<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 September 30, 1997
-------------------------------------------------
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)
(770) 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 November 3, 1997
- ------------------------------- -------------------------------
Common Stock, $1 Par Value 32,230,710 Shares
<PAGE> 2
CERTAIN MATTERS DISCUSSED UNDER "ITEM 1. FINANCIAL STATEMENTS -- NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS" and "ITEM 2. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" CONTAIN
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, INCLUDING,
WITHOUT LIMITATION, NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, DISCUSSION AND
ANALYSIS OF THE FINANCIAL CONDITION AND LIQUIDITY OF THE COMPANY AND CERTAIN
OTHER MATTERS. READERS OF THIS REPORT SHOULD BE AWARE THAT THERE ARE VARIOUS
FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM ANY
FORWARD-LOOKING STATEMENTS MADE IN THIS REPORT, WHICH INCLUDE, WITHOUT
LIMITATION, CHANGES IN TAX LAWS OR REGULATIONS; VACANCIES AND LEASE RENEWALS;
TENANT CLOSINGS; THE FINANCIAL CONDITION (INCLUDING POSSIBLE MERGERS OR
BANKRUPTCIES) OF TENANTS; COMPETITION; CHANGES IN NATIONAL AND LOCAL ECONOMIC
CONDITIONS AND POSSIBLE ENVIRONMENTAL LIABILITIES.
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
IRT PROPERTY COMPANY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------------- -------------
(Unaudited)
<S> <C> <C>
ASSETS
Real estate investments:
Rental properties $514,730,879 $463,392,557
Accumulated depreciation (65,401,285) (56,881,888)
------------ ------------
449,329,594 406,510,669
Net investment in direct financing leases 4,736,023 4,826,059
Investment in joint venture 355,832 355,832
Mortgage loans, net of interest discounts of $189,824
in 1997 and $222,881 in 1996 9,340,614 13,182,520
------------ ------------
Net real estate investments 463,762,063 424,875,080
Cash and cash equivalents 6,237,326 3,174,342
Accrued interest receivable 528,998 488,663
Prepaid expenses and other assets 8,568,568 9,156,606
------------ ------------
$479,096,955 $437,694,691
============ ============
LIABILITIES & SHAREHOLDERS' EQUITY
Liabilities:
Mortgage notes payable plus interest premium of
$15,833 in 1997 and $34,928 in 1996 $ 56,301,598 $ 84,000,628
7.3% convertible subordinated debentures due
August 15, 2003 29,170,000 84,905,000
7.45% senior notes due April 1, 2001, net of interest
discount of $58,380 in 1997 and $70,890 in 1996 49,941,620 49,929,110
7.25% senior notes due August 15, 2007, net of interest
discount of $420,675 in 1997 74,579,325 -
Indebtedness to banks - 15,000,000
Accrued interest on debentures 272,091 2,341,488
Accrued interest on 7.45% senior notes 1,862,500 931,250
Accrued interest on 7.25% senior notes 679,688 -
Accrued expenses and other liabilities 9,565,232 6,177,293
Deferred income taxes 1,055,000 1,055,000
------------ ------------
Total liabilities 223,427,054 244,339,769
------------ ------------
Commitments and Contingencies (Note 10)
Shareholders' Equity:
Common stock, $1 par value, authorized 75,000,000
shares; 32,225,379 shares issued and outstanding in
1997 and 25,807,302 shares in 1996 32,225,379 25,807,302
Preferred stock, $1 par value, authorized 10,000,000
shares; none issued - -
Additional paid-in capital 262,187,007 201,273,343
Cumulative distributions in excess of net earnings (38,742,485) (33,725,723)
------------ ------------
Total shareholders' equity 255,669,901 193,354,922
------------ ------------
$479,096,955 $437,694,691
============ ============
</TABLE>
The accompanying notes are an integral part of these
consolidated balance sheets.
