-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SPdxiWd+Aw3GYpzWuvl0Z7U6WrsDxX4xzHWgZddpyIWoXb0c6hEsVDWgcuDCrUhY stU6aQU0kAzf4GpZ71jmoA== 0000950144-97-001863.txt : 19970227 0000950144-97-001863.hdr.sgml : 19970227 ACCESSION NUMBER: 0000950144-97-001863 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970226 SROS: CSX SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: IRT PROPERTY CO CENTRAL INDEX KEY: 0000311099 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 581366611 STATE OF INCORPORATION: GA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 001-07859 FILM NUMBER: 97544584 BUSINESS ADDRESS: STREET 1: 200 GALLERIA PKWY STE 1400 CITY: ATLANTA STATE: GA ZIP: 30339 BUSINESS PHONE: 7709554406 MAIL ADDRESS: STREET 1: 200 GALLERIA PKWY STREET 2: STE 1400 CITY: ATLANTA STATE: GA ZIP: 30339 10-K405 1 IRT PROPERTIES, INC. 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (X) ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended December 31, 1996 ------------------------------- 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 Number) 200 Galleria Parkway, Suite 1400 Atlanta, Georgia 30339 - --------------------------------------- ------------------------ (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (770) 955-4406 ----------------------------- Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on Title of each class which registered ------------------- ------------------------- Shares of Common Stock New York Stock Exchange $1 Par Value
Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. X --- 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 --- --- Based upon the assumption that directors and executive officers of the registrant are not affiliates of the registrant, the aggregate market value of the voting stock of the registrant held by nonaffiliates of the registrant at February 21, 1997 was $355,650,720. Presuming that such directors and executive officers are affiliates of the registrant, the aggregate market value of the voting stock of the registrant held by nonaffiliates of the registrant at February 21, 1997 was $351,366,791. 31,968,604 shares of Common Stock, $1 Par Value, outstanding at February 21, 1997. DOCUMENTS INCORPORATED BY REFERENCE The information called for by Part III (Items 10, 11, 12 and 13) is incorporated by reference to the registrant's definitive proxy statement to be filed pursuant to Regulation 14A. 2 CERTAIN MATTERS DISCUSSED UNDER "ITEM 1. BUSINESS," "ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SECURITY HOLDER MATTERS," "ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" AND "ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA--NOTES TO CONSOLIDATED FINANCIAL STATEMENTS" 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, TAX CONSIDERATIONS, COMPETITIVE CONDITIONS, REGULATION, DISTRIBUTIONS TO SHAREHOLDERS, 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. PART I Item 1. Business. General Development of Business. IRT Property Company (the "Company"), founded in 1969, is an owner, operator and redeveloper of neighborhood and community shopping centers located primarily in the Southeastern United States and anchored by necessity-oriented retailers such as supermarkets, drug stores and/or discount variety stores. The Company is a self-administered and self-managed equity real estate investment trust with acquisition, redevelopment, financing, property management and leasing capabilities. IRT Property Company was incorporated under the laws of Georgia in June 1979. It was organized in order to accommodate a merger of Investors Realty Trust, a Tennessee business trust organized in 1969, and Summit Properties, an Ohio business trust organized in 1965. That merger was accomplished effective June 20, 1979, and the Company then succeeded to all of the assets and liabilities of both trusts. The Company and its predecessor, Investors Realty Trust, have each elected since their inceptions to be treated as "Real Estate Investment Trusts" ("REITs") under the Internal Revenue Code (the "Code"). The Company intends to continue such election, although it is not required to do so. For the special provisions applicable to REITs, reference is made to Sections 856-860 of the Code, as amended. The Company has two wholly-owned subsidiaries. IRT Management Company ("IRTMC") was formed in 1990. The only business conducted thus far by IRTMC has been the purchase of a portion of the Company's 2% convertible subordinated debentures, which were redeemed in 1992, although it may engage in other activities in the future. VW Mall, Inc. ("VWM") was formed in July 1994. Upon its formation, VWM purchased the land underlying Valley West Mall and now holds the purchase-money mortgage taken back on the sale of Valley West Mall in 1996. In 1996, IRT Capital Corporation ("IRTCC"), a taxable subsidiary of the Company, was formed under the laws of Georgia. This taxable subsidiary will have the ability to develop properties, buy and sell properties, provide equity to developers who are merchant builders and perform third-party management, leasing and brokerage. The Company holds 95% of the non-voting common stock and 5% of the voting common stock of IRTCC. The 1 3 remaining voting common stock is currently held by two executive officers of the Company. IRTCC is included in the Company's consolidated financial statements but is taxed as a regular corporation and not as a REIT. Financial Information and Description of Business. The Company's sole business is the ownership of real estate investments which consist principally of equity investments in income-producing properties, with primary emphasis on neighborhood and community shopping centers in the Southeastern United States. The Company's investment portfolio also includes some apartment, industrial and other properties, and to a lesser extent various purchase-money mortgages taken back on the sales of former equity investments. In addition, the Company has authority to make other types of equity and mortgage investments in real estate. The Company considers its investment activity to consist of a single industry segment. For a description of the Company's individual investments and of material developments during the year regarding these investments and the Company as a whole, reference is made to Items 2 and 7 hereof. For financial information about the Company's 1993 debenture offering, reference is made to Items 6 and 7 and to Notes 8 and 19 to the consolidated financial statements. For information regarding the Company's 1993 common stock offering, reference is made to Item 7. For financial information regarding the Company's 1996 senior note offering, reference is made to Items 6 and 7 and to Note 9 to the consolidated financial statements. For information regarding the Company's 1997 common stock offering and repurchase of a portion of the 7.3% convertible subordinated debentures, reference is made to Item 7 and to Note 19 to the consolidated financial statements. Readers are also urged to review the Company's Annual Report to Shareholders for the year ended December 31, 1996. In making new real estate investments, the Company intends to continue to place primary emphasis on obtaining equity interests in well-located income-producing properties, principally shopping centers in the Southeastern United States, with attractive yields and potential for increases in income and capital appreciation. The Company also from time to time considers the disposition or exchange of existing investments in order to improve its investment portfolio or increase its funds from operations. Existing investments are continuously reviewed by Company management, and appropriate programs to renovate and modernize properties are designed and implemented in order to improve leasing arrangements, 2 4 thereby increasing funds from operations and property values. The Company's investment and portfolio management philosophy is designed to implement its overall objective of maximizing funds from operations and distributions to shareholders. The Company directly provides property management and leasing services for all but one of its operating properties. Self-management enables the Company to emphasize and more closely control leasing and property management. Internal property management also provides the Company opportunities for operating efficiencies by enabling it to acquire additional properties without proportionate increases in property management expenses. The Company's property management program is implemented by on-site property managers and property management and leasing professionals located in offices in Atlanta, Charlotte, Orlando and New Orleans. The results of the Company's operations depend upon the performance of its existing investment portfolio, the availability of suitable opportunities for new investments and the yields then available on such investments. Such yields will vary with the type of investment involved, the condition of the financial and real estate markets, the nature and geographic location of the investment, competition and other factors. The performance of a real estate investment company is strongly influenced by the cycles of the real estate industry. As financial intermediaries providing equity funds for real estate projects, real estate investment companies are generally subject to the same market and economic forces as other real estate investors. Competitive Conditions. In seeking new investment opportunities, the Company competes with other real estate investors, including pension funds, foreign investors, real estate partnerships, other real estate investment trusts and other domestic real estate companies. On properties presently owned by the Company or in which it has investments, the Company and its tenants and borrowers compete with other owners of like properties for tenants and/or customers depending on the nature of the investment. Management believes that the Company is well positioned to compete effectively for new investments and tenants. For any borrowed funds that may be used in new investment activity, the Company would be in competition with other borrowers seeking both secured and unsecured borrowings in the banking, real estate lending and public debt markets. For a description of the Company's mortgage debt, reference is made to Table V in Item 2 3 5 hereof, to Item 7 and to Note 7 to the consolidated financial statements included as a part of this report. For a description of the Company's 7.3% convertible subordinated debentures, reference is made to Item 7 and to Notes 8 and 19 to the consolidated financial statements. For a description of the Company's 7.45% senior notes, reference is made to Item 7 and to Note 9 to the consolidated financial statements. For a description of the Company's $100,000,000 unsecured revolving term loan, reference is made to Item 7 and to Note 10 to the consolidated financial statements. Regulation. Investments in real property create a potential for environmental liability on the part of the owner of or any mortgage lender on such real property. If hazardous substances are discovered on or emanating from any of the Company's properties, the owner or operator of the property (including the Company) may be held strictly liable for all costs and liabilities relating to such hazardous substances. In 1989, the Company adopted a policy of obtaining a Phase I environmental study on each property it seeks to acquire. The Company's Charlotte, North Carolina industrial facility is among the sites appearing on the Comprehensive Environmental Response, Compensation and Liability Information System List ("CERCLIS") maintained by the United States Environmental Protection Agency ("EPA"). The CERCLIS list contains sites which have possible environmental contamination. The EPA regularly requests that state environmental agencies conduct screening site investigations ("SSI") at various sites appearing on the CERCLIS list. At the request of the EPA, the North Carolina Department of Environment, Health, and Natural Resources ("DEHNR") conducted an SSI at this facility on May 28, 1991. Following receipt of results of such SSI, the DEHNR advised the Company that it would not recommend further action to the EPA with respect to this facility. The Company understands that the EPA has determined that no further action is necessary at the site, and the site currently appears in the CERCLIS list as a "delisted" site. The Charlotte industrial facility contained underground petroleum and used oil storage tanks ("USTs") believed to have been owned by the previous owner of this property. The Company (through an environmental consulting firm) removed the USTs in December 1993, and on March 2, 1994, DEHNR notified the Company that certain investigative, corrective and/or remedial actions ("Corrective Actions") must be performed by the Company to, among other things, determine the level of soil and/or groundwater contamination due to suspected leakage from some of the USTs. The Company has 4 6 investigated the property to the satisfaction of DEHNR. The investigation confirmed the presence of petroleum product-related substances in soil and groundwater at levels that exceed applicable standards. The investigation also revealed the presence of free phase liquids in one monitoring well at the property. The Company has begun removing free phase liquids from the well on the property. In addition, the Company has submitted to DEHNR a Corrective Action Plan ("CAP") and schedule to address petroleum-impacted soil and groundwater at the site. Soil excavation work has been completed, and the Company plans to address petroleum-impacted groundwater in due course. According to the CAP, the estimated remaining cost for site remediation ranges from $129,000 to $193,000 over a period of 3 to 6 years. Although the Company believes that certain of the costs of Corrective Action are reimbursable under the North Carolina Commercial Leaking Petroleum Underground Storage Tank Cleanup Fund, the Company accrued $129,000 in 1995 based on these estimates. The CAP may be revised, and the estimated costs may change, but based on the information presently available, the Company believes any additional costs of any such Corrective Action would not have a material adverse effect on the Company's results of operations, financial position, or liquidity. During 1996, the Company discovered that additional releases of petroleum products had occurred at and around a garage facility previously operated by a former trucking company tenant. An investigation is being conducted by the Company in order to determine the extent of the related contamination, and Company management is negotiating with the former tenant to obtain a contribution to potential clean-up costs. The Company does not believe the cost of addressing these additional releases will have a material adverse effect on the Company's results of operations, financial position, or liquidity. During its soil and groundwater investigation at Bluebonnet Village Shopping Center in Baton Rouge, Louisiana, the Company's environmental consultant discovered concentrations of various chemicals in groundwater monitoring well BB-1 that exceeded the maximum contaminant levels under the Federal Safe Drinking Water Act ("MCLs"). The Company has notified the Louisiana Department of Environmental Quality-Groundwater Protection Division ("LDEQ- GWPD") of such discovery. The Company has been advised that the groundwater impact appears to be very localized, since six other groundwater monitoring wells placed around the initial well did not 5 7 exhibit any impact. At the request of LDEQ-GWPD, the Company subsequently installed two additional wells in the immediate area of well BB-1 and sampled them at different depths, confirming concentrations of chemicals above MCLs at that location. There can be no assurance that the LDEQ-GWPD will not require remediation, but based on information presently available to the Company and discussions with the Company's environmental consultant, the Company believes the cost of any such remediation would not have a material adverse effect on the Company's results of operations, financial position, or liquidity. Leaking petroleum USTs formerly located at the Company's Venice Plaza Shopping Center in Venice, Florida, have affected soil and groundwater at this center. Kash n' Karry Food Stores, Inc., the Florida food division of Lucky Stores, Inc., formerly operated such USTs at Venice Plaza Shopping Center and is addressing the releases. No Corrective Action concerning such leaking USTs has been requested or required of the Company by any federal, state or local agency or any other party. Solvents apparently relating to drycleaning activities have been discovered in soil and groundwater in the immediate vicinity of the premises of a current tenant operating a dry cleaning facility at the Company's Westgate Square Shopping Center in Sunrise, Florida. The tenant has agreed to investigate this discovery, and the Company expects to receive a report from the tenant. In addition, the Company has been informed that costs of any necessary Corrective Action may be funded in part through a program established by the State of Florida. No Corrective Action concerning the solvents has been requested or required of the Company by any federal, state or local agency or any other party. Based on information presently available to the Company, the Company believes that Kash n' Karry Food Stores, Inc. and/or Lucky Stores, Inc. in the case of Venice Plaza Shopping Center, or the drycleaning facility tenant in the case of Westgate Square, have the primary responsibility for undertaking any necessary Corrective Action at these properties. There can be no assurance that the Company will not be required to undertake Corrective Action at these sites, but based on the information presently available to the Company, the Company believes that the costs of any such Corrective Action would not have a material adverse effect on the Company's results of operations, financial position, or liquidity. 