SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
------------------------------
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported) November 19, 2002
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IRT PARTNERS, L.P.
--------------------
(Exact Name of Registrant as Specified in Charter)
Georgia 1-7859 58-2404832
---------------------------- ------------ -------------------
(State or Other Jurisdiction (Commission (IRS Employer
of Incorporation) File Number) Identification No.)
200 Galleria Parkway, Suite 1400, Atlanta, Georgia 30339
-------------------------------------------------- ----------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (770) 955-4406
--------------
1
ITEM 5. OTHER EVENTS
IRT Partners, L.P. ("LP") is filing financial statements that were originally
filed in Item 8 of its 2001 Annual Report on Form 10-K, to include the audit
report of Deloitte & Touche LLP on the Company's Consolidated Financial
Statements as of December 31, 2001 and 2000 and for the three years in the
period ended December 31, 2001. Deloitte & Touche audited these financial
statements after it replaced the LP's previous auditor in May 2002. The audit
report of Deloitte & Touche LLP contains an unqualified opinion, as did the
audit report of the LP's previous auditor. Certain amounts in the financial
statements have been reclassified to conform with the presentation in LP's 2002
Quarterly Condensed Financial Statements.
In addition, LP is filing these financial statements to reflect the
reclassification of discontinued operations as prescribed by Statement of
Financial Accounting Standards ("SFAS") No. 144, "Accounting for the Impairment
or Disposal of Long-Lived Assets." SFAS No. 144 requires LP to report in
discontinued operations the results of operations of a property that has either
been disposed or is classified as held for sale, unless certain conditions are
met. SFAS No. 144 further requires LP to reclassify results of operations from a
property disposed of or held for sale subsequent to December 31, 2001 as income
from discontinued operations during prior reported periods.
During the nine-month period ended September 30, 2002, LP sold one property
that was not classified as an asset held for sale as of December 31, 2001. The
results of operations from this property have been reclassified as income from
discontinued operations for the three years in the period ended December 31,
2001 in the accompanying statements of earnings.
Management does not believe that adoption of SFAS No. 144 or the
reclassifications described above have a material effect on the LP's selected
financial data or management's discussion and analysis of financial condition
and results of operations for the three years in the period ended December 31,
2001 as previously reported in the LP's 2001 Annual Report on Form 10-K.
2
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
IRT PARTNERS, L.P.
INDEX TO FINANCIAL STATEMENTS
PAGE
----
Independent Auditors' Report 4
Balance Sheets:
December 31, 2001 and 2000 5
Statements of Earnings:
For the Years Ended December 31, 2001, 2000 and 1999 6
Statements of Changes in Partners' Capital:
For the Years Ended December 31, 2001, 2000 and 1999 7
Statements of Cash Flows:
For the Years Ended December 31, 2001, 2000 and 1999 8
Notes to Financial Statements:
December 31, 2001, 2000 and 1999 9
SCHEDULE
III Real Estate and Accumulated Depreciation 20
3
INDEPENDENT AUDITORS' REPORT
To IRT Partners, L.P.
Atlanta, Georgia
We have audited the accompanying balance sheets of IRT Partners, L.P. ("LP") (a
Georgia limited partnership) as of December 31, 2001 and 2000, and the related
statements of earnings, changes in partners' capital and cash flows for each of
the three years in the period ended December 31, 2001. These financial
statements are the responsibility of the LP'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 financial statements referred to above present fairly,
in all material respects, the financial position of IRT Partners, L.P. as of
December 31, 2001 and 2000, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 2001, in conformity
with accounting principles generally accepted in the United States of America.
As discussed in Note 9 to the financial statements, on October 28, 2002,
IRT Property Company executed a merger agreement with Equity One, Inc. to which
Equity One, Inc. will acquire IRT Property Company and succeed directly to the
interest of IRT Property Company as general partner of LP.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index to
financial statements is presented for purposes of complying with the Securities
and Exchange Commission's rules and is not part of the basic financial
statements. This schedule has been subjected to the auditing procedures applied
in the audit of the basic financial statements and, in our opinion, fairly
states in all material respects the financial data required to be set forth
therein in relation to the basic financial statements taken as a whole.
DELOITTE & TOUCHE LLP
Atlanta, Georgia
November 19, 2002
4
IRT PARTNERS, L.P.
BALANCE SHEETS
DECEMBER 31, 2001 AND 2000
(IN THOUSANDS, EXCEPT UNIT AMOUNTS)
2001 2000
--------- ---------
ASSETS
Rental properties $172,770 $161,213
Accumulated depreciation (27,145) (24,099)
--------- ---------
Net rental properties 145,625 137,114
Cash and cash equivalents 500 6,643
Advances to affiliate, net 18,149 19
Prepaid expenses and other assets 2,599 2,038
--------- ---------
Total assets $166,873 $145,814
========= =========
LIABILITIES & PARTNERS' CAPITAL
Liabilities:
Mortgage notes payable, net $ 37,464 $ 30,595
Accrued expenses and other liabilities 2,154 1,699
--------- ---------
Total liabilities 39,618 32,294
Limited partners' capital interest (815,852 redeemable OP Units
in 2001 and 2000, respectively) at redemption value 8,648 6,621
Commitments and contingencies (Note 5)
Partners' capital:
General partner (144,229 and 129,433 OP Units
in 2001 and 2000, respectively) 1,269 1,131
Limited partner (13,462,596 and 11,997,929 OP Units
in 2001 and 2000, respectively) 117,338 105,768
--------- ---------
Total partners' capital 118,607 106,899
--------- ---------
Total liabilities and partners' capital $166,873 $145,814
========= =========
The accompanying notes are an integral part of these balance sheets.
