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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2003
Commission File No. 001-7859
IRT PARTNERS L.P.
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(Exact Name of Registrant as Specified in its Charter)
1696 N.E. Miami Gardens Drive
N. Miami Beach, Florida 33179
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(Address of Principal Executive Offices)
(305) 947-1664
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(Issuer's Telephone Number, Including Area Code)
Georgia 58-2404832
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
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Check whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Act of 1934 during the past 12 months (or
for such shorter period that the registrant was required to file such reports)
and (2) has been subject to such filing requirements for the past 90 days.
Yes [X] No
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2 of the Exchange). Yes No [X]
Applicable only to Corporate Issuers:
Not Applicable.
IRT PARTNERS L.P.
FORM 10-Q
INDEX
PART I - FINANCIAL INFORMATION
Item 1. Condensed Financial Statements Page
-----
Condensed Balance Sheets
As of September 30, 2003 and December 31, 2002 (unaudited) ......... 1
Condensed Statements of Operations
For the three and nine-month periods ended September 30, 2003
and 2002 (unaudited) ............................................... 2
Condensed Statement of Changes in Partners' Capital
For the nine-month period ended September 30, 2003 (unaudited) ..... 3
Condensed Statement of Cash Flows
For the nine-month periods ended September 30, 2003 and
2002 (unaudited) ................................................... 4
Notes to the Condensed Financial Statements (unaudited) ............ 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations .......................................... 8
Item 3. Quantitative and Qualitative Disclosures about Market Risk ......... 12
Item 4. Controls and Procedures............................................. 12
PART II - OTHER INFORMATION
Item 1. Legal Proceedings .................................................. 13
Item 2. Changes in Securities and Use of Proceeds .......................... 13
Item 3. Defaults upon Senior Securities .................................... 13
Item 4. Submission of Matters to a Vote of Security Holders ................ 13
Item 5. Other Information .................................................. 13
Item 6. Exhibits and Reports on Form 8-K ................................... 13
ITEM 1. FINANCIAL INFORMATION
IRT PARTNERS L.P.
(a limited partnership)
CONDENSED BALANCE SHEETS
SEPTEMBER 30, 2003 AND DECEMBER 31, 2002
(UNAUDITED)
(In thousands)
- --------------------------------------------------------------------------------
September 30, December 31,
2003 2002
------------- ------------
ASSETS
PROPERTIES:
Income producing........................................................ $ 185,587 $ 173,611
Less: accumulated depreciation.......................................... (1,938) (28,945)
------------ ------------
Properties, net...................................................... 183,649 144,666
CASH AND CASH EQUIVALENTS................................................... 12 608
CASH HELD IN ESCROW......................................................... - 4,033
ADVANCES TO AFFILIATE....................................................... - 20,866
OTHER ASSETS................................................................. 3,288 2,932
------------ ------------
TOTAL........................................................................ $ 186,949 $ 173,105
============ ============
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES:
Mortgage notes payable.................................................. $ 34,555 $ 41,476
Unamortized premium on mortgage notes payable........................... 4,803 -
------------ ------------
Total mortgage notes payable......................................... 39,358 41,476
Other liabilities....................................................... 3,426 2,208
------------ ------------
Total liabilities................................................. 42,784 43,684
LIMITED PARTNERS' CAPITAL.................................................. 11,161 9,684
COMMITMENTS AND CONTINGENT LIABILITIES
GENERAL PARTNERS' CAPITAL.................................................. 133,004 119,737
------------ ------------
TOTAL...................................................................... $ 186,949 $ 173,105
============ ============
See accompanying notes to the condensed financial statements.
1
IRT PARTNERS L.P.
