10-K405 1 doc1.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended December 31, 2001 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Transition Period From __________to__________ Commission File Number 1-7859 IRT PARTNERS, L.P. (Exact name of registrant as specified in its charter) GEORGIA 58-2404832 (State of other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 200 GALLERIA PARKWAY, SUITE 1400 ATLANTA, GEORGIA 30339 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (770) 955-4406 SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: None SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X]
FORM 10-K FISCAL YEAR ENDED DECEMBER 31, 2001 TABLE OF CONTENTS ITEM PAGE ---- ---- PART I 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 3. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . . . . 11 4. Submission of Matters to a Vote of Security Holders. . . . . . . . . 11 PART II 5. Market for Registrant's Common Equity and Related Stockholder Matters 11 6. Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . 11 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. . . . . . . . . . . . . . . . . . . . . 12 8. Financial Statements and Supplementary Data . . . . . . . . . . . . . 20 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. . . . . . . . . . . . . . . . 37 PART III 10. Directors and Executive Officers of the Registrant. . . . . . . . . . 37 11. Executive Compensation. . . . . . . . . . . . . . . . . . . . . . . . 37 12. Security Ownership of Certain Beneficial Owners and Management. . . . 37 13. Certain Relationships and Related Transactions. . . . . . . . . . . . 37 PART IV 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K . . . 37
PART I Unless the context otherwise requires, all references to "we," "our" or "us" in this report refer collectively to IRT Partners, L.P. ("LP") and its sole general partner IRT Property Company ("IRT" or the "Company"). Because IRT is the sole general partner of LP, IRT conducts the business of LP. In connection with your review of this report, you should also carefully review the Form 10-K of IRT Property Company, which contains additional information that may be important to you. SPECIAL CAUTIONARY NOTICE REGARDING FORWARD LOOKING STATEMENTS This report contains "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements involve risks and uncertainties. You can identify these forward-looking statements through our use of words such as "may," "will," "intend," "project," "expect," "anticipate," "assume," "believe," "estimate," "continue," or other similar words. Forward-looking statements involve known and unknown risks, uncertainties and other factors, which may be beyond our control. Our actual results may differ significantly from those expressed or implied in our forward-looking statements. Factors that might cause such differences include, but are not limited to: - changes in tax laws or regulations, especially those relating to real estate investment trusts and real estate in general; - the number, frequency and duration of vacancies that we experience; - our ability to solicit new tenants and to obtain lease renewals from existing tenants on terms that are favorable to us; - tenant bankruptcies and closings; - the general financial condition of, or possible mergers or acquisitions involving, our tenants and competitors; - competition; - changes in interest rates and national and local economic conditions; - possible environmental liabilities; - the availability, cost and terms of financing; - our ability to identify, acquire, construct or develop additional properties that result in the returns anticipated or sought; - our ability to effectively integrate properties or portfolio acquisitions or other mergers or acquisitions; and - the factors and risks identified in this report under the heading "Risk Factors." 1 You should also carefully consider any other factors contained in this report, including the information incorporated by reference into this report. You should pay particular attention to those factors discussed in any of our other filings with the Securities and Exchange Commission under the heading "Risk Factors." You should not rely on the information contained in any forward-looking statements, and you should not expect us to update or revise any forward-looking statements. ITEM 1. BUSINESS ORGANIZATION IRT Partners, L.P. ("LP"), a Georgia limited partnership formed on July 15, 1998, is the entity through which IRT Property Company (the "Company"), a self-administered and self-managed real estate investment trust ("REIT"), conducts a portion of its business and owns (either directly or through subsidiaries) a portion of its assets. The Company is the sole general partner of LP and maintains an indirect partnership interest in LP through its wholly-owned subsidiary, IRT Management Company ("IRTMC"). The Company initially contributed 20 shopping centers, related assets and cash to LP in exchange for 8,486,217 limited partnership units ("OP Units"). The Company was issued additional OP Units in exchange for cash contributions to fund further acquisition activity. Since the formation of LP, the Company has contributed cash to acquire seven shopping centers and LP has divested five shopping centers. At December 31, 2001, IRT and IRTMC owned approximately 1% and 93.3%, respectively, of LP. LP was formed by the Company in order to enhance the Company's acquisition opportunities through a "downreit" structure. This structure offers potential sellers the ability to make a tax-deferred sale of their real estate properties in exchange for OP Units of LP. In August 1998, certain unaffiliated persons contributed their interests in three Florida shopping centers in exchange for a total of 815,852 OP Units or 5.7% of the total OP Units of LP. LP is obligated to redeem each OP Unit held by a person other than the Company, at the request of the holder, for cash equal to the fair market value of a share of the Company's common stock at the time of such redemption, provided that the Company may elect to acquire any such OP Unit presented for redemption for one common share or cash. Such limited partnership interest held by persons unaffiliated with the Company is reflected as "Limited Partners' Capital Interest" in the accompanying balance sheets at the cash redemption amount on the balance sheet dates. Federal income tax laws require the Company, as a REIT, to distribute 90% (95% for years prior to 2001) of its ordinary taxable income. LP makes quarterly distributions to holders of OP Units to enable the Company to satisfy this requirement. At December 31, 2001, LP owned 25 neighborhood and community shopping centers located in Florida, Tennessee, Georgia and North Carolina. The shopping centers are anchored by necessity-oriented retailers such as supermarkets, drug stores, national value retailers and department stores. INVESTMENT, OPERATING AND FINANCIAL PHILOSOPHY 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. 2 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 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. 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, other real estate investment trusts and other domestic real estate companies, such as Weingarten Realty Investors, Regency Realty Corporation, JDN Realty Corporation and Equity One, Inc. With respect to properties presently owned by LP or in which it has investments, LP and its tenants and borrowers compete with other owners of like properties, such as Weingarten Realty Investors, Regency Realty Corporation, JDN Realty Corporation and Equity One, Inc., 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. REGULATION LP is subject to federal, state and local environmental regulations regarding the ownership, development and operation of real property. The Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C. sec. 9601 et seq, as amended. ("CERCLA"), and applicable state laws subject the owner of real property to claims or liability for the costs of removal or remediation of hazardous substances that are disposed of on real property in amounts that require removal or remediation. Liability under CERCLA and applicable state superfund laws can be imposed on the owner of real property or the operator of a facility without regard to fault or even knowledge of the disposal of hazardous substances. The failure to undertake remediation where it is necessary may adversely affect the owner's ability to sell real estate or borrow money using such real estate as collateral. In addition to claims for cleanup costs, the presence of hazardous substances on a property could result in claims by private parties for personal injury or property damage. The Company, on behalf of LP, has obtained independent Phase I environmental site assessments (which generally do not include environmental sampling, monitoring or laboratory analysis) for property acquisitions and otherwise as required by its lenders. Except as otherwise disclosed and based upon information presently available to LP, LP presently has no reason to believe that any environmental contamination has occurred nor any violation of any applicable environmental law, statute, regulation or ordinance exists that would have a material adverse effect on LP's financial position taken as a whole. Since January 1, 2000, the Company, on behalf of LP, has acquired environmental and pollution legal liability insurance coverage to mitigate the associated risks. 3 RISK FACTORS Set forth below are some of the risks that management believes are material to investors in LP's OP Units, which are redeemable on a one-for-one basis for Shares or their cash equivalent. We refer to the OP Units as our "Securities," and the investors who own OP Units as our "Security Holders." OWNING AND OPERATING RETAIL REAL ESTATE ENTAILS RISKS THAT COULD ADVERSELY AFFECT OUR PERFORMANCE Dependence on the Retail Industry. Our properties consist predominately of community and neighborhood shopping centers and we depend upon Companies in the retail industry to occupy our properties. The market for retail space may be adversely affected by consolidation of retailers, the relatively weak financial condition of certain retailers and overbuilding in certain markets. Internet Sales. Retail sales over the Internet have been increasing rapidly. The success of electronic commerce businesses in attracting customers of our tenants could adversely affect our tenants and other companies, and thus the demand for retail space. A reduction in the demand for retail space would adversely affect our performance. Major Tenants. As of December 31, 2001, the Company's five largest tenants, as a percentage of revenues, are Publix (8.6%), Kroger (6.8%), Wal-Mart (4.9%), Kmart (4.5%) and Winn Dixie (2.7%). LP could be adversely affected if any of these major tenants experienced a significant downturn in its business or failed to renew its leases as they expired. A downturn in the business of other significant tenants could also affect LP adversely; however, as of December 31, 2001, the Company received no more than 1.2% of our annualized base rental revenue from any other single tenant. Bankruptcy of Tenants. A financially troubled tenant could seek the protection of the bankruptcy laws, which might result in rejection and termination of the tenant's lease. Whether or not a financially troubled tenant seeks the protection of the bankruptcy laws, we could experience delays and incur significant costs and delays in enforcing our rights against a financially troubled tenant that does not pay its rent when due. Several tenants have filed for protection under bankruptcy laws, however; LP presently believes the financial losses are not significant with regard to LP's overall portfolio of tenants. Vacancies and Lease Renewals. Our anchor tenants' leases generally have terms of up to 20 years, often with one or more renewal options. We may not be able to find a replacement tenant at the end or nonrenewal of a lease. The space may remain vacant or may be re-leased at terms that vary materially and unfavorably from the original terms. Tenant Closings. Certain leases permit the tenant to close its operations at the leased location. Although the tenant would still be responsible for its rental obligations, any rents based on the sales of that tenant could be lost. Such a closure could adversely affect customer traffic as well as the business of, and revenues received from, other tenants at a shopping center. Rental rates and occupancy may also be affected adversely at such a center. REAL ESTATE INDUSTRY RISKS MAY AFFECT OUR PERFORMANCE Concentration in the Southeast. Most of our real estate portfolio is located in the southeastern United States. This region has experienced rapid growth in recent years; however, this growth may not continue. Our business could be adversely affected generally by changes in the region's growth and economic condition. 