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 September 30, 2001
----------------------
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 PROPERTY COMPANY
--------------------
(Exact name of registrant as specified in its charter)
Georgia 58-1366611
-------------------------------- ------------------------------------
(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
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(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 [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at November 13, 2001
------------------------------ ------------------------------------
Common Stock, $1 Par Value 30,489,489 Shares
1
CERTAIN INFORMATION CONTAINED IN THIS REPORT CONTAINS FORWARD-LOOKING
STATEMENTS, WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933 AND
SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. READERS OF THIS
REPORT SHOULD BE AWARE THAT THERE ARE VARIOUS FACTORS THAT COULD CAUSE ACTUAL
RESULTS TO DIFFER MATERIALLY FROM ANY FORWARD-LOOKING STATEMENTS MADE HEREIN.
THIS INFORMATION IS FURTHER QUALIFIED BY THE SPECIAL CAUTIONARY NOTICE REGARDING
FORWARD-LOOKING STATEMENTS AND THE INFORMATION IN THE SECTION ENTITLED "RISK
FACTORS" CONTAINED IN THE IRT PROPERTY COMPANY ANNUAL REPORT ON FORM 10-K FOR
THE YEAR ENDED DECEMBER 31, 2000, WHICH ARE INCORPORATED HEREIN BY REFERENCE.
2
Item 1. Financial Statements
IRT PROPERTY COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share and per share amounts)
September 30, December 31,
2001 2000
--------------- --------------
(Unaudited)
ASSETS
Real estate investments:
Rental properties $ 645,449 $ 632,337
Properties under development 15,110 679
--------------- --------------
660,559 633,016
Accumulated depreciation (105,603) (96,183)
--------------- --------------
Net rental properties 554,956 536,833
Equity investment in and advances to unconsolidated affiliates - 17,342
Net investment in direct financing leases 2,207 4,245
Mortgage loans, net 4,735 4,313
--------------- --------------
Net real estate investments 561,898 562,733
Cash and cash equivalents 1,562 831
Prepaid expenses and other assets 13,028 10,996
--------------- --------------
Total assets $ 576,488 $ 574,560
=============== ==============
LIABILITIES & SHAREHOLDERS' EQUITY
Liabilities:
Mortgage notes payable, net $ 135,359 $ 116,509
7.3% convertible subordinated debentures, net 23,275 23,275
Senior notes, net 124,750 124,714
Indebtedness to banks 36,000 55,000
Accrued interest 2,850 3,612
Accrued expenses and other liabilities 11,854 8,316
--------------- --------------
Total liabilities 334,088 331,426
Commitments and contingencies (Note 11)
Minority interest payable 7,815 7,981
Shareholders' equity:
Preferred stock, $1 par value, authorized 10,000,000 shares;
none issued - -
Common stock, $1 par value, 150,000,000 shares authorized;
33,234,206 shares issued in 2001 and 2000, respectively 33,234 33,234
Additional paid-in capital 272,145 272,040
Deferred compensation/stock loans (1,762) (1,850)
Treasury stock, at cost, 2,746,717 and 2,889,276 shares
in 2001 and 2000, respectively (22,818) (23,883)
Cumulative distributions in excess of net earnings (46,214) (44,388)
--------------- --------------
Total shareholders' equity 234,585 235,153
--------------- --------------
Total liabilities and shareholders' equity $ 576,488 $ 574,560
=============== ==============
The accompanying notes are an integral part of these
consolidated balance sheets.
3
IRT PROPERTY COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
For the Three and Nine Months Ended September 30, 2001 and 2000
(Unaudited)
(In thousands, except per share amounts)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ ------------------
2001 2000 2001 2000
-------- -------- -------- --------
REVENUES:
Income from rental properties $21,463 $21,333 $63,983 $63,379
Interest income 92 287 372 767
Interest on direct financing leases 51 118 335 416
Gain on sale of outparcel 258 - 1,003 -
-------- -------- -------- --------
Total revenues 21,864 21,738 65,693 64,562
-------- -------- -------- --------
EXPENSES:
Operating expenses of rental properties 5,241 4,914 15,929 14,707
Interest expense 5,723 5,499 17,202 16,301
Depreciation 3,826 3,800 11,348 10,910
Amortization of debt costs 165 133 477 399
General and administrative 1,076 1,132 3,159 2,800
-------- -------- -------- --------
Total expenses 16,031 15,478 48,115 45,117
Equity in loss of unconsolidated affiliates - (16) (4) (50)
-------- -------- -------- --------
Earnings before income taxes, minority interest
and gain on sales of properties 5,833 6,244 17,574 19,395
Income tax provision - - (53) -
Minority interest of unitholders in operating partnership (117) (143) (422) (459)
Gain on sales of properties - 644 2,498 3,382
-------- -------- -------- --------
NET EARNINGS $ 5,716 $ 6,745 $19,597 $22,318
======== ======== ======== ========
PER SHARE:
Net earnings -- basic $ 0.19 $ 0.21 $ 0.65 $ 0.70
======== ======== ======== ========
Net earnings -- diluted $ 0.19 $ 0.21 $ 0.64 $ 0.69
======== ======== ======== ========
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING:
Basic 30,388 31,408 30,294 31,821
======== ======== ======== ========
Diluted 31,339 32,255 31,191 34,720
======== ======== ======== ========
The accompanying notes are an integral part of these consolidated statements.
