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, 2001 --------------- OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Transition Period From to ---------- ---------- Commission File Number 1-7859 ----------------------------- IRT PROPERTY COMPANY -------------------- (Exact name of registrant as specified in its charter) Georgia 58-1366611 --------------------------------- ------------------- (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) 200 Galleria Parkway, Suite 1400 Atlanta, Georgia 30339 ---------------------------------------- ---------- (Address of principal executive offices) (Zip Code) (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 May 14, 2001 --------------------------- --------------------------- Common Stock, $1 Par Value 30,329,570 Shares 1 2 CERTAIN INFORMATION CONTAINED IN THIS REPORT CONTAINS FORWARD-LOOKING STATEMENTS, WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933 AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. 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 HEREIN. THIS INFORMATION IS FURTHER QUALIFIED BY THE SPECIAL CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS AND THE INFORMATION IN THE SECTION ENTITLED "RISK FACTORS" CONTAINED IN THE IRT PROPERTY COMPANY ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2000, WHICH ARE INCORPORATED HEREIN BY REFERENCE. 2 3 Item 1. Financial Statements IRT PROPERTY COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Dollars in thousands, except share and per share amounts) March 31, December 31, 2001 2000 ----------- ------------ (Unaudited) ASSETS Real estate investments: Rental properties $ 633,221 $ 632,337 Properties under development 20,318 679 --------- --------- 653,539 633,016 Accumulated depreciation (99,946) (96,183) --------- --------- Net rental properties 553,593 536,833 Equity investment in and advances to unconsolidated affiliates -- 17,342 Net investment in direct financing leases 4,195 4,245 Mortgage loans, net 4,425 4,313 --------- --------- Net real estate investments 562,213 562,733 Cash and cash equivalents 50,488 831 Prepaid expenses and other assets 11,237 10,996 --------- --------- Total assets $ 623,938 $ 574,560 ========= ========= LIABILITIES & SHAREHOLDERS' EQUITY Liabilities: Mortgage notes payable, net $ 115,908 $ 116,509 7.3% convertible subordinated debentures, net 23,275 23,275 Senior notes, net 174,728 124,714 Indebtedness to banks 57,000 55,000 Accrued interest 2,759 3,612 Accrued expenses and other liabilities 8,703 8,316 --------- --------- Total liabilities 382,373 331,426 Commitments and contingencies (Note 8) Minority interest payable 7,837 7,981 Shareholders' equity: Common stock, $1 par value, 150,000,000 shares authorized; 33,234,206 shares issued in 2001 and 2000, respectively 33,234 33,234 Preferred stock, $1 par value, authorized 10,000,000 shares; none issued -- -- Additional paid-in capital 272,055 272,040 Deferred compensation/stock loans (1,820) (1,850) Treasury stock, at cost, 2,927,636 and 2,889,276 shares in 2001 and 2000, respectively (24,221) (23,883) Cumulative distributions in excess of net earnings (45,520) (44,388) --------- --------- Total shareholders' equity 233,728 235,153 --------- --------- Total liabilities and shareholders' equity $ 623,938 $ 574,560 ========= ========= The accompanying notes are an integral part of these consolidated balance sheets. 3 4 IRT PROPERTY COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS For the Three Months Ended March 31, 2001 and 2000 (Unaudited) (In thousands, except per share amounts) Three Months Ended March 31, ---------------------------- 2001 2000 --------- --------- REVENUES: Income from rental properties $ 21,254 $ 21,064 Interest income 132 216 Interest on direct financing leases 190 188 Gain on sale of outparcel 293 -- --------- --------- Total revenues 21,869 21,468 --------- --------- EXPENSES: Operating expenses of rental properties 5,326 4,824 Interest expense 5,649 5,401 Depreciation 3,723 3,572 Amortization of debt costs 148 132 General and administrative 970 779 --------- --------- Total expenses 15,816 14,708 Equity in loss of unconsolidated affiliates (4) (11) --------- --------- Earnings before minority interest and gain on sales of properties 6,049 6,749 Minority interest of unitholders in operating partnership (61) (159) Gain on sales of properties -- 2,738 --------- --------- NET EARNINGS $ 5,988 $ 9,328 ========= ========= PER SHARE: Net earnings -- basic $ 0.20 $ 0.29 ========= ========= Net earnings -- diluted $ 0.19 $ 0.28 ========= ========= WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING: Basic 30,213 32,298 ========= ========= Diluted 31,064 35,188 ========= ========= The accompanying notes are an integral part of these consolidated statements. 4 5 IRT PROPERTY COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS For the Three Months Ended March 31, 2001 and 2000 (Unaudited) (In thousands) Three Months Ended March 31, ---------------------------- 2001 2000 --------- --------- Cash flows from operating activities: Net earnings $ 5,988 $ 9,328 Adjustments to reconcile earnings to net cash from operating activities: Depreciation 3,723 3,572 Gain on sale of operating properties -- (2,738) Gain on sale of outparcel (293) -- Minority interest of unitholders in partnership (131) (34) Straight line rent adjustment (111) (11) Amortization of deferred compensation 30 31 Amortization of debt costs and discounts 159 147 Amortization of capitalized leasing income 51 41 Changes in assets and liabilities: Decrease in accrued interest on debentures and senior notes (853) (853) Increase in interest receivable, prepaid expenses and other assets 829 1,078 Decrease in accrued expenses and other liabilities (680) (524) --------- --------- Net cash flows from operating activities 8,712 10,037 --------- --------- Cash flows (used in) from investing activities: Proceeds from sales of operating properties, net -- 11,660 Proceeds from sale of outparcel, net 348 -- Investment in unconsolidated affiliates -- (660) Purchase of unconsolidated affiliate, net of assets acquired 177 -- Distribution from dissolution of unconsolidated affiliate 21 -- Additions to operating properties, net (925) (1,267) Additions to development properties, net (1,610) -- Funding of mortgage loans (114) (1,888) Collections of mortgage loans, net 2 2 --------- --------- Net cash flows (used in) from investing activities (2,101) 7,847 --------- --------- Cash flows from (used in) financing activities: Cash dividends, net (7,120) (7,627) Purchase of treasury stock (405) (5,800) Exercise of stock options 69 -- Principal amortization of mortgage notes payable (601) (513) Repayment of mortgage notes payable -- (3,520) Payment of deferred financing costs (897) (2) Proceeds from mortgage notes payable -- -- Proceeds from note issuance 50,000 -- Increase (decrease) in bank indebtedness 2,000 (400) --------- --------- Net cash flows from (used in) financing activities 43,046 (17,862) Net increase in cash and cash equivalents 49,657 22 Cash and cash equivalents at beginning of period 831 514 --------- --------- Cash and cash equivalents at end of period $ 50,488 $ 536 ========= ========= Supplemental disclosures of cash flow information: Total cash paid during period for interest $ 6,627 $ 6,294 ========= ========= The accompanying notes are an integral part of these consolidated statements. 5 6 IRT PROPERTY COMPANY AND SUBSIDIARIES Notes to Consolidated Financial Statements March 31, 2001 and 2000 (Dollars in thousands, except per share amounts) 1. Unaudited Financial Statements These consolidated financial statements for interim periods are unaudited and should be read in conjunction with the Company's Report on Form 10-K for the year ended December 31, 2000. The accompanying consolidated financial statements include the accounts of IRT Property Company and its wholly-owned subsidiaries, IRT Management Company ("IRTMC"), VW Mall, Inc., IRT Alabama, Inc. ("IRTAL") and IRT Capital Corporation II ("IRTCCII"), and its majority-owned subsidiary, IRT Partners L.P. ("LP") (collectively, the "Company"). Intercompany transactions and balances have been eliminated in the consolidation. 