4 Uncertainty of Meeting Acquisition Objectives. We continually seek additional shopping centers and portfolios of shopping centers. We seek purchases with attractive initial yields and/or which may enhance our revenues and funds from operations through renovation, development, expansion and re-leasing programs. We also regularly evaluate and consider mergers and acquisitions with companies engaged in businesses similar or complementary to ours. However, we may not be able to meet our acquisition goals and cannot assure you that any acquisition will increase our revenues or funds from operations or result in a certain yield. In addition, we incur certain internal and external costs evaluating possible transactions, many of which are not recoverable when the transaction does not close. Competition. We compete with numerous other real estate companies. Other retail properties within our markets compete with us for tenants. The location and number of competitive retail properties could affect the Company's occupancy levels and rental increases. Other real estate companies compete with us for development, redevelopment and acquisition opportunities. Such competitors may be willing and able to pay more for such opportunities than we would. This may increase the prices sought by sellers of these properties. ENVIRONMENTAL PROBLEMS ARE POSSIBLE AND COULD BE COSTLY Possible Environmental Liabilities. An owner or operator of real estate may be liable for the costs of removal of the releases of certain hazardous or toxic substances. The presence of hazardous or toxic substances on or near our properties, or the failure to properly clean them up, may adversely affect our ability to sell or rent the property or to use such property as collateral for our borrowings. Corrective costs could adversely affect our financial condition and performance. Lack of Environmental Analyses. The Company, on behalf of LP, has obtained independent Phase I environmental site assessments for property acquisitions beginning in 1989 and otherwise as required by its lenders. A Phase I assessment, however, has not been obtained for several properties. Moreover, Phase I assessments generally do not include environmental sampling, monitoring or laboratory analysis. As a result, there may be environmental contamination at our properties of which we are unaware. Since January 1, 2000, the Company, on behalf of LP, has acquired environmental and pollution legal liability insurance coverage to mitigate the associated risks. However, there is no assurance that this insurance will be adequate to protect LP against unforeseen liabilities, which could adversely affect LP's performance and financial condition. Presence of Dry Cleaning Solvents. A number of LP's properties include facilities leased to dry cleaners. At some of these properties, dry cleaning solvents have been discovered in soil and or groundwater. In each such instance either the amount detected was below reportable limits or the state regulatory authority has informed the Company that no further enforcement action would be taken. In Florida, the state regulatory authority has admitted the affected property into the state-sponsored fund responsible for the clean up of dry cleaning spills. Neither the admission of a property into the Florida fund nor the assurances of the relevant state regulatory authority ensures that the Company or LP will not incur additional costs or penalties associated with corrective action. 5 COMPLIANCE WITH THE AMERICANS WITH DISABILITIES ACT AND OTHER LAWS MAY BE COSTLY Our properties must comply with the federal Americans with Disabilities Act of 1990, as amended (the "ADA"). This law requires that disabled persons must be able to enter and use public properties like our shopping centers. The ADA, or other federal, state and local laws may require us to modify our properties, which may adversely affect our financial performance, and may limit renovations. If we fail to obey such laws, we may pay fines or damages. SOME POTENTIAL LOSSES ARE NOT COVERED BY INSURANCE We carry comprehensive liability, fire, extended coverage and rental loss insurance on all of our properties. We believe this insurance coverage is reasonably adequate. Certain types of losses, such as lease and other contract claims, generally are not insured. Should an uninsured loss or a loss in excess of insured limits occur, we could lose some or all of our investment in a property, and the anticipated future revenue from the property could be adversely affected. Notwithstanding any such loss, we would still owe mortgage debt or other financial obligations related to the property. OUR PERFORMANCE IS SUBJECT TO RISKS ASSOCIATED WITH DEBT FINANCING LP guarantees all senior and secured debt of the Company. At December 31, 2001, the Company had $334 million in long-term debt. On December 31, 2001, the Company's debt-to-total market capitalization ratio was 51% without giving effect to the conversion of the subordinated debentures or the OP Units, and 47% assuming conversion of our subordinated debentures and the OP Units held by unaffiliated persons. Of the Company's long-term debt, 40.3% was secured by mortgages on our properties. If the Company was unable to meet mortgage payments, the mortgagee could foreclose upon the property, appoint a receiver and receive an assignment of rents and leases or pursue other remedies, all with a consequent loss of revenues and asset value to the Company and LP. Foreclosures could also create taxable income without accompanying cash proceeds, thereby hindering the Company's ability to meet the REIT distribution requirements of the Code. The Company must pay its debts on time. Interest and principal on the Company's debt must be paid before dividends can be paid to security holders. The Company may not be able to refinance existing indebtedness on favorable terms. The Company is obligated on floating rate debt, and historically has not used interest rate protection instruments. If the Company does not hedge its exposure to increases in interest rates through interest rate protection or cap agreements, increases in rates may reduce cash flow and its ability to service LP's debt. The Company's organizational documents place no limit on the amount of indebtedness it may incur. SECURITY HOLDERS MAY BE ADVERSELY AFFECTED BY THE DILUTION OF COMMON STOCK The Company may issue additional Shares or OP Units without Security Holder approval. Additionally, each OP Unit may be redeemed by the holder for one share of common stock or, at our option, the cash value of one share of common stock. Such issuances may dilute your interest in LP. OUR LIQUIDITY IS SUBJECT TO THE RESTRICTIONS ON SALES OF CERTAIN PROPERTIES We have agreements that limit our sale of certain properties acquired by LP in exchange for OP Units for up to 10 years. We may enter into similar agreements in the future with future sellers of properties that take OP Units in exchange for transferring properties to LP. These agreements may prevent sales of properties that could be advantageous to our Security Holders. 6 THE ABILITY TO EFFECT CHANGES IN CONTROL OF THE COMPANY MAY BE LIMITED Certain provisions of the law, our charter documents and Company policies may have the effect of delaying or preventing a change in control of the Company or other transaction that could, if consummated, provide investors with a premium over the then-prevailing market price of the Company's securities. These provisions include the ownership limit described below and the Company's Shareholders' Rights Plan. Also, any future series of preferred stock may have certain voting or other provisions that could delay, deter or prevent a change of control or other transaction that might involve a premium price or otherwise be of benefit to other equity interests in the Company. For a description of the Company's Shareholders Rights Plan, see the Company's Current Report on Form 8-K dated August 21, 1998. THE COMPANY IS SUBJECT TO OWNERSHIP LIMITS AND CERTAIN ADVERSE EFFECTS OF FAILING TO QUALIFY AS A REIT Concentration of Ownership of the Company is Limited. In order to qualify as a REIT under the Code, the Company must satisfy various tests related to the sources and amounts of our income, the nature of its assets and its stock ownership. For example, not more than 50% in value of the outstanding shares of the Company may be owned, directly or indirectly, by five or fewer individuals. The Company's charter authorizes its directors to take such action as may be required to preserve its qualification as a REIT, including, but not limited to, limits on the ownership of its securities. These limits may have the effect of delaying, deferring or preventing a change in control of the Company. REIT Investment Limitations. To qualify as a REIT under the Code, the Company must hold certain types of real estate and other investments. This limits the Company's ability to diversify the Company's or LP's assets outside of real estate. Adverse Effects of Failing to Qualify as a REIT. If the Company fails to qualify as a REIT under the Code, it will be subject to income taxes on its taxable income. The Company also may be disqualified from treatment as a REIT for the four taxable years following the year during which qualification is lost. This would reduce the net earnings of the Company and LP available for investment or distribution to Security Holders because of the additional tax liability for the year(s) involved. In addition, distributions to our Security Holders would no longer be required, which would likely substantially reduce, or even eliminate, any dividends paid by the Company to its security holders. 7 ITEM 2. PROPERTIES (In thousands, except for square footage) The following tables and notes thereto describe the properties in which LP had investments at December 31, 2001, as well as the mortgage indebtedness to which LP's investments were subject. These tables should be read in conjunction with the financial statements and notes thereto included elsewhere in this report. I. EQUITY INVESTMENTS (LAND AND BUILDINGS) LP had a fee or leasehold interest in land and improvements thereon as follows:
GROSS PERCENT DATE LEASEABLE LEASED YEAR DESCRIPTION ACQUIRED AREA 12/31/01 COMPLETED ---------------------------- ------------- ----------------- ---------- ----------- SHOPPING CENTERS Asheville Plaza 4/86 49,800 sq. ft. 100% 1967 Asheville, NC Bay Pointe Plaza 12/98 97,390 sq. ft. 96% 1998 St. Petersburg, FL Carrollwood Center 11/01 96,243 sq. ft. 85% 1971 & 1996 Tampa, FL Centre Point Plaza 12/92 & 12/93 163,642 sq. ft. 100% 1989 & 1993 Smithfield, NC Charlotte Square 8/98 96,188 sq. ft. 92% 1998 Port Charlotte, FL Chestnut Square 1/92 39,640 sq. ft. 100% 1985 Brevard, NC Forest Hills Centre 8/90 74,180 sq. ft. 97% 1990 & 1995 Wilson, NC Forrest Gallery 12/92 214,450 sq. ft. 97% 1987 Tullahoma, TN The Galleria 8/86 & 12/87 92,344 sq. ft. 88% 1986, 1990 Wrightsville Beach, NC & 1996 Lawrence Commons 8/92 52,295 sq. ft. 98% 1987 Lawrenceburg, TN Pine Ridge Square 12/00 117,399 sq. ft. 100% 1986 Coral Springs, FL Plaza North 8/92 47,240 sq. ft. 95% 1986 Hendersonville, NC Providence Square 12/71 85,930 sq. ft. 96% 1973 Charlotte, NC Riverside Square 8/98 103,241 sq. ft. 90% 1998 Coral Springs, FL Riverview Shopping Center 3/72 130,058 sq. ft. 91% 1973 & 1974 Durham, NC Salisbury Marketplace 9/96 76,970 sq. ft. 87% 1987 Salisbury, NC Shelby Plaza (1) 4/86 103,000 sq. ft. 100% 1972 Shelby, NC 8 Shoppes of Lago Mar 2/99 82,613 sq. ft. 92% 1995 Miami, FL Smyrna Village 8/92 83,334 sq. ft. 97% 1992 Smyrna, TN Stanley Market Place 1/92 40,364 sq. ft. 89% 1980 & 1991 Stanley, NC Tamarac Town Square 8/98 124,685 sq. ft. 94% 1998 Tamarac, FL Treasure Coast Plaza 5/98 133,781 sq. ft. 96% 1998 Vero Beach, FL Unigold Shopping Center 4/01 102,985 sq. ft. 94% 1987 Orlando, FL Williamsburg at Dunwoody 3/99 44,928 sq. ft. 92% 1983 Dunwoody, GA Willowdaile Shopping Center 8/86 & 12/87 120,815 sq. ft. 80% 1986 Durham, NC TOTAL EQUITY INVESTMENTS IN LAND AND BUILDINGS 2,373,515 sq. ft. ========= ======= NOTES: (1) Subject to ground lease expiring in 2007 for Shelby Plaza with renewal options to extend the terms to 2017. The Company has an option to purchase the land at Shelby Plaza.
