-----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, Nj0/9pYv3M6NDi/TSnS4av5AcA9C9btOn6oeUQplUOpiI0xjxmievTH0M1qNPSUT XHaiTJbvXIw6axONyimX/A== 0000950144-99-003637.txt : 19990402 0000950144-99-003637.hdr.sgml : 19990402 ACCESSION NUMBER: 0000950144-99-003637 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990331 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: 99580142 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 COMPANY 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, 1998 ------------------ OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Transition Period From to ------- ------- Commission File Number 1-7859 - -------------------------------------------------------------------------------- IRT PROPERTY COMPANY - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Georgia 58-1366611 - ---------------------------------------- ---------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification 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 March 19, 1999 was $288,381,296. 33,234,206 shares of Common Stock, $1 Par Value, were outstanding at March 19, 1999. 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 1999 Annual Meeting of Shareholders of the Company to be filed pursuant to Regulation 14A. 2 SPECIAL CAUTIONARY NOTICE REGARDING FORWARD LOOKING STATEMENTS CERTAIN OF THE STATEMENTS MADE HEREIN UNDER THE CAPTIONS "RISK FACTORS," "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" AND ELSEWHERE IN THIS ANNUAL REPORT ARE FORWARD-LOOKING STATEMENTS FOR PURPOSES OF THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") AND THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED (THE "EXCHANGE ACT"), AND AS SUCH MAY INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS WHICH MAY CAUSE THE ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS OF IRT PROPERTY COMPANY ("IRT" OR THE "COMPANY") TO BE MATERIALLY DIFFERENT FROM FUTURE RESULTS, PERFORMANCE OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. SUCH FORWARD LOOKING STATEMENTS INCLUDE STATEMENTS USING THE WORDS SUCH AS "MAY," "WILL," "ANTICIPATE," "SHOULD," "WOULD," "BELIEVE," "CONTEMPLATE," "EXPECT," "ESTIMATE," "CONTINUE," "INTEND," "POSSIBLE" OR OTHER SIMILAR WORDS AND EXPRESSIONS OF THE FUTURE. OUR ACTUAL RESULTS MAY DIFFER SIGNIFICANTLY FROM THE RESULTS WE DISCUSS IN THESE FORWARD-LOOKING STATEMENTS. THESE FORWARD-LOOKING STATEMENTS INVOLVE RISKS AND UNCERTAINTIES AND MAY NOT BE REALIZED DUE TO A VARIETY OF FACTORS, INCLUDING, WITHOUT LIMITATION: GOVERNMENTAL MONETARY AND FISCAL POLICIES, AS WELL AS LEGISLATIVE AND REGULATORY CHANGES, ESPECIALLY CHANGES IN THE TAXATION OF REITS; THE RISKS OF CHANGES IN INTEREST RATES; THE EFFECTS OF COMPETITION FROM OTHER OPERATORS OF RETAIL PROPERTIES; ALTERNATIVES TO THE COMPANY'S TRADITIONAL TENANT BASE, INCLUDING ELECTRONIC COMMERCE AND INTERNET-BASED SHOPPING, AS WELL AS THE ENTRY OF NEW COMPETITORS, SUCH AS THE MASS MERCHANDISE RETAILERS INTO THE GROCERY BUSINESS; VACANCIES AND LEASE RENEWALS; TENANT CLOSINGS; CONSOLIDATION AMONG TENANTS; THE FINANCIAL CONDITION AND COMPETITIVENESS OF TENANTS; CHANGES IN NATIONAL, REGIONAL AND LOCAL ECONOMIC CONDITIONS AND CONSUMER SHOPPING PATTERNS; POSSIBLE ENVIRONMENTAL ISSUES; AND CHANGES IN THE AVAILABILITY OF CAPITAL AND FUNDING TO THE REIT INDUSTRY AND REAL ESTATE INVESTMENTS, GENERALLY. ALL WRITTEN OR ORAL FORWARD-LOOKING STATEMENTS ATTRIBUTABLE TO THE COMPANY ARE EXPRESSLY QUALIFIED IN THEIR ENTIRETY BY THESE CAUTIONARY STATEMENTS. PART I Item 1. Business. General Development of Business. IRT Property Company (the "Company"), is an owner, operator and redeveloper of neighborhood and community shopping centers located primarily in the Southeastern United States and generally anchored by necessity-oriented retailers such as supermarkets, drug stores and/or 1 3 discount variety stores. The Company is a self-administered and self-managed equity real estate investment trust with acquisition, development, redevelopment, financing, property management and leasing capabilities. The Company's business was started in 1969 and the Company has been a Georgia corporation since 1979. The Company 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. IRT Partners L.P. ("LP"), a Georgia limited partnership, was formed in 1998 to enhance the acquisition opportunities of IRT Property Company by offering potential sellers the ability to engage in tax-deferred sales in exchange for Operating Partnership Units ("OP Units") of LP which may be redeemable for shares of Company common stock. The Company serves as general partner of LP and has contributed 20 of its shopping centers and related assets and cash to LP in exchange for partnership interests. LP currently has several unaffiliated limited partners resulting from the acquisition of three Florida properties by LP in August 1998. The unaffiliated limited partners have the option to require LP to redeem their OP Units at any time after one year, in which event LP has the option to purchase the OP Units for cash or convert them into one share of the Company's common stock for each OP Unit. In connection with the Company's formation of LP and its proposed operations, LP has guaranteed the Company's bank and senior indebtedness. The Company has three wholly-owned subsidiaries. IRT Management Company ("Management Company") was formed in 1990 as a wholly-owned subsidiary of the Company. Management Company currently holds 91.5% of the operating units of LP. As a result, the Company and Management Company own approximately 92.5% of LP, which is included in the Company's consolidated financial statements. VW Mall, Inc. ("VWM") was formed in July 1994. VWM is not currently engaged in any activities but may do so in the future. IRT Alabama, Inc. ("IRTAL") was formed in August 1997. Upon its formation, IRTAL purchased Madison Centre in Huntsville, Alabama and has no other significant operations beyond this property. 