6 8 Leaking petroleum USTs and other environmental concerns located on property owned by third parties may affect certain properties of the Company. Examples include Gulf Gate Plaza Shopping Center, Naples, Florida; Thomasville Commons, Thomasville, North Carolina; Wesley Chapel Crossing, Decatur, Georgia; and Chestnut Square, Brevard, North Carolina. Based on information presently available to the Company, the Company believes that the third party landowners or UST operators are responsible for Corrective Action for any such matters. Accordingly, the Company believes that the costs of any such Corrective Action would not have a material adverse effect on the Company's results of operations, financial position, or liquidity. The Company has not commissioned independent environmental analyses with respect to properties acquired prior to 1989, except as required pursuant to a former secured revolving term loan. Phase I environmental site assessments (which generally did not include environmental sampling, monitoring or laboratory analysis) were implemented by the Company with respect to those properties which the Company acquired from 1989 to the present, prior to the acquisition of such properties. No assurance can be given that hazardous substances are not located on any of the properties. However, the Company has no reason to believe that any environmental contamination has occurred nor any violation of any applicable environmental law, statute, regulation or ordinance exists that would have a material adverse effect on the Company's results of operations, financial position or liquidity. The Company presently carries no insurance coverage for the types of environmental risks described above. The State of Florida has established a program covering part of the cost of addressing releases of dry cleaning-related solvents from certain dry cleaning facilities in the state. The Company has encouraged its dry cleaning tenants at its Florida properties to enter this program and to investigate whether their operations have resulted in the release of dry cleaning-related solvents. These investigations are ongoing and have resulted in the discovery of releases from dry cleaning tenants to the soil and groundwater at certain Company properties. Based on the information provided to the Company to date, the Company believes that the cost of addressing the releases discovered to date would not have a material adverse effect on the Company's results of operations, financial position, or liquidity. 7 9 Employees. The Company presently employs 53 persons, 6 of whom are on-site management and maintenance personnel at three of the Company's real estate investments. Item 2. Properties. The following tables and notes thereto describe the properties in which the Company had investments at December 31, 1996, as well as the mortgage indebtedness to which the Company's investments were subject. Reference is made to Note 3 to the consolidated financial statements included as a part of this report for information on minimum base rentals on noncancellable operating leases for the next five years and thereafter. 8 10 I. EQUITY INVESTMENTS (LAND & BUILDINGS) The Company had a fee or leasehold interest in land and improvements thereon as follows:
Percent Cost to Depreciated Property Property Date Area or Leased Year Company Cost FFO Net Income Description Acquired Rental Units 12/31/96 Completed 12/31/96 12/31/96 1996(1) 1996(2) ---------- -------- ------------ -------- --------- -------- ------------ --------- ---------- SHOPPING CENTERS Abbeville Plaza 4/86 59,525 sq. ft. 50% 1970 $ 539,069 $ 330,699 $ 42,471 $ 23,371 Abbeville, SC Alafaya Commons 11/96 120,586 sq. ft. 100% 1987 10,249,970 10,240,128 122,359 112,517 Orlando, FL Ambassador Row 12/94 193,982 sq. ft. 100% 1980 & 9,909,753 9,532,101 871,828 654,372 Lafayette, LA 1991 Ambassador Row Courtyard 12/94 155,483 sq. ft. 82% 1986 & 11,671,220 11,231,379 1,057,679 864,815 Lafayette, LA 1991 Asheville Plaza 4/86 49,800 sq. ft. 100% 1967 405,287 283,523 95,736 84,540 Asheville, NC Bluebonnet Village 12/94 89,879 sq. ft. 100% 1983 8,085,203 7,801,065 843,165 701,291 Baton Rouge, LA The Boulevard 12/94 68,012 sq. ft. 100% 1976 & 3,818,271 3,673,417 467,783 395,934 Lafayette, LA 1994 Carolina Place 5/89 36,560 sq. ft. 97% 1989 2,351,494 1,972,774 230,424 180,084 Hartsville, SC Centre Pointe Plaza 12/92 & 163,642 sq. ft. 100% 1989 & 9,146,002 8,321,508 838,581 627,626 Smithfield, NC 12/93 1993 Chadwick Square 1/92 31,700 sq. ft. 95% 1985 1,456,727 1,311,705 186,033 156,536 Hendersonville, NC Chelsea Place 7/93 81,144 sq. ft. 100% 1992 6,942,585 6,462,720 727,034 588,278 New Port Richey, FL Chester Plaza 4/86 & 71,443 sq. ft. 66% 1967 & 2,199,971 1,692,429 217,356 133,674 Chester, SC 2/92 1992 Chestnut Square 1/92 39,640 sq. ft. 100% 1985 1,432,107 1,290,575 243,571 184,191 Brevard, NC Colony Square 2/88 50,000 sq. ft. 100% 1987 2,936,430 2,257,023 270,562 175,743 Fitzgerald, GA Commerce Crossing 12/92 100,668 sq. ft. 100% 1988 4,496,343 4,083,621 424,518 321,072 Commerce, GA Country Club Plaza 1/95 64,686 sq. ft. 92% 1982 4,200,796 4,049,258 452,951 375,655 Slidell, LA Countryside Shops 6/94 173,161 sq. ft. 100% 1986,1988 16,728,984 16,030,592 1,883,737 1,598,816 Cooper City, FL & 1991 The Crossing 12/94 113,989 sq. ft. 100% 1988 & 4,585,502 4,409,939 541,958 449,977 Slidell, LA 1993 Delchamps Plaza 4/88 66,857 sq. ft. 100% 1987 4,515,233 3,602,513 456,305 47,980 Pascagoula, MS
9 11 I. EQUITY INVESTMENTS (LAND & BUILDINGS), continued
Percent Cost to Depreciated Property Property Date Area or Leased Year Company Cost FFO Net Income Description Acquired Rental Units 12/31/96 Completed 12/31/96 12/31/96 1996(1) 1996(2) ----------- -------- ------------ -------- --------- -------- -------- -------- -------- SHOPPING CENTERS,continued Douglas Commons 8/92 97,027 sq. ft. 93% 1988 $ 8,609,091 $ 7,916,286 $ 794,580 $ 527,093 Douglasville, GA Eden Centre 11/94 56,355 sq. ft. 100% 1991 3,527,217 3,370,063 396,958 324,426 Eden, NC Elmwood Oaks 1/92 130,284 sq. ft. 100% 1989 11,179,205 10,364,764 1,232,447 434,307 Harahan, LA First Street Station 8/94 52,230 sq. ft. 98% 1989 3,048,068 2,881,681 311,988 240,000 Albemarle, NC Forest Hills Centre 8/90 74,180 sq. ft. 100% 1990 & 5,534,021 4,883,065 603,525 475,343 Wilson, NC 1995 Forrest Gallery 12/92 214,450 sq. ft. 95% 1987 12,407,118 11,343,960 976,396 695,725 Tullahoma, TN Ft. Walton Beach Plaza 7/86 48,248 sq. ft. 100% 1986 2,676,717 2,020,823 253,905 187,324 Ft. Walton Beach, FL The Galleria 8/86 & 92,344 sq. ft. 91% 1986, 1990 8,469,868 6,928,939 538,199 333,343 Wrightsville Beach, NC 12/87 & 1996 Gulf Gate Plaza 6/79 174,566 sq. ft. 82% 1969 & 4,362,744 1,836,360 508,902 260,865 Naples, FL 1974 Harris Teeter 6/88 & 36,535 sq. ft. 100% 1981 & 2,600,657 1,961,877 296,177 219,136 Lexington, VA 6/89 1989 Heritage Walk 6/93 159,362 sq. ft. 100% 1991 & 8,757,752 8,047,091 929,032 729,864 Milledgeville, GA 1992 Hoffner Plaza 6/79 39,370 sq. ft. 20% 1972 1,146,933 394,896 45,363 12,487 Orlando, FL Lancaster Plaza 4/86 77,400 sq. ft. 100% 1971 1,377,459 937,031 142,341 109,336 Lancaster, SC Lancaster Shopping Center 8/86 & 29,047 sq. ft. 100% 1963 & 1,595,667 1,201,844 168,461 127,073 Lancaster, SC 12/87 1987 Lawrence Commons 8/92 52,295 sq. ft. 100% 1987 3,576,230 3,271,610 382,608 227,104 Lawrenceburg, TN Litchfield Landing 8/86 42,201 sq. ft. 98% 1984 2,632,685 2,058,812 329,134 270,011 North Litchfield, SC Macland Pointe 1/93 79,699 sq. ft. 97% 1992 & 6,113,405 5,634,746 693,513 274,766 Marietta, GA 1993 Masonova Plaza 6/79 157,955 sq. ft. 40% 1969 3,045,552 626,526 55,028 (274,736) Daytona Beach, FL Millervillage Shopping Center, 12/94 94,559 sq. ft. 95% 1983 & 7,644,064 7,350,563 755,246 608,010 Baton Rouge, LA 1992
10 12 I. EQUITY INVESTMENTS (LAND & BUILDINGS), continued
Percent Cost to Depreciated Property Property Date Area or Leased Year Company Cost FFO Net Income Description Acquired Rental Units 12/31/96 Completed 12/31/96 12/31/96 1996(1) 1996(2) ----------- -------- ------------ -------- --------- -------- -------- -------- -------- SHOPPING CENTERS,continued New Smyrna Beach Regional 8/92 118,451 sq. ft. 99% 1987 $10,434,233 $ 9,659,434 $ 944,750 $ 746,314 New Smyrna Beach, FL North River Village Center 12/92 & 177,128 sq. ft. 100% 1988 & 10,206,395 9,582,069 1,093,460 903,976 Ellenton, FL 12/93 1993 North Village Center (3) 8/86 60,356 sq. ft. 100% 1984 3,279,033 2,595,422 323,421 20,141 North Myrtle Beach, SC Old Kings Commons 5/88 84,759 sq. ft. 96% 1988 6,114,443 5,076,377 593,354 458,990 Palm Coast, FL Palm Gardens 6/79 52,670 sq. ft. 95% 1970 2,030,412 1,136,018 269,816 143,236 Largo, FL Parkmore Plaza 12/92 159,067 sq. ft. 100% 1986 & 8,360,616 7,702,835 928,509 761,180 Milton, FL 1992 Paulding Commons 8/92 192,391 sq. ft. 99% 1991 12,993,743 11,815,785 1,326,866 387,209 Dallas, GA Pensacola Plaza 7/86 56,098 sq. ft. 100% 1985 2,644,578 1,730,935 227,432 127,418 Pensacola, FL Pinhook Plaza 12/94 190,319 sq. ft. 98% 1979 & 11,092,104 10,667,967 1,174,291 239,984 Lafayette, LA 1992 Plaza Acadienne (4) 12/94 105,419 sq. ft. 100% 1980 2,963,249 2,813,403 385,080 69,441 Eunice, LA Plaza North 8/92 47,240 sq. ft. 92% 1986 2,460,095 2,260,519 250,178 204,542 Hendersonville, NC Providence Square 12/71 85,690 sq. ft. 94% 1973 4,500,471 1,979,621 516,177 328,343 Charlotte, NC Riverview Shopping Center 3/72 130,058 sq. ft. 84% 1973 & 6,373,546 4,436,976 589,231 382,686 Durham, NC 1994 Salisbury Marketplace 8/96 76,970 sq. ft. 100% 1987 4,611,151 4,578,839 184,718 152,406 Salisbury, NC Scottsville Square 8/92 38,450 sq. ft. 25% 1986 2,438,203 2,241,276 223,497 178,889 Bowling Green, KY Seven Hills 7/93 64,890 sq. ft. 100% 1991 4,914,220 4,651,453 521,931 74,104 Spring Hill, FL Shelby Plaza (4) 4/86 103,000 sq. ft. 67% 1972 1,177,811 709,721 88,831 30,579 Shelby, NC Sherwood South 12/94 75,607 sq. ft. 100% 1972, 1988 2,035,263 1,959,423 231,687 194,475 Baton Rouge, LA & 1992 Siegen Village 12/94 157,528 sq. ft. 98% 1988 & 8,624,866 8,405,494 651,126 540,253 Baton Rouge, LA 1996
11 13 I. EQUITY INVESTMENTS (LAND & BUILDINGS), continued
Percent Cost to Depreciated Property Property Date Area or eased Year Company Cost FFO Net Income Description Acquired Rental Units /31/96 Completed 12/31/96 12/31/96 1996(1) 1996(2) ----------- -------- ------------ ------ --------- -------- -------- -------- -------- SHOPPING CENTERS,continued Smyrna Village 8/92 83,334 sq. ft. 100% 1992 $ 5,850,781 $ 5,318,015 $ 646,344 $ 204,433 Smyrna, TN Smyth Valley Crossing 12/92 126,841 sq. ft. 99% 1989 7,050,617 6,490,624 649,545 502,560 Marion, VA South Beach Regional 8/92 289,319 sq. ft. 98% 1990 & 21,889,647 19,849,693 2,174,601 494,769 Jacksonville Beach, FL 1991 Spalding Village 8/92 235,318 sq. ft. 100% 1989 15,425,096 14,028,483 1,595,304 333,795 Griffin, GA Stadium Plaza 8/92 70,475 sq. ft. 96% 1988 4,463,323 4,168,874 442,173 68,419 Phenix City, AL Stanley Market Place 1/92 40,364 sq. ft. 100% 1980 & 1,800,935 1,603,875 229,936 189,858 Stanley, NC 1991 Tarpon Heights 1/95 56,605 sq. ft. 100% 1982 2,825,407 2,719,759 364,931 74,562 Galliano, LA Taylorsville Shopping Center 8/86 & 48,537 sq. ft. 100% 1982 & 2,612,159 1,995,071 263,096 184,711 Taylorsville, NC 1988 Thomasville Commons 8/92 148,754 sq. ft. 98% 1991 7,172,961 6,476,927 796,881 103,003 Thomasville, NC University Center 12/89 56,180 sq. ft. 95% 1989 3,970,972 3,393,637 381,598 292,296 Greenville, NC Venice Plaza (3) 6/79 144,850 sq. ft. 94% 1971 & 2,836,514 1,222,409 395,695 258,992 Venice, FL 1979 Village at Northshore 12/94 144,373 sq. ft. 100% 1988 & 8,268,206 7,953,244 900,261 237,187 Slidell, LA 1993 Waterlick Plaza 10/89 98,694 sq. ft. 97% 1973 & 6,311,631 5,335,850 691,651 546,926 Lynchburg, VA 1988 Watson Central 12/92 & 227,747 sq. ft. 95% 1989 & 13,089,669 11,985,346 1,232,656 945,931 Warner Robins, GA 10/93 1993 Wesley Chapel Crossing 12/92 170,792 sq. ft. 98% 1989 10,923,268 10,206,171 970,128 789,923 Decatur, GA West Gate Plaza 6/74 & 64,378 sq. ft. 98% 1974 & 4,733,395 3,852,031 366,585 206,956 Mobile, AL 1/85 1995 West Towne Square 3/90 89,596 sq. ft. 94% 1988 6,026,201 5,047,378 495,603 339,868 Rome, GA Westgate Square 6/94 104,853 sq. ft. 96% 1984 & 9,167,698 8,729,573 960,316 778,939 Sunrise, FL 1988
12 14 I. EQUITY INVESTMENTS (LAND & BUILDINGS), continued
Percent Cost to Depreciated Property Property Date Area or Leased Year Company Cost FFO Net Income Description Acquired Rental Units 12/31/96 Completed 12/31/96 12/31/96 1996(1) 1996(2) ----------- -------- ------------ -------- --------- -------- -------- -------- -------- SHOPPING CENTERS,continued Willowdaile Shopping Center 8/86 & 120,815 sq. ft. 95% 1986 $8,564,358 $ 6,677,369 $1,029,258 $ 813,278 Durham, NC 12/87 --------- ----------------------------------------------------- 7,736,780 sq. ft. 454,212,670 402,665,802 44,498,771 26,768,521 ========= ----------------------------------------------------- APARTMENTS Whitehall Kent Apartments 6/79 188 units 80% 1968 4,181,975 1,890,994 637,710 483,963 Kent, OH ----------------------------------------------------- INDUSTRIAL PROPERTIES Industrial Buildings 6/79 188,513 sq. ft. 73% 1956 & 3,586,681 944,191 248,481 248,481 Charlotte, NC 1963 Plasti-Kote 6/79 41,000 sq. ft. 100% 1961 & 482,939 81,390 123,000 123,000 Medina, OH 1966 --------- ----------------------------------------------------- 229,513 sq. ft. 4,069,620 1,025,581 371,481 371,481 ========= ----------------------------------------------------- $462,464,265 $405,582,377 $45,507,962 $27,623,965 =====================================================
NOTES: (1) Property FFO represents cash flows from operating activities before interest expense excluding changes in accrued assets and liabilities for the fiscal year ended December 31, 1996 or from the date of acquisition (if acquired in 1996) through December 31, 1996. Property FFO should not be considered an alternative to net income or other measurements under generally accepted accounting principles as an indicator of operating performance; or to cash flows from operating, investing, or financing activities as a measure of liquidity. Property FFO is presented as an additional measure in valuing and analyzing the underlying real estate investments. (2) Property Net Income represents net income of the property calculated in accordance with generally accepted accounting principles, excluding any allocation of general and administrative expenses of the Company. (3) The Company owns a 54.5% interest in North Village Center and a 75% interest in Venice Plaza Shopping Center, which are consolidated for financial reporting purposes and minority interests recorded. (4) Subject to ground leases expiring in 1997 for Shelby Plaza and 1998 and 2008 for Plaza Acadienne. The Company has an option to purchase the land at Shelby Plaza for $265,000 in 1997. 13 15 II. EQUITY INVESTMENTS (DIRECT FINANCING LEASES) The Company also had a fee interest in land and improvements thereon in the following properties occupied by tenants under leases which are treated as direct financing leases:
Percent Cost to Property Property Date Leased Year Company FFO Net Income Description Acquired Square Feet 12/31/96 Completed 12/31/96 1996(1) 1996(2) ----------- -------- ----------- -------- --------- -------- -------- ---------- OFFICE The Old Phoenix National Bank(3) 12/84 73,074 sq. ft. 100% Various $2,131,132 $313,049 $279,798 Medina County, OH ======= --------------------------------------- SHOPPING CENTERS Wal-Mart Stores, Inc.(4) 6/85 54,223 sq. ft. 100% 1985 1,274,497 201,289 165,312 Mathews, LA Wal-Mart Stores, Inc.(4) 7/85 53,571 sq. ft. 100% 1985 1,420,430 175,350 135,296 Marble Falls, TX ------- --------------------------------------- 107,794 sq. ft. 2,694,927 376,639 300,608 ======= --------------------------------------- $4,826,059 $689,688 $580,406 =======================================
NOTES: (1) Property FFO represents cash flows from operating activities before interest expense excluding changes in accrued assets and liabilities for the fiscal year ended December 31, 1996 or from the date of acquisition (if acquired in 1996) through December 31, 1996. Property FFO should not be considered an alternative to net income or other measurements under generally accepted accounting principles as an indicator of operating performance; or to cash flows from operating, investing or financing activities as a measure of liquidity. Property FFO is presented as an additional measure in valuing and analyzing the underlying real estate investments. (2) Property Net Income represents net income of the property calculated in accordance with generally accepted accounting principles, excluding any allocation of general and administrative expenses of the Company. (3) This investment represents ten banking facilities leased to The Old Phoenix National Bank at an annual rental of $313,049. The leases expire March 2013 with no purchase or renewal options. (4) These two retail facilities are leased to Wal-Mart Stores, Inc. at a total annual rental of $332,850 plus percentage rentals of 1% of gross sales in excess of fourth year sales. The leases expire January 2011, with five 5-year renewal options. There are no purchase options. Percentage rental of $43,789 was received during the fiscal year ended December 31, 1996. 14 16 III. EQUITY INVESTMENTS (LAND PURCHASE-LEASEBACKS) The Company owned land under the following properties, all of which are net leased back to lessees on terms summarized below. The improvements on such properties are owned by others but will revert to the Company at the end of the lease terms unless the purchase options of the lessees, as referred to below, are exercised. The interest of the Company in two of the properties is subordinate to first mortgage loans to the lessees, aggregating $346,782 as of December 31, 1996.