9 II. MORTGAGE INDEBTEDNESS Indebtedness of LP secured by its investments (not including mortgage debt owed by a lessee of its land purchase-leaseback investment) was as follows:
PRINCIPAL ANNUAL MATURITY BALANCE INTEREST CONSTANT INVESTMENT DATE 12/31/2001 RATE PAYMENT ---------------------------- -------- ----------- --------- --------- Shoppes of Lago Mar 4/1/06 (1) $ 5,423 7.50% $ 532 Miami, FL Tamarac Town Square (2) 10/1/09 (1) 6,354 9.19% 651 Tamarac, FL Charlotte Square (2) 2/1/11 (1) 3,727 9.19% 394 Port Charlotte, FL Pine Ridge 5/1/11 (1) 7,502 7.02% 603 Coral Springs, FL Riverside Square (2) 3/1/12 (1) 7,877 9.19% 808 Coral Springs, FL Treasure Coast Plaza 4/1/15 5,286 8.00% 646 Vero Beach, FL Total 36,169 Interest Premium (2) 1,295 ----------- TOTAL MORTGAGE INDEBTEDNESS $ 37,464 $ 3,634 =========== ========= NOTES: (1) Balloon payment at maturity (2) For financial reporting purposes, mortgage indebtedness is valued assuming current interest rates at date of acquisition.
III. ACQUISITIONS
TOTAL DATE INITIAL CASH PRINCIPAL ACQUIRED PROPERTY NAME CITY, STATE AREA COST PAID TENANTS -------- ----------------------- ----------- ---------------- --------- ------- -------------------- 4/12/01 Unigold Shopping Center Orlando, FL 102,985 sq. ft. $ 8,000 $ 7,903 Winn-Dixie 11/30/01 Carrollwood Center Tampa, FL 96,242 sq. ft. 6,763 6,763 Publix, Eckerd Drugs ------- -------- ------- 199,227 sq. ft. $ 14,763 $14,666 ======= ======== =======
IV. DISPOSITIONS
DATE SALES CASH FINANCIAL PROPERTY PRINCIPAL SOLD PROPERTY NAME CITY, STATE AREA PRICE PROCEEDS GAIN (LOSS) TYPE TENANTS ------- --------------- ------------------ -------------- ------ --------- ------------ --------------- --------- 4/18/01 Eden Center Eden, NC 56,355 sq. ft. $3,950 $ 3,830 $ 742 Shopping Center Food Lion 5/31/01 Chadwick Square Hendersonville, NC 32,100 sq. ft. 2,401 2,351 366 Shopping Center Food Lion ------ ------ --------- ------------ 88,455 sq. ft. $6,351 $ 6,181 $ 1,108 ====== ====== ========= ============
10 ITEM 3. LEGAL PROCEEDINGS Presently, there are no material pending legal proceedings of which LP is aware involving LP or its properties. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not Applicable PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SECURITY HOLDER MATTERS Not Applicable ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA (In thousands, except per share amounts) The following table sets forth selected financial data for LP and should be read in conjunction with the financial statements and notes thereto included elsewhere in this report.
AS OF OR FOR THE YEARS ENDED JULY 15, 1998 ------------------------------- (INCEPTION) TO 2001 2000 1999 DECEMBER 31, 1998 --------- --------- --------- ------------------- OPERATING DATA Gross revenues $ 24,006 $ 20,626 $ 20,126 $ 7,187 Expenses 13,908 12,241 11,465 3,912 --------- --------- --------- --------- Earnings from operations 10,098 8,385 8,661 3,275 Gain on sales of properties 1,108 - 1,130 - --------- --------- --------- --------- Net earnings $ 11,206 $ 8,385 $ 9,791 $ 3,275 ========= ========= ========= ========= BALANCE SHEET DATA Real estate, before accumulated depreciation $172,770 $161,213 $147,123 $ 139,936 Real estate, net of accumulated depreciation 145,625 137,114 126,605 120,837 Total assets 166,873 145,814 137,834 123,209 Total debt 37,464 30,595 31,181 25,963 Total liabilities 39,618 32,294 33,726 27,656 Total partners' capital 118,607 106,899 97,734 87,759 OTHER DATA Net cash flows from (used in): Operating activities $ 13,699 $ 10,837 $ 12,218 $ 4,128 Investing activities (10,979) (13,898) (2,246) (11,973) Financing activities (8,863) 9,345 (10,716) 8,948
11 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Dollars in thousands, except per share amounts) The following discussion and analysis should be read in conjunction with the financial statements and notes thereto included elsewhere in this report. OVERVIEW IRT Partners, L.P. ("LP"), a Georgia limited partnership formed on July 15, 1998, is the entity through which IRT Property Company (the "Company"), a self-administered and self-managed real estate investment trust ("REIT"), conducts a portion of its business and owns (either directly or through subsidiaries) a portion of its assets. LP was formed by the Company in order to enhance the Company's acquisition opportunities through a "downreit" structure. This structure offers potential sellers the ability to make a tax-deferred sale of their real estate investments properties in exchange for OP Units of LP. IRT Property Company was founded in 1969 and became a public company in May 1971 (NYSE: IRT). The Company is an owner, operator, redeveloper and developer of high quality, well located neighborhood and community shopping centers throughout the southeastern United States. The Company is the sole general partner of LP and maintains an indirect partnership interest in LP through its wholly-owned subsidiary, IRT Management Company ("IRTMC"). At December 31, 2001, IRT and IRTMC owned approximately 1% and 93.3%, respectively, of LP. At December 31, 2001, LP owned 25 neighborhood and community shopping centers located in North Carolina (12), Florida (9), Tennessee (3) and Georgia (1). The shopping centers are anchored by necessity-oriented retailers such as supermarkets, drug stores, national value retailers and department stores. The following table summarizes the shopping centers by state for total gross leasable area ("GLA") and rental income for the years ended December 31, 2001 and 2000:
% OF GLA % OF RENTAL INCOME ------------------- ------------------- 2001 2000 2001 2000 ------ ------ ------ ------ North Carolina 45.2% 51.9% 34.4% 42.9% Florida 38.8% 29.7% 49.9% 38.9% Tennessee 14.2% 16.3% 11.9% 13.5% Georgia 1.8% 2.1% 3.8% 4.7% ------ ------ ------ ------ 100.0% 100.0% 100.0% 100.0% ====== ====== ====== ======
CRITICAL ACCOUNTING POLICIES The preparation of financial statements in conformity with accounting principles generally accepted in the United States 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. Significant estimates and assumptions within the financial statements include valuation adjustments to tenant related accounts, determination of useful lives of assets subject to depreciation or amortization and impairment evaluation of operating and development properties and other long-term assets. However, application of these accounting policies involves the exercise of judgment and use of assumptions as to future uncertainties and, as a result, actual results could differ significantly from those estimates. 12 Additional discussion of accounting policies that we consider to be significant, including further discussion of the critical accounting policies described below, are included in the notes to the financial statements in Item 8 of this report. Revenue Recognition Leases with tenants are accounted for as operating leases. Rental revenue is recognized on a straight-line basis over the initial lease term. Certain tenants are required to pay percentage rents based on their gross sales exceeding specified amounts. This percentage rental revenue is recorded upon collection. The Company receives reimbursements from tenants for real estate taxes, common area maintenance and other recoverable costs. These tenant reimbursements are recognized as revenue in the period the related expense is recorded. The Company makes valuation adjustments to all tenant related revenue based upon the tenant's credit and business risk. The Company, on behalf of LP, suspends the accrual of income on specific investments where interest, reimbursement or rental payments are delinquent sixty days or more. These valuation adjustments are estimates that affect LP's net earnings since an increase or decrease in the valuation adjustments directly leads to a decrease or increase in net earnings, respectively. Rental Properties Rental properties are stated at cost less accumulated depreciation. Costs incurred for the acquisition, renovation, and betterment of the properties are capitalized and depreciated over their estimated useful lives. Recurring maintenance and repairs are charged to expense as incurred. Depreciation is computed on a straight-line basis generally for a period of sixteen to forty years for buildings and significant improvements. Tenant improvements are depreciated on a straight-line basis over the life of the related lease. When costs are capitalized, the Company must make a judgment of the useful life of the asset for purposes of determining the amount of yearly depreciation, which affects net earnings. If the useful life were increased, yearly depreciation would be reduced, thus increasing net earnings. Impairment of Properties The Company, on behalf of LP, periodically evaluates the carrying value of its long-lived assets, including operating properties, in accordance with Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." Impairment is based on whether it is probable that undiscounted future cash flows from each property will be less than its net book value. The Company, on behalf of LP, assesses whether there are any indicators that the value of the asset may be impaired. In addition, judgments are made in calculating the undiscounted cash flows. These assessments and judgments could have a material impact on net earnings since, if an impairment exists, the asset is written down to its estimated fair value and an impairment loss is recognized thereby reducing net earnings. RECENT ACCOUNTING PRONOUNCEMENTS In June 1998 SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," was issued. This statement, as amended, establishes accounting and reporting standards requiring that every derivative instrument (including certain derivative instruments embedded in other contracts) be recorded in the balance sheet as either an asset or liability measured at its fair market value. SFAS No. 133 requires that changes in the derivative's fair market value be recognized currently in earnings unless specific hedge accounting criteria are met. Special accounting for qualifying hedges allows a derivative's gains and losses to offset related results on the hedged item in the income statement and requires that a company 13 must formally document, designate, and assess the effectiveness of transactions that receive hedge accounting. LP adopted this statement on January 1, 2001. The Company or LP did not hold and has not engaged in transactions using derivative financial instruments. The adoption of this statement did not have a material effect on LP's balance sheet or results of operations. In June 2001, SFAS No. 141, "Business Combinations," was issued. This statement eliminates pooling of interests accounting and requires all business combinations initiated after June 30, 2001 to be accounted for using the purchase method. LP adopted this standard on July 1, 2001 and adoption of this standard did not have a significant effect on LP's financial statements. In June 2001, SFAS No. 142, "Goodwill and Other Intangible Assets," was issued establishing accounting and reporting standards that address how goodwill and intangible assets should be accounted for within the financial statements. The statement requires companies to not amortize goodwill and intangible assets with infinite lives, but to test such assets for impairment on a regular basis. An intangible asset that has a finite life should be amortized over its useful life and evaluated for impairment on a regular basis. This statement is effective for fiscal years beginning after December 15, 2001. LP adopted this standard on January 1, 2002 and adoption of this standard did not have a significant effect on LP's financial statements. In August 2001, SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," was issued establishing new rules and clarifying implementation issues with SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," by allowing a probability-weighted cash flow estimation approach to measure the impairment loss of a long-lived asset. The statement also established new standards for accounting for discontinued operations. Transactions that qualify for reporting in discontinued operations include the disposal of a component of an entity's operations that comprises operations and cash flows that can be clearly distinguished, operationally and for financial reporting purposes, from the rest of the entity. The statement is effective for fiscal years beginning after December 15, 2001. LP adopted this standard on January 1, 2002 and adoption of this standard did not have a significant effect on LP's financial statements. 