-----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, EPYOaoupdAMOfbnzMCB88N5G/vi7lAAW48qv6jg/yP9G3UIsx+b4sp3k3v8/WkHf g825B1BR9fVPn29i4sP6aA== 0000950144-98-002280.txt : 19980305 0000950144-98-002280.hdr.sgml : 19980305 ACCESSION NUMBER: 0000950144-98-002280 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980304 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: SEC FILE NUMBER: 001-07859 FILM NUMBER: 98557095 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 PROPERTY CO. - FORM 10-K405 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, 1997 ----------------- OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Transition Period From __________ to __________ Commission File Number 1-7859 - ------------------------------------------------------------------------------- IRT PROPERTY COMPANY - ------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Georgia 58-1366611 - ------------------------------------- -------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification 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 whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate 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 --- The aggregate market value of the common stock of the registrant held by nonaffiliates of the registrant at February 25, 1998 was $380,745,957. 32,452,962 shares of Common Stock, $1 Par Value, were outstanding at February 25, 1998. 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 for the 1998 Annual Meeting of Shareholders of the Company 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, like its predecessor, Investors Realty Trust, has elected since inception to be treated as a "Real Estate Investment Trust" ("REIT") 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. 1 3 The Company has three 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 held the purchase-money mortgage taken back on the sale of Valley West Mall in 1996. This purchase-money mortgage was prepaid in September 1997. IRT Alabama, Inc. ("IRTAL") was formed in August 1997. Upon its formation, IRTAL purchased Madison Centre in Huntsville, Alabama. IRT Capital Corporation ("IRTCC"), a taxable subsidiary of the Company, was formed under the laws of Georgia in 1996. IRTCC has 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 96% of the non-voting common stock and 1% of the voting common stock of IRTCC. The remaining voting common stock is currently held by a member of the Board of Directors and an executive officer 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 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 1997 regarding these investments and the Company as a whole, reference is made to Items 2 and 7 hereof. 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 Notes 2 and 8 to the consolidated financial statements. For financial information regarding the Company's 1997 senior note offering, reference is made to Items 6 and 7 and to Notes 2 and 9 to the 2 4 consolidated financial statements. Readers are also urged to review the Company's Annual Report to Shareholders for the year ended December 31, 1997. 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 with attractive yields and potential for increases in income and capital appreciation. The Company focuses on neighborhood and community shopping centers, primarily in the Southeastern United States; however, the Company will consider portfolio acquisitions in other regions under circumstances which will allow it to establish and maintain a regional presence. Such focus allows and will allow the Company to establish and maintain strong working relationships with major national and regional retailers which serve such present and future regional markets. 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, 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 most 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 property management and leasing professionals located in offices in Atlanta, Charlotte, Orlando, Ft. Lauderdale 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 and the Company's cost of capital. 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 3 5 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 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 Note 8 to the consolidated financial statements. For a description of the Company's 7.45% senior notes and 7.25% 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, in certain circumstances, 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 4 6 ("CERCLIS List") 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 has been notified 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 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. 5 7 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 a groundwater monitoring well (well BB-1) that exceeded the maximum contaminant levels ("MCLs") 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. 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., formerly the Florida food division of Lucky Stores, Inc., operated such USTs at Venice Plaza Shopping Center and is addressing the releases. As of the date of this report, 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 6 8 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. Certain other shopping center investments owned by the Company have experienced releases of dry cleaning solvents in the past; however, based upon either state "no-action" letters or consultation with environmental experts, the Company does not believe the cost of addressing these releases would not have a material adverse effect on the Company's results of operations, financial position, or liquidity. 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. 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; Market Place Shopping Center, Norcross, 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 principally 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. 7 9 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 only limited 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. In addition, dry cleaning solvents are present in the soil at Chastain Square in Atlanta, Georgia, acquired in December 1997. The State of Georgia has issued a letter indicating that no action is contemplated at this site. 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. Employees. The Company presently employs 52 persons, 2 of whom are on-site maintenance personnel at two 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, 1997, 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 12/31/97 Completed 12/31/97 12/31/97 1997 (1) 1997 (2) ----------- -------- ------------ -------- --------- ----------- ------------ ---------- ---------- SHOPPING CENTERS Abbeville Plaza 4/86 59,525 sq. ft. 50% 1970 $ 561,850 $ 297,303 $ 38,011 $ (18,166) Abbeville, SC Alafaya Commons 11/96 120,586 sq. ft. 99% 1987 10,272,577 10,144,635 1,088,748 970,648 Orlando, FL Ambassador Row 12/94 193,982 sq. ft. 98% 1980 & 9,948,645 9,354,326 1,074,977 858,310 Lafayette, LA 1991 Ambassador Row Courtyard 12/94 155,483 sq. ft. 93% 1986 & 11,742,852 11,073,308 1,106,910 877,207 Lafayette, LA 1991 Asheville Plaza 4/86 49,800 sq. ft. 100% 1967 405,287 272,327 95,736 84,540 Asheville, NC Bluebonnet Village 12/94 90,215 sq. ft. 100% 1983 8,120,564 7,692,907 856,637 713,118 Baton Rouge, LA The Boulevard 12/94 68,012 sq. ft. 54% 1976 & 3,818,271 3,598,136 389,133 313,852 Lafayette, LA 1994 Carolina Place 5/89 36,560 sq. ft. 100% 1989 2,351,494 1,922,434 205,058 154,718 Hartsville, SC Centre Pointe Plaza 12/92 & 163,642 sq. ft. 100% 1989 & 9,260,848 8,225,297 879,389 668,332 Smithfield, NC 12/93 1993 Chadwick Square 1/92 31,700 sq. ft. 95% 1985 1,472,827 1,298,309 187,135 157,639 Hendersonville, NC Chastain Square 12/97 74,315 sq. ft. 87% 1981 6,757,684 6,753,532 25,646 21,494 Atlanta, GA Chelsea Place 7/93 81,144 sq. ft. 100% 1992 6,942,585 6,323,131 763,695 624,106 New Port Richey, FL Chester Plaza 4/86 & 71,443 sq. ft. 59% 1967 & 2,199,971 1,569,164 202,017 78,752 Chester, SC 2/92 1992 Chestnut Square 1/92 39,640 sq. ft. 100% 1985 1,432,107 1,258,959 250,437 218,821 Brevard, NC Colony Square 2/88 50,000 sq. ft. 86% 1987 2,936,430 2,162,203 279,907 185,087 Fitzgerald, GA Commerce Crossing 12/92 100,668 sq. ft. 100% 1988 4,501,943 3,983,944 403,184 297,907 Commerce, GA Country Club Plaza 1/95 64,686 sq. ft. 83% 1982 4,217,057 3,969,923 438,807 343,211 Slidell, LA Countryside Shops 6/94 173,161 sq. ft. 100% 1986,1988 16,756,609 15,767,236 1,879,228 1,588,247 Cooper City, FL & 1991 The Crossing 12/94 113,989 sq. ft. 100% 1988 & 4,604,816 4,337,271 554,762 462,780 Slidell, LA 1993
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 12/31/97 Completed 12/31/97 12/31/97 1997 (1) 1997 (2) ----------- -------- ------------ -------- ---------- ----------- ------------ ---------- ---------- SHOPPING CENTERS,continued Delchamps Plaza 4/88 66,857 sq. ft. 98% 1987 $ 4,566,446 $ 3,546,472 $ 442,297 $172,948 Pascagoula, MS Douglas Commons 8/92 97,027 sq. ft. 97% 1988 8,641,598 7,783,419 783,349 617,975 Douglasville, GA Eden Centre 11/94 56,355 sq. ft. 96% 1991 3,527,217 3,297,530 394,131 321,598 Eden, NC Elmwood Oaks 1/92 130,284 sq. ft. 100% 1989 11,179,205 10,190,670 1,237,447 430,404 Harahan, LA Fairview Oaks 6/97 77,052 sq. ft. 100% 1997 7,109,994 7,023,403 385,477 298,886 Ellenwood, GA First Street Station 8/94 52,230 sq. ft. 95% 1989 3,065,440 2,825,999 296,227 223,173 Albemarle, NC Forest Hills Centre 8/90 74,180 sq. ft. 100% 1990 & 5,534,021 4,754,361 635,152 506,448 Wilson, NC 1995 Forrest Gallery 12/92 214,450 sq. ft. 95% 1987 12,473,466 11,120,759 1,000,104 710,555 Tullahoma, TN Ft. Walton Beach Plaza 7/86 48,248 sq. ft. 100% 1986 2,676,717 1,954,239 243,082 176,498 Ft. Walton Beach, FL The Galleria 8/86 & 92,344 sq. ft. 99% 1986, 1990 8,523,501 6,765,261 667,533 450,222 Wrightsville Beach, NC 12/87 & 1996 Grassland Crossing 2/97 90,906 sq. ft. 99% 1996 9,906,655 9,704,332 858,535 169,740 Alpharetta, GA Greenwood Shopping Center 7/97 134,132 sq. ft. 94% 1982 & 13,089,070 12,978,099 605,335 494,364 Palm Springs, FL 1994 Gulf Gate Plaza 6/79 174,566 sq. ft. 72% 1969 & 4,499,337 1,746,555 497,257 270,859 Naples, FL 1974 Harris Teeter 6/88 & 36,535 sq. ft. 100% 1981 & 2,600,657 1,884,837 298,249 221,209 Lexington, VA 6/89 1989 Heritage Walk 6/93 159,362 sq. ft. 100% 1991 & 8,757,752 7,847,922 928,032 728,863 Milledgeville, GA 1992 Hoffner Plaza 6/79 6,000 sq. ft. 53% 1972 561,464 442,220 31,933 1,529 Orlando, FL Lancaster Plaza 4/86 77,400 sq. ft. 100% 1971 1,436,305 927,280 159,103 90,506 Lancaster, SC Lancaster Shopping Center 8/86 & 29,047 sq. ft. 100% 1963 & 1,595,667 1,160,456 181,100 139,712 Lancaster, SC 12/87 1987 Lawrence Commons 8/92 52,295 sq. ft. 97% 1987 3,585,508 3,205,094 381,915 306,121 Lawrenceburg, TN Litchfield Landing 8/86 42,201 sq. ft. 98% 1984 2,632,685 2,001,834 321,804 264,826 North Litchfield, SC
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 12/31/97 Completed 12/31/97 12/31/97 1997 (1) 1997 (2) ----------- -------- ------------ -------- ---------- ----------- ------------ ---------- ---------- SHOPPING CENTERS,continued Macland Pointe 1/93 79,699 sq. ft. 94% 1992 & $ 6,140,677 $ 5,537,602 $ 663,758 $250,494 Marietta, GA 1993 Madison Centre 8/97 64,837 sq. ft. 100% 1997 5,818,308 5,789,702 206,196 177,590 Huntsville, AL Market Place 4/97 73,686 sq. ft. 97% 1976 7,073,526 7,015,962 570,779 513,215 Norcross, GA McAlpin Square 12/97 176,807 sq. ft. 95% 1979 6,078,036 6,073,333 52,380 47,677 Savannah, GA Millervillage Shopping Center 12/94 94,559 sq. ft. 97% 1983 & 7,666,185 7,221,878 794,210 643,404 Baton Rouge, LA 1992 New Smyrna Beach Regional 8/92 118,451 sq. ft. 98% 1987 10,434,233 9,446,598 963,653 750,817 New Smyrna Beach, FL North River Village Center 12/92 & 177,128 sq. ft. 100% 1988 & 10,206,395 9,385,477 1,123,240 926,648 Ellenton, FL 12/93 1993 North Village Center (3) 8/86 60,356 sq. ft. 96% 1984 3,279,033 2,517,401 340,408 48,266 North Myrtle Beach, SC Old Kings Commons 5/88 84,759 sq. ft. 98% 1988 6,130,573 4,959,848 543,982 411,323 Palm Coast, FL Palm Gardens 6/79 52,670 sq. ft. 95% 1970 2,030,412 1,009,905 208,243 82,130 Largo, FL Parkmore Plaza 12/92 159,067 sq. ft. 100% 1986 & 8,394,459 7,562,877 950,316 776,515 Milton, FL 1992 Paulding Commons 8/92 192,391 sq. ft. 99% 1991 13,059,667 11,608,348 1,298,398 664,573 Dallas, GA Pensacola Plaza 7/86 56,098 sq. ft. 100% 1985 2,678,938 1,665,287 235,809 135,801 Pensacola, FL Pinhook Plaza 12/94 190,319 sq. ft. 97% 1979 & 11,127,857 10,492,859 1,203,772 288,217 Lafayette, LA 1992 Plaza Acadienne (4) 12/94 105,419 sq. ft. 100% 1980 2,973,749 2,748,955 376,717 69,321 Eunice, LA Plaza North 8/92 47,240 sq. ft. 92% 1986 2,460,095 2,214,883 263,879 218,243 Hendersonville, NC Powers Ferry Plaza 5/97 82,676 sq. ft. 77% 1979 & 6,900,850 6,820,645 375,931 224,163 Marietta, GA 1983 Providence Square 12/71 85,930 sq. ft. 94% 1973 4,511,977 1,780,485 500,201 289,559 Charlotte, NC Riverview Shopping Center 3/72 130,058 sq. ft. 89% 1973 & 6,581,470 4,436,883 600,723 280,467 Durham, NC 1994 Salisbury Marketplace 8/96 76,970 sq. ft. 94% 1987 4,611,151 4,481,903 521,481 424,545 Salisbury, NC
11 13 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 12/31/97 Completed 12/31/97 12/31/97 1997 (1) 1997 (2) ----------- -------- ------------ -------- ---------- ----------- ------------ ---------- ---------- SHOPPING CENTERS,continued Scottsville Square 8/92 38,450 sq. ft. 21% 1986 $ 2,453,793 $ 2,147,421 $ 57,847 ($51,598) Bowling Green, KY Seven Hills 7/93 64,590 sq. ft. 99% 1991 4,914,220 4,571,291 542,857 431,820 Spring Hill, FL Shelby Plaza (4) 4/86 103,000 sq. ft. 85% 1972 1,345,705 781,001 97,716 1,102 Shelby, NC Sherwood South 12/94 75,607 sq. ft. 99% 1972, 1988 2,035,263 1,913,782 326,006 280,365 Baton Rouge, LA & 1992 Shoppes of Silverlakes 11/97 126,638 sq. ft. 100% 1995 & 16,868,741 16,828,682 219,546 144,105 Pembroke Pines, FL 1996 Siegen Village 12/94 157,528 sq. ft. 100% 1988 & 8,656,883 8,264,414 976,452 803,355 Baton Rouge, LA 1996 Smyrna Village 8/92 83,334 sq. ft. 100% 1992 5,850,781 5,193,964 658,772 364,699 Smyrna, TN Smyth Valley Crossing 12/92 126,841 sq. ft. 100% 1989 7,063,450 6,355,343 646,698 498,584 Marion, VA South Beach Regional 8/92 289,319 sq. ft. 97% 1990 & 21,944,388 19,417,451 2,176,119 1,061,820 Jacksonville Beach, FL 1991 Spalding Village 8/92 235,318 sq. ft. 98% 1989 15,425,096 13,695,511 1,573,575 305,013 Griffin, GA Stadium Plaza 8/92 70,475 sq. ft. 100% 1988 4,474,542 4,112,145 435,278 367,330 Phenix City, AL Stanley Market Place 1/92 40,364 sq. ft. 100% 1980 & 1,867,232 1,630,092 222,300 182,220 Stanley, NC 1991 Tarpon Heights 1/95 56,605 sq. ft. 100% 1982 2,837,287 2,678,200 391,941 114,543 Galliano, LA Taylorsville Shopping Center 8/86 & 48,537 sq. ft. 98% 1982 & 2,612,159 1,919,709 256,243 180,881 Taylorsville, NC 12/88 1988 Thomasville Commons 8/92 148,754 sq. ft. 99% 1991 7,196,681 6,341,635 798,362 109,358 Thomasville, NC University Center 12/89 56,180 sq. ft. 93% 1989 3,970,972 3,304,789 384,953 296,105 Greenville, NC Venice Plaza (3) 6/79 144,850 sq. ft. 99% 1971 & 2,909,417 1,175,390 403,478 283,556 Venice, FL 1979 Village at Northshore 12/94 144,373 sq. ft. 100% 1988 & 8,321,566 7,850,736 879,216 229,330 Slidell, LA 1993 Waterlick Plaza 10/89 98,694 sq. ft. 97% 1973 & 6,311,631 5,183,665 705,372 553,187 Lynchburg, VA 1988 Watson Central 12/92 & 227,747 sq. ft. 94% 1989 & 13,120,894 11,725,279 1,267,057 975,765 Warner Robins, GA 10/93 1993
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 12/31/97 Completed 12/31/97 12/31/97 1997 (1) 1997 (2) ----------- -------- ------------ -------- --------- ------------ ------------ ---------- ----------- SHOPPING CENTERS,continued Wesley Chapel Crossing 12/92 170,792 sq. ft. 100% 1989 $ 10,932,851 $ 10,034,497 $ 1,021,112 $ 839,855 Decatur, GA West Gate Plaza 6/74 & 64,378 sq. ft. 99% 1974 & 4,743,395 3,702,836 408,849 249,654 Mobile, AL 1/85 1995 West Towne Square 3/90 89,596 sq. ft. 96% 1988 6,026,201 4,887,987 520,872 361,481 Rome, GA Westgate Square 6/94 104,853 sq. ft. 95% 1984 & 9,223,899 8,599,714 1,022,777 836,717 Sunrise, FL 1988 Willowdaile Shopping Center 8/86 & 120,815 sq. ft. 98% 1986 8,586,624 6,487,741 1,081,000 869,103 Durham, NC 12/87 --------- ----------------------------------------------------- 8,446,780 sq. ft $ 532,118,384 472,739,193 49,935,953 32,708,357 ========= ----------------------------------------------------- INDUSTRIAL PROPERTIES Industrial Buildings 6/79 188,513 sq. ft. 73% 1956 & 3,630,605 884,356 335,122 231,365 Charlotte, NC 1963 Plasti-Kote 6/79 41,000 sq. ft. 100% 1961 & 482,939 81,390 122,700 122,700 Medina, OH --------- 1966 ----------------------------------------------------- 229,513 sq. ft. 4,113,544 965,746 457,822 354,065 ========= ----------------------------------------------------- $ 536,231,928 $473,704,939 $50,393,775 $33,062,422 =====================================================
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, 1997 or from the date of acquisition (if acquired in 1997) through December 31, 1997. 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 2002 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 2002. 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 12/31/97 Completed 12/31/97 1997 (1) 1997 (2) ----------- -------- ------------ -------- ---------- ---------- ---------- ----------- OFFICE The Old Phoenix National Bank (3) 12/84 73,074 sq. ft. 100% Various $2,093,527 $313,049 $275,021 Medina County, OH ====== ---------- -------- -------- SHOPPING CENTERS Wal-Mart Stores, Inc. (4) 6/85 54,223 sq. ft. 100% 1985 1,234,675 206,064 166,241 Mathews, LA Wal-Mart Stores, Inc. (4) 7/85 53,571 sq. ft. 100% 1985 1,376,093 175,350 131,014 Marble Falls, TX ------- ---------- -------- -------- 107,794 2,610,768 381,414 297,255 ======= ---------- -------- -------- $4,704,295 $694,463 $572,276 ========== ======== ========
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, 1997 or from the date of acquisition (if acquired in 1997) through December 31, 1997. 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 $48,564 was received during the fiscal year ended December 31, 1997. 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 one property is subordinate to a first mortgage loan to the lessee having a balance of $18,014 as of December 31, 1997.
Lease Cost to Property Property Date Land Area Year Expiration Company FFO Net Income Description Acquired In Acres Improvements Completed Date 12/31/97 1997 (1) 1997 (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, 1997 or from the date of acquisition (if acquired in 1997) through December 31, 1997. 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 12/31/97 Date Rate -------- ---- -------- ------------- ---------- -------- ------- Walton Plaza Shopping Center 1st Mortgage 5.53 43,460 sq. ft. $3,163,285 08/98 (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 5,028,728 09/01 (3) (3) Montgomery, AL Mortgage 183,980 09/01 (3) (3) Mill Creek Club Condominiums 1st Mortgage --- 4 units 25,753 2006- (4) 8.63% - Nashville, TN Participation 2007 12.38% Cypress Chase "A" Condominiums 1st Mortgage 2.00 recreational 119,946 05/09 (5) 10.00% Lauderdale Lakes, FL ---------- 9,521,692 Less interest discounts and negative goodwill (200,487) ---------- $9,321,205 ==========
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 $4,420,450 as of December 31, 1997. (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 a first mortgage having a balance of $610,142 as of December 31, 1997. See Table V. Mortgage Indebtedness for a summary of the terms of the first mortgages. The borrower under this wrap-around mortgage was in default of the terms of the mortgage, and the Company obtained title through foreclosure on February 18, 1998. (4) Principal outstanding December 31, 1997 represents the Company's 46.154% participation in the total loan outstanding of $55,798. (5) 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 12/31/97 Maturity Date Interest Rate Constant Payment ---------- -------- ------------- ------------- ---------------- Tarpon Heights $2,219,484 03/01/98 11.000% $262,180 (1) Galliano, LA Powers Ferry Plaza 1,250,000 01/31/99 (2) 9.000% 0 (2) Marietta, GA Pinhook Plaza Phase I 1,749,275 01/01/00 (3) 9.875% 250,320 Lafayette, LA Phase II 1,853,901 01/01/00 (3) 9.875% 258,504 Phase III 3,440,341 01/01/00 (3) 9.875% 396,072 Macland Pointe 3,693,039 02/01/00 (3) 7.750% 362,558 Marietta, GA Plaza Acadienne 2,228,454 07/01/00 (3) 10.250% 317,420 Eunice, LA Thomasville Commons 5,481,755 06/01/02 (3) 9.625% 583,303 Thomasville, NC Spanish Quarter Apartments 610,142 07/15/02 8.250% 162,360 Montgomery, AL Elmwood Oaks 7,500,000 06/01/05 8.375% 628,125 (1) Harahan, LA North Village Center 2,525,195 (4) 03/15/09 8.125% 343,171 North Myrtle Beach, SC Spalding Village 11,376,691 09/01/10 (3) 8.194% 932,206 (5) Griffin, GA Village at Northshore 5,417,992 07/01/13 (6) 9.000% 647,803 Slidell, LA Shoppes of Silverlakes 3,494,085 07/01/15 7.750% 364,500 Pembroke Pines, FL Grassland Crossing 6,709,066 12/01/16 (3) 7.865% 622,524 Alpharetta, GA ------------ ----------- 59,549,420 $ 6,131,046 =========== Interest Premium (7) 9,230 ------------ $ 59,558,650 ============
NOTES: (1) Interest only. Entire principal due at maturity. (2) Accrued and unpaid interest and $625,000 of the outstanding principal balance is due 1/31/98 and the remaining $625,000 of the outstanding principal balance and accrued and unpaid interest is due 1/31/99. (3) Balloon payment at maturity. (4) Although the Company is a partner or joint venturer in this investment, 100% of the mortgage note payable is recorded for financial reporting purposes. (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. 18 20 Rental Properties. On February 6, 1997, the Company acquired Grassland Crossing in Alpharetta, Georgia for a total cost of $9,907,000, consisting of the initial purchase price of $9,890,000 and approximately $17,000 of acquisition costs. This acquisition was funded by cash of $3,114,000 and the assumption of the $6,793,000 existing mortgage debt with an interest rate of 7.865% maturing December 1, 2016. This center contains approximately 91,000 square feet of retail space and is anchored by Kroger. On April 16, 1997, the Company acquired Market Place in Norcross, Georgia for $7,074,000 cash, consisting of the initial purchase price of $6,800,000, $250,000 of capital expenditures and approximately $24,000 of acquisition costs. This center contains approximately 74,000 square feet of retail space and is anchored by Regal Cinemas and CVS Drugs. On May 13, 1997, the Company acquired Powers Ferry Plaza in Marietta, Georgia for a total cost of $6,901,000, consisting of the initial purchase price of $6,800,000 and approximately $101,000 of acquisition costs. This acquisition was funded by cash of $5,651,000 and a $1,250,000 purchase-money mortgage with an annual interest rate of 9% maturing January 31, 1999. This center contains approximately 83,000 square feet of retail space and is anchored by Micro Center and CVS Drugs. On June 17, 1997, the Company acquired Fairview Oaks in Ellenwood, Georgia for $7,110,000 cash, consisting of the initial purchase price of $7,100,000 and approximately $10,000 of acquisition costs. This center contains approximately 77,000 square feet of retail space and is anchored by Kroger. On July 1, 1997, the Company acquired Greenwood Shopping Center in Palm Springs, Florida for $13,083,000 cash, consisting of the initial purchase price of $12,950,000 and approximately $133,000 of acquisition costs. This center contains approximately 134,000 square feet and is anchored by Publix and Walgreens. On August 18, 1997, the Company acquired Madison Centre in Huntsville, Alabama for $5,818,000 cash, consisting of the initial purchase price of $5,765,000 and approximately $53,000 of acquisition costs. This center contains approximately 65,000 square feet of retail space and is anchored by Publix and Rite Aid. On November 14, 1997, the Company acquired Shoppes of Silverlakes in Pembroke Pines, Florida for a total cost of 19 21 $16,869,000, consisting of the initial purchase price of $16,650,000 and approximately $219,000 of acquisition costs. This acquisition was funded by cash of $13,367,000 and the assumption of the $3,502,000 existing mortgage debt with an interest rate of 7.75%, maturing July 1, 2015. This center contains approximately 127,000 square feet of retail space and is anchored by Publix. On December 11, 1997, the Company acquired McAlpin Square in Savannah, Georgia for $6,078,000 cash, consisting of the initial purchase price of $5,700,000 and approximately $378,000 of acquisition costs. This center contains approximately 177,000 square feet of retail space and is anchored by Kroger and Wal-Mart. On December 18, 1997, the Company acquired Chastain Square in Atlanta, Georgia for $6,758,000 cash, consisting of the initial purchase price of $6,200,000, $500,000 of capital expenditures and approximately $58,000 of acquisition costs. This center contains approximately 74,000 square feet of retail space and is anchored by A & P. Investment in Joint Ventures. During 1997, IRTCC entered into a co-development agreement for the development of a Kroger anchored shopping center in Decatur, Georgia. The project will be developed in two phases totaling approximately 140,000 square feet, not including two outparcels, at a total anticipated cost of approximately $14,100,000. The venture may require the Company to purchase the shopping center upon the completion of Phase I at cost or upon the completion of Phase II at the greater of cost or a 10.75% capitalization rate. It is anticipated that the Company will ultimately acquire the project upon completion. 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. The Company had approximately $356,000 invested in this joint venture as of December 31, 1997. Mortgage Investments. During 1997, the purchase-money mortgage secured by Valley West Mall in Glendale, Arizona was prepaid. The Company received cash proceeds from this prepayment of approximately $3,587,000. The borrower under the wrap-around mortgage secured by Spanish Quarter Apartments was in default of the terms of the mortgage, and the Company obtained title through foreclosure on February 18, 1998. The net carrying value of this mortgage is approximately $4,478,000 as of December 31, 1997. 20 22 Mortgage Indebtedness. During 1997, the Company a) repaid at maturity a $3,800,000 mortgage bearing interest at 9.75%, b) repaid at maturity three mortgages aggregating $27,721,000 bearing interest at 7.6% and, c) repaid at maturity a $3,155,000 mortgage bearing interest at 9.375%. Item 3. Legal Proceedings. There are no material pending legal proceedings of which the Company is aware involving the Company, its subsidiaries 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 ---- --- 1997 First Quarter $12.13 $10.63 Second Quarter 12.00 10.63 Third Quarter 13.00 11.63 Fourth Quarter 12.94 11.13 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 25, 1998 -------------- ---------------------------- Shares of Common Stock 3,000 $1 Par Value
c) IRT Property Company paid quarterly cash dividends per share of common stock during the years 1997 and 1996 as follows:
Cash Dividends Paid -------------------- 1997 First Quarter $ .225 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 80 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 1997 1996 1995 1994 1993 ---- ---- ---- ---- ---- Gross revenues $ 67,117,835 $ 60,233,422 $ 60,196,247 $ 49,202,144 $ 45,062,911 ============= ============= ============= ============= ============= Earnings from operations $ 22,215,863 $ 15,602,112 $ 15,550,026 $ 12,788,923 $ 11,772,265 Gain (loss) on real estate investments 3,896,817 1,232,092 173,025 (3,825,418) 4,556,511 ------------- ------------- ------------- ------------- ------------- Earnings before extraordinary item 26,112,680 16,834,204 15,723,051 8,963,505 16,328,776 Extraordinary item: Gain (loss) on extinguishment of debt - (16,500) (137,260) 3,748,095 (1,440,478) ------------- ------------- ------------- ------------- ------------- Net earnings $ 26,112,680 $ 16,817,704 $ 15,585,791 $ 12,711,600 $ 14,888,298 ============= ============= ============= ============= ============= Per share (Basic and Diluted): Earnings before extraordinary item $ .82 $ .65 $ .61 $ .35 $ .72 Extraordinary item - - - .15 (.06) ------------- ------------- ------------- ------------- ------------- Net earnings $ .82 $ .65 $ .61 $ .50 $ .66 ============= ============= ============= ============= ============= Dividends paid $ .90 $ .90 $ .885 $ .84 $ .84 ============= ============= ============= ============= ============= Federal income tax status of dividends paid to shareholders: Ordinary income $ .73 $ .47 $ .635 $ .72 $ .39 Capital gain .08 - - .04 .45 Return of capital .09 .43 .250 .08 - ------------- ------------- ------------- ------------- ------------- $ .90 $ .90 $ .885 $ .84 $ .84 ============= ============= ============= ============= ============= Weighted average shares outstanding: Basic 31,867,743 25,749,860 25,590,129 25,349,303 22,457,131 ============= ============= ============= ============= ============= Diluted 31,921,212 25,754,941 25,595,130 25,351,936 22,477,652 ============= ============= ============= ============= ============= Total assets $ 498,152,798 $ 437,694,691 $ 427,398,018 $ 428,579,355 $ 402,319,125 ============= ============= ============= ============= ============= Indebtedness: Mortgage notes payable $ 59,558,650 $ 84,000,628 $ 99,188,181 $ 105,107,084 $ 98,878,505 7.30% convertible subordinated debentures 28,453,000 84,905,000 84,905,000 86,250,000 86,250,000 7.45% senior notes 49,945,790 49,929,110 - - - 7.25% senior notes 74,589,975 - - - - Indebtedness to banks 14,400,000 15,000,000 36,000,000 26,000,000 - ------------- ------------- ------------- ------------- ------------- $ 226,947,415 $ 233,834,738 $ 220,093,181 $ 217,357,084 $ 185,128,505 ============= ============= ============= ============= ============= Shareholders' equity $ 259,676,155 $ 193,354,922 $ 198,630,147 $ 203,038,464 $ 210,335,167 ============= ============= ============= ============= ============= Other Data: Funds from operations (1) $ 34,079,239 $ 26,388,787 $ 26,406,099 $ 21,342,209 $ 19,768,618 Assuming conversion of 7.30% debentures: (1) Funds from operations (1) $ 36,542,758 $ 32,952,612 $ 32,982,552 Weighted average shares 34,765,758 33,302,052 33,161,751 Net cash flows from (used in) - Operating activities $ 34,792,210 $ 27,751,020 $ 25,946,987 $ 22,511,731 $ 19,116,142 Investing activities $ (60,273,355) $ (15,659,704) $ (7,769,022) $ (99,052,456) $ (16,990,558) Financing activities $ 22,582,152 $ (8,933,374) $ (20,002,953) $ (247,587) $ 76,370,567
