10-Q 1 doc1.txt 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, 2002 ---------------------- OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Transition Period From ________to ________ Commission File Number 1-7859 IRT PARTNERS LP -------------------- (Exact name of registrant as specified in its charter) Georgia 58-2404832 -------------------------------- ------------------------------------ (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 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 [ ] 1 SPECIAL CAUTIONARY NOTICE REGARDING FORWARD LOOKING STATEMENTS This Quarterly Report on Form 10-Q for IRT Partners, L.P. ("LP"), including, but not limited to, the section herein entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations," may contain various "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended, that are based on LP's beliefs and assumptions, as well as information currently available to LP. Readers can identify these forward-looking statements through LP's use of words such as "may," "will," "intend," "project," "would," "could," "should," "expect," "anticipate," "assume," "believe," "estimate," "continue" or other similar words. Forward-looking statements involve known and unknown risks, uncertainties and other factors, which may be beyond LP's control. LP's actual results may differ significantly from those expressed or implied in such forward-looking statements. Factors that might cause these differences include, but are not limited to: - changes in tax laws or regulations, especially those relating to real estate investment trusts and real estate in general; - the number, frequency and duration of vacancies that LP experiences; - LP's ability to solicit new tenants and to obtain lease renewals from existing tenants on terms that are favorable to LP; - tenant bankruptcies and closings; - the general financial condition of, or possible mergers or acquisitions involving, LP's tenants and competitors; - competition; - changes in interest rates and national and local economic conditions; - possible environmental liabilities; - the availability, cost and terms of financing; - LP's ability to identify, acquire, construct or develop additional properties that result in the returns anticipated or sought; and - LP's ability to effectively integrate properties or portfolio acquisitions or other mergers or acquisitions. Readers should not rely on the information contained in any forward-looking statements and should not expect LP to update or revise any forward-looking statements. With respect to such forward-looking statements, LP claims protection under the Private Securities Litigation Reform Act of 1995. The information in this Report, including the information contained in forward-looking statements, is also qualified by the special cautionary notice regarding forward-looking statements and the information in the section entitled "Risk Factors" contained in LP's Annual Report on Form 10-K for the year ended December 31, 2001 and other filings that LP makes with the Securities and Exchange Commission, which are incorporated herein by reference. The documents that LP files with the Securities and Exchange Commission are available from LP, and also may be examined at public reference facilities maintained by the Securities and Exchange Commission or, to the extent filed via EDGAR, accessed through the Internet website of the Securities and Exchange Commission (http://www.sec.gov). 2 ITEM 1. FINANCIAL STATEMENTS

The accompanying notes are an integral part of these balance sheets. 3

The accompanying notes are an integral part of these statements. 4

The accompanying notes are an integral part of these statements. 5 IRT PARTNERS L.P. NOTES TO CONDENSED FINANCIAL STATEMENTS SEPTEMBER 30, 2002 AND 2001 (DOLLARS IN THOUSANDS, EXCEPT UNIT AMOUNTS) 1. UNAUDITED FINANCIAL STATEMENTS These condensed financial statements for interim periods are unaudited. 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, 2002 and 2001 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. ORGANIZATION AND NATURE OF OPERATIONS IRT Partners, L.P. ("LP"), a Georgia limited partnership formed July 15, 1998, is the entity through which IRT Property Company (the "Company"), a self-administered and self-managed real estate investment trust ("REIT"), conducts a portion of its business and owns (either directly or through subsidiaries) a portion of its assets. The Company is the sole general partner of LP and maintains an indirect partnership interest through its wholly-owned subsidiary, IRT Management Company ("IRTMC"). The Company initially contributed 20 shopping centers, related assets and cash to LP in exchange for 8,486,217 limited partnership units of LP ("OP Units"). The Company was issued additional OP Units in exchange for cash contributions to fund further acquisition activity. Since the formation of LP, the Company has contributed cash to acquire eight shopping centers, and LP has divested six shopping centers. At September 30, 2002, IRT and IRTMC owned approximately 1% and 93.4%, respectively of LP. LP was formed by the Company in order to enhance the Company's acquisition opportunities through a "downreit" structure. This structure offers potential sellers the ability to make a tax-deferred sale of their real estate properties in exchange for OP Units of LP. In August 1998, certain unaffiliated persons contributed their interests in three Florida shopping centers in exchange for a total of 815,852 OP Units. LP is obligated to redeem each OP Unit held by a person other than the Company, at the request of the holder, for cash equal to the fair market value of a share of the Company's common stock at the time of such redemption, provided that the Company may elect to acquire any such OP Unit presented for redemption for one common share or cash. Such limited partnership interest held by persons unaffiliated with the Company is reflected as "Limited Partners' Capital Interest" in the accompanying balance sheets at the cash redemption amount on the balance sheet dates. Federal income tax laws require the Company, as a REIT, to distribute 90% (95% for years prior to 2001) of its ordinary taxable income. LP makes quarterly distributions to holders of OP Units to enable the Company to satisfy this requirement. At September 30, 2002, LP owned 25 neighborhood and community shopping centers located in Florida, Tennessee, Georgia and North Carolina. The shopping centers are anchored by necessity-oriented retailers such as supermarkets, drug stores, national value retailers and department stores. 6 3. RENTAL PROPERTIES The rental properties acquired and disposed in 2002 are summarized below.