(a limited partnership)
CONDENSED STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2003 AND 2002
(UNAUDITED)
(In thousands)
- --------------------------------------------------------------------------------
For the Period
--------------------------------
Three Months Ended January 1, February 12, Nine Months Ended
September 30, 2003 to 2003 to September 30,
---------------------- February 11, September 30, ------------------------
2003 2002 2003 2003 2003 2002
--------- --------- -------------------------------- ---------- ----------
REVENUES FROM RENTAL PROPERTIES..... $ 6,117 $ 5,827 $ 2,783 $ 15,493 $ 18,276 $ 17,993
--------- --------- ------------- ------------- ---------- ----------
COSTS AND EXPENSES:
Property operating expenses...... 1,724 1,659 902 4,406 5,308 5,055
Interest expense................. 591 816 374 1,575 1,949 2,400
Amortization of deferred
financing fees................. - 5 3 1 4 14
Rental property depreciation and
amortization................... 799 982 555 1,949 2,504 2,940
General and administrative
expenses......................... 15 261 4 16 20 853
--------- --------- ------------- ------------- ---------- ----------
Total costs and expenses..... 3,129 3,723 1,838 7,947 9,785 11,262
--------- --------- ------------- ------------- ---------- ----------
INCOME BEFORE INTEREST INCOME FROM
AFFILIATES....................... 2,988 2,104 945 7,546 8,491 6,731
INTEREST INCOME FROM AFFILIATES..... - 76 15 71 86 234
--------- --------- ------------- ------------- ---------- ----------
INCOME FROM CONTINUING OPERATIONS... 2,988 2,180 960 7,617 8,577 6,956
--------- --------- ------------- ------------- ---------- ----------
DISCONTINUED OPERATIONS:
Income from operations of sold
properties..................... - 196 - - - 625
Gain (loss) on disposal of
income producing properties.... - 2,185 (19) - (19) 2,185
--------- --------- ------------- --------------- ---------- ----------
Total income from
discontinued operations..... - 2,381 (19) - (19) (2,810)
--------- --------- ------------- ------------- ---------- ----------
NET INCOME.......................... $ 2,988 $ 4,561 $ 941 $ 7,617 $ 8,558 $ 9,775
========= ========= =============== ============= ========== ==========
See accompanying notes to the condensed financial statements.
2
IRT PARTNERS L.P.
(a limited partnership)
CONDENSED STATEMENT OF CHANGES IN PARTNERS' CAPITAL
FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 2003
(UNAUDITED)
(In thousands)
- --------------------------------------------------------------------------------
General Limited Total
Partner's Partners' Partners'
Capital Capital Capital
----------- ----------- -----------
Balance, January 1, 2003.................... $ 119,737 $ 9,684 $ 129,421
Cash distributions.......................... (10,173) (602) (10,775)
Net income.................................. 8,080 478 8,558
Fair value adjustment due to merger......... 15,360 1,601 16,961
----------- ----------- -----------
Balance, September 30, 2003................. $ 133,004 $ 11,161 $ 144,165
=========== =========== ===========
See accompanying notes to the condensed financial statements.
3
IRT PARTNERS L.P.
