<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 1994
-------------------------
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 PROPERTY COMPANY
- - --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Georgia 58-1366611
- - -------------------------------- --------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
200 Galleria Parkway, Suite 1400
Atlanta, Georgia 30339
- - -------------------------------- --------------------------
(Address of principal (Zip Code)
executive offices)
(404) 955-4406
- - --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
N/A
- - --------------------------------------------------------------------------------
(Former name, former address and former fiscal
year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at August 5, 1994
- - --------------------------- ----------------------------------
Common Stock, $1 Par Value 25,357,562 Shares
<PAGE> 2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
IRT PROPERTY COMPANY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
1994 1993
--------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
Real estate investments:
Rental properties, at cost $355,043,861 $331,012,764
Accumulated depreciation (37,414,911) (33,463,530)
----------- -----------
317,628,950 297,549,234
Net investment in direct financing
leases 9,374,535 9,461,899
Mortgage loans, net of interest
discounts of $312,143 in 1994 and
$313,253 in 1993 8,352,871 8,392,959
----------- -----------
Net real estate investments 335,356,356 315,404,092
Cash and cash equivalents 48,057,372 78,629,700
Accrued interest receivable 658,584 895,556
Prepaid expenses and other assets 7,134,608 7,389,777
----------- -----------
$391,206,920 $402,319,125
=========== ===========
LIABILITIES & SHAREHOLDERS' EQUITY
Liabilities:
Mortgage notes payable, plus net
interest premium of $128,861 in
1994 and $163,244 in 1993 $ 89,808,332 $ 98,878,505
7.3% convertible subordinated
debentures due August 15, 2003 86,250,000 86,250,000
Accrued interest on debentures 2,378,583 2,116,240
Accrued expenses and other
liabilities 5,152,426 3,617,213
Deferred income taxes 1,122,000 1,122,000
----------- -----------
Total liabilities 184,711,341 191,983,958
----------- -----------
Shareholders' Equity:
Common stock, $1 par value,
authorized 75,000,000 shares;
25,357,562 shares issued and
outstanding in 1994 and 25,288,624
shares in 1993 25,357,562 25,288,624
Additional paid-in capital 197,429,490 196,793,150
Cumulative distributions in excess
of net earnings (16,291,473) (11,746,607)
----------- -----------
Total shareholders' equity 206,495,579 210,335,167
----------- -----------
$391,206,920 $402,319,125
=========== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated balance sheets.
-1-
<PAGE> 3
IRT PROPERTY COMPANY
CONSOLIDATED STATEMENTS OF EARNINGS
For the Three- and Six-Month Periods Ended
June 30, 1994 and 1993
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ----------------
1994 1993 1994 1993
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Income from rental
properties $10,636,629 $10,318,828 $21,283,274 $20,442,787
Interest 877,673 354,662 1,735,517 709,826
Interest on direct
financing leases 240,912 245,375 775,222 710,606
---------- ---------- ---------- ----------
11,755,214 10,918,865 23,794,013 21,863,219
---------- ---------- ---------- ----------
Expenses:
Operating expenses of real
estate investments 2,448,657 2,526,620 4,856,017 5,011,632
Interest on mortgages 2,085,999 2,718,666 4,268,823 5,470,754
Interest on debentures 1,562,630 151,632 3,134,043 303,264
Interest on indebtedness
to bank 24,257 100,892 48,248 155,669
Depreciation 1,975,698 1,886,261 3,951,381 3,741,432
Amortization of debt costs 111,786 25,189 222,882 49,222
General & administrative 657,417 611,546 1,291,918 1,150,464
---------- ---------- ---------- ----------
8,866,444 8,020,806 17,773,312 15,882,437
---------- ---------- ---------- ----------
Earnings from
operations 2,888,770 2,898,059 6,020,701 5,980,782
Capital loss (3,685,454) - (3,685,454) -
---------- --------- ---------- ---------
Earnings before
extraordinary item (796,684) 2,898,059 2,335,247 5,980,782
Extraordinary item -
Gain on extinguishment of
debt 3,748,095 - 3,748,095 -
---------- ---------- ---------- ----------
Net earnings $ 2,951,411 $ 2,898,059 $ 6,083,342 $ 5,980,782
========== ========== ========== ==========
Per Share:
Earnings from operations $ 0.12 $0.14 $ 0.24 $0.28
Capital loss (0.15) - (0.15) -
---------- ---------- ---------- ----------
Earnings before
extraordinary
item (0.03) 0.14 0.09 0.28
Extraordinary item 0.15 - 0.15 -
---------- ---------- ---------- ----------
Net earnings $ 0.12 $ 0.14 $ 0.24 $ 0.28
========== ========== ========== ==========
Weighted average number of
shares outstanding 25,332,560 21,062,396 25,314,888 21,046,355
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
-2-
<PAGE> 4
IRT PROPERTY COMPANY
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 1994 AND 1993
(UNAUDITED)
<TABLE>
<CAPTION>
Cumulative
Additional Distributions Total
Common Paid-In in Excess of Shareholders'
Stock Capital Net Earnings Equity