2 4 The Company also has an affiliation with another subsidiary that is not wholly-owned. IRT Capital Corporation ("Capital Corporation"), a taxable subsidiary of the Company, was formed under the laws of Georgia in 1996. Capital Corporation has the ability to develop properties, buy and sell properties, provide equity to developers 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 Capital Corporation. The remaining voting common stock is currently held by a former member of the Board of Directors and an executive officer of the Company. Capital Corporation, which is accounted for by the Company under the equity method, is taxed as a regular corporation and not as a REIT. Financial Information and Description of Business. The Company owns and manages 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 one industrial and certain 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. For a description of the Company's individual investments and of material developments during 1998 regarding these investments and the Company as a whole, reference is made to Items 2 and 7 hereof. The Company continually reviews possible acquisitions. 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 acquisitions in other regions. Existing investments are continuously reviewed by Company management, and appropriate programs to renovate and modernize properties are designed and implemented to improve leasing arrangements, to increase funds from operations and property values. 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. 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 manages and leases its operating 3 5 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 regional 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, 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 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 REITs 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. Regulation. The Company is subject to Federal, state and local environmental regulations regarding the ownership, development and operation of real property. The Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C. sec. 9601 et seq. ("CERCLA"), and applicable state laws subject the owner of real property to claims or liability for the costs of removal or remediation of hazardous substances that are disposed of on real property in amounts that require removal or remediation. Liability under CERCLA and applicable state superfund laws can be imposed on the owner of real property or the operator of a facility 4 6 without regard to fault or even knowledge of the disposal of hazardous substances. The failure to undertake remediation where it is necessary may adversely affect the owner's ability to sell real estate or borrow money using such real estate as collateral. In addition to claims for cleanup costs, the presence of hazardous substances on a property could result in claims by private parties for personal injury or property damage. The Company has obtained independent Phase I environmental site assessments (which generally did not include environmental sampling, monitoring or laboratory analysis) for property acquisitions beginning in 1989, and otherwise as required by its lenders. Except as otherwise disclosed and based upon information presently available to the Company, 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 financial position. The Company presently carries only limited insurance coverage for the types of environmental risks described herein. During 1996, the Company discovered that releases of petroleum products had occurred at a garage facility previously operated by a former tenant at the Company's Charlotte, North Carolina industrial facility. The Company is continuing to evaluate the extent of the related contamination, and Company management is negotiating with the former tenant to obtain contribution for potential cleanup costs. The Company does not believe the cost of addressing these 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 that exceeded the maximum contaminant levels under the Federal Safe Drinking Water Act. Remediation of the condition is underway and to date has cost the Company approximately $80,000. At another site, leaking petroleum underground storage tanks ("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 a Florida division of Lucky Stores, Inc., operated such USTs and has assumed the responsibility for all related corrective action. The Company presently believes that there will be no further corrective action required which would have a material adverse effect on the Company's results of operation, financial position or liquidity. A number of Company properties include facilities leased to dry cleaners. At some of these properties, dry cleaning solvents 5 7 have been discovered in soil and or groundwater. In each such instance either (a) the amount detected was below reportable limits or (b) the state regulatory authority has informed the Company that no further enforcement action would be taken, (or in the case of Florida, the state regulatory authority has admitted the affected Company property to the state sponsored fund responsible for the clean up of dry cleaning spills). Neither the admission of a property to the Florida fund nor the assurances of the relevant state regulatory authority ensures that the Company will not incur costs associated with corrective action. Petroleum related chemical releases and other environmental concerns located on property owned by third parties may affect nearby or adjacent Company properties. The Company presently believes that the third party landowners or UST operators are principally responsible for corrective action for any such matters. Accordingly, the Company currently believes that the costs of any corrective action with respect to the migration of environmentally hazardous materials onto Company properties are not expected to have a material adverse effect on the Company's results of operations, financial position or liquidity Employees. The Company presently employs 56 persons, 2 of whom are on-site maintenance personnel at two of the Company's real estate investments. RISK FACTORS Set forth below are the risks that we believe are material to investors in the Company's common stock (which we refer to as "Shares") or limited operating partnership units of IRT Partners L.P. (which we refer to as "OP Units"), which are redeemable