In connection with the acquisition of Parkwest Crossing, the Company assumed a $4,800, 8.1% mortgage. See Note 5. On September 26, 2002, the Company entered into a sale agreement for Lawrence Commons in Lawrenceburg, TN, to close in the fourth quarter of 2002. This property is not classified as held for sale within the Condensed Consolidated Balance Sheets due to the buyer's unconditional right to terminate the agreement for sixty days after the date of the agreement. 4. ADVANCES TO AFFILIATE LP advances cash generated by the properties within LP to the Company based on cash flow requirements. Also, in certain instances, the Company advances cash to LP for repayment of prior advances or for current operating requirements. As of September 30, 2002, LP had advances to the Company of $21,507. During 2002, the Company paid LP approximately $234 in interest from the advances, which bear interest calculated on a monthly basis, at the three-month treasury bill rate. 5. MORTGAGE NOTES PAYABLE On February 19, 2002, the Company assumed a non-recourse, secured loan totaling $4,800, in connection with the acquisition of Parkwest Crossing. The secured loan has a fixed interest rate of 8.1%. The loan is due and payable September 1, 2010, and the principal amortization is based on a thirty year amortization schedule. Costs associated with assuming the secured loan totaled $56 and are being amortized over the term of the loan. 6. COMMITMENTS AND CONTINGENCIES LP has guaranteed the bank indebtedness and senior indebtedness of the Company. 7 7. SUBSEQUENT EVENTS On October 28, 2002, Equity One, Inc. (NYSE: EQY) and the Company executed a merger agreement pursuant to which Equity One will acquire the Company. In connection with the merger, each of the Company's shareholders may elect to receive for each share of the Company's common stock either $12.15 in cash or 0.9 shares of Equity One common stock, or a combination thereof. The terms of the merger agreement further provide that the holders of no more than 50% of the Company's outstanding common stock may elect to receive cash. Completion of the transaction, which is expected to take place in the first quarter of 2003, is subject to the approval of Equity One's and the Company's shareholders and other customary conditions. The boards of each of the Company and Equity One have unanimously approved the transaction. Additionally, holders of approximately 75% of Equity One's common stock and approximately 8% of the Company's common stock have agreed to vote their shares in favor of the transactions contemplated by the merger. On the 4th business day prior to the shareholder meetings, the Equity One holders may withdraw their voting support, and the Company's board may withdraw its merger recommendation, if Equity One's weighted average stock price for the 30 preceding trading days is less than $12.06 or less than $11.00 for the three preceding trading days. In addition, on the 4th business day prior to the shareholder meetings the Equity One holders may withdraw their voting support if the Company's weighted average stock price for the 30 preceding trading days is less than $10.935 or less than $9.935 for the three preceding trading days. The Company cannot make any assurances that the merger with Equity One will be consummated according to the terms set forth in the merger agreement, if at all. Either the Company or Equity One may terminate the merger agreement if the merger is not consummated by March 31, 2003. The Company will be required to pay a $15 million break-up fee to Equity One in the event that the Company enters into an agreement for a superior transaction or if, under certain circumstances, the Company's board withdraws its recommendation for the transaction. Upon completion of the Merger, Equity One will succeed directly to the interest of the Company as general partner of the LP and indirectly to the interest of IRTMC as the owner of 93.4% of the OP Units. On October 31, 2002, Janet Herszenhorn, an individual stockholder of IRT, purporting to represent a class of holders of IRT common stock, filed a putative class action lawsuit in the Superior Court of Cobb County, Georgia, against IRT, Equity One and each of the directors of IRT. The complaint alleges, among other things, that IRT and its individual directors breached their fiduciary duties by agreeing to the merger between Equity One and IRT and that Equity One aided and abetted such breach. The complaint seeks injunctive relief, an order enjoining consummation of the merger and unspecified damages. On October 31, 2002, John Greaves, an individual stockholder of IRT, purporting to represent a class of holders of IRT common stock, also filed a putative class action lawsuit in the Superior Court of Cobb County, Georgia, against IRT, Equity One and each of the directors of IRT. The complaint alleges, among other things, that IRT and its individual directors breached their fiduciary duties by agreeing to the merger between Equity One and IRT and that Equity One aided and abetted such breach. The complaint seeks injunctive relief, an order enjoining consummation of the merger and unspecified damages. Although the defendants believe that these suits are without merit and intend to defend themselves vigorously, there can be no assurance that the pending litigation will not interfere with the consummation of the merger. IRT and Equity One do not expect that these suits will interfere with the scheduling of their respective shareholder meetings or the consummation of the merger, if approved. 