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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 2002
----------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period From ________to ________
Commission File Number 1-7859
IRT PARTNERS LP
--------------------
(Exact name of registrant as specified in its charter)
Georgia 58-2404832
- -------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
200 Galleria Parkway, Suite 1400
Atlanta, Georgia 30339
- ---------------------------------------- -----------------------
(Address of principal executive offices) (Zip Code)
(770) 955-4406
----------------------------------------------------------------
(Registrant's telephone number, including area code)
N/A
-----------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
1
SPECIAL CAUTIONARY NOTICE REGARDING
FORWARD LOOKING STATEMENTS
This Quarterly Report on Form 10-Q for IRT Partners, L.P. ("LP"),
including, but not limited to, the section herein entitled "Management's
Discussion and Analysis of Financial Condition and Results of Operations," may
contain various "forward-looking statements" within the meaning of Section 27A
of the Securities Act of 1933, as amended and Section 21E of the Securities
Exchange Act of 1934, as amended, that are based on LP's beliefs and
assumptions, as well as information currently available to LP. Readers can
identify these forward-looking statements through LP's use of words such as
"may," "will," "intend," "project," "would," "could," "should," "expect,"
"anticipate," "assume," "believe," "estimate," "continue" or other similar
words. Forward-looking statements involve known and unknown risks, uncertainties
and other factors, which may be beyond LP's control. LP's actual results may
differ significantly from those expressed or implied in such forward-looking
statements. Factors that might cause these differences include, but are not
limited to:
- - changes in tax laws or regulations, especially those relating to real
estate investment trusts and real estate in general;
- - the number, frequency and duration of vacancies that LP experiences;
- - LP's ability to solicit new tenants and to obtain lease renewals from
existing tenants on terms that are favorable to LP;
- - tenant bankruptcies and closings;
- - the general financial condition of, or possible mergers or acquisitions
involving, LP's tenants and competitors;
- - competition;
- - changes in interest rates and national and local economic conditions;
- - possible environmental liabilities;
- - the availability, cost and terms of financing;
- - LP's ability to identify, acquire, construct or develop additional
properties that result in the returns anticipated or sought; and
- - LP's ability to effectively integrate properties or portfolio acquisitions
or other mergers or acquisitions.
Readers should not rely on the information contained in any forward-looking
statements and should not expect LP to update or revise any forward-looking
statements. With respect to such forward-looking statements, LP claims
protection under the Private Securities Litigation Reform Act of 1995. The
information in this Report, including the information contained in
forward-looking statements, is also qualified by the special cautionary notice
regarding forward-looking statements and the information in the section entitled
"Risk Factors" contained in LP's Annual Report on Form 10-K for the year ended
December 31, 2001 and other filings that LP makes with the Securities and
Exchange Commission, which are incorporated herein by reference. The documents
that LP files with the Securities and Exchange Commission are available from LP,
and also may be examined at public reference facilities maintained by the
Securities and Exchange Commission or, to the extent filed via EDGAR, accessed
through the Internet website of the Securities and Exchange Commission
(http://www.sec.gov).
2
ITEM 1. FINANCIAL STATEMENTS
IRT PARTNERS, L.P.
CONDENSED BALANCE SHEETS
(UNAUDITED)
(IN THOUSANDS, EXCEPT UNIT AMOUNTS)
June 30, December 31,
2002 2001
--------- ---------
ASSETS
Rental properties $180,630 $172,770
Accumulated depreciation (29,223) (27,145)
--------- ---------
Net rental properties 151,407 145,625
Cash and cash equivalents 638 500
Advances to affiliate, net 16,908 18,149
Prepaid expenses and other assets 3,566 2,599
--------- ---------
Total assets $172,519 $166,873
========= =========
LIABILITIES & PARTNERS' CAPITAL
Liabilities:
Mortgage notes payable, net $41,879 $37,464
Accrued expenses and other liabilities 3,046 2,154
--------- ---------
Total liabilities 44,925 39,618
Limited partners' capital interest (815,852 OP Units in 2002
and 2001, respectively) at redemption value 10,394 8,648
Commitments and contingencies (Note 6)
Partners' capital:
General partner (145,999 and 144,229 OP Units
in 2002 and 2001, respectively) 1,273 1,269
Limited partner (13,637,773 and 13,462,596 OP Units
in 2002 and 2001, respectively) 115,927 117,338
--------- ---------
Total partners' capital 117,200 118,607
--------- ---------
Total liabilities and partners' capital $172,519 $166,873
========= =========
The accompanying notes are an integral part of these condensed balance sheets.