5
IRT PARTNERS, L.P.
STATEMENTS OF EARNINGS
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
(IN THOUSANDS)
2001 2000 1999
------- ------- -------
Revenues:
Income from rental properties $22,591 $19,708 $19,142
Interest income from affiliate 417 331 324
------- ------- -------
Total revenues 23,008 20,039 19,466
------- ------- -------
Expenses:
Operating expenses of rental properties 6,089 5,324 4,797
Interest on mortgages 2,772 2,441 2,418
Depreciation 3,748 3,439 3,220
Amortization of debt costs 9 - -
General and administrative 1,050 848 788
------- ------- -------
Total expenses 13,668 12,052 11,223
------- ------- -------
Income from continuing operations
before gain on sales of properties
and discontinued operations 9,340 7,987 8,243
Gain on sales of properties and outparcels 1,401 - 1,130
------- ------- -------
Income from continuing operations 10,741 7,987 9,373
Discontinued operations
Income from discontinued operations 465 398 418
------- ------- -------
Net earnings $11,206 $ 8,385 $ 9,791
======= ======= =======
The accompanying notes are an integral part of these statements.
6
IRT PARTNERS, L.P.
STATEMENT OF CHANGES IN PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
(IN THOUSANDS)
Limited
Total Partners'
General Limited Partners' Capital
Partner Partner Capital Interest
--------- --------- ----------- ----------
Balance, December 31, 1998 $ 955 $ 86,804 $ 87,759 $ 7,794
Issuance of units 92 9,169 9,261 -
Distributions (104) (9,660) (9,764) (733)
Net Earnings 98 9,010 9,108 683
Adjustment to reflect limited partners' capital interest at redemption value - 1,370 1,370 (1,370)
--------- --------- ----------- ----------
Balance, December 31, 1999 1,041 96,693 97,734 6,374
Issuance of units 113 11,688 11,801 -
Distributions (107) (9,900) (10,007) (767)
Net Earnings 84 7,705 7,789 596
Adjustment to reflect limited partners' capital interest at redemption value - (418) (418) 418
--------- --------- ----------- ----------
Balance, December 31, 2000 1,131 105,768 106,899 6,621
Issuance of units 147 14,520 14,667 -
Distributions (121) (11,250) (11,371) (767)
Net Earnings 112 10,540 10,652 554
Adjustment to reflect limited partners' capital interest at redemption value - (2,240) (2,240) 2,240
--------- --------- ----------- ----------
Balance, December 31, 2001 $ 1,269 $117,338 $ 118,607 $ 8,648
========= ========= =========== ==========
The accompanying notes are an integral part of these statements.
7
IRT PARTNERS, L.P.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
(IN THOUSANDS)
2001 2000 1999
--------- --------- ---------
Cash flows from operating activities:
Net earnings $ 11,206 $ 8,385 $ 9,791
Adjustments to reconcile earnings to net cash from operating activities:
Depreciation 3,895 3,581 3,350
Gain on sales of operating properties (1,108) - (1,130)
Gain on sales of outparcels (293) - -
Straight line rent adjustment (189) (41) -
Amortization of debt costs and discounts 10 - -
Changes in assets and liabilities:
Increase in prepaid expenses and other assets (284) (50) (678)
Increase (decrease) in accrued expenses and other liabilities 461 (1,038) 885
--------- --------- ---------
Net cash flows from operating activities 13,698 10,837 12,218
--------- --------- ---------
Cash flows used in investing activities:
Additions to operating properties, net (17,508) (13,898) (11,113)
Proceeds from sales of operating properties, net 6,181 - 8,867
Proceeds from sale of outparcel, net 348 - -
--------- --------- ---------
Net cash flows used in investing activities (10,979) (13,898) (2,246)
--------- --------- ---------
Cash flows (used in) provided by financing activities:
Issuance of units for cash 14,667 11,801 9,261
Distributions paid, net (12,138) (10,774) (10,497)
Collection of advances to affiliate, net - 8,904 -
Advances to affiliate, net (18,130) - (8,956)
Proceeds from mortgage notes payable 7,540 - -
Principal amortization of mortgage notes payable (671) (586) (524)
Payment of deferred financing costs (130) - -
--------- --------- ---------
Net cash flows (used in) provided by financing activities (8,862) 9,345 (10,716)
--------- --------- ---------
Net (decrease) increase in cash and cash equivalents (6,143) 6,284 (744)
Cash and cash equivalents at beginning of period 6,643 359 1,103
--------- --------- ---------
Cash and cash equivalents at end of period $ 500 $ 6,643 $ 359
========= ========= =========
Supplemental disclosures of cash flow information:
Total cash paid for interest $ 2,745 $ 2,445 $ 2,386
========= ========= =========
The accompanying notes are an integral part of these statements.
8
IRT PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2001, 2000, AND 1999
(DOLLARS IN THOUSANDS, EXCEPT UNIT DATA)
1. 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 ("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 seven shopping centers and LP has divested five
shopping centers. At December 31, 2001, the Company and IRTMC own approximately
1% and 93.3%, 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 December 31, 2001, LP owns 25 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.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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.
