UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 2002
----------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period From ________to ________
Commission File Number 1-7859
IRT PARTNERS LP
--------------------
(Exact name of registrant as specified in its charter)
Georgia 58-2404832
- -------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
200 Galleria Parkway, Suite 1400
Atlanta, Georgia 30339
- ---------------------------------------- -----------------------
(Address of principal executive offices) (Zip Code)
(770) 955-4406
----------------------------------------------------------------
(Registrant's telephone number, including area code)
N/A
-----------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
1
SPECIAL CAUTIONARY NOTICE REGARDING
FORWARD LOOKING STATEMENTS
This Quarterly Report on Form 10-Q for IRT Partners, L.P. ("LP"),
including, but not limited to, the section herein entitled "Management's
Discussion and Analysis of Financial Condition and Results of Operations," may
contain various "forward-looking statements" within the meaning of Section 27A
of the Securities Act of 1933, as amended and Section 21E of the Securities
Exchange Act of 1934, as amended, that are based on LP's beliefs and
assumptions, as well as information currently available to LP. Readers can
identify these forward-looking statements through LP's use of words such as
"may," "will," "intend," "project," "would," "could," "should," "expect,"
"anticipate," "assume," "believe," "estimate," "continue" or other similar
words. Forward-looking statements involve known and unknown risks, uncertainties
and other factors, which may be beyond LP's control. LP's actual results may
differ significantly from those expressed or implied in such forward-looking
statements. Factors that might cause these differences include, but are not
limited to:
- - changes in tax laws or regulations, especially those relating to real
estate investment trusts and real estate in general;
- - the number, frequency and duration of vacancies that LP experiences;
- - LP's ability to solicit new tenants and to obtain lease renewals from
existing tenants on terms that are favorable to LP;
- - tenant bankruptcies and closings;
- - the general financial condition of, or possible mergers or acquisitions
involving, LP's tenants and competitors;
- - competition;
- - changes in interest rates and national and local economic conditions;
- - possible environmental liabilities;
- - the availability, cost and terms of financing;
- - LP's ability to identify, acquire, construct or develop additional
properties that result in the returns anticipated or sought; and
- - LP's ability to effectively integrate properties or portfolio acquisitions
or other mergers or acquisitions.
Readers should not rely on the information contained in any forward-looking
statements and should not expect LP to update or revise any forward-looking
statements. With respect to such forward-looking statements, LP claims
protection under the Private Securities Litigation Reform Act of 1995. The
information in this Report, including the information contained in
forward-looking statements, is also qualified by the special cautionary notice
regarding forward-looking statements and the information in the section entitled
"Risk Factors" contained in LP's Annual Report on Form 10-K for the year ended
December 31, 2001 and other filings that LP makes with the Securities and
Exchange Commission, which are incorporated herein by reference. The documents
that LP files with the Securities and Exchange Commission are available from LP,
and also may be examined at public reference facilities maintained by the
Securities and Exchange Commission or, to the extent filed via EDGAR, accessed
through the Internet website of the Securities and Exchange Commission
(http://www.sec.gov).
2
ITEM 1. FINANCIAL STATEMENTS
IRT PARTNERS, L.P.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT UNIT AMOUNTS)
March 31, December 31,
2002 2001
------------ --------------
(Unaudited)
ASSETS
Rental properties $ 179,593 $ 172,770
Accumulated depreciation (28,181) (27,145)
------------ --------------
Net rental properties 151,412 145,625
Cash and cash equivalents 630 500
Advances to affiliate, net 17,648 18,149
Prepaid expenses and other assets 3,030 2,599
------------ --------------
Total assets $ 172,720 $ 166,873
============ ==============
LIABILITIES & PARTNERS' CAPITAL
Liabilities:
Mortgage notes payable, net $ 42,074 $ 37,464
Accrued expenses and other liabilities 2,155 2,154
------------ --------------
Total liabilities 44,229 39,618
Limited partners' capital interest (815,852 OP Units in 2002
and 2001, respectively) at redemption value 9,423 8,648
Commitments and contingencies (Note 6)
Partners' capital:
General partner (145,999 and 144,229 OP Units
in 2002 and 2001, respectively) 1,282 1,269
Limited partner (13,637,773 and 13,462,596 OP Units
in 2002 and 2001, respectively) 117,786 117,338
------------ --------------
Total partners' capital 119,068 118,607
------------ --------------
Total liabilities and partners' capital $ 172,720 $ 166,873
============ ==============
The accompanying notes are an integral part of these balance sheets.