3
IRT PARTNERS, L.P.
CONDENSED STATEMENTS OF EARNINGS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2002 AND 2001
(UNAUDITED)
(IN THOUSANDS)
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ------------------
2002 2001 2002 2001
------ ------ ------- -------
Revenues:
Income from rental properties . . . . . $6,475 $5,859 $12,866 $11,598
Gain on sale of outparcel . . . . . . . - - - 293
Interest income from affiliate. . . . . 79 189 158 170
------ ------ ------- -------
Total revenues . . . . . . . . . . 6,554 6,048 13,024 12,061
------ ------ ------- -------
Expenses:
Operating expenses of rental properties 1,835 1,548 3,547 3,100
Interest on mortgages . . . . . . . . . 818 709 1,584 1,312
Depreciation. . . . . . . . . . . . . . 1,042 969 2,078 1,929
Amortization of debt costs. . . . . . . 5 3 9 3
General and administrative. . . . . . . 320 253 592 494
------ ------ ------- -------
Total expenses . . . . . . . . . . 4,020 3,482 7,810 6,838
------ ------ ------- -------
Earnings before gain on
sales of properties. . . . . . . . 2,534 2,566 5,214 5,223
Gain on sales of properties. . . . . . . . . - 1,108 - 1,108
------ ------ ------- -------
Net earnings . . . . . . . . . . . $2,534 $3,674 $ 5,214 $ 6,331
====== ====== ======= =======
The accompanying notes are an integral part of these condensed statements.
4
IRT PARTNERS, L.P.
CONDENSED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2002 AND 2001
(UNAUDITED)
(IN THOUSANDS)
Six Months Ended
June 30,
-------------------
2002 2001
-------- ---------
Cash flows from operating activities:
Net earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,214 $ 6,331
Adjustments to reconcile earnings to net cash from operating activities:
Depreciation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,078 1,929
Gain on sale of operating properties. . . . . . . . . . . . . . . . . - (1,108)
Gain on sale of outparcel . . . . . . . . . . . . . . . . . . . . . . - (293)
Straight line rent adjustment . . . . . . . . . . . . . . . . . . . . (108) (91)
Amortization of debt costs and discounts. . . . . . . . . . . . . . . 9 3
Changes in assets and liabilities:
Increase in prepaid expenses and other assets . . . . . . . . . . . (813) (524)
Increase in accrued expenses and other liabilities. . . . . . . . . 892 900
-------- ---------
Net cash flows from operating activities . . . . . . . . . . . . . . . . . 7,272 7,147
-------- ---------
Cash flows used in investing activities:
Additions to operating properties, net . . . . . . . . . . . . . . . . . (3,058) (8,283)
Proceeds from sale of operating properties, net. . . . . . . . . . . . . - 6,211
Proceeds from sale of outparcel, net . . . . . . . . . . . . . . . . . . - 348
-------- ---------
Net cash flows used in investing activities. . . . . . . . . . . . . . . . (3,058) (1,724)
-------- ---------
Cash flows used in financing activities:
Issuance of units for cash . . . . . . . . . . . . . . . . . . . . . . . 1,946 7,903
Distributions paid, net. . . . . . . . . . . . . . . . . . . . . . . . . (6,821) (5,655)
Collection of advances to affiliate, net . . . . . . . . . . . . . . . . 1,241 -
Advances to affiliate, net . . . . . . . . . . . . . . . . . . . . . . . - (21,079)
Proceeds from mortgage notes payable . . . . . . . . . . . . . . . . . . - 7,540
Principal amortization of mortgage notes payable . . . . . . . . . . . . (386) (315)
Payment of deferred financing costs. . . . . . . . . . . . . . . . . . . (56) (130)
-------- ---------
Net cash flows used in financing activities. . . . . . . . . . . . . . . . (4,076) (11,736)
-------- ---------
Net increase (decrease) in cash and cash equivalents . . . . . . . . . . . 138 (6,313)
Cash and cash equivalents at beginning of period . . . . . . . . . . . . . 500 6,643
-------- ---------
Cash and cash equivalents at end of period . . . . . . . . . . . . . . . . $ 638 $ 330
======== =========
Supplemental disclosures of cash flow information:
Total cash paid for interest . . . . . . . . . . . . . . . . . . . . . . $ 1,555 $ 1,284
======== =========
The accompanying notes are an integral part of these condensed statements.