4
IRT PROPERTY COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended September 30, 2001 and 2000
(Unaudited)
(In thousands)
Nine Months Ended
September 30,
--------------------
2001 2000
--------- ---------
Cash flows from operating activities:
Net earnings $ 19,597 $ 22,318
Adjustments to reconcile earnings to net cash from operating activities:
Depreciation 11,348 10,910
Gain on sale of operating properties (2,498) (3,382)
Gain on sale of outparcels (1,003) -
Minority interest of unitholders in partnership (153) (117)
Straight line rent adjustment (370) (83)
Amortization of deferred compensation 88 93
Amortization of debt costs and discounts 501 399
Amortization of capitalized leasing income 119 117
Changes in assets and liabilities:
Decrease in accrued interest on debentures and senior notes (762) -
Increase in interest receivable, prepaid expenses and other assets (882) (2,004)
Increase in accrued expenses and other liabilities 2,472 1,728
--------- ---------
Net cash flows from operating activities 28,457 29,979
--------- ---------
Cash flows used in investing activities:
Additions to operating properties, net (12,143) (5,917)
Additions to development properties, net (6,451) -
Proceeds from sales of operating properties, net 11,260 12,446
Proceeds from sale of outparcels, net 1,330 -
Investment in unconsolidated affiliates - (4,392)
Purchase of unconsolidated affiliate, net of assets acquired 177 -
Distribution from dissolution of unconsolidated affiliate 21 -
Funding of mortgage loans (445) (3,072)
Collections of mortgage loans, net 23 7
--------- ---------
Net cash flows used in investing activities (6,228) (928)
--------- ---------
Cash flows used in financing activities:
Cash dividends, net (21,422) (22,180)
Purchase of treasury stock (405) (13,272)
Exercise of stock options 1,561 172
Proceeds from mortgage notes payable 20,740 -
Principal amortization of mortgage notes payable (1,890) (1,546)
Repayment of mortgage notes payable - (3,520)
Proceeds from 7.77% senior notes issuance 50,000 -
Repayment of 7.45% senior notes (50,000) -
Increase (decrease) in bank indebtedness (19,000) 10,823
Payment of deferred financing costs (1,082) -
--------- ---------
Net cash flows used in financing activities (21,498) (29,523)
--------- ---------
Net increase (decrease) in cash and cash equivalents 731 (472)
Cash and cash equivalents at beginning of period 831 514
--------- ---------
Cash and cash equivalents at end of period $ 1,562 $ 42
========= =========
Supplemental disclosures of cash flow information:
Total cash paid during period for interest $ 18,887 $ 17,111
========= =========
The accompanying notes are an integral part of these consolidated statements.
5
IRT PROPERTY COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 2001 and 2000
(Dollars in thousands, except per share amounts)
1. Unaudited Financial Statements
These consolidated financial statements for interim periods are unaudited
and should be read in conjunction with the Company's Report on Form 10-K for the
year ended December 31, 2000. The accompanying consolidated financial
statements include the accounts of IRT Property Company and its wholly-owned
subsidiaries, IRT Management Company ("IRTMC"), VW Mall, Inc., IRT Alabama, Inc.
("IRTAL") and IRT Capital Corporation II ("IRTCCII"), and its majority-owned
subsidiary, IRT Partners L.P. ("LP") (collectively, the "Company").
Intercompany transactions and balances have been eliminated in the
consolidation. In the opinion of management, all adjustments (which include
only normal recurring adjustments) necessary to a fair presentation of the
financial statements as of September 30, 2001 and 2000 have been recorded. The
results of operations for the interim periods presented are not necessarily
indicative of the results that may be expected for future interim periods or for
the full year.
As of December 31, 2000, the Company's investment in IRT Capital
Corporation ("IRTCC") and IRTCCII was accounted for under the equity method of
accounting. In January 2001, IRTCC was dissolved and the Company's investment
in IRTCC was eliminated. In March 2001, the Company purchased the remaining
voting and non-voting common stock of IRTCCII, making IRTCCII a wholly-owned
subsidiary. See Note 9.
2. Investment in and Advances to Unconsolidated Affiliates
As of September 30, 2001, LP, IRTCCII, IRTAL and IRTMC guaranteed the
Company's indebtedness under the Company's existing unsecured revolving term
loan and its other senior debt. The guarantees are joint and several and full
and unconditional.
