unsecured notes payable,
changes in interest rates generally do not affect our interest expense, as these
notes payable at fixed-rates for extended terms with a weighted average life of
6.5 years and 4.0 years, respectively. Because we intend to hold our existing
fixed rate notes are payable either to maturity or until the sale of the
associated property, there is believed to be no interest rate market risk on our
operations or our working capital position. Our primary risk is from increases
in long-term interest rates that may occur over a period of several years, as
this may decrease the overall value of our real estate.
We estimate the fair market value of our long term, fixed rate mortgage
loans using discounted cash flow analysis based on current borrowing rates for
similar types of debt. At December 31, 2003, the fair value of the fixed rate
mortgage loans was estimated to be $505.1 million compared to the carrying value
amount of $459.1 million, excluding the unamortized premium on notes payable. If
the weighted average interest rate on our fixed rate debt were 100 basis points
lower or higher than the current weighted average rate of 7.45%, the fair market
value would be $483.0 million and $438.4 million, respectively.
We estimate the fair market value of our senior unsecured fixed rate debt
using discounted cash flow analysis based on current borrowing rates for similar
types of debt. At December 31, 2003, the fair value of our senior unsecured
fixed rate debt was estimated to be $165.7 million compared to the carrying
value amount of $150.0 million, excluding unamortized premium on notes payable.
If the weighted average interest rate on our fixed rate debt were 100 basis
points lower or higher than the current weighted average rate of 7.55%, the fair
market value would be $155.0 million and $145.0 million, respectively.
At December 31, 2003, our variable rate debt balance consisted of $162.0
million of revolving credit facilities, of which $70.0 million has been hedged
under interest rate swaps pursuant to which we pay fixed interest rates, and
$92.0 million remains subject to changes in interest rates. If the weighted
average interest rate on the unhedged portion of our variable rate debt were 100
basis points higher or lower, annual interest expense would increase or decrease
by approximately $920,000. At December 31, 2003, the fair value of the $70
million of variable rate debt where interest costs have been fixed under
interest rate hedges was estimated to be $70.1 million.
Financial Instruments - Derivatives and Hedging
In the normal course of business, we are exposed to the effect of interest
rate changes that could affect our results of operations or cash flows. We limit
these risks by following established risk management policies and procedures,
including the use of a variety of derivative financial instruments to manage or
hedge interest rate risk. We do not enter into derivative instruments for
speculative purposes. We require that the hedging derivative instruments be
effective in reducing interest rate risk exposure. This effectiveness is
essential to qualify for hedge accounting. Changes in the hedging instrument's
fair value related to the effective portion of the risk being hedged are
included in accumulated other comprehensive income or loss. In those cases,
hedge effectiveness criteria also require that it be probable that the
underlying transaction occurs.
Hedges that meet these hedging criteria are formally designated as cash
flow hedges at the inception of the derivative contract. When the terms of an
underlying transaction are modified, or when the underlying hedged item ceases
to exist, the change in the fair value of the derivative instrument is marked to
market with the change included in net income in each period until the
derivative instrument matures. Additionally, any derivative instrument used for
risk management that becomes ineffective is marked to market.
50
We do not anticipate non-performance by any of our counterparties. Net
interest differentials to be paid or received under a swap contract and/or
collar agreement are included in interest expense as incurred or earned.
Interest rate hedges that are designated as cash flow hedges hedge the
future cash outflows on debt. Interest rate swaps that convert variable payments
to fixed payments, interest rate caps, floors, collars and forwards are cash
flow hedges. The unrealized gains or losses in the fair value of these hedges
are reported on the balance sheet and included in accounts payable and accrued
expenses with a corresponding adjustment to either accumulated other
comprehensive income or loss, or are recognized in earnings depending on the
hedging relationship. If the hedging transaction is a cash flow hedge, then the
offsetting gains or losses are reported in accumulated other comprehensive
income or loss. Over time, the unrealized gains or losses held in accumulated
other comprehensive income or loss will be recognized in earnings consistent
with when the hedged items are recognized in earnings.
In conjunction with our policy to reduce interest rate risk, we have
entered into interest rate swaps to hedge a portion of the variability of
monthly cash outflows attributable to changes in LIBOR. Under the swaps, we
receive LIBOR based payments and pay a fixed rate. A summary of the terms of the
derivative instruments, as of December 31, 2003, and a reconciliation of the
fair value and adjustments to accumulated other comprehensive loss (in
thousands) are as follows:
Hedge type.......................................... Cash Flow
Description......................................... Swap
Range of notional amounts........................... $10,000 - $50,000
Total........................................... $70,000
Range of interest rates............................. 1.38% - 2.3975%
Range of maturity dates............................. 2/12/04 - 2/12/06
Total accumulated other comprehensive loss at
December 31, 2002................................ -
Change in fair value for the year ended
December 31, 2003................................ $ (122)
-----------------
Total accumulated other comprehensive loss at
December 31, 2003................................ $ (122)
=================
The estimated fair value of our financial instruments has been determined
by us, using available market information and appropriate valuation
methodologies. However, considerable judgment is necessarily 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 we could realize in a current market exchange. The use of different market
assumptions or estimation methodologies may have a material effect on the
estimated fair value amounts.
For purposes of the Securities and Exchange Commission's market risk
disclosure requirements, we have estimated the fair value of our financial
instruments at December 31, 2003. The fair value estimates presented herein are
based on pertinent information available to management as of December 31, 2003.
Although management is not aware of any factors that would significantly affect
the estimated fair value amounts as of December 31, 2003, future estimates of
fair value and the amounts which may be paid or realized in the future may
differ significantly from amounts presented. Our revolving credit facilities are
sensitive to changes in interest rates.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data required by Regulation S-X
are included in this Form 10-K commencing on page F-1.
51
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
We maintain disclosure controls and procedures that are designed to provide
reasonable assurance that information required to be disclosed in our reports
filed under the Securities Exchange Act of 1934, or the Exchange Act, is
recorded, processed, summarized and reported within the time periods specified
in the Securities and Exchange Commission's rules and forms, and that such
information is accumulated and communicated to our management, including our
Chief Executive Officer and Chief Financial Officer, as appropriate, to allow
timely decisions regarding required disclosure. In designing and evaluating the
disclosure controls and procedures, management recognized that any controls and
procedures, no matter how well designed and operated, can provide only
reasonable assurance of achieving the desired control objectives, and management
necessarily was required to apply its judgment in evaluating the cost-benefit
relationship of possible controls and procedures. Also, we have investments in
certain unconsolidated entities. As we do not control or manage these entities,
our disclosure controls and procedures with respect to such entities are
necessarily substantially more limited than those we maintain with respect to
our consolidated subsidiaries.
As required by Rule 13a-15(b) under the Exchange Act, we carried out an
evaluation, under the supervision and with the participation of management,
including our Chief Executive Officer and Chief Financial Officer, of the
effectiveness of the design and operation of our disclosure controls and
procedures. Based on the foregoing, our Chief Executive Officer and Chief
Financial Officer concluded that, as of the end of the period covered by this
report, our disclosure controls and procedures were effective at the reasonable
assurance level 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 SEC rules and forms.
There have been no changes in our internal controls over financial
reporting during the year ended December 31, 2003, that have materially
affected, or are reasonably likely to materially affect, our internal controls
over financial reporting.
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.
52
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
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.
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
Consolidated Balance Sheets as of December 31, 2003 and
2002............................................... F-2
Consolidated Statements of Operations for the years ended
December 31, 2003, 2002 and 2001..................................... F-3 - F-4
Consolidated Statements of Comprehensive Income for the
years ended December 31, 2003, 2002 and 2001......................... F-5
Consolidated Statements of Stockholders' Equity for the
years ended December 31, 2003, 2002 and 2001......................... F-6
Consolidated Statements of Cash Flows for the years ended
December 31, 2003, 2002 and 2001..................................... F-7 - F-8
Notes to the Consolidated Financial Statements.......................... F-9 - F-33
2. Financial statement schedules required to be filed
Schedule III - Real Estate Investments and Accumulated
Depreciation and Independent Auditors' Report.......................... S-1
Schedules I, II, IV and V are not required to be filed.
3. Exhibits: See (c) below
(b) Reports on Form 8-K:
Form 8-K filed on October 30, 2003, under Items 12, 7 and 9
Form 8-K filed on November 14, 2003, under Item 5.
(c) Exhibits: The following exhibits are filed as part of, or incorporated
by reference into, this annual report.
53
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
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 Subscription Agreement dated October 4, 2000 made by Alony Hetz
Properties & Investments, Ltd. (Exhibit 10.13) (15)
10.10 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)
10.11 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)
10.12 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)
54
10.13 Amended and Restated Employment Agreement dated effective as of
January 1, 2002 between the Company and Chaim Katzman (Exhibit 10.1)
(3)*
10.14 First Amendment to Amended and Restated Employment Agreement, dated
September 1, 2003, with Chaim Katzman (Exhibit 10.1)(17)*
10.15 Amended and Restated Employment Agreement dated effective as of
January 1, 2002 between the Company and Doron Valero (Exhibit 10.2)
(3)*
10.16 First Amendment to Amended and Restated Employment Agreement, dated
September 1, 2003, with Doron Valero (Exhibit 10.2) (17)*
10.17 Second Amended and Restated Employment Agreement, dated September 1,
2003, between the Company and Howard M. Sipzner (Exhibit 10.1) (18)*
10.18 Stock Pledge Agreement, dated September 18, 2001, by and between Doron
Valero and the Company (Exhibit 10.18 ) (15)*
10.19 Promissory Note, in the amount of $2,153,470 from Doron Valero payable
to the Company. (Exhibit 10.19) (15)*
10.20 Promissory Note in the amount of 437,500 from Alan Merkur, payable to
the Company (Exhibit 10.3) (3)*
10.21 Pledge Agreement dated June 15, 2002 between the Company and Alan
Merkur (Exhibit 10.3) (3)*
10.22 Promissory Note in the amount of $150,000 from Barbara Miller payable
to the Company (Exhibit 10.4) (3)*
10.23 Pledge Agreement dated June 15, 2002 between the Company and Barbara
Miller (Exhibit 10.4) (3)*
10.24 Registration Rights Agreement dated October 28, 2002 between the
Company and certain Purchasers (Exhibit 99.3) (2)
10.25 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)
3.2 Amended and Restated Bylaws
12.1 Ratios of Earnings to Fixed Charges
21.1 List of Subsidiaries of the Registrant
23.1 Consent of Deloitte & Touche LLP
31.1 Certification of Chief Executive Officer pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002
31.2 Certification of Chief Financial Officer pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002
32.1 Certification of Chief Executive Officer and Chief Financial Officer
pursuant to 18 U.S.C. 1350, as created by 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.
55
(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 with our Quarterly Report on Form 10-Q for the period
ended September 30, 2003, and incorporated by reference herein.
(18) Previously filed with our Current Report on Form 8-K filed on January 6,
2004, and incorporated by reference herein.
56
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 15, 2004 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 15, 2004
- --------------------- Chief Executive Officer
Chaim Katzman (Principal Executive Officer)
/s/ Doron Valero President, Chief Operating Officer March 15, 2004
- --------------------- and Director
Doron Valero
/s/ Howard M. Sipzner Executive Vice President and March 15, 2004
- --------------------- Chief Financial Officer
Howard M. Sipzner (Principal Accounting and
Financial Officer)
/s/ Noam Ben Ozer Director March 15, 2004
- ---------------------
Noam Ben Ozer
/s/ Dr. Shaiy Pilpel Director March 15, 2004
- ---------------------
Dr. Shaiy Pilpel
/s/ Robert Cooney Director March 15, 2004
- ---------------------
Robert Cooney
/s/ Dori Segal Director March 15, 2004
- ---------------------
Dori Segal
/s/ Nathan Hetz Director March 15, 2004
- ---------------------
Nathan Hetz
/s/ Peter Linneman Director March 15, 2004
- ---------------------
Peter Linneman
/s/ Patrick Flinn Director March 15, 2004
- ---------------------
Patrick Flinn
EQUITY ONE, INC. AND SUBSIDIARIES
---------------------------------
TABLE OF CONTENTS
-----------------
Page
-------------
Independent Auditors' Report................................................................................ F-1
Consolidated Balance Sheets as of December 31, 2003 and 2002................................................ F-2
Consolidated Statements of Operations for the years ended December 31, 2003, 2002 and 2001................. F-3 - F-4
Consolidated Statements of Comprehensive Income for the years ended December 31, 2003, 2002 and 2001........ F-5
Consolidated Statements of Stockholders' Equity for the years ended December 31, 2003, 2002 and 2001....... F-6
Consolidated Statements of Cash Flows for the years ended December 31, 2003, 2002 and 2001.................. F-7 - F-8
Notes to the Consolidated Financial Statements............................................................. F-9 - F-33
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, 2003 and 2002, 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, 2003. 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, 2003
and 2002 and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 2003 in conformity with accounting
principles generally accepted in the United States of America.
