<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 March 31, 1998
-----------------------------------
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 April 24, 1997
- ------------------------------------- ---------------------------------------
Common Stock, $1 Par Value 32,931,557 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, 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.
1
<PAGE> 3
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
IRT PROPERTY COMPANY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
------------ ------------
(Unaudited)
<S> <C> <C>
ASSETS
Real estate investments:
Rental properties, at cost $ 564,782,939 $ 537,160,220
Accumulated depreciation (65,612,883) (62,526,989)
------------- -------------
499,170,056 474,633,231
Net investment in direct financing leases 4,671,669 4,704,295
Investment in joint venture -- 355,832
Mortgage loans, net of interest discounts of $24,790
in 1998 and $182,293 in 1997 4,256,245 9,321,205
------------- -------------
Net real estate investments 508,097,970 489,014,563
Cash and cash equivalents 409,458 275,349
Accrued interest receivable 50,907 528,094
Prepaid expenses and other assets 8,277,416 8,334,792
------------- -------------
$ 516,835,751 $ 498,152,798
============= =============
LIABILITIES & SHAREHOLDERS' EQUITY
Liabilities:
Mortgage notes payable plus net interest premium of
$9,230 in 1997 $ 58,670,128 $ 59,558,650
7.3% convertible subordinated debentures due August
15, 2003 23,275,000 28,453,000
7.45% senior notes due April 1, 2001, net of interest
discount of $50,040 in 1998 and $54,210 in 1997 49,949,960 49,945,790
7.25% senior notes due August 15, 2007, net of
interest discount of $399,375 in 1998 and $410,025
in 1997 74,600,625 74,589,975
Indebtedness to banks 35,000,000 14,400,000
Accrued interest on debentures 217,104 784,671
Accrued interest on senior notes 2,542,188 2,970,313
Accrued expenses and other liabilities 8,152,611 6,719,244
Deferred income taxes -- 1,055,000
------------- -------------
Total liabilities 252,407,616 238,476,643
------------- -------------
Commitments and Contingencies (Note 7)
Shareholders' Equity:
Common stock, $1 par value, authorized 75,000,000
shares; 32,931,557 shares issued and outstanding in
1998 and 32,385,664 shares in 1997 32,931,557 32,385,664
Preferred stock, $1 par value, authorized 10,000,000
shares; none issued -- --
Additional paid-in capital 269,224,288 263,786,165
Cumulative distributions in excess of net earnings (37,727,710) (36,495,674)
------------- -------------
Total shareholders' equity 264,428,135 259,676,155
------------- -------------
$ 516,835,751 $ 498,152,798
============= =============
</TABLE>
The accompanying notes are an integral part of these
consolidated balance sheets.
2
<PAGE> 4
IRT PROPERTY COMPANY
CONSOLIDATED STATEMENTS OF EARNINGS For
the Three Months Ended March 31, 1998 and 1997
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Revenues:
Income from rental properties $18,224,247 $15,469,770
Interest 113,556 381,683
Interest on direct financing leases 189,387 180,759
----------- -----------
18,527,190 16,032,212
----------- -----------
Income from unconsolidated joint venture 54,021 --
----------- -----------
Expenses:
Operating expenses of real estate
investments 3,988,346 3,170,860
Interest on mortgages 1,298,052 1,808,600
Interest on debentures 470,968 725,971
Interest on 7.45% senior notes 935,420 935,420
Interest on 7.25% senior notes 1,370,025 --
Interest on indebtedness to banks 349,909 212,656
Depreciation 3,085,894 2,761,846
Amortization of debt costs 111,378 107,441
General & administrative 916,475 851,144
----------- -----------
12,526,467 10,573,938
----------- -----------
Net earnings $ 6,054,744 $ 5,458,274
=========== ===========
Per Share:
Basic $ 0.19 $ 0.18
=========== ===========
Diluted $ 0.19 $ 0.18
=========== ===========
Weighted average number of shares outstanding:
Basic 32,514,110 30,983,979
=========== ===========
Diluted 32,566,693 31,029,113
=========== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
3
<PAGE> 5
IRT PROPERTY COMPANY
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
For the Three Months Ended March 31, 1998 and 1997
(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, 1996 $ 25,807,302 $ 201,273,343 $ (33,725,723) $ 193,354,922
Net earnings for period -- -- 5,458,274 5,458,274
Cash dividends paid -
$.225 per share -- -- (7,192,943) (7,192,943)
Issuance of shares under
Dividend Reinvestment
Plan, net 43,705 411,704 -- 455,409
Conversion of debentures,
net 11,998 119,200 -- 131,198
Exercise of stock options 6,500 58,062 -- 64,562
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 March 31, 1997 $ 32,023,252 $ 260,220,203 $ (35,460,392) $ 256,783,063
============= ============= ============= =============
Balance at December 31, 1997 $ 32,385,664 $ 263,786,165 $ (36,495,674) $ 259,676,155
Net earnings for period -- -- 6,054,744 6,054,744
Cash dividends paid -
$.225 per share -- -- (7,286,780) (7,286,780)
Issuance of shares under
Dividend Reinvestment
Plan, net 84,819 841,311 -- 926,130
Conversion of debentures,
net 460,263 4,595,696 -- 5,055,959