------ ---------- ------------- -------------
<S> <C> <C> <C> <C>
Balance at December 31, 1992 $21,016,570 $155,618,551 $ (8,061,119) $168,574,002
Net earnings for period - - 5,980,782 5,980,782
Cash dividends paid -
$.42 per share - - (8,836,733) (8,836,733)
Issuance of shares under
Dividend Reinvestment
Plan, net 53,593 619,965 - 673,558
Exercise of Incentive Stock
Options 4,439 24,001 - 28,440
Issuance of shares for the
acquisition of properties 9,182 105,409 - 114,591
---------- ----------- ----------- -----------
Balance at June 30, 1993 $21,083,784 $156,367,926 $(10,917,070) $166,534,640
========== =========== =========== ===========
Balance at December 31, 1993 $25,288,624 $196,793,150 $(11,746,607) $210,335,167
Net earnings for period - - 6,083,342 6,083,342
Cash dividends paid -
$.42 per share - - (10,628,208) (10,628,208)
Issuance of shares under
Dividend Reinvestment
Plan, net 44,604 402,643 - 447,247
Exercise of Incentive Stock
Options, net 1,010 2,131 - 3,141
Issuance of shares for the
acquisitions of properties 23,324 231,566 - 254,890
---------- ----------- ----------- -----------
Balance at June 30, 1994 $25,357,562 $197,429,490 $(16,291,473) $206,495,579
========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
-3-
<PAGE> 5
IRT PROPERTY COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1994 AND 1993
(UNAUDITED)
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Cash flows from operating activities:
Earnings before extraordinary item $ 2,335,247 $ 5,980,782
Adjustments to reconcile earnings to net
cash from operating activities:
Depreciation 3,951,381 3,741,432
Capital loss 3,685,454 -
Amortization of debt costs 222,882 49,222
Recovery of investment in direct
financing leases 87,364 78,001
----------- -----------
10,282,328 9,849,437
Changes in accrued assets and
liabilities:
Increase in accrued interest on
debentures
7.3% Interest payable 262,343 -
Accrued premium on 2.0% debentures - 245,964
Decrease (increase) in interest
receivable, prepaid expenses and
other assets 22,559 (463,245)
Increase in accrued expenses and
other liabilities 1,575,593 1,479,042
----------- -----------
Net cash flows from operating
activities 12,142,823 11,111,198
----------- -----------
Cash flows from (used in) investing
activities:
Additions to real estate investments, net -
Acquisitions, expansions and
renovations (26,909,520) (11,111,725)
Improvements (345,821) (492,588)
Collections of mortgage loans, net 40,088 2,687
----------- -----------
Net cash flows used in investing activities (27,215,253) (11,601,626)
----------- -----------
Cash flows from (used in) financing
activities:
Cash dividends paid, net (10,180,961) (8,163,175)
Exercise of Incentive Stock Options, net 3,141 28,440
Amortization of mortgage notes payable, net (692,078) (788,016)
Repayment of mortgage notes payable, net (8,378,095) (920,213)
Increase in bank indebtedness, net - 11,799,900
Extraordinary item -
Gain on extinguishment of debt 3,748,095 -
----------- -----------
Net cash flows from (used in)
financing activities (15,499,898) 1,956,936
----------- -----------
Net increase (decrease) in cash and cash
equivalents (30,572,328) 1,466,508
Cash and cash equivalents at beginning of
period 78,629,700 133,549
----------- -----------
Cash and cash equivalents at end of period $ 48,057,372 $ 1,600,057
=========== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
-4-
<PAGE> 6
IRT PROPERTY COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1994 AND 1993
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Supplemental disclosures of cash flow
information:
------------------------------------
Cash paid during the year for interest
related to:
Mortgage notes payable $ 4,386,837 $ 5,487,243
Convertible subordinated debentures -
7.3% interest 2,885,782 -
2% interest - 57,300
Premiums - -
Indebtedness to banks 48,515 154,732
----------- ----------
Total cash paid during the period for
interest $ 7,321,134 $ 5,699,275
=========== ==========
Supplemental schedule of noncash investing
and financing activities:
------------------------------------------
Acquisitions:
Cost of acquisitions, expansions and
renovations $ 27,164,410 $15,226,316
Additions to mortgage notes payable -
Assumed - (4,000,000)
Issuance of common stock (254,890) (114,591)
----------- ----------
Cash paid for acquisitions, expansions
and renovations of real estate
investments $ 26,909,520 $11,111,725
=========== ==========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
-5-
<PAGE> 7
IRT PROPERTY COMPANY
Notes to Consolidated Financial Statements
June 30, 1994 and 1993
1. Unaudited Financial Statements and Reclassification
These consolidated financial statements for interim periods are
unaudited and should be read in connection with the Company's Annual Report to
Shareholders for the year ended December 31, 1993. In the opinion of
management, all adjustments (which include only normal recurring adjustments)
necessary to a fair presentation of the financial statements as of June 30,
1994 and 1993 have been recorded. Certain items on the consolidated statements
of cash flows have been reclassified to conform with the 1994 presentation.