3
IRT PARTNERS, L.P.
STATEMENTS OF EARNINGS
FOR THE THREE MONTHS ENDED MARCH 31, 2002 AND 2001
(UNAUDITED)
(IN THOUSANDS)
Three Months Ended
March 31,
--------------
2002 2001
------ ------
Revenues:
Income from rental properties $6,391 $5,740
Gain on sale of outparcel - 293
Interest income from affiliate 79 -
------ ------
Total revenues 6,470 6,033
------ ------
Expenses:
Operating expenses of rental properties 1,712 1,551
Interest on mortgages 766 603
Depreciation 1,036 960
Amortization of debt costs 4 -
General and administrative 272 241
Interest due to affiliate - 19
------ ------
Total expenses 3,790 3,374
------ ------
Net earnings $2,680 $2,659
====== ======
The accompanying notes are an integral part of these statements.
4
IRT PARTNERS, L.P.
STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2002 AND 2001
(UNAUDITED)
(IN THOUSANDS)
Three Months Ended
March 31,
-------------------
2002 2001
-------- ---------
Cash flows from operating activities:
Net earnings $ 2,680 $ 2,659
Adjustments to reconcile earnings to net cash from operating activities:
Depreciation 1,036 960
Gain on sale of outparcel - (293)
Straight line rent adjustment (59) (38)
Amortization of debt costs and discounts 4 -
Changes in assets and liabilities:
Increase in prepaid expenses and other assets (321) 38
Increase (decrease) in accrued expenses and other liabilities 1 326
-------- ---------
Net cash flows from operating activities 3,341 3,652
-------- ---------
Cash flows (used in) from investing activities:
Additions to operating properties, net (2,022) (95)
Proceeds from sale of outparcel, net - 348
-------- ---------
Net cash flows (used in) from investing activities (2,022) 253
-------- ---------
Cash flows used in financing activities:
Issuance of units for cash 1,946 -
Distributions paid, net (3,390) (2,727)
Collection of advances to affiliate, net 502 -
Advances to affiliate, net - (7,647)
Principal amortization of mortgage notes payable (191) (154)
Payment of deferred financing costs (56) (15)
-------- ---------
Net cash flows used in financing activities (1,189) (10,543)
-------- ---------
Net increase (decrease) in cash and cash equivalents 130 (6,638)
Cash and cash equivalents at beginning of period 500 6,643
-------- ---------
Cash and cash equivalents at end of period $ 630 $ 5
======== =========
Supplemental disclosures of cash flow information:
Total cash paid for interest $ 734 $ 604
======== =========
Non-cash transaction:
Assumption of mortgage in connection with acquisition $ 4,800 $ -
======== =========
The accompanying notes are an integral part of these statements.
5
IRT PARTNERS L.P.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2002 AND 2001
(DOLLARS IN THOUSANDS, EXCEPT UNIT AMOUNTS)
1. Unaudited Financial Statements
These financial statements for interim periods are unaudited. In the
opinion of management, all adjustments (which include only normal recurring
adjustments) necessary to a fair presentation of the financial statements as of
March 31, 2002 and 2001 have been recorded. The results of operations for the
interim periods are not necessarily indicative of the results that may be
expected for future interim periods or for the full year.
2. Organization and Nature of Operations
IRT Partners, L.P. ("LP"), a Georgia limited partnership formed July 15,
1998, is the entity through which IRT Property Company (the "Company"), a
self-administered and self-managed real estate investment trust ("REIT"),
conducts a portion of its business and owns (either directly or through
subsidiaries) a portion of its assets.
The Company is the sole general partner of LP and maintains an indirect
partnership interest through its wholly-owned subsidiary, IRT Management Company
("IRTMC"). The Company initially contributed 20 shopping centers, related assets
and cash to LP in exchange for 8,486,217 limited partnership units of LP ("OP
Units"). The Company was issued additional OP Units in exchange for cash
contributions to fund further acquisition activity. Since the formation of LP,
the Company has contributed cash to acquire eight shopping centers, and LP has
divested five shopping centers. At March 31, 2002, IRT and IRTMC owned
approximately 1% and 93.4%, respectively of LP.