(a limited partnership)
CONDENSED STATEMENTS OF CASH FLOWS
FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2003 AND 2002
(UNAUDITED)
(In thousands)
- --------------------------------------------------------------------------------
Nine Months Ended
September 30,
--------------------------------
2003 2002
-------------- --------------
OPERATING ACTIVITIES:
Net income............................................................ $ 8,558 $ 9,775
Adjustments to reconcile net income to net cash provided by
operating activities:
Straight line rent adjustment.................................... (63) (138)
Amortization of premium on mortgage notes payable................ (330) -
Amortization of deferred financing fees.......................... 4 14
Rental property depreciation and amortization.................... 2,504 2,940
Depreciation and amortization included in discontinued operations - 180
Loss (gain) on disposal of real estate........................... 19 (2,185)
Changes in assets and liabilities:
Increase in other assets......................................... (376) (1,305)
Increase in other liabilities.................................... 1,218 1,514
-------------- --------------
Net cash provided by operating activities............................. 11,534 10,795
-------------- --------------
INVESTING ACTIVITIES:
Additions to and purchases of properties........................... (1,197) (4,756)
Proceeds from disposal of properties............................... - 6,513
Decrease in cash held in escrow.................................... 4,033 -
-------------- --------------
Net cash provided by investing activities............................. 2,836 1,757
-------------- --------------
FINANCING ACTIVITIES:
Repayments of mortgage notes payable............................... (6,921) (585)
Payment of deferred financing costs................................ - (58)
Advances from (to) affiliate, net.................................. 2,730 (3,398)
Cash contributions................................................. - 1,946
Cash distributions paid............................................ (10,775) (10,252)
-------------- --------------
Net cash used in financing activities................................. (14,966) (12,347)
-------------- --------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS.................. (596) 205
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD........................ 608 500
-------------- --------------
CASH AND CASH EQUIVALENTS, END OF PERIOD.............................. $ 12 $ 705
============== ==============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest, net of amount capitalized.................. $ 2,306 $ 2,373
============== ==============
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
The Company merged with IRT and the assets and liabilities of LP were
restated to fair value as follows:
Fair value of assets acquired................................... $ 191,173
Assumption of liabilities and mortgage notes payable............ (41,524)
Fair value adjustment of mortgage notes payable................. (5,133)
--------------
Partners' capital............................................... $ 144,516
==============
See accompanying notes to the condensed financial statements.
4
IRT PARTNERS L.P.
(a limited partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(in thousands)
1. ORGANIZATION AND IRT PROPERTY COMPANY MERGER
IRT Partners L.P. ("LP"), a Georgia limited partnership, was formed on July
15, 1998 in order to enhance the acquisition opportunities of its general
partner through a downREIT structure. This structure offers potential sellers
the ability to make a tax-deferred transfer of their real estate properties in
exchange for partnership units ("OP Units") of LP.
On February 12, 2003, Equity One, Inc. (the "Company" or "Successor")
completed a statutory merger with IRT Property Company ("IRT" or "Predecessor"),
LP's general partner. As a result of the merger, the Company acquired from IRT
the general partnership interests in LP. The Company now owns approximately
94.4% of LP's partnership interests. As a result of the substantial change in
ownership from this transaction, "push-down" accounting has been applied to LP's
financial statements, assets and liabilities of LP have been restated to fair
value in the same manner as IRT's assets and liabilities were recorded by the
Companyas as a result of the merger. Although the fair values assigned to the
identifiable tangible and intangible assets and liabilities of LP are
preliminary as LP is evaluating the fair values and allocation of costs,
management does not believe that any future adjustment would have a material
effect on LP's financial position or results of operations.
The results of operations for the three and nine-month periods ended
September 30, 2002 and for the period from January 1, 2003 through February 11,
2003 have been recorded based on the historical values of the assets and
liabilities of LP prior to the merger. For the period from February 12, 2003
through September 30, 2003, the results of operations have been recorded under
the fair values assigned to the assets and liabilities after the Company's
merger with IRT.
LP is obligated to redeem each OP Unit held by a person other than the
Company, at the sole request of such limited partner, for cash equal to the fair
market value of a share of the Company's common stock at the time of such
redemption. However, the Company may elect, at its option, to acquire any such
OP Unit presented for redemption for one common share of the Company's stock or
cash.
At September 30, 2003, LP owns 23 neighborhood and community shopping
centers located in Florida, Tennessee, Georgia and North Carolina. The shopping
centers are anchored by necessity-oriented retailers such as supermarkets, drug
stores, national value retailers and department stores.
2. BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have been
prepared by LP's management in accordance with accounting principles generally
accepted in the United States of America for interim financial information and
with the instructions of Form 10-Q and Article 10 of Regulation S-X of the U.S.
