-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VBDqxdzc/efJAvmVABsuWWX1Xv2j3geMFzYYjvaUEzINCx6eeJoriBF9VsDQfKqs VOMX5bAoB4TMwFxScCi8wQ== 0001042810-04-000048.txt : 20040322 0001042810-04-000048.hdr.sgml : 20040322 20040322144757 ACCESSION NUMBER: 0001042810-04-000048 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20040316 ITEM INFORMATION: Other events FILED AS OF DATE: 20040322 FILER: COMPANY DATA: COMPANY CONFORMED NAME: EQUITY ONE INC CENTRAL INDEX KEY: 0001042810 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 650563410 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-13499 FILM NUMBER: 04682157 BUSINESS ADDRESS: STREET 1: 1696 N E MIAMI GARDENS DR SUITE 200 CITY: NORTH MIAMI BEACH STATE: FL ZIP: 33179 MAIL ADDRESS: STREET 1: 1696 N E MIAMI GARDENS DR SUITE 200 CITY: NORTH MIAMI BEACH STATE: FL ZIP: 33179 8-K 1 form8k_32204.txt FORM 8K UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of Report (Date of earliest event reported): March 16, 2003 EQUITY ONE, INC. (Exact name of registrant as specified in its charter) FLORIDA (State of other jurisdiction of incorporation) 001-13499 52-1794271 (Commission File Number) (I.R.S. Employer Identification No.) 1696 N.E. MIAMI GARDENS DRIVE, NORTH MIAMI BEACH, FLORIDA 33179 (Address of principal executive offices) Registrant's telephone number, including area code: (305) 947-1664 NOT APPLICABLE (Former Name or Former Address, if Changed Since Last Report) Item 5. Other Events Equity One, Inc. ("the Company") has entered into Amendment No. 1 to Credit Agreement, dated as of March 18, 2004 (the "Amendment"), among the Company, Wells Fargo Bank, National Association and the other lenders named therein (a copy of which agreement is attached as Exhibit 10.1 hereto and is incorporated herein by reference), which amends the Company's $340 million unsecured revolving credit facility with such lenders (the "Credit Facility"). Among other things, the Amendment increases the swingline subfacility under the Credit Facility from $25 million to $35 million and increases the competitive bid subfacility which allows us to conduct auctions among the participating banks for borrowings from $150 million to $170 million. The Amendment also effects certain technical changes to definitions and covenants under the Credit Facility including streamlining the process under which new subsidiaries of the Company become guarantors. The following operational and financial information and data for IRT Partners L.P. ("LP"), a co-guarantor of the Company's senior unsecured notes and the Credit Facility, include all the items required by Form 10-K promulgated by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended, including the financial statements of LP as of December 31, 2003 and 2002 and for each of the three years in the period ended December 31, 2003. 1 Annual Report on Form 10-K of IRT Partners L.P. for the period ended December 31, 2003. IRT PARTNERS L.P. TABLE OF CONTENTS ----------------- Part I Page ------ Item 1. Business......................................................... 2 Item 2. Properties....................................................... 4 Item 3. Legal Proceedings................................................ 6 Item 4. Submission of Matters to a Vote of Security Holders.............. 6 Part II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Purchase of Equity Securities...................... 7 Item 6. Selected Financial Data.......................................... 7 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations...................................... 8 Item 7A. Quantitative and Qualitative Disclosures About Market Risk....... 18 Item 8. Financial Statements and Supplementary Data...................... 18 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure....................................... 18 Item 9A. Controls and Procedures.......................................... 19 Part III Item 10. Directors and Executive Officers of the Registrant............... 19 Item 11. Executive Compensation........................................... 19 Item 12. Security Ownership of Certain Beneficial Owners and Management... 19 Item 13. Certain Relationships and Related Transactions................... 19 Item 14. Principal Accountant Fees and Services........................... 20 Part IV Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K.. 20 Signatures....................................................... 22 FORWARD-LOOKING INFORMATION Certain matters discussed in this Form 10-K and the information incorporated by reference herein contain "forward-looking statements" for purposes on Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements are based on current expectations and are not guarantees of future performance. All statements other than statements of historical facts are forward-looking statements, and can be identified by the use of forward-looking terminology such as "may," "will," "might," "would," "expect," "anticipate," "estimate," "would," "could," "should," "believe," "intend," "project," "forecast," "target," "plan," or "continue" or the negative of these words or other variations or comparable terminology, are subject to certain risks, trends and uncertainties that could cause actual results to differ materially from those projected. Because these statements are subject to risks and uncertainties, actual results may differ materially from those expressed or implied by the forward-looking statements. We caution you not to place undue reliance on those statements, which speak only as of the date of this report. Among the factors that could cause actual results to differ materially are: o general economic conditions, and the effect of these conditions on rental rates in the markets where our shopping centers are located; o risks that tenants will not remain in occupancy or pay rent; 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 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 or Equity One, Inc., our general partner, 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. Unless the context otherwise requires, all references to "we," "our" or "us" in this report refer collectively to IRT Partners, L.P. ("LP" or the "Partnership") and its sole general partner, Equity One, Inc. (the "Company" or the "Successor" general partner of LP). The Company is the sole general partner of LP and conducts the business of LP. In connection with your review of this report, you should also carefully review the Company's Annual Report on Form 10-K for the year ended December 31, 2003, which contains additional information that may be important to you. Part I ITEM 1. BUSINESS General 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. completed a statutory merger with IRT Property Company ("IRT" or the "Predecessor" general partner of LP). 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 the 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 the operations for the period from January 1, 2003 through February 11, 2003, the date of the merger, and for the years ended December 31, 2002 and 2001, 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 December 31, 2003, the results of operations have been recorded based on the fair values assigned to the assets and liabilities of LP 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 December 31, 2003, LP owned 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 and other discount stores. During the year ended December 31, 2003, LP did not acquire or dispose of any properties. As of December 31, 2003, LP had one property classified as held for sale. Industry and Competitive Conditions The results of LP's operations depend upon the performance of its existing investment portfolio, the availability of suitable opportunities for new investments, the yields available on such new investments and the Company's cost of capital. Yields will vary with the type of investment involved, the condition of the financial and real estate markets, the nature and geographic location of 2 the investment, competition and other factors. The performance of a real estate investment company is strongly influenced by the cycles of the real estate industry generally. As financial intermediaries providing equity funds for real estate projects, real estate investment companies are generally subject to the same market and economic forces as other real estate investors. In seeking new investment opportunities, LP competes with other real estate investors, including pension funds, foreign investors, real estate partnerships, real estate investment trusts, including the Company, and other domestic real estate companies. With respect to properties presently owned by LP or in which it has investments, LP and its tenants compete with other owners of like properties for tenants and/or customers depending on the nature of the investment. Management believes that LP is well positioned to compete effectively for new investments and tenants. Financing Strategy LP is the entity through which the Company conducts a portion of its business and owns a portion of its assets. As a result, all decisions are made by the Company on behalf of LP. LP was formed in order to enhance the acquisition opportunities the Company through a downREIT structure. As a partnership under the Internal Revenue Code, no federal or state income tax is reflected in the accompanying financial statements as the partners are required to include their respective share of profits and losses in their income tax returns. Additionally, LP is required to make distribution payments to the Limited Partners based on the number of outstanding partnership units ("OP Units") held at the time of distribution. Risk Factors The risks related to the business and operations of LP are substantially the same as the risk associated with the Company's operations. Please see the section entitled "Risk Factors" in the Company's Annual Report on Form 10-K for the year ended December 31, 2003 for a description of these risks. Competition There are numerous commercial developers, real estate companies, including REITs such as Regency Centers Corporation, Weingarten Realty Investors and New Plan Excel Realty Trust, and other owners of real estate in the areas in which our properties are located that compete with us in seeking land for development, properties for acquisition, financing and tenants. Many of such competitors have substantially greater resources than we have. All of our existing properties are located in developed areas that include other shopping centers and other retail properties. The number of retail properties in a particular area could materially adversely affect our ability to lease vacant space and maintain the rents charged at our existing properties. We believe that the principal competitive factors in attracting tenants in our market areas are location, price, anchor tenants and maintenance of properties. We also believe that our competitive advantages include the favorable locations of our properties, our ability to provide a retailer with multiple locations with anchor tenants and the practice of continuous maintenance and renovation of our properties. Regulations Regulations. Retail properties are subject to various laws, ordinances and regulations. We believe that each of our existing properties maintains all required material operating permits and approvals. 3 Americans with Disabilities Act. Our properties are subject to the Americans with Disabilities Act of 1990. Under this act, all places of public accommodation are required to comply with federal requirements related to access and use by disabled persons. The act has separate compliance requirements for "public accommodations" and "commercial facilities" that generally require that buildings and services, including restaurants and retail stores, be made accessible and available to people with disabilities. The act's requirements could require removal of access barriers and could result in the imposition of injunctive relief, monetary penalties or, in some cases, an award of damages. We believe that our properties are in substantial compliance with the requirements under the American with Disabilities Act and have no reason to believe that these requirements or the enforcement of these requirements will have a materially adverse impact on our business. Environmental Matters Under various federal, state and local laws, ordinances and regulations, we may be liable for the cost to remove or remediate certain hazardous or toxic substances at our shopping centers. These laws often impose liability without regard to whether we knew of, or were responsible for, the presence of the hazardous or toxic substances. The cost of required remediation and our liability for remediation could exceed the value of the property and/or our aggregate assets. The presence of such substances, or the failure to properly remediate such substances, may adversely affect our ability to sell or rent the property or borrow using the property as collateral. We have several properties that will require or are currently undergoing varying levels of environmental remediation. In some cases, contamination has migrated or is expected to migrate into the groundwater beneath our properties from adjacent properties, such as service stations. In other cases, contamination has resulted from on-site uses by current or former owners or tenants, such as gas stations or dry cleaners, which have released pollutants such as gasoline or dry-cleaning solvents into the soil or groundwater. We believe that, based on environmental studies conducted to date, none of these environmental problems is likely to have a material adverse effect on our financial condition. However, no assurances can be given that environmental studies obtained by us reveal all environmental liabilities, that any prior owner of land or a property owned or acquired by us did not create any material environmental condition not known to us, or that a material environmental condition does not otherwise exist, or may not exist in the future. Employees LP conducts its business through the Company and thus, at December 31, 2003, LP did not have any employees. ITEM 2. PROPERTIES The following table and notes thereto describe the properties in which LP had a fee or leasehold interest at December 31, 2003. These tables should be read in conjunction with the financial statements and notes thereto included elsewhere in this report.