(1) The Company defines funds from operations, consistent with the NAREIT definition, 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 1997, 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 1997, the Company utilized funds of: a) $79,596,000 for the acquisition of nine shopping center investments, consisting of cash of approximately $68,051,000 and mortgage debt of approximately $11,545,000 secured by three of the centers, b) $54,799,000 to repurchase $54,799,000 of its 7.3% convertible subordinated debentures due August 15, 2003, consisting of cash of approximately $38,224,000 and the issuance of 1,500,000 shares of common stock, valued for the purposes of the exchange at $11.05 per share, and c) $34,676,000 to repay five mortgage notes payable at maturity. These transactions were funded with approximately $49,534,000 of cash proceeds from the issuance of 4,653,747 shares of its common stock at $11.25 per share, net cash proceeds of approximately $73,817,000 from the issuance of $75,000,000 of senior notes due August 15, 2007, cash proceeds of approximately $6,077,000 on sales of a shopping center investment and an apartment complex, cash proceeds of approximately $3,587,000 from the prepayment of a mortgage loan and internally generated funds. Additionally, during 1997, $1,653,000 of the Company's 7.3% convertible subordinated debentures were converted into 146,921 shares of common stock at $11.25 per share. 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 25 27 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. Changes in Results of Operations. During 1997, rental income from the Company's core portfolio of shopping center investments increased approximately $1,634,000. This increase includes approximately $525,000 of additional income earned from two property expansions completed during 1996 and is net of approximately $112,000 less income earned during 1997 due to one tenant bankruptcy during 1997. The increase in the Company's core portfolio income was offset by approximately $257,000 less income earned on one investment sold during the first quarter of 1996 and two investments sold during the fourth quarter of 1997 and was supplemented by approximately $5,913,000 of income earned from two shopping center investments acquired in August and November 1996 and nine shopping center investments acquired during 1997. 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 in August and November 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 percentage leased of the Company's shopping center investments increased from 92% in 1995 to 94% in 1996 and to 96% in 1997. Percentage rentals received from shopping center investments, excluding percentage rentals received from the Wal- 26 28 Mart investments classified as direct financing leases, totaled approximately $576,000 in 1995, $586,000 in 1996 and $649,000 in 1997. The decrease in interest income during 1997 was primarily due to approximately $62,000 less income earned on short-term money market investments and approximately $54,000 less income earned on the wrap-around mortgage secured by Spanish Quarter Apartments. The borrower under this mortgage is in default of the terms of the mortgage and the Company has initiated foreclosure proceedings. These decreases were partially offset by interest income earned on purchase-money mortgages taken back on the sales of two investments in December 1996. 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 on direct financing leases in 1997 was due to the sale of two Wal-Mart investments in December 1996. 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 $347,000, $44,000 and $49,000 during 1995, 1996 and 1997, respectively. Wal-Mart had ceased operations in three of the four Wal-Mart investments, from which the Company received approximately $305,000 of percentage rentals during 1995. Two of the three closed Wal-Marts were sold in December 1996. Wal-Mart remains liable under the lease which expires 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 $657,000 during 1997. This increase was offset by approximately $5,000 less expenses incurred on three investments sold during 1996 and 1997. Additionally, approximately $1,310,000 of operating expenses were incurred during 1997 by the two shopping center investments acquired in August and November 1996 and the nine shopping center investments acquired during 1997. 27 29 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 in August and November 1996. The net decrease in interest expense on mortgages in 1997 was primarily due to various mortgages repaid during 1996 and 1997, partially offset by the assumption of a $6,793,000 mortgage bearing interest at 7.865% upon the acquisition of Grassland Crossing in February 1997, the $1,250,000 purchase-money mortgage bearing interest at 9% taken upon the acquisition of Powers Ferry Plaza in May 1997 and the assumption of a $3,502,000 mortgage bearing interest at 7.75% upon the acquisition of Shoppes of Silverlakes in November 1997. During 1997, the Company a) repaid at maturity a $3,800,000 mortgage bearing interest at 9.75%, b) repaid at maturity three mortgages aggregating $27,721,000 bearing interest at 7.6% and, c) repaid at maturity a $3,155,000 mortgage bearing interest at 9.375%. 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 8.5% and (e) repaid at maturity a $3,850,000 mortgage bearing interest at 9.5%. Interest on debentures decreased in 1997 due to the repurchase of $54,799,000 of the debentures in January 1997 and the conversion of $1,653,000 of the debentures during 1997. Interest on 7.45% senior notes increased in 1997 due to the issuance in March 1996 of $50 million of 7.45% senior notes due April 2001. 28 30 The increase in interest on 7.25% senior notes in 1997 was due to the issuance in August 1997 of $75 million of 7.25% senior notes due August 2007. The Company had average borrowings under its revolving term loan of approximately $14,165,000, $11,750,000 and $33,507,000 during 1997, 1996 and 1995, respectively, which resulted in increased interest on bank debt during 1997 and decreased interest on bank debt during 1996. In addition, the Company incurred commitment fees of approximately $212,000, $221,000 and $21,000 during 1997, 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. 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 1.25%. See Note 10 to the consolidated financial statements for a description of the reduction in the Applicable Margin charged on LIBOR borrowings and the change in the commitment fee payable under the Company's unsecured revolving term loan effective July 1, 1997. The increase in depreciation expense in 1997 was primarily due to the eleven shopping center investments acquired during 1996 and 1997. Amortization of debt costs associated with the Company's convertible subordinated debentures decreased in 1997 due to the repurchase of $54,799,000 of these debentures in January 1997 and the conversion of $1,653,000 of these debentures during 1997. This decrease was partially offset by the amortization of costs associated with the issuance of $75 million of 7.25% senior notes in August 1997. The decrease in general and administrative expenses in 1997 was primarily due to decreases in employee benefit costs and an increase in overhead costs capitalized in connection with acquisitions. In addition, the Company has a policy of allocating management fees to operating expenses of real estate investments with a resultant offset in general and administrative expenses. The management and leasing of the eleven centers acquired during 29 31 1996 and 1997 is being accomplished without additions to the Company's personnel, and, as such, the management fee allocation for these acquisitions has resulted in a decrease in general and administrative expenses. The increase in general and administrative expenses in 1996 was 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 of costs incurred in due diligence on potential mergers and acquisitions which were not consummated during 1996. 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 1997, 1996 and 1995, the Company recognized gains on sales of properties of approximately $3,897,000, $1,232,000 and $173,000, respectively. During 1996, the Company prepaid a $2,727,000 mortgage and recognized an extraordinary loss of $16,500 on the early extinguishment of debt. Funds From Operations. The Company defines funds from operations, consistent with the NAREIT definition, 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 1997, 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 1997, 1996 and 1995:
1997 1996 1995 ---- ---- ---- Net earnings $26,112,680 $16,817,704 $15,585,791 Gain on real estate investments (3,896,817) (1,232,092) (173,025) Loss on extinguishment of debt -- 16,500 137,260 Depreciation 11,453,460 10,310,344 10,427,268 Amortization of capitalized leasing fees 288,152 249,292 230,642 Amortization of capitalized leasing income 121,764 227,039 198,163 ----------- ----------- ----------- Funds from operations 34,079,239 26,388,787 26,406,099 Interest on convertible debentures 2,325,020 6,198,065 6,210,062 Amortization of convertible debenture costs 138,499 365,760 366,391 ----------- ----------- ----------- Fully diluted funds from operations $36,542,758 $32,952,612 $32,982,552 =========== =========== =========== Applicable weighted average shares 34,765,758 33,302,052 33,161,751 =========== =========== ===========
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 1997, 1996 and 1995:
1997 1996 1995 ---- ---- ---- Tenant improvements: Shopping centers $ 974,024 $ 812,248 $ 812,919 Industrial 9,391 464,469 -- ---------- ---------- ---------- Total tenant improvements 983,415 1,276,717 812,919 ---------- ---------- ---------- Capital expenditures: Shopping centers 1,044,469 1,030,650 298,006 Apartment 97,338 537,616 89,075 Industrial 34,531 158,072 302 ---------- ---------- ---------- Total capital expenditures 1,176,338 1,726,338 387,383 ---------- ---------- ---------- Total improvements $2,159,753 $3,003,055 $1,200,302 ========== ========== ========== Leasing fees $ 268,122 $ 350,989 $ 382,042 ========== ========== ==========
Liquidity and Capital Resources. In 1997 and 1996, 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 32 34 subordinated debt. The Company intends to use the net proceeds of 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 $194 million of capital has been raised by the Company under this shelf registration, including $50 million of senior debt issued in March 1996, approximately $52 million in the issuance of 4,653,747 shares of common stock in a January 1997 public offering, approximately $17 million in the issuance of 1,500,000 shares of common stock in January 1997 in connection with the repurchase by the Company of $54,799,000 of its 7.3% convertible subordinated debentures and $75 million of senior debt issued in August 1997. 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 is being 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 these 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 $49,534,000. 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. On January 17, 1997, the Company completed the repurchase of $54,799,000 of its 7.3% convertible subordinated debentures due August 15, 2003 in a private transaction with a single debenture holder. The debentures were repurchased by the Company at par plus $1,689,000 of accrued interest. The seller had informed the Company that the seller had both $54,799,000 par value of the debentures and a short position of 1,500,000 shares in the Company's common stock. The consideration paid by the Company was comprised of 1,500,000 shares of common stock, valued for purposes of the exchange at $11.05 per share, and cash in the amount of $38,224,000. The debentures repurchased were canceled by the Company. Additionally, during 1997, $1,653,000 of the Company's 7.3% convertible subordinated debentures were converted into 146,921 shares of common stock at $11.25 per share. As of December 31, 1997 and 1996, $28,453,000 and $84,905,000, respectively, of the debentures were outstanding. 33 35 For additional information on the debentures, reference is made to Note 8 to the consolidated financial statements. On August 15, 1997, the Company issued $75,000,000 of 7.25% senior notes due August 15, 2007. The senior notes were issued at a discount of $426,000 which is being amortized over the life of the notes for financial reporting purposes. Net proceeds from the offering totaled approximately $73,817,000. For more information regarding the senior notes, reference is made to Note 9 to the consolidated financial statements. 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 and 1997 the Company extended the maturity date for two additional twelve-month periods to January 4, 2001. The interest rate is, at the option of the Company, either prime, fluctuating daily or LIBOR plus the "Applicable Margin" (currently 1.25%), 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, 1997 and 1996, the borrowings under this credit facility totaled $14,400,000 and $15,000,000, respectively. For additional information on this revolving term loan, reference is made to Note 10 to the consolidated financial statements. The Company's Dividend Reinvestment Plan allows shareholders to elect to reinvest all or a portion of their distributions in newly issued shares of common stock of the Company at 95% of the market price of the shares. During 1997, 1996 and 1995, the Company received net proceeds under this plan of $2,864,000, $1,024,000 and $1,107,000, respectively. For additional information on the Dividend Reinvestment Plan, reference is made to Note 14 to the consolidated financial statements. 34 36 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 additional information, see "Regulation" under Item 1 and Note 18 to the consolidated financial statements included as a part of this 35 37 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 December 1997, the Company adopted Statement of Accounting Standards No. 128 ("SFAS 128"), "Earnings Per Share." SFAS 128 establishes standards for computing and presenting earnings per share. This standard had no material impact on the earnings per share calculation. Reference is made to Note 13 to the consolidated financial statements for the required disclosures. Year 2000 Compliance. The Company has been assessing the possible effects of the Year 2000 computer problem in connection with its technology investments and operations, and management currently believes the Company has limited exposure and expects the cost of addressing all Year 2000 issues to be less than $20,000 in each of 1998 and 1999. As part of its assessment, Company management has been evaluating Year 2000 compliance by those with whom it does business and to date has not discovered any Year 2000 problem with significant counterparties that it believes are reasonably likely to have a material adverse effect upon the Company. However, no assurance can be given that potential Year 2000 problems at those with whom the Company does business will not occur, and if these occur, consequences to the Company will not be material. Many of the Company's technology systems have already been certified as Year 2000 compliant. 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, 1997 and 1996 39 Consolidated Statements of Earnings - For the Years Ended December 31, 1997, 1996 and 1995 40 Consolidated Statements of Changes in Shareholders' Equity - For the Years Ended December 31, 1997, 1996 and 1995 41 Consolidated Statements of Cash Flows - For the Years Ended December 31, 1997, 1996 and 1995 42 Notes to Consolidated Financial Statements - December 31, 1997, 1996 and 1995 44 Schedules: III Real Estate and Accumulated Depreciation 69 IV Mortgage Loans on Real Estate 82
37 39 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, 1997 and 1996, 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, 1997. 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, 1997 and 1996, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1997, 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, 1998 38 40 IRT PROPERTY COMPANY CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1997 AND 1996
1997 1996 ------------- -------------- ASSETS Real estate investments: Rental properties $ 537,160,220 $ 463,392,557 Accumulated depreciation (62,526,989) (56,881,888) ------------- ------------- 474,633,231 406,510,669 Net investment in direct financing leases 4,704,295 4,826,059 Investment in joint venture 355,832 355,832 Mortgage loans, net 9,321,205 13,182,520 ------------- ------------- Net real estate investments 489,014,563 424,875,080 Cash and cash equivalents 275,349 3,174,342 Accrued interest receivable 528,094 488,663 Prepaid expenses and other assets 8,334,792 9,156,606 ------------- ------------- $ 498,152,798 $ 437,694,691 ============= ============= LIABILITIES & SHAREHOLDERS' EQUITY Liabilities: Mortgage notes payable plus net interest premium of $9,230 in 1997 and $34,928 in 1996 $ 59,558,650 $ 84,000,628 7.30% convertible subordinated debentures due August 15, 2003 28,453,000 84,905,000 7.45% senior notes due April 1, 2001, net of interest discount of $54,210 in 1997 and $70,890 in 1996 49,945,790 49,929,110 7.25% senior notes due August 15, 2007, net of interest discount of $410,025 74,589,975 - Indebtedness to banks 14,400,000 15,000,000 Accrued interest on debentures 784,671 2,341,488 Accrued interest on senior notes 2,970,313 931,250 Accrued expenses and other liabilities 6,719,244 6,177,293 Deferred income taxes 1,055,000 1,055,000 ------------- ------------- Total liabilities 238,476,643 244,339,769 ------------- ------------- Commitments and Contingencies (Notes 17 and 18) Shareholders' Equity: Common stock, $1 par value, 75,000,000 shares authorized; 32,385,664 shares issued and outstanding in 1997 and 25,807,302 shares in 1996 32,385,664 25,807,302 Preferred stock, $1 par value, authorized 10,000,000 shares; none issued - - Additional paid-in capital 263,786,165 201,273,343 Cumulative distributions in excess of net earnings (36,495,674) (33,725,723) ------------- ------------- Total shareholders' equity 259,676,155 193,354,922 ------------- ------------- $ 498,152,798 $ 437,694,691 ============= =============
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, 1997, 1996 AND 1995
1997 1996 1995 ---- ---- ---- Revenues: Income from rental properties $65,215,479 $ 57,925,659 $ 58,008,386 Interest, including $170,552 in 1997 and $232,519 in 1996 on cash equivalents 1,330,080 1,388,733 899,454 Interest on direct financing leases 572,276 919,030 1,288,407 ----------- ------------ ------------ 67,117,835 60,233,422 60,196,247 ----------- ------------ ------------ Expenses: Operating expenses of rental properties 14,075,505 12,113,108 12,733,705 Interest on mortgages 6,249,412 7,750,389 9,150,400 Interest on debentures 2,325,020 6,198,065 6,210,062 Interest on 7.45% senior notes 3,741,680 2,798,433 - Interest on 7.25% senior notes 2,055,038 - - Interest on indebtedness to banks 1,216,204 1,003,331 2,211,980 Depreciation 11,453,460 10,310,344 10,427,268 Amortization of debt costs 422,606 595,604 445,907 General & administrative 3,363,047 3,862,036 3,466,899 ----------- ------------ ------------ 44,901,972 44,631,310 44,646,221 ----------- ------------ ------------ Earnings before gain on real estate investments and extraordinary item 22,215,863 15,602,112 15,550,026 Gain on real estate investments: Gain on sales of properties 3,896,817 1,232,092 173,025 ----------- ------------ ------------ Earnings before extraordinary item 26,112,680 16,834,204 15,723,051 Extraordinary item: Loss on extinguishment of debt - (16,500) (137,260) ----------- ------------ ------------ Net earnings $26,112,680 $ 16,817,704 $ 15,585,791 =========== ============ ============ Per Share (Note 13): Basic $ 0.82 $ 0.65 $ 0.61 =========== ============ ============ Diluted $ 0.82 $ 0.65 $ 0.61 =========== ============ ============ Weighted average number of shares outstanding: Basic 31,867,743 25,749,860 25,590,129 =========== ============ ============ Diluted 31,921,212 25,754,941 25,595,130 =========== ============ ============
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, 1997, 1996 AND 1995
Cumulative Additional Distributions Total Common Paid-In in Excess of Shareholders' Stock Capital Net Earnings Equity ----- ------- ------------ -------------- 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 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 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 Net Earnings - - 26,112,680 26,112,680 Cash dividends declared - $.90 per share - - (28,882,631) (28,882,631) Issuance of shares under Dividend Reinvestment Plan, net 259,991 2,603,840 - 2,863,831 Conversion of debentures, net 146,921 1,463,540 - 1,610,461 Exercise of stock options, net 17,703 87,548 - 105,251 Issuance of common stock, net 4,653,747 44,880,749 - 49,534,496 Issuance of shares for the acquisition of convertible debentures, net 1,500,000 13,477,145 - 14,977,145 ----------- ------------ ------------ ------------- Balance at December 31, 1997 $32,385,664 $263,786,165 $(36,495,674) $ 259,676,155 =========== ============ ============ =============
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, 1997, 1996 AND 1995
1997 1996 1995 ---- ---- ---- Cash flows from operating activities: Net earnings $ 26,112,680 $ 16,817,704 $ 15,585,791 Adjustments to reconcile earnings to net cash from operating activities: Depreciation 11,453,460 10,310,344 10,427,268 Gain on real estate investments (3,896,817) (1,232,092) (173,025) Extraordinary loss on extinguishment of debt - 16,500 137,260 Amortization of debt costs and discount 455,261 608,016 445,907 Amortization of capital leasing income 121,764 227,039 198,163 ------------ ------------ ------------ 34,246,348 26,747,511 26,621,364 Changes in accrued assets and liabilities: Decrease in accrued interest on debentures (1,556,817) - (37,095) Increase in accrued interest on senior notes 2,039,063 931,250 - Increase in interest receivable, prepaid expenses and other assets (478,335) (839,832) (1,187,639) Increase in accrued expenses and other liabilities 541,951 912,091 550,357 ------------ ------------ ------------ Net cash flows from operating activities 34,792,210 27,751,020 25,946,987 ------------ ------------ ------------ Cash flows from (used in) investing activities: Proceeds from sales of properties, net 6,076,520 5,658,531 1,310,531 Additions to real estate investments, net - Acquisitions, expansions and renovations (68,051,437) (18,076,038) (7,672,184) Improvements (2,159,753) (3,003,055) (1,200,302) Collections of mortgage loans, net 3,861,315 116,690 52,933 Additions to mortgage loans - - (260,000) Contributions to joint venture - (355,832) - ------------ ------------ ------------ Net cash flows used in investing activities (60,273,355) (15,659,704) (7,769,022) ------------ ------------ ------------ Cash flows from (used in) financing activities: Cash dividends paid, net (26,018,800) (22,142,109) (21,535,805) Issuance of common stock, net 49,534,496 - - Exercise of stock options 105,251 18,463 53,375 Principal amortization of mortgage notes payable, net (1,146,359) (1,238,802) (1,546,572) Repayment of mortgage notes payable, net (34,840,154) (13,948,751) (6,836,676) Increase (decrease) in bank indebtedness, net (600,000) (21,000,000) 10,000,000 Issuance of 7.45% senior notes, net - 49,394,325 - Issuance of 7.25% senior notes, net 73,817,209 - - Repurchase of 7.3% convertible subordinated debentures, net (38,269,338) - - Cash in lieu of fractional shares on conversion of debentures (153) - (15) Extraordinary loss on extinguishment of debt - (16,500) (137,260) ------------ ------------ ------------ Net cash flows from (used in) financing activities 22,582,152 (8,933,374) (20,002,953) ------------ ------------ ------------ Net increase (decrease) in cash and cash equivalents (2,898,993) 3,157,942 (1,824,988) Cash and cash equivalents at beginning of year 3,174,342 16,400 1,841,388 ------------ ------------ ------------ Cash and cash equivalents at end of year $ 275,349 $ 3,174,342 $ 16,400 ============ ============ ============
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, 1997, 1996 AND 1995
1997 1996 1995 ---- ---- ---- Supplemental disclosures of cash flow information: Cash paid during the period for interest related to: Mortgage notes payable $ 6,174,193 $ 7,868,231 $ 9,207,974 Convertible subordinated debentures 3,881,837 6,198,065 6,247,157 7.45% Senior notes, including $59,663 capitalized in 1996 3,725,000 1,997,736 - 7.25% Senior notes 426,000 - - Indebtedness to banks, including $2,853 capitalized in 1996 and $93,591 in 1995 1,310,758 1,013,961 2,449,034 ------------ ------------ ------------ Total cash paid during the year for interest $ 15,517,788 $ 17,077,993 $ 17,904,165 ============ ============ ============ Supplemental schedule of noncash investing and financing activities: Acquisitions, expansions and renovations: Cost of acquisitions, expansions and renovations $ 79,595,972 $ 18,106,755 $ 10,329,579 Additions to mortgage notes payable (11,544,535) - (2,464,345) Issuance of common stock - (30,717) (193,050) ------------ ------------ ------------ Cash paid for acquisitions, expansions and renovations of real estate investments $ 68,051,437 $ 18,076,038 $ 7,672,184 ============ ============ ============ Sales of Properties: Gross proceeds from sales of properties $ 6,076,520 $ 10,458,531 $ 1,310,531 Additions to mortgage loans - (4,800,000) - ------------ ------------ ------------ Cash proceeds from sales of properties, net $ 6,076,520 $ 5,658,531 $ 1,310,531 ============ ============ ============ Repurchase of convertible debentures: Convertible debentures repurchased $ 54,799,000 $ - $ - Issuance of common stock, net (16,529,662) - - ------------ ------------ ------------ Cash paid for repurchase of convertible debentures $ 38,269,338 $ - $ - ============ ============ ============ Issuance of common stock, net $ 16,529,662 $ - $ - Associated unamortized debenture costs (1,552,517) - - ------------ ------------ ------------ Net increase in shareholders' equity $ 14,977,145 $ - $ - ============ ============ ============ Conversion of debentures: Debentures converted $ 1,653,000 $ - $ 1,345,000 Associated unamortized debenture costs (42,386) - (49,713) Equity issued on conversion (1,610,461) - (1,295,272) ------------ ------------ ------------ Cash paid in lieu of fractional shares $ 153 $ - $ 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, 1997, 1996 and 1995 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, VW Mall, Inc. and IRT Alabama, 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 1997, IRT Alabama, Inc. ("IRTAL"), a wholly-owned subsidiary of the Company, was formed under the laws of Alabama. Upon its formation, IRTAL purchased Madison Centre in Huntsville, Alabama. See Note 3 for additional information regarding this acquisition. 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 96% of 44 46 the non-voting common stock and 1% of the voting common stock of IRTCC. The remaining voting common stock is currently held by a member of the Board of Directors and an executive officer 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. 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 and acquisitions when the contractual interest rates are less than prevailing market rates at the time of sale or acquisition. 45 47 Depreciation- The Company provides depreciation on buildings and other improvements on the straight-line basis over their estimated useful lives. Such lives are from 16 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 operations and the cost and related accumulated depreciation are removed from the asset and accumulated depreciation accounts. Valuation Loss- Effective January 1996, the Company adopted Statement of Financial Accounting Standards No. 121 ("SFAS 121"), "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." SFAS 121 establishes standards for determining when impairment losses on long-lived assets have occurred and how impairment losses should be measured. 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 46 48 consistent with the guidelines of Statement of Accounting Standards No. 128, "Earnings Per Share." 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 does not have a material dilutive effect on earnings per share. See Note 13 for the required disclosures. Reclassification of Prior Year Amounts- Certain items in the consolidated financial statements have been reclassified to conform with the 1997 presentation. Recent Accounting Pronouncements- Effective December 1997, the Company adopted Statement of Accounting Standards No. 128 ("SFAS 128"), "Earnings Per Share." SFAS 128 establishes standards for computing and presenting earnings per share. This standard had no material impact on the earnings per share calculation. See Note 13 for the required disclosures. 2. PUBLIC OFFERINGS: On January 14 and 22, 1997, the Company completed the offering of 4,653,747 shares of its common stock at $11.25 per share. The net proceeds from the offering totaled approximately $49,534,000. On August 15, 1997, the Company issued $75,000,000 of 7.25% senior notes due August 15, 2007. The senior notes were issued at a discount of $426,000 which is being amortized over the life of the notes for financial reporting purposes. Net proceeds from the issuance totaled approximately $73,817,000. For more information regarding these senior notes, see Note 9. 47 49 3. RENTAL PROPERTIES: Rental properties are comprised of the following:
December 31, --------------------------------- 1997 1996 ---- ---- Land covered by purchase- leaseback agreements $ 928,292 $ 928,292 Land related to buildings and improvements 118,374,360 97,319,967 Buildings & improvements 417,857,568 365,144,298 ------------ ------------ $537,160,220 $463,392,557 ============ ============
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 October 6, 1997, the Company sold Masonova Plaza in Daytona Beach, Florida for a total sales price of $1,000,000. The Company received net cash proceeds from this sale of approximately $912,000 and recognized a gain of approximately $524,000 for financial reporting purposes. On October 29, 1997, the Company sold Whitehall Kent Apartments in Kent, Ohio for a total sales price of $5,400,000. The Company received net cash proceeds from this sale of approximately $5,165,000 and recognized a gain of approximately $3,373,000 for financial reporting purposes. On February 6, 1997, the Company acquired Grassland Crossing in Alpharetta, Georgia for a total cost of $9,907,000, consisting of the initial purchase price of $9,890,000 and approximately $17,000 of acquisition costs. This acquisition was funded by cash of $3,114,000 and the assumption of the $6,793,000 existing mortgage debt with an interest rate of 7.865% maturing December 1, 2016. On April 16, 1997, the Company acquired Market Place in Norcross, Georgia for $7,074,000 cash, consisting of the initial purchase price of $6,800,000, $250,000 of capital expenditures and approximately $24,000 of acquisition costs. 48 50 On May 13, 1997, the Company acquired Powers Ferry Plaza in Marietta, Georgia for a total cost of $6,901,000, consisting of the initial purchase price of $6,800,000 and approximately $101,000 of acquisition costs. This acquisition was funded by cash of $5,651,000 and a $1,250,000 purchase- money mortgage with an annual interest rate of 9% maturing January 31, 1999. On June 17, 1997, the Company acquired Fairview Oaks in Ellenwood, Georgia for $7,110,000 cash, consisting of the initial purchase price of $7,100,000 and approximately $10,000 of acquisition costs. On July 1, 1997, the Company acquired Greenwood Shopping Center in Palm Springs, Florida for $13,083,000 cash, consisting of the initial purchase price of $12,950,000 and approximately $133,000 of acquisition costs. On August 18, 1997, the Company acquired Madison Centre in Huntsville, Alabama for $5,818,000 cash, consisting of the initial purchase price of $5,765,000 and approximately $53,000 of acquisition costs. On November 14, 1997, the Company acquired Shoppes of Silverlakes in Pembroke Pines, Florida for a total cost of $16,869,000, consisting of the initial purchase price of $16,650,000 and approximately $219,000 of acquisition costs. This acquisition was funded by cash of $13,367,000 and the assumption of the $3,502,000 existing mortgage debt with an interest rate of 7.75%, maturing July 1, 2015. On December 11, 1997, the Company acquired McAlpin Square in Savannah, Georgia for $6,078,000 cash, consisting of the initial purchase price of $5,700,000 and approximately $378,000 of acquisition costs. On December 18, 1997, the Company acquired Chastain Square in Atlanta, Georgia for $6,758,000 cash, consisting of the initial purchase price of $6,200,000, $500,000 of capital expenditures and approximately $58,000 of acquisition costs. At December 31, 1997, land covered by one purchase- leaseback agreement with a cost of $435,994 is subordinate to a first mortgage lien of approximately $18,000 which is on both land and improvements but is not an obligation of the 49 51 Company. In addition, the lessees of two of these 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 ---- ------ 1998 $ 57,610,000 1999 52,936,000 2000 46,854,000 2001 41,163,000 2002 35,653,000 Thereafter 245,672,000 ------------ $479,888,000 ============
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. As of December 31, 1997, 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 totaled $381,414 (including $48,564 of percentage rentals) in 1997. Rental income from these leases and the two facilities sold in December 1996 totaled $871,714 (including $43,789 of percentage rentals) in 1996 and $1,175,284 (including $347,359 of percentage rentals) in 1995. 50 52 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, $121,764, $227,039 and $198,163 were recorded as amortization of capitalized leasing income in 1997, 1996 and 1995, respectively. The Company is to receive minimum lease payments of $645,899 per year during 1998 through 2002 and a total of $5,899,285 thereafter through the remaining lease terms. The estimated residual values of the leased properties included in net investment in direct financing leases totaled $292,900 as of December 31, 1997 and 1996, 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. 51 53 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, 1997 and 1996, as follows:
1997 1996 ------------------------ ----------------------------- Number Amount Number Amount of Loans Outstanding of Loans Outstanding --------- ------------ -------- ------------ First mortgage 2 $ 3,283,231 3 $ 7,099,459 Mortgage participation 1 25,753 1 27,785 Wrap-around mortgage 1 5,212,708 1 5,297,165 Second mortgage 2 1,000,000 2 1,000,000 - ----------- - ------------ 6 9,521,692 7 13,424,409 Less-Interest discounts and negative goodwill - (200,487) - (241,889) - ----------- - ------------ Mortgage loans, net 6 $ 9,321,205 7 $ 13,182,520 = =========== = ============
During 1996, the Company took back a $3,800,000 purchase- money first mortgage on the sale of one shopping center investment in Glendale, Arizona. During 1997, this purchase- money mortgage was prepaid. The company received net cash proceeds from this prepayment of approximately $3,587,000. During 1996, the Company took back two purchase-money second mortgages totaling $1,000,000 on the sale of two net-leased retail facilities. See Note 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 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 was recorded related to the restructuring in accordance with SFAS No. 15. The borrower under this wrap-around mortgage is currently in default of the terms of the mortgage, and the Company has initiated foreclosure 52 54 proceedings. The net carrying value of this mortgage is approximately $4,478,000 as of December 31, 1997. See Note 20 for additional information regarding this mortgage loan. Annual principal payments applicable to mortgage loan investments in the next five years and thereafter are as follows:
Year Amount ---- ------ 1998 $9,225,021 1999 6,805 2000 7,719 2001 8,724 2002 9,828 Thereafter 63,108 ---------- $9,321,205 ==========
Based on current rates at which similar loans would be made, the estimated fair value of mortgage loans was approximately $9,394,000 and $13,698,000 at December 31, 1997 and 1996, respectively. 7. MORTGAGE NOTES PAYABLE: Mortgage notes payable are collateralized by various real estate investments having a net carrying value of approximately $100,463,000 as of December 31, 1997. These notes have stated interest rates ranging from 7.75% to 11.0% and are due in monthly installments with maturity dates ranging from 1998 to 2016. During 1997, the Company a) repaid at maturity a $3,800,000 mortgage bearing interest at 9.75%, b) repaid at maturity three mortgages aggregating $27,721,000 bearing interest at 7.6% and, c) repaid at maturity a $3,155,000 mortgage bearing interest at 9.375%. 53 55 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 ---- ------------ -------- ----- 1998 $1,080,982 $ 2,844,484 $ 3,925,466 1999 1,170,166 625,000 1,795,166 2000 924,366 12,079,779 13,004,145 2001 1,114,292 -- 1,114,292 2002 1,080,055 5,176,774 6,256,829 Thereafter 15,428,966 18,033,786 33,462,752 ----------- ----------- ----------- $20,798,827 $38,759,823 $59,558,650 =========== =========== ===========