Securities and Exchange Commission (the "SEC"). Accordingly, these unaudited
condensed financial statements do not include all of the information and
footnotes required by accounting principles generally accepted in the United
States of America for complete financial statements. In the opinion of
management, all adjustments considered necessary for a fair presentation have
been included. The results of operations for the three and nine-month periods
ended September 30, 2003 are not necessarily indicative of the results that may
be expected for the full year. These unaudited condensed financial statements
should be read in conjunction with Management's Discussion and Analysis of
Financial Condition and Results of Operations contained elsewhere in
5
this Form 10-Q and the audited financial statements and related footnotes for
the year ended December 31, 2002 included in the Current Report of Equity One,
Inc. on Form 8-K filed with the SEC on November 14, 2003.
The preparation of condensed 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 amounts
reported in the consolidated financial statements and accompanying notes. Actual
results could differ from those estimates.
3. RENTAL 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 pre-development 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 that it is probable that LP will be
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.
Income producing properties are individually evaluated for impairment when
conditions exist that may indicate that it is probable that the sum of expected
future cash flows (on an undiscounted basis) from a property is less than its
historical net cost basis. Upon determination that a permanent impairment has
occurred, LP records an impairment charge equal to the excess of historical cost
basis over fair value. In addition, LP writes off costs related to
predevelopment projects when it determines that it will no longer pursue the
project.
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 terms of the related lease
Equipment 5-7 years
Acquisitions of properties are accounted for using the purchase method and,
accordingly, the results of operations are included in LP's results of
operations from the respective dates of acquisition. The Company uses various
valuation methods to allocate the purchase price of acquired property between
land, buildings and improvements, equipment, and other identifiable intangibles
such as lease origination costs and acquired leases and any debt assumed. LP's
allocation of the purchase prices for the acquisitions consummated during 2003
is preliminary and is subject to change.
4. MORTGAGE NOTES PAYABLE
Mortgage notes payable are collateralized by real estate investments. These
notes have stated interest rates ranging from 7.02% to 9.1875% and are due in
monthly installments with maturity dates ranging from 2009 to 2015. LP, upon the
merger of IRT and the Company, recorded a premium on the mortgage notes of
$5,133.
6
5. INCOME TAXES
No federal or state income taxes are reflected in the accompanying
condensed financial statements because LP is a partnership and its partners are
required to include their respective share of profits and losses in their income
tax returns.
6. DISPOSITIONS
LP 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, as discontinued operations for all periods presented. LP expects to
reclassify historical operating results whenever necessary in order to comply
with the requirements of SFAS No. 144.
The following table reflects the properties being reported in discontinued
operations for the three and nine-month periods ended September 30, 2002 (there
have been no dispositions during 2003):
Property Location Date Sold Square Feet Sales Price Gain (Loss)
--------------------- ------------------ ------------- -------------- ------------ -------------
Forest Hills Centre* 2Wilson, NC 9/25/02 74,180 $ 6,850 $ 2,185
Asheville Plaza Asheville, NC 11/4/02 49,800 950 733
Lawrence Commons* Lawrenceburg, TN 12/12/02 52,295 4,219 1,252
------------- ------------ -------------
Total..................................................... 176,275 $ 12,019 $ 4,170
============= ============ =============
*During first quarter 2003, additional expenses totaling $19 were
recognized as a loss under discontinued operations relating to these properties.
7. RECENT ACCOUNTING PRONOUNCEMENTS
In April 2002, the FASB issued SFAS No. 145, Rescission of FASB Statements
No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections
which rescinds FASB Statement No. 4, Reporting Gains and Losses from
Extinguishment of Debt, and an amendment of that Statement, FASB Statement No.
64, Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements. It also
rescinds FASB Statement No. 44, Accounting for Intangible Assets of Motor
Carriers, and amends FASB Statement No. 13, Accounting for Leases. Finally SFAS
No. 145 amends other existing authoritative pronouncements to make various
technical corrections, clarify meanings, or describe their applicability under
changed conditions. The provisions related to the rescission of FASB Statement
No. 4 and its amendment Statement No. 64 is effective for fiscal years beginning
after May 15, 2002. LP adopted SFAS No. 145 as of July 2002 and will reflect any
gains (losses) from extinguishment of debt as part of ordinary income.
