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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-K
 
 x
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
  For the fiscal year ended December 31, 2004
 
OR
 
 o
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 001-13499
—————————————
 
EQUITY ONE, INC.
(Exact name of Registrant as specified in its charter)

Maryland
 
52-1794271
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
 

1696 N.E. Miami Gardens Drive, North Miami Beach, FL
33179
(Address of principal executive office)
 (Zip code)
 
 
Registrant’s telephone number, including area code: (305) 947-1664
Securities registered pursuant to Section 12(b) of the Act:
 
 
Common Stock, $0.01 Par Value  
New York Stock Exchange
(Title of each class)
 
(Name of exchange on which registered)
 

None
Securities registered pursuant to Section 12(g) of the Act:
 
 
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x  No o
 
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  x 
 
Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes x  No o
 
As of June 30, 2004, the aggregate market value of the Common Stock held by non-affiliates of the Registrant was $633,548,023.80 based upon the last reported sale price of $18.08 per share on the New York Stock Exchange on such date.
 
As of March 5, 2005, the number of outstanding shares of Common Stock, par value $.01 per share, of the Registrant was 73,786,187.
 
DOCUMENTS INCORPORATED BY REFERENCE
 
Certain sections of the Registrant’s definitive Proxy Statement for the 2005 Annual Meeting of Stockholders are incorporated by reference in Part III of this Annual Report on Form 10-K to the extent stated herein.
 


 
EQUITY ONE, INC.
 
TABLE OF CONTENTS
 

 
   
Part I
 
Item 1.
 
Business
4
Item 2.
 
Properties
16
Item 3.
 
Legal Proceedings
32
Item 4.
 
Submission of Matters to a Vote of Security Holders
32
       
       
   
Part II
 
Item 5.
 
Market For Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
33
Item 6.
 
Selected Financial Data
34
Item 7.
 
Management’s Discussion and Analysis of Financial Condition and Results of Operations
36
Item 7A.
 
Quantitative and Qualitative Disclosures about Market Risk
56
Item 8.
 
Financial Statements and Supplementary Data
58
Item 9.
 
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
58
Item 9A.
 
Controls and Procedures
58
Item 9B.
 
Other information
58
       
       
   
Part III
 
Item 10.
 
Directors and Executive Officers of the Registrant
59
Item 11.
 
Executive Compensation
59
Item 12.
 
Security Ownership of Certain Beneficial Owners and Management
59
Item 13.
 
Certain Relationships and Related Transactions
59
Item 14.
 
Principal Accountant Fees and Services
59
       
       
   
Part IV
 
Item 15.
 
Exhibits and Financial Statement Schedules
60
   
Signatures
64
       



 
 

 
FORWARD-LOOKING INFORMATION
 
Certain matters discussed in this Form 10-K and the information incorporated by reference herein contain “forward-looking statements” for purposes on Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements are based on current expectations and are not guarantees of future performance.
 
All statements other than statements of historical facts are forward-looking statements, and can be identified by the use of forward-looking terminology such as “may,” “will,” “might,” “would,” “expect,” “anticipate,” “estimate,” “would,” “could,” “should,” “believe,” “intend,” “project,” “forecast,” “target,” “plan,” or “continue” or the negative of these words or other variations or comparable terminology, are subject to certain risks, trends and uncertainties that could cause actual results to differ materially from those projected. Because these statements are subject to risks and uncertainties, actual results may differ materially from those expressed or implied by the forward-looking statements. We caution you not to place undue reliance on those statements, which speak only as of the date of this report.
Among the factors that could cause actual results to differ materially are:
Except for ongoing obligations to disclose material information as required by the federal securities laws, we undertake no obligation to release publicly any revisions to any forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

 
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PART I

ITEM 1. BUSINESS
 
The Company
 
We are a real estate investment trust, or REIT, that principally acquires, renovates, develops and manages neighborhood and community shopping centers located predominantly in high growth markets in the southern United States and in the Boston, Massachusetts metropolitan area. Our shopping centers are primarily anchored by supermarkets or other necessity-oriented retailers such as drug stores or discount retail stores.
 
Our property portfolio, as of December 31, 2004, consisted of 188 properties, comprising 133 supermarket-anchored shopping centers, eight drug store-anchored shopping centers, 40 other retail-anchored shopping centers, four development parcels and three commercial properties, as well as a non-controlling interest in one unconsolidated joint venture that owns a parcel of land. These properties are located in 12 states in the southern United States and in the Boston metropolitan area and contain an aggregate of 19.9 million square feet of gross leasable area, or GLA. Our portfolio includes shopping centers anchored by national and regional supermarkets such as Albertsons, Food Lion, H.E.B., Kash N’ Karry, Kroger, Publix, Randall’s, Shaw’s and Winn-Dixie and other national retailers such as Bed Bath & Beyond, Best Buy, Blockbuster, CVS/pharmacy, Eckerd, Home Depot, Kmart, Lowe’s, Walgreens and Wal-Mart.
 
We were organized as a Maryland corporation in 1992, completed our initial public offering in May 1998, and have elected to be taxed as a REIT since 1995. We maintain our principal executive and management office at 1696 N.E. Miami Gardens Drive, North Miami Beach, Florida 33179 in the Shops at Skylake.
 
In this annual report, unless stated otherwise or unless the content requires otherwise, references to “we,” “us” or “our” mean Equity One, Inc. and our consolidated subsidiaries.
 
Strategy and Philosophy
 
Our business strategy has been and will continue to be to maximize long-term stockholder value by generating sustainable cash flow growth and increasing the long-term value of our real estate assets. To that end, we now own and manage a portfolio of 189 properties including 180 neighborhood and community shopping centers. In order to achieve our objectives in the future, we intend to:
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Asset Management Strategy
 
Enhancing Portfolio Performance. We believe that the property operating income provided by our existing assets is a stable, predictable source of cash flow from which to fund a portion of our capital needs, including the development and acquisition of new projects, redevelopment of existing projects and the payment of dividends to our stockholders. Our assets generally have experienced stable, moderate growth in standard measures of real estate operating performance. We believe these results are attributable to our ability to attract tenants, actively manage and promote our assets to tenants and maintain the high standards and physical appearance of our assets while maintaining competitive tenant occupancy costs. We also believe that we have developed strong, mutually beneficial relationships with credit worthy tenants, particularly our anchor tenants, by consistently meeting or exceeding their expectations and demands. Over the years, this strategy has allowed us to leverage our relationships with existing tenants to lease and re-lease our properties and therefore maintain or improve the financial performance of our existing properties or of properties that we acquire.
 
Dispositions. Generally, we hold our properties for investment and for the production of rental income. Over time, when our assets no longer meet our investment criteria, or when sales provide the opportunity for significant gains, we may attempt to sell or otherwise dispose of those assets.
 
 
Redevelopment of Existing Centers. We are in the process of renovating or redeveloping a number of under-performing assets in order to make them more attractive for leasing or re-leasing to creditworthy tenants.
 
Growth Strategy
 
     We intend to grow our business by acquiring additional neighborhood and community shopping centers through individual or portfolio property acquisitions, by acquiring privately-held or publicly-traded REITs and real estate companies, by developing new retail properties and by forming joint ventures with third parties to both acquire and develop new properties. We are currently focused on properties located in the southern and eastern regions of the United States
 
Acquisitions. We generally select properties for acquisition which have or are suitable for supermarket or other anchor tenants that offer daily necessities and value-oriented merchandise. The properties must be well-located, typically in high growth, high-density metropolitan areas, and have high visibility, open air designs, ease of entry and exit and ample parking. Although we focus primarily on well-performing, supermarket-anchored properties with strong cash flows, we also acquire under-performing assets, which are adaptable over time for expansion, renovation or redevelopment. When evaluating potential acquisitions, whether well-performing or under-performing, we consider factors such as:
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When evaluating acquisitions of portfolios of properties, REITs or companies that own real estate, we review the component properties against the criteria described above, as well as opportunities for synergies and cost savings on a combined basis, the degree of geographic fit with our existing markets or opportunities to expand geographically into new desirable markets, and the extent of non-core assets included in the acquisition. For instance, in October 2004, we acquired a six-property portfolio in the metropolitan Boston, Massachusetts area which permitted us to expand both our geographic market as well as our tenant diversity.
 
 
Developments. Over the next several years, we intend to complete several new development projects, depending on market conditions and capital availability. We employ what we consider to be a disciplined approach to the development process. Our in-house development and construction departments are experienced and are responsible for all aspects of development, including market research, site selection, predevelopment work, construction and tenant coordination. We maintain asset management control through the entire development process, including frequent internal reviews of costs and leasing status.
 
The following factors allow us to mitigate the risks associated with development:
     Joint Ventures. In order to meet our stated objective to grow our business by acquiring and developing additional neighborhood and community shopping centers, we may from time to time enter into joint ventures with land owners and developers. In many of these transactions, we will fund the costs of acquiring and/or developing the properties and we will retain operational control of the venture. For example, in February 2005, we entered into a joint venture that acquired a 155 acre development parcel in Pasco County, Florida. We have a 60 percent controlling interest in the venture and expect to receive an eight percent preferred return on our capital investment. We currently expect that upon completion, the project will include office, retail and residential uses.
 
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Capital Strategy
 
We intend to further grow and expand our business by using cash flows from operations, by drawing on our existing credit facilities, or if appropriate market conditions exist, by accessing the capital markets to issue equity, debt or a combination thereof. In addition, as we have in the past, we intend to utilize tax-advantaged structures to acquire properties from sellers who wish to defer capital gains. Such structures may include entering into a joint venture or other type of co-ownership with a seller, in which we would acquire a controlling interest. We may offer the seller an interest in the venture that is convertible or exchangeable for shares of our common stock or otherwise allow the seller to have an equity interest in our company.
 
Financing Strategy. Our financing strategy is to maintain a strong and flexible financial position by limiting our debt to a prudent level and minimizing our variable interest rate exposure. We intend to finance future growth with the most advantageous source of capital available to us at the time of an acquisition. These sources may include selling common stock, preferred stock, debt securities, depository shares or warrants through public offerings or private placements, utilizing availability under our unsecured revolving credit facilities or incurring additional indebtedness through secured or unsecured borrowings either at the parent level or through mortgages with recourse limited to specific properties.
 
2004 Overview of Significant Business Strategies
 
The implementation of our business strategy in 2004 produced the following results and activities:
Dispositions. During 2004, we sold 14 income producing properties for aggregate consideration of approximately $82.6 million encompassing approximately 2.0 million square feet of gross leasable area as these properties no longer met our investment criteria. We also sold a property held by a joint venture.
 
Redevelopment of Existing Centers. We reconfigured, redeveloped and re-leased previously vacant anchor and other space at our Bandera Festival Center where we had a vacant Kmart store, Centre Pointe where we had a vacant Winn-Dixie store, Oakbrook Square where we had a vacant Jacobson store, Copperfield where we had a vacant Gerland’s store and Walden Woods where we had a vacant Winn-Dixie store. In addition, we added an out parcel at Oakbrook Square.
 
Also, during 2004 we reconfigured and redeveloped our Salerno Village shopping center to accommodate a new and expanded Winn-Dixie supermarket and our Crossroads Square center by adding a Lowe’s home improvement, a new CVS Pharmacy and refurbished the remainder of the center. In addition, we reconfigured a portion of our Ambassador Row Courtyard property and added an out parcel.
 
Acquisitions. During 2004, we acquired 17 properties and three land parcels for aggregate consideration of approximately $317.0 million encompassing approximately 1.8 million square feet of gross leasable area. These properties included 16 supermarket-anchored shopping centers.
 
Developments. We completed the development of CVS Plaza, a 29,000 square foot drug store anchored center, located across the street from our Plaza Alegre center and are currently completing the lease up of the local space. We also added a 45,000 square foot LA Fitness Sports Club to our Skylake Shopping Center where we are also adding 29,000 square feet of office and retail space. In addition, we started the development of a supermarket anchored center in Homestead, Florida.
 
7

    New Markets. In October 2004, we acquired a six-property portfolio in the metropolitan Boston, Massachusetts area, thereby expanding our geographic diversity.
 
Other investments. As of December 31, 2004, we owned approximately 1.6 million shares of Cedar Shopping Centers, Inc. common stock, representing approximately 8.3% of Cedar’s total outstanding shares of common stock, and 220,000 shares, representing a 9.4% stake, of Cedar’s 8.875% Series A Cumulative Redeemable Preferred Stock. As of February 23, 2005, we had increased our ownership of Cedar’s common stock to approximately 1.9 million shares, representing 9.8% of Cedar’s total outstanding shares of common stock. Cedar is a self-managed REIT engaged in the ownership, development and management of community and neighborhood shopping centers anchored by supermarkets, drug stores and other retailers, with a geographic concentration in Pennsylvania and certain neighboring states. We are holding both the common and preferred stock for investment purposes.
 
Unsecured Senior Note Offering. During March of 2004, we raised $200 million in an offering of unsecured senior notes. The unsecured senior notes have a stated interest rate of 3.875% and mature in April of 2009. We swapped $100 million of these notes to a floating interest rate based on the 6-month LIBOR in arrears plus 0.4375%.
 
Competitive Strengths
 
We believe that we distinguish ourselves from other owners and operators of community and neighborhood shopping centers in a number of ways, including:
8

Risk Factors
 
You should carefully consider the risks described below. The trading price of any of our securities could decline due to any of these risks.
 
We are dependent upon certain key tenants and adverse developments in the business of these tenants could have a negative impact on our financial condition.
 
We own shopping centers which are supported by “anchor” tenants which, due to size, reputation or other factors, are particularly responsible for drawing other tenants and shoppers to our centers. For instance, Publix is our largest tenant and accounts for approximately 2.2 million square feet, or 11.1%, of our gross leasable area.
 
At any time, an anchor tenant or other tenant may experience a downturn in its business that may weaken its financial condition. As a result, tenants may delay lease commencement, fail to make rental payments when due or declare bankruptcy. We are subject to the risk that these tenants may be unable to make their lease payments or may decline to extend a lease upon its expiration. Any tenant bankruptcies, leasing delays or failures to make rental payments when due could result in the termination of the tenant’s lease and material losses to our business and harm to our operating results. For example, on February 22, 2005, Winn-Dixie Stores, Inc., an anchor tenant at 16 of our shopping centers occupying 730,000 square feet of gross leasable area and accounting for approximately $5 million in annualized minimum rent centers and terminate those leases, it would adversely affect our operating results, including funds from operations, and cash flows. In addition, we own approximately $15 million of principal of Winn-Dixie's senior notes bearing interest at 8.875%.  Following Winn-Dixie bankruptcy, there is no guarantee that we will receive any additional interest payments or any principal payment at maturity.
 
In addition to the loss of rental payments, a lease termination by an anchor tenant or a failure by that anchor tenant to occupy the premises could result in lease terminations or reductions in rent by other tenants in the same shopping center leases of which permit cancellation or rent reduction if an anchor tenant’s lease is terminated. Vacated anchor tenant space also tends to adversely affect the entire shopping center because of the loss of the departed anchor tenant’s power to draw customers to the center. We cannot provide any assurance that we will be able to quickly re-lease vacant space on favorable terms, if at all. Any of these developments could adversely affect our financial condition or results of operations.
 
Our growth may be impeded if we are not successful in identifying suitable acquisitions or investments that meet our investment criteria.
 
Our business strategy is to make future acquisitions of or investments in additional real estate assets or other companies that own real estate. Integral to this strategy will be our ability to expand in the future by identifying suitable acquisition candidates or investment opportunities that meet our criteria and are compatible with our growth strategy. We may not be successful in identifying suitable real estate assets or other businesses that meet our acquisition criteria or completing acquisitions or investments on satisfactory terms. Failures in identifying or completing acquisitions could reduce the number of acquisitions we are able to make and may slow our growth, which could in turn harm our future stock price.
 
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We have substantial debt obligations which may reduce our operating performance and put us at a competitive disadvantage.
 
We have outstanding debt and other liabilities in the aggregate amount of approximately $999 million. Many of our loan facilities require scheduled principal and balloon payments. In addition, we may incur additional indebtedness in the future. As a result, we are subject to the risks normally associated with debt financing, including the risk that our cash flow will be insufficient to meet required payments of principal and interest, the risk that interest rates may increase on variable-rate debt and the risk that indebtedness on our properties cannot be refinanced at maturity or that the terms of such refinancing will not be as favorable as the terms of such indebtedness.
 
If our internally generated cash is inadequate to repay our indebtedness upon maturity, then we will be required to repay debt through refinancing or equity offerings. If we are unable to refinance our indebtedness on acceptable terms, or at all, we might be forced to dispose of one or more of our properties potentially upon disadvantageous terms, which might result in losses and might adversely affect our cash available for distribution. If prevailing interest rates or other factors at the time of refinancing result in higher interest rates on refinancing, our interest expense would increase, without a corresponding increase in our rental rates, which would adversely affect our results of operations. Further, if one of our properties is mortgaged to secure payment of indebtedness and we are unable to meet mortgage payments, or if we are in default under the related mortgage or deed of trust, such property could be transferred to the mortgagee, or the mortgagee could foreclose upon the property, appoint a receiver and receive an assignment of rents and leases or pursue other remedies, all with a consequent loss of income and asset value. Foreclosure could also create taxable income without accompanying cash proceeds, thereby hindering our ability to meet the REIT distribution requirements under the Internal Revenue Code.
 
Future acquisitions of or investments in real estate assets or other companies that own real estate may not yield the returns expected, may result in disruptions to our business, may strain management resources and may result in stockholder dilution.
 
Our acquisition and investment strategy and our market selection process may not ultimately be successful and may not provide positive returns on our investment. If we acquire a business, we will be required to integrate the operations, personnel and accounting and information systems of the acquired business and train, retain and motivate any key personnel from the acquired business. In addition, acquisitions of or investments in companies may cause disruptions in our operations and divert management’s attention away from day-to-day operations, which could impair our relationships with our current tenants and employees. The issuance of equity securities in connection with any acquisition or investment could be substantially dilutive to our stockholders
 
We will face increasing competition for the acquisition of real estate assets, which may impede our ability to make future acquisitions or may increase the cost of these acquisitions.
 
We compete with many other entities engaged in real estate investment activities for acquisitions of community and neighborhood shopping centers, including institutional pension funds, other REITs and other owner-operators of shopping centers. These competitors may drive up the price we must pay for real estate assets or other real estate companies we seek to acquire or may succeed in acquiring those companies or assets themselves. In addition, potential acquisition targets may find competitors to be more attractive suitors because they may have greater resources, may be willing to pay more or may have a more compatible operating philosophy. In particular, larger REITs may enjoy significant competitive advantages that result from, among other things, a lower cost of capital and enhanced operating efficiencies. In addition, the number of entities and the amount of funds competing for suitable investment properties may increase. Such competition may reduce the number of suitable properties and increase the bargaining position of the owners of those properties. This will result in increased demand for these assets, and, therefore, increased prices paid for them. If we must pay higher prices for properties, our profitability will be reduced, and our stockholders may experience a lower return on their investment.
 
10

  Geographic concentration of our properties will make our business vulnerable to economic downturns in Florida.
 
Approximately 46.7% of our gross leasable area is located in Florida. As a result, economic and real estate conditions in Florida will significantly affect our revenues and the value of our properties. Business layoffs or downsizing, industry slowdowns, changing demographics the harmful effects of natural disasters and other similar factors may adversely affect the economic climate in Florida. Any resulting oversupply or reduced demand for retail properties in Florida would adversely affect our operating performance and limit our ability to make distributions to stockholders.
 
Our investments in development and redevelopment projects may not yield anticipated returns, which would harm our operating results and reduce the amount of funds available for distributions to stockholders.
 
An important component of our growth strategy is the redevelopment of properties within our portfolio. In addition, we intend to develop new shopping centers at other locations and pursue other development and redevelopment activities as opportunities arise; however, we may not be able to do so successfully. Expansion, renovation and development projects entail considerable risks as a result of the significant amount of capital expenditures associated with them as well as the necessity of various governmental and other approvals, the potential for construction and other delays and other factors, many of which are outside of our control. As a result, we may not be able to timely complete these redevelopment and development projects in accordance with our expectations. In addition, occupancy rates and rents at a newly completed property may not be sufficient to make the property profitable, or development, construction and lease-up activities may not be completed on schedule, resulting in decreased operating income.
 
While our policies with respect to expansion, renovation and development activities are intended to limit some of the risks otherwise associated with such activities, such as initiating construction only after securing commitments from anchor tenants, we will nevertheless be subject to risks that construction costs of a property, due to factors such as cost overruns, design changes and timing delays arising from a lack of availability of materials and labor, weather conditions and other factors outside of our control, may exceed original estimates, possibly making the associated investment uneconomical. Any substantial unanticipated delays or expenses could adversely affect the investment returns from these redevelopment projects and harm our operating results.
 
  We may experience difficulties and additional costs associated with renting unleased space and space to be vacated in future years.
 
Our goal is to improve the performance of our properties by re-leasing vacated space. Historically, we have succeeded in leasing our properties, including increasing our core shopping center occupancy rate from 91.6% at year-end 2003 to 94.9% at year-end 2004. However, we may not be able to maintain the growth in our overall occupancy. Our ability to continue to lease or re-lease vacant space in these or other properties will be affected by many factors, including our property locations, current market conditions and covenants found in certain leases restricting the use of other space at our properties. For instance, in some cases, our tenant leases contain provisions giving the tenant the exclusive right to sell particular types of merchandise or provide specific types of services within the particular retail center, or limit the ability of other tenants to sell that merchandise or provide those services. When re-leasing space after a vacancy, these provisions may limit the number and types of prospective tenants for the vacant space. The failure to lease or to re-lease on satisfactory terms could harm our operating results.
 
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If we are able to re-lease vacated space, there is no assurance that rental rates will be equal to or in excess of current rental rates. In addition, we may incur substantial costs in obtaining new tenants, including brokerage commission fees paid by us in connection with new leases or lease renewals, and the cost of making leasehold improvements.
 
Changes in interest rates could adversely affect the market price of our securities.
 
The market price of our common stock is affected by the annual distribution rate on the shares of our common stock. Increasing market interest rates may lead prospective purchasers of our common stock and other securities to seek alternative investments that offer a higher annual yield which would likely adversely affect the market price of our common stock and other securities. In addition, we have exposure to variable interest rates on balances under our $340 million revolving credit facility with Wells Fargo and in connection with an interest rate swap in which we have swapped $100 million of notional principal to a floating interest rate based on the 6 month LIBOR in arrears plus 0.4375%. As interest rates rise, more of our funds from operations will be required to service these obligations. Finally, increases in interest rates may have the effect of depressing the market value of retail properties such as ours, including the value of those properties securing our indebtedness.
 
We may be subjected to liability for environmental contamination which might have a material adverse impact on our financial condition and results of operations.
 
As an owner and operator of real estate and real estate-related facilities, we may be liable for the costs of removal or remediation of hazardous or toxic substances present at, on, under, in or released from our properties, as well as for governmental fines and damages for injuries to persons and property. We may be liable without regard to whether we knew of, or were responsible for, the environmental contamination and with respect to properties previously owned by companies we have acquired, whether the contamination occurred before or after the acquisition. We have several properties in our portfolio that will require or are currently undergoing varying levels of environmental remediation. Although we have environmental insurance policies covering all of our properties, there is no assurance that these policies will cover any or all of the potential losses or damages from environmental contamination; therefore, any liability, fine or damage could directly impact our financial results.
 
  Our financial covenants may restrict our operating or acquisition activities, which may harm our financial condition and operating results.
 
Our unsecured revolving credit facility with Wells Fargo, our senior unsecured notes payable and much of our existing mortgage indebtedness contain customary covenants and conditions, including, among others, compliance with various financial ratios and restrictions upon the incurrence of additional indebtedness and liens on our properties. Furthermore, the terms of some of this indebtedness will restrict our ability to consummate transactions that result in a change of control or to otherwise issue equity or debt securities. The existing mortgages also contain customary negative covenants such as those that limit our ability, without the prior consent of the lender, to further mortgage the applicable property or to discontinue insurance coverage. If we were to breach covenants in these debt agreements, the lender could declare a default and require us to repay the debt immediately. If we fail to make such repayment in a timely manner, the lender may be entitled to take possession of any property securing the loan.
 
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Certain of our indebtedness may currently be in default as a result of prior issuances of our common stock or prior acquisitions which may serve as a basis for our lenders to accelerate amounts due under the related mortgages or demand payments or fees. 
 
Certain of the mortgages on our properties contain prohibitions on transfers of ownership interests in the mortgagor or its parent without the prior written consent of the lenders, which provisions may have been violated by previous transactions completed by us, including the merger with IRT. A violation could serve as a basis for the lenders to accelerate amounts due under the related mortgages, demand payments or assess fees or penalties.
 
The outstanding amounts under the mortgages on the affected properties covered by such restrictions on transfer totaled approximately $169 million as of December 31, 2004. In the event that the holders declare defaults under the mortgage documents, we could be required to prepay the remaining mortgages from existing resources, refinancing of such mortgages, borrowings under our other lines of credit or other sources of financing. The repayment of these mortgages could have an adverse impact on the operations and affect our ability to make distributions to stockholders.
 
Our Chairman and Chief Executive Officer and his affiliates own approximately 41% of our common stock and exercise significant control over our company and may delay, defer or prevent us from taking actions that would be beneficial to our other stockholders.
 
Chaim Katzman, our Chairman and Chief Executive Officer and our largest stockholder, and his affiliates own approximately 41% of the outstanding shares of our common stock and, as a result of a stockholders' agreement with other of our stockholders, have voting power of almost 50% of our outstanding shares with respect to the election of directors. Accordingly, Mr. Katzman is able to exercise significant control over the outcome of substantially all matters required to be submitted to our stockholders for approval, including decisions relating to the election of our board of directors and the determination of our day-to-day corporate and management policies. In addition, Mr. Katzman is able to exercise significant control over the outcome of any proposed merger or consolidation of our company which, under our charter, the affirmative vote of the holders of a majority of the outstanding shares of our common stock in such instances. Mr. Katzman’s ownership interest in our company may discourage third parties from seeking to acquire control of our company which may adversely affect the market price of our common stock.
 
Several of our controlling stockholders have pledged their shares of our stock as collateral under bank loans, foreclosure and disposition of which could have a negative impact on our stock price.
 
Several of our affiliated stockholders that beneficially own a significant interest in our company, including Gazit-Globe, Ltd. and related entities, have pledged a substantial portion of our stock that they own to secure loans made to them by commercial banks.
 

    If a stockholder defaults on any of its obligations under these pledge agreements or the related loan documents, these banks may have the right to sell the pledged shares in one or more public or private sales that could cause our stock price to decline.  Many of the occurrences that could result in a foreclosure of the pledged shares are out of our control and are unrelated to our operations.  Some of the occurrences that may constitute such an event of default include:

 
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    In addition, because so many shares are pledged to secure loans, the occurrence of an event of default could result in a sale of pledged shares that would trigger a change of control of our company, even when such a change may not be in the best interests of our stockholders.
 
Our organizational documents contain provisions which may discourage the takeover of our company, may make removal of our management more difficult and may depress our stock price.
 
Our organizational documents contain provisions that may have an anti-takeover effect and inhibit a change in our management. For instance, our charter contains ownership limits and restrictions on transferability of shares of our capital stock in order to protect our status as a REIT. These provisions prevent any one stockholder from owning, actually or constructively, more than 9.9% of the value or number of outstanding shares of our capital stock without our prior consent. In addition, our charter and bylaws contain other provisions that may have the effect of delaying, deferring or preventing a change of control or the removal of existing management and, as a result, could prevent our stockholders from receiving a premium for their shares of common stock above the prevailing market prices. These provisions include the ability to issue preferred stock, advance notice requirements for stockholder proposals, the absence of cumulative voting rights and provisions relating to the removal of incumbent directors. Finally, Maryland law also contains several statutes that restrict mergers and other business combinations with an interested stockholder or that may otherwise have the effect of preventing or delaying a change of control.
 
We may experience adverse consequences in the event we fail to qualify as a REIT.
 
Although we believe that we have operated so as to qualify as a REIT under the Internal Revenue Code since our REIT election in 1995, no assurance can be given that we have qualified or will remain qualified as a REIT. In addition, no assurance can be given that legislation, new regulations, administrative interpretations or court decisions will not significantly change the tax laws with respect to qualification as a REIT or the federal income tax consequences of such qualification. Qualification as a REIT involves the application of highly technical and complex provisions of the Internal Revenue Code for which there are only limited judicial and administrative interpretations. The determination of various factual matters and circumstances not entirely within our control may affect our ability to qualify as a REIT. For example, in order to qualify as a REIT, at least 90% of our gross income in any year must be derived from qualifying sources and we must make distributions to stockholders aggregating annually at least 90% of our REIT taxable income, excluding net capital gains. We intend to make distributions to our stockholders to comply with the distribution provisions of the Internal Revenue Code. Although we anticipate that our cash flows from operating activities will be sufficient to enable us to pay our operating expenses and meet distribution requirements, no assurance can be given in this regard.
 
If we were to fail to qualify as a REIT in any taxable year, we would be subject to federal income tax, including any applicable alternative minimum tax, on our taxable income at regular corporate income tax rates, and we would not be allowed a deduction in computing our taxable income for amounts distributed to our stockholders. Moreover, unless entitled to relief under certain statutory provisions, we also would be ineligible for qualification as a REIT for the four taxable years following the year during which qualification was lost. Such disqualification would reduce our net earnings available for investment or distribution to our stockholders due to our additional tax liability for the years involved.
 
Loss of Key Personnel Could Harm Our Business.
 
Our ability to successfully execute our acquisition and growth strategy depends to a significant degree upon the continued contributions of Chaim Katzman, our Chairman of the Board and Chief Executive Officer, Doron Valero, our President and Chief Operating Officer, and Howard Sipzner, our Executive Vice President and Chief Financial Officer. Pursuant to our employment agreements with Mr. Katzman, he is only required to devote so much of his business time, attention, skill and efforts as shall be required for the faithful performance of his duties. Moreover, there is no guarantee that Mr. Katzman, Mr. Valero or Mr. Sipzner will remain employed with us. While we have employment agreements with these executives, we cannot guarantee that we will be able to retain their services. The loss of the services of Messrs. Katzman, Valero and Sipzner could have a material adverse effect on our results of operations.
 
14

Competition
 
There are numerous commercial developers, real estate companies, REITs and other owners of real estate in the areas in which our properties are located that compete with us in seeking land for development, properties for acquisition, financing and tenants. Many of such competitors have substantially greater resources than we have. All of our existing properties are located in developed areas that include other shopping centers and other retail properties. The number of retail properties in a particular area could materially adversely affect our ability to lease vacant space and maintain the rents charged at our existing properties.
 
We believe that the principal competitive factors in attracting tenants in our market areas are location, price, anchor tenants and maintenance of properties. We also believe that our competitive advantages include the favorable locations of our properties, our ability to provide a retailer with multiple locations with anchor tenants and the practice of continuous maintenance and renovation of our properties.
 
Regulation
 
Retail properties are subject to various laws, ordinances and regulations. We believe that each of our existing properties maintains all required material operating permits and approvals.
 
Americans with Disabilities Act. Our properties are subject to the Americans with Disabilities Act of 1990. Under this act, all places of public accommodation are required to comply with federal requirements related to access and use by disabled persons. The act has separate compliance requirements for “public accommodations” and “commercial facilities” that generally require that buildings and services, including restaurants and retail stores, be made accessible and available to people with disabilities. The act’s requirements could require removal of access barriers and could result in the imposition of injunctive relief, monetary penalties or, in some cases, an award of damages. We believe that our properties are in substantial compliance with the requirements under the American with Disabilities Act and have no reason to believe that these requirements or the enforcement of these requirements will have a materially adverse impact on our business.
 
Environmental Matters
 
Under various federal, state and local laws, ordinances and regulations, we may be liable for the cost to remove or remediate certain hazardous or toxic substances at our shopping centers. These laws often impose liability without regard to whether we knew of, or were responsible for, the presence of the hazardous or toxic substances. The cost of required remediation and our liability for remediation could exceed the value of the property and/or our aggregate assets. The presence of such substances, or the failure to properly remediate such substances, may adversely affect our ability to sell or rent the property or borrow using the property as collateral. We have several properties that will require or are currently undergoing varying levels of environmental remediation. In some cases, contamination has migrated or is expected to migrate into the groundwater beneath our properties from adjacent properties, such as service stations. In other cases, contamination has
 
15

resulted from on-site uses by current or former owners or tenants, such as gas stations or dry cleaners, which have released pollutants such as gasoline or dry-cleaning solvents into the soil or groundwater. We believe that, based on environmental studies conducted to date, none of these environmental problems is likely to have a material adverse effect on our financial condition. However, no assurances can be given that environmental studies obtained by us reveal all environmental liabilities, that any prior owner of land or a property owned or acquired by us did not create any material environmental condition not known to us, or that a material environmental condition does not otherwise exist, or may not exist in the future.
 
Employees
 
At December 31, 2004, we had 235 full-time employees. Our employees are not represented by any collective bargaining group, and we consider our relations with our employees to be good.
 
Available Information
 
The internet address of our website is www.equityone.net. You can obtain on our website, free of charge, a copy of our annual report on Form 10-K, our quarterly reports on Form 10-Q, our Supplemental Information Packages, our current reports on Form 8-K, and any amendments to those or other reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, as soon as reasonably practicable after we electronically file or furnish such reports or amendments with the SEC. Also available on our website, free of charge, are copies of our Corporate Governance Guidelines, Code of Conduct and Ethics and the charters for each of the committees of our Board of Directors - the Audit Committee, the Corporate Governance and Nominating Committee and the Compensation Committee. Any amendments or waivers to our Code of Business Conduct and Ethics will be disclosed on our website within four business days following the date of the amendment or waiver. Copies are also available free of charge by contacting our Investor Relations Department at:
 
Equity One, Inc.
1696 N.E. Miami Gardens Drive,
North Miami Beach, Florida 33179
Attn: Investor Relations Department
(305) 947-1664

You may also read and copy any materials we file with the SEC at the SEC’s Public Reference Room at 450 Fifth Street, NW, Washington, DC 20549, or you may obtain information by calling the SEC at 1-800-SEC-0300. The SEC maintains an internet address at http://www.sec.gov that contains reports, proxy statements and information statements, and other information which you may obtain free of charge.
 