9
Significant estimates and assumptions within the financial statements include
impairment evaluation of operating and development properties and other
long-term assets, determination of useful lives of assets subject to
depreciation or amortization and valuation adjustments to tenant related
accounts. Actual results could differ from those estimates.
REVENUE RECOGNITION
Leases with tenants are accounted for as operating leases. Rental revenue
for leases entered into after January 1, 2000 is recognized on a straight-line
basis over the initial lease term. Rental revenue for leases entered into prior
to January 1, 2000, is accounted for based on contractual rental obligations,
which is not materially different from revenue recorded on a straight-line basis
to any interim or annual period. Certain tenants are required to pay percentage
rents based on their gross sales exceeding specified amounts. This percentage
rental revenue is recorded upon collection, which is not materially different
from recognizing such percentage rental revenue on an accrual basis. LP 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.
In addition, LP makes specific valuation adjustments (bad debt reserves) to
tenant related revenue based upon the tenant's credit and business risk.
Other non-rental revenue is recognized as revenue when earned.
Gain on sales of real estate assets is recognized at the time title to the
asset is transferred to the buyer, subject to the adequacy of the buyer's
initial and continuing investment and the assumption by the buyer of all future
ownership risks of the property. The gain on sales of operating properties is
calculated based on the net carrying value of the property at the time of sale.
The net carrying value represents the cost of acquisition, renovation or
betterment of the property less the accumulated depreciation of such costs. For
gains on outparcel sales, the gain is calculated based on the value assigned to
the outparcel lot through specific identification of costs or the relative sales
value of the outparcel lot to the entire property.
RENTAL PROPERTIES
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 significant improvements and buildings. Tenant improvements are
depreciated on a straight-line basis over the life of the related lease.
The Company periodically evaluates the carrying value of LP's long-lived
assets, including operating and development properties, in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of." Impairment is based on whether it is probable that undiscounted future cash
flows from each property will be less than its net book value. If an impairment
exists, the asset is written down to its estimated fair value and an impairment
loss is recognized.
10
CASH EQUIVALENTS
LP considers all highly liquid investments with a maturity of three months
or less when purchased to be cash equivalents.
DEFERRED LEASING COSTS
Internal and external commission costs incurred in obtaining tenant leases
are included in prepaid expenses and other assets. The costs are amortized on a
straight-line basis over the terms of the related leases. Upon lease
cancellation or termination, unamortized costs are charged to operations.
DEFERRED FINANCE COSTS
Costs related to loan costs incurred in obtaining long-term financing are
included within prepaids and other assets. The costs are capitalized and
amortized over the life of the financing on a straight-line basis, which
approximates the effective interest method. Upon prepayment, applicable
unamortized costs are charged to operations.
INCOME TAXES
No federal or state income taxes are reflected in the accompanying
financial statements since LP is a partnership and its partners are required to
include their respective share of profits and losses in their income tax
returns.
SEGMENT REPORTING
In 1998, LP adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." This statement established standards for
reporting financial and descriptive information about operating segments in
annual financial statements. Operating segments are defined as components of an
enterprise about which separate financial information is available that is
evaluated regularly by the chief operating decision maker in deciding how to
allocate resources and in assessing performance. LP's chief operating decision
maker is the senior management group of the Company.
LP owns and operates retail shopping centers in the southeastern United
States. Such shopping centers generate rental and other revenue through the
leasing of shop spaces to a diverse base of tenants. LP evaluates the
performance of each of its shopping centers on an individual basis due to
specific geographical market demographics and local competitive forces. However,
because the shopping centers have generally similar economic characteristics and
tenants, the shopping centers have been aggregated into one reportable segment.
DERIVATIVE FINANCIAL INSTRUMENTS
In June 1998, SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities," was issued. This statement, as amended, establishes
accounting and reporting standards requiring that every derivative instrument
(including certain derivative instruments embedded in other contracts) be
recorded in the balance sheet as either an asset or liability measured at its
fair market value. SFAS No. 133 requires that changes in the derivative's fair
market value be recognized currently in earnings unless specific hedge
accounting criteria are met. Special accounting for qualifying hedges allows a
derivative's gains and losses to offset related results on the hedged item in
the income statement and requires that a
11
company must formally document, designate, and assess the effectiveness of
transactions that receive hedge accounting. The Company and LP adopted this
statement on January 1, 2001. The Company or LP did not hold and has not
engaged in transactions using derivative financial instruments. The adoption of
this statement did not have a material effect on LP's balance sheets or
statements of earnings.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 2001, SFAS No. 141, "Business Combinations," was issued. This
statement eliminates pooling of interests accounting and requires all business
combinations initiated after June 30, 2001 to be accounted for using the
purchase method. LP adopted this standard on January 1, 2002 and believes
adoption of this standard will not have a significant effect on the LP's
financial statements.
In June 2001, SFAS No. 142, "Goodwill and Other Intangible Assets," was
issued establishing accounting and reporting standards that address how goodwill
and intangible assets should be accounted for within the financial statements.
The statement requires companies to not amortize goodwill and intangible assets
with infinite lives, but to test such assets for impairment on a regular basis.