In November 2002, FASB issued FASB Interpretation No. 45 ("FIN 45"),
Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantee's of Indebtedness of Other's (an interpretation of FASB
Statements No. 5, 57 and 107 and rescission of FASB Interpretation No. 34). FIN
45 clarifies the requirements of FASB Statement No. 5, Accounting for
Contingencies. It requires that upon issuance of a guarantee, the guarantor must
recognize a liability for the fair value of the obligation it assumes under that
guarantee regardless of whether or not the guarantor receives separate
identifiable consideration (i.e., a premium). LP adopted the new disclosure
requirements, which are effective beginning with 2002 calendar year-end
financials. FIN 45's provisions for initial recognition
7
and measurement are effective on a prospective basis to guarantees issued or
modified after December 31, 2002. The adoption of FIN 45 did not have a material
impact on LP's financial statements.
In January 2003, FASB issued FASB Interpretation No. 46, Consolidation of
Variable Interest Entities ("FIN 46"), an interpretation of ABR 51. FIN 46
provides guidance on identifying entities for which control is achieved through
means other than through voting rights, variable interest entities ("VIE"), and
how to determine when and which business enterprises should consolidate the VIE.
In addition, FIN 46 requires both the primary beneficiary and all other
enterprises with a significant variable interest in a VIE to make additional
disclosures. The transitional disclosure requirements will take effect almost
immediately and are required for all financial statements issued after January
31, 2003. The consolidated provisions of FIN 46 are effective immediately for
variable interests in VIEs created after January 31, 2003. For variable
interests in VIEs created before February 1, 2003, the provisions of FIN 46 are
effective for the first interim or annual period ending after December 15, 2003.
LP is not a party to any VIE's.
In April 2003, FASB issued SFAS No. 149, Amendment of Statement 133 on
Derivative Instruments and Hedging Activities, which clarifies the accounting
and reporting for derivative instruments, including derivative instruments that
are embedded in contracts. This statement is effective for contracts entered
into or modified after June 30, 2003. LP adopted this pronouncement beginning
July 1, 2003. The adoption of SFAS No. 149 did not have a material impact on
LP's financial condition or results of operations.
In May 2003, the 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. The FASB decided to defer
the application of the aspect of Statement 150 until it could consider some of
the resulting implementation issues.
8. COMMITMENTS AND CONTINGENCIES
LP has guaranteed the $150,000 unsecured senior notes of the Company
bearing interest at fixed interest rates ranging from 7.25% to 7.84% and
maturing between 2006 and 2012. The interest rate of one series of these senior
notes is subject to a 50 basis point increase if the Company does not maintain
an investment grade debt rating. LP has also guaranteed a $340,000 unsecured
revolving credit facility of the Company, under which $138,000 was outstanding
at September 30, 2003. These notes and revolving credit facility have also been
guaranteed by most of the Company's wholly-owned subsidiaries.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
The following discussion should be read in conjunction with LP's unaudited
Condensed Financial Statements, including the notes thereto, which are included
elsewhere herein and LP's audited Financial Statements and notes thereto for the
year ended December 31, 2002 appearing in the Current Report on Form 8-K of the
Company filed November 14, 2003. The results of operations for an interim period
may not give a true indication of results for the year.
8
Unless the context otherwise requires, all references to "we," "our," "us,"
"IRT Partners," and "LP" in this report refer collectively to IRT L.P.
RESULTS OF OPERATIONS
Three Months Ended September 30, 2003 Compared to Three Months Ended
September 30, 2002.
Total revenues from rental properties increased by $290,000, or 5.0%, to
$6.1 million in 2003 from $5.8 million in 2002 due to an increase in expense
recoveries.