ITEM 2. PROPERTIES
 
Our portfolio consists primarily of shopping centers anchored by supermarket and other necessity-oriented retailers and at December 31, 2004 contains an aggregate of approximately 19.9 million square feet of gross leasable area or GLA. Other than our leasehold interests in our McAlpin Square shopping center located in Savannah, Georgia, Plaza Acadienne shopping center located in Eunice, Louisiana, Shelby Plaza shopping center located in Shelby, North Carolina, Park Northern shopping center located Phoenix, Arizona and El Novillo located in Miami, Florida, all of our other properties are owned in fee simple. In addition, some of our properties are subject to mortgages as described under “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Mortgage Indebtedness.” The following table provides a brief description of our properties as of December 31, 2004:
 
 
16

Property
 
Year Acquired
 
GLA (Sq. Ft.)
 at Dec. 31, 2004
 
Number of
Tenants (1)
 
Annualized Minimum Rent as of December 31, 2004(2)
 
Average Minimum Rent Per Leased Sq. Ft. at Dec. 31, 2004
 
Percent Leased at Dec. 31, 2004
 
Anchor Stores and Certain Tenants (3)
 
       
             
ALABAMA (2 properties)
           
               
Madison Centre
Madison
2003
64,837
  13
$  629,306
$   9.71
100.0%
Publix, Rite Aid
               
West Gate Plaza
Mobile
  2003
64,378
9
    435,856
 6.99
  96.9%
Winn Dixie, Rite Aid
               
Subtotal Alabama Properties
(2 properties)
129,215
22
1,065,162
8.37
98.5%
 
               
               
ARIZONA (2 properties)
           
               
Big Curve
Yuma
2001
126,402
33
     1,176,556
9.76
   95.3%
Albertsons(4), Miller’s Outpost
               
Park Northern
Phoenix
2001
126,852
25
    804,115
6.62
   95.8%
Safeway, Bealls, Chuck E Cheese, Life Skills Center
               
Subtotal Arizona Properties
(2 properties)
253,254
58
1,980,671
8.18
  95.6%
 
               
               
FLORIDA (75 properties)
           
             
North Florida (13 properties)
           
               
Atlantic Village
Atlantic Beach
1995
100,559
26
   987,161
 10.24
    95.9%
Publix, Jo-Ann Fabrics
               
Beauclerc Village
Jacksonville
1998
70,429
11
   475,452
   7.76
86.9%
Big Lots, Goodwill, Bealls Outlet
               
Commonwealth
Jacksonville
1994
81,467
16
   650,196
   8.35
95.6%
Winn-Dixie/Save Rite
               
Forest Village
Tallahassee
2000
71,526
17
   703,187
 10.47
93.9%
Publix
               
Fort Caroline
Jacksonville
1994
74,546
13
   445,446
        7.41
80.7%
Winn-Dixie
               
Mandarin Landing
Jacksonville
1999
141,565
37
    1,288,783
   9.94
91.6%
Publix, Office Depot
               
Medical & Merchants
Jacksonville
2004
152,761
19
    1,737,704
     11.84
  96.1%
Publix, Memorial Health Group, Blockbuster
               
Middle Beach
Jacksonville
2003
69,277
9
   656,338
   9.47
    100.0%
Publix, Movie Gallery
               
Monument Point
Jacksonville
1997
75,128
12
   504,318
   6.71
    100.0%
Winn-Dixie, CVS Pharmacy
               
Oak Hill
Jacksonville
1995
78,492
19
   550,003
   7.01
    100.0%
Publix, Walgreens*
               
Parkmore Plaza
Milton
2003
159,067
13
   696,530
  4.47
     97.9%
Wal-Mart* (Bealls), Big Lots
               
 
17

 
Property
 
Year Acquired 
GLA (Sq. Ft.)
at Dec. 31, 2004 
Number of
Tenants (1) 
Annualized Minimum Rent as of December 31, 2004(2) 
Average Minimum Rent Per Leased Sq. Ft. at Dec. 31, 2004 
 Percent Leased at Dec. 31, 2004
Anchor Stores and Certain Tenants (3)
               
Pensacola Plaza
Pensacola
1986
56,098
3
$    218,988
$  4.27
91.4%
FoodWorld
               
South Beach Regional
Jacksonville Beach
2003
289,964
51
   2,506,393
   9.24
93.6%
Food Lion, Home Depot, Stein Mart, Bealls
               
Central Florida (10 properties)
         
               
Alafaya Commons
Orlando
2003
123,133
29
       1,430,680
   11.82
98.3%
Publix, Blockbuster
               
Conway Crossing
Orlando
2003
76,321
18
    891,873
   11.69
100.0%
Publix
               
Shoppes of Eastwood
Orlando
2002
69,037
13
    783,337
   11.35
100.0%
Publix
               
Hunters Creek
Orlando
2003
68,032
9
               738,780
   10.86
100.0%
Winn-Dixie
               
Kirkman Shoppes
Orlando
2001
88,820
30
    1,407,447
   16.08
 98.6%
CVS Pharmacy
               
Lake Mary
Orlando
1988
342,384
87
     3,700,511
   11.18
 96.6%
Albertsons, Kmart, Lifestyle Fitness, Sun Star Theatres
               
Park Promenade
Orlando
1999
125,818
26
     1,097,491
      8.91
 97.9%
Publix, Orange County Library, Blockbuster, Goodwill
               
Town & Country
Kissimmee
2003
72,043
13
       457,800
      6.61
 96.1%
Albertsons
               
Unigold
Winter Park
2003
117,527
25
    1,254,663
       10.68
100.0%
Winn-Dixie, Blockbuster
               
Walden Woods
Park City
2003
75,874
13
       521,490
     6.87
100.0%
Walgreens, Dollar Tree, Aaron Rents, Dollar General
               
Florida West Coast (18 properties)
           
               
Bay Pointe Plaza
St. Petersburg
2003
103,986
24
       870,351
     9.35
 89.5%
Publix, CVS Pharmacy* (Bealls Outlet), West Marine
               
Carrollwood
Tampa
2003
94,203
36
      929,272
   11.23
 87.8%
Publix, CVS Pharmacy
               
Charlotte Square
Port Charlotte
2003
96,188
27
      701,764
     7.78
 93.8%
Publix, Pet Supermarket
               
Chelsea Place
New Port Richey
2003
81,144
18
      900,926
   11.10
100.0%
Publix, CVS Pharmacy
               
 
18

 
Property
 
Year Acquired

GLA (Sq. Ft.) 
at Dec. 31, 2004
Number of 
Tenants (1)
Annualized Minimum Rent as of December 31, 2004(2)
Average Minimum Rent Per Leased Sq. Ft. at Dec. 31, 2004
 Percent Leased at Dec. 31, 2004
Anchor Stores and Certain Tenants (3)
               
Lake St. Charles
Tampa
 2001
57,015
8
$  561,145
$   9.84
100.0%
Kash N’ Karry
               
Lutz Lake
Lutz
2003
64,985
15
     896,840
    13.80
100.0%
Publix
               
Marco Town Center
Marco Island
2001
109,830
45
    1,765,744
     16.68
  96.4%
Publix, West Marine
               
Mariners Crossing
Spring Hill
2001
85,507
16
     678,688
       8.26
  96.1%
Kash N’ Karry
       
 
     
North River Village**
Ellenton
2003
177,128
16
      1,292,196
       7.30
 100.0%
Publix, Kmart, Walgreens*, (Dollar Tree), Bealls Outlet
               
Pavillion
Naples
2004
167,745
42
      2,134,358
      13.96
   91.2%
Publix, Pavillion 6 Theatre, Anthony’s
               
Regency Crossing
Port Richey
2003
85,864
25
     787,753
      10.52
   87.2%
Publix
               
Ross Plaza
Tampa
2001
85,359
20
     859,609
       10.38
  97.0%
Ross Dress for Less
               
Seven Hills
Spring Hill
2003
64,590
12
     632,082
         9.79
 100.0%
Publix
               
Shoppes of North Port
North Port
2000
84,705
22
     839,070
          9.91
100.0%
Publix, Bealls Outlet
               
Skipper Palms
Tampa
2001
88,000
17
     699,349
         8.55
  92.2%
Winn-Dixie
               
Summerlin Square
Fort Myers
1998
109,156
28
     982,784
         9.97
   90.3%
Winn-Dixie, CVS Pharmacy, West Marine
               
Venice Plaza
Venice
2003
157,940
16
     689,870
         5.50
   79.4%
Kash N Karry, TJ Maxx, Blockbuster
               
Venice Shopping Center
Venice
2004
111,934
15
      517,961
          5.06
   91.4%
Publix, Beall’s Outlet, Dollar Tree, Wachovia Bank
               
Florida Treasure Coast (8 properties)
         
             
Bluff Square
Jupiter
2001
132,395
48
    1,569,698
       12.08
   98.2%
Publix, Walgreens
               
 
19

 Property
Year Acquired
GLA (Sq. Ft.)
at Dec. 31, 2004
Number of
Tenants(1)
 Annualized Minimum Rent as of December 31, 2004(2)
 Average Minimum Rent Per Leased Sq. Ft. at Dec. 31, 2004
 Percent Leased at Dec.31, 2004
 Anchor Stores and Certain Tenants (3)
               
Cashmere Corners
Port St. Lucie
2001
89,234
18
$   724,851
$    8.12
  100.0%
Albertsons
               
Jonathan’s Landing
Jupiter
2001
26,820
12
     499,995
    18.64
     100.0%
Albertsons(4), Blockbuster
               
New Smyrna Beach Regional
New Smyrna Beach
2003
118,451
34
      1,160,260
     10.09
       97.1%
Publix, Walgreens* (Bealls Outlet), Bealls Home Outlet
           
 
 
Old King Commons
Palm Coast
2003
84,759
19
     680,832
       8.03
     100.0%
Wal-Mart*(Beall’s Outlet)
               
Ryanwood
Vero Beach
2001
114,925
32
      1,111,934
        9.75
       99.2%
Publix, Bealls Outlet, Books-A-Million
               
Salerno Village
Stuart
2002
79,903
 21
     750,145
      10.30
       91.2%
Winn Dixie, CVS Pharmacy
               
Treasure Coast
Vero Beach
2003
133,781
25
      1,096,018
        8.67
   94.5%
Winn Dixie, TJ Maxx
               
South Florida/Atlantic Coast (26 properties)
       
               
Bird Ludlum
Miami
1994
192,282
46
      2,811,355
      15.12
   96.7%
Winn-Dixie, CVS Pharmacy, Blockbuster, Goodwill
               
Boca Village
Boca Raton
2001
93,428
22
      1,443,814
      15.45
 100.0%
Publix, CVS Pharmacy
               
Boynton Plaza
Boynton Beach
2001
99,324
29
      1,097,800
      11.05
 100.0%
Publix, CVS Pharmacy, Hollywood Video
               
Countryside Shops
Cooper City
2003
179,561
46
      2,286,979
      12.74
    100.0%
Publix, CVS Pharmacy, Stein Mart
               
Crossroads Square
Pembroke Pines
2001
270,206
27
      2,049,051
        7.76
  97.7%
Lowe’s, CVS Pharmacy, Goodyear
               
El Novillo
Miami Beach
2001
10,000
   1
         154,891
  15.49
     100.0%
Jumbo Buffet
               
Greenwood
Palm Springs
2003
132,325
36
      1,457,795
       12.01
   91.7%
Publix, Bealls, World Savings Bank
               
Lago Mar
Miami
2003
82,613
 21
         983,986
      12.24
   97.3%
Publix, Blockbuster
               
Lantana Village
Lantana
1998
181,780
27
      1,212,107
        6.90
   96.7%
Winn-Dixie, Kmart, Rite Aid* (Dollar Store), Hollywood Video
               
Meadows
Miami
2002
75,524
20
         933,600
      12.36
 100.0%
Publix
               
Oakbrook Square
Palm Beach Gardens, FL
2004
212,074
30
      2,561,097
      13.39
     90.2%
Publix, CVS Pharmacy, Homegoods, Stein Mart
               
Pine Island
Davie
1999
254,907
47
          2,565,392
      10.06
 100.0%
Publix, Home Depot Expo, Bealls Outlet
               
 
20

Property
 
Year Acquired
GLA (Sq. Ft.)
at Dec. 31, 2004 
Number of
Tenants (1)
Annualized Minimum Rent as of December 31, 2004(2)
 Average Minimum Rent Per Leased Sq. Ft. at Dec. 31, 2004
Percent Leased at Dec.31, 2004
 Anchor Stores and Certain Tenants (3)
               
Pine Ridge Square
Coral Springs
2003
117,399
35
   $  1,551,653
$   13.42
  98.5%
Fresh Market, Bed Bath & Beyond, Off Main Furniture, Blockbuster
               
Plaza Alegre
Miami
2003
91,611
21
       1,289,833
      14.66
  96.1%
Publix, Goodwill, Blockbuster
               
Point Royale
Miami
1995
209,863
25
       1,303,036
        6.58
  94.3%
Winn-Dixie, Best Buy, CVS Pharmacy* (Anna’s Linens)
               
Prosperity Center
Palm Beach Gardens
2001
122,106
9
       1,899,706
   15.56
100.0%
Office Depot, Barnes & Noble, Bed Bath & Beyond, Carmine’s, TJ Maxx
               
Ridge Plaza
Davie
1999
155,204
29
       1,436,526
     9.38
  98.7%
AMC Theatre, Kabooms, Wachovia* (United Collection), Uncle Funny’s, Round Up
               
Riverside Square
Coral Springs
2003
107,941
36
       1,430,126
  13.64
  97.1%
Publix, Tuesday Morning
               
Sawgrass Promenade
Deerfield Beach
2001
107,092
29
       1,056,918
   10.83
  91.1%
Publix, Walgreens, Blockbuster
               
Sheridan Plaza
Hollywood
  2003
455,843
66
       5,538,914
  14.02
86.7%
Publix, Ross Dress For Less, Bed Bath & Beyond, Office Depot, AMC Theater, CVS Pharmacy, Blockbuster
               
Shoppes of Ibis
West Palm Beach
2002
79,420
18
   1,009,077
   12.71
100.0%
Publix
               
Shoppes of Silverlakes
Pembroke Pines
2003
126,788
40
   2,088,700
   16.63
  99.1%
Publix, Blockbuster
               
Shops at Skylake
North Miami Beach
1997
219,199
47
   3,436,021
   15.75
  99.5%
Publix, Goodwill, LA Fitness, Blockbuster
               
Tamarac Town Square
Tamarac
2003
127,635
39
   1,190,819
   10.69
  87.3%
Publix
               
West Lakes Plaza
Miami
1996
100,747
27
    1,115,111
   11.07
100.0%
Winn-Dixie, Navarro Pharmacy
               
Westport Plaza
Davie
2004
36,212
5
      606,257
   16.74
100.0%
Publix, Blockbuster
             
Subtotal Florida Properties
(75 properties)
     9,026,499
1,898
92,548,627
 10.75
95.5%
 
               
               
GEORGIA (23 properties)
           
               
Atlanta Area (18 properties)
           
               
BridgeMill
Canton
 2004
89,102
30
 1,236,146
14.91
 93.0%
Publix
               
 
21

Property
 Year Acquired
GLA (Sq. Ft.)
at Dec. 31, 2004 
Number of
Tenants (1)
 Annualized Minimum Rent as of December 31, 2004(2)
 Average Minimum Rent Per Leased Sq. Ft. at Dec. 31, 2004
 Percent Leased at Dec.31, 2004
 Anchor Stores and Certain Tenants (3)
               
Butler Creek
Acworth
2003
95,597
19
$   997,302
$   10.76
 97.0%
Kroger
               
Chastain Square
Atlanta
2003
91,637
28
      1,435,174
     16.23
 96.5%
Publix
               
Commerce Crossing
Commerce
2003
100,668
10
      391,633
        4.09
 95.0%
Ingles, Wal-Mart*
               
Douglas Commons
Douglasville
2003
97,027
18
      952,040
        9.96
 98.6%
Kroger
               
Fairview Oaks
Ellenwood
2003
77,052
13
       868,611
      11.27
100.0%
Kroger, Blockbuster
               
Grassland Crossing
Alpharetta
2003
90,906
14
      977,523
      11.53
 93.3%
Kroger
               
Hamilton Ridge
Buford
2003
89,496
21
       1,114,761
      12.92
 96.4%
Kroger
               
Mableton Crossing
Mableton
2003
86,819
16
     848,278
      10.23
  95.5%
Kroger
               
Macland Pointe
Marietta
2003
79,699
17
     777,743
         9.76
100.0%
Publix
               
Market Place
Norcross
2003
77,706
23
     704,642
         9.45
  96.0%
Peachtree Cinema
               
Paulding Commons
Dallas
2003
192,391
31
      1,527,759
         8.08
 98.3%
Kroger, Kmart
               
Powers Ferry Plaza
Marietta
2003
86,473
25
     805,528
       10.66
  87.4%
Micro Center
               
Presidential Markets
Snellville
2003
396,408
35
     3,906,192
         9.95
  99.0%
Publix, Bed Bath & Beyond, GAP, TJ Maxx, Shoe Carnival, Borders, Ross Dress for Less, Marshalls, Carmike Cinema, Office Depot
               
Shops of Huntcrest
Lawrenceville
2003
97,040
26
      1,281,768
       13.42
  98.5%
Publix
               
Wesley Chapel Crossing
Decatur
2003
170,792
25
      1,082,828
         6.55
  96.8%
Ingels, Wal-Mart*, CVS Pharmacy
               
West Towne Square
Rome
2003
89,596
18
     458,085
         5.77
  88.6%
Big Lots, Eckerd*
               
Williamsburg @ Dunwoody
Dunwoody
2003
44,928
27
     788,899
       17.56
100.0%
 
               
 
22

 Property
Year Acquired 
GLA (Sq. Ft.)
at Dec. 31, 2004 
 Number of
Tenants (1)
 Annualized Minimum Rent as of December 31, 2004 (2)
 Average Minimum Rent Per Leased Sq. Ft. at Dec. 31, 2004
 Percent Leased at Dec.31, 2004
 Anchor Stores and Certain Tenants (3)
               
 
Central Georgia (3 Properties)
           
               
Daniel Village
Augusta
2003
171,932
39
$1,303,273
$  7.90
  95.9%
Bi-Lo, Eckerd*, St. Joseph Home Health Care
               
Spalding Village
Griffin
2003
235,318
28
   1,095,659
7.72
  60.3%
Kroger, JC Penney, Blockbuster
               
Walton Plaza
Augusta
2003
43,460
8
  414,611
9.54
100.0%
Harris Teeter* (Omni Fitness)
               
South Georgia (2 properties)
           
               
Colony Square
Fitzgerald
2003
50,000
8
  270,460
 6.47
 83.6%
Food Lion
               
McAlpin Square
Savannah
2003
176,807
27
   1,215,528
 7.39
 93.0%
Kroger, US Post Office, Big Lots, In Fashion Menswear Outlet
               
Subtotal Georgia Properties
(23 properties)
  2,730,854
506
24,454,443
       9.63
93.0%
 
               
KENTUCKY (1 property)
           
               
Scottsville Square
Bowling Green
2003
38,450
12
  106,563
 6.66
  41.6%
Hancock Fabrics, Zap Zone
               
Subtotal Kentucky Properties
(1 property)
38,450
12
106,563
       6.66
41.6%
 
               
LOUISIANA (14 properties)
           
               
Ambassador Row
Lafayette
 2003
193,978
25
    1,488,958
        7.99
  96.1%
Hobby Lobby*, Conn’s Appliances, Big Lots, Chuck E. Cheese
               
Ambassador Row Courtyard
Lafayette, LA
 2003
146,697
24
     1,280,700
        9.33
  93.5%
Marshalls, Bed Bath & Beyond, Hancock Fabrics, Tuesday Morning
               
Bluebonnet Village
Baton Rouge
 2003
90,215
20
   719,656
        8.10
  98.4%
Matherne’s
               
The Boulevard
Lafayette
 2003
68,012
15
  474,894
         7.21
  96.8%
Piccadilly, Harbor Freight Tools
               
Country Club Plaza
Slidell
 2003
64,686
11
  358,364
        5.86
  94.6%
Winn-Dixie, Dollar General
               
The Crossing
Slidell
 2003
113,989
15
  626,634
        5.65
  97.4%
Save A Center, A-1 Home Appliance, Piccadilly
               
Elmwood Oaks
Hanahan
 2003
133,995
9
   1,241,383
        9.97
  92.9%
Wal-Mart* (Academy Sports, Dollar Tree), Advance Auto* (Goodwill)
               
Grand Marche
(ground lease)
Lafayette
 2003
200,585
1
    27,500
        0.14
100.0%
Academy Sports, JoAnn Fabrics
               
 
23

 Property
 
Year Acquired 
GLA (Sq. Ft.)
at Dec. 31, 2004
 Number of
Tenants (1)
 Annualized Minimum Rent as of December 31, 2004 (2)
Average Minimum Rent Per Leased Sq. Ft. at Dec. 31, 2004
 Percent Leased at Dec.31, 2004 
 
 Anchor Stores and Certain Tenants (3)
               
Plaza Acadienne
Eunice
2003
105,419
8
   $   356,565
$   3.52
  96.2%
Super 1 Store, Fred’s, Howard Brothers*
               
Sherwood South
Baton Rouge
2003
77,107
10
    463,239
 6.15
  97.7%
Piggly Wiggly*, Burke’s Outlet, Harbor Freight Tools, Blockbuster
               
Siegen Village
Baton Rouge
2003
170,416
20
 1,435,854
 8.43
100.0%
Office Depot, Big Lots, Dollar Tree, Stage, Party City
               
Tarpon Heights
Galliano
2003
56,605
10
     247,551
  4.75
  92.0%
CVS Pharmacy, Stage, Dollar General
               
Village at Northshore
Slidell
2003
144,638
13
 1,231,110
  8.50
100.0%
Marshalls, Dollar Tree, Kirschman’s, Bed Bath & Beyond, Office Depot
               
Wal-Mart
Mathews
2003
54,223
1
     157,500
  2.90
100.0%
Wal-Mart
               
Subtotal Louisiana Properties (14 properties)
      1,620,565
182
 10,108,908
 6.42
97.1%
 
               
MASSACHUSETTS
(6 properties)
           
               
Cambridge Star Market
Cambridge
2004
66,108
1
   1,580,298
23.90
100.0%
Star Market
               
Medford Shaw’s Supermarket
Medford
2004
60,356
1
   1,289,593
21.37
100.0%
Shaw’s
               
Plymouth Shaw’s Supermarket
Plymouth
2004
59,726
1
      943,312
15.79
100.0%
Shaw’s
               
Quincy Star Market
Quincy
2004
100,741
1
   1,554,592
15.43
100.0%
Star Market
               
Swampscott
Swampscott
2004
35,907
1
      754,047
21.00
100.0%
Whole Foods
               
West Roxbury Shaw’s Plaza
West Roxbury
2004
68,141
7
   1,403,232
21.06
97.8%
Shaw’s
               
               
Subtotal Massachusetts Properties
(6 properties)
  390,979
12
7,525,074
19.32
99.6%
 
               
MISSISSIPPI (1 property)
           
               
Shipyard Plaza
Pascagoula
2003
66,857
7
     385,404
  5.76
100.0%
Rite Aid, Big Lots
               
Subtotal Mississippi Properties
(1 property)
    66,857
7
    385,404
  5.76
100.0%
 
               
 
24

 Property
 Year Acquired
GLA (Sq. Ft.)
at Dec. 31, 2004 
Number of
Tenants (1) 
 Annualized Minimum Rent as of December 31, 2004 (2)
Average Minimum Rent Per Leased Sq. Ft. at Dec. 31, 2004 
 Percent Leased at Dec.31, 2004  
 Anchor Stores and Certain Tenants (3)
               
NORTH CAROLINA
(12 properties)
           
               
Centre Pointe Plaza
Asheville
2003
163,642
23
$ 839,263
$  5.36
  95.7%
Wal-Mart*, (Belk’s, Goody’s), Dollar Tree
               
Chestnut Square
Brevard
2003
39,640
7
   212,120
6.38
  83.9%
Food Lion*, Eckerd*, (Dollar General)
               
Galleria
Wrightsville Beach
2003
92,114
38
   839,275
9.57
  95.2%
Harris Teeter, Eckerd
               
Parkwest Crossing
Durham
2003
85,602
17
   877,228
10.25
100.0%
Food Lion
               
Plaza North
Hendersonville
2003
47,240
9
   326,263
7.09
   97.5%
Bi-Lo*, CVS Pharmacy
               
Providence Square
Charlotte
2003
85,930
25
  605,954
8.22
   85.8%
Harris Teeter*, Eckerd
               
Riverview Shopping Center
Durham
2003
127,498
12
  860,544
7.36
   91.8%
Kroger, Upchurch Drugs, Blockbuster
               
Salisbury Marketplace
Salisbury
2003
79,732
20
  746,684
 9.97
  93.9%
Food Lion
               
Shelby Plaza
Shelby
2003
103,200
8
   324,589
 3.15
 100.0%
Big Lots, Aaron Rents*, (Hancock Fabrics)
               
Stanley Market Place
Stanley
2003
40,400
3
  221,082
 5.47
 100.0%
Winn-Dixie, Family Dollar
               
Thomasville Commons
Thomasville
2003
148,754
13
  890,838
 5.99
 100.0%
Ingles, Kmart, CVS Pharmacy
               
Willowdale Shopping Center
Durham
2003
121,376
28
1,323,098
11.49
   94.9%
Harris Teeter, Carmike Cinemas, Eckerd* (Family Dollar)
               
Subtotal North Carolina Properties
(12 properties)
1,135,128
   203
 8,066,938
 7.45
 95.3%
 
               
               
SOUTH CAROLINA
(8 properties)
           
               
Belfair Towne Village
Bluffton
2003
125,389
29
 1,757,746
14.02
  100.0%
Kroger, Blockbuster
               
Lancaster Plaza
Lancaster
2003
77,400
4
    102,000
 1.44
   91.5%
Bi-Lo
               
 
25

 Property
 Year Acquired
GLA (Sq. Ft.)
at Dec. 31, 2004 
 Number of
Tenants (1)
Annualized Minimum Rent as of December 31, 2004 (2)
 Average Minimum Rent Per Leased Sq. Ft. at Dec. 31, 2004   Percent Leased at Dec.31, 2004  
 Anchor Stores and Certain Tenants (3)
               
Lancaster Shopping Center
Lancaster
2003
29,047
2
$    30,012
$   6.00
   17.2%
 
               
North Village Center
Durham
2003
60,356
14
483,327
  8.28
   96.8%
Bi-Lo, Dollar General, Gold’s Gym
               
Sparkleberry
Columbia
2004
339,051
25
 3,722,411
11.16
   98.4%
Kroger, Kohl’s, Ross Dress for Less, Circuit City, Bed Bath & Beyond
               
Spring Valley
Columbia
2003
75,415
17
655,011
  9.07
    95.8%
Bi-Lo, Eckerd
               
Windy Hill
North Myrtle Beach
2004
64,465
2
354,199
  5.49
   100.0%
Rose’s Store, Family Dollar Store
               
Woodruff
Greenville
2003
68,055
10
673,760
10.03
     98.7%
Publix, Blockbuster
               
Subtotal South Carolina Properties
(8 properties)
   839,178
 103
7,778,466
 9.76
  95.0%
 
               
               
TENNESSEE (1 property)
           
               
Smyrna Village
Smyrna
2003
83,334
12
636,713
  8.20
   93.1%
Kroger
               
Subtotal Tennessee properties
(1 property)
83,334
12
  636,713
 8.20
 93.1%
 
               
               
TEXAS (32 properties)
           
               
Houston (17 properties)
           
               
Barker Cypress
Houston
2001
66,945
17
797,079
    12.56
     94.8%
H.E.B.
               
Beechcrest
Houston
2001
90,647
15
800,223
      8.83
    100.0%
Randall’s* (Viet Ho), Walgreens*
               
Benchmark Crossing
Houston
2001
58,384
5
731,694
    12.53
   100.0%
Bally’s Fitness
               
Bissonnet
Houston
2001
15,542
8
187,047
    16.35
    73.6%
Kroger (4),Blockbuster
               
Colony Plaza
Sugarland
2001
26,513
15
493,241
    18.60
  100.0%
(Velocity Sports)
               
Copperfield
Houston
2004
133,984
33
 1,553,208
    12.15
    95.4%
JoAnn Fabrics, Dollar Tree, 24 Hour Fitness
               
Forestwood
Houston
2002
88,760
16
 1,003,291
    11.30
  100.0%
Kroger, Blockbuster
               
 
26

 
Property
Year Acquired 
GLA (Sq. Ft.)
at Dec. 31, 2004 
Number of
Tenants (1) 
Annualized Minimum Rent as of December 31, 2004 (2) 
Average Minimum Rent Per Leased Sq. Ft. at Dec. 31, 2004  Percent Leased at Dec.31, 2004   
 Anchor Stores and Certain Tenants (3)
               
Grogan’s Mill
The Woodlands
2001
118,493
26
$1,405,611
$   12.18
 97.4%
Randall’s* (99¢ Store), Petco, Blockbuster
               
Hedwig
Houston
2001
69,504
13
    822,266
  15.01
 78.8%
Ross Dress For Less
               
Highland Square
Sugarland
2001
64,171
28
1,031,374
 17.12
 93.9%
 
               
Market at First Colony
Houston
2001
107,301
35
1,704,860
  16.19
 98.1%
Kroger, TJ Maxx, CVS Pharmacy
               
Mason Park
Katy
2001
160,047
39
1,436,050
  12.19
 73.6%
Kroger, Walgreens* (Eloise Collectibles), Palais Royal, Petco
               
Mission Bend
Houston
2001
131,575
27
1,060,605
   8.83
 91.3%
Randall’s, Remarkable Furniture
               
Spring Shadows Houston
2001
106,995
18
  990,549
   9.64
 96.1%
H.E.B. 
               
Steeplechase
Jersey Village
2001
105,152
25
1,143,051
  11.22
 96.9%
Randall’s
               
Wal-Mart Stores, Inc.
Marble Falls
2003
53,571
1
  175,350
    3.27
   100.0%
Wal-Mart* (Sutherland Lumber)
               
Westgate
Houston
2004
298,354
25
3,504,429
  11.75
   100.0%
H.E.B., Kohl’s, Oshman’s Sporting Goods, Office Max, Pier One Imports
               
Dallas (12 properties)
           
               
Creekside
Arlington
2004
101,016
17
1,126,724
  12.04
   100.0%
Kroger, Hollywood Video
               
DeSoto Shopping Center
Desoto
2004
69,090
5
   658,180
    9.53
   100.0%
Tom Thumb, Blockbuster
               
Green Oaks
Arlington
2001
65,091
34
   584,268
  10.99
 81.7%
Kroger
               
Melbourne Plaza(5)
Hurst
2001
47,517
18
   487,676
   11.51
 89.2%
 
               
Minyard’s
Garland
2001
65,295
2
   399,648
     6.12
   100.0%
Minyards/Sack N Save
               
Parkwood
Plano
2001
81,590
20
1,049,134
   13.22
 97.2%
Albertsons, Planet Pizza
               
Richwood
Richardson
2001
54,871
27
   685,926
   12.53
99.8%
Albertsons(4) , Blockbuster
               
Rosemeade Park
Carrolton
2001
51,231
18
   299,512
   13.07
44.7%
Blockbuster
               
Southlake Village
Southlake
2004
118,092
22
1,426,340
   12.74
94.8%
Kroger
               
 
27

 Property
Year Acquired  
GLA (Sq. Ft.)
at Dec. 31, 2004 
 Number of
Tenants (1) 
 
Annualized Minimum Rent as of December 31, 2004 (2)
 Average Minimum Rent Per Leased Sq. Ft. at Dec. 31, 2004 Percent Leased at Dec.31, 2004   
 Anchor Stores and Certain Tenants (3)
               
Sterling Plaza
Irving
2001
65,765
16
   $   906,281
$  14.25
96.7%
Bank One, Irving City Library, 99 Cent Only Store
               
Townsend
Desoto
2001
146,953
38
 1,073,088
   8.81
82.9%
Albertsons(4), Bealls, Victory Gym, Dollar General
               
Village by the Park
Arlington
2001
44,523
10
    624,492
 16.25
86.3%
Petco, Movie Trading
               
San Antonio (3 properties)
           
               
Bandera Festival
San Antonio, TX
2001
195,438
38
 1,453,567
   8.12
 91.5%
Bealls, Big Lots, Burke’s Outlet, Dollar Tree, FWL Furniture
               
Blanco Village
San Antonio
2002
108,325
16
 1,704,543
15.74
100.0%
H.E.B.
               
Wurzbach
San Antonio
2001
59,771
3
    181,617
  3.04
100.0%
Albertsons*
             
Subtotal Texas Properties (32 properties)
2,970,506
  630
     31,590,924
11.41
93.2%
 
               
               
VIRGINIA (2 properties)
           
               
Smyth Valley Crossing
Marion
2003
126,841
14
    747,810
  5.90
100.0%
Ingles, Wal-Mart
               
Waterlick Plaza
Lynchburg
2003
98,694
24
746,405
  7.96
  95.1%
Kroger, CVS Pharmacy, Dollar Tree
               
Subtotal Virginia Properties
(2 properties)
225,535
38
   1,494,215
 6.77
97.8%
 
               
Total/Weighted Average
Core Shopping Center Portfolio
(179 properties)
19,510,354
   3,683
   187,742,108
    10.14
94.9%
 
 
             
DEVELOPMENTS AND REDEVELOPMENTS (6)
           
               
CVS Plaza(5)
Miami, FL
2004
29,204
 9
     344,280
16.08
73.3%
CVS Pharmacy
               
Eustis Square
Eustis, FL
1993
126,791
27
     563,736
  5.73
 77.6%
Save-a-Lot, Accent Marketing Services, Fred’s
               
Homestead Gas Station
Homestead, FL
2004
2,136
 1
   41,352
19.36
100.0%
 
               
Shops at St. Lucie(6)
Port St. Lucie, FL
Develop-ment
4.0 acres
       N/A
  N/A
 
               
Waterstone(7)
Homestead, FL
Develop-ment
12.0 acres
       N/A
  N/A
 
               
 
28

 Property
 Year Acquired 
GLA (Sq. Ft.)
at Dec. 31, 2004 
 Number of
Tenants (1) 
 
Annualized Minimum Rent as of December 31, 2004 (2)
Average Minimum Rent Per Leased Sq. Ft. at Dec. 31, 2004
 Percent Leased at Dec.31, 2004  
 Anchor Stores and Certain Tenants (3)
               
Westridge
McDonough, GA
2005 Dev.
13.5 acres
   N/A
    —
 
               
Total Developments & Redevelopments (6)
158,131
 37
   949,368
    7.79
77.1%
 
               
Total Retail Properties
(185 properties)
19,668,485
    3,720
   188,691,476
$10.12
94.8%
 
             
             
Other Properties (3)
           
               
4101 South I-85
Industrial
Charlotte, NC
2003
188,513
  9
     413,743
     —
 81.7%
 
               
Pinhook Office Building
Layayette, LA
2003
4,406
  2
   19,648
   —
49.5%
 
               
Mandarin Mini
storage(9)
Jacksonville, FL
1994
52,880
  534
       N/A
    —
 97.0%
 
               
Grand Total(188 properties) 
19,914,284
    4,265
 $189,124,857
   
94.6%
 
               
——————————
(1)  
Number of tenants includes both occupied and vacant units.
 
(2)  
Calculated by annualizing the tenant’s monthly base rent payment at December 31, 2004, excluding expense reimbursements, percentage rent payments and other charges.
 
(3)  
Includes supermarket tenants and certain other tenants, as well as, occupants that are on an adjacent or contiguous, separately owned parcel and do not pay any rent or expense recoveries.
 
(4)  
This tenant is on adjacent or contiguous, separately owned parcel.
 
(5)  
We are completing the lease up of the local space.
 
(6)  
This development property located in Port St. Lucie, Florida is a 4.0 acre site located adjacent to our Cashmere retail center.
 
(7)  
This development property is a 12.0 acre site located 25 miles south of Miami, Florida. We are developing a supermarket-anchored shopping center which we expect to complete in 2005.
 
(8)  
This development property is a 13.5 acre site located in Georgia and we expect to develop a supermarket-anchored center in 2006.
 
(9)  
There are 534 storage spaces available at this property.
 
* Indicates a tenant that has closed its store and ceased to operate at the property, but continues to pay rent under the terms of its lease. The sub-tenant, if any, is shown in parentheses.
** This property was sold in January 2005.
 
Most of our leases provide for the monthly payment in advance of fixed minimum rentals, the tenants’ pro rata share of ad valorem taxes, insurance (including fire and extended coverage, rent insurance and liability insurance) and common area maintenance for the property. They may also provide for the payment of additional rentals based on a percentage of the tenants’ sales. Utilities are generally paid directly by tenants except where common metering exists with respect to a property. In this case, we make the payments for the utilities and are reimbursed by the tenants on a monthly basis. Generally, our leases prohibit the tenant from assigning or subletting its space. They also require the tenant to use its space for the purpose designated in its lease agreement and to operate its business on a continuous basis. Some of the lease agreements with major tenants contain modifications of these basic provisions in view of the financial condition, stability or desirability of those tenants. Where a tenant is granted the right to assign its space, the lease agreement generally provides that the original lessee will remain liable for the payment of the lease obligations under that lease agreement.
 
29

Major Tenants
 
The following table sets forth as of December 31, 2004 the gross leasable area, or GLA of existing properties leased to tenants in our retail properties:
 
 
   
Supermarket Anchor Tenants 
   
Other Anchor Tenants
   
Non-anchor Tenants
   
Total
 
Leased GLA (sq. ft.)
   