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 $64,229,000 and $85,213,000 at December 31, 1997 and 1996, 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, $28,453,000 of which is outstanding as of December 31, 1997. 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. Costs associated with the issuance of the debentures were approximately $3,701,000 and are being amortized over the life of the debentures. 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. On January 17, 1997, the Company completed the repurchase of $54,799,000 of these debentures in a private transaction with a single debenture holder. The debentures were repurchased by the Company at par plus $1,689,000 of accrued interest. The seller had informed the Company that the seller had both $54,799,000 par value of the debentures and a short position 54 56 of 1,500,000 shares in the Company's common stock. The consideration paid by the Company was comprised of 1,500,000 shares of common stock, valued for purposes of the exchange at $11.05 per share, and cash in the amount of $38,224,000. Additional paid-in-capital was reduced by approximately $1,553,000 of unamortized issuance costs associated with the debentures repurchased and canceled and by approximately $45,000 of costs associated with the transaction. The repurchase of the debentures was transacted pursuant to a Purchase and Standstill Agreement under which the seller agreed to eliminate its short position in Company common stock, after which the seller did not own any Company securities. The seller further agreed not to take any position with respect to any Company securities or to attempt to influence Company policies or management in the future. During 1997, $1,653,000 of these debentures were converted into 146,921 shares of common stock at $11.25 per share. Based upon the conversion price, 2,529,156 authorized but unissued common shares have been reserved for possible issuance if the $28,453,000 debentures outstanding at December 31, 1997 are converted. Based on the closing market price at year end, the estimated fair value of the 7.3% debentures was approximately $29,307,000 and $84,905,000 at December 31, 1997 and 1996, respectively. 9. SENIOR NOTES: On March 26, 1996, the Company issued $50,000,000 of 7.45% senior notes due April 1, 2001. These senior notes were issued at a discount of $83,500 which is being amortized over the life of the notes for financial reporting purposes. Net proceeds from the issuance totaled approximately $49,394,000. Interest on the 7.45% senior notes is payable semi-annually on April 1 and October 1. Costs associated with the issuance of these senior notes totaled approximately $522,000 and are being amortized over the life of the notes. On August 15, 1997, the Company issued $75,000,000 of 7.25% senior notes due August 15, 2007. These senior notes were issued at a discount of $426,000 which is being amortized 55 57 over the life of the notes for financial reporting purposes. Net proceeds from the issuance totaled $73,817,000. Interest on the 7.25% senior notes is payable semi-annually on February 15 and August 15. Costs associated with the issuance of these senior notes totaled approximately $757,000 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 and 1997 the Company extended the maturity date for two additional twelve-month periods to January 4, 2001. 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" based upon the rating of the senior unsecured long-term debt obligations of the Company. Effective June 30, 1997, the Applicable Margin was reduced from a range of 1.3% to 1.5% to a range of .95% to 1.4%. 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 1.25%. 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 LIBOR prepayment. The Company pays a fee of 0.25% per annum of the aggregate unused portion of the commitment. Effective July 1, 1997, this fee was reduced to 0.15% per annum whenever the unused portion is less than fifty percent of the total commitment. 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, 1997, the Company may borrow the maximum commitment amount. 56 58 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 agreement in 1997 and 1996:
1997 1996 ---- ---- Unused at year-end $85,600,000 $85,000,000 Average borrowing for the period 14,165,000 11,750,000 Maximum amount outstanding during the period 64,700,000 48,000,000 Average interest rate for the period 7.09% 7.04% Interest rate at year-end 7.45% 7.06%
The Company incurred commitment fees of approximately $212,000 and $221,000 for the years ended December 31, 1997 and 1996, respectively, based on the aggregate unused portion of the commitment. 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 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 at December 31, 1997 and 1996. Should the Company elect to 57 59 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. The borrower under this wrap-around mortgage is in default of the terms of the mortgage, and the Company has initiated foreclosure proceedings. The net carrying value of this mortgage is approximately $4,478,000 as of December 31, 1997. See Note 20 for additional information regarding this mortgage loan. During 1997, the Company sold one shopping center investment and one apartment complex for gains totaling approximately $3,897,000. 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. 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. 58 60 13. EARNINGS PER SHARE:
Per-Share Income Shares Amount ------ ------ --------- For the year ended December 31, 1997 Basic Earnings Per Share Net Earnings available to shareholders $26,112,680 31,867,743 $0.82 ===== Options outstanding (See Note 15) - 53,469 ----------- ---------- Diluted Earnings per Share Net Earnings available to shareholders $26,112,680 31,921,212 $0.82 =========== ========== ===== For the year ended December 31, 1996 Basic Earnings Per Share Net Earnings available to shareholders $16,817,704 25,749,860 $0.65 ===== Options outstanding (See Note 15) - 5,081 ----------- ---------- Diluted Earnings per Share Net Earnings available to shareholders $16,817,704 25,754,941 $0.65 =========== ========== ===== For the year ended December 31, 1995 Basic Earnings Per Share Net Earnings available to shareholders $15,585,791 25,590,129 $0.61 ===== Options outstanding (See Note 15) - 5,001 ----------- ---------- Diluted Earnings per Share Net Earnings available to shareholders $15,585,791 25,595,130 $0.61 =========== ========== =====
Basic earnings per share were computed by dividing net earnings by the weighted average number of shares of common stock outstanding during the year. The effect on basic earnings per share assuming conversion of the 7.3% convertible subordinated debentures would be anti-dilutive. Dilution for options issued to executives and directors for the years ended 59 61 December 31, 1997, 1996 and 1995 were determined using the treasury stock method. Options issued to executives and directors with option prices less than the average share price for the respective year were considered dilutive. The Company adopted SFAS No. 128, "Earnings Per Share", effective December 15, 1997. The effect of this accounting change on previously reported earnings per share (EPS) data was as follows:
Per Share Amounts 1996 1995 ---- ---- Primary EPS as reported $0.65 $0.61 Effect of SFAS No. 128 - - ----- ----- Basic EPS as restated $0.65 $0.61 ===== =====
The impact of extraordinary items on earnings per share is not material. 14. CASH DISTRIBUTIONS AND DIVIDEND REINVESTMENT PLAN: The taxability of per share distributions paid to shareholders during the years ended December 31, 1997, 1996 and 1995 was as follows:
1997 1996 1995 ----- ---- ----- Ordinary income $ .73 $ .47 $.635 Capital gains .08 - - Return of capital .09 .43 .250 ----- ----- ----- $ .90 90 $.885 ===== ===== =====
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 common stock 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 1997, 1996 and 1995, shares issued under the Plan totaled 260,000, 60 62 113,000 and 122,000, respectively, and dividends totaling $2,864,000, $1,024,000, and $1,107,000, respectively, were reinvested to purchase these shares. 15. 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 SFAS 123, the Company's net income and earnings per share would have been reduced to the following pro forma amounts:
1997 1996 ---- ---- Net Earnings: As Reported $26,112,680 $16,817,704 Pro Forma $26,006,756 $16,749,336 EPS (Basic and Diluted): As Reported $ 0.82 $ 0.65 Pro Forma $ 0.82 $ 0.65
Because the SFAS 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. 61 63 The weighted average fair value of options granted is $1.11 and $0.72 for 1997 and 1996, 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 1997 and 1996, respectively: risk-free interest rates of 6.28% and 5.38% for qualified employee options, 6.50% and 6.66% for director options; expected dividend yields of 7.91% and 9.62% for qualified employee options, 7.74% and 9.47% for director options; expected lives of 5 years; expected volatility of 20%. 62 64 Details of the stock option activity during 1997, 1996 and 1995 are as follows:
Number of Shares ---------------- Option Price Employees Directors Per Share --------- --------- -------------- 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 Granted, 1997 90,000 - $ 11.375 Granted, 1997 - 5,000 $ 11.625 Exercised, 1997 (44,200) - $ 9.25-$10.75 Exercised, 1997 - (6,250) $ 9.50-$10.25 Expired unexercised, 1997 (60,000) - $ 9.25-$15.10 -------- ------- Options outstanding, December 31, 1997 382,993 60,000 $ 7.63-$14.90 ======== =======
There are currently ISOs outstanding on 470,418 shares (including 8,750 shares granted under the Prior Plan), non-qualified options outstanding on 110,000 shares, and 403,000 unoptioned shares remaining in the 1989 Plan after the granting of ISOs for 144,300 additional shares at $11.6875 per share on January 7, 1998 and the expiration of options on 6,875 shares at $12.60 per share on January 3, 1998. All outstanding options are fully exercisable. 63 65 16. 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 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 $131,000 and $56,000 to the 401(k) Plan in 1997 and 1996, respectively. The Company accrued approximately $179,000 and $200,000 under the Cash in Lieu of Pension program in 1996 and 1995, respectively. The Company's Chairman was provided with an employment contract during 1980. This contract provides for deferred compensation amounts which commenced upon the employee's retirement in July 1997. The Company accrued approximately $23,000 for this contract in each of 1996 and 1995 and paid approximately $15,000 in 1997. 17. COMMITMENTS AND CONTINGENCIES: IRTCC has entered into a co-development agreement for the development of a Kroger anchored shopping center in Decatur, Georgia. The project will be developed in two phases totaling approximately 140,000 square feet, not including two outparcels, at a total anticipated cost of approximately $14,100,000. The venture may require the Company to purchase the shopping center upon the completion of Phase I at cost or upon the completion of Phase II at the greater of cost or a 10.75% capitalization rate. It is anticipated that the Company will ultimately acquire the project upon completion. Effective July 1, 1997, the Company entered into a consulting agreement with the Chairman for the period July 1, 1997 through June 30, 1998. In consideration for such consulting work, the Chairman will receive $168,000. 64 66 As of November 11, 1997, the Company entered into an Amended and Restated Employment Agreement with its President and Chief Executive Officer. This Employment Agreement provides for an initial annual salary of $306,000 with annual reviews and permits participation in all other incentive, benefit, welfare and retirement plans offered by the Company. It is automatically renewable each year unless sooner terminated. Following a "Change In Control" as defined therein, the President may, for good reason, terminate his employment and receive the sum of 2.99 times the executive's annual base salary and 2.99 times his most recent bonus. Following a Change in Control and termination of employment, the Company will continue to provide benefits to the executive consistent with what he received prior to such termination. As of November 11, 1997, the Company also entered into Change In Control Employment Agreements with its three Executive Vice Presidents. These are generally similar to the Change In Control provisions contained in the President's Employment Agreement. However, the Executive Vice President and CFO's agreement provides for payment of two times the sum of the executive's base salary and the most recent annual bonus in the event of a Change in Control and termination of employment. The provisions of the other Executive Vice Presidents' agreements provide for payments of the sum of one year's salary and bonus in the event of a Change In Control and termination of employment. Benefits are payable for two years in the case of the Executive Vice President and CFO and one year in the case of each of the other two Executive Vice Presidents. The Company has entered into a contract to purchase a shopping center investment for a purchase price of approximately $6.1 million. The purchase of this center is contingent on the fulfillment of certain requirements by the seller. 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 USTs in December 1993, and on March 2, 1994, DEHNR notified 65 67 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, the Company's environmental consultant discovered 66 68 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 EVENT: On January 13, 1998, the Company acquired Town and Country Shopping Center in Kissimmee, Florida for a total cost of $4,261,000, consisting of the initial purchase price of $4,200,000 and approximately $61,000 of acquisition costs. This acquisition was funded by cash of $2,029,000 and the assumption of the $2,232,000 existing mortgage debt with an interest rate of 7.65% maturing December 1, 2002. 20. EVENT (UNAUDITED) SUBSEQUENT TO DATE OF AUDITOR'S REPORT: On February 18, 1998, the Company obtained title to Spanish Quarter Apartments through foreclosure. At the time of the foreclosure, management believes that the market value of the property equals or exceeds the net carrying value of the wrap-around mortgage as of December 31, 1997. 67 69 21. QUARTERLY FINANCIAL INFORMATION (UNAUDITED): The following is a summary of the unaudited quarterly financial information for the years ended December 31, 1997 and 1996.
1997 ----------------------------------------------------------------------- First Second Third Fourth Quarter Quarter Quarter Quarter ----------- ----------- ----------- ----------- Revenues $16,032,212 $16,543,840 $17,188,894 $17,352,889 =========== =========== =========== =========== Earnings before gain on real estate investments and extraordinary item $ 5,458,274 $ 5,658,714 $ 5,483,826 $ 5,615,049 Gain on real estate investments - - - 3,896,817 ----------- ----------- ----------- ----------- Earnings before extraordinary item 5,458,274 5,658,714 5,483,826 9,511,866 Extraordinary item - - - - ----------- ----------- ----------- ----------- Net earnings $ 5,458,274 $ 5,658,714 $ 5,483,826 $ 9,511,866 =========== =========== =========== =========== Per Share: Basic $ .18 $ .17 $ .17 $ .29 =========== =========== =========== =========== Diluted $ .18 $ .17 $ .17 $ .29 =========== ============ =========== =========== 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: Basic $ .16 $ .15 $ .16 $ .18 =========== ============ =========== =========== Diluted $ .16 $ .15 $ .16 $ .18 =========== ============ =========== ===========
68 70 IRT PROPERTY COMPANY SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION December 31, 1997
Estimated Costs Gross Amount Accumulated Useful Initial Capitalized at Which Depreciation Life of Cost to Subsequent to Carried at at Close Buildings Description Encumbrances Company Acquisition Close of Year of Year (Years) ----------- ------------ ------- ----------- ------------- ----------- ------- Abbeville Plaza Abbeville, SC Land $ - $ 48,066 $ - $ 48,066 $ - 21 Buildings 458,062 55,722 513,784 264,547 Alafaya Commons Orlando, FL Land - 5,525,976 - 5,525,976 - 40 Buildings 4,723,994 22,607 4,746,601 127,942 Ambassador Row Lafayette, LA Land - 2,451,860 - 2,451,860 - 40 Buildings 7,244,580 252,205 7,496,785 594,319 Ambassador Row Courtyard Lafayette, LA Land - 2,899,438 - 2,899,438 - 40 Buildings 8,698,313 145,101 8,843,414 669,544 Asheville Plaza Asheville, NC Land - 52,710 15,000 67,710 - 30 Buildings 335,717 1,860 337,577 132,960 Bluebonnet Village Baton Rouge, LA Land - 2,540,594 (4,802) 2,535,792 - 40 Buildings 5,509,995 74,777 5,584,772 427,657 The Boulevard Lafayette, LA Land - 948,334 - 948,334 - 40 Buildings 2,845,003 24,934 2,869,937 220,135 Carolina Place Hartsville, SC Land - 345,000 - 345,000 - 40 Buildings 2,006,494 - 2,006,494 429,060 Date Year Description Acquired Completed ----------- ---------- ----------- Abbeville Plaza Abbeville, SC Land April, 1986 1970 Buildings Alafaya Commons Orlando, FL Land November, 1996 1987 Buildings Ambassador Row Lafayette, LA Land December, 1994 1980 & Buildings 1991 Ambassador Row Courtyard Lafayette, LA Land December, 1994 1986 & Buildings 1991 Asheville Plaza Asheville, NC Land April, 1986 1967 Buildings Bluebonnet Village Baton Rouge, LA Land December, 1994 1983 Buildings The Boulevard Lafayette, LA Land December, 1994 1976 & Buildings 1994 Carolina Place Hartsville, SC Land May, 1989 1989 Buildings
69 71 IRT PROPERTY COMPANY SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION December 31, 1997
Estimated Costs Gross Amount Accumulated Useful Initial Capitalized at Which Depreciation Life of Cost to Subsequent to Carried at at Close Buildings Description Encumbrances Company Acquisition Close of Year of Year (Years) ----------- ------------ ------- ----------- ------------- ----------- ------- Centre Pointe Plaza Smithfield, NC Land $ - $ 983,612 $ 12,583 $ 996,195 $ - 40 Buildings 8,002,885 261,768 8,264,653 1,035,551 Chadwick Square Hendersonville, NC Land - 276,778 - 276,778 - 40 Buildings 1,179,949 16,100 1,196,049 174,518 Chastain Square Atlanta, GA Land - 1,689,421 - 1,689,421 - 40 Buildings 5,068,263 - 5,068,263 4,152 Chelsea Place New Port Richey, FL Land - 1,387,517 - 1,387,517 - 40 Buildings 5,550,068 5,000 5,555,068 619,454 Chester Plaza Chester, SC Land - 68,649 143,504 212,153 - 16 Buildings 414,117 1,573,701 1,987,818 630,807 Chestnut Square Brevard, NC Land - 295,984 - 295,984 - 40 Buildings 1,113,464 22,659 1,136,123 173,148 Colony Square Fitzgerald, GA Land - 272,833 - 272,833 - 40 Buildings 2,455,826 207,771 2,663,597 774,227 Commerce Crossing Commerce, GA Land - 379,648 889 380,537 - 40 Buildings 4,089,737 31,669 4,121,406 517,999 Date Year Description Acquired Completed ----------- -------- --------- Centre Pointe Plaza Smithfield, NC Land December, 1992 & 1989 & Buildings December, 1993 1993 Chadwick Square Hendersonville, NC Land January, 1992 1985 Buildings Chastain Square Atlanta, GA Land December, 1997 1981 Buildings Chelsea Place New Port Richey, FL Land July, 1993 1992 Buildings Chester Plaza Chester, SC Land April, 1986 & 1967 & Buildings February, 1992 1992 Chestnut Square Brevard, NC Land Buildings January, 1992 1985 Colony Square Fitzgerald, GA Land Buildings February, 1988 1987 Commerce Crossing Commerce, GA Land Buildings December, 1992 1988
70 72 IRT PROPERTY COMPANY SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION December 31, 1997
Costs Gross Amount Accumulated Useful Initial Capitalized at Which Depreciation Life of Cost to Subsequent to Carried at at Close Buildings Description Encumbrances Company Acquisition Close of Year of Year (Years) ----------- ------------ ------- ----------- ------------- ----------- ------- Country Club Plaza Slidell, LA Land $ - $ 1,068,686 $ $ 1,068,686 $ - 40 Buildings 3,010,039 138,332 3,148,371 247,134 Countryside Shops Cooper City, FL Land - 5,675,614 - 5,675,614 - 40 Buildings 10,954,065 126,930 11,080,995 989,373 The Crossing Slidell, LA Land - 1,282,036 - 1,282,036 - 40 Buildings 3,213,616 109,164 3,322,780 267,545 Delchamps Plaza Pascagoula, MS Land - 359,000 - 359,000 - 40 Buildings 4,130,247 77,199 4,207,446 1,019,974 Douglas Commons Douglasville, GA Land - 2,543,385 2,951 2,546,336 - 40 Buildings 5,958,475 136,787 6,095,262 858,179 Eden Centre Eden, NC Land - 625,901 - 625,901 - 40 Buildings 2,901,316 - 2,901,316 229,687 Elmwood Oaks Harahan, LA Land 7,500,000 4,558,654 - 4,558,654 - 40 Buildings 6,560,014 60,537 6,620,551 988,535 Fariview Oaks Ellenwood, GA Land - 713,978 - 713,978 - 40 Buildings 6,396,016 - 6,396,016 86,591 Date Year Description Acquired Completed ----------- ---------- ----------- Country Club Plaza Slidell, LA Land January, 1995 1982 Buildings Countryside Shops Cooper City, FL Land June, 1994 1986, 1988 Buildings & 1991 The Crossing Slidell, LA Land December, 1994 1988 & Buildings 1993 Delchamps Plaza Pascagoula, MS Land April, 1988 1987 Buildings Douglas Commons Douglasville, GA Land August, 1992 1988 Buildings Eden Centre Eden, NC Land November, 1994 1991 Buildings Elmwood Oaks Harahan, LA Land January, 1992 1989 Buildings Fariview Oaks Ellenwood, GA Land June, 1997 1997 Buildings
71 73 IRT PROPERTY COMPANY SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION December 31, 1997
Estimated Costs Gross Amount Accumulated Useful Initial Capitalized at Which Depreciation Life of Cost to Subsequent to Carried at at Close Buildings Description Encumbrances Company Acquisition Close of Year of Year (Years) ----------- ------------ ---------- ------------- -------------- ------------ ---------- First Street Station Albemarle, NC Land $ -- $ 202,578 $ -- $ 202,578 $ -- 40 Buildings 2,832,092 30,770 2,862,862 239,441 Forest Hills Centre Wilson, NC Land -- 869,981 (9,160) 860,821 -- 40 Buildings 4,120,606 552,594 4,673,200 779,660 Forrest Gallery Tullahoma, TN Land -- 2,137,692 10,639 2,148,331 -- 40 Buildings 9,977,044 348,091 10,325,135 1,352,707 Ft. Walton Beach Plaza Ft. Walton Beach, FL Land -- 787,583 -- 787,583 -- 30 Buildings 1,860,360 28,774 1,889,134 722,478 The Galleria Wrightsville Beach, NC Land -- 1,069,672 -- 1,069,672 -- 40 Buildings 6,138,818 1,315,011 7,453,829 1,758,240 Grassland Crossing Alpharetta, GA Land 6,709,066 1,075,000 -- 1,075,000 -- 40 Buildings 8,831,655 -- 8,831,655 202,323 Greenwood Shopping Center Palm Springs, FL Land -- 4,129,000 -- 4,129,000 -- 40 Buildings 8,953,855 6,215 8,960,070 110,971 Gulf Gate Plaza Naples, FL Land -- 277,562 -- 277,562 -- 28 Buildings 1,857,532 2,364,243 4,221,775 2,752,782
Date Year Acquired Completed ----------- ----------- First Street Station Albemarle, NC Land August, 1994 1989 Buildings Forest Hills Centre Wilson, NC Land August, 1990 1990 & Buildings 1995 Forrest Gallery Tullahoma, TN Land December, 1992 1987 Buildings Ft. Walton Beach Plaza Ft. Walton Beach, FL Land July, 1986 1986 Buildings The Galleria Wrightsville Beach, NC Land August, 1986 & 1986, 1990 Buildings December, 1987 &1996 Grassland Crossing Alpharetta, GA Land February, 1997 1996 Buildings Greenwood Shopping Center Palm Springs, FL Land July, 1997 1982 & Buildings 1994 Gulf Gate Plaza Naples, FL Land June, 1979 1969 & Buildings 1974
72 74 IRT PROPERTY COMPANY SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION December 31, 1997
Estimated Costs Gross Amount Accumulated Useful Initial Capitalized at Which Depreciation Life of Cost to Subsequent to Carried at at Close Buildings Description Encumbrances Company Acquisition Close of Year of Year (Years) ----------- ------------ ---------- ----------- ------------- ----------- ------- Harris Teeter Lexington, VA Land $ - $ 312,105 $ - $ 312,105 $ - 30 Buildings 1,638,552 650,000 2,288,552 715,820 Heritage Walk Milledgeville, GA Land - 810,292 - 810,292 - 40 Buildings 7,944,260 3,200 7,947,460 909,830 Hoffner Plaza Orlando, FL Land - 337,182 77,728 414,910 - 28 Buildings 146,554 - 146,554 119,244 Lancaster Plaza Lancaster, SC Land - 120,790 - 120,790 - 30 Buildings 743,852 571,663 1,315,515 509,025 Lancaster Shopping Center Lancaster, SC Land - 338,355 - 338,355 - 30 Buildings 1,227,552 29,760 1,257,312 435,211 Lawrence Commons Lawrenceburg, TN Land - 815,653 829 816,482 - 40 Buildings 2,728,692 40,334 2,769,026 380,414 Litchfield Landing North Litchfield, SC Land - 475,000 - 475,000 - 40 Buildings 2,118,429 39,256 2,157,685 630,851 Macland Pointe Marietta, GA Land 3,693,039 1,252,098 (5,875) 1,246,223 - 40 Buildings 4,317,234 577,220 4,894,454 603,075 Date Year Description Acquired Completed ----------- ------------ --------- Harris Teeter Lexington, VA Land June, 1988 & 1981 & Buildings June, 1989 1989 Heritage Walk Milledgeville, GA Land June,1993 1991 & Buildings 1992 Hoffner Plaza Orlando, FL Land June, 1979 1972 Buildings Lancaster Plaza Lancaster, SC Land April, 1986 1971 Buildings Lancaster Shopping Center Lancaster, SC Land August, 1986 & 1963 & Buildings December, 1987 1987 Lawrence Commons Lawrenceburg, TN Land August, 1992 1987 Buildings Litchfield Landing North Litchfield, SC Land August, 1986 1984 Buildings Macland Pointe Marietta, GA Land January, 1993 1992 & Buildings 1993
73 75 IRT PROPERTY COMPANY SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION December 31, 1997
Estimated Costs Gross Amount Accumulated Useful Initial Capitalized at Which Depreciation Life of Cost to Subsequent to Carried at at Close Buildings Description Encumbrances Company Acquisition Close of Year of Year (Years) ----------- ------------- ---------- ------------- -------------- ------------ --------- Madison Centre Huntsville, AL Land $ -- $2,772,000 $ -- $ 2,772,000 $ -- 40 Buildings 3,046,308 -- 3,046,308 28,606 Market Place Norcross, GA Land -- 3,819,704 -- 3,819,704 -- 40 Buildings 3,253,822 -- 3,253,822 57,564 McAlpin Square Savannah, GA Land -- 1,519,509 -- 1,519,509 -- 40 Buildings 4,558,527 -- 4,558,527 4,703 Millervillage Shopping Center Baton Rouge, LA Land -- 1,926,535 -- 1,926,535 -- 40 Buildings 5,661,992 77,658 5,739,650 444,307 New Smyrna Beach Regional New Smyrna Beach, FL Land -- 3,704,368 6,757 3,711,125 -- 40 Buildings 6,400,556 322,552 6,723,108 987,635 North River Village Ellenton, FL Land -- 2,949,031 -- 2,949,031 -- 40 Buildings 7,161,093 96,271 7,257,364 820,918 North Village Center North Myrtle Beach, SC Land 2,525,195 483,400 -- 483,400 -- 37 Buildings 2,785,154 10,479 2,795,633 761,632 Old Kings Commons Palm Coast, FL Land -- 1,491,458 -- 1,491,458 -- 40 Buildings 4,474,372 164,743 4,639,115 1,170,725
Date Year Acquired Completed ----------- ----------- Madison Centre Huntsville, AL Land August, 1997 1997 Buildings Market Place Norcross, GA Land April, 1997 1976 Buildings McAlpin Square Savannah, GA Land December, 1997 1979 Buildings Millervillage Shopping Center Baton Rouge, LA Land December, 1994 1983 & Buildings 1992 New Smyrna Beach Regional New Smyrna Beach, FL Land August, 1992 1987 Buildings North River Village Ellenton, FL Land December, 1992 & 1988 & Buildings December, 1993 1993 North Village Center North Myrtle Beach, SC Land August, 1986 1984 Buildings Old Kings Commons Palm Coast, FL Land May, 1988 1988 Buildings
74 76 IRT PROPERTY COMPANY SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION December 31, 1997
Estimated Costs Gross Amount Accumulated Useful Initial Capitalized at Which Depreciation Life of Cost to Subsequent to Carried at at Close Buildings Description Encumbrances Company Acquisition Close of Year of Year (Years) ----------- ------------ ------- ----------- ------------- ----------- ------- Palm Gardens Largo, FL Land $ - $ 98,279 $ - $ 98,279 $ - 26 Buildings 657,716 1,274,417 1,932,133 1,020,507 Parkmore Plaza Milton, FL Land - 1,799,419 8,141 1,807,560 - 40 Buildings 6,454,261 132,638 6,586,899 831,582 Paulding Commons Dallas, GA Land - 2,312,372 2,687 2,315,059 - 40 Buildings 10,606,781 137,827 10,744,608 1,451,319 Pensacola Plaza Pensacola, FL Land - 130,688 - 130,688 - 30 Buildings 2,392,249 156,001 2,548,250 1,013,651 Pinhook Plaza Lafayette, LA Land 7,043,517 2,768,151 - 2,768,151 - 40 Buildings 8,304,453 55,253 8,359,706 634,998 Plaza Acadienne Eunice, LA Land 2,228,454 - - - - 40 Buildings 2,917,925 55,824 2,973,749 224,794 Plaza North Hendersonville, NC Land - 657,797 121 657,918 - 40 Buildings 1,795,992 6,185 1,802,177 245,212 Powers Ferry Plaza Marietta, GA Land 1,250,000 1,725,213 - 1,725,213 - 40 Buildings 5,175,637 - 5,175,637 80,205 Date Year Description Acquired Completed ----------- ---------- ----------- Palm Gardens Largo, FL Land June, 1979 1970 & Buildings 1993 Parkmore Plaza Milton, FL Land December, 1992 1986 & Buildings 1992 Paulding Commons Dallas, GA Land August, 1992 1991 Buildings Pensacola Plaza Pensacola, FL Land July, 1986 1985 Buildings Pinhook Plaza Lafayette, LA Land December, 1994 1979 & Buildings 1992 Plaza Acadienne Eunice, LA Land December, 1994 1980 Buildings Plaza North Hendersonville, NC Land August, 1992 1986 Buildings Powers Ferry Plaza Marietta, GA Land May, 1997 1979 & Buildings 1983
75 77 IRT PROPERTY COMPANY SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION December 31, 1997
Estimated Costs Gross Amount Accumulated Useful Initial Capitalized at Which Depreciation Life of Cost to Subsequent to Carried at at Close Buildings Description Encumbrances Company Acquisition Close of Year of Year (Years) ----------- ------------ ----------- ----------- ------------- ----------- ------- Providence Square Charlotte, NC Land $ - $ 450,000 $ 300 $ 450,300 $ - 35 Buildings 1,895,606 2,166,071 4,061,677 2,731,492 Riverview Shopping Center Durham, NC Land - 400,000 322 400,322 - 35 Buildings 1,822,918 4,358,230 6,181,148 2,144,586 Salisbury Marketplace Salisbury, NC Land - 733,599 - 733,599 - 40 Buildings 3,877,552 - 3,877,552 129,248 Scottsville Square Bowling Green, KY Land - 653,010 765 653,775 - 20 Buildings 1,782,340 17,678 1,800,018 306,372 Seven Hills Spring Hill, FL Land - 1,903,090 - 1,903,090 - 40 Buildings 2,976,628 34,502 3,011,130 342,929 Shelby Plaza Shelby, NC Land - - - - - 21 Buildings 937,483 408,222 1,345,705 564,704 Sherwood South Baton Rouge, LA Land - 496,174 - 496,174 - 40 Buildings 1,488,521 50,568 1,539,089 121,481 Shoppes of Silverlakes Pembroke Pines, FL Land 3,494,085 4,042,613 - 4,042,613 - 40 Buildings 12,826,128 - 12,826,128 40,059 Date Year Description Acquired Completed ----------- -------------- --------- Providence Square Charlotte, NC Land December, 1971 1973 Buildings Riverview Shopping Center Durham, NC Land March, 1972 1973 & Buildings 1994 Salisbury Marketplace Salisbury, NC Land August, 1996 1987 Buildings Scottsville Square Bowling Green, KY Land August, 1992 1986 Buildings Seven Hills Spring Hill, FL Land July, 1993 1991 Buildings Shelby Plaza Shelby, NC Land April, 1986 1972 Buildings Sherwood South Baton Rouge, LA Land December, 1994 1972, 1988 Buildings & 1992 Shoppes of Silverlakes Pembroke Pines, FL Land November, 1997 1995 & Buildings 1996
76 78 IRT PROPERTY COMPANY SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION December 31, 1997
Estimated Costs Gross Amount Accumulated Useful Initial Capitalized at Which Depreciation Life of Cost to Subsequent to Carried at at Close Buildings Description Encumbrances Company Acquisition Close of Year of Year (Years) ----------- ------------ ----------- ----------- ------------- ----------- ------- Siegen Village Baton Rouge, LA Land $ - $ 2,375,168 $ (325,000) $ 2,050,168 $ - 40 Buildings 6,513,078 93,637 6,606,715 392,469 Smyrna Village Smyrna, TN Land - 968,358 20,601 988,959 - 40 Buildings 4,743,708 118,114 4,861,822 656,817 Smyth Valley Crossing Marion, VA Land - 1,693,137 6,523 1,699,660 - 40 Buildings 5,231,283 132,507 5,363,790 708,107 South Beach Regional Jacksonville Beach, FL Land - 3,972,815 19,710 3,992,525 - 40 Buildings 17,115,106 836,757 17,951,863 2,526,937 Spalding Village Griffin, GA Land 11,376,691 2,813,854 3,281 2,817,135 - 40 Buildings 12,470,446 137,515 12,607,961 1,729,585 Stadium Plaza Phenix City, AL Land - 1,828,942 2,130 1,831,072 - 40 Buildings 2,614,155 29,315 2,643,470 362,397 Stanley Market Place Stanley, NC Land - 198,103 - 198,103 - 35 Buildings 1,602,832 66,297 1,669,129 237,140 Tarpon Heights Galliano, LA Land 2,219,484 705,570 705,570 - 40 Buildings 2,116,712 15,005 2,131,717 159,087 Date Year Description Acquired Completed ----------- -------------- --------- Siegen Village Baton Rouge, LA Land December, 1994 1988 & Buildings 1996 Smyrna Village Smyrna, TN Land August, 1992 1992 Buildings Smyth Valley Crossing Marion, VA Land December, 1992 1989 Buildings South Beach Regional Jacksonville Beach, FL Land August, 1992 1990 & Buildings 1991 Spalding Village Griffin, GA Land August, 1992 1989 Buildings Stadium Plaza Phenix City, AL Land August, 1992 1988 Buildings Stanley Market Place Stanley, NC Land January, 1992 1980 & Buildings 1991 Tarpon Heights Galliano, LA Land January, 1995 1982 Buildings
77 79 IRT PROPERTY COMPANY SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION December 31, 1997
Estimated Costs Gross Amount Accumulated Useful Initial Capitalized at Which Depreciation Life of Cost to Subsequent to Carried at at Close Buildings Description Encumbrances Company Acquisition Close of Year of Year (Years) ----------- ------------ ----------- ----------- ------------- ----------- ------- Taylorsville Shopping Center Taylorsville, NC Land $ - $ 89,689 $ - $ 89,689 $ - 40 Buildings 1,443,704 1,078,766 2,522,470 692,450 Thomasville Commons Thomasville, NC Land 5,481,755 963,333 - 963,333 - 40 Buildings 6,183,052 50,296 6,233,348 855,046 University Center Greenville, NC Land - 750,000 - 750,000 - 40 Buildings 3,159,065 61,907 3,220,972 666,183 Venice Plaza Venice, FL Land - 333,127 - 333,127 - 27 Buildings 1,887,721 688,569 2,576,290 1,734,027 Village at Northshore Slidell, LA Land 5,417,992 2,065,633 - 2,065,633 - 40 Buildings 6,196,900 59,033 6,255,933 470,830 Waterlick Plaza Lynchburg, VA Land - 1,071,000 - 1,071,000 - 40 Buildings 5,091,222 149,409 5,240,631 1,127,966 Watson Central Warner Robins, GA Land - 1,645,548 12,478 1,658,026 - 40 Buildings 11,316,940 145,928 11,462,868 1,395,615 Wesley Chapel Crossing Decatur, GA Land - 3,828,806 9,154 3,837,960 - 40 Buildings 7,031,767 63,124 7,094,891 898,354 Date Year Description Acquired Completed ----------- -------------- --------- Taylorsville Shopping Center Taylorsville, NC Land August, 1986 & 1982 & Buildings December, 1988 1988 Thomasville Commons Thomasville, NC Land August, 1992 1991 Buildings University Center Greenville, NC Land December, 1989 1989 Buildings Venice Plaza Venice, FL Land June, 1979 1971 & Buildings 1979 Village at Northshore Slidell, LA Land December, 1994 1988 & Buildings 1993 Waterlick Plaza Lynchburg, VA Land October, 1989 1973 & Buildings 1988 Watson Central Warner Robins, GA Land December, 1992 & 1989 & Buildings October, 1993 1993 Wesley Chapel Crossing Decatur, GA Land December, 1992 1989 Buildings
78 80 IRT PROPERTY COMPANY SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION December 31, 1997