Exercise of stock options 811 1,116 -- 1,927
------------- ------------- ------------- -------------
Balance at March 31, 1998 $ 32,931,557 $ 269,224,288 $ (37,727,710) $ 264,428,135
============= ============= ============= =============
</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 Three Months Ended March 31, 1998 and 1997
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 6,054,744 $ 5,458,274
Adjustments to reconcile earnings to net cash from
operating activities:
Income from unconsolidated joint venture (54,021) --
Operating distributions from unconsolidated joint
venture 54,021 --
Depreciation 3,085,894 2,761,846
Amortization of debt costs and discount 126,198 111,611
Amortization of capitalized leasing income 32,626 25,593
------------ ------------
9,299,462 8,357,324
Changes in accrued assets and liabilities:
Decrease in accrued interest on debentures (567,567) (2,061,925)
Increase (decrease) in accrued interest on senior
notes (428,125) 931,250
Decrease (increase) in interest receivable, prepaid
expenses and other assets (142,935) 1,097,417
Increase in accrued expenses and other
liabilities 1,433,367 263,339
------------ ------------
Net cash flows from operating activities 9,594,202 8,587,405
------------ ------------
Cash flows from (used in) investing activities:
Non-operating distributions from unconsolidated joint venture 355,832 --
Additions to real estate investments, net -
Acquisitions, expansions and renovations (20,385,923) (3,123,544)
Improvements (560,354) (215,928)
Collections of mortgage loans, net 9,200 29,209
------------ ------------
Net cash flows used in investing activities (20,581,245) (3,310,263)
------------ ------------
Cash flows from (used in) financing activities:
Cash dividends paid, net (6,360,650) (6,737,534)
Issuance of common stock, net -- 49,534,496
Exercise of stock options 1,927 64,562
Principal amortization of mortgage notes payable, net (270,861) (328,751)
Repayment of mortgage notes payable, net (2,849,221) (3,800,000)
Increase (decrease) in bank indebtedness, net 20,600,000 (4,000,000)
Repurchase of 7.3% convertible subordinated debentures, net -- (38,269,338)
Cash in lieu of fractional shares on conversion of
debentures (43) (23)
------------ ------------
Net cash flows from (used in) financing activities 11,121,152 (3,536,588)
------------ ------------
Net increase in cash and cash equivalents 134,109 1,740,554
Cash and cash equivalents at beginning of period 275,349 3,174,342
------------ ------------
Cash and cash equivalents at end of period $ 409,458 $ 4,914,896
============ ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
5
<PAGE> 7
IRT PROPERTY COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended March 31, 1998 and 1997
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Supplemental disclosures of cash flow information:
- --------------------------------------------------
Cash paid during the period for interest related to:
Mortgage notes payable $ 1,365,835 $ 1,796,857
Convertible subordinated debentures 1,038,535 2,787,896
Senior notes 2,718,750 --
Indebtedness to banks 372,748 266,508
------------ ------------
Total cash paid during the period for interest $ 5,495,868 $ 4,851,261
============ ============
Supplemental schedule of noncash investing and
financing activities:
- ----------------------------------------------
Acquisitions, expansions and renovations:
Cost of acquisitions, expansions and renovations $ 22,617,483 $ 9,916,235
Additions to mortgage notes payable - Assumed (2,231,560) (6,792,691)
------------ ------------
Cash paid for acquisitions, expansions and
renovations of real estate investments $ 20,385,923 $ 3,123,544
============ ============
Foreclosure of mortgage loan:
Addition to properties $ 4,444,882 $ --
Basis in mortgage loan 4,444,882 --
------------ ------------
Cash proceeds from foreclosure of mortgage loan $ -- $ --
============ ============
Conversion of debentures:
Debentures converted $ 5,178,000 $ 135,000
Associated unamortized debenture costs (121,998) (3,779)
Equity issued on conversion (5,055,959) (131,198)
------------ ------------
Cash paid in lieu of fractional shares $ 43 $ 23
============ ============
Repurchase of convertible debentures:
Convertible debentures repurchased $ -- $ 54,799,000
Issuance of common stock, net of expense -- (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
============ ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
6
<PAGE> 8
IRT PROPERTY COMPANY
Notes to Consolidated Financial Statements
March 31, 1998 and 1997
1. Unaudited Financial Statements
These consolidated financial statements for interim periods are
unaudited and should be read in conjunction with the Company's Annual Report to
Shareholders for the year ended December 31, 1997. In the opinion of management,
all adjustments (which include only normal recurring adjustments) necessary to a
fair presentation of the financial statements as of March 31, 1998 and 1997 have
been recorded. The results of operations for the interim period are not
necessarily indicative of the results that may be expected for future interim
periods or for the full year.