 
5,731,856
   
 
6,172,105
   
 
6,736,107
   
 
18,640,068
 
Percentage of Total Leased GLA
   
30.8
%
 
33.1
%
 
36.1
%
 
100.0
%
 
The following table sets forth as of December 31, 2004 the annual minimum rent at expiration attributable to tenants our retail properties:
 
 
 
   
Supermarket Anchor Tenants
   
Other Anchor Tenants
   
Non-anchor Tenants
   
Total
 
Annual Minimum Rent (“AMR”)
 
$
49,736,175
 
$
41,625,823
 
$
105,722,544
 
$
197,084,542
 
Percentage of Total AMR
   
25.2
%
 
21.1
%
 
53.7
%
 
100.0
%
 
 
The following table sets forth as of December 31, 2004 information regarding leases with the ten largest tenants in our retail properties:
 
Tenant
 
Number of Leases
 
GLA (square feet)
 
Percent
of Total GLA
 
Annualized Minimum Rent at December 31, 2004
 
Percent of Aggregate Annualized Minimum Rent
 
Average Annual Minimum Rent per Square Foot
                         
Publix
 
49 
 
2,183,532
 
11.1%
 
$  15,722,674
 
  8.3%
 
$    7.20
Kroger
 
17 
 
962,697
 
  4.9%
 
7,998,271
 
  4.2%
 
8.31
Albertsons/Shaw’s
 
 
570,286
 
  2.9%
 
7,567,853
 
  4.0%
 
13.27
Winn-Dixie
 
16 
 
730,442
 
  3.7%
 
5,059,331
 
  2.7%
 
6.93
Wal-Mart
 
 
646,682
 
  3.3%
 
2,940,519
 
  1.6%
 
4.55
H.E. Butt Grocery
 
 4 
 
256,262
 
  1.3%
 
2,775,355
 
  1.5%
 
10.83
Blockbuster
 
29 
 
170,092
 
  0.9%
 
2,673,625
 
  1.4%
 
15.72
CVS Pharmacy
 
23 
 
235,345
 
  1.2%
 
2,348,791
 
  1.2%
 
9.98
Kmart
 
 
438,458
 
  2.2%
 
2,289,616
 
  1.2%
 
5.22
Bed Bath & Beyond
 
 
227,689
 
  1.2%
 
2,192,531
 
  1.2%
 
9.63
           
 
         
 
Total top ten tenants
 
168 
 
6,421,485
 
32.6%
 
$  51,568,566
 
27.3%
 
$    8.03
                         
 
Lease Expirations
 
The following tables set forth as of December 31, 2004 the anticipated expirations of tenant leases our retail properties for each year from 2005 through 2014 and thereafter:
 
30

All Tenants
                       
Year
 
Number of Leases
 
GLA (square feet)
 
Percent of Total GLA
 
Annualized Minimum Rent at Expiration
 
Percent of Aggregate Annualized Minimum Rent at Expiration
 
Average Annual Minimum Rent per Square Foot at Expiration
                         
M-T-M
 
127
 
380,432
 
  1.9%
 
$   3,463,399
 
 
    1.8%
 
$     9.10
2005
 
691
 
1,938,316
 
  9.9%
 
22,730,802
 
   11.5%
 
     11.73
2006
 
680
 
2,075,952
 
10.6%
 
25,662,979
 
   13.0%
 
     12.36
2007
 
669
 
2,167,412
 
11.0%
 
26,518,888
 
   13.5%
 
     12.24
2008
 
403
 
1,589,331
 
  8.1%
 
18,978,322
 
    9.6%
 
     11.94
2009
 
361
 
1,927,224
 
  9.8%
 
19,720,921
 
   10.0%
 
     10.23
2010
 
101
 
746,460
 
  3.8%
 
7,683,332
 
    3.9%
 
     10.29
2011
 
44
 
907,595
 
  4.6%
 
7,098,986
 
    3.6%
 
      7.82
2012
 
42
 
791,701
 
  4.0%
 
7,190,214
 
    3.6%
 
      9.08
2013
 
34
 
664,694
 
  3.4%
 
6,160,217
 
    3.1%
 
      9.27
2014
 
35
 
769,089
 
  3.9%
 
6,443,268
 
    3.3%
 
      8.38
Thereafter
 
150
 
4,681,862
 
23.8%
 
45,433,214
 
  23.1%
 
      9.70
                         
Sub-total/Average
 
3,337
 
18,640,068
 
94.8%
 
197,084,542
 
100.0%
 
   10.57
                         
Vacant
 
383
 
1,028,417
 
   5.2%
 
N/A
 
N/A
 
     N/A
                         
Total/Average
 
3,720
 
19,668,485
 
100.0%
 
$197,084,542
 
100.0%
 
 $ 10.02
                         

 
Anchor Tenants (10,000 sq. ft. or greater)
           
Year
 
Number of Leases
 
GLA (square feet)
 
Percent of Total GLA
 
Annualized Minimum Rent at Expiration
 
Percent of Aggregate Annualized Minimum Rent at Expiration
 
Average Annual Minimum Rent per Square Foot at Expiration
                         
M-T-M
 
  6
 
141,085
 
  1.1%
 
$     573,314
 
    0.6%
 
 $ 4.06
2005
 
 26
 
553,843
 
  4.5%
 
2,773,580
 
   3.0%
 
    5.01
2006
 
 29
 
720,839
 
  5.9%
 
4,492,384
 
   4.9%
 
    6.23
2007
 
 33
 
833,921
 
  6.8%
 
5,664,629
 
   6.2%
 
    6.79
2008
 
 28
 
723,738
 
  5.9%
 
4,595,611
 
   5.0%
 
    6.35
2009
 
 38
 
1,167,037
 
  9.5%
 
7,099,310
 
   7.8%
 
    6.08
2010
 
 23
 
536,441
 
  4.4%
 
4,113,636
 
   4.5%
 
    7.67
2011
 
 20
 
831,311
 
  6.8%
 
5,385,087
 
   5.9%
 
    6.48
2012
 
 19
 
702,701
 
  5.7%
 
5,167,199
 
   5.7%
 
    7.35
2013
 
 15
 
589,538
 
  4.8%
 
4,590,453
 
   5.0%
 
    7.79
2014
 
 15
 
684,976
 
  5.6%
 
4,689,677
 
   5.1%
 
    6.85
Thereafter
 
 92
 
4,418,531
 
36.0%
 
42,217,118
 
 46.2%
 
    9.55
                       
 
Sub-total/Average
 
344
 
11,903,961
 
97.0%
 
91,361,998
 
100.0%
 
  7.67
           
 
           
Vacant
 
 14
 
367,940
 
  3.0%
 
N/A
 
   N/A
 
  N/A
                         
Total/Average
 
358
 
12,271,901
 
100.0%
 
$ 91,361,998
 
100.0%
 
$ 7.44
                         

 
31

Local Tenants (less than 10,000 sq. ft.)
               
Year
 
Number of Leases
 
GLA (square feet)
 
Percent of Total GLA
 
Annualized Minimum Rent at Expiration
 
Percent of Aggregate Annualized Minimum Rent at Expiration
 
Average Annual Minimum Rent per Square Foot at Expiration
                         
M-T-M
 
   121
 
239,347
 
   3.2%
 
$   2,890,085
 
   2.7%
 
$  12.07
2005
 
  665
 
1,384,473
 
 18.7%
 
19,957,222
 
  18.9%
 
    14.42
2006
 
   651
 
1,355,113
 
 18.3%
 
21,170,595
 
  20.0%
 
    15.62
2007
 
   636
 
1,333,491
 
 18.0%
 
20,854,259
 
  19.7%
 
    15.64
2008
 
   375
 
865,593
 
 11.7%
 
14,382,711
 
  13.6%
 
    16.62
2009
 
  323
 
760,187
 
 10.3%
 
12,621,611
 
  11.9%
 
    16.60
2010
 
    78
 
210,019
 
   2.8%
 
3,569,696
 
   3.4%
 
    17.00
2011
 
    24
 
76,284
 
   1.0%
 
1,713,899
 
   1.6%
 
    22.47
2012
 
    23
 
89,000
 
   1.2%
 
2,023,015
 
   1.9%
 
    22.73
2013
 
    19
 
75,156
 
   1.0%
 
1,569,764
 
   1.5%
 
    20.89
2014
 
    20
 
84,113
 
   1.1%
 
1,753,591
 
   1.7%
 
    20.85
Thereafter
 
    58
 
263,331
 
   3.6%
 
3,216,096
 
   3.0%
 
    12.21
                         
Sub-total/Average
 
2,993
 
6,736,107
 
 91.1%
 
105,722,544
 
100.0%
 
   15.69
                         
Vacant
 
  369
 
660,477
 
   8.9%
 
N/A
 
N/A
 
    N/A
                         
Total/Average
 
3,362
 
7,396,584
 
100.0%
 
$105,722,544
 
100.0%
 
$ 14.29
                         

We may incur substantial expenditures in connection with the re-leasing of our retail space, principally in the form of tenant improvements and leasing commissions. The amounts of these expenditures can vary significantly, depending on negotiations with tenants and the willingness of tenants to pay higher base rents over the terms of the leases. We also incur expenditures for certain recurring capital expenses.
 
Insurance
 
Our tenants are generally responsible under their leases for providing adequate insurance on the spaces they lease. We believe that our properties are covered by adequate fire, flood and property insurance, and where necessary hurricane and windstorm coverages all provided by reputable companies. However, certain of our properties are not covered by disaster insurance with respect to certain hazards (such as hurricanes) for which coverage is not available or available only at rates, which in our opinion, are not economically justifiable.
 
Unconsolidated Joint Venture Investment
 
As of December 31, 2004, we owned a non-controlling interest in one unconsolidated joint venture which owns a parcel of land that is held for future development or sale.
 
ITEM 3. LEGAL PROCEEDINGS
 
Neither we nor our properties are subject to any litigation which we believe will have a material adverse affect on our business financial conditional or results of operations or cash flows. Furthermore, to the best of our knowledge, except as described above with respect to environmental matters, there is no litigation threatened against us or any of our properties, other than routine litigation and administrative proceedings arising in the ordinary course of business, which collectively are not expected to have a material adverse effect on our business, financial condition, results of operations or cash flows.
 
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
 
No matters were submitted for stockholder vote during the fourth quarter of 2004.
 
32

PART II
 
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
 
Market Information and Dividends
 
Our common stock began trading on the New York Stock Exchange, or NYSE, on May 18, 1998, under the symbol “EQY.” On March 10, 2005, we had approximately 2,000 stockholders of record representing approximately 15,000 beneficial owners. The following table sets forth for the periods indicated the high and low sales closing prices as reported by the NYSE and the distributions declared by us:
 
 
   
High 
   
Low
   
Distributions
Declared
 
                     
First Quarter, 2004
 
$
19.65
 
$
17.05
 
$
0.28
 
Second Quarter, 2004
 
$
19.25
 
$
15.78
 
$
0.28
 
Third Quarter, 2004
 
$
19.99
 
$
17.95
 
$
0.28
 
Fourth Quarter, 2004
 
$
23.83
 
$
20.08
 
$
0.29
 
                     
 
   
High 
   
Low
   
Distributions
Declared
 
                     
First Quarter, 2003
 
$
15.30
 
$
12.92
 
$
0.27
 
Second Quarter, 2003
 
$
17.26
 
$
15.32
 
$
0.27
 
Third Quarter, 2003
 
$
17.82
 
$
16.43
 
$
0.28
 
Fourth Quarter, 2003
 
$
17.50
 
$
16.40
 
$
0.28
 
                     
 
Dividends paid during 2004 and 2003 totaled $80.9 million and $70.7 million, respectively. Future declarations of dividends will be made by us at the discretion of our board of directors and will depend upon our earnings, financial condition and such other factors as our board of directors deems relevant. In order to qualify for the beneficial tax treatment accorded to real estate investment trusts under the Internal Revenue Code of 1986, or the Code, we are currently required to make distributions to holders of our shares in an amount equal to at least 90% of our “real estate investment trust taxable income,” as defined in Section 857 of the Code.
 
 
 
   
  Year Ended December 31,
 
                               
 
2004
   
2003
   
2002
   
2001
     
2000
 
   
 (in thousands other than per share, percentage and ratio data)
 
                               
Statement of Operations Data: (1)
                             
Total rental income
$
229,857
  $
180,295
  $
93,569
  $
74,454
  $
44,701
 
                               
Property operating expenses
 
60,402
   
51,728
   
28,849
   
23,267
   
12,676
 
Rental property depreciation and amortization
 
35,910
   
26,411
   
12,563
   
10,356
   
5,814
 
Litigation settlement
 
-
   
-
   
2,067
   
-
   
-
 
General and administrative expenses
 
16,601
   
11,046
   
6,648
   
3,553
   
2,559
 
Total operating expenses
 
112,913
   
89,185
   
50,127
   
37,176
   
21,049
 
Interest expense
 
(46,413
)
 
(36,814
)
 
(20,889
)
 
(20,417
)
 
(12,216
)
Amortization of deferred financing fees
 
(1,370
)
 
(992
)
 
(759
)
 
(1,080
)
 
(242
)
Other income, net
 
2,883
   
1,263
   
4,235
   
1,669
   
793
 
Minority interest
 
(576
)
 
(803
)
 
(101
)
 
(1,627
)
 
(603
)
Income from continuing operations
$
71,468
  $
53,764
  $ 
25,928
  $
15,823
  $
11,384
 
Net income
$
97,804
  $
63,647
  $
39,934
  $
18,721
  $
12,555
 
                               
Basic earnings per share:
                             
Income from continuing operations
$
1.01
  $
0.90
  $
0.79
  $
0.70
  $
0.80
 
Net income
$
1.39
  $
1.06
  $ 
1.22
  $
0.83
  $
0.88
 
Diluted earnings per share:
                             
Income from continuing operations
$
1.00
  $
0.89
  $
0.78
  $
0.70
  $
0.79
 
Net income
$
1.37
  $
1.05
  $
1.20
  $
0.83
  $
0.87
 
                             
Balance Sheet Data: 
                             
Total rental properties, net of accumulated depreciation
$
1,873,687
   
$
1,617,299
   
$
678,431
   
$
627,687
   
$
483,699
 
                               
Total assets
 
1,992,292
   
1,677,386
   
730,069
   
668,536
   
542,817
 
Mortgage notes payable
 
495,056
   
459,103
   
332,143
   
345,047
   
280,396
 
                               
Total liabilities
 
1,059,507
   
834,162
   
375,969
   
386,400
   
317,392
 
                               
Minority interest
 
1,397
   
12,672
   
3,869
   
3,869
   
37,762
 
Shareholders’ equity
 
931,388
   
830,552
   
350,231
   
278,267
   
187,663
 
                               
Other Data:
                             
Funds from operations(2)
$
113,471
  $
89,870
  $
45,487
  $
29,848
  $
19,266
 
Cash flows from:
                             
Operating activities
 
113,110
   
78,262
   
45,613
   
28,214
   
20,293
 
Investing activities
 
(244,851
)
 
(326,160
)
 
(51,439
)
 
(42,435
)
 
(11,679
)
Financing activities
 
135,897
   
245,920
   
7,864
   
12,780
   
(6,694
)
                               
GLA (square feet) at end of period
 
19,914
   
19,883
   
8,530
   
8,637
   
3,169
 
Occupancy of core shopping center portfolio at end of period
 
95%
   
90%
   
89%
   
86%
   
95%
 
                               
Dividends per share
$
1.13
  $
1.10
  $
1.08
  $
1.06
  $
1.10
 
                           
(continued
)
—————————————
 
34

(1) Reclassified to reflect the reporting of discontinued operations.
 
(2) We believe Funds From Operations (“FFO”) (combined with the primary GAAP presentations) is a useful supplemental measure of our operating performance that is a recognized metric used extensively by the real estate industry, in particular, REITs. Accounting for real estate assets using historical cost accounting under accounting principles generally accepted in the United States of America (“GAAP”) assumes that the value of real estate diminishes predictably over time. The National Association of Real Estate Investment Trusts (“NAREIT”) stated in its April 2002 White Paper on Funds from Operations “since real estate values…have historically risen or fallen with market conditions, many industry investors have considered presentations of operating results for real estate companies that use historical cost accounting to be insufficient by themselves.”
 
FFO, as defined by NAREIT, is “net income (computed in accordance with GAAP), excluding gains (or losses) from sales of depreciable property, plus depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures. Adjustments for unconsolidated partnerships and joint ventures will be calculated to reflect funds from operations on the same basis.” We believe that financial analysts, investors and stockholders are better served by the presentation of comparable period operating results generated from our FFO measure. Our method of calculating FFO may be different from methods used by other REITs and accordingly, may not be comparable to such other REITs.
 
FFO is presented to assist investors in analyzing our performance. FFO (i) does not represent cash flow from operations as defined by GAAP, (ii) is not indicative of cash available to fund all cash flow needs and liquidity, including the ability to make distributions, and (iii) should not be considered as an alternative to net income (which is determined in accordance with GAAP) for purposes of evaluating our operating performance. We believe net income is the most directly comparable GAAP measure to FFO.

 
   The following table illustrates the calculation of funds from operations for each of the five years in the period ended December 31, 2004 (in thousands):
 
 
 
Year Ended December 31,
                                 
     
2004
   
2003
   
2002
   
2001
   
2000
 
                                 
 
Net income
 
$
97,804
 
$
63,647
 
$
39,934
 
$
18,721
 
$
12,555
 
Adjustments:
                               
Rental property depreciation and amortization, including discontinued operations
   
37,023
   
28,007
   
13,810
   
11,665
   
6,534
 
(Gain) loss on disposal of income producing properties
   
(22,176
)
 
(3,083
)
 
(9,264
)
 
609
   
63
 
Minority interest
   
623
   
803
   
101
   
99
   
-
 
Other Items:
                               
Interest on convertible partnership units
   
-
   
43
   
259
   
259
   
20
 
Deferred income tax (benefit) expense
   
-
   
-
   
-
   
(374
)
 
1,071
 
Minority interest in CEFUS share of FFO adjustments
   
-
   
-
   
-
   
(1,369
)
 
(1,010
)
Pro-rata share of real estate depreciation from joint ventures 
   
197
   
453
   
647
   
238
   
33
 
                               
Funds from operations
 
$
113,471
 
$
89,870
 
$
45,487
 
$
29,848
 
$
19,266
 
                                 
 
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    The following table reflects the reconciliation of FFO per diluted share to earnings per diluted share, the most directly comparable GAAP measure, for the periods presented:
 
 
 
Year Ended December 31, 
                                 
     
2004
   
2003
   
2002
   
2001
   
2000
 
                                 
Earnings per diluted share*
 
$
1.37
 
$
1.05
 
$
1.20
 
$
0.83
 
$
0.87
 
Adjustments:
                               
Rental property depreciation and amortization, including discontinued operations
   
0.52
   
0.45
   
0.41
   
0.52
   
0.45
 
(Gain) loss on disposal of income producing properties
   
(0.31
)
 
(0.05
)
 
(0.27
)
 
0.03
   
0.01
 
Other items:
                               
Deferred income tax (benefit) expense
   
-
   
-
   
-
   
(0.02
)
 
0.07
 
Minority interest in CEFUS share of FFO adjustments
   
-
   
-
   
-
   
(0.06
)
 
(0.07
)
Pro-rata share of real estate depreciation from joint ventures
   
-
   
0.01
   
0.02
   
0.01
   
-
 
                                 
Funds from operations per diluted share
 
$
1.58
 
$
1.46
 
$
1.36
 
$
1.31
 
$
1.33
 
                                 
 
*Earnings per diluted share reflect the add-back of interest on convertible partnership units and the minority interest(s) in earnings of consolidated subsidiaries which are convertible to shares of our common stock.
 
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
Overview
 
The following should be read in conjunction with our consolidated financial statements, including the notes thereto, which are included elsewhere in this annual report.
 
General. We operate as a real estate investment trust, or REIT, that principally acquires, renovates, develops and manages community and neighborhood shopping centers located predominantly in high growth markets in the southern United States and in the Boston, Massachusetts metropolitan area. Our shopping centers are primarily anchored by supermarkets or other necessity-oriented retailers such as drug stores or discount retail stores. As of December 31, 2004, our portfolio consisted of 188 properties, comprising 133 supermarket-anchored shopping centers, eight drug store-anchored shopping centers, 40 other retail-anchored shopping centers, four retail development parcels, and three commercial properties, as well as a non-controlling interest in one unconsolidated joint venture that owns a parcel of land.
 
We believe we distinguish ourselves by owning and operating shopping centers anchored by supermarkets or necessity-oriented retailers in high density areas that are experiencing higher than average population growth or that provide particularly strong barriers to additional competition. Our goal is to own and operate properties containing dominant supermarket operators and a diverse tenant mix. We believe that these characteristics combine to reduce the vulnerability of our properties to economic downturns, enhance consumer traffic through our properties and generate more stable cash flows over time. We derive substantially all of our revenue from tenants under existing leases at our properties.
 
36

    Our business is generally dependent on the performance of the economy in the areas in which we own properties and the cost of financing available to fund our growth. Changes in the economic environment tend to have a direct effect on our tenants’ businesses and, therefore, their ability to continue to pay us rent. In 2004, the overall U.S. economy demonstrated sustained economic growth. This growth, as well as the prevailing low interest rate environment, contributed to the growth in our cash flows and allowed us to increase the occupancy rates at our centers during the year. During the later part of 2004, however, the federal reserve raised interest rates and has continued to do so in early 2005. We expect further increases in 2005 which will make our cost of capital higher.
 
2004 Overview. In 2004, we followed a disciplined approach and took advantage of the improving economic environment in our markets. We focused on acquiring shopping centers in high growth, high density metropolitan areas of the United States, developing and redeveloping centers in these areas and selling properties that no longer met our investment criteria. During 2004, we expanded our geographic diversity beyond the southern United States where we have operated historically by acquiring six retail properties in the Boston, Massachusetts metropolitan area. Our property acquisitions during 2004 were financed using our revolving lines of credit, proceeds from the sale of properties, issuances of equity and public debt and assumed mortgages. In the event we consummate future acquisitions, we anticipate using similar financing sources. However, there can be no assurances that these sources will be available to us in the future at reasonable terms or at all.
 
The highlights of our 2004 activity include:
Business Uncertainties. Our long-term operating cash flow is dependent on the continued occupancy of our properties, the rents that we are able to charge to our tenants and the ability of these tenants to make their rental payments. The main long-term threat to our business is our dependence on the viability of our anchor and other tenants. General economic downturns and competition from national and regional supercenters, such as Wal-Mart and Target or other discount retailers, may have an increasingly adverse impact on the business of our tenants by taking customers or reducing operating margins. For example, on February 22, 2005, Winn-Dixie Stores, Inc., an anchor tenant at 16 of our shopping centers occupying 730,000 square feet of gross leasable area and accounting for approximately $5 million in annualized minimum rent, filed for bankruptcy protection. Although Winn-Dixie has not yet rejected any of its leases at our centers, if it elects to close some or all its stores at these centers and terminate those leases, it would adversely affect our operating results, including funds from operations.
 
37

We believe, however, that these risks are mitigated by concentrating on high-density, urban areas, leasing to the dominant supermarket operators in the markets in which we own properties and maintaining a diverse tenant mix. Other than Winn-Dixie, we are not currently aware of any pending tenant bankruptcies that are likely to materially affect our rental revenues.
 
In addition, although we have enjoyed a low interest rate environment in recent years, the increase in interest rates over the last six months has had, and anticipated future increases in the coming months will have an adverse effect on the cost of our future borrowings, including borrowings under our revolving credit facilities, which are based on variable interest rates, and the $100 million of our senior notes that we have swapped to a variable rate. As interest rates rise, the interest we incur on these loans will increase.
 
Notwithstanding these business uncertainties, we are optimistic that we are well positioned to take advantage of the sustained growth of the economy and that the growth in rents and occupancy will mitigate increases in operating or financing costs.
 
    Short-Term Liquidity Needs. As of December 31, 2004, we had $5.1 million in cash and $25.8 million available to be drawn under our revolving credit facilities. Our cash flow from operations was $113.1 million for the year ended December 31, 2004.
 
Our short-term liquidity requirements consist primarily of funds necessary to pay for operating and other expenses directly associated with our portfolio of properties, general and administrative expenses (including payroll and related costs), interest expense and scheduled principal payments on our outstanding debt, capital expenditures incurred to facilitate the leasing of space (e.g., tenant improvements and leasing commissions), development and redevelopment activities, quarterly dividends paid to our common stockholders and distributions made to holders of operating partnership units.
 
Historically, we have satisfied these requirements principally through cash generated from operations. We believe that cash generated from operations and borrowings under our unsecured revolving credit facilities will be sufficient to meet our short-term liquidity requirements; however, there are risks inherent in our business, including those risks described in Item 1 - “Business-Risk Factors,” that may have a material adverse effect on our cash flow, and therefore, on our ability to meet these requirements.
 
Certain of our mortgage loans involving an aggregate principal balance of approximately $168.6 million contain prohibitions on transfers of ownership which may have been violated by our previous issuances of common stock or in connection with past acquisitions and may be violated by transactions involving the Company’s capital stock in the future. If a violation were established, it could serve as a basis for a lender to accelerate amounts due under the affected mortgage. To date, no lender has notified us that it intends to accelerate its mortgage. In the event that the mortgage holders declare defaults under the mortgage documents, we will, if required, prepay the remaining mortgage from existing resources, refinancing of such mortgages, borrowings under our other lines of credit or other sources of financing. Based on discussions with various lenders, current credit market conditions and other factors, we believe that the mortgages will not be accelerated. Accordingly, we believe that the violations of these prohibitions will not have a material adverse impact on our results of operations or financial condition.
 
38

Our current development plans include development and redevelopment projects, the aggregate cost of which (including costs incurred in prior years on these projects) is expected to be approximately $66.7 million and of which $25.0 million remains unfunded based on our current plans. We intend to fund these costs from our unsecured revolving credit facilities and cash generated from operations. We are likely to initiate other projects over the course of 2005 which have an undetermined cost.
 
We may incur significant expenditures in connection with the re-leasing of our retail space, principally in the form of tenant improvements and leasing commissions. The amounts of these expenditures can vary significantly, depending on negotiations with tenants and the willingness of tenants to pay higher base rents over the life of the leases. We also incur expenditures for certain recurring capital expenses. We expect to pay for re-leasing and recurring capital expenditures out of cash from operations.
 
As a REIT, we are required to distribute at least 90% of our taxable income to our stockholders on an annual basis. Therefore, as a general matter, it is unlikely that we will be able to retain any substantial cash balances that could be used to meet our liquidity needs. Instead, these needs must be met with cash generated from current operations and external sources of capital.
 
During 2004, we paid $80.9 million of dividends on our common stock or $1.13 per share. The maintenance of these dividends is subject to various factors, including the discretion of our board of directors, our ability to pay dividends under Maryland law, the availability of cash to make the necessary dividend payments and the effect of REIT distribution requirements.
 
Long-Term Liquidity Needs. Our long-term liquidity requirements consist primarily of funds necessary to pay for the principal amount of our long-term debt as it matures, significant non-recurring capital expenditures that need to be made periodically at our properties, development and redevelopment projects that we undertake at our properties and the costs associated with acquisitions of properties or other companies. Historically, we have satisfied these requirements principally through what we believe to be the most advantageous source of capital available at the time, which has included the incurrence of new debt through borrowings under credit facilities and the issuance of debt securities, sales of common stock, capital raised through the disposition of assets, and joint venture transactions. We believe that these sources of capital will continue to be available in the future to fund our long-term capital needs; however, there are risks inherent in our business, including those risks described in Item 1 - “Business-Risk Factors,” that may have a material adverse effect on our ability to access these capital sources.
 
Our ability to incur additional unsecured debt is dependent upon a number of factors, including our degree of leverage, the value of our unencumbered assets, our credit rating and borrowing restrictions imposed by existing lenders. Currently, we have investment grade credit ratings for our unsecured senior debt from two major rating agencies - Standard & Poor’s and Moody’s Investors Service. A downgrade in outlook or rating by a rating agency can occur at any time if the agency perceives an adverse change in our financial condition, results of operations or ability to service debt. If such a downgrade occurs, it would increase the interest rates currently payable under our existing credit facilities and certain of our debt securities, would likely increase the costs associated with obtaining future financing, and  adversely affect our ability to obtain future financing. The indentures under which our publicly traded debt securities are issued also contain certain restrictions on our ability to incur debt and other financial covenants.
 
39

The following table sets forth certain information regarding future contractual obligations, excluding interest, as of December 31, 2004 (in thousands):
 
 
Payments due by period 
                                 
Contractual Obligations
   
Total
   
Less than
1 year
   
1-3 years
   
3-5 years
   
More than
5 years
 
                                 
Mortgage notes payable:
                               
Scheduled amortization
 
$
130,944
 
$
10,809
 
$
22,321
 
$
22,516
 
$
75,298
 
Balloon payments
   
364,112
   
30,079
   
27,622
   
64,436
   
241,975
 
Total mortgage obligations
   
495,056
   
40,888
   
49,943
   
86,952
   
317,273
 
                                 
Unsecured revolving credit facilities
   
147,000
   
-
   
147,000
   
-
   
-
 
Unsecured senior notes
   
350,000
   
-
   
125,000
   
200,000
   
25,000
 
Capital leases
   
-
   
-
   
-
   
-
   
-
 
Operating leases
   
179
   
125
   
54
   
-
   
-
 
Development and redevelopment
   
25,000
   
25,000
   
-
   
-
   
-
 
                                 
Total contractual obligations
 
$
1,017,235
 
$
66,013
 
$
321,997
 
$
286,952
 
$
342,273
 
                                 
 
 
    The following table sets forth certain information regarding future interest obligations on outstanding debt as of December 31, 2004 (in thousands):
 
 
 
Payments due by Period 
                                 
Interest Obligations
   
Total
   
Less than
1 year
   
1-3 years
   
3-5 years
   
More than
5 years
 
                                 
Mortgage notes
 
$
209,219
 
$
35,430
 
$
90,251
 
$
56,020
 
$
27,518
 
Unsecured senior notes(1)
   
66,273
   
19,033
   
38,937
   
8,140
   
163
 
Unsecured revolving credit facilities(2)
   
4,628
   
4,114
   
514
   
-
   
-
 
                                 
Total interest obligations
 
$
280,120
 
$
58,577
 
$
129,702
 
$
64,160
 
$
27,681
 
                                 
 
 
(1)  
$100 million of the outstanding balance has been swapped to a floating interest rate based on the 6 month LIBOR in arrears, plus 0.4375%. The contractual and interest obligation for the unsecured senior notes do not reflect this interest rate swap.
 
(2)  
Interest on the unsecured revolving credit facility is variable; these amounts assume the weighted average interest rate remains the same as the rate at December 31, 2004 of 2.8%.
 

    We have entered into employment contracts with several of our key executives.  These contracts provide for base pay, bonuses based on our results of operations, options and restricted stock grants and reimbursement of other various expenses.

Off Balance Sheet Arrangements
 
We have an off balance sheet joint venture and other unconsolidated arrangements with varying structures. As of December 31, 2004, our off balance sheet arrangements were as follows:
40

 
  • The unconsolidated joint venture owns a parcel of land that is held for future development or sale. We are obligated to fund 50% of any working capital that is required (as determined jointly by us and our joint venture partner). The current obligations are a nominal amount to pay property taxes and other carrying costs. The joint venture currently has no outstanding debt obligations or contractual commitments and we have not guaranteed any obligations or retained any contingent interest in any assets.
We expect to fund these obligations from working capital and availability under our revolving credit facilities.
 
Critical Accounting Policies and Estimates
 
Management’s Discussion and Analysis of Financial Condition and Results of Operations provides additional information related to our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, management evaluates and if necessary, adjusts its estimates and judgments, including those related to real estate and development assets, revenue recognition in conjunction with providing development, leasing and management services and equity in earnings of unconsolidated joint ventures. Management believes that the following critical accounting policies affect its more significant judgments and estimates used in the preparation of our consolidated financial statements.
 
Real Estate Properties and Development Assets. We capitalize acquisition and construction costs, property taxes, interest and other miscellaneous costs that are directly identifiable with a project, from pre-acquisition until the time that construction is complete and the development is ready for its intended use, in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 67 and SFAS No. 34. We allocate the capitalized project costs to the various components of the project based on the components’ relative fair values. Our cost allocation method requires the use of management estimates regarding the fair market value of each project component. Management bases its estimates on current market appraisals, comparable sales, existing sale and purchase contracts, replacement cost, historical experience, and various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the fair market values of real estate assets. Actual results may differ from these estimates and anticipated returns on a project, as well as the gain or loss on disposition of the individual project components, could vary significantly from estimated amounts.
 
Management reviews long-lived assets used in operations for impairment when there is an event or change in circumstances that indicates that the carrying amount of the asset may not be recoverable and the future undiscounted cash flows expected to be generated by the asset are less than its carrying amount. If such asset is considered to be impaired, we record impairment losses and reduce the carrying amount of the impaired asset to an amount that reflects the fair value of the asset at the time impairment is evident. Our impairment review process relies on management’s judgment regarding the indicators of impairment, the remaining life of the asset used to generate the asset’s undiscounted cash flows, and the fair value of the asset at a particular point in time. Management uses historical experience, current market appraisals and various other assumptions to form the basis for making judgments about the impairment of real estate assets. Under different assumptions or conditions, the asset impairment analysis may yield a different outcome, which would alter the ultimate return on our assets, as well as the gain or loss on the eventual disposition of the asset.
 
41

    Business Combinations. We are actively pursuing acquisition opportunities and will not be successful in all cases; costs incurred related to these acquisition opportunities are expensed when it is probable that we will not be successful in the acquisition. The results of operations of any acquired property are included in our financial statements as of the date of its acquisition.
 
We allocate the purchase price of acquired companies and properties to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values. Fair value is defined as the amount at which that asset could be bought or sold in a current transaction between willing parties (other than in a forced or liquidation sale). In order to allocate the purchase price of acquired companies and properties to the tangible and intangible assets acquired, we identify and estimate the fair value of the land, buildings and improvements, review the leases to determine the existence of, and estimate the fair value of, any contractual or other legal rights and investigates the existence of, and estimate the fair value of, any other identifiable intangibles. Such valuations require management to make significant estimates and assumptions, especially with respect to intangibles.
 
The cost approach is used as the primary method to estimate the fair value of the buildings, improvements and other assets. The cost approach is based upon the current costs to develop the particular asset in that geographic location, less an allowance for physical and functional depreciation. The assigned value for buildings and improvements is based on an as if vacant basis. The market value approach is used as the primary method to estimate the fair value of the land. The determination of the fair value of contractual intangibles is based on the costs incurred to originate a lease, including commissions and legal costs, excluding any new leases negotiated in connection with the purchase of a property. In-place lease values are based on management’s evaluation of the specific characteristics of each lease and our overall relationship with each tenant. Among the factors considered in the allocation of these values include the nature of the existing relationship with the tenant, the tenant’s credit quality, the expectation of lease renewals, the estimated carrying costs of the property during a hypothetical expected lease-up period, current market conditions and costs to execute similar leases. Estimated carrying costs include real estate taxes, insurance, other property operating costs and estimates of lost rentals at market rates during the hypothetical expected lease-up periods, given the specific market conditions. Above-market, below-market and in-place lease values are determined based on the present value (using a discount rate reflecting the risks associated with the leases acquired) of the difference between (i) the contractual amounts to be paid pursuant to the leases negotiated and in-place at the time of acquisition and (ii) management’s estimate of fair market lease rates for the property or equivalent property, measured over a period equal to the remaining non-cancelable term of the lease. The value of contractual intangibles is amortized over the remaining term of each lease. Other than as discussed above, we have determined that our real estate properties do not have any other significant identifiable intangibles.
 
Critical estimates in valuing certain of the intangibles and the assumptions of what marketplace participants would use in making estimates of fair value include, but are not limited to: future expected cash flows, estimated carrying costs, estimated origination costs, lease up periods and tenant risk attributes, as well as assumptions about the period of time the acquired lease will continue to be used in our portfolio and discount rates used in these calculations. Management’s estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable. Assumptions may not always reflect unanticipated events and changes in circumstances may occur. In making such estimates, management uses a number of sources, including appraisals or other market data, as well as, information obtained in its pre-acquisition due diligence and marketing and leasing activities.
 
42

    Goodwill. We are required to perform annual impairment tests of our goodwill and intangible assets and more frequently in certain circumstances. Goodwill is no longer amortized. The goodwill impairment test is a two-step process, which requires management to make judgments in determining what assumptions to use in the calculation. The first step of the process consists of estimating the fair value of each reporting unit and comparing those estimated fair values with the carrying values, which include the allocated goodwill. If the estimated fair value is less than the carrying value, a second step is performed to compute the amount of the impairment by determining an “implied fair value” of goodwill. The determination of a reporting unit’s “implied fair value” of goodwill requires us to allocate the estimated fair value of the reporting unit to the assets and liabilities of the reporting unit. Any unallocated fair value represents the “implied fair value” of goodwill, which is compared to its corresponding carrying value.
 
    The key assumptions we made to determine the fair value of our reporting units (each property is considered a reporting unit under SFAS No. 142) included (a) net operating income; (b) cash flows; and (c) the estimated fair value, which was based on our experience in evaluating acquisitions and market conditions. A variance in the net operating income or discount rate could have had a significant impact on the amount of the goodwill impairment charge recorded.
 
Management cannot predict the occurrence of certain future events that might adversely affect the reported value of goodwill that totaled $14.0 million at December 31, 2004. Such events include, but are not limited to, strategic decisions made in response to economic and competitive conditions, the impact of the economic environment on our tenants, or a material negative change in our relationships with significant tenants.
 
Revenue Recognition. As lessor, we retain substantially all the risks and benefits of property ownership and account for our leases as operating leases. Rental income is recognized over the lease term on a straight-line basis. Revenue from percentage rent is recognized when tenants’ reported sales have reached certain levels specified in the respective leases. Recoveries from tenants for real estate taxes and other operating expenses are recognized as revenue in the period when the applicable costs are incurred. Termination fees are recognized when a tenant’s lease is terminated.
 
We maintain an allowance for doubtful accounts for estimated losses resulting from the inability of tenants to make required rent payments. The computation of this allowance is based on the tenants’ payment history and current credit quality. If our estimate of collectibility differs from the cash received the timing and amount of our reported revenue could be impacted.
 
Investments in Unconsolidated Joint Ventures. We do not consider ourselves to be in control of joint ventures when major business decisions require the approval of at least one other managing equity owner. Accordingly, we account for the one joint venture in which we do not retain unilateral control under the equity method.
 
We calculate the equity in income or loss earned from our unconsolidated joint ventures based on each equity owners’ economic ownership, which is estimated based on anticipated stabilized cash flows as they would be allocated to each equity owner based on how cash flow is distributed. Generally, under the terms of the respective joint venture agreements, net ordinary cash flow is distributed to each equity owner in accordance with such owner’s equity ownership percentages.
 
Results of Operations
 
Our consolidated results of operations often are not comparable from period to period due to the impact of property acquisitions, dispositions, developments and redevelopments. A large portion of the change in our statement of operations line items is related to these changes in our property portfolio. The activity of the former IRT Property Company is included in our operating results commencing on February 12, 2003, the date we completed our merger with IRT.
 
43

We derive substantially all of our revenues from rents received from tenants under existing leases on each of our properties. These revenues include fixed base rents, recoveries of expenses that we have incurred and that we pass through to the individual tenants and percentage rents that are based on specified percentages of tenants’ revenues, in each case as provided in the particular leases.
 
Our primary cash expenses consist of our property operating expenses, which include real estate taxes, repairs and maintenance, management expenses, insurance, utilities and other expenses, general and administrative expenses, which include payroll, office expenses, professional fees and other administrative expenses, and interest expense, primarily on mortgage debt, unsecured senior debt and revolving credit facilities indebtedness. In addition, we incur substantial non-cash charges for depreciation and amortization on our properties. We also capitalize certain expenses, such as taxes and interest, incurred in respect of property under development or redevelopment until the property is ready for its intended use.
 
Year Ended December 31, 2004 Compared to Year Ended December 31, 2003.
 