Estimated Costs Gross Amount Accumulated Useful Initial Capitalized at Which Depreciation Life of Cost to Subsequent to Carried at at Close Buildings Description Encumbrances Company Acquisition Close of Year of Year (Years) ----------- ------------ ------- ------------- ------------- ----------- --------- West Gate Plaza Mobile, AL Land $ - $ 475,270 $ - $ 475,270 $ - 25 Buildings 3,771,825 496,300 4,268,125 1,040,559 West Towne Square Rome, GA Land - 324,800 - 324,800 - 40 Buildings 5,580,776 120,625 5,701,401 1,138,214 Westgate Square Sunrise, FL Land - 2,238,886 - 2,238,886 - 40 Buildings 6,839,969 145,044 6,985,013 624,185 Willowdaile Shopping Center Durham, NC Land - 936,977 (60,579) 876,398 - 40 Buildings 7,351,612 358,614 7,710,226 2,098,884 Industrial Buildings Charlotte, NC - Industrial Land - 143,160 178,490 321,650 - 14 Buildings 2,170,057 1,138,898 3,308,955 2,746,249 Plasti-Kote Medina, OH - Industrial Land - 81,390 - 81,390 - 14 Buildings 346,979 54,570 401,549 401,549 Lawrence County Shopping Center Sybene, OH Land - 435,994 - 435,994 - Grand Marche Shopping Center Lafayette, LA Land - 250,000 500 250,500 - Date Year Description Acquired Completed ----------- --------------- ---------- West Gate Plaza June, 1974 & 1974 & Mobile, AL January, 1985 1995 Land Buildings West Towne Square March, 1990 1988 Rome, GA Land Buildings Westgate Square June, 1994 1984 & Sunrise, FL 1988 Land Buildings Willowdaile Shopping Center August, 1986 & 1986 Durham, NC December, 1987 Land Buildings Industrial Buildings June, 1979 1956 & Charlotte, NC - Industrial 1963 Land Buildings Plasti-Kote June, 1979 1961 & Medina, OH - Industrial 1966 Land Buildings Lawrence County Shopping Center May, 1971 1971 Sybene, OH Land Grand Marche Shopping Center September, 1972 1969 Lafayette, LA Land
79 81 IRT PROPERTY COMPANY SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION December 31, 1997
Estimated Costs Gross Amount Accumulated Useful Initial Capitalized at Which Depreciation Life of Cost to Subsequent to Carried at at Close Buildings Description Encumbrances Company Acquisition Close of Year of Year (Years) ----------- ------------ ---- ------- ------------- -------------- ------------ ------- Manatee County Shopping Center Bradenton, FL Land $ - $ 241,798 $ - $ 241,798 $ - ------------ ------------- ------------- -------------- ------------ $ 58,939,278 $ 511,562,250 $ 25,597,970 $ 537,160,220 $ 62,526,989 ============ ============= ============= ============== ============= Date Year Description Acquired Completed ----------- ---------- ---------- Manatee County Shopping Center Bradenton, FL Land May, 1971 1971
80 82 IRT PROPERTY COMPANY SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION December 31, 1997 NOTE: Real estate activity is summarized as follows:
Year Ended December 31, ----------------------------------------------------- 1997 1996 1995 ------------- ------------- ------------- RENTAL PROPERTIES: Cost - Balance at beginning of year $ 463,392,557 $ 452,508,601 $ 442,642,705 Acquisitions and improvements 81,755,725 21,109,810 11,518,502 Retirements (663,197) -- -- Reduction in carrying value -- -- -- ------------- ------------- ------------- 544,485,085 473,618,411 454,161,207 Cost of properties sold (7,324,865) (10,225,854) (1,652,606) ------------- ------------- ------------- Balance at end of year $ 537,160,220 $ 463,392,557 $ 452,508,601 ============= ============= ============= Accumulated depreciation - Balance at beginning of year $ 56,881,888 $ 51,600,890 $ 41,677,722 Depreciation 11,453,460 10,310,344 10,427,268 Retirements (663,197) -- -- ------------- ------------- ------------- 67,672,151 61,911,234 52,104,990 Accumulated depreciation related to rental properties sold (5,145,162) (5,029,346) (504,100) ------------- ------------- ------------- Balance at end of year $ 62,526,989 $ 56,881,888 $ 51,600,890 ============= ============= =============
81 83 IRT PROPERTY COMPANY SCHEDULE IV MORTGAGE LOANS ON REAL ESTATE December 31, 1997
Final Periodic Type of Type of Interest Maturity Payment Location of Property Loan Property Rate Date Terms - -------------------- ---- -------- ---- ---- ----- (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) Fremont, NE Second Mortgage Shopping Center 7.00% December, 1998 (2) Montgomery, AL Wrap-Around Apartments (3) September, 2001 (3) Lauderdale Lakes, FL First Mortgage Condominiums 10.00% May, 2009 (4) Nashville, TN First Mortgage Condominiums 8.63% - 2006-2007 (4) Participation 12.38% Principal Amount of Face Amount Loans Subject and Carrying to Delinquent Amount of Principal Location of Property Prior Liens Mortgages or Interest - -------------------- ----------- --------- ----------- Augusta, GA $ - $3,163,285 - Kearney, NE 2,625,900 594,000 - Fremont, NE 1,794,800 406,000 - Montgomery, AL - 5,212,708 5,212,708 Lauderdale Lakes, FL - 119,946 - Nashville, TN - 25,753 - ---------- ---------- 4,420,700 9,521,692 Less interest discounts and negative goodwill - (200,487) ---------- ---------- $4,420,700 $9,321,205 ========== ==========
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 a first mortgage having a balance of $610,142 as of December 31, 1997. The borrower under this wrap-around mortgage is currently in default of the terms of the mortgage, and the Company has initiated foreclosure proceedings. See Note 20 for additional information. (4) Monthly payments include principal and interest. 82 84 IRT PROPERTY COMPANY MORTGAGE LOANS ON REAL ESTATE SCHEDULE IV December 31, 1997 NOTE: Mortgage loan activity is summarized as follows:
Year Ended December 31, ---------------------------------------------------------------- 1997 1996 1995 ---- ---- ---- Balance at beginning of year $ 13,182,520 $ 8,499,210 $ 8,292,143 New mortgage loans - - - Additions to mortgage loans - 4,800,000 260,000 Amortization of interest discounts and negative goodwill 41,402 45,998 45,193 Collections of principal (3,902,717) (162,688) (98,126) ------------ ------------ ----------- Balance at end of year $ 9,321,205 $ 13,182,520 $ 8,499,210 ============ ============ ===========
83 85 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. Not applicable 84 86 PART III The information called for by Part III (Items 10, 11, 12, and 13) is incorporated herein by reference to the Company's definitive proxy statement for the Company's 1998 Annual Meeting of Shareholders of the Company, to be filed pursuant to Regulation 14A, pursuant to General Instruction G(3) to the Report on Form 10-K. 85 87 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, 1997 and 1996 Consolidated Statements of Earnings for the Years Ended December 31, 1997, 1996 and 1995 Consolidated Statements of Changes in Shareholders' Equity for the Years Ended December 31, 1997, 1996 and 1995 Consolidated Statements of Cash Flows for the Years Ended December 31, 1997, 1996 and 1995 Notes to Consolidated Financial Statements Schedule III - Real Estate and Accumulated Depreciation Schedule IV - Mortgage Loans on Real Estate Exhibits. 3.1 The Company's Amended and Restated Articles of Incorporation were filed as Exhibit (3)(a) to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997, which is incorporated by reference herein. 3.2 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, which is incorporated by reference herein. 4.1 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, which is incorporated by reference herein. 86 88 4.2 The form of 7.3% Convertible Subordinated Debenture was included in 4.1 above. 4.3 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, which is incorporated by reference herein. 4.4 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, which is incorporated by reference herein. 4.5 Supplemental Indenture No. 2, dated August 15, 1997, between IRT Property Company and SunTrust Bank, Atlanta was filed as an exhibit to the Company's Form 8-K dated August 15, 1997, which is incorporated by reference herein. 10.1 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, which is incorporated by reference herein. 10.2 The Company's 1989 Stock Option Plan was filed as an exhibit to the Company's Form 8-K dated March 22, 1989, which is incorporated by reference herein. 10.3 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, which is incorporated by reference herein. 10.4 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, which is incorporated by reference herein. 10.5 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, which is incorporated by reference herein. 10.6 Agreement between the Company and Donald W. MacLeod, effective October 1, 1995 was filed as an exhibit to the Company's Form 10-K for the year ended December 31, 1995, which is incorporated by reference herein. 87 89 10.6.1 Consulting Agreement between the Company and Donald W. MacLeod dated June 12, 1997, which amends the Agreement contained in Exhibit 10.6, was filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997, which is incorporated by reference herein. 10.7 Amended and Restated Employment Agreement between the Company and Thomas H. McAuley dated as of November 11, 1997. 10.8 Change in Control Employment Agreement between the Company and Mary M. Thomas dated as of November 11, 1997. 10.9 Change in Control Employment Agreement between the Company and W. Benjamin Jones III dated as of November 11, 1997. 10.10 Change in Control Employment Agreement between the Company and Robert E. Mitzel dated as of November 11, 1997. 10.11 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, which is incorporated by reference herein. 10.11.1 First Amendment to Loan Agreement dated June 30, 1997 amending the Company's $100 million revolving term loan agreement dated December 15, 1995 was filed as an exhibit to the Company's Quarter Report on Form 10-Q for the quarter ended June 30, 1997, which is incorporated by reference herein. 10.11.2 Second Amendment to Loan Agreement dated July 1, 1997 amending the Company's $100 million revolving term loan agreement dated December 15, 1995 was filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997, which is incorporated by reference herein. 88 90 10.12 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), which is incorporated by reference herein. 11. Computation of Per Share Earnings. 21. Company Subsidiaries. 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, 33-59938, 33- 64628, 33-64741, 33-63523 and 333-38847. 27. Financial Data Schedule (for S.E.C. use only) Reports on Form 8-K. No reports on Form 8-K were filed by the Company during the fourth quarter of 1997. 89 91 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. March 3, 1998 IRT PROPERTY COMPANY By: /s/ Thomas H. McAuley -------------------------- Thomas H. McAuley President & Chief Executive Officer 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/ Thomas H. McAuley President, Chief March 3, 1998 - ---------------------------- Executive Officer Thomas H. McAuley and Director /s/ Mary M. Thomas Executive Vice March 3, 1998 - ---------------------------- President, Chief Mary M. Thomas Financial Officer and Director (Principal Financial & Accounting Officer) /s/ Donald W. MacLeod Chairman of the March 3, 1998 - ---------------------------- Board and Director Donald W. MacLeod /s/ Patrick L. Flinn Director March 3, 1998 - ---------------------------- Patrick L. Flinn /s/ Homer B. Gibbs, Jr. Director March 3, 1998 - ---------------------------- Homer B. Gibbs, Jr. /s/ Samuel W. Kendrick Director March 3, 1998 - ---------------------------- Samuel W. Kendrick /s/ Bruce A. Morrice Director March 3, 1998 - ---------------------------- Bruce A. Morrice /s/ James H. Nobil Director March 3, 1998 - ---------------------------- James H. Nobil
90 EX-10.7 2 AMENDED AND RESTATED EMPLOYMENT AGREEMENT 1 EXHIBIT 10.7 AMENDED AND RESTATED EMPLOYMENT AGREEMENT THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT (the "Agreement") is made as of the 11th day of November 1997, between IRT PROPERTY COMPANY, a Georgia corporation ((herein, together with any successor or assigns to its business and/or assets, and any person or entity that assumes and agrees to perform this Agreement by operation of law or otherwise, the "Company"), and THOMAS H. MCAULEY (the "Executive") and amends and restates the Agreement dated as of October 1, 1995 between the parties related to the employment of the Executive by the Company (the "1995 Agreement"). For good and valuable consideration, the receipt and sufficiency of which are acknowledged, the parties, intending to be legally bound, agree to amend and restate the 1995 Agreement as follows: 1. Certain Definitions. (a) "Affiliated Companies" shall mean any corporation, partnership, limited liability company, trust and/or other entity controlled by, controlling or under common control with, the Company. Unless the context clearly requires otherwise, as used herein, the Company shall include all its Affiliated Companies. (b) "Board" shall mean the Company's Board of Directors. (c) "Change of Control" shall mean: (i) The acquisition by any Person of beneficial ownership (within the meaning of SEC Rule 13d-3 under the Exchange Act) of 25% or more of the combined voting power of (x) all then outstanding shares of Company common stock ("Outstanding Company Common Stock") and (y) all outstanding voting securities of the Company entitled to vote generally in the election of directors and all outstanding securities and/or rights to acquire (whether by conversion, exchange or otherwise) voting securities of the Company entitled to vote generally in the election of directors (collectively with the Outstanding Voting Common Stock, the "Outstanding Company Voting Securities"); provided, however, that for purposes of this subsection 1(b)(i), the following acquisitions shall not constitute a Change of Control: (r) any acquisition by a Person who was on November 1, 1997 the beneficial owner of 25% or more of the Outstanding Company Voting Securities, (s) any acquisition by the Company, provided no Change in Control has previously occurred or would result therefrom under subsections 1(c)(ii) and 1(c)(iii) of this Agreement, (t) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any Affiliated Company, or (u) any acquisition by any Person pursuant to a transaction which complies with clauses (x), (y) and (z) of subsection (iii) of this Section 1(c); or 2 (ii) Individuals who, as of November 1, 1997, constituted the Board (the "Incumbent Board"), cease for any reason to constitute at least a majority of the entire Board; provided, however, that any individual becoming a director subsequent to November 1, 1997 whose election, or nomination for election by the Company's stockholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or (iii) Consummation of a reorganization, merger or consolidation, a sale, liquidation or partial liquidation, or other disposition of all or substantially all (e.g., 50% or more) of the assets of the Company in one or a series of transactions, and/or any combination of the foregoing (a "Business Combination"), in each case, unless, following such Business Combination, (x) all or substantially all of the Persons who were the beneficial owners, respectively, of the outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Business Combination beneficially owns (within the meaning of SEC Rule 13d-3 under the Exchange Act), directly or indirectly, more than 60% of, respectively, the combined voting power of the then outstanding shares of Company Common Stock and/or the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the entity resulting from such Business Combination (including, without limitation, an entity which as a result of such transaction beneficially owns (within the meaning of SEC Rule 13d-3 under the Exchange Act) the Company or all or substantially all (e.g., 50% or more) of the Company's assets either directly or through one or more subsidiaries, partnerships, limited liability companies, trusts and/or other entities or Persons) in substantially the same proportions as their beneficial ownership, immediately prior to such Business Combination of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (y) no Person (excluding any corporation or other entity resulting from such Business Combination or any employee benefit plan (or related trust) of the Company or such corporation or entity resulting from such Business Combination) beneficially owns (within the meaning of SEC Rule 13d-3 under the Exchange Act), directly or indirectly, 25% or more of the combined voting power of the then outstanding voting securities of such corporation or entity except to the extent that such ownership existed prior to the Business Combination, and (z) at least a majority of the members of the board of directors or other governing body (including trustees and/or general partners) of the corporation or entity resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial -2- 3 agreement, or of the action of the Board, providing for such Business Combination. (d) "Change of Control Period" shall mean the period of three years ending on the third anniversary of the date hereof; provided, however, that commencing on the date one year after the date hereof, and on each annual anniversary of such date (such date and each annual anniversary thereof shall hereinafter be referred to as the "Renewal Date"), unless previously terminated by a majority vote of the Incumbent Board, the Change of Control Period shall be automatically extended so as to terminate three years from such Renewal Date. (e) "Disability" shall mean the absence of the Executive from the Executive's duties with the Company on a full-time basis for 180 consecutive days as a result of incapacity due to mental or physical illness which is determined to be total and permanent by a physician selected by the Company or its insurers and acceptable to the Executive or the Executive's legal representative. (f) "Effective Date of a Change in Control" shall mean the first date during the Change of Control Period (as defined in Section l(c)) on which a Change of Control (as defined in Section 1(c) occurs. Anything in this Agreement to the contrary notwithstanding, if a Change of Control occurs and if the Executive's employment with the Company is terminated prior to the date on which the Change of Control occurs, and if it is reasonably demonstrated by the Executive that such termination of employment (i) was at the request of a third party who has taken steps reasonably calculated to effect a Change of Control or (ii) otherwise arose in connection with any discussion or negotiation contemplating or in anticipation of a potential Change of Control, then for all purposes of this Agreement, the "Effective Date of a Change in Control" shall mean the date immediately prior to the date of such termination of employment. (g) "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended and the rules and regulations of the Securities and Exchange Commission ("SEC") thereunder. (h) "Good Reason" shall mean: (i) the assignment or proposed assignment to the Executive of any duties inconsistent in any respect with the Executive's position (including status, offices, titles and reporting relationships), authority, duties or responsibilities as contemplated by Section 2.1(a) of this Agreement, or any other action by the Company which results in a diminution in such position, authority, duties or responsibilities, excluding for this purpose an isolated, insubstantial and inadvertent action not taken in bad faith and which is remedied by the Company or any Affiliated Company promptly after receipt of notice thereof given by the Executive; -3- 4 (ii) any failure by the Company and its Affiliated Companies to comply with any of the provisions of Section 3 of this Agreement, other than an isolated, insubstantial and inadvertent failure not occurring in bad faith and which is remedied by the Company or such Affiliated Companies promptly after receipt of notice thereof given by the Executive; (iii) the Company or any Affiliated Company requiring the Executive to be based at any office or location other than as provided in Section 4(a)(i)(B) hereof or the Company's requiring the Executive to travel on Company or any Affiliated Company's business to a substantially greater extent than required immediately prior to the Effective Date; (iv) any purported termination by the Company or any Affiliated Company of the Executive's employment otherwise than as expressly permitted by this Agreement; or (v) any failure by the Company or any Affiliated Company to comply with and satisfy Section 11(c) of this Agreement. (i) "Person" shall mean any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act). 2. Employment of the Executive. 2.1 Duties and Status. (a) The Company has engaged the Executive as President and Chief Executive Officer for the period specified in Section 4 hereof (the "Employment Period"). The Executive has accepted such employment on the terms and conditions set forth in this Agreement. During the Employment Period, the Executive shall exercise such authority, have such responsibilities, status, offices, titles and reporting relationships and perform such duties as are commensurate with the office of president and chief executive officer of a public real estate investment trust and its Affiliated Companies and also at least commensurate in all material respects with the most significant of those responsibilities, status, offices, titles, reporting relationships and duties held, exercised and assigned at any time during the 120-day period immediately preceding the Effective Date of a Change in Control. The Executive's services shall be performed at the Company's principal executive offices in Atlanta, Georgia or at any office or location not more than 35 miles from such offices. (b) During the Employment Period, and excluding any periods of vacation and sick leave to which the Executive is entitled, the Executive agrees to devote reasonable attention and time during normal business hours to the business and affairs of the Company and, to the extent necessary to discharge the responsibilities assigned to the Executive hereunder, to use the Executive's reasonable best efforts to perform faithfully -4- 5 and efficiently such responsibilities. During the Employment Period it shall not be a violation of this Agreement for the Executive to (x) serve on corporate, civic or charitable boards or committees, (y) engage in other business activities that do not represent a conflict of interest with his duties to the Company, or (z) manage personal investments, so long as such activities do not significantly interfere with the performance of the Executive's responsibilities as an employee of the Company in accordance with this Agreement. It is expressly understood and agreed that to the extent that any such activities have been conducted by the Executive prior to the Effective Date of a Change in Control, the continued conduct of such activities (or the conduct of activities similar in nature and scope thereto) subsequent to the Effective Date of a Change in Control shall not thereafter be deemed to interfere with the performance of the Executive's responsibilities to the Company. 3. Compensation. 3.1 Annual Salary. The Company shall pay the Executive an annual salary (the "Annual Base Salary") in periodic equal installments in accordance with the normal payroll practices of the Company. The initial Annual Base Salary as of the date of this Agreement is Three Hundred Six Thousand Dollars ($306,000). During the Employment Period, the Annual Base Salary shall be reviewed not later than 12 months after the last salary increase awarded to the Executive prior to the Effective Date and thereafter shall be reviewed at least annually. Any increase in Annual Base Salary shall not serve to limit or reduce any other obligation of the Company and its Affiliated Companies to the Executive under this Agreement. 3.2 Cash Bonuses. In addition to the above, the Executive shall be paid such additional annual and/or other incentive bonuses (the "Bonus"), if any, as may be determined by the Board of the Company, and such Bonus may be in addition to any bonuses generally granted to the employees and/or executives of the Company and the Affiliated Companies. 3.3 Incentive, Savings and Retirement Plans. During the Employment Period, the Executive shall be entitled to participate in all incentive, savings and retirement plans, practices, policies and programs applicable generally to other executives of the Company and its Affiliated Companies, but in no event shall such plans, practices, policies and programs provide the Executive with incentive opportunities (measured with respect to both regular and special incentive opportunities, to the extent, if any, that such distinction is applicable), savings opportunities and retirement benefit opportunities, in each case, less favorable, in the aggregate, than the most favorable of those provided by the Company and its Affiliated Companies for the Executive under such plans, practices, policies and programs as in effect at any time during the one-year period immediately preceding the Effective Date of a Change in Control or if more favorable to the Executive, those provided generally at any time after the Effective Date of a Change in Control to other executives of the Company and its Affiliated Companies. -5- 6 3.4 Welfare Benefit Plans. During the Employment Period (and after termination of employment, except where prohibited by law or the applicable plan, or the generally applicable practices, policies and programs of the Company and its Affiliated Companies and their respective successors and assigns), the Executive and/or the Executive's family, as the case may be, shall be eligible for participation in and shall receive all benefits under such welfare benefit plans, practices, policies and programs (including, without limitation, medical, prescription, dental, disability, employee life, group life, accidental death and travel accident insurance plans and programs) to the extent applicable generally to other executives of the Company, its Affiliated Companies and their respective successors and assigns, but in no event shall such plans, practices, policies and programs provide the Executive and his family, as applicable, with benefits which are less favorable, in the aggregate, than the most favorable of such plans, practices, policies and programs in effect for the Executive and his family, as applicable, at any time during the one year period immediately preceding the Effective Date of a Change in Control or, if more favorable to the Executive and his family, as applicable, those provided generally at any time after the Effective Date of a Change in Control to other executives (and their families) of the Company or its successors. In the event that the Executive's and his family's participation in any such plan or program, or other benefit provided under the generally applicable practices, policies and programs of the Company and its Affiliated Companies and their respective successors and assigns are prohibited by law or such applicable plan, practices, policies or programs, the Company and its Affiliated Companies and respective successors and assigns shall provide the Executive and his family, without further cost or expense to the Executive and his family members, benefits similar to those which the Executive and his family would otherwise have been entitled to receive under such plans, programs, practices and policies as if the Executive's employment had not ceased. 3.5 General Benefits. In addition to the cash compensation and other benefits provided for in this Section 3, the Company will provide the Executive with additional benefits as follows: (a) The Company will reimburse the Executive for such reasonable expenses as the Executive may incur in the rendition of the services contemplated hereby in accordance with the most favorable policies, practices and procedures of the Company and its Affiliated Companies in effect for the Executive, and otherwise if the Executive had prior authorization for said expenditures. (b) The Executive will be entitled to a vacation in accordance with the Company's vacation schedule in effect at the time the vacation is to be taken, which schedule will not be less favorable to the Executive than the vacation schedule for other executive employees of the Company. During such vacation, the Executive shall be entitled to receive his regular compensation pursuant to and in accordance with this Agreement. -6- 7 (c) The Company shall provide the Executive with an automobile. The automobile furnished to the Executive shall be similar to automobiles provided to other executives of the Company. In addition, the Company shall pay for the insurance, maintenance, repairs, replacement of parts, servicing, gasoline and oil necessary for the upkeep of the automobile and any other necessary and proper expenses in connection with the operation by the Executive of the automobile. In the event the Company discontinues providing automobiles to executive officers generally, the Executive shall be entitled to receive an automobile allowance and shall have the right and an option to purchase the automobile at its then book value on the Company's books and records (if the automobile is owned by the Company) or to assume the lease for said automobile (if the automobile is leased by the Company). (d) During the Employment Period (but not after termination of employment, except as required by this Agreement, law and/or the applicable plan, practices, policies and programs of the Company and its Affiliated Companies and their respective successors and assigns), the Executive shall be entitled to fringe benefits in accordance with the most favorable of such plans, practices, programs and policies in effect for the Executive at any time during the one year period immediately preceding the Effective Date of a Change in Control or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other executives of the Company and its Affiliated Companies. (e) The Executive agrees that the respective benefits of the Company and its Affiliated Companies, provided by this Section 3.5 may be modified and changed by the Company and/or it Affiliated Companies to the extent such changes apply generally to the executive officers of the Company and its Affiliated Companies. 3.6 Other Compensation. In addition to, and without limiting, the compensation and benefits provided for in subsections 3.1 through 3.5 of this Agreement, nothing herein is intended to or shall limit the participation or receipt by the Executive of any other compensation or benefit, including stock options, other stock and stock-based awards and other incentive compensation and any plan, program, practice or policy, and the receipt of the compensation and benefits specified in subsections 3.1 through 3.5 of this Agreement shall not reduce any other compensation or benefits which the Executive may be granted or to which the Executive may be entitled under the terms and conditions of such plans, practices, programs and policies. Section 4. Employment Period. The Employment Period shall continue until the first anniversary hereof and, unless sooner terminated, shall be automatically renewed for an additional year on each anniversary date of this Agreement; provided, that prior to the Effective Date of a Change in Control, either party may terminate the employment of the Executive at any time upon thirty (30) days prior written notice to the other party hereto. Notwithstanding the foregoing, or any notice to terminate employment given by the Company or the Executive, this Agreement shall continue in full force and effect until all payments and benefits required to be made or provided by the Company to the Executive under this Agreement or otherwise have been paid or provided in full. -7- 8 5. Termination. 5.1 Death or Disability. The Executive's employment shall terminate automatically upon the Executive's death during the Employment Period. If the Board determines in good faith that the Disability of the Executive has occurred during the Employment Period, it may give to the Executive written notice in accordance with Section 11(b) of this Agreement of its intention to terminate the Executive's employment. In such event, the Executive's employment with the Company shall terminate effective on the 30th day after receipt of such notice by the Executive (the "Disability Effective Date"), provided that, within the 30 days after his receipt of such notice, the Executive shall not have returned to full-time performance of the Executive's duties. 5.2 Cause. The Company may terminate the Executive's employment during the Employment Period for Cause. For purposes of this Agreement, "Cause" shall mean: (i) the willful and continued failure of the Executive to perform substantially the Executive's duties with the Company and/or its Affiliated Companies (other than any such failure resulting from incapacity due to physical or mental illness), after a written demand for substantial performance is delivered to the Executive by the Board of the Company which specifically identifies the manner in which the Board believes that the Executive has not substantially performed the Executive's duties, or (ii) the willful engaging by the Executive in illegal conduct or gross misconduct which is materially and demonstrably injurious to the Company. For purposes of this Section 5.2, no act or failure to act, on the part of the Executive, shall be considered "willful" unless it is done, or omitted to be done, by the Executive in bad faith or without reasonable belief that the Executive's action or omission was in the best interests of the Company. Any act, or failure to act, based upon authority given pursuant to a resolution duly adopted by the Board of the Company or based upon the advice of counsel for the Company shall be conclusively presumed to be done, or omitted to be done, by the Executive in good faith and in the best interests of the Company. The cessation of employment of the Executive shall not be deemed to be for Cause unless and until there shall have been delivered to the Executive a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters of the entire membership of the Board at a meeting of the Board called and held for such purpose (after reasonable notice is provided to the Executive and the Executive is given an opportunity, together with counsel, to be heard before the Board), finding that, in the good faith opinion of the Board, the Executive is guilty of the conduct described in subparagraph (i) or (ii) above, and specifying the particulars thereof in detail. -8- 9 5.3 Good Reason. The Executive's employment may be terminated by the Executive for Good Reason. For purposes of this Section 5.3, any good faith determination of Good Reason made by the Executive shall be conclusive. Anything in this Agreement to the contrary notwithstanding, a termination by the Executive for any reason during the period beginning on the Effective Date of a Change in Control and ending 30 days following the first anniversary of the Effective Date of a Change in Control shall be deemed to be a termination for Good Reason for all purposes hereunder. 