LP was formed by the Company in order to enhance the Company's acquisition
opportunities through a "downreit" structure. This structure offers potential
sellers the ability to make a tax-deferred sale of their real estate properties
in exchange for OP Units of LP. In August 1998, certain unaffiliated persons
contributed their interests in three Florida shopping centers in exchange for a
total of 815,852 OP Units.
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 common share or cash. Such limited partnership interest held
by persons unaffiliated with the Company is reflected as "Limited Partners'
Capital Interest" in the accompanying balance sheets at the cash redemption
amount on the balance sheet dates.
Federal income tax laws require the Company, as a REIT, to distribute 90%
(95% for years prior to 2001) of its ordinary taxable income. LP makes quarterly
distributions to holders of OP Units to enable the Company to satisfy this
requirement.
At March 31, 2002, LP owned 26 neighborhood and community shopping centers
located in Florida, Tennessee, Georgia and North Carolina. The shopping centers
are anchored by necessity-oriented retailers such as supermarkets, drug stores,
national value retailers and department stores.
6
3. Rental Properties
The rental property acquired in 2002 is summarized below.
SHOPPING CENTER ACQUISITIONS
Date Square Year Built/ % Leased Total Initial
Acquired Property Name City, State Footage Renovated at Acquisition Cost Cash Paid
- -------- ----------------- ----------- ------- ----------- --------------- -------------- ----------
2/19/02 Parkwest Crossing Durham, NC 85,602 1991 100% $ 6,620 $ 1,946
In connection with the acquisition of Parkwest Crossing, the Company
assumed a $4,800, 8.1% mortgage. See note 5.
4. Advances to Affiliate
LP advances cash generated by the properties within LP to the Company based
on cash flow requirements. Also, in certain instances, the Company advances cash
to LP for repayment of prior advances or for current operating requirements. As
of March 31, 2002, LP had advances to the Company of $17,648. During 2002, the
Company paid LP approximately $79 in interest from the advances, which bear
interest calculated on a monthly basis, at the three-month treasury bill rate.
5. Mortgage Notes Payable
On February 19, 2002, the Company assumed a non-recourse, secured loan
totaling $4,800, in connection with the acquisition of Parkwest Crossing. The
secured loan has a fixed interest rate of 8.1%. The loan is due and payable
September 1, 2010, and the principal amortization is based on a thirty year
amortization schedule. Costs associated with assuming the secured loan totaled
$56 and is being amortized over the term of the loan.
6. Commitments and Contingencies
LP has guaranteed the bank indebtedness and senior indebtedness of the
Company.
7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Dollars in thousands, except per share
amounts)
The following discussion and analysis should be read in conjunction with
the financial statements and notes thereto included elsewhere in this report, as
well as the Quarterly Report on Form 10-Q of IRT Property Company.
OVERVIEW
IRT Partners, L.P. ("LP"), a Georgia limited partnership formed on July 15,
1998, is the entity through which IRT Property Company (the "Company"), a
self-administered and self-managed real estate investment trust ("REIT"),
conducts a portion of its business and owns (either directly or through
subsidiaries) a portion of its assets. LP was formed by the Company in order to
enhance the Company's acquisition opportunities through a "downreit" structure.
This structure offers potential sellers the ability to make a tax-deferred sale
of their real estate investments properties in exchange for OP Units of LP.
IRT Property Company was founded in 1969 and became a public company in May
1971 (NYSE: IRT). The Company is an owner, operator, redeveloper and developer
of high quality, well located neighborhood and community shopping centers
throughout the southeastern United States. The Company is the sole general
partner of LP and maintains an indirect partnership interest in LP through its
wholly-owned subsidiary, IRT Management Company ("IRTMC"). At March 31, 2002,
IRT and IRTMC owned approximately 1% and 93.4%, respectively, of LP.