Deloitte & Touche LLP
Certified Public Accountants
Miami, Florida
March 10, 2004
F-1
EQUITY ONE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2003 AND 2002
(In thousands, except per share amounts)
2003 2002
------------ ------------
ASSETS
PROPERTIES:
Income producing.......................................................... $ 1,594,579 $ 682,941
Less: accumulated depreciation............................................ (66,406) (40,433)
------------ ------------
1,528,173 642,508
Construction in progress and land held for development.................... 74,686 35,923
Property held for sale.................................................... 14,440 -
------------ ------------
Properties, net........................................................ 1,617,299 678,431
CASH AND CASH EQUIVALENTS.................................................... 966 2,944
CASH HELD IN ESCROW.......................................................... - 5,933
ACCOUNTS AND OTHER RECEIVABLES, NET......................................... 13,492 7,053
INVESTMENTS IN AND ADVANCES TO JOINT VENTURES................................ 2,861 10,021
GOODWILL .................................................................... 14,014 2,276
OTHER ASSETS.................................................................. 28,754 23,411
------------ ------------
TOTAL......................................................................... $ 1,677,386 $ 730,069
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
NOTES PAYABLE
Mortgage notes payable..................................................... $ 459,103 $ 332,143
Unsecured revolving credit facilities...................................... 162,000 -
Secured revolving credit facilities........................................ - 23,000
Unsecured senior notes payable............................................. 150,000 -
------------ ------------
771,103 355,143
Unamortized premium on notes payable....................................... 24,218 -
------------ ------------
Total notes payable..................................................... 795,321 355,143
OTHER LIABILITIES
Accounts payable and accrued expenses...................................... 25,211 14,760
Tenant security deposits................................................... 7,706 4,342
Other liabilities.......................................................... 5,924 1,724
------------ ------------
Total liabilities....................................................... 834,162 375,969
------------ ------------
MINORITY INTEREST............................................................. 12,672 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, 69,353 and 34,540
shares issued and outstanding for 2003 and 2002, respectively........... 694 345
Additional paid-in capital................................................. 843,678 355,450
Retained earnings.......................................................... - 5,969
Accumulated other comprehensive loss....................................... (122) (46)
Unamortized restricted stock compensation.................................. (10,091) (4,375)
Notes receivable from issuance of common stock............................. (3,607) (7,112)
------------ ------------
Total stockholders' equity.............................................. 830,552 350,231
------------ ------------
TOTAL........................................................................ $ 1,677,386 $ 730,069
============ ============
See accompanying notes to the consolidated financial statements.
F-2
EQUITY ONE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
(In thousands, except per share amounts)
2003 2002 2001
------------ ----------- -----------
RENTAL INCOME:
Minimum rents.................................................. $ 144,997 $ 72,802 $ 57,856
Expense recoveries............................................. 41,740 22,689 17,586
Termination fees................................................ 1,382 1,938 995
Percentage rent payments........................................ 1,857 1,475 967
------------ ----------- -----------
Total rental income.......................................... 189,976 98,904 77,404
------------ ----------- -----------
COSTS AND EXPENSES:
Property operating expenses..................................... 54,866 30,763 24,124
Interest expense................................................ 37,826 22,106 20,909
Amortization of deferred financing fees......................... 1,111 884 1,114
Rental property depreciation and amortization.................... 27,598 13,303 10,798
Litigation settlement........................................... - 2,067 -
General and administrative expenses............................. 11,046 6,649 3,553
------------ ----------- -----------
Total costs and expenses..................................... 132,447 75,772 60,498
------------ ----------- -----------
INCOME BEFORE OTHER INCOME AND EXPENSES, INCOME TAXES, DISCONTINUED
OPERATIONS AND MINORITY INTEREST................................ 57,529 23,132 16,906
OTHER INCOME AND EXPENSES
Investment income.................................................. 1,089 1,632 1,930
Other income....................................................... 687 1,085 927
Equity in income (loss) of joint ventures.......................... (126) (15) (93)
Loss on disposal of income producing properties..................... - - (609)
Gain (loss) on extinguishment of debt............................... (623) 1,520 (1,546)
------------ ----------- -----------
INCOME BEFORE INCOME TAXES, DISCONTINUED OPERATIONS, AND MINORITY
INTEREST........................................................ 58,556 27,354 17,515
------------ ----------- -----------
INCOME TAX BENEFIT (EXPENSE)
Current.......................................................... - - 593
Deferred......................................................... - - 374
------------ ----------- -----------
Total income tax benefit (expense)............................ - - 967
------------ ----------- -----------
DISCONTINUED OPERATIONS:
Income from rental properties sold or held for sale............. 2,811 3,417 1,965
Gain on disposal of income producing properties................. 3,083 9,264 -
------------ ----------- -----------
Total income from discontinued operations..................... 5,894 12,681 1,965
------------ ----------- -----------
INCOME BEFORE MINORITY INTEREST.................................... 64,450 40,035 20,447
MINORITY INTEREST.................................................. (803) (101) (1,726)
------------ ----------- -----------
NET INCOME......................................................... $ 63,647 $ 39,934 $ 18,721
============ =========== ===========
continued)
F-3
EQUITY ONE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
(In thousands, except per share amounts)
2003 2002 2001
------------ ----------- -----------
EARNINGS PER SHARE:
BASIC EARNINGS PER SHARE
Income before discontinued operations............................ $ 0.96 $ 0.84 $ 0.77
Income from discontinued operations.............................. 0.10 0.38 0.06
------------ ----------- -----------
Total basic earnings per share................................. $ 1.06 $ 1.22 $ 0.83
============ =========== ===========
NUMBER OF SHARES USED IN COMPUTING
BASIC EARNINGS PER SHARE......................................... 59,998 32,662 22,414
============ =========== ===========
DILUTED EARNINGS PER SHARE
Income before discontinued operations............................ $ 0.95 $ 0.82 $ 0.77
Income from discontinued operations.............................. 0.10 0.38 0.06
------------ ----------- -----------
Total diluted earnings per share............................... $ 1.05 $ 1.20 $ 0.83
============ =========== ===========
NUMBER OF SHARES USED IN COMPUTING
DILUTED EARNINGS PER SHARE....................................... 61,665 33,443 23,037
============ =========== ===========
(Concluded)
See accompanying notes to the consolidated financial statements.
F-4
EQUITY ONE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
(In thousands, except per share amounts)
2003 2002 2001
------------ ----------- -----------
NET INCOME........................................................... $ 63,647 $ 39,934 $ 18,721
OTHER COMPREHENSIVE (LOSS) INCOME:
Net unrealized holding gain (loss) on securities available for sale 46 (12) 310
Reclassified adjustment for gains included in net income........... - - (33)
Change in fair value of cash flow hedges........................... (122) - -
------------ ----------- -----------
COMPREHENSIVE INCOME................................................. $ 63,571 $ 39,922 $ 18,998
============ =========== ===========
See accompanying notes to the consolidated financial statements.
F-5
EQUITY ONE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
(In thousands, except per share amounts)
Notes
Accumulated Receivable
Addit- Equity Other Compre- Unamortize from the Total
ional Related hensive Restricted Issuance Stock-
Common Paid-In to Step Retained (Loss)/ Stock of Common holders'
Stock Capital Acquisition Earnings Income Compensation Stock Equity
---------- ---------- ---------- ---------- ---------- ------------ ---------- ---------
BALANCE,
JANUARY 1, 2001......... $ 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
Issuance of common
stock:
IRT transaction...... 175 231,562 - - - - 231,737
Other issuances...... 174 259,445 - (5,716) 3,505 257,408
Stock issuance cost.. - (1,718) - - - - (1,718)
Net income............ - - 63,647 - - 63,647
Dividends paid........ - (1,061) - (69,616) - - (70,677)
Change in fair value
of cash flow hedges.. - - - - (122) - - (122)
Net unrealized
holding gain on
securities available
for sale .......... - - - - 46 - - 46
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------
BALANCE,
DECEMBER 31, 2003.... $ 694 $ 843,678 $ - $ - $ (122) $ (10,091) $ (3,607) $ 830,552
========== ========== ========== ========== ========== ========== ========== =========
See accompanying notes to the consolidated financial
statements.
F-6
EQUITY ONE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
(In thousands, except per share amounts)
2003 2002 2001
------------ ----------- -----------
OPERATING ACTIVITIES:
Net income............................................................ $ 63,647 $ 39,934 $ 18,721
Adjustments to reconcile net income to net cash provided by
operating activities:..............................................
Straight line rent adjustment.................................... (1,974) (636) (129)
Provision for losses on accounts receivable...................... 582 524 322
Amortization of premium on notes payable......................... (3,584) - -
Amortization of deferred financing fees.......................... 1,111 884 1,114
Rental property depreciation and amortization.................... 27,598 13,303 10,798
Depreciation and amortization included in discontinued operations 409 507 867
Amortization of restricted stock................................. 2,833 1,579 973
(Gain) loss on disposal of real estate........................... (3,083) (9,264) 609
Gain on securities available for sale............................ (9) (14) -
Loss (gain) on debt extinguishment............................... 623 (1,520) 1,546
Equity in income of joint ventures............................... (500) (549) (494)
Minority interest in earnings of consolidated subsidiary......... 803 101 1,726
Deferred income tax benefit...................................... - - (374)
Changes in assets and liabilities:
Accounts and other receivables.................................. (5,080) (3,152) 840
Other assets.................................................... (2,969) 173 146
Accounts payable and accrued expenses........................... (5,378) 2,548 (8,362)
Tenants' security deposits...................................... 1,038 252 206
Other liabilities............................................... 2,195 943 (295)
------------ ------------ ------------
Net cash provided by operating activities............................. 78,262 45,613 28,214
------------ ------------ ------------
INVESTING ACTIVITIES:
Additions to and purchase of rental property....................... (185,693) (79,457) (37,409)
Proceeds from disposal of rental property.......................... 25,013 27,195 22,276
Decrease (increase) in cash held in escrow......................... 12,897 (4,218) (402)
Proceeds from sales of joint venture interest...................... 6,714 - 6,630
Distributions received from joint ventures......................... 940 871 287
Increase in deferred leasing expenses.............................. (4,455) (1,660) (378)
Proceeds from repayments of notes receivable....................... 5,074 5,068 2,643
Proceeds from sale of securities................................... 976 762 -
Due to (from) affiliates........................................... - - 212
Cash used in the purchase of IRT................................... (189,382) - -
Cash used in the purchase of UIRT.................................. - - (36,294)
Cash acquired in acquisitions...................................... 1,756 - -
------------ ------------- -------------
Net cash used in investing activities................................. (326,160) (51,439) (42,435)
------------ ------------- -------------
FINANCING ACTIVITIES:
Repayments of mortgage notes payable............................... (63,586) (43,156) (66,210)
Borrowings under mortgage notes payable............................ - 25,850 64,884
Decrease in restricted cash........................................ - - 4,273
Net borrowings (repayments) under revolving credit facilities...... 131,000 (4,409) 9,210
Increase in deferred financing expenses............................ (888) (1,058) (540)
Proceeds from stock subscription and issuance of common stock...... 249,205 67,982 21,366
Stock issuance costs............................................... (1,718) (1,471) (1,476)
Repayment of notes receivable from issuance of common stock........ 3,505 - -
Cash dividends paid to stockholders................................ (70,677) (35,773) (18,622)
Distributions to minority interest................................. (921) (101) (105)
------------ ------------- -------------
Net cash provided by financing activities............................. 245,920 7,864 12,780
------------ ------------- -------------
(continued)
F-7
EQUITY ONE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
(In thousands, except per share amounts)
2003 2002 2001
------------ ------------- -------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS.................. $ (1,978) $ 2,038 $ (1,441)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR.......................... 2,944 906 2,347
------------ ------------- -------------
CASH AND CASH EQUIVALENTS, END OF YEAR................................ $ 966 $ 2,944 $ 906
============ ============= =============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest, net of amount capitalized................... $ 35,264 $ 22,772 $ 20,457
============ ============= =============
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Change in unrealized holding gain (loss) on securities available for
sale............................................................... $ 46 $ (12) $ 277
============ ============= =============
Change in fair value of cash flow hedges.............................. $ 122
============
Conversion of partnership operating units............................. $ 2,880
============ ============= =============
Issuance of restricted stock.......................................... $ 7,534 $ 3,900 $ 1,525
============ ============= =============
Common stock issued for notes receivable.............................. $ 1,534 $ 5,033
============= =============
Note receivable from sale of property................................. $ 3,900
=============
The Company acquired all of the outstanding common stock of IRT for
$763,047, including transaction costs:
Fair value of assets acquired, including goodwill.................. $ 763,047
Assumption of liabilities, unsecured senior notes and mortgage
notes payable.................................................... (319,598)
Fair value adjustment of unsecured senior notes and mortgage notes
payable.......................................................... (22,330)
Common stock issued................................................ (231,737)
------------
Cash paid for IRT acquisition, including transaction costs......... $ 189,382
============
The Company acquired and assumed the mortgage on the acquisition of a
rental property:
Fair value of rental property...................................... $ 101,692 $ 9,300
Assumption of mortgage notes payable............................... (54,369) (6,097)
Fair value adjustment of mortgage notes payable.................... (6,029) -
------------ -------------
Cash paid for rental property...................................... $ 41,294 $ 3,203
============ =============
Sale of joint venture interest in settlement of notes receivable...... $ 1,438
============
Issuance of CEFUS common stock in settlement of $ 3,345
affiliated debt.....................................................
============
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
============
See accompanying notes to the consolidated financial statements. (Concluded)
F-8
EQUITY ONE, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002, AND 2001
(In thousands, except per share amounts)
1. Organization and Basis of Presentation
Organization
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.
Basis of Presentation
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 two joint ventures of which the Company is not
the primary beneficiary and, accordingly, uses the equity method of accounting
for these joint ventures.
All significant intercompany transactions and balances have been eliminated
in consolidation.
Portfolio
As of December 31, 2003, the Company owned a total of 185 properties,
encompassing 123 supermarket-anchored shopping centers, 11 drug store-anchored
shopping centers, 44 other retail-anchored shopping centers, one self-storage
facility, one industrial property and five retail developments, as well as
non-controlling interests in two unconsolidated joint ventures which own and
operate commercial real estate properties.