5.4 Notice of Termination. Any termination by the Company for Cause, or by the Executive for Good Reason, shall be communicated by Notice of Termination to the other party hereto given in accordance with Section 11(b) of this Agreement. For purposes of this Agreement, a "Notice of Termination" means a written notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated and (iii) if the Date of Termination (as defined below) is other than the date of receipt of such notice, specifies the termination date (which date shall be not more than 30 days after the giving of such notice). The failure by the Executive or the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of the Executive or the Company, respectively, hereunder or preclude the Executive or the Company, respectively, from asserting such fact or circumstance in enforcing the Executive's or the Company's rights hereunder. 5.5 Date of Termination. "Date of Termination" means (i) if the Executive's employment is terminated by the Company and/or any Affiliated Company for Cause, or by the Executive for Good Reason, the date of receipt of the Notice of Termination or any later date specified therein, as the case may be, (ii) if the Executive's employment is terminated by the Company other than for Cause or Disability, the Date of Termination shall be the date on which the Company and/or any Affiliated Company notifies the Executive of such termination, and (iii) if the Executive's employment is terminated by reason of death or Disability, the Date of Termination shall be the date of death of the Executive or the Disability Effective Date, as the case may be. 5.6 Improper Termination; Disputes. In the event that the Company terminates or seeks to terminate this Agreement or the employment of the Executive hereunder and disputes its obligation to pay or fails or refuses to pay or provide, when due to the Executive, any portion of the amounts or benefits due to the Executive pursuant to this Agreement and the Executive prevails (without regard to amount of any recovery), the Company shall pay or reimburse to the Executive all costs incurred by him in such dispute or collection effort, including reasonable attorneys' fees and expenses (whether or not suit is filed) and costs of litigation. The Executive shall not be required to mitigate the amount of any payment or benefit provided herein by seeking other employment or otherwise, nor shall the amount of any payment or benefit provided herein be reduced by any compensation earned by the Executive an a result of employment by -9- 10 another employer or by retirement or disability benefits after the date of termination of employment or otherwise. 6. Obligations of the Company upon Termination. (a) Good Reason; Other Than for Cause, Death or Disability. If, during the Employment Period, the Company and/or any Affiliated Company shall terminate the Executive's employment other than for Cause or Disability, or the Executive shall terminate employment for Good Reason: (i) the Company shall pay to the Executive in a lump sum in cash within 30 days after the Date of Termination the aggregate of the following amounts, or if elected by the Executive, the following aggregate amounts shall be paid in cash to the Executive in equal monthly installments over the two years following termination of employment: A. the sum of (1) the Executive's Annual Base Salary through the Date of Termination to the extent not theretofore paid, (2) the product of (x) the average of the Bonuses paid or payable, including any bonus or portion thereof which has been earned but deferred, for the two most recently completed fiscal years during the Employment Period, if any (such amount being referred to as the "Most Recent Bonus") and (y) a fraction, the numerator of which is the number of days in the current fiscal year through the Date of Termination, and the denominator of which is 365, and (3) any compensation previously deferred by the Executive (together with any accrued interest or earnings thereon) and any accrued vacation pay, in each case to the extent not theretofore paid (the sum of the amounts described in clauses (1), (2), and (3) shall be hereinafter referred to as the "Accrued Obligations"); B. the amount equal to the sum of (x) 2.99 times the Executive's Annual Base Salary, and (y) 2.99 times the Most Recent Bonus; and (ii) for two (2) years after the Executive's Date of Termination, or such longer period as may be provided by the terms of the appropriate plan, program, practice or policy, the Company and its Affiliated Companies, shall continue to provide benefits to the Executive and/or the Executive's family at least equal to those which would have been provided to them in accordance with the plans, programs, practices and policies described in Section 3 of this Agreement if the Executive's employment had not been terminated or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other executives of the Company and its affiliated companies and their families, provided, however, that if the Executive becomes re-employed with another employer and is eligible to receive medical or other welfare benefits under another employer provided plan, the medical and other -10- 11 welfare benefits described herein shall be secondary to those provided under such other plan during such applicable period of eligibility. For purposes of determining eligibility (but not the time of commencement of benefits) of the Executive for retiree benefits pursuant to such plans, practices, programs and policies, the Executive shall be considered to have remained employed until two years after the Date of Termination and to have retired on the last day of such period; (iii) to the extent not theretofore paid or provided, the Company shall timely pay or provide to the Executive any other amounts or benefits required to be paid or provided or which the Executive is eligible to receive under any plan, program, policy or practice or contract or agreement of the Company and its Affiliated Companies (such other amounts and benefits shall be hereinafter referred to as the "Other Benefits"). (b) Death. If the Executive's employment is terminated by reason of the Executive's death during the Employment Period, this Agreement shall terminate without further obligations to the Executive's legal representatives under this Agreement, other than for payment of Accrued Obligations and the timely payment or provision of Other Benefits. Accrued Obligations shall be paid to the Executive's estate or beneficiary, as applicable, in a lump sum in cash within 30 days of the Date of Termination. With respect to the provision of Other Benefits, the term Other Benefits as utilized in this Section 6(b) shall include without limitation, and the Executive's estate and/or beneficiaries shall be entitled to receive, benefits at least equal to the most favorable provided by the Company and Affiliated Companies to the estates and beneficiaries of executives of the Company. (c) Disability. If the Executive's employment is terminated by reason of the Executive's Disability during the Employment Period, this Agreement shall terminate without further obligations to the Executive, other than for payment of Accrued Obligations and the timely payment or provision of Other Benefits. Accrued Obligations shall be paid to the Executive in a lump sum in cash within 30 days of the Date of Termination. With respect to the provision of Other Benefits, the term Other Benefits as utilized in this Section 6(c) shall include, and the Executive shall be entitled after the Disability Effective Date to receive, disability and other benefits at least equal to the most favorable such benefits provided by the Company and its Affiliated Companies to other executives and their families, provided the provision of such benefits are permissible under law, and the plans and programs of the Company and its Affiliated Companies. (d) Cause; Other than for Good Reason. If the Executive's employment shall be terminated for Cause during the Employment Period, this Agreement shall terminate without further obligations to the Executive other than -11- 12 the obligation to pay to the Executive (x) his Annual Base Salary through the Date of Termination, (y) the amount of any compensation previously deferred by the Executive, and (z) Other Benefits, in each case to the extent theretofore unpaid. If the Executive voluntarily terminates employment during the Employment Period, excluding a termination for Good Reason, this Agreement shall terminate without further obligations to the Executive, other than for Accrued Obligations and the timely payment or provision of Other Benefits. In such case, all Accrued Obligations shall be paid to the Executive in a lump sum in cash within 30 days of the Date of Termination. 7. Non-exclusivity of Rights. Nothing in this Agreement shall prevent or limit the Executive's continuing or future participation in any plan, program, policy or practice provided by the Company or any of its Affiliated Companies and entities and for which the Executive may qualify. Amounts which are vested benefits or which the Executive is otherwise entitled to receive under any plan, policy, practice or program of or any contract or agreement with the Company or any of its Affiliated Companies at or subsequent to the Date of Termination shall be payable in accordance with such plan, policy, practice, program, contract or agreement, except as explicitly modified by this Agreement. In the event that the Company terminates or seeks to terminate this Agreement or the employment of the Executive hereunder and/or disputes its obligation to pay or fails or refuses to pay or provide timely to the Executive any portion of the amounts or benefits due to the Executive pursuant to this Agreement, and the Executive prevails without regard to amount, the Company shall pay or reimburse to the Executive all costs incurred by him in such dispute or collection effort, including reasonable attorneys' fees and expenses (whether or not suit is filed) and costs of litigation. The Executive shall not be required to mitigate the amount of any payment or benefit provided herein by seeking other employment or otherwise. 8. Full Settlement. The Company's obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against the Executive or others. In no event shall the Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Executive under any of the provisions of this Agreement and such amounts shall not be reduced whether or not the Executive obtains other employment. The Company agrees to pay as incurred, to the full extent permitted by law, all legal fees and expenses which the Executive may reasonably incur as a result of any contest (regardless of the outcome thereof) by the Company, the Executive or others of the validity or enforceability of, or liability under, any provision of this Agreement or any guarantee of performance thereof (including as a result of any contest by the Executive about the amount of any payment pursuant to this Agreement), plus in each case interest on any delayed payment at the applicable federal rate provided for in Section 7872(f)(2)(A) of the Internal Revenue Code of 1986, as amended (the "Code"). -12- 13 9. Limitation of Benefits. (a) Anything in this Agreement to the contrary notwithstanding, in the event it shall be determined that any benefit, payment or distribution by the Company to or for the benefit of the Executive (whether payable or distributable pursuant to the terms of this Agreement or otherwise) (a "Payment") would, if paid, be subject to the excise tax imposed by Section 4999 of the Code (the "Excise Tax"), then the Payment shall be reduced to the extent necessary to avoid the imposition of the Excise Tax. The Executive may select the Payments to be limited or reduced. (b) All determinations required to be made under this Section 8, including whether an Excise Tax would otherwise be imposed and the assumptions to be utilized in arriving at such determination, shall be made by Arthur Andersen L.L.P. or such other certified public accounting firm as may be designated by the Executive (the "Accounting Firm") which shall provide detailed supporting calculations both to the Company and the Executive within 15 business days of the receipt of notice from the Executive that a Payment is due to be made, or such earlier time as is requested by the Company. In the event that the Accounting Firm is serving as accountant or auditor for the individual, entity or group effecting the Change of Control, the Executive may appoint another nationally recognized accounting firm to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall be borne solely by the Company. Any determination by the Accounting Firm shall be binding upon the Company and the Executive. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Payments hereunder will have been unnecessarily limited by this Section 8 ("Underpayment"), consistent with the calculations required to be made hereunder. The Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to or for the benefit of the Executive. 10. Confidential Information; Nonsolicitation. The Executive shall hold in a fiduciary capacity for the benefit of the Company all secret or confidential information, knowledge or data relating to the Company or any of its affiliated companies, and their respective businesses, which shall have been obtained by the Executive during the Executive's employment by the Company or any of its affiliated companies and which shall not be or become public knowledge (other than by acts by the Executive or representatives of the Executive in violation of this Agreement). After termination of the Executive's employment with the Company, the Executive shall not, without the prior written consent of the Company or as may otherwise be required by law or legal process, communicate or divulge any such information, knowledge or data to anyone other than the Company and those designated by it. In no event shall an asserted violation of the provisions of this Section 10 constitute a basis for deferring or withholding any amounts otherwise payable to the Executive under this Agreement. Executive agrees that, for a -13- 14 period of one (1) year after termination, he will not solicit or hire any Company employees for any business that is in direct competition with any Company property. 11. Successors. (a) This Agreement is personal to the Executive and without the prior written consent of the Company shall not be assignable by the Executive otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive's heirs, legatees, and personal and legal representatives. (b) This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns. (c) The Company will require any successor (whether direct or indirect, as a result of a Business Combination, assignment, assumption or otherwise) to all or substantially all (e.g., 50% or more) of the business and/or assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. 12. Miscellaneous. (a) This Agreement shall be governed by and construed in accordance with the laws of the State of Georgia, without reference to principles of conflict of laws. The captions and headings of this Agreement are for convenience of reference only and are not intended to and shall not effect the interpretation of this Agreement. This Agreement may not be amended or modified other than by a written agreement executed by the parties hereto or their respective successors and/or personal or legal representatives. As used herein, the plural shall include the singular and vice versa, any reference to gender shall include the other genders, and the term "include" and any derivation thereof shall be without limitation by virtue of enumeration thereof or otherwise. This Agreement is not intended to and shall not affect any compensation, benefits and options previously earned by, or delivered or owing to, the Executive. (b) All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, or by reliable overnight courier service addressed as follows: If to the Executive: Thomas H. McAuley 3095 Brandy Station Atlanta, Georgia 30339 -14- 15 If to the Company: IRT Property Company 200 Galleria Parkway Suite 1400 Atlanta Georgia 30339 Attention: Chairman of the Compensation Committee or to such other address as either party shall have furnished to the other in writing in accordance herewith. Notice and communications shall be effective when actually received by the addressee. (c) The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement. (d) The Company may withhold from any amounts payable under this Agreement such federal, state, local or foreign taxes as shall be required to be withheld pursuant to any applicable law or regulation. (e) The Executive's or the Company's failure to insist upon strict compliance with any provision of this Agreement or the failure to assert any right the Executive or the Company may have hereunder, including, without limitation, the right of the Executive to terminate employment for Good Reason under this Agreement, shall not be deemed to be a waiver of such provision or right or any other provision or right of this Agreement. -15- 16 IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand and, pursuant to the authorization from its Board upon recommendation of its Compensation Committee, the Company has caused this Agreement to be executed in its name on its behalf by its undersigned Chairman of the Compensation Committee and its undersigned officer thereunto duly authorized, all as of the day and year first above written. COMPANY: IRT PROPERTY COMPANY By: /S/ Bruce A. Morrice ----------------------------------- Bruce A. Morrice, Chairman of the Compensation Committee By: /S/ Mary M. Thomas ----------------------------------- Name: Mary M. Thomas Title: Executive Vice President and Chief Financial Officer EXECUTIVE: /S/ Thomas H. McAuley ---------------------------------------- Thomas H. McAuley -16- EX-10.8 3 CHANGE IN EMPLOYMENT AGREEMENT - MARY THOMAS 1 EXHIBIT 10.8 CHANGE IN CONTROL EMPLOYMENT AGREEMENT THIS AGREEMENT is by and between IRT Property Company, a Georgia corporation (herein, together with any successor or assigns to its business and/or assets, and any person or entity that assumes and agrees to perform this Agreement by operation of law or otherwise, the "Company") and Mary M. Thomas (the "Executive"), dated as of the 11th day of November, 1997. The Board of Directors of the Company (the "Board"), has determined that it is in the best interests of the Company and its stockholders to assure that the Company will have the continued dedication of the Executive, notwithstanding the possibility, threat or occurrence of a Change of Control (as defined below) of the Company. The Board believes it is imperative to diminish the inevitable distraction of the Executive by virtue of the personal uncertainties and risks created by a pending or threatened Change of Control and to encourage the Executive's full attention and dedication to the Company currently and in the event of any threatened or pending Change of Control, and to provide the Executive with compensation and benefits arrangements upon a Change of Control which ensure that the compensation and benefits expectations of the Executive will be satisfied and which are competitive with those of other corporations and entities. Therefore, in order to accomplish these objectives, the Board has authorized and caused the Company to enter into this Agreement. In consideration of the premises and other good and valuable consideration, the receipt and sufficiency of which are acknowledged by each party hereto, the parties, intending to be legally bound, agree as follows: 1. Certain Definitions. (a) "Affiliated Companies" shall mean any corporation, partnership, limited liability company, trust and/or other entity controlled by, controlling or under common control with, the Company. Unless the context clearly requires otherwise, as used herein, the Company shall include all its Affiliated Companies. (b) "Change of Control Period" shall mean the period of three years ending on the third anniversary of the date hereof; provided, however, that commencing on the date one year after the date hereof, and on each annual anniversary of such date (such date and each annual anniversary thereof shall hereinafter be referred to as the "Renewal Date"), unless previously terminated by a majority vote of the Incumbent Board, the Change of Control Period shall be automatically extended so as to terminate three years from such Renewal Date. (c) "Disability" shall mean the absence of the Executive from the Executive's duties with the Company on a full-time basis for 180 consecutive days as a 2 result of incapacity due to mental or physical illness which is determined to be total and permanent by a physician selected by the Company or its insurers and acceptable to the Executive or the Executive's legal representative. (d) "Effective Date" shall mean the first date during the Change of Control Period (as defined in Section l(b)) on which a Change of Control (as defined in Section 2) occurs. Anything in this Agreement to the contrary notwithstanding, if a Change of Control occurs and if the Executive's employment with the Company is terminated prior to the date on which the Change of Control occurs, and if it is reasonably demonstrated by the Executive that such termination of employment (i) was at the request of a third party who has taken steps reasonably calculated to effect a Change of Control or (ii) otherwise arose in connection with any discussion or negotiation contemplating or in anticipation of a potential Change of Control, then for all purposes of this Agreement the "Effective Date" shall mean the date immediately prior to the date of such termination of employment. (e) "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended and the rules and regulations of the Securities and Exchange Commission ("SEC") thereunder. (f) "Person" shall mean any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act). 2. Change of Control. For the purposes of this Agreement, "Change of Control" shall mean: (a) The acquisition by any Person of beneficial ownership (within the meaning of SEC Rule 13d-3 under the Exchange Act) of 25% or more of the combined voting power of (x) all then outstanding shares of Company common stock ("Outstanding Company Common Stock") and (y) all then outstanding securities of the Company entitled to vote generally in the election of directors and all outstanding securities and/or rights to acquire (whether by conversion, exchange or otherwise) voting securities of the Company entitled to vote generally in the election of directors (collectively with the Outstanding Company Common Stock, the "Outstanding Company Voting Securities"); provided, however, that for purposes of this subsection (a), the following acquisitions shall not constitute a Change of Control: (i) any acquisition by a Person who was on November 1, 1997 the beneficial owner of 25% or more of the Outstanding Company Voting Securities, (ii) any acquisition by the Company, provided no Change in Control has previously occurred or would result therefrom under subsections 2(b) and 2(c) of this Agreement, (iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any Affiliated Company, or (iv) any acquisition by any Person pursuant to a transaction which complies with clauses (i), (ii) and (iii) of subsection (c) of this Section 2; or -2- 3 (b) Individuals who, as of November 1, 1997, constitute the Board (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to November 1, 1997 whose election, or nomination for election by the Company's stockholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or (c) Consummation of a reorganization, merger or consolidation, a sale, liquidation or partial liquidation, or other disposition of all or substantially all (e.g., 50% or more) of the assets of the Company in one or a series of transactions, and/or any combination of the foregoing (a "Business Combination"), in each case, unless, following such Business Combination, (i) all or substantially all of the Persons who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Business Combination beneficially owns (within the meaning of SEC Rule 13d-3 under the Exchange Act), directly or indirectly, more than 60% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the entity resulting from such Business Combination (including, without limitation, an entity which as a result of such transaction beneficially owns (within the meaning of SEC Rule 13d-3 under the Exchange Act) the Company or all or substantially all (e.g., 50% or more) of the Company's assets either directly or through one or more subsidiaries, partnerships, limited liability companies, trusts and/or other entities or Persons) in substantially the same proportions as their beneficial ownership, immediately prior to such Business Combination of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (ii) no Person (excluding any corporation or other entity resulting from such Business Combination or any employee benefit plan (or related trust) of the Company or such corporation or entity resulting from such Business Combination) beneficially owns (within the meaning of SEC Rule 13d-3 under the Exchange Act), directly or indirectly, 25% or more of the combined voting power of the then outstanding voting securities of such corporation or entity except to the extent that such ownership existed prior to the Business Combination, and (iii) at least a majority of the members of the board of directors or other governing body (including trustees and/or general partners) of the corporation or entity resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination. 3. Employment Period. The Company hereby agrees to continue the Executive in its employ as provided in Section 4 hereof, and the Executive hereby agrees to remain in the employ of the Company subject to the terms and conditions of this -3- 4 Agreement, for the period commencing on the Effective Date and ending on the first anniversary of such date (the "Employment Period"). 4. Terms of Employment. (a) Position and Duties. (i) During the Employment Period, (A) the Executive shall serve and have the responsibilities and duties of Executive Vice President and Chief Financial Officer of the Company and its Affiliated Companies, and her position (including status, offices, titles and reporting relationships, authority, duties and responsibilities shall be not less than those as Executive Vice President and Chief Financial Officer of the Company and its Affiliated Companies and at least commensurate in all material respects with such offices with a public real estate investment trust and with the most significant of those held, exercised and assigned at any time during the 120-day period immediately preceding the Effective Date, and (B) the Executive's services shall be performed at the Company's principal executive offices in Atlanta, Georgia or at any location where the Executive was employed immediately preceding the Effective Date or any office or location not more than 35 miles from such location. (ii) During the Employment Period, and excluding any periods of vacation and sick leave to which the Executive is entitled, the Executive agrees to devote reasonable attention and time during normal business hours to the business and affairs of the Company and, to the extent necessary to discharge the responsibilities assigned to the Executive hereunder, to use the Executive's reasonable best efforts to perform faithfully and efficiently such responsibilities. During the Employment Period it shall not be a violation of this Agreement for the Executive to (A) serve on corporate, civic or charitable boards or committees, (B) engage in other business activities that do not represent a conflict of interest with his duties to the Company, and (C) manage personal investments, so long as such activities do not significantly interfere with the performance of the Executive's responsibilities as an employee of the Company in accordance with this Agreement. It is expressly understood and agreed that to the extent that any such activities have been conducted by the Executive prior to the Effective Date, the continued conduct of such activities (or the conduct of activities similar in nature and scope thereto) subsequent to the Effective Date shall not thereafter be deemed to interfere with the performance of the Executive's responsibilities to the Company. (b) Compensation. (i) Base Salary. During the Employment Period, the Executive shall receive an annual base salary ("Annual Base Salary"), which shall be paid at a monthly rate, at least equal to 12 times the highest monthly base salary paid or payable, including any base salary which has been earned but deferred, to the Executive by the Company and its Affiliated Companies in respect of the 12-month period immediately preceding the month in which the Effective Date occurs. During the Employment Period, -4- 5 the Annual Base Salary shall be reviewed not later than 12 months after the last salary increase awarded to the Executive prior to the Effective Date and thereafter shall be reviewed at least annually. Any increase in Annual Base Salary shall not serve to limit or reduce any other obligation to the Executive under this Agreement. The Annual Base Salary shall not be reduced after any such increase and the term Annual Base Salary as utilized in this Agreement shall refer to Annual Base Salary as so increased. (ii) Annual Bonus. In addition to Annual Base Salary, the Executive shall be awarded, for each fiscal year ending during the Employment Period, an annual bonus, excluding any payments of cash in lieu of pension (the "Annual Bonus"), in cash at least equal to the Executive's highest annual bonus for the last two full fiscal years prior to the Effective Date (annualized in the event that the Executive was not employed by the Company for the whole of such fiscal year). Each such Annual Bonus shall be paid no later than the end of the third month of the fiscal year next following the fiscal year for which the Annual Bonus is awarded, unless the Executive shall elect to defer the receipt of such Annual Bonus. (iii) Incentive, Savings and Retirement Plans. During the Employment Period, the Executive shall be entitled to participate in all incentive, savings and retirement plans, practices, policies and programs applicable generally to other peer executives of the Company and its Affiliated Companies, but in no event shall such plans, practices, policies and programs provide the Executive with incentive opportunities (measured with respect to both regular and special incentive opportunities, to the extent, if any, that such distinction is applicable), savings opportunities and retirement benefit opportunities, in each case, less favorable, in the aggregate, than the most favorable of those provided by the Company and its Affiliated Companies for the Executive under such plans, practices, policies and programs as in effect at any time during the one-year period immediately preceding the Effective Date or if more favorable to the Executive, those provided generally at any time after the Effective Date to other peer executives of the Company and its Affiliated Companies. (iv) Welfare Benefit Plans. During the Employment Period (and after termination of employment, except where prohibited by law or the applicable plan, or the generally applicable practices, policies and programs of the Company and its Affiliated Companies and their respective successors and assigns), the Executive and/or the Executive's family, as the case may be, shall be eligible for participation in and shall receive all benefits under such welfare benefit plans, practices, policies and programs (including, without limitation, medical, prescription, dental, disability, employee life, group life, accidental death and travel accident insurance plans and programs) to the extent applicable generally to other peer executives of the Company, its Affiliated Companies and their respective successors and assigns, but in no event shall such plans, practices, policies and programs provide the Executive and her family, as applicable, with benefits which are less favorable, in the aggregate, than the most favorable of such plans, practices, policies and programs in effect for the Executive and her family, as applicable, at any time during the one year period immediately preceding the Effective Date or, if -5- 6 more favorable to the Executive and her family, as applicable, those provided generally at any time after the Effective Date to other peer executives (and their families) of the Company and its Affiliated Companies or their successors. In the event that the Executive's and her family's participation in any such plan, program or other benefit provided under the generally applicable practices, policies and programs of, the Company and its Affiliated Companies and their respective successors and assigns are prohibited by law or such applicable plan, practices, policies or programs, the Company and its Affiliated Companies and their respective successors and assigns shall provide the Executive and her family, without further cost or expense to the Executive and her family members, benefits similar to those which the Executive and her family would otherwise have been entitled to receive under such plans, programs, practices and policies as if the Executive's employment had not ceased. (v) Expenses. During the Employment Period, the Executive shall be entitled to receive prompt reimbursement for all reasonable expenses incurred by the Executive in accordance with the most favorable policies, practices and procedures of the Company and its Affiliated Companies in effect for the Executive at any time during the one-year period immediately preceding the Effective Date or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company, the Affiliated Companies, and their respective successors and assigns. (vi) Fringe Benefits. During the Employment Period (but not after termination of employment, except as required by this Agreement, law and/or the applicable plan, practices, policies and programs of the Company and its Affiliated Companies and their respective successors and assigns), the Executive shall be entitled to fringe benefits in accordance with the most favorable of such plans, practices, programs and policies in effect for the Executive at any time during the one year period immediately preceding the Effective Date or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and its Affiliated Companies. 