1
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 June 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
-------------------------------------------------------------
(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 August 14, 2001
-------------------------- ------------------------------
Common Stock, $1 Par Value 30,472,430 Shares
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2
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.
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Item 1. Financial Statements
IRT PROPERTY COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share and per share amounts)
June 30, December 31,
2001 2000
---------- ------------
(Unaudited)
ASSETS
Real estate investments:
Rental properties $ 644,708 $ 632,337
Properties under development 10,879 679
---------- ----------
655,587 633,016
Accumulated depreciation (101,940) (96,183)
---------- ----------
Net rental properties 553,647 536,833
Equity investment in and advances to unconsolidated affiliates -- 17,342
Net investment in direct financing leases 2,239 4,245
Mortgage loans, net 4,706 4,313
---------- ----------
Net real estate investments 560,592 562,733
Cash and cash equivalents 5,002 831
Prepaid expenses and other assets 12,251 10,996
---------- ----------
Total assets $ 577,845 $ 574,560
========== ==========
LIABILITIES & SHAREHOLDERS' EQUITY
Liabilities:
Mortgage notes payable, net $ 136,024 $ 116,509
7.3% convertible subordinated debentures, net 23,275 23,275
Senior notes, net 124,739 124,714
Indebtedness to banks 36,000 55,000
Accrued interest 3,652 3,612
Accrued expenses and other liabilities 10,560 8,316
---------- ----------
Total liabilities 334,250 331,426
Commitments and contingencies (Note 10)
Minority interest payable 7,889 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 272,115 272,040
Deferred compensation/stock loans (1,791) (1,850)
Treasury stock, at cost, 2,781,136 and 2,889,276 shares
in 2001 and 2000, respectively (23,084) (23,883)
Cumulative distributions in excess of net earnings (44,768) (44,388)
---------- ----------
Total shareholders' equity 235,706 235,153
---------- ----------
Total liabilities and shareholders' equity $ 577,845 $ 574,560
========== ==========
The accompanying notes are an integral part of these
consolidated balance sheets.
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IRT PROPERTY COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
For the Three and Six Months Ended June 30, 2001 and 2000
(Unaudited)
(In thousands, except per share amounts)
Three Months Ended Six Months Ended
June 30, June 30,
------------------------ ------------------------
2001 2000 2001 2000
-------- -------- -------- --------
REVENUES:
Income from rental properties $ 21,266 $ 20,981 $ 42,520 $ 42,046
Interest income 148 265 280 480
Interest on direct financing leases 94 110 284 297
Gain on sale of outparcel 452 -- 745 --
-------- -------- -------- --------
Total revenues 21,960 21,356 43,829 42,823
EXPENSES:
Operating expenses of rental properties 5,362 4,969 10,688 9,793
Interest expense 5,830 5,402 11,479 10,803
Depreciation 3,799 3,538 7,522 7,109
Amortization of debt costs 164 133 312 265
General and administrative 1,113 889 2,083 1,669
-------- -------- -------- --------
Total expenses 16,268 14,931 32,084 29,639
Equity in loss of unconsolidated affiliates -- (23) (4) (34)
-------- -------- -------- --------
Earnings before income taxes, minority interest
and gain on sales of properties 5,692 6,402 11,741 13,150
Income tax provision (53) -- (53) --
Minority interest of unitholders in operating partnership (244) (157) (305) (316)
Gain on sales of properties 2,498 -- 2,498 2,738
-------- -------- -------- --------
NET EARNINGS $ 7,893 $ 6,245 $ 13,881 $ 15,572
======== ======== ======== ========
PER SHARE:
Net earnings -- basic $ 0.26 $ 0.20 $ 0.46 $ 0.49
======== ======== ======== ========
Net earnings -- diluted $ 0.26 $ 0.20 $ 0.45 $ 0.48
======== ======== ======== ========
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING:
Basic 30,281 31,761 30,247 32,030
======== ======== ======== ========
Diluted 32,462 32,587 33,200 34,923
======== ======== ======== ========
The accompanying notes are an integral part of these
consolidated statements.