14 COMPARISON OF 2001 TO 2000 RESULTS OF OPERATIONS Revenues Total revenues increased $3,380, or 16.4%, to $24,006 in 2001 primarily due to an increase in income from rental properties of $3,001, an increase in interest income of $86 and gain on a sale of an outparcel of $293. Income from rental properties increased $3,001, or 14.8%, to $23,296 in 2001. Included in income from rental properties is minimum rent, percentage rent and other rental income. Minimum rents increased $1,786, or 11.0%, primarily due to an increase in rental rates per square foot from $7.87 in 2000 to $7.94 in 2001 and the core portfolio of properties contributing $522, or an increase of 2.7%, over 2000. The core portfolio is defined as properties held in the same corresponding period from the current and prior year, excluding those properties sold or acquired during the same corresponding period. Income from rental properties increased $2,996 due to two properties acquired in 2001 and one property in 2000, which was partially offset by a $518 decrease in income attributable to the sale of two properties in 2001. Percentage rent, based on tenant's gross sales exceeding specified amounts, increased $23, or 7.3%, to $339 for 2001 due to the three acquired properties. Other rental income such as tenant reimbursements, tenant allowances (bad debt reserves) and lease cancellation fees, increased $1,192, or 31.8%, to $14,493. This increase was partially due to an increase in tenant reimbursements for common area maintenance ("CAM") of $658, or 17.2%. Tenants reimburse us for specific expenses relating to the property such as maintenance, taxes and insurance. The reimbursements received as a percentage of expenditures were 75.9% in 2001 and 74.0% in 2000. This increase in the recovery percentage is due to an increase in operating costs and the three acquisitions. Tenant allowances decreased $55, or 45.1%, from 2000 and represented only 0.3% of total rental income in 2001. Lease cancellation fees decreased $429 due to the lease termination fee of an anchor in 2001. Interest income increased $86, or 26.0%, to $417 in 2001 from $331 in 2000. The increase was due to interest charged on advances to the Company which increased in 2001 as compared to 2000. In 2001, LP sold a land outparcel that is located at one of LP's shopping centers for $348, resulting in a gain of $293. Expenses Total expenses increased $1,667, or 13.6%, to $13,908 in 2001 due to increases in operating expenses of rental properties of $811, interest expense of $331, depreciation of $314, amortization of debt costs of $9 and general and administrative expenses of $293. Operating expenses of rental properties increased $811, or 15.1%, to $6,182 in 2001. This increase was partially due to an increase of real estate taxes of $368, or 8.3%, over 2000 as a result of increased property values. Insurance costs increased by $85, or 34.0%, over 2000 due to a general increase in premiums. The Company amortizes lease fees that are capitalized and the amortization expense increased $76, or 40.2%, in 2001 due to increased leasing activity in 2001 and 2000. Tenant reimbursable operating expenses increased $811, or 15.1%, primarily due to higher operating and maintenance costs. Overall, the operating expenses of properties increased due to core portfolio operating expenses increasing $95, or 1.8%, over 2000 and the three properties acquired during 2001 and 2000 increasing expenses $825. These increases were partially offset by a decrease in expenses of $110 from the sales of two properties during 2001. Interest expense increased $331, or 13.6%, in 2001 primarily due to the new $7,500 mortgage note. 15 The net increase of $314, or 8.8%, in depreciation expense in 2001 was due to the acquisition of a shopping center in the fourth quarter of 2000 and two during 2001, net of the effect of the disposition of two properties in 2001. Amortization of debt costs increased $9 primarily due to the new $7,500 mortgage note obtained in April 2001. General and administrative expenses increased $202, or 23.8%, to $1050 in 2001. This increase relates to an increase in expenses of the Company that are allocated to LP. Total general and administrative expenses as a percentage of total revenues was 4.4% and 4.1% for 2001 and 2000, respectively. Other Gains on sales of properties increased to $1,108 in 2001. The Company sold two investments in limited growth or tertiary markets during 2001 for approximately $6,351. No such sales occurred in 2000. Net Earnings Net earnings increased $2,821, or 33.6%, to $11,206 in 2001 from $8,385 in 2000. This increase was attributable to an increase in revenues primarily from the increase in base rents per square foot, the gain on outparcel sale and the gains on the sales of properties. These increases were partially offset by higher operating expenses of the properties and higher general and administrative expenses. COMPARISON OF 2000 TO 1999 RESULTS OF OPERATIONS Revenues Total revenues increased $500, or 2.5%, to $20,626 in 2000. This increase is due to a $493 increase in income in rental properties and a $187 increase in interest income from affiliates. Income from rental properties increased $493, or 2.5%, to $20,295 in 2000. Included in income from rental properties is minimum rent, percentage rent and other rental income. Minimum rents increased $192, or 1.2%, primarily from an increase in rental rates per square foot from $7.82 in 1999 to $7.87 in 2000 and the increase in income of $585 related to the acquisitions of two properties in 1999. This increase was partially offset by a decrease in revenues related to three properties sold in 1999 of $519. Percentage rent, based on tenant's gross sales exceeding specified amounts, increased $17, or 5.6%, to $317 for 2000. Other rental income such as tenant reimbursements, tenant allowances and lease cancellation fees, increased $284, or 8.2%, to $3,751 in 2000. This increase was partially due to an increase in tenant reimbursements for CAM of $456, or 13.6%. Tenants reimburse us for specific expenses relating to the property such as maintenance, taxes and insurance. The reimbursements received as a percentage of expenditures were 74.0% in 2000 and 70.2% in 1999. This increase in the recovery percentage is due to the acquisition of two properties in 1999 as well as relatively stable tenant reimbursement expenses from 1999 to 2000. Tenant allowances increased $84 from 1999 due to several closed tenants. Tenant allowances represented only 0.6% of rental income in 2000. Lease cancellation fees decreased $58 to $45 in 2000 due to a termination of an anchor tenant in 1999. Overall, the core portfolio's income increased from 1999 to 2000 by $427, or 2.4%. Interest income increased $7, or 2.2%, to $331 in 2001 from $324 in 2000. The increase was primarily due to interest on advances to the Company which increased in 2000 over 1999. 16 Expenses Total expenses increased $776, or 6.8%, to $12,241 in 2000 due to increases in operating expenses of rental properties of $462, interest expense of $23, depreciation of $231 and administrative expenses of $60. Operating expenses of rental properties increased $462, or 9.4%, to $5,371 in 2000. This increase was primarily due to an increase in property taxes of $218, or 12.1%, and an increase in tenant reimbursement expenses of $164, or 8.9%. These increases were primarily due to the two acquisitions in 1999. Overall, the operating expenses of rental properties increased due to the core portfolio operating expenses increasing $397, or 9.1%, over 1999 and due to the two properties acquired during 1999 increasing expenses by $158 over1999. These increases were partially offset by a decrease in expenses of $93 from the sales of three properties during 2000. Interest expense increased $23, or 1.0%, in 2000 primarily due to a new mortgage in 1999 in conjunction with a property acquisition. The net increase of $231, or 6.9%, in depreciation expense in 2000 was due to the acquisition of two shopping centers in 1999, net of the effect of the disposition of three properties in 1999. General and administrative expenses increased $60, or 7.6%, to $848 in 2000 primarily due to an increase in operating expenses of the Company that are allocated to LP. Other Gains on sales of properties decreased $1,130 in 2000 from 1999. The Company sold three shopping center investments in limited growth or tertiary markets during 1999. for approximately $9,170. No such sales occurred in 2000. Net Earnings Net earnings decreased $1,406, or 14.3%, to $8,385 in 2000 from $9,791 in 1999. The decrease was attributable to a decrease on the gains on sales of properties and an increase in operating expenses, partially offset by an increase in rental income. LIQUIDITY AND CAPITAL RESOURCES The Company presently expects cash from LP's operating activities to be a primary source of funds to pay distributions, mortgage notes payments and certain capital improvements on LP's properties. Net cash from operating activities was $13,699 in 2001 as compared to $10,837 in 2000, an increase of 26.4%. The increase in cash flow is due to the rental income from two acquisitions in 2001 and one in 2000. Distributions to unitholders during 2001 and 2000 were $12,138 and $10,774, respectively. Mortgage principal payments for 2001 and 2000 were $671 and $586. Total capital expenditures on operating properties were $2,681 and $2,453, respectively. Other planned activities, including property acquisitions, new developments, certain capital improvement programs and debt repayments, are expected to be funded to the extent necessary by mortgage financing, periodic sales or exchanges of existing properties and the issuance of OP Units. Net cash used in investing activities was $10,979 in 2001 as compared to $13,898 in 2000, a decrease of $2,919 or 21.0%. This decrease in cash used in investing activities was due to an increase in property sales in 2001 of $6,181 partially offset by two acquisitions in 2001. 17 Net cash used in financing activities decreased to $8,863 in 2001 from cash provided by financing activities of $9,345 in 2000, a decrease of $18,208. This decrease in cash used in financing activities was due to advances to the Company of $18,130 in 2001, as compared to advances from the Company of $8,904 in 2000. LP guarantees the Company's indebtedness under the Company's existing unsecured revolving term loan and its other senior debt. The Company, through LP, uses secured borrowings for use in meeting capital requirements. As of December 31, 2001, LP had $37,464 in mortgage notes payable at a weighted average interest rate of 7.72%, which are due in monthly installments with maturity dates ranging from 2006 to 2015. In April 2001, LP obtained a non-recourse, secured loan on its Pine Ridge Square property of $7,540, at a fixed interest rate of 7.02%. The loan is due and payable in ten years and the principal amortization is based on a thirty year amortization schedule. Future principal amortization and balloon payments applicable to mortgage notes payable at December 31, 2001 are as follows:
PRINCIPAL BALLOON YEAR AMORTIZATION PAYMENTS TOTAL ---------------- ------------- --------- ------- 2002 $ 644 $ - $ 644 2003 699 - 699 2004 757 - 757 2005 823 - 823 2006 762 4,797 5,559 Thereafter 6,074 21,613 27,687 ------------- --------- ------- $ 9,759 $ 26,410 36,169 ============= ========= Interest Premium 1,295 ------- $37,464 =======
INFLATION AND ECONOMIC FACTORS The effects of inflation upon LP's results of operations and investment portfolio are varied. From the standpoint of revenues, inflation has the dual effect of both increasing the tenant revenues upon which percentage rentals are based and allowing increased fixed rentals as rental rates rise generally to reflect higher construction costs on new properties. This positive effect is partially offset by increasing operating and interest expenses, but usually not to the extent of the increases in revenues. ENVIRONMENTAL FACTORS For the years commencing January 1, 2000, the Company, on behalf of LP, has maintained environmental and pollution legal liability insurance coverage to attempt to mitigate the associated risks. Although no assurance can be given that LP properties will not be affected adversely in the future by environmental problems, the Company presently believes that there are no environmental matters that are reasonably likely to have a material adverse effect on LP's financial position. See "Regulation" located within this report. 18 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK (dollars in thousands) The Company and LP utilize mortgage notes payable with fixed rates. Sudden changes in interest rates generally do not affect LP's interest expense as these debt instruments have fixed rates for extended periods of time. LP's potential risk is from increases in long-term real estate mortgage rates or borrowing rates that may occur. As the debt instruments mature, LP typically refinances such debt at the then current market interest rates, which may be more or less than the interest rates on the maturing debt. The table below provides information about LP's financial instruments that are sensitive to changes in interest rates or market conditions, including estimated fair values for the LP's interest rate sensitive liabilities as of December 31, 2001. As the table incorporates only those exposures that exist as of December 31, 2001, it does not address exposures which could arise after that date. Moreover, because there were no firm commitments to sell the obligations at fair value as of December 31, 2001, the information presented has limited predictive value. As a result, LP's ultimate realized gain or loss with respect to interest rate fluctuations will depend on the exposures that arise during a future period and at prevailing interest rates. Dollar amounts in the following table are in thousands.
Expected Maturity/Principal Repayment Nominal* ----------------------------------------------- Total Fair Interest Rate 2002 2003 2004 2005 2006 Thereafter Balance Value -------------- ----- ----- ----- ----- ------ ----------- -------- ------- Fixed Rate Liabilities: Mortgage Notes Payable 7.72% $ 757 $ 818 $ 883 $ 957 $5,700 $ 28,349 $ 37,464 $38,796 * Average rate as of December 31, 2001
19
IRT PARTNERS, L.P. INDEX TO FINANCIAL STATEMENTS PAGE ---- Report of Independent Public Accountants. . . . . . . . . . 21 Balance Sheets: December 31, 2001 and 2000. . . . . . . . . . . . . . . 22 Statements of Earnings: For the Years Ended December 31, 2001, 2000 and 1999. . 23 Statements of Changes in Partners' Capital: For the Years Ended December 31, 2001, 2000 and 1999. . 24 Statements of Cash Flows: For the Years Ended December 31, 2001, 2000 and 1999. . 25 Notes to Financial Statements: December 31, 2001, 2000 and 1999. . . . . . . . . . . . 26 SCHEDULE III Real Estate and Accumulated Depreciation . . . . . . 34
20 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To IRT Partners, L.P.: We have audited the accompanying balance sheets of IRT Partners, L.P. (a Georgia limited partnership) as of December 31, 2001 and 2000, and the related statements of earnings, changes in partners' capital and cash flows for each of the three years ended December 31, 2001. These financial statements and the schedule referred to below are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of IRT Partners, L.P. as of December 31, 2001 and 2000, and the results of its operations and its cash flows for each of the three years ended December 31, 2001, in conformity with accounting principles generally accepted in the United States. Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedule listed in the index to financial statements is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. ARTHUR ANDERSEN LLP Atlanta, Georgia January 24, 2002 21
IRT PARTNERS, L.P. BALANCE SHEETS DECEMBER 31, 2001 AND 2000 (IN THOUSANDS, EXCEPT UNIT AMOUNTS) 2001 2000 --------- --------- ASSETS Rental properties $172,770 $161,213 Accumulated depreciation (27,145) (24,099) --------- --------- Net rental properties 145,625 137,114 Cash and cash equivalents 500 6,643 Advances to affiliate, net 18,149 19 Prepaid expenses and other assets 2,599 2,038 --------- --------- Total assets $166,873 $145,814 ========= ========= LIABILITIES & PARTNERS' CAPITAL Liabilities: Mortgage notes payable, net $ 37,464 $ 30,595 Accrued expenses and other liabilities 2,154 1,699 --------- --------- Total liabilities 39,618 32,294 Limited partners' capital interest (815,852 OP Units in 2001 and 2000, respectively) at redemption value 8,648 6,621 Commitments and contingencies (Note 5) Partners' capital: General partner (144,229 and 129,433 OP Units in 2001 and 2000, respectively) 1,269 1,131 Limited partner (13,462,596 and 11,997,929 OP Units in 2001 and 2000, respectively) 117,338 105,768 --------- --------- Total partners' capital 118,607 106,899 --------- --------- Total liabilities and partners' capital $166,873 $145,814 ========= =========
The accompanying notes are an integral part of these balance sheets. 22
IRT PARTNERS, L.P. STATEMENTS OF EARNINGS FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999 (IN THOUSANDS) 2001 2000 1999 ------- ------- ------- Revenues: Income from rental properties $23,296 $20,295 $19,802 Gain on sale of outparcel 293 - - Interest income from affiliate 417 331 324 ------- ------- ------- Total revenues 24,006 20,626 20,126 ------- ------- ------- Expenses: Operating expenses of rental properties 6,182 5,371 4,909 Interest on mortgages 2,772 2,441 2,418 Depreciation 3,895 3,581 3,350 Amortization of debt costs 9 - - General and administrative 1,050 848 788 ------- ------- ------- Total expenses 13,908 12,241 11,465 ------- ------- ------- Earnings before gain on sales of properties 10,098 8,385 8,661 Gain on sales of properties 1,108 - 1,130 ------- ------- ------- Net earnings $11,206 $ 8,385 $ 9,791 ======= ======= =======
The accompanying notes are an integral part of these statements. 23
IRT PARTNERS, L.P. STATEMENT OF CHANGES IN PARTNERS' CAPITAL FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999 (IN THOUSANDS) Limited Total Partners' General Limited Partners' Capital Partner Partner Capital Interest --------- --------- ----------- ---------- Balance, December 31, 1998 $ 955 $ 86,804 $ 87,759 $ 7,794 Cash contributions for acquisitons of rental properties 92 9,169 9,261 - Distributions (104) (9,660) (9,764) (733) Net Earnings 98 9,010 9,108 683 Adjustment to reflect limited partners' capital interest at redemption value - 1,370 1,370 (1,370) --------- --------- ----------- ---------- Balance, December 31, 1999 1,041 96,693 97,734 6,374 Cash contributions for acquisitons of rental properties 113 11,688 11,801 - Distributions (107) (9,900) (10,007) (767) Net Earnings 84 7,705 7,789 596 Adjustment to reflect limited partners' capital interest at redemption value - (418) (418) 418 --------- --------- ----------- ---------- Balance, December 31, 2000 1,131 105,768 106,899 6,621 Cash contributions for acquisitons of rental properties 147 14,520 14,667 - Distributions (121) (11,250) (11,371) (767) Net Earnings 112 10,540 10,652 554 Adjustment to reflect limited partners' capital interest at redemption value - (2,240) (2,240) 2,240 --------- --------- ----------- ---------- Balance, December 31, 2001 $ 1,269 $117,338 $ 118,607 $ 8,648 ========= ========= =========== ==========
The accompanying notes are an integral part of these statements. 24
IRT PARTNERS, L.P. STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999 (IN THOUSANDS) 2001 2000 1999 --------- --------- --------- Cash flows from operating activities: Net earnings $ 11,206 $ 8,385 $ 9,791 Adjustments to reconcile earnings to net cash from operating activities: Depreciation 3,895 3,581 3,350 Gain on sale of operating properties (1,108) - (1,130) Gain on sale of outparcel (293) - - Straight line rent adjustment (189) (41) - Amortization of debt costs and discounts 10 - - Changes in assets and liabilities: Increase in prepaid expenses and other assets (283) (50) (678) Increase (decrease) in accrued expenses and other liabilities 461 (1,038) 885 --------- --------- --------- Net cash flows from operating activities 13,699 10,837 12,218 --------- --------- --------- Cash flows used in investing activities: Additions to operating properties, net (17,508) (13,898) (11,113) Proceeds from sales of operating properties, net 6,181 - 8,867 Proceeds from sale of outparcel, net 348 - - --------- --------- --------- Net cash flows used in investing activities (10,979) (13,898) (2,246) --------- --------- --------- Cash flows (used in) provided by financing activities: Issuance of units for cash 14,666 11,801 9,261 Distributions paid, net (12,138) (10,774) (10,497) Collection of advances to affiliate, net - 8,904 - Advances to affiliate, net (18,130) - (8,956) Proceeds from mortgage notes payable 7,540 - - Principal amortization of mortgage notes payable (671) (586) (524) Payment of deferred financing costs (130) - - --------- --------- --------- Net cash flows (used in) provided by financing activities (8,863) 9,345 (10,716) --------- --------- --------- Net (decrease) increase in cash and cash equivalents (6,143) 6,284 (744) Cash and cash equivalents at beginning of period 6,643 359 1,103 --------- --------- --------- Cash and cash equivalents at end of period $ 500 $ 6,643 $ 359 ========= ========= ========= Supplemental disclosures of cash flow information: Total cash paid for interest $ 2,745 $ 2,445 $ 2,386 ========= ========= =========
