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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 March 31, 2004
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 March 31, 2004 and December 31, 2003 (unaudited) .................................... 1
Condensed Statements of Operations
For the three-month periods ended March 31, 2004 and 2003 (unaudited) ..................... 2
Condensed Statement of Changes in Partners' Capital
For the three-month period ended March 31, 2004 (unaudited) ............................... 3
Condensed Statement of Cash Flows
For the three-month periods ended March 31, 2004 and 2003 (unaudited) ..................... 4
Notes to the Condensed Financial Statements (unaudited) ................................... 5-9
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations ..... 9-12
Item 3. Quantitative and Qualitative Disclosures about Market Risk ................................ 12-13
Item 4. Controls and Procedures.................................................................... 13
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 ....................................... 14
Item 5. Other Information ......................................................................... 14
Item 6. Exhibits and Reports on Form 8-K .......................................................... 14
ITEM 1. FINANCIAL INFORMATION
IRT PARTNERS L.P. (a limited partnership)
CONDENSED BALANCE SHEETS
MARCH 31, 2004 AND DECEMBER 31, 2003
(UNAUDITED)
(In thousands)
- --------------------------------------------------------------------------------
March 31, December 31,
2004 2003
-------------- --------------
ASSETS
PROPERTIES:
Income producing........................................................ $ 185,591 $ 179,072
Less: accumulated depreciation.......................................... (3,524) (2,641)
--------------- ---------------
182,067 176,431
Construction in progress and land held for development.................. 3,466 2,012
Properties held for sale................................................ - 8,689
--------------- ---------------
Properties, net...................................................... 185,533 187,132
CASH AND CASH EQUIVALENTS................................................... 11 11
OTHER ASSETS................................................................. 2,916 2,929
--------------- ---------------
TOTAL........................................................................ $ 188,460 $ 190,072
=============== ===============
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES:
Mortgage notes payable.................................................. $ 34,241 $ 34,400
Unamortized premium on mortgage notes payable........................... 4,516 4,661
--------------- ---------------
Total mortgage notes payable......................................... 38,757 39,061
Other liabilities....................................................... 2,237 1,780
--------------- ---------------
Total liabilities................................................. 40,994 40,841
COMMITMENTS AND CONTINGENT LIABILITIES
LIMITED PARTNERS' CAPITAL (815,852 partnership units for 2004
and 2003, respectively).................................................. 11,084 11,118
GENERAL PARTNERS' CAPITAL.................................................. 136,382 138,113
--------------- ---------------
TOTAL...................................................................... $ 188,460 $ 190,072
=============== ===============
See accompanying notes to the condensed financial statements.
1
IRT PARTNERS L.P. (a limited partnership)
CONDENSED STATEMENTS OF OPERATIONS
FOR THE THREE MONTH PERIODS ENDED MARCH 31, 2004 AND 2003
(UNAUDITED)
(In thousands)
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Three Months Ended March 31,
------------------------------------
2004 2003
---------------- ----------------
RENTAL INCOME........................................................ $ 6,088 $ 6,087
---------------- ----------------
COSTS AND EXPENSES:
Property operating expenses......................................... 1,640 1,840
Interest expense.................................................... 580 763
Amortization of deferred financing fees............................. - 4
Rental property depreciation and amortization....................... 852 1,108
General and administrative expenses................................. 1 4
---------------- ----------------
Total costs and expenses........................................ 3,073 3,719
---------------- ----------------
INCOME BEFORE OTHER INCOME AND DISCONTINUED
OPERATIONS........................................................... 3,015 2,368
OTHER INCOME:
Interest income from affiliates...................................... - 76
---------------- ----------------
INCOME FROM CONTINUING OPERATIONS...................................... 3,015 2,444
---------------- ----------------
DISCONTINUED OPERATIONS:
Loss on disposal of income producing properties..................... - (19)
---------------- ----------------
Total loss from discontinued operations......................... - (19)
---------------- ----------------
NET INCOME............................................................. $ 3,015 $ 2,425
================ ================
2
IRT PARTNERS L.P. (a limited partnership)
CONDENSED STATEMENT OF CHANGES IN PARTNERS' CAPITAL
FOR THE THREE-MONTH PERIOD ENDED MARCH 31, 200
(UNAUDITED)
(In thousands)
- --------------------------------------------------------------------------------
Limited Partners' General Partner's
Capital Capital
------------------- ------------------
Balance, January 1, 2004.................................... $ 11,118 $ 138,113
Cash distributions......................................... (206) (4,574)
Net income.................................................. 172 2,843
------------------- ------------------
Balance, March 31, 2004..................................... $ 11,084 $ 136,382
=================== ==================
See accompanying notes to the condensed financial statements.