2. Earnings Per Share
Basic earnings per share is computed by dividing net earnings by the
weighted average number of shares outstanding during the period consistent with
the guidelines of Statement of Accounting Standards No. 128, "Earnings Per
Share." The effect on basic earnings per share assuming conversion of the 7.3%
convertible subordinated debentures would be anti-dilutive. Options issued to
executives and directors with exercise prices less than the average market price
for the respective period were considered dilutive.
7
<PAGE> 9
<TABLE>
<CAPTION>
Per-Share
Income Shares Amount
------ ------ ------
For the quarter ended March 31, 1998
- ------------------------------------
<S> <C> <C> <C>
Basic Earnings Per Share
Net Earnings available to
shareholders $6,054,744 32,514,110 $ 0.19
========
Options outstanding -- 52,583
---------- ----------
Diluted Earnings per Share
Net Earnings available to
shareholders $6,054,744 32,566,693 $ 0.19
========== ========== ========
For the quarter ended March 31, 1997
- ------------------------------------
Basic Earnings Per Share
Net Earnings available to
shareholders $5,458,274 30,983,979 $ 0.18
========
Options outstanding -- 45,134
---------- ----------
Diluted Earnings per Share
Net Earnings available to
shareholders $5,458,274 31,029,113 $ 0.18
========== ========== ========
</TABLE>
The Company adopted SFAS No. 128, "Earnings Per Share," effective
December 15, 1997. This accounting change had no effect on previously reported
earnings per share (EPS) data for the quarter ended March 31, 1997.
3. 7.3% Convertible Subordinated Debentures
During February and March 1998, $5,178,000 of the 7.3% convertible
subordinated debentures were converted into 460,263 shares of common stock at
$11.25 per share.
Based upon the $11.25 conversion price, 2,068,889 authorized but
unissued common shares have been reserved for possible issuance if the remaining
$23,275,000 of debentures outstanding March 31, 1998 are converted.
8
<PAGE> 10
4. Purchase of Rental Properties
On January 13, 1998, the Company acquired Town and Country Shopping
Center in Kissimmee, Florida for a total cost of $4,265,000, consisting of the
initial purchase price of $4,200,000 and approximately $65,000 of acquisition
costs. This acquisition was funded by the assumption of the $2,232,000 existing
mortgage debt and cash of $2,033,000.
On March 12, 1998, the Company acquired Spring Valley Commons in
Columbia, South Carolina for $6,099,000 cash, consisting of the initial purchase
price of $6,075,000 and approximately $24,000 of acquisition costs.
On March 31, 1998, the Company acquired Daniel Village in Augusta,
Georgia for $12,224,000 cash, consisting of the initial purchase price of
$12,200,000 and approximately $24,000 of acquisition costs.
5. Investment in Joint Venture
IRT Capital Corporation ("IRTCC"), a taxable subsidiary of the Company,
was a 50% owner of a joint venture which purchased in 1996 a 1.31 acre parcel of
land located in Savannah, Georgia, for development or sale. During March 1998,
this parcel was sold for a total sales price of $465,000. IRTCC, which is
included in the consolidated financial statements of the Company, recognized
income from the joint venture of $54,000.
6. Mortgage Loans
During the fourth quarter of 1997, the borrower under the Spanish
Quarter Apartments wrap-around mortgage loan defaulted under the terms of the
mortgage, and on February 18, 1998, the Company obtained title to the property
through foreclosure. At the time of the foreclosure, management believes that
the market value of the property equals or exceeds the net carrying value of the
wrap-around mortgage.
7. Commitments and Contingencies
IRTCC 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
9
<PAGE> 11
approximately 140,000 square feet, not including two outparcels, at a total
anticipated cost of approximately $14,100,000. The venture may require the
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 the Company will ultimately acquire
the project upon completion.
The Company has entered into contracts to purchase two shopping
center investments for sales prices aggregating $23,000,000. The purchases are
currently in the due diligence process and are scheduled to close, if at all,
during the second quarter of 1998.