The following summarizes items from our audited consolidated statements of operations that we think are important in understanding our results of operations and/or those items which have significantly changed in 2004 compared to 2003 (in thousands):
 
 
 
For the year ended December 31, 
     
2004
   
2003
   
Change
 
                     
Total rental revenue
 
$
229,857
 
$
180,295
   
27.5
%
Property operating expenses
 
$
60,402
 
$
51,728
   
16.8
%
Rental property depreciation and amortization
 
$
35,910
 
$
26,411
   
36.0
%
General and administrative expenses   $
16,601
  $
11,046
   
50.3
% 
Interest expense
 
$
46,413
 
$
36,814
   
26.1
%
                     
 
 
Total rental revenue increased by $49.6 million, or 27.5%, to $229.9 million in 2004 from $180.3 million in 2003. The following factors accounted for this difference:
 
·  
Properties acquired during 2004 increased rental revenue by approximately $15.9 million;
 
·  
The full year 2004 benefited from properties acquired during 2003 which increased rental revenue by approximately $18.3 million;
 
·  
The acquisition of IRT increased rental revenue by approximately $11.4 million;
 
·  
The completion of development and redevelopment properties increased rental revenue by $2.4 million; and
 
·  
Same property rental revenue increased by $1.5 million in 2004 due to higher occupancy at the centers and increases in rental rates.
 
Property operating expenses increased by $8.7 million, or 16.8%, to $60.4 million for 2004 from $51.7 million in 2003. The following factors accounted for this difference:
 
·  
Properties acquired during 2004 increased operating expenses by approximately $3.6 million;
 
 
44

 
·  
Properties acquired during 2003 increased the full year 2004 operating expenses by $3.4 million;
 
·  
The acquisition of IRT increased operating expenses by approximately $1.3 million;
 
·  
The completion of development and redevelopment properties increased operating expenses by $594,000; and
 
·  
Same property operating expenses decreased by $165,000 as a result of lower property maintenance expenses.
 
    Rental property depreciation and amortization increased by $9.5 million, or 36.0%, to $35.9 million for 2004 from $26.4 million in 2003. The following factors accounted for this difference:
 
·  
Properties acquired during 2004 increased depreciation and amortization by $2.9 million;
 
·  
Properties acquired during 2003 increased full year 2004 depreciation and amortization expense by $2.3 million;
 
·  
The acquisition of IRT increased depreciation and amortization expense by approximately $2.8 million;
 
·  
Completion of development and redevelopment properties increased depreciation and amortization by $1.2 million; and
 
·  
Same property depreciation and amortization increased by $276,000 related to leasing and tenant improvement amortization.
 
    General and administrative expenses increased by $5.6 million, or 50.3%, to $16.6 million for 2004 from $11.0 million in 2003. Compensation and employer related expenses increased by $3.3 million, including $2.4 million of deferred compensation expense associated with the issuance of restricted stock that vests over time and $700,000 of compensation and related expenses due to an increase of staffing. The 2004 general and administrative expenses also included an increase in professional fees of $860,000 related to the compliance with the Sarbanes-Oxley Act of 2002 and a write off of $1.1 million of pre-acquisition due diligence costs related to a corporate transaction that did not materialize
 
Interest expense increased by $9.6 million, or 26.1%, to $46.4 million for 2004 from $36.8 million in 2003. This difference was primarily due to:
 
·  
An increase of $5.9 million attributable to the $200 million unsecured senior notes issued in March 2004;
 
·  
Interest incurred on the assumption of debt related to the acquisition of properties during 2004 increased interest by $1.8 million;
 
·  
Properties acquired during 2003, including the acquisition of IRT, increased interest expense by $2.9 million due to assumption of mortgage loans;
 
·  
Interest incurred on same properties decreased by $508,000 due to the repayment of certain existing mortgage notes;
 
·  
Interest on the revolving credit facilities decreased by $109,000 due to repayment of outstanding balances received from the proceeds upon the issuance of the senior notes and decreased borrowing activities; and
 
·  
Capitalized interest decreased due to the completion of development and redevelopment activities which increased interest expense by $618,000.
 
 
45

We sold 14 properties including one property held by a joint venture, and have one property held for sale at December 31, 2004. The $4.3 million operating results of these properties are reflected as income from rental properties sold or held for sale. The sales of the properties produced gains of $22.2 million for 2004. The 2003 discontinued operations of $6.8 million reflect a reclassification of operations for properties sold during 2003 and 2004. We recognized gains of $3.1 million in 2003 related to the sales of properties during 2003.
 
During 2004, the limited partners of IRT Partners LP elected to convert their partnership interest for our common stock. This conversion resulted in a decrease in the minority interest.
 
As a result of the foregoing, net income increased by $34.2 million, or 53.7%, to $97.8 million for 2004 from $63.6 million in 2003.
 
Year Ended December 31, 2003 Compared to Year Ended December 31, 2002.
 
The following summarizes items from our audited condensed consolidated statements of operations that we think are important in understanding our operations and/or those items which significantly changed in 2003 compared to 2002 (in thousands):
 
 
 
For the year ended December 31, 
     
2003
   
2002
   
% Change
 
                     
Total rental revenue
 
$
180,295
 
$
93,569
   
92.7
%
Property operating expenses
 
$
51,728
 
$
28,849
   
79.3
%
Rental property depreciation and amortization
 
$
26,411
 
$
12,563
   
110.2
%
General and administrative expenses
  $
11,046
  $
6,648
   
66.2
 %
Interest expense
 
$
36,814
 
$
20,889
   
76.2
%
                     
 
    Total rental revenue increased by $86.7 million, or 92.7%, to $180.3 million in 2003 from $93.6 million in 2002. The following factors accounted for this difference:
 
·  
The acquisition of IRT increased rental revenue by approximately $71.9 million;
 
·  
Properties acquired during 2003 increased rental revenue by approximately $6.9 million;
 
·  
Properties acquired during 2002 increased rental revenue by approximately $2.9 million;
 
·  
Same property rental revenue increased by approximately $3.0 million; and
 
·  
The completion of development and redevelopment properties increased rental revenue by approximately $2.0 million.
 
Property operating expenses increased by $22.9 million, or 79.3%, to $51.7 million for 2003 from $28.8 million in 2002. The following factors accounted for this difference:
 
46

 
·  
The acquisition of IRT increased property operating expenses by approximately $13.9 million and property management expenses by $3.9 million as a result of managing a larger portfolio of properties;
 
·  
Properties acquired during 2003 increased operating expenses by approximately $2.1 million;
 
·  
Properties acquired during 2002 increased operating expenses by approximately $1.7 million;
 
·  
Same property operating expenses increased by approximately $754,000; and
 
·  
The completion of development and redevelopment properties increased operating expenses by $494,000.
 
Rental property depreciation and amortization increased by $13.8 million, or 110.2%, to $26.4 million for 2003 from $12.6 million in 2002. The following factors accounted for this difference:
 
·  
The acquisition of IRT increased depreciation and amortization by approximately $10.0 million;
 
·  
Properties acquired during 2003 increased depreciation and amortization by approximately $1.4 million;
 
·  
Properties acquired during 2002 increased depreciation and amortization by approximately $1.7 million;
 
·  
Same property depreciation and amortization increased by $100,000 related to leasing and tenant improvement amortization; and
 
·  
The completion of development and redevelopment properties increased depreciation and amortization by $535,000.
 
     General and administrative expenses increased by $4.4 million, or 66.2%, to $11.0 million for 2003 from $6.6 million in 2002. Compensation and employer related expenses increased by $3.5 million and other general office expenses increased by $918,000. These expense increases were due to the increase in staffing resulting from the IRT acquisition.
 
Interest expense increased by $15.9 million, or 76.2%, to $36.8 million for 2003 from $20.9 million in 2002. This difference was primarily due to:
 
·  
An increase in interest expense of $14.6 million as a result of the assumption of mortgage loans and senior notes in the acquisition of IRT;
 
·  
An increase of $822,000 attributable to the debt related to the acquisition of properties during 2003; and
 
·  
An increase in revolving credit facility interest of $1.9 million primarily related to the acquisition of IRT.
 
     These increases in interest expense were partially offset by the repayment of nine loans which reduced interest by $806,000 and an increase in capitalized interest related to development activity, which reduced interest expense by $1.4 million.
 
47

During 2003, we settled certain mortgage notes at a discount and recognized a loss on the extinguishment of debt of $623,000.
 
Minority interest increased by $702,000 related to the interests that were assumed as part of the acquisition of IRT.
 
As a result of the foregoing, net income increased by $23.7 million, or 59.4%, to $63.6 million for 2003 from $39.9 million in 2002.
 
Liquidity and Capital Resources
 
We anticipate that cash flows from operating activities will continue to provide adequate capital for dividend payments in accordance with the IRS’ REIT requirements and our operating needs. Depending on capital market conditions, we anticipate using cash on hand, borrowings under our existing unsecured revolving credit facilities, assumptions of mortgages issuance of unsecured public debt and equity as well as other similar financing to provide the necessary capital to meet our needs.
 
Cash Flows. Net cash provided by operations of $113.1 million for the year ended December 31, 2004 included: (i) net income of $97.8 million, (ii) adjustments for non-cash and gain on sale items which increased cash flow by $12.9 million, and (iii) a net change in operating liabilities over operating assets of $2.4 million, compared to net cash provided by operations of $78.3 million for the year ended December 31, 2003, which included: (i) net income of $63.6 million, (ii) adjustments for non-cash and gain on sale items which increased cash flow by $24.8 million, and (iii) an increase in net operating assets over operating liabilities of $10.1 million.
 
Net cash used in investing activities of $244.8 million for the year ended December 31, 2004 included: the acquisition of (i) three parcels of land held for future development, and seventeen shopping centers for $255.4 million, (ii) construction, development and other capital improvements of $34.0 million, (iii) increased leasing costs of $6.6 million, (iv) the purchase of securities held for investment of $36.4 million, offset by (a) proceeds from the sale of properties of $72.6 million, (b) distributions from joint ventures of $3.1 million, (c) proceeds from payments of notes receivable of $6.1 million, and (e) proceeds from the sale of securities held for investment of $5.8 million.  These amounts should be compared to net cash used in investing activities of $326.2 million for the year ended December 31, 2003 which included: (i) the acquisition of one parcel of land held for future development, an out parcel and ten shopping centers for $156.9 million, (ii) construction, development and other capital improvements of $28.8 million, (iii) the acquisition of IRT for $187.6 million, net of cash received, and (iv) increased leasing costs of $4.5 million, offset by (a) proceeds from the sale of six properties and two joint venture interests of $31.7 million, (b) proceeds from funds escrowed in connection with the sale of properties to utilize tax deferred exchanges of $12.9 million, (c) proceeds from re-payments of notes receivable of $5.1 million, and (d) proceeds from other sources of $1.9 million.
 
Net cash provided by financing activities of $135.9 million for the year ended December 31, 2004 included: (i) net proceeds from the issuance of senior notes of $199.8 million, (ii) net proceeds from the issuance of common stock of $58.3 million, and (iii) proceeds from the repayment of notes receivable of $3.5 million, offset by (a) the repayment of eight mortgage notes aggregating $15.9 million and monthly principal payments on mortgage notes of $9.8 million, (b) cash dividends paid to common stockholders of $80.9 million, (c) repayments under revolving credit facilities of $15.0 million, (d) an increase in deferred financing costs of $3.1 million related to the issuance of senior notes, and (e) miscellaneous uses of $1.0 million. These amounts should be compared to net cash provided by financing activities of $245.9 million for the year ended December 31, 2003 which included: (i) net borrowings on revolving credit facilities of $139.0 million, less the pay down of $8.0 million on the credit facility assumed in the IRT merger, (ii) net proceeds from the issuance of common stock of $247.5 million, and (iii) proceeds from the repayment of notes receivable of $3.5 million, offset by (a) the repayment of ten mortgage notes aggregating $55.4 million and monthly principal payments on mortgage notes of $8.2 million, (b) cash dividends paid to common stockholders of $70.7 million, and (c) other miscellaneous uses of $1.8 million.
 
 
48
 
Debt. The following is a summary of our borrowings consisting of mortgage notes payable, unsecured senior notes payable and unsecured revolving credit facilities (in thousands):
 
 
December 31,  
     
2004
   
2003
 
               
Mortgage Notes Payable
             
Fixed rate mortgage loans
 
$
495,056
 
$
459,103
 
Unamortized net premium on mortgage notes payable
   
12,721
   
11,779
 
               
Total 
 
$
507,777
 
$
470,882
 
               
 
The weighted average interest rate at December 31, 2004 and 2003 was 7.26% and 7.45%, respectively, excluding the effects of the net premium adjustment.
 
Each of the existing mortgage loans is secured by a mortgage on one or more of our properties. Certain of the mortgage loans involving an aggregate principal balance of approximately $168.6 million contain prohibitions on transfers of ownership which may have been violated by our previous issuances of common stock or in connection with past acquisitions and may be violated by transactions involving our capital stock in the future. If a violation were established, it could serve as a basis for a lender to accelerate amounts due under the affected mortgage. To date, no lender has notified us that it intends to accelerate its mortgage. In the event that the mortgage holders declare defaults under the mortgage documents, we will, if required, prepay the remaining mortgage from existing resources, refinancing of such mortgages, borrowings under our other lines of credit or other sources of financing. Based on discussions with various lenders, current credit market conditions and other factors, we believe that the mortgages will not be accelerated. Accordingly, we believe that the violations of these prohibitions will not have a material adverse impact on our results of operations or financial condition.
 
 
December 31, 
     
2004
   
2003
 
               
Unsecured Senior Notes Payable
             
               
7.77% Senior Notes, due 4/1/06
 
$
50,000
 
$
50,000
 
7.25% Senior Notes, due 8/15/07
   
75,000
   
75,000
 
3.875% Senior Notes, due 4/15/09
   
200,000
   
-
 
7.84% Senior Notes, due 1/23/12
   
25,000
   
25,000
 
Fair value of interest rate swap
   
(2,739
)
 
-
 
Unamortized net premium on unsecured senior notes payable
   
8,882
   
12,439
 
               
Total 
 
$
356,143
 
$
162,439
 
               
 
     We swapped $100 million of the $200 million notes to a floating interest rate based on the 6-month LIBOR in arrears plus 0.4375%. The weighted average interest rate at December 31, 2004 and 2003 was 5.12% and 7.55%, respectively, excluding the effects of the interest rate swap and net premium adjustment.
 
The indentures under which the notes were issued have several covenants which limit our ability to incur debt; require us to maintain unencumbered asset ratios and limit our ability to consolidate, sell, lease, or convey substantially all of our assets to, or merge with any other entity. These notes have also been guaranteed by most of our subsidiaries. The interest rate on the 7.77% senior notes is subject to a 50 basis point increase if we do not maintain an investment grade debt rating. Currently our unsecured senior debt is rated investment grade by Moody's at Baa3 and Standard & Poor's at BBB-, both with a stable outlook. 
 
49

 
 
 
December 31,  
     
2004
   
2003
 
               
Unsecured Revolving Credit Facilities
             
               
Wells Fargo
 
$
147,000
 
$
162,000
 
City National Bank
   
-
   
-
 
               
Total 
 
$
147,000
 
$
162,000
 
               
 
    We have entered into a $340 million unsecured revolving credit facility with a syndicate of banks for which Wells Fargo Bank, National Association is the sole lead arranger and administrative agent. This facility bears interest at our option at (i) LIBOR plus 0.65% to 1.35%, depending on the credit ratings of our senior unsecured long term notes, or (ii) at the greater of (x) Wells Fargo’s prime rate and (y) the Federal Funds Rate plus 0.5%. The facility is guaranteed by most of our subsidiaries. Based on our current rating, the LIBOR spread is 1.0%. The facility also includes a competitive bid option which allows us to conduct auctions among the participating banks for borrowings in an amount not to exceed $170 million, a $35 million swing line facility for short term borrowing and a $20 million letter of credit commitment and may, at our request, be increased up to a total commitment of $400 million. The facility expires February 12, 2006 with a one-year extension option. In addition, the facility contains customary covenants, including financial covenants regarding debt levels, total liabilities, interest coverage, EBITDA coverage ratios, unencumbered properties and permitted investments. The facility also prohibits stockholder distributions in excess of 95% of funds from operations calculated at the end of each fiscal quarter for the four fiscal quarters then ending. Notwithstanding this limitation, we can make stockholder distributions to avoid income taxes on asset sales. If a default under the facility exists, our ability to pay dividends would be limited to the amount necessary to maintain the Company’s status as a REIT unless the default is a payment default or bankruptcy event in which case we would be prohibited from paying any dividends. The weighted average interest rate as of December 31, 2004 and 2003 was 2.80% and 2.06%, respectively.
 
We also have a $5.0 million unsecured credit facility with City National Bank of Florida, of which there was no outstanding balance as of December 31, 2004 and 2003. This facility also provides collateral for $1.3 million in outstanding letters of credit.
 
As of December 31, 2004, the availability under the various credit facilities was approximately $25.8 million, net of outstanding balances and letters of credit.
 
At December 31, 2004, our fully diluted market capitalization totaled $2.75 billion, comprising 74.3 million shares of common stock and $986.9 million of net debt (excluding any unamortized fair market premium/discount and net of cash). Our ratio of net debt to total market capitalization was 35.9%, and our ratio of net debt to gross real estate cost and securities investments was 49.2%.
 
Our debt level could subject us to various risks, including the risk that our cash flow will be insufficient to meet required payments of principal and interest, and the risk that the resulting reduced financial flexibility could inhibit our ability to develop or improve our rental properties, withstand downturns in our rental income or take advantage of business opportunities. In addition, because we currently anticipate that only a small portion of the principal of our indebtedness will be repaid prior to maturity, it is expected that it will be necessary to refinance the majority of our debt. Accordingly, there is a risk that such indebtedness will not be able to be refinanced or that the terms of any refinancing will not be as favorable as the terms of our current indebtedness.
 
50

Indebtedness
 
The following table sets forth certain information regarding our indebtedness as of December 31, 2004 (dollars in thousands):
 
Property
 
Balance at December 31, 2004
 
Interest Rate(1)
 
 
Maturity Date
 
 
Balance Due at Maturity
 
                   
Fixed Rate Mortgage Debt
                 
                   
Lantana Village
 
$ 3,512
 
6.950%
 
03/15/05
 
$ 3,498
 
Woodruff
 
2,969
 
7.580%
 
05/10/05
 
2,913
 
Elmwood Oaks
 
7,500
 
8.375%
 
06/01/05
 
7,500
 
Benchmark Crossing
 
3,226
 
9.250%
 
08/01/05
 
3,170
 
Sterling Plaza
 
3,874
 
8.750%
 
09/01/05
 
3,794
 
Townsend Square
 
4,768
 
8.500%
 
10/01/05
 
4,703
 
Green Oaks
 
2,937
 
8.375%
 
11/01/05
 
2,861
 
Melbourne Plaza
 
1,698
 
8.375%
 
11/01/05
 
1,654
 
Walden Woods
 
2,272
 
7.875%
 
08/01/06
 
2,071
 
Big Curve
 
5,310
 
9.190%
 
10/01/06
 
5,059
 
Highland Square
 
3,951
 
8.870%
 
12/01/06
 
3,743
 
Park Northern
 
2,182
 
8.370%
 
12/01/06
 
1,963
 
Crossroads Square
 
12,324
 
8.440%
 
12/01/06
 
11,922
 
Rosemeade
 
3,109
 
8.295%
 
12/01/07
 
2,864
 
Colony Square
 
2,976
 
7.540%
 
01/01/08
 
2,834
 
Parkwood
 
6,110
 
7.280%
 
01/01/08
 
5,805
 
Richwood
 
3,147
 
7.280%
 
01/01/08
 
2,990
 
Commonwealth
 
2,636
 
7.000%
 
02/15/08
 
2,217
 
Mariners Crossing
 
3,332
 
7.080%
 
03/01/08
 
3,154
 
Pine Island/Ridge Plaza
 
24,582
 
6.910%
 
07/01/08
 
23,104
 
Forestwood
 
7,128
 
5.070%
 
01/01/09
 
6,406
 
Shoppes of North Port
 
4,008
 
6.650%
 
02/08/09
 
3,526
 
Prosperity Centre
 
6,022
 
7.875%
 
03/01/09
 
4,137
 
Shoppes of Ibis
 
5,687
 
6.730%
 
09/01/09
 
4,680
 
Tamarac Town Square
 
6,122
 
9.190%
 
10/01/09
 
5,583
 
Park Promenade
 
6,241
 
8.100%
 
02/01/10
 
5,833
 
Skipper Palms
 
3,526
 
8.625%
 
03/01/10
 
3,318
 
Jonathan’s Landing
 
2,868
 
8.050%
 
05/01/10
 
2,639
 
Bluff’s Square
 
10,005
 
8.740%
 
06/01/10
 
9,401
 
Kirkman Shoppes
 
9,448
 
8.740%
 
06/01/10
 
8,878
 
Ross Plaza
 
6,589
 
8.740%
 
06/01/10
 
6,192
 
Boynton Plaza
 
7,423
 
8.030%
 
07/01/10
 
6,902
 
Pointe Royale
 
4,284
 
7.950%
 
07/15/10
 
2,502
 
Westgate
 
29,625
 
4.880%
 
07/31/10
 
26,702
 
Shops at Skylake
 
14,266
 
7.650%
 
08/01/10
 
11,644
 
                   
 
 
51

Property
 
Balance at December 31, 2004 
 
Interest Rate(1) 
 
Maturity Date
 
Balance Due at Maturity 
 
                   
Parkwest Crossing
 
$   4,684
 
8.100%
 
09/01/10
 
$   4,352
 
Spalding Village
 
10,231
 
8.190%
 
09/01/10
 
7,932
 
Minyards
 
2,473
 
8.320%
 
11/01/10
 
2,175
 
Charlotte Square
 
3,550
 
9.190%
 
02/01/11
 
2,992
 
Forest Village
 
4,441
 
7.270%
 
04/01/11
 
4,044
 
Boca Village
 
8,211
 
7.200%
 
05/01/11
 
7,466
 
MacLand Pointe
 
5,798
 
7.250%
 
05/01/11
 
5,267
 
Pine Ridge Square
 
7,273
 
7.020%
 
05/01/11
 
6,579
 
Sawgrass Promenade
 
8,211
 
7.200%
 
05/01/11
 
7,466
 
Presidential Markets
 
27,159
 
7.650%
 
06/01/11
 
24,863
 
Lake Mary
 
24,282
 
7.250%
 
11/01/11
 
21,973
 
Lake St. Charles
 
3,833
 
7.130%
 
11/01/11
 
3,461
 
Belfair Towne Village
 
11,197
 
7.320%
 
12/01/11
 
9,322
 
Marco Town Center
 
8,578
 
6.700%
 
01/01/12
 
7,150
 
Riverside Square
 
7,589
 
9.190%
 
03/01/12
 
6,458
 
Sparkleberry Square
 
6,655
 
6.170%
 
11/30/12
 
5,374
 
Cashmere
 
5,141
 
5.880%
 
11/01/12
 
4,084
 
Eastwood
 
6,126
 
5.880%
 
11/01/12
 
4,866
 
Meadows
 
6,438
 
5.870%
 
11/01/12
 
5,113
 
Lutz Lake
 
7,500
 
6.280%
 
12/01/12
 
7,012
 
Summerlin Square
 
3,622
 
6.750%
 
02/01/14
 
-
 
Bird Ludlum
 
9,690
 
7.680%
 
02/15/15
 
-
 
Treasure Coast
 
4,532
 
8.000%
 
04/01/15
 
-
 
Shoppes of Silverlakes
 
2,627
 
7.750%
 
07/01/15
 
-
 
Medford
 
5,512
 
8.690%
 
02/01/16
 
-
 
Swampscott
 
2,395
 
8.690%
 
02/01/16
 
-
 
Plymouth
 
4,029
 
8.690%
 
02/01/16
 
-
 
Grassland Crossing
 
5,827
 
7.870%
 
12/01/16
 
2,601
 
Mableton Crossing
 
4,062
 
6.850%
 
08/15/18
 
1,869
 
Sparkleberry Square
 
7,918
 
6.750%
 
06/30/20
 
-
 
BridgeMill
 
9,395
 
7.940%
 
05/05/21
 
3,761
 
Westport Plaza
 
4,876
 
7.490%
 
08/24/23
 
1,340
 
Chastain Square
 
3,821
 
6.500%
 
02/28/24
 
-
 
Daniel Village
 
4,177
 
6.500%
 
02/28/24
 
-
 
Douglas Commons
 
4,976
 
6.500%
 
02/28/24
 
-
 
Fairview Oaks
 
4,710
 
6.500%
 
02/28/24
 
-
 
Madison Centre
 
3,821
 
6.500%
 
02/28/24
 
-
 
Paulding Commons
 
6,487
 
6.500%
 
02/28/24
 
-
 
Siegen Village
 
4,221
 
6.500%
 
02/28/24
 
-
 
Wesley Chapel Crossing
 
3,331
 
6.500%
 
02/28/24
 
-
 
                   
 
 
52

Total Fixed Rate Mortgage Debt
(75 loans)
 
495,056
 
7.26%
 
5.81 years
 
$ 363,682
 
       
(wtd.-avg.
interest rate)
 
(wtd.-avg. maturity)
     
                   
Fixed Rate Unsecured Senior Notes Payable
                 
                   
7.77% senior notes
 
50,000
 
7.77%
 
04/01/06
 
$ 50,000
 
7.25% senior notes
 
75,000
 
7.25%
 
08/15/07
 
75,000
 
3.875% senior notes (2)
 
200,000
 
3.875%
 
04/15/09
 
200,000
 
7.84% senior notes
 
25,000
 
7.84%
 
01/23/12
 
25,000
 
                   
Total Fixed Rate Unsecured Senior Notes Payable
 
350,000
 
5.124 %
 
3.74 years
 
$ 350,000
 
       
(wtd.-avg.
interest rate)
 
(wtd.-avg. maturity)
     
                   
Unsecured Variable Rate Revolving Credit Facilities
                 
                   
Wells Fargo
 
147,000
 
2.80%
 
02/12/06
 
$ 147,000
 
City National Bank
 
-
 
LIBOR + 1%
 
11/11/2005
 
-
 
                   
Total Unsecured Variable Rate Revolving Credit Facilities
 
147,000
         
$ 147,000
 
                   
Total Debt
 
$ 992,056
             
                   
———————————-
(1)  
The rate in effect on December 31, 2004.
 
(2)  
$100 million of the outstanding balance has been swapped to a floating interest rate based on the 6 month LIBOR in arrears, plus 0.4375%. The indicated rate and weighted average rate for the unsecured senior notes do not reflect this interest rate swap.
 
 
Our mortgage and outstanding revolving credit facilities indebtedness outstanding at December 31, 2004 will require approximate balloon and scheduled principal payments as follows (in thousands):
 
 
 
Secured Debt 
Unsecured Debt
     
Year Due
   
Scheduled Amortization
   
Balloon Payments
   
Revolving Credit Facilities
   
Senior
Notes
   
Total
 
                                 
   2005
 
$
10,809
 
$
30,079
 
$
-
 
$
-
 
$
40,888
 
   2006
   
11,069
   
24,758
   
147,000
   
50,000
   
232,827
 
   2007
   
11,252
   
2,864
   
-
   
75,000
   
89,116
 
   2008
   
11,391
   
40,104
   
-
   
-
   
51,495
 
   2009
   
11,125
   
24,332
   
-
   
200,000
   
235,457
 
   2010
   
10,224
   
98,471
   
-
   
-
   
108,695
 
   2011
   
8,489
   
93,433
   
-
   
-
   
101,922
 
   2012
   
7,324
   
40,056
   
-
   
25,000
   
72,380
 
   2013
   
7,020
   
-
   
-
   
-
   
7,020
 
   2014
   
7,110
   
10,015
   
-
   
-
   
17,125
 
Thereafter
   
35,131
   
-
   
-
   
-
   
35,131
 
                                 
Total
 
$
130,944
 
$
364,112
 
$
147,000
 
$
350,000
 
$
992,056
 
 
    We may not have sufficient funds on hand to repay these balloon amounts at maturity. Therefore, we expect to refinance this indebtedness either through additional mortgage financing secured by individual properties or groups of properties, by unsecured private or public debt offerings or by additional equity offerings. Our results of operations could be affected if the cost of new debt is greater or lesser thanthe cost of the meeting debt. If new financing is not available, we could be required to sell assets and our business would be adversely affected.
 
53

 
Development Activity. As of December 31, 2004, we had over 19 development and redevelopment projects underway or in the planning stage totaling approximately $66.7 million of asset value and requiring approximately $25.0 million to complete based on current plans and estimates. The more significant of these include:
 
·  
CVS Plaza in Miami, Florida where we are completing the lease up of the local space at a new 29,204 square foot drug store-anchored shopping center that we built across the street from our recently completed Publix supermarket-anchored Plaza Alegre shopping center;
 
·  
Shops at Skylake in North Miami Beach, Florida, where we are in the process of adding 29,000 square feet of retail and office space;
 
·  
Centre Pointe Plaza in Smithfield, North Carolina and Eustis Square in Eustis, Florida where we have reconfigured and redeveloped previously vacant anchor and other space and are completing the associated lease-up; and
 
·  
The development of two supermarket-anchored shopping centers, one in Homestead, Florida and the other in McDonough, Georgia, both on parcels of land we currently own.
 
These developments and redevelopments are scheduled for completion between early 2005 and the end of 2006.
 
Shelf Registration. We have filed universal shelf registration statements with the Securities and Exchange Commission, which will permit us, from time to time, to offer and sell various types of securities, including common stock, preferred stock, debt securities, depositary shares and warrants. The registration statements provide us additional flexibility in accessing capital markets to fund future growth and for general corporate purposes. We now have approximately $503 million of availability under our existing shelf registration statements.
 
Equity. For the year ended December 31, 2004, we issued 620,468 shares of our common stock pursuant to the exercise of stock options at prices ranging from $9.24 to $16.22 per share. We also issued 2.7 million shares of common stock at prices ranging from $16.83 to $23.67 per share pursuant to our Divided Reinvestment and Stock Purchase Plan. As of December 31, 2004, we have 7.0 million shares remaining for sale under our Dividend Reinvestment and Stock Purchase Plan.
 
Future Capital Requirements. We believe, based on currently proposed plans and assumptions relating to our operations, that our existing financial arrangements, together with cash generated from our operations, will be sufficient to satisfy our cash requirements for a period of at least twelve months. In the event that our plans change, our assumptions change or prove to be inaccurate or cash flows from operations or amounts available under existing financing arrangements prove to be insufficient to fund our expansion and development efforts or to the extent we discover suitable acquisition targets the purchase price of which exceeds our existing liquidity, we would be required to seek additional sources of financing. There can be no assurance that any additional financing will be available on acceptable terms or at all, and any future equity financing could be dilutive to existing stockholders. If adequate funds are not available, our business operations could be materially adversely affected.
 
Distributions. We believe that we currently qualify, and intend to continue to qualify in the future, as a REIT under the Internal Revenue Code. As a REIT, we are allowed to reduce taxable income by all or a portion of our distributions to stockholders. As distributions have exceeded taxable income, no provision for federal income taxes has been made. While we intend to continue to pay dividends to our stockholders, we also will reserve such amounts of cash flow as we consider necessary for the proper maintenance and improvement of our real estate and other corporate purposes while still maintaining our qualification as a REIT. Our cash distributions for the year ended December 31, 2004 were $80.9 million.
 
54

New Accounting Standards
 
In May 2003, the Financial Accounting Standards Board (FASB) issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity. This statement establishes standards for the classification and measurement of financial instruments that possess characteristics similar to both liability and equity instruments. SFAS No. 150 also addresses the classification of certain financial instruments that include an obligation to issue equity shares. On October 29, 2003, the FASB voted to defer, for an indefinite period, the application of the guidance in FASB Statement No. 150, Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity. We have adopted certain provisions of SFAS No. 150 which did not have a material impact on our financial position or results of operations. We are still evaluating the potential impact of the provisions of SFAS 150 that have been deferred to future periods.
 
    In December 2004, the FASB issued SFAS No. 123 (revised 2004), Share-Based Payment, which is a revision of SFAS 123, Accounting for Stock-Based Compensation. Generally, the approach in SFAS 123 (R) is similar to the approach described in SFAS 123. However, SFAS 123 (R) requires all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values. Pro forma disclosure is no longer an alternative. The new standard will be effective for public entities (excluding small business issuers) in the first interim or annual reporting period beginning after June 15, 2005, irrespective of the entity’s fiscal year. Early adoption is permitted in periods in which financial statements have not yet been issued. SFAS 123 (R) allows for two transition alternatives for public companies: (a) modified-prospective transition or (b) modified-retrospective transition. Under the modified-prospective transition method, companies are required to recognize compensation cost for share-based payments to employees based on their grant-date fair value from the beginning of the fiscal period in which the recognition provisions are first applied. Measurement and attribution of compensation cost for awards that were granted prior to, but not vested as of the date SFAS 123 (R) is adopted would be based on the same estimate of the grant-date fair value and the same attribution method used previously under SFAS 123 (either for financial statement recognition or pro forma disclosure purposes). Prior periods are not restated. For periods prior to adoption, the financial statements are unchanged (and the pro forma disclosures previously required by SFAS 123 continue to be required under the new Standard to the extent those amounts differ from those in the income statement). For periods subsequent to adoption, the impact of this transition method generally is the same as if the modified-retrospective method were applied. Accordingly, pro forma disclosure will not be necessary for periods after the adoption of the new Standard. Under the modified-retrospective transition method, companies are allowed to restate prior periods by recognizing compensation cost in the amounts previously reported in the pro forma footnote disclosure under the provisions of SFAS 123. New awards and unvested awards would be accounted for in the same manner as the modified-prospective method. Because of the mid-year effective date, companies are permitted to apply the modified-retrospective transition alternative either (a) to all periods presented or (b) to the start of the fiscal year in which SFAS 123 (R) is adopted. We are currently evaluating the different alternatives. Had we adopted SFAS 123 in 2004, our diluted earnings per share would have been $0.01 lower.
 
In December of 2004, the FASB issued Statement 153, Exchanges of Nonmonetary Assets, an amendment of APB Opinion No. 29, Accounting for Nonmonetary Transactions. The guidance in APB Opinion No. 29 is based on the principle that exchanges of nonmonetary assets should be measured based on the fair value of the assets exchanged. The guidance in that Opinion, however, included certain exceptions to that principle. Statement 153 amends Opinion 29 by eliminating the exception for nonmonetary exchanges of similar productive assets and replaces it with a general exception for exchanges of nonmonetary assets that do not have commercial substance. A nonmonetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. This statement shall be applied prospectively and is effective for nonmonetary asset exchanges occurring in fiscal periods beginning after June 15, 2005. This pronouncement is prospective and has no effect on the Company’s financial position or results of operations as of December 31, 2004.
 
55

Environmental Matters
 
We are subject to numerous environmental laws and regulations. The operation of dry cleaning facilities at our shopping centers is the principal environmental concern. We require that the tenants who operate these facilities do so in material compliance with current laws and regulations and we have established procedures to monitor their operations. Additionally, we use all legal means to cause tenants to remove dry cleaning plants from our shopping centers. Where available, we have applied and been accepted into state sponsored environmental programs. Several properties in our portfolio will require or are currently undergoing varying levels of environmental remediation. However, we have environmental insurance policies covering all of our properties. We believe that the ultimate disposition of currently known environmental matters will not have a material effect on our financial position, liquidity or operations.
 
Inflation and Recession Considerations
 
Most of our leases contain provisions designed to partially mitigate the adverse impact of inflation. Most of our leases require the tenant to pay its share of operating expenses, including common area maintenance, real estate taxes and insurance, thereby reducing our exposure to increases in costs and operating expenses resulting from inflation. A small number of our leases also include clauses enabling us to receive percentage rents based on a tenant’s gross sales above predetermined levels, which sales generally increase as prices rise, or escalation clauses which are typically related to increases in the Consumer Price Index or similar inflation indices.
 
Our financial results are affected by general economic conditions in the markets in which our properties are located. An economic recession, or other adverse changes in general or local economic conditions, could result in the inability of some of our existing tenants to meet their lease obligations and could otherwise adversely affect our ability to attract or retain tenants. Supermarkets, drugstores and other anchor tenants that offer day-to-day necessities rather than luxury items anchor our existing properties. These types of tenants, in our experience, generally maintain more consistent sales performance during periods of adverse economic conditions.
 
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
 
Interest Rate Risk
 
The primary market risk to which we have exposure is interest rate risk. Changes in interest rates can affect our net income and cash flows. As changes in market conditions occur and interest rates increase or decrease, interest expense on the variable component of our debt will move in the same direction. We intend to utilize variable rate indebtedness available under our unsecured revolving credit facilities in order to initially fund future acquisitions, development costs and for other operating needs. With respect to our fixed rate mortgage notes and fixed rate senior unsecured notes, changes in interest rates generally do not affect our interest expense as these notes are predominantly at fixed rates for extended terms. Because we intend to hold our existing fixed rate obligations either to maturity or until the sale of the associated property, these fixed rate obligations do not pose an interest rate risk to our results of operations or our working capital position, except upon the refinancing of these obligations. Another possible risk is from increases in long-term interest rates that may occur over a period of several years, as this may decrease the overall value of our real estate.
 
56

    As of December 31, 2004, we had approximately $247.0 million of outstanding floating rate debt, including $100 million of fixed rate borrowings that we have converted to floating rate borrowings through the use of hedging agreements. We do not believe that the interest rate risk represented by our floating rate debt is material as of December 31, 2004, in relation to our $992.1 million of outstanding debt, our $1.9 billion of total assets and the $2.7 billion total market capitalization as of that date.
 
If interest rates on our variable rate debt increase by 1%, the increase in annual interest expense on our variable rate debt would decrease future earnings and cash flows by approximately $2.47 million. If interest rates on our variable rate debt decrease by 1%, the decrease in interest expense on our variable rate debt would increase future earnings and cash flows by approximately $2.47 million. This assumes that the amount outstanding under our variable rate debt remains at approximately $247.0 million (including the $100 million of fixed rate debt converted to floating rate debt through the use of hedging agreements), the balance as of December 31, 2004.
 