5
IRT PARTNERS L.P.
NOTES TO CONDENSED FINANCIAL STATEMENTS
JUNE 30, 2002 AND 2001
(DOLLARS IN THOUSANDS, EXCEPT UNIT AMOUNTS)
1. UNAUDITED FINANCIAL STATEMENTS
These condensed financial statements for interim periods are unaudited. In
the opinion of management, all adjustments (which include only normal recurring
adjustments) necessary to a fair presentation of the financial statements as of
June 30, 2002 and 2001 have been recorded. The results of operations for the
interim periods are not necessarily indicative of the results that may be
expected for future interim periods or for the full year.
2. ORGANIZATION AND NATURE OF OPERATIONS
IRT Partners, L.P. ("LP"), a Georgia limited partnership formed July 15,
1998, is the entity through which IRT Property Company (the "Company"), a
self-administered and self-managed real estate investment trust ("REIT"),
conducts a portion of its business and owns (either directly or through
subsidiaries) a portion of its assets.
The Company is the sole general partner of LP and maintains an indirect
partnership interest through its wholly-owned subsidiary, IRT Management Company
("IRTMC"). The Company initially contributed 20 shopping centers, related assets
and cash to LP in exchange for 8,486,217 limited partnership units of LP ("OP
Units"). The Company was issued additional OP Units in exchange for cash
contributions to fund further acquisition activity. Since the formation of LP,
the Company has contributed cash to acquire eight shopping centers, and LP has
divested five shopping centers. At June 30, 2002, IRT and IRTMC owned
approximately 1% and 93.4%, respectively of LP.
LP was formed by the Company in order to enhance the Company's acquisition
opportunities through a "downreit" structure. This structure offers potential
sellers the ability to make a tax-deferred sale of their real estate properties
in exchange for OP Units of LP. In August 1998, certain unaffiliated persons
contributed their interests in three Florida shopping centers in exchange for a
total of 815,852 OP Units.
LP is obligated to redeem each OP Unit held by a person other than the
Company, at the request of the holder, for cash equal to the fair market value
of a share of the Company's common stock at the time of such redemption,
provided that the Company may elect to acquire any such OP Unit presented for
redemption for one common share or cash. Such limited partnership interest held
by persons unaffiliated with the Company is reflected as "Limited Partners'
Capital Interest" in the accompanying balance sheets at the cash redemption
amount on the balance sheet dates.
Federal income tax laws require the Company, as a REIT, to distribute 90%
(95% for years prior to 2001) of its ordinary taxable income. LP makes quarterly
distributions to holders of OP Units to enable the Company to satisfy this
requirement.
At June 30, 2002, LP owned 26 neighborhood and community shopping centers
located in Florida, Tennessee, Georgia and North Carolina. The shopping centers
are anchored by necessity-oriented retailers such as supermarkets, drug stores,
national value retailers and department stores.