8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Dollars in thousands, except per share amounts) The following discussion and analysis should be read in conjunction with the financial statements and notes thereto included elsewhere in this report, as well as the Quarterly Report on Form 10-Q of IRT Property Company. OVERVIEW IRT Partners, L.P. ("LP"), a Georgia limited partnership formed on July 15, 1998, is the entity through which IRT Property Company (the "Company"), a self-administered and self-managed real estate investment trust ("REIT"), conducts a portion of its business and owns (either directly or through subsidiaries) a portion of its assets. LP was formed by the Company in order to enhance the Company's acquisition opportunities through a "downreit" structure. This structure offers potential sellers the ability to make a tax-deferred sale of their real estate investments properties in exchange for OP Units of LP. IRT Property Company was founded in 1969 and became a public company in May 1971 (NYSE: IRT). The Company is an owner, operator, redeveloper and developer of high quality, well located neighborhood and community shopping centers throughout the southeastern United States. The Company is the sole general partner of LP and maintains an indirect partnership interest in LP through its wholly-owned subsidiary, IRT Management Company ("IRTMC"). At September 30, 2002, IRT and IRTMC owned approximately 1% and 93.4%, respectively, of LP. At September 30, 2002, LP owned 25 neighborhood and community shopping centers located in North Carolina (12), Florida (9), Tennessee (3) and Georgia (1). The shopping centers are anchored by necessity-oriented retailers such as supermarkets, drug stores, national value retailers and department stores. The following table summarizes the shopping centers by state for total gross leasable area ("GLA") and rental income for the nine months ended September 30, 2002 and for the year ended December 31, 2001:

9 CRITICAL ACCOUNTING POLICIES The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates and assumptions within the financial statements include valuation adjustments to tenant related accounts, determination of useful lives of assets subject to depreciation or amortization and impairment evaluation of operating and development properties and other long-term assets. However, application of these accounting policies involves the exercise of judgment and use of assumptions as to future uncertainties and, as a result, actual results could differ significantly from those estimates. Additional discussion of accounting policies that we consider to be significant, including further discussion of the critical accounting policies described below, are included in the notes to the financial statements in Item 8 of this report. Revenue Recognition Leases with tenants are accounted for as operating leases. Rental revenue is recognized on a straight-line basis over the initial lease term. Certain tenants are required to pay percentage rents based on their gross sales exceeding specified amounts. This percentage rental revenue is recorded upon collection. The Company receives reimbursements from tenants for real estate taxes, common area maintenance and other recoverable costs. These tenant reimbursements are recognized as revenue in the period the related expense is recorded. The Company makes valuation adjustments to all tenant related revenue based upon the tenant's credit and business risk. The Company, on behalf of LP, suspends the accrual of income on specific investments where interest, reimbursement or rental payments are delinquent sixty days or more. These valuation adjustments are estimates that affect LP's net earnings since an increase or decrease in the valuation adjustments directly leads to a decrease or increase in net earnings, respectively. Rental Properties Rental properties are stated at cost less accumulated depreciation. Costs incurred for the acquisition, renovation, and betterment of the properties are capitalized and depreciated over their estimated useful lives. Recurring maintenance and repairs are charged to expense as incurred. Depreciation is computed on a straight-line basis generally for a period of sixteen to forty years for buildings and significant improvements. Tenant improvements are depreciated on a straight-line basis over the life of the related lease. When costs are capitalized, the Company must make a judgment of the useful life of the asset for purposes of determining the amount of yearly depreciation, which affects net earnings. If the useful life were increased, yearly depreciation would be reduced, thus increasing net earnings. Impairment of Properties The Company, on behalf of LP, periodically evaluates the carrying value of its long-lived assets, including operating properties, in accordance with Statement of Financial Accounting Standards ("SFAS") No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." Impairment is based on whether it is probable that undiscounted future cash flows from each property will be less than its net book value. The Company, on behalf of LP, assesses whether there are any indicators that the value of the asset may be impaired. In addition, judgments are made in calculating the undiscounted cash flows. These assessments and judgments could have a material impact on net earnings since, if an impairment exists, the asset is written down to its estimated fair value and an impairment loss is recognized thereby reducing net earnings. 