3
IRT PARTNERS L.P. (a limited partnership)
CONDENSED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTH PERIOD ENDED MARCH 31, 2004 AND 2003.
(UNAUDITED) (In thousands)
(In thousands)
- --------------------------------------------------------------------------------
Three Months Ended March 31,
----------------------------------
2004 2003
--------------- ---------------
OPERATING ACTIVITIES:
Net income................................................................... $ 3,015 $ 2,425
Adjustments to reconcile net income to net cash provided by
operating activities:
Straight line rent adjustment............................................ (86) (13)
Amortization of deferred financing fees.................................. - 4
Amortization of debt premium............................................. (145) (41)
Rental property depreciation and amortization............................ 852 1,108
(Gain) loss on disposal of real estate................................... - 19
Changes in assets and liabilities:
Other assets............................................................ 131 1,100
Other liabilities......................................................... 456 (623)
--------------- ---------------
Net cash provided by operating activities.................................... 4,223 3,979
--------------- ---------------
INVESTING ACTIVITIES:
Additions to and purchase of rental property.............................. (1,615) (45)
Increase in cash held in escrow........................................... - (9)
--------------- ---------------
Net cash used in investing activities........................................ (1,615) (54)
--------------- ---------------
FINANCING ACTIVITIES:
Repayment of mortgage notes payable....................................... (158) (6,624)
Distributions paid........................................................ (4,780) (3,547)
Advances from affiliate, net.............................................. 2,330 5,907
--------------- ---------------
Net cash used in financing activities........................................ (2,608) (4,264)
--------------- ---------------
NET DECREASE IN CASH AND CASH EQUIVALENTS.................................... - (339)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD............................... 11 608
--------------- ---------------
CASH AND CASH EQUIVALENTS, END OF PERIOD..................................... $ 11 $ 269
=============== ===============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest, net of amount capitalized.......................... $ 581 $ 797
=============== ===============
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........................................... $200,154
Assumption of liabilities and mortgage notes payable.................... (46,657)
---------------
Partners' capital....................................................... $153,497
===============
4
IRT PARTNERS L.P. (a limited partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS
FOR THE THREE MONTH PERIODS ENDED MARCH 31, 2004 AND 2003
(UNAUDITED)
(in thousands)
1. Organization
------------
IRT Partners L.P. ("LP" or the "Partnership"), 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").
As a result of the merger, the Company acquired the general partnership
interests in LP held by IRT. 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 and assets and liabilities of LP were restated to fair value in the
same manner as IRT's assets and liabilities were recorded by the Company
subsequent to the merger.
The results of operations 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 March 31, 2004, 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 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.
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 March 31, 2004, 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 month period ended March
31, 2004 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 this Form 10-Q and the audited
financial statements and related footnotes for the year ended December 31, 2003
included in the Annual Report of IRT Partners LP on Form 10-K for the year ended
December 31, 2003 filed with the SEC on March 22, 2004.
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
5
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 term of the related lease
Equipment 5-7 years
4. Business Combinations
---------------------
LP 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.
LP 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, LP identifies and estimates the fair value of the land, buildings, and
improvements, reviews the leases to determine the existence of, and estimates
fair value of, any contractual or other legal rights and investigates the
existence of, and estimates fair value of, any other identifiable intangible
assets. Such valuations require management to make significant estimates and
assumptions, especially with respect to intangible assets.
The cost approach is used as the primary method to estimate the fair value
of the buildings, improvements and other assets. 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
to originate a lease including commissions and legal costs to the extent that
such costs are not already incurred with a new lease that has been 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 LP'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
6
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, under 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 discussed above, LP has determined that its real estate
properties do not have any other significant identifiable intangible assets.
Critical estimates in valuing certain of the intangible assets 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 the
tenant risk attributes, as well as assumptions about the period of time the
acquired lease will continue to be used in LP'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 that may be obtained in connection with
the acquisition or financing of the respective property or other market data.