At March 31, 2002, LP owned 26 neighborhood and community shopping centers
located in North Carolina (13), Florida (9), Tennessee (3) and Georgia (1). The
shopping centers are anchored by necessity-oriented retailers such as
supermarkets, drug stores, national value retailers and department stores. The
following table summarizes the shopping centers by state for total gross
leasable area ("GLA") and rental income for the three months ended March 31,
2002 and for the year ended December 31, 2001:
% OF GLA % OF RENTAL INCOME
------------------------- ---------------------------------
MARCH 31, DECEMBER 31, MARCH 31, DECEMBER 31,
2002 2001 2002 2001
---------- ------------- ------------------- -------------
North Carolina 45.1% 45.2% 32.9% 34.4%
Florida 38.8% 38.8% 51.2% 49.9%
Tennessee 14.2% 14.2% 12.5% 11.9%
Georgia 1.8% 1.8% 3.4% 3.8%
---------- ------------- ------------------- -------------
99.9% 100.0% 100.0% 100.0%
========== ============= =================== =============
CRITICAL ACCOUNTING POLICIES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Significant estimates and assumptions within the
financial statements include valuation adjustments to tenant related accounts,
determination of useful lives of assets subject to depreciation or amortization
and impairment evaluation of operating and development properties and other
long-term assets. However, application of these accounting policies involves the
exercise of judgment and use of assumptions as to future uncertainties and, as a
result, actual results could differ significantly from those estimates.
8
Additional discussion of accounting policies that we consider to be
significant, including further discussion of the critical accounting policies
described below, are included in the notes to the financial statements in Item 1
of this report.
Revenue Recognition
Leases with tenants are accounted for as operating leases. Rental revenue
is recognized on a straight-line basis over the initial lease term. Certain
tenants are required to pay percentage rents based on their gross sales
exceeding specified amounts. This percentage rental revenue is recorded upon
collection. The Company receives reimbursements from tenants for real estate
taxes, common area maintenance and other recoverable costs. These tenant
reimbursements are recognized as revenue in the period the related expense is
recorded.
The Company makes valuation adjustments to all tenant related revenue based
upon the tenant's credit and business risk. The Company, on behalf of LP,
suspends the accrual of income on specific investments where interest,
reimbursement or rental payments are delinquent sixty days or more. These
valuation adjustments are estimates that affect LP's net earnings since an
increase or decrease in the valuation adjustments directly leads to a decrease
or increase in net earnings, respectively.
Rental Properties
Rental properties are stated at cost less accumulated depreciation. Costs
incurred for the acquisition, renovation, and betterment of the properties are
capitalized and depreciated over their estimated useful lives. Recurring
maintenance and repairs are charged to expense as incurred. Depreciation is
computed on a straight-line basis generally for a period of sixteen to forty
years for buildings and significant improvements. Tenant improvements are
depreciated on a straight-line basis over the life of the related lease.
When costs are capitalized, the Company must make a judgment of the useful
life of the asset for purposes of determining the amount of yearly depreciation,
which affects net earnings. If the useful life were increased, yearly
depreciation would be reduced, thus increasing net earnings.
Impairment of Properties
The Company, on behalf of LP, periodically evaluates the carrying value of
its long-lived assets, including operating properties, in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 144, "Accounting for
the Impairment or Disposal of Long-Lived Assets." Impairment is based on whether
it is probable that undiscounted future cash flows from each property will be
less than its net book value. The Company, on behalf of LP, assesses whether
there are any indicators that the value of the asset may be impaired. In
addition, judgments are made in calculating the undiscounted cash flows using a
probability-weighted cash flow estimation approach to measure the impairment
loss of a long-lived asset. These assessments and judgments could have a
material impact on net earnings since, if an impairment exists, the asset is
written down to its estimated fair value and an impairment loss is recognized
thereby reducing net earnings.
9
RESULTS OF OPERATIONS
COMPARISON OF THE THREE MONTHS ENDED MARCH 31, 2002 TO THE THREE MONTHS ENDED
MARCH 31, 2001
Revenues
Total revenues increased $437, or 7.2%, to $6,470 in 2002 primarily due to
an increase in income from rental properties of $651 and an increase in interest
income of $79, which were partially offset by a decrease in the gain on a sale
of an outparcel of $293.
Income from rental properties increased $651, or 11.3%, to $6,391 in 2002.