GLA Annualized Average Minimum Percent (Sq. Ft.) Number Minimum Rent Rent Per Leased Leased at Year at Dec. of as of December Sq. Ft. at Dec. 31, Anchor Stores and Property Acquired 31, 2003 Tenants(1) 31, 2003(2) Dec. 31, 2003 2003 Certain Tenants - ----------------- -------- -------- ----------- -------------- ---------------- ----------- --------------------- Central Florida Unigold Winter Park 1987 106,185 20 $ 955,644 $ 10.14 88.8% Winn-Dixie Florida West Coast Bay Pointe Plaza Publix, Eckerd (Bealls St. Petersburg 1984/2002 103,986 24 919,362 9.60 92.1% Outlet), West Marine Carrollwood Tampa 1970/2002 94,203 36 873,356 10.86 85.4% Eckerd Charlotte Square Seafood Buffet, Pet Port Charlotte 1980 96,188 27 742,556 7.87 98.1% Supermarket
4
GLA Annualized Average Minimum Percent (Sq. Ft.) Number Minimum Rent Rent Per Leased Leased at Year at Dec. of as of December Sq. Ft. at Dec. 31, Anchor Stores and Property Acquired 31, 2003 Tenants(1) 31, 2003(2) Dec. 31, 2003 2003 Certain Tenants - ----------------- -------- -------- ----------- -------------- ---------------- ----------- --------------------- Florida Treasure Coast Treasure Coast Vero Beach 1983 133,781 25 1,063,966 8.55 93.0% Winn-Dixie, TJ Maxx South Florida/ Atlantic Coast Lago Mar Miami 1995 82,613 21 939,811 12.33 92.3% Publix Fresh Market, Bed Bath & Pine Ridge Square 1983/1998, Beyond, Off Main Coral Springs 1999 117,399 35 1,520,522 13.05 99.2% Furniture Riverside Square Coral Springs 1987 110,541 36 1,353,481 13.35 91.7% Publix, Tuesday Morning Tamarac Town Square Tamarac 1987 127,635 39 1,056,525 10.35 79.9% Publix Atlanta, Georgia Williamsburg @ Dunwoody Dunwoody 1983 44,928 27 704,851 17.27 90.8% North Carolina Centre Pointe Plaza Wal-Mart (Belk's, Smithfield 1989 163,642 19 714,150 5.71 76.4% Goody's) Chestnut Square Brevard 1985 39,640 7 261,660 6.88 96.0% Eckerd (Dollar General) Galleria Wrightsville Beach 1986/1990 92,114 40 741,955 9.39 85.7% Harris Teeter, Eckerd Parkwest Crossing Durham 1990 85,602 18 843,220 10.01 98.4% Food Lion Plaza North Hendersonville 1986 47,240 9 334,277 7.26 97.5% Bi-Lo, CVS Pharmacy Providence Square Charlotte 1973 85,930 25 664,123 8.22 94.1% Harris Teeter, Eckerd Riverview Shopping Center Kroger, Upchurch Drugs Durham 1973/1995 127,106 11 839,571 7.20 91.7% Riverview Furniture Salisbury Marketplace Food Lion, CVS Pharmacy Salisbury 1987 82,578 17 724,326 9.22 95.2% Big Lots, Aaron Rents Shelby Plaza Shelby 1972 103,200 8 298,046 3.13 92.2% (Hancock Fabrics) Stanley Market Place Winn-Dixie, Family Stanley 1980,1987 40,400 3 220,692 5.46 100.0% Dollar Willowdale Shopping Harris Teeter, Carmike Center Cinemas Eckerd (Family Durham 1986 120,984 26 970,076 8.74 91.7% Dollar) Tennessee Forrest Gallery Kroger, Wal-mart (Tractor Tullahoma 1987 214,450 30 1,180,928 5.60 98.4% Suppply Goodwill) Smyrna Village Smyrna 1992 83,334 12 582,528 7.98 87.6% Kroger -------- ---- ----------- 2,303,679 515 $18,505,626 $8.79 91.4% ========= ==== =========== ======= =======
(1) Number of tenants includes both occupied and vacant units. (2) Calculated by annualizing the tenant's monthly base rent payment at December 31, 2003, excluding expense reimbursements, percentage rent payments and other charges. Most of our leases provide for the monthly payment in advance of fixed minimum rentals, the tenants' pro rata share of ad valorem taxes, insurance (including fire and extended coverage, and liability insurance) and common area maintenance for the property. They may also provide for the payment of additional rentals based on a percentage of the tenants' sales. Utilities are generally paid directly by tenants except where common metering exists with respect to a property. In this case, we make the payments for the utilities and are reimbursed by the tenants on a monthly basis. Generally, our leases prohibit the tenant from assigning or subletting its space. They also require the tenant to use its space for 5 the purpose designated in its lease agreement and to operate its business on a continuous basis. Some of the lease agreements with major tenants contain modifications of these basic provisions in view of the financial condition, stability or desirability of those tenants. Where a tenant is granted the right to assign its space, the lease agreement generally provides that the original lessee will remain liable for the payment of the lease obligations under that lease agreement. Lease Expirations The following table sets forth the anticipated expirations of the LP's tenant leases properties as of December 31, 2003 for each year from 2004 through 2012 and thereafter:
Percent of Aggregate Average Annual Annualized Annualized Minimum Rent Number of GLA Percent of Minimum Rent at Minimum Rent per Square Foot Year Leases (square feet) Total GLA Expiration at Expiration at Expiration - ----------------- ---------- ------------- ------------ --------------- --------------- ----------------- M-T-M 28 49,689 2.2% $ 247,384 1.31% $ 4.98 2004 100 260,891 11.3% 2,598,421 13.78% 9.96 2005 100 271,832 11.8% 3,185,428 16.89% 11.72 2006 95 342,715 14.9% 3,844,425 20.39% 11.22 2007 41 318,168 13.8% 2,350,387 12.46% 7.39 2008 44 183,387 7.9% 1,841,149 9.76% 10.04 2009 6 116,450 5.1% 556,528 2.95% 4.78 2010 5 66,842 2.9% 481,796 2.55% 7.21 2011 3 85,445 3.7% 546,920 2.90% 6.40 2012 4 85,414 3.7% 686,133 3.64% 8.03 Thereafter 13 324,362 14.1% 2,521,792 13.37% 7.77 ---------- ----------- ------------ --------------- --------------- ----------------- Sub-total/Average 439 2,105,195 91.4% $ 18,860,363 100.00% $ 8.96 Vacant 76 198,484 8.6% - - - ---------- ----------- ------------ --------------- --------------- ----------------- Total/Average 515 2,303,679 100.0% $ 18,860,363 100.00% $ 8.19 ========== =========== ============ =============== =============== =================
We may incur substantial expenditures in connection with the re-leasing of our retail space, principally in the form of tenant improvements and leasing commissions. The amounts of these expenditures can vary significantly, depending on negotiations with tenants and the willingness of tenants to pay higher base rents over the life of the leases. We also incur expenditures for certain recurring capital expenses. We expect to pay for re-leasing and recurring capital expenditures out of cash from operations. Insurance Our tenants are generally responsible under their leases for providing adequate insurance on the property they lease. We believe that our properties are covered by adequate fire, flood and property insurance, all provided by reputable companies. However, certain of our properties are not covered by disaster insurance with respect to certain hazards (such as hurricanes) for which coverage is not available or available only at rates, which in our opinion are not economically justifiable. ITEM 3. LEGAL PROCEEDINGS Neither we nor our properties are subject to any litigation which we believe will have a material adverse affect on our business financial conditional or results of operations or cash flows. Furthermore, to the best of our knowledge, except as described above with respect to environmental matters, there is no litigation threatened against us or any of our properties, other than routine litigation and administrative proceedings arising in the ordinary course of business, which collectively are not expected to have a material adverse effect on our business, financial condition, results of operations or cash flows. 6 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of our security holders during the fourth quarter of the year ended December 31, 2003. Part II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY, RELATED SECURITY HOLDER MATTERS AND PURCHASE OF EQUITY SECURITIES. There is no established public trading market for LP's equity interests and LP is not aware of any trading in such interests. During 2003 and 2002, LP paid distributions on its equity interests aggregating $14.4 million and $14.8 million, respectively, of which, $13.6 million and $14.0 million were paid to the Company or the Predecessor, respectively. ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA The selected operating data and balance sheet data set forth below have been derived from our financial statements, including the combined operating data for the year ended December 31, 2003 (combined for the respective periods of the Predecessor and the Successor). The financial statements as of December 31, 2003 and 2002 and for the period from February 12, 2003 to December 31, 2003 (Successor), the period from January 1, 2003 to February 11, 2003 (Predecessor) and the years ended December 31, 2002 and 2001, all contained elsewhere herein, have been audited by Deloitte & Touche LLP, independent auditors. The data set forth below should be read in conjunction with the financial statements and related notes and with "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere in this annual report.
Year Ended December 31, ----------------------------------------------------------------------- 2003** 2002* 2001* 2000* 1999* ------------ ----------- ---------- ----------- ----------- (Predecessor) (Predecessor) (Predecessor) (Predecessor) Statement of Operations Data: Total revenues...................... $ 23,041 $ 23,578 $ 21,899 $ 18,913 $ 18,441 ------------ ----------- ---------- ----------- ----------- Property operating expenses......... 7,162 6,569 5,887 5,091 4,617 Interest expense.................... 2,537 3,212 2,781 2,441 2,418 Rental property depreciation and amortization...................... 3,187 3,653 3,560 3,226 3,004 General and administrative expenses.......................... 20 1,059 1,028 828 778 ------------ ----------- ---------- ----------- ----------- Total costs and expenses............ 12,906 14,493 13,256 11,586 10,817 ------------ ----------- ---------- ----------- ----------- Other income (expense).............. 87 212 1,817 330 1,453 ------------ ----------- ---------- ----------- ----------- Income before discontinued $ 10,222 $ 9,297 $ 10,460 $ 7,657 $ 9,077 operations........................ ============ =========== ========== =========== =========== Net income......................... $ 11,131 $ 15,012 $ 11,206 $ 8,385 $ 9,791 ============ =========== ========== =========== ===========
*Amounts have been reclassified to conform to current year presentation. **Predecessor and successor amounts for 2003 have been combined for purposes of this table. 7
Year Ended December 31, ----------------------------------------------------------------------- 2003 2002 2001 2000 1999 ------------ ----------- ---------- ----------- ----------- (Predecessor) (Predecessor) (Predecessor) (Predecessor) (in thousands other than per share, percentage and ratio data) Balance Sheet Data: Total rental properties, after accumulated depreciation......... $187,132 $144,666 $145,625 $137,114 $ 126,605 Total assets....................... 190,072 173,105 166,873 145,814 137,834 Mortgage notes payable............... 39,061 41,476 37,464 30,595 31,181 Total liabilities.................... 40,841 43,684 39,618 32,294 33,726 Partners' equity..................... 149,231 129,421 127,255 113,520 104,108 Other Data: Cash flows from: Operating activities*............ 13,381 14,806 13,699 10,837 12,218 Investing activities*............ 1,468 1,702 (10,979) (13,898) (2,246) Financing activities*............ 15,446 (16,400) (8,863) 9,345 (10,716)
*Predecessor and successor amounts for 2003 have been combined for purposes of this table. Due to the merger between the Company and IRT, the assets were re-valued at current fair market values. The effect of this step-up caused a decrease in the depreciable base of the assets compared to periods prior to the merger, resulting in lower depreciation expense subsequent to February 12, 2003. ITEM 7. MANAGEMENT'S DISCUSSIONAND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview The following should be read in conjunction with our financial statements, including the notes thereto, which are included elsewhere in this annual report. 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. On February 12, 2003, Equity One, Inc. (the "Company" or "Successor" general Partner of LP) completed a statutory merger with IRT Property Company ("IRT" or "Predecessor" the previous general partner of LP). 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. 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. We believe we distinguish ourselves by owning and operating shopping centers anchored by supermarkets or necessity-oriented retailers in high density areas that are experiencing high population growth. Our goal is to own and operate properties containing dominant supermarket operators and a diverse tenant mix. We believe that these characteristics combine to reduce the vulnerability of our properties to economic downturns, enhance consumer traffic through our properties and generate more stable cash flows over time. We derive substantially all of our revenue from tenants under existing leases at our properties. 8 Our business is generally dependent on the performance of the economy in the areas in which we own properties. Changes in the economic environment tend to have a direct effect on our tenants' businesses and, therefore, their ability to continue to pay us rent. In 2003, the overall U.S. economy began to demonstrate sustained economic growth. This growth, as well as the prevailing low interest rate environment, contributed to the growth in our cash flows and allowed us to increase the occupancy rates at our centers for the year. We have followed a disciplined approach and taken advantage of the improving economic environment in our markets. The Company continues to concentrate on shopping centers in the southern region of the United States by acquiring new centers in high growth, high density areas, developing and redeveloping centers in these areas and selling properties that no longer meet our investment criteria. However, our long-term operating cash flow is dependent on the continued occupancy of our properties, the rents that we are able to charge to our tenants and the ability of these tenants to make their rental payments. Therefore, the main long-term threat to our business is our dependence on the viability of our anchor and other tenants. General economic downturns and competition from national and regional supercenters may have an increasing adverse impact on the business of our tenants by taking customers or reducing operating margins. We are not currently aware of any pending tenant bankruptcies that are likely to materially affect our rental revenues. We are optimistic that we are well positioned to take advantage of the sustained growth of the economy and continuing low interest rate environment. Short-Term Liquidity Needs As of December 31, 2003, we had $11,000 in cash and our cash flow generated by operations was $13.4 million for the year ended December 31, 2003. Our short-term liquidity requirements consist primarily of funds necessary to pay for operating and other expenses directly associated with our portfolio of properties, interest expense and scheduled principal payments on our outstanding debt, capital expenditures incurred to facilitate the leasing of space (e.g., tenant improvements and leasing commissions), and quarterly distributions to holders of OP units. Historically, we have satisfied these requirements principally through cash generated from operations. We believe that cash generated from operations or advances from the Company will be sufficient to meet our short-term liquidity requirements; however, there are certain factors that may have a material adverse effect on our cash flow. We derive substantially all our revenue from tenants under existing leases at our properties. Therefore, our operating cash flow is dependent on the rents that we are able to charge to our tenants, and the ability of these tenants to make their rental payments. We believe that the nature of the properties in which we typically invest, primarily supermarket and necessity-oriented retail-anchored and neighborhood shopping centers, provides a more stable revenue flow in uncertain economic times because consumers still need to purchase basic living essentials such as groceries and day-to-day goods. However, general economic downturns, or economic downturns in one or more markets in which we own properties, still may adversely impact the ability of our tenants to make lease payments and our ability to re-lease space on favorable terms as leases expire. In either of these instances, our cash flow would be adversely affected. We are not currently aware of any pending tenant bankruptcies that are likely to materially affect our rental revenues. We may incur significant expenditures in connection with the re-leasing of our retail space, principally in the form of tenant improvements and leasing commissions. The amounts of these expenditures can vary significantly, depending on negotiations with tenants and the willingness of tenants to pay higher base rents over the life of the leases. We also incur expenditures for certain recurring 9 capital expenses. We expect to pay for re-leasing and recurring capital expenditures out of cash from operations. The Company causes LP to distribute to each of its limited partners an amount equal to the cash distribution declared by the Company on its common stock. Distributions are made to the limited partners pro rata based on the number of OP Units held by each limited partner. LP's cash distributions to its limited partners for the year ended December 31, 2003 were $808,000. Long-Term Liquidity Needs Our long-term liquidity requirements consist primarily of funds necessary to pay for the principal amount of our long-term debt as it matures, significant non-recurring capital expenditures that need to be made periodically at our properties, development and redevelopment projects that we undertake at our properties and the costs associated with acquisitions of properties that we pursue. Historically, the Company has satisfied these requirements principally through the most advantageous source of capital at the time, which has included the incurrence of new debt through borrowings (through public offerings of unsecured debt and private incurrence of secured and unsecured debt), sales of common and preferred stock, capital raised through the disposition of assets, repayment by third parties of notes receivable and joint venture capital transactions. We believe that these sources of capital will continue to be available in the future to fund our long-term capital needs; however, there are certain factors that may have a material adverse effect on our ability to access these capital sources. The following table sets forth certain information regarding the future commitment on contractual obligations of the LP as of December 31, 2003 (in thousands):
Payments due by period Less than More than Contractual Obligation Total 1 year 1-3 years 3-5 years 5 years ----------- ----------- ----------- ----------- ------------ Mortgage notes payable: Schedule amortization......... $ 8,436 $ 650 $ 1,480 $ 1,746 $ 4,560 Balloon payments.............. 25,964 - - - 25,964 ----------- ----------- ----------- ----------- ------------ Total mortgage obligations... 34,400 650 1,480 1,746 30,524 Development obligations......... 200 200 - - - ----------- ----------- ----------- ----------- ------------ Total contractual obligations... $ 34,600 $ 850 $ 1,480 $ 1,746 $ 30,524 =========== =========== =========== =========== ============
LP has no outstanding operating or capital lease obligations. Off Balance Sheet Arrangements As of December 31, 2003, our off balance sheet arrangements were as follows: o We have committed to fund $200,000 based on current plans and estimates, in order to complete pending redevelopment projects. These obligations, comprised principally of construction contracts, are generally due as the work is performed and are expected to be financed by our available operating cash flows. o LP guarantees the $150 million unsecured senior notes payable and the $340 million revolving credit facility of the Company. Critical Accounting Policies and Estimates Management's Discussion and Analysis of Financial Condition and Results of Operations provides additional information related to our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The 10 preparation of these consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, management evaluates and if necessary, adjusts its estimates and judgments, including those related to real estate and development assets, revenue recognition in conjunction with providing development, leasing and management services and equity in earnings of unconsolidated joint ventures. Management believes that the following critical accounting policies affect its more significant judgments and estimates used in the preparation of our financial statements. Real Estate Properties and Development Assets. We capitalize acquisition and construction costs, property taxes, interest and other miscellaneous costs that are directly identifiable with a project, from pre-acquisition until the time that construction is complete and the development is ready for its intended use, in accordance with Statement of Financial Accounting Standards ("SFAS") No. 67 and SFAS No. 34. We allocate the capitalized project costs to the various components of the project based on the components' relative fair values. Our cost allocation method requires the use of management estimates regarding the fair market value of each project component. Management bases its estimates on current market appraisals, comparable sales, existing sale and purchase contracts, replacement cost, historical experience, and various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the fair market values of real estate assets. Actual results may differ from these estimates and anticipated returns on a project, as well as the gain or loss on disposition of the individual project components, could vary significantly from estimated amounts. Management reviews long-lived assets used in operations for impairment when there is an event or change in circumstances that indicates that the carrying amount of the asset may not be recoverable and the future undiscounted cash flows expected to be generated by the asset are less than its carrying amount. If such asset is considered to be impaired, we record impairment losses and reduce the carrying amount of the impaired asset to an amount that reflects the fair value of the asset at the time impairment is evident. Our impairment review process relies on management's judgment regarding the indicators of impairment, the remaining life of the asset used to generate the asset's undiscounted cash flows, and the fair value of the asset at a particular point in time. Management uses historical experience, current market appraisals and various other assumptions to form the basis for making judgments about the impairment of real estate assets. Under different assumptions or conditions, the asset impairment analysis may yield a different outcome, which would alter the