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IRT PROPERTY COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three and Six Months Ended June 30, 2001 and 2000
(Unaudited)
(In thousands)
Six Months Ended
June 30,
-----------------------------
2001 2000
---------- ----------
Cash flows from operating activities:
Net earnings $ 13,881 $ 15,572
Adjustments to reconcile earnings to net cash from operating activities:
Depreciation 7,522 7,109
Gain on sale of operating properties (2,498) (2,738)
Gain on sale of outparcels (745) --
Minority interest of unitholders in partnership (79) (68)
Straight line rent adjustment (271) (31)
Amortization of deferred compensation 59 61
Amortization of debt costs and discounts 330 285
Amortization of capitalized leasing income 88 74
Changes in assets and liabilities:
Increase in accrued interest on debentures
and senior notes 40 --
Decrease in interest receivable, prepaid expenses
and other assets (48) (372)
Increase in accrued expenses and other liabilities 1,177 1,391
---------- ----------
Net cash flows from operating activities 19,456 21,283
---------- ----------
Cash flows (used in) from investing activities:
Additions to operating properties, net (11,329) (3,382)
Additions to development properties, net (1,989) --
Proceeds from sales of operating properties, net 11,260 11,660
Proceeds from sale of outparcels, net 931 --
Investment in unconsolidated affiliates -- (1,650)
Purchase of unconsolidated affiliate, net of assets acquired 177 --
Distribution from dissolution of unconsolidated affiliate 21 --
Funding of mortgage loans (414) (2,214)
Collections of mortgage loans, net 21 4
---------- ----------
Net cash flows (used in) from investing activities (1,322) 4,418
---------- ----------
Cash flows used in financing activities:
Cash dividends, net (14,261) (14,968)
Purchase of treasury stock (405) (8,318)
Exercise of stock options 1,266 31
Proceeds from mortgage notes payable 20,740
Principal amortization of mortgage notes payable (1,225) (1,024)
Repayment of mortgage notes payable -- (3,520)
Proceeds from 7.77% senior notes issuance 50,000 --
Repayment of 7.45% senior notes (50,000) --
(Decrease) increase in bank indebtedness (19,000) 1,584
Payment of deferred financing costs (1,078) --
---------- ----------
Net cash flows used in financing activities (13,963) (26,215)
---------- ----------
Net increase (decrease) in cash and cash equivalents 4,171 (514)
Cash and cash equivalents at beginning of period 831 514
---------- ----------
Cash and cash equivalents at end of period $ 5,002 $ --
========== ==========
Supplemental disclosures of cash flow information:
Total cash paid during period for interest $ 11,711 $ 10,793
========== ==========
The accompanying notes are an integral part of these consolidated statements.
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IRT PROPERTY COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 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 June 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 8.
2. Investment in and Advances to Unconsolidated Affiliates
As of June 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.
GUARANTORS
------------------------------ CONSOLIDATED
IRT PROPERTY COMBINED IRT ELIMINATING IRT PROPERTY
COMPANY SUBSIDIARIES(1) PARTNERS, LP ENTRIES COMPANY
------------ ---------------- ------------ ----------- ------------
AS OF JUNE 30, 2001
ASSETS
Net rental properties $ 391,033 $ 24,249 $ 138,365 $ -- $ 553,647
Investment in affiliates 115,421 -- -- (115,421) --
Other assets 39,044 27,391 24,156 (66,393) 24,198
--------- --------- ---------- ---------- ----------
Total assets 545,498 51,640 162,521 (181,814) 577,845
========= ========= ========== ========== ==========
LIABILITIES
Mortgage notes payable 94,070 4,134 37,820 -- 136,024
Senior Notes, net 124,739 -- -- -- 124,739
Indebtedness to banks 36,000 -- -- -- 36,000
Other liabilities 80,976 20,302 11,484 (67,386) 45,376
--------- --------- ---------- ---------- ----------
Total liabilities 335,785 24,436 49,304 (67,386) 342,139
--------- --------- ---------- ---------- ----------
SHAREHOLDERS' EQUITY