5. Termination of Employment. (a) Death or Disability. The Executive's employment shall terminate automatically upon the Executive's death during the Employment Period. If the Board determines in good faith that the Disability of the Executive has occurred during the Employment Period, it may give to the Executive written notice in accordance with Section 12(b) of this Agreement of its intention to terminate the Executive's employment. In such event, the Executive's employment with the Company shall terminate effective on the 30th day after receipt of such notice by the Executive (the "Disability Effective Date"), provided that, within the 30 days after such receipt, the Executive shall not have returned to full-time performance of the Executive's duties. -6- 7 (b) Cause. The Company may terminate the Executive's employment during the Employment Period for Cause. For purposes hereof, "Cause" shall mean: (i) the willful and continued failure of the Executive to perform substantially the Executive's duties with the Company and/or its Affiliated Companies (other than any such failure resulting from incapacity due to physical or mental illness), after a written demand for substantial performance is delivered to the Executive by the Board or the Chief Executive Officer of the Company which specifically identifies the manner in which the Board or Chief Executive Officer believes that the Executive has not substantially performed the Executive's duties, or (ii) the willful engaging by the Executive in illegal conduct or gross misconduct which is materially and demonstrably injurious to the Company. For purposes of this provision, no act or failure to act, on the part of the Executive, shall be considered "willful" unless it is done, or omitted to be done, by the Executive in bad faith or without reasonable belief that the Executive's action or omission was in the best interests of the Company. Any act, or failure to act, based upon authority given pursuant to a resolution duly adopted by the Board or upon the instructions of the Chief Executive Officer or a senior officer of the Company or based upon the advice of counsel for the Company shall be conclusively presumed to be done, or omitted to be done, by the Executive in good faith and in the best interests of the Company. The cessation of employment of the Executive shall not be deemed to be for Cause unless and until there shall have been delivered to the Executive a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters of the entire membership of the Board at a meeting of the Board called and held for such purpose (after reasonable notice is provided to the Executive and the Executive is given an opportunity, together with counsel, to be heard before the Board), finding that, in the good faith opinion of the Board, the Executive is guilty of the conduct described in subparagraph (i) or (ii) above, and specifying the particulars thereof in detail. (c) Good Reason. The Executive's employment may be terminated by the Executive for Good Reason. For purposes of this Agreement, "Good Reason" shall mean: (i) the assignment or proposed assignment to the Executive of any duties inconsistent in any respect with the Executive's position (including status, offices, titles and reporting relationships), authority, duties or responsibilities as contemplated by Section 4(a) of this Agreement, or any other action by the Company which results in a diminution in such position, authority, duties or responsibilities, excluding for this purpose an isolated, insubstantial and inadvertent action not taken in bad faith and which is remedied by the Company or any Affiliated Company promptly after receipt of notice thereof given by the Executive; -7- 8 (ii) any failure by the Company and its Affiliated Companies to comply with any of the provisions of Section 4(b) of this Agreement, other than an isolated, insubstantial and inadvertent failure not occurring in bad faith and which is remedied by the Company and such Affiliated Companies promptly after receipt of notice thereof given by the Executive; (iii) the Company or any Affiliated Company requiring the Executive to be based at any office or location other than as provided in Section 4(a)(i)(B) hereof or the Company's requiring the Executive to travel on Company or any Affiliated Company's business to a substantially greater extent than required immediately prior to the Effective Date; (iv) any purported termination by the Company or any Affiliated Company of the Executive's employment otherwise than as expressly permitted by this Agreement; or (v) any failure by the Company or any Affiliated Company to comply with and satisfy Section 11(c) of this Agreement. For purposes of this Section 5(c), any good faith determination of Good Reason made by the Executive shall be conclusive. Anything in this Agreement to the contrary notwithstanding, a termination by the Executive for any reason during the period beginning on the Effective Date and ending 30 days following the first anniversary of the Effective Date shall be deemed to be a termination for Good Reason for all purposes hereunder. (d) Notice of Termination. Any termination by the Company for Cause, or by the Executive for Good Reason, shall be communicated by Notice of Termination to the other party hereto given in accordance with Section 12(b) of this Agreement. For purposes of this Agreement, a "Notice of Termination" means a written notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated and (iii) if the Date of Termination (as defined below) is other than the date of receipt of such notice, specifies the termination date (which date shall be not more than 30 days after the giving of such notice). The failure by the Executive or the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of the Executive or the Company, respectively, hereunder or preclude the Executive or the Company, respectively, from asserting such fact or circumstance in enforcing the Executive's or the Company's rights hereunder. (e) Date of Termination. "Date of Termination" means (i) if the Executive's employment is terminated by the Company and/or any Affiliated Company for Cause, or by the Executive for Good Reason, the date of receipt of the Notice of -8- 9 Termination or any later date specified therein, as the case may be, (ii) if the Executive's employment is terminated by the Company other than for Cause or Disability, the Date of Termination shall be the date on which the Company and/or any Affiliated Company notifies the Executive of such termination, and (iii) if the Executive's employment is terminated by reason of death or Disability, the Date of Termination shall be the date of death of the Executive or the Disability Effective Date, as the case may be. 6. Obligations of the Company upon Termination. (a) Good Reason; Other Than for Cause, Death or Disability. If, during the Employment Period, the Company and/or any Affiliated Company shall terminate the Executive's employment other than for Cause or Disability, or the Executive shall terminate employment for Good Reason: (i) the Company shall pay to the Executive in a lump sum in cash within 30 days after the Date of Termination the aggregate of the following amounts, or if elected by the Executive, the following aggregate amounts shall be paid in cash to the Executive in equal monthly installments over the two years following termination of employment: A. the sum of (1) the Executive's Annual Base Salary through the Date of Termination to the extent not theretofore paid, (2) the product of (x) the average of the Annual Bonus paid or payable, including any bonus or portion thereof which has been earned but deferred, for the two most recently completed fiscal years during the Employment Period, if any (such amount being referred to as the "Most Recent Annual Bonus") and (y) a fraction, the numerator of which is the number of days in the current fiscal year through the Date of Termination, and the denominator of which is 365, and (3) any compensation previously deferred by the Executive (together with any accrued interest or earnings thereon) and any accrued vacation pay, in each case to the extent not theretofore paid (the sum of the amounts described in clauses (1), (2), and (3) shall be hereinafter referred to as the "Accrued Obligations"); B. the amount equal to the sum of (x) two (2) times the Executive's Annual Base Salary, and (y) two (2) times the Most Recent Annual Bonus; and (ii) for two (2) years after the Executive's Date of Termination, or such longer period as may be provided by the terms of the appropriate plan, program, practice or policy, the Company and its Affiliated Companies, shall continue to provide benefits to the Executive and/or the Executive's family at least equal to those which would have been provided to them in accordance with the plans, programs, practices and policies described in Section 4(b)(iv) of this Agreement if the Executive's employment had not been terminated or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies and their families, provided, however, that if the Executive becomes re- -9- 10 employed with another employer and is eligible to receive medical or other welfare benefits under another employer provided plan, the medical and other welfare benefits described herein shall be secondary to those provided under such other plan during such applicable period of eligibility. For purposes of determining eligibility (but not the time of commencement of benefits) of the Executive for retiree benefits pursuant to such plans, practices, programs and policies, the Executive shall be considered to have remained employed until two years after the Date of Termination and to have retired on the last day of such period; (iii) to the extent not theretofore paid or provided, the Company shall timely pay or provide to the Executive any other amounts or benefits required to be paid or provided or which the Executive is eligible to receive under any plan, program, policy or practice or contract or agreement of the Company and its Affiliated Companies (such other amounts and benefits shall be hereinafter referred to as the "Other Benefits"). (b) Death. If the Executive's employment is terminated by reason of the Executive's death during the Employment Period, this Agreement shall terminate without further obligations to the Executive's legal representatives under this Agreement, other than for payment of Accrued Obligations and the timely payment or provision of Other Benefits. Accrued Obligations shall be paid to the Executive's estate or beneficiary, as applicable, in a lump sum in cash within 30 days of the Date of Termination. With respect to the provision of Other Benefits, the term Other Benefits as utilized in this Section 6(b) shall include without limitation, and the Executive's estate and/or beneficiaries shall be entitled to receive, benefits at least equal to the most favorable provided by the Company and Affiliated Companies to the estates and beneficiaries of peer executives of the Company. (c) Disability. If the Executive's employment is terminated by reason of the Executive's Disability during the Employment Period, this Agreement shall terminate without further obligations to the Executive, other than for payment of Accrued Obligations and the timely payment or provision of Other Benefits. Accrued Obligations shall be paid to the Executive in a lump sum in cash within 30 days of the Date of Termination. With respect to the provision of Other Benefits, the term Other Benefits as utilized in this Section 6(c) shall include, and the Executive shall be entitled after the Disability Effective Date to receive, disability and other benefits at least equal to the most favorable such benefits provided by the Company and its Affiliated Companies to other peer executives and their families, provided the provision of such benefits are permissible under law, and the plans and programs of the Company and its Affiliated Companies. (d) Cause; Other than for Good Reason. If the Executive's employment shall be terminated for Cause during the Employment Period, this Agreement shall terminate without further obligations to the Executive other than the obligation to pay to the Executive (x) his Annual Base Salary through the Date of Termination, (y) the amount of any compensation previously deferred by the Executive, and (z) Other Benefits, in each case to the extent theretofore unpaid. If the Executive -10- 11 voluntarily terminates employment during the Employment Period, excluding a termination for Good Reason, this Agreement shall terminate without further obligations to the Executive, other than for Accrued Obligations and the timely payment or provision of Other Benefits. In such case, all Accrued Obligations shall be paid to the Executive in a lump sum in cash within 30 days of the Date of Termination. 7. Non-exclusivity of Rights; Disputes; etc. Nothing in this Agreement shall prevent or limit the Executive's continuing or future participation in any plan, program, policy or practice provided by the Company or any of its Affiliated Companies and entities and for which the Executive may qualify, nor, subject to Section 12(f), shall anything herein limit or otherwise affect such rights as the Executive may have under any contract or agreement with the Company or any of its Affiliated Companies and entities. Amounts or benefits which are vested or which the Executive is otherwise entitled to receive under any plan, policy, practice or program of, or any contract or agreement with, the Company or any of its Affiliated Companies at or subsequent to the Date of Termination, shall be payable in accordance with such plan, policy, practice, program, contract or agreement, except as explicitly modified by this Agreement. In the event that the Company terminates or seeks to terminate this Agreement or the employment of the Executive hereunder and/or disputes its obligation to pay or fails or refuses to pay or provide timely to the Executive any portion of the amounts or benefits due to the Executive pursuant to this Agreement, and the Executive prevails without regard to amount, the Company shall pay or reimburse to the Executive all costs incurred by her in such dispute or collection effort, including reasonable attorneys' fees and expenses (whether or not suit is filed) and costs of litigation. 8. Full Settlement. The Company's obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against the Executive or others. The Executive shall not be required to mitigate the amount of any payment or benefit provided herein by seeking other employment or otherwise, nor shall the amount of any payment or benefit provided herein be reduced by any compensation earned by the Executive an a result of employment by another employer or by retirement or disability benefits after the date of termination of employment or otherwise. The Company agrees to pay as incurred, to the full extent permitted by law, all legal fees and expenses which the Executive may reasonably incur as a result of any contest (regardless of the outcome thereof) by the Company, the Executive or others of the validity or enforceability of, or liability under, any provision of this Agreement or any guarantee of performance thereof (including as a result of any contest by the Executive about the amount of any payment pursuant to this Agreement), plus in each case interest on any delayed payment at the applicable federal rate provided for in Section 7872(f)(2)(A) of the Internal Revenue Code of 1986, as amended (the "Code"). -11- 12 9. Limitation of Benefits. (a) Anything in this Agreement to the contrary notwithstanding, in the event it shall be determined that any benefit, payment or distribution by the Company to or for the benefit of the Executive (whether payable or distributable pursuant to the terms of this Agreement or otherwise) (a "Payment") would, if paid, be subject to the excise tax imposed by Section 4999 of the Code (the "Excise Tax"), then the Payment shall be reduced to the extent necessary to avoid the imposition of the Excise Tax. The Executive may select the Payments to be limited or reduced. (b) All determinations required to be made under this Section 9, including whether an Excise Tax would otherwise be imposed and the assumptions to be utilized in arriving at such determination, shall be made by Arthur Andersen L.L.P. or such other certified public accounting firm as may be designated by the Executive (the "Accounting Firm") which shall provide detailed supporting calculations both to the Company and the Executive within 15 business days of the receipt of notice from the Executive that a Payment is due to be made, or such earlier time as is requested by the Company. In the event that the Accounting Firm is serving as accountant or auditor for the individual, entity or group effecting the Change of Control, the Executive may appoint another nationally recognized accounting firm to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall be borne solely by the Company. Any determination by the Accounting Firm shall be binding upon the Company and the Executive. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Payments hereunder will have been unnecessarily limited by this Section 9 ("Underpayment"), consistent with the calculations required to be made hereunder. The Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to or for the benefit of the Executive. 10. Confidential Information. The Executive shall hold in a fiduciary capacity for the benefit of the Company all secret or confidential information, knowledge or data relating to the Company or any of its Affiliated Companies, and their respective businesses, which shall have been obtained by the Executive during the Executive's employment by the Company or any of its Affiliated Companies and which shall not be or become public knowledge (other than by acts by the Executive or representatives of the Executive in violation of this Agreement). After termination of the Executive's employment with the Company, the Executive shall not, without the prior written consent of the Company or as may otherwise be required by law or legal process, communicate or divulge any such information, knowledge or data to anyone other than the Company and those designated by it. In no event shall an asserted violation of the provisions of this Section 10 constitute a basis for deferring or withholding any amounts otherwise payable to the Executive under this Agreement. Executive agrees that, for a period of one (1) year after termination, he will not solicit or hire any Company employees for any business that is in direct competition with any Company property. -12- 13 11. Successors. (a) This Agreement is personal to the Executive and without the prior written consent of the Company shall not be assignable by the Executive otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive's heirs, and personal and legal representatives. (b) This Agreement shall inure to the benefit of and be binding upon the Company, the Affiliated Companies and their respective successors and assigns. (c) The Company will require any successor (whether direct or indirect, as a result of a Business Combination, assignment, assumption, or otherwise) to all or substantially all (e.g. more than 50%) of the business and/or assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. 12. Miscellaneous. (a) This Agreement shall be governed by and construed in accordance with the laws of the State of Georgia, without reference to conflicts of laws principles. The captions and headings of this Agreement are for convenience of reference only and are not intended to and shall not effect the interpretation of this Agreement. This Agreement may not be amended or modified other than by a written agreement executed by the parties hereto or their respective successors and/or personal or legal representatives. As used herein, the plural shall include the singular and vice versa, any reference to gender shall include the other genders, and the term "include" and any derivation thereof shall be without limitation by virtue of enumeration thereof or otherwise. -13- 14 (b) All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, or by reliable overnight courier service addressed as follows: If to the Executive: Mary M. Thomas 3011 Greenwood Trail Marietta, Georgia 30067 If to the Company: IRT Property Company 200 Galleria Parkway, Suite 1400 Atlanta, Georgia 30339 Attention: Chairman of the Compensation Committee or to such other address as either party shall have furnished to the other in writing in accordance herewith. Notice and communications shall be effective when actually received by the addressee. (c) The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement. (d) The Company may withhold from any amounts payable under this Agreement such federal, state, local or foreign taxes as shall be required to be withheld pursuant to any applicable law or regulation. (e) The Executive's or the Company's failure to insist upon strict compliance with any provision of this Agreement or the failure to assert any right the Executive or the Company may have hereunder, including, without limitation, the right of the Executive to terminate employment for Good Reason pursuant to Section 5(c)(i)-(v) of this Agreement, shall not be deemed to be a waiver of such provision or right or any other provision or right of this Agreement. (f) The Executive and the Company acknowledge that, except as may otherwise be provided under any other written agreement between the Executive and the Company, the employment of the Executive by the Company is "at will" and, subject however to subsections 1.(b) and 1.(c) hereof, prior to the commencement of any discussion or negotiation that contemplate or are in anticipation of a potential Change in Control, the Executive's employment and this Agreement may be terminated by either the Executive or the Company at any time prior to the Effective Date, in which case the -14- 15 Executive shall have no further rights under this Agreement. From and after the Effective Date, this Agreement shall supersede any other agreement between the parties with respect to the subject matter hereof. (g) This Agreement constitutes the complete understanding and agreement of the Executive and the Company with respect to the matters covered hereby and supersedes all prior agreements with respect to such matters, including the Agreement dated as of October 1, 1995 between the Executive and the Company, which October 1, 1995 Agreement is hereby terminated. IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand and, pursuant to the authorization from its Board of Directors, the Company has caused this Agreement to be executed in its name on its behalf by its undersigned officer thereunto, duly authorized, all as of the day and year first above written. EXECUTIVE: /S/ Mary M. Thomas ----------------------------- Mary M. Thomas COMPANY: IRT PROPERTY COMPANY By: /S/ Thomas H. McAuley ------------------------- Thomas H. McAuley President -15- EX-10.9 4 CHANGE IN EMPLOYMENT AGREEMENT - BEN JONES 1 EXHIBIT 10.9 CHANGE IN CONTROL EMPLOYMENT AGREEMENT THIS AGREEMENT is by and between IRT Property Company, a Georgia corporation (herein, together with any successor or assigns to its business and/or assets, and any person or entity that assumes and agrees to perform this Agreement by operation of law or otherwise, the "Company") and W. Benjamin Jones, III (the "Executive"), dated as of the 11th day of November, 1997. The Board of Directors of the Company (the "Board"), has determined that it is in the best interests of the Company and its stockholders to assure that the Company will have the continued dedication of the Executive, notwithstanding the possibility, threat or occurrence of a Change of Control (as defined below) of the Company. The Board believes it is imperative to diminish the inevitable distraction of the Executive by virtue of the personal uncertainties and risks created by a pending or threatened Change of Control and to encourage the Executive's full attention and dedication to the Company currently and in the event of any threatened or pending Change of Control, and to provide the Executive with compensation and benefits arrangements upon a Change of Control which ensure that the compensation and benefits expectations of the Executive will be satisfied and which are competitive with those of other corporations and entities. Therefore, in order to accomplish these objectives, the Board has authorized and caused the Company to enter into this Agreement. In consideration of the premises and other good and valuable consideration, the receipt and sufficiency of which are acknowledged by each party hereto, the parties, intending to be legally bound, agree as follows: 1. Certain Definitions. (a) "Affiliated Companies" shall mean any corporation, partnership, limited liability company, trust and/or other entity controlled by, controlling or under common control with, the Company. Unless the context clearly requires otherwise, as used herein, the Company shall include all its Affiliated Companies. (b) "Change of Control Period" shall mean the period of three years ending on the third anniversary of the date hereof; provided, however, that commencing on the date one year after the date hereof, and on each annual anniversary of such date (such date and each annual anniversary thereof shall hereinafter be referred to as the "Renewal Date"), unless previously terminated, the Change of Control Period shall be automatically extended so as to terminate three years from such Renewal Date. (c) "Disability" shall mean the absence of the Executive from the Executive's duties with the Company on a full-time basis for 180 consecutive days as a result of incapacity due to mental or physical illness which is determined to be total and 2 permanent by a physician selected by the Company or its insurers and acceptable to the Executive or the Executive's legal representative. (d) "Effective Date" shall mean the first date during the Change of Control Period (as defined in Section l(c)) on which a Change of Control (as defined in Section 2) occurs. Anything in this Agreement to the contrary notwithstanding, if a Change of Control occurs and if the Executive's employment with the Company is terminated prior to the date on which the Change of Control occurs, and if it is reasonably demonstrated by the Executive that such termination of employment (i) was at the request of a third party who has taken steps reasonably calculated to effect a Change of Control or (ii) otherwise arose in connection with any discussion or negotiation contemplating or in anticipation of a potential Change of Control, then for all purposes of this Agreement the "Effective Date" shall mean the date immediately prior to the date of such termination of employment. (e) "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended and the rules and regulations of the Securities and Exchange Commission ("SEC") thereunder. (f) "Person" shall mean any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act. 2. Change of Control. For the purposes of this Agreement, a "Change of Control" shall mean: (a) The acquisition by any Person of beneficial ownership (within the meaning of SEC Rule 13d-3 under the Exchange Act) of 25% or more of the combined voting power of (x) all then outstanding shares of Company common stock ("Outstanding Company Common Stock") and (y) all then outstanding securities of the Company entitled to vote generally in the election of directors and all outstanding securities and/or rights to acquire (whether by conversion, exchange or otherwise) voting securities of the Company entitled to vote generally in the election of directors (collectively with the Outstanding Company Common Stock, the "Outstanding Company Voting Securities"); provided, however, that for purposes of this subsection (a), the following acquisitions shall not constitute a Change of Control: (i) any acquisition by a Person who was on November 1, 1997 the beneficial owner of 25% or more of the Outstanding Company Voting Securities, (ii) any acquisition by the Company, provided no Change in Control has previously occurred or would result therefrom under subsections 2(b) and 2(c) of this Agreement, (iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any Affiliated Company, or (iv) any acquisition by any Person pursuant to a transaction which complies with clauses (i), (ii) and (iii) of subsection (c) of this Section 2; or (b) Individuals who, as of November 1, 1997, constitute the Board (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board; -2- 3 provided, however, that any individual becoming a director subsequent to November 1, 1997 whose election, or nomination for election by the Company's stockholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or (c) Consummation of a reorganization, merger or consolidation, a sale, liquidation or partial liquidation, or other disposition of all or substantially all (e.g., 50% or more) of the assets of the Company in one or a series of transactions, and/or any combination of the foregoing (a "Business Combination"), in each case, unless, following such Business Combination, (i) all or substantially all of the Persons who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Business Combination beneficially owns (within the meaning of SEC Rule 13d-3 under the Exchange Act), directly or indirectly, more than 60% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the entity resulting from such Business Combination (including, without limitation, an entity which as a result of such transaction beneficially owns (within the meaning of SEC Rule 13d-3 under the Exchange Act) the Company or all or substantially all (e.g., 50% or more) of the Company's assets either directly or through one or more subsidiaries, partnerships, limited liability companies, trusts and/or other entities or Persons) in substantially the same proportions as their beneficial ownership, immediately prior to such Business Combination of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (ii) no Person (excluding any corporation or other entity resulting from such Business Combination or any employee benefit plan (or related trust) of the Company or such corporation or entity resulting from such Business Combination) beneficially owns (within the meaning of SEC Rule 13d-3 under the Exchange Act), directly or indirectly, 25% or more of the combined voting power of the then outstanding voting securities of such corporation or entity except to the extent that such ownership existed prior to the Business Combination, and (iii) at least a majority of the members of the board of directors or other governing body (including trustees and/or general partners) of the corporation or entity resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination. 