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, 2001 and 2000 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. As of December 31, 2000, the Company's investment in IRT Capital Corporation ("IRTCC") and IRTCCII was accounted for under the equity method of accounting. In January 2001, IRTCC was dissolved and the Company's investment in IRTCC was eliminated. In March 2001, the Company purchased the remaining voting and non-voting common stock of IRTCCII, making IRTCCII a wholly-owned subsidiary. See Note 6. 2. Investment in and Advances to Unconsolidated Affiliates As of March 31, 2001, LP, IRTCCII, IRTAL and IRTMC guaranteed the Company's indebtedness under the Company's existing unsecured revolving term loan and its other senior debt. The guarantees are joint and several and full and unconditional. 6 7 Guarantors ------------------------------ Consolidated IRT Property Combined IRT Eliminating IRT Property Company Subsidiaries(1) Partners, LP Entries Company ------------ --------------- ------------ ----------- ------------- AS OF MARCH 31, 2001 ASSETS Net rental properties $ 392,716 $ 24,669 $ 136,208 $ -- $ 553,593 Investment in affiliates 129,787 -- -- (129,787) -- Other assets 79,589 24,666 9,709 (43,619) 70,345 --------- --------- --------- --------- --------- Total assets 602,092 49,335 145,917 (173,406) 623,938 ========= ========= ========= ========= ========= LIABILITIES Mortgage notes payable 81,314 4,153 30,441 -- 115,908 Senior Notes, net 174,728 -- -- -- 174,728 Indebtedness to banks 57,000 -- -- -- 57,000 Other liabilities 55,322 21,008 9,530 (43,286) 42,574 --------- --------- --------- --------- --------- Total liabilities 368,364 25,161 39,971 (43,286) 390,210 --------- --------- --------- --------- --------- SHAREHOLDERS' EQUITY Total shareholders' equity 233,728 24,174 105,946 (130,120) 233,728 --------- --------- --------- --------- --------- Total liabilities and shareholders' equity $ 602,092 $ 49,335 $ 145,917 $(173,406) $ 623,938 ========= ========= ========= ========= ========= FOR THE THREE MONTHS ENDED MARCH 31, 2001 REVENUES Income from rental properties $ 15,236 $ 278 $ 5,740 $ -- $ 21,254 Interest Income 132 -- -- -- 132 Interest on direct financing leases 190 -- -- -- 190 Other income 29 2,569 293 (2,598) 293 --------- --------- --------- --------- --------- Total revenues 15,586 2,847 6,033 (2,597) 21,869 --------- --------- --------- --------- --------- EXPENSES Operating expenses of rental properties 3,709 66 1,551 -- 5,326 Interest expense 4,959 68 622 -- 5,649 Depreciation 2,735 28 960 -- 3,723 Amortization of debt costs 147 1 -- -- 148 General and administrative 690 39 241 -- 970 --------- --------- --------- --------- --------- Total expenses 12,240 202 3,374 -- 15,816 --------- --------- --------- --------- --------- Equity in earnings (losses) of affiliates 2,641 (3) -- (2,642) (4) --------- --------- --------- --------- --------- Earnings before minority interest, and gain on sales of properties 5,988 2,642 2,659 (5,240) 6,049 Minority interest in operating partnership -- -- -- (61) (61) Gain on sales of properties -- -- -- -- -- --------- --------- --------- --------- --------- Net Earnings $ 5,988 $ 2,642 $ 2,659 $ (5,301) $ 5,988 ========= ========= ========= ========= ========= Net cash flows provided by (used in) operating activities $ 5,872 $ 1,975 $ 3,653 $ (2,788) $ 8,712 ========= ========= ========= ========= ========= Net cash flows provided by (used in) investing activities $ 7,159 $ (954) $ (7,394) $ (912) $ (2,101) ========= ========= ========= ========= ========= Net cash flows provided by (used in) financing activities $ 43,194 $ (972) $ (2,896) $ 3,720 $ 43,046 ========= ========= ========= ========= ========= 7 8 Guarantors ------------------------------------- Consolidated IRT Combined IRT IRT Capital IRT Capital IRT Property Subsidiaries Partners, Corporation Corporation Eliminating Property Company (1) LP II I Entries Company -------- ------------ --------- ----------- ----------- ----------- ------------ AS OF DECEMBER 31, 2000 ASSETS Net rental properties $394,144 $ 5,575 $137,114 $17,989 $ -- $ (17,989) $536,833 Investment in affiliates 127,364 -- -- -- -- (110,022) 17,342 Other assets 29,444 21,720 8,700 397 31 (39,907) 20,385 -------- ------- -------- ------- ------- --------- -------- Total assets 550,952 27,295 145,814 18,386 31 (167,918) 574,560 ======== ======= ======== ======= ======= ========= ======== LIABILITIES Mortgage notes payable 81,741 4,173 30,595 -- -- -- 116,509 Senior Notes, net 124,714 -- -- -- -- -- 124,714 Indebtedness to banks 55,000 -- -- -- -- -- 55,000 Other liabilities 54,344 1,319 8,320 18,396 2 (39,197) 43,184 -------- ------- -------- ------- ------- --------- -------- Total liabilities 315,799 5,492 38,915 18,396 2 (39,197) 339,407 -------- ------- -------- ------- ------- --------- -------- SHAREHOLDERS' EQUITY Total shareholders' equity 235,153 21,803 106,899 (10) 29 (128,721) 235,153 -------- ------- -------- ------- ------- --------- -------- Total liabilities and shareholders' equity $550,952 $27,295 $145,814 $18,386 $ 31 $(167,918) $574,560 ======== ======= ======== ======= ======= ========= ======== FOR THE THREE MONTHS ENDED MARCH 31, 2000 REVENUES Income from rental properties $ 15,808 $ 171 $ 5,085 $ 36 $ -- $ (36) $ 21,064 Interest Income 91 -- 125 -- -- -- 216 Interest on direct financing leases 188 -- -- -- -- -- 188 Other income 21 2,046 -- -- -- (2,067) -- -------- ------- -------- ------- ------- --------- -------- Total revenues 16,109 2,217 5,210 36 -- (2,104) 21,468 -------- ------- -------- ------- ------- --------- -------- EXPENSES Operating expenses of rental properties 3,484 34 1,306 30 -- (30) 4,824 Interest expense 4,717 69 615 -- -- -- 5,401 Depreciation 2,680 19 873 7 -- (7) 3,572 Amortization of debt costs 132 -- -- -- -- -- 132 General and administrative 588 2 189 6 3 (9) 779 -------- ------- -------- ------- ------- --------- -------- Total expenses 11,601 124 2,983 43 3 (46) 14,708 -------- ------- -------- ------- ------- --------- -------- Equity in earnings (losses) of affiliates 2,083 -- -- -- -- (2,094) (11) -------- ------- -------- ------- ------- --------- -------- Earnings before minority interest and gain on sales of properties 6,590 2,093 2,227 (7) (3) (4,151) 6,749 Minority interest in operating partnership -- -- -- -- -- (159) (159) Gain on sales of properties 2,738 -- -- -- -- -- 2,738 -------- ------- -------- ------- ------- --------- -------- Net Earnings $ 9,328 $ 2,093 $ 2,227 $ (7) $ (3) $ (4,310) $ 9,328 ======== ======= ======== ======= ======= ========= ======== Net cash flows provided by (used in) operating activities $ 6,809 $ 1,818 $ 3,092 $ (104) $ (2) $ (1,576) $ 10,037 ======== ======= ======== ======= ======= ========= ======== Net cash flows provided by (used in) investing activities $ 10,432 $ -- $ (938) $ (577) $ -- $ (1,070) $ 7,847 ======== ======= ======== ======= ======= ========= ======== Net cash flows provided by (used in) financing activities $(17,205) $(1,818) $ (2,167) $ 671 $ -- $ 2,657 $(17,862) ======== ======= ======== ======= ======= ========= ======== NOTES: (1) For the quarter ended March 31, 2001, includes IRTMC, IRTAL, and IRTCCII. For the year ended December 31, 2000 and the quarter ended March 31, 2000, includes IRTMC and IRTAL. 3. 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 Financial Accounting Standards No. 128, "Earnings Per Share." The effects of the conversion of the operating partnership units held by the minority interest are dilutive and have been included in the calculation of dilutive earnings per share for all periods presented. The effects of the conversion of the 7.3% debentures have been excluded from the calculation of dilutive earnings per share for the three months ended March 31, 2001 as they 8 9 were anti-dilutive for that period. For the three months ended March 31, 2000, the effects of the conversion of such debentures have been included in the calculation of dilutive earnings per share as they are dilutive. The effects of certain stock options and non-vested restricted stock, using the treasury stock method, have been included in the calculation of dilutive earnings per share, as they are dilutive. Per Share Income Shares Amount ------- ------- --------- (In thousands except per share data) For the three months ended March 31, 2001 Basic net earnings available to shareholders $ 5,988 30,213 $ 0.20 ======= Options outstanding -- 28 Restricted stock -- 7 Minority interest of unitholders in operating partnership 61 816 ------- ------- Diluted net earnings available to shareholders $ 6,049 31,064 $ 0.19 ======= ======= ======= For the three months ended March 31, 2000 Basic net earnings available to shareholders $ 9,328 32,298 $ 0.29 ======= Options outstanding -- 5 Minority interest of unitholders in operating partnership 159 816 Conversion of the 7.3% debentures 450 2,069 ------- ------- Diluted net earnings available to shareholders $ 9,937 35,188 $ 0.28 ======= ======= ======= 4. 