IRT Merger
On February 12, 2003, the Company completed a statutory merger for all of
the outstanding interests of IRT Property Company ("IRT"). The Company acquired
93 properties that comprise an aggregate of approximately 10,041 square feet of
gross leasable area. The acquisition creates one of the largest shopping center
REIT's primarily focusing on the southeastern United States. The acquisition of
IRT was accounted for using the purchase method and the results of IRT are
included in the Company's financial statements since the date of its
acquisition. The aggregate purchase price for the acquisition was $763,047
(including transaction costs and assumed debt), consisting of the payment of
$189,382 in cash, the issuance of 17,490 shares of the Company's common stock
valued at $231,737 and the assumption of $341,928 of outstanding debt, premium
on notes payable, and other liabilities. The value of the Company's common stock
was determined based on the average market price over the 3-day period before
and after the terms of the acquisition were agreed to and announced. There were
no contingent payments, options, or commitments specified in the agreement.
F-9
The following table summarizes the estimated fair values of the assets
acquired and liabilities assumed at the date of the acquisition.
As of
February 12, 2003
-----------------
Properties ................................... $ 738,209
Cash and cash equivalents..................... 1,756
Cash held in escrow .......................... 6,964
Accounts receivable .......................... 3,401
Goodwill ...................................... 11,738
Other assets .................................. 979
-----------------
Total assets acquired .................... 763,047
-----------------
Mortgage notes payable ....................... 135,352
Premium on mortgage notes .................... 7,223
Unsecured senior notes payable ............... 150,000
Premium on unsecured senior notes payable .... 15,107
Other liabilities.............................. 34,246
-----------------
Total liabilities assumed .................. 341,928
-----------------
Net assets acquired ........................ $ 421,119
=================
The Company has determined that the amounts assigned to other intangible
assets acquired are not significant in relation to the total cost of the
acquisition.
The following unaudited supplemental pro forma information is presented to
reflect the effects of the IRT acquisition and related transactions, and the
impact on the Company's results, as if the transactions had occurred on January
1, 2002. The pro forma information includes the acquisition of IRT, the issuance
of common stock related to the IRT transaction, the private placement of common
stock and the borrowing under the revolving credit facility. The pro forma
financial information is presented for informational purposes only and may not
be indicative of what the actual results of operations would have been had the
acquisition occurred as indicated, nor does it purport to represent the results
of the operations for future periods:
2003 2002
----------- -----------
Pro forma rental income......................... $ 200,461 $ 189,442
=========== ===========
Pro forma income before discontinued operations $ 60,113 $ 54,656
=========== ===========
Pro forma net income............................ $ 60,007 73,305
=========== ===========
Pro forma earnings per share:
Basic earnings per share:
Income before discontinued operations....... $ 0.96 $ 0.96
Income from discontinued operations......... 0.09 0.33
----------- -----------
Total basic earnings per share............ $ 1.05 $ 1.29
=========== ===========
Diluted earnings per share:
Income before discontinued operations....... $ 0.94 $ 0.95
Income from discontinued operations......... 0.09 0.32
----------- -----------
Total diluted earnings per share.......... $ 1.03 $ 1.27
=========== ===========
F-10
Other Mergers
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 FCR 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, 2001 were adjusted to
incorporate the results of CEFUS for the period January 1, 2001 to September 19,
2001. Through 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 and for 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 acquisition.
2. Summary of Significant Accounting Policies
Properties
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.
The Company is actively pursuing acquisition opportunities and will not be
successful in all cases; costs incurred related to these acquisition
opportunities are expensed when it is probable that the Company will not be
successful in the acquisition.
F-11
Depreciation expense is computed using the straight-line method over the
estimated useful lives of the assets, as follows:
Land improvements 40 years
Buildings 30-40 years
Building improvements 5-40 years
Tenant improvements Over the term of the related lease
Equipment 5-7 years
Business Combinations
The Company allocates the purchase price of acquired companies and
properties to the tangible and intangible assets acquired, and liabilities
assumed, based on their estimated fair values. Fair value is defined as the
amount at which that asset could be bought or sold in a current transaction
between willing parties (other than in a forced or liquidation sale). In order
to allocate the purchase price of acquired companies and properties to the
tangible and intangible assets acquired, the Company identifies and estimates
the fair value of the land, buildings, and improvements, review the leases to
determine the existence of, and estimates fair value of, any contractual or
other legal rights and investigates the existence of, and estimates fair value
of, any other identifiable intangible assets. Such valuations require management
to make significant estimates and assumptions, especially with respect to
intangible assets.
The cost approach is used as the primary method to estimate the fair value
of the buildings, improvements and other assets. The market value approach is
used as the primary method to estimate the fair value of the land. The
determination of the fair value of contractual intangibles is based on the costs
to originate a lease including commissions and legal costs to the extent that
such costs are not already incurred with a new lease that has been negotiated in
connection with the purchase of a property. In-place lease values are based on
management's evaluation of the specific characteristics of each lease and the
Company's overall relationship with each tenant. Among the factors considered in
the allocation of these values include the nature of the existing relationship
with the tenant, the tenant's credit quality, the expectation of lease renewals,
the estimated carrying costs of the property during a hypothetical expected
lease-up period, current market conditions and costs to execute similar leases.
Estimated carrying costs include real estate taxes, insurance, other property
operating costs and estimates of lost rentals at market rates during the
hypothetical expected lease-up periods, under specific market conditions.
Above-market, below-market and in-place lease values are determined based on the
present value (using a discount rate reflecting the risks associated with the
leases acquired) of the difference between (i) the contractual amounts to be
paid pursuant to the leases negotiated and in-place at the time of acquisition
and (ii) management's estimate of fair market lease rates for the property or
equivalent property, measured over a period equal to the remaining
non-cancelable term of the lease. The value of contractual intangibles is
amortized over the remaining term of each lease. Other than discussed above, the
Company has determined that its real estate properties do not have any other
significant identifiable intangible assets.
Critical estimates in valuing certain of the intangible assets and the
assumptions of what marketplace participants would use in making estimates of
fair value include, but are not limited to: future expected cash flows,
estimated carrying costs, estimated origination costs, lease up periods, and the
tenant risk attributes, as well as assumptions about the period of time the
acquired lease will continue to be used in the Company's portfolio, and discount
rates used in these calculations. Management's estimates of fair value are based
upon assumptions believed to be reasonable, but which are inherently uncertain
and unpredictable. Assumptions may not always reflect unanticipated events and
changes in circumstances may occur. In making such estimates, management uses a
number of sources, including appraisals that may be obtained in connection with
the acquisition or financing of the respective property or other market data.
Management also considers information obtained in its pre-acquisition due
diligence and marketing and leasing activities in estimating the fair value of
tangible and intangible assets acquired.
F-12
Construction in progress and land held for development
Land held for development is stated at cost. 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. Properties undergoing significant renovations
and improvements are considered under development. The Company estimates the
cost of a property undergoing renovations as a basis for determining eligible
costs. 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. In addition, the Company writes off costs
related to predevelopment projects when it determines that it will no longer
pursue the project.
Total interest expense capitalized to construction in progress and land
held for development was $3,822, $2,375 and $2,102 for the years ended December
31, 2003, 2002 and 2001, respectively.
Long-lived assets
Long-lived assets, such as property, land held for development, and certain
identifiable intangibles, 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.
Accounts Receivable
Accounts receivable include amounts billed to tenants and accrued expense
recoveries due from tenants. Management evaluates the collectibility of these
receivables and adjusts the allowance for doubtful accounts to reflect amounts
estimated to be uncollectible. The allowance for doubtful accounts was $1,201
and $619 at December 31, 2003 and 2002, respectively.
Deferred expenses
Deferred expenses consist of loan origination fees and leasing costs. Loan
and other fees directly related to rental property financing with third parties
are amortized over the term of the loan which approximates the effective
interest method. Direct salaries, third party fees and other costs incurred by
the Company to originate a lease are capitalized and are being amortized using
the straight-line method over the term of the related 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 is required to perform annual impairment tests of its goodwill
and intangible assets, or more frequently in certain circumstances. The Company
has elected to test for goodwill impairment in November of each year. The
goodwill impairment test is a two-step process, which
F-13
requires management to make judgments in determining what assumptions to use in
the calculation. The first step of the process consists of estimating the fair
value of each reporting unit and comparing those estimated fair values with the
carrying values, which includes the allocated goodwill. If the estimated fair
value is less than the carrying value, a second step is performed to compute the
amount of the impairment by determining an "implied fair value" of goodwill. The
determination of a reporting unit's "implied fair value" of goodwill requires
the Company to allocate the estimated fair value of the reporting unit to the
assets and liabilities of the reporting unit. Any unallocated fair value
represents the "implied fair value" of goodwill, which is compared to its
corresponding carrying value.
The key assumptions management employs to determine the fair value of the
Company's reporting units (each property is considered a reporting unit)
included (a) net operating income; (b) cash flows; and (c) an estimation of the
fair value of each reporting unit, which was based on the Company's experience
in evaluating acquisitions and market conditions. A variance in the net
operating income or discount rate could have a significant impact on the amount
of any goodwill impairment charge recorded.
Management cannot predict the occurrence of certain future events that
might adversely affect the reported value of goodwill that totaled $14,014
million at December 31, 2003. Such events include, but are not limited to,
strategic decisions made in response to economic and competitive conditions, the
impact of the economic environment on the Company's tenant base, or a material
negative change in its relationships with significant tenants.
Deposits
Deposits are composed of funds held by various institutions for future
payments of property taxes, insurance and improvements, utility and other
service deposits.
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, a wholly owned subsidiary of the Company, Equity One
(North Port) Inc., entered into a limited partnership (the "Shoppes of North
Port, Ltd.") as a general partner. An income producing shopping center 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 261.850 operating partnership units ("OPUs")
based on the net value of the properties contributed. The North Port Minority
Partners had the right to redeem their OPUs for the Company's common stock on a
one-for-one basis or for cash at an agreed upon price of $11.00 per share no
earlier than December 10,
F-14
2001, nor later than three and one half years thereafter. The North Port
Minority Partners received a preferred quarterly distribution equal to a 9%
annual return on their initial capital contribution through December 31, 2002.
On January 1, 2003, the preferred distribution was reduced to a 3% annual return
on their initial capital contribution. This amount is reflected as interest
expense in the consolidated financial statements. During July 2003, North Port
Minority Partners redeemed their OPUs in exchange for 261.850 shares of the
Company's common stock.
The Company is the general partner of IRT Partners L.P. ("LP") and
maintains an indirect partnership interest through its wholly-owned subsidiary,
IRT Management Company. LP was formed in order to enhance the acquisition
opportunities of the Company through a downREIT structure. This structure offers
potential sellers of properties the ability to make a tax-deferred sale of their
real estate properties in exchange for limited partnership units ("OP Units") of
LP. As of December 31, 2003, there were 734.266 OP Units outstanding held by
partners not affiliated with the Company. LP is obligated to redeem each OP Unit
held by a person other than the Company, at the request of the holder, for cash
equal to the fair market value of a share of the Company's common stock at the
time of such redemption, provided that the Company may elect to acquire any such
OP Unit presented for redemption for one share of common stock. Such limited
partnership interest of 5.59% of LP are held by persons unaffiliated with the
Company and are reflected as a minority interest in the consolidated
subsidiaries in the accompanying consolidated balance sheets.
The Company also records a minority interest for the limited partners'
share of equity in two separate general partnerships which it controls and is
the primary beneficiary. The two partnerships in which the Company has a
partnership interest are Venice Plaza (75% interest) and North Village Center
(49% interest). The minority interest has been presented in the accompanying
consolidated balance sheet.
Notes receivable from issuance of common stock
As a result of certain provisions of the Sarbanes-Oxley Act of 2002, the
Company is generally prohibited from making loans to directors and executive
officers. Prior to the adoption of the Sarbanes-Oxley Act of 2002, the Company
had loaned $7,112 to various executives in connection with their exercise of
options to purchase shares of the Company's common stock of which $3,505 has
been repaid during 2003. The notes bear interest at a rate of 5%. Interest only
is payable quarterly and the principal is due between 2006 and 2009. In
accordance with the provisions of the Sarbanes-Oxley Act of 2002, there have
been no material modifications to any of the terms of the loans granted to our
executives.
Revenue Recognition
Rental income comprises minimum rents, expense reimbursements, termination
fees and percentage rent payments. Minimum rents are recognized over the lease
term on a straight-line basis as it becomes receivable according to the
provisions of the lease. 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.
The Company maintains an allowance for doubtful accounts for estimated
losses resulting from the inability of tenants to make required rent payments.
The computation of this allowance is based on the tenants' payment history and
current credit quality.
Earnings Per Share
Basic earnings per share ("EPS") is computed by dividing net income by the
weighted average number of shares of the Company's common stock outstanding
during the period. Diluted EPS reflects the potential dilution that could occur
from shares issuable under stock-based compensation plans, which would include
the exercise of stock options, and the conversion of the minority interests in
the Operating Partnerships.
F-15
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 Internal Revenue 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. Also, at
least 90% of the Company's gross income in any year must be derived from
qualifying sources. The difference between net income available to common
shareholders for financial reporting purposes and taxable income before dividend
deductions relates primarily to temporary differences, principally real estate
depreciation and amortization. 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. In
addition, taxable income of the Company's consolidated subchapter C-Corporation
("C-Corporation") taxable REIT subsidiary ("TRS"), is subject to federal and
state income taxes.