Lease Cost to Property Property Date Land Area Year Expiration Company FFO Net Income Description Acquired In Acres Improvements Completed Date 12/31/96 1996(1) 1996(2) ----------- -------- -------- ------------ --------- ---- -------- -------- --------- SHOPPING CENTERS Lawrence County Shopping Center 5/71 13.62 135,605 sq. ft. 1971 2069(3) $435,994 $ 67,200 $ 67,200 Sybene, OH Grand Marche Shopping Center 9/72 11.38 200,585 sq. ft. 1969 2012 250,500 27,500 27,500 Lafayette, LA Manatee County Shopping Center 5/71 16.00 120,500 sq. ft. 1971 2069 (3) 241,798 30,000 30,000 Bradenton, FL ------- ------------------------------------ 456,690 sq. ft. $928,292 $124,700 $124,700 ======= ====================================
NOTES: (1) Property FFO represents cash flows from operating activities before interest expense excluding changes in accrued assets and liabilities for the fiscal year ended December 31, 1996 or from the date of acquisition (if acquired in 1996) through December 31, 1996. Property FFO should not be considered an alternative to net income or other measurements under generally accepted accounting principles as an indicator of operating performance; or to cash flows from operating, investing or financing activities as a measure of liquidity. Property FFO is presented as an additional measure in valuing and analyzing the underlying real estate investments. (2) Property Net Income represents net income of the property calculated in accordance with generally accepted accounting principles, excluding any allocation of general and administrative expenses of the Company. (3) Each lessee has a repurchase option exercisable at a specified price (in each case higher than the cost to the Company of its investment) which increases annually by a fixed amount. 15 17 IV. MORTGAGE LOAN INVESTMENTS The Company had mortgage loans receivable on the following properties:
Security -------------------------- Principal Stated Type of Land Area Outstanding Maturity Interest Location Loan In Acres Improvements 12/31/96 Date Rate -------- ---- -------- ------------ -------- ------- ------- Walton Plaza Shopping Center 1st Mortgage 5.53 43,460 sq. ft. $3,193,390 8/98 (1) 10.25% Augusta, GA Wal-Mart - Kearney, NE 2nd Mortgage 8.491 83,249 sq. ft. 594,000 12/98 (2) 7.00% Kearney, NE Wal-Mart - Fremont, NE 2nd Mortgage 7.77 64,890 sq. ft. 406,000 12/98 (2) 7.00% Fremont, NE Spanish Quarter Apartments Wrap-Around 15.00 276 units 5,082,089 9/01 (3) (3) Montgomery, AL Mortgage 215,076 9/01 (3) (3) Valley West Mall 1st Mortgage 53.64 478,180 sq. ft. 3,780,749 4/01 (4) 9.00% Glendale, AZ Mill Creek Club Condominiums 1st Mortgage --- 4 units 27,785 2006-(5) 8.63% - Nashville, TN Participation 2007 12.38% Cypress Chase "A" Condominiums 1st Mortgage 2.00 recreational 125,320 5/09 (6) 10.00% Lauderdale Lakes, FL ------------ 13,424,409 Less interest discounts and negative goodwill (241,889) ------------ $ 13,182,520 ============
16 18 IV. MORTGAGE LOAN INVESTMENTS, continued NOTES: (1) Monthly payments of $29,670 of principal and interest at an annual rate of 10.25%, with a balloon payment at maturity August 1, 1998. (2) Monthly payments of $3,465 and $2,368 interest only for Kearney and Fremont, respectively, with the entire principal balance due at maturity December 31, 1998. These purchase-money second mortgages are subordinate to a first mortgage having a balance of $4,500,000 as of December 31, 1996. (3) Modified effective December 1, 1994 to extend the term for 3 years to September 1, 2001 and to reduce the cash interest rate from 10% to 9.5% prospectively, requiring monthly payments of $45,382 of principal and interest for the remaining term, with a balloon payment at maturity. Additional interest at an annual rate of 1% accrues for the periods September 1, 1984 through August 31, 1989 and September 1, 1991 through August 31, 2001 and is payable at maturity or on sale of the property. In addition, during 1995 the Company funded additional principal of $260,000 under this mortgage to make certain capital improvements, requiring monthly payments of $4,703 of principal and interest. This wrap-around mortgage is subject to two first mortgages having an aggregate balance of $717,316 as of December 31, 1996. See Table V. Mortgage Indebtedness for a summary of the terms of the first mortgages. (4) Monthly payments of $30,576 of principal and interest at an annual rate of 9.00%, with a balloon payment at maturity April 1, 2001. (5) Principal outstanding December 31, 1996 represents the Company's 46.154% participation in the total loan outstanding of $60,201. (6) Monthly payments include principal and interest of $1,472. 17 19 V. MORTGAGE INDEBTEDNESS Indebtedness of the Company secured by its investments (not including mortgage debt owed by lessees of its land purchase-leaseback investments) was as follows:
Principal Balance Annual Investment 12/31/96 Maturity Date Interest Rate Constant Payment ---------- ------- ------------- ------------- ---------------- Seven Hills 3,800,000 2/01/97 (8) 9.750% 370,500 (1) Spring Hill, FL Delchamps Plaza 3,185,364 8/01/97 (3) 9.375% 349,335 Pascagoula, MS Paulding Commons 8,641,795 8/01/97 (3) 7.600% 762,561 Dallas, GA (4) Smyrna Village 4,128,857 8/01/97 (3) 7.600% 364,335 Smyrna, TN (4) South Beach Regional 15,148,573 8/01/97 (3) 7.600% 1,396,598 Jacksonville Beach, FL (4) Tarpon Heights 2,383,454 3/01/98 11.000% 262,180 (1) Galliano, LA Pinhook Plaza Phase I 1,822,859 1/01/00 (3) 9.875% 250,320 Lafayette, LA Phase II 1,925,448 1/01/00 (3) 9.875% 258,504 Phase III 3,493,779 1/01/00 (3) 9.875% 396,072 Macland Pointe 3,766,276 2/01/00 (3) 7.750% 362,558 Marietta, GA Plaza Acadienne 2,312,707 7/01/00 (3) 10.250% 317,420 Eunice, LA Thomasville Commons 5,534,642 6/01/02 (3) 9.625% 583,303 Thomasville, NC Spanish Quarter Apartments 717,315 7/15/02 8.250% 162,360 Montgomery, AL Elmwood Oaks 7,500,000 6/01/05 8.375% 628,125 (1) Harahan, LA North Village Center 2,657,308 (2) 3/15/09 8.125% 343,171 North Myrtle Beach, SC Spalding Village 11,376,691 9/01/10 (3) 8.194% 932,206 (5) Griffin, GA Village at Northshore 5,570,632 7/01/13 (6) 9.000% 647,803 Slidell, LA ----------- ---------- 83,965,700 $8,387,351 ========== Interest Premium(7) 34,928 ----------- $84,000,628 ===========
18 20 V. MORTGAGE INDEBTEDNESS. continued NOTES: (1) Interest only. Entire principal due at maturity. (2) Although the Company is a partner or joint venturer in this investment, 100% of the mortgage note payable is recorded for financial reporting purposes. (3) Balloon payment at maturity. (4) The Company has the option to extend for two additional years. (5) Interest only through 9/01/00; then principal and interest of $1,158,448 annually for the last 10 years. (6) Callable anytime after 7/30/03. (7) For financial reporting purposes, mortgage indebtedness is valued assuming current interest rates at the dates of acquisition. (8) Repaid at maturity subsequent to December 31, 1996. 19 21 Rental Properties. On June 26, 1996, the Company purchased 1.97 acres of land adjacent to its Lawrence Commons Shopping Center investment in Lawrenceburg, Tennessee for approximately $100,000 cash. The parcel of land was purchased to allow an expansion of the anchor tenant space by approximately 20,000 square feet. The Company has committed to reimburse the anchor tenant for the cost of the expansion, not to exceed $2,100,000, provided the expansion is completed prior to October 1, 1997. The anchor tenant's annual rent increased by 11% of the land cost from the date of purchase and will increase by 10.33% of the expansion costs upon funding. On August 30, 1996, the Company acquired Salisbury Marketplace in Salisbury, North Carolina for $4,611,000 cash, consisting of the initial purchase price of $4,600,000 and approximately $11,000 of acquisition costs. This property contains approximately 77,000 square feet of retail space and is anchored by Food Lion and Revco. On November 25, 1996, the Company acquired Alafaya Commons in Orlando, Florida for $10,250,000 cash, consisting of the initial purchase price of $10,200,000 and approximately $50,000 of acquisition costs. This property contains approximately 121,000 square feet of retail space and is anchored by Publix and JoAnn Fabrics. During 1996, the Company completed construction of a 10,800 square foot expansion at The Galleria Shopping Center in Wrightsville Beach, North Carolina for a total cost of approximately $921,000 of which approximately $24,000 represented capitalized interest costs. Of the total cost of this expansion, approximately $34,000 was funded in 1995. Additionally, the Company funded approximately $18,000 of additional costs in connection with an expansion of Forest Hills Shopping Center in Wilson, North Carolina which was substantially completed in 1995. During 1996, the Company completed construction of a 41,800 square foot expansion at its Siegen Village Shopping Center in Baton Rouge, Louisiana. This expansion included the construction of a 31,300 square foot store for an additional anchor tenant and 10,500 square feet of local shop space. The cost of this expansion totaled approximately $2,210,000 of which approximately $39,000 represented capitalized interest costs. 20 22 Mortgage Investments. During 1996, the Company took back a $3,800,000 purchase-money first mortgage on the sale of one shopping center investment and two purchase-money second mortgages totaling $1,000,000 on the sale of two net-leased retail facilities. Mortgage Indebtedness. During 1996, the Company (a) repaid at maturity a $6,263,000 mortgage bearing interest at 9.78%, (b) repaid at maturity a $1,052,000 mortgage bearing interest at 13.875% (discounted to 9.5% for financial reporting purposes), (c) prepaid a $2,727,000 mortgage bearing interest at 9.375%, resulting in a $16,500 loss on extinguishment of debt, (d) prepaid a $57,000 mortgage bearing interest at 8.50% and (e) repaid at maturity a $3,850,000 mortgage bearing interest at 9.50%. Item 3. Legal Proceedings. There are no material pending legal proceedings of which the Company is aware involving the Company or its properties. Item 4. Submission of Matters to a Vote of Security Holders. Not applicable. 21 23 PART II Item 5. Market for the Registrant's Common Equity and Related Security Holder Matters. a) The following table shows the high and low sale prices for the Company's common stock, as reported on the New York Stock Exchange for the periods indicated.
High Low ---- --- 1995 ---- First Quarter $10.38 $ 9.00 Second Quarter 10.38 9.00 Third Quarter 10.13 9.13 Fourth Quarter 10.00 9.13 1996 ---- First Quarter $ 9.88 $ 9.00 Second Quarter 9.63 9.13 Third Quarter 9.63 9.25 Fourth Quarter 11.75 9.38
b) Approximate number of Equity Security Holders.
Approximate Number of Record Title of Class Holders at February 21, 1997 -------------- ---------------------------- Shares of Common Stock $1 Par Value 3,500
c) IRT Property Company paid quarterly cash dividends during the years 1995 and 1996 as follows:
Cash Dividends Paid ------------------- 1995 ---- First Quarter $ .210 Second Quarter .225 Third Quarter .225 Fourth Quarter .225 1996 ---- First Quarter $ .225 Second Quarter .225 Third Quarter .225 Fourth Quarter .225
22 24 IRT has paid 76 consecutive quarterly dividends. The current annualized dividend rate is $.90. The Company does not foresee any restrictions upon its ability to continue its dividend payment policy of distributing at least the 95% of its otherwise taxable ordinary income required for qualification as a REIT. 23 25 Item 6. Selected Consolidated Financial Data The following table sets forth selected consolidated financial data for the Company and should be read in conjunction with the consolidated financial statements and notes thereto included elsewhere in this report.
December 31, --------------------------------------------------------------------------------- As of or for the years ended 1996 1995 1994 1993 1992 ---- ---- ---- ---- ---- Gross revenues $ 60,233,422 $ 60,196,247 $ 49,202,144 $ 45,062,911 $ 34,006,687 ============= ============= ============= ============= ============= Earnings from operations $ 15,602,112 $ 15,550,026 $ 12,788,923 $ 11,772,265 $ 7,441,692 Gain (loss) on real estate investments 1,232,092 173,025 (3,825,418) 4,556,511 3,547,071 ------------- ------------- ------------- ------------- ------------- Earnings before extraordinary items 16,834,204 15,723,051 8,963,505 16,328,776 10,988,763 Extraordinary items: Gain (loss) on extinguishment of debt (16,500) (137,260) 3,748,095 (1,440,478) (14,811) ------------- ------------- ------------- ------------- ------------- Net earnings $ 16,817,704 $ 15,585,791 $ 12,711,600 $ 14,888,298 $ 10,973,952 ============= ============= ============= ============= ============= Per share: Earnings before extraordinary items $ .65 $ .61 $ .35 $ .72 $ .74 Extraordinary items -- -- .15 (.06) -- ------------- ------------- ------------- ------------- ------------- Net earnings $ .65 $ .61 $ .50 $ .66 $ .74 ============= ============= ============= ============= ============= Dividends paid $ .90 $ .885 $ .84 $ .84 $ .81 ============= ============= ============= ============= ============= Federal income tax status of dividends paid to shareholders: Ordinary income $ .47 $ .635 $ .72 $ .39 $ .39 Capital gain -- -- .04 .45 .42 Return of capital .43 .250 .08 -- -- ------------- ------------- ------------- ------------- ------------- $ .90 $ .885 $ .84 $ .84 $ .81 ============= ============= ============= ============= ============= Weighted average shares outstanding 25,749,860 25,590,129 25,349,303 22,457,131 14,896,369 ============= ============= ============= ============= ============= Total assets $ 437,694,691 $ 427,398,018 $ 428,579,355 $ 402,319,125 $ 297,590,922 ============= ============= ============= ============= ============= Indebtedness: Mortgage notes payable $ 84,000,628 $ 99,188,181 $ 105,107,084 $ 98,878,505 $ 115,379,078 7.30% convertible subordinated debentures 84,905,000 84,905,000 86,250,000 86,250,000 -- 2.00% convertible subordinated debentures -- -- -- -- 5,730,000 7.45% senior notes 49,929,110 -- -- -- -- Indebtedness to banks 15,000,000 36,000,000 26,000,000 -- 1,200,100 ------------- ------------- ------------- ------------- ------------- $ 233,834,738 $ 220,093,181 $ 217,357,084 $ 185,128,505 $ 122,309,178 ============= ============= ============= ============= ============= Shareholders' equity $ 193,354,922 $ 198,630,147 $ 203,038,464 $ 210,335,167 $ 168,574,002 ============= ============= ============= ============= ============= Other Data: Funds from operations(1) $ 26,388,787 $ 26,406,099 $ 21,342,209 $ 19,768,618 $ 13,901,941 Assuming conversion of 7.30% debentures:(1) Funds from operations(1) $ 32,952,612 $ 32,982,552 Weighted average shares 33,296,971 33,156,750 Net Cash Flows from (used in) - Operating Activities $ 27,751,020 $ 25,946,987 $ 22,511,731 $ 19,116,142 $ 14,274,651 Investing Activities $ (15,659,704) $ (7,769,022) $ (99,052,456) $ (16,990,558) $ (55,114,524) Financing Activities $ (8,933,374) $ (20,002,953) $ (247,587) $ 76,370,567 $ 40,247,232
(1) NAREIT defines funds from operations as net income before gains (losses) on real estate investments and extraordinary items plus depreciation and amortization of capitalized leasing costs. Conversion of the 7.30% convertible debentures is dilutive and therefore assumed for 1996 and 1995. 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. See Item 7. 24 26 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. Changes in Financial Condition. During 1996, the Company utilized funds of: a) $14,861,000 for the acquisition of two shopping center investments, b) $3,215,000 to fund expansion or redevelopment costs of four existing investments, c) $13,949,000 to repay three mortgage notes payable at maturity and prepay two mortgage notes payable, d) $21,000,000 to paydown the balance outstanding on the Company's $100,000,000 unsecured revolving term loan, and e) $356,000 for an equity contribution to a joint venture. These transactions were funded with approximately $49,394,000 of net proceeds from the issuance of the 7.45% senior notes due April 1, 2001, cash proceeds of approximately $5,659,000 on sales of one shopping center investment and two net-leased retail facilities, and internally generated funds. During 1995, the Company utilized funds of: a) $6,820,000, exclusive of an $81,000 premium recorded on the valuation of the mortgage debt, for the acquisition of two shopping center investments, consisting of cash of approximately $4,437,000 and the assumption of mortgage debt of approximately $2,383,000 secured by one of the centers, b) $3,223,000 to fund expansions or redevelopment costs of five existing investments, c) $260,000 to fund capital improvements under its mortgage loan investment secured by Spanish Quarter Apartments, and d) $6,837,000 to repay three mortgage notes payable at maturity and pay down two mortgage notes payable on refinancing. 25 27 These transactions were funded with $10,000,000 of borrowings under the Company's revolving term loan, cash proceeds of approximately $1,311,000 on sales of two parcels of land and three shopping center investments, and internally generated funds. Additionally, in March 1995, $1,345,000 of the Company's 7.3% convertible subordinated debentures were converted into 119,554 shares of common stock at $11.25 per share. Changes in Results of Operations. During 1996, rental income from the Company's core portfolio of shopping center investments increased approximately $1,078,000. This increase includes approximately $273,000 of additional income earned from four property expansions completed during 1995 and 1996 and is net of approximately $159,000 less income earned during 1996 due to two tenant bankruptcies during 1995. The increase in the Company's core portfolio income was offset by approximately $62,000 less income earned on three investments sold during 1995 and approximately $1,466,000 less income earned due to the sale of Valley West Mall in March 1996 and was supplemented by approximately $367,000 of income earned from two shopping center investments acquired August 30, 1996 and November 25, 1996. The decrease in income for Valley West Mall included approximately $127,000 of property tax reimbursements due to the tenants as a result of a reduction in property taxes for 1994 and 1995 awarded by the State of Arizona in 1996. The $13,327,000 increase in income from rental properties during 1995 was primarily due to approximately $13,619,000 of income earned from the 17 shopping centers acquired during 1994 and 1995 and property expansions and redevelopments funded by the Company during 1994 and 1995. This was partially offset by $862,000 less income earned from the investments sold and targeted for sale during 1995. The percentage leased of the Company's shopping center investments decreased from 93% in 1994 to 92% in 1995 and increased to 94% in 1996. The average occupancy of the Company's Ohio apartment investment decreased from 92% in 1994 to 90% in 1995 and to 84% in 1996. Percentage rentals received from shopping center investments, excluding percentage rentals received from the Wal-Mart investments classified as direct financing leases, totaled approximately $470,000 in 1994, $576,000 in 1995 and $586,000 in 1996. 26 28 The increase in interest income during 1996 was primarily due to approximately $256,000 of income earned on the purchase-money mortgage taken back on the sale of Valley West Mall in March 1996 and approximately $233,000 of income earned on short-term money market investments during 1996. The decrease in interest income during 1995 was primarily the result of the investment of the remaining proceeds of the Company's 1993 public offerings in December 1994. During 1994, the Company earned approximately $2,388,000 on short-term money market investments. The decrease in interest on direct financing leases in 1996 is due to a decrease in percentage rentals received from the four Wal-Mart investments and the sale of two of these investments in December 1996. The Company received percentage rentals of approximately $44,000, $347,000 and $292,000 during 1996, 1995 and 1994, respectively. Wal-Mart had ceased operations in three of the four Wal-Mart investments, from which the Company received approximately $305,000 and $256,000 of percentage rentals during 1995 and 1994, respectively. Wal-Mart remains liable under the leases which expire in January 2011 and continues to pay base rentals, but no further percentage rentals are anticipated to be earned from the remaining vacant facility. Operating expenses related to the Company's core portfolio of real estate investments increased approximately $695,000 during 1996. This increase was offset by approximately $18,000 less expenses incurred on three investments sold during 1995. In addition, approximately $1,358,000 less expenses were incurred due to the sale of Valley West Mall in March 1996. The decrease for Valley West Mall included a property tax refund for 1994 and 1995 of approximately $325,000 awarded by the State of Arizona during the first quarter of 1996. Additionally, approximately $60,000 of operating expenses were incurred by two shopping center investments acquired August 30, 1996 and November 25, 1996. The increases in operating expenses of rental properties and depreciation during 1995 were primarily due to property acquisitions and dispositions during the two-year period. The Company acquired two shopping center investments in 1995 and 15 in 1994. The additional operating expenses and depreciation related to these centers was partially offset by the sale of three shopping 27 29 center investments in 1995. Depreciation also increased in 1995 due to two property redevelopments and four property expansions purchased or funded during 1995 and 1994. The decrease in interest expense on mortgages in 1996 is due to the repayment of five mortgages during 1996 and the repayment of four and refinancing of two mortgages during 1995. During 1996, the Company (a) repaid at maturity a $6,263,000 mortgage bearing interest at 9.78%, (b) repaid at maturity a $1,052,000 mortgage bearing interest at 13.875% (discounted to 9.5% for financial reporting purposes), (c) prepaid a $2,727,000 mortgage bearing interest at 9.375%, resulting in a $16,500 loss on extinguishment of debt, (d) prepaid a $57,000 mortgage bearing interest at 8.50% and (e) repaid at maturity a $3,850,000 mortgage bearing interest at 9.50%. The 1995 and 1994 acquisitions resulted in increased interest expense on mortgages in 1995. The increase in 1995 was partially offset by (a) the repayment of a $1,750,000 variable rate mortgage in May 1995, (b) the refinancing of a $9,000,000 mortgage in June 1995, reducing the face of the mortgage to $7,500,000 and the interest rate from 9.75% to 8.375%, (c) the maturity of a 9.5% fully amortized mortgage note payable in August 1995, (d) the refinancing of a $12,330,000 mortgage in September 1995, reducing the face of the mortgage to $11,377,000 and the interest rate from 9.375% to 8.194%, (e) the repayment of an $860,000 mortgage at 13.875% (discounted to 9.5% for financial reporting purposes) in November 1995, and (f) the repayment of a $1,774,000 variable rate interest only mortgage in December 1995. The Company had average borrowings under its revolving term loan of approximately $11,750,000, $33,507,000 and $789,000 during 1996, 1995 and 1994, respectively, which resulted in decreased interest on bank debt during 1996 and increased interest on bank debt during 1995. In addition, the Company incurred commitment fees of approximately $221,000, $21,000 and $95,000 during 1996, 1995 and 1994, respectively, based on the aggregate unused portion of the commitment. The Company's revolving term loan commitment increased to $100,000,000 from $50,000,000 in December 1995. The interest rate on the $50 million secured revolver was, at the option of the Company, either prime or 1.25% over adjusted LIBOR. The $50 million revolver was replaced December 15, 1995 with a $100 million unsecured revolver with an interest rate, at the option of the Company, of either LIBOR plus an Applicable Margin or prime. The current Applicable Margin for LIBOR borrowings is 1.5%. 