3. Employment Period. The Company hereby agrees to continue the Executive in its employ as provided in Section 4 hereof, and the Executive hereby agrees to remain in the employ of the Company subject to the terms and conditions of this Agreement, for the period commencing on the Effective Date and ending on the first anniversary of such date (the "Employment Period"). -3- 4 4. Terms of Employment. (a) Position and Duties. (i) During the Employment Period, (A) the Executive's position (including status, offices, titles and reporting relationships), authority, duties and responsibilities shall be at least commensurate in all material respects with the most significant of those held, exercised and assigned at any time during the 120-day period immediately preceding the Effective Date, and (B) the Executive's services shall be performed at the location where the Executive was employed immediately preceding the Effective Date or any office or location not more than 35 miles from such location. (ii) During the Employment Period, and excluding any periods of vacation and sick leave to which the Executive is entitled, the Executive agrees to devote reasonable attention and time during normal business hours to the business and affairs of the Company and, to the extent necessary to discharge the responsibilities assigned to the Executive hereunder, to use the Executive's reasonable best efforts to perform faithfully and efficiently such responsibilities. During the Employment Period it shall not be a violation of this Agreement for the Executive to (A) serve on corporate, civic or charitable boards or committees, (B) engage in other business activities that do not represent a conflict of interest with his duties to the Company, and (C) manage personal investments, so long as such activities do not significantly interfere with the performance of the Executive's responsibilities as an employee of the Company in accordance with this Agreement. It is expressly understood and agreed that to the extent that any such activities have been conducted by the Executive prior to the Effective Date, the continued conduct of such activities (or the conduct of activities similar in nature and scope thereto) subsequent to the Effective Date shall not thereafter be deemed to interfere with the performance of the Executive's responsibilities to the Company. (b) Compensation. (i) Base Salary. During the Employment Period, the Executive shall receive an annual base salary ("Annual Base Salary"), which shall be paid at a monthly rate, at least equal to 12 times the highest monthly base salary paid or payable, including any base salary which has been earned but deferred, to the Executive by the Company and its Affiliated Companies in respect of the 12-month period immediately preceding the month in which the Effective Date occurs. During the Employment Period, the Annual Base Salary shall be reviewed not later than 12 months after the last salary increase awarded to the Executive prior to the Effective Date and thereafter shall be reviewed at least annually. Any increase in Annual Base Salary shall not serve to limit or reduce any other obligation to the Executive under this Agreement. The Annual Base Salary shall not be reduced after any such increase and the term Annual Base Salary as utilized in this Agreement shall refer to Annual Base Salary as so increased. -4- 5 (ii) Annual Bonus. In addition to Annual Base Salary, the Executive shall be awarded, for each fiscal year ending during the Employment Period, an annual bonus, excluding any payments of cash in lieu of pension (the "Annual Bonus"), in cash at least equal to the Executive's highest annual bonus for the last two full fiscal years prior to the Effective Date (annualized in the event that the Executive was not employed by the Company for the whole of such fiscal year). Each such Annual Bonus shall be paid no later than the end of the third month of the fiscal year next following the fiscal year for which the Annual Bonus is awarded, unless the Executive shall elect to defer the receipt of such Annual Bonus. (iii) Incentive, Savings and Retirement Plans. During the Employment Period, the Executive shall be entitled to participate in all incentive, savings and retirement plans, practices, policies and programs applicable generally to other peer executives of the Company and its Affiliated Companies, but in no event shall such plans, practices, policies and programs provide the Executive with incentive opportunities (measured with respect to both regular and special incentive opportunities, to the extent, if any, that such distinction is applicable), savings opportunities and retirement benefit opportunities, in each case, less favorable, in the aggregate, than the most favorable of those provided by the Company and its Affiliated Companies for the Executive under such plans, practices, policies and programs as in effect at any time during the one-year period immediately preceding the Effective Date or if more favorable to the Executive, those provided generally at any time after the Effective Date to other peer executives of the Company and its Affiliated Companies. (iv) Welfare Benefit Plans. During the Employment Period (and after termination of employment, except where prohibited by law or the applicable plan, or the generally applicable practices, policies and programs of the Company and its Affiliated Companies and their respective successors and assigns), the Executive and/or the Executive's family, as the case may be, shall be eligible for participation in and shall receive all benefits under such welfare benefit plans, practices, policies and programs (including, without limitation, medical, prescription, dental, disability, employee life, group life, accidental death and travel accident insurance plans and programs) to the extent applicable generally to other peer executives of the Company, its Affiliated Companies and their respective successors and assigns, but in no event shall such plans, practices, policies and programs provide the Executive and his or her family, as applicable, with benefits which are less favorable, in the aggregate, than the most favorable of such plans, practices, policies and programs in effect for the Executive and his or her family, as applicable, at any time during the one year period immediately preceding the Effective Date or, if more favorable to the Executive and his or her family, as applicable, those provided generally at any time after the Effective Date to other peer executives (and their families) of the Company and its Affiliated Companies or their successors. In the event that the Executive's and his or her family's participation in any such plan, program or other benefit provided under the generally applicable practices, policies and programs of the Company and its Affiliated Companies and their respective successors and assigns are prohibited, the Company and its Affiliated Companies and -5- 6 their respective successors and assigns shall provide the Executive and his or her family, without further cost or expense to the Executive and his or her family members, benefits similar to those which the Executive and his or her family would otherwise have been entitled to receive under such plans, programs, practices and policies as if the Executive's employment had not ceased. (v) Expenses. During the Employment Period, the Executive shall be entitled to receive prompt reimbursement for all reasonable expenses incurred by the Executive in accordance with the most favorable policies, practices and procedures of the Company and its Affiliated Companies in effect for the Executive at any time during the one-year period immediately preceding the Effective Date or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company, the Affiliated Companies, and their respective successors and assigns. (vi) Fringe Benefits. During the Employment Period (but not after termination of employment, except as required by this Agreement, law and/or the applicable plan, practices, policies and programs of the Company and its Affiliated Companies and their respective successors and assigns), the Executive shall be entitled to fringe benefits in accordance with the most favorable of such plans, practices, programs and policies in effect for the Executive at any time during the one year period immediately preceding the Effective Date or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and its Affiliated Companies. 5. Termination of Employment. (a) Death or Disability. The Executive's employment shall terminate automatically upon the Executive's death during the Employment Period. If the Board determines in good faith that the Disability of the Executive has occurred during the Employment Period, it may give to the Executive written notice in accordance with Section 12(b) of this Agreement of its intention to terminate the Executive's employment. In such event, the Executive's employment with the Company shall terminate effective on the 30th day after receipt of such notice by the Executive (the "Disability Effective Date"), provided that, within the 30 days after such receipt, the Executive shall not have returned to full-time performance of the Executive's duties. (b) Cause. The Company may terminate the Executive's employment during the Employment Period for Cause. For purposes of this Agreement, "Cause" shall mean: (i) the willful and continued failure of the Executive to perform substantially the Executive's duties with the Company and/or its Affiliated Companies (other than any such failure resulting from incapacity due to physical or mental illness), after a written demand for substantial performance is delivered to the Executive by the -6- 7 Board or the Chief Executive Officer of the Company which specifically identifies the manner in which the Board or Chief Executive Officer believes that the Executive has not substantially performed the Executive's duties, or (ii) the willful engaging by the Executive in illegal conduct or gross misconduct which is materially and demonstrably injurious to the Company. For purposes of this provision, no act or failure to act, on the part of the Executive, shall be considered "willful" unless it is done, or omitted to be done, by the Executive in bad faith or without reasonable belief that the Executive's action or omission was in the best interests of the Company. Any act, or failure to act, based upon authority given pursuant to a resolution duly adopted by the Board or upon the instructions of the Chief Executive Officer or a senior officer of the Company or based upon the advice of counsel for the Company shall be conclusively presumed to be done, or omitted to be done, by the Executive in good faith and in the best interests of the Company. The cessation of employment of the Executive shall not be deemed to be for Cause unless and until there shall have been delivered to the Executive a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters of the entire membership of the Board at a meeting of the Board called and held for such purpose (after reasonable notice is provided to the Executive and the Executive is given an opportunity, together with counsel, to be heard before the Board), finding that, in the good faith opinion of the Board, the Executive is guilty of the conduct described in subparagraph (i) or (ii) above, and specifying the particulars thereof in detail. (c) Good Reason. The Executive's employment may be terminated by the Executive for Good Reason. For purposes of this Agreement, "Good Reason" shall mean: (i) the assignment or proposed assignment to the Executive of any duties inconsistent in any respect with the Executive's position (including status, offices, titles and reporting relationships), authority, duties or responsibilities as contemplated by Section 4(a) of this Agreement, or any other action by the Company which results in a diminution in such position, authority, duties or responsibilities, excluding for this purpose an isolated, insubstantial and inadvertent action not taken in bad faith and which is remedied by the Company or any Affiliated Company promptly after receipt of notice thereof given by the Executive; (ii) any failure by the Company and its Affiliated Companies to comply with any of the provisions of Section 4(b) of this Agreement, other than an isolated, insubstantial and inadvertent failure not occurring in bad faith and which is remedied by the Company and such Affiliated Companies promptly after receipt of notice thereof given by the Executive; (iii) the Company or any Affiliated Company requiring the Executive to be based at any office or location other than as provided in Section -7- 8 4(a)(i)(B) hereof or the Company's requiring the Executive to travel on Company or any Affiliated Company's business to a substantially greater extent than required immediately prior to the Effective Date; (iv) any purported termination by the Company or any Affiliated Company of the Executive's employment otherwise than as expressly permitted by this Agreement; or (v) any failure by the Company or any Affiliated Company to comply with and satisfy Section 11(c) of this Agreement. For purposes of this Section 5(c), any good faith determination of Good Reason made by the Executive shall be conclusive. Anything in this Agreement to the contrary notwithstanding, a termination by the Executive for any reason during the period beginning on the Effective Date and ending 30 days following the first anniversary of the Effective Date shall be deemed to be a termination for Good Reason for all purposes hereunder. (d) Notice of Termination. Any termination by the Company for Cause, or by the Executive for Good Reason, shall be communicated by Notice of Termination to the other party hereto given in accordance with Section 12(b) of this Agreement. For purposes of this Agreement, a "Notice of Termination" means a written notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated and (iii) if the Date of Termination (as defined below) is other than the date of receipt of such notice, specifies the termination date (which date shall be not more than 30 days after the giving of such notice). The failure by the Executive or the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of the Executive or the Company, respectively, hereunder or preclude the Executive or the Company, respectively, from asserting such fact or circumstance in enforcing the Executive's or the Company's rights hereunder. (e) Date of Termination. "Date of Termination" means (i) if the Executive's employment is terminated by the Company and/or any Affiliated Company for Cause, or by the Executive for Good Reason, the date of receipt of the Notice of Termination or any later date specified therein, as the case may be, (ii) if the Executive's employment is terminated by the Company other than for Cause or Disability, the Date of Termination shall be the date on which the Company and/or any Affiliated Company notifies the Executive of such termination, and (iii) if the Executive's employment is terminated by reason of death or Disability, the Date of Termination shall be the date of death of the Executive or the Disability Effective Date, as the case may be. -8- 9 6. Obligations of the Company upon Termination. (a) Good Reason; Other Than for Cause, Death or Disability. If, during the Employment Period, the Company and/or any Affiliated Company shall terminate the Executive's employment other than for Cause or Disability, or the Executive shall terminate employment for Good Reason: (i) the Company shall pay to the Executive in a lump sum in cash within 30 days after the Date of Termination the aggregate of the following amounts, or if elected by the Executive, the following aggregate amounts shall be paid in cash to the Executive in equal monthly installments over the one year following termination of employment: A. the sum of (1) the Executive's Annual Base Salary through the Date of Termination to the extent not theretofore paid, (2) the product of (x) the average of the Annual Bonus paid or payable, including any bonus or portion thereof which has been earned but deferred, for the two most recently completed fiscal years during the Employment Period, if any (such amount being referred to as the "Most Recent Annual Bonus") and (y) a fraction, the numerator of which is the number of days in the current fiscal year through the Date of Termination, and the denominator of which is 365, and (3) any compensation previously deferred by the Executive (together with any accrued interest or earnings thereon) and any accrued vacation pay, in each case to the extent not theretofore paid (the sum of the amounts described in clauses (1), (2), and (3) shall be hereinafter referred to as the "Accrued Obligations"); B. the amount equal to the sum of (x) one (1) times the Executive's Annual Base Salary, and (y) one (1) times the Most Recent Annual Bonus; and (ii) for one year after the Executive's Date of Termination, or such longer period as may be provided by the terms of the appropriate plan, program, practice or policy, the Company and its Affiliated Companies, shall continue to provide benefits to the Executive and/or the Executive's family at least equal to those which would have been provided to them in accordance with the plans, programs, practices and policies described in Section 4(b)(iv) of this Agreement if the Executive's employment had not been terminated or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies and their families, provided, however, that if the Executive becomes re-employed with another employer and is eligible to receive medical or other welfare benefits under another employer provided plan, the medical and other welfare benefits described herein shall be secondary to those provided under such other plan during such applicable period of eligibility. For purposes of determining eligibility (but not the time of commencement of benefits) of the Executive for retiree benefits pursuant to such plans, practices, programs and policies, the Executive shall be considered to have -9- 10 remained employed until two years after the Date of Termination and to have retired on the last day of such period; (iii) to the extent not theretofore paid or provided, the Company shall timely pay or provide to the Executive any other amounts or benefits required to be paid or provided or which the Executive is eligible to receive under any plan, program, policy or practice or contract or agreement of the Company and its Affiliated Companies (such other amounts and benefits shall be hereinafter referred to as the "Other Benefits"). (b) Death. If the Executive's employment is terminated by reason of the Executive's death during the Employment Period, this Agreement shall terminate without further obligations to the Executive's legal representatives under this Agreement, other than for payment of Accrued Obligations and the timely payment or provision of Other Benefits. Accrued Obligations shall be paid to the Executive's estate or beneficiary, as applicable, in a lump sum in cash within 30 days of the Date of Termination. With respect to the provision of Other Benefits, the term Other Benefits as utilized in this Section 6(b) shall include without limitation, and the Executive's estate and/or beneficiaries shall be entitled to receive, benefits at least equal to the most favorable provided by the Company and Affiliated Companies to the estates and beneficiaries of peer executives of the Company. (c) Disability. If the Executive's employment is terminated by reason of the Executive's Disability during the Employment Period, this Agreement shall terminate without further obligations to the Executive, other than for payment of Accrued Obligations and the timely payment or provision of Other Benefits. Accrued Obligations shall be paid to the Executive in a lump sum in cash within 30 days of the Date of Termination. With respect to the provision of Other Benefits, the term Other Benefits as utilized in this Section 6(c) shall include, and the Executive shall be entitled after the Disability Effective Date to receive, disability and other benefits at least equal to the most favorable such benefits provided by the Company and its Affiliated Companies to other peer executives and their families, provided the provision of such benefits are permissible under law, and the plans and programs of the Company and its Affiliated Companies. (d) Cause; Other than for Good Reason. If the Executive's employment shall be terminated for Cause during the Employment Period, this Agreement shall terminate without further obligations to the Executive other than the obligation to pay to the Executive (x) his Annual Base Salary through the Date of Termination, (y) the amount of any compensation previously deferred by the Executive, and (z) Other Benefits, in each case to the extent theretofore unpaid. If the Executive voluntarily terminates employment during the Employment Period, excluding a termination for Good Reason, this Agreement shall terminate without further obligations to the Executive, other than for Accrued Obligations and the timely payment or provision of Other Benefits. In such case, all Accrued Obligations shall be paid to the Executive in a lump sum in cash within 30 days of the Date of Termination. -10- 11 7. Non-exclusivity of Rights; Disputes; etc. Nothing in this Agreement shall prevent or limit the Executive's continuing or future participation in any plan, program, policy or practice provided by the Company or any of its Affiliated Companies and entities and for which the Executive may qualify, nor, subject to Section 12(f), shall anything herein limit or otherwise affect such rights as the Executive may have under any contract or agreement with the Company or any of its Affiliated Companies and entities. Amounts or benefits which are vested or which the Executive is otherwise entitled to receive under any plan, policy, practice or program of, or any contract or agreement with, the Company or any of its Affiliated Companies at or subsequent to the Date of Termination, shall be payable in accordance with such plan, policy, practice, program, contract or agreement, except as explicitly modified by this Agreement. In the event that the Company terminates or seeks to terminate this Agreement or the employment of the Executive hereunder and/or disputes its obligation to pay or fails or refuses to pay or provide timely to the Executive any portion of the amounts or benefits due to the Executive pursuant to this Agreement and the Executive prevails without regard to amount, the Company shall pay or reimburse to the Executive all costs incurred by him in such dispute or collection effort, including reasonable attorneys' fees and expenses (whether or not suit is filed) and costs of litigation. 8. Full Settlement. The Company's obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against the Executive or others. The Executive shall not be required to mitigate the amount of any payment or benefit provided herein by seeking other employment or otherwise, nor shall the amount of any payment or benefit provided herein be reduced by any compensation earned by the Executive an a result of employment by another employer or by retirement or disability benefits after the date of termination of employment or otherwise. The Company agrees to pay as incurred, to the full extent permitted by law, all legal fees and expenses which the Executive may reasonably incur as a result of any contest (regardless of the outcome thereof) by the Company, the Executive or others of the validity or enforceability of, or liability under, any provision of this Agreement or any guarantee of performance thereof (including as a result of any contest by the Executive about the amount of any payment pursuant to this Agreement), plus in each case interest on any delayed payment at the applicable federal rate provided for in Section 7872(f)(2)(A) of the Internal Revenue Code of 1986, as amended (the "Code"). 9. Limitation of Benefits. (a) Anything in this Agreement to the contrary notwithstanding, in the event it shall be determined that any benefit, payment or distribution by the Company to or for the benefit of the Executive (whether payable or distributable pursuant to the terms of this Agreement or otherwise) (a "Payment") would, if paid, be subject to the excise tax imposed by Section 4999 of the Code (the "Excise Tax"), then the Payment shall be -11- 12 reduced to the extent necessary to avoid the imposition of the Excise Tax. The Executive may select the Payments to be limited or reduced. (b) All determinations required to be made under this Section 9, including whether an Excise Tax would otherwise be imposed and the assumptions to be utilized in arriving at such determination, shall be made by Arthur Andersen L.L.P. or such other certified public accounting firm as may be designated by the Executive (the "Accounting Firm") which shall provide detailed supporting calculations both to the Company and the Executive within 15 business days of the receipt of notice from the Executive that a Payment is due to be made, or such earlier time as is requested by the Company. In the event that the Accounting Firm is serving as accountant or auditor for the individual, entity or group effecting the Change of Control, the Executive may appoint another nationally recognized accounting firm to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall be borne solely by the Company. Any determination by the Accounting Firm shall be binding upon the Company and the Executive. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Payments hereunder will have been unnecessarily limited by this Section 9 ("Underpayment"), consistent with the calculations required to be made hereunder. The Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to or for the benefit of the Executive. 10. Confidential Information. The Executive shall hold in a fiduciary capacity for the benefit of the Company all secret or confidential information, knowledge or data relating to the Company or any of its Affiliated Companies, and their respective businesses, which shall have been obtained by the Executive during the Executive's employment by the Company or any of its Affiliated Companies and which shall not be or become public knowledge (other than by acts by the Executive or representatives of the Executive in violation of this Agreement). After termination of the Executive's employment with the Company, the Executive shall not, without the prior written consent of the Company or as may otherwise be required by law or legal process, communicate or divulge any such information, knowledge or data to anyone other than the Company and those designated by it. In no event shall an asserted violation of the provisions of this Section 10 constitute a basis for deferring or withholding any amounts otherwise payable to the Executive under this Agreement. Executive agrees that, for a period of one (1) year after termination, he will not solicit or hire any Company employees for any business that is in direct competition with any Company property. 11. Successors. (a) This Agreement is personal to the Executive and without the prior written consent of the Company shall not be assignable by the Executive otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit -12- 13 of and be enforceable by the Executive's heirs, legatees, and personal and legal representatives. (b) This Agreement shall inure to the benefit of and be binding upon the Company, the Affiliated Companies and their respective successors and assigns. (c) The Company will require any successor (whether direct or indirect, as a result of a Business Combination, or otherwise) to all or substantially all (e.g. 50% or more) of the business and/or assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. 12. Miscellaneous. (a) This Agreement shall be governed by and construed in accordance with the laws of the State of Georgia, without reference to conflicts of laws principles. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. This Agreement may not be amended or modified otherwise than by a written agreement executed by the parties hereto or their respective successors and legal representatives. As used herein, the plural shall include the singular and vice versa, any reference to gender shall include the other genders, and the term "include" and any derivation thereof shall be without limitation by virtue of enumeration thereof or otherwise. (b) All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, or by reliable overnight courier service addressed as follows: If to the Executive: W. Benjamin Jones, III 794 Old Paper Mill Drive Marietta, Georgia 30067 If to the Company: IRT Property Company 200 Galleria Parkway, Suite 1400 Atlanta, Georgia 30339 Attention: President or to such other address as either party shall have furnished to the other in writing in accordance herewith. Notice and communications shall be effective when actually received by the addressee. -13- 14 (c) The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement. (d) The Company may withhold from any amounts payable under this Agreement such federal, state, local or foreign taxes as shall be required to be withheld pursuant to any applicable law or regulation. (e) The Executive's or the Company's failure to insist upon strict compliance with any provision of this Agreement or the failure to assert any right the Executive or the Company may have hereunder, including, without limitation, the right of the Executive to terminate employment for Good Reason pursuant to Section 5(c)(i)-(v) of this Agreement, shall not be deemed to be a waiver of such provision or right or any other provision or right of this Agreement. (f) The Executive and the Company acknowledge that, except as may otherwise be provided under any other written agreement between the Executive and the Company, the employment of the Executive by the Company is "at will" and, subject however to subsections 1.(b) and 1.(c) hereof, prior to the commencement of any discussion or negotiation that contemplate or are in anticipation of a potential Change in Control, the Executive's employment and this Agreement may be terminated by either the Executive or the Company at any time prior to the Effective Date, in which case the Executive shall have no further rights under this Agreement. From and after the Effective Date, this Agreement shall supersede any other agreement between the parties with respect to the subject matter hereof. -14- 15 IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand and, pursuant to the authorization from its Board of Directors, the Company has caused this Agreement to be executed in its name on its behalf by its undersigned officer thereunto, duly authorized, all as of the day and year first above written. EXECUTIVE: /S/ W. Benjamin Jones, III ----------------------------- W. Benjamin Jones, III COMPANY: IRT PROPERTY COMPANY By: /S/ Thomas H. McAuley ------------------------- Thomas H. McAuley President -15- EX-10.10 5 CHANGE IN EMPLOYMENT AGREEMENT - ROBERT MITZEL 1 EXHIBIT 10.10 CHANGE IN CONTROL EMPLOYMENT AGREEMENT THIS AGREEMENT is by and between IRT Property Company, a Georgia corporation (herein, together with any successor or assigns to its business and/or assets, and any person or entity that assumes and agrees to perform this Agreement by operation of law or otherwise, the "Company") and Robert E. Mitzel (the "Executive"), dated as of the 11th day of November, 1997. The Board of Directors of the Company (the "Board"), has determined that it is in the best interests of the Company and its stockholders to assure that the Company will have the continued dedication of the Executive, notwithstanding the possibility, threat or occurrence of a Change of Control (as defined below) of the Company. The Board believes it is imperative to diminish the inevitable distraction of the Executive by virtue of the personal uncertainties and risks created by a pending or threatened Change of Control and to encourage the Executive's full attention and dedication to the Company currently and in the event of any threatened or pending Change of Control, and to provide the Executive with compensation and benefits arrangements upon a Change of Control which ensure that the compensation and benefits expectations of the Executive will be satisfied and which are competitive with those of other corporations and entities. Therefore, in order to accomplish these objectives, the Board has authorized and caused the Company to enter into this Agreement. In consideration of the premises and other good and valuable consideration, the receipt and sufficiency of which are acknowledged by each party hereto, the parties, intending to be legally bound, agree as follows: 1. Certain Definitions. (a) "Affiliated Companies" shall mean any corporation, partnership, limited liability company, trust and/or other entity controlled by, controlling or under common control with, the Company. Unless the context clearly requires otherwise, as used herein, the Company shall include all its Affiliated Companies. (b) "Change of Control Period" shall mean the period of three years ending on the third anniversary of the date hereof; provided, however, that commencing on the date one year after the date hereof, and on each annual anniversary of such date (such date and each annual anniversary thereof shall hereinafter be referred to as the "Renewal Date"), unless previously terminated by a majority vote of the Incumbent Board, the Change of Control Period shall be automatically extended so as to terminate three years from such Renewal Date. (c) "Disability" shall mean the absence of the Executive from the Executive's duties with the Company on a full-time basis for 180 consecutive days as a result of incapacity due to mental or physical illness which is determined to be total and 2 permanent by a physician selected by the Company or its insurers and acceptable to the Executive or the Executive's legal representative. (d) "Effective Date" shall mean the first date during the Change of Control Period (as defined in Section l(c)) on which a Change of Control (as defined in Section 2) occurs. Anything in this Agreement to the contrary notwithstanding, if a Change of Control occurs and if the Executive's employment with the Company is terminated prior to the date on which the Change of Control occurs, and if it is reasonably demonstrated by the Executive that such termination of employment (i) was at the request of a third party who has taken steps reasonably calculated to effect a Change of Control or (ii) otherwise arose in connection with any discussion or negotiation contemplating or in anticipation of a potential Change of Control, then for all purposes of this Agreement the "Effective Date" shall mean the date immediately prior to the date of such termination of employment. (e) "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended and the rules and regulations of the Securities and Exchange Commission ("SEC") thereunder. (f) "Person" shall mean any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act. 2. Change of Control. For the purposes of this Agreement, a "Change of Control" shall mean: (a) The acquisition by any Person of beneficial ownership (within the meaning of SEC Rule 13d-3 under the Exchange Act) of 25% or more of the combined voting power of (x) all the then outstanding shares of Company common stock ("Outstanding Company Common Stock") and (y) all then outstanding voting securities of the Company entitled to vote generally in the election of directors and/or all outstanding securities and/or rights to acquire (whether by conversion, exchange or otherwise) voting securities of the Company entitled to vote generally in the election of directors (collectively with the Outstanding Company Common Stock, the "Outstanding Company Voting Securities"); provided, however, that for purposes of this subsection (a), the following acquisitions shall not constitute a Change of Control: (i) any acquisition by a Person who was on November 1, 1997 the beneficial owner of 25% or more of the Outstanding Company Voting Securities, (ii) any acquisition by the Company, provided no Change in Control has previously occurred or would result therefrom under subsections 2(b) and 2(c) of this Agreement, (iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any Affiliated Company, or (iv) any acquisition by any Person pursuant to a transaction which complies with clauses (i), (ii) and (iii) of subsection (c) of this Section 2; or (b) Individuals who, as of November 1, 1997, constitute the Board (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board; -2- 3 provided, however, that any individual becoming a director subsequent to November 1, 1997 whose election, or nomination for election by the Company's stockholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or (c) Consummation of a reorganization, merger or consolidation, a sale, liquidation or partial liquidation, or other disposition of all or substantially all (e.g., 50% or more) of the assets of the Company in one or a series of transactions, and/or any combination of the foregoing (a "Business Combination"), in each case, unless, following such Business Combination, (i) all or substantially all of the Persons who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Business Combination beneficially owns (within the meaning of SEC Rule 13d-3 under the Exchange Act), directly or indirectly, more than 60% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the entity resulting from such Business Combination (including, without limitation, an entity which as a result of such transaction beneficially owns (within the meaning of SEC Rule 13d-3 under the Exchange Act) the Company or all or substantially all (e.g., 50% or more) of the Company's assets either directly or through one or more subsidiaries, partnerships, limited liability companies, trusts and/or other entities or Persons) in substantially the same proportions as their beneficial ownership, immediately prior to such Business Combination of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (ii) no Person (excluding any corporation or other entity resulting from such Business Combination or any employee benefit plan (or related trust) of the Company or such corporation or entity resulting from such Business Combination) beneficially owns (within the meaning of SEC Rule 13d-3 under the Exchange Act), directly or indirectly, 25% or more of the combined voting power of the then outstanding voting securities of such corporation or entity except to the extent that such ownership existed prior to the Business Combination, and (iii) at least a majority of the members of the board of directors or other governing body, including trustees and/or general partners) of the corporation or entity resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination. 