CEFUS, was taxed as a C-Corporation and accordingly recorded current and
deferred income taxes through September 19, 2001. 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 carried 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 $38,390. In lieu of
the tax imposed on the transferor C-Corporation (i.e. CEFUS), the Company is
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's properties are community and neighborhood shopping centers
located predominately in high growth markets in the southern United States. Each
of the Company's centers are separate operating segments which have been
aggregated and reported as one reportable segment because they have
characteristics so similar that they are expected to have essentially the same
future prospects. The economic characteristics include similar returns,
occupancy and tenants and each is located near a metropolitan area with similar
economic demographics and site characteristics.
F-16
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 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 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 adopted the disclosure
requirements in 2002 and the initial recognition and measurement provisions in
2003. The adoption of FIN 45 did not 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.
Accordingly, no compensation expense has been recognized for options granted
under the Company's compensation plan as no grants were made at less than market
value. The Company has adopted the disclosure requirements of SFAS No. 148 in
its financial statements as of December 31, 2002.
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:
F-17
Years Ended December 31,
-----------------------------------------------
2003 2002 2001
------------- ------------- -------------
Net Income As reported..................... $ 63,647 $ 39,934 $ 18,721
Stock based employee
compensation expense
included in reported net
income........................ - - -
Total stock based employee
compensation expense
determined under fair value
based method for all awards... 896 743 238
------------- ------------- -------------
Pro forma........................ $ 62,751 $ 39,191 $ 18,483
============= ============= =============
Basic earnings per share As reported...................... $ 1.06 $ 1.22 $ 0.83
============= ============= =============
Pro forma........................ $ 1.05 $ 1.20 $ 0.82
============= ============= =============
Diluted earnings per share As reported...................... $ 1.05 $ 1.20 $ 0.83
============= ============= =============
Pro forma........................ $ 1.03 $ 1.18 $ 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, 2003, 2002 and 2001:
2003 2002 2001
-------------- -------------- --------------
Dividend Yield.................. 6.5% - 7.0% 7.9% 7.5%
Risk-free interest rate......... 1.2% - 4.27% 4.3% 4.3% - 5.1%
Expected option life (years).... 1-10 10 7
Expected volatility............. 16.5% - 25% 24% 25%
In January 2003, FASB issued FASB Interpretation No. 46, Consolidation of
Variable Interest Entities ("FIN 46"), an interpretation of ARB 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 consolidation 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 or annual period ending after December 15, 2003.
The Company has evaluated the effect of FIN 46 and has determined where it is
the primary beneficiary and has consolidated those VIE's. Where the Company has
determined it is not the primary beneficiary of the VIE, it reports the VIE
under the equity method. The adoption of FIN 46 did not require a change in the
accounting treatment of any VIE's. The Company has not become a party to any
VIE's during 2003.
In April 2003, FASB issued SFAS No. 149, Amendment of Statement 133 on
Derivative Instruments and Hedging Activities, which clarifies the accounting
and reporting for derivative instruments, including derivative instruments that
are embedded in contracts. This statement is effective for contracts entered
into or modified after June 30, 2003. The Company adopted this pronouncement
beginning July 1, 2003. The adoption of SFAS No. 149 did not have a material
impact on the Company's financial condition or results of operations.
In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity. This statement
establishes standards for the
F-18
classification and measurement of financial instruments that possess
characteristics similar to both liability and equity instruments. SFAS No. 150
also addresses the classification of certain financial instruments that include
an obligation to issue equity shares. On October 29, 2003, the FASB voted to
defer, for an indefinite period, the application of the guidance in SFAS No.
150. The FASB decided to defer the application of certain aspects of Statement
150 until it could consider some of the resulting implementation issues. The
Company has adopted certain provisions of SFAS No. 150 which did not have a
material impact on the Company's financial condition or results of operations.
The Company is still evaluating the potential effect of the provisions of SFAS
No. 150 that have been deferred to future periods.
In December 2003, the FASB issued Statement No. 132 (revised 2003),
Employers' Disclosures about Pensions and Other Postretirement Benefits. This
Statement revises employers' disclosures about pension plans and other
postretirement benefit plans. It does not change the measurement or recognition
provisions of FASB Statements No. 87, Employers' Accounting for Pensions, No.
88, Employers' Accounting for Settlements and Curtailments of Defined Benefit
Pension Plans and for Termination Benefits, and No. 106, Employers' Accounting
for Postretirement Benefits Other Than Pensions. This Statement retains the
disclosure requirements contained in FASB Statement No. 132, Employers'
Disclosures about Pensions and Other Postretirement Benefits, which it replaces.
It requires additional disclosures about the assets, obligations, cash flows,
and net periodic benefit cost of defined benefit pension plans and other
postretirement benefit plans. The adoption of SFAS No. 132 (revised) did not
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.
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 Notes Payable. The fair value estimated at December 31, 2003 and
2002 was $505,148 and $373,166, respectively, calculated based on the net
present value of payments over the term of the loans using estimated market
rates for similar mortgage loans and remaining terms.
Unsecured Revolving Credit Facilities. The fair value is estimated by using
the current rates at which similar loans would be made and remaining terms. The
carrying amounts reported in the balance sheets approximate fair value.
Unsecured Senior Notes Payable. The fair value estimated at December 31,
2003 was $165,700, calculated based on the net present value of payments over
the term of the loan using estimated market rate for similar notes and remaining
terms.
Reclassifications
Certain prior year amounts have been reclassified to conform with the
current year financial presentation.
F-19
3. Properties
----------
Composition in the consolidated balance sheets: December 31,
-----------------------------
2003 2002
------------- ------------
Land and land improvements................................... $ 654,654 $ 178,066
Building and building improvements........................... 924,097 495,301
Tenant improvements.......................................... 15,828 9,574
------------- ------------
Total income producing property......................... 1,594,579 682,941
Less: accumulated depreciation............................... (66,406) (40,433)
------------- ------------
Total rental property................................... 1,528,173 642,508
Construction in progress and land held for development....... 74,686 35,923
Property held for sale....................................... 14,440 -
------------- ------------
Properties, net........................................... $1,617,299 $ 678,431
============= ============
Acquisitions
The following table reflects properties acquired (excluding the properties
acquired in the IRT merger - see Note 1) since January 1, 2003:
Date SquareFeet/ Purchase
Property Location Purchased Acres Price
----------------------- --------------------- ---------- ------------ ----------
Westridge Henry County, GA February 13.5 acres $ 1,688
HEB - Spring Shadow Houston, TX April 62,661 3,500
Sheridan Plaza Hollywood, FL July 451,294 75,325
Butler Creek Acworth, GA July 95,597 12,100
Bandera Outparcel San Antonio, TX July 6,000 533
Presidential Snellville, GA August 374,112 47,238
Hunters Creek Orlando, FL September 68,032 7,446
Bridgemill Canton, GA November 78,654 14,070
Hamilton Ridge Buford, GA December 89,496 13,650
Belfair Towne Village Bluffton, SC December 125,389 19,861
Publix at Middle Beach Panama City Beach, FL December 69,277 7,637
Publix at Woodruff Greenville, SC December 68,055 7,985
----------
$ 211,033
==========
No equity interests were issued or issuable in connection with the above
purchases and no contingent payments, options or commitments are specific in the
agreements. No goodwill was recorded in conjunction with the above acquisitions.
The Company has determined that the amounts assigned to intangible assets
acquired are not significant in relation to the total cost of the acquisition.
4. Accounts and Other Receivables
------------------------------
Composition in the consolidated balance sheets: December 31,
-----------------------------
2003 2002
------------- -----------
Tenants.............................................. $ 13,921 $ 6,568
Other................................................ 772 1,104
Allowance for doubtful accounts...................... (1,201) (619)
------------- -----------
Total accounts and other receivables.............. $ 13,492 $ 7,053
============= ===========
F-20
5. Investments in Joint Ventures
-----------------------------
A summary of the Company's investments in joint ventures at December 31,
2003 and 2002 is as follows (all investments in unconsolidated entities are
accounted for under the equity method):
December 31, December 31,
Entity Location Ownership 2003 2002
- ------------------------ ------------------------- -------------- ------------- --------------
PG Partners Palm Beach Gardens, FL 50.0% $ 2,633 $ 2,823
Parcel F, LLC Palm Beach Gardens, FL 50.0% 228 228
Oaksquare JV* Gainesville, FL - - 1,243
CDG (Park Place) LLC** Plano, TX - - 5,727
------------- --------------
Investments in joint ventures $ 2,861 $ 10,021
============= ==============
*The Company sold its interest in this joint venture during 2003.
** The property held by this joint venture was sold during 2003.
A summary of the unaudited balance sheets for the joint ventures being
reported on the equity method of accounting is as follows:
As of As of
Condensed Balance Sheet December 31, 2003 December 31, 2002
----------------------------------------------- ------------------ -------------------
Assets:
Rental properties, net.................... $ 16,688 $ 47,309
Cash and cash equivalents................. - 690
Other assets.............................. 457 1,170
------------------ -------------------
Total assets.............................. $ 17,145 $ 49,169
------------------ -------------------
Liabilities and Ventures' Equity:
Mortgage notes............................ $ 12,878 $ 44,625
Other liabilities......................... 90 651
Ventures' equity.......................... 4,177 3,893
------------------ -------------------
Total .................................... $ 17,145 $ 49,169
================== ===================
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 $1,000 and $5,000 as of December 31, 2003 and
2002, respectively, is being depreciated over the useful lives of the related
assets.
A summary of the unaudited statements of operations for the joint ventures
being reported on the equity method of accounting is as follows:
Year Ended December 31,
----------------------------------------------
Condensed Statements of Operations 2003 2002 2001
------------------------------------------------- ------------ ------------- -------------
Revenues:
Rental revenues................................ $ 5,313 $ 7,176 $ 6,376
Other revenues................................. 8 12 125
------------ ------------- -------------
Total revenues............................... 5,321 7,188 6,501
------------ ------------- -------------
Expenses:
Operating expenses............................. 1,228 1,742 1,399
Interest expense............................... 2,058 2,932 3,285
Depreciation................................... 905 1,291 579
Other expense.................................. 130 125 250
------------ ------------- -------------
Total expense................................ 4,321 6,090 5,513
------------ -------------- -------------
Net income..................................... $ 1,000 $ 1,098 $ 988
============ ============= =============
The Company's equity in income (loss) of joint $ 500 $ 549 $ 494
ventures reported in............................
============ ============= =============
Continuing operations................ $ (126) $ (15) $ (93)
============ ============= =============
Discontinued operations.............. $ 626 $ 564 $ 587
============ ============= =============
F-21
Significant accounting policies used by the unconsolidated joint ventures
are similar to those used by the Company.
6. Other Assets
------------
Composition in the consolidated balance sheets:
December 31,
---------------------------
2003 2002
------------ ------------
Notes Receivable, bearing interest at 8.0% through 10.0% per annum,
maturing from February 2004 through November 2010.................. $ 3,050 $ 5,827
Deposits and escrow impounds......................................... 10,885 6,916
Deferred expenses.................................................... 8,681 5,263
Furniture and equipment, net......................................... 2,974 1,138
Prepaid and other assets............................................. 3,164 4,267
------------ ------------
Total other assets.............................................. $ 28,754 $ 23,411
============ ============
7. Notes Payable
-------------
Composition in the consolidated balance sheets: December 31,
-------------------------------
2003 2002
------------- -------------
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 2024................................................... $ 459,103 $ 307,508
Variable rate mortgage loans
Mortgage notes payable secured by rental properties. This mortgage was
retired during 2003..................................................... - 24,635
------------- -------------
Total mortgage notes payable............................................... 459,103 332,143
------------- -------------
Revolving credit facilities
Unsecured line of credit of $340,000, with a bank group, bearing interest
at LIBOR plus 0.65% to 1.35%, maturing February 2006.................... 162,000 -
Unsecured line of credit of $5,000, with a bank, bearing interest at LIBOR
plus 2.25%, maturing August 2004........................................ - -
Line of credit of $41,300 with a bank. During 2003, the Company entered
into a new revolving credit facility and retired this facility.......... - 23,000
------------- -------------
Total revolving credit facilities.......................................... 162,000 23,000
------------- -------------
Fixed Rate Unsecured Senior Notes Payable
Senior notes of $25,000, bearing interest of 7.84%, maturing January 2012. 25,000 -
Senior notes of $50,000, bearing interest of 7.77%, maturing April 2006... 50,000 -
Senior notes of $75,000, bearing interest of 7.25%, maturing August 2007.. 75,000 -
------------- -------------
Total fixed rate unsecured senior notes payable............................ 150,000 -
------------- -------------
Unamortized premium on notes payable
Unamortized premium on mortgage notes payable............................. 11,779 -
Unamortized premium on unsecured senior notes payable...................... 12,439 -
------------- -------------
Total unamortized premium on notes payable................................. 24,218 -
------------- -------------
Total notes payable........................................................ $ 795,321 $ 355,143
============= =============
F-22
Each of the existing mortgage loans is secured by a mortgage on one or more
of the Company's properties. Certain of the mortgage loans involving an
aggregate principal balance of approximately $182,000 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. To date, no lender has
notified the Company that it intends to accelerate its mortgage. Based on
discussions with various lenders, current credit market conditions and other
factors, the Company believes that the mortgages will not be accelerated.
Accordingly, the Company believes that the violations of these prohibitions will
not have a material adverse impact on the Company's results of operations or
financial condition.