28 30 The increases in general and administrative expenses in 1996 and 1995 were primarily due to the costs of increased administrative and property management personnel, increased shareholder relations costs, increased state franchise taxes and director's fees, the appointment of a new President and Chief Operating Officer in October 1995, as well as approximately $50,000 and $97,000 of costs incurred in due diligence on potential mergers and acquisitions which were not consummated during 1996 and 1995, respectively. The amount of gains recognized on sales of investments have fluctuated and in the future may continue to fluctuate depending upon sales activity in any given year. During 1996, 1995 and 1994, the Company recognized gains on sales of properties of approximately $1,232,000, $173,000 and $257,000, respectively. The gain in 1994 was more than offset by $4,125,000 of reductions in carrying values of certain investments, primarily Valley West Mall. These adjustments to carrying value were a result of the Company's quarterly evaluations of its individual investments based on current and forecasted net operating income of the investment, competition resulting from new properties in the market place and other changes in the local economy. The development of a new mall which would directly compete with Valley West Mall was announced in 1992, and in November 1992, one of the anchor tenants at Valley West gave notice to terminate its lease effective November 1993. Based on this lease termination and the predicted impact of the new mall when opened on the tenants of Valley West, the Company determined that a permanent impairment of $3,565,000 had occurred and reflected such writedown in its financial statements during the fourth quarter of 1992. The new mall opened for business in October 1993, the terminating tenant ceased operations in November 1993, and another anchor tenant changed its business to an outlet concept. After a concerted leasing effort which commenced in 1992, review of tenant sales reductions since the opening of the new mall, meetings with the City and potential purchasers of the center, and restructuring of the Company's ownership in this investment, including prepayment of the mortgage and negotiations with the land lessor concerning a joint venture or the ultimate purchase of the underlying land, the Company determined that a further permanent impairment of the value of this mall had developed. An additional indicator of value was the discount received by the Company in the prepayment of the underlying mortgage debt in June 1994. Accordingly, the Company recorded an additional writedown of this investment in June 1994. In March 1996, this investment was sold at a cost approximating book value. 29 31 During 1996, the Company prepaid a $2,727,000 mortgage and recognized an extraordinary loss of $16,500 on the early extinguishment of debt. During 1995, the Company replaced its $50 million secured revolving term loan with a $100 million unsecured revolving term loan and recognized an extraordinary loss on the extinguishment of the old revolver of $137,000. During 1994, the Company recognized an extraordinary gain of approximately $3,748,000 on the purchase of the 9.5% mortgage note payable secured by Valley West Mall. The mortgage had an outstanding balance of $8,248,000 and was purchased for $4,500,000. Funds From Operations. Effective January 1, 1996, the Company adopted the NAREIT definition of funds from operations. NAREIT defines funds from operations as net income 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 1996 and 1995. 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. 30 32 The following data is presented with respect to the calculation of funds from operations under the NAREIT definition for 1996, 1995 and 1994:
1996 1995 1994 ---- ---- ---- Net earnings $ 16,817,704 $ 15,585,791 $ 12,711,600 Loss (gain) on real estate investments (1,232,092) (173,025) 3,825,418 Loss (gain) on extinguishment of debt 16,500 137,260 (3,748,095) Depreciation 10,310,344 10,427,268 8,214,192 Amortization of capitalized leasing fees 249,292 230,642 173,075 Amortization of capitalized leasing income 227,039 198,163 166,019 ------------ ------------ ------------ Funds from operations 26,388,787 26,406,099 $ 21,342,209 ============ Interest on convertible debentures 6,198,065 6,210,062 Amortization of convertible debenture costs 365,760 366,391 ------------ ------------ Fully diluted funds from operations $ 32,952,612 $ 32,982,552 ============ ============ Applicable weighted average shares 33,296,971 33,156,750 25,349,303 ============ ============ ============
During 1994, the Company had an average of approximately $57,000,000 of the proceeds of the August 1993 equity and debenture offerings invested in short-term money market investments earning an average interest rate of approximately 4.2%. This resulted in temporary dilution in funds from operations. This temporary dilution ceased when the remaining cash was invested in higher-yielding real estate investments on December 21, 1994. In addition, funds from operations for 1995 and 1994 did not include rental income received through the rental guarantees related to major portfolio acquisitions completed in July and December 1992. Rental income covered by the guarantees for 17 centers totaled approximately $64,000 and $510,000 for 1995 and 1994, respectively. 31 33 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 1996, 1995 and 1994:
1996 1995 1994 ---- ---- ---- Tenant Improvements: Shopping Centers $ 812,248 $ 812,919 $ 646,699 Industrial 464,469 -- -- ------------ ------------ ------------ Total Tenant Improvements 1,276,717 812,919 646,699 ------------ ------------ ------------ Capital Expenditures: Shopping Centers 1,030,650 298,006 440,226 Apartment 537,616 89,075 102,453 Industrial 158,072 302 63,982 ------------ ------------ ------------ Total Capital Expenditures 1,726,338 387,383 606,661 ------------ ------------ ------------ Total Improvements $ 3,003,055 $ 1,200,302 $ 1,253,360 ============ ============ ============ Leasing Fees $ 350,989 $ 382,042 $ 286,389 ============ ============ ============
Liquidity and Capital Resources. In 1996 and 1995, the Company's dividends, mortgage amortization payments and capital improvements were funded primarily by funds from operations and also through supplemental funding from available cash investments, bank borrowings and other sources. The Company believes that dividends, mortgage amortization payments and necessary capital improvements will continue to be funded primarily by funds from operations. Other planned activities, including property acquisitions, certain capital improvement programs and debt repayments are expected to be funded to the extent necessary by bank borrowings, mortgage financing, periodic sales or exchanges of existing properties and public or private offerings of stock or debt. For a description of the Company's mortgage debt, reference is made to Table V in Item 2 hereof and to Note 7 to the consolidated financial statements included as a part of this report. For a description of commitments and contingencies, reference is made to Notes 17 and 18 to the consolidated financial statements included as a part of this report. In 1995, the Company filed a shelf registration statement covering up to $200 million of common stock, senior debt and subordinated debt. The Company intends to use the net proceeds of 32 34 any offerings under such shelf registration to repay debt; to improve, expand or redevelop its properties; to acquire additional properties; and for working capital. Approximately $119 million of capital has been raised by the Company under this shelf registration, including $50 million of senior debt issued in March 1996, 4,653,747 shares of common stock issued in a January 1997 public offering and 1,500,000 shares of common stock issued in January 1997 in connection with the purchase by the Company of $54,799,000 of its 7.3% convertible subordinated debentures. On March 26, 1996, the Company issued $50,000,000 of 7.45% senior notes due April 1, 2001. The senior notes were issued at a discount of $83,500 which will be amortized over the life of the notes for financial reporting purposes. Net proceeds from the issuance totaled approximately $49,394,000. For more information regarding the senior notes, reference is made to Note 9 to the consolidated financial statements. On January 14 and 22, 1997, the Company completed the offering of 4,653,747 shares of its common stock at $11.25 per share. The net proceeds from the offering totaled approximately $49,500,000. On January 17, 1997, the Company completed the repurchase of $54,799,000 of its 7.3% convertible subordinated debentures due August 15, 2003 in a private transaction with a single debenture holder. The debentures were repurchased by the Company at par plus accrued interest. The seller had informed the Company that the seller had both $54,799,000 par value of the debentures and a short position of 1,500,000 shares in the Company's common stock. The consideration paid by the Company was comprised of 1,500,000 shares of common stock, valued for purposes of the exchange at $11.05 per share, and cash in the amount of $39,913,000, for a total consideration of $56,488,000, which included $1,689,000 of accrued interest. The debentures repurchased were canceled by the Company, and based upon the $11.25 conversion price, 2,676,089 authorized but unissued common shares have been reserved for possible issuance if the remaining $30,106,000 debentures outstanding at January 30, 1997 are converted. On August 31, 1993, the Company completed concurrent public offerings of 4,127,580 shares of its common stock and $86,250,000 of 7.3% convertible subordinated debentures for net proceeds aggregating approximately $126,330,000. 33 35 On November 1, 1990, the Company obtained a $25,000,000 secured revolving term loan maturing November 1, 1995. On July 31, 1992, the loan agreement was modified to increase the commitment from $25,000,000 to $50,000,000 and to extend the maturity from November 1, 1995 to August 1, 1997. The interest rate on this loan was either prime or 1.25% over adjusted LIBOR, at the option of the Company. On December 15, 1995, the Company terminated this $50,000,000 secured revolving term loan. On December 15, 1995, the Company obtained a $100,000,000 unsecured revolving term loan maturing January 4, 1999. Not later than June 30 of each year commencing June 30, 1996, the Company may request to extend the maturity date for an additional twelve-month period beyond the existing maturity date. In accordance with the terms of the agreement, during 1996 the Company extended the maturity date for an additional twelve-month period to January 4, 2000. The interest rate is, at the option of the Company, either prime, fluctuating daily or LIBOR plus the "Applicable Margin" (currently 1.5%), which is subject to adjustment based upon the rating of the senior unsecured long-term debt obligations of the Company. The Company may borrow, repay and/or reborrow under this loan at any time. As of December 31, 1996 and 1995, the borrowings under this credit facility totaled $15,000,000 and $36,000,000, respectively. For additional information on this revolving term loan, reference is made to Note 10 to the consolidated financial statements. The Company's 7.3% convertible subordinated debentures are convertible into common stock of the Company at any time prior to maturity on August 15, 2003 at $11.25 per share, subject to adjustment in certain events. In March 1995, $1,345,000 of the Company's 7.3% convertible subordinated debentures were converted into 119,554 shares of common stock at $11.25 per share. The remaining $84,905,000 of debentures was outstanding as of December 31, 1996 and 1995, respectively. In January 1997, the Company repurchased and canceled $54,799,000 of these debentures. For additional information on the debentures, reference is made to Notes 8 and 19 to the consolidated financial statements. The Company's Dividend Reinvestment Plan allows shareholders to elect to reinvest all or a portion of their distributions in newly issued shares of the Company at 95% of the market price of the shares. During 1996, 1995 and 1994, the Company received net proceeds under this plan of $1,024,000, $1,107,000 and $938,000, respectively. For additional information on the Dividend 34 36 Reinvestment Plan, reference is made to Note 13 to the consolidated financial statements. Inflationary and Economic Factors. The effects of inflation upon the Company'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 expenses, but usually not to the extent of the increases in revenues. Environmental Factors. On March 2, 1994, the Company was advised by the North Carolina Department of Environment, Health and Natural Resources that certain Corrective Actions must be performed at the Company's Charlotte, North Carolina industrial facility. According to the CAP, the estimated remaining cost for site remediation ranges from $129,000 to $193,000 over a period of 3 to 6 years. Although the Company believes that certain of the costs of Corrective Action are reimburseable under the North Carolina Leaking Petroleum Underground Storage Tank Cleanup Fund, the Company accrued $129,000 in 1995 based on these estimates. The CAP may be revised, and the estimated costs may change, but based on the information presently available, the Company believes any additional costs of any such Corrective Action would not have a material adverse effect on the Company's results of operations, financial position or liquidity. During 1996, the Company discovered that additional releases of petroleum products had occurred at and around a garage facility previously operated by a former trucking company tenant. An investigation is being conducted by the Company in order to determine the extent of the related contamination, and Company management is negotiating with the former tenant to obtain a contribution to potential clean-up costs. The Company does not believe the cost of addressing these additional releases will have a material adverse effect on the Company's results of operations, financial position or liquidity. During its soil and groundwater investigation at the Bluebonnet Village Shopping Center in Baton Rouge, Louisiana, the Company's environmental consultant discovered concentrations of various chemicals in groundwater that exceeded the maximum contaminant levels under the Federal Safe Drinking Water Act. For 35 37 additional information, see "Regulation" under Item 1 and Note 18 to the consolidated financial statements included as a part of this report. Based on the information presently available, the Company believes the costs of any corrective action would not have a material adverse effect on the Company's results of operations, financial position or liquidity. Recent Accounting Pronouncements. Effective January 1996, the Company adopted Statement of Financial Accounting Standards No. 121 ("FAS 121"), "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." FAS 121 establishes standards for determining when impairment losses on long-lived assets have occurred and how impairment losses should be measured. This standard had no effect on the Company's financial statements. The Company accounts for its stock-based compensation plans under Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees." Effective January, 1996, the Company adopted the disclosure option of Statement of Financial Accounting Standards No. 123 ("FAS 123"), "Accounting for Stock-based Compensation." FAS 123 requires that companies which do not choose to account for stock-based compensation as prescribed by the statement shall disclose the pro forma effects on earnings and earnings per share as if FAS 123 had been adopted. Additionally, certain other disclosures are required with respect to stock compensation and the assumptions used to determine the pro forma effects of FAS 123. Reference is made to Note 14 to the consolidated financial statements for the required disclosures. 36 38 Item 8. Financial Statements and Supplementary Data. IRT PROPERTY COMPANY INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page ---- Report of Independent Public Accountants 38 Consolidated Balance Sheets - December 31, 1996 and 1995 39 Consolidated Statements of Earnings - For the Years Ended December 31, 1996, 1995 and 1994 40 Consolidated Statements of Changes in Shareholders' Equity - For the Years Ended December 31, 1996, 1995 and 1994 41 Consolidated Statements of Cash Flows - For the Years Ended December 31, 1996, 1995 and 1994 42 Notes to Consolidated Financial Statements - December 31, 1996, 1995 and 1994 44 Schedules: Schedule Number III Real Estate and Accumulated Depreciation 67 IV Mortgage Loans on Real Estate 79
37 39 AALLP LETTERHEAD Report of Independent Public Accountants To The Shareholders of IRT Property Company: We have audited the accompanying consolidated balance sheets of IRT PROPERTY COMPANY (a Georgia corporation) and subsidiaries as of December 31, 1996 and 1995, and the related consolidated statements of earnings, changes in shareholders' equity, and cash flows for each of the three years in the period ended December 31, 1996. These financial statements and the schedules referred to below are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedules based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of IRT Property Company and subsidiaries as of December 31, 1996 and 1995, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedules listed in the index to consolidated financial statements are presented for purposes of complying with the Securities and Exchange Commission's rules and are not part of the basic financial statements. These schedules have been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, fairly state in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. ARTHUR ANDERSEN LLP Atlanta, Georgia January 30, 1997 38 40 IRT PROPERTY COMPANY CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1996 AND 1995
1996 1995 ------------- ------------- ASSETS Real estate investments: Rental properties $ 463,392,557 $ 452,508,601 Accumulated depreciation (56,881,888) (51,600,890) ------------- ------------- 406,510,669 400,907,711 Net investment in direct financing leases 4,826,059 9,097,717 Investment in joint venture 355,832 -- Mortgage loans, net 13,182,520 8,499,210 ------------- ------------- Net real estate investments 424,875,080 418,504,638 Cash and cash equivalents 3,174,342 16,400 Accrued interest receivable 488,663 544,073 Prepaid expenses and other assets 9,156,606 8,332,907 ------------- ------------- $ 437,694,691 $ 427,398,018 ============= ============= LIABILITIES & SHAREHOLDERS' EQUITY Liabilities: Mortgage notes payable plus net interest premium of $34,928 in 1996 and $78,657 in 1995 $ 84,000,628 $ 99,188,181 7.30% convertible subordinated debentures due August 15, 2003 84,905,000 84,905,000 7.45% senior notes due April 1, 2001, net of interest discount of $70,890 49,929,110 -- Indebtedness to banks 15,000,000 36,000,000 Accrued interest on debentures 2,341,488 2,341,488 Accrued interest on senior notes 931,250 -- Accrued expenses and other liabilities 6,177,293 5,265,202 Deferred income taxes 1,055,000 1,068,000 ------------- ------------- Total liabilities 244,339,769 228,767,871 ------------- ------------- Commitments and Contingencies (Notes 17 and 18) Shareholders' Equity: Common stock, $1 par value, 75,000,000 shares authorized; 25,807,302 shares issued and outstanding in 1996 and 25,689,002 shares in 1995 25,807,302 25,689,002 Additional paid-in capital 201,273,343 200,318,168 Cumulative distributions in excess of net earnings (33,725,723) (27,377,023) ------------- ------------- Total shareholders' equity 193,354,922 198,630,147 ------------- ------------- $ 437,694,691 $ 427,398,018 ============= =============
The accompanying notes are an integral part of these consolidated balance sheets. 39 41 IRT PROPERTY COMPANY CONSOLIDATED STATEMENTS OF EARNINGS FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
1996 1995 1994 ---- ---- ---- Revenues: Income from rental properties $ 57,925,659 $ 58,008,386 $ 44,681,220 Interest, including $232,519 in 1996 and $2,388,308 in 1994 on cash equivalents 1,388,733 899,454 3,267,486 Interest on direct financing leases 919,030 1,288,407 1,253,438 ------------ ------------ ------------ 60,233,422 60,196,247 49,202,144 ------------ ------------ ------------ Expenses: Operating expenses of rental properties 12,113,108 12,733,705 10,318,596 Interest on mortgages 7,750,389 9,150,400 8,191,240 Interest on debentures 6,198,065 6,210,062 6,202,025 Interest on senior notes 2,798,433 -- -- Interest on indebtedness to banks 1,003,331 2,211,980 159,603 Depreciation 10,310,344 10,427,268 8,214,192 Amortization of debt costs 595,604 445,907 446,454 General & administrative 3,862,036 3,466,899 2,881,111 ------------ ------------ ------------ 44,631,310 44,646,221 36,413,221 ------------ ------------ ------------ Earnings before gain (loss) on real estate investments and extraordinary item 15,602,112 15,550,026 12,788,923 ------------ ------------ ------------ Gain (loss) on real estate investments: Gain on sales of properties 1,232,092 173,025 300,036 Valuation loss -- -- (4,125,454) ------------ ------------ ------------ 1,232,092 173,025 (3,825,418) ------------ ------------ ------------ Earnings before extraordinary item 16,834,204 15,723,051 8,963,505 Extraordinary item - Gain (loss) on extinguishment of debt (16,500) (137,260) 3,748,095 ------------ ------------ ------------ Net earnings $ 16,817,704 $ 15,585,791 $ 12,711,600 ============ ============ ============ Per Share: Earnings before extraordinary item $ 0.65 $ 0.61 $ 0.35 Extraordinary item -- -- 0.15 ------------ ------------ ------------ Net earnings $ 0.65 $ 0.61 $ 0.50 ============ ============ ============ Weighted average number of shares outstanding 25,749,860 25,590,129 25,349,303 ============ ============ ============