ultimate return on our assets, as well as the gain or loss on the eventual disposition of the asset. Business Combinations. We are required to allocate the purchase price of acquired companies and properties to the tangible and intangible assets acquired, and liabilities assumed, based on their estimated fair values. Fair value is defined as the amount at which that asset could be bought or sold in a current transaction between willing parties (other than in a forced or liquidation sale). In order to allocate the purchase price of acquired companies and properties to the tangible and intangible assets acquired, we identify and estimate the fair value of the land, buildings, and improvements, review the leases to determine the existence of, and estimate the fair value of, any contractual or other legal rights and investigates the existence of, and estimate the fair value of, any other identifiable 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 11 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 the overall relationship with each tenant. Among the factors considered in the allocation of these values include the nature of the existing relationship with the tenant, the tenant's credit quality, the expectation of lease renewals, the estimated carrying costs of the property during a hypothetical expected lease-up period, current market conditions and costs to execute similar leases. Estimated carrying costs include real estate taxes, insurance, other property operating costs and estimates of lost rentals at market rates during the hypothetical expected lease-up periods, 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 as discussed above, the Company has determined that the 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 our portfolio, and discount rates used in these calculations. Management's estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable. Assumptions may not always reflect unanticipated events and changes in circumstances that 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 our pre-acquisition due diligence and market and leasing activities in estimating the fair value of tangible and intangible assets acquired. Revenue Recognition. We, as lessor, retain substantially all the risks and benefits of property ownership and account for our leases as operating leases. Rental income is recognized over the lease term on a straight-line basis as it becomes receivable according to the provisions of the lease. Revenue from percentage rent is recognized when tenants' reported sales have reached certain levels specified in the respective leases. Recoveries from tenants for real estate taxes and other operating expenses are recognized as revenue in the period when the applicable costs are incurred. We maintain an allowance for doubtful accounts for estimated losses resulting from the inability of tenants to make required rent payments. The computation of this allowance is based on the tenants' payment history and current credit quality. If our estimate of collectibility differs from the cash received the timing and amount of our reported revenue could be impacted. Results of Operations The following discussion should be read in conjunction with LP's audited financial statements, including the notes thereto, which are included elsewhere herein. The results of the operations for the period from January 1, 2003 through February 11, 2003 and for the years ended December 31, 2002 and 2001 have been recorded based on the historical values of the assets and liabilities of LP prior to the Company's merger with IRT. For the period from February 12, 2003 through December 31, 2003, the results of operations have been recorded based on the fair values assigned to the assets and liabilities after the merger. 12 We derive substantially all of our revenues from rents received from tenants under existing leases on each of our properties. These revenues include fixed base rents, recoveries of expenses that we have incurred and which we pass through to the individual tenants and percentage rents that are based on specified percentages of tenants' revenues, in each case as provided in the particular leases. Our primary cash expenses consist of our property operating expenses, which include real estate taxes, repairs and maintenance, management expenses, insurance, utilities and other expenses, general and administrative expenses, which include payroll, office expenses, professional fees and other administrative expenses, and interest expense, primarily on mortgage and revolving credit facilities indebtedness. In addition, we incur substantial non-cash charges for depreciation and amortization on our properties. We also capitalize certain expenses, such as taxes and interest, incurred in respect of property under development or redevelopment until the property is ready for its intended use. Year Ended December 31, 2003 Compared to Year Ended December 31, 2002. Total revenues from rental properties decreased by $537,000, or 2.3%, to $23.0 million in 2003 from $23.6 million in 2002. The decrease was primarily due to the vacancy of two major tenants. Property operating expenses increased by $593,000, or 9.0%, to $7.2 million for 2003 from $6.6 million in 2002. This variance relates to an increase of management fees expense of $178,000 and common area maintenance of $733,000, which are offset by a decrease in real estate taxes of $150,000 and non-recoverable maintenance costs of $48,000. Rental property depreciation and amortization decreased by $466,000, or 12.8%, to $3.2 million for 2003 from $3.7 million in 2002. Due to the merger between the Company and IRT, the assets were re-valued at current fair market values. The effect of this step-up caused a decrease in the depreciable base of the assets compared to periods prior to the merger, resulting in lower depreciation expense subsequent to February 12, 2003. Interest expense decreased by $675,000, or 21.0%, to $2.5 million for 2003 from $3.2 million in 2002. The decrease is related to the payoff of existing mortgage notes related to the disposition of properties. During 2002, three properties were sold and the operations are reflected in income from rental properties sold or held for sale. LP recognized a gain on the sale of these operation of $4.2 million. There were no dispositions during 2003; however, LP has one property being held for sale as of December 31, 2003. The results of operations from this property are reflected in rental properties sold or held for sale. As a result of the foregoing, net income decreased by $3.9 million, or 25.9%, to $11.1 million for 2003 from $15.0 million in 2002. Year Ended December 31, 2002 Compared to Year Ended December 31, 2001. Total revenues from rental properties increased by $1.7 million, or 7.7%, to $23.6 million in 2002 from $21.9 million in 2001 due to an increase in expense recoveries and rental income. Property operating expenses increased by $682,000, or 11.6%, to $6.6 million for 2002 from $5.9 million in 2001. This increase was partially due to an increase in real estate taxes and insurance costs. Rental property depreciation and amortization increased by $93,000, or 2.6%, to $3.7 million for 2002 from $3.6 million in 2001. 13 Interest expense increased by $440,000, or 15.9%, to $3.2 million for 2002 from $2.8 million in 2001 related to a mortgage note obtained in 2001 and assumption of a mortgage. During 2002, three properties were sold and the operations are reflected in income from rental properties sold or held for sale. LP recognized a gain on the sale of these operation of $4.2 million. As a result of the foregoing, net income increased by $3.8 million, or 34.0%, to $15.0 million for 2002 from $11.2 million in 2001. 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 - ---------- For purposes of this cash flow analysis, the cash flows for the period from January 1, 2003 through February 11, 2003, the date of the merger, have been combined with the cash flows for the period from February 12, 2003 through December 31, 2003 to provide a reasonable comparison to the cash flows for the year ended December 31, 2002. Net cash provided by operating activities was $13.4 million for the year ended December 31, 2003. Changes in cash flow amounts related to net income of $11.1 million, adjustments for non-cash items which increased cash flow by $2.6 million, and a net decrease in operating assets and liabilities of $356,000, compared to net cash provided by operating activities of $14.8 million for the year ended December 31, 2002, which included net income of $15.0 million, adjustments for non-cash and gain on sale items which decreased cash flow by $114,000, and a net decrease in operating assets and liabilities of $92,000. Net cash used in investing activities was $1.5 million for the year ended December 31, 2003. Changes in cash flow amounts related to additions to rental property of $553,000 and redevelopment costs of $2.0 million offset by proceeds from escrowed funds on sale of properties of $4.0 million. These amounts should be compared to net cash provided by investing activities of $1.7 million for the year ended December 31, 2002 which included the acquisition of properties of $5.8 million and proceeds from escrowed funds of $4.0 million, offset by proceeds from the sale of three properties of $11.6 million. Net cash used in financing activities decreased to $15.4 million in 2003 from cash used in financing activities of $16.4 million in 2002. Cash used in financing activities relates to advances to/from the Company. DEBT - ---- LP guarantees the Company's indebtedness under the Company's unsecured senior debt and one of its unsecured revolving credit facilities. LP, through the Company, uses unsecured borrowings for use in meeting capital requirements. As of December 31, 2003, LP had $34.4 million in mortgage notes payable at a weighted average interest rate of 8.43%, which are due in monthly installments with maturity dates ranging from 2009 to 2015. 14 Our mortgage notes payable balances as of December 31, 2003 and 2002 consisted of the following:
December 31, December 31, 2003 2002 ------------- ------------- (Successor) (Predecessor) (in thousands) Mortgage Notes Payable Fixed rate mortgage loans............................. $ 34,400 $ 41,476 Unamortized premium on mortgage notes payable......... 4,661 - ------------- ------------- Total mortgage notes payable....................... $ 39,061 $ 41,476 ============= =============
Each of the existing mortgage loans is secured by a mortgage on one or more of certain of LP's properties. Certain of the mortgage loans involving an aggregate principal balance of approximately $22.2 million contain prohibitions on transfers of ownership which may have been violated by the Company's previous issuances of common stock or in connection with the merger of IRT and may be violated by transactions involving the Company's capital stock in the future. If a violation were established, it could serve as a basis for a lender to accelerate amounts due under the affected mortgage. To date, no lender has notified the Company or LP that it intends to accelerate its mortgage. Based on discussions with various lenders, current credit market conditions and other factors, LP believes that the mortgages will not be accelerated. Accordingly, LP believes that the violations of these prohibitions will not have a material adverse impact on LP's results of operations or financial condition. 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. Mortgage Indebtedness The following table sets forth certain information regarding LP's mortgage indebtedness related to our properties as of December 31, 2003:
Balance at December 31, Balance Due Property 2003 Interest Rate Maturity Date at Maturity - --------------------------------------- --------------- -------------- ---------------- ------------- Fixed Rate Mortgage Debt Tamarac Town Square $ 6,206 9.190% 10/01/2009 $ 5,583 Parkwest Crossing 4,728 8.100% 09/01/2010 4,352 Charlotte Square 3,614 9.190% 02/01/2011 2,992 Pine Ridge Square 7,354 7.020% 05/01/2011 6,579 Riverside Square 7,694 9.190% 03/01/2012 6,458 Treasure Coast 4,804 8.000% 04/01/2015 - ----------- ------------- Total Fixed Rate Mortgage Debt (6 loans) $ 34,400 8.43% 6.74 years $ 25,964 =========== ============== ============== ============= (wtd.-avg.rate) (wtd.-avg.life)
15 Our mortgage indebtedness outstanding at December 31, 2003 will require approximate balloon and scheduled principal payments as follows: Schedule Year Due Amortization Balloon Payments Total - -------------- -------------- ------------------ -------------- 2004 $ 650 $ - $ 650 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 $ 8,436 $ 25,964 $ 34,400 ============== =================== ============== FUTURE CAPITAL REQUIREMENTS - --------------------------- Distributions LP was formed in order to enhance the acquisition opportunities of its general partner through a downREIT structure. As a partnership under the Internal Revenue Code, no federal or state income tax is reflected in the accompanying financial statements as the partners are required to include their respective share of profits and losses in their income tax returns. Additionally, LP is required to make distribution payments to its limited partners based on the number of outstanding units ("OP Units") held at the time of distribution. LP's cash distributions for the year ended December 31, 2003 were $808,000. We believe, based on currently proposed plans and assumptions relating to our operations, that our existing financial arrangements, together with cash generated from our operations, will be sufficient to satisfy our cash requirements for a period of at least twelve months. In the event that our plans change, our assumptions change or prove to be inaccurate or cash flows from operations or amounts available under existing financing arrangements prove to be insufficient to fund our expansion and development efforts or to the extent we discover suitable acquisition targets the purchase price of which exceeds our existing liquidity, we would be required to seek additional sources of financing. There can be no assurance that any additional financing will be available on acceptable terms or at all, and any future equity financing could be dilutive to existing stockholders. If adequate funds are not available, our business operations could be materially adversely affected. New Accounting Standards 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 or 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. We adopted SFAS No. 145 as of July 2002 and have reflected gains (losses) from extinguishment of debt as part of ordinary income. 16 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 has evaluated the effect of FIN 46 and has determined where it is the primary beneficiary and has consolidated those VIE's. We are 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. We adopted this pronouncement beginning July 1, 2003. The adoption of SFAS No. 149 did not have a material impact on our 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 also decided to defer the application of certain aspect of Statement 150 until it could consider some of the resulting implementation issues. We have adopted certain provisions of SFAS 150 which did not have a material impact on our financial position or results of operations. We are still evaluating the potential impact of the provisions of SFAS 150 that have been deferred to future periods. In December 2003, the FASB issued Statement No. 132 (SFAS 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 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 SFAS 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 our financial condition or results of operations. Environmental Matters We are subject to numerous environmental laws and regulations. The operation of dry cleaning facilities at our shopping centers is the principal environmental concern. We believe that the tenants who operate these facilities do so in accordance with current laws and regulations and we have established procedures to monitor their operations. Additionally, we use all legal means to cause tenants to remove dry cleaning plants from our shopping centers. Where available, we have applied and been accepted into state sponsored environmental programs. We have also placed environmental insurance on specific 17 properties with known contamination in order to mitigate our environmental risk. We believe that the ultimate disposition of currently known environmental matters will not have a material effect on our financial position, liquidity or operations. Inflation and Recession Considerations Most of our leases contain provisions designed to partially mitigate the adverse impact of inflation. Most of our leases require the tenant to pay its share of operating expenses, including common area maintenance, real estate taxes and insurance, thereby reducing our exposure to increases in costs and operating expenses resulting from inflation. A small portion of our leases also include clauses enabling us to receive percentage rents based on a tenant's gross sales above predetermined levels, which sales generally increase as prices rise, or escalation clauses. Our financial results are affected by general economic conditions in the markets in which our properties are located. An economic recession, or other adverse changes in general or local economic conditions, could result in the inability of some of our existing tenants to meet their lease obligations and could otherwise adversely affect our ability to attract or retain tenants. Supermarkets, drugstores and other anchor tenants that offer day-to-day necessities rather than luxury items anchor our existing properties. These types of tenants, in our experience, generally maintain more consistent sales performance during periods of adverse economic conditions. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The primary market risk to which LP has exposure is interest rate risk. Changes in interest rates can affect LP's net income and cash flows. As changes in market conditions occur, interest rates can either increase or decrease, interest expense on the variable component of LP's debt will move in the same direction. With respect to our mortgage notes payable, changes in interest rates generally do not affect the LP's interest expense as these notes payable are predominantly at fixed-rates for extended terms with a weighted average life of 6.7 years. Because LP has the intent to hold its existing fixed rate notes payable either to maturity or until the sale of the associated property, there is believed to be no interest rate market risk on LP's results of operations or its working capital position. The LP's possible risk is from increases in long-term interest rates that may occur over a period of several years, as this may decrease the overall value of its real estate. LP estimates the fair market value of its long term, fixed rate mortgage loans using discounted cash flow analysis based on current borrowing rates for similar types of debt. At December 31, 2003, the fair value of the fixed rate mortgage loans was estimated to be $39.9 million compared to the carrying value amount of $34.4 million, excluding the unamortized premium on notes payable. 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 8.43%, the fair market value would be $36.2 million and $32.7 million, respectively. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The financial statements and supplementary data required by Regulation S-X are included in this Form 10-K commencing on page F-1. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 18 ITEM 9A. CONTROLS AND PROCEDURES EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES We maintain disclosure controls and procedures that are designed to provide reasonable assurance that information required to be disclosed in our Securities Exchange Act of 1934, as amended ("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 its capacity as general partner, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosures, 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 Exchange Act, 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 year ended December 31, 2003, that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Not applicable for IRT Partners L.P. The Company acts as general partner of LP. Certain information about the Company is available from the Company's definitive proxy statement to be filed within 120 days after the end of the Company's fiscal year. ITEM 11. EXECUTIVE COMPENSATION Not applicable for IRT Partners L.P. The Company acts as general partner of LP. Certain information about the Company is available from the Company's definitive proxy statement to be filed within 120 days after the end of the Company's fiscal year. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Not applicable for IRT Partners L.P. The Company acts as general partner of LP. Certain information about the Company is available from the Company's definitive proxy statement to be filed within 120 days after the end of the Company's fiscal year. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Not applicable for IRT Partners L.P. The Company acts as general partner of LP. Certain information about the Company is available from the Company's definitive proxy statement to be filed within 120 days after the end of the Company's fiscal year. 19 ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES Not applicable for IRT Partners L.P. The Company acts as general partner of LP. Certain information about the Company is available from the Company's definitive proxy statement to be filed within 120 days after the end of the Company's fiscal year. PART IV ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following consolidated financial information is included as a separate section of this Form 10-K: 1. Financial Statements: PAGE --------------------- ---- Independent Auditors' Report...................................................... F-1 Balance Sheets as of December 31, 2003 and 2002................................... F-2 Statements of Operations for the period from January 1, 2003 through February 11, 2003 (merger date), the period from February 12, 2003 through December 31, 2003, and for the years ended 2002 and 2001........................ F-3 Statements of Changes in Partners' Capital for the years ended December 31, 2003, 2002 and 2001................................................ F-4 Statements of Cash Flows for the years ended December 31, 2003, 2002 and 2001................................................................... F-5 Notes to Consolidated Financial Statements........................................ F-6 - F-13 2. Schedule III - Real Estate Investments and Accumulated Depreciation and Independent Auditors' Report.................................... S-1 Schedules I, II, IV and V are not required to be filed. 3. Exhibits: See (c) below (b) Reports on Form 8-K: None. (c) Exhibits: The following exhibits are filed as part of, or incorporated by reference into, this annual report.