Management also considers information obtained in its pre-acquisition due
diligence and marketing and leasing activities in estimating the fair value of
tangible and intangible assets acquired.
On February 12, 2003 the Company merged with IRT. For purposes of these
condensed financial statements the period from January 1, 2003 through February
11, 2003 (merger date) has been combined with the period from February 12, 2003
through March 31, 2003. This has been done to show comparability to the three
months ending March 31, 2004. The following table shows the separate periods as
presented in LPs Form 10-K for the year ended December 31, 2003.
For the Period
----------------------------------------
January 1 to February 12 to
February 11, 2003 March 31, 2003
------------------ -----------------
(Predecessor) (Successor)
Rental income......................... $ 2,783 $ 3,304
================== ==================
Property operating expenses........... $ 901 $ 939
================== ==================
Interest expense...................... $ 375 $ 388
================== ==================
Rental property depreciation.......... $ 555 $ 553
================== ==================
Total expenses........................ $ 1,838 $ 1,881
================== ==================
Other income.......................... $ 15 $ 61
================== ==================
Net income............................ $ 941 $ 1,484
================== ==================
Cash Flow:
Operating activities............... $ 859 $ 3,120
================== ==================
Investing activities............... $ - $ (54)
================== ==================
Financing activities............... $ (793) $(3,471)
================== ==================
5. Mortgage Notes Payable
----------------------
Mortgage notes payable are collateralized by real estate investments. These
notes have stated interest rates ranging from 7.02% to 9.19% and are due in
monthly installments with maturity dates
7
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. 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.
7. 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.
8. Recent Accounting Pronouncements
--------------------------------
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 consolidation 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.
The Partnership 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. The Partnership adopted this pronouncement
beginning July 1, 2003. The adoption of SFAS No. 149 did not have a material
impact on the Partnership'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 certain aspects of Statement 150 until it could consider some
of the resulting implementation issues. The Partnership has adopted certain
provisions of SFAS No. 150 which did not have a material impact on the
Partnerships financial condition or results of operations. The Partnership is
still evaluating the potential affect of the provisions of SFAS No. 150 that
have been deferred to future periods.
In December 2003, the FASB issued Statement No. 132 (revised 2003),
Employers' Disclosures about Pensions and Other Postretirement Benefits. This
Statement revises employers' disclosures about pension plans and other
postretirement benefit plans. It does not change the measurement or recognition
8
provisions of FASB Statements No. 87, Employers' Accounting for Pensions, No.88,
Employers' Accounting for Settlements and Curtailments of Defined Benefit
Pension Plans and for Termination Benefits, and No. 106, Employers ' Accounting
for Postretirement Benefits Other Than Pensions. This Statement retains the
disclosure requirements contained in FASB Statement No. 132, Employers'
Disclosures about Pensions and Other Postretirement Benefits, which it replaces.
It requires additional disclosures about the assets, obligations, cash flows,
and net periodic benefit cost of defined benefit pension plans and other
postretirement benefit plans. The adoption of SFAS No. 132 (revised) did not
have a material impact on the Partnership's financial statements.
9. 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. LP has also guaranteed the $200,000 unsecured
senior notes issued by the Company on March 26, 2004, bearing interest at a
fixed interest rate of 3.875% and maturing during 2009. The interest rate on the
$50,000 7.77% senior notes is subject to a 50 basis point increase if the
Company does not maintain an investment grade debt rating. LP has guaranteed a
$340,000 unsecured revolving credit facility of the Company, under which $48,000
was outstanding at March 31, 2004. 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, 2003 appearing in the Annual Report on Form 10-K of the
Company for the year ended December 31, 2003 filed March 22, 2004. The results
of operations for an interim period may not give a true indication of results
for the year.
Unless the context otherwise requires, all references to "we," "our," "us,"
"IRT Partners," and "LP" in this report refer collectively to IRT Partners L.P.
Results of Operations
Three Months Ended March 31, 2004 Compared to Three Months Ended March 31, 2003.
For purposes of this discussion the period from January 1 to February 11,
2003 has been combined with the period from February 12 to March 31, 2003. This
has been done to show comparability to the three months ending March 31, 2004.
Total revenues from rental properties remain the same, $6.1 million in 2004
and $6.1 million in 2003.
Property operating expenses decreased by $200,000, or 10.9%, to $1.6
million for 2004 from $1.8 million in 2003 due to a decrease in property
maintenance costs.