6
GUARANTORS
-------------------------------- CONSOLIDATED
IRT PROPERTY COMBINED IRT ELIMINATING IRT PROPERTY
COMPANY SUBSIDIARIES(1) PARTNERS, LP ENTRIES COMPANY
-------------- ---------------- -------------- ------------- --------------
AS OF SEPTEMBER 30, 2001
ASSETS
Net rental properties $ 391,249 $ 26,179 $ 137,528 $ - $ 554,956
Investment in affiliates 115,414 - - (115,414) -
Other assets 37,753 30,569 24,735 (71,525) 21,532
-------------- ---------------- -------------- ------------- --------------
Total assets 544,416 56,748 162,263 (186,939) 576,488
============== ================ ============== ============= ==============
LIABILITIES
Mortgage notes payable 93,602 4,113 37,644 - 135,359
Senior Notes, net 124,750 - - - 124,750
Indebtedness to banks 36,000 - - - 36,000
Other liabilities 83,871 22,492 3,140 (63,709) 45,794
-------------- ---------------- -------------- ------------- --------------
Total liabilities 338,223 26,605 40,784 (63,709) 341,903
-------------- ---------------- -------------- ------------- --------------
SHAREHOLDERS' EQUITY
Total shareholders' equity 206,193 30,143 121,479 (123,230) 234,585
-------------- ---------------- -------------- ------------- --------------
Total liabilities and shareholders' equity $ 544,416 $ 56,748 $ 162,263 $ (186,939) $ 576,488
============== ================ ============== ============= ==============
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2001
REVENUES
Income from rental properties $ 15,199 $ 322 $ 5,942 $ - $ 21,463
Interest Income 190 - 158 (256) 92
Interest on direct financing leases 51 - - - 51
Other income 284 2,477 - (2,503) 258
-------------- ---------------- -------------- ------------- --------------
Total revenues 15,724 2,799 6,100 (2,759) 21,864
-------------- ---------------- -------------- ------------- --------------
EXPENSES
Operating expenses of rental properties 3,636 82 1,523 - 5,241
Interest expense 5,054 193 732 (256) 5,723
Depreciation 2,809 63 954 - 3,826
Amortization of debt costs 161 1 3 - 165
General and administrative 746 62 268 - 1,076
-------------- ---------------- -------------- ------------- --------------
Total expenses 12,406 401 3,480 (256) 16,031
-------------- ---------------- -------------- ------------- --------------
Equity in earnings (losses) of affiliates 2,398 - - (2,398) -
-------------- ---------------- -------------- ------------- --------------
Earnings before income taxes, minority
interest and gain on sales of properties 5,716 2,398 2,620 (4,901) 5,833
Minority interest in operating partnership - - - (117) (117)
-------------- ---------------- -------------- ------------- --------------
Net Earnings $ 5,716 $ 2,398 $ 2,620 $ (5,018) $ 5,716
============== ================ ============== ============= ==============
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001
REVENUES
Income from rental properties $ 45,498 $ 945 $ 17,540 $ - $ 63,983
Interest Income 899 - 328 (855) 372
Interest on direct financing leases 335 - - - 335
Other income 327 8,888 293 (8,505) 1,003
-------------- ---------------- -------------- ------------- --------------
Total revenues 47,059 9,833 18,161 (9,360) 65,693
-------------- ---------------- -------------- ------------- --------------
EXPENSES
Operating expenses of rental properties 11,088 218 4,623 - 15,929
Interest expense 15,534 479 2,044 (855) 17,202
Depreciation 8,312 153 2,883 - 11,348
Amortization of debt costs 469 2 6 - 477
General and administrative 2,223 170 762 4 3,159
-------------- ---------------- -------------- ------------- --------------
Total expenses 37,626 1,022 10,318 (851) 48,115
-------------- ---------------- -------------- ------------- --------------
Equity in earnings (losses) of affiliates 8,758 - - (8,762) (4)
-------------- ---------------- -------------- ------------- --------------
Earnings before income taxes, minority
interest and gain on sales of properties 18,191 8,811 7,843 (17,271) 17,574
Income tax provision - (53) - - (53)
Minority interest in operating partnership - - - (422) (422)
Gain on sales of properties 1,390 - 1,108 - 2,498
-------------- ---------------- -------------- ------------- --------------
Net Earnings $ 19,581 $ 8,758 $ 8,951 $ (17,693) $ 19,597
============== ================ ============== ============= ==============
Net cash flows provided by (used in)
operating activities $ 19,796 $ 7,738 $ 10,666 $ (9,743) $ 28,457
============== ================ ============== ============= ==============
Net cash flows (used in) provided by