The fair value of our fixed rate debt is $782.8 million, which includes the mortgage notes and fixed rate portion of the senior unsecured notes payable (excluding the unamortized premium/discount). If interest rates increase by 1%, the fair value of our total fixed rate debt would decrease by approximately $78.2 million. If interest rates decrease by 1%, the fair value of our total outstanding fixed rate debt would decrease by approximately $720,000. This assumes that our total outstanding fixed rate debt remains at $745.1 million, the balance as of December 31, 2004.
 
Hedging Activities
 
To manage, or hedge, our exposure to interest rate risk, we follow established risk management policies and procedures, including the use of a variety of derivative financial instruments. We do not enter into derivative instruments for speculative purposes. We require that the hedges or derivative financial instruments be effective in managing the interest rate risk exposure that they are designated to hedge. This effectiveness is essential to qualify for hedge accounting. Hedges that meet these hedging criteria are formally designated as such at the inception of the contract. When the terms of an underlying transaction are modified, or when the underlying hedged item ceases to exist, resulting in some ineffectiveness, the change in the fair value of the derivative instrument will be included in earnings. Additionally, any derivative instrument used for risk management that becomes ineffective is marked-to-market each period.
 
The Company is exposed to credit risk, in the event of non-performance by the counter-parties to the hedge agreements. The Company believes that it mitigates its credit risk by entering into these agreements with major financial institutions. Net interest differentials to be paid or received under a swap contract and/or collar agreement are included in interest expense as incurred or earned.
 
During 2004, the Company entered into a $100 million notional principal variable rate interest swap with an estimated fair value of $2.7 million at December 31, 2004. This swap converted fixed rate debt to variable rate based on the 6 month LIBOR in arrears plus 0.4375%, and matures April 15, 2009.
 
The estimated fair value of the derivative financial instrument has been determined, using available market information and appropriate valuation methodologies. However, considerable judgment is necessarily required in interpreting market data to develop the estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts that the Company could realize in a current market exchange. The use of different market assumptions or estimation methodologies may have a material effect on the estimated fair value.
 
57

Other Market Risks
 
As of December 31, 2004, we had no material exposure to any other market risks (including foreign currency exchange risk, commodity price risk or equity price risk).
 
For purposes of the Securities and Exchange Commission's market risk disclosure requirements, we have estimated the fair value of our financial instruments at December 31, 2004. The fair value estimates presented herein are based on pertinent information available to management as of December 31, 2004. Although management is not aware of any factors that would significantly affect the estimated fair value amounts as of December 31, 2004, future estimates of fair value and the amounts which may be paid or realized in the future may differ significantly from amounts presented.
 
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 
The financial statements and supplementary data required by Regulation S-X are included in this Form 10-K commencing on page F-1.
 
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
 
None.
 
ITEM 9A. CONTROLS AND PROCEDURES
 
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
 
Under the supervision and with the participation of our management, including the principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(d) under the Securities Exchange Act of 1934, as amended, as of December 31, 2004, the end of the period covered by this report. Based on this evaluation, our principal executive officer and principal financial officer concluded as of the December 31, 2004 that our disclosure controls and procedures were effective at the reasonable assurance level such that the information relating to us and our consolidated subsidiaries, required to be disclosed in our Securities and Exchange Commission (SEC) reports (i) is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and (ii) is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

    There has been no changes made during the quarter ended December 31, 2004 to the Company’s internal controls over financial reporting that have materially affected or is reasonably likely to materially affect controls.

 
    Management’s report on its assessment of the effectiveness of the Company’s internal control over financial reporting as of the end of 2004 is incorporated by reference to such report included in this Form 10-K on page F-1.
 
ITEM 9B. OTHER INFORMATION
 
None.
 
58

PART III
 
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
 
Incorporated by reference from our definitive proxy statement to be filed within 120 days after the end of our fiscal year covered by this Form 10-K.
 
ITEM 11. EXECUTIVE COMPENSATION
 
Incorporated by reference from our definitive proxy statement to be filed within 120 days after the end of our fiscal year covered by this Form 10-K.
 
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
 
Equity Compensation Plan Information
 
The following table sets forth information regarding securities authorized for issuance under equity compensation plans as of December 31, 2004.
 
Plan category
Number of securities to be issued upon exercise of outstanding options, warrants and rights
Weighted-average exercise price of outstanding options, warrants and rights
Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
 
(a)
(b)
(c)
Equity compensation plans approved by security holders(1)
1,481,330
$14.52
2,822,064
Equity compensation plans not approved by security holders
-
-
-
Total
1,481,330
$14.52
2,822,064
 
(1)  
Includes information related to our 1995 Stock Option Plan, 2000 Executive Incentive Compensation Plan, 1989 IRT Stock Option Plan and 1998 IRT Long-Term Incentive Plan.

    The other information required by this item is incorporated by reference from our definitive proxy statement to be filed within 120 days after the end of our fiscal year covered by this Form 10-K.
 
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
 
Incorporated by reference from our definitive proxy statement to be filed within 120 days after the end our fiscal year covered by this Form 10-K.
 
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
 
Information required and the audit committee’s pre-approval policies regarding the engagement of the principal accountants are incorporated by reference from our definitive proxy statement to be filed within 120 days after the end our fiscal year covered by this Form 10-K.
 
59

PART IV
 
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
 
(a)  The following consolidated financial information is included as a separate section of this Form 10-K:
 
 
1. Financial Statements:
 
   
Page
     
 
Management Report on Internal Control Over Financial
Reporting
F-1
 
Report of Independent Registered Public Accounting Firm
F-2
 
 
Report of Independent Registered Public Accounting Firm on Financial Reporting
F-4
 
 
Consolidated Balance Sheets as of December 31, 2004 and 2003
F-5
 
 
Consolidated Statements of Operations for the years ended December 31, 2004, 2003 and 2002
F-6 - F-7
 
Consolidated Statements of Comprehensive Income for the years ended December 31, 2004, 2003 and 2002
F-8
 
Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2004, 2003 and 2002
F-9
 
Consolidated Statements of Cash Flows for the years ended December 31, 2004, 2003 and 2002
F-10 - F-11
 
Notes to the Consolidated Financial Statements
  F-12 - F-36
     
 
 
2. Financial statement schedules required to be filed
 
 
Schedule III - Real Estate Investments and Accumulated Depreciation
F-37
 
Schedules I, II, IV and V are not required to be filed.
 
     
 
(b)  Exhibits:  The following exhibits are filed as part of, or incorporated by reference into, this annual report.
 
 
60

 
EXHIBIT NO.
DESCRIPTION
   
3.1
Composite Charter of the Company (Exhibit 3.1) (1)
3.2
Amended and Restated Bylaws of the Company (Exhibit 3.2) (2)
4.1
Indenture dated November 9, 1995 between the Company, as successor-by-merger to IRT Property Company, and SunTrust Bank, as Trustee (Exhibit 4(c)) (3)
4.2
Supplemental Indenture No. 1, dated March 26, 1996, between the Company, as successor-by-merger to IRT Property Company, and SunTrust Bank, as Trustee (Exhibit 4) (4)
4.3
Supplemental Indenture No. 2, dated August 15, 1997, between the Company, as successor-by-merger to IRT Property Company, and SunTrust Bank, as Trustee (Exhibit 4) (5)
4.4
Supplemental Indenture No. 3, dated September 9, 1998, between the Company, as successor-by-merger to IRT Property Company, and SunTrust Bank, as Trustee (Exhibit 4.1) (6)
4.5
Supplemental Indenture No. 4, dated November 1, 1999, between the Company, as successor-by-merger to IRT Property Company, and SunTrust Bank, as Trustee (Exhibit 4.1) (7)
4.6
Supplemental Indenture No. 5, dated February 12, 2003, between the Company and SunTrust Bank, as Trustee (Exhibit 4.1) (8)
4.6
Supplemental Indenture No. 6, dated April 23, 2004, between the Company and SunTrust Bank, as Trustee (Exhibit 4.2) (9)
4.7
Indenture, dated September 9, 1998, between the Company, as successor-by-merger to IRT Property Company, and SunTrust Bank, as Trustee (Exhibit 4.2) (6)
4.8
Supplemental Indenture No. 1, dated September 9, 1998, between the Company, as successor-by-merger to IRT Property Company, and SunTrust Bank, as Trustee (Exhibit 4.3) (6)
4.9
Supplemental Indenture No. 2, dated November 1, 1999, between the Company, as successor-by-merger to IRT Property Company, and SunTrust Bank, as Trustee (Exhibit 4.5) (7)
4.10
Supplemental Indenture No. 3, dated February 12, 2003, between the Company and SunTrust Bank, as Trustee (Exhibit 4.2) (8)
4.11
Supplemental Indenture No. 4, dated March 26, 2004, between the Company and SunTrust Bank, as Trustee (Exhibit 4.1) (10)
4.12
Supplemental Indenture No. 5, dated April 23, 2004, between the Company and SunTrust Bank, as Trustee (Exhibit 4.1) (9)
10.1
Form of Indemnification Agreement
10.2
1995 Stock Option Plan, as amended (11)*
10.3
Amended and Restated 2000 Executive Incentive Plan (Annex A) (12)*
10.4
Form of Stock Option Agreement for stock options awarded under the Amended and Restated 2000 Executive Incentive Plan (Exhibit 10.3) (21)*
10.5
Form of Restricted Stock Agreement for restricted stock awarded under the Amended and Restated 2000 Executive Incentive Plan (Exhibit 10.4) (21)*
10.6
IRT 1989 Stock Option Plan, assumed by the Company (13)*
10.7
IRT 1998 Long-Term Incentive Plan, assumed by the Company (14)*
10.8
2004 Employee Stock Purchase Plan (Annex B) (12)*
10.9
Registration Rights Agreement, dated as of January 1, 1996 by and among the Company, Chaim Katzman, Gazit Holdings, Inc., Dan Overseas Ltd., Globe Reit Investments, Ltd., Eli Makavy, Doron Valero and David Wulkan, as amended. (Exhibit 10.6, Amendment No. 3) (15)
10.10
Stock Exchange Agreement dated May 18, 2001 among the Company, First Capital Realty Inc. and First Capital America Holding Corp (16)
   
10.11
Use Agreement, regarding use of facilities, by and between Gazit (1995), Inc. and the Company, dated January 1, 1996. (Exhibit 10.15, Amendment No. 1) (15)
10.12
Subscription Agreement, dated October 4, 2000, made by Alony Hetz Properties & Investments, Ltd. (Exhibit 10.13) (17)
10.13
Stockholders Agreement, dated October 4, 2000, among the Company, Alony Hetz Properties & Investments, Ltd., Gazit-Globe (1982), Ltd., M.G.N. (USA), Inc. and Gazit (1995), Inc. (Exhibit 10.14) (17)
 
 
61

 
 EXHIBIT NO.  DESCRIPTION
   
10.14
First Amendment to Stockholders Agreement, dated December 19, 2001, among the Company Alony Hetz Properties & Investments, Ltd., Gazit-Globe (1982), Ltd., M.G.N. (USA), Inc. and Gazit (1995), Inc. (Exhibit 10.15) (17)
10.15
Second Amendment to Stockholders Agreement, dated October 28, 2002, among the Company Alony Hetz Properties & Investments, Ltd., Gazit-Globe (1982), Ltd., M.G.N. (USA), Inc. and Gazit (1995), Inc. (18)
10.16
Third Amendment to Stockholders Agreement, dated May 23, 2003, among the Company Alony Hetz Properties & Investments, Ltd., Gazit-Globe (1982), Ltd., M.G.N. (USA), Inc. and Gazit (1995), Inc. (9)
10.17
Amended and Restated Employment Agreement dated effective as of January 1, 2002 between the Company and Chaim Katzman (Exhibit 10.1) (1)*
10.18
First Amendment to Amended and Restated Employment Agreement, dated September 1, 2003, with Chaim Katzman (Exhibit 10.1) (19)*
10.19
Amended and Restated Employment Agreement dated effective as of January 1, 2002 between the Company and Doron Valero (Exhibit 10.2) (1)*
10.20
First Amendment to Amended and Restated Employment Agreement, dated September 1, 2003, with Doron Valero (Exhibit 10.2) (19)*
10.21
Second Amended and Restated Employment Agreement, dated September 1, 2003, between the Company and Howard M. Sipzner (Exhibit 10.1) (20)*
10.22
Employment Letter, dated March 11, 2003, by and between Alan Merkur and the Company (Exhibit 10.5) (21)*
10.23
Employment Letter, dated March 24, 2003, by and between Arthur L. Gallagher and the Company (Exhibit 10.6) (21)*
10.24
Registration Rights Agreement, dated October 28, 2002, between the Company and certain Purchasers (Exhibit 99.3) (22)
10.25
Credit Agreement, dated February 7, 2003, among the Company, each of the financial institutions initially a signatory thereto; Commerzbank AG New York and Grand Cayman Branches, Keybank National Association and Southtrust Bank, as Documentary Agents; and Wells Fargo Bank, National Association, as Sole Lead Arranger and Administration Agent (Exhibit 10.1) (10)
10.25
Amendment No. 1 to Credit Agreement, dated as of March 18, 2004, among Equity One, Inc., Wells Fargo Bank, National Association, in its capacity as contractual representative of the lenders named therein (Exhibit 10.1) (23)
10.26
Amendment No. 2 to Credit Agreement, dated as of July 19, 2004, among Equity One, Inc., Wells Fargo Bank, National Association, in its capacity as contractual representative of the lenders named therein (Exhibit 10.1) (24)
10.27
Clarification Agreement and Protocol, dated as of January 1, 2004, among Equity One, Inc. and Gazit-Globe (1982), Ltd. (Exhibit 10.2) (23)
12.1
Ratios of Earnings to Fixed Charges
21.1
List of Subsidiaries of the Registrant
23.1
Consent of Deloitte & Touche LLP
31.1
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1
Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002
 
*Identifies employee agreements, management contracts, compensatory plans or other arrangements.
 
(1)  
Previously filed as an exhibit to our Quarterly Report on Form 10-Q for the period ended June 30, 2002, and incorporated by reference herein.
 
(2)  
Previously filed as an exhibit to our Annual Report on Form 10-K for the period ended December 31, 2003, and incorporated by reference herein.
 
(3)  
Previously filed by IRT Property Company as an exhibit to IRT’s Annual Report on Form 10-K for the period ending December 31, 1995, and incorporated by reference herein.
 
(4)  
Previously filed by IRT Property Company as an exhibit to IRT’s Current Report on Form 8-K filed on March 26, 1996, and incorporated by reference herein.
 
 
62

 
 
(5)  
Previously filed by IRT Property Company as an exhibit to IRT’s Current Report on Form 8-K filed on August 13, 1997, and incorporated by reference herein.
 
(6)  
Previously filed by IRT Property Company as an exhibit to IRT’s Current Report on Form 8-K filed on September 15, 1998, and incorporated by reference herein.
 
(7)  
Previously filed by IRT Property Company as an exhibit to IRT’s Current Report on Form 8-K filed on November 12, 1999, and incorporated by reference herein.
 
(8)  
Previously filed as an exhibit to our Current Report on Form 8-K filed on February 20, 2003, and incorporated by reference herein.
 
(9)  
Previously filed as an exhibit to our Quarterly Report on Form 10-Q for the period ended March 31, 2004, and incorporated by reference herein.
 
(10)  
Previously filed as an exhibit to our Current Report on Form 8-K filed on March 31, 2004, and incorporated by reference herein.
 
(11)  
Previously filed with our definitive Proxy Statement for the Annual Meeting of Stockholders held on June 30, 1999, and incorporated herein by reference.
 
(12)  
Previously filed with our definitive Proxy Statement for the Annual Meeting of Stockholders held on May 21, 2004, and incorporated herein by reference.
 
(13)  
Previously filed by IRT Property Company as an exhibit to IRT’s Current Report on Form 8-K filed on March 22, 1989, and incorporated herein by reference.
 
(14)  
Previously filed by IRT Property Company with IRT’s definitive Proxy Statement for the Annual Meeting of Stockholders held on May 22, 1998, and incorporated herein by reference.
 
(15)  
Previously filed with our Registration Statement on Form S-11, as amended (Registration No. 333-3397), and incorporated herein by reference.
 
(16)  
Previously filed as Appendix A to our definitive Proxy Statement for the Special Meeting of Stockholders held on September 6, 2001 and incorporated herein by reference.
 
(17)  
Previously filed with our Annual Report Form 10-K/A filed on March 18, 2002, and incorporated herein by reference.
 
(18)  
Previously filed as Exhibit 10.1 to our Quarterly Report on Form 10-Q for the period ended September 30, 2002, and incorporated by reference herein.
 
(19)  
Previously filed with our Quarterly Report on Form 10-Q for the period ended September 30, 2003, and incorporated by reference herein.
 
(20)  
Previously filed with our Current Report on Form 8-K filed on January 6, 2004, and incorporated by reference herein.
 
(21)  
Previously filed with our Current Report on Form 8-K filed on February 18, 2005, and incorporated by reference herein.
 
(22)  
Previously filed as Exhibit 2.1 to our Current Report on Form 8-K filed on October 30, 2002, and incorporated by reference herein.
 
(23)  
Previously filed as an exhibit to our Current Report on Form 8-K filed on March 16, 2004, and incorporated by reference herein.
 
(24)  
Previously filed as an exhibit to our Current Report on Form 8-K filed on July 26, 2004, and incorporated by reference herein.
 
 
63

SIGNATURES
 
 
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
Date: March 16, 2005
EQUITY ONE, INC.
   
 
By: /s/ Chaim Katzman
Chaim Katzman
 
Chairman of the Board and
Chief Executive Officer

 
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant in the capacities, and on the dates indicated.
 
SIGNATURE
TITLE
DATE
   
/s/ Chaim Katzman
Chairman of the Board and
March 16, 2005
Chaim Katzman
Chief Executive Officer
 
 
(Principal Executive Officer)
 
     
/s/ Doron Valero
President, Chief Operating Officer
March 16, 2005
Doron Valero
and Director
 
     
/s/ Howard M. Sipzner
Howard M. Sipzner
Executive Vice President and
Chief Financial Officer
March 16, 2005
 
(Principal Accounting and
Financial Officer)
 
     
 /s/ Noam Ben Ozer Director   March 16, 2005 
 Noam Ben Ozer    
     
/s/ Robert L. Cooney
Director
March 16, 2005
Robert L. Cooney
   
     
/s/ Patrick L. Flinn
Director
March 16, 2005
Patrick L. Flinn
   
     
/s/ Nathan Hetz
Director
March 16, 2005
Nathan Hetz
   
     
/s/ Peter Linneman
Director
March 16, 2005
Peter Linneman
   
     
/s/ Shaiy Pilpel
Director
March 16, 2005
Dr. Shaiy Pilpel
   
     
/s/ Dori Segal
Director
March 16, 2005
Dori Segal
   
     
 

64


 

EQUITY ONE, INC. AND SUBSIDIARIES
 
TABLE OF CONTENTS
 
 

 
Page
   
Management Report on Internal Control Over Financial Reporting
F-1
   
Report of Independent Registered Public Accounting Firm
F-2
   
Report of Independent Registered Public Accounting Firm
F-4
   
Consolidated Balance Sheets as of December 31, 2004 and 2003
F-5
   
Consolidated Statements of Operations for the years ended December 31, 2004, 2003 and 2002
F-6 - F-7
   
Consolidated Statements of Comprehensive Income for the years ended December 31, 2004, 2003 and 2002
F-8
   
Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2004, 2003 and 2002
F-9
   
Consolidated Statements of Cash Flows for the years ended December 31, 2004, 2003 and 2002
F-10 - F-11
   
Notes to the Consolidated Financial Statements
F-12 - F-36
   



49

Management Report on Internal Control Over Financial Reporting

            The management of Equity One, Inc. and subsidiaries (the Company) is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rule 13a-15(f) promulgated under the Securities Exchange Act of 1934, as a process designed by, or under the supervision of, the Company’s principal executive and principal financial officers and effected by the Company’s board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting, which requires the use of certain estimates and judgments, and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:

·          Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company;

·          Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and

·          Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.

Reasonable assurance is based on the premise that the cost of internal controls should not exceed the benefits derived.  Reasonable assurance includes the understanding that there is a remote likelihood that material misstatements will not be prevented or detected in a timely manner. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. 

            The Company’s management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2004.  In making this assessment, the Company’s management used the criteria set forth by the Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this assessment, management has concluded that, as of December 31, 2004, the Company’s internal control over financial reporting is effective.

            Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

            The Company’s independent registered public accounting firm has issued an attestation report on our assessment of the Company’s internal control over financial reporting.  This report appears on the following page of this Annual Report.

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


To the Board of Directors and Stockholders of
Equity One, Inc.
North Miami Beach, Florida

We have audited management’s assessment, included in the accompanying Managements Report on Internal Control over Financial Reporting, that Equity One, Inc. and subsidiaries (the “Company”) maintained effective internal control over financial reporting as of December 31, 2004, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.  The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting.  Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the Company’s internal control over financial reporting based on our audit.
 
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.  Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances.  We believe that our audit provides a reasonable basis for our opinions.
 
 
A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the company’s board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.  A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
 
 
Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis.  Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
 
 
In our opinion, management’s assessment that the Company maintained effective internal control over financial reporting as of December 31, 2004, is fairly stated, in all material respects, based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.  Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2004, based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.
 
 
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements and financial statement schedule as of and for the year ended December 31, 2004 of the Company and our report dated March 11, 2005 expressed an unqualified opinion on those financial statements and the financial statement schedule.
 
 
/s/ DELOITTE & TOUCHE LLP
 
 
Miami, Florida
March 11, 2005
 
F-2
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


To the Board of Directors and Stockholders of
Equity One, Inc.
North Miami Beach, Florida

We have audited the accompanying consolidated balance sheets of Equity One, Inc. and subsidiaries (the “Company”) as of December 31, 2004 and 2003, and the related consolidated statements of operations, comprehensive income, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2004.  Our audits also included the financial statement schedule listed in the Index at Item 15.  These financial statements and financial statement schedule are the responsibility of the Company’s management.  Our responsibility is to express an opinion on the financial statements and financial statement schedule based on our audits.
 
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.  An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion.
 
 
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2004 and 2003, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2004, in conformity with accounting principles generally accepted in the United States of America.  Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
 
 
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of the Company’s internal control over financial reporting as of December 31, 2004, based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 11, 2005 expressed an unqualified opinion on management’s assessment of the effectiveness of the Company’s internal control over financial reporting and an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.
 
 
/s/ DELOITTE & TOUCHE LLP
 
Miami, Florida
March 11, 2005


F-3

EQUITY ONE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2004 AND 2003
(In thousands, except per share amounts)
 
     
2004
   
2003
 
ASSETS
             
               
PROPERTIES:
             
Income producing
 
$
1,915,216
 
$
1,594,579
 
Less: accumulated depreciation
   
(95,934
)
 
(66,406
)
Income producing property, net
   
1,819,282
   
1,528,173
 
               
Construction in progress and land held for development
   
41,759
   
74,686
 
Property held for sale
   
12,646
   
14,440
 
               
Properties, net
   
1,873,687
   
1,617,299
 
               
CASH AND CASH EQUIVALENTS
   
5,122
   
966
 
               
ACCOUNTS AND OTHER RECEIVABLES, NET
   
15,699
   
13,492
 
               
SECURITIES
   
35,756
   
-
 
               
INVESTMENTS IN AND ADVANCES TO JOINT VENTURES
   
273
   
2,861
 
               
GOODWILL
   
14,020
   
14,014
 
               
OTHER ASSETS
   
47,735
   
28,754
 
               
TOTAL
 
$
1,992,292
 
$
1,677,386
 
               
LIABILITIES AND STOCKHOLDERS’ EQUITY
             
               
LIABILITIES:
             
               
NOTES PAYABLE
             
Mortgage notes payable
 
$
495,056
 
$
459,103
 
Unsecured revolving credit facilities
   
147,000
   
162,000
 
Unsecured senior notes payable
   
347,261
   
150,000
 
     
989,317
   
771,103
 
               
Unamortized premium/discount on notes payable
   
21,603
   
24,218
 
               
Total notes payable
   
1,010,920
   
795,321
 
               
OTHER LIABILITIES
             
Accounts payable and accrued expenses
   
32,857
   
25,211
 
Tenant security deposits
   
8,559
   
7,706
 
Other liabilities
   
7,171
   
5,924
 
               
Total liabilities
   
1,059,507
   
834,162
 
               
MINORITY INTEREST
   
1,397
   
12,672
 
               
COMMITMENTS AND CONTINGENCIES
             
               
STOCKHOLDERS’ EQUITY:
             
Preferred stock, $0.01 par value - 10,000 shares authorized but unissued
   
-
   
-
 
Common stock, $0.01 par value - 100,000 shares authorized, 73,597 and 69,353 shares issued and outstanding for 2004 and 2003, respectively
   
736
   
694
 
Additional paid-in capital
   
920,616
   
843,678
 
Retained earnings
   
17,481
   
-
 
Accumulated other comprehensive income (loss)
   
4,633
   
(122
)
Unamortized restricted stock compensation
   
(11,928
)
 
(10,091
)
Notes receivable from issuance of common stock
   
(150
)
 
(3,607
)
               
Total stockholders’ equity
   
931,388
   
830,552
 
               
TOTAL
 
$
1,992,292
 
$
1,677,386
 
               
See accompanying notes to the consolidated financial statements.
             
               

 
F-4

EQUITY ONE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002
(In thousands, except per share amounts)
 
 
2004
 
2003
 
2002
 
RENTAL REVENUE:
           
Minimum rents
$ 175,588
 
$ 137,284
 
$ 68,705
 
Expense recoveries
48,789
 
39,908
 
21,548
 
Termination fees
3,536
 
1,363
 
1,911
 
Percentage rent payments
1,944
 
1,740
 
1,405
 
             
Total rental revenue
229,857
 
180,295
 
93,569
 
             
EXPENSES:
           
Property operating expenses
60,402
 
51,728
 
28,848
 
Rental property depreciation and amortization
35,910
 
26,411
 
12,563
 
Litigation settlement
-
 
-
 
2,067
 
General and administrative expenses
16,601
 
11,046
 
6,649
 
             
Total costs and expenses
112,913
 
89,185
 
50,127
 
             
INCOME BEFORE OTHER INCOME AND EXPENSE, MINORITY INTEREST AND DISCONTINUED OPERATIONS
116,944
 
91,110
 
43,442
 
             
OTHER INCOME AND EXPENSE:
           
Interest expense
(46,413
)
(36,814
)
(20,889
)
Amortization of deferred financing fees
(1,370
)
(992
)
(759
)
Investment income
2,346
 
1,089
 
1,632
 
Other income
537
 
687
 
1,083
 
(Loss) gain on extinguishment of debt
-
 
(513
)
1,520
 
             
INCOME BEFORE MINORITY INTEREST AND DISCONTINUED OPERATIONS
72,044
 
54,567
 
26,029
 
MINORITY INTEREST
(576
)
(803
)
(101
)
             
INCOME FROM CONTINUING OPERATIONS
71,468
 
53,764
 
25,928
 
             
DISCONTINUED OPERATIONS:
           
Income from rental properties sold or held for sale
4,273
 
6,800
 
4,742
 
Gain on disposal of income producing properties
22,176
 
3,083
 
9,264
 
Minority interest
(113
)
-
 
-
 
             
Total income from discontinued operations
26,336
 
9,883
 
14,006
 
             
NET INCOME
$ 97,804
 
$ 63,647
 
$ 39,934
 
             
         
(continued
)
             
 
 
F-5

EQUITY ONE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002
(In thousands, except per share amounts)

 
   
2004
   
2003
   
2002
 
                   
EARNINGS PER SHARE:
                 
                   
BASIC EARNINGS PER SHARE
                 
Income from continuing operations
$
1.01
  $
0.90
  $
0.79
 
Income from discontinued operations
 
0.38
   
0.16
   
0.43
 
                   
Total basic earnings per share
$
1.39
  $
1.06
  $
1.22
 
                   
NUMBER OF SHARES USED IN COMPUTING
BASIC EARNINGS PER SHARE
 
70,447
   
59,998
   
32,662
 
                   
DILUTED EARNINGS PER SHARE
                 
Income from continuing operations
$
1.00
  $
0.89
  $
0.78
 
Income from discontinued operations
 
0.37
   
0.16
   
0.42
 
                   
Total diluted earnings per share
$
1.37
  $
1.05
  $
1.20
 
                   
NUMBER OF SHARES USED IN COMPUTING
DILUTED EARNINGS PER SHARE
 
72,036
   
61,665
   
33,443
 
                   
               
(Concludedd
)
                   
See accompanying notes to the consolidated financial statements.
                 
 
F-6

EQUITY ONE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002
(In thousands, except per share amounts)
 
     
2004
   
2003
   
2002
 
                     
NET INCOME
 
$
97,804
 
$
63,647
 
$
39,934
 
                     
OTHER COMPREHENSIVE INCOME (LOSS):
                   
Net unrealized holding gain (loss) on securities available for sale
   
4,633
   
46
   
(12
)
Change in fair value of cash flow hedges
   
122
   
(122
)
 
-
 
                     
COMPREHENSIVE INCOME
 
$
102,559
 
$
63,571
 
$
39,922
 
                     
See accompanying notes to the consolidated financial statements.
                   

 
F-7

EQUITY ONE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002
(In thousands, except per share amounts)
 
 
   
Common
Stock   
   
Additional
Paid-In
Capital
   
Retained Earnings
   
Accumulated Other Comprehensive
Income/ (Loss)
 
 
Unamortized Restricted Stock Compensation
   
Notes Receivable from the Issuance of Common Stock
   
Total Stockholders’
Equity
 
                                             
BALANCE,
JANUARY 1, 2002
 
$
288
 
$
283,619
 
$
1,808
 
$
(34
)
$
(1,836
)
$
(5,578
)
$
278,267
 
                               
Issuance of common stock
   
57
   
73,359
   
-
   
-
   
(2,539
)
 
(1,534
)
 
69,343
 
Stock issuance cost
   
-
   
(1,528
)
 
-
   
-
   
-
   
-
   
(1,528
)
Net income
   
-
   
-
   
39,934
   
-
   
-
   
-
   
39,934
 
Dividends paid
   
-
   
-
   
(35,773
)
 
-
   
-
   
-
   
(35,773
)
Net unrealized holding loss on securities available for sale
   
-
   
-
   
-
   
(12
)
 
-
   
-
   
(12
)
                               
BALANCE,
DECEMBER 31, 2002
   
345
   
355,450
   
5,969
   
(46
)
 
(4,375
)
 
(7,112
)
 
350,231
 
                               
Issuance of common stock:
                             
IRT transaction
   
175
   
231,562
   
-
   
-
   
-
   
-
   
231,737
 
Other issuances
   
174
   
259,445
   
-
   
-
   
(5,716
)
 
3,505
   
257,408
 
Stock issuance cost
   
-
   
(1,718
)
 
-
   
-
   
-
   
-
   
(1,718
)
Net income
   
-
   
-
   
63,647
   
-
   
-
   
-
   
63,647
 
Dividends paid
   
-
   
(1,061
)
 
(69,616
)
 
-
   
-
   
-
   
(70,677
)
Change in fair value of cash flow hedges
   
-
   
-
   
-
   
(122
)
 
-
   
-
   
(122
)
Net unrealized holding gain on securities available for sale
   
-
   
-
   
-
   
46
   
-
   
-
   
46
 
                               
BALANCE,
DECEMBER 31, 2003
   
694
   
843,678
   
-
   
(122
)
 
(10,091
)
 
(3,607
)
 
830,552
 
                               
Issuance of common stock
   
42
   
77,853
   
-
   
-
   
(1,837
)
 
-
   
76,058
 
Stock issuance cost
   
-
   
(334
)
 
-
   
-
   
-
   
-
   
(334
)
Repayments of notes receivable from issuance of common stock
   
-
   
-
   
-
   
-
   
-
   
3,457
   
3,457
 
Net income
   
-
   
-
   
97,804
   
-
   
-
   
-
   
97,804
 
Dividends paid
   
-
   
(581
)
 
(80,323
)
 
-
   
-
   
-
   
(80,904
)
Changes in fair value of cash flow hedges
   
-
   
-
   
-
   
122
   
-
   
-
   
122
 
Net unrealized holding gain on securities available for sale
   
-
   
-
   
-
   
4,633
   
-
   
-
   
4,633
 
                               
BALANCE,
DECEMBER 31, 2004
 
$
736
 
$
920,616
 
$
17,481
 
$
4,633
 
$
(11,928
)
$
(150
)
$
931,388
 
                               
                               
See accompanying notes to the consolidated financial statements.
                     
 
 
F-8

EQUITY ONE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002
(In thousands, except per share amounts)
 
   
2004
   
2003
   
2002
 
OPERATING ACTIVITIES:
                 
Net income
$
97,804
  $
63,647
  $
39,934
 
Adjustments to reconcile net income to net cash provided by
operating activities:
                 
Straight line rent adjustment
 
(3,835
)
 
(1,974
)
 
(636
)
Provision for losses on accounts receivable
 
199
   
582
   
524
 
Amortization of premium on notes payable
 
(4,958
)
 
(3,584
)
 
-
 
Amortization of deferred financing fees
 
1,370
   
992
   
759
 
Amortization of deferred financing fees included in discontinued operations
 
89
   
119
   
125
 
Rental property depreciation and amortization
 
35,910
   
26,411
   
12,563
 
Depreciation and amortization included in discontinued operations
 
1,113
   
1,596
   
1,247
 
Amortization of restricted stock
 
5,163
   
2,833
   
1,579
 
Gain on disposal of real estate
 
(22,334
)
 
(3,083
)
 
(9,264
)
Gain on sale of securities
 
(593
)
 
(9
)
 
(14
)
Loss (gain) on debt extinguishment
 
-
   
623
   
(1,520
)
Equity in loss (income) of joint ventures
 
46
   
(500
)
 
(549
)
Minority interest in earnings of consolidated subsidiary
 
689
   
803
   
101
 
Changes in assets and liabilities:
                 
Accounts and other receivables
 
(2,406
)
 
(5,080
)
 
(3,152
)
Other assets
 
(2,147
)
 
(2,969
)
 
173
 
Accounts payable and accrued expenses
 
4,900
   
(5,378
)
 
2,548
 
Tenant security deposits
 
853
   
1,038
   
252
 
Other liabilities
 
1,247
   
2,195
   
943
 
 
                 
Net cash provided by operating activities
 
113,110
   
78,262
   
45,613
 
                   
INVESTING ACTIVITIES:
                 
Additions to and purchases of rental property
 
(263,640
)
 
(151,630
)
 
(65,581
)
Payment for construction in progress and land held for development
 
(25,771
)
 
(34,063
)
 
(13,876
)
Proceeds from disposal of rental properties
 
72,568
   
25,013
   
27,195
 
Decrease (increase) in cash held in escrow
 
-
   
12,897
   
(4,218
)
Proceeds from sales of joint venture interest
 
-
   
2,230
   
-
 
Distributions received from joint ventures
 
3,119
   
5,424
   
871
 
Increase in deferred leasing expenses
 
(6,668
)
 
(4,455
)
 
(1,660
)
Proceeds from repayments of notes receivable
 
6,090
   
5,074
   
5,068
 
Proceeds from sale of securities
 
5,814
   
976
   
762
 
Cash used to purchase securities
 
(36,363
)
 
-
   
-
 
Cash used in the purchase of IRT
 
-
   
(189,382
)
 
-
 
Cash acquired in acquisitions
 
-
   
1,756
 
 
-
 
                   
Net cash used in investing activities
 
(244,851
)
 
(326,160
)
 
(51,439
)
                   
FINANCING ACTIVITIES:
                 
Repayments of mortgage notes payable
 
(25,721
)
 
(63,586
)
 
(43,156
)
Borrowings under mortgage notes payable
 
-
   
-
   
25,850
 
Net (repayments) borrowings under revolving credit facilities
 
(15,000
)
 
131,000
   
(4,409
)
Increase in deferred financing expenses
 
(3,126
)
 
(888
)
 
(1,058
)
Proceeds from stock subscription and issuance of common stock
 
58,304
   
249,205
   
67,982
 
Proceeds from senior debt offering
 
199,750
   
-
   
-
 
Stock issuance costs
 
(334
)
 
(1,718
)
 
(1,471
)
Repayment of notes receivable from issuance of common stock
 
3,457
   
3,505
   
-
 
Cash dividends paid to stockholders
 
(80,904
)
 
(70,677
)
 
(35,773
)
Distributions to minority interest
 
(529
)
 
(921
)
 
(101
)
                   
Net cash provided by financing activities
 
135,897
   
245,920
   
7,864
 
               
(continued
)

F-9

EQUITY ONE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002
(In thousands, except per share amounts)
 
   
2004
   
2003
   
2002
 
                   
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
$
4,156
  $
(1,978
)
$
2,038
 
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR
 
966
   
2,944
   
906
 
CASH AND CASH EQUIVALENTS, END OF YEAR
$
5,122
  $
966
  $
2,944
 
                   
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
                 
Cash paid for interest, net of amount capitalized
$
50,155
  $
36,703
  $
22,772
 
                   
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
                 
Change in unrealized holding gain (loss) on securities
$
4,633
  $
46
  $
(12
)
Change in fair value of hedges
$
122
  $
(122
)
     
Conversion of operating partnership units
$
14,108
  $
2,880
       
Issuance of restricted stock
$
5,624
  $
7,534
  $
3,900
 
Common stock issued for notes receivable
            $
1,534
 
Note receivable from sale of property
$
9,355
        $
 3,900
 
                   
The Company acquired and assumed mortgages on some of the rental property acquisitions:
                 
Fair value of rental property
$
148,416
  $
101,692
  $
9,300
 
Assumption of mortgage notes payable
 
(61,674
)
 
(54,369
)
 
(6,097
)
Fair value adjustment of mortgage notes payable
 
(2,697
)
 
(6,029
)
 
-
 
Cash paid for rental property
$
84,045
  $
41,294
  $
3,203
 
                   
The Company issued senior unsecured notes:
                 
Face value of notes
$
200,000
             
Discount
 
(250
)
           
Cash received
$
199,750
             
                   
The Company acquired all of the outstanding common stock of IRT for $763,047, including transaction costs:
                 
Fair value of assets acquired, including goodwill
      $
763,047
       
Assumption of liabilities, unsecured senior notes and mortgage notes payable
       
(319,598
)
     
Fair value adjustment of unsecured senior notes and mortgage notes payable
       
(22,330
)
     
Common stock issued
       
(231,737
)
     
Cash paid for IRT acquisition, including transaction costs
      $
189,382
       
                   
               
(Concluded
)
See accompanying notes to the consolidated financial statements.
           