Property operating expenses increased by $65,000, or 3.9%, to $1.7 million
for 2003 from $1.7 million in 2002.
Rental property depreciation and amortization decreased by $183,000, or
18.6%, to $799,000 for 2003 from $982,000 in 2002 due to the restatement of the
assets to fair value upon, and the allocation between depreciable and
non-depreciable assets resulting from, the merger of IRT with the Company.
Interest expense decreased by $225,000, or 27.6%, to $591,000 for 2003 from
$816,000 in 2002 related to the payoff of a mortgage note and amortization of
premiums on mortgage notes payable of $142,000.
During 2002, a property was sold and the operations are reflected in income
from operations of sold properties. LP recognized a gain on the sale of $2.2
million. There were no dispositions during 2003.
As a result of the foregoing, net income decreased by $1.6 million, or
34.5%, to $3.0 million for 2003 from $4.6 million in 2002.
Nine Months Ended September 30, 2003 Compared to Nine Months Ended
September 30, 2002.
Total revenues from rental properties increased by $283,000, or 1.6%, to
$18.3 million in 2003 from $18.0 million in 2002 due to an increase in expense
recoveries.
Property operating expenses increased by $253,000, or 5.0%, to $5.3 million
for 2003 from $5.1 million in 2002.
Rental property depreciation and amortization decreased by $436,000, or
14.8%, to $2.5 million for 2003 from $2.9 million in 2002 related to the
restatement of the assets to fair value upon, and the allocation between
depreciable and non-depreciable assets resulting from, the merger of IRT
with the Company.
Interest expense decreased by $451,000, or 18.8%, to $1.9 million for 2003
from $2.4 million in 2002 related to the payoff of a mortgage note and
amortization of premiums on mortgage notes payable of $330,000.
During 2002, a property was sold and the operations are reflected in income
from operations of sold properties. LP recognized a gain on the sale of $2.2
million. There were no dispositions during 2003.
As a result of the foregoing, net income decreased by $1.2 million, or
12.5%, to $8.6 million for 2003 from $9.8 million in 2002.
CASH FLOWS
Net cash provided by operating activities of $11.5 million for the nine
months ended September 30, 2003 included: (i) net income of $8.6 million, (ii)
adjustments for non-cash items which increased
9
cash flow by $2.1 million, and (iii) a net increase in operating assets and
liabilities of $842,000, compared to net cash provided by operating activities
of $10.8 million for the nine months ended September 30, 2002, which included
(i) net income of $9.8 million, (ii) adjustments for non-cash and gain on sale
items which increased cash flow by $811,000, and (iii) a net increase in
operating assets and liabilities of $209,000.
Net cash provided by investing activities of $2.8 million for the nine
months ended September 30, 2003 included: (i) capital improvements of $1.2
million offset by proceeds from escrowed funds on sale of properties of $2.9
million and $1.1 million returned to the operating cash accounts. These amounts
should be compared to net cash provided by investing activities of $1.8 million
for the nine months ended September 30, 2002 which included: (i) the acquisition
of one shopping center for $1.9 million and (ii) construction, development and
other capital improvements of $3.0 million, offset by proceeds from the sale of
one property of $6.5 million.
Net cash used in financing activities of $15.0 million for the nine months
ended June 30, 2003 included: (i) the payoff of one mortgage note for $5.3
million and monthly principal payments on mortgage notes of $1.6 million, (ii)
distributions to OP Unit holders of $10.8 million, offset by advances from
affiliates of $2.7 million, compared to net cash used by financing activities of
$12.3 million for the nine months ended September 30, 2002 which included: (i)
net proceeds from issuance of OP Units of $1.9 million, offset by (a)
distribution to OP Unit holders of $10.3 million, (b) net advances to affiliates
of $3.4 million, (c) principal payments on mortgage notes of $585,000, and (d)
other uses of $58,000.