The accompanying notes are an integral part of these statements. 25 IRT PARTNERS, L.P. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2001, 2000, AND 1999 (DOLLARS IN THOUSANDS, EXCEPT UNIT DATA) (UNAUDITED WITH RESPECT TO SQUARE FOOTAGE) 1. ORGANIZATION AND NATURE OF OPERATIONS IRT Partners, L.P. ("LP"), a Georgia limited partnership formed July 15, 1998, is the entity through which IRT Property Company (the "Company"), a self-administered and self-managed real estate investment trust ("REIT"), conducts a portion of its business and owns (either directly or through subsidiaries) a portion of its assets. The Company is the sole general partner of LP and maintains an indirect partnership interest through its wholly-owned subsidiary, IRT Management Company ("IRTMC"). The Company initially contributed 20 shopping centers, related assets and cash to LP in exchange for 8,486,217 limited partnership units ("OP Units"). The Company was issued additional OP Units in exchange for cash contributions to fund further acquisition activity. Since the formation of LP, the Company has contributed cash to acquire seven shopping centers and LP has divested five shopping centers. At December 31, 2001, IRT and IRTMC own approximately 1% and 93.3%, respectively of LP. LP was formed by the Company in order to enhance the Company's acquisition opportunities through a downreit structure. This structure offers potential sellers the ability to make a tax-deferred sale of their real estate properties in exchange for OP Units of LP. In August 1998, certain unaffiliated persons contributed their interests in three Florida shopping centers in exchange for a total of 815,852 OP Units. LP is obligated to redeem each OP Unit held by a person other than the Company, at the request of the holder, for cash equal to the fair market value of a share of the Company's common stock at the time of such redemption, provided that the Company may elect to acquire any such OP Unit presented for redemption for one common share or cash. Such limited partnership interest held by persons unaffiliated with the Company is reflected as "Limited Partners' Capital Interest" in the accompanying balance sheets at the cash redemption amount on the balance sheet dates. Federal income tax laws require the Company, as a REIT, to distribute 90% (95% for years prior to 2001) of its ordinary taxable income. LP makes quarterly distributions to holders of OP Units to enable the Company to satisfy this requirement. At December 31, 2001, LP owns 25 neighborhood and community shopping centers located in Florida, Tennessee, Georgia and North Carolina. The shopping centers are anchored by necessity-oriented retailers such as supermarkets, drug stores, national value retailers and department stores. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES USE OF ESTIMATES The preparation of financial statements in conformity with accounting principles generally accepted in the United States 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. 26 Significant estimates and assumptions within the financial statements include impairment evaluation of operating and development properties and other long-term assets, determination of useful lives of assets subject to depreciation or amortization and valuation adjustments to tenant related accounts. Actual results could differ from those estimates. REVENUE RECOGNITION Leases with tenants are accounted for as operating leases. Rental revenue is recognized on a straight-line basis over the initial lease term. Certain tenants are required to pay percentage rents based on their gross sales exceeding specified amounts. This percentage rental revenue is recorded upon collection. The Company receives reimbursements from tenants for real estate taxes, common area maintenance and other recoverable costs. These tenant reimbursements are recognized as revenue in the period the related expense is recorded. The Company, on behalf of LP, makes valuation adjustments to all tenant related revenue based upon the tenant's credit and business risk. LP suspends the accrual of income on specific investments where interest, reimbursement or rental payments are delinquent sixty days or more. Other non-rental revenue is recognized as revenue when earned. Gains on sales of real estate assets are recognized at the time title to the asset is transferred to the buyer, subject to the adequacy of the buyer's initial and continuing investment and the assumption by the buyer of all future ownership risks of the property. The gain for sales of operating properties is calculated based on the net carrying value of the property at the time of sale. The net carrying value represents the cost of acquisition, renovation or betterment of the property less the accumulated depreciation of such costs. For gains on outparcel sales, the gain is calculated based on the value assigned to the outparcel lot through specific identification of costs or the relative sales value of the outparcel lot to the entire property. RENTAL PROPERTIES Rental properties are stated at cost less accumulated depreciation. Costs incurred for the acquisition, renovation, and betterment of the properties are capitalized and depreciated over their estimated useful lives. Recurring maintenance and repairs are charged to expense as incurred. Depreciation is computed on a straight-line basis generally for a period of sixteen to forty years for buildings and significant improvements. Tenant improvements are depreciated on a straight-line basis over the life of the related lease. The Company periodically evaluates the carrying value of LP's long-lived assets, including operating and development properties, in accordance with Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." Impairment is based on whether it is probable that undiscounted future cash flows from each property will be less than its net book value. If an impairment exists, the asset is written down to its estimated fair value and an impairment loss is recognized. Management believes that no material impairment existed at December 31, 2001, and accordingly no loss was recognized. CASH EQUIVALENTS LP considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. 27 DEFERRED LEASING COSTS Internal and external commission costs incurred in obtaining tenant leases are included in prepaid expenses and other assets. The costs are amortized on a straight-line basis over the terms of the related leases. Upon lease cancellation or termination, unamortized costs are charged to operations. DEFERRED FINANCE COSTS Costs related to loan costs incurred in obtaining long-term financing are included within prepaids and other assets. The costs are capitalized and amortized over the life of the financing on a straight-line basis, which approximates the effective interest method. Upon prepayment, applicable unamortized costs are charged to operations. INCOME TAXES No federal or state income taxes are reflected in the accompanying financial statements since LP is a partnership and its partners are required to include their respective share of profits and losses in their income tax returns. SEGMENT REPORTING In 1998 LP adopted SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information." This statement established standards for reporting financial and descriptive information about operating segments in annual financial statements. Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. LP's chief operating decision maker is the senior management group of the Company. LP owns and operates retail shopping centers in the southeastern United States. Such shopping centers generate rental and other revenue through the leasing of shop spaces to a diverse base of tenants. LP evaluates the performance of each of its shopping centers on an individual basis due to specific geographical market demographics and local competitive forces. However, because the shopping centers have generally similar economic characteristics and tenants, the shopping centers have been aggregated into one reportable segment. DERIVATIVE FINANCIAL INSTRUMENTS In June 1998 SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," was issued. This statement, as amended, establishes accounting and reporting standards requiring that every derivative instrument (including certain derivative instruments embedded in other contracts) be recorded in the balance sheet as either an asset or liability measured at its fair market value. SFAS No. 133 requires that changes in the derivative's fair market value be recognized currently in earnings unless specific hedge accounting criteria are met. Special accounting for qualifying hedges allows a derivative's gains and losses to offset related results on the hedged item in the income statement and requires that a 28 company must formally document, designate, and assess the effectiveness of transactions that receive hedge accounting. The Company and LP adopted this statement on January 1, 2001. The Company or LP did not hold and has not engaged in transactions using derivative financial instruments. The adoption of this statement did not have a material effect on LP's balance sheet or results of operations. RECENT ACCOUNTING PRONOUNCEMENTS In June 2001, SFAS No. 141, "Business Combinations," was issued. This statement eliminates pooling of interests accounting and requires all business combinations initiated after June 30, 2001 to be accounted for using the purchase method. LP adopted this standard on January 1, 2002 and believes adoption of this standard will not have a significant effect on the LP's financial statements. In June 2001, SFAS No. 142, "Goodwill and Other Intangible Assets," was issued establishing accounting and reporting standards that address how goodwill and intangible assets should be accounted for within the financial statements. The statement requires companies to not amortize goodwill and intangible assets with infinite lives, but to test such assets for impairment on a regular basis. An intangible asset that has a finite life should be amortized over its useful life and evaluated for impairment on a regular basis. This statement is effective for fiscal years beginning after December 15, 2001. LP adopted this standard on January 1, 2002 and believes adoption of this standard will not have a significant effect on LP's financial statements. In August 2001, SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," was issued establishing new rules and clarifies implementation issues with SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," by allowing a probability-weighted cash flow estimation approach to measure the impairment loss of a long-lived asset. The statement also established new standards for accounting for discontinued operations. Transactions that qualify for reporting in discontinued operations include the disposal of a component of an entity's operations that comprises operations and cash flows that can be clearly distinguished, operationally and for financial reporting purposes, from the rest of the entity. The statement is effective for fiscal years beginning after December 15, 2001. LP adopted this standard on January 1, 2002 and believes adoption of this standard will not have a significant effect on LP's financial statements. RECLASSIFICATION OF PRIOR YEAR AMOUNTS Certain prior year amounts in the consolidated financial statements have been reclassified to conform with the 2001 presentation. 29 3. RENTAL PROPERTIES Buildings and related improvements are depreciated on a straight-line basis for a period of 16 to 40 years. Tenant improvements are depreciated on a straight-line basis over the life of the related lease. Rental properties are comprised of the following:
DECEMBER 31, ------------------ 2001 2000 -------- -------- Land related to buildings and improvements $ 40,555 $ 37,428 Buildings and improvements 128,222 158,584 Tenant improvements 3,993 2,629 -------- -------- Total rental properties $172,770 $161,213 ======== ========
Rental properties acquired in 2001 and 2000 and disposed in 2001 are summarized below. LP did not dispose of any properties in 2000.