The accompanying notes are an integral part of these consolidated financial statements. 40 42 IRT PROPERTY COMPANY CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
Cumulative Additional Distributions Total Common Paid-In in Excess of Shareholders' Stock Capital Net Earnings Equity ----- ------- ------------ ------ Balance at December 31, 1993 $25,288,624 $196,793,150 $(11,746,607) $210,335,167 Net earnings - - 12,711,600 12,711,600 Cash dividends declared - $.84 per share - - (21,284,741) (21,284,741) Issuance of shares under Dividend Reinvestment Plan, net 99,477 838,273 - 937,750 Exercise of Incentive Stock Options 1,010 2,131 - 3,141 Issuance of shares for the acquisition of properties 31,636 303,911 - 335,547 ----------- ------------ ------------ ------------ Balance at December 31, 1994 25,420,747 197,937,465 (20,319,748) 203,038,464 Net earnings - - 15,585,791 15,585,791 Cash dividends declared - $.885 per share - - (22,643,066) (22,643,066) Issuance of shares under Dividend Reinvestment Plan, net 121,831 985,430 - 1,107,261 Conversion of debentures, net 119,554 1,175,718 - 1,295,272 Exercise of Incentive Stock Options 7,000 46,375 - 53,375 Issuance of shares for the acquisition of properties 19,870 173,180 - 193,050 ----------- ------------ ------------ ------------ Balance at December 31, 1995 25,689,002 200,318,168 (27,377,023) 198,630,147 Net earnings - - 16,817,704 16,817,704 Cash dividends declared - $.90 per share - - (23,166,404) (23,166,404) Issuance of shares under Dividend Reinvestment Plan, net 112,561 911,734 - 1,024,295 Exercise of Incentive Stock Options 2,400 16,063 - 18,463 Issuance of shares for the acquisition of properties 3,339 27,378 - 30,717 ----------- ------------ ------------ ------------ Balance at December 31, 1996 $25,807,302 $201,273,343 $(33,725,723) $193,354,922 =========== ============ ============ ============
The accompanying notes are an integral part of these consolidated financial statements. 41 43 IRT PROPERTY COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
1996 1995 1994 ---- ---- ---- Cash flows from operating activities: Net earnings $ 16,817,704 $ 15,585,791 $12,711,600 Adjustments to reconcile net earnings to net cash flows from operating activities: Depreciation 10,310,344 10,427,268 8,214,192 Loss (gain) on real estate investments (1,232,092) (173,025) 3,825,418 Extraordinary loss (gain) 16,500 137,260 (3,748,095) Amortization of debt costs and discount 608,016 445,907 446,454 Amortization of capitalized leasing income 227,039 198,163 166,019 ------------ ----------- ------------ 26,747,511 26,621,364 21,615,588 Changes in accrued assets and liabilities: Increase (decrease) in accrued interest on debentures - (37,095) 262,343 Increase in accrued interest on senior notes 931,250 - - Increase in interest receivable, prepaid expenses and other assets (839,832) (1,187,639) (592,782) Increase in accrued expenses and other liabilities 912,091 550,357 1,226,582 ------------ ----------- ------------ Net cash flows from operating activities 27,751,020 25,946,987 22,511,731 ------------ ----------- ------------ Cash flows from (used in) investing activities: Proceeds from sales of properties, net 5,658,531 1,310,531 562,070 Additions to real estate investments, net - Acquisitions, expansions and renovations (18,076,038) (7,672,184) (98,461,982) Improvements (3,003,055) (1,200,302) (1,253,360) Collections of mortgage loans, net 116,690 52,933 100,816 Additions to mortgage loans - (260,000) - Contributions to joint venture (355,832) - - ------------ ------------ ------------ Net cash flows used in investing activities (15,659,704) (7,769,022) (99,052,456) ------------ ------------ ------------ Cash flows from (used in) financing activities: Cash dividends paid, net of dividends reinvested (22,142,109) (21,535,805) (20,346,991) Cash in lieu of fractional shares on conversion of debentures - (15) - Exercise of Incentive Stock Options, net 18,463 53,375 3,141 Issuance of 7.45% senior notes, net 49,394,325 - - Principal amortization of mortgage notes payable, net (1,238,802) (1,546,572) (1,273,737) Repayment of mortgage notes payable, net (13,948,751) (6,836,676) (8,378,095) Increase (decrease) in bank indebtedness, net (21,000,000) 10,000,000 26,000,000 Extraordinary item - Gain (loss) on extinguishment of debt (16,500) (137,260) 3,748,095 ------------ ------------ ------------ Net cash flows used in financing activities (8,933,374) (20,002,953) (247,587) ------------ ------------ ------------ Net increase (decrease) in cash and cash equivalents 3,157,942 (1,824,988) (76,788,312) Cash and cash equivalents at beginning of year 16,400 1,841,388 78,629,700 ------------ ------------ ------------ Cash and cash equivalents at end of year $ 3,174,342 $ 16,400 $ 1,841,388 ============ ============ ============
The accompanying notes are an integral part of these consolidated financial statements. 42 44 IRT PROPERTY COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
1996 1995 1994 ---- ---- ---- Supplemental disclosures of cash flow information: Cash paid during the year for interest related to: Mortgage notes payable $ 7,868,231 $ 9,207,974 $ 8,082,615 Convertible subordinated debentures, including $94,225 capitalized in 1994 6,198,065 6,247,157 6,033,906 Senior notes, including $59,663 capitalized in 1996 1,997,736 - - Indebtedness to banks, including $2,853 capitalized in 1996 and $93,591 capitalized in 1995 1,013,961 2,449,034 153,941 ----------- ----------- ------------ Total cash paid during the year for interest $17,077,993 $17,904,165 $ 14,270,462 =========== =========== ============ Supplemental schedule of noncash investing and financing activities: Acquisitions, expansions and renovations: Cost of acquisitions, expansions and renovations $18,106,755 $10,329,579 $114,677,940 Additions to mortgage notes payable - Assumed, including interest premium at date of acquisition of $80,890 in 1995 - (2,464,345) (15,880,411) Issuance of common stock (30,717) (193,050) (335,547) ----------- ----------- ------------ Cash paid for acquisitions, expansions and renovations of real estate investments $18,076,038 $ 7,672,184 $ 98,461,982 =========== =========== ============ Sales of Properties: Gross proceeds from sales of properties $10,458,531 $ 1,310,531 $ 562,070 Additions to mortgage loans (4,800,000) - - ----------- ----------- ------------ Cash proceeds from sales of properties, net $ 5,658,531 $ 1,310,531 $ 562,070 =========== =========== ============ Conversion of debentures: Debentures converted $ - $ 1,345,000 $ - Associated unamortized debenture costs - (49,713) - Equity issued on conversion - (1,295,272) - ----------- ----------- ------------ Cash paid in lieu of fractional shares $ - $ 15 $ - =========== =========== ============
The accompanying notes are an integral part of these consolidated financial statements. 43 45 IRT PROPERTY COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1996, 1995 and 1994 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Consolidation- The accompanying consolidated financial statements include the accounts of IRT Property Company and its wholly-owned subsidiaries, IRT Management Company and VW Mall, Inc., and IRT Capital Corporation, its taxable subsidiary, (collectively, the "Company"). Intercompany transactions and balances have been eliminated in consolidation. Business - IRT Property Company, founded in 1969, is a self-administered and self-managed equity real estate investment trust which invests primarily in neighborhood and community shopping centers which are located in the Southeastern United States and are anchored by necessity-oriented retailers such as supermarkets, drug stores and/or discount variety stores. No one retailer accounts for more than 6.5% of the Company's gross revenues. In 1996, IRT Capital Corporation ("IRTCC"), a taxable subsidiary of the Company, was formed under the laws of Georgia. This taxable subsidiary will have the ability to develop properties, buy and sell properties, provide equity to developers who are merchant builders and perform third-party management, leasing and brokerage. The Company holds 95% of the non-voting common stock and 5% of the voting common stock of IRTCC. The remaining voting common stock is currently held by two executive officers of the Company. IRTCC is included in the Company's consolidated financial statements but is taxed as a regular corporation and not as a REIT. 44 46 Income Taxes- The Company has in past years elected to qualify, and intends to continue such election, to be taxed as a "Real Estate Investment Trust" ("REIT") under Sections 856-860 of the Internal Revenue Code, as amended. In general terms, under such Code provisions a trust or corporation which, in any taxable year, meets certain requirements and distributes to its shareholders at least 95% of its taxable income will not be subject to Federal income tax to the extent of the income which it distributes. The Company computes taxable income on a basis different from that used for financial reporting purposes due to differences in the estimated useful lives used to compute depreciation, timing differences in the recognition of loan commitment fees, and certain interest discounts which are not recognized for tax purposes. The Company also reports certain gains on sales of properties on the installment basis for tax purposes. Income Recognition- The Company follows the policy of suspending the accrual of income on any investments where interest or rental payments are delinquent 60 days or more. Percentage rental income is recorded upon collection. Gains from the sale of real estate are deferred until such time as minimum down payment and loan amortization requirements are met in conformity with the provisions of Statement of Financial Accounting Standards No. 66. Interest discounts are imputed on financed sales when the contractual interest rates are less than prevailing market rates at the time of sale. Depreciation- The Company provides depreciation on buildings and other improvements on the straight-line basis over their estimated useful lives. Such lives are from 14 to 40 years for buildings and 6 years for improvements. Maintenance and repairs are charged to expense as incurred, while significant improvements are capitalized. The profit or loss on assets retired or otherwise disposed of is credited or charged to 45 47 operations and the cost and related accumulated depreciation are removed from the asset and accumulated depreciation accounts. Valuation Loss- The need for any allowance for possible losses or reductions in carrying values applicable to the Company's investments is evaluated by management by means of quarterly reviews of the portfolio on an individual investment basis considering such factors as current and projected net operating income and other market factors. Rental properties are carried at the lower of depreciated cost or net realizable value. Use of Estimates - The preparation of financial statements in conformity with generally accepted accounting principles 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. Actual results could differ from those estimates. Cash Equivalents- The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. Earnings Per Share- Earnings per share is computed by dividing net earnings by the weighted average number of shares outstanding. The effect on earnings per share assuming conversion of the 7.3% convertible subordinated debentures would be anti-dilutive. Exercise of the outstanding stock options would not have a material dilutive effect on earnings per share. 46 48 Reclassification of Prior Year Amounts- Certain items in the consolidated financial statements have been reclassified to conform with the 1996 presentation. Recent Accounting Pronouncements- Effective January 1996, the Company adopted Statement of Financial Accounting Standards No. 121 ("FAS 121"), "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." FAS 121 establishes standards for determining when impairment losses on long-lived assets have occurred and how impairment losses should be measured. This standard had no effect on the Company's financial statements. The Company accounts for its stock-based compensation plans under Accounting Principles Board Opinion No. 25 ("APB 25"), "Accounting for Stock Issued to Employees." Effective January 1996, the Company adopted the disclosure option of Statement of Financial Accounting Standards No. 123 ("FAS 123"), "Accounting for Stock-based Compensation." FAS 123 requires that companies which do not choose to account for stock-based compensation as prescribed by the statement shall disclose the pro forma effects on earnings and earnings per share as if FAS 123 had been adopted. Additionally, certain other disclosures are required with respect to stock compensation and the assumptions used to determine the pro forma effects of FAS 123. See Note 14 for the required disclosures. 2. PUBLIC OFFERINGS: On March 26, 1996, the Company issued $50,000,000 of 7.45% senior notes due April 1, 2001. The senior notes were issued at a discount of $83,500 which will be amortized over the life of the notes for financial reporting purposes. Net proceeds from the issuance totaled approximately $49,394,000. For more information regarding the senior notes, see Note 9. See Note 19 for a description of issuances of common stock in January 1997. 47 49 3. RENTAL PROPERTIES: Rental properties are comprised of the following: December 31, --------------------------------- 1996 1995 ---- ---- Land covered by purchase- leaseback agreements $ 928,292 $ 928,292 Land related to buildings and improvements 97,319,967 92,453,973 Buildings & improvements 365,144,298 359,126,336 ------------ ------------ $463,392,557 $452,508,601 ============ ============ Upon expiration of the leases for land covered by purchase-leaseback agreements, all improvements on the land will become the property of the Company. On March 31, 1996, the Company sold Valley West Mall in Glendale, Arizona for a total sales price of $5,450,000. The Company received net cash proceeds from this sale of approximately $1,389,000 and took back a purchase-money mortgage of $3,800,000. The purchase- money mortgage, which matures April 1, 2001, bears interest at an annual rate of 9% and is payable in monthly installments of $30,576 with a balloon payment at maturity. On June 26, 1996, the Company purchased 1.97 acres of land adjacent to its Lawrence Commons Shopping Center investment in Lawrenceburg, Tennessee for approximately $100,000 cash. The parcel of land was purchased to allow an expansion of the anchor tenant space by approximately 20,000 Square Feet. The Company has committed to reimburse the anchor tenant for the cost of the expansion, not to exceed $2,100,000, provided the expansion is completed prior to October 1, 1997. The anchor tenant's annual rent increased by 11% of the land cost from the date of purchase and will increase by 10.33% of the expansion costs upon funding. On August 30, 1996, the Company acquired Salisbury Marketplace in Salisbury, North Carolina for $4,611,000 cash, 48 50 consisting of the initial purchase price of $4,600,000 and $11,000 of acquisition costs. On November 25, 1996, the Company acquired Alafaya Commons in Orlando, Florida for $10,250,000 cash, consisting of the initial purchase price of $10,200,000 and $50,000 of acquisition costs. At December 31, 1996, land covered by two purchase-leaseback agreements having an aggregate cost of $677,792 is subordinate to first mortgage liens of $346,782 which are on both land and improvements but are not obligations of the Company. In addition, the lessees of these two properties have the option, subject to certain conditions, to repurchase the land. Such option prices are for amounts greater than the Company's carrying value of the related land. Minimum base rentals on noncancellable operating leases for the Company's shopping center, industrial and land purchase-leaseback investments for the next five years and thereafter are as follows: Year Amount ---- ------ 1997 $ 48,474,000 1998 44,391,000 1999 39,830,000 2000 35,461,000 2001 31,938,000 Thereafter 240,338,000 ------------ $440,432,000 ============ 4. NET INVESTMENT IN DIRECT FINANCING LEASES: On December 24, 1996, the Company sold two of the four retail facilities leased to Wal-Mart Stores, Inc. for a total sales price of $5,350,000. The Company received net cash proceeds from this sale of approximately $4,269,000 and took back purchase-money second mortgages totaling $1,000,000. The purchase-money second mortgages, which mature December 31, 1998, bear interest at an annual rate of 7%. Interest is payable monthly with the entire principal due at maturity. 49 51 As of December 31, 1996, two retail facilities are leased to Wal-Mart Stores, Inc. at a total annual rental of $332,850 plus percentage rentals of 1% of gross sales in excess of the tenant's actual sales for its fiscal year ended January 31, 1990. Rental income from these leases and the two facilities sold in December 1996, totaled $919,030 (including $43,789 of percentage rentals) in 1996, $1,175,284 (including $347,359 of percentage rentals) in 1995 and $1,120,161 (including $292,236 of percentage rentals) in 1994. The Company acquired ten branch bank buildings in a 1984 merger. These facilities are leased to The Old Phoenix National Bank at a total annual rental of $313,049. Of the total rental income on direct financing leases, $227,039, $198,163 and $166,019 were recorded as amortization of capitalized leasing income in 1996, 1995 and 1994, respectively. The Company is to receive minimum lease payments of $645,899 per year during 1997 through 2001 and a total of $6,545,184 thereafter through the remaining lease terms. The estimated residual values of the leased properties included in net investment in direct financing leases totaled $292,290 and $644,872 as of December 31, 1996 and 1995, respectively. 5. INVESTMENT IN JOINT VENTURE IRTCC is a 50% owner of a joint venture which purchased a 1.31 acre parcel of land located in Savannah, Georgia, for development or sale. 50 52 6. MORTGAGE LOANS: The Company's investments in mortgage loans, all of which are secured by real estate investments, are summarized by type of loan at December 31, 1996 and 1995, as follows: 1996 1995 ----------------------- ----------------------- Number Amount Number Amount of Loans Outstanding of Loans Outstanding -------- ----------- -------- ----------- First mortgage 3 $ 7,099,459 2 $3,358,578 Mortgage participation 1 27,785 1 38,415 Wrap-around mortgage 1 5,297,165 1 5,390,104 Second mortgage 2 1,000,000 - - -- ----------- -- ---------- 7 13,424,409 4 8,787,097 Less-Interest discounts and negative goodwill - (241,889) - (287,887) -- ----------- -- ---------- Mortgage loans, net 7 $13,182,520 4 $8,499,210 == =========== == ========== During 1996, the Company took back a $3,800,000 purchase-money first mortgage on the sale of one shopping center investment and two purchase-money second mortgages totaling $1,000,000 on the sale of two net-leased retail facilities. See Notes 3 and 4 for additional information. During April 1994, the borrower under the Spanish Quarter Apartments wrap-around mortgage loan filed Chapter 11 bankruptcy. In December 1994, the Bankruptcy Court approved the plan of reorganization which amended the loan effective December 1, 1994 to extend the term for 3 years to September 1, 2001 and to reduce the cash interest rate from 10% to 9.5% prospectively. Additional interest at an annual rate of 1% continues to accrue through the remainder of the term. In addition, during 1995, the Company funded additional principal of $260,000 under this mortgage for capital improvements. The 51 53 terms of the restructured debt call for total proceeds over the remaining term of the mortgage in excess of the carrying value of the indebtedness at the time of the restructuring. Therefore, no loss has been recorded related to the restructuring in accordance with SFAS No. 15. Annual principal payments applicable to mortgage loan investments in the next five years and thereafter are as follows: Year Amount ---- ------ 1997 $ 120,992 1998 4,269,853 1999 121,371 2000 137,630 2001 8,460,589 Thereafter 72,085 ----------- $13,182,520 =========== Based on current rates at which similar loans would be made, the estimated fair value of mortgage loans was approximately $13,698,000 and $9,079,000 at December 31, 1996 and 1995, respectively. 7. MORTGAGE NOTES PAYABLE: Mortgage notes payable are collateralized by various real estate investments having a net carrying value of approximately $113,791,000 as of December 31, 1996. These notes have stated interest rates ranging from 7.6% to 11.0% and are due in monthly installments with maturity dates ranging from 1997 to 2013. During 1996, the Company (a) repaid at maturity a $6,263,000 mortgage bearing interest at 9.78%, (b) repaid at maturity a $1,052,000 mortgage bearing interest at 13.875% (discounted to 9.5% for financial reporting purposes), (c) prepaid a $2,727,000 mortgage bearing interest at 9.375%, resulting in a $16,500 loss on extinguishment of debt, (d) prepaid a $57,000 mortgage bearing interest at 8.50%; and (e) repaid at maturity a $3,850,000 mortgage bearing interest at 9.50%. 52 54 Principal amortization and balloon payments applicable to mortgage notes payable in the next five years and thereafter are as follows: BALLOON YEAR AMORTIZATION PAYMENTS TOTAL ---- ------------ -------- ----- 1997 $ 1,056,875 $34,676,185 $35,733,060 1998 881,160 2,385,917 3,267,077 1999 958,888 - 958,888 2000 695,988 12,079,779 12,775,767 2001 810,483 - 810,483 Thereafter 9,846,276 20,609,077 30,455,353 ----------- ----------- ----------- $14,249,670 $69,750,958 $84,000,628 =========== =========== =========== Based on the borrowing rates currently available to the Company for mortgages with similar terms and maturities, the estimated fair value of mortgage notes payable was approximately $85,213,000 and $99,417,000 at December 31, 1996 and 1995, respectively. 8. CONVERTIBLE SUBORDINATED DEBENTURES: Effective August 31, 1993, the Company issued $86,250,000 of 7.3% convertible subordinated debentures due August 15, 2003, $84,905,000 of which is outstanding as of December 31, 1996. Interest on the debentures is payable semi-annually on February 15 and August 15. The debentures are convertible at any time prior to maturity into common stock of the Company at $11.25 per share, subject to adjustment in certain events. The Company has the option to redeem the debentures at par at any time after August 15, 1996. In March 1995, $1,345,000 of the Company's 7.3% convertible subordinated debentures were converted into 119,554 shares of common stock at $11.25 per share. Based upon the $11.25 conversion price, 7,547,111 authorized but unissued common shares have been reserved for possible issuance if the $84,905,000 debentures outstanding at December 31, 1996 are converted. Costs associated with the issuance of the debentures were approximately $3,701,000 and are being amortized over the life of the debentures. 