investing activities $ (2,481) $ (2,589) $ (1,843) $ 685 $ (6,228)
============== ================ ============== ============= ==============
Net cash flows (used in) provided by
financing activities $ (11,172) $ (4,918) $ (14,466) $ 9,058 $ (21,498)
============== ================ ============== ============= ==============
7
GUARANTORS
--------------------------------------------------
IRT PROPERTY COMBINED IRT IRT CAPITAL
COMPANY SUBSIDIARIES(1) PARTNERS, LP CORPORATION II
-------------- ---------------- -------------- ----------------
AS OF DECEMBER 31, 2000
ASSETS
Net rental properties $ 394,144 $ 5,575 $ 137,114 $ 17,989
Investment in affiliates 127,364 - - -
Other assets 29,444 21,720 8,700 397
-------------- ---------------- -------------- ----------------
Total assets 550,952 27,295 145,814 18,386
============== ================ ============== ================
LIABILITIES
Mortgage notes payable 81,741 4,173 30,595 -
Senior Notes, net 124,714 - - -
Indebtedness to banks 55,000 - - -
Other liabilities 54,344 1,319 8,320 18,396
-------------- ---------------- -------------- ----------------
Total liabilities 315,799 5,492 38,915 18,396
-------------- ---------------- -------------- ----------------
SHAREHOLDERS' EQUITY
Total shareholders' equity 235,153 21,803 106,899 (10)
-------------- ---------------- -------------- ----------------
Total liabilities and shareholders' equity $ 550,952 $ 27,295 $ 145,814 $ 18,386
============== ================ ============== ================
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2000
REVENUES
Income from rental properties $ 16,113 $ 171 $ 5,049 $ 21
Interest Income 217 - 70 -
Interest on direct financing leases 118 - - -
Other income 20 1,846 - -
-------------- ---------------- -------------- ----------------
Total revenues 16,468 2,017 5,119 21
-------------- ---------------- -------------- ----------------
EXPENSES
Operating expenses of rental properties 3,527 30 1,357 21
Interest expense 4,822 68 609 -
Depreciation 2,908 19 873 7
Amortization of debt costs 132 1 - -
General and administrative 860 1 271 9
-------------- ---------------- -------------- ----------------
Total expenses 12,249 119 3,110 37
-------------- ---------------- -------------- ----------------
Equity in earnings (losses) of affiliates 1,881 - - -
-------------- ---------------- -------------- ----------------
Earnings before minority interest and gain
on sales of properties 6,100 1,898 2,009 (16)
Minority interest in operating partnership - - - -
Gain on sales of properties 644 - - -
-------------- ---------------- -------------- ----------------
Net Earnings $ 6,744 $ 1,898 $ 2,009 $ (16)
============== ================ ============== ================
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000
REVENUES
Income from rental properties $ 47,647 $ 508 $ 15,224 $ 96
Interest Income 463 - 304 -
Interest on direct financing leases 416 - - -
Other income 64 5,920 - -
-------------- ---------------- -------------- ----------------
Total revenues 48,590 6,428 15,528 96
-------------- ---------------- -------------- ----------------
EXPENSES
Operating expenses of rental properties 10,623 94 3,990 68
Interest expense 14,260 206 1,835 -
Depreciation 8,234 57 2,619 22
Amortization of debt costs 397 2 - -
General and administrative 2,156 3 641 53
-------------- ---------------- -------------- ----------------
Total expenses 35,670 362 9,085 143
-------------- ---------------- -------------- ----------------
Equity in earnings (losses) of affiliates 6,014 - - -
-------------- ---------------- -------------- ----------------
Earnings before minority interest and gain
on sales of properties 18,934 6,066 6,443 (47)
Minority interest in operating partnership - - - -
Gain on sales of properties 3,382 - - -
-------------- ---------------- -------------- ----------------
Net Earnings $ 22,316 $ 6,066 $ 6,443 $ (47)
============== ================ ============== ================
Net cash flows provided by (used in)
operating activities $ 16,465 $ 5,827 $ 8,450 $ (107)
============== ================ ============== ================
Net cash flows provided by (used in)
investing activities $ 7,816 $ - $ (2,301) $ (6,793)
============== ================ ============== ================
Net cash flows (used in) provided by
financing activities $ (28,602) $ (5,813) $ (2,298) $ 6,942
============== ================ ============== ================
CONSOLIDATED
IRT CAPITAL ELIMINATING IRT PROPERTY
CORPORATION I ENTRIES COMPANY
--------------- ------------- --------------
AS OF DECEMBER 31, 2000