Total shareholders' equity 209,713 27,204 113,217 (114,428) 235,706
--------- --------- ---------- ---------- ----------
Total liabilities and shareholders' equity $ 545,498 $ 51,640 $ 162,521 $ (181,814) $ 577,845
--------- --------- ---------- ---------- ----------
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GUARANTORS
------------------------------ CONSOLIDATED
IRT PROPERTY COMBINED IRT ELIMINATING IRT PROPERTY
COMPANY SUBSIDIARIES(1) PARTNERS, LP ENTRIES COMPANY
------------ ---------------- ------------ ----------- ------------
FOR THE THREE MONTHS ENDED JUNE 30, 2001
REVENUES
Income from rental properties $ 15,063 $ 344 $ 5,859 $ -- $ 21,266
Interest Income 241 -- 189 (282) 148
Interest on direct financing leases 94 -- -- -- 94
Other income 37 3,846 -- (3,431) 452
--------- --------- ---------- ---------- ----------
Total revenues 15,435 4,190 6,048 (3,713) 21,960
--------- --------- ---------- ---------- ----------
EXPENSES
Operating expenses of rental properties 3,743 71 1,548 -- 5,362
Interest expense 5,186 218 709 (283) 5,830
Depreciation 2,767 63 969 -- 3,799
Amortization of debt costs 160 1 3 -- 164
General and administrative 792 68 253 -- 1,113
--------- --------- ---------- ---------- ----------
Total expenses 12,648 421 3,482 (283) 16,268
--------- --------- ---------- ---------- ----------
Equity in earnings (losses) of affiliates 3,716 -- -- (3,716) --
--------- --------- ---------- ---------- ----------
Earnings before income taxes, minority
interest and gain on sales of properties 6,503 3,769 2,566 (7,146) 5,692
Income tax provision -- (53) -- -- (53)
Minority interest in operating partnership -- -- -- (244) (244)
Gain on sales of properties 1,388 -- 1,108 2 2,498
--------- --------- ---------- ---------- ----------
Net Earnings $ 7,891 $ 3,716 $ 3,674 $ (7,388) $ 7,893
--------- --------- ---------- ---------- ----------
FOR THE SIX MONTHS ENDED JUNE 30, 2001
REVENUES
Income from rental properties $ 30,300 $ 622 $ 11,598 $ -- $ 42,520
Interest Income 709 -- 170 (599) 280
Interest on direct financing leases 284 -- -- -- 284
Other income 43 6,412 293 (6,003) 745
--------- --------- ---------- ---------- ----------
Total revenues 31,336 7,034 12,061 (6,602) 43,829
--------- --------- ---------- ---------- ----------
EXPENSES
Operating expenses of rental properties 7,452 136 3,100 -- 10,688
Interest expense 10,483 286 1,312 (602) 11,479
Depreciation 5,502 91 1,929 -- 7,522
Amortization of debt costs 308 1 3 -- 312
General and administrative 1,478 107 494 4 2,083
--------- --------- ---------- ---------- ----------
Total expenses 25,223 621 6,838 (598) 32,084
--------- --------- ---------- ---------- ----------
Equity in earnings (losses) of affiliates 6,360 -- -- (6,364) (4)
--------- --------- ---------- ---------- ----------
Earnings before income taxes, minority
interest and gain on sales of properties 12,473 6,413 5,223 (12,368) 11,741
Income tax provision -- (53) -- -- (53)
Minority interest in operating partnership -- -- -- (305) (305)
Gain on sales of properties 1,388 -- 1,108 2 2,498
--------- --------- ---------- ---------- ----------
Net Earnings $ 13,861 $ 6,360 $ 6,331 $ (12,671) $ 13,881
========= ========= ========== ========== ==========
Net cash flows provided by (used in) operating
activities $ 13,382 $ 5,717 $ 7,147 $ (6,790) $ 19,456
========= ========= ========== ========== ==========
Net cash flows provided by (used in) investing
activities $ 18,156 $ (597) $ (1,724) $ (17,157) $ (1,322)
========= ========= ========== ========== ==========
Net cash flows provided by (used in) financing
activities $ 10,518 $ (5,155) $ (11,736) $ (7,590) $ (13,963)
--------- --------- ---------- ---------- ----------
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Guarantors
--------------------------------------------------
IRT Property Combined IRT IRT Capital IRT Capital
Company Subsidiaries(1) Partners, LP Corporation II Corporation I
------------ --------------- ------------ -------------- -------------
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 31
--------- -------- --------- -------- ----
Total assets 550,952 27,295 145,814 18,386 31