10 RESULTS OF OPERATIONS COMPARISON OF THE THREE MONTHS ENDED SEPTEMBER 30, 2002 TO THE THREE MONTHS ENDED SEPTEMBER 30, 2001 Revenues Total revenues increased $165, or 2.8%, to $6,057 in 2002 primarily due to an increase in income from rental properties of $247 which was partially offset by a decrease in interest income of $82. Income from rental properties increased $247, or 4.3%, to $5,981 in 2002. Included in income from rental properties is minimum rent, percentage rent and other rental income. Minimum rents increased $385, or 8.6%, primarily due to an increase in rental rates per square foot from $7.94 in 2001 to $8.12 in 2002, partially offset by the core portfolio of properties decreasing $247, or a decrease of 4.2%, compared to 2001. The core portfolio is defined as properties held in the same corresponding period from the current and prior year, excluding those properties sold or acquired during the same corresponding period. Income from rental properties increased $457 due to one property acquired in 2002 and one in 2001. Percentage rent, based on tenant's gross sales exceeding specified amounts, increased $13 to $14 for 2002 due to the property acquired in 2002 and the two properties acquired in 2001. Other rental income such as tenant reimbursements for common area maintenance ("CAM"), property taxes and insurance, tenant allowances (bad debt reserves) and lease cancellation fees, decreased $188, or 12.8%, to $1,282. This decrease was partially due to a decrease of $345, or 95.9%, in lease cancellation fees, partially offset by an increase in tenant reimbursements for CAM of $173, or 15.8%. Tenants reimburse us for specific expenses relating to the property such as maintenance, taxes and insurance. The reimbursements received as a percentage of expenditures were 77.2% in 2002 and 75.0% in 2001. This increase in the recovery percentage is due to the sale of several tertiary market shopping centers in 2001. Tenant allowances increased $33 from 2001 and represented only 0.5% of total rental income in 2002. Interest income decreased $82 in 2002 from $158 in 2001. The decrease was primarily due to a decrease in the interest rate from 3.67% in 2001 to 1.70% in 2002. Expenses Total expenses increased $372, or 10.9%, to $3,777 in 2002 due to increases in operating expenses of rental properties of $205, interest expense of $84, depreciation of $88, amortization of debt costs of $2, partially offset by a decrease in general and administrative expenses of $7. Operating expenses of rental properties increased $205, or 13.8%, to $1,690 in 2002. This increase was partially due to an increase of real estate taxes of $54, or 9.1%, over 2001 as a result of increased property values. Insurance costs increased by $82, or 99.8%, over 2001 due to a significant increase in premiums as a result of the insurance market environment. The Company amortizes lease fees that are capitalized and the amortization expense increased $22, or 36.8%, in 2002 due to increased leasing activity in 2001. Tenant reimbursable operating expenses increased $62, or 12.1%, primarily due to higher operating and maintenance costs. Overall, the operating expenses of properties increased due to core portfolio operating expenses increasing $63, or 4.2%, over 2001 and the one property acquired each during early 2002 and late 2001 increasing expenses $142. Interest expense increased $84, or 11.5%, in 2002 primarily due to a mortgage note obtained in 2001 and assumption of a mortgage note in connection with the acquisition in 2002. The net increase of $88, or 9.6%, in depreciation expense in 2002 was due to the acquisition of one shopping center in 2002 and two during 2001, net of the effect of the disposition of two properties in 2001. Amortization of debt costs increased $2, primarily due to a mortgage note assumed in 2002 and a mortgage note obtained in 2001. 11 General and administrative expenses decreased $7, or 2.6%, to $261 in 2002. This decrease relates to a decrease in general and administrative expenses of the Company that are allocated to LP. Total general and administrative expenses as a percentage of total revenues were 4.3% and 4.5% for 2002 and 2001, respectively. Due to the implementation of Statement of Financial Accounting Standards ("SFAS") No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assts," effective January 1, 2002 the operating results of certain real estate assets sold subsequent to January 1, 2002 and the respective gain relating to the sale be reported as discontinued operations. As a result, there are no gains on sale of properties within income from continuing operations in 2002. The Company sold a property in 2002, compared to none in 2001, leading to an increase in income from discontinued operations of $2,281 in 2002. Of the total income from discontinued operations, $96 related to the income from the discontinued operation and $2,185 related to the