3
<PAGE> 4
IRT PROPERTY COMPANY
CONSOLIDATED STATEMENTS OF EARNINGS
For the Three- and Nine-Month Periods Ended
September 30, 1997 and 1996
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------- ------------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Income from rental properties $16,713,767 $14,522,236 $48,255,149 $43,273,725
Interest 344,613 394,924 1,067,157 1,031,194
Interest on direct financing leases 130,514 228,932 442,640 734,982
----------- ----------- ----------- -----------
17,188,894 15,146,092 49,764,946 45,039,901
----------- ----------- ----------- -----------
Expenses:
Operating expenses of real estate
investments 3,860,244 2,982,625 10,377,122 8,767,919
Interest on mortgages 1,345,460 1,897,645 4,987,793 5,919,499
Interest on debentures 539,499 1,549,519 1,812,441 4,648,549
Interest on 7.45% senior notes 935,420 904,261 2,806,260 1,893,451
Interest on 7.25% senior notes 685,013 - 685,013 -
Interest on indebtedness to banks 524,285 69,690 1,095,560 784,216
Depreciation 2,937,570 2,540,331 8,519,397 7,728,229
Amortization of debt costs 105,165 155,334 308,826 440,072
General & administrative 772,412 951,517 2,571,720 2,872,712
----------- ----------- ----------- -----------
11,705,068 11,050,922 33,164,132 33,054,647
----------- ----------- ----------- -----------
Earnings before gain (loss) on real
estate investments and
extraordinary item 5,483,826 4,095,170 16,600,814 11,985,254
Gain (loss) on real estate investments:
Gain (loss) on sales of properties - - - 194,622
----------- ----------- ----------- -----------
Earnings before extraordinary item 5,483,826 4,095,170 16,600,814 12,179,876
Extraordinary loss on extinguishment of
debt - - - (16,500)
----------- ----------- ----------- -----------
Net earnings $ 5,483,826 $ 4,095,170 $16,600,814 $12,163,376
=========== =========== =========== ===========
Per Share:
Earnings before extraordinary item $ 0.17 $ 0.16 $ 0.52 $ 0.47
Extraordinary item - - - -
----------- ----------- ----------- -----------
Net earnings $ 0.17 $ 0.16 $ 0.52 $ 0.47
=========== =========== =========== ===========
Weighted average number of shares
outstanding 32,131,067 25,765,568 31,723,091 25,735,777
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
4
<PAGE> 5
IRT PROPERTY COMPANY
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
For the Nine Months Ended September 30, 1997 and 1996
(Unaudited)
<TABLE>
<CAPTION>
Additional Distributions Total
Common Paid-In in Excess of Shareholders'
Stock Capital Net Earnings Equity
------ ---------- ------------- -------------
<S> <C> <C> <C> <C>
Balance at December 31, 1995 $25,689,002 $200,318,168 $ (27,377,023) $198,630,147
Net earnings for period - - 12,163,376 12,163,376
Cash dividends paid -
$.675 per share - - (17,365,025) (17,365,025)
Issuance of shares under
Dividend Reinvestment
Plan, net 89,270 695,787 - 785,057
Exercise of Incentive Stock
Options, net 2,300 15,238 - 17,538
Issuance of shares for the
acquisition of properties 3,339 27,378 - 30,717
----------- ------------ ------------- ------------
Balance at September 30, 1996 $25,783,911 $201,056,571 $ (32,578,672) $194,261,810
=========== ============ ============= ============
Balance at December 31, 1996 $25,807,302 $201,273,343 $ (33,725,723) $193,354,922
Net earnings for period - - 16,600,814 16,600,814
Cash dividends paid -
$.675 per share - - (21,617,576) (21,617,576)
Issuance of shares under
Dividend Reinvestment
Plan, net 163,436 1,640,009 - 1,803,445
Conversion of debentures,
net 83,191 828,213 - 911,404
Exercise of Incentive Stock
Options, net 17,703 87,548 - 105,251
Issuance of common stock,
net 4,653,747 44,880,749 - 49,534,496
Issuance of shares for the
acquisition of convertible
debentures, net 1,500,000 13,477,145 - 14,977,145
----------- ------------ ------------- ------------
Balance at September 30, 1997 $32,225,379 $262,187,007 $ (38,742,485) $255,669,901
=========== ============ ============= ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
5
<PAGE> 6
IRT PROPERTY COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended September 30, 1997 and 1996
(Unaudited)
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 16,600,814 $12,163,376
Adjustments to reconcile earnings to net cash from
operating activities:
Depreciation 8,519,397 7,728,229
Gain on real estate investments - (194,622)
Extraordinary loss - 16,500
Amortization of debt costs and discount 326,661 448,512
Amortization of capital leasing income 90,036 163,084
------------ -----------
25,536,908 20,325,079
Changes in accrued assets and liabilities:
Decrease in accrued interest on debentures (2,069,397) (1,549,516)
Increase in accrued interest on 7.45% senior notes 931,250 1,914,236
Increase in accrued interest on 7.25% senior notes 679,688 -
Increase in interest receivable, prepaid
expenses and other assets (588,123) (791,360)
Increase in accrued expenses and other
liabilities 3,387,939 3,074,412
------------ -----------
Net cash flows from operating activities 27,878,265 22,972,851
------------ -----------
Cash flows from (used in) investing activities:
Proceeds from sales of properties, net - 1,589,442
Additions to real estate investments, net -
Acquisitions, expansions and renovations (41,851,605) (6,379,903)
Improvements (1,444,026) (2,083,911)
Collections of mortgage loans, net 3,841,906 79,940
------------ -----------
Net cash flows used in investing activities (39,453,725) (6,794,432)
------------ -----------
Cash flows from (used in) financing activities:
Cash dividends paid, net (19,814,131) (16,579,968)
Issuance of common stock, net 49,534,496 -
Exercise of Incentive Stock Options 105,251 17,538
Principal amortization of mortgage notes payable, net (901,567) (943,131)
Repayment of mortgage notes payable, net (34,840,154) (10,098,751)
Decrease in bank indebtedness, net (15,000,000) (34,900,000)
Issuance of 7.45% senior notes, net - 49,394,325
Issuance of 7.25% senior notes, net 73,824,000 -
Repurchase of 7.3% convertible subordinated
debentures, net (38,269,338) -
Cash in lieu of fractional shares on conversion of
debentures (113) -
Extraordinary item -
Loss on extinguishment of debt - (16,500)
------------ -----------
Net cash flows from (used in) financing
activities 14,638,444 (13,126,487)
------------ ----------
Net increase in cash and cash equivalents 3,062,984 3,051,932
Cash and cash equivalents at beginning of period 3,174,342 16,400
------------ -----------
Cash and cash equivalents at end of period $ 6,237,326 $ 3,068,332
============ ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
6
<PAGE> 7
IRT PROPERTY COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended September 30, 1997 and 1996
(Unaudited)
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Supplemental disclosures of cash flow information:
Cash paid during the period
for interest related to:
Mortgage notes payable $ 4,961,283 $ 6,005,088
Convertible subordinated debentures 3,881,838 6,198,065
7.45% Senior notes, including $29,225 capitalized in 1996 1,862,500 83,500
7.25% Senior notes 426,000 -
Indebtedness to banks, including $2,853
capitalized in 1996 1,225,019 961,276
----------- -----------
Total cash paid during the period for interest $12,356,640 $13,247,929
=========== ===========
Supplemental schedule of noncash investing and
financing activities:
Acquisitions, expansions and renovations:
Cost of acquisitions, expansions and renovations $49,894,296 $ 6,410,620
Additions to mortgage notes payable (8,042,691) -
Issuance of common stock - (30,717)
----------- -----------
Cash paid for acquisitions, expansions and
renovations of real estate investments $41,851,605 $ 6,379,903
=========== ===========
Sales of Properties:
Gross proceeds from sales of properties $ - $ 5,389,442
Additions to mortgage loans - (3,800,000)
----------- -----------
Cash proceeds from sales of properties, net $ - $ 1,589,442
=========== ===========
Repurchase of convertible debentures:
Convertible debentures repurchased $54,799,000 $ -
Issuance of common stock, net (16,529,662) -
----------- -----------
Cash paid for repurchase of convertible debentures $38,269,338 $ -
=========== ===========
Issuance of common stock, net $16,529,662 $ -
Associated unamortized debenture costs (1,552,517) -
----------- -----------
Net increase in shareholders' equity $14,977,145 $ -
=========== ==========
Conversion of debentures:
Debentures converted $ 936,000 $ -
Associated unamortized debenture costs (24,483) -
Equity issued on conversion (911,404) -
----------- -----------
Cash paid in lieu of fractional shares $ 113 $ -
=========== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
7
<PAGE> 8
IRT PROPERTY COMPANY
Notes to Consolidated Financial Statements
September 30, 1997 and 1996
1. Unaudited Financial Statements
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, 1996. In the opinion of management,
all adjustments (which include only normal recurring adjustments) necessary to a
fair presentation of the financial statements as of September 30, 1997 and 1996
have been recorded. The results of operations for the interim periods are not
necessarily indicative of the results that may be expected for future interim
periods or for the full year.