========= ======== ========= ======== ====
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 2
--------- -------- --------- -------- ----
Total liabilities 315,799 5,492 38,915 18,396 2
--------- -------- --------- -------- ----
SHAREHOLDERS' EQUITY
Total shareholders' equity 235,153 21,803 106,899 (10) 29
--------- -------- --------- -------- ----
Total liabilities and
shareholders' equity $ 550,952 $ 27,295 $ 145,814 $ 18,386 $ 31
========= ======== ========= ======== ====
For the three months ended
June 30, 2000
Revenues
Income from rental properties $ 15,725 $ 166 $ 5,090 $ 39 $ --
Interest Income 156 -- 109 -- --
Interest on direct financing leases 110 -- -- -- --
Other income 22 2,028 -- -- --
--------- -------- --------- -------- ----
Total revenues 16,013 2,194 5,199 39 --
--------- -------- --------- -------- ----
Expenses
Operating expenses of rental properties 3,613 30 1,326 17 --
Interest expense 4,722 68 612 -- --
Depreciation 2,646 19 873 8 --
Amortization of debt costs 133 -- -- -- --
General and administrative 707 1 181 38 1
--------- -------- --------- -------- ----
Total expenses 11,821 118 2,992 63 1
--------- -------- --------- -------- ----
Equity in earnings (losses) of affiliates 2,051 -- -- -- --
--------- -------- --------- -------- ----
Earnings before minority interest
and gain on sales of properties 6,243 2,076 2,207 (24) (1)
Minority interest in operating
partnership -- -- -- -- --
Gain on sales of properties -- -- -- -- --
--------- -------- --------- -------- ----
Net Earnings $ 6,243 $ 2,076 $ 2,207 $ (24) $ (1)
For the six months ended June 30, 2000
Revenues
Income from rental properties $ 31,534 $ 337 $ 10,175 $ 75 $ --
Interest Income 246 -- 234 -- --
Interest on direct financing leases 297 -- -- -- --
Other income 44 4,074 -- -- --
--------- -------- --------- -------- ----
Total revenues 32,121 4,411 10,409 75 --
--------- -------- --------- -------- ----
Expenses
Operating expenses of rental
properties 7,097 64 2,632 47 --
Interest expense 9,439 137 1,227 -- --
Depreciation 5,325 38 1,746 15 --
Amortization of debt costs 264 1 -- -- --
General and administrative 1,296 3 370 44 4
--------- -------- --------- -------- ----
Total expenses 23,421 243 5,975 106 4
--------- -------- --------- -------- ----
Equity in earnings (losses) of affiliates 4,133 -- -- -- --
--------- -------- --------- -------- ----
Earnings before minority interest
and gain on sales of properties 12,833 4,168 4,434 (31) (4)
Minority interest in operating partnership -- -- -- -- --
Gain on sales of properties 2,738 -- -- -- --
--------- -------- --------- -------- ----
Net Earnings $ 15,571 $ 4,168 $ 4,434 $ (31) $ (4)
========= ======== ========= ======== ====
Net cash flows provided by (used in)
operating activities $ 8,210 $ 3,923 $ 6,042 $ (28) $ (2)
========= ======== ========= ======== ====
Net cash flows provided by (used in)
investing activities $ 10,911 $ -- $ (1,308) $ (1,579) $ --
========= ======== ========= ======== ====
Net cash flows provided by (used in)
financing activities $ (21,543) $ (3,923) $ (3,044) $ 1,683 $ --
========= ======== ========= ======== ====
Consolidated
Eliminating IRT Property
Entries Company
----------- ------------
As of December 31, 2000
ASSETS
Net rental properties $ (17,989) $ 536,833
Investment in affiliates (110,022) 17,342
Other assets (39,907) 20,385
--------- ---------
Total assets (167,918) 574,560
========= =========
LIABILITIES
Mortgage notes payable -- 116,509
Senior Notes, net -- 124,714
Indebtedness to banks -- 55,000
--------- ---------
Other liabilities (39,197) 43,184
Total liabilities (39,197) 339,407
--------- ---------
SHAREHOLDERS' EQUITY
Total shareholders' equity (128,721) 235,153
Total liabilities and
shareholders' equity $(167,918) $ 574,560
========= =========
--------- ---------
For the three months ended
June 30, 2000
Revenues
Income from rental properties $ (39) $ 20,981
Interest Income -- 265
Interest on direct financing leases -- 110
Other income (2,050) --
--------- ---------
Total revenues (2,089) 21,356
--------- ---------
Expenses
Operating expenses of rental properties (17) 4,969
Interest expense -- 5,402
Depreciation (8) 3,538