F-10

EQUITY ONE, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002
(In thousands, except per share amounts)
 
1. Organization and Basis of Presentation
 
Organization
 
Equity One, Inc. operates as a self-managed real estate investment trust (“REIT”) that principally acquires, renovates, develops and manages community and neighborhood shopping centers located predominantly in high growth markets in the southern United States and in the metropolitan Boston, Massachusetts area. These shopping centers are primarily anchored by supermarkets or other necessity-oriented retailers such as drugstores or discount retail stores.
 
Basis of Presentation
 
The consolidated financial statements include the accounts of Equity One, Inc. and its wholly-owned subsidiaries and those partnerships where the Company has financial and operating control. Equity One, Inc. and its subsidiaries are hereinafter referred to as “the consolidated companies” or the “Company.” The Company has a 50% investment in one joint venture which no individual party controls and, accordingly, uses the equity method of accounting for this joint venture.
 
All significant intercompany transactions and balances have been eliminated in consolidation.
 
Portfolio
 
As of December 31, 2004, the Company owned a total of 188 properties, encompassing 133 supermarket-anchored shopping centers, eight drug store-anchored shopping centers, 40 other retail-anchored shopping centers, four retail development parcels and three commercial properties, as well as a non-controlling interest in one unconsolidated joint venture.
 
2. Summary of Significant Accounting Policies
 
Properties
 
Income producing property is stated at cost and includes all costs related to acquisition, development and construction, including tenant improvements, interest incurred during development, costs of predevelopment and certain direct and indirect costs of development. Costs incurred during the predevelopment stage are capitalized once management has identified a site, determined that the project is feasible and it is probable that the Company is able to proceed with the project. Expenditures for ordinary maintenance and repairs are expensed to operations as they are incurred. Significant renovations and improvements, which improve or extend the useful life of assets, are capitalized.
 
The Company is actively pursuing acquisition opportunities and will not be successful in all cases; costs incurred related to these acquisition opportunities are expensed when it is probable that the Company will not be successful in the acquisition.
 
F-11

    Depreciation expense is computed using the straight-line method over the estimated useful lives of the assets, as follows:
 
Land improvements
40 years
Buildings
30-40 years
Building improvements
5-40 years
Tenant improvements
Over the term of the related lease, which approximates the economic useful life
Equipment
5-7 years
 
Business Combinations
 
The results of operations of any acquired property are included in the Company’s financial statements as of the date of its acquisition.
 
The Company allocates the purchase price of acquired companies and properties to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values. Fair value is defined as the amount at which that asset could be bought or sold in a current transaction between willing parties (other than in a forced or liquidation sale). In order to allocate the purchase price of acquired companies and properties to the tangible and intangible assets acquired, the Company identifies and estimates the fair value of the land, buildings and improvements, reviews the leases to determine the existence of, and estimates the fair value of, any contractual or other legal rights and investigates the existence of, and estimates the fair value of, any other identifiable intangible assets. Such valuations require management to make significant estimates and assumptions, especially with respect to intangibles.
 
The cost approach is used as the primary method to estimate the fair value of the buildings, improvements and other assets. The cost approach is based upon the current costs to develop the particular asset in that geographic location, less an allowance for physical and functional depreciation. The assigned value for buildings and improvements is based on an as if vacant basis. The market value approach is used as the primary method to estimate the fair value of the land. The determination of the fair value of contractual intangibles is based on the costs incurred to originate a lease, including commissions and legal costs, excluding any new leases negotiated in connection with the purchase of a property. In-place lease values are based on management’s evaluation of the specific characteristics of each lease and the Company’s overall relationship with each tenant. Among the factors considered in the allocation of these values include the nature of the existing relationship with the tenant, the tenant’s credit quality, the expectation of lease renewals, the estimated carrying costs of the property during a hypothetical expected lease-up period, current market conditions and costs to execute similar leases. Estimated carrying costs include real estate taxes, insurance, other property operating costs and estimates of lost rentals at market rates during the hypothetical expected lease-up periods, given the specific market conditions. Above-market and below-market lease values are determined based on the present value (using a discount rate reflecting the risks associated with the leases acquired) of the difference between (i) the contractual amounts to be paid pursuant to the leases negotiated and in-place at the time of acquisition and (ii) management’s estimate of fair market lease rates for the property or equivalent property, measured over a period equal to the remaining non-cancelable term of the lease. The value of contractual intangibles is amortized over the remaining term of each lease. Other than as discussed above, the Company has determined that its real estate properties do not have any other significant identifiable intangibles.
 
Critical estimates in valuing certain of the intangibles and the assumptions of what marketplace participants would use in making estimates of fair value include, but are not limited to: future expected cash flows, estimated carrying costs, estimated origination costs, lease up periods and tenant risk attributes, as well as assumptions about the period of time the acquired lease will continue to be used in the Company’s portfolio and discount rates used in these calculations. Management’s estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable. Assumptions may not always reflect unanticipated events and changes in circumstances may occur. In making such estimates, management uses a number of sources, including appraisals, third party cost segregation studies or other market data, as well as, information obtained in its pre-acquisition due diligence and marketing and leasing activities.
 
F-12

      In the event that a tenant terminates its lease, the unamortized portion of each related intangible would be expensed.
 
Intangibles associated with property acquisitions are included in other assets in the Company’s consolidated balance sheet.
 
Construction in progress and land held for development
 
Land held for development is stated at cost. Costs incurred during the predevelopment stage are capitalized once management has identified a site, determined that the project is feasible and it is probable that the Company is able to proceed with the project. Properties undergoing significant renovations and improvements are considered under development. The Company estimates the cost of a property undergoing renovations as a basis for determining eligible costs. Interest, real estate taxes and other costs directly related to the properties and projects under development are capitalized until the property is ready for its intended use. Similar costs related to properties not under development are expensed as incurred. In addition, the Company writes off costs related to predevelopment projects when it determines that it will no longer pursue the project.
 
Total interest expense capitalized to construction in progress and land held for development was $3,204, $3,822 and $2,375 for the years ended December 31, 2004, 2003 and 2002, respectively.
 
Long-lived assets
 
Long-lived assets, such as property, land held for development, and certain identifiable intangibles, are reviewed for impairment whenever events or changes in circumstances indicate that it is probable that the sum of expected undiscounted cash flows of the related operations are less than historical net cost basis. These factors, along with plans with respect to the operations, are considered in assessing the recoverability of long-lived assets. If the Company determines that the carrying amount is impaired, the long-lived assets are written down to their fair value with a corresponding charge to earnings. During the periods presented, no such impairment was incurred.
 
Cash and cash equivalents
 
The Company considers highly liquid investments with an initial maturity of three months or less to be cash equivalents.
 
Accounts Receivable
 
Accounts receivable include amounts billed to tenants and accrued expense recoveries due from tenants. Management evaluates the collectibility of these receivables and adjusts the allowance for doubtful accounts to reflect amounts estimated to be uncollectible. The allowance for doubtful accounts was $1,400 and $1,201 at December 31, 2004 and 2003, respectively.
 
Securities
 
The Company’s investments consist primarily of equity investments and debt securities. The Company’s equity investments are recorded at fair value based on current market prices and are classified as available-for-sale. Changes in the fair value of the equity investments are included in accumulated other comprehensive income (loss). The Company’s debt securities are recorded at cost and are classified as held-to-maturity, with the related discount/premium amortized over the life of the investment using the effective interest method.
 
F-13

    As of December 31, 2004, the Company had $29,297 in equity securities classified as available-for-sale, and $6,459 of debt securities, net of discount, classified as held-to-maturity. The debt securities have a stated interest rate of 8.875% and mature in April of 2008.
 
Deferred Costs and Intangibles
 
Deferred costs and intangibles included in other assets consist of loan origination fees, leasing costs and the value of intangible assets when a property was acquired. Loan and other fees directly related to rental property financing with third parties are amortized over the term of the loan which approximates the effective interest method. Direct salaries, third party fees and other costs incurred by the Company to originate a lease are capitalized and are being amortized using the straight-line method over the term of the related leases. Intangible assets consist of in-place lease values, tenant origination costs and above/below market rents that were acquired in connection with the acquisition of the properties and are being amortized using the straight-line method over the terms of the related lease.
 
Deposits
 
Deposits included in other assets are composed of funds held by various institutions for future payments of property taxes, insurance and improvements, utility and other service deposits.
 
Goodwill
 
Goodwill has been recorded to reflect the excess of cost over the fair value of net assets acquired in various business acquisitions. The Company adopted Statement of Financial Accounting Standards (“SFAS”) No. 142 on January 1, 2002 and no longer amortizes goodwill.
 
The Company is required to perform annual impairment tests of its goodwill and intangible assets, or more frequently in certain circumstances. The Company has elected to test for goodwill impairment in November of each year. The goodwill impairment test is a two-step process, which requires management to make judgments in determining what assumptions to use in the calculation. The first step of the process consists of estimating the fair value of each reporting unit and comparing those estimated fair values with the carrying values, which include the allocated goodwill. If the estimated fair value is less than the carrying value, a second step is performed to compute the amount of the impairment by determining an “implied fair value” of goodwill. The determination of a reporting unit’s “implied fair value” of goodwill requires the Company to allocate the estimated fair value of the reporting unit to the assets and liabilities of the reporting unit. Any unallocated fair value represents the “implied fair value” of goodwill, which is compared to its corresponding carrying amount. During the periods presented, no impairment of goodwill was incurred.
 
The key assumptions management employs to determine the fair value of the Company’s reporting units (each property is considered a reporting unit) include (a) net operating income; (b) cash flows; and (c) an estimation of the fair value of each reporting unit, which was based on the Company’s experience in evaluating acquisitions and market conditions. A variance in the net operating income or discount rate could have a significant impact on the amount of any goodwill impairment charge recorded.
 
Management cannot predict the occurrence of certain future events that might adversely affect the reported value of goodwill that totaled $14,020 at December 31, 2004. Such events include, but are not limited to, strategic decisions made in response to economic and competitive conditions, the impact of the economic environment on the Company’s tenant base, or a material negative change in its relationships with significant tenants.
 
During 2004, $539 of goodwill is included in the determination of the gain on disposal of income producing properties due to the disposition of certain properties.
 
F-14

Minority interest
 
On January 1, 1999, Equity One (Walden Woods) Inc., a wholly-owned subsidiary of the Company, entered into a limited partnership as a general partner. An income producing shopping center (“Walden Woods Village”) was contributed by its owners (the “Minority Partners”), and the Company contributed 93.656 shares of the Company’s common stock (the “Walden Woods Shares”) to the limited partnership at an agreed-upon price of $10.30 per share. Based on this per share price and the net value of property contributed by the Minority Partners, each of the partners received 93.656 limited partnership units. The Company has entered into a Redemption Agreement with the Minority Partners whereby the Minority Partners can request that the Company purchase either their limited partnership units or any shares of common stock which they received in exchange for their partnership units at a price of $10.30 per unit or per share no earlier than two years nor later than fifteen years after the exchange date of January 1, 1999. As a result of the Redemption Agreement, the Company has consolidated the accounts of the partnership with the Company’s financial data. In addition, under the terms of the limited partnership agreement, the Minority Partners do not have an interest in the Walden Woods Shares except to the extent of dividends. Accordingly, a preference in earnings has been allocated to the Minority Partners to the extent of the dividends declared. The Walden Woods Shares are not considered outstanding in the consolidated financial statements and are excluded from the share count in the calculation of primary earnings per share.
 
On December 5, 2000, a wholly owned subsidiary of the Company, Equity One (North Port) Inc., entered into a limited partnership (the “Shoppes of North Port, Ltd.”) as a general partner. The North Port minority partners had the right to redeem their partnership units (“OPUs”) for the Company’s common stock on a one-for-one basis or for cash at an agreed upon price of $11.00 per share no earlier than December 10, 2001, nor later than three and one half years thereafter. During July 2003, North Port Minority Partners redeemed their OPUs in exchange for 261.850 shares of the Company’s common stock. North Port is now a wholly owned subsidiary of the Company.
 
The Company is the general partner of IRT Partners L.P. (“LP”) and maintains an indirect partnership interest through its wholly-owned subsidiary, IRT Management Company. LP was formed in order to enhance the acquisition opportunities of the Company through a downREIT structure. This structure offers potential sellers of properties the ability to make a tax-deferred sale of their real estate properties in exchange for limited partnership units (“OP Units”) of LP. During September 2004, the outstanding OP Units were redeemed in exchange for 734.266 shares of the Company’s common stock. LP is now a wholly owned subsidiary of the Company.
 
The Company also has a controlling general partnership interest (75% interest) in Venice Plaza and records a minority interest for the limited partners’ share of equity.
 
Notes receivable from issuance of common stock
 
As a result of certain provisions of the Sarbanes-Oxley Act of 2002, the Company is generally prohibited from making loans to directors and executive officers. Prior to the adoption of the Sarbanes-Oxley Act of 2002, the Company had loaned $7,112 to various executives in connection with their exercise of options to purchase shares of the Company’s common stock of which $6,962 has been repaid. The remaining note bears interest only, payable quarterly, at the rate of 5% per annum and the principal is due in June 2007. In accordance with the provisions of the Sarbanes-Oxley Act of 2002, there have been no material modifications to the terms of the outstanding loan granted to executives.
 
F-15

Revenue Recognition
 
Rental income comprises minimum rents, expense reimbursements, termination fees and percentage rent payments. Minimum rents are recognized over the lease term on a straight-line basis. Expense reimbursements are recognized in the period that the applicable costs are incurred. The Company accounts for these leases as operating leases as the Company has retained substantially all risks and benefits of property ownership. Percentage rent is recognized when the tenant’s reported sales have reached certain levels specified in the respective lease. Termination fees are recognized upon the termination of a tenant’s lease.
 
The Company maintains an allowance for doubtful accounts for estimated losses resulting from the inability of tenants to make required rent payments. The computation of this allowance is based on the tenants’ payment history and current credit quality.
 
Earnings Per Share
 
Basic earnings per share (“EPS”) is computed by dividing net income by the weighted average number of shares of the Company’s common stock outstanding during the period. Diluted EPS reflects the potential dilution that could occur from shares issuable under stock-based compensation plans, which would include the exercise of stock options, and the conversion of the operating partnership units held by minority limited partners.
 
Other Income
 
Other income includes fees earned in connection with certain third-party leasing activities and other third-party management activities. Management and third party leasing fees are recognized when earned.
 
Income Taxes
 
The Company elected to be taxed as a real estate investment trust (REIT) under the Internal Revenue Code (“Code”), commencing with its taxable year ended December 31, 1995.  To qualify as a REIT, the Company must meet a number of organizational and operational requirements, including a requirement that it currently distribute at least 90% of its REIT taxable income to its stockholders.  Also, at least 90% of the Company’s gross income in any year must be derived from qualifying sources. The difference between net income available to common shareholders for financial reporting purposes and taxable income before dividend deductions relates primarily to temporary differences, principally real estate depreciation and amortization. It is management’s current intention to adhere to these requirements and maintain the Company’s REIT status. As a REIT, the Company generally will not be subject to corporate level federal income tax on taxable income it distributes currently to its stockholders.  If the Company fails to qualify as a REIT in any taxable year, it will be subject to federal income taxes at regular corporate rates (including any applicable alternative minimum tax) and may not be able to qualify as a REIT for four subsequent taxable years.  Even if the Company qualifies for taxation as a REIT, the Company may be subject to certain state and local taxes on its income and property, and to federal income and excise taxes on its undistributed taxable income.  In addition, any taxable income of the Company’s consolidated subchapter C-Corporation, taxable REIT subsidiary (“TRS”), is subject to federal and state income taxes.
 
The Company has certain corporate tax attributes carried over from previous mergers (for example, net operating losses, alternative minimum tax credit carry-forwards, etc.).  Net operating losses available to the Company are estimated to be approximately $12,027, but their utilization is limited subject to the provisions of the Code Sections 381 and 382. Code Section 1374 imposes a tax on the net built-in gain of C-Corporation assets that become assets of a REIT (i.e. the Company) in a carryover-basis transaction. The estimated net built-in gain at the date of acquisition is approximately $38,390.  In lieu of the tax imposed on the transferor C-Corporation, the Company is subject to a Ten-Year Rule, which defers and eliminates recognition of the built-in gain tax liability if the assets subject to the tax are not disposed of within ten years from the date of the acquisition.  In addition to the Ten-Year Rule, the Company has the ability to utilize like-kind exchanges, carry-over C-Corporation tax attributes, and other tax planning strategies to mitigate the potential recognition of built-in gain tax.
 
F-16

Stock Option and Other Equity-Based Plans 
 
The Company has stock-based employee compensation plans, which are described more fully in Note 13 to the consolidated financial statements. The Company applies APB 25, Accounting for Stock Issued to Employees in accounting for its plans. Accordingly, the Company does not recognize compensation cost for stock options when the option exercise price equals or exceeds the market value on the date of the grant. No stock-based employee compensation cost for stock options is reflected in net income, as all options under those plans had an exercise price equal to the market value of the underlying common stock on the date of grant. The Company records compensation expense related to its restricted stock plan. The following table illustrates the effect on net income and earnings per share if the Company had applied the fair value recognition provisions of SFAS 123 “Accounting for Stock-Based Compensation,” to stock-based employee compensation (in thousands, except per share data).
 
       
Years Ended December 31, 
                           
           
2004
   
2003
   
2002
 
                           
Net Income
   
As reported
 
$
97,804
 
$
63,647
 
$
39,934
 
                           
Add:
   
Stock based employee compensation expense included in reported net income
   
5,163
   
2,833
   
1,579
 
                           
Deduct:
   
Total stock based employee compensation expense determined under fair value based method for all awards
   
(5,926
)
 
(3,729
)
 
(2,322
)
                           
 
   
Pro forma 
 
$
97,041
 
$
62,751
 
$
39,191
 
 
               
 
       
Basic earnings per share
   
As reported
 
$
1.39
 
$
1.06
 
$
1.22
 
                           
 
   
Pro forma 
 
$
1.38
 
$
1.05
 
$
1.20
 
                           
Diluted earnings per share
   
As reported
 
$
1.37
 
$
1.05
 
$
1.20
 
                           
 
   
Pro forma 
 
$
1.36
 
$
1.03
 
$
1.18
 
                     
 
 
 
 
Segment information
 
The Company’s properties are community and neighborhood shopping centers located predominantly in high growth markets in the southern United States and the Boston metropolitan area. Each of the Company’s centers are separate operating segments which have been aggregated and reported as one reportable segment because they have characteristics so similar that they are expected to have essentially the same future prospects. The economic characteristics include similar returns, occupancy and tenants and each is located near a metropolitan area with similar economic demographics and site characteristics.
 
Use of estimates
 
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
 
F-17

    New accounting pronouncements
 
In May 2003, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity. This statement establishes standards for the classification and measurement of financial instruments that possess characteristics similar to both liability and equity instruments. SFAS No. 150 also addresses the classification of certain financial instruments that include an obligation to issue equity shares. On October 29, 2003, the FASB voted to defer, for an indefinite period, the application of the guidance in SFAS No. 150. The Company has adopted certain provisions of SFAS No. 150 which did not have a material impact on the Company’s financial condition or results of operations. The Company is still evaluating the potential effect of the provisions of SFAS No. 150 that have been deferred to future periods.
 
In December 2004, the FASB issued SFAS No. 123 (revised 2004), Share-Based Payment, which is a revision of SFAS 123, Accounting for Stock-Based Compensation. Generally, the approach in SFAS 123 (R) is similar to the approach described in SFAS 123. However, SFAS 123 (R) requires all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values. Pro forma disclosure is no longer an alternative. The new standard will be effective for public entities (excluding small business issuers) in the first interim or annual reporting period beginning after June 15, 2005, irrespective of the entity’s fiscal year. Early adoption is permitted in periods in which financial statements have not yet been issued. SFAS 123 (R) allows for two transition alternatives for public companies: (a) modified-prospective transition or (b) modified-retrospective transition. Under the modified-prospective transition method, companies are required to recognize compensation cost for share-based payments to employees based on their grant-date fair value from the beginning of the fiscal period in which the recognition provisions are first applied. Measurement and attribution of compensation cost for awards that were granted prior to, but not vested as of the date SFAS 123 (R) is adopted would be based on the same estimate of the grant-date fair value and the same attribution method used previously under SFAS 123 (either for financial statement recognition or pro forma disclosure purposes). Prior periods are not restated. For periods prior to adoption, the financial statements are unchanged (and the pro forma disclosures previously required by SFAS 123 continue to be required under the new Standard to the extent those amounts differ from those in the income statement). For periods subsequent to adoption, the impact of this transition method generally is the same as if the modified-retrospective method were applied. Accordingly, pro forma disclosure will not be necessary for periods after the adoption of the new standard. Under the modified-retrospective transition method, companies are allowed to restate prior periods by recognizing compensation cost in the amounts previously reported in the pro forma footnote disclosure under the provisions of SFAS 123. New awards and unvested awards would be accounted for in the same manner as the modified-prospective method. Because of the mid-year effective date, companies are permitted to apply the modified-retrospective transition alternative either (a) to all periods presented or (b) to the start of the fiscal year in which SFAS 123 (R) is adopted. The Company is currently evaluating the different alternatives. Had the Company adopted SFAS 123 in 2004, the diluted earnings per share would have been $0.01 lower.
 
In December of 2004, the FASB issued Statement 153, Exchanges of Nonmonetary Assets, an amendment of APB Opinion No. 29, Accounting for Nonmonetary Transactions. The guidance in APB Opinion No. 29 is based on the principle that exchanges of nonmonetary assets should be measured based on the fair value of the assets exchanged. The guidance in that Opinion, however, included certain exceptions to that principle. Statement 153 amends Opinion 29 by eliminating the exception for nonmonetary exchanges of similar productive assets and replaces it with a general exception for exchanges of nonmonetary assets that do not have commercial substance. A nonmonetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. This statement shall be applied prospectively and is effective for nonmonetary asset exchanges occurring in fiscal periods beginning after June 15, 2005. This pronouncement is prospective and has no effect on the Company’s financial position or results of operations as of December 31, 2004.
 
F-18

    Fair value of financial instruments
 
The estimated fair values of financial instruments have been determined by the Company using available market information and appropriate valuation methods. Considerable judgment is required in interpreting market data to develop the estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts that the Company could realize in a current market exchange. The use of different market assumptions and/or estimation methods may have a material effect on the estimated fair value amounts. The Company has used the following market assumptions and/or estimation methods:
 
Cash and Cash Equivalents and Accounts and Other Receivables.  The carrying amounts reported in the balance sheets for these financial instruments approximate fair value because of their short maturities.
 
Notes Receivable. The fair value is estimated by using the current interest rates at which similar loans would be made. The carrying amounts reported in the balance sheets approximate fair value.
 
Debt Securities. The fair value estimated at December 31, 2004 was $6,700, based on the closing market prices of the securities.
 
Mortgage Notes Payable. The fair value estimated at December 31, 2004 and 2003 was $531,200 and $505,148, respectively, calculated based on the net present value of payments over the term of the loans using estimated market rates for similar mortgage loans and remaining terms.
 
Unsecured Revolving Credit Facilities. The fair value was estimated by using the current rates at which similar loans would be made and remaining terms. The carrying amounts reported in the balance sheets approximate fair value.
 
Unsecured Senior Notes Payable. The fair value estimated at December 31, 2004 and 2003 was $351,584 and $165,700, respectively, calculated based on the net present value of payments over the term of the loan using estimated market rates for similar notes and remaining terms.
 
Reclassifications
 
Certain prior year operating amounts have been reclassified to reflect the reporting of discontinued operations.
 
3. Properties
 
Composition in the consolidated balance sheets:
 
December 31,
               
     
2004
   
2003
 
               
Land and land improvements
 
$
793,508
 
$
654,654
 
Building and building improvements
   
1,097,150
   
924,097
 
Tenant improvements
   
24,558
   
15,828
 
     
1,915,216
   
1,594,579
 
Less: accumulated depreciation
   
(95,934
)
 
(66,406
)
Income producing property, net
 
$
1,819,282
 
$
1,528,173
 
               
 
F-19

    Acquisitions
 
The following table reflects a series of individual properties that were acquired during 2004:
 
 
Property
Location
Month
Purchased
Square Feet/
Acres
Purchase Price
         
Bluebonnet Out Parcel
Baton Rouge, LA
February
0.9 acres
$      500
Pavilion Shopping Center
Naples, FL
February
167,745
24,200
Southlake Village
Southlake, TX
March
118,092
17,475
Creekside Plaza
Arlington, TX
March
101,016
14,025
Sparkleberry Square
Columbia, SC
March
339,051
45,150
Venice Shopping Center
Venice, FL
March
111,934
6,447
Windy Hill
N. Myrtle Beach, SC
April
64,465
2,895
Hamilton Out Parcel
Buford, GA
April
0.64 acres
425
Medical & Merchants
Jacksonville, FL
May
152,761
21,980
Westgate Marketplace
Houston, TX
June
298,354
47,100
Boston portfolio (6 properties)
Boston, MA
October
390,979
119,750
Homestead Gas Station
Homestead, FL
November
0.66 acres
1,150
DeSoto Shopping Center
DeSoto, TX
November
69,090
8,180
Westport Plaza
Davie, FL
December
36,212
7,200
Devaney Parcel
West Roxbury, MA
December
0.33 acres
475
         
       
$ 316,952
         
 
No equity interests were issued or issuable in connection with the above purchases and no contingent payments, options or commitments are provided for in the agreements. No goodwill was recorded in conjunction with any of the individual property acquisitions.
 
The Company’s allocation of the purchase price for the acquisitions consummated during 2004 is preliminary and is subject to change. The Company is in the process of obtaining additional market data related to the fair value of the land, real property and in-place leases. Management does not believe that any adjustment would have a material effect on the Company’s financial position or results of operations.
 
The amounts assigned to intangibles consisting of in-place leases, lease origination costs and above/below market leases is $5,390, $4,029 and $4,939, respectively. The weighted average amortization period is 11.5 years.
 
Pro Forma Financial Information
 
The following unaudited supplemental pro forma operating data is presented for the years ended December 31, 2004 and 2003 as if the acquisition of the individual properties mentioned above occured on January 1, 2003. The operating results of the acquired properties are included in the results of operations of the Company from the date of purchase. The pro forma financial information is presented for information purposes only and may not be indicative of what actual results of operations would have been had the acquisitions occurred as indicated nor does it purport to represent the results of the operations for future periods:
 
     
2004
   
2003
 
               
Pro forma rental income
 
$
242,130
 
$
205,325
 
Pro forma income from continuing operations
 
$
73,131
 
$
58,342
 
Pro forma net income
 
$
99,580
 
$
68,225
 
               
Pro forma earnings per share:
             
Basic earnings per share:
             
Income from continuing operations
 
$
1.03
 
$
0.98
 
               
Diluted earnings per share:
             
Income from continuing operations
 
$
1.02
 
$
0.97
 
 
F-20

4. Accounts and Other Receivables
 
Composition in the consolidated balance sheets:
December 31,
 
         
 
2004
 
2003
 
         
Tenants
$ 15,6788
 
$ 13,9211
 
Other
1,4211
 
7722
 
Allowance for doubtful accounts
(1,4000
)
(1,2011
)
Total accounts and other receivables
$ 15,6999
 
$ 13,4922
 
         
 
5. Investments in Joint Ventures
 
A summary of the Company’s investments in joint ventures at December 31, 2004 and 2003 is as follows (all investments in unconsolidated entities are accounted for under the equity method):
 
Entity
   
Location
   
Ownership
   
December 31, 2004
   
December 31, 2003
 
                           
PG Partners*
   
Palm Beach Gardens, FL
   
50.0
%
$
-
 
$
2,633
 
Parcel F, LLC
   
Palm Beach Gardens, FL
   
50.0
%
 
273
   
228
 
                           
Investments in joint ventures
     
$
273
 
$
2,861
 
                           
 
*The joint venture sold its property during 2004.
 
A summary of the unaudited balance sheets for the joint ventures being reported on the equity method of accounting is as follows:
 
Condensed Balance Sheet
   
As of
December 31, 2004
   
As of
December 31, 2003
 
               
Assets:
             
Rental properties, net
 
$
-
 
$
15,735
 
Land held for development
   
1,073
   
953
 
Cash and cash equivalents
   
-
   
-
 
Other assets
   
-
   
457
 
Total
 
$
1,073
 
$
17,145
 
               
Liabilities and Ventures’ Equity:
             
Mortgage notes
 
$
-
 
$
12,878
 
Other liabilities
   
-
   
90
 
Ventures’ equity
   
1,073
   
4,177
 
Total
 
$
1,073
 
$
17,145
 
               
 
The Company’s investments in joint ventures, as reported on its consolidated balance sheets as of December 31, 2004, differ from its proportionate share of the joint ventures’ underlying net assets due to approximately $260 of basis differentials.
 
F-21

     summary of the unaudited statements of operations for the joint ventures being reported on the equity method of accounting is as follows:
 
 
 
Year Ended December 31, 
                     
Condensed Statements of Operations
   
2004
   
2003
   
2002
 
                     
Revenues:
                   
Rental revenues
 
$
2,024
 
$
5,313
 
$
7,176
 
Other revenues
   
2
   
8
   
12
 
Total revenues
   
2,026
   
5,321
   
7,188
 
                     
Expenses:
                   
Operating expenses
   
620
   
1,228
   
1,742
 
Interest expense
   
970
   
2,058
   
2,932
 
Depreciation
   
459
   
905
   
1,291
 
Other expense
   
69
   
130
   
125
 
Total expense
   
2,118
   
4,321
   
6,090
 
Net (loss) income
 
$
(92
)
$
1,000
 
$
1,098
 
The Company’s equity in (loss) income of joint ventures reported in
 
$
(46
)
$
500
 
$
549
 
                     
Continuing operations
 
$
-
 
$
-
 
$
-
 
Discontinued operations
 
$
(46
)
$
500
 
$
549
 
                     
 
Significant accounting policies used by the unconsolidated joint ventures are similar to those used by the Company.
 
6. Other Assets

 
Composition in the consolidated balance sheets:
 
December 31,
     
2004
   
2003
 
               
Notes receivable, bearing interest at 8.0% through 10.0% per annum, maturing from March 2006 through November 2010
 
$
6,315
 
$
3,050
 
Deposits and escrow impounds
   
12,759
   
10,885
 
Deferred financing fees, net
   
4,633
   
3,130
 
Leasing commissions and intangibles, net
   
13,794
   
5,551
 
Furniture and equipment, net
   
3,174
   
2,974
 
Prepaid and other assets
   
7,060
   
3,164
 
               
Total other assets
 
$
47,735
 
$
28,754
 
               
 
All amounts assigned to intangible assets are subject to amortization. For the year ended December 31, 2004, the amortization expense for the intangible assets was $317. The amortization expense for the next five years for the recorded intangible assets is approximately $497, $437, $397, $344 and $307, respectively.
 
7. Notes Payable
 
The following is a summary of the Company’s borrowings, consisting of mortgage notes payable, unsecured senior notes payable and unsecured revolving credit facilities:
 
F-22

 
 
December 31, 
     
2004
   
2003
 
               
Mortgage Notes Payable
             
Fixed rate mortgage loans
 
$
495,056
 
$
459,103
 
Unamortized net premium on mortgage notes payable
   
12,721
   
11,779
 
               
Total 
 
$
507,777
 
$
470,882
 
               
 
   
The weighted average interest rate of the mortgage notes payable at December 31, 2004 and 2003 was 7.26% and 7.45%, respectively, excluding the effects of the net premium adjustment.
 
Each of the existing mortgage loans is secured by a mortgage on one or more of the Company’s properties. Certain of the mortgage loans involving an aggregate principal balance of approximately $168,588 contain prohibitions on transfers of ownership which may have been violated by the Company’s previous issuances of common stock or in connection with past acquisitions and may be violated by transactions involving the Company’s capital stock in the future. If a violation were established, it could serve as a basis for a lender to accelerate amounts due under the affected mortgage. To date, no lender has notified the Company that it intends to accelerate its mortgage. In the event that the mortgage holders declare defaults under the mortgage documents, The Company, if required, repay the remaining mortgage from existing resources, refinancing of such mortgages, borrowings under its revolving lines of credit or other sources of financing. Based on discussions with various lenders, current credit market conditions and other factors, the Company believes that the mortgages will not be accelerated. Accordingly, the Company believes that the violations of these prohibitions will not have a material adverse impact on the Company’s results of operations or financial condition.
 
 
 
December 31, 
     
2004
   
2003
 
               
Unsecured Senior Notes Payable
             
               
7.77% Senior Notes, due 4/1/06
 
$
50,000
 
$
50,000
 
7.25% Senior Notes, due 8/15/07
   
75,000
   
75,000
 
3.875% Senior Notes, due 4/15/09
   
200,000
   
-
 
7.84% Senior Notes, due 1/23/12
   
25,000
   
25,000
 
Fair value of interest rate swap
   
(2,739
)
 
-
 
Unamortized net premium on unsecured senior notes payable
   
8,882
   
12,439
 
               
Total 
 
$
356,143
 
$
162,439
 
               
 
We swapped $100,000 of the $200,000 senior notes to a floating interest rate based on the 6-month LIBOR in arrears plus 0.4375%. The weighted average interest rate of the unsecured senior notes at December 31, 2004 and 2003 was 5.12% and 7.55%, respectively, excluding the effects of the interest rate swap and the net premium adjustment.
 
     The indentures under which the notes were issued have several covenants which limit the Company’s ability to incur debt; require the Company to maintain unencumbered asset ratios and limit the Company’s ability to consolidate, sell, lease, or convey substantially all of its assets to, or merge with any other entity. These notes have also been guaranteed by most of the Company’s subsidiaries including IRT Partners L.P. The interest rate on the 7.77% senior notes is subject to a 50 basis point increase if the Company does not maintain an investment grade debt rating.
 
F-23

 
 
December 31, 
     
2004
   
2003
 
               
Unsecured Revolving Credit Facilities
             
               
Wells Fargo
 
$
147,000
 
$
162,000
 
City National Bank
   
-
   
-
 
               
Total 
 
$
147,000
 
$
162,000
 
               
 
The Company entered into a $340,000 unsecured revolving credit facility with a syndicate of banks for which Wells Fargo Bank, National Association is the sole lead arranger and administrative agent. This facility bears interest at the Company’s option at (i) LIBOR plus 0.65% to 1.35%, depending on the credit ratings of the Company’s senior unsecured long term notes or (ii) at the greater of (x) Wells Fargo’s prime rate and (y) the Federal Funds Rate plus 0.5%. The facility is guaranteed by most of the Company’s subsidiaries. Based on the Company’s current rating, the LIBOR spread is 1.0%. The facility also includes a competitive bid option which allows the Company to conduct auctions among the participating banks for borrowings in an amount not to exceed $170,000, a $35,000 swing line facility for short term borrowings, a $20,000 letter of credit commitment and may, at the request of the Company, be increased up to a total commitment of $400,000. The facility expires February 12, 2006 with a one-year extension option. In addition, the facility contains customary covenants, including financial covenants regarding debt levels, total liabilities, interest coverage, EBITDA coverage ratios, unencumbered properties and permitted investments. The facility also prohibits stockholder distributions in excess of 95% of funds from operations calculated at the end of each fiscal quarter for the four fiscal quarters then ending. Notwithstanding this limitation, the Company can make stockholder distributions to avoid income taxes on asset sales. If a default under the facility exists, the Company’s ability to pay dividends would be limited to the amount necessary to maintain the Company’s status as a REIT unless the default is a payment default or bankruptcy event in which case the Company would be prohibited from paying any dividends. The weighted average interest rate as of December 31, 2004 and 2003 was 2.80% and 2.06%, respectively.
 
The Company also has a $5,000 unsecured credit facility with City National Bank of Florida, of which there was no outstanding balance as of December 31, 2004. This facility also provides collateral for $1,339 in outstanding letters of credit.
 
As of December 31, 2004, the availability under the various credit facilities was approximately $25,798, net of outstanding balances and letters of credit.
 
Principal maturities (including scheduled amortization payments) of the notes payable as of December 31, 2004 are as follows:
 
Year ending December 31,
 
Amount
 
       
2005
 
$ 40,888
 
2006
 
232,827
 
2007
 
89,116
 
2008
 
51,495
 
2009
 
235,457
 
Thereafter
 
342,273
 
Total
 
$992,056
 
       
 
Interest costs incurred, excluding amortization of discount/premium, were $55,291, $45,593 and $25,004 in the years ended December 31, 2004, 2003 and 2002, respectively, of which $3,204, $3,822 and $2,375 were capitalized in the years ended December 31, 2004, 2003 and 2002, respectively.
 