Rental property depreciation and amortization decreased by $256,000, or
23.1%, to $852,000 for 2004 from $1.1 million in 2003 due to the restatement of
the assets to fair value and allocation between depreciable and non-depreciable
assets upon the merger of IRT with the Company.
9
Interest expense decreased by $256,000, or 24.0%, to $580,000 for 2004 from
$763,000 in 2003 related to the ordinary payment of mortgage notes in the normal
course of business. Additionally, interest expense decreased by approximately
$100,000 due to the increase in amortization of the debt premium.
There were no dispositions during 2004 or 2003.
As a result of the foregoing, net income increased by $600,000, or 26.5%,
to $3.0 million for 2004 from $2.4 million in 2003.
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.
CASH FLOWS
- ----------
Net cash provided by operating activities of $4.2 million for the three
months ended March 31, 2004 included: (i) net income of $3.0 million, (ii)
adjustments for non-cash items which increased cash flow by $621,000, and (iii)
a net change in operating assets and liabilities that increased cash flow by
$587,000, compared to net cash provided by operating activities of $4.0 million
for the three months ended March 31, 2003, which included (i) net income of $2.4
million, (ii) adjustments for non-cash and gain on sale items which increased
cash flow by $1.1 million, and (iii) a net change in operating assets and
liabilities that increased cash flows by $478,000.
Net cash used in investing activities of $1.6 million for the three months
ended March 31, 2004 included: (i) capital improvements of $1.6 million. These
amounts should be compared to net cash used in investing activities of $54,000
for the three months ended March 31, 2003 which included: construction,
development and other capital improvements of $45,000.
Net cash used in financing activities of $2.6 million for the three months
ended March 31, 2004 included: (i) monthly principal payments on mortgage notes
of $158,000, (ii) distributions to OP Unit holders of $4.8 million, offset by
advances from affiliates of $2.3 million, compared to net cash used by financing
activities of $4.3 million for the three months ended March 31, 2003 which
included: (i) distribution to OP Unit holders of $3.5 million, (ii) monthly
principal payments and mortgage payoffs of $6.6 million offset by net advances
to affiliates of $5.9 million.
DEBT
- ----
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 March 31, 2004, LP had $34.2 million in mortgage
notes payable at a weighted average interest rate of 8.5%, which are due in
monthly installments with maturity dates ranging from 2009 to 2015.
As of March 31, 2004, the scheduled amortization and balloon payments due
on mortgage notes payable are as follows (in thousands):
10
Scheduled Balloon
Year Amortization Payments Total
------------------ ------------- -------------- -------------
2004.............. $ 491 $ - $ 491
2005.............. 709 - 709
2006.............. 771 - 771
2007.............. 838 - 838
2008.............. 908 - 908
2009.............. 967 5,583 6,550
2010.............. 905 4,352 5,257
2011.............. 750 9,571 10,321
2012.............. 567 6,458 7,025
Thereafter........ 1,371 - 1,371
------------- -------------- -------------
Total......... $ 8,277 $ 25,964 $ 34,241
============= ============== =============
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.
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 and Recession Consideration
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
11
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:
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
12
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
6.74 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 March 31, 2004, the fair value of the fixed rate
mortgage loans was estimated to be $41.5 million compared to the carrying value
amount of $34.2 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 8.5%, the fair market value would be $36.7 million and $33.2
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 Executive Officer and Chief Financial Officer of Equity One,
Inc., in their capacity as officers of our 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 their capacity as officers of our
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 their capacity as
officers of our 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 March 31, 2004, 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.
13
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
his capacity as Chief Executive Officer of LP's general partner,
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
his capacity as Chief Financial Officer of LP's general partner,
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 their capacity as officers of
LP's general partner, 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: May 12, 2004 IRT PARTNERS L.P.
BY: Equity One, Inc., general partner
/s/ HOWARD M. SIPZNER
------------------------------
Howard M. Sipzner
Executive Vice President and
Chief Financial Officer
(Principal Accounting and Financial Officer)
INDEX TO EXHIBITS
-----------------
EXHIBIT NO. DESCRIPTION
----------- -----------
31.1 Certification of Chief Executive Officer of Equity
One, Inc., in his capacity as Chief Executive
Officer of LP's general partner, 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 his capacity as Chief Financial
Officer of LP's general partner, 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 their
capacity as officers of LP's general partner,
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.