Amortization of debt costs -- 133
General and administrative (39) 889
--------- ---------
Total expenses (64) 14,931
--------- ---------
Equity in earnings (losses) of affiliates (2,074) (23)
--------- ---------
Earnings before minority interest
and gain on sales of properties (4,099) 6,402
Minority interest in operating
partnership (157) (157)
Gain on sales of properties -- --
Net Earnings $ (4,256) $ 6,245
========= =========
For the six months ended June 30, 2000
Revenues
Income from rental properties $ (75) $ 42,046
Interest Income -- 480
Interest on direct financing leases -- 297
Other income (4,118) --
--------- ---------
Total revenues (4,193) 42,823
--------- ---------
Expenses
Operating expenses of rental
properties (47) 9,793
Interest expense -- 10,803
Depreciation (15) 7,109
Amortization of debt costs -- 265
General and administrative (48) 1,669
--------- ---------
Total expenses (110) 29,639
--------- ---------
Equity in earnings (losses) of affiliates (4,167) (34)
--------- ---------
Earnings before minority interest
and gain on sales of properties (8,250) 13,150
Minority interest in operating partnership (316) (316)
Gain on sales of properties -- 2,738
--------- ---------
Net Earnings $ (8,566) $ 15,572
========= =========
Net cash flows provided by (used in)
operating activities $ 3,138 $ 21,283
========= =========
Net cash flows provided by (used in)
investing activities $ (3,606) $ 4,418
========= =========
Net cash flows provided by (used in)
financing activities $ 612 $ (26,215)
========= =========
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NOTES:
(1) For the three and six months ended June 30, 2001, includes IRTMC, IRTAL, and
IRTCCII. As of the year ended December 31, 2000 and for the three and six months
ended June 30, 2000, includes IRTMC and IRTAL.
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 six months ended June 30, 2001 and the three and six months
ended June 30, 2000 and have been included in the calculation of diluted
earnings per share for those periods. The effects of the conversion of the
operating partnership units have been excluded from the three months ended June
30, 2001 as they are anti-dilutive. For the three and six months ended June 30,
2001 and the six months ended June 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 months ended June 30, 2000 as they were anti-dilutive for that period. 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.
9
10
Per Share
Income Shares Amount
------ ------ ----------
(In thousands except per share amounts)
For the three months ended June 30, 2001
Basic net earnings available to shareholders $ 7,893 30,281 $0.26
=====
Options outstanding -- 92
Restricted Stock -- 20
Conversion of 7.3% debentures 450 2,069
------- -------
Diluted net earnings available to shareholders $ 8,343 32,462 $0.26
======= ======= =====
For the three months ended June 30, 2000
Basic net earnings available to shareholders $ 6,245 31,761 $0.20
=====
Options outstanding -- 10
Minority interest of unitholders in operating partnership 157 816
------- -------
Diluted net earnings available to shareholders $ 6,402 32,587 $0.20
======= ======= =====
For the six months ended June 30, 2001
Basic net earnings available to shareholders $13,881 30,247 $0.46
=====
Options outstanding -- 65
Restricted Stock 3
Minority interest of unitholders in operating partnership 305 816
Conversion of 7.3% debentures 900 2,069
======= =======
Diluted net earnings available to shareholders $15,086 33,200 $0.45
======= ======= =====
For the six months ended June 30, 2000
Basic net earnings available to shareholders $15,572 32,030 $0.49
=====
Options outstanding -- 8
Minority interest of unitholders in operating partnership 316 816
Conversion of 7.3% debentures 900 2,069
------- -------
Diluted net earnings available to shareholders $16,788 34,923 $0.48
------- ------- -----
10
11
4. Rental Properties
ACQUISITIONS
Square Year % Leased Total Initial
Acquired Property Nam 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 Cash 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. 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.