20 INDEX TO EXHIBITS ----------------- EXHIBIT NO. DESCRIPTION - ----------- ----------- 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). 3.2 Agreement of Limited Partnership of IRT Partners L.P., and Amendment No. 1 thereto (incorportated by reference to Exhibit 99.2 to the Current Report on Form 8-K of IRT Property Company filed on September 15, 1998). 4.1 Indenture dated November 9, 1995 between the Company, as successor-by-merger to IRT Property Company, and SunTrust Bank, as Trustee (incorporated herein by reference to Exhibit 4(c) to the Annual Report on Form 10-K, of IRT Property Company filed on February 16, 1996). 4.2 Supplemental Indenture No. 1 dated March 26, 1996 between the Company, as successor-by-merger to IRT Property Company, and SunTrust Bank, as Trustee (incorporated herein by reference to Exhibit 4 to the Current Report on Form 8-K of IRT Property Company filed on March 26, 1996). 4.3 Supplemental Indenture No. 2 dated August 15, 1997 between the Company, as successor-by-merger to IRT Property Company, and SunTrust Bank, as Trustee (incorporated herein by reference to Exhibit 4 to the Current Report on Form 8-K of IRT Property Company filed on August 13, 1997). 4.4 Supplemental Indenture No. 3 dated September 9, 1998 between the Company, as successor-by-merger to IRT Property Company, and SunTrust Bank, as Trustee (incorporated herein by reference to Exhibit 4.1 to the Current Report on Form 8-K filed by IRT Property Company on September 15, 1998) 4.5 Supplemental Indenture No. 4 dated November 1, 1999 between the Company, as successor-by-merger to IRT Property Company, and SunTrust Bank, as Trustee (incorporated herein by reference to Exhibit 4.7 of the Current Report on Form 8-K filed by IRT Property Company on November 12, 1999). 4.6 Supplemental Indenture No. 5 dated February 12, 2003 between the Company and SunTrust Bank, as Trustee (incorporated herein by reference to Exhibit 4.1 of the Current Report on Form 8-K filed by the Company on February 20, 2003). 4.7 Indenture dated September 9, 1998 between the Company, as successor-by-merger to IRT Property Company, and SunTrust Bank, as Trustee (incorporated herein by reference to Exhibit 4.2 of the Current Report on Form 8-K filed by IRT Property Company on September 15, 1998). 4.8 Supplemental Indenture No. 1 dated September 9, 1998 between the Company, as successor-by-merger to IRT Property Company, and SunTrust Bank, as Trustee (incorporated herein by reference to Exhibit 4.3 of the Current Report on Form 8-K filed by IRT Property Company on September 15, 1998) 4.9 Supplemental Indenture No. 2 dated November 1, 1999 between the Company, as successor-by-merger to IRT Property Company, and SunTrust Bank, as Trustee (incorporated herein by reference to Exhibit 4.5 of the Current Report on Form 8-K filed by IRT Property Company on November 12, 1999). 4.10 Supplemental Indenture No. 3 dated February 12, 2003 between the Company and SunTrust Bank, as Trustee (incorporated herein by reference to Exhibit 4.2 of the Current Report on Form 8-K filed by the Company on February 20, 2003). 12.1 Ratio of Earnings to Fixed Charges 31.1 Certification of Chief Executive Officer pursuant to Section 302 of Sarbanes-Oxley Act of 2002. 31.2 Certification of Chief Financial Officer pursuant to Section 302 of Sarbanes-Oxley Act of 2002. 32.1 Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002. ________________________________________________________________________ Audited Financial Statements of IRT Partners L.P. as of December 31, 2003 and 2002 and for each of the three years in the period ended December 31, 2003 IRT PARTNERS L.P. (a limited partnership) TABLE OF CONTENTS -----------------
Page ------ Independent Auditors' Report................................................................................. F-1 Balance Sheets as of December 31, 2003 and 2002.............................................................. F-2 Statements of Operations for the period from January 1, 2003 through February 11, 2003 (merger date), the period from February 12, 2003 through December 31, 2003, and for the years ended December 31, 2002 and 2001.. F-3 Statements of Changes in Partners' Capital for the period from January 1, 2003 to February 11, 2003 (Merger Date), for the period from February 12, 2003 to December 31, 2003, and for the years ended December 31, 2002 and 2001..................................................................................................... F-4 Statements of Cash Flows for the period from January 1, 2003 to February 11, 2003 (Merger Date), for the period from February 12, 2003 to December 31, 2003, and for the years ended December 31, 2002 and 2001 ...... F-5 Notes to the Financial Statements............................................................................ F-6 - F-13
INDEPENDENT AUDITORS' REPORT To the Partners of IRT Partners L.P.: We have audited the accompanying balance sheets of IRT Partners L.P. (a limited partnership) ("LP") as of December 31, 2003 and 2002, and the related statements of operations, changes in partners' capital and cash flows for the period from January 1, 2003 through February 11, 2003 (merger date), the period from February 12, 2003 through December 31, 2003 and for each of the two years in the period ended December 31, 2002. These financial statements are the responsibility of LP's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such financial statements present fairly, in all material respects, the financial position of LP at December 31, 2003 and 2002 and the results of its operations and its cash flows for the period from January 1, 2003 through February 11, 2003 (merger date), the period from February 12, 2003 through December 31, 2003 and for each of the two years in the period ended December 31, 2002 in conformity with accounting principles generally accepted in the United States of America. Deloitte & Touche LLP Certified Public Accountants Miami, Florida March 10, 2004 F-1 IRT PARTNERS L.P. (a limited partnership) BALANCE SHEETS DECEMBER 31, 2003 AND 2002 (In thousands, except partnership units)
2003 2002 ----------------- ---------------- (Successor) (Predecessor) ASSETS PROPERTIES: Income producing.......................................................... $ 179,072 $ 173,611 Less: accumulated depreciation............................................ (2,641) (28,945) ----------------- ---------------- 176,431 144,666 Construction in progress and land held for development.................... 2,012 - Property held for sale.................................................... 8,689 - ----------------- ---------------- Properties, net......................................................... 187,132 144,666 CASH AND CASH EQUIVALENTS.................................................... 11 608 CASH HELD IN ESCROW.......................................................... - 4,033 ADVANCES TO AFFILIATE....................................................... - 20,866 OTHER ASSETS................................................................. 2,929 2,932 ----------------- ---------------- TOTAL........................................................................ $ 190,072 $ 173,105 ================= ================ LIABILITIES AND PARTNERS' CAPITAL LIABILITIES: Mortgage notes payable..................................................... $ 34,400 $ 41,476 Unamortized premium on notes payable...................................... 4,661 - ----------------- ---------------- Total mortgage notes payable............................................ 39,061 41,476 Other liabilities....................................................... 1,780 2,208 ----------------- ---------------- Total liabilities...................................................... 40,841 43,684 COMMITMENTS AND CONTINGENT LIABILITIES LIMITED PARTNERS' CAPITAL (815,852 partnership units in 2003 and 2002, respectively)............................................................. 11,118 9,684 GENERAL PARTNERS' CAPITAL.................................................... 138,113 119,737 ----------------- ---------------- TOTAL........................................................................ $ 190,072 $ 173,105 ================= ================
See accompanying notes to the financial statements. F-2 IRT PARTNERS L.P. (a limited partnership) STATEMENTS OF OPERATIONS FOR THE PERIOD FROM JANUARY 1, 2003 TO FEBRUARY 11, 2003 (merger date), FOR THE PERIOD FROM FEBRUARY 12, 2003 TO DECEMBER 31, 2003 AND FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001 (In thousands, except partnership units)
For the Period ------------------------------- January 1, to February 12 February 11, to December 2003 31, 2003 2002 2001 -------------- ------------ -------------- ------------- (Predecessor) (Successor) (Predecessor) (Predecessor) RENTAL INCOME........................................... $ 2,617 $20,424 $23,578 $21,899 -------------- ------------ -------------- ------------- COSTS AND EXPENSES: Property operating expenses.......................... 867 6,295 6,569 5,887 Interest expense..................................... 375 2,162 3,212 2,781 Rental property depreciation and amortization........ 515 2,672 3,653 3,560 General and administrative expenses.................. 4 16 1,059 1,028 -------------- ------------ -------------- ------------- Total costs and expenses........................... 1,761 11,145 14,493 13,256 -------------- ------------ -------------- ------------- INCOME BEFORE OTHER INCOME (EXPENSE) AND DISCONTINUED OPERATIONS........................................... 856 9,279 9,085 8,643 OTHER INCOME (EXPENSE) Interest income from affliates........................ 15 72 212 416 Gain on sale of income producing properties........... - - - 1,401 -------------- ------------ -------------- ------------- INCOME FROM CONTINUING OPERATIONS........................ 871 9,351 9,297 10,460 -------------- ------------ -------------- ------------- DISCONTINUED OPERATIONS: Income from rental properties sold or held for sale.. 89 839 1,539 746 Loss (gain) on disposal of income producing properties........................................ (19) - 4,176 - -------------- ------------ -------------- ------------- Total income from discontinued operations......... 70 839 5,715 746 -------------- ------------ -------------- ------------- NET INCOME.............................................. $ 941 $10,190 $15,012 $11,206 ============== ============ ============== =============
See accompanying notes to the financial statements. F-3 IRT PARTNERS L.P. (a limited partnership) STATEMENT OF CHANGES IN PARTNERS' CAPITAL FOR THE PERIOD FROM JANUARY 1, 2003 TO FEBRUARY 11, 2003 (Merger Date), FOR THE PERIOD FROM FEBRUARY 12, 2003 TO DECEMBER 31, 2003 AND THE YEARS ENDED DECEMBER 31, 2002 AND 2001 (In thousands, except partnership units)
Limited Partners' General Partner's Capital Capital ----------------- ------------------ BALANCE, JANUARY 1, 2001 (Predecessor)......... $6,621 $106,899 Issuance of units.................... - 14,667 Distributions........................ (767) (11,371) Net income........................... 554 10,652 Adjustment to reflect limited partners' capital interest at redemption value 2,240 (2,240) ----------------- ------------------ BALANCE, DECEMBER 31, 2001 (Predecessor) 8,648 118,607 Issuance of units.................... - 1,946 Distributions........................ (829) (13,963) Net income........................... 831 14,181 Adjustment to reflect limited partners' capital interest at redemption value 1,034 (1,034) ----------------- BALANCE, DECEMBER 31, 2002 (Predecessor) 9,684 119,737 Net income........................... 53 888 ----------------- ------------------ BALANCE, FEBRUARY 11, 2003 (merger date) 9,737 120,625 Cash distributions................... (808) (13,646) Net income........................... 570 9,620 Fair value adjustment due to merger.. 1,619 21,514 ----------------- ------------------ BALANCE, DECEMBER 31, 2003 (Successor) $ 11,118 $138,113 ================= ==================
See accompanying notes to the financial statements. F-4 IRT PARTNERS L.P. (a limited partnership) STATEMENTS OF CASH FLOWS FOR THE PERIOD FROM JANUARY 1, 2003 TO FEBRUARY 11, 2003 (Merger Date), FOR THE PERIOD FROM FEBRUARY 12, 2003 TO DECEMBER 31, 2003 AND THE YEARS ENDED DECEMBER 31, 2002 AND 2001 (In thousands, except partnership units)
For the Period ------------------------------- January 1, to February 12 February 11, to December 2003 31, 2003 2002 2001 -------------- ------------ -------------- ------------- (Predecessor) (Successor) (Predecessor) (Predecessor) OPERATING ACTIVITIES: Net income................................................. $ 941 $ 10,190 $ 15,012 $ 11,206 Adjustments to reconcile net income to net cash provided by operating activities: Straight line rent adjustment.......................... (13) (139) (159) (189) Amortization of deferred financing fees................ 2 1 19 10 Amortization of debt premium........................... - (472) - - Rental property depreciation and amortization.......... 515 2,840 4,202 3,895 (Gain) loss on disposal of real estate................. 19 - (4,176) (1,401) Changes in assets and liabilities: Other assets............................................ 36 35 (135) (283) Other liabilities....................................... (641) 67 43 461 -------------- ------------ ------------ ----------- Net cash provided by operating activities.................. 859 12,522 14,806 13,699 -------------- ------------ ------------ ----------- INVESTING ACTIVITIES: Additions to and purchase of rental property............ - (2,565) (5,833) (17,508) Proceeds from disposal of rental property............... - - 11,568 6,529 Decrease (increase) in cash held in escrow.............. - 4,033 (4,033) - -------------- ------------ ------------ ----------- Net cash provided by (used) in investing activities........ - 1,468 1,702 (10,979) -------------- ------------ ------------ ----------- FINANCING ACTIVITIES: Proceeds from mortgage notes payable.................... - - - 7,540 Repayment from mortgage notes payable.................... (68) (7,008) (790) (672) Payment of deferred financing costs..................... - - (58) (130) Issuance of units for cash.............................. - - 1,946 14,667 Distributions paid...................................... - (14,454) (14,792) (12,138) Advances from (to) affiliate, net....................... (725) 6,809 (2,706) (18,130) -------------- ------------ ------------ Net cash used in financing activities...................... (793) (14,653) (16,400) (8,863) -------------- ------------ ------------ ----------- NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS....... 66 (663) 108 (6,143) CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD............. 608 674 500 6,643 -------------- ------------ ------------ ----------- CASH AND CASH EQUIVALENTS, END OF PERIOD................... $ 674 $ 11 $ 608 $ 500 ============== ============ ============ ----------- SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid for interest, net of amount capitalized........ $ 375 $ 1,918 $ 3,184 $ 2,745 ============== ============ ============ =========== 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 ============