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. Recent Accounting Pronouncements
In March 1997, the Financial Accounting Standards Board issued
Statement of Accounting Standards No. 128 ("FAS 128") "Earnings Per Share,"
which is effective for financial statements issued for periods ending after
December 15, 1997. FAS 128 establishes standards for computing and presenting
earnings per share. The Company does not expect this standard to have a material
impact on the earnings per share calculation. The Company intends to adopt FAS
128 in the fourth quarter of 1997.
4. Issuance of 7.25% Senior Notes
On August 15, 1997, the Company issued $75,000,000 of 7.25% senior
notes due August 15, 2007. The senior notes were issued at a discount of
$426,000 which will be amortized over the life of the notes for financial
reporting purposes. Net proceeds from the issuance totaled $73,824,000.
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<PAGE> 9
Interest on the senior notes is payable semi-annually on February 15
and August 15. Costs associated with the issuance of the senior notes totaled
approximately $750,000 and are being amortized over the life of the notes.
5. Issuance of Common Stock
On January 14 and 22, 1997, the Company completed the offering of
4,653,747 shares of its common stock at $11.25 per share. The net proceeds from
the offering totaled approximately $49,534,000.
6. 7.3% Convertible Subordinated Debentures
On January 17, 1997, the Company completed the repurchase of
$54,799,000 of its 7.3% convertible subordinated debentures due August 15, 2003
in a private transaction with a single debenture holder. The debentures were
repurchased by the Company at par plus $1,689,000 of accrued interest. The
seller had informed the Company that the seller had both $54,799,000 par value
of the debentures and a short position of 1,500,000 shares in the Company's
common stock. The consideration paid by the Company was comprised of 1,500,000
shares of common stock, valued for purposes of the exchange at $11.05 per share,
and cash in the amount of $38,224,000. Additional paid-in-capital was reduced by
approximately $1,553,000 of unamortized issuance costs associated with the
debentures repurchased and canceled and by approximately $45,000 of costs
associated with the transaction.
The repurchase of the debentures was transacted pursuant to a Purchase
and Standstill Agreement under which the seller agreed to eliminate its short
position in Company common stock, after which the seller did not own any Company
securities. The seller further agreed not to take any position with respect to
any Company securities or to attempt to influence Company policies or management
in the future.
During the nine months ended September 30, 1997, $936,000 of the 7.3%
convertible debentures were converted into 83,191 shares of common stock at
$11.25 per share. In addition, on October 3, October 9 and October 22, 1997,
$60,000 of the 7.3% convertible debentures were converted into 5,331 shares of
common stock at $11.25 per share.
9
<PAGE> 10
Based upon the $11.25 conversion price, 2,587,556 authorized but
unissued common shares have been reserved for possible issuance if the remaining
$29,110,000 of debentures outstanding October 22, 1997 are converted.
7. Indebtedness to Banks
Effective June 30, 1997, the Applicable Margins charged for LIBOR-based
borrowings under the Company's $100,000,000 unsecured revolving term loan were
reduced from a range of 1.3%-1.5% to a range of .95%-1.40%. The Applicable
Margin is based upon the rating of the senior unsecured long-term debt
obligations of the Company. The Applicable Margin based on the Company's current
rating is 1.25%.
The Company pays a fee of 0.25% per annum of the aggregate unused
portion of the commitment. Effective July 1, 1997, this fee was reduced to 0.15%
per annum whenever the unused portion is less than fifty percent of the total
commitment.
On July 22, 1997, in accordance with the terms of the $100,000,000
unsecured revolving term loan agreement dated December 15, 1995, the Company
extended the maturity date for an additional twelve-month period to January 4,
2001.
8. Purchase of Rental Properties
On February 6, 1997, the Company acquired Grassland Crossing in
Alpharetta, Georgia for a total cost of $9,907,000, consisting of the initial
purchase price of $9,890,000 and approximately $17,000 of acquisition costs.
This acquisition was funded by cash of $3,114,000 and the assumption of the
$6,793,000 existing mortgage debt with an interest rate of 7.865% maturing
December 1, 2016.