6
3. RENTAL PROPERTIES
The rental property acquired in 2002 is summarized below.
SHOPPING CENTER ACQUISITIONS
Date Square Year Built/ % Leased Total Initial
Acquired Property Name City, State Footage Renovated at Acquisition Cost Cash Paid
- --------- ---------------- ----------- ------- ---------- -------------- ------------ ---------
2/19/2002 Parkwest Crossing Durham, NC 85,602 1991 100% $ 6,620 $1,946
In connection with the acquisition of Parkwest Crossing, the Company assumed a
$4,800, 8.1% mortgage. See Note 5.
4. ADVANCES TO AFFILIATE
LP advances cash generated by the properties within LP to the Company based
on cash flow requirements. Also, in certain instances, the Company advances cash
to LP for repayment of prior advances or for current operating requirements. As
of June 30, 2002, LP had advances to the Company of $16,908. During 2002, the
Company paid LP approximately $158 in interest from the advances, which bear
interest calculated on a monthly basis, at the three-month treasury bill rate.
5. MORTGAGE NOTES PAYABLE
On February 19, 2002, the Company assumed a non-recourse, secured loan
totaling $4,800, in connection with the acquisition of Parkwest Crossing. The
secured loan has a fixed interest rate of 8.1%. The loan is due and payable
September 1, 2010, and the principal amortization is based on a thirty year
amortization schedule. Costs associated with assuming the secured loan totaled
$56 and is being amortized over the term of the loan.
6. COMMITMENTS AND CONTINGENCIES
LP has guaranteed the bank indebtedness and senior indebtedness of the
Company.
7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(Dollars in thousands, except per share amounts)
The following discussion and analysis should be read in conjunction with
the financial statements and notes thereto included elsewhere in this report, as
well as the Quarterly Report on Form 10-Q of IRT Property Company.
OVERVIEW
IRT Partners, L.P. ("LP"), a Georgia limited partnership formed on July 15,
1998, is the entity through which IRT Property Company (the "Company"), a
self-administered and self-managed real estate investment trust ("REIT"),
conducts a portion of its business and owns (either directly or through
subsidiaries) a portion of its assets. LP was formed by the Company in order to
enhance the Company's acquisition opportunities through a "downreit" structure.
This structure offers potential sellers the ability to make a tax-deferred sale
of their real estate investments properties in exchange for OP Units of LP.
IRT Property Company was founded in 1969 and became a public company in May
1971 (NYSE: IRT). The Company is an owner, operator, redeveloper and developer
of high quality, well located neighborhood and community shopping centers
throughout the southeastern United States. The Company is the sole general
partner of LP and maintains an indirect partnership interest in LP through its
wholly-owned subsidiary, IRT Management Company ("IRTMC"). At June 30, 2002, IRT
and IRTMC owned approximately 1% and 93.4%, respectively, of LP.
At June 30, 2002, LP owned 26 neighborhood and community shopping centers
located in North Carolina (13), Florida (9), Tennessee (3) and Georgia (1). The
shopping centers are anchored by necessity-oriented retailers such as
supermarkets, drug stores, national value retailers and department stores. The
following table summarizes the shopping centers by state for total gross
leasable area ("GLA") and rental income for the six months ended June 30, 2002
and for the year ended December 31, 2001:
% OF GLA % OF RENTAL INCOME
----------------------- --------------------------
JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31,
2002 2001 2002 2001
-------- -------- -------- -----------
North Carolina 45.2% 45.2% 34.9% 34.4%
Florida. . . . 38.8% 38.8% 49.7% 49.9%
Tennessee. . . 14.2% 14.2% 11.9% 11.9%
Georgia. . . . 1.8% 1.8% 3.5% 3.8%
-------- -------- -------- ----------
100.0% 100.0% 100.0% 100.0%
======== ======== ======== ===========
8
RESULTS OF OPERATIONS
COMPARISON OF THE THREE MONTHS ENDED JUNE 30, 2002 TO THE THREE MONTHS ENDED
JUNE 30, 2001
Revenues
Total revenues increased $506, or 8.4%, to $6,554 in 2002 primarily due to
an increase in income from rental properties of $616 which was partially offset
by a decrease in interest income of $110.