gain on the sale of the property. The 2002 income of $96 represents $171 of rental income, $38 of property operating expenses and $37 of depreciation expense. The 2001 income of $133 represents $208 of rental income, $38 of operating expenses and $36 of depreciation expense. Net Earnings Net earnings increased $1,941, or 74.1%, to $4,561 in 2002 from $2,620 in 2001. This increase was attributable a gain on sale of a property in 2002 and higher operating expenses of properties, partially offset by an increase in base rents per square foot and the acquisition of three properties. COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 2002 TO THE NINE MONTHS ENDED SEPTEMBER 30, 2001 Revenues Total revenues increased $1,103, or 6.3%, to $18,686 in 2002 primarily due to an increase in income from rental properties of $1,490 partially offset by a decrease in interest income of $94 and a decrease in the gain on a sale of an outparcel of $293. Income from rental properties increased $1,490, or 8.8%, to $18,452 in 2002. Included in income from rental properties is minimum rent, percentage rent and other rental income. Minimum rents increased $1,167, or 8.7%, primarily due to an increase in rental rates per square foot from $7.94 in 2001 to $8.12 in 2002 and the core portfolio of properties contributing $107, or an increase of 0.6%, over 2001. The core portfolio is defined as properties held in the same corresponding period from the current and prior year, excluding those properties sold or acquired during the same corresponding period. Income from rental properties increased $1,651 due to one property acquired in 2002 and two properties acquired in 2001, which was partially offset by a $280 decrease in income attributable to the sale of two properties in 2001. Percentage rent, based on tenant's gross sales exceeding specified amounts, increased $27, or 8.1%, to $357 for 2002 due to the one property acquired in 2002 and the two properties acquired in 2001. Other rental income such as tenant reimbursements, tenant allowances (bad debt reserves) and lease cancellation fees, increased $284, or 7.6%, to $4,038. This increase was partially due to an increase in tenant reimbursements for common area maintenance ("CAM") of $566, or 17.1%. Tenants reimburse us for specific expenses relating to the property such as maintenance, taxes and insurance. The reimbursements received as a percentage of expenditures were 77.5% in 2002 and 75.3% in 2001. This increase in the recovery percentage is due to the three acquisitions in 2002 and 2001. Tenant allowances increased $24, or 44.6%, from 2001 and represented only 0.4% of total rental income in 2002. Interest income decreased $94, or 28.7%, due to a decrease in the interest rate from 3.67% in 2001 to 1.7% in 2002. 12 In 2001, LP sold a land outparcel that is located at one of LP's shopping centers for $348, resulting in a gain of $293. No such sales occurred in 2002. Expenses Total expenses increased $1,337, or 13.3%, to $11,426 in 2002 due to increases in operating expenses of rental properties of $648, interest expense of $356, depreciation of $234, amortization of debt costs of $8 and general and administrative expenses of $91. Operating expenses of rental properties increased $648, or 14.4%, to $5,151 in 2002. This increase was partially due to an increase of real estate taxes of $275, or 15.6%, over 2001 as a result of increased property values. Insurance costs increased by $251, or 99.8%, over 2001 due to a significant increase in premiums as a result of the insurance market environment. The Company amortizes lease fees that are capitalized and the amortization expense increased $54, or 27.6%, in 2002 due to increased leasing activity in 2001. Tenant reimbursable operating expenses increased $74, or 4.6%, primarily due to higher general operating and maintenance. Overall, the operating expenses of properties increased due to core portfolio operating expenses increasing $199, or 4.5%, over 2001 and the three properties acquired during 2002 and 2001 increasing expenses $490. These increases were partially offset by a decrease in expenses of $36 from the sales of two properties during 2001. Interest expense increased $356, or 17.4%, in 2002 primarily due to a mortgage note obtained in 2001 and assumption of a mortgage note in connection with the acquisition in 2002. The net increase of $234, or 11.4%, in depreciation expense in 2002 was due to the acquisition of one shopping center in 2002 and two during 2001, net of the effect of the disposition of two properties in 2001. Amortization of debt costs increased $8, primarily due to a mortgage note assumed in 2002 and a mortgage note obtained in 2001. General and administrative expenses increased $91, or 11.9%, to $853 in 2002. This increase relates to an increase in general and administrative expenses of the Company that are allocated to LP. Total general and administrative expenses as a percentage of total revenues were 4.6% and 4.3% for 2002 and 2001, respectively. Due to the implementation of Statement of Financial Accounting Standards ("SFAS") No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assts," effective January 1, 2002 the operating results of certain real estate assets sold subsequent to January 1, 2002 and the respective gain relating to the sale be reported as