On April 16, 1997, the Company acquired Market Place Shopping Center in
Norcross, Georgia for $7,073,000 cash, consisting of the initial purchase price
of $6,800,000, $250,000 of capital expenditures and approximately $23,000 of
acquisition costs.
On May 13, 1997, the Company acquired Powers Ferry Plaza in Marietta,
Georgia for a total cost of $6,901,000, consisting of the initial purchase price
of $6,800,000 and approximately $101,000 of
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<PAGE> 11
acquisition costs. This acquisition was funded by cash of $5,651,000 and a
$1,250,000 purchase-money mortgage with an annual interest rate of 9.00%
maturing January 31, 1999.
On June 17, 1997, the Company acquired Fairview Oaks Shopping Center in
Ellenwood, Georgia for $7,110,000 cash, consisting of the initial purchase price
of $7,100,000 and approximately $10,000 of
acquisition costs.
On July 1, 1997, the Company acquired Greenwood Shopping Center in Palm
Springs, Florida for $13,083,000 cash, consisting of the initial purchase price
of $12,950,000 and approximately $133,000 of acquisition costs.
On August 18, 1997, the Company acquired Madison Centre in Huntsville,
Alabama for $5,821,000 cash, consisting of the initial purchase price of
$5,765,000 and approximately $56,000 of acquisition costs.
9. Repayment of Mortgage Loan
On September 26, 1997, the purchase-money mortgage secured by Valley
West Mall in Glendale, Arizona was prepaid. The Company received cash proceeds
from this prepayment of approximately $3,587,000.
10. Commitments and Contingencies
IRT Capital Corporation, a taxable affiliate of the Company, has
entered into a co-development agreement for the development of a Kroger anchored
shopping center in Decatur, Georgia. The project will be developed in two phases
totaling approximately 140,000 square feet, not including two outparcels, at a
total anticipated cost of approximately $14,100,000. The venture may require IRT
Property Company to purchase the shopping center upon the completion of Phase I
at cost or upon the completion of Phase II at the greater of cost or a 10.75%
capitalization rate. It is anticipated that IRT Property Company will ultimately
acquire the project upon completion.
The Company has entered into a contract to purchase a shopping center
investment for a purchase price of $16,650,000 which is scheduled to close
during the fourth quarter of 1997.
11
<PAGE> 12
11. Subsequent Events
On October 6, 1997, the Company sold Masonova Plaza in Daytona Beach,
Florida for a total sales price of $1,000,000. The Company received net cash
proceeds from this sale of approximately $909,000 and recognized a gain of
approximately $520,000 for financial reporting purposes.
On October 29, 1997, the Company sold Whitehall Kent Apartments in
Kent, Ohio for a total sales price of $5,400,000. The Company received net cash
proceeds from this sale of approximately $5,189,000 and recognized a gain of
approximately $3,373,000 for financial reporting purposes.
12
<PAGE> 13
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Material Changes in Financial Condition. During the nine months ended
September 30, 1997, the Company received cash proceeds of approximately
$49,534,000 from the issuance of 4,653,747 shares of its common stock at $11.25
per share, net cash proceeds of approximately $73,824,000 from the issuance of
$75,000,000 of senior notes due August 15, 2007 and cash proceeds of
approximately $3,587,000 from the prepayment of a mortgage loan. It utilized
funds of a) $54,799,000 to repurchase $54,799,000 of its 7.3% convertible
subordinated debentures due August 15, 2003, consisting of cash of approximately
$38,224,000 and the issuance of 1,500,000 shares of common stock, valued for the
purposes of the exchange at $11.05 per share, b) $49,895,000 for the acquisition
of six shopping center investments, consisting of cash of approximately
$41,852,000 and mortgage debt of approximately $8,043,000 secured by two of the
centers, c) $3,800,000 to repay a 9.75% mortgage at maturity, (d) $27,721,000 to
repay three mortgage notes payable at a rate of 7.6% at maturity, e) $3,155,000
to repay a 9.375% mortgage at maturity, and f) $15,000,000 to repay the
outstanding balance of its unsecured revolving term loan. Additionally, $936,000
of the Company's 7.3% convertible subordinated debentures were converted into
83,191 shares of common stock at $11.25 per share.