An intangible asset that has a finite life should be amortized over its useful
life and evaluated for impairment on a regular basis. This statement is
effective for fiscal years beginning after December 15, 2001. LP adopted this
standard on January 1, 2002 and believes adoption of this standard will not have
a significant effect on LP's financial statements.
In August 2001, SFAS No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets," was issued establishing new rules and clarifies
implementation issues with SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of," by allowing a
probability-weighted cash flow estimation approach to measure the impairment
loss of a long-lived asset. The statement also established new standards for
accounting for discontinued operations. Transactions that qualify for reporting
in discontinued operations include the disposal of a component of an entity's
operations that comprises operations and cash flows that can be clearly
distinguished, operationally and for financial reporting purposes, from the rest
of the entity. The statement is effective for fiscal years beginning after
December 15, 2001. LP adopted this standard on January 1, 2002 and believes
adoption of this standard will not have a significant effect on LP's financial
statements.
In April 2002, SFAS No. 145, "Rescission of FASB Statements No. 4, 44, and
64, Amendment of FASB Statement No. 13, and Technical Corrections", was issued.
This Statement rescinds FASB Statement No. 4, "Reporting Gains and Losses from
Extinguishment of Debt", and an amendment of that Statement, FASB Statement No.
64, "Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements". This
Statement also rescinds FASB Statement No. 44, "Accounting for Intangible Assets
of Motor Carriers". This Statement amends FASB Statement No. 13, "Accounting for
Leases", to eliminate an inconsistency between the required accounting for
sale-leaseback transactions and the required accounting for certain lease
modifications that have economic effects that are similar to sale-leaseback
transactions. This Statement also amends other existing authoritative
pronouncements to make various technical corrections, clarify meanings, or
describe their applicability under changed conditions. The adoption of SFAS No.
145 had no effect on the financial position and results of operations of LP.
In June 2002, SFAS No. 146, "Accounting for Costs Associated with Exit or
Disposal Activities", was issued which nullifies Emerging Issues Task Force
(EITF) Issue No. 94-3, "Liability Recognition for Certain Employee Termination
Benefits and Other Costs to Exit and Activity (including Certain Costs Incurred
in a Restructuring"). The adoption of SFAS No. 146 had no effect on the
financial position and results of operations of LP.
12
RECLASSIFICATION OF AMOUNTS
Certain amounts in the financial statements have been reclassified to
conform with the presentation in LP's 2002 Quarterly Condensed Financial
Statements.
3. RENTAL PROPERTIES
Buildings and related improvements are depreciated on a straight-line basis
for a period of 16 to 40 years. Tenant improvements are depreciated on a
straight-line basis over the life of the related lease. Rental properties are
comprised of the following:
DECEMBER 31,
------------------
2001 2000
-------- --------
Land related to buildings and improvements $ 40,555 $ 37,428
Buildings and improvements 128,222 121,156
Tenant improvements 3,993 2,629
-------- --------
Total rental properties $172,770 $161,213
======== ========
Rental properties acquired in 2001, 2000 and 1999 and disposed in 2001 and
1999 are summarized below. LP did not dispose of any properties in 2000.
SHOPPING CENTER ACQUISITIONS
Date Square Year Built/ % Leased Total Initial
Acquired Property Name City, State Footage Renovated at Acquisition Cost Cash Paid
- --------------- ----------------------- ----------------- ----------- --------- -------------- --------- ----------
(unaudited)
2001 ACQUISITIONS
4/12/01 Unigold Shopping Center Orlando, FL 102,985 1987 97% $ 8,000 $ 7,903
11/30/01 Carrollwood Center Tampa, FL 96,242 1971/1996 85% 6,763 6,763
--------- ------- ----------
199,227 $14,763 $ 14,666
========== ========= ==========
2000 ACQUISITIONS
12/28/00 Pine Ridge Square Coral Springs, FL 117,399 1986 100% $11,600 $ 11,438
1999 ACQUISITIONS
2/26/99 Shoppes at Lago Mar Kendall, FL 82,613 1995 98% $ 9,916 $ 4,174
3/15/99 Willamsburg at Dunwoody Dunwoody, GA 44,928 1983 100% 5,602 5,602
----------- ------- ----------
127,541 $15,518 $ 9,776
=========== ======== ==========
13
SHOPPING CENTER DISPOSITIONS
Date Square Sales Net Gain
Sold Property Name City, State Footage Price Proceeds (Loss)
- ----------------- -------------------- ------------------ ----------- ------ --------- -------
(unaudited)
2001 DISPOSITIONS
4/18/01 Eden Center Eden, NC 56,355 $3,950 $ 3,830 $ 742
5/31/01 Chadwick Square Hendersonville, NC 32,100 2,401 2,351 366
----------- ------ --------- -------
88,455 $6,351 $ 6,181 $ 1,108
=========== ====== ========= =======
1999 DISPOSITIONS
6/1/99 First Street Station Albemarle, NC 52,230 3,137 3,038 320
6/1/99 Taylorsville Taylorsville, NC 48,537 2,571 2,430 609
6/1/99 University Center Greenville, NC 56,180 3,462 3,399 201
----------- ------ --------- -------
156,947 $9,170 $ 8,867 $ 1,130
=========== ====== ========= =======
4. MORTGAGE NOTES PAYABLE
Mortgage notes payable are collateralized by various real estate
investments having a net carrying value of approximately $60,968 at December 31,
2001. These notes have stated interest rates ranging from 7.02% to 9.1875% and
are due in monthly installments with maturity dates ranging from 2006 to 2015.