On February 7, 2003, the Company entered into a $340,000 unsecured
revolving credit facility with a syndicate of banks for which Wells Fargo Bank,
National Association is the administrative agent. This facility bears interest
at the Company's option at (i) LIBOR plus 0.65% to 1.35%, depending on the
credit ratings of the Company's senior unsecured long term notes or (ii) at the
greater of (x) Wells Fargo's prime rate and (y) the Federal Funds Rate plus
0.5%. Based on the Company's current rating the LIBOR spread is 1.0%. The
facility also includes a competitive bid option which allows the Company to
conduct auctions among the participating banks for borrowings in an amount not
to exceed $150,000, a $25,000 swing line facility for short term borrowings, a
$20,000 letter of credit commitment and may, at the request of the Company, be
increased up to a total commitment of $400,000. The facility expires February
12, 2006 and the Company has 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, the Company can make stockholder distributions
to avoid income taxes on asset sales. If a default under the facility exists,
the Company's ability to pay dividends would be limited to the amount necessary
to maintain the Company's status as a REIT unless the default is a payment
default or bankruptcy event in which case the Company would be prohibited from
paying any dividends. The facility is guaranteed by most of the Company's
wholly-owned subsidiaries. As of December 31, 2003, the Company had $162,000
outstanding on this credit facility. The weighted average interest rate of as of
December 31, 2003 was 2.06%, including the effect of interest rate hedges.
As a result of the Company's merger with IRT, the Company assumed IRT's
obligations relating to $150,000 principal amount of unsecured senior notes,
bearing interest at fixed interest rates ranging from 7.25% to 7.84% and
maturing between 2006 and 2012. The interest rate of one series of these senior
notes is subject to a 50 basis point increase if the Company does not maintain
an investment grade debt rating. These notes have also been guaranteed by most
of the Company's wholly-owned subsidiaries and LP.
Principal maturities (including scheduled amortization payments) of the
notes payable as of December 31, 2003 are as follows:
Year ending December 31, Amount
-------------------------- --------------
2004..................... $ 12,159
2005..................... 39,870
2006..................... 246,743
2007..................... 87,961
2008..................... 50,270
Thereafter............... 334,100
--------------
Total.................... $ 771,103
==============
F-23
Interest costs incurred were $41,305, $25,004 and $24,345 in the years
ended December 31, 2003, 2002 and 2001, respectively, of which $3,822, $2,375
and $2,102 were capitalized in the years ended December 31, 2003, 2002 and 2001,
respectively.
8. Financial Instruments - Derivatives and Hedging
-----------------------------------------------
In the normal course of business, the Company is exposed to the effect of
interest rate changes that could affect its results of operations or cash flows.
The Company limits these risks by following established risk management policies
and procedures, including the use of a variety of derivative financial
instruments to manage or hedge interest rate risk. The Company does not enter
into derivative instruments for speculative purposes. The Company requires that
the hedging derivative instruments be effective in reducing interest rate risk
exposure. This effectiveness is essential to qualify for hedge accounting.
Changes in each hedging instrument's fair value related to the effective portion
of the risk being hedged are included in accumulated other comprehensive income
or loss. In those cases, hedge effectiveness criteria also require that it be
probable that the underlying transaction occurs.
Hedges that meet these hedging criteria are formally designated as cash
flow hedges at the inception of the derivative contract. When the terms of an
underlying transaction are modified, or when the underlying hedged item ceases
to exist, the change in the fair value of the derivative instrument is marked to
market with the change included in net income in each period until the
derivative instrument matures. Additionally, any derivative instrument used for
risk management that becomes ineffective is marked to market.
The Company does not anticipate non-performance by any of its
counterparties. Net interest differentials to be paid or received under a swap
contract and/or collar agreement are included in interest expense as incurred or
earned.
Interest rate hedges that are designated as cash flow hedges hedge the
future cash outflows on debt. Interest rate swaps that convert variable payments
to fixed payments, interest rate caps, floors, collars and forwards are cash
flow hedges. The unrealized gains or losses in the fair value of these hedges
are reported on the balance sheet and are included in accounts payable and
accrued expenses with a corresponding adjustment to either accumulated other
comprehensive income or loss, or in earnings depending on the hedging
relationship. If the hedging transaction is a cash flow hedge, then the
offsetting gains or losses are reported in accumulated other comprehensive
income or loss. Over time, the unrealized gains or losses held in accumulated
other comprehensive income or loss will be recognized in earnings consistent
with when the hedged items are recognized in earnings.
In conjunction with the Company's policy to reduce interest rate risk, it
has entered into interest rate swaps to hedge the variability of monthly cash
outflows attributable to changes in LIBOR. Under the swaps, the Company receives
LIBOR based payments and pays a fixed rate. A summary of the terms of the
derivative instruments, as of December 31, 2003, and a reconciliation of the
fair value and adjustments to accumulated other comprehensive loss (in
thousands) is as follows:
Hedge type......................................................... Cash Flow
Description........................................................ Swap
Range of notional amounts.......................................... $10,000 - $50,000
Total.......................................................... $70,000
Range of interest rates............................................ 1.38% - 2.3975%
Range of maturity dates............................................ 2/12/04 - 2/12/06
Total accumulated other comprehensive loss at December 31, 2002.... -
Change in fair value for the year ended December 31, 2003.......... $ (122)
==================
Total accumulated other comprehensive loss at December 31, 2003.... $ (122)
==================
F-24
The estimated fair value of the Company's financial instruments has been
determined using available market information and appropriate valuation
methodologies. However, considerable judgment is necessarily 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 or estimation methodologies may have a material
effect on the estimated fair value amounts.
9. Consolidating Financial Information
-----------------------------------
As of December 31, 2003, most of the Company's subsidiaries, including IRT
Partners L.P., have guaranteed the Company's indebtedness under the unsecured
senior debt. The guarantees are joint and several and full and unconditional.
Guarantors
-------------------------
IRT Non
Equity Combined Partners, Guaran- Eliminating Consolidated
Condensed Balance Sheet One, Inc Subsidiaries LP tors Entries Equity One
-------- ------------ --------- ---------- ----------- ------------
As of December 31, 2003
ASSETS
Properties, net................ $ 526,136 $ 561,455 $ 187,132 $ 342,576 $ - $ 1,617,299
Investment in affiliates....... 435,752 - - - (435,752) -
Other assets................... 22,865 21,926 2,940 12,356 - 60,087
--------- ------------ --------- ---------- ----------- ------------
Total ....................... $ 984,753 $ 583,381 $ 190,072 $ 354,932 $ (435,752) $ 1,677,386
========= ============ ========= ========== =========== ============
LIABILITIES
Mortgage notes payable......... $ 74,726 $ 171,230 $ 34,400 $ 178,747 $ - $ 459,103
Unsecured revolving credit
facilities................... 162,000 - - - - 162,000
Unsecured senior notes, net.... 150,000 - - - - 150,000
Unamortized premium on notes
payable...................... 13,505 5,950 4,661 102 - 24,218
Other liabilities.............. 13,000 15,522 1,780 8,539 - 38,841
--------- ------------ --------- ---------- ----------- ------------
Total liabilities............ 413,231 192,702 40,841 187,388 - 834,162
--------- ------------ --------- ---------- ----------- ------------
MINORITY INTEREST................ - - - - 12,672 12,672
STOCKHOLDERS' EQUITY
Total stockholders' equity..... 571,522 390,679 149,231 167,544 (448,424) 830,552
--------- ------------ --------- ---------- ----------- ------------
Total.......................... $ 984,753 $ 583,381 $ 190,072 $ 354,932 $ (435,752) $ 1,677,386
========= ============ ========= ========== =========== ============
F-25
Guarantors
----------------------------
Equity One Combined IRT Non Consolidated
Condensed Statement of Operations Inc. Subsidiaries Partners, LP Guarantors Equity One
------------ ------------ ------------ ----------- ------------
For the Year Ended December 31, 2003
RENTAL REVENUE:
Minimum rents................................. $ 46,137 $ 49,370 $ 15,455 $ 34,035 $ 144,997
Expense recoveries............................ 10,790 14,875 4,647 11,428 41,740
Termination fees.............................. 193 413 27 749 1,382
Percentage rent payments...................... 541 376 295 645 1,857
------------ ------------ ------------ ----------- ------------
Total rental revenue....................... 57,661 65,034 20,424 46,857 189,976
------------ ------------ ------------ ----------- ------------
COSTS AND EXPENSES:
Property operating expenses.................. 15,947 16,886 6,295 15,738 54,866
Interest expense............................. 12,983 8,560 2,161 14,122 37,826
Amortization of deferred financing fees...... 603 314 1 193 1,111
Rental property depreciation and amortization 8,055 10,517 2,672 6,354 27,598
General and administrative expenses.......... 10,777 253 16 - 11,046
------------ ------------ ------------ ----------- ------------
Total costs and expenses................... 48,365 36,530 11,145 36,407 132,447
------------ ------------ ------------ ----------- ------------
INCOME BEFORE OTHER INCOME AND EXPENSES,
DISCONTINUED OPERATIONS AND MINORITY INTEREST. 9,296 28,504 9,279 10,450 57,529
OTHER INCOME AND EXPENSES:
Investment income............................ 386 605 72 26 1,089
Other income (expense)....................... 912 (285) - 60 687
Equity in loss of joint ventures............. - (126) - - (126)
Loss on extinguishment of debt............... - (514) - (109) (623)
------------ ------------ ------------ ----------- ------------
INCOME BEFORE DISCONTINUED OPERATIONS AND MINORITY
INTEREST..................................... 10,594 28,184 9,351 10,427 58,556
------------ ------------ ------------ ----------- ------------
DISCONTINUED OPERATIONS
Income from operations of sold properties.... - 1,850 839 122 2,811
Gain on disposal of income producing
properties................................. - 2,613 - 470 3,083
------------ ------------ ------------ ----------- ------------
Total income from discontinued operations. - 4,463 839 592 5,894
------------ ------------ ------------ ----------- ------------
INCOME BEFORE MINORITY INTEREST................. 10,594 32,647 10,190 11,019 64,450
MINORITY INTEREST............................... (139) 36 (570) (130) (803)
------------ ------------ ------------ ----------- ------------
NET INCOME...................................... $ 10,455 $ 32,683 $ 9,620 $ 10,889 $ 63,647
============ ============ ============ =========== ============
10. Debt Extinguishment
-------------------
During 2003, the Company prepaid four mortgages and incurred a loss of $623
on the early extinguishment of debt. During 2002, the Company settled an
outstanding mortgage note payable at less than face value 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
F-26
of debt as part of ordinary income as they no longer meet the criteria for
extraordinary gain (loss) accounting treatment.
11. 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 following table reflects properties being reported in discontinued
operations for the years ended December 31, 2003 and 2002:
Square Feet/ Gross Sales Gain On
Property Location Date Sold Acres Price Sale
- ---------------------------- -------------------- ------------ -------------- ----------- -----------
2003 Dispositions
- ----------------------------
Eckerd..................... Leesburg, FL March 12,739 $ 4,050 $ 326
Eckerd..................... Melbourne, FL March 10,908 2,715 177
Pompano.................... Pompano Beach, FL April 80,697 3,400 470
Huntcrest outparcels....... Huntcrest, GA May 2.94 acres 1,686 -*
Oak Square Joint Venture... Gainesville, FL June n/a 2,230 901
CDG (Park Place) LLC JV.... Plano, TX September n/a 4,434 1,209
Heritage Walk.............. Milledgeville, GA November 159,991 10,000 -*
Stadium Plaza.............. Phenix City, AL December 70,475 4,800 -*
----------- -----------
Total ..................................................................... $ 33,315 $3,083
=========== ===========
*Properties acquired as part of the IRT Property Company merger.
As of December 31, 2003, two retail properties and two outparcels of land
were classified as property held for sale. These properties have an aggregate
gross leasable area of 307,852 square feet and an aggregate net book value of
$14,440.
Square Feet/ Gross Sales Gain On
Property Location Date Sold Acres Price Sale
- ---------------------------- -------------------- ------------ -------------- ----------- -----------
2002 Dispositions
- ----------------------------
Equity One Office........... Miami Beach, FL February 28,780 $ 6,050 $ 4,396
Olive land.................. Miami, FL February 6.79 acres 1,900 694
Benbrook................... Fort Worth, TX February 247,422 2,590 1,032
Montclair apartments....... Miami Beach, FL September 9,375 2,450 981
Shoppes of Westburry....... Miami, FL July 33,706 5,220 167
Forest Edge................ Orlando, FL July 68,631 3,475 561
Northwest Crossing.......... Dallas, TX September 33,366 2,350 363
McMinn Plaza............... Athens, TN November 107,200 6,200 951
Woodforest.................. Houston, TX December 12,741 1,850 119
----------- -----------
Total.............................................................................. $ 32,085 $ 9,264
=========== ===========
F-27
12. 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, 2003:
Common Options
Stock Exercised Total
------------ ------------ ------------
Board of Directors............................. 24 * 16 40
Officers....................................... 386 * 491 877
Employees...................................... 32 * 388 420
Exercise of OP units........................... 262 - 262
IRT acquisition................................ 17,490 - 17,490
Private placement.............................. 6,911 - 6,911
Security offerings............................. 6,000 - 6,000
Dividend Reinvestment and Stock Purchase Plan.. 2,813 - 2,813
------------ ------------ ------------
Total................................... 33,918 895 34,813
============ ============ ============
* Reflects shares of "restricted stock" which are subject to forfeiture and
vest over a period of two to five years.