During the nine months ended September 30, 1996, the Company received
cash proceeds of approximately $49,394,000 from the issuance of $50,000,000 of
senior notes due April 2001 and net cash proceeds of approximately $1,589,000 on
the sale of Valley West Mall. It utilized funds of a) $4,611,000 for the
acquisition of a shopping center investment, b) $1,769,000 to fund expansion or
redevelopment costs of four existing investments, c) $34,900,000 to repay the
outstanding balance of its unsecured revolving term loan, d) $6,263,000 to repay
a 9.78% mortgage at maturity, e) $1,052,000 to repay a 13.875% mortgage
(discounted to 9.5% for financial reporting purposes) at maturity, f) $2,727,000
to prepay a 9.375% mortgage, and g) $57,000 to prepay an 8.5% mortgage.
Material Changes in Results of Operations. During the quarter ended
September 30, 1997, rental income from the Company's core portfolio of shopping
center investments increased approximately $229,000. This increase includes
approximately $116,000 of additional income earned from two property expansions
completed during 1996. The increase in the Company's core portfolio income
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<PAGE> 14
was offset by approximately $29,000 less income earned on one investment sold
during the first quarter of 1996 and was supplemented by approximately
$1,991,000 of income earned from two shopping center investments acquired in
August and November 1996 and six shopping center investments acquired during the
first nine months of 1997. Percentage rentals received from shopping center
investments, excluding percentage rentals received from the Wal-Mart investments
classified as direct financing leases, totaled approximately $138,000 and
$169,000 during the quarters ended September 30, 1997 and 1996, respectively.
Percentage rental income is recorded upon collection based on the tenant's lease
years.
During the first nine months of 1997, rental income from the Company's
core portfolio of shopping center investments increased approximately
$1,188,000. This increase includes approximately $344,000 of additional income
earned from two property expansions completed during 1996. The increase in the
Company's core portfolio income was offset by approximately $94,000 less income
earned on one investment sold during the first quarter of 1996 and was
supplemented by approximately $3,887,000 of income earned from the eight
shopping center investments acquired in 1996 and the first nine months of 1997.
Percentage rentals received from shopping center investments, excluding
percentage rentals received from the Wal-Mart investments classified as direct
financing leases, totaled approximately $598,000 and $532,000 during the nine
months ended September 30, 1997 and 1996, respectively. Percentage rental income
is recorded upon collection based on the tenant's lease years.
The $50,000 decrease in interest income during the quarter ended
September 30, 1997 was primarily due to approximately $75,000 less income earned
on short-term money market investments offset by interest income earned on
purchase-money mortgages taken back on the sales of two investments in December
1996.
The $36,000 increase in interest income during the nine months ended
September 30, 1997 was primarily due to interest income earned on purchase-money
mortgages taken back on the sales of three investments during 1996 offset by
approximately $86,000 less income earned on short-term money market investments.
During the quarter and nine months ended September 30, 1997, interest
income on direct financing leases decreased approximately $98,000 and $292,000,
respectively. These decreases were primarily
14
<PAGE> 15
due to the sale of two Wal-Mart investments in December 1996. During 1997, the
Company received percentage rental of approximately $49,000 from one of its
remaining Wal-Mart investments, compared to approximately $44,000 received in
1996.
Operating expenses related to the Company's core portfolio of real
estate investments increased approximately $439,000 and $845,000 for the quarter
and nine months ended September 30, 1997, respectively. Additionally,
approximately $445,000 and $848,000 of operating expenses were incurred during
the quarter and nine months ended September 30, 1997, respectively, by the eight
shopping center investments acquired by the Company during 1996 and the first
nine months of 1997.
The $552,000 and $932,000 net decreases in interest expense on mortgages
during the quarter and nine months ended September 30, 1997, respectively, were
primarily due to various mortgages repaid or refinanced during 1996 and the
first nine months of 1997, partially offset by the assumption of a $6,793,000
mortgage bearing interest at 7.865% upon the acquisition of Grassland Crossing
in February 1997 and the $1,250,000 purchase-money mortgage bearing interest at
9.00% taken upon the acquisition of Powers Ferry Plaza in May 1997. During 1997,
the Company a) repaid at maturity a $3,800,000 mortgage bearing interest at
9.75%, b) repaid at maturity three mortgages aggregating $27,721,000 bearing
interest at 7.6% and, c) repaid at maturity a $3,155,000 mortgage bearing
interest at 9.375%. During 1996, the Company a) repaid at maturity a $6,263,000
mortgage bearing interest at 9.78%, b) repaid at maturity a $1,052,000 mortgage
bearing interest at 13.875% (discounted to 9.5% for financial reporting
purposes), c) prepaid a $2,727,000 mortgage bearing interest at 9.375%, d)
prepaid a $57,000 mortgage bearing interest at 8.5% and e) repaid at maturity a
$3,850,000 mortgage bearing interest at 9.5%.