SHOPPING CENTER ACQUISITIONS Date Square Year Built/ % Leased Total Initial Acquired Property Name City, State Footage Renovated at Acquisition Cost Cash Paid ----------------- --------------------------- ----------------- ------- --------- --------------- ------- ---------- 2001 ACQUISITIONS 4/12/01 Unigold Shopping Center Orlando, FL 102,985 1987 97% $ 8,000 $ 7,903 11/30/01 Carrollwood Shopping Center Tampa, FL 96,242 1971/1996 85% 6,763 6,763 ------- ------- ---------- 199,227 $14,763 $ 14,666 ======= ======= ========== 2000 ACQUISITIONS 12/28/00 Pine Ridge Square Coral Springs, FL 117,399 1986 100% $11,600 $ 11,438
SHOPPING CENTER DISPOSITIONS Date Square Sales Net Gain Sold Property Name City, State Footage Price Proceeds (Loss) ----------------- --------------- ------------------ ------- ------ --------- ------- 2001 DISPOSITIONS 4/18/01 Eden Center Eden, NC 56,355 $3,950 $ 3,830 $ 742 5/31/01 Chadwick Square Hendersonville, NC 32,100 2,401 2,351 366 ------- ------ --------- ------- 88,455 $6,351 $ 6,181 $ 1,108 ======= ====== ========= =======
4. MORTGAGE NOTES PAYABLE Mortgage notes payable are collateralized by various real estate investments having a net carrying value of approximately $60,968 at December 31, 2001. These notes have stated interest rates ranging from 7.02% to 9.1875% and are due in monthly installments with maturity dates ranging from 2006 to 2015. In April 2001, LP obtained a non-recourse, secured loan on Pine Ridge Square of $7,540, at a fixed interest rate of 7.02%. The loan is due and payable in ten years and the principal amortization is based on a thirty year amortization schedule. Costs associated with obtaining the secured note totaled $130 and are being amortized over the term of the loan. 30 Future principal amortization and balloon payments applicable to mortgage notes payable at December 31, 2001 are as follows:
PRINCIPAL BALLOON YEAR AMORTIZATION PAYMENTS TOTAL ---------------- ------------- --------- ------- 2002 $ 644 $ - $ 644 2003 699 - 699 2004 757 - 757 2005 823 - 823 2006 762 4,797 5,559 Thereafter 6,074 21,613 27,687 ------------- --------- ------- $ 9,759 $ 26,410 36,169 ============= ========= Interest Premium 1,295 ------- $37,464 =======
Based on the borrowing rates currently available to LP for notes with similar terms and maturities, the estimated fair value of mortgage notes payable was approximately $38,796 and $41,305 at December 31, 2001 and 2000, respectively. 5. COMMITMENTS AND CONTINGENCIES LP has guaranteed the bank indebtedness and senior indebtedness of the Company. LP is not aware of any environmental problems on the properties owned. LP has not obtained phase one environmental surveys on those properties owned and located in North Carolina. Although no assurance can be given that LP's properties will not be affected adversely in the future by environmental problems, LP presently believes that there are no environmental matters that are reasonably likely to have a material adverse effect on LP's financial position. 6. RENTAL INCOME Leases with tenants are accounted for as operating leases. Certain tenants are required to pay percentage rents based on gross sales exceeding stated amounts. LP receives reimbursements from tenants for real estate taxes, common area maintenance and other recoverable costs. Rents from tenants are summarized as follows:
2001 2000 1999 ------- ------- ------- Minimum rental income $18,014 $16,228 $16,035 Percentage rental income 339 316 300 Other rental income 4,943 3,751 3,467 ------- ------- ------- Total rental income $23,296 $20,295 $19,802 ======= ======= =======
31 Minimum rents to be received from tenants on noncancellable operating leases for LP's shopping center investments at December 31, 2001 are as follows:
YEAR AMOUNT ---------- -------- 2002 $ 18,548 2003 16,603 2004 14,146 2005 11,547 2006 8,622 Thereafter 32,781 -------- $102,247 ========
7. RELATED PARTY TRANSACTIONS LP advances cash generated by the properties within LP to the Company based on cash flow requirements. Also, in certain instances, the Company advances cash to LP for operating requirements. As of December 31, 2001, LP had advances to the Company of $18,149. During 2001, the Company paid LP approximately $417 in interest from the advances, which bear interest calculated on a monthly basis, at the three-month treasury bill rate. 8. EVENT SUBSEQUENT TO DATE OF AUDITOR'S REPORT (UNAUDITED) On February 19, 2002, LP acquired Parkwest Crossing, a 85,602 square foot neighborhood shopping center located in the Raleigh-Durham area of North Carolina. LP acquired the center for approximately $6,600, including an assumption of a $4,800, 8.1% mortgage secured by the property. The mortgage is due and payable in ten years and the principal amortization is based on a thirty year amortization schedule. 32 9. QUARTERLY FINANCIAL INFORMATION (UNAUDITED) The following is a summary of the unaudited quarterly financial information for the fiscal years ended December 31, 2001 and 2000.