See accompanying notes to the financial statements. F-5 IRT PARTNERS L.P. (a limited partnership) NOTES TO THE FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2003, 2002, AND 2001 (In thousands, except per share amounts) - ---------------------------------------- 1. Organization ------------ IRT Partners L.P. ("LP" or "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 the "Successor" general partner of LP) completed a statutory merger with IRT Property Company ("IRT" or the "Predecessor" general partner of LP). 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. 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 December 31, 2003, LP owned 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 and other discount stores. 2. Summary of Significant Accounting Policies ------------------------------------------ Basis of Presentation The results of operations for the years ended December 31, 2002 and 2001 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. As of December 31, 2003 and for the period from February 12, 2003 through December 31, 2003, the financial position and results of operations have been recorded based on the fair values assigned to the assets and liabilities after IRT's merger with the Company. 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. F-6 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 Business Combinations. The Company is required to allocate the purchase price of acquired companies and properties to the tangible and intangible assets acquired, and liabilities assumed, based on their estimated fair values. Fair value is defined as the amount at which that asset could be bought or sold in a current transaction between willing parties (other than in a forced or liquidation sale). In order to allocate the purchase price of acquired companies and properties to the tangible and intangible assets acquired, the Company identifies and estimates the fair value of the land, buildings, and improvements, review 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 the Company's overall relationship with each tenant. Among the factors considered in the allocation of these values include the nature of the existing relationship with the tenant, the tenant's credit quality, the expectation of lease renewals, the estimated carrying costs of the property during a hypothetical expected lease-up period, current market conditions and costs to execute similar leases. Estimated carrying costs include real estate taxes, insurance, other property operating costs and estimates of lost rentals at market rates during the hypothetical expected lease-up periods, 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 as discussed above, the Company has determined that its real estate properties do not have any 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 the Company's portfolio, and discount rates used in these calculations. Management's estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable. Assumptions may not always reflect unanticipated events and changes in circumstances that may occur. In making such estimates, management uses a number of sources, including appraisals that may be obtained in connection with the acquisition of financing of the respective F-7 property or other market data. Management also considers information obtained in its pre-acquisition due diligence and market and leasing activities in estimating the fair value of tangible and intangible assets acquired. Construction in progress and land held for development Land held for development is stated at cost. Costs incurred during the predevelopment stage are capitalized once management has identified a site, determined that the project is feasible and it is probable that the Company is able to proceed with the project. Properties undergoing significant renovations and improvements are considered under development. The Company estimates the cost a property undergoing renovations as a basis for determining eligible costs. Interest, real estate taxes and other costs directly related to the properties and projects under development are capitalized until the property is ready for its intended use. Similar costs related to properties not under development are expensed as incurred. In addition, the Company writes off costs related to predevelopment projects when it determines that it will no longer pursue the project. Long-lived assets Long-lived assets, such as property, land held for development, certain identifiable intangibles, and goodwill related to those assets to be held and used are reviewed for impairment whenever events or changes in circumstances indicate that it is probable that the sum of expected undiscounted cash flows of the related operations are less than historical net cost basis. These factors, along with plans with respect to the operations, are considered in assessing the recoverability of long-lived assets. If the Company determines that the carrying amount is impaired, the long-lived assets are written down to their fair value with a corresponding charge to earnings. During the periods presented, no such impairment was incurred. Cash and cash equivalents The Company considers highly liquid investments with an initial maturity of three months or less to be cash equivalents. Cash held in escrow Escrowed cash consists of cash being held in anticipation of the execution of tax-free exchanges under Section 1031 of the Internal Revenue Code. Deferred expenses Deferred expenses consist of loan origination fees and leasing costs. Loan and other fees directly related to rental property financing with third parties are amortized over the term of the loan which approximates the effective internet method. Direct salaries, third party fees and other costs incurred by the Company to originate a lease, are capitalized and are being amortized using the straight-line method over the term of the related leases. Deposits Deposits are composed of funds held by various institutions for future payments of property taxes, insurance and improvements, utility and other service deposits. Revenue Recognition Rental income comprises minimum rents, expense reimbursements, termination fees and percentage rent payments. Rental income is recognized over the lease term on a straight-line basis as it becomes receivable according to the provisions of the lease. Expense reimbursements are recognized in the period that the applicable costs are incurred. The Company accounts for these leases as operating leases as the Company has retained substantially all risks and benefits of property ownership. Percentage F-8 rent is recognized when the tenant's reported sales have reached certain levels specified in the respective lease. LP maintains an allowance for doubtful accounts for estimated losses resulting from the inability of tenant to make required rent payments. The computation of this allowance is based on the tenants' payment history and credit quality. Income taxes No federal or state income taxes are reflected in the accompanying 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. Segment information The Partnership's properties are community and neighborhood shopping centers located predominately in high growth markets in the southern United States. Each of the Partnership's centers are separate operating segments which have been aggregated and reported as one reportable segment because they have characteristics so similar that they are expected to have essentially the same future prospects. The economic characteristics include similar returns, occupancy and tenants and each is located near a metropolitan area with similar economic demographics and site characteristics. Use of estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. New 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 or 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. The Partnership adopted SFAS No. 145 as of July 2002 and has reflected gains (losses) from extinguishment of debt as part of ordinary income. 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. F-9 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 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. Fair value of financial instruments The estimated fair values of financial instruments have been determined by the Partnership using available market information and appropriate valuation methods. Considerable judgment is required in interpreting market data to develop the estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts that the Company could realize in a current market exchange. The use of different market assumptions and/or estimation methods may have a material effect on the estimated fair value amounts. The Partnership has used the following market assumptions and/or estimation methods: Cash and Cash Equivalents and Accounts and Other Receivables. The carrying amounts reported in the balance sheets for these financial instruments approximate fair value because of their short maturities. Mortgage Notes Payable. The estimated fair value at December 31, 2003 and 2002 was $39,900 and $45,818, respectively, calculated based on the net present value of payments over the term of the loans using estimated market rates for similar mortgage loans and remaining terms. F-10 Reclassifications Certain prior year amounts have been reclassified to conform to the current year financial presentation. 3. Properties ----------
Composition in the balance sheets: December 31, ------------------------------ 2003 2002 ------------- ------------- (Successor) (Predecessor) Land and land improvements............................. $ 87,094 $ 40,468 Building and building improvements..................... 91,777 128,628 Tenant improvements.................................... 201 4,515 ------------- ------------- Total income producing property................... 179,072 173,611 Less: accumulated depreciation......................... (2,641) (28,945) ------------- ------------- Total rental property............................. 176,431 144,666 Construction in progress and land held for development. 2,012 - Property held for sale................................. 8,689 - ------------- ------------- Properties, net..................................... $ 187,132 $ 144,666 ============= =============
Acquisitions LP did not acquire any properties during 2003. 4. Other Assets ------------
Composition in the balance sheets: December 31, ---------------------------- 2003 2002 ----------- ----------- (Successor) (Predecessor) Accounts and other receivables, net of allowance for doubtful accounts of $187 and $120, respectively........................... $ 1,820 $ 1,450 Deposits and escrow impounds........................................ 839 610 Deferred expenses................................................... 253 851 Prepaid and other assets............................................ 17 21 ----------- ----------- Total Other Assets............................................. $ 2,929 $ 2,932 =========== ===========
5. Notes Payable -------------
Composition in the balance sheets: December 31, ---------------------------- 2003 2002 ----------- ----------- (Successor) (Predecessor) Fixed rate mortgage loans Various mortgage notes payable secured by rental properties, bearing interest at 7.02% to 9.19% per annum, maturing from 2009 through 2015................................................. $ 34,400 $ 41,476 Unamortized premium on mortgage notes payable....................... 4,661 - ----------- ----------- Total notes payable.............................................. $ 39,061 $ 41,476 =========== ===========
Each of the existing mortgage loans is secured by a mortgage on one or more of certain of Partnership properties. Certain of the mortgage loans involving an aggregate principal balance of approximately $22.2 million contain prohibitions on transfers of ownership which may have been F-11 violated by the Company's previous issuances of common stock or in connection with past acquisitions and may be violated by transactions involving the Company's capital stock in the future. If a violation were established, it could serve as a basis for a lender to accelerate amounts due under the affected mortgage. To date, no lender has notified the Company or LP that it intends to accelerate its mortgage. Based on discussions with various lenders, current credit market conditions and other factors, LP believes that the mortgages will not be accelerated. Accordingly, LP believes that the violations of these prohibitions will not have a material adverse impact on LP's results of operations or financial condition. As of December 31, 2003, the scheduled amortization and principal payments due on mortgage notes payable are as follows: Total Scheduled Balloon Principal Balance Year Amortization Payments Due at Maturity ------------------- -------------- ------------ ------------------- 2004............... $ 650 $ - $ 650 2005............... 709 - 709 2006............... 771 - 771 2007............... 838 - 838 2008............... 908 - 908 Thereafter......... 4,560 25,964 30,524 -------------- ------------ ------------------- Total.......... $8,436 $ 25,964 $ 34,400 ============== ============= =================== 6. 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 $162,000 was outstanding at December 31, 2003. These notes and revolving credit facility have also been guaranteed by most of the Company's wholly-owned subsidiaries. 7. Dispositions ------------ LP includes the operations of properties sold and held for sale, as well as the gain on sale of sold properties identified for sale on or after January 1, 2002, as discontinued operations for all periods presented. As of December 31, 2003, one retail property was classified as property held for sale. This property has an aggregate gross leasable area of 214 square feet and an aggregate net book value of $8,689. The operations of this property are reflected in discontinued operations. The following table reflects properties being reported in discontinued operations for the year ended December 31, 2002:
Square Feet/ Gross Sales Gain On Property Location Date Sold Acres Price Sale - ---------------------- ----------------- ---------------- -------------- ----------- ---------- 2002 Dispositions (Predecessor) - ---------------------- Forest Hills Center... Wilson, NC September 2002 74,180 $ 6,850 $ 2,187 Asheville Plaza....... Asheville, NC November 2002 49,800 950 735 Lawrence Commons...... Lawrensburg, TN December 2002 52,295 4,219 1,254 ----------- ---------- Total....................................................................... $ 12,019 $ 4,176 =========== ==========