discontinued operations. As a result, there are no gains on sale of properties within income from continuing operations in 2002 but for 2001, a gain of $1,108 was recognized due to two properties that were sold. The Company sold a property in 2002, compared to none in 2001, leading to an increase in income from discontinued operations of $2,515 in 2002. Of the total income from discontinued operations, $330 related to the income from the discontinued operation and $2,185 related to the gain on the sale of the property. The 2002 income of $330 represents $566 of rental income, $124 of property operating expenses and $112 of depreciation expense. The 2001 income of $349 represents $578 of rental income, $120 of operating expenses and $109 of depreciation expense. Net Earnings Net earnings increased $824, or 9.2%, to $9,775 in 2002 from $8,951 in 2001. This increase was attributable to the gains on sale of properties in 2002 and an increase in revenues primarily from the increase in base rents per square foot and the acquisition of three properties, partially offset by higher operating expenses of the properties. 13 LIQUIDITY AND CAPITAL RESOURCES The Company presently expects cash from LP's operating activities to be a primary source of funds to pay distributions, mortgage note payments and certain capital improvements on LP's properties. Net cash from operating activities was $10,795 in 2002 as compared to $10,666 in 2001, an increase of 1.2%. The increase in cash flow for 2002 is due to an increase in depreciation expense as well as no outparcel sales occurring in 2002. Distributions to OP Unit holders, including the Company and IRTMC, during 2002 and 2001 were $10,252 and $8,897, respectively. Mortgage principal payments for 2002 and 2001 were $585 and $491. Total capital expenditures on operating properties were $2,911 and $498, respectively. Other planned activities, including property acquisitions, new developments, certain capital improvement programs and debt repayments, are expected to be funded to the extent necessary by mortgage financing, periodic sales or exchanges of existing properties and the issuance of OP Units to the Company and unaffiliated third parties. Net cash provided by investing activities in 2002 was $1,757 as compared to net cash used in investing activities in 2001 of $1,843. This increase in cash from investing activities was due to a property sale in 2002 of $6,513. Net cash used in financing activities decreased to $12,347 in 2002 from $14,466 in 2001, a decrease of $2,119. This decrease in cash used in financing activities was due to advances to the Company of $20,391 in 2001, as compared to advances of $3,398 in 2002. LP guarantees the Company's indebtedness under the Company's existing unsecured revolving term loan and its other senior debt. The Company, through LP, uses secured borrowings for use in meeting capital requirements. As of September 30, 2002, LP had $41,861 in mortgage notes payable at a weighted average interest rate of 8.29%, which are due in monthly installments with maturity dates ranging from 2006 to 2015. On February 19, 2002, the Company assumed a non-recourse, mortgage loan totaling $4,800, in connection with the acquisition of Parkwest Crossing. The secured loan has a fixed interest rate of 8.1%. The loan is due and payable in eight years and the principal amortization is based on a thirty year amortization schedule. Future principal amortization and balloon payments applicable to mortgage notes payable at September 30, 2002 are as follows:

The Company presently believes that based on currently proposed plans and assumptions relating to its operations, the Company's existing financial arrangements, together with cash flows from operations, will be sufficient to satisfy LP's foreseeable cash requirements for the next year. 14 RECENT DEVELOPMENTS On October 28, 2002, Equity One, Inc. and the Company executed a merger agreement pursuant to which Equity One will acquire the Company. In connection with the merger, each of the Company's shareholders may elect to receive for each share of the Company's common stock either $12.15 in cash or 0.9 shares of Equity One common stock, or a combination thereof. The terms of the merger agreement further provide that the holders of no more than 50% of the Company's outstanding common stock may elect to receive cash. Completion of the transaction, which is expected to take place in the first quarter of 2003, is subject to the approval of Equity One's and the Company's shareholders and other customary conditions. The boards of each of the Company and Equity One have unanimously approved the transaction. Additionally, holders of approximately 75% of Equity One's common stock and approximately 8% of the Company's common stock have agreed to vote their shares in favor of the transactions contemplated by the merger. On the 4th business day prior to the shareholder meetings, the Equity One holders may withdraw their voting support, and the Company's board may withdraw its merger recommendation, if Equity One's weighted average stock price for the 30 preceding trading days is less than $12.06 or less than $11.00 for the three preceding trading days. In addition, on the 4th business day prior to the shareholder meetings the Equity One holders may withdraw their voting support if the