3. Employment Period. The Company hereby agrees to continue the Executive in its employ as provided in Section 4 hereof, and the Executive hereby agrees to remain in the employ of the Company subject to the terms and conditions of this Agreement, for the period commencing on the Effective Date and ending on the first anniversary of such date (the "Employment Period"). -3- 4 4. Terms of Employment. (a) Position and Duties. (i) During the Employment Period, (A) the Executive's position (including status, offices, titles and reporting relationships), authority, duties and responsibilities shall be at least commensurate in all material respects with the most significant of those held, exercised and assigned at any time during the 120-day period immediately preceding the Effective Date, and (B) the Executive's services shall be performed at the location where the Executive was employed immediately preceding the Effective Date or any office or location not more than 35 miles from such location. (ii) During the Employment Period, and excluding any periods of vacation and sick leave to which the Executive is entitled, the Executive agrees to devote reasonable attention and time during normal business hours to the business and affairs of the Company and, to the extent necessary to discharge the responsibilities assigned to the Executive hereunder, to use the Executive's reasonable best efforts to perform faithfully and efficiently such responsibilities. During the Employment Period it shall not be a violation of this Agreement for the Executive to (A) serve on corporate, civic or charitable boards or committees, (B) engage in other business activities that do not represent a conflict of interest with his duties to the Company, and (C) manage personal investments, so long as such activities do not significantly interfere with the performance of the Executive's responsibilities as an employee of the Company in accordance with this Agreement. It is expressly understood and agreed that to the extent that any such activities have been conducted by the Executive prior to the Effective Date, the continued conduct of such activities (or the conduct of activities similar in nature and scope thereto) subsequent to the Effective Date shall not thereafter be deemed to interfere with the performance of the Executive's responsibilities to the Company. (b) Compensation. (i) Base Salary. During the Employment Period, the Executive shall receive an annual base salary ("Annual Base Salary"), which shall be paid at a monthly rate, at least equal to 12 times the highest monthly base salary paid or payable, including any base salary which has been earned but deferred, to the Executive by the Company and its Affiliated Companies in respect of the 12-month period immediately preceding the month in which the Effective Date occurs. During the Employment Period, the Annual Base Salary shall be reviewed not later than 12 months after the last salary increase awarded to the Executive prior to the Effective Date and thereafter shall be reviewed at least annually. Any increase in Annual Base Salary shall not serve to limit or reduce any other obligation to the Executive under this Agreement. The Annual Base Salary shall not be reduced after any such increase and the term Annual Base Salary as utilized in this Agreement shall refer to Annual Base Salary as so increased. -4- 5 (ii) Annual Bonus. In addition to Annual Base Salary, the Executive shall be awarded, for each fiscal year ending during the Employment Period, an annual bonus, excluding any payments of cash in lieu of pension (the "Annual Bonus"), in cash at least equal to the Executive's highest annual bonus for the last two full fiscal years prior to the Effective Date (annualized in the event that the Executive was not employed by the Company for the whole of such fiscal year). Each such Annual Bonus shall be paid no later than the end of the third month of the fiscal year next following the fiscal year for which the Annual Bonus is awarded, unless the Executive shall elect to defer the receipt of such Annual Bonus. (iii) Incentive, Savings and Retirement Plans. During the Employment Period, the Executive shall be entitled to participate in all incentive, savings and retirement plans, practices, policies and programs applicable generally to other peer executives of the Company and its Affiliated Companies, but in no event shall such plans, practices, policies and programs provide the Executive with incentive opportunities (measured with respect to both regular and special incentive opportunities, to the extent, if any, that such distinction is applicable), savings opportunities and retirement benefit opportunities, in each case, less favorable, in the aggregate, than the most favorable of those provided by the Company and its Affiliated Companies for the Executive under such plans, practices, policies and programs as in effect at any time during the one-year period immediately preceding the Effective Date or if more favorable to the Executive, those provided generally at any time after the Effective Date to other peer executives of the Company and its Affiliated Companies. (iv) Welfare Benefit Plans. During the Employment Period (and after termination of employment, except where prohibited by law or the applicable plan, or the generally applicable practices, policies and programs of the Company and its Affiliated Companies and their respective successors and assigns), the Executive and/or the Executive's family, as the case may be, shall be eligible for participation in and shall receive all benefits under such welfare benefit plans, practices, policies and programs (including, without limitation, medical, prescription, dental, disability, employee life, group life, accidental death and travel accident insurance plans and programs) to the extent applicable generally to other peer executives of the Company, its Affiliated Companies and their respective successors and assigns, but in no event shall such plans, practices, policies and programs provide the Executive and his family, as applicable, with benefits which are less favorable, in the aggregate, than the most favorable of such plans, practices, policies and programs in effect for the Executive and his family, as applicable, at any time during the one year period immediately preceding the Effective Date or, if more favorable to the Executive and his family, as applicable, those provided generally at any time after the Effective Date to other peer executives (and their families) of the Company and its Affiliated Companies or their successors. In the event that the Executive's and his family's participation in any such plan, program or other benefit provided under the generally applicable practices, policies and programs of the Company and its Affiliated Companies and their respective successors and assigns are prohibited, the Company and its Affiliated Companies and their respective successors and assigns -5- 6 shall provide the Executive and his family, without further cost or expense to the Executive and his family members, benefits similar to those which the Executive and his family would otherwise have been entitled to receive under such plans, programs, practices and policies as if the Executive's employment had not ceased. (v) Expenses. During the Employment Period, the Executive shall be entitled to receive prompt reimbursement for all reasonable expenses incurred by the Executive in accordance with the most favorable policies, practices and procedures of the Company and its Affiliated Companies in effect for the Executive at any time during the one-year period immediately preceding the Effective Date or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company, the Affiliated Companies, and their respective successors and assigns. (vi) Fringe Benefits. During the Employment Period (but not after termination of employment, except as required by this Agreement, law and/or the applicable plan, practices, policies and programs of the Company and its Affiliated Companies and their respective successors and assigns), the Executive shall be entitled to fringe benefits in accordance with the most favorable of such plans, practices, programs and policies in effect for the Executive at any time during the one year period immediately preceding the Effective Date or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and its Affiliated Companies. 5. Termination of Employment. (a) Death or Disability. The Executive's employment shall terminate automatically upon the Executive's death during the Employment Period. If the Board determines in good faith that the Disability of the Executive has occurred during the Employment Period, it may give to the Executive written notice in accordance with Section 12(b) of this Agreement of its intention to terminate the Executive's employment. In such event, the Executive's employment with the Company shall terminate effective on the 30th day after receipt of such notice by the Executive (the "Disability Effective Date"), provided that, within the 30 days after such receipt, the Executive shall not have returned to full-time performance of the Executive's duties. (b) Cause. The Company may terminate the Executive's employment during the Employment Period for Cause. For purposes of this Agreement, "Cause" shall mean: (i) the willful and continued failure of the Executive to perform substantially the Executive's duties with the Company and/or its Affiliated Companies (other than any such failure resulting from incapacity due to physical or mental illness), after a written demand for substantial performance is delivered to the Executive by the Board or the Chief Executive Officer of the Company which specifically identifies the -6- 7 manner in which the Board or Chief Executive Officer believes that the Executive has not substantially performed the Executive's duties, or (ii) the willful engaging by the Executive in illegal conduct or gross misconduct which is materially and demonstrably injurious to the Company. For purposes of this provision, no act or failure to act, on the part of the Executive, shall be considered "willful" unless it is done, or omitted to be done, by the Executive in bad faith or without reasonable belief that the Executive's action or omission was in the best interests of the Company. Any act, or failure to act, based upon authority given pursuant to a resolution duly adopted by the Board or upon the instructions of the Chief Executive Officer or a senior officer of the Company or based upon the advice of counsel for the Company shall be conclusively presumed to be done, or omitted to be done, by the Executive in good faith and in the best interests of the Company. The cessation of employment of the Executive shall not be deemed to be for Cause unless and until there shall have been delivered to the Executive a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters of the entire membership of the Board at a meeting of the Board called and held for such purpose (after reasonable notice is provided to the Executive and the Executive is given an opportunity, together with counsel, to be heard before the Board), finding that, in the good faith opinion of the Board, the Executive is guilty of the conduct described in subparagraph (i) or (ii) above, and specifying the particulars thereof in detail. (c) Good Reason. The Executive's employment may be terminated by the Executive for Good Reason. For purposes of this Agreement, "Good Reason" shall mean: (i) the assignment or proposed assignment to the Executive of any duties inconsistent in any respect with the Executive's position (including status, offices, titles and reporting relationships), authority, duties or responsibilities as contemplated by Section 4(a) of this Agreement, or any other action by the Company which results in a diminution in such position, authority, duties or responsibilities, excluding for this purpose an isolated, insubstantial and inadvertent action not taken in bad faith and which is remedied by the Company or any Affiliated Company promptly after receipt of notice thereof given by the Executive; (ii) any failure by the Company and its Affiliated Companies to comply with any of the provisions of Section 4(b) of this Agreement, other than an isolated, insubstantial and inadvertent failure not occurring in bad faith and which is remedied by the Company and such Affiliated Companies promptly after receipt of notice thereof given by the Executive; (iii) the Company or any Affiliated Company requiring the Executive to be based at any office or location other than as provided in Section 4(a)(i)(B) hereof or the Company's requiring the Executive to travel on Company or any -7- 8 Affiliated Company's business to a substantially greater extent than required immediately prior to the Effective Date; (iv) any purported termination by the Company or any Affiliated Company of the Executive's employment otherwise than as expressly permitted by this Agreement; or (v) any failure by the Company or any Affiliated Company to comply with and satisfy Section 11(c) of this Agreement. For purposes of this Section 5(c), any good faith determination of Good Reason made by the Executive shall be conclusive. Anything in this Agreement to the contrary notwithstanding, a termination by the Executive for any reason during the period beginning on the Effective Date and ending 30 days following the first anniversary of the Effective Date shall be deemed to be a termination for Good Reason for all purposes hereunder. (d) Notice of Termination. Any termination by the Company for Cause, or by the Executive for Good Reason, shall be communicated by Notice of Termination to the other party hereto given in accordance with Section 12(b) of this Agreement. For purposes of this Agreement, a "Notice of Termination" means a written notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated and (iii) if the Date of Termination (as defined below) is other than the date of receipt of such notice, specifies the termination date (which date shall be not more than 30 days after the giving of such notice). The failure by the Executive or the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of the Executive or the Company, respectively, hereunder or preclude the Executive or the Company, respectively, from asserting such fact or circumstance in enforcing the Executive's or the Company's rights hereunder. (e) Date of Termination. "Date of Termination" means (i) if the Executive's employment is terminated by the Company and/or any Affiliated Company for Cause, or by the Executive for Good Reason, the date of receipt of the Notice of Termination or any later date specified therein, as the case may be, (ii) if the Executive's employment is terminated by the Company other than for Cause or Disability, the Date of Termination shall be the date on which the Company and/or any Affiliated Company notifies the Executive of such termination, and (iii) if the Executive's employment is terminated by reason of death or Disability, the Date of Termination shall be the date of death of the Executive or the Disability Effective Date, as the case may be. -8- 9 6. Obligations of the Company upon Termination. (a) Good Reason; Other Than for Cause, Death or Disability. If, during the Employment Period, the Company and/or any Affiliated Company shall terminate the Executive's employment other than for Cause or Disability, or the Executive shall terminate employment for Good Reason: (i) the Company shall pay to the Executive in a lump sum in cash within 30 days after the Date of Termination the aggregate of the following amounts, or if elected by the Executive, the following aggregate amounts shall be paid in cash to the Executive in equal monthly installments over the one year following termination of employment: A. the sum of (1) the Executive's Annual Base Salary through the Date of Termination to the extent not theretofore paid, (2) the product of (x) the average of the Annual Bonus paid or payable, including any bonus or portion thereof which has been earned but deferred, for the two most recently completed fiscal years during the Employment Period, if any (such amount being referred to as the "Most Recent Annual Bonus") and (y) a fraction, the numerator of which is the number of days in the current fiscal year through the Date of Termination, and the denominator of which is 365, and (3) any compensation previously deferred by the Executive (together with any accrued interest or earnings thereon) and any accrued vacation pay, in each case to the extent not theretofore paid (the sum of the amounts described in clauses (1), (2), and (3) shall be hereinafter referred to as the "Accrued Obligations"); B. the amount equal to the sum of (x) one (1) times the Executive's Annual Base Salary, and (y) one (1) times the Most Recent Annual Bonus; and (ii) for one year after the Executive's Date of Termination, or such longer period as may be provided by the terms of the appropriate plan, program, practice or policy, the Company and its Affiliated Companies, shall continue to provide benefits to the Executive and/or the Executive's family at least equal to those which would have been provided to them in accordance with the plans, programs, practices and policies described in Section 4(b)(iv) of this Agreement if the Executive's employment had not been terminated or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies and their families, provided, however, that if the Executive becomes re-employed with another employer and is eligible to receive medical or other welfare benefits under another employer provided plan, the medical and other welfare benefits described herein shall be secondary to those provided under such other plan during such applicable period of eligibility. For purposes of determining eligibility (but not the time of commencement of benefits) of the Executive for retiree benefits pursuant to such plans, practices, programs and policies, the Executive shall be considered to have -9- 10 remained employed until two years after the Date of Termination and to have retired on the last day of such period; (iii) to the extent not theretofore paid or provided, the Company shall timely pay or provide to the Executive any other amounts or benefits required to be paid or provided or which the Executive is eligible to receive under any plan, program, policy or practice or contract or agreement of the Company and its Affiliated Companies (such other amounts and benefits shall be hereinafter referred to as the "Other Benefits"). (b) Death. If the Executive's employment is terminated by reason of the Executive's death during the Employment Period, this Agreement shall terminate without further obligations to the Executive's legal representatives under this Agreement, other than for payment of Accrued Obligations and the timely payment or provision of Other Benefits. Accrued Obligations shall be paid to the Executive's estate or beneficiary, as applicable, in a lump sum in cash within 30 days of the Date of Termination. With respect to the provision of Other Benefits, the term Other Benefits as utilized in this Section 6(b) shall include without limitation, and the Executive's estate and/or beneficiaries shall be entitled to receive, benefits at least equal to the most favorable provided by the Company and Affiliated Companies to the estates and beneficiaries of peer executives of the Company. (c) Disability. If the Executive's employment is terminated by reason of the Executive's Disability during the Employment Period, this Agreement shall terminate without further obligations to the Executive, other than for payment of Accrued Obligations and the timely payment or provision of Other Benefits. Accrued Obligations shall be paid to the Executive in a lump sum in cash within 30 days of the Date of Termination. With respect to the provision of Other Benefits, the term Other Benefits as utilized in this Section 6(c) shall include, and the Executive shall be entitled after the Disability Effective Date to receive, disability and other benefits at least equal to the most favorable such benefits provided by the Company and its Affiliated Companies to other peer executives and their families, provided the provision of such benefits are permissible under law, and the plans and programs of the Company and its Affiliated Companies. (d) Cause; Other than for Good Reason. If the Executive's employment shall be terminated for Cause during the Employment Period, this Agreement shall terminate without further obligations to the Executive other than the obligation to pay to the Executive (x) his Annual Base Salary through the Date of Termination, (y) the amount of any compensation previously deferred by the Executive, and (z) Other Benefits, in each case to the extent theretofore unpaid. If the Executive voluntarily terminates employment during the Employment Period, excluding a termination for Good Reason, this Agreement shall terminate without further obligations to the Executive, other than for Accrued Obligations and the timely payment or provision of Other Benefits. In such case, all Accrued Obligations shall be paid to the Executive in a lump sum in cash within 30 days of the Date of Termination. -10- 11 7. Non-exclusivity of Rights; Disputes; etc.. Nothing in this Agreement shall prevent or limit the Executive's continuing or future participation in any plan, program, policy or practice provided by the Company or any of its Affiliated Companies and entities and for which the Executive may qualify, nor, subject to Section 12(f), shall anything herein limit or otherwise affect such rights as the Executive may have under any contract or agreement with the Company or any of its Affiliated Companies and entities. Amounts or benefits which are vested or which the Executive is otherwise entitled to receive under any plan, policy, practice or program of, or any contract or agreement with, the Company or any of its Affiliated Companies at or subsequent to the Date of Termination shall be payable in accordance with such plan, policy, practice, program, contract or agreement, except as explicitly modified by this Agreement. In the event that the Company terminates or seeks to terminate this Agreement or the employment of the Executive hereunder and/or disputes its obligation to pay or fails or refuses to pay or provide timely to the Executive any portion of the amounts or benefits due to the Executive pursuant to this Agreement and the Executive prevails without regard to amount, the Company shall pay or reimburse to the Executive all costs incurred by him in such dispute or collection effort, including reasonable attorneys' fees and expenses (whether or not suit is filed) and costs of litigation. 8. Full Settlement. The Company's obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against the Executive or others. The Executive shall not be required to mitigate the amount of any payment or benefit provided herein by seeking other employment or otherwise, nor shall the amount of any payment or benefit provided herein be reduced by any compensation earned by the Executive an a result of employment by another employer or by retirement or disability benefits after the date of termination of employment or otherwise. The Company agrees to pay as incurred, to the full extent permitted by law, all legal fees and expenses which the Executive may reasonably incur as a result of any contest (regardless of the outcome thereof) by the Company, the Executive or others of the validity or enforceability of, or liability under, any provision of this Agreement or any guarantee of performance thereof (including as a result of any contest by the Executive about the amount of any payment pursuant to this Agreement), plus in each case interest on any delayed payment at the applicable federal rate provided for in Section 7872(f)(2)(A) of the Internal Revenue Code of 1986, as amended (the "Code"). 9. Limitation of Benefits. (a) Anything in this Agreement to the contrary notwithstanding, in the event it shall be determined that any benefit, payment or distribution by the Company to or for the benefit of the Executive (whether payable or distributable pursuant to the terms of this Agreement or otherwise) (a "Payment") would, if paid, be subject to the excise tax imposed by Section 4999 of the Code (the "Excise Tax"), then the Payment shall be -11- 12 reduced to the extent necessary to avoid the imposition of the Excise Tax. The Executive may select the Payments to be limited or reduced. (b) All determinations required to be made under this Section 9, including whether an Excise Tax would otherwise be imposed and the assumptions to be utilized in arriving at such determination, shall be made by Arthur Andersen L.L.P. or such other certified public accounting firm as may be designated by the Executive (the "Accounting Firm") which shall provide detailed supporting calculations both to the Company and the Executive within 15 business days of the receipt of notice from the Executive that a Payment is due to be made, or such earlier time as is requested by the Company. In the event that the Accounting Firm is serving as accountant or auditor for the individual, entity or group effecting the Change of Control, the Executive may appoint another nationally recognized accounting firm to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall be borne solely by the Company. Any determination by the Accounting Firm shall be binding upon the Company and the Executive. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Payments hereunder will have been unnecessarily limited by this Section 9 ("Underpayment"), consistent with the calculations required to be made hereunder. The Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to or for the benefit of the Executive. 10. Confidential Information. The Executive shall hold in a fiduciary capacity for the benefit of the Company all secret or confidential information, knowledge or data relating to the Company or any of its Affiliated Companies, and their respective businesses, which shall have been obtained by the Executive during the Executive's employment by the Company or any of its Affiliated Companies and which shall not be or become public knowledge (other than by acts by the Executive or representatives of the Executive in violation of this Agreement). After termination of the Executive's employment with the Company, the Executive shall not, without the prior written consent of the Company or as may otherwise be required by law or legal process, communicate or divulge any such information, knowledge or data to anyone other than the Company and those designated by it. In no event shall an asserted violation of the provisions of this Section 10 constitute a basis for deferring or withholding any amounts otherwise payable to the Executive under this Agreement. Executive agrees that, for a period of one (1) year after termination, he will not solicit or hire any Company employees for any business that is in direct competition with any Company property. Executive agrees that, for a period of one (1) year after termination, he will not solicit or hire any Company employees for any business that is in direct competition with any Company property. -12- 13 11. Successors. (a) This Agreement is personal to the Executive and without the prior written consent of the Company shall not be assignable by the Executive otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive's heirs, legatees and personal and legal representatives. (b) This Agreement shall inure to the benefit of and be binding upon the Company, the Affiliated Companies and their respective successors and assigns. (c) The Company will require any successor (whether direct or indirect, as a result of a Business Combination, or otherwise) to all or substantially all of the business and/or assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. 12. Miscellaneous. (a) This Agreement shall be governed by and construed in accordance with the laws of the State of Georgia, without reference to conflicts of laws principles. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. This Agreement may not be amended or modified otherwise than by a written agreement executed by the parties hereto or their respective successors and legal representatives. As used herein, the plural shall include the singular and vice versa, any reference to gender shall include the other genders, and the term "include" and any derivation thereof shall be without limitation by virtue of enumeration thereof or otherwise. (b) All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, or by reliable overnight courier service addressed as follows: If to the Executive: Robert E. Mitzel 971 Forest Pond Circle Marietta, Georgia 30068 If to the Company: IRT Property Company 200 Galleria Parkway, Suite 1400 Atlanta, Georgia 30339 Attention: President -13- 14 or to such other address as either party shall have furnished to the other in writing in accordance herewith. Notice and communications shall be effective when actually received by the addressee. (c) The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement. (d) The Company may withhold from any amounts payable under this Agreement such federal, state, local or foreign taxes as shall be required to be withheld pursuant to any applicable law or regulation. (e) The Executive's or the Company's failure to insist upon strict compliance with any provision of this Agreement or the failure to assert any right the Executive or the Company may have hereunder, including, without limitation, the right of the Executive to terminate employment for Good Reason pursuant to Section 5(c)(i)-(v) of this Agreement, shall not be deemed to be a waiver of such provision or right or any other provision or right of this Agreement. (f) The Executive and the Company acknowledge that, except as may otherwise be provided under any other written agreement between the Executive and the Company, the employment of the Executive by the Company is "at will" and, subject however to subsections 1.(b) and 1.(c) hereof, prior to the commencement of any discussion or negotiation that contemplate or are in anticipation of a potential Change in Control, the Executive's employment and this Agreement may be terminated by either the Executive or the Company at any time prior to the Effective Date, in which case the Executive shall have no further rights under this Agreement. From and after the Effective Date, this Agreement shall supersede any other agreement between the parties with respect to the subject matter hereof. -14- 15 IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand and, pursuant to the authorization from its Board of Directors, the Company has caused this Agreement to be executed in its name on its behalf by its undersigned officer thereunto, duly authorized, all as of the day and year first above written. EXECUTIVE: /S/ Robert E. Mitzel ----------------------------- Robert E. Mitzel COMPANY: IRT PROPERTY COMPANY By: /S/ Thomas H. McAuley ------------------------- Thomas H. McAuley President -15- EX-11 6 COMPUTATION OF PER SHARE EARNINGS 1 Item 14 Exhibit 11 Computation of Per Share Earnings
1997 1996 1995 BASIC: Net earnings $26,112,680 $16,817,704 $15,585,791 ----------- ----------- ----------- Net earnings available to common shareholders $26,112,680 $16,817,704 $15,585,791 =========== =========== =========== Average common shares outstanding 31,867,743 25,749,860 25,590,129 =========== =========== =========== Basic earnings per share $ 0.82 $ 0.65 $ 0.61 =========== =========== =========== DILUTED: Net earnings $26,112,680 $16,817,704 $15,585,791 ----------- ----------- ----------- Net earnings available to common shareholders $26,112,680 $16,817,704 $15,585,791 =========== =========== =========== Dilutive stock options 53,469 5,081 5,001 Average commons shares outstanding 31,867,743 25,749,860 25,590,129 ----------- ----------- ----------- Average diluted common shares outstanding 31,921,212 25,754,941 25,595,130 =========== =========== =========== Diluted earnings per share $ 0.82 $ 0.65 $ 0.61 =========== =========== ===========
EX-21 7 COMPANY SUBSIDIARIES 1 Item 14 Exhibit 21 Company Subsidiaries
Jurisdiction of Year Name Organization Incorporated ---- ------------ ------------ IRT Management Company Georgia 1990 VW Mall, Inc. Georgia 1994 IRT Alabama, Inc. Alabama 1997 IRT Capital Corporation Georgia 1996
All are wholly-owned subsidiaries of the Company except IRT Capital Corporation ("IRTCC"). The Company owns 96% of IRTCC's non-voting common stock and 1% of its voting stock. EX-23 8 CONSENT OF ARTHUR ANDERSEN 1 EXHIBIT 23 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation by reference of our reports dated January 30, 1998 and to all references to our firm, included in this Form 10-k, into the Company's previously filed Registration Statement File Nos. 33-65604, 33-66780, 33-59938, 33-64628, 33-64741, 33-63523 and 333-38847. ARTHUR ANDERSEN LLP Atlanta, Georgia March 3, 1998 EX-27 9 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, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR DEC-31-1997 JAN-01-1997 DEC-31-1997 275 0 528 0 0 9,138 541,865 62,527 498,153 10,474 226,947 0 0 32,386 227,290 498,153 0 67,118 0 0 28,892 0 16,010 0 0 22,216 0 0 0 26,113 0.82 0.82 SFAS 128 HAD NO EFFECT ON EPS-PRIMARY FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995 OR THE INTERIM PERIODS IN 1997 AND 1996. EPS-DILUTED, CALCULATED IN ACCORDANCE WITH SFAS 128, IS EQUAL TO EPS-PRIMARY AS REPORTED IN PREVIOUS FINANCIAL DATA SCHEDULES. ACCORDINGLY, NO RESTATED FINANCIAL DATA SCHEDULES ARE FILED HEREIN.
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