F-12 8. Future Minimum Rental Income, Commitments and Contingent Liabilities -------------------------------------------------------------------- Future minimum rental income under noncancelable operating leases approximates the following as of December 31, 2003: Year Ending December 31, Amount ------------------------------- ---------------- 2004................ $ 15,936 2005................ 13,432 2006................ 10,088 2007................ 7,074 2008................ 5,203 Thereafter.......... 23,925 --------------- Total............... $ 75,658 =============== The Partnership is subject to litigation in the normal course of business, none of which as of December 31, 2003 in the opinion of management will have a material adverse effect on the financial condition, results of operations, or cash flows of the Partnership. * * * * * F-13 INDEPENDENT AUDITORS' REPORT To the Partners of IRT Partners L.P. We have audited the financial statements of IRT Partners L.P. (a limited partnership) ("LP") for the period from January 1, 2003 through February 11, 2003 (merger date) and for the period from February 12, 2003 through December 31, 2003 and for each of the two years in the period ended December 31, 2002 and have issued our report thereon dated March 10, 2004; such report is included elsewhere in this Form 10-K. Our audits also included the financial statement schedule of LP, listed in Item 15(a)2. This financial statement schedule is the responsibility of the LP's management. Our responsibility is to express an opinion based on our audits. In our opinion, such financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. DELOITTE & TOUCHE LLP Certified Public Accountants Miami, Florida March 10, 2004 ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS (a) Financial Statements of Business Acquired. Not applicable (b) Pro Forma Financial Information. Not applicable (c) Exhibits. 10.1 Amendment No. 1 to Credit Agreement, dated as of March 18, 2004, among Equity One, Inc., Wells Fargo Bank, National Association, in its capacity as contractual representatives of the lenders named therein 10.2 Clarification Agreement and Protocal, dated as of January 1, 2004, among Equity One, Inc. and Gazit-Globe (1982), Ltd. 23.1 Consent of Deloitte & Touche LLP SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, Equity One has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. Date: March 22, 2004 EQUITY ONE, INC. By: /s/ Howard M. Sipzner ----------------------------- Howard M. Sipzner Chief Financial Officer EQUITY ONE, INC. INDEX TO EXHIBITS Exhibit Number Description of Exhibit - -------------- ----------------------- 10.1 Amendment No. 1 to Credit Agreement, dated as of March 18, 2004, among Equity One, Inc., Wells Fargo Bank, National Association, in its capacity as contractual representatives of the lenders named therein 10.2 Clarification Agreement and Protocal, dated as of January 1, 2004, among Equity One, Inc. and Gazit-Globe (1982), Ltd. 23.1 Consent of Deloitte & Touche LLP EX-10 3 exh10_1.txt EXHIBIT 10.1 Exhibit 10.1 ------------ AMENDMENT NO. 1 TO CREDIT AGREEMENT THIS AMENDMENT NO. 1 TO CREDIT AGREEMENT (the "Amendment"), dated as of March 18, 2004, is entered into by and among EQUITY ONE, INC., a corporation organized under the laws of the State of Maryland (the "Borrower"), WELLS FARGO BANK, NATIONAL ASSOCIATION, in its capacity as contractual representative of the "Lenders" under and as defined in the Credit Agreement referred to below (in such capacity, the "Administrative Agent"), as a Lender and as Sole Lead Arranger, COMMERZBANK AG NEW YORK AND GRAND CAYMAN BRANCHES, KEYBANK NATIONAL ASSOCIATION, and SOUTHTRUST BANK, each as a Lender and as a Documentation Agent, and BANK ONE, NA, PNC BANK, NATIONAL ASSOCIATION, AMSOUTH BANK, DEUTSCHE BANK TRUST COMPANY AMERICAS, SUNTRUST BANK, BANK LEUMI USA, CIBC INC., COMERICA BANK, COMMERCEBANK, N.A, COMPASS BANK, and ISRAEL DISCOUNT BANK OF NEW YORK, as Lenders. R E C I T A L S A. Pursuant to the terms of a Credit Agreement, dated as of February 7, 2003 between Borrower and Lenders (as amended, restated supplemented or otherwise modified from time to time, the "Credit Agreement"), Lenders extended credit to Borrower in the principal amount of Three Hundred Forty Million Dollars ($340,000,000) (the "Loan"). The Loan is evidenced by certain promissory notes executed by Borrower in favor of Lenders, which promissory notes aggregate to the principal amount of the Loan (collectively, as amended, restated supplemented or otherwise modified from time to time, the "Notes"), and is further evidenced by the documents described in the Credit Agreement as the "Loan Documents". All capitalized and herein undefined terms shall have the meanings as set forth in the Credit Agreement. B. By this Amendment, Borrower, Lenders and Administrative Agent intend to modify and amend certain terms and provisions of the Loan Documents. NOW, THEREFORE, Borrower, Lenders and Administrative Agent agree as follows: 1. CONDITIONS PRECEDENT. The following are conditions precedent to Lenders' obligations under this Amendment: 1.1 Receipt by Administrative Agent of fully executed originals of this Amendment, the Amended and Restated Swing Line Note (in the form attached as Exhibit A hereto), and any and all other documents which are required by this Amendment or by any other Loan Document, each in form and content acceptable to Administrative Agent; 1.2 Reimbursement to Administrative Agent by Borrower of Administrative Agent's costs and expenses incurred in connection with this Amendment and the transactions contemplated hereby, including, without limitation, reasonable attorneys' Page 1 fees and documentation costs and charges, whether such services are furnished by Administrative Agent's employees or agents or by independent contractors; 1.3 The representations and warranties contained in this Amendment are true and correct; and 1.4 All payments due and owing to Lenders under the Loan Documents have been paid current as of the effective date of this Amendment. Notwithstanding the foregoing, the provisions set forth in Section 3.4 below shall have prospective effect only from and after the date on which Borrower has complied with Section 4 below. 2. REPRESENTATIONS AND WARRANTIES. Borrower hereby represents and warrants to Administrative Agent and each Lender that no Event of Default or Default exists under any of the Loan Documents (as modified by this Amendment) and that all representations and warranties herein and in the other Loan Documents are true and correct, which representations and warranties shall survive execution of this Amendment. Without limiting the foregoing Borrower further represents and warrants to Administrative Agent and each Lender that, except as listed on Schedule 1 hereto, (a) Borrower is in full compliance with the requirements of Section 8.14 of the Credit Agreement, (b) each entity required pursuant to the terms of such Section 8.14 to execute and deliver a Guaranty or an Accession Agreement has done so, and (c) the Guarantor's Consent appended hereto correctly and accurately lists as signatories all entities which are required, pursuant to the terms of such Section 8.14, to execute a Guaranty or an Accession Agreement in connection with the Loan. 3. MODIFICATION OF LOAN DOCUMENTS. The Loan Documents are hereby supplemented and modified to incorporate the following, which shall supersede and prevail over any conflicting provisions of the Loan Documents: 3.1 Addition of Ground Lease Properties. In order to add two new approved ground leases to the Credit Agreement, the definition of "Approved Ground Leases" set forth therein is replaced in its entirety with the following: "Approved Ground Leases" means the following six Leasehold estates: McAlpin Square, Shelby Plaza and Plaza Acadienne, the Kmart at Lantana, El Novillo and Park Northern. 3.2 Increase of Swing line. In order to increase the swingline subfacility permitted under the Loan from $25,000,000 to $35,000,000, in each of the first "Whereas" clause of the preamble and in Section 2.3(a) of the Credit Agreement the reference therein to "$25,000,000" is hereby amended to read "$35,000,000". In furtherance of the foregoing, concurrently with the execution and delivery of this Amendment, Borrower shall execute and deliver to Administrative Agent, for the benefit of the Swingline Lender, an Amended and Restated Swing Line Note (in the form attached hereto as Exhibit A) reflecting such increase in the swingline subfacility. Page 2 3.3 Modifications to Competitive Bid Subfacility. The following modifications are hereby made with respect to the Competitive Bid Subfacilty: (a) Increase in Amount. In order to increase the competitive bid subfacility permitted under the Loan from $150,000,000 to $170,000,000, in each of the first "Whereas" clause of the preamble, Section 2.4(a), Section 2.8(b)(iii) and Section 2.13 of the Credit Agreement the reference therein to "$150,000,000" are hereby amended to read "$170,000,000". (b) Decrease in Minimum Amount of Bid Rate Borrowings. In order to decrease the permitted minimum amounts of Bid Rate Borrowings from a required minimum amount of $5,000,000 and integral multiples of $1,000,000 to a required minimum amount of $2,000,000 and integral multiples of $500,000, in each of Section 2.4(b)(ii), Section 2.4(c)(ii)(F) and Section 2.4(e)(i)(D) the reference therein to "$5,000,000 and integral multiples of $1,000,000" is hereby amended to read "$2,000,000 and integral multiples of $500,000". In furtherance of the foregoing, replacement forms of Bid Rate Quote Request and Bid Rate Quote are attached hereto (as Exhibits B and C, respectively) in order to modify the amount limitations currently reflected in footnote number 1 of each such document. 3.4 Modification of Guarantor Requirements. Effective as of the Guarantor Modification Effective Date (as defined in Section 4 below), Section 8.14(a) of the Credit Agreement is hereby amended and restated in its entirety as follows: (a) Generally. Borrower shall cause any Subsidiary and Unconsolidated Affiliate that is not already a Guarantor and to which any of the following conditions apply (each a "New Guarantor") to execute and deliver to Administrative Agent an Accession Agreement, together with the other items required to be delivered under the subsection (c) below: (i) such Person (other than the Borrower) owns an Unencumbered Pool Property; (ii) such Person is a Wholly Owned Subsidiary of Borrower; or (iii) such Person is a Subsidiary of Borrower or Unconsolidated Affiliate which Guarantees, or otherwise becomes obligated in respect of, any Indebtedness of Borrower, any Unconsolidated Affiliate or any Subsidiary of the Borrower. Any such Accession Agreement and the other items required under subsection (c) below must be delivered to the Administrative Agent no later than ten (10) Business Days following the date on which any of the above conditions first applies to a New Guarantor. Notwithstanding the foregoing, a Wholly Owned Subsidiary shall not be required to become a Guarantor if such Wholly Owned Subsidiary (1) cannot become a party to the Guaranty without violating (A) express provisions of indebtedness incurred by such Wholly Owned Subsidiary, Page 3 or (B) in the case of a Wholly Owned Subsidiary obligated under any secured mortgage indebtedness, express provisions of such Wholly Owned Subsidiary's organizational documents, or (2) is not obligated under any Indebtedness. With respect to clause (1) above, Borrower shall deliver to Administrative Agent promptly upon request copies of such indebtedness or organizational documentation or such other items as Administrative Agent may reasonably request to confirm the possibility of such violation. For the avoidance of doubt, no Property owned by a New Guarantor shall be deemed an Eligible Property nor included among the Unencumbered Pool Properties unless and until such New Guarantor shall have executed and delivered to the Administrative Agent an Accession Agreement in accordance with the terms hereof. 3.5 Additional Guarantor Reporting. A new Section 8.14(e) to the Credit Agreement is hereby added to the Credit Agreement as follows: (e) Required Reporting. Concurrently with each delivery by Borrower of a Compliance Certificate as and when required by Section 9.3, Borrower shall include therewith a complete listing of all Subsidiaries which are Non-Guarantor Entities, along with a notation for each such Subsidiary as to the applicable exception (set forth in the final paragraph of subsection (a) above) which permits such Subsidiary to remain a Non-Guarantor Entity. For the avoidance of doubt, no Property owned by an entity of the type herein described shall be deemed an Eligible Property nor included among the Unencumbered Pool Properties unless and until such entity shall have executed and delivered to the Administrative Agent an Accession Agreement in accordance with the terms of the Credit Agreement. 4. ADDITIONAL GUARANTORS. On or before the earlier of (a) five (5) days following the date on which Borrower closes its currently pending "Medium Term Note Issuance", or (b) June 30, 2004 (the earlier such date, the "Guarantor Modification Effective Date"), Borrower shall cause each entity which, under the terms of Section 8.14 of the Credit Agreement (not taking into account the amendment to such section contemplated in Section 3.4 above) are required to execute and deliver an Accession Agreement or Guaranty (and which have not yet done so), to execute and deliver same to Administrative Agent. Borrower represents and warrants for the benefit of Administrative Agent and Lenders that Schedule 1 attached hereto lists, as of the date hereof, all Borrower Subsidiaries which are not currently Guarantors, but which, pursuant to the provisions of Section 8.14 of the Credit Agreement (not taking into account the amendment to such section contemplated in Section 3.4 above), were previously supposed to execute either a Guaranty or an Accession Agreement. 5. FORMATION AND ORGANIZATIONAL DOCUMENTS. Borrower has previously delivered to Administrative Agent all of the relevant formation and organizational documents of Borrower and Guarantor, and all such formation documents remain in full force and effect and have not been amended or modified since they were delivered to Administrative Agent. Borrower hereby certifies that: (a) the above documents are all of the relevant formation and organizational documents of Borrower and Guarantor; (b) they remain in full force and Page 4 effect; and (c) they have not been amended or modified since they were previously delivered to Administrative Agent. 6. NON-IMPAIRMENT. Except as expressly provided herein, nothing in this Amendment shall alter or affect any provision, condition, or covenant contained in the Notes or other Loan Documents or affect or impair any rights, powers, or remedies of Lenders, it being the intent of the parties hereto that the provisions of the Notes and other Loan Documents shall continue in full force and effect except as expressly modified hereby. 7. MISCELLANEOUS. This Amendment and the other Loan Documents shall be governed by and interpreted in accordance with the laws of the State of California, except if preempted by federal law. Time is of the essence of each term of the Loan Documents, including this Amendment. If any provision of this Amendment or any of the other Loan Documents shall be determined by a court of competent jurisdiction to be invalid, illegal or unenforceable, that portion shall be deemed severed from this Amendment and the remaining parts shall remain in full force as though the invalid, illegal, or unenforceable portion had never been a part thereof. 8. INTEGRATION; INTERPRETATION. The Loan Documents, including this Amendment, contain or expressly incorporate by reference the entire agreement of the parties with respect to the matters contemplated therein and supersede all prior negotiations, written or oral. The Loan Documents shall not be modified except by written instrument executed by all parties. Any reference to the Loan Documents includes any amendments, renewals or extensions now or hereafter approved by Administrative Agent and Lenders in writing. 