53 55 Based on the closing market price at year end, the estimated fair value of the 7.3% debentures was approximately $84,905,000 and $80,660,000 at December 31, 1996 and 1995, respectively. See Note 19 for a description of the Company's repurchase and cancellation of $54,799,000 of these debentures in January 1997. 9. SENIOR NOTES: On March 26, 1996, the Company issued $50,000,000 of 7.45% senior notes due April 1, 2001. The senior notes were issued at a discount of $83,500 which will be amortized over the life of the notes for financial reporting purposes. Net proceeds from the issuance totaled approximately $49,394,000. Interest on the senior notes is payable semi-annually on April 1 and October 1. Costs associated with the issuance of the senior notes totaled approximately $522,000 and are being amortized over the life of the notes. 10. INDEBTEDNESS TO BANKS: On December 15, 1995, the Company terminated its $50,000,000 secured revolving term loan and obtained a $100,000,000 unsecured revolving term loan maturing January 4, 1999. Not later than June 30th of each year commencing June 30, 1996, the Company may request to extend the maturity date for an additional twelve-month period beyond the existing maturity date. In accordance with the terms of the agreement, during 1996 the Company extended the maturity date for an additional twelve-month period to January 4, 2000. The interest rate is, at the option of the Company, either a) prime, fluctuating daily, or b) the adjusted London Interbank Offered Rates ("LIBOR"), plus the "Applicable Margin" ranging from 1.3% to 1.5% based upon the rating of the senior unsecured long-term debt obligations of the Company. LIBOR borrowings may be set for periods of one, two, three, six or twelve months at the option of the Company. The Applicable Margin based on the Company's current rating is 1.5%. Prepayments may be made on prime rate and LIBOR advances provided that the Company will reimburse the lenders for any loss or out-of-pocket expense incurred in connection with any 54 56 LIBOR prepayment. The Company pays a fee of 0.25% per annum of the aggregate unused portion of the commitment. The loan agreement contains restrictive covenants pertaining to net worth, the ratio of debt to equity, interest coverage, debt service coverage, net operating losses, and the ratio of total liabilities to total assets. The Company has agreed not to encumber certain properties ("Negative Pledge Properties"). The commitment may fluctuate up to a maximum of $100,000,000 based on 65% of the value of the Negative Pledge Properties and as of December 31, 1996, the Company may borrow the maximum commitment amount. The previous $50,000,000 revolving term loan which was terminated in December 1995 bore interest at either prime or 1.25% over LIBOR and was secured. The following data is presented with respect to the revolving term loan agreements in 1996 and 1995: 1996 1995 ---- ---- Unused at year-end $85,000,000 $64,000,000 Average borrowing for the period 11,750,000 33,507,000 Maximum amount outstanding during the period 48,000,000 36,000,000 Average interest rate for the period 7.04% 7.63% Interest rate at year-end 7.06% 7.44% The Company incurred commitment fees of approximately $221,000 and $21,000 for the years ended December 31, 1996 and 1995, respectively, based on the aggregate unused portion of the commitment. The Company's revolving term loan commitment increased to $100,000,000 from $50,000,000 in December, 1995. 11. DEFERRED INCOME TAXES, GAIN ON SALES AND VALUATION LOSS: During 1984, the Company recognized a gain on sale for financial reporting purposes, net of a deferred tax provision of $1,122,000, which reflected the timing differences arising from the Company's election to recognize the gain on this 55 57 property sale on the installment basis for tax purposes. Installment gains are recognized for tax purposes based on the principal payments received in each year under the purchase-money financing taken back on the sales. The purchase-money financing on this sale commenced principal amortization in 1987 based on a 25-year amortization period, with a balloon payment in 2001. The Company had a deferred tax liability related to this sale of $1,055,000 and $1,068,000 at December 31, 1996 and 1995, respectively. Should the Company elect to distribute the taxable installment gain recognized in future years to its shareholders as capital gain distributions, the reversal of this previously recorded tax liability would be reflected in income for financial reporting purposes in the periods in which the distributions are elected. During 1996, the Company sold one shopping center investment and two net leased facilities for gains totaling approximately $1,232,000. During 1995, the Company sold three shopping center investments and two parcels of land for gains totaling approximately $160,000. In addition, the Company recorded gains of approximately $2,000 on the condemnation of 2,814 square feet of land at two of the Company's shopping center investments. During 1994, the Company sold two parcels of land for gains totaling approximately $257,000. In 1994, the Company recorded approximately $4,125,000 of reductions in the carrying values of certain investments, primarily Valley West Mall due to permanent impairments in the values of the investments. In addition, in December 1992 the Company recorded a $3,565,000 reduction in the carrying value of Valley West Mall. These adjustments to carrying value were a result of the Company's quarterly evaluations of its individual investments based on current and forecasted net operating income of the investment, competition resulting from new properties in the market place and other changes in the local economy. For tax purposes, these losses were not recognized until the investment was sold in March 1996 at a cost approximating book value for financial reporting purposes. 56 58 12. EXTRAORDINARY ITEM: During 1996, the Company prepaid a $2,727,000 mortgage and recognized an extraordinary loss of $16,500 on the early extinguishment of debt. During 1995, the Company recognized an extraordinary loss of approximately $137,000 on the early extinguishment of debt. This extraordinary loss represented the unamortized portion of loan costs on the $50 million secured revolver terminated in December 1995. During 1994, the Company purchased the 9.5% mortgage note payable secured by Valley West Mall in Glendale, Arizona for $4,500,000. The mortgage note payable had an outstanding principal balance of $8,248,000 at the time of purchase, which resulted in an extraordinary gain on extinguishment of this indebtedness of approximately $3,748,000 for both financial reporting and tax purposes. 13. CASH DISTRIBUTIONS AND DIVIDEND REINVESTMENT PLAN: The taxability of per share distributions paid to shareholders during the years ended December 31, 1996, 1995 and 1994 was as follows: 1996 1995 1994 ---- ---- ---- Ordinary income $ .47 $.635 $ .72 Capital gains - - .04 Return of capital .43 .250 .08 ----- ----- ----- $. 90 $.885 $ .84 ===== ===== ===== In addition, the 5% discount received upon purchase of shares under the Dividend Reinvestment Plan is taxable as ordinary income to the participant. In 1984, the Company implemented a Dividend Reinvestment Plan (the "Plan") under which shareholders of the Company may elect to reinvest all or a portion of their dividends in the purchase of newly issued shares of the Company. The price of shares so purchased is 95% of the average high and low sales prices of the Company's common stock on the applicable dividend payment date. During 1996, 1995 and 1994, shares 57 59 issued under the Plan totaled 112,561, 121,831 and 99,477, respectively, and dividends totaling $1,024,295, $1,107,261 and $937,750, respectively, were reinvested to purchase these shares. 14. STOCK OPTIONS: Effective May 8, 1989, the Company adopted and its shareholders approved the 1989 Stock Option Plan (the "1989 Plan"). In May 1993, the shareholders approved a 750,000 share increase in the number of shares authorized to be granted under the 1989 Plan. The 1989 Plan, which expires on May 8, 1999, replaces the prior Key Employee Stock Option Plan (the "Prior Plan"), except that options granted under the Prior Plan and unexercised as of the date of the 1989 Plan shall remain in full force and effect. The 1989 Plan includes provisions for a) the granting of both Incentive Stock Options ("ISOs") (as defined in Section 422A of the Internal Revenue Code) and nonqualified options to officers and employees and b) the automatic granting of nonqualified options for 1,250 shares to each non-employee director upon the election and each annual re-election of each non-employee director. Under the terms of the 1989 Plan, the option price shall be no less than the fair market value of the optioned shares at the date of grant. The options are automatically vested and expire after ten years. The Company accounts for these plans under APB 25, under which no compensation cost has been recognized. Had compensation cost for these plans been determined consistent with FAS 123, the Company's net income and earnings per share would have been reduced to the following pro forma amounts: 1996 1995 ---- ---- Net Earnings: As Reported $16,817,704 $15,585,792 Pro Forma $16,749,336 $15,430,583 EPS: As Reported $0.65 $0.61 Pro Forma $0.65 $0.60 58 60 Because the FAS 123 method of accounting has not been applied to options granted prior to January 1, 1995, the resulting pro forma compensation cost may not be representative of that to be expected in future years. The weighted average fair value of options granted is $0.72 and $1.13 for 1996 and 1995, respectively. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions used for grants in 1996 and 1995, respectively: risk-free interest rates of 5.38% and 7.87% for qualified employee options, 6.66% and 6.02% for director options and 6.12% for non-qualified employee options granted in 1995; expected dividend yields of 9.62% and 8.30% for qualified employee options, 9.47% and 8.62% for director options and 8.94% for non-qualified employee options granted in 1995; expected lives of 5 years; expected volatility of 23%. 59 61 Details of the stock option activity during 1996, 1995 and 1994 are as follows: Number of Shares ---------------- Option Price Employees Directors Per Share --------- --------- --------- Options outstanding, December 31, 1993 181,215 40,000 $7.63-$15.10 Granted, 1994 66,000 - $10.75 Granted, 1994 - 7,500 $10.63 Exercised, 1994 (6,210) - $7.63-$10.24 Expired unexercised, 1994 (16,350) - $9.25-$15.10 ------- ------ Options outstanding, December 31, 1994 224,655 47,500 $7.63-$15.10 Granted, 1995 80,500 - $10.13 Granted, 1995 - 7,500 $ 9.75 Granted, 1995 50,000 - $ 9.63 Exercised, 1995 (7,000) - $ 7.63 Expired unexercised, 1995 (12,000) - $10.13-$12.00 ------- ------ Options outstanding, December 31, 1995 336,155 55,000 $7.63-$15.10 Granted, 1996 89,000 - $ 9.25 Granted, 1996 - 6,250 $ 9.75 Exercised, 1996 (2,400) - $7.63-$9.25 Expired unexercised, 1996 (25,562) - $9.25-$14.90 ------- ------ Options outstanding, December 31, 1996 397,193 61,250 $7.63-$15.10 ======= ====== There are currently ISOs outstanding on 437,193 shares (including 39,375 shares granted under the Prior Plan), non-qualified options outstanding on 111,250 shares, and 502,300 unoptioned shares remaining in the 1989 Plan after the granting of ISOs for 90,000 additional shares at $11.375 per share on January 2, 1997. 60 62 15. EMPLOYEE RETIREMENT BENEFITS: Effective June 30, 1990, the Board of Directors terminated a defined contribution pension plan which had been adopted in 1980 and implemented a program of year-end cash payments to certain employees of the Company ("Cash in Lieu of Pension"). The Cash in Lieu of Pension program was terminated upon the adoption of the Company's 401(k) Plan effective August 1, 1996. Under the Cash in Lieu of Pension, participants received a year-end cash payment from the Company, the amount of which was based upon each participant's length of service with the Company. Each participant who had been employed by the Company for more than five years received a year-end cash payment equal to 12% of his or her salary. Each participant with less than five years received year-end cash payments in graduated amounts designed to produce a cumulative 12% payment after completion of five years of service. Amounts accrued through July 31, 1996 for participants having less than five years of service will be paid by the Company in the future as years of service are completed. The Company accrued approximately $179,000, $200,000 and $168,000 under this program in 1996, 1995 and 1994, respectively. Under the Company's 401(k) Plan, employees who have completed one year of service and are at least 18 years of age are eligible for participation in the plan. Employees may elect to make contributions to the plan, and the Company matches 100% of such contributions up to 6% of the individual participant's compensation, based on the length of service. The Company contributed approximately $56,000 to the 401(k) Plan for the period August 1 through December 31, 1996. Certain employees whose time in service with the Company was significantly greater than that of the remaining employees were provided with employment contracts during 1980. These employment contracts call for annual payments to each of these employees equal to 12% of the employee's salary in the event the Company's pension plan is terminated and deferred compensation amounts to be paid at retirement. The Company accrued approximately $23,000 for these contracts in each of 1996, 1995 and 1994. 61 63 The Company currently has no postretirement or postemployment benefits, and therefore Statements of Financial Accounting Standards Nos. 106 and 112 have no effect on the Company. 16. TRANSACTIONS WITH RELATED PARTIES: The holdback shares and dividend equivalents related thereto on the Sofran Centers were issued or paid to entities which were directly or indirectly owned or controlled by Norman Zavalkoff, a director of the Company from August 14, 1992 to January 27, 1994, and nine other investors. (See Note 17). 17. COMMITMENTS AND CONTINGENCIES: During 1992, the Company purchased 17 shopping centers (the "Sofran Centers" and the "Dreyfus Centers") which had certain rental guaranties from the sellers. At the time of the purchases, 290,762 shares of the Company's common stock (representing approximately $3,003,000 of the purchase prices) were retained as "holdback shares." The Company was required to issue all or a portion of the holdback shares at various dates over the holdback periods if certain occupancy levels on a portfolio basis or on agreed-upon spaces were achieved by the end of the respective periods. The Sofran holdback, which expired January 1995, contained a total of 169,290 shares. Over the term of this holdback, 9,182 shares were earned by and issued to the sellers and the remaining 160,108 shares were forfeited. The Dreyfus holdback, which expired December 1995, contained a total of 121,472 shares. Over the term of this holdback, 86,781 shares were earned by and issued to the sellers and the remaining 34,691 shares were forfeited. The shares issued represented additional cost of acquisition for financial reporting purposes. In addition, during the holdback periods, the sellers were entitled to amounts equivalent to dividends on the holdback shares until such time as their right to receive such holdback shares was extinguished. The Company paid dividend equivalents of $41,637 during 1994 to the sellers of the Sofran Centers. Also, the Company paid dividend equivalents of $12,100 and 62 64 $45,700 during 1995 and 1994, respectively, to the sellers of the Dreyfus Centers. These payments were considered part of the cost of acquisition on the respective payment dates. Additionally, the seller of one of the Dreyfus Centers pledged 115,343 of its IRT Property Company shares to the Company as collateral for a guarantee of rents payable by one of the anchor tenants which had filed bankruptcy. For the period December 23, 1992 through December 31, 1996, 58,066 shares held as collateral were released to the seller and 12,140 shares were retired, leaving a balance of 45,137 shares. Effective October 1, 1995, the Company entered into agreements with the Chairman, the President and the Executive Vice President and Chief Financial Officer. The agreements contain provisions entitling each such officer to receive from two to three times his or her annual compensation (as defined) if there is a change in control of the Company (as defined) and a termination of his or her employment. Additionally, the President's agreement entitles him to receive an amount equal to his annual compensation (as defined) if his employment is terminated within two years (a) by the Company without cause or (b) by the President if his position and duties are materially reduced or diminished. See Note 3 for a description of the Company's commitment to fund the expansion of the anchor tenant's space at Lawrence Commons Shopping Center. The Company has entered into contracts to purchase two shopping center investments for an aggregate sales price of approximately $16.7 million. One center is scheduled to close in February 1997 for approximately $9.9 million. The other center is scheduled to close in April 1997 subject to obtaining a set-back variance with respect to the center under contract and an adjoining property. 18. ENVIRONMENTAL INVESTIGATIONS: The Charlotte industrial facility contained underground petroleum and used oil storage tanks ("USTs") believed to have been owned by the previous owner of this property. The Company (through an environmental consulting firm) removed the 63 65 USTs in December 1993, and on March 2, 1994, DEHNR notified the Company that certain investigative, corrective and/or remedial actions ("Corrective Actions") must be performed by the Company to, among other things, determine the level of soil and/or groundwater contamination due to suspected leakage from some of the USTs. The Company has investigated the property to the satisfaction of DEHNR. The investigation confirmed the presence of petroleum product-related substances in soil and groundwater at levels that exceed applicable standards. The investigation also revealed the presence of free phase liquids in one monitoring well at the property. The Company has begun removing free phase liquids from the well on the property. In addition, the Company has submitted to DEHNR a Corrective Action Plan ("CAP") and schedule to address petroleum-impacted soil and groundwater at the site. Soil excavation work has been completed, and the Company plans to address petroleum-impacted groundwater in due course. According to the CAP, the estimated remaining cost for site remediation ranges from $129,000 to $193,000 over a period of 3 to 6 years. Although the Company believes that certain of the costs of Corrective Action are reimbursable under the North Carolina Commercial Leaking Petroleum Underground Storage Tank Cleanup Fund, the Company accrued $129,000 in 1995 based on these estimates. The CAP may be revised, and the estimated costs may change, but based on the information presently available, the Company believes any additional costs of any such Corrective Action would not have a material adverse effect on the Company's results of operations, financial position or liquidity. During 1996, the Company discovered that additional releases of petroleum products had occurred at and around a garage facility previously operated by a former trucking company tenant. An investigation is being conducted by the Company in order to determine the extent of the related contamination, and Company management is negotiating with the former tenant to obtain a contribution to potential clean-up costs. The Company does not believe the cost of addressing these additional releases will have a material adverse effect on the Company's results of operations, financial position or liquidity. During its soil and groundwater investigation at Bluebonnet Village Shopping Center in Baton Rouge, Louisiana, 64 66 the Company's environmental consultant discovered concentrations of various chemicals in a single groundwater monitoring well that exceeded the maximum contaminant levels under the Federal Safe Drinking Water Act. The Company has notified the Louisiana Department of Environmental Quality-Groundwater Protection Division ("LDEQ-GWPD") of such discovery. The Company has been advised that the groundwater impact appears to be very localized, since six other groundwater monitoring wells placed around the initial well did not exhibit any impact. There can be no assurance that the LDEQ-GWPD will not require remediation, but based on information presently available to the Company and discussions with the Company's environmental consultant, the Company believes the cost of any such remediation would not have a material adverse effect on the Company's results of operations, financial position or liquidity. 19. SUBSEQUENT EVENTS On January 14 and 22, 1997, the Company completed the offering of 4,653,747 shares of its common stock at $11.25 per share. The net proceeds from the offering totaled approximately $49,500,000. On January 17, 1997, the Company completed the repurchase of $54,799,000 of its 7.3% convertible subordinated debentures due August 15, 2003 in a private transaction with a single debenture holder. The debentures were repurchased by the Company at par plus accrued interest. The seller had informed the Company that the seller had both $54,799,000 par value of the debentures and a short position of 1,500,000 shares in the Company's common stock. The consideration paid by the Company was comprised of 1,500,000 shares of common stock, valued for purposes of the exchange at $11.05 per share, and cash in the amount of $39,913,000, for a total consideration of $56,488,000, which included $1,689,000 of accrued interest. The repurchase of the debentures was transacted on January 17, 1997, pursuant to a Purchase and Standstill Agreement under which the seller agreed to eliminate its short position in Company common stock, after which the seller did not own any Company securities. The seller further agreed not to take any position with respect to any Company securities or to attempt to influence Company policies or management in the future. The debentures repurchased were canceled by the Company, and based upon the $11.25 conversion price, 2,676,089 authorized 65 67 but unissued common shares have been reserved for possible issuance if the remaining $30,106,000 debentures outstanding at January 30, 1997 are converted. Additional paid-in-capital was reduced by approximately $1,553,000 of unamortized issuance costs associated with the debentures repurchased and canceled. 66 68 20. QUARTERLY FINANCIAL INFORMATION (UNAUDITED): The following is a summary of the unaudited quarterly financial information for the years ended December 31, 1996 and 1995.