ASSETS
Net rental properties $ - $ (17,989) $ 536,833
Investment in affiliates - (110,022) 17,342
Other assets 31 (39,907) 20,385
--------------- ------------- --------------
Total assets 31 (167,918) 574,560
=============== ============= ==============
LIABILITIES
Mortgage notes payable - - 116,509
Senior Notes, net - - 124,714
Indebtedness to banks - - 55,000
Other liabilities 2 (39,197) 43,184
--------------- ------------- --------------
Total liabilities 2 (39,197) 339,407
--------------- ------------- --------------
SHAREHOLDERS' EQUITY
Total shareholders' equity 29 (128,721) 235,153
--------------- ------------- --------------
Total liabilities and shareholders' equity $ 31 $ (167,918) $ 574,560
=============== ============= ==============
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2000
REVENUES
Income from rental properties $ - $ (21) $ 21,333
Interest Income - - 287
Interest on direct financing leases - - 118
Other income - (1,866) -
--------------- ------------- --------------
Total revenues - (1,887) 21,738
--------------- ------------- --------------
EXPENSES
Operating expenses of rental properties - (21) 4,914
Interest expense - - 5,499
Depreciation - (7) 3,800
Amortization of debt costs - - 133
General and administrative 1 (10) 1,132
--------------- ------------- --------------
Total expenses 1 (38) 15,478
--------------- ------------- --------------
Equity in earnings (losses) of affiliates - (1,897) (16)
--------------- ------------- --------------
Earnings before minority interest and gain
on sales of properties (1) (3,746) 6,244
Minority interest in operating partnership - (143) (143)
Gain on sales of properties - - 644
--------------- ------------- --------------
Net Earnings $ (1) $ (3,889) $ 6,745
=============== ============= ==============
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000
REVENUES
Income from rental properties $ - $ (96) $ 63,379
Interest Income - - 767
Interest on direct financing leases - - 416
Other income - (5,984) -
--------------- ------------- --------------
Total revenues - (6,080) 64,562
--------------- ------------- --------------
EXPENSES
Operating expenses of rental properties - (68) 14,707
Interest expense - - 16,301
Depreciation - (22) 10,910
Amortization of debt costs - - 399
General and administrative 5 (58) 2,800
--------------- ------------- --------------
Total expenses 5 (148) 45,117
--------------- ------------- --------------
Equity in earnings (losses) of affiliates - (6,064) (50)
--------------- ------------- --------------
Earnings before minority interest and gain
on sales of properties (5) (11,996) 19,395
Minority interest in operating partnership - (459) (459)
Gain on sales of properties - - 3,382
--------------- ------------- --------------
Net Earnings $ (5) $ (12,455) $ 22,318
=============== ============= ==============
Net cash flows provided by (used in)
operating activities $ (3) $ (653) $ 29,979
=============== ============= ==============
Net cash flows provided by (used in)
investing activities $ - $ 350 $ (928)
=============== ============= ==============
Net cash flows (used in) provided by
financing activities $ - $ 248 $ (29,523)
=============== ============= ==============
NOTES:
(1) As of September 30, 2001 and for the three and nine months ended September 30, 2001, includes IRTMC, IRTAL, and
IRTCCII. As of December 31, 2000 and for the three and nine months ended September 30, 2000, includes IRTMC
and IRTAL.
8
3. Earnings Per Share
Basic earnings per share is computed by dividing net earnings by the
weighted average number of shares outstanding during the period. The effects of
the conversion of the operating partnership units held by the minority interest
are dilutive for the three and nine months ended September 30, 2001 and 2000 and
have been included in the calculation of diluted earnings per share for those
periods. For the nine months ended September 30, 2000, the effects of the
conversion of the 7.3% debentures have been included in the calculation of
diluted earnings per share as they are dilutive. The effects of the conversion
of such debentures have been excluded from the calculation of diluted earnings
per share for the three and nine months ended September 30, 2001 and the three
months ended September 30, 2000 as they were anti-dilutive for those periods.
The effects of certain stock options and non-vested restricted stock, using the
treasury stock method, have been included in the calculation of diluted earnings
per share, as they are dilutive for all periods presented.