In April 2001, LP obtained a non-recourse, secured loan on Pine Ridge
Square of $7,540, at a fixed interest rate of 7.02%. The loan is due and payable
in ten years and the principal amortization is based on a thirty year
amortization schedule. Costs associated with obtaining the secured note totaled
$130 and are being amortized over the term of the loan.
Future principal amortization and balloon payments applicable to mortgage
notes payable at December 31, 2001 are as follows:
PRINCIPAL BALLOON
YEAR AMORTIZATION PAYMENTS TOTAL
- ---------------- ------------- --------- -------
2002 $ 644 $ - $ 644
2003 699 - 699
2004 757 - 757
2005 823 - 823
2006 762 4,797 5,559
Thereafter 6,074 21,613 27,687
------------- --------- -------
$ 9,759 $ 26,410 36,169
============= =========
Interest Premium 1,295
-------
$37,464
=======
The $1,295 of interest premium as of December 31, 2001 relates to the fair
value adjustment of the three mortgages assumed from the minority interest in
connection with the formation of LP in 1998.
Based on the borrowing rates currently available to LP for notes with
similar terms and maturities, the estimated fair value of mortgage notes payable
was approximately $38,796 and $41,305 at December 31, 2001 and 2000,
respectively.
14
5. COMMITMENTS AND CONTINGENCIES
LP is not aware of any environmental problems on the properties owned. LP
has not obtained phase one environmental surveys on those properties owned and
located in North Carolina. Although no assurance can be given that LP's
properties will not be affected adversely in the future by environmental
problems, LP presently believes that there are no environmental matters that are
reasonably likely to have a material adverse effect on LP's financial position.
LP has guaranteed the bank indebtedness and senior indebtedness of the
Company and the following is a description of the Company's indebtedness.
Effective August 31, 1993, the Company issued $86,250 of 7.3% convertible
subordinated debentures due August 15, 2003, $23,275 of which are outstanding as
of December 31, 2001. Interest on the debentures is payable semi-annually on
February 15 and August 15. The debentures are convertible at any time prior to
maturity into common stock of the Company at $11.25 per share, subject to
adjustment in certain events. During 1997, $1,653 of these debentures were
converted into 146,921 shares of common stock. During 1998, $5,178 of these
debentures were converted into 460,263 shares of common stock. No debentures
were converted during 2001, 2000 or 1999. Based upon the conversion price,
2,068,889 authorized but unissued common shares have been reserved for possible
issuance if the $23,275 debentures outstanding at December 31, 2001 are
converted.
The Company had the option to redeem the debentures at par and, on December
24, 2001, the Company gave notice it intended to exercise such redemption option
by January 24, 2002.
Based on the closing market price of the debentures at year-end, the
estimated fair value of the debentures was approximately $23,828 and $22,111 at
December 31, 2001 and 2000, respectively.
On March 26, 1996, the Company issued $50,000 of 7.45% senior notes. These
notes were due April 1, 2001 and were repaid on such date. These senior notes
were issued at a discount of $84 which was amortized over the life of the notes
on a straight-line basis for financial reporting purposes. Net proceeds from the
issuance totaled approximately $49,394. Interest on the 7.45% senior notes was
payable semi-annually on April 1 and October 1.
On August 15, 1997, the Company issued $75,000 of 7.25% senior notes due
August 15, 2007. These senior notes were issued at a discount of $426 which is
being amortized over the life of the notes on a straight-line basis for
financial reporting purposes. Net proceeds from the issuance totaled $73,817.
Interest on the 7.25% senior notes is payable semi-annually on February 15 and
August 15.
On March 23, 2001, the Company established a Medium Term Note Program (the
"MTN Program"), pursuant to the Company's shelf registration statement filed in
January, 2001. The MTN Program allows the Company, from time to time, to issue
and sell up to $100,000 of medium term notes. Medium term notes have a maturity
of nine months or more from the date of issuance and are unconditionally
guaranteed as to the payment of principal, premium, if any, and interest, if
any, by each of LP, IRTMC, IRTAL and IRTCCII.
On March 29, 2001, pursuant to the MTN Program, the Company issued $50,000
of 7.77% senior notes due April 1, 2006. Net proceeds from the issuance totaled
$49,324. Interest on these senior notes is payable semi-annually on April 1 and
October 1.
15
On November 1, 1999, the Company obtained a $100,000 unsecured revolving
loan facility ("Revolving Loan"), which was scheduled to mature on November 1,
2002. This loan replaced the Company's previous credit facility which was
cancelled in conjunction with the new Revolving Loan. Due to the cancellation of
the previous credit facility, the Company recognized an extraordinary loss of
$157 for the write-off of the related unamortized loan costs. In addition to
the new Revolving Loan, the Company secured a $5,000 swing line credit facility
with terms similar to those of the Revolving Loan and a scheduled maturity date
of October 31, 2000. On November 1, 2000, the Company extended the maturity
date of the Revolving Loan and swing line credit facility to November 1, 2003
and the Company secured an option to increase the Revolving Loan at its
discretion by $50,000.
Under the Revolving Loan, the Company may elect to pay interest at either
the lender's prime, adjusted daily or the LIBOR plus the "Applicable Margin"
based upon the rating of the senior unsecured debt obligations of the Company.