1996 --------------------------------------------------------------------- First Second Third Fourth Quarter Quarter Quarter Quarter ------- ------- ------- ------- Revenues $14,863,553 $15,030,256 $15,146,092 $15,193,521 =========== =========== =========== =========== Earnings before gain (loss) on real estate investments and extraordinary item $ 3,902,526 $ 3,987,558 $ 4,095,170 $ 3,616,858 Gain (loss) on real estate investments 207,496 (12,874) - 1,037,470 ----------- ----------- ----------- ----------- Earnings before extraordinary item 4,110,022 3,974,684 4,095,170 4,654,328 Extraordinary item - (16,500) - - ----------- ----------- ----------- ----------- Net earnings $ 4,110,022 $ 3,958,184 $ 4,095,170 $ 4,654,328 =========== =========== =========== =========== Per Share: Earnings before extraordinary item $ .16 $ .15 $ .16 $ .18 Extraordinary item - - - - ----------- ----------- ----------- ----------- Net earnings $ .16 $ .15 $ .16 $ .18 =========== =========== =========== =========== 1995 --------------------------------------------------------------------- First Second Third Fourth Quarter Quarter Quarter Quarter ------- ------- ------- ------- Revenues $15,280,307 $14,837,565 $14,986,831 $15,091,544 =========== =========== =========== =========== Earnings before gain (loss) on real estate investments and extraordinary item $ 4,196,221 $ 3,890,861 $ 3,910,440 $ 3,552,504 Gain (loss) on real estate investments (16,673) (58,084) - 247,782 ----------- ----------- ----------- ----------- Earnings before extraordinary item 4,179,548 3,832,777 3,910,440 3,800,286 Extraordinary item - - - (137,260) ----------- ----------- ----------- ----------- Net earnings $ 4,179,548 $ 3,832,777 $ 3,910,440 $ 3,663,026 =========== =========== =========== =========== Per Share: Earnings before extraordinary item $ .16 $ . 15 $ .15 $ .14 Extraordinary item - - - - ----------- ----------- ----------- ----------- Net earnings $ .16 $ .15 $ .15 $ .14 =========== =========== =========== ===========
67 69 IRT PROPERTY COMPANY SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION December 31, 1996
Estimated Costs Gross Amount Accumulated Useful Initial Capitalized at Which Depreciation Life of Cost to Subsequent to Carried at at Close Buildings Date Year Description Encumbrances Company Acquisition Close of Year of Year (Years) Acquired Completed ----------- ------------ ------- ----------- ------------- ------- ------- -------- --------- Abbeville Plaza Abbeville, SC Land $ - $ 48,066 $ - $ 48,066 $ - 30 April, 1986 1970 Buildings 458,062 32,941 491,003 208,370 Alafaya Commons Orlando, FL Land - 5,525,976 - 5,525,976 - 40 November, 1996 1987 Buildings 4,723,994 - 4,723,994 9,842 Ambassador Row Lafayette, LA Land - 2,451,860 - 2,451,860 - 40 December, 1994 1980 & Buildings 7,244,580 213,313 7,457,893 377,652 1991 Ambassador Row Courtyard Lafayette, LA Land - 2,899,438 - 2,899,438 - 40 December, 1994 1986 & Buildings 8,698,313 73,469 8,771,782 439,841 1991 Asheville Plaza Asheville, NC Land - 52,710 15,000 67,710 - 30 April, 1986 1967 Buildings 335,717 1,860 337,577 121,764 Bluebonnet Village Baton Rouge, LA Land - 2,540,594 - 2,540,594 - 40 December, 1994 1983 Buildings 5,509,995 34,614 5,544,609 284,138 The Boulevard Lafayette, LA Land - 948,334 - 948,334 - 40 December, 1994 1976 & Buildings 2,845,003 24,934 2,869,937 144,854 1994 Carolina Place Hartsville, SC Land - 345,000 - 345,000 - 40 May, 1989 1989 Buildings 2,006,494 - 2,006,494 378,720
68 70 IRT PROPERTY COMPANY SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION December 31, 1996
Estimated Costs Gross Amount Accumulated Useful Initial Capitalized at Which Depreciation Life of Cost to Subsequent to Carried at at Close Buildings Date Year Description Encumbrances Company Acquisition Close of Year of Year (Years) Acquired Completed ----------- ------------ ------- ----------- ------------- ------- ------- -------- --------- Centre Pointe Plaza Smithfield, NC Land $ - $ 983,612 $ 12,583 $ 996,195 $ - 40 December, 1992 1989 & Buildings 8,002,885 146,922 8,149,807 824,494 1993 Chadwick Square Hendersonville, NC Land - 276,778 - 276,778 - 40 January, 1992 1985 Buildings 1,179,949 - 1,179,949 145,022 Chelsea Place New Port Richey, FL Land - 1,387,517 - 1,387,517 - 40 July, 1993 1992 Buildings 5,550,068 5,000 5,555,068 479,865 Chester Plaza Chester, SC Land - 68,649 143,504 212,153 - 30 April, 1986 & 1967 & Buildings 414,117 1,573,701 1,987,818 507,542 February, 1992 1992 Chestnut Square Brevard, NC Land - 295,984 - 295,984 - 40 January, 1992 1985 Buildings 1,113,464 22,659 1,136,123 141,532 Colony Square Fitzgerald, GA Land - 272,833 - 272,833 - 40 February, 1988 1987 Buildings 2,455,826 207,771 2,663,597 679,407 Commerce Crossing Commerce, GA Land - 379,648 889 380,537 - 40 December, 1992 1988 Buildings 4,089,737 26,069 4,115,806 412,722 Country Club Plaza Slidell, LA Land - 1,068,686 1,068,686 - 40 January, 1995 1982 Buildings 3,010,039 122,071 3,132,110 151,538
69 71 IRT PROPERTY COMPANY SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION December 31, 1996
Estimated Costs Gross Amount Accumulated Useful Initial Capitalized at Which Depreciation Life of Cost to Subsequent to Carried at at Close Buildings Date Year Description Encumbrances Company Acquisition Close of Year of Year (Years) Acquired Completed ----------- ------------ ------- ----------- ------------- ------- ------- -------- --------- Countryside Shops Cooper City, FL Land $ - $ 5,675,614 $ - $ 5,675,614 $ - 40 June, 1994 1986, 1988 Buildings 10,954,065 99,305 11,053,370 698,392 & 1991 The Crossing Slidell, LA Land - 1,282,036 - 1,282,036 - 40 December, 1994 1988 & Buildings 3,213,616 89,850 3,303,466 175,563 1993 Delchamps Plaza Pascagoula, MS Land 3,185,364 359,000 - 359,000 - 40 April, 1988 1987 Buildings 4,130,247 25,986 4,156,233 912,720 Douglas Commons Douglasville, GA Land - 2,543,385 2,951 2,546,336 - 40 August, 1992 1988 Buildings 5,958,475 104,280 6,062,755 692,805 Eden Centre Eden, NC Land - 625,901 - 625,901 - 40 November, 1994 1991 Buildings 2,901,316 - 2,901,316 157,154 Elmwood Oaks Harahan, LA Land 7,500,000 4,558,654 - 4,558,654 - 40 January, 1992 1989 Buildings 6,560,014 60,537 6,620,551 814,441 First Street Station Albemarle, NC Land - 202,578 - 202,578 - 40 August, 1994 1989 Buildings 2,832,092 13,398 2,845,490 166,387 Forest Hills Centre Wilson, NC Land - 869,981 (9,160) 860,821 - 40 August, 1990 1990 & Buildings 4,120,606 552,594 4,673,200 650,956 1995
70 72 IRT PROPERTY COMPANY SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION December 31, 1996
Estimated Costs Gross Amount Accumulated Useful Initial Capitalized at Which Depreciation Life of Cost to Subsequent to Carried at at Close Buildings Date Year Description Encumbrances Company Acquisition Close of Year of Year (Years) Acquired Completed ----------- ------------ ------- ----------- ------------- ------- ------- -------- --------- Forrest Gallery Tullahoma, TN Land $ - $ 2,137,692 $ 10,639 $ 2,148,331 $ - 40 December, 1992 1987 Buildings 9,977,044 281,743 10,258,787 1,063,158 Ft. Walton Beach Plaza Ft. Walton Beach, FL Land - 787,583 - 787,583 - 30 July, 1986 1986 Buildings 1,860,360 28,774 1,889,134 655,894 The Galleria Wrightsville Beach, NC Land - 1,069,672 - 1,069,672 - 40 August, 1986 & 1986, Buildings 6,138,818 1,261,378 7,400,196 1,540,929 December, 1987 1990 & 1996 Gulf Gate Plaza Naples, FL Land - 277,562 - 277,562 - 28 June, 1979 1969 & Buildings 1,857,532 2,227,650 4,085,182 2,526,384 1974 Harris Teeter Lexington, VA Land - 312,105 - 312,105 - 30 June, 1988 & 1981 & Buildings 1,638,552 650,000 2,288,552 638,780 June, 1989 1989 Heritage Walk Milledgeville, GA Land - 810,292 - 810,292 - 40 June, 1993 1991 & Buildings 7,944,260 3,200 7,947,460 710,661 1992 Hoffner Plaza Orlando, FL Land - 185,293 - 185,293 - 28 June, 1979 1972 Buildings 476,469 485,171 961,640 752,037 Lancaster Plaza Lancaster, SC Land - 120,790 - 120,790 - 30 April, 1986 1971 Buildings 743,852 512,817 1,256,669 440,428
71 73 IRT PROPERTY COMPANY SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION December 31, 1996
Estimated Costs Gross Amount Accumulated Useful Initial Capitalized at Which Depreciation Life of Cost to Subsequent to Carried at at Close Buildings Date Year Description Encumbrances Company Acquisition Close of Year of Year (Years) Acquired Completed ----------- ------------ ------- ----------- ------------- ------- ------- -------- --------- Lancaster Shopping Center Lancaster, SC Land $ - $ 338,355 $ - $ 338,355 $ - 30 August, 1986 & 1963 & Buildings 1,227,552 29,760 1,257,312 393,823 December, 1987 1987 Lawrence Commons Lawrenceburg, TN Land - 815,653 829 816,482 - 40 August, 1992 1987 Buildings 2,728,692 31,056 2,759,748 304,620 Litchfield Landing North Litchfield, SC Land - 475,000 - 475,000 - 40 August, 1986 1984 Buildings 2,118,429 39,256 2,157,685 573,872 Macland Pointe Marietta, GA Land 3,766,276 1,252,098 - 1,252,098 - 40 January, 1993 1992 & Buildings 4,317,234 544,073 4,861,307 478,659 1993 Masonova Plaza Daytona Beach, FL Land - 296,643 - 296,643 - 16 June, 1979 1969 Buildings 1,680,977 1,067,932 2,748,909 2,419,026 Millervillage Shopping Center Baton Rouge, LA Land - 1,926,535 - 1,926,535 - 40 December, 1994 1983 & Buildings 5,661,992 55,537 5,717,529 293,501 1992 New Smyrna Beach Regional New Smyrna Beach, FL Land - 3,704,368 6,757 3,711,125 - 40 August, 1992 1987 Buildings 6,400,556 322,552 6,723,108 774,799 North River Village Ellenton, FL Land - 2,949,031 - 2,949,031 - 40 December, 1992 & 1988 & Buildings 7,161,093 96,271 7,257,364 624,326 December, 1993 1993
72 74 IRT PROPERTY COMPANY SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION December 31, 1996
Estimated Costs Gross Amount Accumulated Useful Initial Capitalized at Which Depreciation Life of Cost to Subsequent to Carried at at Close Buildings Date Year Description Encumbrances Company Acquisition Close of Year of Year (Years) Acquired Completed ----------- ------------ ------- ----------- ------------- ------- ------- -------- --------- North Village Center North Myrtle Beach, SC Land $ 2,657,308 $ 483,400 $ - $ 483,400 $ - 37 August, 1986 1984 Buildings 2,785,154 10,479 2,795,633 683,611 Old Kings Commons Palm Coast, FL Land - 1,491,458 - 1,491,458 - 40 May, 1988 1988 Buildings 4,474,372 148,613 4,622,985 1,038,066 Palm Gardens Largo, FL Land - 98,279 - 98,279 - 26 June, 1979 1970 & Buildings 657,716 1,274,417 1,932,133 894,394 1993 Parkmore Plaza Milton, FL Land - 1,799,419 8,141 1,807,560 - 40 December, 1992 1986 & Buildings 6,454,261 98,795 6,553,056 657,781 1992 Paulding Commons Dallas, GA Land 8,641,795 2,312,372 2,687 2,315,059 - 40 August, 1992 1991 Buildings 10,606,781 71,903 10,678,684 1,177,958 Pensacola Plaza Pensacola, FL Land - 130,688 - 130,688 - 30 July, 1986 1985 Buildings 2,392,249 121,641 2,513,890 913,643 Pinhook Plaza Lafayette, LA Land 7,242,086 2,768,151 - 2,768,151 - 40 December, 1994 1979 & Buildings 8,304,453 19,500 8,323,953 424,137 1992 Plaza Acadienne Eunice, LA Land 2,312,707 - - - - 40 December, 1994 1980 Buildings 2,917,925 45,324 2,963,249 149,846
73 75 IRT PROPERTY COMPANY SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION December 31, 1996
Estimated Costs Gross Amount Accumulated Useful Initial Capitalized at Which Depreciation Life of Cost to Subsequent to Carried at at Close Buildings Date Year Description Encumbrances Company Acquisition Close of Year of Year (Years) Acquired Completed ----------- ------------ ------- ----------- ------------- ------- ------- -------- --------- Plaza North Hendersonville, NC Land $ - $ 657,797 $ 121 $ 657,918 $ - 40 August, 1992 1986 Buildings 1,795,992 6,185 1,802,177 199,576 Providence Square Charlotte, NC Land - 450,000 300 450,300 - 35 December, 1971 1973 Buildings 1,895,606 2,154,565 4,050,171 2,520,850 Riverview Shopping Center Durham, NC Land - 400,000 322 400,322 - 35 March, 1972 1973 & Buildings 1,822,918 4,150,306 5,973,224 1,936,570 1994 Salisbury Marketplace Salisbury, NC Land - 733,599 - 733,599 - 40 August, 1996 1987 Buildings 3,877,552 - 3,877,552 32,312 Scottsville Square Bowling Green, KY Land - 653,010 765 653,775 - 40 August, 1992 1986 Buildings 1,782,340 2,088 1,784,428 196,927 Seven Hills Spring Hill, FL Land 3,800,000 1,903,090 - 1,903,090 - 40 July, 1993 1991 Buildings 2,976,628 34,502 3,011,130 262,767 Shelby Plaza Shelby, NC Land - - - - - 30 April, 1986 1972 Buildings 937,483 240,328 1,177,811 468,090 Sherwood South Baton Rouge, LA Land - 496,174 - 496,174 - 40 December, 1994 1972, 1988 Buildings 1,488,521 50,568 1,539,089 75,840 & 1992
74 76 IRT PROPERTY COMPANY SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION December 31, 1996
Estimated Costs Gross Amount Accumulated Useful Initial Capitalized at Which Depreciation Life of Cost to Subsequent to Carried at at Close Buildings Date Year Description Encumbrances Company Acquisition Close of Year of Year (Years) Acquired Completed ----------- ------------ ------- ----------- ------------- ------- ------- -------- --------- Siegen Village Baton Rouge, LA Land $ - $ 2,375,168 $ (325,000) $ 2,050,168 $ - 40 December, 1994 1988 & Buildings 6,513,078 61,620 6,574,698 219,372 1996 Smyrna Village Smyrna, TN Land 4,128,857 968,358 20,601 988,959 - 40 August, 1992 1992 Buildings 4,743,708 118,114 4,861,822 532,766 Smyth Valley Crossing Marion, VA Land - 1,693,137 6,523 1,699,660 - 40 December, 1992 1989 Buildings 5,231,283 119,674 5,350,957 559,993 South Beach Regional Jacksonville Beach, FL Land 15,148,573 3,972,815 19,710 3,992,525 - 40 August, 1992 1990 & Buildings 17,115,106 782,016 17,897,122 2,039,954 1991 Spalding Village Griffin, GA Land 11,376,691 2,813,854 3,281 2,817,135 - 40 August, 1992 1989 Buildings 12,470,446 137,515 12,607,961 1,396,613 Stadium Plaza Phenix City, AL Land - 1,828,942 2,130 1,831,072 - 40 August, 1992 1988 Buildings 2,614,155 18,096 2,632,251 294,449 Stanley Market Place Stanley, NC Land - 198,103 - 198,103 - 35 January, 1992 1980 & Buildings 1,602,832 - 1,602,832 197,060 1991 Tarpon Heights Galliano, LA Land 2,418,382 705,570 705,570 - 40 January, 1995 1982 Buildings 2,116,712 3,125 2,119,837 105,648
75 77 IRT PROPERTY COMPANY SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION December 31, 1996
Estimated Costs Gross Amount Accumulated Useful Initial Capitalized at Which Depreciation Life of Cost to Subsequent to Carried at at Close Buildings Date Year Description Encumbrances Company Acquisition Close of Year of Year (Years) Acquired Completed ----------- ------------ ------- ----------- ------------- ------- -------- -------- --------- Taylorsville Shopping Center Taylorsville, NC Land $ - $ 89,689 $ - $ 89,689 $ - 40 August, 1986 & 1982 & Buildings 1,443,704 1,078,766 2,522,470 617,088 December, 1988 1988 Thomasville Commons Thomasville, NC Land 5,534,642 963,333 - 963,333 - 40 August, 1992 1991 Buildings 6,183,052 26,576 6,209,628 696,034 University Center Greenville, NC Land - 750,000 - 750,000 - 40 December, 1989 1989 Buildings 3,159,065 61,907 3,220,972 577,335 Venice Plaza Venice, FL Land - 333,127 - 333,127 - 27 June, 1979 1971 & Buildings 1,887,721 615,666 2,503,387 1,614,105 1979 Village at Northshore Slidell, LA Land 5,570,632 2,065,633 - 2,065,633 - 40 December, 1994 1988 & Buildings 6,196,900 5,673 6,202,573 314,962 1993 Waterlick Plaza Lynchburg, VA Land - 1,071,000 - 1,071,000 - 40 October, 1989 1973 & Buildings 5,091,222 149,409 5,240,631 975,781 1988 Watson Central Warner Robins, GA Land - 1,645,548 12,478 1,658,026 - 40 December, 1992 & 1989 & Buildings 11,316,940 114,703 11,431,643 1,104,322 October, 1993 1993 Wesley Chapel Crossing Decatur, GA Land - 3,828,806 9,154 3,837,960 - 40 December, 1992 1989 Buildings 7,031,767 53,541 7,085,308 717,097