The following table reports dividends paid for the twelve months ended
December 31, 2003 and 2002:
2003 2002
- -------------------------------------------------- -------------------------------------------------
Date Per Share Amount Date Per Share Amount
- --------------------- -------------- ---------- -------------------- -------------- ---------
March 31............. $ 0.27 $ 16,130 March 28.......... $ 0.27 $ 8,015
June 30.............. $ 0.27 17,084 June 28........... $ 0.27 9,124
September 30......... $ 0.28 18,159 September 30...... $ 0.27 9,298
December 31.......... $ 0.28 19,304 December 31....... $ 0.27 9,336
---------- ---------
Total $ 70,677 Total $ 35,773
========== =========
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, 2003, 2002 and 2001:
For the Year Ended December 31, 2003
-------------------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
---------------- --------------- ----------------
Net Income..................................... $ 63,647
================
Basic EPS
Income attributable to common stockholders..... $ 63,647 59,998 $ 1.06
---------------- ---------------- ================
Effect of Dilutive Securities
Walden Woods Village, Ltd...................... 103 94
Unvested restricted stock...................... - 612
Convertible partnership units.................. 700 648
Stock options.................................. - 313
---------------- ---------------
803 1,667
---------------- ---------------
Diluted EPS
Income attributable to common stockholders
assuming conversions........................ $ 64,450 61,665 $ 1.05
================ =============== ================
F-28
Options to purchase 350 shares of common stock at $16.22 per share were
outstanding at December 31, 2003 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, 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
Convertible partnership units.................. 259 262
Stock options.................................. - 127
---------------- ---------------
360 781
---------------- ---------------
Diluted EPS
Income attributable to common stockholders
assuming conversions.......................... $ 40,294 33,443 $ 1.20
================== =============== ================
All options outstanding at December 31, 2002 were included in the computation of diluted EPS.
For the Year Ended December 31, 2001
-------------------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
---------------- --------------- ----------------
Net Income $ 18,721
================
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
Convertible partnership units.................. 259 262
Stock options.................................. - 75
---------------- ---------------
358 623
---------------- ---------------
Diluted EPS
Income attributable to common stockholders
assuming conversions.......................... $ 19,079 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, 2001, 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.
F-29
13. 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 be
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 following is a summary of the Company's stock option activity for the
years ended December 31, 2003, 2002 and 2001:
2003 2002 2001
-------------------------- ------------------------- --------------------------
Weighted Weighted Weighted
Average Average Average
Stock Exercise Stock Exercise Stock Exercise
Options Price Options Price Options Price
----------- ----------- ---------- ----------- ----------- -----------
Outstanding at the 960 $11.78 625 $ 10.12 953 $ 10.08
beginning of year
Granted............. 860 14.44 509 13.25 175 10.00
IRT options*........ 827 11.17 - - - -
Forfeited........... (51) - - - - -
Exercised........... (895) 10.96 (174) 10.15 (503) 10.00
----------- ----------- ---------- ----------- ----------- -----------
Outstanding at the
end of year....... 1,701 $ 13.22 960 $ 11.78 625 $ 10.12
=========== =========== ========== =========== =========== ===========
Exercisable,
end of year....... 708 $ 12.09 541 $ 11.78 325 $ 10.23
=========== =========== ========== =========== =========== ===========
Weighted average
fair value of
options granted
during the year... $ 1.24 $ 1.69 $ 2.39
=========== =========== ===========
*Converted to the Company's options upon merger with IRT.
F-30
The following table summarizes information about outstanding stock options
as of December 31, 2003:
Options Outstanding Options Exercisable
---------------------------------------------------------------------- -------------------
Exercise Price Number Weighted Average Number Exercisable
Remaining
Contractual Life
Outstanding (in years)
---------------------------- --------------- ------------------- -------------------
$ 9.00 - 9.99 14 7.0 14
$10.00 - 10.99 302 5.8 215
$11.00 - 11.99 45 6.7 45
$12.00 - 12.99 33 3.5 33
$13.00 - 13.99 947 8.8 401
$14.00 - 14.99 10 9.5 -
$16.22 350 9.0 -
--------------- -------------------
1,701 708
=============== ===================
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, 2003, the Company had 649
shares of non-vested restricted stock grants outstanding. The vesting of the 649
shares is as follows:
Number of
Year Ending December 31, Shares
-------------------------------- --------------
2004............................ 233
2005............................ 193
2006............................ 24
2007............................ 199
--------------
Total 649
===============
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 $12,000 of their compensation.
The Company matches 75% of the employees' contribution up to a maximum of 4.5%
of an employees' annual compensation. Employees' contributions vest immediately
and the Company's matching contributions vest over three years. The Company's
contributions to the 401(k) Plan for the year ended December 31, 2003, 2002 and
2001 (inception) were $177, $67 and $49, respectively. The 401(k) Plan invests
the Company's matching contributions by purchasing publicly traded shares of the
Company's common stock.
F-31
14. Future Minimum Rental Income, Commitments and Contingent Liabilities
--------------------------------------------------------------------
Future minimum rental income under noncancelable operating leases
approximates the following as of December 31, 2003:
Year Ending December 31, Amount
------------------------------ --------------
2004................ $149,960
2005................ 127,486
2006................ 106,482
2007................ 86,113
2008................ 68,212
Thereafter.......... 344,426
--------------
Total............... $882,679
==============
As of December 31, 2003 and 2002, the Company has pledged letters of credit
for $1,433 and $1,128, respectively, as additional security for financing.
The Company is subject to litigation in the normal course of business, none
of which as of December 31, 2003 in the opinion of management will have a
material adverse effect on the financial condition, results of operations, or
cash flows of the Company.
15. Related Party Transactions
--------------------------
As of December 31, 2003 and 2002, 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 5%. Interest is
payable quarterly and the entire principal is due between 2006 and 2007.
Investment income earned on the loans was $255 and $337 for the years ended
December 31, 2003 and 2002, respectively.
16. Quarterly Financial Data (unaudited)
-----------------------------------
First Second Third Fourth
Quarter(1) Quarter(1) Quarter(1) Quarter(1) Total(2)
---------- ---------- ---------- ---------- --------
2003:
Total revenues........................... $ 37,411 $ 48,230 $ 50,120 $ 54,215 $189,976
Income before discontinued
operations............................ 11,382 14,472 15,617 17,085 58,556
Net income............................. $ 12,344 $ 16,352 $ 17,249 $ 17,702 $ 63,647
Basic per share data
Income before discontinued
operations........................... $ 0.19 $ 0.23 $ 0.26 $ 0.28 $ 0.96
Net Income........................... $ 0.22 $ 0.27 $ 0.28 $ 0.29 $ 1.06
Diluted per share data
Income before discontinued operations.. $ 0.18 $ 0.24 $ 0.25 $ 0.28 $ 0.95
Net income............................ $ 0.22 $ 0.26 $ 0.28 $ 0.29 $ 1.05
2002:
Total revenues........................... $ 24,435 $ 23,264 $ 24,815 $ 26,390 $ 98,904
Income before discontinued
operations............................ 6,050 6,591 9,270 5,443 27,354
F-32
First Second Third Fourth
Quarter(1) Quarter(1) Quarter(1) Quarter(1) Total(2)
---------- ---------- ---------- ---------- --------
Net income............................. $ 13,267 $ 8,438 $ 10,926 $ 7,303 $ 39,934
Basic per share data
Income before discontinued operations.. $ 0.19 $ 0.20 $ 0.28 $ 0.17 $ 0.84
Net income............................ $ 0.41 $ 0.26 $ 0.33 $ 0.22 $ 1.22
Diluted per share data
Income before discontinued operations.. $ 0.18 $ 0.20 $ 0.28 $ 0.16 $ 0.82
Net income............................ $ 0.40 $ 0.26 $ 0.32 $ 0.22 $ 1.20
- --------------------------------------------------------------------------------
(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.
* * * * *
F-33
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, 2003 and 2002, and for each of
the three years in the period ended December 31, 2003, and have issued our
report thereon dated March 10, 2004; 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 15(a)2. 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
March 10, 2004
S
SCHEDULE III
Equity One, Inc.
REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION
December 31, 2003
(in thousands)
INITIAL COST TO COMPANY
--------------------------
CAPITALIZE
SUBSEQUENT TO
ENCUM- BUILDING & ACQUISITION OR
PROPERTY LOCATION BRANCES LAND IMPROVEMENTS IMPROVEMENTS
-------- -------- ------- ---- ------------ ---------------
Income Producing Properties
ALABAMA
Madison Centre Madison $3,918 $1,424 $5,187 $20
West Gate Plaza Mobile 1,288 3,162 -
ARIZONA
Big Curve Yuma 5,437 2,403 7,206 50
Park Northern Phoenix 2,284 1,058 3,176 371
FLORIDA
North Florida
Atlantic Village Atlantic Beach 1,190 4,760 956
Beauclerc Village Jacksonville 560 2,242 801
Commonwealth Jacksonville 2,754 730 2,920 1,456
Forest Village Tallahassee 4,488 725 7,971
Ft. Caroline Jacksonville 738 2,432 607
Losco Jacksonville 250 718
Mandarin Mini Jacksonville 362 1,148 318
Mandarin Landing Jacksonville 4,443 4,747 1,340
Middle Beach Shopping Center Panama City Beach 2,808 2,159 5,542 0
Monument Point Jacksonville 1,336 2,330 110
Oak Hill Jacksonville 690 2,760 140
Parkmore Plaza Milton 3,181 3,002 30
Pensacola Plaza Pensacola 1,122 990 3
South Beach Jacksonville 5,799 23,102 46
Central Florida
Alafaya Commons Orlando 6,742 9,677 14
Conway Crossing Orlando 4,423 5,818 26
Shoppes of Eastwood Orlando 6,250 1,680 6,976 55
Walden Woods Plant City 2,387 950 550 98
Eustis Square Eustis 1,450 4,515 344
Hunters Creek Orlando 2,035 5,445
Kirkman Shoppes Orlando 9,524 3,237 9,714 67
Lake Mary Orlando 24,529 5,578 13,878 6,123
Park Promenade Orlando 6,302 2,810 6,444 454
Town & Country Kissimmee 1,426 4,397
Unigold Winter Park 2,181 8,195 22
GROSS AMOUNTS AT WHICH
CARRIED AT CLOSE OF PERIOD
--------------------------
ACCUMULATED DEPRECIABLE
LAND IMPROVEMENTS TOTAL DEPRECIATION DATE ACQUIRED LIFE