Per Share
Income Shares Amount
------- ------ ---------
(In thousands except per share amounts)
For the three months ended September 30, 2001
----------------------------------------------------------
Basic net earnings available to shareholders $ 5,716 30,388 $ 0.19
=======
Options outstanding - 106
Restricted Stock - 29
Minority interest of unitholders in operating partnership 117 816
------- ------
Diluted net earnings available to shareholders $ 5,833 31,339 $ 0.19
======= ====== =======
For the three months ended September 30, 2000
----------------------------------------------------------
Basic net earnings available to shareholders $ 6,745 31,408 $ 0.21
=======
Options outstanding - 31
Minority interest of unitholders in operating partnership 143 816
------- ------
Diluted net earnings available to shareholders $ 6,888 32,255 $ 0.21
======= ====== =======
For the nine months ended September 30, 2001
----------------------------------------------------------
Basic net earnings available to shareholders $19,597 30,294 $ 0.65
=======
Options outstanding - 78
Restricted Stock - 3
Minority interest of unitholders in operating partnership 422 816
------- ------
Diluted net earnings available to shareholders $20,019 31,191 $ 0.64
======= ====== =======
For the nine months ended September 30, 2000
----------------------------------------------------------
Basic net earnings available to shareholders $22,318 31,821 $ 0.70
=======
Options outstanding - 14
Minority interest of unitholders in operating partnership 459 816
Conversion of 7.3% debentures 1,349 2,069
------- ------
Diluted net earnings available to shareholders $24,126 34,720 $ 0.69
======= ====== =======
9
4. Rental Properties
ACQUISITIONS
Date Square Year % Leased Total Initial
Acquired Property Name City, State Footage Built at Acquisition Cost Cash Paid
------------ ------------------------- -------------------- ------- ------- ---------------- ------------- ----------
4/12/01 Unigold Shopping Center Orlando, FL 102,985 1987 97% $8,000 $ 7,903
=============================================================================================================================
DISPOSITIONS
Date Square Sales Net Gain
Sold Property Name City, State Footage Price Proceeds (Loss)
------------ ------------------------- -------------------- ------- ------- --------- -------
4/18/01 Eden Center Eden, NC 56,355 $ 3,950 $ 3,830 $ 742
5/4/01 Old Phoenix National Bank Medina County, Ohio 73,074 3,500 3,465 1,525
5/31/01 Chadwick Square Hendersonville, NC 32,100 2,401 2,351 366
6/8/01 Ft. Walton Beach Plaza Ft. Walton Beach, FL 48,248 1,650 1,300 (135)
------- ------- --------- -------
209,777 $11,501 $ 10,946 $2,498
======= ======= ========= =======
In connection with the sale of Ft. Walton Beach Plaza, the Company received
a note for a second mortgage in the amount of $250. The note bears interest at
7.0%, payable monthly, and the entire principal balance of the note is due on
July 1, 2003.
Old Phoenix National Bank was classified and accounted for as a direct
financing lease.
5. Development Properties
On September 14, 2001, the Company purchased a 14.1 acre site, for $3,500,
in Lawrenceville, Georgia for the development of the Shops of Huntcrest. The
Company immediately started development of the 97,000 square foot shopping
center, anchored by a 54,340 square foot Publix, and expects completion by
September, 2002.
6. Mortgage Notes Payable
On April 19, 2001, the Company obtained non-recourse, secured loans
totaling $20,740, on three shopping centers at a weighted average fixed interest
rate of 7.17%. The loans are due and payable in ten years and the principal
amortization is based on a thirty year amortization schedule. Costs associated
with obtaining the secured loans totaled $366 and are being amortized over the
term of the loan.
7. 7.3% Convertible Subordinated Debentures
Based upon the $11.25 conversion price, 2,068,889 authorized but unissued
common shares have been reserved for possible issuance if the remaining $23,275
of debentures outstanding on June 30, 2001 are converted.
10
8. Senior Notes
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, pursuant to which the Company may from time to time issue and sell
up to $100,000 of medium term notes (the "Medium Term Notes"). The 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. Interest on these senior notes is
payable semi-annually on April 1 and October 1. Costs associated with the
issuance of these senior notes totaled approximately $672 and are being
amortized over the life of the notes. Proceeds of these notes were used to repay
the $50,000 of 7.45% senior notes that matured April 1, 2001.
9. Investment in Joint Venture
IRTCCII, a taxable subsidiary, was formed under the laws of Georgia in
1999. IRTCCII has the ability to develop properties, buy and sell properties,
provide equity to developers and perform third party management, leasing and
brokerage. As of December 31, 2000, the Company accounted for IRTCCII under the
equity method of accounting, as the Company held 96% of the non-voting common
stock and 1% of the voting common stock. The remaining voting common stock was
held by an officer and a director of the Company. In March, 2001, the Company
purchased the remaining non-voting and voting common stock from such officer and
director for approximately $2, which was the initial investment amount of such
officer and director. As a result, as of September 30, 2001, IRTCCII is a
wholly-owned taxable subsidiary of the Company.
10. Treasury Stock
On January 16, 2001, the Company completed the $25,000 stock repurchase
program authorized by the Board of Directors in November 1999. The Company
repurchased a total of 3,028,276 shares at an average price of $8.26 per share.
11. Commitments and Contingencies
Certain of the Company's properties have environmental concerns that have
been or are being addressed. The Company maintains limited insurance coverage
for this type of environmental risk. Although no assurance can be given that
Company 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 the Company's
financial position.
11
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
(Dollars in thousands)
Material Changes in Financial Condition.