The Applicable Margin ranges from 0.95% to 1.40%. The Applicable Margin based
on the Company's current rating is 1.15%. At December 31, 2001, the weighted
average interest rate was 3.67% on outstanding borrowings under the Revolving
Loan. The terms of the Revolving Loan and swing line credit facility require
the Company to pay an annual facility fee equal to 0.2% of the total commitment
and include certain restrictive covenants which require compliance with certain
financial ratios and measurements. At December 31, 2001, the Company was in
compliance with these covenants.
6. RENTAL INCOME
Leases with tenants are accounted for as operating leases. Certain tenants
are required to pay percentage rents based on gross sales exceeding stated
amounts. LP receives reimbursements from tenants for real estate taxes, common
area maintenance and other recoverable costs. Rents from tenants are summarized
as follows:
2001 2000 1999
------- ------- -------
Minimum rental income $17,380 $15,623 $15,439
Percentage rental income 339 316 300
Other rental income 4,872 3,769 3,403
------- ------- -------
Total rental income $22,591 $19,708 $19,142
======= ======= =======
Minimum rents to be received from tenants on noncancellable operating
leases for LP's shopping center investments at December 31, 2001 are as follows:
YEAR AMOUNT
- ---------- --------
2002 $ 18,548
2003 16,603
2004 14,146
2005 11,547
2006 8,622
Thereafter 32,781
--------
$102,247
========
16
7. DISCONTINUED OPERATIONS
LP adopted SFAS No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets," effective January 1, 2002. SFAS No. 144 requires LP to
report in discontinued operations the results of operations of a property that
has either been disposed or is classified as held for sale, unless certain
conditions are met. SFAS No. 144 further requires LP to reclassify results of
operations from a property disposed of or held for sale subsequent to December
31, 2001 as income from discontinued operations during prior reported periods.
LP classified the results of operations from a property sold during the
nine months ended September 30, 2002, as income from discontinued operations for
the three years in the period ended December 31, 2001 in the accompanying
statements of earnings. The effect of the adoption of SFAS No. 144 on the
statements of earnings is shown below.
2001 2000 1999
----- ----- -----
Income from rental properties $ 772 $ 710 $ 698
----- ----- -----
Operating expenses of rental properties 160 170 150
Depreciation 147 142 130
----- ----- -----
Total expenses 307 312 280
----- ----- -----
Income from discontinued operations $ 465 $ 398 $ 418
===== ===== =====
8. RELATED PARTY TRANSACTIONS
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 operating requirements. As of December 31, 2001, LP had advances to
the Company of $18,149. During 2001, the Company paid LP approximately $417 in
interest from the advances, which bear interest calculated on a monthly basis,
at the three-month treasury bill rate.
9. SUBSEQUENT EVENTS
On February 19, 2002, LP acquired Parkwest Crossing, a 85,602 square foot
neighborhood shopping center located in the Raleigh-Durham area of North
Carolina. LP acquired the center for approximately $6,600, including an
assumption of a $4,800, 8.1% mortgage secured by the property. The mortgage is
due and payable in ten years and the principal amortization is based on a thirty
year amortization schedule.
On September 25, 2002, LP sold Forest Hills Centre, a 74,180 square foot
shopping center, located in Wilson, NC for approximately $6,850 in cash and
recognized a gain on the sale of approximately $2,185.
17
On October 28, 2002, Equity One, Inc. (NYSE: EQY) and the Company executed
a merger agreement pursuant to which Equity One will acquire the Company. In
connection with the merger, each of the Company's shareholders may elect to
receive for each share of the Company's common stock either $12.15 in cash or
0.9 shares of Equity One common stock, or a combination thereof. The terms of
the merger agreement further provide that the holders of no more than 50% of the
Company's outstanding common stock may elect to receive cash.
Completion of the transaction, which is expected to take place in the first
quarter of 2003, is subject to the approval of Equity One's and the Company's
shareholders and other customary conditions. The boards of each of the Company
and Equity One have unanimously approved the transaction. Additionally, holders
of approximately 75% of Equity One's common stock and approximately 8% of the
Company's common stock have agreed to vote their shares in favor of the
transactions contemplated by the merger. On the 4th business day prior to the
shareholder meetings, the Equity One holders may withdraw their voting support,
and the Company's board may withdraw its merger recommendation, if Equity One's
weighted average stock price for the 30 preceding trading days is less than
$12.06 or less than $11.00 for the three preceding trading days. In addition, on
the 4th business day prior to the shareholder meetings the Equity One holders
may withdraw their voting support if the Company's weighted average stock price
for the 30 preceding trading days is less than $10.935 or less than $9.935 for
the three preceding trading days.
The Company cannot make any assurances that the merger with Equity One will
be consummated according to the terms set forth in the merger agreement, if at
all. Either the Company or Equity One may terminate the merger agreement if the
merger is not consummated by March 31, 2003. The Company will be required to
pay a $15 million break-up fee to Equity One in the event that the Company
enters into an agreement for a superior transaction or if, under certain
circumstances, the Company's board withdraws its recommendation for the
transaction.
Upon completion of the Merger, Equity One will succeed directly to the
interest of the Company as general partner of the LP and indirectly to the
interest of IRTMC as the owner of 93.4% of the OP Units.