9. EXECUTION IN COUNTERPARTS. To facilitate execution, this document may be executed in as many counterparts as may be convenient or required. It shall not be necessary that the signature of, or on behalf of, each party, or that the signature of all persons required to bind any party, appear on each counterpart. All counterparts shall collectively constitute a single document. It shall not be necessary in making proof of this document to produce or account for more than a single counterpart containing the respective signatures of, or on behalf of, each of the parties hereto. Any signature page to any counterpart may be detached from such counterpart without impairing the legal effect of the signatures thereon and thereafter attached to another counterpart identical thereto except having attached to it additional signature pages. (REMAINDER OF PAGE INTENTIONALLY LEFT BLANK) Page 5 IN WITNESS WHEREOF, Borrower, Lenders and Administrative Agent have caused this Amendment to be duly executed as of the date first above written. BORROWER: EQUITY ONE, INC. By: /s/ Chaim Katzman ------------------------------- Name: Chaim Katzman Title: Chief Executive Officer ADMINISTRATIVE AGENT WELLS FARGO BANK, NATIONAL ASSOCIATION AND LENDER: By: /s/ Edwin S. Poole, III ------------------------------- Name: Edwin S. Poole, III Title: Vice President DOCUMENTATION AGENT COMMERZBANK AG NEW YORK AND GRAND AND LENDER: CAYMAN BRANCHES By: /s/ Ralph C. Marra, Jr. ------------------------------- Name: Ralph C. Marra, Jr. Title: Vice President By: /s/ Christian Berry ------------------------------- Name: Christian Berry Title: Vice President DOCUMENTATION AGENT KEYBANK NATIONAL ASSOCIATION AND LENDER: By: /s/ Michael P. Szuba ------------------------------- Name: Michael P. Szuba Title: AVP DOCUMENTATION AGENT SOUTHTRUST BANK AND LENDER: By: /s/ J.R. Miller ------------------------------- Name: J. R. Miller Title: G.V.P. LENDER: BANK ONE, NA By: /s/ Mark Kramer ------------------------------- Name: Mark Kramer Title: Director Page 6 LENDER: PNC BANK, NATIONAL ASSOCIATION By: /s/ Michael E. Smith ------------------------------- Name: Michael E. Smith Title: Vice President LENDER: AMSOUTH BANK By: /s/ Lee Surtees ------------------------------- Name: Lee Surtees Title: Officer LENDER: DEUTSCHE BANK TRUST COMPANY AMERICAS By: /s/ Steven P. Lapham ------------------------------- Name: Steven P. Lapham Title: Managing Director LENDER: SUNTRUST BANK By: /s/ Nancy B. Richards ------------------------------- Name: Nancy B. Richards Title: Vice President LENDER: BANK LEUMI USA By: /s/ Shirly Yechilerich ------------------------------- Name: Shirly Yechilerich Title: AVP By: /s/ Michaela Klein, 212 ------------------------------- Name: Michaela Klein, 212 Title: Senior Vice President LENDER: CIBC INC. By: /s/ Joel Gershkon ------------------------------- Name: Joel Gershkon Title: Authorized Signatory LENDER: COMERICA BANK By: /s/ Leslie A. Vogel ------------------------------- Name: Leslie A. Vogel Title: Vice President Page 7 LENDER: COMMERCEBANK, N.A. By: /s/ Alan L. Hills ------------------------------- Name: Alan L. Hills Title: Vice President LENDER: COMPASS BANK By: /s/ Johanna Duke Paley ------------------------------- Name: Johanna Duke Paley Title: Senior Vice President LENDER: ISRAEL DISCOUNT BANK OF NEW YORK By: /s/ David Kenin ------------------------------- David Kenin SVP and Regional Manager Its: Senior VP & Regional Mgr. /s/ Herbert K. Fried ------------------------------- Herbert K. Fried Secretary, V.P. Page 8 Schedule 1 List of Entities Required (as of the date hereof) to Execute a Guaranty or an Accession Agreement Which Have Not Yet Done So Name of Entity State of Organization - -------------- --------------------- Equity One Butler Creek LLC Georgia Equity One Realty & Management SE, Inc. Georgia Equity One (Belfair II) Inc. South Carolina Equity One (Hamilton Ridge) Inc. Georgia Equity One (Hunter's Creek) Inc. Florida Equity One (Louisiana Portfolio) LLC Florida Equity One (Louisiana Holding) LLC Florida Equity One (Monument) Inc. Florida Equity One (North Village) LLC South Carolina Equity One (North Village II) Inc. South Carolina Equity One (Pavilion) Inc. Florida Equity One (Presidential Movies) Inc. Georgia Equity One (Sheridan) Inc. Florida Equity One (Sheridan Plaza) LLC Florida Louisiana Holding Corp. Florida North Kingwood Centre I LP Texas South Kingwood Centre I LP Texas VW Mall, Inc. Georgia Guarantor' Consent - Page 1 GUARANTOR'S CONSENT The undersigned (each a "Guarantor") consent to the foregoing AMENDMENT NO. 1 TO CREDIT AGREEMENT and the transactions contemplated thereby and each Guarantor reaffirms its obligations under, as applicable, (a) the Guaranty dated as of February 7, 2003 and (b) the Accession Agreement dated as of February 12, 2003 (collectively, as amended, restated, supplemented or otherwise modified from time to time, the "Guaranty"), and its waivers, as set forth in the Guaranty, of each and every one of the possible defenses to such obligations. Each Guarantor further reaffirms that its obligations under the Guaranty are separate and distinct from Borrower's obligations. Dated as of: March 18, 2004 GUARANTORS Bandera Festival GP, LLC Beechnut Centre Corp. Benbrook Centre Corp. Bend Shopping Centre Corp. Cashmere Developments, Inc. Centerfund (US), LLC Centrefund Acquisition (Texas) Corp. Centrefund Acquisition Corp. Centrefund Development (Gainesville), LLC Centrefund Realty (U.S.) Corporation Colony GP, LLC Copperfield Crossing, Inc. Eastbelt Centre Corp. East Townsend Square, Inc. Equity (Landing) Inc. Equity One (147) Inc. Equity One (Alpha) Corp. Equity One (Atlantic Village) Inc. Equity One (Beauclerc) Inc. Equity One (Beta) Inc. Equity One (Commonwealth) Inc. Equity One Construction Inc. By: /s/ Chaim Katzman ---------------------------------- Chaim Katzman President Guarantor' Consent - Page 1 Equity One (Coral Way) Inc. Equity One (Delta) Inc. Equity One (El Novillo) Inc. Equity One (Eustis Square) Inc. Equity One (Forest Edge) Inc. Equity One (Forest Village Phase II) Inc. Equity One (Gamma) Inc. Equity One (Lantana) Inc. Equity One (Losco) Inc. Equity One (Mandarin) Inc. Equity One (Monument) Inc. Equity One (North Port) Inc. Equity One (Oak Hill) Inc. Equity One (Olive) Inc. Equity One (Point Royale) Inc. Equity One (Sky Lake) Inc. Equity One (Summerlin) Inc. Equity One (Walden Woods) Inc. Equity One (West Lake) Inc. Equity One Acquisition Corp. Equity One (Clematis) LLC Equity One Properties, Inc. Equity One Realty & Management Texas, Inc. Equity One Realty & Management FL, Inc. Equity Texas Properties, LLC FC Market GP, LLC Florida Del Rey Holdings II, Inc. Forrestwood Equity Partners GP, LLC Garland & Barns, LLC Garland & Jupiter, LLC Gazit (Meridian) Inc. Grogan Centre Corp. Harbor Barker Cypress GP, LLC Hedwig GP, LLC Homestead Market Center, Inc. IRT Alabama, Inc. IRT Capital Corporation II IRT Management Company KirkBiss GP, LLC By: /s/ Chaim Katzman ---------------------------------- Chaim Katzman President Guarantor' Consent - Page 2 Leesburg DrugStore, LLC Mariner Outparcel, Inc. Mason Park GP, LLC McMinn Holdings, Inc. North American Acquisition Corp. North Kingwood Centre Corp. Oakbrook Square Shopping Center Corp. Parcel F, LLC Plymouth South Acquisition Corp. Prosperity Shopping Center Corp. PSL Developments, Inc. Ryanwood Shopping Center, L.L.C. SA Blanco Village Partners GP, LLC Salerno Village Shopping Center, LLC Shoppes at Jonathan's Landing, Inc. Shoppes at Westbury Shopping Center, Inc. South Kingwood Centre Corp. Spring Shadows GP, LLC St. Charles Outparcel, Inc. Steeplechase Centre Corp. Southwest 19 Northern, Inc. Texas Equity Holdings, LLC The Harbour Center, Inc. The Meadows Shopping Center, LLC The Shoppes of Eastwood, LLC UIRT GP, L.L.C. UIRT I - Centennial, Inc. UIRT LP, L.L.C. UIRT-Northwest Crossing, Inc. Wickham DrugStore, LLC Wimbledon Center Corp. Wurzbach Centre, LLC By: /s/ Chaim Katzman ---------------------------------- Chaim Katzman President Bandera Festival Partners, LP By: Bandera Festival GP, LLC By: /s/ Chaim Katzman ------------------------------- Chaim Katzman President Guarantor' Consent - Page 3 BC Centre Partners, LP By: Harbour Barker Cypress GP, LLC By: /s/ Chaim Katzman ------------------------------- Chaim Katzman President Beechnut Centre I L.P. By: Beechnut Centre Corp. By: /s/ Chaim Katzman ------------------------------- Chaim Katzman President Bend Shopping Centre I L.P. By: Bend Shopping Centre Corp. By: /s/ Chaim Katzman ------------------------------- Chaim Katzman President Eastbelt Centre I L.P. By: Eastbelt Centre Corp. By: /s/ Chaim Katzman ------------------------------- Chaim Katzman President FC Market Partners, LP By: FC Market GP, LLC By: /s/ Chaim Katzman ------------------------------- Chaim Katzman President Guarantor' Consent - Page 4 Grogan Centre I L.P. By: Grogan Centre Corp. By: /s/ Chaim Katzman ------------------------------- Chaim Katzman President Hedwig Partners, LP By: Hedwig GP, LLC By: /s/ Chaim Katzman ------------------------------- Chaim Katzman President IRT Partners LP By: Equity One, Inc. By: /s/ Chaim Katzman ------------------------------- Chaim Katzman President Kirkwood - Bissonnet Partners, LP By: KirkBiss GP, LLC By: /s/ Chaim Katzman ------------------------------- Chaim Katzman President Mason Park Partners, LP By: Mason Park GP, LLC By: /s/ Chaim Katzman ------------------------------- Chaim Katzman President Guarantor' Consent - Page 5 Park Northern/Centennial Partners, L.P. By: UIRT I - Centennial, Inc. By: /s/ Chaim Katzman ------------------------------- Chaim Katzman President SA Blanco Village Partners, LP By: SA Blanco Village Partners GP, LLC By: /s/ Chaim Katzman ------------------------------- Chaim Katzman President Steeplechase Centre I L.P. By: Steeplechase Centre Corp. By: /s/ Chaim Katzman ------------------------------- Chaim Katzman President Texas CP Land, LP By: Colony GP, LLC By: /s/ Chaim Katzman ------------------------------- Chaim Katzman President Texas Spring Shadows Partners, LP By: Spring Shadows GP, LLC By: /s/ Chaim Katzman ------------------------------- Chaim Katzman President Guarantor' Consent - Page 6 UIRT, Ltd. By: UIRT GP, LLC By: /s/ Chaim Katzman ------------------------------- Chaim Katzman President Guarantor' Consent - Page 7 EXHIBIT A --------- AMENDED AND RESTATED SWING LINE NOTE $35,000,000 March __, 2004 FOR VALUE RECEIVED, the undersigned, EQUITY ONE, INC., a corporation organized under the laws of the State of Maryland (the "Borrower"), hereby unconditionally promises to pay to the order of WELLS FARGO BANK, NATIONAL ASSOCIATION (the "Swingline Lender"), in care of Wells Fargo Bank, National Association, as Administrative Agent (the "Administrative Agent"), to Wells Fargo Bank, National Association, 2120 E. Park Place, Suite 100, El Segundo, California 90245 or at such other address as may be specified by the Administrative Agent to the Borrower, the principal sum of THIRTY-FIVE MILLION AND NO/100 DOLLARS ($35,000,000), or such lesser amount as shall equal the aggregate unpaid principal amount of Swingline Loans made by the Swingline Lender to the Borrower pursuant to, and in accordance with the terms of, the Credit Agreement. The principal amount of this Note, if not sooner paid as required pursuant to the Credit Agreement, will be due and payable, together with all accrued and unpaid interest and other amounts due and unpaid under the Credit Agreement, on the applicable maturity date, but in no event later than the Swingline Termination Date. Borrower may make voluntary prepayments of all or a portion of this Note, upon prior written notice, in accordance with the provisions of Section 2.3 of the Credit Agreement. The Borrower further agrees to pay interest at said office, in like money, on the unpaid principal amount owing hereunder from time to time on the dates and at the rates and at the times specified in the Credit Agreement. Interest will be computed on the basis of the actual number of days elapsed in the period during which interest accrues and a year of three hundred sixty (360) days. The Credit Agreement provides for the payment by Borrower of various other charges and fees, in addition to the interest charges described in the Credit Agreement, as set forth more fully in the Credit Agreement. In no contingency or event whatsoever shall interest charged in respect of the Loans evidenced hereby, however such interest may be characterized or computed, exceed the highest rate permissible under any law that a court of competent jurisdiction shall, in a final determination, deem applicable hereto. If such a court determines that Swingline Lender has received interest hereunder in excess of the highest rate applicable hereto, Swingline Lender shall, at Swingline Lender's election, either (a) promptly refund such excess interest to Borrower or (b) credit such excess to the principal balance of the outstanding Loans held by Swingline Lender. This provision shall control over every other provision of all agreements between Borrower and Swingline Lender. This Swingline Note is the "Swingline Note" referred to in that certain Credit Agreement dated as of February 7, 2003 (as amended, restated, supplemented or otherwise modified from time to time, the "Credit Agreement"), by and among the Borrower, the financial institutions party thereto and their assignees under Section 13.6 thereof and the Administrative Agent, and is subject to, and entitled to, all provisions and benefits thereof. Capitalized terms used herein and not defined herein shall have the respective meanings given to such terms in the Credit Swing Line Note - Page 1 Agreement. The Credit Agreement, among other things, (a) provides for the making of Swingline Loans by the Swingline Lender, for the benefit of each Lender, to the Borrower from time to time in an aggregate amount not to exceed at any time outstanding the Dollar amount first above mentioned, (b) permits the prepayment of the Swingline Loans by the Borrower subject to certain terms and conditions, and (c) provides for the acceleration of the Swingline Loans upon the occurrence of certain specified events. The date, amount of each Swingline Loan, and each payment made on account of the principal thereof, shall be recorded by the Swingline Lender on its books and, prior to any transfer of this Swingline Note, endorsed (with respect to any unpaid Swingline Loans) by the Swingline Lender on the schedule attached hereto or any continuation thereof, provided that the failure of the Swingline Lender to made any such recordation or endorsement shall not affect the obligations of the Borrower to make a payment when due of any amount owing under the Credit Agreement or hereunder in respect of the Swingline Loans. The Borrower hereby waives presentment, demand, protest and notice of any kind. No failure to exercise, and no delay in exercising any rights hereunder on the part of the holder hereof shall operate as a waiver of such rights. Time is of the essence for this Note. THIS NOTE HAS BEEN DELIVERED AND ACCEPTED AT ATLANTA, GEORGIA. THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF CALIFORNIA APPLICABLE TO CONTRACTS EXECUTED, AND TO BE FULLY PERFORMED, IN SUCH STATE. Whenever possible each provision of this Note shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Note shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Note. This Note shall supersede and replace in its entirety that certain Swingline Note dated February 7, 2003 in the original maximum principal amount of Twenty-Five Million Dollars ($25,000,000.00), executed by Borrower in favor of Swingline Lender. All outstanding obligations of Borrower under said note shall be deemed outstanding for all purposes under this Note. IN WITNESS WHEREOF, the undersigned has executed and delivered this Note as of the date written above. EQUITY ONE, INC. By: ____________________________ Name: ____________________________ Title: ____________________________ Swing Line Note - Page 2 EXHIBIT B --------- FORM OF BID RATE QUOTE REQUEST ______________, 200_ Wells Fargo Bank, National Association, as Administrative Agent [Address] Ladies and Gentlemen: Reference is made to that certain Credit Agreement dated as of February 7, 2003 (as amended, restated, supplemented or otherwise modified from time to time, the "Credit Agreement"), by and among Equity One, Inc. (the "Borrower"), the financial institutions party thereto and their assignees under Section 13.6 thereof and Wells Fargo Bank, National Association, as Administrative Agent (the "Administrative Agent"). Capitalized terms used herein, and not otherwise defined herein, have their respective meanings given them in the Credit Agreement. 1. The Borrower hereby requests Bid Rate Quotes for the following proposed Bid Rate Borrowings: Borrowing Date Amount(1) Type(2) Interest Period(3) ______________, 200__ $____________ ____________ ______ days ______________, 200__ $____________ ____________ ______ days ______________, 200__ $____________ ____________ ______ days 2. After giving effect to the Bid Rate Borrowing requested herein, the total amount of Bid Rate Loans outstanding shall be $______________. _____________________________ 1 Minimum amount of $2,000,000 or larger multiple of $500,000. 2 Insert either Absolute Rate (for Absolute Rate Loan) or LIBOR Margin (for LIBOR Margin Loan). 3 Must be 30, 60, 90 or 180 days. Form of Bid Rate Quote Request - Page 1 The Borrower hereby certifies to the Administrative Agent and the Lenders that as of the date hereof and as of the date of the making of the requested Bid Rate Loans (after taking into effect such requested Bid Rate Loans), (a) no Default (including, without limitation, the existence of the condition described in Section 2.8(b)(iii) of the Credit Agreement) or Event of Default exists or shall exist, and (b) the representations and warranties of the Borrower and the other Loan Parties contained in the Credit Agreement and the other Loan Documents are and shall be true and correct in all material respects, except to the extent such representations or warranties specifically relate to an earlier date or such representations or warranties become untrue by reason of events or conditions otherwise permitted under the Credit Agreement or the other Loan Documents. In addition, the Borrower certifies to Administrative Agent and the Lenders that all applicable conditions to the making of the requested Bid Rate Loans contained in Section 6.2 of the Credit Agreement will have been satisfied at the time such Bid Rate Loans are made. BORROWER EQUITY ONE, INC. By: ____________________________ Name: ____________________________ Title: ____________________________ Form of Bid Rate Quote Request - Page 2 EXHIBIT C --------- FORM OF BID RATE QUOTE ______________, 200_ Wells Fargo Bank, National Association, as Administrative Agent [Address] Ladies and Gentlemen: Reference is made to that certain Credit Agreement dated as of February 7, 2003 (as amended, restated, supplemented or otherwise modified from time to time, the "Credit Agreement"), by and among Equity One, Inc. (the "Borrower"), the financial institutions party thereto and their assignees under Section 13.6 thereof and Wells Fargo Bank, National Association, as Administrative Agent (the "Administrative Agent"). Capitalized terms used herein, and not otherwise defined herein, have their respective meanings given them in the Credit Agreement. In response to the Borrower's Bid Rate Quote Request dated _____________, 200_, the undersigned hereby makes the following Bid Rate Quote(s) on the following terms: 1. Quoting Lender: . 2. Person to contact at quoting Lender: . 3. The undersigned offers to make Bid Rate Loan(s) in the following principal amount(s), for the following Interest Period(s) and at the following Bid Rate(s):