During the nine months ended September 30, 2001, the Company obtained
cash proceeds of:
- approximately $50,000 from the issuance of the 7.77% senior unsecured
notes,
- approximately $20,740 from obtaining non-recourse, secured loans on three
shopping centers at a weighted average fixed interest rate of 7.17%,
- approximately $11,260 upon the sales of four properties and recognized a
gain of approximately $2,498 for financial reporting purposes,
- approximately $1,330 upon the sales of three outparcels and recognized a
gain of approximately $1,003 for financial reporting purposes, and
- approximately $177, net of assets acquired, in the purchase of IRTCCII
stock.
During the nine months ended September 30, 2001, the Company utilized
funds of:
- approximately $21,422 to pay dividends to the holders of the Company's
common stock,
- approximately $405 to repurchase outstanding shares of the Company's
common stock,
- approximately $6,451 for development of land and properties,
- approximately $4,240 for capital expenditures relating to operating
properties,
- approximately $7,903 for the acquisition of a shopping center investment,
- approximately $50,000 to repay the 7.45% senior unsecured notes,
- approximately $1,082 for deferred financing costs in connection with the
issuance of the 7.77% Senior Notes and the $20,740 of secured loans, and
- approximately $19,000 to repay a portion of the outstanding balance of the
unsecured line of credit.
During the nine months ended September 30, 2000, the Company:
- obtained cash proceeds of approximately $12,446 from the sale of three
properties and recognized a gain of approximately $3,382 for financial
reporting purposes.
12
During the nine months ended September 30, 2000, the Company utilized
funds of:
- approximately $22,180, net of approximately $334 due to the Company's
dividend reinvestment program, to pay dividends to the holders of the
Company's common stock,
- approximately $13,272 to repurchase 1,580,401 shares of the Company's
common stock pursuant to the Company's stock repurchase program,
- approximately $3,520 to repay a 7.75% mortgage at its scheduled maturity,
- approximately $3,072 to fund a loan for a co-development project,
- approximately $5,917 for capital expenditures and tenant improvements, and
- approximately $4,305 for advances to IRTCCII for further development of
land and properties acquired in 1999 and 2000.
Material Changes in Results of Operations.
During the three and nine months ended September 30, 2001, rental income
from the Company's portfolio of shopping center investments:
- decreased approximately $285 and $36, respectively, for the core
portfolio,
- increased approximately $805 and $2,078, respectively, due to the
acquisition of a shopping center in 2000 and one in the second quarter of
2001, and
- decreased approximately $390 and $1,438, respectively, due to sales of
three investments in 2001 and five investments in 2000.
During the three and nine months ended September 30, 2000, compared to the
corresponding periods of 1999, rental income from the Company's portfolio of
shopping center investments:
- increased approximately $1,187 and $1,645, respectively, for the core
portfolio, including a one time lease termination payment of $1,189, and a
one-time write-off of $223 of accounts receivable,
- increased approximately $29 and $531, respectively, due to the acquisition
of two shopping centers in the first quarter of 1999, and
- decreased approximately $416 and $1,446, respectively, due to sales of two
investments in the first quarter of 2000, one sale during the third
quarter of 2000, and four in the second quarter of 1999.
Percentage rentals received from shopping center investments, excluding
percentage rentals received from the two Wal-Mart investments classified as
direct financing leases, totaled approximately $57 and $133 during the three
months ended September 30, 2001 and 2000, respectively, and $874 and $953 during
the nine months ended September 30, 2001 and 2000, respectively. Percentage
rental income is recorded upon collection based on the tenants' lease year end.
13
Interest income during the three and nine months ended September 30, 2001
decreased $195 and $395, respectively, due primarily to the interest charged to
previously unconsolidated affiliates offset by interest accrued on development
loans.
During the three and nine months ended September 30, 2001, operating
expenses related to the Company's portfolio of real estate investments:
- increased approximately $198 and $874, respectively, for the core
portfolio,
- increased approximately $224 and $591, respectively, due to the
acquisition of a shopping center in 2000 and one in the second quarter of
2001, and
- decreased approximately $95 and $243 due to sales of three investments in
2001 and five investments in 2000.
During the three and nine months ended September 30, 2000, operating
expenses related to the Company's portfolio of real estate investments:
- increased approximately $193 and $584, respectively, for the core
portfolio,
- increased approximately $32 and $156, respectively, due to the acquisition
of two shopping centers in the first quarter of 1999, and
- decreased approximately $136 and $449, respectively, due to the sale of
two properties in the first quarter of 2000, one property in the third
quarter of 2000, and four in the second quarter of 1999.
During the three and nine months ended September 30, 2001, interest expense
on mortgages increased approximately $333 and $529 primarily due to the addition
in the second quarter of 2001 of the non-recourse, secured loans totaling
$20,740, on three shopping centers at a weighted average fixed interest rate of
7.17%. The loans are due and payable in ten years and principal amortization is
based on a thirty year amortization schedule.