Included in income from rental properties is minimum rent, percentage rent and
other rental income. Minimum rents increased $381, or 8.6%, primarily due to an
increase in rental rates per square foot from $7.94 in 2001 to $7.96 in 2002 and
the core portfolio of properties contributing $226, or an increase of 4.1%, over
2001. The core portfolio is defined as properties held in the same corresponding
period from the current and prior year, excluding those properties sold or
acquired during the same corresponding period. Income from rental properties
increased $631 due to one property acquired in 2002 and two properties acquired
in 2001, which was partially offset by a $205 decrease in income attributable to
the sale of two properties in 2001. Percentage rent, based on tenant's gross
sales exceeding specified amounts, decreased $37, or 17.3%, to $179 for 2002 due
to the two disposed properties. Other rental income such as tenant
reimbursements, tenant allowances (bad debt reserves) and lease cancellation
fees, increased $308, or 28.1%, to $1,405. This increase was partially due to an
increase in tenant reimbursements for common area maintenance ("CAM") of $199,
or 17.9%. Tenants reimburse us for specific expenses relating to the property
such as maintenance, taxes and insurance. The reimbursements received as a
percentage of expenditures were 80.6% in 2002 and 74.9% in 2001. This increase
in the recovery percentage is due to the three acquisitions. Tenant allowances
decreased $14, or 36.9%, from 2001 and represented only 0.4% of total rental
income in 2002.
Interest income increased $79 in 2002 from none in 2001. The increase was
due to interest charged on advances to the Company during 2002 as compared to LP
borrowing from the Company in 2001 resulting in interest due from LP to the
Company of $19.
In 2001, LP sold a land outparcel that is located at one of LP's shopping
centers for $348, resulting in a gain of $293. No such sale occurred in 2002.
Expenses
Total expenses increased $416, or 12.3%, to $3,790 in 2002 due to increases
in operating expenses of rental properties of $161, interest expense of $163,
depreciation of $76, amortization of debt costs of $4 and general and
administrative expenses of $31. These increases were partially offset by a
decrease in interest due to affiliates of $19.
Operating expenses of rental properties increased $161, or 10.4%, to $1,712
in 2002. This increase was partially due to an increase of real estate taxes of
$115, or 20.1%, over 2001 as a result of increased property values. Insurance
costs increased by $86, or 102.3%, over 2001 due to a general increase in
premiums. The Company amortizes lease fees that are capitalized and the
amortization expense increased $21, or 32.7%, in 2002 due to increased leasing
activity in 2001. Tenant reimbursable operating expenses decreased $44, or 7.9%,
primarily due to lower operating and maintenance costs in connection with the
two disposed properties during 2001. Overall, the operating expenses of
properties increased due to core portfolio operating expenses increasing $7, or
0.5%, over 2001 and the three properties acquired during 2002 and 2001
increasing expenses $189. These increases were partially offset by a decrease in
expenses of $36 from the sales of two properties during 2001.
Interest expense increased $163, or 27.0%, in 2002 primarily due to a
mortgage note obtained in 2001 and assumption of a mortgage note in connection
with the acquisition in 2002.
10
The net increase of $76, or 7.9%, in depreciation expense in 2002 was due
to the acquisition of one shopping center in 2002 and two during 2001, net of
the effect of the disposition of two properties in 2001.
Amortization of debt costs increased $4, primarily due to a mortgage note
assumed in 2002 and a mortgage note obtained in 2001.
General and administrative expenses increased $31, or 12.9%, to $272 in
2002. This increase relates to an increase in expenses of the Company that are
allocated to LP. Total general and administrative expenses as a percentage of
total revenues were 4.2% and 4.0% for 2002 and 2001, respectively.
Net Earnings
Net earnings increased $21, or 0.8%, to $2,680 in 2002 from $2,659 in 2001.
This increase was attributable to an increase in revenues primarily from the
increase in base rents per square foot and the acquisition of three properties.
These increases were partially offset by higher operating expenses of the
properties and higher general and administrative expenses.
COMPARISON OF THE THREE MONTHS ENDED MARCH 31, 2001 TO THE THREE MONTHS ENDED
MARCH 31, 2000
Revenues
Total revenues increased $823, or 15.8%, to $6,033 in 2001. This increase
is due to a $655 increase in income in rental properties and a gain on sale of
an outparcel of $293. These increases were partially offset by a $124 decrease
in interest income from affiliates.
Income from rental properties increased $655, or 12.9%, to $5,740 in 2001.