Borrowing Date Amount(1) Type(2) Interest Period(3) Bid Rate ______________, 200__ $____________ ____________ ______ days _________ % ______________, 200__ $____________ ____________ ______ days _________ % ______________, 200__ $____________ ____________ ______ days _________ %
___________________________________ 1 Minimum amount of $2,000,000 or larger multiple of $500,000. 2 Insert either Absolute Rate (for Absolute Rate Loan) or LIBOR Margin (for LIBOR Margin Loan). 3 Must be 30, 60, 90 or 180 days. Form of Bid Rate Quote - Page 1 The undersigned understands and agrees that the offer(s) set forth above, subject to satisfaction of the applicable conditions set forth in the Credit Agreement, irrevocably obligate[s] the undersigned to make the Bid Rate Loan(s) for which any offer(s) [is/are] accepted, in whole or in part. By: ____________________________ Name: ____________________________ Title: ____________________________ Form of Bid Rate Quote Request - Page 2 EX-10 4 exh10_2.txt EXHIBIT 10.2 Exhibit 10.2 ------------ Execution Copy CLARIFICATION AGREEMENT AND PROTOCAL THIS CLARIFICATION AGREEMENT AND PROTOCAL ("Agreement") is effective as of January 1, 2004 (the "Effective Date"), between EQUITY ONE, INC., a Maryland corporation (the "Company"), and Gazit-Globe (1982), Ltd., a company formed under the laws of Israel and principal stockholder of the Company (the "Stockholder"). W I T N E S S E T H: WHEREAS, the Company and the Stockholder, and/or the Stockholder's affiliates, have previously entered into an Agreement dated January 1, 1996 (the "Use Agreement") with respect to the use by Chaim Katzman or any of the Stockholder's employees of the Company's facilities, equipment, supplies and personnel necessary to conduct the Stockholder's business and affairs, for which uses the Stockholder agreed to pay the Company an annual sum of $10,000 (the "Use Payment"); WHEREAS, the Company and the Stockholder, or the Stockholder's affiliates, have previously entered into an Investment Contract dated May 21, 1996 (the "Investment Contract"), which provided in pertinent part that the Company would prepare and furnish to the Stockholder or its affiliates certain financial statements of the Company required by the Stockholder for purposes of consolidating the financial results of the Company with those of the Stockholder as required by Israeli generally accepted accounting principals and the Tel Aviv Stock Exchange Ltd., on which the shares of capital stock of the Stockholder are currently traded; WHEREAS, the Company and the Stockholder desire to clarify the prior arrangements memorialized in the Use Agreement and Investment Contract, as more fully set forth in this Agreement, effective as of the Effective Date; NOW, THEREFORE, in consideration of the provisions herein contained, the receipt and sufficiency of which are hereby acknowledged, the parties (the "parties") hereto agree as follows: SECTION 1. Term. The term of this Agreement shall commence effective as of the Effective Date and shall continue until December 31, 2008 and shall be automatically renewed annually thereafter, unless either party gives the other party prior written notice at least 90 days prior to the termination date of the party's intent not to renew this Agreement. SECTION 2. Use of Company's Facilities. (a) The Company and the Stockholder hereby agree, in order to clarify the Use Agreement and subject to Section 3 below, that the "use" specified by the Use Agreement entitles Chaim Katzman and/or any of the Stockholder's employees reasonable access to the Company's facilities, equipment and supplies and to the Company's Chief Financial Officer, General Counsel, Chief Accounting Officer and Chief Information Officer in order in each case to conduct its business and affairs; provided that such use does not significantly interfere with the business operations of the Company and its employees. (b) Subject to subsection 2(c) and Section 3 below, it is hereby clarified that the Use Payment is the total and exclusive consideration to which the Company is entitled with respect to its obligations under the Use Agreement. (c) Notwithstanding anything herein or the Use Agreement to the contrary, the Stockholder agrees to pay any identifiable and verifiable third-party costs incurred by the Company as a result of such use under the Use Agreement (if, for any reason, the actual payment for such invoice is made by the Company and not by the Stockholder, such payment will be reimbursed by the Stockholder within 10 days written request therefor). SECTION 3. Information Technology Services. (a) Without derogating from the generality of Section 2 above, the Company agrees to make available for the reasonable use at reasonable times by the Stockholder certain information technology services, including, without limitation, the services of certain information technology personnel of the Company, desktop working stations for those employees of Stockholder located in Miami, Florida, partial T1 connectivity, daily tape/memory backups, server maintenance, periodic updates and cleanups, minor tech support, remote connectivity to Stockholder's server, email, access to the Company's printers, print presentations, and firewall, VPN and antivirus updates. These services shall be in a manner which is consistent with the provision of such services by the Company and its employees prior to the date hereof. (b) In consideration for the provision of the services by the Company described in subsection 3(a), the parties agree that, as of the Effective Date, the Company shall charge to the Stockholder, and the Stockholder agrees to pay and reimburse to the Company, a monthly fee equal to $1,500. The Company shall invoice the Stockholder as it incurs such costs and fees, but no more frequently than monthly. The Stockholder agrees to pay such invoices within 10 days of its receipt thereof. (c) Notwithstanding Section 1 above or anything else herein to the contrary, either of the parties may terminate this Section 3 and thereby the provision of the information technology services (but not any other section of this agreement) by providing the other party written notice at least 180 days prior to the requested termination date. Such termination of Section 3, shall not affect the other sections of this Agreement, which shall continue in full force and effect. SECTION 4. Israeli Financial Statements. Notwithstanding anything in the Investment Contract to the contrary, the Company agrees that for so long as the Stockholder's ownership of the Company is required, according to accounting principals generally accepted in Israel ("Israeli GAAP"), to be presented in the Stockholder's financial statements on a consolidated basis or on an equity method basis, it will provide 2 to the Stockholder (i) consolidated quarterly unaudited financial statements of the Company prepared in accordance with Israel GAAP (subject to normal year-end adjustments), (ii) consolidated annual audited financial statements of the Company prepared in accordance with Israeli GAAP, together with the notes thereto and (iii) supporting schedules and documentation for (i) and (ii) ((i), (ii) and (iii) are collectively referred to herein as the "Israeli Financial Statements"). The Stockholder hereby agrees that it shall pay any identifiable and verifiable third-party costs incurred by the Company as a result of preparing the Israeli Financial Statements (including, without, limitation the costs and fees of the Company's independent auditors incurred therefor) (if, for any reason, the actual payment for such invoice is made by the Company and not by the Stockholder, such payment will be reimbursed by the Stockholder within 10 days written request therefor). SECTION 2. Termination. Either party may immediately terminate this Agreement in the event that: (a) the other party shall have materially breached any duty, covenant or obligation under the terms of this Agreement and such breach shall have continued for a period of ten (10) days after notice thereof by the party seeking to terminate this Agreement to the other party (or, if such breach is not reasonably subject to cure within ten (10) days, such longer period as may be required to effect a cure, provided breaching party initiates curative action within such ten (10) day period and thereafter is diligently, continuously and in good faith pursuing a cure); or (b) the other party files a voluntary petition in bankruptcy, makes a general assignment for the benefit of creditors, files a petition or other documents seeking reorganization or arrangement with creditors or to take advantage of any insolvency law, or if an order, judgment or decree shall be entered by any court of competent jurisdiction, on the application of a creditor, adjudicating such other party as bankrupt or insolvent or approving a petition seeking reorganization of such other party or appointing a receiver, trustee, or liquidator for such other party or all or a substantial part of its assets, and such order, judgment or decree shall continue unstayed and in effect for any period of sixty (60) consecutive days. SECTION 6. Effect of Termination. Upon the expiration of the term of this Agreement or the termination of this Agreement under Section 5 hereof, the rights and obligations of the parties shall terminate, with the exception of rights and obligations accruing prior to the termination hereof, and the obligations of the parties to make the payments that may be required with respect to months prior to such termination shall survive until satisfied in full. SECTION 7. Notices. Any notice required or permitted to be given hereunder shall be deemed given when actually delivered by overnight courier, facsimile, hand or United States mail, by registered or certified mail, return receipt requested, postage prepaid, to the parties at the following addresses (or such other address as may be given to the other party in writing): 3 Equity One, Inc. To the Company: 1696 NE Miami Gardens Drive Miami, Florida 33179 Attention: Chief Financial Officer General Counsel (305) 947-1734 (facsimile) Gazit-Globe (1982), Ltd. To the Stockholder: 1 Derech Hashalom Tel Aviv, ISRAEL, 67892 Attention: Chief Financial Officer 972-3-6961910 (facsimile) SECTION 8. Assignment. Neither party shall not assign this Agreement or any of its rights or obligations hereunder with the prior written consent of the other party. Any attempted assignment in violation of this Section shall be void ab initio. SECTION 9. Attorneys' Fees. In the event either party is required to seek legal counsel to enforce the terms and provisions of this Agreement, the prevailing party in any action shall be entitled to recover attorneys' fees and costs (including on appeal). SECTION 10. Entire Agreement. This Agreement, together with the Use Agreement and the Investment Contract, contain the entire agreement of the parties and supersedes all prior agreements, understandings and arrangements, both oral and written, between the Company and the Stockholder with respect to the matters discussed herein. This Agreement may be changed only by agreement in writing signed by both parties. For the avoidance of doubt, it is hereby clarified that if this Agreement shall be terminated for any reason, such termination shall not effect the validity of the Use Agreement and the Investment Contract, which shall continue to be in full force and effect in accordance with their terms. SECTION 11. No Third Party Beneficiary. Nothing expressed or implied in this Agreement is intended, or shall be construed, to confer upon or give any person other than the parties hereto and their respective heirs, personal representatives, legal representatives, successors and assigns, any rights or remedies under or by reason of this Agreement. SECTION 12. Governing Law. This Agreement and all transactions contemplated by this Agreement shall be governed by, and construed and enforced in accordance with, the internal laws of the State of Florida without regard to principles of conflicts of law. Each of the parties (i) agrees that any suit, action or legal proceeding relating to this Agreement shall be brought in the courts of the State of Florida in Miami-Dade County; (ii) consents to the jurisdiction of each such court in any suit, action or proceeding; (iii) waives any objection which it may have to the laying of venue of any such suit, action or proceeding in any such court; and (iv) agrees that service of any court paper may be effected on such party by mail, as provided in this Agreement, or in such other manner as may be provided under applicable laws or court rules of the State of 4 Florida. The parties, to the full extent permitted by law, hereby knowingly, intentionally and voluntarily, with and upon the advice of competent counsel, waives, relinquishes and forever forgoes that right to a trial by jury in any action or proceeding based upon, arising out of, or in any way relating to this Agreement or any conduct, act or omission of the parties, or any of their director, officers, partners, members, employees, agents or attorneys, or any other persons affiliated with the parties, in each of the foregoing cases whether sounding in contract, tort or otherwise. SECTION 13. Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed and original but all of which together shall constitute one and the same Agreement. SECTION 14. Headings. The Section headings herein are for reference purposes only and are not intended in any way to describe, interpret, define, or limit the extent or intent of the Agreement or of any part hereof. 5 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. THE COMPANY: EQUITY ONE, INC., a Maryland corporation By: /s/ Howard M. Sipzner ----------------------------------- Howard M. Sipzner Chief Financial Officer THE STOCKHOLDER: GAZIT-GLOBE (1982), LTD., an Israeli corporation By: /s/ Gil Kotler ------------------------------------- Gil Kotler Chief Financial Officer 6 EX-23 5 exh23_1.txt EXHIBIT 23.1 Exhibit 23.1 ------------ INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in Registration Statement No. 333-98775, No. 333-81216 and No. 333-106909 of Equity One, Inc. on Forms S-3 and in Registration Statement No. 333-103368 and No. 333-99597 of Equity One, Inc. on Forms S-8 of our reports dated March 10, 2004 relating to the financial statements of IRT Partners L.P. as of December 31, 2003 and 2002 and for each of three years in the period ended December 31, 2003 and appearing in this Current Report on Form 8-K of Equity One, Inc. filed on March 22, 2004. DELOITTE & TOUCHE LLP Miami, Florida March 22, 2004 -----END PRIVACY-ENHANCED MESSAGE-----