10
<PAGE> 12
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Material Changes in Financial Condition. During the first quarter of
1998, the Company borrowed $20,600,000 under its unsecured revolving term loan.
It utilized funds of a) $22,588,000 for the acquisition of three shopping center
investments, consisting of cash of approximately $20,356,000 and mortgage debt
of approximately $2,232,000 secured by one of the centers, b) $2,224,000 to
repay at maturity an 11% mortgage (discounted to 9.75% for financial reporting
purposes) and c) $625,000 to make a scheduled principal payment under a 9%
purchase-money mortgage. Additionally, $5,178,000 of the Company's 7.3%
convertible subordinated debentures were converted into 460,263 shares of common
stock at $11.25 per share.
During the first quarter of 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. 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) $9,907,000 for the acquisition of one shopping center investment,
consisting of cash of approximately $3,114,000 and mortgage debt of
approximately $6,793,000 secured by the center, c) $4,000,000 to paydown the
outstanding balance of its unsecured revolving term loan and d) $3,800,000 to
repay a 9.75% mortgage at maturity. Additionally, $135,000 of the Company's 7.3%
convertible subordinated debentures were converted into 11,998 shares of common
stock at $11.25 per share.
Material Changes in Results of Operations. During the first quarter of
1998, rental income from the Company's core portfolio of shopping center
investments increased approximately $351,000. This increase is net of
approximately $51,000 less income earned during the first quarter of 1998 due to
a tenant bankruptcy during 1997. The increase in the Company's core portfolio
income was supplemented by approximately $2,586,000 of income earned from nine
shopping center investments acquired in 1997 and three centers acquired during
the first quarter of 1998 and by approximately $134,000 of income earned on the
apartment investment obtained by the Company through foreclosure of the
wrap-around mortgage in February 1998. The increase in the Company's core
portfolio income was offset by approximately $316,000 less income earned on two
11
<PAGE> 13
investments sold during 1997. Percentage rentals received from shopping center
investments, excluding percentage rentals received from the Wal-Mart investments
classified as direct financing leases, totaled approximately $411,000 and
$284,000 during the three months ended March 31, 1998 and 1997, respectively.
Percentage rental income is recorded upon collection based on the tenants' lease
years.
The decrease in interest income was primarily due to approximately
$85,000 less income earned due to the repayment of one purchase-money mortgage
in September 1997 and approximately $136,000 less income earned due to the
foreclosure of the wrap-around mortgage during the first quarter of 1998.
Additionally, the Company earned approximately $55,000 less interest on
short-term money market investments during the first quarter of 1998 compared to
the first quarter of 1997.
The increase in interest on direct financing leases resulted from an
increase in percentage rental from one of the Company's Wal-Mart investments.
Approximately $61,000 of percentage rental was received in 1998 compared to
approximately $49,000 in 1997.
IRTCC, which is included in the consolidated financial statements of
the Company, recognized $54,000 of income from a joint venture upon the sale
during the first quarter of 1998 of the 1.31 acre parcel of land held by the
joint venture.
Operating expenses related to the Company's core portfolio of real
estate investments increased approximately $335,000 for the quarter ended March
31, 1998. Additionally, approximately $581,000 of operating expenses were
incurred by the twelve shopping centers acquired by the Company during 1997 and
the first quarter of 1998 and approximately $50,000 of operating expenses were
incurred by the apartment investment obtained through foreclosure of the
wrap-around mortgage loan in February 1998. The increase in operating expenses
was partially offset by approximately $148,000 less expenses incurred on two
investments sold during 1997.
The $511,000 net decrease in interest expense on mortgages was
primarily due to various mortgages repaid during 1997 and the first three months
of 1998, 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,
the $1,250,000 purchase-money mortgage bearing interest at 9% taken upon the
acquisition of Powers Ferry Plaza in May 1997, the assumption of a $3,502,000
12
<PAGE> 14
mortgage bearing interest at 7.75% upon the acquisition of Shoppes of
Silverlakes in November 1997 and the assumption of a $2,232,000 mortgage bearing
interest at 7.675% upon the acquisition of Town and Country Shopping Center in
January 1998. During the first quarter of 1998, the Company repaid at maturity a
$2,224,000 mortgage bearing interest at 11% (discounted to 9.75% for financial
reporting purposes) and made a $625,000 scheduled principal payment on a 9%
purchase-money mortgage. During 1997, the Company a) repaid at maturity a
$3,800,000 mortgage bearing interset 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%.