7.3% Convertible Subordinated Debentures 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 of debentures outstanding on March 31, 2001 are converted. 5. Senior Notes On March 23, 2001, the Company established a Medium Term Note Program (the "MTN Program"), pursuant to the Company's shelf registration statement filed in January 2001, pursuant to which the Company may from time to time issue and sell up to $100,000 of medium term notes (the "Medium Term Notes"). The Medium Term Notes must have a maturity of nine months or more from the date of issuance and be unconditionally guaranteed as to the payment of principal, premium, if any, and interest, if any, by each of LP, IRTMC, IRTAL and IRTCCII. On March 29, 2001, pursuant to the MTN Program, the Company issued $50,000 of 7.77% senior notes due April 1, 2006. Interest on these senior notes is payable semi-annually on April 1 and October 1. Costs associated with the issuance of these senior notes totaled approximately $480 and are being amortized over the life of the notes. Proceeds of these notes were used to repay the $50,000 of 7.45% senior notes due April 1, 2001. See Note 9. 6. Investment in Joint Venture IRTCII, a taxable subsidiary, was formed under the laws of Georgia in 1999. IRTCCII has the ability to develop properties, buy and sell properties, provide equity to developers and perform third party management, leasing and brokerage. As of December 31, 2000, the Company accounted for IRTCCII under the equity method of accounting, as the Company held 96% of the non-voting common stock and 9 10 1% of the voting common stock. The remaining voting common stock was held by an officer and a director of the Company. In March 2001 the Company purchased the remaining non-voting and voting common stock from such officer and director for approximately $2, which was the initial investment amount of such officer and director. As a result, as of March 31, 2001, IRTCCII is a wholly-owned taxable subsidiary of the Company. 7. Treasury Stock On January 16, 2001, the Company completed the $25,000 stock repurchase program authorized by the Board of Directors in November 1999. The Company repurchased a total of 3,028,276 shares at an average price of $8.26 per share. 8. Commitments and Contingencies Certain of the Company's properties have environmental concerns that have been or are being addressed. The Company maintains limited insurance coverage for this type of environmental risk. Although no assurance can be given that Company properties will not be affected adversely in the future by environmental problems, the Company presently believes that there are no environmental matters that are reasonable likely to have a material adverse effect on the Company's financial position. 9. Subsequent Events On April 2, 2001, the Company repaid the $50,000 of 7.45% senior notes from the issuance proceeds of the 7.77% senior notes. On April 17, 2001, the Company acquired Unigold Shopping Center, a 102,985 square foot center in Orlando, Florida for $8,000. On April 18, 2001, the Company sold Eden Centre, a 56,355 square foot shopping center, located in Eden, North Carolina for approximately $3,829 in cash, and recognized a gain on the sale of approximately $748. On April 19, 2001, the Company obtained non-recourse, secured loans totaling $20,700, on three shopping centers at a weighted average fixed interest rate of 7.17%. The loans have a ten year term and a thirty year amortization. 