Income from rental properties increased $616, or 10.5%, to $6,475 in 2002.
Included in income from rental properties is minimum rent, percentage rent and
other rental income. Minimum rents increased $401, or 8.8%, primarily due to an
increase in rental rates per square foot from $7.94 in 2001 to $8.03 in 2002 and
the core portfolio of properties contributing $183, or an increase of 3.2%, over
2001. The core portfolio is defined as properties held in the same corresponding
period from the current and prior year, excluding those properties sold or
acquired during the same corresponding period. Income from rental properties
increased $510 due to one property acquired in 2002 and one in 2001, which was
partially offset by a $77 decrease in income attributable to the sale of two
properties in 2001. Percentage rent, based on tenant's gross sales exceeding
specified amounts, increased $51, or 45.5%, to $165 for 2002 due to the property
acquired in 2002 and the two properties acquired in 2001. Other rental income
such as tenant reimbursements for common area maintenance ("CAM"), property
taxes and insurance, tenant allowances (bad debt reserves) and lease
cancellation fees, increased $164, or 13.9%, to $1,351. This increase was
partially due to an increase in tenant reimbursements for CAM of $195, or 17.4%.
Tenants reimburse us for specific expenses relating to the property such as
maintenance, taxes and insurance. The reimbursements received as a percentage of
expenditures were 74.9% in 2002 and 75.8% in 2001. This decrease in the recovery
percentage is due to the significant increase in insurance costs, not all of
which can be reimbursed by the tenants. Tenant allowances increased $5, or
32.6%, from 2001 and represented only 0.3% of total rental income in 2002.
Interest income decreased $110 in 2002 from $189 in 2001. The decrease was
primarily due to a decrease the interest rate from 3.67% in 2001 to 1.76% in
2002.
Expenses
Total expenses increased $538, or 15.5%, to $4,020 in 2002 due to increases
in operating expenses of rental properties of $287, interest expense of $109,
depreciation of $73, amortization of debt costs of $2 and general and
administrative expenses of $67.
Operating expenses of rental properties increased $287, or 18.5%, to $1,835
in 2002. This increase was partially due to an increase of real estate taxes of
$105, or 17.8%, over 2001 as a result of increased property values. Insurance
costs increased by $82, or 97.2%, over 2001 due to a significant increase in
premiums as a result of the insurance market environment. The Company amortizes
lease fees that are capitalized and the amortization expense increased $11, or
15.3%, in 2002 due to increased leasing activity in 2001. Tenant reimbursable
operating expenses increased $57, or 10.2%, primarily due to higher operating
and maintenance costs. Overall, the operating expenses of properties increased
due to core portfolio operating expenses increasing $71, or 4.0%, over 2001 and
the two properties acquired during early 2002 and late 2001 increasing expenses
$128. These increases were partially offset by a decrease in expenses of $15
from the sales of two properties during 2001.
Interest expense increased $109, or 15.4%, in 2002 primarily due to a
mortgage note obtained in 2001 and assumption of a mortgage note in connection
with the acquisition in 2002.
The net increase of $73, or 7.5%, in depreciation expense in 2002 was due
to the acquisition of one shopping center in 2002 and two during 2001, net of
the effect of the disposition of two properties in 2001.
9
Amortization of debt costs increased $2, primarily due to a mortgage note
assumed in 2002 and a mortgage note obtained in 2001.