Included in income from rental properties is minimum rent, percentage rent and
other rental income. Minimum rents increased $379, or 9.4%, primarily from an
increase in rental rates per square foot from $7.75 in 2000 to $7.84 in 2001 and
the increase in income of $457 related to the acquisitions of a property in
2000. Percentage rent, based on tenant's gross sales exceeding specified
amounts, increased $75, or 52.6%, to $216 for 2001. Other rental income such as
tenant reimbursements, tenant allowances and lease cancellation fees, increased
$201, or 22.4%, to $1,097 in 2001. This increase was partially due to an
increase in tenant reimbursements for CAM of $181, or 19.5%. Tenants reimburse
us for specific expenses relating to the property such as maintenance, taxes and
insurance. The reimbursements received as a percentage of expenditures were
74.9% in 2001 and 74.2% in 2000. This increase in the recovery percentage is due
to the acquisition of a property in 2000 as well as an increase in tenant
reimbursement expenses from 2000 to 2001. Tenant allowances decreased $11 from
2000 due to several closed tenants. Tenant allowances represented only 0.7% of
rental income in 2001. Overall, the core portfolio's income increased from 2000
to 2001 by $198, or 3.9%.
Interest income decreased $125, or 100.0%, to none in 2001. The decrease
was due to interest on advances to the Company which did not occur in 2001 as
compared to 2000.
11
Expenses
Total expenses increased $391, or 13.1%, to $3,374 in 2001 due to increases
in operating expenses of rental properties of $245, depreciation of $87, general
and administrative expenses of $52 and interest due to affiliate of $19. These
increases were offset by a decrease in interest expense of $12.
Operating expenses of rental properties increased $245, or 18.8%, to $1,551
in 2001. This increase was primarily due to an increase in property taxes of
$65, or 12.8%, and an increase in tenant reimbursement expenses of $91, or
19.5%. These increases were primarily due to the acquisition in 2000. Overall,
the operating expenses of rental properties increased due to the core portfolio
operating expenses increasing $87, or 6.7%, over 2000 and due to the two
properties acquired during 1999 increasing expenses by $158 over 2000. These
increases were partially offset by a decrease in expenses of $93 from the sales
of three properties during 2000.
Interest expense decreased $12, or 2.0%, in 2001 due to recurring mortgage
amortization.
The net increase of $87, or 10.0%, in depreciation expense in 2001 was due
to the acquisition of a shopping center in 2000.
General and administrative expenses increased $52, or 27.5%, to $241 in
2001 primarily due to an increase in operating expenses of the Company that are
allocated to LP.
Net Earnings
Net earnings increased $432, or 19.4%, to $2,659 in 2001 from $2,227 in
2000. The increase was attributable to an increase in income from rental
properties and a gain on the sale of an outparcel, partially offset by an
increase in operating expenses and general and administrative expenses.
LIQUIDITY AND CAPITAL RESOURCES
The Company presently expects cash from LP's operating activities to be a
primary source of funds to pay distributions, mortgage notes payments and
certain capital improvements on LP's properties. Net cash from operating
activities was $3,341 in 2002 as compared to $3,652 in 2001, an decrease of
8.5%. The decrease in cash flow is due to an increase in prepaid expenses
relating to the property acquired in 2002. Distributions to OP Unit holders
during 2002 and 2001 were $3,390 and $2,727, respectively. Mortgage principal
payments for 2002 and 2001 were $191 and $154. Total capital expenditures on
operating properties were $76 and $95, respectively.
Other planned activities, including property acquisitions, new
developments, certain capital improvement programs and debt repayments, are
expected to be funded to the extent necessary by mortgage financing, periodic
sales or exchanges of existing properties and the issuance of OP Units. Net
cash used in investing activities was $2,022 in 2002 as compared to net cash
provided by investing activities of $253 in 2001, an increase of $2,275. This
increase in cash used in investing activities was due to a property acquisition
in 2002 of $1,946.
12
Net cash used in financing activities decreased to $1,189 in 2002 from
$10,543 in 2001, a decrease of $9,354. This decrease in cash used in financing
activities was due to advances to the Company of $7,647 in 2001, as compared to
no advances in 2002.
LP guarantees the Company's indebtedness under the Company's existing
unsecured revolving term loan and its other senior debt.
The Company, through LP, uses secured borrowings for use in meeting capital
requirements. As of March 31, 2002, LP had $42,074 in mortgage notes payable at
a weighted average interest rate of 8.29%, which are due in monthly installments
with maturity dates ranging from 2006 to 2015.