Interest on debentures decreased approximately $1,010,000 and $2,836,000
during the quarter and nine months ended September 30, 1997, respectively, due
to the repurchase of $54,799,000 of the debentures during the first quarter of
1997 and the conversion of $936,000 of the debentures during the nine months
ended September 30, 1997.
The increase in interest on 7.45% senior notes during the nine months
ended September 30, 1997 was due to the issuance in March 1996 of $50 million of
7.45% senior notes due April 2001.
15
<PAGE> 16
The increase in interest on 7.25% senior notes during the quarter and
nine months ended September 30, 1997 was due to the issuance in August 1997 of
$75 million of 7.25% senior notes due August 2007.
Interest expense on bank indebtedness increased approximately $455,000
and $311,000 for the quarter and nine months ended September 30, 1997,
respectively. The Company had average borrowings of approximately $27,108,000
and $335,000 at effective rates of 6.94% and 8.25%, respectively, under its bank
credit facility during the quarters ended September 30, 1997 and 1996,
respectively. The Company had average borrowings of approximately $17,663,000
and $11,232,000 at effective interest rates of 7.05% and 7.25%, respectively,
under its bank credit facility during the nine months ended September 30, 1997
and 1996, respectively. In addition, the Company incurred commitment fees of
approximately $43,000 and $63,000 for the quarters ended September 30, 1997 and
1996, respectively, and approximately $151,000 and $164,000 for the nine months
ended September 30, 1997 and 1996, respectively, based on the aggregate unused
portion of the commitment. See Note 7 to the consolidated financial statements
for a description of the reduction in the Applicable Margin charged on LIBOR
borrowings and the change in the commitment fee payable under the Company's
unsecured revolving term loan effective July 1, 1997.
The increases in depreciation expense during the quarter and nine months
ended September 30, 1997 were primarily due to the eight shopping center
investments acquired during 1996 and the first nine months of 1997.
Amortization of debt costs decreased during the quarter and nine months
ended September 30, 1997 due to the repurchase of $54,799,000 during the first
quarter of 1997 and the conversion of $936,000 of the Company's convertible
subordinated debentures during the nine months ended September 30, 1997. These
decreases were partially offset by the amortization of costs associated with the
issuance of $75 million of 7.25% senior notes in August 1997.
The decrease in general and administrative expenses during the nine
months ended September 30, 1997 was primarily due to decreases in employee
benefit costs and an increase in overhead costs capitalized in connection with
acquisitions. In addition, the Company has a policy of allocating management
fees to operating expenses of real estate investments with a resultant offset in
general and administrative expenses. The management and leasing of
16
<PAGE> 17
the eight centers acquired during 1996 and 1997 is being accomplished without
additions to the Company's personnel, and, as such, the management fee
allocation for these acquisitions has resulted in a decrease in general and
administrative expenses.
Funds from Operations. The Company defines funds from operations,
consistent with the NAREIT definition, as net earnings before gains (losses) on
real estate investments and extraordinary items plus depreciation and
amortization of capitalized leasing costs. Interest on debentures and
amortization of convertible debenture costs is added to funds from operations
when assumed conversion of the debentures is dilutive. Conversion of the
debentures is dilutive and therefore assumed for the quarter and nine months
ended September 30, 1997 and 1996. Management believes funds from operations
should be considered along with, but not as an alternative to, net income as
defined by generally accepted accounting principles as a measure of the
Company's operating performance. Funds from operations does not represent cash
generated from operating activities in accordance with generally accepted
accounting principles and is not necessarily indicative of cash available to
fund cash needs.