General and administrative expenses increased $67, or 26.5%, to $320 in
2002. This increase relates to an increase in the general and administrative
expenses of the Company that are allocated to LP. Total general and
administrative expenses as a percentage of total revenues were 4.9% and 4.2% for
2002 and 2001, respectively.
Gain on sales of properties decreased $1,108 due to no properties being
sold in 2002 as compared to two properties that were sold in 2001.
Net Earnings
Net earnings decreased $1,140, or 31.0%, to $2,534 in 2002 from $3,674 in
2001. This decrease was attributable to no gains on sales of properties in 2002
and higher operating expenses of properties, partially offset by an increase in
base rents per square foot and the acquisition of three properties.
COMPARISON OF THE SIX MONTHS ENDED JUNE 30, 2002 TO THE SIX MONTHS ENDED JUNE
30, 2001
Revenues
Total revenues increased $963, or 8.0%, to $13,024 in 2002 primarily due to
an increase in income from rental properties of $1,268 partially offset by a
decrease in interest income of $12 and decrease in the gain on a sale of an
outparcel of $293.
Income from rental properties increased $1,268, or 10.9%, to $12,866 in
2002. Included in income from rental properties is minimum rent, percentage rent
and other rental income. Minimum rents increased $782, or 8.7%, primarily due to
an increase in rental rates per square foot from $7.94 in 2001 to $8.03 in 2002
and the core portfolio of properties contributing $26, or an increase of 0.2%,
over 2001. The core portfolio is defined as properties held in the same
corresponding period from the current and prior year, excluding those properties
sold or acquired during the same corresponding period. Income from rental
properties increased $1,449 due to one property acquired in 2002 and two
properties acquired in 2001, which was partially offset by a $207 decrease in
income attributable to the sale of two properties in 2001. Percentage rent,
based on tenant's gross sales exceeding specified amounts, increased $14, or
4.3%, to $344 for 2002 due to the one property acquired in 2002 and the two
properties acquired in 2001. Other rental income such as tenant reimbursements,
tenant allowances (bad debt reserves) and lease cancellation fees, increased
$472, or 20.7%, to $2,756. This increase was partially due to an increase in
tenant reimbursements for common area maintenance ("CAM") of $393, or 17.7%.
Tenants reimburse us for specific expenses relating to the property such as
maintenance, taxes and insurance. The reimbursements received as a percentage of
expenditures were 77.7% in 2002 and 75.4% in 2001. This increase in the recovery
percentage is due to the three acquisitions in 2002 and 2001. Tenant allowances
decreased $9, or 16.8%, from 2001 and represented only 0.3% of total rental
income in 2002.
Interest income decreased $12, or 7.1%, due to a decrease in the interest
rate from 3.67% in 2001 to 1.76% in 2002.
In 2001, LP sold a land outparcel that is located at one of LP's shopping
centers for $348, resulting in a gain of $293. No such sales occurred in 2002.
Expenses
Total expenses increased $972, or 14.2%, to $7,810 in 2002 due to increases
in operating expenses of rental properties of $447, interest expense of $272,
depreciation of $149, amortization of debt costs of $6 and general and
administrative expenses of $98.
10
Operating expenses of rental properties increased $447, or 14.4%, to $3,547
in 2002. This increase was partially due to an increase of real estate taxes of
$220, or 18.9%, over 2001 as a result of increased property values. Insurance
costs increased by $169, or 99.8%, over 2001 due to a significant increase in
premiums as result of the insurance market environment. The Company amortizes
lease fees that are capitalized and the amortization expense increased $32, or
23.5%, in 2002 due to increased leasing activity in 2001. Tenant reimbursable
operating expenses increased $12, or 1.1%, primarily due to higher general
operating and maintenance. Overall, the operating expenses of properties
increased due to core portfolio operating expenses increasing $70, or 2.1%, over
2001 and the three properties acquired during 2002 and 2001 increasing expenses
$392. These increases were partially offset by a decrease in expenses of $36
from the sales of two properties during 2001.