76 78 IRT PROPERTY COMPANY SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION December 31, 1996
Estimated Costs Gross Amount Accumulated Useful Initial Capitalized at Which Depreciation Life of Cost to Subsequent to Carried at at Close Buildings Date Year Description Encumbrances Company Acquisition Close of Year of Year (Years) Acquired Completed ----------- ------------ ------- ----------- ------------- ------- -------- -------- --------- West Gate Plaza Mobile, AL Land $ - $ 475,270 $ - $ 475,270 $ - 25 June, 1974 & 1974 & Buildings 3,771,825 486,300 4,258,125 881,364 January, 1985 1995 West Towne Square Rome, GA Land - 324,800 - 324,800 - 40 March, 1990 1988 Buildings 5,580,776 120,625 5,701,401 978,823 Westgate Square Sunrise, FL Land - 2,238,886 - 2,238,886 - 40 June, 1994 1984 & Buildings 6,839,969 88,843 6,928,812 438,125 1988 Willowdaile Shopping Center Durham, NC Land - 936,977 (60,579) 876,398 - 40 August, 1986 & 1986 Buildings 7,351,612 336,348 7,687,960 1,886,988 December, 1987 Whitehall Kent Apartments Kent, OH Land - 136,404 117,938 254,342 - 29 June, 1979 1968 Buildings 2,136,996 1,790,637 3,927,633 2,290,982 Industrial Buildings Charlotte, NC - Industrial Land - 143,160 178,490 321,650 - 14 June, 1979 1956 & Buildings 2,170,057 1,094,974 3,265,031 2,642,492 1963 Plasti-Kote Medina, OH - Industrial Land - 81,390 - 81,390 - 14 June, 1979 1961 & Buildings 346,979 54,570 401,549 401,549 1966 Lawrence County Shopping Center Sybene, OH Land - 435,994 - 435,994 - May, 1971 1971
77 79 IRT PROPERTY COMPANY SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION December 31, 1996
Estimated Costs Gross Amount Accumulated Useful Initial Capitalized at Which Depreciation Life of Cost to Subsequent to Carried at at Close Buildings Date Year Description Encumbrances Company Acquisition Close of Year of Year (Years) Acquired Completed ----------- ------------ ------- ----------- ------------- ------- -------- -------- --------- Grand Marche $ $ $ $ $ Shopping Center Lafayette, LA Land - 250,000 500 250,500 - September, 1972 1969 Manatee County Shopping Center Bradenton, FL Land - 241,798 - 241,798 - May, 1971 1971 ----------- ------------ ----------- ------------ ----------- $83,283,313 $436,394,647 $26,997,910 $463,392,557 $56,881,888 =========== ============ =========== ============ ===========
78 80
IRT PROPERTY COMPANY SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION December 31, 1996 NOTE: Real estate activity is summarized as follows: Year Ended December 31, -------------------------------------------- 1996 1995 1994 ---- ---- ---- RENTAL PROPERTIES: Cost - Balance at beginning of year $452,508,601 $442,642,705 $331,012,764 Acquisitions and improvements 21,109,810 11,518,502 115,813,729 Retirements - - - Reduction in carrying value - - (3,878,754) ------------ ------------ ------------ 473,618,411 454,161,207 442,947,739 Cost of properties sold (10,225,854) (1,652,606) (305,034) ------------ ------------ ------------ Balance at end of year $463,392,557 $452,508,601 $442,642,705 ============ ============ ============ Accumulated depreciation - Balance at beginning of year $ 51,600,890 $ 41,677,722 $ 33,463,530 Depreciation 10,310,344 10,427,268 8,214,192 Retirements - - - ------------ ------------ ------------ 61,911,234 52,104,990 41,677,722 Accumulated depreciation related to rental properties sold (5,029,346) (504,100) - ------------ ------------ ------------ Balance at end of year $ 56,881,888 $ 51,600,890 $ 41,677,722 ============ ============ ============
79 81 IRT PROPERTY COMPANY MORTGAGE LOANS ON REAL ESTATE December 31, 1996
Final Periodic Type of Type of Interest Maturity Payment Location of Property Loan Property Rate Date Terms Prior Liens - -------------------- ---- -------- ---- ---- ----- ----------- (See Notes) (See Notes) Augusta, GA First Mortgage Shopping Center 10.25% August, 1998 (1) $ Kearney, NE Second Mortgage Shopping Center 7.00% December, 1998 (2) 2,673,000 Fremont, NE Second Mortgage Shopping Center 7.00% December, 1998 (2) 1,827,000 Montgomery, AL Wrap-Around Apartments (3) September, 2001 (3) - Glendale, AZ First Mortgage Shopping Center 9.00% April, 2001 (1) - Lauderdale Lakes, FL First Mortgage Condominiums 10.00% May, 2009 (4) - Nashville, TN First Mortgage Condominiums 8.63% - 2006-2007 (4) - Participation 12.38% ------------ 4,500,000 Less interest discounts and negative goodwill - ------------ $ 4,500,000 ============ SCHEDULE IV Principal Amount of Face Amount Loans Subject and Carrying to Delinquent Amount of Principal Location of Property Mortgages or Interest - -------------------- --------- ----------- Augusta, GA $ 3,193,390 - Kearney, NE 594,000 - Fremont, NE 406,000 - Montgomery, AL 5,297,165 - Glendale, AZ 3,780,749 - Lauderdale Lakes, FL 125,320 - Nashville, TN 27,785 - ----------- 13,424,409 (241,889) ----------- $13,182,520 ===========
NOTES: (1) Monthly payments of principal and interest, with balloon payments at maturity. (2) Monthly payments are interest only; principal due at maturity. (3) Modified effective, December 1, 1994 to extend the term for 3 years to September 1, 2001 and to reduce the cash interest rate from 10% to 9.5% prospectively, requiring monthly payments of $45,382 of principal and interest for the remaining term, with a balloon payment at maturity. Additional interest at an annual rate of 1% accrues for the periods September 1,1984 through August 31, 1989 and September 1,1991 through August 31, 2001 and is payable at maturity or on sale of the property. In addition, the Company funded additional principal of $260,000 under this mortgage during 1995 to make certain capital improvements. This wrap-around mortgage is subject to one first mortgage having a balance of $717,315 as of December 31, 1996. (4) Monthly payments include principal and interest. 80 82 SCHEDULE IV IRT PROPERTY COMPANY SCHEDULE IV MORTGAGE LOANS ON REAL ESTATE December 31, 1996 NOTE: Mortgage loan activity is summarized as follows:
Year Ended December 31, ----------------------------------------- 1996 1995 1994 ---- ---- ---- Balance at beginning of year $ 8,499,210 $8,292,143 $8,392,959 New mortgage loans - - - Additions to mortgage loans 4,800,000 260,000 - Amortization of interest discounts and negative goodwill 45,998 45,193 7,076 Collections of principal (162,688) (98,126) (107,892) ----------- ---------- ---------- Balance at end of year $13,182,520 $8,499,210 $8,292,143 =========== ========== ==========
81 83 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K. Financial Statements and Schedules. Included in Part II of this Report are the following: Report of Independent Public Accountants Consolidated Balance Sheets at December 31, 1996 and 1995 Consolidated Statements of Earnings for the Years Ended December 31, 1996, 1995 and 1994 Consolidated Statements of Changes in Shareholders' Equity for the Years Ended December 31, 1996, 1995 and 1994 Consolidated Statements of Cash Flows for the Years Ended December 31, 1996, 1995 and 1994 Notes to Consolidated Financial Statements Schedule III - Real Estate and Accumulated Depreciation Schedule IV - Mortgage Loans on Real Estate Exhibits. (3)(a) The Company's Articles of Incorporation, as amended, were filed as Exhibit 4.1 to the Company's Registration Statement on Form S-3 (No. 33-65604) dated July 6, 1993, to which reference is hereby made. (3)(b) The Company's By-Laws, as amended, were filed as Exhibit 3 to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1995, to which reference is hereby made. (4)(a) The Indenture dated August 15, 1993 between the Company and Trust Company Bank, as Trustee, relating to the 7.3% Convertible Subordinated Debentures due August 15, 2003 was filed as an exhibit to the Company's Form 10-K for the year ended December 31, 1993, to which reference is hereby made. 82 84 (4)(b) The form of 7.3% Convertible Subordinated Debenture was included in (4)(a) above. (4)(c) The Indentures dated as of November 9, 1995 between the Company and SunTrust Bank, Atlanta, as Trustee, relating to Senior Debt Securities and Subordinated Debt Securities were filed as an exhibit to the Company's Form 10-K for the year ended December 31, 1995, to which reference is hereby made. (4)(d) First Supplemental Indenture dated as of March 26, 1996 between IRT Property Company and SunTrust Bank, Atlanta was filed as an exhibit to the Company's Form 8-K dated March 26, 1996, to which reference is hereby made. (10)(a) The Deferred Compensation Agreement between the Company and Donald W. MacLeod was filed as an exhibit to the Company's Registration Statement on Form S-2 (No. 2-88716) dated January 4, 1984, to which reference is hereby made. (10)(b) The Company's 1989 Stock Option Plan was filed as an exhibit to the Company's Form 8-K dated March 22, 1989, to which reference is hereby made. (10)(c) Amendment No. 1 to the Company's 1989 Stock Option Plan was filed as an exhibit to the Company's Form 10-K for the year ended December 31, 1993, to which reference is hereby made. (10)(d) The Company's Key Employee Stock Option Plan was filed as an exhibit to the Company's Registration Statement on Form S-2 (No. 2-88716) dated January 4, 1984, to which reference is hereby made. (10)(e) The Company's Deferred Compensation Plan for Outside Directors dated December 22, 1995 was filed as an exhibit to the Company's Form 10-K for the year ended December 31, 1995, to which reference is hereby made. 83 85 (10)(f) Agreements between the Company and Donald W. MacLeod, Thomas H. McAuley and Mary M. Thomas effective October 1, 1995 were filed as an exhibit to the Company's Form 10-K for the year ended December 31, 1995, to which reference is hereby made. (10)(g) The Company's amended and restated $50 million revolving term loan agreement dated July 31, 1992 was filed as Exhibit (10)(e) to the Company's Form 10-K for the year ended December 31, 1992, to which reference is hereby made. The Company's revolving term loan agreement dated November 1, 1990 was filed as Exhibit (10)(e) to the Company's Form 10-K for the year ended December 31, 1990, to which reference is hereby made. (10)(h) The Company's $100 million revolving term loan agreement dated December 15, 1995 was filed as an exhibit to the Company's Form 8-K dated January 2, 1996, to which reference is hereby made. (10)(i) The Real Property Purchase Agreement and first amendment thereto dated June 23, 1992 relative to the Company's acquisition of the ten Sofran Centers was filed as an exhibit to the Company's report on Form 8-K dated August 12, 1992 (date of event reported, July 31, 1992), to which reference is hereby made. (10)(j) Form of Agreement for the Sale and Purchase of Property dated October 30, 1992 and the letter amendment thereto dated November 19, 1992 relative to the Company's acquisition of the seven Dreyfus Centers was filed as an exhibit to the Company's report on Form 8-K dated January 6, 1993 (date of event reported, December 23, 1992), to which reference is hereby made. (10)(k) The letter agreement dated December 23, 1992 between the IBM Retirement Plan Trust Fund and its seven wholly-owned subsidiaries and the Company was filed as an exhibit to the Company's report on Form 8-K dated January 6, 1993 (date of event reported, December 23, 1992), to which reference is hereby made. 84 86 (21) The Company has two wholly-owned subsidiaries, IRT Management Company ("IRTMC") and VW Mall, Inc. ("VWM"), which are Georgia corporations. IRTMC was formed in 1990 and VWM in 1994. A taxable subsidiary of the Company, IRT Capital Corporation ("IRTCC"), was formed in 1996 as a Georgia corporation, and the Company owns 95% of IRTCC's non-voting common stock and 5% of its voting common stock. (23) Consent of Arthur Andersen LLP to the incorporation of their report included in this Form 10-K in the Company's previously filed Registration Statements File Nos. 33-65604, 33-66780, 33-51238, 33-59938, 33-64628, 33-64741 and 33-63523. (27) Financial Data Schedule (for S.E.C. use only) Reports on Form 8-K. The Company filed a Current Report on Form 8-K dated January 14, 1997 (date of event reported, January 14, 1997), reporting under Items 5 and 7, the underwritten offering of 4,000,000 shares of Common Stock at a price to the public of $11.25 per share on January 14, 1997, which Form 8-K is incorporated herein by reference. The Company filed a Current Report on Form 8-K dated January 17, 1997, (date of event reported, January 17, 1997), reporting under Item 5 the repurchase of $54,799,000 of its 7.3% convertible subordinated debentures due August 15, 2003 in a private transaction with a single debenture holder on January 17, 1997, which Form 8-K is incorporated herein by reference. 85 87 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. February 26, 1997 IRT PROPERTY COMPANY By: /s/ Donald W. MacLeod --------------------- Donald W. MacLeod Chairman of the Board Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
/s/ Donald W. MacLeod Chairman of the February 26, 1997 - ---------------------------- Board and Director Donald W. MacLeod /s/ Thomas H. McAuley President, Chief February 26, 1997 - ---------------------------- Executive Officer Thomas H. McAuley and Director /s/ Mary M. Thomas Executive Vice February 26, 1997 - ---------------------------- President, Chief Mary M. Thomas Financial Officer and Director (Principal Financial & Accounting Officer) /s/ Homer B. Gibbs, Jr. Director February 26, 1997 - ---------------------------- Homer B. Gibbs, Jr. /s/ Samuel W. Kendrick Director February 26, 1997 - ---------------------------- Samuel W. Kendrick /s/ Bruce A. Morrice Director February 26, 1997 - ---------------------------- Bruce A. Morrice /s/ James H. Nobil Director February 26, 1997 - ---------------------------- James H. Nobil /s/ Louis P. Wolfort Director February 26, 1997 - ---------------------------- Louis P. Wolfort
86 EX-23 2 CONSENT OF ARTHUR ANDERSEN 1 EXHIBIT (23) CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS IRT Property Company: As independent public accountants, we hereby consent to the incorporation by reference of our reports dated January 30, 1997 and to all references to our Firm, included in this Form 10-K, into the Company's previously filed Registration Statements File Nos. 33-65604, 33-66780, 33-51238, 33-59938, 33-64628 33-64741 and 33-63523. ARTHUR ANDERSEN LLP Atlanta, Georgia February 25, 1997 EX-27 3 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS OF IRT PROPERTY COMPANY AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1000 YEAR DEC-31-1996 JAN-01-1996 DEC-31-1996 3,174 0 489 0 0 12,820 468,219 56,882 437,695 9,450 233,835 0 0 25,807 167,548 437,695 0 60,233 0 0 26,285 0 18,346 0 0 15,602 0 0 0 16,818 0.65 0
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