Company's weighted average stock price for the 30 preceding trading days is less than $10.935 or less than $9.935 for the three preceding trading days. The Company cannot make any assurances that the merger with Equity One will be consummated according to the terms set forth in the merger agreement, if at all. Either the Company or Equity One may terminate the merger agreement if the merger is not consummated by March 31, 2003. The Company will be required to pay a $15 million break-up fee to Equity One in the event that the Company enters into an agreement for a superior transaction or if, under certain circumstances, the Company's board withdraws its recommendation for the transaction. Upon completion of the Merger, Equity One will succeed directly to the interest of the Company as general partner of the LP and indirectly to the interest of IRTMC as the owner of 93.4% of the OP Units. On October 31, 2002, Janet Herszenhorn, an individual stockholder of IRT, purporting to represent a class of holders of IRT common stock, filed a putative class action lawsuit in the Superior Court of Cobb County, Georgia, against IRT, Equity One and each of the directors of IRT. The complaint alleges, among other things, that IRT and its individual directors breached their fiduciary duties by agreeing to the merger between Equity One and IRT and that Equity One aided and abetted such breach. The complaint seeks injunctive relief, an order enjoining consummation of the merger and unspecified damages. On October 31, 2002, John Greaves, an individual stockholder of IRT, purporting to represent a class of holders of IRT common stock, also filed a putative class action lawsuit in the Superior Court of Cobb County, Georgia, against IRT, Equity One and each of the directors of IRT. The complaint alleges, among other things, that IRT and its individual directors breached their fiduciary duties by agreeing to the merger between Equity One and IRT and that Equity One aided and abetted such breach. The complaint seeks injunctive relief, an order enjoining consummation of the merger and unspecified damages. Although the defendants believe that these suits are without merit and intend to defend themselves vigorously, there can be no assurance that the pending litigation will not interfere with the consummation of the merger. IRT and Equity One do not expect that these suits will interfere with the scheduling of their respective shareholder meetings or the consummation of the merger, if approved. 15 INFLATION AND ECONOMIC FACTORS The effects of inflation upon LP's results of operations and investment portfolio are varied. From the standpoint of revenues, inflation has the dual effect of both increasing the tenant revenues upon which percentage rentals are based and allowing increased fixed rentals as rental rates rise generally to reflect higher construction costs on new properties. This positive effect is partially offset by increasing operating and interest expenses, but usually not to the extent of the increases in revenues. The Federal Reserve regulates the supply of money through various means, including open market dealings in United States government securities, the discount rate at which banks may borrow from the Federal Reserve, and the reserve requirements on deposits. Such activities affect the availability and cost of credit, generally, and the Company's costs under its bank credit facilities, in particular. ENVIRONMENTAL FACTORS For the years commencing January 1, 2000, the Company, on behalf of LP, has maintained environmental and pollution legal liability insurance coverage to attempt to mitigate the associated risks. Although no assurance can be given that LP properties will not be affected adversely in the future by environmental problems, the Company presently believes that there are no environmental matters that are reasonably likely to have a material adverse effect on LP's financial position. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK (dollars in thousands) The Company and LP utilize mortgage notes payable with fixed rates. Sudden changes in interest rates generally do not affect LP's interest expense as these debt instruments have fixed rates for extended periods of time. LP's potential risk is from increases in long-term real estate mortgage rates or borrowing rates that may occur. As the debt instruments mature, LP typically refinances such debt at the then current market interest rates, which may be more or less than the interest rates on the maturing debt. The table below provides information about LP's financial instruments that are sensitive to changes in interest rates or market conditions, including estimated fair values for the LP's interest rate sensitive liabilities as of September 30, 2002. As the table incorporates only those exposures that exist as of September 30, 2002, it does not address exposures which could arise after that date. Moreover, because there were no firm commitments to sell the obligations at fair value as of September 30, 2002, the information presented has limited predictive value. As a result, LP's ultimate realized gain or loss with respect to interest rate fluctuations will depend on the exposures that arise during a future period and at prevailing interest rates. Dollar amounts in the following table are in thousands.