6. 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.
7. 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.
11
12
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.
8. Investment in Joint Venture
IRTCII, 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 June 30, 2001, IRTCCII is a
wholly-owned taxable subsidiary of the Company.
9. 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.
10. 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.
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Item 2 Management's Discussion and Analysis of Financial Condition and Results
of Operations.
(Dollars in thousands)
Material Changes in Financial Condition.
During the six months ended June 30, 2001, the Company:
- obtained cash proceeds of $50,000 from the issuance of the
7.77% senior unsecured notes,
- obtained cash proceeds of $20,740 from obtaining non-recourse,
secured loans on three shopping centers at a weighted average
fixed interest rate of 7.17%.
- obtained cash proceeds of approximately $11,260 upon the sales
of four properties and recognized a gain of approximately
$2,498 for financial reporting purposes,
- obtained cash proceeds of approximately $931 upon the sales of
two outparcels and recognized a gain of approximately $745 for
financial reporting purposes, and
- obtained cash, net of assets acquired, of $177 in the purchase
of IRTCCII stock.
During the six months ended June 30, 2001, the Company utilized funds
of:
- approximately $14,261 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 $1,989 for development of land and properties,
- approximately $3,426 for capital expenditures relating to
operating properties,
- approximately $7,903 for the acquisition of a shopping center
investment,
- approximately $1,078 for deferred financing costs in
connection with the issuance of the 7.77% Senior Notes and the
$20,740 of secured loans, and
- $19,000 to repay a portion of the outstanding balance of the
unsecured line of credit.
During the six months ended June 30, 2000, the Company:
- obtained cash proceeds of approximately $11,660 from the sale
of two properties and recognized a gain of approximately
$2,738 for financial reporting purposes.
During the six months ended June 30, 2000, the Company utilized funds
of:
- approximately $14,968 to pay dividends to the holders of the
Company's common stock,
- approximately $8,318 to repurchase 1,030,501 shares of the
Company's common stock,
- approximately $3,520 to repay a 7.75% mortgage at its
scheduled maturity,
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- approximately $2,214 to fund a loan for a co-development
project,
- approximately $3,382 for capital expenditures and tenant
improvements, and
- approximately $1,650 for advances to IRTCCII for further
development of land and properties acquired in 1999.
Material Changes in Results of Operations.
During the three and six months ended June 30, 2001, rental income from
the Company's portfolio of shopping center investments:
- decreased approximately $150 and $28, respectively, for the
core portfolio,
- increased approximately $816 and $1,273, respectively, due to
the acquisition of a shopping center in 2000 and one in the
second quarter of 2001, and
- decreased approximately $381 and $771, respectively, due to
sales of three investments in 2001 and five investments in
2000.
During the three and six months ended June 30, 2000, compared to the
corresponding periods of 1999, rental income from the Company's
portfolio of shopping center investments:
- increased approximately $361 and $706, respectively, for the
core portfolio,
- increased approximately $0 and $502, respectively, due to the
acquisition of two shopping centers in the first quarter of
1999, and
- decreased approximately $683 and $1,278, respectively, due to
sales of two investments in 2000 and four in 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 $224 and $221 during the three
months ended June 30, 2001 and 2000, respectively, and $817 and $820 during the
six months ended June 30, 2001 and 2000, respectively. Percentage rental income
is recorded upon collection based on the tenants' lease year end.
Interest income during the three and six months ended June 30, 2001
decreased $117 and $200, respectively, due primarily to the interest charged to
previously unconsolidated affiliates offset by interest accrued on development
loans.
During the three and six months ended June 30, 2001, operating expenses
related to the Company's portfolio of real estate investments:
- increased approximately $248 and $706, respectively, for the
core portfolio,
- increased approximately $210 and $367, respectively, due to
the acquisition of a shopping center in 2000 and one in the
second quarter of 2001, and
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- decreased approximately $65 and $178 due to sales of three
investments in 2001 and five investments in 2000.
During the three and six months ended June 30, 2000, operating expenses
related to the Company's portfolio of real estate investments:
- increased approximately $275 and $388, respectively, for the
core portfolio,
- increased approximately $0 and $125, respectively, due to the
acquisition of two shopping centers in 1999, and
- decreased approximately $181 and $311, respectively, due to
the sales of two properties in 2000 and four in 1999.