---- ------------ ------- ------------ ---------------- -----------
$ 1,424 $ 5,207 $6,631 ($168) February 12, 2003 40
1,288 3,162 4,450 (69) February 12, 2003 40
2,426 7,233 9,659 (417) September 21, 2001 40
1,068 3,538 4,605 (221) August 15, 2000 40
1,190 5,716 6,906 (1,496) June 30, 1995 40
651 2,952 3,603 (509) May 15, 1998 40
730 4,376 5,106 (1,125) February 28, 1994 40
3,222 5,474 8,696 (449) January 28, 1999 40
738 3,040 3,777 (732) January 24, 1994 40
253 715 968 (64) May 17, 1999 40
362 1,466 1,828 (352) May 10, 1994 40
4,443 6,087 10,530 (845) December 10, 1999 40
2,159 5,542 7,701 (17) December 23, 2003 40
1,336 2,440 3,776 (443) January 31, 1997 40
690 2,900 3,590 (607) December 7, 1995 40
3,181 3,032 6,213 (98) February 12, 2003 40
1,122 993 2,115 (32) February 12, 2003 40
5,799 23,148 28,947 (507) February 12, 2003 40
6,742 9,691 16,433 (215) February 12, 2003 40
4,423 5,844 10,267 (129) February 12, 2003 40
1,688 7,023 8,711 (270) June 28, 2002 40
950 648 1,598 (381) January 1, 1999 40
1,463 4,846 6,309 (2,042) October 22, 1993 40
2,035 5,445 7,480 (45) September 23, 2003 40
3,237 9,781 13,018 (994) August 15, 2000 33
7,092 18,487 25,579 (3,260) November 9, 1995 40
2,810 6,898 9,708 (961) January 31, 1999 40
1,426 4,397 5,823 (96) February 12, 2003 40
2,181 8,216 10,398 (181) February 12, 2003 40
S-2
INITIAL COST TO COMPANY
--------------------------
CAPITALIZE
SUBSEQUENT TO
ENCUM- BUILDING & ACQUISITION OR
PROPERTY LOCATION BRANCES LAND IMPROVEMENTS IMPROVEMENTS
-------- -------- ------- ---- ------------ ---------------
Florida West Coast
Bay Pointe Plaza St. Petersbur 2,733 7,810 34
Carrollwood Tampa 1,873 7,322 24
Charlotte Square Port Charlott 3,614 1,924 6,644 45
Chelsea Place New Port Rich 3,708 6,491
East Bay Plaza Largo 314 903 609
Gulf Gate Plaza Naples 3,900 377 36
Lake St. Charles Tampa 3,873 1,256 3,768 13
Lutz Lake Lutz 7,500 4,742 5,199 32
Marco Town Center Marco Island 8,731 3,872 11,966 564
Mariners Crossing Spring Hill 3,380 1,511 4,447 8
North River Village Center Ellenton 3,543 9,551
Regency Crossing Port Richey 1,752 6,754 1
Ross Plaza Tampa 6,642 2,115 6,346 71
Seven Hills Spring Hill 1,556 5,167
Shoppes of North Port North Port 4,108 1,452 5,807 25
Skipper Palms Tampa 3,556 1,302 3,940 19
Summerlin Square Fort Myers 3,898 1,043 7,989 1,262
Venice Plaza Venice 3,120 450 33
Florida Treasure Coast
Bluffs Square Jupiter 10,086 3,232 9,917 248
Cashmere Corners Port St. Luci 5,245 1,436 5,530 136
Jonathan's Landing Jupiter 2,901 1,145 3,442
New Smyrna Beach New Smyrna Be 2,598 9,532 33
Old King Commons Palm Coast 1,695 5,005 17
Ryanwood Vero Beach 2,281 6,880 19
Salerno Village Stuart 807 1,021
Treasure Coast Vero Beach 4,804 2,676 8,444 3
South Florida / Atlantic Coast
Bird Ludlum Miami 10,296 4,080 16,318 485
Boca Village Boca Raton 8,298 3,385 10,174 179
Boynton Plaza Boynton Beach 7,494 2,943 9,100 29
Countryside Shops Cooper City 13,963 13,853 20
Crossroads Square Ft. Lauderdal 12,510 6,674 4,405
El Novillo Miami Beach 250 1,000 151
Epsilon W. Palm Beach 123 493 949
Greenwood Palm Springs 6,646 10,295 15
Lago Mar Miami 5,020 6,609 12
Lantana Village Lantana 3,669 1,350 7,978 207
Meadows Miami 6,568 2,303 6,670 90
Oakbrook Palm Beach Ga 4,915 8,718 4,956
Pine Island Davie 24,938 8,557 12,860 159
GROSS AMOUNTS AT WHICH
CARRIED AT CLOSE OF PERIOD
--------------------------
ACCUMULATED DEPRECIABLE
LAND IMPROVEMENTS TOTAL DEPRECIATION DATE ACQUIRED LIFE
---- ------------ ------- ------------ ---------------- -----------
2,733 7,844 10,577 (173) February 12, 2003 40
1,873 7,346 9,219 (163) February 12, 2003 40
1,924 6,689 8,613 (147) February 12, 2003 40
3,708 6,492 10,199 (142) February 12, 2003 40
325 1,501 1,826 (916) July 27, 1993 40
3,900 413 4,313 (49) February 12, 2003 40
1,268 3,768 5,037 (215) September 21, 2001 40
4,742 5,231 9,973 (123) February 12, 2003 40
3,872 12,529 16,402 (1,118) August 15, 2000 37
1,511 4,456 5,966 (370) September 12, 2000 40
3,543 9,551 13,094 (209) February 12, 2003 40
1,752 6,755 8,507 (148) February 12, 2003 40
2,115 6,417 8,532 (646) August 15, 2000 33
1,556 5,167 6,723 (113) February 12, 2003 40
1,452 5,832 7,284 (448) December 5, 2000 40
1,315 3,947 5,261 (237) September 21, 2001 40
2,187 8,107 10,294 (1,165) June 10, 1998 40
3,120 483 3,603 (110) February 12, 2003 40
3,232 10,165 13,397 (1,062) August 15, 2000 33
1,435 5,666 7,102 (388) August 15, 2000 40
1,146 3,442 4,587 (307) August 15, 2000 37
2,598 9,565 12,163 (211) February 12, 2003 40
1,695 5,022 6,717 (112) February 12, 2003 40
2,281 6,899 9,180 (381) August 15, 2000 40
1,009 819 1,828 (36) May 6, 2002 40
2,676 8,447 11,123 (185) February 12, 2003 40
4,088 16,795 20,883 (3,996) August 11, 1994 40
3,385 10,354 13,738 (928) August 15, 2000 37
2,943 9,130 12,072 (922) August 15, 2000 33
13,963 13,874 27,836 (306) February 12, 2003 40
3,592 7,486 11,079 (305) August 15, 2000 40
250 1,151 1,401 (284) April 30, 1998 40
123 1,442 1,565 (297) February 15, 1995 40
6,646 10,310 16,956 (226) February 12, 2003 40
5,020 6,621 11,641 (146) February 12, 2003 40
1,350 8,185 9,535 (1,144) January 6, 1998 40
2,303 6,760 9,063 (283) May 23, 2002 40
6,074 12,515 18,589 (818) August 15, 2000 40
8,557 13,019 21,576 (1,501) August 26, 1999 40
S-3
INITIAL COST TO COMPANY
--------------------------
CAPITALIZE
SUBSEQUENT TO
ENCUM- BUILDING & ACQUISITION OR
PROPERTY LOCATION BRANCES LAND IMPROVEMENTS IMPROVEMENTS
-------- -------- ------- ---- ------------ ---------------
South Florida / Atlantic Coast (continued)
Pine Ridge Square Coral Springs 7,354 9,006 9,850 30
Plaza Alegre Miami 1,550 9,191 117
Plaza Del Rey Miami 740 2,961 185
Point Royale Miami 4,533 3,720 5,005 1,212
Prosperity Centre Palm Beach Ga 6,390 4,597 13,838 2
Ridge Plaza Davie 3,905 7,450 565
Riverside Square Coral Springs 7,694 7,202 8,260 12
Sawgrass Promenade Deerfield Bea 8,298 3,280 9,851 220
Sheridan Hollywood 39,408 36,241 0
Shoppes of Ibis West Palm Bea 5,865 3,001 6,299 26
Shops at Skylake North Miami B 14,628 7,630 20,797
Shoppes of Silverlakes Pembroke Pine 2,781 57
Tamarac Town Square Tamarac 6,206 2,504 7,874 4
West Lakes Plaza Miami 2,141 5,789 409
GEORGIA
Atlanta
BridgeMill Canton 9,555
Butler Creek Acworth 4,520 7,648 19
Chastain Square Atlanta 3,918 10,053 6,573 41
Commerce Crossing Commerce 2,013 1,301
Douglas Commons Douglasville 5,102 3,506 7,797 76
Fairview Oaks Ellenwood 4,829 3,526 6,187
Grassland Crossing Alpharetta 5,985 4,227 7,885 23
Hamilton Ridge Buford 6,530 7,167
Mableton Crossing Mableton 4,157 2,789 6,945 2
Macland Pointe Marietta 5,859 1,900 6,388 11
Market Place Norcross 1,474 2,410 40
Paulding Commons Dallas 6,651 3,848 11,985 47
Powers Ferry Plaza Marietta 1,815 6,648 434
Presidential Markets Snellville 27,420 20,608 29,931
Shops of Huntcrest Lawrenceville 5,473 7,813 175
Wesley Chapel Crossing Decatur 3,417 3,416 7,527
West Towne Square Rome 1,792 1,853 24
Williamsburg @ Dunwoody Dunwoody 4,600 3,615 16
Central Georgia
Daniel Village Augusta 4,282 3,439 8,352 48
Spalding Village Griffin 10,537 4,706 1,700 24
Walton Plaza Augusta 869 2,827 10
Watson Central Warner Robins 4,555 1,664
GROSS AMOUNTS AT WHICH
CARRIED AT CLOSE OF PERIOD
--------------------------
ACCUMULATED DEPRECIABLE
LAND IMPROVEMENTS TOTAL DEPRECIATION DATE ACQUIRED LIFE
---- ------------ ------- ------------ ---------------- -----------
9,006 9,880 18,886 (220) February 12, 2003 40
1,550 9,308 10,858 (277) February 26, 2002 40
740 3,146 3,886 (1,352) August 22, 1991 40
3,720 6,217 9,937 (1,261) July 27, 1995 40
4,597 13,840 18,437 (1,269) August 15, 2000 40
3,905 8,014 11,920 (984) August 15, 2000 40
7,202 8,272 15,474 (182) February 12, 2003 40
3,280 10,071 13,351 (1,042) August 15, 2000 40
39,408 36,241 75,649 (455) July 14, 2003 40
3,002 6,323 9,326 (242) July 10, 2002 40
12,048 16,379 28,427 (1,533) August 19, 1997 40
12,072 10,188 22,260 (230) February 12, 2003 40
2,504 7,878 10,382 (172) February 12, 2003 40
2,141 6,198 8,339 (1,180) November 6, 1996 40
(39) November 13, 2003 40
4,520 7,667 12,187 (152) July 15, 2003 40
10,053 6,614 16,667 (147) February 12, 2003 40
2,013 1,300 3,314 (28) February 12, 2003 40
3,506 7,873 11,379 (174) February 12, 2003 40
3,526 6,187 9,713 (135) February 12, 2003 40
4,227 7,908 12,135 (167) February 12, 2003 40
6,530 7,167 13,697 (22) December 18, 2003 40
2,789 6,947 9,736 (152) February 12, 2003 40
1,900 6,399 8,299 (142) February 12, 2003 40
1,474 2,450 3,924 (98) February 12, 2003 40
3,848 12,033 15,880 (266) February 12, 2003 40
1,815 7,082 8,897 (188) February 12, 2003 40
20,608 29,932 50,539 (464) February 12, 2003 40
5,473 7,988 13,461 (189) February 12, 2003 40
3,416 7,527 10,943 (165) February 12, 2003 40
1,792 1,877 3,669 (64) February 12, 2003 40
4,600 3,630 8,231 (82) February 12, 2003 40
3,439 8,401 11,839 (190) February 12, 2003 40
4,706 1,724 6,430 (98) February 12, 2003 40
869 2,837 3,706 (64) February 12, 2003 40
4,555 1,664 6,219 (36) February 12, 2003 40
S-4
INITIAL COST TO COMPANY
--------------------------
CAPITALIZE
SUBSEQUENT TO
ENCUM- BUILDING & ACQUISITION OR
PROPERTY LOCATION BRANCES LAND IMPROVEMENTS IMPROVEMENTS
-------- -------- ------- ---- ------------ ---------------
South Georgia
Colony Square Fitzgerald 1,000 1,085 18
McAlphin Square Savannah 3,536 6,963 87
KENTUCKY
Scottsville Square Bowling Green 769 996 10
LOUISIANA
Ambassador Row Lafayette 3,880 10,570 36
Ambassador Row Courtyard Lafayette 3,110 9,208 252
Bluebonnet Village Baton Rouge 1,804 4,281 224
The Boulevard Lafayette 1,360 1,675
Country Club Plaza Slidell 1,294 2,060 63
The Crossing Slidell 2,280 3,650 23
Elmwood Oaks Harahan 7,500 2,606 10,079 18
Grand Marche Lafayette 304
Millervillage Baton Rouge 940 487 2
Pinhook Plaza Lafayette 1,848 987 32
Plaza Acadienne Eunice 2,108 168 27
Sherwood South Baton Rouge 1,543 2,412
Siegen Village Baton Rouge 4,328 3,492 3,794 803
Tarpon Heights Galliano 1,132 33
Village at Northshore Slidell 2,893 7,897
Wal-Mart Stores, Inc. Mathews 2,688
MISSISSIPPI
Shipyard Plaza Pascagoula 1,337 1,653
NORTH CAROLINA
Centre Pointe Plaza Smithfield 3,273 1,633 6
Chestnut Square Brevard 793 1,326
The Galleria Wrightsville 1,847 3,875 21
Parkwest Crossing Durham 4,728 1,712 6,727
Plaza North Hendersonvill 945 1,887 3
Providence Square Charlotte 1,719 2,575 8
Riverview Shopping Center Durham 2,644 4,745 21
Salisbury Marketplace Salisbury 1,652 6,395 6
Shelby Plaza Shelby 2,061 338
Stanley Market Place Stanley 808 669
4101 South I-85 Industrial Charlotte 2,127 950
Thomasville Commons Thomasville 2,975 4,567 10
Willowdale Shopping Center Durham 2,416 6,499 33
GROSS AMOUNTS AT WHICH
CARRIED AT CLOSE OF PERIOD
--------------------------
ACCUMULATED DEPRECIABLE
LAND IMPROVEMENTS TOTAL DEPRECIATION DATE ACQUIRED LIFE
---- ------------ ------- ------------ ---------------- -----------
1,000 1,103 2,103 (24) February 12, 2003 40
3,536 7,050 10,586 (165) February 12, 2003 40
769 1,006 1,775 (23) February 12, 2003 40
3,880 10,607 14,486 (251) February 12, 2003 40
3,110 9,460 12,570 (220) February 12, 2003 40
1,804 4,504 6,309 (96) February 12, 2003 40
1,360 1,674 3,035 (37) February 12, 2003 40
1,294 2,123 3,417 (48) February 12, 2003 40
2,280 3,673 5,953 (81) February 12, 2003 40
2,606 10,098 12,703 (218) February 12, 2003 40
304 - 304 - February 12, 2003 40
940 488 1,429 (11) February 12, 2003 40