10 11 Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations. (Dollars in thousands) Material Changes in Financial Condition. During the three months ended March 31, 2001, the Company: - obtained cash proceeds of $50,000 from the issuance of the 7.77% senior unsecured notes, - obtained cash proceeds of approximately $348 upon the sale of an outparcel and recognized a gain of approximately $293 for financial reporting purposes, and - obtained cash, net of assets acquired, of $177 in the purchase of IRTCCII stock. During the three months ended March 31, 2001, the Company utilized funds of: - approximately $7,120 to pay dividends to the holders of the Company's common stock, - approximately $405 to repurchase outstanding shares of the Company's common stock, - approximately $1,610 for development of land and properties, - approximately $925 for capital expenditures relating to operating properties, and - approximately $897 for deferred financing costs in connection with the issuance of the 7.77% Senior Notes and the $20,700 secured loans. During the three months ended March 31, 2000 the Company: - obtained cash proceeds of approximately $11,660 upon the sales of two properties and recognized a gain of approximately $2,738 for financial reporting purposes. During the three months ended March 31, 2000, the Company utilized funds of: - approximately $7,627 to pay dividends to the holders of the Company's common stock, - approximately $5,800 to repurchase outstanding shares of the Company's common stock, - approximately $3,520 to repay a 7.75% mortgage at its scheduled maturity, - approximately $1,888 to fund a loan for a co-development project, - approximately $1,267 for capital expenditures and tenant improvements, and - approximately $660 for advances to IRTCCII for further development of land and properties acquired in 1999. 11 12 Material Changes in Results of Operations. During the three months ended March 31, 2001, rental income from the Company's portfolio of shopping center investments: - decreased approximately $27 for the core portfolio, - increased approximately $457 due to the acquisition of a shopping center in 2000, and - decreased approximately $240 due to sales of two investments in 2000. During the three months ended March 31, 2000, rental income from the Company's portfolio of shopping center investments: - increased approximately $376 for the core portfolio, - increased approximately $468 due to the acquisition of two shopping centers in 1999, and - decreased approximately $592 due to sales of two investments in 2000 and four in 1999. Percentage rentals received from shopping center investments, excluding percentage rentals received from the two Wal-Mart investments classified as direct financing leases, totaled approximately $593 and $608 during the three months ended March 31, 2001 and 2000, respectively. Percentage rental income is recorded upon collection based on the tenants' lease year end. Interest income during the three months ended March 31, 2001 decreased approximately $84 due primarily to the interest charged to previously unconsolidated affiliates offset by interest accrued on development loans. During the three months ended March 31, 2001, operating expenses related to the Company's portfolio of real estate investments: - increased approximately $425 for the core portfolio, - increased approximately $158 due to the acquisition of a shopping center in 2000, and - decreased approximately $81 due to the sales of two properties in 2000. During the three months ended March 31, 2000, operating expenses related to the Company's portfolio of real estate investments: - increased approximately $303 for the core portfolio, - increased approximately $125 due to the acquisition of two shopping centers in 1999, and - decreased approximately $131 due to the sales of two properties in 2000 and four in 1999. During the three months ended March 31, 2001, interest expense on mortgages decreased approximately $67 primarily due to scheduled amortization. 