LIQUIDITY AND CAPITAL RESOURCES
LP's principal demands for liquidity are maintenance expenditures, repairs,
property taxes and tenant improvements, leasing costs, debt service and
distributions to its OP Unit holders. LP presently expects cash from its
operating activities to be the primary source of funds to pay distributions,
mortgage note payments and certain capital improvements on LP's properties.
LP guarantees the Company's indebtness under the Company's unsecured senior
debt and unsecured revolving credit facilities.
LP, through the Company, uses unsecured borrowings for use in meeting
capital requirements. As of September 30, 2003, LP had $34.6 million in mortgage
notes payable at a weighted average interest rate of 8.4%, which are due in
monthly installments with maturity dates ranging from 2006 to 2015.
As of September 30, 2003, the scheduled amortization and principal payments
due on mortgage notes payable are as follows (in thousands):
Total
Scheduled Balloon Principal Balance
Year Amortization Payments Due at Maturity
---------------------- ----------------- ------------------ ---------------------
2003....................... $ 115 $ - $ 115
2004....................... 650 - 650
2005....................... 709 - 709
2006....................... 771 - 771
2007....................... 838 - 838
Thereafter................. 5,508 25,964 31,472
----------------- ------------------ ---------------------
Total.................. $ 8,591 $ 25,964 $ 34,555
================= ================== =====================
Our debt level could subject us to various risks, including the risk that
our cash flows will be insufficient to meet required payments of principal and
interest, and the risk that the resulting reduced
10
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.
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 partners. If adequate funds are not available, our
business operations could be materially adversely affected.
INFLATION
Most of our leases contain provisions designed to partially mitigate the
adverse impact of inflation. Such provisions include clauses enabling us to
receive percentage rents based on tenant gross sales above predetermined levels,
which rents generally increase as prices rise, or escalation clauses which are
typically related to increases in the Consumer Price Index or similar inflation
indices. 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.
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 existing tenants to meet their lease obligations and could
otherwise adversely affect our ability to attract or retain tenants. The
properties are typically anchored by supermarkets, drug stores and other
consumer necessity and service retailers which typically offer day-to-day
necessities rather than luxury items. These types of tenants, in our experience,
generally maintain more consistent sales performance during periods of adverse
economic conditions.
CAUTIONARY STATEMENT RELATING TO FORWARD LOOKING STATEMENTS
Certain matters discussed in this Quarterly Report on Form 10-Q contain
"forward-looking statements" for purposes of 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.
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Among the factors that could cause actual results to differ materially are:
o general economic conditions, competition and the supply of and demand
for shopping center properties in our markets;
o management's ability to successfully combine and integrate the
properties and operations of separate companies that we have acquired
in the past or may acquire in the future;
o interest rate levels and the availability of financing;
o potential environmental liability and other risks associated with the
ownership, development and acquisition of shopping center properties;
o risks that tenants will not take or remain in occupancy or pay rent;
o greater than anticipated construction or operating costs;
o inflationary and other general economic trends;
o the effects of hurricanes and other natural disasters; and
o other risks detailed from time to time in the reports filed by us with
the Securities and Exchange Commission.
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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
LP utilizes mortgage notes payable with fixed rates. Sudden changes in
interest rates generally do not affect LP's interest expense as these debt
instruments have fixed rates for extended periods of time. LP's potential risk
is from increases in long-term real estate mortgage rates or borrowing rates
that may occur. As the debt instruments mature, LP typically refinances such
debt at the then current market interest rates, which may be more or less than
the interest rates on the maturing debt. The weighted average life for our fixed
rate mortgage notes is 7.0 years.
LP estimates the fair market value of LP's long term, fixed rate mortgage
loans using discounted cash flow analysis based on current borrowing rates for
similar types of debt. At September 30, 2003, the fair value of the fixed rate
mortgage loans was estimated to be $41.9 million compared to the carrying value
amount of $34.6 million. If the weighted average interest rate on LP's fixed
rate debt were 100 basis points lower or higher than the current weighted
average rate of 8.4%, the fair market value would be $36.9 million and $33.3
million, respectively.