2001 -------------------------------------- FIRST SECOND THIRD FOURTH QUARTER QUARTER QUARTER QUARTER -------- -------- -------- -------- Revenues $ 6,033 $ 6,028 $ 6,100 $ 5,845 ======== ======== ======== ======== Earnings before gains on sales of properties $ 2,659 $ 2,564 $ 2,620 $ 2,255 Gain on sales of properties - 1,108 - - -------- -------- -------- -------- Net earnings $ 2,659 $ 3,672 $ 2,620 $ 2,255 ======== ======== ======== ======== 2000 -------------------------------------- FIRST SECOND THIRD FOURTH QUARTER QUARTER QUARTER QUARTER -------- -------- -------- -------- Revenues $ 5,210 $ 5,199 $ 5,119 $ 5,097 ======== ======== ======== ======== Net earnings $ 2,227 $ 2,207 $ 2,009 $ 1,942 ======== ======== ======== ========
33 SCHEDULE III IRT PARTNERS, L.P. REAL ESTATE AND ACCUMULATED DEPRECIATION DECEMBER 31, 2001 (IN THOUSANDS, EXCEPT USEFUL LIVES)
COSTS AMOUNT ACCUMULATED USEFUL INITIAL CAPITALIZED AT WHICH DEPRECIATION LIFE OF ENCUM- COST TO SUBSEQUENT TO CARRIED AT AT CLOSE BUILDINGS DATE DESCRIPTION BRANCES COMPANY ACQUISITION CLOSE OF YEAR OF YEAR (YEARS) ACQUIRED ---------------------------- -------- -------- --------------- -------------- --------- ---------- ---------------- Asheville Plaza Asheville, NC Land - 53 15 68 - 30 April, 1986 Buildings 336 2 338 178 Bay Pointe Plaza St. Petersburg, FL Land - 3,250 - 3,250 - 40 December, 1998 Buildings 3,138 2,040 5,178 265 Carrollwood Center Tampa, FL Land - 1,661 - 1,661 - 40 November, 2001 Buildings 4,999 87 5,086 10 Centre Pointe Plaza Smithfield, NC Land - 984 12 996 - 40 December, 1992 & Buildings 8,003 303 8,306 1,957 December, 1993 Charlotte Square (1) Port Charlotte, FL Land 3,993 2,114 - 2,114 - 40 August, 1998 Buildings 3,892 364 4,256 391 Chestnut Square Brevard, NC Land - 296 - 296 - 40 January, 1992 Buildings 1,113 106 1,219 323 Forest Hills Centre Wilson, NC Land - 870 (9) 861 - 40 August, 1990 Buildings 4,121 772 4,893 1,327 Forrest Gallery Tullahoma, TN Land - 2,137 11 2,148 - 40 December, 1992 Buildings 9,978 821 10,799 2,689 The Galleria Wrightsville Beach, NC Land - 1,070 (41) 1,029 - 40 August, 1986 Buildings 6,139 1,390 7,529 2,597 & December, 1987 Lawrence Commons Lawrenceburg, TN Land - 816 - 816 - 40 August, 1992 Buildings 2,729 63 2,792 695 Pine Ridge Square Coral Springs, FL Land 7,502 2,909 - 2,909 - 40 December, 2000 Buildings 8,727 34 8,761 219 Plaza North Hendersonville, NC Land - 658 - 658 - 40 August, 1992 Buildings 1,796 65 1,861 448 Providence Square Charlotte, NC Land - 450 - 450 - 35 December, 1971 Buildings 1,896 2,422 4,318 3,545 Riverside Square (1) Coral Springs, FL Land 8,488 5,893 - 5,893 - 40 August, 1998 Buildings 7,131 223 7,354 672 34 Riverview Shopping Center Durham, NC Land - 400 - 400 - 35 March, 1972 Buildings 1,823 4,713 6,536 3,166 Salisbury Marketplace Salisbury, NC Land - 734 - 734 - 40 August, 1996 Buildings 3,878 62 3,940 543 Shelby Plaza Shelby, NC Land - - - - - 21 April, 1986 Buildings 937 855 1,792 1,156 Shoppes at Lago Mar Miami, FL Land 5,423 3,170 - 3,170 - 40 February, 1999 Buildings 6,743 17 6,760 477 Smyrna Village Smyrna, TN Land - 968 21 989 - 40 August, 1992 Buildings 4,744 181 4,925 1,186 Stanley Market Place Stanley, NC Land - 198 - 198 - 35 January, 1992 Buildings 1,603 66 1,669 442 Tamarac Town Square (1) Tamarac, FL Land 6,772 4,637 - 4,637 - 40 August, 1998 Buildings 6,015 979 6,994 647 Treasure Coast Vero Beach, FL Land 5,286 2,471 - 2,471 - 40 May, 1998 Buildings 8,622 240 8,862 804 Unigold Shopping Center Orlando, FL Land - 2,410 - 2,410 - 40 April, 2001 Buildings 5,627 87 5,714 96 Williamsburg at Dunwoody Dunwoody, GA Land - 1,638 - 1,638 - 40 March 1999 Buildings 3,964 32 3,996 286 Willowdaile Shopping Center Durham, NC Land - 937 (178) 759 - 40 August, 1986 & Buildings 7,352 985 8,337 3,026 December, 1987 $ 37,464 $156,030 $ 16,740 $ 172,770 $ 27,145 ======== ======== =============== ============== ========= YEAR DESCRIPTION COMPLETED ---------------------------- ---------- Asheville Plaza Asheville, NC Land 1967 Buildings Bay Pointe Plaza St. Petersburg, FL Land 1998 Buildings Carrollwood Center Tampa, FL Land 1971 & Buildings 1996 Centre Pointe Plaza Smithfield, NC Land 1989 & Buildings 1993 Charlotte Square (1) Port Charlotte, FL Land 1998 Buildings Chestnut Square Brevard, NC Land 1985 Buildings Forest Hills Centre Wilson, NC Land 1990 & Buildings 1995 Forrest Gallery Tullahoma, TN Land 1987 Buildings The Galleria Wrightsville Beach, NC Land 1986, 1990 Buildings &1996 Lawrence Commons Lawrenceburg, TN Land 1987 Buildings Pine Ridge Square Coral Springs, FL Land 1986 Buildings Plaza North Hendersonville, NC Land 1986 Buildings Providence Square Charlotte, NC Land 1973 Buildings Riverside Square (1) Coral Springs, FL Land 1998 Buildings Riverview Shopping Center Durham, NC Land 1973 & Buildings 1994 Salisbury Marketplace Salisbury, NC Land 1987 Buildings Shelby Plaza Shelby, NC Land 1972 Buildings Shoppes at Lago Mar Miami, FL Land 1995 Buildings Smyrna Village Smyrna, TN Land 1992 Buildings Stanley Market Place Stanley, NC Land 1980 & Buildings 1991 Tamarac Town Square (1) Tamarac, FL Land 1998 Buildings Treasure Coast Vero Beach, FL Land 1998 Buildings Unigold Shopping Center Orlando, FL Land 1987 Buildings Williamsburg at Dunwoody Dunwoody, GA Land 1983 Buildings Willowdaile Shopping Center Durham, NC Land 1986 Buildings (1) Contributed by unaffiliated limited partners.
35 Real estate activity is summarized as follows:
2001 2000 1999 --------- -------- --------- RENTAL PROPERTIES: Cost - Balance at beginning of year $161,213 $147,123 $139,936 Acquisitions and improvements 17,510 14,090 11,113 --------- -------- --------- 178,723 161,213 151,049 Cost of properties sold (5,953) - (3,926) Balance at end of year $172,770 $161,213 $147,123 Accumulated depreciation - Balance at beginning of year $ 24,099 $ 20,518 $ 19,099 Depreciation 3,895 3,581 3,350 --------- -------- --------- 27,994 24,099 22,449 Accumulated depreciation related to rental properties sold (849) - (1,931) Balance at end of year $ 27,145 $ 24,099 $ 20,518 ========= ========= =========
36 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III The information called for under this Part III is inapplicable to LP and you should refer to the Form 10-K of IRT Property Company, as the sole general partner of LP, for additional information that may be important to you. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K FINANCIAL STATEMENTS AND SCHEDULES Included in Part II of this Report are the following: Report of Independent Public Accountants Balance Sheets at December 31, 2001 and 2000 Statements of Earnings for the Years Ended December 31, 2001, 2000 and 1999 Statements of Changes in Partners' Capital for the Years Ended December 31, 2001, 2000 and 1999 Statements of Cash Flows for the Years Ended December 31, 2001, 2000 and 1999 Notes to Financial Statements Schedule III - Real Estate and Accumulated Depreciation 37 EXHIBITS 3.1 Certificate of Limited Partnership of IRT Partners, L.P. (incorporated by reference to Exhibit 3.1 to the Form 10-Q of IRT Partners, L.P. for the quarter ended March 31, 2001, Commission File No. 1-7859). 3.2 Agreement of Limited Partnership of IRT Partners, L.P., and Amendment No. 1 thereto (incorporated by reference to Exhibit 99.2 to the Current Report on Form 8-K of IRT Property Company filed on September 15, 1998, Commission File No. 1-7859). 4.1 Supplemental Indenture No. 3, dated September 9, 1998, by and between IRT Property Company, IRT Partners, L.P. and SunTrust Bank, Atlanta, as Trustee, to the Indenture between the Company and the Trustee, dated November 9, 1995 (incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K of IRT Property Company filed on September 15, 1998, Commission File No. 1-7859). 4.2 Indenture, dated September 9, 1998, by and between IRT Property Company and SunTrust Bank, Atlanta, as Trustee, relating to senior debt securities (incorporated by reference to Exhibit 4.2 to the Current Report on Form 8-K of IRT Property Company filed on September 15, 1998, Commission File No. 1-7859). 4.3 Supplemental Indenture No. 1, dated September 9, 1998, by and between IRT Property Company, IRT Partners, L.P. and SunTrust Bank, Atlanta, as Trustee, to the Indenture between the Company and the Trustee, dated September 9, 1998, relating to senior debt securities (which Indenture is referred to as Exhibit 4.2 hereto) (incorporated by reference to Exhibit 4.3 to the Current Report on Form 8-K of IRT Property Company filed on September 15, 1998, Commission File No. 1-7859). 4.4 Indenture, dated September 9, 1998, by and between IRT Property Company and SunTrust Bank, Atlanta, as Trustee, relating to subordinated debt securities (incorporated by reference to Exhibit 4.4 to the Current Report on Form 8-K of IRT Property Company filed on September 15, 1998, Commission File No. 1-7859). 10.1 Amended and Restated Loan Agreement, dated as of September 9, 1998, by and among the Company and NationsBank, N.A., AmSouth Bank and First Union National Bank, as Banks, NationsBank, N.A., as the Swing Loan Lender, and NationsBank, N.A., as the Administrative Agent for the Banks, including the Guaranty (incorporated by reference to Exhibit 99.1 to the Current Report on Form 8-K of IRT Property Company filed on September 15, 1998, Commission File No. 1-7859). 12 Ratio of Earnings to Fixed Charges. 23 Consent of Arthur Andersen LLP to the incorporation of their report included in this Form 10-K. 99.1 Confirmation of Receipt of Representations Letter from Arthur Andersen LLP. 38 REPORTS ON FORM 8-K LP did not file any Current Reports on Form 8-K during the last quarter of the period covered by this Form 10-K. 39 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. March 27, 2002 IRT Property Company, as general partner By: /s/ Thomas H. McAuley ------------------------------------- Thomas H. McAuley President & Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. NAME TITLE DATE ---- ----- ---- /s/ Thomas H. McAuley President & March 27, 2002 ------------------------------ Chief Executive Officer Thomas H. McAuley /s/ James G. Levy Executive Vice-President & March 27, 2002 ------------------------------ Chief Financial Officer James G. Levy 40