17
<PAGE> 18
The following data is presented with respect to the calculation of funds
from operations under the NAREIT definition for the quarters and nine-month
periods ended September 30, 1997 and 1996:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------- ------------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Earnings $ 5,483,826 $ 4,095,170 $16,600,814 $12,163,376
Loss (gain)on real estate
investments - - - (194,622)
Loss on extinguishment
of debt - - - 16,500
Depreciation 2,937,570 2,540,331 8,519,397 7,728,229
Amortization of
capitalized leasing fees 62,600 59,975 186,490 168,330
Amortization of
capitalized leasing income 34,157 55,814 90,036 163,084
----------- ----------- ----------- -----------
Funds from operations 8,518,153 6,751,290 25,396,737 20,044,897
Interest on debentures 539,499 1,549,519 1,812,441 4,648,549
Amortization of
convertible debenture costs 31,846 91,440 107,620 274,320
----------- ----------- ----------- -----------
Fully diluted funds from
operations $ 9,089,498 $ 8,392,249 $27,316,798 $24,967,766
=========== =========== =========== ===========
Fully diluted weighted
average shares 34,767,181 33,312,679 34,665,611 33,282,888
=========== =========== =========== ===========
</TABLE>
18
<PAGE> 19
Additional Information. The following data is presented with respect to
amounts incurred for improvements to the Company's real estate investments and
for leasing fees during the quarters and nine-month periods ended September 30,
1997 and 1996:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------- -----------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Tenant Improvements:
Shopping Centers $405,023 $156,134 $ 637,146 $ 531,626
Industrial 241 1,060 9,306 349,459
-------- -------- ---------- ----------
Total Tenant
Improvements 405,264 157,194 646,452 881,085
-------- -------- ---------- ----------
Capital Expenditures:
Shopping Centers 266,345 303,162 641,974 800,438
Apartment 59,077 157,956 121,069 244,316
Industrial 34,531 80 34,531 158,072
-------- -------- ---------- ----------
Total Capital
Expenditures 359,953 461,198 797,574 1,202,826
-------- -------- ---------- ----------
Total Improvements $765,217 $618,392 $1,444,026 $2,083,911
======== ======== ========== ==========
Leasing Fees $ 61,651 $ 69,726 $ 180,809 $ 213,465
======== ======== ========== ==========
</TABLE>
Tenant improvements reflected above do not include leasing fees.
Leasing fees are recorded as deferred assets and expensed on the straight line
basis over the lives of the respective leases in operating expenses of real
estate investments.
19
<PAGE> 20
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
(27) Financial Data Schedule (for S.E.C. use only).
(b) Reports on Form 8-K. The Company filed a Current Report on Form 8-K
dated July 1, 1997, reporting under items 2 and 7 the acquisition of three
shopping center investments for a total cost to the Company of approximately
$27,000,000, which Form 8-K is incorporated herein by reference.
The Company filed a Current Report on Form 8-K dated August 15, 1997
(date of event reported August 15, 1997), reporting under items 5 and 7 the
completion of the offering of $75 million of 7.25% senior notes (the "Notes")
due August 15, 2007, which Form 8-K is incorporated herein by reference. The
offering of the Notes was made pursuant to a Prospectus Supplement dated August
15, 1997 relating to the Prospectus dated November 9, 1995 filed with the
Company's Shelf Registration Statement No. 33-63523 on Form S-3.
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: November 3, 1997 /s/ Thomas H. McAuley
---------------- -----------------------------
Thomas H. McAuley
President & Chief Executive
Officer
Date: November 3, 1997 /s/ Mary M. Thomas
---------------- -----------------------------
Mary M. Thomas
Executive Vice President &
Chief Financial Officer
20
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF IRT PROPERTY COMPANY AS OF AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1997.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 6,237
<SECURITIES> 0
<RECEIVABLES> 529
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 15,335
<PP&E> 519,467
<DEPRECIATION> 65,401
<TOTAL-ASSETS> 479,097
<CURRENT-LIABILITIES> 12,380
<BONDS> 209,993
0
0
<COMMON> 32,225
<OTHER-SE> 223,445
<TOTAL-LIABILITY-AND-EQUITY> 479,097
<SALES> 0
<TOTAL-REVENUES> 49,765
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 21,468
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,696
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 16,601
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 16,601
<EPS-PRIMARY> 0.52
<EPS-DILUTED> 0
</TABLE>