16 ITEM 4.CONTROLS AND PROCEDURES The Company, on behalf of LP, maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in LP's annual and periodic reports filed with the SEC is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms. These disclosure controls and procedures are further designed to ensure that such information is accumulated and communicated to the Company, as general partner, and the Company's management,, including the Company's chief executive officer and chief financial officer, to allow timely decisions regarding required disclosure. Based on the most recent evaluation, which was completed within 90 days of the filing of this report, the Company's chief executive officer and chief financial officer believe that the Company's disclosure controls and procedures are effective. There have been no significant changes in our internal controls or in other factors that could significantly affect the internal controls subsequent to the date we completed our evaluation. 17 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS. Not applicable. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS. Not applicable. ITEM 3. DEFAULT UPON SENIOR SECURITIES. Not applicable. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. Not applicable. ITEM 5. OTHER INFORMATION. On October 28, 2002, Equity One, Inc. and the Company executed a merger agreement pursuant to which Equity One will acquire IRT. For a more complete discussion of the merger agreement, see "Management's Discussion and Analysis of Financial Condition - Recent Developments." ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibits. 2.1 Agreement and Plan of Merger, dated as of October 28, 2002, by and between IRT Property Company and Equity One, Inc. (incorporated by reference to Exhibit 2.1 to the Company's Current Report on Form 8-K dated October 30, 2002). 4.1 Amendment No. 1 to Shareholder Protection Rights Agreement, dated as of October 28, 2002, by and between IRT Property Company and SunTrust Bank, Atlanta, as Rights Agent (incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K dated October 30, 2002). 99.1 Certification of Chief Executive Officer. 99.2 Certification of Chief Financial Officer. 99.3 Form of IRT Voting Agreement, dated October 28, 2002, by and among Equity One, Inc. and certain shareholders of IRT Property Company (incorporated by reference to Exhibit 99.1 to the Company's Current Report on Form 8-K dated October 30, 2002). 18 99.4 Form of Equity One, Inc. Voting Agreement, dated October 28, 2002, by and among IRT Property Company and certain stockholders of Equity One, Inc. (incorporated by reference to Exhibit 99.2 to the Company's Current Report on Form 8-K dated October 30, 2002). 99.5 Voting Agreement, dated as of October 28, 2002, by and between Equity One, Inc. and E. Stanley Kroenke, in his capacity as a shareholder of IRT Property Company (incorporated by reference to Exhibit 99.3 to the Company's Current Report on Form 8-K dated October 30, 2002). 99.6 Press Release, dated October 29, 2002 (incorporated by reference to Exhibit 99.4 to the Company's Current Report on Form 8-K dated October 30, 2002). (b) Reports on Form 8-K. No reports on Form 8-K were filed by LP during the quarter ended September 30, 2002. On October 30, 2002, the Company filed a Report under Item 1(b) on Form 8-K to report the Agreement and Plan of Merger. 19 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, as general partner Date: November 12, 2002 /s/ Thomas H. McAuley ----- ------------------- ------------------------ Thomas H. McAuley President & Chief Executive Officer Date: November 12, 2002 /s/ James G. Levy ----- ------------------- -------------------- James G. Levy Executive Vice President & Chief Financial Officer 20 CERTIFICATIONS I, Thomas H. McAuley, certify that: 1. I have reviewed this quarterly report on Form 10-Q of IRT Partners LP; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: (a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; (b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and (c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): (a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: November 12, 2002 /s/ Thomas H. McAuley ------------------------ Thomas H. McAuley Chief Executive Officer 21 CERTIFICATIONS I, James G. Levy, certify that: 1. I have reviewed this quarterly report on Form 10-Q of IRT Partners LP; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: (a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; (b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and (c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): (a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: November 12, 2002 /s/ James G. Levy -------------------- James G. Levy Chief Financial Officer 22

IRT PARTNERS L P 10-Q