Interest on debentures decreased due to the repurchase of $54,799,000
of the debentures in January 1997 and the conversion of $5,178,000 of the
debentures during the first quarter of 1998 and $1,653,000 during 1997.
The increase in interest on 7.25% senior notes is 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 $137,000
for the first quarter of 1998. The Company had average borrowings of
approximately $17,052,000 and $8,951,000 at effective interest rates of 7.02%
and 6.99%, respectively, under its bank credit facility during the three months
ended March 31, 1998 and 1997, respectively. In addition, the Company incurred
commitment fees of approximately $51,000 and $56,000 in 1998 and 1997,
respectively, based on the aggregate unused portion of the commitment.
The net increase in depreciation expense in the first quarter of 1998
was primarily due to the twelve shopping center investments acquired during 1997
and 1998, partially offset by the two investments sold during 1997.
The increase in general and administrative expenses in 1998 was
primarily due to increases in the management staff and related employee benefit
costs and expanded corporate insurance coverage. Further increases in general
and administrative expenses will be reflected in future quarters, as the Company
ceased capitalizing overhead costs related to acquisitions effective January 1,
1998 in compliance with the new policy issued by the Emerging Issues Task Force.
From July 1, 1997 through December 31, 1997, the Company
13
<PAGE> 15
capitalized approximately $255,000 of acquisition overhead costs. These
increases were partially offset by the allocation of management fees. 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 the twelve centers acquired during 1997
and 1998 is being accomplished without equivalent additions to personnel costs,
and, as such, the management fee allocation for these acquisitions has resulted
in a decrease in general and administrative expenses of approximately $68,000.
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 are added to funds from operations
when assumed conversion of the debentures is dilutive. Conversion of the
debentures is dilutive and therefore assumed for the quarters ended March 31,
1998 and 1997. 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.
14
<PAGE> 16
The following data is presented with respect to the calculation of
funds from operations under the NAREIT definition for the quarters ended March
31, 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Net earnings $ 6,054,744 $ 5,458,274
Depreciation 3,085,894 2,761,846
Amortization of capitalized leasing fees 61,809 60,197
Amortization of capitalized leasing
income 32,626 25,593
----------- -----------
Funds from operations 9,235,073 8,305,910
Interest on convertible debentures 470,968 725,971
Amortization of convertible debenture
costs 28,514 43,497
----------- -----------
Fully diluted funds from operations $ 9,734,555 $ 9,075,378
=========== ===========
Fully diluted weighted average shares 34,997,005 34,566,372
=========== ===========
</TABLE>
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 ended March 31, 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Tenant Improvements:
Shopping Centers $123,821 $ 89,828
Industrial -- 3,582
-------- --------
Total Tenant Improvements 123,821 93,410
-------- --------
Capital Expenditures:
Shopping Centers 435,033 117,144
Apartment -- 5,374
Industrial 1,500 --
-------- --------
Total Capital Expenditures 436,533 122,518
-------- --------
Total Improvements $560,354 $215,928
======== ========
Leasing Fees $ 92,777 $ 43,118
======== ========
</TABLE>
15
<PAGE> 17
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. No reports on Form 8-K were filed by the
Company during the first quarter of 1998.
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: April 24, 1998 /s/ Thomas H. McAuley
-------------- ---------------------
Thomas H. McAuley
President & Chief Executive
Officer
Date: April 24, 1998 /s/ Mary M. Thomas
-------------- ------------------
Mary M. Thomas
Executive Vice President &
Chief Financial Officer
16
<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 THREE MONTHS
MARCH 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND><F1>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 409
<SECURITIES> 0
<RECEIVABLES> 51
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 8,738
<PP&E> 564,783
<DEPRECIATION> 65,613
<TOTAL-ASSETS> 516,836
<CURRENT-LIABILITIES> 10,912
<BONDS> 206,496
0
0
<COMMON> 32,932
<OTHER-SE> 231,497
<TOTAL-LIABILITY-AND-EQUITY> 516,836
<SALES> 0
<TOTAL-REVENUES> 18,581
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 5,016
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,536
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 6,055
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,055
<EPS-PRIMARY> .19
<EPS-DILUTED> .19
<FN>
<F1>
SFAS 128 HAD NO EFFECT ON EPS-PRIMARY FOR THE QUARTER ENDED MARCH 31, 1997.
EPS-DILUTED, CALCULATED IN ACCORDANCE WITH SFAS 128, IS EQUAL TO EPS-PRIMARY AS
REPORTED IN THE PREVIOUS FINANCIAL DATA SCHEDULE. ACCORDINGLY, NO RESTATED
FINANCIAL DATA SCHEDULE IS FILED HEREIN.
<FN/>
</TABLE>