Interest expense on bank indebtedness decreased approximately $156 for the
three months ended and increased $290 for the nine months ended September 30,
2001, respectively. The Company had average borrowings of approximately $34,605
and $24,846 at effective interest rates of 4.56% and 7.92%, under its bank
credit facility during the three months ended September 30, 2001 and 2000,
respectively. The Company had average borrowings of approximately $33,040 and
$22,131 at effective interest rates of 6.85% and 7.51% for the nine months ended
September 30, 2001 and 2000, respectively. The Company incurred commitment fees
of approximately $161 and $151 for the nine months ended September 30, 2001 and
2000, respectively, which are included in this interest expense.
The net increase of $26 and $438 in depreciation expense for the three and
nine months ended September 30, 2001 was due to the acquisition of a real estate
investment in the fourth quarter of 2000 and one in the second quarter of 2001,
net of the effect of the disposition of three properties in the second quarter
of 2001 and five properties in 2000.
The net decrease in general and administrative expense of approximately $56
for the three months ended September 30, 2001 was primarily due to the closing
of a regional office in the second quarter of 2001 and increase of approximately
$359 for the nine months ended September 30, 2001 was primarily due to an
increase in employment expenditures related to development activities.
14
Funds from Operations. The Company defines funds from operations,
-----------------------
consistent with the National Association of Real Estate Investment Trust's
("NAREIT") definition of such term, as net earnings on real estate less gains
(losses) on sales of properties and extraordinary items plus depreciation and
amortization of capitalized leasing costs. Interest and amortization of
issuance costs related to convertible subordinated debentures and minority
interest expenses ("OP Units") are added back to funds from operations when
assumed conversion of the debentures and OP Units is dilutive. Conversion of the
debentures and OP Units is dilutive and therefore assumed for the three and nine
months ended September 30, 2001 and 2000. Management believes funds from
operations should be considered along with, but not as an alternative to, net
income as defined by generally accepted accounting principles as a measure of
the Company's operating performance. Funds from operations does not represent
cash generated from operating activities in accordance with generally accepted
accounting principles and is not necessarily indicative of cash available to
fund cash needs.
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- --------------------
2001 2000 2001 2000
------- -------- -------- --------
NET EARNINGS $ 5,716 $ 6,745 $19,597 $22,318
Gain on sales of properties - (644) (2,498) (3,382)
Depreciation * 3,770 3,724 11,160 10,723
Amortization of capitalized leasing fees * 319 211 914 582
Amortization of capitalized leasing income 32 44 120 117
------- -------- -------- --------
FUNDS FROM OPERATIONS 9,837 10,080 29,293 30,358
Interest on convertible debentures 425 425 1,274 1,274
Amortization of convertible debenture costs 25 25 75 75
Amounts attributable to minority interests 177 209 624 656
------- -------- -------- --------
FULLY DILUTED FUNDS FROM OPERATIONS $10,464 $10,739 $31,266 $32,363
======= ======== ======== ========
FULLY DILUTED FUNDS FROM OPERATIONS PER SHARE $ 0.31 $ 0.31 $ 0.94 $ 0.93
======= ======== ======== ========
APPLICABLE WEIGHTED AVERAGE SHARES 33,407 34,324 33,260 34,720
======= ======== ======== ========
* Net of amounts attributable to minority interests
Additional Information: The following data is presented with respect to amounts
incurred for improvements to the Company's real estate investments, for the
straight line rent adjustment, for leasing fees paid and for principal
amortization of mortgage notes payable during the three and nine months ended
September 30, 2001 (in thousands).
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
2001 2000 2001 2000
----- ------ ------ ------
Straight line rent adjustment $ 99 $ 52 $ 370 $ 83
===== ====== ====== ======
Revenue-generating capital expenditures
Tenant Improvements - Anchors $ 10 $ 623 $1,651 $1,083
Tenant Improvements - Non anchors 332 470 886 952
----- ------ ------ ------
Total revenue-generating capital expenditures** $ 342 $1,093 $2,537 $2,035
===== ====== ====== ======
Non revenue-generating capital expenditures $ 650 $ 934 $2,164 $2,580
===== ====== ====== ======
Lease fee payments $ 487 $ 414 $1,431 $1,148
===== ====== ====== ======
Scheduled principal amortization $ 665 $ 522 $1,890 $1,547
===== ====== ====== ======
** Includes tenant improvements and capital expenditures to prepare spaces for
leasing. Excludes expansions.
15
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
None.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed by the Company during the quarter
ended September 30, 2001.
16
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
Date: November 13, 2001 /s/ Thomas H. McAuley
----- ------------------- ------------------------
Thomas H. McAuley
President & Chief Executive Officer
Date: November 13, 2001 /s/ James G. Levy
----- ------------------- ------------------------
James G. Levy
Executive Vice President &
Chief Financial Officer
17