1,848 1,018 2,867 (59) February 12, 2003 40
2,108 194 2,303 (5) February 12, 2003 40
1,543 2,411 3,955 (53) February 12, 2003 40
3,492 4,597 8,089 (277) February 12, 2003 40
1,132 33 1,165 (21) February 12, 2003 40
2,893 7,898 10,790 (172) February 12, 2003 40
2,688 - 2,688 - February 12, 2003 40
1,337 1,653 2,990 (36) February 12, 2003 40
3,273 1,639 4,912 (71) February 12, 2003 40
793 1,327 2,119 (29) February 12, 2003 40
1,847 3,897 5,743 (92) February 12, 2003 40
1,712 6,726 8,439 (147) February 12, 2003 40
945 1,890 2,835 (42) February 12, 2003 40
1,719 2,583 4,302 (58) February 12, 2003 40
2,644 4,766 7,410 (107) February 12, 2003 40
1,652 6,401 8,053 (140) February 12, 2003 40
2,061 339 2,399 (7) February 12, 2003 40
808 669 1,477 (15) February 12, 2003 40
2,127 950 3,077 (22) February 12, 2003 40
2,975 4,577 7,552 (102) February 12, 2003 40
2,416 6,531 8,948 (177) February 12, 2003 40
S-5
INITIAL COST TO COMPANY
--------------------------
CAPITALIZE
SUBSEQUENT TO
ENCUM- BUILDING & ACQUISITION OR
PROPERTY LOCATION BRANCES LAND IMPROVEMENTS IMPROVEMENTS
-------- -------- ------- ---- ------------ ---------------
SOUTH CAROLINA
Belfair Towne Village Bluffton 11,379 9,909 10,036
Woodruff Greenville 3,096 2,689 5,448
Lancaster Plaza Lancaster 317 153
Lancaster Shopping Center Lancaster 280 127 1
North Village Center Durham 1,463 1,207 3,235 1
Spring Valley Columbia 1,508 5,050
TENNESSEE
Smyrna Village Smyrna 1,667 4,694 30
TEXAS
Houston
Barker Cypress Houston 1,676 5,029 325
Beechcrest Houston 1,408 4,291 21
Benchmark Crossing Houston 3,313 1,459 4,377 14
Bissonnet Houston 445 1,335 5
Colony Plaza Sugarland 3,015 970 2,909 9
Copperfield Houston 780 2,468 134
Forestwood Houston 7,286 2,659 7,678 21
Grogan's Mill The Woodlands 3,117 9,373 17
Hedwig Houston 1,892 5,625 12
Highland Square Sugarland 4,047 1,923 5,768 76
Market at First Colony Sugarland 3,292 9,906 115
Mason Park Katy 2,524 7,578 89
Mission Bend Houston 2,514 7,854 216
Spring Shadows Houston 1,206 3,617 4,418
Steeplechase Jersey Villag 2,666 8,021 111
Wal-Mart Stores, Inc. Marble Falls 1,951
Dallas
Green Oaks Arlington 3,022 1,045 3,134 43
Melbourne Plaza Hurst 1,747 932 2,796 31
Minyards Garland 2,511 885 2,665
Parkwood Plano 6,196 2,222 6,668 43
Plymouth Park East Irving 601 472 472 943
Plymouth Park North Irving 8,413 1,639 5,408 6,710
Plymouth Park South Irving 601 528 1,585 21
Plymouth Park West Irving 2,404 981 2,944 32
Richwood Richardson 3,192 1,170 3,512 43
Rosemeade Carrollton 3,179 1,175 3,525 32
Sterling Plaza Irving 3,982 1,834 5,504 64
Townsend Square Desoto 4,848 2,247 6,793 27
Village by the Park Arlngton 1,671 5,066 192
GROSS AMOUNTS AT WHICH
CARRIED AT CLOSE OF PERIOD
--------------------------
ACCUMULATED DEPRECIABLE
LAND IMPROVEMENTS TOTAL DEPRECIATION DATE ACQUIRED LIFE
---- ------------ ------- ------------ ---------------- -----------
9,909 10,036 19,945 (31) December 22, 2003 40
2,689 5,448 8,137 (17) December 23, 2003 40
317 153 470 (4) February 12, 2003 40
280 128 408 (3) February 12, 2003 40
1,207 3,235 4,443 (136) February 12, 2003 40
1,508 5,050 6,558 (111) February 12, 2003 40
1,667 4,724 6,391 (106) February 12, 2003 40
1,676 5,353 7,030 (335) August 15, 2000 40
1,408 4,312 5,720 (393) August 15, 2000 37
1,473 4,377 5,850 (250) September 21, 2001 40
450 1,335 1,785 (76) September 21, 2001 40
979 2,910 3,888 (166) September 21, 2000 40
780 2,603 3,382 (344) August 15, 2000 34
2,680 7,679 10,358 (200) December 6, 2002 40
3,117 9,390 12,507 (843) August 15, 2000 37
1,893 5,636 7,529 (322) September 21, 2001 40
1,941 5,826 7,767 (341) September 21, 2001 40
3,323 9,991 13,313 (606) September 21, 2001 40
2,548 7,644 10,191 (448) September 21, 2001 40
2,514 8,070 10,584 (747) August 15, 2000 37
2,533 6,708 9,241 (320) August 15, 2000 40
2,666 8,132 10,798 (749) August 15, 2000 37
1,951 - 1,951 - February 12, 2003 40
1,054 3,168 4,222 (189) September 21, 2001 40
941 2,818 3,759 (169) September 21, 2001 40
885 2,665 3,550 (232) August 15, 2000 38
2,243 6,690 8,933 (389) September 21, 2001 40
472 1,416 1,887 (130) August 15, 2000 36
3,065 10,691 13,757 (843) August 15, 2000 36
528 1,606 2,134 (151) August 15, 2000 36
981 2,976 3,957 (279) August 15, 2000 36
1,181 3,544 4,725 (209) September 21, 2001 40
1,197 3,535 4,732 (203) September 21, 2001 40
1,834 5,569 7,402 (506) August 15, 2000 37
2,247 6,819 9,067 (611) August 15, 2000 37
1,671 5,258 6,929 (496) August 15, 2000 36
S-6
INITIAL COST TO COMPANY
--------------------------
CAPITALIZE
SUBSEQUENT TO
ENCUM- BUILDING & ACQUISITION OR
PROPERTY LOCATION BRANCES LAND IMPROVEMENTS IMPROVEMENTS
-------- -------- ------- ---- ------------ ---------------
San Antonio
Bandera Festival San Antonio - 2,629 3,111 1,003
Blanco Village San Antonio - 5,723 10,559 -
Wurzbach San Antonio - 389 1,226 -
VIRGINA
Smyth Valley Crossing Marion - 2,537 3,890 2
Waterlick Plaza Lynchburg - 1,974 3,796 5
Corporate - 2,272
-----------------------------------------------------
Total Income Producing Properties 459,103 528,373 989,145 77,059
=====================================================
Land held for/under development
ARIZONA
Southwest Walgreens Phoenix 31
FLORIDA
Central Florida
Walden Woods Plant City 3,339
Eustis Square Eustis 1,324
Unigold Winter Park 416
Florida West Coast
Bay Pointe Plaza St. Petersburg 2
Carrollwood Tampa 1
East Bay Plaza Largo 433
Gulf Gate Plaza Naples 2,107
Lake St. Charles Outparcel Tampa 206
Mariners Crossing Spring Hill 20
Regency Crossing Port Richey 1
Venice Plaza Venice 1,071
Florida Treasure Coast
Cashmere Corners Port St. Lucie 386 74
Cashmere Dev 2 Port St. Lucie 790 352
Salerno Village Stuart 807 4,370
GROSS AMOUNTS AT WHICH
CARRIED AT CLOSE OF PERIOD
--------------------------
ACCUMULATED DEPRECIABLE
LAND IMPROVEMENTS TOTAL DEPRECIATION DATE ACQUIRED LIFE
---- ------------ ------- ------------ ---------------- -----------
2,778 3,965 6,743 (527) September 21, 2001 40
5,723 10,559 16,282 (438) May 10, 2002 40
389 1,226 1,615 (105) August 15, 2000 40
2,537 3,892 6,429 (85) February 12, 2003 40
1,974 3,801 5,775 (102) February 12, 2003 40
2,272 2,272 (872) various
- ----------------------------------------------------------------------------------------------------
539,511 1,055,065 1,594,576 (66,405)
====================================================================================================
- -
- 31 31 September 21, 2001
- 3,339 3,339 January 1, 1999
- 1,324 1,324 October 22, 1993
- 416 416 February 12, 2003
-
-
- 2 2 February 12, 2003
- 1 1 February 12, 2003
- 433 433 July 27, 1993
- 2,107 2,107 February 12, 2003
206 - 206 September 21, 2001
- 20 20 September 12, 2000
- 1 1 February 12, 2003
- 1,071 1,071 February 12, 2003
-
-
- 460 460 August 15, 2000
- 1,142 1,142 August 15, 2000
- 5,177 5,177 May 6, 2002
S-7
INITIAL COST TO COMPANY
--------------------------
CAPITALIZE
SUBSEQUENT TO
ENCUM- BUILDING & ACQUISITION OR
PROPERTY LOCATION BRANCES LAND IMPROVEMENTS IMPROVEMENTS
-------- -------- ------- ---- ------------ ---------------
South Florida / Atlantic Coast
Coral Way /Drug Store Miami 988 3,626
Crossroads Square Ft. Lauderdale 7,719
Homestead Homestead 1,811 380
Lantana Village Lantana 180
Miramar Miramar 13
Oakbrook Palm Beach Gardens 200 5,584
Plaza Alegre Miami 454
Prosperity Centre Palm Beach Gardens 85
Shops at Skylake North Miami Beach 3,179 5,228
GEORGIA
Atlanta
Market Place Norcross 1,888
Paulding Commons Dallas 1
VW Mall McDonough 1,787
Central Georgia
Spalding Village Griffin 2,786
LOUISIANA
Ambassador Row Lafayette
Ambassador Row Courtyard Lafayette 58
Bluebonnet Village Baton Rouge 9
The Crossing Slidell 18
Siegen Village Baton Rouge 6,062
Tarpon Heights Galliano 887
NORTH CAROLINA
Centre Pointe Plaza Smithfield 1,593
SOUTH CAROLINA
Belfair Towne Village Bluffton 1,301
TEXAS
Houston
Bissonnet Houston 103 3
Copperfield Houston 3,135 602
Texas CP Land, LP Sugarland 206 20
GROSS AMOUNTS AT WHICH
CARRIED AT CLOSE OF PERIOD
--------------------------
ACCUMULATED DEPRECIABLE
LAND IMPROVEMENTS TOTAL DEPRECIATION DATE ACQUIRED LIFE
---- ------------ ------- ------------ ---------------- -----------
- 4,614 4,614 July 23, 1999
- 7,717 7,717 September 21, 2001
- 2,191 2,191 April 10, 1992
- 180 180 January 6, 1998
- 13 13 February 12, 2003
- 5,784 5,784 August 15, 2000
- 454 454 February 26, 2002
- 85 85 August 15, 2000
- 8,407 8,407 August 19, 1997
- - 0
- 0
- 1,888 1,888 February 12, 2003
- 1 1 February 12, 2003
- 1,787 1,787 February 12, 2003
- 2,786 2,786 February 12, 2003
- -
- 58 58 February 12, 2003
- 9 9 February 12, 2003
- 18 18 February 12, 2003
- 6,062 6,062 February 12, 2003
- 887 887 February 12, 2003
-
-
- 1,593 1,593 February 12, 2003
-
-
1,301 - 1,301 December 22, 2003
103 3 106 September 21, 2001
3,737 3,737 August 15, 2000
215 11 226 September 21, 2001
S-8
INITIAL COST TO COMPANY
--------------------------
CAPITALIZE
SUBSEQUENT TO
ENCUM- BUILDING & ACQUISITION OR
PROPERTY LOCATION BRANCES LAND IMPROVEMENTS IMPROVEMENTS
-------- -------- ------- ---- ------------ ---------------
Dallas
Plymouth Park North Irving 349
Village by the Park Arlngton 8
San Antonio
Bandera Festival San Antonio 5,070
Blanco Village San Antonio 2,614 91
VIRGINA
Waterlick Plaza Lynchburg 912
Corporate 8
---------------------------------------------------------
Total Land held for/under development 1,816 13,910 58,961
=========================================================
Property Held for Sale
Miramar Miramar 1,218
Forrest Gallery Tullahoma 4,289 4,425 76
Southwest Walgreens Phoenix 1,177 3,531 28
Total Property Held for Sale 6,684 7,956 103
---------------------------------------------------------
Grand Total $459,103 $536,873 $1,011,011 $136,123
=========================================================
GROSS AMOUNTS AT WHICH
CARRIED AT CLOSE OF PERIOD
--------------------------
ACCUMULATED DEPRECIABLE
LAND IMPROVEMENTS TOTAL DEPRECIATION DATE ACQUIRED LIFE
---- ------------ ------- ------------ ---------------- -----------
- 349 349 August 15, 2000
- 8 8 August 15, 2000
- 0
- 0
- 5,070 5,070 September 21, 2001
- 2,705 2,705 May 10, 2002
- 912 912 February 12, 2003
- 8 8
- --------------------------------------
1,825 72,862 74,687
======================================
1,218 - 1,218 - February 12, 2003
4,289 4,501 8,790 (101) February 12, 2003 40
1,188 3,548 4,736 (203) September 21, 2001 40
- ----------------------------------------------------------
6,695 8,048 14,743 (303)
==========================================================
- ----------------------------------------------------------
$548,030 $1,135,976 $1,684,006 ($66,708)
==========================================================
S-9
INDEX TO EXHIBITS
-----------------
EXHIBIT NO. DESCRIPTION
- ---------- ------------
3.2 Amended and Restated Bylaws
12.1 Ratio of Earnings to Fixed Charges
21.1 List of Subsidiaries of the Registrant
23.1 Consent of Deloitte & Touche LLP
31.1 Certification of Chief Executive Officer pursuant to Section 302
of the Sarbanes-Oxley Act of 2002
31.2 Certification of Chief Financial Officer pursuant to Section 302
of the Sarbanes-Oxley Act of 2002
32.1 Certification of Chief Executive Officer and Chief Financial
Officer pursuant to 18 U.S.C. 1350, as created by Section 906
of the Sarbanes-Oxley Act of 2002