12 13 Interest expense on bank indebtedness increased approximately $315 for the three months ended March 31, 2001. The Company had average borrowings of approximately $54,253 and $19,569 at effective interest rates of 7.65% and 7.3%, under its bank credit facility during the three months ended March 31, 2001 and 2000, respectively. The Company incurred commitment fees of approximately $50 and $51 in 2001 and 2000, respectively, which are included in this interest expense. The net increase of $151 in depreciation expense in 2001 was due to the acquisition of a real estate investment in the fourth quarter of 2000, net of the effect of the disposition of two properties in the first quarter of 2000. The net increase in general and administrative expense of approximately $191 for the three months ended March 31, 2001 was primarily due to an increase in non-capitalizable development activities. Funds from Operations. The Company defines funds from operations, consistent with the National Association of Real Estate Investment Trusts ("NAREIT") definition of such term, as net earnings on real estate less gains (losses) on sales of properties and extraordinary items plus depreciation and amortization of capitalized leasing costs. Interest and amortization of issuance costs related to convertible subordinated debentures and minority interest expenses ("OP Units") are added back to funds from operations when assumed conversion of the debentures and OP Units is dilutive. Conversion of the debentures and OP Units is dilutive and therefore assumed for the three months ended March 31, 2001 and 2000. 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. Three Months Ended March 31, ---------------------------- 2001 2000 --------- --------- NET EARNINGS $ 5,988 $ 9,328 Gain on sales of properties -- (2,738) Depreciation * 3,655 3,517 Amortization of capitalized leasing fees * 287 173 Amortization of capitalized leasing income 51 41 --------- --------- FUNDS FROM OPERATIONS 9,981 10,321 Interest on convertible debentures 425 425 Amortization of convertible debenture costs 25 25 Amounts attributable to minority interests 133 224 --------- --------- FULLY DILUTED FUNDS FROM OPERATIONS $ 10,564 $ 10,995 ========= ========= FULLY DILUTED FUNDS FROM OPERATIONS PER SHARE $ 0.32 $ 0.31 ========= ========= APPLICABLE WEIGHTED AVERAGE SHARES 33,133 35,188 ========= ========= * Net of amounts attributable to minority interests 13 14 Additional Information: The following data is presented with respect to amounts incurred for improvements to the Company's real estate investments, for the straight line rent adjustment, for leasing fees paid and for principal amortization of mortgage notes payable during the three months ended March 31, 2001 and 2000 (in thousands): Three Months Ended March 31, ---------------------------- 2001 2000 --------- --------- Straight line rent adjustment $ 111 $ 11 ========= ========= Revenue-generating capital expenditures Tenant Improvements -- Anchors $ 141 $ 795 Tenant Improvements -- Non anchors 395 274 --------- --------- Total revenue-generating capital expenditures ** $ 536 $ 1,069 ========= ========= Non revenue-generating capital expenditures $ 388 $ 198 ========= ========= Lease fee payments $ 476 $ 390 ========= ========= Scheduled principal amortization $ 601 $ 513 ========= ========= ** Includes tenant improvements and capital expenditures to prepare spaces for leasing. Excludes expansions. 14 15 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits. None. (b) Reports on Form 8-K. The Company filed a Report on Form 8-K dated March 23, 2001 relating to the establishment of the Medium Term Note Program (the "MTN Program"), the execution of guarantees by IRT Alabama, Inc., IRT Management Company, IRT Partners L.P. and IRT Capital Corporation II for the Company's MTN Program, and the Agency Agreement with its Agents in connection with the MTN Program. No other reports on Form 8-K were filed by the Company during the quarter ended March 31, 2001. 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: May 14, 2001 /s/ Thomas H. McAuley ----------------------- --------------------------- Thomas H. McAuley President & Chief Executive Officer Date: May 14, 2001 /s/ James G. Levy ----------------------- --------------------------- James G. Levy Executive Vice President & Chief Financial Officer 15