F-24

8.  
Financial Instruments - Derivatives and Hedging
 
    To manage, or hedge, the exposure to interest rate risk, the Company follows established risk management policies and procedures, including the use of a variety of derivative financial instruments. The Company does not enter into derivative instruments for speculative purposes. The Company requires that the hedges or derivative financial instruments be effective in managing the interest rate risk exposure that they are designated to hedge. This effectiveness is essential to qualify for hedge accounting. Hedges that meet these hedging criteria are formally designated as such at the inception of the contract. When the terms of an underlying transaction are modified, or when the underlying hedged item ceases to exist, resulting in some ineffectiveness, the change in the fair value of the derivative instrument will be included in earnings. Additionally, any derivative instrument used for risk management that becomes ineffective is marked-to-market each period.
 
The Company is exposed to credit risk, in the event of non-performance by the counter-parties to the hedge agreements. The Company believes that it mitigates its credit risk by entering into these agreements with major financial institutions. Net interest differentials to be paid or received under a swap contract and/or collar agreement are included in interest expense as incurred or earned.
 
During 2004, the Company entered into a $100,000 notional principal variable rate interest swap with an estimated fair value of $2,739 as of December 31, 2004. This swap converted fixed rate debt to variable rate based on the 6 month LIBOR in arrears plus 0.4375%, and matures April 15, 2009.
 
The estimated fair value of the Company’s derivative financial instruments has been determined using available market information and appropriate valuation methodologies. However, considerable judgment is necessarily required in interpreting market data to develop the estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts that the Company could realize in a current market exchange. The use of different market assumptions or estimation methodologies may have a material effect on the estimated fair value.
 
9.  Consolidating Financial Information
 
As of December 31, 2004, most of the Company’s subsidiaries have guaranteed the Company’s indebtedness under the unsecured senior debt. The guarantees are joint and several and full and unconditional.
 
Condensed Balance Sheet
   
Equity
One, Inc.
   
Guarantors
Combined Subsidiaries
   
Non
Guarantors
   
Eliminating Entries
   
Consolidated Equity One
 
As of December 31, 2004
                               
                                 
ASSETS
                               
Properties, net
 
$
490,627
 
$
789,082
 
$
593,978
 
$
-
 
$
1,873,687
 
Investment in affiliates
   
435,752
   
-
   
-
   
(435,752
)
 
-
 
Other assets
   
73,945
   
23,955
   
20,705
   
-
   
118,605
 
                                 
Total
 
$
1,000,324
 
$
813,037
 
$
614,683
 
$
(435,752
)
$
1,992,292
 
                                 
LIABILITIES
                               
Mortgage notes payable
 
$
71,591
 
$
187,681
 
$
235,784
 
$
-
 
$
495,056
 
Unsecured revolving credit facilities
   
147,000
   
-
   
-
   
-
   
147,000
 
Unsecured senior notes, net
   
347,261
   
-
   
-
   
-
   
347,261
 
Unamortized premium on notes payable
 
   
9,546
   
9,408
   
2,649
   
-
   
21,603
 
                                 
Other liabilities
   
20,526
   
18,027
   
10,034
   
-
   
48,587
 
Total liabilities
   
595,240
   
215,116
   
248,467
         
1,059,507
 
                                 
MINORITY INTEREST
   
-
   
-
   
-
   
1,397
   
1,397
 
                                 
STOCKHOLDERS’ EQUITY
                               
Total stockholders’ equity
   
404,400
   
597,921
   
366,216
   
(437,149
)
 
931,388
 
                                 
Total
 
$
1,000,324
 
$
813,037
 
$
614,683
 
$
(435,752
)
$
1,992,292
 
                                 
F-25

 
       
Guarantors 
                 
Condensed Balance Sheet
   
Equity
One, Inc.
   
Combined Subsidiaries
   
IRT
Partners, LP
 
 
Non
Guarantors
   
Eliminating Entries
   
Consolidated Equity One
 
As of December 31, 2003
                                     
                                       
ASSETS
                                     
Properties, net
 
$
526,136
 
$
561,455
 
$
187,132
 
$
342,576
 
$
-
 
$
1,617,299
 
Investment in affiliates
   
435,752
   
-
   
-
   
-
   
(435,752
)
 
-
 
Other assets
   
22,865
   
21,926
   
2,940
   
12,356
   
-
   
60,087
 
                                       
Total
 
$
984,753
 
$
583,381
 
$
190,072
 
$
354,932
 
$
(435,752
)
$
1,677,386
 
                                       
LIABILITIES
                                     
Mortgage notes payable
 
$
74,726
 
$
171,230
 
$
34,400
 
$
178,747
 
$
-
 
$
459,103
 
Unsecured revolving credit facilities
   
162,000
   
-
   
-
   
-
   
-
   
162,000
 
Unsecured senior notes, net
   
150,000
   
-
   
-
   
-
   
-
   
150,000
 
Unamortized premium on notes payable
   
13,505
   
5,950
   
4,661
   
102
   
-
   
24,218
 
Other liabilities
   
13,000
   
15,522
   
1,780
   
8,539
   
-
   
38,841
 
                                       
Total liabilities
   
413,231
   
192,702
   
40,841
   
187,388
   
-
   
834,162
 
                                       
MINORITY INTEREST
   
-
   
-
   
-
   
-
   
12,672
   
12,672
 
                                       
STOCKHOLDERS’ EQUITY
                                     
Total stockholders’ equity
   
571,522
   
390,679
   
149,231
   
167,544
   
(448,424
)
 
830,552
 
                                       
Total
 
$
984,753
 
$
583,381
 
$
190,072
 
$
354,932
 
$
(435,752
)
$
1,677,386
 
                                       

F-26

Condensed Statement of Operations
   
Equity One Inc.
 
 
Guarantors
Combined Subsidiaries
   
Non
Guarantors
 
 
Consolidated Equity One
 
For the Year Ended December 31, 2004
                         
                           
RENTAL REVENUE:
                         
Minimum rents
 
$
48,475
 
$
80,437
 
$
46,676
 
$
175,588
 
Expense recoveries
   
11,450
   
23,890
   
13,449
   
48,789
 
Termination fees
   
217
   
375
   
2,944
   
3,536
 
Percentage rent payments
   
375
   
820
   
749
   
1,944
 
                           
Total rental revenue
   
60,517
   
105,522
   
63,818
   
229,857
 
COSTS AND EXPENSES:
                         
Property operating expenses
   
15,206
   
27,621
   
17,575
   
60,402
 
Rental property depreciation and amortization
   
9,698
   
16,698
   
9,514
   
35,910
 
General and administrative expenses
   
16,097
   
504
   
-
   
16,601
 
                           
Total costs and expenses
   
41,001
   
44,823
   
27,089
   
112,913
 
                           
INCOME BEFORE OTHER INCOME AND EXPENSE AND DISCONTINUED OPERATIONS
   
19,516
   
60,699
   
36,729
   
116,944
 
                           
OTHER INCOME AND EXPENSE:
                         
Interest expense
   
(17,719
)
 
(13,040
)
 
(15,654
)
 
(46,413
)
Amortization of deferred financing fees
   
(1,035
)
 
(151
)
 
(184
)
 
(1,370
)
Investment income
   
2,028
   
298
   
20
   
2,346
 
Other income (expense)
   
157
   
362
   
18
   
537
 
                           
Minority interest
   
-
   
(510
)
 
(66
)
 
(576
)
                           
INCOME FROM CONTINUING OPERATIONS
   
2,947
   
47,658
   
20,863
   
71,468
 
                           
DISCONTINUED OPERATIONS
                         
Income from rental properties sold or held for sale
   
2,654
   
1,233
   
386
   
4,273
 
Gain on disposal of income producing properties
   
3,840
   
10,101
   
8,235
   
22,176
 
Minority interest
   
-
   
(113
)
 
-
   
(113
)
                           
Total income from discontinued operations
   
6,494
   
11,221
   
8,621
   
26,336
 
                           
NET INCOME
 
$
9,441
 
$
58,879
 
$
29,484
 
$
97,804
 
                           
 
F-27

 
       
Guarantors 
           
Condensed Statement of Operations
   
Equity One Inc.
 
 
Combined Subsidiaries
 
 
IRT Partners, LP
 
 
Non
Guarantors
 
 
Consolidated Equity One
 
For the Year Ended December 31, 2003
                               
                                 
RENTAL REVENUE:
                               
Minimum rents
 
$
41,442
 
$
47,548
 
$
15,455
 
$
32,839
 
$
137,284
 
Expense recoveries
   
10,026
   
14,091
   
4,647
   
11,144
   
39,908
 
Termination fees
   
187
   
401
   
27
   
748
   
1,363
 
Percentage rent payments
   
536
   
381
   
295
   
528
   
1,740
 
                                 
Total rental revenue
   
52,191
   
62,421
   
20,424
   
45,259
   
180,295
 
                                 
                                 
COSTS AND EXPENSES:
                               
Property operating expenses
   
14,791
   
15,502
   
6,295
   
15,140
   
51,728
 
Rental property depreciation and amortization
   
7,496
   
10,087
   
2,672
   
6,156
   
26,411
 
General and administrative expenses
   
11,030
   
-
   
16
   
-
   
11,046
 
                                 
Total costs and expenses
   
33,317
   
25,589
   
8,983
   
21,296
   
89,185
 
                                 
INCOME BEFORE OTHER INCOME AND EXPENSE AND DISCONTINUED OPERATIONS
   
18,874
   
36,832
   
11,441
   
23,963
   
91,110
 
                                 
OTHER INCOME AND EXPENSE:
                               
Interest expense
   
(12,080
)
 
(8,461
)
 
(2,161
)
 
(14,112
)
 
(36,814
)
Amortization of deferred financing fees
   
(603
)
 
(195
)
 
(1
)
 
(193
)
 
(992
)
Investment income
   
386
   
611
   
72
   
20
   
1,089
 
Other income (expense)
   
912
   
(285
)
 
-
   
60
   
687
 
Loss on extinguishment of debt
   
-
   
(513
)
 
-
   
-
   
(513
)
Minority interest
   
(139
)
 
36
   
(570
)
 
(130
)
 
(803
)
                                 
INCOME FROM CONTINUING OPERATIONS
   
7,350
   
28,025
   
8,781
   
9,608
   
53,764
 
                                 
DISCONTINUED OPERATIONS
                               
Income from operations of sold properties
   
3,105
   
2,045
   
839
   
811
   
6,800
 
Gain on disposal of income producing properties
   
-
   
2,613
   
-
   
470
   
3,083
 
                                 
Total income from discontinued operations
   
3,105
   
4,658
   
839
   
1,281
   
9,883
 
                                 
NET INCOME
 
$
10,455
 
$
32,683
 
$
9,620
 
$
10,889
 
$
63,647
 
                                 
 
10. Debt Extinguishment
 
During 2003, the Company prepaid four mortgages and incurred a loss of $623 on the early extinguishment of debt. During 2002, the Company settled an outstanding mortgage note payable at less than face value and recognized a gain of $1,520 on an early extinguishment of debt. The Company has adopted SFAS No. 145, Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections, and is reporting gains and losses on extinguishment of debt as part of ordinary income as they no longer meet the criteria for extraordinary gain (loss) accounting treatment.
 
11. Dispositions
 
The Company has adopted SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, effective January 1, 2002, and has included the operations of properties sold and held for sale, as well as the gain on sale of sold properties identified for sale on or after January 1, 2002, as discontinued operations for all periods presented.
 
F-28

    The following table reflects properties that were sold during 2004:
 
 
Property
   
Location
   
Month Sold
   
Square Feet/
Acres
   
Gross Sales Price
   
Gain (Loss)
On Sale
 
                                 
2004 Dispositions
                               
                                 
Southwest Walgreens
   
Phoenix, AZ
   
February
   
93,402
 
$
6,650
 
$
2,060
 
Watson Central
   
Warner Robbins, GA
   
June
   
227,747
   
6,000
   
(483
)
Plaza Del Rey
   
Miami, FL
   
July
   
50,146
   
9,000
   
6,197
 
Forrest Gallery
   
Tullahoma, TN
   
July
   
214,450
   
10,500
   
1,560
 
Epsilon
   
West Palm Beach, FL
   
August
   
18,707
   
2,650
   
1,176
 
Millervillage
   
Baton Rouge, LA
   
September
   
94,559
   
2,700
   
1,130
 
Plymouth Park (4 properties)
   
Irving, TX
   
September
   
728,566
   
24,000
   
2,142
 
East Bay Plaza
   
Largo, FL
   
October
   
85,426
   
5,600
   
4,037
 
Losco Corners
   
Jacksonville, FL
   
October
   
8,700
   
1,650
   
571
 
Gulf Gate Plaza
   
Naples, FL
   
October
   
204,551
   
10,000
   
2,370
 
City Centre (JV)
   
Palm Beach Gardens, FL
   
November
   
N/A
   
N/A
   
578
 
Pinhook Plaza
   
Layfayette, LA
   
December
   
194,725
   
3,805
   
838
 
 
           
Sale of income producing properties
 
82,555
   
22,176
 
                                 
Miramar Outparcel
   
Miramar, FL
   
August
   
2.0 acres
   
1,500
   
158
 
                                 
Total for 2004
$
84,055
 
$
22,334
 
             
 
As of December 31, 2004, one retail property was classified as property held for sale. This property has an aggregate gross leasable area of 177 square feet and an aggregate net book value of $12,646. This property was sold in January 2005.
 
    The summary selected operating results for properties disposed of or designated as held for sale after December 31, 2001 are as follows:
 
 
For the Year Ended December 31,  
     
2004
   
2003
   
2002
 
 
Rental Revenue
 
$
9,230
 
$
13,616
 
$
10,253
 
                     
Expenses
                   
Property operating expenses
   
2,993
   
4,118
   
3,144
 
Rental property depreciation and amortization
   
1,113
   
1,596
   
1,247
 
Interest expense
   
716
   
1,372
   
1,479
 
Amortization of deferred financing fees
   
89
   
119
   
125
 
Other
   
46
   
(389
)
 
(484
)
                     
Income from properties sold or held for sale
 
$
4,273
 
$
6,800
 
$
4,742
 
                     
 
12. Stockholders’ Equity and Earnings Per Share
 
    The following table reflects the change in number of shares of common stock outstanding for the year ended December 31, 2004:
 
F-29

 
Common
Stock
 
Options
Exercised
 
 
Total
 
             
Board of Directors
12
*
18
 
30
 
Officers
184
*
386
 
570
 
Employees
19
*
217
 
236
 
Exercise of OP units
734
 
-
 
734
 
Dividend Reinvestment and Stock Purchase Plan
2,674
 
-
 
2,674
 
Total
3,623
 
621
 
4,244
 
             
* Reflects shares of “restricted stock” which are subject to forfeiture and vest over a period of one to four years.
 
    The following table reports dividends paid for the twelve months ended December 31, 2004 and 2003:
 
 2004
 
  2003
 
                                 
Date
   
Per Share
   
Amount
   
Date
   
Per Share
   
Amount
 
                                 
March 31
 
$
0.28
 
$
19,630
   
March 31
 
$
0.27
 
$
16,130
 
June 30
 
$
0.28
   
19,725
   
June 30
 
$
0.27
   
17,084
 
September 30
 
$
0.28
   
20,272
   
September 30
 
$
0.28
   
18,159
 
December 31
 
$
0.29
   
21,277
   
December 31
 
$
0.28
   
19,304
 
                                 
Total
       
$
80,904
   
Total
       
$
70,677
 
                                 
 
The following is a reconciliation of the amounts of net income and shares of common stock used in calculating basic and diluted per-share income (“EPS”) for the years ended December 31, 2004, 2003 and 2002:
 
 
 
For the Year Ended December 31, 2004 
           
 
   
Income   
(Numerator) 
   
Shares
(Denominator)
 
 
Per Share
Amount
 
 
Net Income
 
$
97,804
             
                     
Basic EPS
                   
Income attributable to common stockholders
 
$
97,804
   
70,447
 
$
1.39
 
                     
Effect of Dilutive Securities
                   
Walden Woods Village, Ltd.
   
106
   
94
       
Unvested restricted stock
   
-
   
611
       
Convertible partnership units
   
517
   
520
       
Stock options
   
-
   
364
       
                     
     
623
   
1,589
       
Diluted EPS
                   
Income attributable to common stockholders assuming conversions
 
$
98,427
   
72,036
 
$
1.37
 
                     
 

F-30

All options outstanding at December 31, 2004 were included in the computation of diluted EPS.
 
 
For the Year Ended December 31, 2003 
           
 
   
Income    
(Numerator) 
   
Shares
(Denominator)
 
 
Per Share
Amount
 
 
Net Income
 
$
63,647
             
                     
Basic EPS
                   
Income attributable to common stockholders
 
$
63,647
   
59,998
 
$
1.06
 
                     
Effect of Dilutive Securities
                   
Walden Woods Village, Ltd.
   
103
   
94
       
Unvested restricted stock
   
-
   
612
       
Convertible partnership units
   
700
   
648
       
Stock options
   
-
   
313
       
                     
     
803
   
1,667
       
Diluted EPS
                   
Income attributable to common stockholders assuming conversions
 
$
64,450
   
61,665
 
$
1.05
 
                     

Options to purchase 350 shares of common stock at $16.22 per share were outstanding at December 31, 2003 but were not included in the computation of diluted EPS because the option price was greater than the average market price of common shares.

 
 
For the Year Ended December 31, 2002 
           
   
Income    
(Numerator) 
   
Shares
(Denominator)
 
 
Per Share
Amount
 
                     
 
Net Income
 
$
39,934
             
                     
Basic EPS
                   
Income attributable to common stockholders
 
$
39,934
   
32,662
 
$
1.22
 
                     
Effect of Dilutive Securities
                   
Walden Woods Village, Ltd.
   
101
   
94
       
Unvested restricted stock
   
-
   
298
       
Convertible partnership units
   
259
   
262
       
Stock options
   
-
   
127
       
                     
     
360
   
781
       
Diluted EPS
                   
Income attributable to common stockholders assuming conversions
 
$
40,294
   
33,443
 
$
1.20
 
                     
 
All options outstanding at December 31, 2002 were included in the computation of diluted EPS.
 
13. Benefit Plans
 
Stock-Based Compensation
 
On October 23, 1996, the Company adopted the Equity One, Inc. 1995 Stock Option Plan (the “Plan”), which was amended December 10, 1998. The purpose of the Plan is to further the growth of the Company by offering incentives to directors, officers and other key employees of the Company, and to increase the interest of these directors, officers and employees in the Company through additional ownership of its common stock. The effective date of the Plan was January 1, 1996. The maximum number of shares of common stock as to which options may be granted under this Plan is 1,000 shares, which is reduced each year by the required or discretionary grant of options. The term of each option is determined by the Compensation Committee of the Company (the “Committee”), but in no event can be longer than ten years from the date of the grant. The vesting of the options is determined by the Committee, in its sole and absolute discretion, at the date of grant of the option.
 
F-31

    On June 23, 2000, the Company, with shareholder approval, adopted the Equity One 2000 Executive Incentive Compensation Plan (the “2000 Plan”). The terms of the 2000 Plan provide for grants of stock options, stock appreciation rights (“SARs”), restricted stock, deferred stock, other stock-related awards and performance or annual incentive awards that may be settled in cash, stock or other property. The persons eligible to receive an award under the 2000 Plan are the officers, directors, employees and independent contractors of the Company and its subsidiaries. Following an amendment to the 2000 Plan, approved by our stockholders on July 28, 2004, the total number of shares of common stock that may be issuable under the 2000 Plan is 5,500,000 shares, plus (i) the number of shares with respect to which options previously granted under the 2000 Plan terminate without being exercised, and (ii) the number of shares that are surrendered in payment of the exercise price for any awards or any tax withholding requirements. In addition to increasing the available shares, the July 2004 amendment expanded the list of business criteria that our compensation committee may use in granting performance awards and annual incentive awards under the 2000 Plan intended to qualify for the exclusions from the limitations of Section 162(m) of the Internal Revenue Code and modified the definition of a “change of control” to include, in addition to other instances, following approval by stockholders of any reorganization, merger or consolidation or other transaction or series of transactions if persons who were stockholders immediately prior to such reorganization, merger or consolidation or other transaction do not, immediately thereafter, own more than 50% of the combined voting power of the reorganized, merger or consolidated company’s then outstanding voting securities (previously the threshold was 26%). The 2000 Plan will terminate on the earlier of the day before the tenth anniversary of the stockholders’ approval of the 2000 Plan or the date on which all shares reserved for issuance under the 2000 Plan have been issued.
 
    The following is a summary of the Company’s stock option activity for the years ended December 31, 2004, 2003 and 2002:
 
   
2004
2003
2002
         
 
   
Stock Options 
   
Weighted Average Exercise Price
   
Stock Options
   
Weighted Average Exercise Price
   
Stock Options
   
Weighted Average Exercise Price
 
 
Outstanding at the beginning of year
   
1,701
 
$
13.22
   
960
 
$
11.78
   
625
 
$
10.12
 
Granted
   
400
   
17.17
   
860
   
14.44
   
509
   
13.25
 
IRT options*
   
-
   
-
   
827
   
11.17
   
-
   
-
 
Forfeited
   
-
   
-
   
(51
)
 
-
   
-
   
-
 
Exercised
   
(620
)
 
12.64
   
(895
)
 
10.96
   
(174
)
 
10.15
 
Outstanding at the end of year
   
1,481
 
$
14.52
   
1,701
 
$
13.22
   
960
 
$
11.78
 
Exercisable, end of year
   
1,091
 
$
13.57
   
708
 
$
12.09
   
541
 
$
11.78
 
Weighted average fair value of options granted during the year
       
$
1.45
       
$
1.24
       
$
1.69
 
                                       
 
*Converted to Company options upon merger with IRT.
 
F-32

    The fair value of each option grant was estimated on the grant date using the Black-Scholes option-pricing model with the following assumptions for the years ended December 31, 2004, 2003 and 2002:
 
   
2004
 
2003
 
2002
 
               
Dividend Yield
 
6.5%
 
6.5% - 7.0%
 
7.9%
 
Risk-free interest rate
 
4.3%
 
1.2% - 4.3%
 
4.3%
 
Expected option life (years)
 
10
 
1-10
 
10
 
Expected volatility
 
16.0%
 
16.5% - 25.0%
 
24.0%
 
               
 
The following table summarizes information about outstanding stock options as of December 31, 2004:
 
Options Outstanding
 
Options Exercisable
 
Exercise Price
 
Number Outstanding
 
Weighted Average Remaining Contractual Life
(in years)
 
Number Exercisable
 
               
$ 9.00 - 9.99
 
2
 
5.7
 
2
 
$10.00 - 10.99
 
129
 
4.6
 
129
 
$11.00 - 11.99
 
  20
 
6.0
 
20
 
$12.00 - 12.99
 
 1
 
2.4
 
1
 
$13.00 - 13.99
 
656
 
7.8
 
656
 
$14.00 - 14.99
 
  10
 
8.5
 
10
 
$16.22
 
263
 
 8.0
 
263
 
$17.17
 
400
 
 9.0
 
10
 
               
   
1,481
     
1,091
 
               
 
Restricted Stock Grants
 
The Company grants restricted stock to its officers, directors, and other employees. Vesting periods for the restricted stock are determined by the Company’s Compensation Committee. As of December 31, 2004, the Company had 693 shares of non-vested restricted stock grants outstanding. The vesting of the 693 shares is as follows:
 
Year Ending December 31,
 
Number of Shares
     
2005
 
324
2006
 
288
2007
 
77
2008
 
4
     
Total
 
693
     
 
401(k) Plan
 
The Company has a 401(k) defined contribution plan (the “401(k) Plan”) covering substantially all of the officers and employees of the Company which permits participants to defer compensation up to the maximum amount permitted by law. The Company matches 75% of each employee’s contribution up to a maximum of 4.5% of the employee's annual compensation. Employees contributions vest immediately while the Company’s matching contributions vest over three years. The Company’s contributions to the 401(k) Plan for the year ended December 31, 2004, 2003 and 2002 (inception) were $253, $177 and $67, respectively. The 401(k) Plan invests the Company’s matching contributions by purchasing publicly traded shares of the Company’s common stock.
 
F-33

2004 Employee Stock Purchase Plan
 
Under the 2004 Employee Stock Purchase Plan (the “Purchase Plan”) (implemented in October 2004), Equity One employees, including directors of Equity One who are employees, are eligible to participate in quarterly plan offerings in which payroll deductions may be used to purchase shares of Common Stock. The purchase price per share will be 90% of the average closing price per share of common stock on the NYSE on the five (5) trading days that immediately precede the date of purchase (the “Exercise date”), provided, however, that in no event shall the exercise price per share of common stock on the exercise date of an offering period be less than the lower 85% of (i) the market price on the first day of the offering period or (ii) the market price on the Exercise Date.
 
 
14. Future Minimum Rental Income, Commitments and Contingent Liabilities
 
Future minimum rental income under noncancelable operating leases approximates the following as of December 31, 2004:
 
Year Ending December 31,
 
Amount
 
       
2005
 
$ 169,202
 
2006
 
145,194
 
2007
 
122,669
 
2008
 
100,769
 
2009
 
82,684
 
Thereafter
 
395,912
 
       
Total
 
$1,016,430
 
       
 
As of December 31, 2004 and 2003, the Company has pledged letters of credit for $1,394 and $1,433, respectively, as additional security for financing.
 
The Company is subject to litigation in the normal course of business, none of which as of December 31, 2004 in the opinion of management will have a material adverse effect on the financial condition, results of operations, or cash flows of the Company.
 
15. Related Party Transactions
 
As of December 31, 2004 and 2003, the Company had outstanding loans to various executives in connection with their exercises of options to purchase shares of the Company’s common stock. The remaining note bears interest only, payable quarterly, at the rate of 5% per annum and is due June 2007. Investment income earned on the loans was $55, $255 and $337 for the years ended December 31, 2004, 2003 and 2002, respectively.
 
F-34

 
16.  
Quarterly Financial Data (unaudited)
 
   
First
Quarter(1) 
 
   
Second
Quarter(1)
 
 
 
Third
Quarter(1)
 
 
Fourth
Quarter(1)
 
 
Total(2)
 
2004:
                               
Total revenues
 
$
52,517
 
$
55,769
 
$
57,822
 
$
63,749
 
$
229,857
 
Income from continuing operations
 
$
16,913
 
$
16,768
 
$
18,290
 
$
19,497
 
$
71,468
 
Net income
 
$
20,239
 
$
18,535
 
$
30,701
 
$
28,329
 
$
97,804
 
                                 
Basic per share data
                               
Income from continuing operations
 
$
0.24
 
$
0.25
 
$
0.25
 
$
0.27
 
$
1.01
 
Net Income
 
$
0.29
 
$
0.28
 
$
0.43
 
$
0.39
 
$
1.39
 
                                 
Diluted per share data
                               
Income from continuing operations
 
$
0.24
 
$
0.24
 
$
0.25
 
$
0.27
 
$
1.00
 
Net income
 
$
0.29
 
$
0.26
 
$
0.43
 
$
0.39
 
$
1.37
 
                                 
                                 
2003:
                               
Total revenues
 
$
35,318
 
$
45,713
 
$
47,683
 
$
51,581
 
$
180,295
 
Income from continuing operations
 
$
10,534
 
$
13,082
 
$
14,326
 
$
15,822
 
$
53,764
 
Net income
 
$
12,344
 
$
16,352
 
$
17,249
 
$
17,702
 
$
63,647
 
                                 
Basic per share data
                               
Income from continuing operations
 
$
0.18
 
$
0.22
 
$
0.23
 
$
0.26
 
$
0.89
 
Net Income
 
$
0.22
 
$
0.27
 
$
0.28
 
$
0.29
 
$
1.06
 
Diluted per share data
                               
Income from continuing operations
 
$
0.18
 
$
0.21
 
$
0.24
 
$
0.26
 
$
0.89
 
Net income
 
$
0.22
 
$
0.26
 
$
0.28
 
$
0.29
 
$
1.05
 
                                 
—————————
(1)  
Reclassified to reflect the reporting of discontinued operations.
 
(2)  
The sum of quarterly earnings per share amounts may differ from annual earnings per share.
 

* * * * *
 
F-36

SCHEDULE III
 
Equity One, Inc.
 
REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION
December 31, 2004
(in thousands)
 
                                                                     
                       
GROSS AMOUNTS AT WHICH
                     
 
             
Initial cost to Company 
     
 Carried at Close of Period
                     
                                                                     
                                                                     
Property 
   
Location
   
Encum-brances
   
Land
   
Building & Improvements
   
Capitalized Subsequent
to Acquisition or
Improvement
   
Land
   
Improvements
   
Total
   
Accumulated Depreciation
   
Date Acquired
   
Depreciable Life
 
Income Producing Properties 
                                                                   
ALABAMA 
                                             
Madison Centre
   
Madison
 
$
3,821
 
$
1,424
 
$
5,187
 
$
31
 
$
1,424
 
$
5,218
 
$
6,642
   
($366
)
 
February 12, 2003
   
40
 
West Gate Plaza
   
Mobile
 
 
-
   
1,288
   
3,162
   
-
   
1,288
   
3,162
   
4,450
   
(148
)
 
February 12, 2003
   
40
 
                                               
ARIZONA 
   
                                         
Big Curve
   
Yuma
   
5,310
   
2,403
   
7,206
   
55
   
2,426
   
7,238
   
9,664
   
(603
)
 
September 21, 2001
   
40
 
Park Northern
   
Phoenix
   
2,182
   
1,058
   
3,176
   
430
   
1,068
   
3,596
   
4,664
   
(344
)
 
August 15, 2000
   
40
 
                                               
FLORIDA 
                                             
North Florida
                                             
Atlantic Village
   
Atlantic Beach
   
-
   
1,190
   
4,760
   
1,005
   
1,190
   
5,765
   
6,955
   
(1,697
)
 
June 30, 1995
   
40
 
Beauclerc Village
   
Jacksonville
   
-
   
560
   
2,242
   
842
   
651
   
2,993
   
3,644
   
(669
)
 
May 15, 1998
   
40
 
Commonwealth
   
Jacksonville
   
2,636
   
730
   
2,920
   
1,458
   
730
   
4,378
   
5,108
   
(1,277
)
 
February 28, 1994
   
40
 
Forest Village
   
Tallahassee
   
4,441
   
725
       
6,374
   
3,222
   
3,877
   
7,099
   
(591
)
 
January 28, 1999
   
40
 
Ft. Caroline
   
Jacksonville
   
-
   
738
   
2,432
   
93
   
738
   
2,525
   
3,263
   
(822
)
 
January 24, 1994
   
40
 
Mandarin Mini
   
Jacksonville
   
-
   
362
   
1,148
   
318
   
362
   
1,466
   
1,828
   
(389
)
 
May 10, 1994
   
40
 
Mandarin Landing
   
Jacksonville
   
-
   
4,443
   
4,747
   
1,344
   
4,443
   
6,091
   
10,534
   
(1,108
)
 
December 10, 1999
   
40
 
Medical & Merchants
   
Jacksonville
   
-
   
7,649
   
13,962
   
116
   
7,685
   
14,042
   
21,727
   
(207
)
 
May 27, 2004
   
40
 
Middle Beach Shopping Center
   
Panama City Beach
   
-
   
2,159
   
5,542
   
52
   
2,195
   
5,558
   
7,753
   
(155
)
 
December 23, 2003
   
40
 
Monument Point
   
Jacksonville
   
-
   
1,336
   
2,330
   
124
   
1,336
   
2,454
   
3,790
   
(510
)
 
January 31, 1997
   
40
 
Oak Hill
   
Jacksonville
   
-
   
690
   
2,760
   
140
   
690
   
2,900
   
3,590
   
(696
)
 
December 7, 1995
   
40
 
Parkmore Plaza
   
Milton
   
-
   
3,181
   
3,002
   
30
   
3,181
   
3,032
   
6,213
   
(219
)
 
February 12, 2003
   
40
 
Pensacola Plaza
   
Pensacola
   
-
   
1,122
   
990
   
24
   
1,122
   
1,014
   
2,136
   
(70
)
 
February 12, 2003
   
40
 
South Beach
   
Jacksonville Beach
   
-
   
5,799
   
23,102
   
90
   
9,545
   
19,446
   
28,991
   
(1,005
)
 
February 12, 2003
   
40
 
                                               
Central Florida
                                             
Alafaya Commons
   
Orlando
   
-
   
6,742
   
9,677
   
40
   
5,758
   
10,701
   
16,459
   
(493
)
 
February 12, 2003
   
40
 
Conway Crossing
   
Orlando
   
-
   
4,423
   
5,818
   
30
   
2,615
   
7,656
   
10,271
   
(327
)
 
February 12, 2003
   
40
 
Shoppes of Eastwood
   
Orlando
   
6,126
   
1,680
   
6,976
   
64
   
1,688
   
7,032
   
8,720
   
(453
)
 
June 28, 2002
   
40
 
Walden Woods
   
Plant City
   
2,272
   
950
   
550
   
3,181
   
550
   
4,131
   
4,681
   
(699
)
 
January 1, 1999
   
40
 
Eustis Square
   
Eustis
   
-
   
1,450
   
4,515
   
1,979
   
1,463
   
6,481
   
7,944
   
(2,282
)
 
October 22, 1993
   
40
 
Hunters Creek
   
Orlando
   
-
   
2,035
   
5,445
   
15
   
1,562
   
5,933
   
7,495
   
(195
)
 
September 23, 2003
   
40
 
Kirkman Shoppes
   
Orlando
   
9,448
   
3,237
   
9,714
   
99
   
3,222
   
9,828
   
13,050
   
(1,301
)
 
August 15, 2000
   
33
 
Lake Mary
   
Orlando
   
24,282
   
5,578
   
13,878
   
6,181
   
7,092
   
18,545
   
25,637
   
(3,790
)
 
November 9, 1995
   
40
 
Park Promenade
   
Orlando
   
6,241
   
2,810
   
6,444
   
490
   
2,810
   
6,934
   
9,744
   
(1,171
)
 
January 31, 1999
   
40
 
Town & Country
   
Kissimmee
   
-
   
1,426
   
4,397
   
15
   
1,282
   
4,556
   
5,838
   
(212
)
 
February 12, 2003
   
40
 
Unigold
   
Winter Park
   
-
   
2,181
   
8,195
   
1,605
   
4,304
   
7,677
   
11,981
   
(377
)
 
February 12, 2003
   
40
 
                                               
 
F-37

 
                                                   
                             
GROSS AMOUNTS AT WHICH 
                   
                 
Initial cost to Company
         
Carried at Close of Period 
                   
                                                                     
 
Property 
   
Location 
   
Encum-brances
   
Land
   
Building & Improvements
   
Capitalized Subsequent
to Acquisition or
Improvement
   
Land
   
Improvements
   
Total
   
Accumulated Depreciation
   
Date Acquired
   
Depreciable Life
 
                                                                     
Florida West Coast
                                                                   
Bay Pointe Plaza
   
St. Petersburg
   
-
   
2,733
   
7,810
   
36
   
4,655
   
5,924
   
10,579
   
(328
)
 
February 12, 2003
   
40
 
Carrollwood
   
Tampa
   
-
   
1,873
   
7,322
   
435
   
2,756
   
6,874
   
9,630
   
(338
)
 
February 12, 2003
   
40
 
Charlotte Square
   
Port Charlotte
   
3,550
   
1,924
   
6,644
   
63
   
4,155
   
4,476
   
8,631
   
(265
)
 
February 12, 2003
   
40
 
Chelsea Place
   
New Port Richey
   
-
   
3,708
   
6,491
   
7
   
2,591
   
7,615
   
10,206
   
(333
)
 
February 12, 2003
   
40
 
Lake St. Charles
   
Tampa
   
3,833
   
1,256
   
3,768
   
12
   
1,268
   
3,768
   
5,036
   
(309
)
 
September 21, 2001
   
40
 
Lutz Lake
   
Lutz
   
7,500
   
4,742
   
5,199
   
32
   
3,644
   
6,329
   
9,973
   
(294
)
 
February 12, 2003
   
40
 
Marco Town Center
   
Marco Island
   
8,578
   
3,872
   
11,966
   
568
   
3,872
   
12,534
   
16,406
   
(1,466
)
 
August 15, 2000
   
37
 
Mariners Crossing
   
Spring Hill
   
3,332
   
1,110
   
4,447
   
29
   
1,110
   
4,476
   
5,586
   
(491
)
 
September 12, 2000
   
40
 
Pavilion
   
Naples
   
-
   
12,716
   
11,299
   
26
   
12,650
   
11,391
   
24,041
   
(263
)
 
February 4, 2004
   
40
 
Regency Crossing
   
Port Richey
   
-
   
1,752
   
6,754
   
8
   
1,982
   
6,532
   
8,514
   
(312
)
 
February 12, 2003
   
40
 
Ross Plaza
   
Tampa
   
6,589
   
2,115
   
6,346
   
74
   
2,115
   
6,420
   
8,535
   
(848
)
 
August 15, 2000
   
33
 
Seven Hills
   
Spring Hill
   
-
   
1,556
   
5,167
   
3
   
2,167
   
4,559
   
6,726
   
(227
)
 
February 12, 2003
   
40
 
Shoppes of North Port
   
North Port
   
4,008
   
1,452
   
5,807
   
54
   
1,452
   
5,861
   
7,313
   
(596
)
 