Interest expense increased $272, or 20.7%, in 2002 primarily due to a
mortgage note obtained in 2001 and assumption of a mortgage note in connection
with the acquisition in 2002.
The net increase of $149, or 7.7%, in depreciation expense in 2002 was due
to the acquisition of one shopping center in 2002 and two during 2001, net of
the effect of the disposition of two properties in 2001.
Amortization of debt costs increased $6, primarily due to a mortgage note
assumed in 2002 and a mortgage note obtained in 2001.
General and administrative expenses increased $98, or 19.8%, to $592 in
2002. This increase relates to an increase in general and administrative
expenses of the Company that are allocated to LP. Total general and
administrative expenses as a percentage of total revenues were 4.5% and 4.1% for
2002 and 2001, respectively.
Gain on sales of properties decreased $1,108 due to no properties being
sold in 2002 as compared to two properties that were in 2001.
Net Earnings
Net earnings decreased $1,117, or 17.6%, to $5,214 in 2002 from $6,331 in
2001. This decrease was attributable to no gains on sale of properties in 2002
and higher operating expenses of the properties. These increased were offset by
an increase in revenues primarily from the increase in base rents per square
foot and the acquisition of three properties.
LIQUIDITY AND CAPITAL RESOURCES
The Company presently expects cash from LP's operating activities to be a
primary source of funds to pay distributions, mortgage notes payments and
certain capital improvements on LP's properties. Net cash from operating
activities was $7,272 in 2002 as compared to $7,147 in 2001, an increase of
1.7%. The increase in cash flow for 2002 is due to property sales occurring in
2001 decreasing operating cash flows and no such sales occurred in 2002.
Distributions to OP Unit holders, including the Company and IRTMC, during 2002
and 2001 were $6,821 and $5,655, respectively. Mortgage principal payments for
2002 and 2001 were $386 and $315. Total capital expenditures on operating
properties were $1,102 and $380, respectively.
Other planned activities, including property acquisitions, new
developments, certain capital improvement programs and debt repayments, are
expected to be funded to the extent necessary by mortgage financing, periodic
sales or exchanges of existing properties and the issuance of OP Units to the
Company and unaffiliated third parties. Net cash used in investing activities
was $3,058 in 2002 as compared to $1,724 in 2001, an increase of $1,334. This
increase in cash used in investing activities was due to a property acquisition
in 2002 of $1,946.
11
Net cash used in financing activities decreased to $4,076 in 2002 from
$11,736 in 2001, a decrease of $7,660. This decrease in cash used in financing
activities was due to advances to the Company of $21,079 in 2001, as compared to
no advances in 2002.
LP guarantees the Company's indebtedness under the Company's existing
unsecured revolving term loan and its other senior debt.
The Company, through LP, uses secured borrowings for use in meeting capital
requirements. As of June 30, 2002, LP had $41,879 in mortgage notes payable at a
weighted average interest rate of 8.29%, which are due in monthly installments
with maturity dates ranging from 2006 to 2015.
On February 19, 2002, the Company assumed a non-recourse, mortgage loan
totaling $4,800, in connection with the acquisition of Parkwest Crossing. The
secured loan has a fixed interest rate of 8.1%. The loan is due and payable in
eight years and the principal amortization is based on a thirty year
amortization schedule.
Future principal amortization and balloon payments applicable to mortgage
notes payable at June 30, 2002 are as follows:
Scheduled Balloon
Amortization Payments Total
------------- ----------- ----------
2002 . . . . . . . $ 346 $ - $ 346
2003 . . . . . . . 740 - 740
2004 . . . . . . . 801 - 801
2005 . . . . . . . 872 - 872
2006 . . . . . . . 814 4,797 5,611
Thereafter . . 6,306 25,964 32,270
------------- ----------- ---------
$9,879 $ 30,761 $ 40,640
============= ===========
Interest Premium 1,239
---------
$41,879
==========
INFLATION AND ECONOMIC FACTORS
The effects of inflation upon LP's results of operations and investment
portfolio are varied. From the standpoint of revenues, inflation has the dual
effect of both increasing the tenant revenues upon which percentage rentals are
based and allowing increased fixed rentals as rental rates rise generally to
reflect higher construction costs on new properties. This positive effect is
partially offset by increasing operating and interest expenses, but usually not
to the extent of the increases in revenues.