On February 19, 2002, the Company assumed a non-recourse, secured loan
totaling $4,800, in connection with the acquisition of Parkwest Crossing. The
secured loan has a fixed interest rate of 8.1%. The loan is due and payable in
eight years and the principal amortization is based on a thirty year
amortization schedule.
Future principal amortization and balloon payments applicable to mortgage
notes payable at December 31, 2001 are as follows:
Scheduled Balloon
Amortization Payments Total
------------- --------- -------
2002 485 - 485
2003 740 - 740
2004 801 - 801
2005 872 - 872
2006 814 4,797 5,611
Thereafter 6,306 25,964 32,270
------------- --------- -------
$ 10,018 $ 274,331 $40,779
============= =========
Interest Premium 1,295
-------
$42,074
=======
INFLATION AND ECONOMIC FACTORS
The effects of inflation upon LP's results of operations and investment
portfolio are varied. From the standpoint of revenues, inflation has the dual
effect of both increasing the tenant revenues upon which percentage rentals are
based and allowing increased fixed rentals as rental rates rise generally to
reflect higher construction costs on new properties. This positive effect is
partially offset by increasing operating and interest expenses, but usually not
to the extent of the increases in revenues.
ENVIRONMENTAL FACTORS
For the years commencing January 1, 2000, the Company, on behalf of LP, has
maintained environmental and pollution legal liability insurance coverage to
attempt to mitigate the associated risks. Although no assurance can be given
that LP properties will not be affected adversely in the future by environmental
problems, the Company presently believes that there are no environmental matters
that are reasonably likely to have a material adverse effect on LP's financial
position.
13
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
Not applicable.
Item 2. Changes in Securities and Use of Proceeds.
Not applicable.
Item 3. Default Upon Senior Securities.
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
Not applicable.
Item 5. Other Information.
Not applicable.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
3.1 Certificate of Limited Partnership of IRT Partners, L.P.
(incorporated by reference to Exhibit 3.1 to the Form 10-Q
of IRT Partners, L.P. for the quarter ended March 31, 2001,
Commission File No. 1-7859).
3.2 Agreement of Limited Partnership of IRT Partners, L.P., and
Amendment No. 1 thereto (incorporated by reference to
Exhibit 99.2 to the Current Report on Form 8-K of IRT
Property Company filed on September 15, 1998, Commission
File No. 1-7859).
4.1 Supplemental Indenture No. 3, dated September 9, 1998, by
and between IRT Property Company, IRT Partners, L.P. and
SunTrust Bank, Atlanta, as Trustee, to the Indenture between
the Company and the Trustee, dated November 9, 1995
(incorporated by reference to Exhibit 4.1 to the Current
Report on Form 8-K of IRT Property Company filed on
September 15, 1998, Commission File No. 1-7859).
4.2 Indenture, dated September 9, 1998, by and between IRT
Property Company and SunTrust Bank, Atlanta, as Trustee,
relating to senior debt securities (incorporated by
reference to Exhibit 4.2 to the Current Report on Form 8-K
of IRT Property Company filed on September 15, 1998,
Commission File No. 1-7859).
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4.3 Supplemental Indenture No. 1, dated September 9, 1998, by
and between IRT Property Company, IRT Partners, L.P. and
SunTrust Bank, Atlanta, as Trustee, to the Indenture between
the Company and the Trustee, dated September 9, 1998,
relating to senior debt securities (which Indenture is
referred to as Exhibit 4.2 hereto) (incorporated by
reference to Exhibit 4.3 to the Current Report on Form 8-K
of IRT Property Company filed on September 15, 1998,
Commission File No. 1-7859).
4.4 Indenture, dated September 9, 1998, by and between IRT
Property Company and SunTrust Bank, Atlanta, as Trustee,
relating to subordinated debt securities (incorporated by
reference to Exhibit 4.4 to the Current Report on Form 8-K
of IRT Property Company filed on September 15, 1998,
Commission File No. 1-7859).
(b) Reports on Form 8-K.
No reports on Form 8-K were filed by LP during the quarter
ended March 31, 2002.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed by the undersigned,
thereunto duly authorized.
IRT Property Company, as general partner
Date: May 15, 2002 /s/ Thomas H. McAuley
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Thomas H. McAuley
President & Chief Executive Officer
Date: May 15, 2002 /s/ James G. Levy
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James G. Levy
Executive Vice President &
Chief Financial Officer
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