On October 31, 2002, Janet Herszenhorn, an individual stockholder of IRT,
purporting to represent a class of holders of IRT common stock, filed a putative
class action lawsuit in the Superior Court of Cobb County, Georgia, against IRT,
Equity One and each of the directors of IRT. The complaint alleges, among other
things, that IRT and its individual directors breached their fiduciary duties by
agreeing to the merger between Equity One and IRT and that Equity One aided and
abetted such breach. The complaint seeks injunctive relief, an order enjoining
consummation of the merger and unspecified damages.
On October 31, 2002, John Greaves, an individual stockholder of IRT,
purporting to represent a class of holders of IRT common stock, also filed a
putative class action lawsuit in the Superior Court of Cobb County, Georgia,
against IRT, Equity One and each of the directors of IRT. The complaint
alleges, among other things, that IRT and its individual directors breached
their fiduciary duties by agreeing to the merger between Equity One and IRT and
that Equity One aided and abetted such breach. The complaint seeks injunctive
relief, an order enjoining consummation of the merger and unspecified damages.
Although the defendants believe that these suits are without merit and
intend to defend themselves vigorously, there can be no assurance that the
pending litigation will not interfere with the consummation of the merger. IRT
and Equity One do not expect that these suits will interfere with the scheduling
of their respective shareholder meetings or the consummation of the merger, if
approved.
18
10. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following is a summary of the unaudited quarterly financial information
for the fiscal years ended December 31, 2001 and 2000.
2001
--------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- --------
Revenues $ 5,590 $ 5,861 $ 5,892 $ 5,665
======== ======== ======== ========
Income from continuing operations
before gains on sales of properties
and discontinued operations $ 2,267 $ 2,447 $ 2,485 $ 2,141
Gain on sales of properties and outparcels 293 1,108 - -
-------- -------- -------- --------
Income from continuing operations 2,560 3,555 2,485 2,141
Discontinued operations 99 118 135 113
-------- -------- -------- --------
Net earnings $ 2,659 $ 3,673 $ 2,620 $ 2,254
======== ======== ======== ========
2000
--------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- --------
Revenues $ 5,084 $ 5,080 $ 4,959 $ 4,916
======== ======== ======== ========
Income from continuing operations $ 2,134 $ 2,115 $ 1,903 $ 1,835
Discontinued operations 93 92 106 107
-------- -------- -------- --------
Net earnings $ 2,227 $ 2,207 $ 2,009 $ 1,942
======== ======== ======== ========
19
SCHEDULE III
IRT PARTNERS, L.P.
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 2001
(IN THOUSANDS, EXCEPT USEFUL LIVES)
COSTS AMOUNT ACCUMULATED USEFUL
INITIAL CAPITALIZED AT WHICH DEPRECIATION LIFE OF
ENCUM- COST TO SUBSEQUENT TO CARRIED AT AT CLOSE BUILDINGS DATE
DESCRIPTION BRANCES COMPANY ACQUISITION CLOSE OF YEAR OF YEAR (YEARS) ACQUIRED
- ---------------------------- -------- -------- --------------- -------------- --------- ---------- ----------------
Asheville Plaza
Asheville, NC
Land - 53 15 68 - 30 April, 1986
Buildings 336 2 338 178
Bay Pointe Plaza
St. Petersburg, FL
Land - 3,250 - 3,250 - 40 December, 1998
Buildings 3,138 2,040 5,178 265
Carrollwood Center
Tampa, FL
Land - 1,661 - 1,661 - 40 November, 2001
Buildings 4,999 87 5,086 10
Centre Pointe Plaza
Smithfield, NC
Land - 984 12 996 - 40 December, 1992 &
Buildings 8,003 303 8,306 1,957 December, 1993
Charlotte Square (1)
Port Charlotte, FL
Land 3,993 2,114 - 2,114 - 40 August, 1998
Buildings 3,892 364 4,256 391
Chestnut Square
Brevard, NC
Land - 296 - 296 - 40 January, 1992
Buildings 1,113 106 1,219 323
Forest Hills Centre
Wilson, NC
Land - 870 (9) 861 - 40 August, 1990
Buildings 4,121 772 4,893 1,327
Forrest Gallery
Tullahoma, TN
Land - 2,137 11 2,148 - 40 December, 1992
Buildings 9,978 821 10,799 2,689
The Galleria
Wrightsville Beach, NC
Land - 1,070 (41) 1,029 - 40 August, 1986
Buildings 6,139 1,390 7,529 2,597 & December, 1987
Lawrence Commons
Lawrenceburg, TN
Land - 816 - 816 - 40 August, 1992
Buildings 2,729 63 2,792 695
Pine Ridge Square
Coral Springs, FL
Land 7,502 2,909 - 2,909 - 40 December, 2000
Buildings 8,727 34 8,761 219
Plaza North
Hendersonville, NC
Land - 658 - 658 - 40 August, 1992