2. Earnings Per Share
Earnings per share have been computed based on the weighted average
number of shares of common stock outstanding. The effect on earnings per share
assuming conversion of the 7.3% convertible subordinated debentures would be
anti-dilutive. Exercise of the outstanding stock options would not have a
material dilutive effect on earnings per share.
3. Interest on Short-Term Investments
Interest income includes income on certificates of deposit of $788,665
and $1,423,199 for the three-month and six-month periods ended June 30, 1994.
4. Purchase of Rental Properties
On June 30, 1994, the Company purchased two shopping centers in Cooper
City and Sunrise, Florida for approximately $25,350,000 cash.
5. Mortgage Loan Investment
On April 14, 1994, the borrower under the Spanish Quarter Apartments
wrap-around mortgage loan filed Chapter 11 bankruptcy. This wrap-around
mortgage, with an outstanding balance of $5,234,897, is subject to two first
mortgages having an aggregate balance of $1,235,980 as of June 30, 1994. In
accordance with the Company's accounting policy on income recognition, the
Company ceased accruing interest income on the wrap-around mortgage loan
effective April 1, 1994. The outcome of the bankruptcy proceedings cannot be
determined at this time.
-6-
<PAGE> 8
6. Extraordinary Item and Capital Loss
On June 28, 1994, the Company purchased the 9.5% mortgage note payable
secured by Valley West Mall in Glendale, Arizona for $4,500,000. The mortgage
note payable had an outstanding principal balance of $8,248,095, which resulted
in an extraordinary gain on extinguishment of this indebtedness of $3,748,095
for both financial reporting and tax purposes. In addition, as a result of
this transaction, the Company recorded a $3,685,454 reduction in the carrying
value of Valley West Mall due to a permanent impairment in the value of this
investment. For tax purposes, the Company will not be able to claim this
deduction until the actual disposition of the property. Subsequent to quarter
end, the Company also acquired the land underlying this investment (See Note
8).
7. Commitments and Contingencies
The Company has executed a contract to purchase a shopping center in
North Carolina for a purchase price of approximately $3,010,000.
During 1992, the Company purchased from the Sofran Group and the IBM
Retirement Plan Trust Fund (advised by Dreyfus Realty Advisors) 17 shopping
centers which have certain rental guaranties from the sellers. At the time of
the purchases, 290,762 shares of the Company's common stock (representing
approximately $3,003,000 of the purchase price) were retained as "holdback
shares." The Company may be required to issue all or a portion of the holdback
shares at various dates over the holdback periods if certain occupancy levels
on a portfolio basis or on agreed-upon spaces are achieved by the end of the
respective periods.
The Sofran holdback, which expires January 1995, contained a total of
169,290 shares. For the period August 1, 1992 through December 31, 1993, the
number of shares available to the sellers was reduced by 110,540 shares and the
Company issued 9,182 shares to the sellers, leaving a balance of 49,568
holdback shares.
The Dreyfus holdback, which expires December 1995, contained a total
of 121,472 shares. For the period December 23, 1992 through March 31, 1994,
the number of shares available to the sellers was reduced by 27,905 shares and
the Company issued 45,257 shares to the sellers, leaving a balance of 48,310
holdback shares.
The shares issued represented additional cost of acquisition for
financial reporting purposes. In addition, during the holdback periods, the
sellers are entitled to amounts equivalent to dividends on the holdback shares
until
-7-
<PAGE> 9
such time as their right to receive such holdback shares may be extinguished at
the close of the periods. The Company paid dividend equivalents of $20,818 and
$50,233 during the first six months of 1994 and 1993, respectively, to the
sellers of the Sofran centers. Also, the Company paid dividend equivalents of
$28,557 and $50,162 during the first half of 1994 and 1993, respectively, to
the sellers of the Dreyfus centers. These payments are considered part of the
cost of acquisition on the respective payment dates.
Additionally, the seller of one of the IBM/Dreyfus centers pledged
115,343 of its IRT Property Company shares to the Company as collateral for a
guarantee of rents payable by one of the anchor tenants which had filed
bankruptcy. For the period December 23, 1992 through March 31, 1994, 18,758
shares held as collateral were released to the seller and 2,137 shares were
retired, leaving a balance of 94,448 shares.