During the three and six months ended June 30, 2001, interest expense
on mortgages increased approximately $262 and $196 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 $57 for
the three months ended and increased $88 for the six months ended June 30, 2001,
respectively. The Company had average borrowings of approximately $42,705 and
$20,768 at effective interest rates of 6.88% and 7.6%, under its bank credit
facility during the three months ended June 30, 2001 and 2000, respectively. The
Company had average borrowings of approximately $24,251 and $20,505 at an
effective interest rates of 7.3% for the six months ended June 30, 2001 and
2000, respectively. The Company incurred commitment fees of approximately $100
and $101 in 2001 and 2000, respectively, which are included in this interest
expense.
The net increase of $261 and $413 in depreciation expense for the three
and six months ended June 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 increase in general and administrative expense of approximately
$224 and $414 for the three and six months ended June 30, 2001 was primarily due
to an increase in development expenditures.
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Funds from Operations. The Company defines funds from operations,
consistent with the National Association of Real Estate Investment Trusts
("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 six
months ended June 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 Six Months Ended
June 30, June 30,
---------------------- -----------------------
2001 2000 2001 2000
-------- ------- -------- --------
NET EARNINGS $ 7,893 $ 6,245 $ 13,881 $ 15,572
Gain on sales of properties (2,498) -- (2,498) (2,738)
Depreciation (*) 3,735 3,483 7,390 6,999
Amortization of capitalized leasing fees (*) 308 198 595 370
Amortization of capitalized leasing income 37 32 88 74
-------- ------- -------- --------
FUNDS FROM OPERATIONS 9,475 9,958 19,456 20,277
Interest on convertible debentures 425 425 850 850
Amortization of convertible debenture costs 25 25 50 50
Amounts attributable to minority interests 313 223 446 447
-------- ------- -------- --------
FULLY DILUTED FUNDS FROM OPERATIONS $ 10,238 $10,631 $ 20,802 $ 21,624
======== ======= ======== ========
FULLY DILUTED FUNDS FROM OPERATIONS PER SHARE $ 0.31 $ 0.31 $ 0.63 $ 0.62
======== ======= ======== ========
APPLICABLE WEIGHTED AVERAGE SHARES 33,278 34,656 33,199 34,923
======== ======= ======== ========
(*) Net of amounts attributable to minority interests
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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 six months ended
June 30, 2001 (in thousands)
Three Months Ended Six Months Ended
------------------ ----------------
June 30, June 30,
2001 2000 2001 2000
------ ------ ------ ------
Straight line rent adjustment $ 160 $ 20 $ 271 $ 31
====== ====== ====== ======
Revenue-generating capital expenditures
Tenant Improvements - Anchors $1,500 $ 460 $1,641 $1,255
Tenant Improvements - Non anchors 159 208 554 482
------ ------ ------ ------
Total revenue-generating capital expenditures** $1,659 $ 668 $2,195 $1,737
====== ====== ====== ======
Non revenue-generating capital expenditures $1,126 $1,447 $1,514 $1,645
====== ====== ====== ======
Lease fee payments $ 468 $ 344 $ 944 $ 734
====== ====== ====== ======
Scheduled principal amortization $ 624 $ 511 $1,225 $1,024
====== ====== ====== ======
** Includes tenant improvements and capital expenditures to prepare spaces for
leasing. Excludes expansions.
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PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
None.
(b) Reports on Form 8-K.
The Company filed a Report on Form 8-K dated March 30, 2001 relating to
the sale of $50,000,000 of its 7.77% Fixed Rate Senior Notes due 2006
(the "Notes") pursuant to the Company's $100,000,000 Medium Term Note
Program (the "MTN Program"). No other reports on Form 8-K were filed by
the Company during the quarter ended March 31, 2001.
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: August 14, 2001 /s/ Thomas H. McAuley
------------------------------------
Thomas H. McAuley
President & Chief Executive Officer
Date: August 14, 2001 /s/ James G. Levy
------------------------------------
James G. Levy
Executive Vice President &
Chief Financial Officer
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