The Federal Reserve regulates the supply of money through various means,
including open market dealings in United States government securities, the
discount rate at which banks may borrow from the Federal Reserve, and the
reserve requirements on deposits. Such activities affect the availability and
cost of credit, generally, and the Company's costs under its bank credit
facilities, in particular.
ENVIRONMENTAL FACTORS
For the years commencing January 1, 2000, the Company, on behalf of LP, has
maintained environmental and pollution legal liability insurance coverage to
attempt to mitigate the associated risks. Although no assurance can be given
that LP properties will not be affected adversely in the future by environmental
problems, the Company presently believes that there are no environmental matters
that are reasonably likely to have a material adverse effect on LP's financial
position.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
Not applicable.
Item 2. Changes in Securities and Use of Proceeds.
Not applicable.
Item 3. Default Upon Senior Securities.
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
Not applicable.
Item 5. Other Information.
Not applicable.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
3.1 Certificate of Limited Partnership of IRT Partners, L.P.
(incorporated by reference to Exhibit 3.1 to the Form 10-Q of IRT
Partners, L.P. for the quarter ended March 31, 2001, Commission
File No. 1-7859).
3.2 Agreement of Limited Partnership of IRT Partners, L.P., and
Amendment No. 1 thereto (incorporated by reference to Exhibit
99.2 to the Current Report on Form 8-K of IRT Property Company
filed on September 15, 1998, Commission File No. 1-7859).
4.1 Supplemental Indenture No. 3, dated September 9, 1998, by and
between IRT Property Company, IRT Partners, L.P. and SunTrust
Bank, Atlanta, as Trustee, to the Indenture between the Company
and the Trustee, dated November 9, 1995 (incorporated by
reference to Exhibit 4.1 to the Current Report on Form 8-K of IRT
Property Company filed on September 15, 1998, Commission File No.
1-7859).
4.2 Indenture, dated September 9, 1998, by and between IRT Property
Company and SunTrust Bank, Atlanta, as Trustee, relating to
senior debt securities (incorporated by reference to Exhibit 4.2
to the Current Report on Form 8-K of IRT Property Company filed
on September 15, 1998, Commission File No. 1-7859).
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4.3 Supplemental Indenture No. 1, dated September 9, 1998, by and
between IRT Property Company, IRT Partners, L.P. and SunTrust
Bank, Atlanta, as Trustee, to the Indenture between the Company
and the Trustee, dated September 9, 1998, relating to senior debt
securities (which Indenture is referred to as Exhibit 4.2 hereto)
(incorporated by reference to Exhibit 4.3 to the Current Report
on Form 8-K of IRT Property Company filed on September 15, 1998,
Commission File No. 1-7859).
4.4 Indenture, dated September 9, 1998, by and between IRT Property
Company and SunTrust Bank, Atlanta, as Trustee, relating to
subordinated debt securities (incorporated by reference to
Exhibit 4.4 to the Current Report on Form 8-K of IRT Property
Company filed on September 15, 1998, Commission File No. 1-7859).
99.1 Certification of Chief Executive Officer.
99.2 Certification of Chief Financial Officer.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed by LP during the quarter ended
June 30, 2002.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed by the undersigned,
thereunto duly authorized.
IRT Property Company, as general partner
Date: August 14, 2002 /s/ Thomas H. McAuley
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Thomas H. McAuley
President & Chief Executive Officer
Date: August 14, 2002 /s/ James G. Levy
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James G. Levy
Executive Vice President &
Chief Financial Officer
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