8. Subsequent Events
On August 3, 1994, the Company purchased the land underlying Valley
West Mall for $1,500,000 cash and terminated the ground lease (See Note 6).
-8-
<PAGE> 10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Material Changes in Financial Condition. Acquisitions of real estate
investments during the first quarter of 1994, aggregating approximately
$27,164,000, consisted of:
(a) the purchase of two shopping center investments;
(b) the payment of dividend equivalents on the holdback shares
retained in the 1992 purchases of 17 shopping center
investments (See Note 7);
(c) the issuance of certain of the holdback shares earned by one
of the sellers; and
(d) the funding of expansion or redevelopment costs of four
existing investments.
These acquisitions were funded by approximately $26,910,000 cash and
the issuance of 23,324 shares of the Company's common stock valued at $10.93
per share.
The Company also utilized $4,500,000 of cash to purchase its
$8,248,000 mortgage note payable secured by Valley West Mall. This purchase
resulted in the recognition of an extraordinary gain on extinguishment of debt
of approximately $3,748,000 and a reduction in annual debt service of
approximately $1,076,000. As a result of this transaction, the Company reduced
the carrying value of this investment by approximately $3,685,000 due to a
permanent impairment in its value. Subsequent to quarter end, the Company
purchased the underlying land for $1,500,000 cash and terminated the ground
lease extinguishing approximately $203,000 of ground rental payments. (See
Notes 6 and 8.)
During the quarter and six months ended June 30, 1994, the Company had
an average of approximately $71,000,000 and $75,000,000, respectively, of the
proceeds of the August 1993 equity and debenture offerings invested in
short-term money market investments earning an average interest rate of
approximately 4.4% and 3.8% respectively. This resulted in temporary dilution
in funds from operations. This temporary dilution will cease as this cash is
invested in higher-yielding real estate investments which the Company is
actively pursuing.
Material Changes in Results of Operations. Funds from operations is
defined as net cash flows from operating activities before changes in accrued
assets and liabilities. Funds from operations totaled $5,020,516 and
$4,849,027 for the three-month periods ended June 30, 1994 and 1993,
-9-
<PAGE> 11
respectively, and $10,282,328 and $9,849,437 for the six-month periods then
ended.
The Company's 1993 property acquisitions and expansions offset by
property sales and the ongoing redevelopment of two shopping centers resulted
in net increases in income from rental properties and depreciation expense and
net decreases in operating expenses of real estate investments during the
three- and six-month periods ended June 30, 1994.
The increase in interest income during the quarter and six months
ended June 30, 1994 was primarily due to approximately $789,000 and $1,423,000,
respectively, of interest earned on short-term investments. No cash was
available for short-term investing in the first six months of 1993. The 1994
increase was partially offset by a decrease in interest income of approximately
$264,000 and $398,000, respectively, due to the repayment of two of the
Company's mortgage loan investments in December 1993 and the cessation of
interest recognition on the Company's wrap-around mortgage loan secured by
Spanish Quarter Apartments (See Note 5).
During the first quarter of 1994, the Company received percentage
rental totaling approximately $292,000 from its four Wal-Mart investments
accounted for as direct financing leases, an increase of approximately $73,000
over that received in 1993.
The decrease in interest on mortgages was primarily due to the
repayment of eleven mortgage notes payable during 1993 and the refinancing of a
12.625% mortgage at 8.125% in March 1994, partially offset by additional
interest from 1993 acquisitions.
The increases in interest on debentures and amortization of debt costs
during the three- and six-month periods ended June 30, 1994 resulted from the
issuance of $86,250,000 of 7.3% convertible subordinated debentures in August
1993, partially offset by the Company's redemption of the remaining 2%
convertible subordinated debentures on August 1, 1993.
The Company had no borrowings under its bank credit facility during
the six months ended June 30, 1994, but had average borrowings of approximately
$7.4 million and $4.9 million during the quarter and six months ended June 30,
1993. This resulted in decreased interest expense on bank debt for the
comparable periods in 1994.
The increase in general and administrative expenses in 1994 was
primarily due to the costs of increased administrative and property management
personnel.
-10-
<PAGE> 12
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(b) Reports on Form 8-K. The Company filed a Current Report on
Form 8-K dated July 14, 1994 (date of event reported, June 30, 1994), as
amended under a Form 8-K/A dated August 1, 1994, reporting, under Items 2 and
7, the acquisition of two shopping centers as of June 30, 1994, which Form 8-K,
as amended, is incorporated herein by reference.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed by the undersigned,
thereunto duly authorized.
IRT PROPERTY COMPANY
Date: August 5, 1994 /s/ Donald W. Macleod
-------------- --------------------------
Donald W. MacLeod
Chairman & President
Date: August 5, 1994 /s/ Mary M. Thomas
-------------- --------------------------
Mary M. Thomas
Executive Vice President &
Chief Financial Officer
-11-