December 5, 2000
   
40
 
Skipper Palms
   
Tampa
   
3,526
   
1,302
   
3,940
   
20
   
1,315
   
3,947
   
5,262
   
(345
)
 
September 21, 2001
   
40
 
Summerlin Square
   
Fort Myers
   
3,622
   
1,043
   
7,989
   
1,327
   
2,187
   
8,172
   
10,359
   
(1,375
)
 
June 10, 1998
   
40
 
Venice Shopping Center
   
Venice
   
-
   
3,836
   
2,562
   
38
   
3,857
   
2,579
   
6,436
   
(54
)
 
March 31, 2004
     
Venice Plaza
   
Venice
   
-
   
3,120
   
450
   
1,049
   
2,189
   
2,430
   
4,619
   
(251
)
 
February 12, 2003
   
40
 
                                               
Florida Treasure Coast
                                             
Bluffs Square
   
Jupiter
   
10,005
   
3,232
   
9,917
   
276
   
3,232
   
10,193
   
13,425
   
(1,390
)
 
August 15, 2000
   
33
 
Cashmere Corners
   
Port St. Lucie
   
5,141
   
1,436
   
5,530
   
136
   
1,435
   
5,667
   
7,102
   
(547
)
 
August 15, 2000
   
40
 
Jonathan's Landing
   
Jupiter
   
2,868
   
1,145
   
3,442
   
1
   
1,146
   
3,442
   
4,588
   
(399
)
 
August 15, 2000
   
37
 
New Smyrna Beach
   
New Smyrna Beach
   
-
   
2,598
   
9,532
   
36
   
3,217
   
8,949
   
12,166
   
(442
)
 
February 12, 2003
   
40
 
Old King Commons
   
Palm Coast
   
-
   
1,695
   
5,005
   
17
   
1,420
   
5,297
   
6,717
   
(252
)
 
February 12, 2003
   
40
 
Ryanwood
   
Vero Beach
   
-
   
2,281
   
6,880
   
47
   
2,281
   
6,927
   
9,208
   
(561
)
 
August 15, 2000
   
40
 
Salerno Village
   
Stuart
   
-
   
807
       
7,025
   
2,125
   
5,707
   
7,832
   
(124
)
 
May 6, 2002
   
40
 
Treasure Coast
   
Vero Beach
   
4,532
   
2,676
   
8,444
   
65
   
1,359
   
9,826
   
11,185
   
(430
)
 
February 12, 2003
   
40
 
                                               
South Florida / Atlantic Coast 
                                                                   
Bird Ludlum
   
Miami
   
9,690
   
4,080
   
16,318
   
673
   
4,088
   
16,983
   
21,071
   
(4,450
)
 
August 11, 1994
   
40
 
Boca Village
   
Boca Raton
   
8,211
   
3,385
   
10,174
   
247
   
3,385
   
10,421
   
13,806
   
(1,224
)
 
August 15, 2000
   
37
 
Boynton Plaza
   
Boynton Beach
   
7,423
   
2,943
   
9,100
   
251
   
2,943
   
9,351
   
12,294
   
(1,240
)
 
August 15, 2000
   
33
 
Countryside Shops
   
Cooper City
   
-
   
13,963
   
13,853
   
50
   
11,343
   
16,523
   
27,866
   
(728
)
 
February 12, 2003
   
40
 
Crossroads Square
   
Ft. Lauderdale
   
12,324
   
6,674
   
4,405
   
8,046
   
8,492
   
10,633
   
19,125
   
(567
)
 
August 15, 2000
   
40
 
CVS Plaza
   
Miami
   
-
   
727
   
3,090
   
1
   
727
   
3,091
   
3,818
   
(40
)
 
July 23, 1999
     
                                                                     
 
F-38

 
                                                                     
                                   
GROSS AMOUNTS AT WHICH 
                   
                 
Initial cost to Company
       
Carried at Close of Period 
                   
                                                                     
 Property    
Location
   
Encum-brances
   
Land
   
Building & Improvements
   
Capitalized Subsequent
to Acquisition or
Improvement
   
Land
   
Improvements
   
Total
   
Accumulated Depreciation
   
Date Acquired
   
Depreciable Life
 
                                                                     
El Novillo
   
Miami Beach
   
-
   
250
   
1,000
   
151
   
250
   
1,151
   
1,401
   
(314
)
 
April 30, 1998
   
40
 
Greenwood
   
Palm Springs
   
-
   
6,646
   
10,295
   
34
   
4,117
   
12,858
   
16,975
   
(552
)
 
February 12, 2003
   
40
 
Homestead Gas Station
   
Homestead
   
-
   
1,157
   
-
   
-
   
1,157
   
-
   
1,157
   
-
         
Lago Mar
   
Miami
   
-
   
5,020
   
6,609
   
206
   
4,216
   
7,619
   
11,835
   
(336
)
 
February 12, 2003
   
40
 
Lantana Village
   
Lantana
   
3,511
   
1,350
   
7,978
   
833
   
1,350
   
8,811
   
10,161
   
(1,374
)
 
January 6, 1998
   
40
 
Meadows
   
Miami
   
6,438
   
2,303
   
6,670
   
92
   
2,304
   
6,761
   
9,065
   
(469
)
 
May 23, 2002
   
40
 
Oakbrook
   
Palm Beach Gardens
   
-
   
4,915
   
8,718
   
12,588
   
7,706
   
18,515
   
26,221
   
(1,284
)
 
August 15, 2000
   
40
 
Pine Island
   
Davie
   
24,582
   
8,557
   
12,860
   
236
   
8,557
   
13,096
   
21,653
   
(1,867
)
 
August 26, 1999
   
40
 
Pine Ridge Square
   
Coral Springs
   
7,273
   
9,006
   
9,850
   
75
   
6,619
   
12,312
   
18,931
   
(548
)
 
February 12, 2003
   
40
 
Plaza Alegre
   
Miami
   
-
   
1,550
   
9,191
   
803
   
2,000
   
9,544
   
11,544
   
(661
)
 
February 26, 2002
   
40
 
Point Royale
   
Miami
   
4,284
   
3,720
   
5,005
   
1,211
   
3,720
   
6,216
   
9,936
   
(1,436
)
 
July 27, 1995
   
40
 
Prosperity Centre
   
Palm Beach Gardens
   
6,022
   
4,597
   
13,838
   
70
   
4,597
   
13,908
   
18,505
   
(1,660
)
 
August 15, 2000
   
40
 
Ridge Plaza
   
Davie
   
-
   
3,905
   
7,450
   
654
   
3,905
   
8,104
   
12,009
   
(1,239
)
 
August 15, 2000
   
40
 
Riverside Square
   
Coral Springs
   
7,589
   
7,202
   
8,260
   
117
   
6,423
   
9,156
   
15,579
   
(422
)
 
February 12, 2003
   
40
 
Sawgrass Promenade
   
Deerfield Beach
   
8,211
   
3,280
   
9,351
   
242
   
3,280
   
9,593
   
12,873
   
(1,378
)
 
August 15, 2000
   
40
 
Sheridan
   
Hollywood
   
-
   
39,408
   
36,241
   
81
   
38,888
   
36,842
   
75,730
   
(1,397
)
 
July 14, 2003
   
40
 
Shoppes of Ibis
   
West Palm Beach
   
5,687
   
3,001
   
6,299
   
25
   
3,002
   
6,323
   
9,325
   
(405
)
 
July 10, 2002
   
40
 
Shops at Skylake
   
North Miami Beach
   
14,266
   
7,630
       
26,537
   
13,192
   
20,975
   
34,167
   
(2,077
)
 
August 19, 1997
   
40
 
Shoppes of Silverlakes
   
Pembroke Pines
   
2,627
   
12,072
   
10,131
   
36
   
10,306
   
11,933
   
22,239
   
(527
)
 
February 12, 2003
   
40
 
Tamarac Town Square
   
Tamarac
   
6,122
   
2,504
   
7,874
   
126
   
4,742
   
5,762
   
10,504
   
(318
)
 
February 12, 2003
   
40
 
West Lakes Plaza
   
Miami
   
-
   
2,141
   
5,789
   
409
   
2,141
   
6,198
   
8,339
   
(1,356
)
 
November 6, 1996
   
40
 
Westport Plaza
   
Davie
   
4,876
   
3,595
   
3,446
   
0
   
3,595
   
3,446
   
7,041
   
(9
)
 
December 17, 2004
     
                                               
GEORGIA 
                                             
Atlanta 
   
                                         
BridgeMill
   
Canton
   
9,395
   
9,185
   
6,310
   
10
   
8,593
   
6,912
   
15,505
   
(250
)
 
November 13, 2003
   
40
 
Butler Creek
   
Acworth
   
-
   
4,520
   
7,648
   
32
   
2,810
   
9,390
   
12,200
   
(489
)
 
July 15, 2003
   
40
 
Chastain Square
   
Atlanta
   
3,821
   
10,053
   
6,573
   
92
   
10,689
   
6,029
   
16,718
   
(311
)
 
February 12, 2003
   
40
 
Commerce Crossing
   
Commerce
   
-
   
2,013
   
1,301
   
27
   
2,013
   
1,328
   
3,341
   
(65
)
 
February 12, 2003
   
40
 
Douglas Commons
   
Douglasville
   
4,976
   
3,506
   
7,797
   
93
   
3,681
   
7,715
   
11,396
   
(387
)
 
February 12, 2003
   
40
 
Fairview Oaks
   
Ellenwood
   
4,710
   
3,526
   
6,187
   
1
   
1,929
   
7,785
   
9,714
   
(335
)
 
February 12, 2003
   
40
 
Grassland Crossing
   
Alpharetta
   
5,827
   
4,227
   
7,885
   
82
   
3,656
   
8,538
   
12,194
   
(385
)
 
February 12, 2003
   
40
 
Hamilton Ridge
   
Buford
   
-
   
6,530
   
7,167
   
46
   
5,148
   
8,595
   
13,743
   
(283
)
 
December 18, 2003
   
40
 
Mableton Crossing
   
Mableton
   
4,062
   
2,789
   
6,945
   
2
   
3,331
   
6,405
   
9,736
   
(313
)
 
February 12, 2003
   
40
 
Macland Pointe
   
Marietta
   
5,798
   
1,900
   
6,388
   
56
   
3,462
   
4,882
   
8,344
   
(269
)
 
February 12, 2003
   
40
 
Market Place
   
Norcross
   
-
   
1,474
   
2,410
   
1,943
   
1,667
   
4,160
   
5,827
   
(219
)
 
February 12, 2003
   
40
 
Paulding Commons
   
Dallas
   
6,487
   
3,848
   
11,985
   
48
   
3,848
   
12,033
   
15,881
   
(576
)
 
February 12, 2003
   
40
 
                                                                     
 
F-39

 
                                                                     
                                   
GROSS AMOUNTS AT WHICH 
                   
                 
Initial cost to Company
         
Carried at Close of Period
                   
                                                                     
 Property    
Location
   
Encum-brances
   
Land
   
Building & Improvements
   
Capitalized Subsequent
to Acquisition or
Improvement
   
Land
   
Improvements
   
Total
   
Accumulated Depreciation
   
Date Acquired
   
Depreciable Life
 
                                                                     
Powers Ferry Plaza
   
Marietta
   
-
   
1,815
   
6,648
   
500
   
3,236
   
5,727
   
8,963
   
(372
)
 
February 12, 2003
   
40
 
Presidential Markets
   
Snellville
   
27,159
   
20,608
   
29,931
   
17
   
21,761
   
28,795
   
50,556
   
(1,307
)
 
February 12, 2003
   
40
 
Shops of Huntcrest
   
Lawrenceville
   
-
   
5,473
   
7,813
   
301
   
5,706
   
7,881
   
13,587
   
(426
)
 
February 12, 2003
   
40
 
Wesley Chapel Crossing
   
Decatur
   
3,332
   
3,416
   
7,527
   
1
   
6,632
   
4,312
   
10,944
   
(271
)
 
February 12, 2003
   
40
 
West Towne Square
   
Rome
   
-
   
1,792
   
1,853
   
55
   
1,792
   
1,908
   
3,700
   
(141
)
 
February 12, 2003
   
40
 
Williamsburg @ Dunwoody
   
Dunwoody
   
-
   
4,600
   
3,615
   
456
   
4,347
   
4,324
   
8,671
   
(193
)
 
February 12, 2003
   
40
 
                                               
Central Georgia 
                                             
Daniel Village
   
Augusta
   
4,177
   
3,439
   
8,352
   
102
   
3,439
   
8,454
   
11,893
   
(412
)
 
February 12, 2003
   
40
 
Spalding Village
   
Griffin
   
10,231
   
4,706
   
1,700
   
91
   
2,977
   
3,520
   
6,497
   
(192
)
 
February 12, 2003
   
40
 
Walton Plaza
   
Augusta
   
-
   
869
   
2,827
   
23
   
869
   
2,850
   
3,719
   
(139
)
 
February 12, 2003
   
40
 
                                               
South Georgia
                                             
Colony Square
   
Fitzgerald
   
-
   
1,000
   
1,085
   
18
   
1,000
   
1,103
   
2,103
   
(58
)
 
February 12, 2003
   
40
 
McAlphin Square
   
Savannah
   
-
   
3,536
   
6,963
   
122
   
3,536
   
7,085
   
10,621
   
(361
)
 
February 12, 2003
   
40
 
                                               
KENTUCKY 
                                             
Scottsville Square
   
Bowling Green
   
-
   
769
   
996
   
28
   
770
   
1,023
   
1,793
   
(51
)
 
February 12, 2003
   
40
 
                                               
LOUISIANA 
                                             
Ambassador Row
   
Lafayette
   
-
   
3,880
   
10,570
   
76
   
3,880
   
10,646
   
14,526
   
(505
)
 
February 12, 2003
   
40
 
Ambassador Row Courtyard
   
Lafayette
   
-
   
3,110
   
9,208
   
47
   
2,310
   
10,055
   
12,365
   
(479
)
 
February 12, 2003
   
40
 
Bluebonnet Village
   
Baton Rouge
   
-
   
1,404
   
4,281
   
187
   
1,940
   
3,932
   
5,872
   
(213
)
 
February 12, 2003
   
40
 
The Boulevard
   
Lafayette
   
-
   
1,360
   
1,675
   
304
   
1,360
   
1,979
   
3,339
   
(101
)
 
February 12, 2003
   
40
 
Country Club Plaza
   
Slidell
   
-
   
1,294
   
2,060
   
73
   
1,294
   
2,133
   
3,427
   
(112
)
 
February 12, 2003
   
40
 
The Crossing
   
Slidell
   
-
   
2,280
   
3,650
   
58
   
1,591
   
4,397
   
5,988
   
(205
)
 
February 12, 2003
   
40
 
Elmwood Oaks
   
Harahan
   
7,500
   
2,606
   
10,079
   
127
   
4,088
   
8,724
   
12,812
   
(455
)
 
February 12, 2003
   
40
 
Grand Marche
   
Lafayette
   
-
   
304
    -    
-
   
304
   
-
   
304
   
-
   
February 12, 2003
   
40
 
Pinhook Plaza
   
Lafayette
   
-
   
34
   
22
   
-
   
34
   
22
   
56
   
(2
)
 
February 12, 2003
   
40
 
Plaza Acadienne
   
Eunice
   
-
   
2,108
   
168
   
26
   
2,108
   
194
   
2,302
   
(15
)
 
February 12, 2003
   
40
 
Sherwood South
   
Baton Rouge
   
-
   
1,543
   
2,412
   
33
   
918
   
3,070
   
3,988
   
(129
)
 
February 12, 2003
   
40
 
Siegen Village
   
Baton Rouge
   
4,221
   
3,492
   
3,794
   
7,437
   
4,329
   
10,394
   
14,723
   
(832
)
 
February 12, 2003
   
40
 
Tarpon Heights
   
Galliano
   
-
   
1,132
   
33
   
1,140
   
1,133
   
1,172
   
2,305
   
(147
)
 
February 12, 2003
   
40
 
Village at Northshore
   
Slidell
   
-
   
2,893
   
7,897
   
1
   
1,034
   
9,757
   
10,791
   
(410
)
 
February 12, 2003
   
40
 
Wal-Mart Stores, Inc.
   
Mathews
   
-
   
2,688
    -    
-
   
2,688
   
-
   
2,688
   
-
   
February 12, 2003
   
40
 
                                               
 
F-40

 
                                                                     
                                   
GROSS AMOUNTS AT WHICH
                   
                 
Initial cost to Company
         
Carried at Close of Period
                   
                                                                     
 Property    
Location
   
Encum-brances
   
Land
   
Building & Improvements
   
Capitalized Subsequent
to Acquisition or
Improvement
   
Land
   
Improvements
   
Total
   
Accumulated Depreciation
   
Date Acquired
   
Depreciable Life
 
                                                                     
MASSACHUSETTS 
                                             
Star's @ Cambridge
   
Boston
   
-
   
11,356
   
13,853
   
-
   
11,356
   
13,853
   
25,209
   
(104
)
 
October 7, 2004
   
40
 
Shaw's @ Medford
   
Boston
   
5,512
   
7,862
   
11,389
   
-
   
7,862
   
11,389
   
19,251
   
(85
)
 
October 7, 2004
   
40
 
Shaw's @ Plymouth
   
Boston
   
4,029
   
4,916
   
12,198
   
-
   
4,916
   
12,198
   
17,114
   
(91
)
 
October 7, 2004
   
40
 
Star's @ Qunicy
   
Boston
   
-
   
6,121
   
18,444
   
-
   
6,121
   
18,444
   
24,565
   
(140
)
 
October 7, 2004
   
40
 
Whole Foods @ Swampscott
   
Boston
   
2,395
   
5,135
   
6,538
   
-
   
5,135
   
6,538
   
11,673
   
(49
)
 
October 7, 2004
   
40
 
Shaw's @ West Roxbury
   
Boston
   
-
   
8,757
   
13,588
   
-
   
8,757
   
13,588
   
22,345
   
(104
)
 
October 7, 2004
   
40
 
                                               
MISSISSIPPI 
                                             
Shipyard Plaza
   
Pascagoula
   
-
   
1,337
   
1,653
   
-
   
1,337
   
1,653
   
2,990
   
(78
)
 
February 12, 2003
   
40
 
                                               
NORTH CAROLINA 
                                             
Centre Pointe Plaza
   
Smithfield
   
-
   
3,273
   
1,633
   
1,128
   
1,622
   
4,412
   
6,034
   
(207
)
 
February 12, 2003
   
40
 
Chestnut Square
   
Brevard
   
-
   
793
   
1,326
   
8
   
517
   
1,610
   
2,127
   
(70
)
 
February 12, 2003
   
40
 
The Galleria
   
Wrightsville Beach
   
-
   
1,847
   
3,875
   
388
   
1,493
   
4,617
   
6,110
   
(202
)
 
February 12, 2003
   
40
 
Parkwest Crossing
   
Durham
   
4,684
   
1,712
   
6,727
   
199
   
1,788
   
6,850
   
8,638
   
(326
)
 
February 12, 2003
   
40
 
Plaza North
   
Hendersonville
   
-
   
945
   
1,887
   
33
   
758
   
2,107
   
2,865
   
(97
)
 
February 12, 2003
   
40
 
Providence Square
   
Charlotte
   
-
   
1,719
   
2,575
   
16
   
1,112
   
3,198
   
4,310
   
(141
)
 
February 12, 2003
   
40
 
Riverview Shopping Center
   
Durham
   
-
   
2,644
   
4,745
   
283
   
2,202
   
5,470
   
7,672
   
(249
)
 
February 12, 2003
   
40
 
Salisbury Marketplace
   
Salisbury
   
-
   
1,652
   
6,395
   
427
   
3,118
   
5,356
   
8,474
   
(274
)
 
February 12, 2003
   
40
 
Shelby Plaza
   
Shelby
   
-
   
2,061
   
338
   
40
   
868
   
1,571
   
2,439
   
(47
)
 
February 12, 2003
   
40
 
Stanley Market Place
   
Stanley
   
-
   
808
   
669
   
72
   
396
   
1,153
   
1,549
   
(44
)
 
February 12, 2003
   
40
 
4101 South I-85 Industrial
   
Charlotte
   
-
   
2,127
   
950
   
76
   
1,619
   
1,534
   
3,153
   
(72
)
 
February 12, 2003
   
40
 
Thomasville Commons
   
Thomasville
   
-
   
2,975
   
4,567
   
39
   
1,212
   
6,369
   
7,581
   
(271
)
 
February 12, 2003
   
40
 
Willowdale Shopping Center
   
Durham
   
-
   
2,416
   
6,499
   
318
   
2,073
   
7,160
   
9,233
   
(408
)
 
February 12, 2003
   
40
 
                                               
SOUTH CAROLINA 
                                                                   
Belfair Towne Village
   
Bluffton
   
11,197
   
9,909
   
10,036
   
115
   
9,854
   
10,206
   
20,060
   
(357
)
 
December 22, 2003
   
40
 
Woodruff
   
Greenville
   
2,969
   
2,689
   
5,448
   
100
   
2,420
   
5,817
   
8,237
   
(198
)
 
December 23, 2003
   
40
 
Lancaster Plaza
   
Lancaster
   
-
   
317
   
153
   
-
   
317
   
153
   
470
   
(11
)
 
February 12, 2003
   
40
 
Lancaster Shopping Center
   
Lancaster
   
-
   
48
   
32
   
-
   
48
   
32
   
80
   
(8
)
 
February 12, 2003
   
40
 
North Village Center
   
Durham
   
-
   
1,207
   
3,235
   
1,213
   
2,860
   
2,795
   
5,655
   
(273
)
 
February 12, 2003
   
40
 
Sparkleberry Square
   
Columbia
   
14,573
   
11,774
   
32,979
   
131
   
11,774
   
33,110
   
44,884
   
(620
)
 
March 31, 2004
   
40
 
Spring Valley
   
Columbia
   
-
   
1,508
   
5,050
   
59
   
1,098
   
5,519
   
6,617
   
(256
)
 
February 12, 2003
   
40
 
Windy Hill
   
North Myrtle Beach
   
-
   
830
   
1,906
   
18
   
833
   
1,921
   
2,754
   
(36
)
 
April 8, 2004
   
40
 
                                               
 
F-41

 
                                                                     
                                   
GROSS AMOUNTS AT WHICH
                   
                 
Initial cost to Company
         
Carried at Close of Period
                   
                                                                     
 Property    
Location
   
Encum-brances
   
Land
   
Building & Improvements
   
Capitalized Subsequent
to Acquisition or
Improvement
   
Land
   
Improvements
   
Total
   
Accumulated Depreciation
   
Date Acquired
   
Depreciable Life
 
                                                                     
TENNESSEE 
                                             
Smyrna Village
   
Smyrna
   
-
   
1,667
   
4,694
   
217
   
1,503
   
5,075
   
6,578
   
(242
)
 
February 12, 2003
   
40
 
                                               
TEXAS  
                                             
Houston 
                                             
Barker Cypress
   
Houston
   
-
   
1,676
   
5,029
   
326
   
1,676
   
5,355
   
7,031
   
(539
)
 
August 15, 2000
   
40
 
Beechcrest
   
Houston
   
-
   
1,408
   
4,291
   
21
   
1,408
   
4,312
   
5,720
   
(513
)
 
August 15, 2000
   
37
 
Benchmark Crossing
   
Houston
   
3,226
   
1,459
   
4,377
   
14
   
1,473
   
4,377
   
5,850
   
(359
)
 
September 21, 2001
   
40
 
Bissonnet
   
Houston
   
-
   
445
   
1,335
   
5
   
450
   
1,335
   
1,785
   
(110
)
 
September 21, 2001
   
40
 
Colony Plaza
   
Sugarland
   
2,976
   
970
   
2,909
   
25
   
979
   
2,925
   
3,904
   
(241
)
 
September 21, 2001
   
40
 
Copperfield
   
Houston
   
-
   
2,689
   
2,605
   
2,767
   
2,689
   
5,372
   
8,061
   
(543
)
 
August 15, 2000
   
34
 
Forestwood
   
Houston
   
7,128
   
2,659
   
7,678
   
22
   
2,680
   
7,679
   
10,359
   
(393
)
 
December 6, 2002
   
40
 
Grogan's Mill
   
The Woodlands
   
-
   
3,117
   
9,373
   
36
   
3,117
   
9,409
   
12,526
   
(1,097
)
 
August 15, 2000
   
37
 
Hedwig
   
Houston
   
-
   
1,892
   
5,625
   
43
   
1,893
   
5,667
   
7,560
   
(467
)
 
September 21, 2001
   
40
 
Highland Square
   
Sugarland
   
3,951
   
1,923
   
5,768
   
101
   
1,941
   
5,851
   
7,792
   
(504
)
 
September 21, 2001
   
40
 
Market at First Colony
   
Sugarland
   
-
   
3,292
   
9,906
   
145
   
3,323
   
10,020
   
13,343
   
(880
)
 
September 21, 2001
   
40
 
Mason Park
   
Katy
   
-
   
2,524
   
7,578
   
108
   
2,548
   
7,662
   
10,210
   
(655
)
 
September 21, 2001
   
40
 
Mission Bend
   
Houston
   
-
   
2,514
   
7,854
   
278
   
2,514
   
8,132
   
10,646
   
(1,009
)
 
August 15, 2000
   
37
 
Spring Shadows
   
Houston
   
-
   
1,206
   
3,617
   
4,422
   
2,533
   
6,712
   
9,245
   
(613
)
 
August 15, 2000
   
40
 
Steeplechase
   
Jersey Village
   
-
   
2,666
   
8,021
   
152
   
2,666
   
8,173
   
10,839
   
(987
)
 
August 15, 2000
   
37
 
Wal-Mart Stores, Inc.
   
Marble Falls
   
-
   
1,951
    -    
-
   
1,951
   
-
   
1,951
   
-
   
February 12, 2003
   
40
 
Westgate
   
Houston
   
29,625
   
12,611
   
32,151
   
97
   
12,708
   
32,151
   
44,859
   
(470
)
 
June 1, 2004
     
                                               
Dallas 
                                             
Creekside Plaza
   
Arlington
   
-
   
6,828
   
6,106
   
355
   
7,328
   
5,961
   
13,289
   
(128
)
 
March 24, 2004
   
40
 
DeSoto Shopping Center
   
DeSoto
   
-
   
3,130
   
4,978
   
9
   
3,139
   
4,978
   
8,117
   
(21
)
 
November 12, 2004
     
Green Oaks
   
Arlington
   
2,937
   
1,045
   
3,134
   
39
   
1,054
   
3,164
   
4,218
   
(276
)
 
September 21, 2001
   
40
 
Melbourne Plaza
   
Hurst
   
1,698
   
932
   
2,796
   
50
   
941
   
2,837
   
3,778
   
(249
)
 
September 21, 2001
   
40
 
Minyards
   
Garland
   
2,474
   
885
   
2,665
   
-
   
885
   
2,665
   
3,550
   
(301
)
 
August 15, 2000
   
38
 
Parkwood
   
Plano
   
6,110
   
2,222
   
6,668
   
90
   
2,286
   
6,694
   
8,980
   
(565
)
 
September 21, 2001
   
40
 
Richwood
   
Richardson
   
3,147
   
1,170
   
3,512
   
85
   
1,208
   
3,559
   
4,767
   
(304
)
 
September 21, 2001
   
40
 
Rosemeade
   
Carrollton
   
3,109
   
1,175
   
3,525
   
32
   
1,197
   
3,535
   
4,732
   
(294
)
 
September 21, 2001
   
40
 
Sterling Plaza
   
Irving
   
3,873
   
1,834
   
5,504
   
216
   
1,834
   
5,720
   
7,554
   
(671
)
 
August 15, 2000
   
37
 
Townsend Square
   
Desoto
   
4,768
   
2,247
   
6,793
   
37
   
2,247
   
6,830
   
9,077
   
(797
)
 
August 15, 2000
   
37
 
Village by the Park
   
Arlngton
   
-
   
1,671
   
5,066
   
200
   
1,671
   
5,266
   
6,937
   
(672
)
 
August 15, 2000
   
36
 
Village Center
   
Southlake
   
-
   
6,882
   
10,400
   
30
   
6,912
   
10,400
   
17,312
   
(217
)
 
March 24, 2004
   
40
 
                                                                     
 
F-42

 
                                                                     
                                   
GROSS AMOUNTS AT WHICH
                   
                 
Initial cost to Company
         
Carried at Close of Period
                   
                                                                     
 Property    
Location
   
Encum-brances
   
Land
   
Building & Improvements
   
Capitalized Subsequent
to Acquisition or
Improvement
   
Land 
   
Improvements
   
Total
   
Accumulated Depreciation
   
Date Acquired
   
Depreciable Life
 
                                               
San Antonio 
                                             
Bandera Festival
   
San Antonio
   
-
   
2,629
   
3,111
   
6,773
   
2,708
   
9,805
   
12,513
   
(877
)
 
September 21, 2001
   
40
 
Blanco Village
   
San Antonio
   
-
   
5,723
   
10,559
   
-
   
5,723
   
10,559
   
16,282
   
(702
)
 
May 10, 2002
   
40
 
Wurzbach
   
San Antonio
   
-
   
389
   
1,226
   
-
   
389
   
1,226
   
1,615
   
(137
)
 
August 15, 2000
   
40
 
                                               
VIRGINA 
                                             
Smyth Valley Crossing
   
Marion
   
-
   
2,537
   
3,890
   
2
   
2,537
   
3,892
   
6,429
   
(183
)
 
February 12, 2003
   
40
 
Waterlick Plaza
   
Lynchburg
   
-
   
1,974
   
3,796
   
1,037
   
1,974
   
4,833
   
6,807
   
(243
)
 
February 12, 2003
   
40
 
                                               
                                               
Corporate
       
-
    -     -    
2,663
   
-
   
2,663
   
2,663
   
(1,153
)
 
various
     
                                               
Total Income Producing Properties 
         
495,056
   
625,332
   
1,159,766
   
130,118
   
634,321
   
1,280,895
   
1,915,216
   
(95,934
)
           
                                               
Land held for/under development
                                                                   
                                                                     
ALABAMA 
                                             
West Gate Plaza
   
Mobile
        -     -    
7
    -    
7
   
7
       
February 12, 2003
     
                                               
FLORIDA 
                                             
North Florida 
                                             
Forest Village
   
Tallahassee
       
1,600
   
99
       
1,600
   
99
   
1,699
       
January 28, 1999
     
Fort Caroline
   
Jacksonville
       
200
   
368
       
200
   
368
   
568
       
January 24, 1994
     
Medical & Merchants
   
Jacksonville
       
276
   
14
       
276
   
14
   
290
       
May 27, 2004
     
                                               
Central Florida 
                           
 
                 
Walden Woods
   
Plant City
               
522
   
-
   
522
   
522
       
January 1, 1999
     
Eustis Square
   
Eustis
               
1
   
-
   
1
   
1
       
October 22, 1993
     
                             
 
                 
Florida West Coast 
                           
 
                 
Lake St. Charles Outparcel
   
Tampa
       
206
       
12
   
206
   
12
   
218
       
September 21, 2001
     
Mariners Crossing
   
Spring Hill
       
401
       
105
   
401
   
105
   
506
       
September 12, 2000
     
Seven Hills
   
Spring Hills
               
4
       
4
   
4
       
February 12, 2003
     
Venice Plaza
   
Venice
               
525
   
-
   
525
   
525
       
February 12, 2003
     
                                                                     
 
F-43

 
                                                                     
                                   
GROSS AMOUNTS AT WHICH
                   
                 
Initial cost to Company
         
Carried at Close of Period
                   
                                                                     
 Property    
Location
   
Encum-brances
   
Land
   
Building & Improvements
   
Capitalized Subsequent
to Acquisition or
Improvement
   
Land
   
Improvements
   
Total
   
Accumulated Depreciation
   
Date Acquired
   
Depreciable Life
 
                                                                     
Florida Treasure Coast 
                           
           
     
Cashmere Corners
   
Port St. Lucie
           
386
   
103
   
-
   
489
   
489
       
August 15, 2000
     
Cashmere Dev 2
   
Port St. Lucie
           
790
   
453
   
-
   
1,243
   
1,243
       
August 15, 2000
     
Salerno Village
   
Stuart
           
807
   
141
   
-
   
948
   
948
       
May 6, 2002
     
                             
                 
South Florida / Atlantic Coast
                                                                   
Coral Way /Drug Store
   
Miami
           
988
   
757
   
-
   
1,745
   
1,745
       
July 23, 1999
     
Crossroads Square
   
Ft. Lauderdale
               
7
   
-
   
7
   
7
       
September 21, 2001
     
Homestead
   
Homestead
           
1,811
   
4,047
   
-
   
5,858
   
5,858
       
April 10, 1992
     
Oakbrook
   
Palm Beach Gardens
           
200
   
604
   
-
   
804
   
804
       
August 15, 2000
     
Prosperity Centre
   
Palm Beach Gardens
               
85
   
-
   
85
   
85
       
August 15, 2000
     
Sawgrass
   
Deerfield Beach
       
500
   
-
   
31
   
500
   
31
   
531
       
August 15, 2000
     
Shops at Skylake
   
North Miami Beach
           
3,179
   
4,306
   
-
   
7,485
   
7,485
       
August 19, 1997
     
Westport
   
Davie
       
571
   
-
   
0
   
571
       
571
       
December 17, 2004
     
                                               
Atlanta 
                                             
Hamilton Ridge
   
Buford
               
444
   
427
   
17
   
444
       
December 18, 2003
     
Wesley Chapel
   
Atlanta
               
1
       
1
   
1
       
February 12, 2003
     
VW Mall
   
McDonough
               
2,073
   
-
   
2,073
   
2,073
       
February 12, 2003
     
                                               
GEORGIA 
                                             
Central Georgia  
                                             
Spalding Village
   
Griffin
               
2,956
   
-
   
2,956
   
2,956
       
February 12, 2003
     
                             
 
                 
LOUISIANA 
                           
 
                 
Ambassador Row Courtyard
   
Lafayette
               
1,385
   
-
   
1,385
   
1,385
       
February 12, 2003
     
Bluebonnet Village
   
Baton Rouge
       
909
       
58
   
909
   
58
   
967
       
February 12, 2003
     
                                               
                                                                     
MASSACHUSETTS 
                                             
Shaw's @ West Roxbury
   
Boston
       
480
       
-
   
480
   
-
   
480
       
October 7, 2004
     
                                               
NORTH CAROLINA
                                                                   
Centre Pointe Plaza
   
Smithfield
               
1,088
   
-
   
1,088
   
1,088
       
February 12, 2003
     
Chestnut Square
   
Brevard
               
177
   
177
   
-
   
177
       
February 12, 2003
     
                             
-
                 
 
F-44

 
                                                                     
                                   
GROSS AMOUNTS AT WHICH
                   
                 
Initial cost to Company
         
Carried at Close of Period
                   
                                                                     
 Property    
Location
   
Encum-brances
   
Land
   
Building & Improvement
   
Capitalized Subsequent
to Acquisition or
Improvement
   
Land
   
Improvements
   
Total
   
Accumulated Depreciation
   
Date Acquired
   
Depreciable Life
 
                                                                     
SOUTH CAROLINA
                                                                   
Belfair Towne Village
   
Bluffton
       
1,301
       
81
   
1,301
   
81
   
1,382
       
December 22, 2003
     
Lancaster Shopping Center
               
327
   
24
       
351
   
351
       
February 12, 2003
     
Windy Hill
   
North Myrtle Beach
       
155
       
6
   
155
   
6
   
161
       
April 8, 2004
     
                                               
TEXAS  
                                             
Houston 
                                             
Bissonnet
   
Houston
       
103
       
9
   
103
   
9
   
112
       
September 21, 2001
     
Copperfield
   
Houston
           
1,089
   
-
   
-
   
1,089
   
1,089
       
August 15, 2000
     
Texas CP Land, LP
   
Sugarland
       
206
       
52
   
215
   
43
   
258
       
September 21, 2001
     
Westgate
   
Houston
       
700
       
11
   
700
   
11
   
711
       
June 1, 2004
     
                                               
Dallas 
                                             
Creekside Plaza
   
Arlington
       
600
       
12
   
600
   
12
   
612
       
March 24, 2004
     
 -
                                               
San Antonio  
                           
 
   
 
             
Bandera Festival
   
San Antonio
               
296
   
-
   
296
   
296
       
September 21, 2001
     
Blanco Village
   
San Antonio
           
2,614
   
471
   
-
   
3,085
   
3,085
       
May 10, 2002
     
                                               
                                               
Corporate
                -    
25
   
-
   
25
   
25
             
                                               
                                               
Total Land held for/under development 
           
8,208
   
12,679
   
20,872
   
8,821
   
32,938
   
41,759
             
                                               
Property Held for Sale 
                                             
                                               
North River Village Center
   
Ellenton
   
-
   
3,543
   
9,551
   
-
   
3,543
   
9,551
   
13,094
   
(448
)
 
February 12, 2003
   
40
 
Total Property Held for Sale 
               
3,543
   
9,551
   
-
   
3,543
   
9,551
   
13,094
   
(448
)
           
                                               
Grand Total 
     
$
495,056
 
$
637,083
 
$
1,181,996
 
$
150,990
 
$
646,685
 
$
1,323,384
 
$
1,970,069
   
($96,382
)
       
                                                                     
 
 
 
F-45

 

INDEX TO EXHIBITS
 

EXHIBIT NO.
DESCRIPTION
   
12.1
Ratio of Earnings to Fixed Charges
10.1 Form of Indemnification Agreement
21.1
List of Subsidiaries of the Registrant
23.1
Consent of Deloitte & Touche LLP
31.1
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1
Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002