Buildings 1,796 65 1,861 448
Providence Square
Charlotte, NC
Land - 450 - 450 - 35 December, 1971
Buildings 1,896 2,422 4,318 3,545
Riverside Square (1)
Coral Springs, FL
Land 8,488 5,893 - 5,893 - 40 August, 1998
Buildings 7,131 223 7,354 672
20
Riverview Shopping Center
Durham, NC
Land - 400 - 400 - 35 March, 1972
Buildings 1,823 4,713 6,536 3,166
Salisbury Marketplace
Salisbury, NC
Land - 734 - 734 - 40 August, 1996
Buildings 3,878 62 3,940 543
Shelby Plaza
Shelby, NC
Land - - - - - 21 April, 1986
Buildings 937 855 1,792 1,156
Shoppes at Lago Mar
Miami, FL
Land 5,423 3,170 - 3,170 - 40 February, 1999
Buildings 6,743 17 6,760 477
Smyrna Village
Smyrna, TN
Land - 968 21 989 - 40 August, 1992
Buildings 4,744 181 4,925 1,186
Stanley Market Place
Stanley, NC
Land - 198 - 198 - 35 January, 1992
Buildings 1,603 66 1,669 442
Tamarac Town Square (1)
Tamarac, FL
Land 6,772 4,637 - 4,637 - 40 August, 1998
Buildings 6,015 979 6,994 647
Treasure Coast
Vero Beach, FL
Land 5,286 2,471 - 2,471 - 40 May, 1998
Buildings 8,622 240 8,862 804
Unigold Shopping Center
Orlando, FL
Land - 2,410 - 2,410 - 40 April, 2001
Buildings 5,627 87 5,714 96
Williamsburg at Dunwoody
Dunwoody, GA
Land - 1,638 - 1,638 - 40 March 1999
Buildings 3,964 32 3,996 286
Willowdaile Shopping Center
Durham, NC
Land - 937 (178) 759 - 40 August, 1986 &
Buildings 7,352 985 8,337 3,026 December, 1987
$ 37,464 $156,030 $ 16,740 $ 172,770 $ 27,145
======== ======== =============== ============== =========
YEAR
DESCRIPTION COMPLETED
- ---------------------------- ----------
Asheville Plaza
Asheville, NC
Land 1967
Buildings
Bay Pointe Plaza
St. Petersburg, FL
Land 1998
Buildings
Carrollwood Center
Tampa, FL
Land 1971 &
Buildings 1996
Centre Pointe Plaza
Smithfield, NC
Land 1989 &
Buildings 1993
Charlotte Square (1)
Port Charlotte, FL
Land 1998
Buildings
Chestnut Square
Brevard, NC
Land 1985
Buildings
Forest Hills Centre
Wilson, NC
Land 1990 &
Buildings 1995
Forrest Gallery
Tullahoma, TN
Land 1987
Buildings
The Galleria
Wrightsville Beach, NC
Land 1986, 1990
Buildings &1996
Lawrence Commons
Lawrenceburg, TN
Land 1987
Buildings
Pine Ridge Square
Coral Springs, FL
Land 1986
Buildings
Plaza North
Hendersonville, NC
Land 1986
Buildings
Providence Square
Charlotte, NC
Land 1973
Buildings
Riverside Square (1)
Coral Springs, FL
Land 1998
Buildings
Riverview Shopping Center
Durham, NC
Land 1973 &
Buildings 1994
Salisbury Marketplace
Salisbury, NC
Land 1987
Buildings
Shelby Plaza
Shelby, NC
Land 1972
Buildings
Shoppes at Lago Mar
Miami, FL
Land 1995
Buildings
Smyrna Village
Smyrna, TN
Land 1992
Buildings
Stanley Market Place
Stanley, NC
Land 1980 &
Buildings 1991
Tamarac Town Square (1)
Tamarac, FL
Land 1998
Buildings
Treasure Coast
Vero Beach, FL
Land 1998
Buildings
Unigold Shopping Center
Orlando, FL
Land 1987
Buildings
Williamsburg at Dunwoody
Dunwoody, GA
Land 1983
Buildings
Willowdaile Shopping Center
Durham, NC
Land 1986
Buildings
<FN>
(1) Contributed by unaffiliated limited partners.
21
SCHEDULE III - CONTINUED
Real estate activity is summarized as follows:
2001 2000 1999
--------- -------- ---------
RENTAL PROPERTIES:
Cost -
Balance at beginning of year $161,213 $147,123 $139,936
Acquisitions and improvements 17,510 14,090 11,113
--------- -------- ---------
178,723 161,213 151,049
Cost of properties sold (5,953) - (3,926)
--------- -------- ---------
Balance at end of year $172,770 $161,213 $147,123
Accumulated depreciation -
Balance at beginning of year $ 24,099 $ 20,518 $ 19,099
Depreciation 3,895 3,581 3,350
--------- -------- ---------
27,994 24,099 22,449
Accumulated depreciation related to
rental properties sold (849) - (1,931)
--------- -------- ---------
Balance at end of year $ 27,145 $ 24,099 $ 20,518
========= ======== =========
22
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: December 9, 2002 /s/ Thomas H. McAuley
- ----- ------------------ ------------------------
Thomas H. McAuley
President & Chief Executive Officer
Date: December 9, 2002 /s/ James G. Levy
- ----- ------------------ --------------------
James G. Levy
Executive Vice President &
Chief Financial Officer
23
(c) Exhibits
Exhibit Number Description
-------------- -----------------------------------------------------
23 Consent of Deloitte & Touche LLP to the incorporation
of their report included in this Form 8-K in LP's
previously filed Registration Statements File Nos.
333-64628, 333-59938, 333-64742, 333-66780, 333-62435,
333-38847, 333-53638 and 333-59366.
24