ITEM 4. CONTROLS AND PROCEDURES
We maintain disclosure controls and procedures that are designed to provide
reasonable assurance that information required to be disclosed in our Exchange
Act reports is recorded, processed, summarized and reported within the time
periods specified in the Securities and Exchange Commission's rules and forms,
and that such information is accumulated and communicated to management,
including the Chief
12
Executive Officer and Chief Financial Officer of Equity One, Inc., in its
capacity as general partner, as appropriate, to allow timely decisions regarding
required disclosure. In designing and evaluating the disclosure controls and
procedures, management recognized that any controls and procedures, no matter
how well designed and operated, can provide only reasonable assurance of
achieving the desired control objectives, and management necessarily was
required to apply its judgment in evaluating the cost-benefit relationship of
possible controls and procedures.
As required by Rule 13a-15(b) under the Securities and Exchange Act of
1934, we carried out an evaluation, under the supervision and with the
participation of management, including the Chief Executive Officer and Chief
Financial Officer of Equity One, Inc., in its capacity as general partner, of
the effectiveness of the design and operation of our disclosure controls and
procedures. Based on the foregoing, the Chief Executive Officer and Chief
Financial Officer of Equity One, Inc., in its capacity as general partner
concluded that, as of the end of the period covered by this report, our
disclosure controls and procedures were effective at the reasonable assurance
level to ensure that information required to be disclosed by us in reports that
we file under the Exchange Act is recorded, processed, summarized and reported
within the time periods specified in SEC rules and forms.
There have been no changes in our internal controls over financial
reporting during the quarter ended September 30, 2003, that have materially
affected, or are reasonably likely to materially affect, our internal controls
over financial reporting.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
31.1 Certification of Chief Executive Officer of Equity
One, Inc., in its capacity as general partner of
LP, pursuant to Rule 13a-14(a) under the
Securities Exchange Act of 1934, as amended, and
Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification of Chief Financial Officer of Equity
One, Inc., in its capacity as general partner of
LP, pursuant to Rule 13a-14(a) under the
Securities Exchange Act of 1934, as amended, and
Section 302 of the Sarbanes-Oxley Act of 2002.
13
32 Certification of Chief Executive Officer and Chief
Financial Officer of Equity One, Inc., in its
capacity as general partner of LP, pursuant to
Rule 13a-14(b) under the Securities Exchange Act
of 1934, as amended and 18 U.S.C. 1350, as created
by Section 906 of the Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K:
None.
14
SIGNATURES
Pursuant to the requirements 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: November 14, 2003 IRT PARTNERS L.P.
BY: Equity One, Inc., general partner
/s/ HOWARD M. SIPZNER
--------------------------------------
Howard M. Sipzner
Chief Financial Officer
(Principal Accounting and Financial Officer)
15
INDEX TO EXHIBITS
-----------------
EXHIBIT NO. DESCRIPTION
---------- -----------
31.1 Certification of Chief Executive Officer of Equity
One, Inc., in its capacity as general partner of
LP, pursuant to Rule 13a-14(a) under the
Securities Exchange Act of 1934, as amended, and
Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification of Chief Financial Officer of Equity
One, Inc., in its capacity as general partner of
LP, pursuant to Rule 13a-14(a) under the
Securities Exchange Act of 1934, as amended, and
Section 302 of the Sarbanes-Oxley Act of 2002.
32 Certification of Chief Executive Officer and Chief
Financial Officer of Equity One, Inc., in its
capacity as general partner of LP, pursuant to Rule
13a-14(b) under the Securities Exchange Act of
1934, as amended, and 18 U.S.C. 1350, as created by
Section 906 of the Sarbanes-Oxley Act of 2002.
16