on a one-for-one basis for Shares or their cash equivalent. We refer to the Shares and the OP Units together as our "securities", and the investors who own Shares or OP Units as our "Securityholders". Owning and Operating Retail Real Estate Entails Certain Risks That Could Adversely Affect Our Performance Dependence on the Retail Industry. Our properties consist predominately of community and neighborhood shopping centers. The market for retail space may be adversely affected by consolidation of retailers, the relatively weak financial condition of certain retailers and overbuilding in certain markets. Market rents and our performance could be adversely affected by such factors. Internet Sales. Retail sales over the Internet have been increasing rapidly. Electronic commerce could adversely affect the demand for retail space, although we believe that our supermarket anchor tenants and local service oriented tenants may be less affected than other retailers. 6 8 Financial Condition of Tenants. If any of our anchor tenants or a sufficient number of key tenants were unable to make scheduled rental payments due to poor financial condition, we could experience an adverse effect on our financial condition. Bankruptcy of Tenants. A financially troubled tenant could become the subject of a bankruptcy proceeding, which might result in termination of the tenant's lease. Whether or not a financially troubled tenant becomes subject to the protection of the bankruptcy laws, we could experience delays and incur significant costs and delays in enforcing our rights against a financially troubled tenant that does not pay its rent when becomes due. Vacancies and Lease Renewals. Our tenants' leases generally have terms from three to 20 years, tenants' often have one or more renewal options. We may not be able to find a replacement tenant at the end of a lease. The space may remain vacant or may be re-let at rents more or less favorable than the original rents. Long-term leases provide stability, but limit opportunities to re-let space at a higher rate. Tenant Closings. Certain leases permit the tenant to close its operations at the leased location. Although the tenant would still be responsible for its rental obligations, any rents based on the sales of that tenant could be lost. Such a closure could also adversely affect customer traffic and, thus, the other tenants at a shopping center. Rental rates and occupancy may also be affected adversely at such a center. Real Estate Investments Are Illiquid. Real estate investments generally cannot be sold quickly. We may not be able to change our portfolio promptly in response to economic or other conditions. Real Estate Industry Risks May Affect Our Performance Concentration in the Southeast. Most of our real estate portfolio is located in the Southeastern United States. This region has had rapid growth in recent years. Our business could be adversely affected by changes in the Southeast's economy or in the local markets for retail space. Uncertainty of Meeting Acquisition Objectives. We continually seek to acquire additional shopping centers and portfolios of shopping centers. We seek purchases at attractive initial yields and/or which may enhance our revenues and funds from operations through renovation, expansion and re-leasing programs. We also evaluate mergers and acquisitions with companies engaged in businesses similar to ours. We incur certain costs to evaluate possible transactions. We may not 7 9 complete such transactions and certain costs are not recoverable in the event the transactions are not consummated. We cannot guarantee that we will be able to meet our acquisition goals. Uncertainty of Acquired Property Performance. We cannot assure that any acquisition will increase our revenues or funds from operations or result in a certain yield. Competition. We compete with numerous other real estate companies. Other retail properties within our markets compete with us for tenants. The location and number of competitive retail properties could affect the Company's occupancy levels and rental rates. Development Competition. Other real estate companies compete with us for development, redevelopment and acquisition opportunities. Such competitors may be willing and able to pay more for such opportunities than we would. This may increase the prices sought by sellers of these properties. Environmental Problems Are Possible and Could Be Costly Possible Environmental Liabilities. An owner or operator of real estate may be liable for the costs of removal of releases of certain hazardous or toxic substances. The presence of hazardous or toxic substances on or near our properties, or the failure to properly clean them up, may adversely affect our ability to rent or sell the property or to use such property as collateral for our borrowings. Corrective costs could adversely affect our financial condition and performance. Limited Environmental Analyses. The Company has obtained independent Phase I environmental site assessments (which generally did not include environmental sampling, monitoring or laboratory analysis) for property acquisitions beginning in 1989, and otherwise as required by its lenders. Except as otherwise disclosed and based upon information presently available to the Company, the Company does not 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 financial position. The Company presently carries only limited insurance coverage for environmental risks. Presence of Dry Cleaning Solvents. A number of Company properties include facilities leased to dry cleaners. At some of these properties, dry cleaning solvents have been discovered in soil and or groundwater. In each such instance 8 10 either (a) the amount detected was below reportable limits or (b) the state regulatory authority has informed the Company that no further enforcement action would be taken (or in the case of Florida, the state regulatory authority has admitted the affected Company property to the state sponsored fund responsible for the clean up of dry cleaning spills). Neither the admission of a property to the Florida fund nor the assurances of the relevant state regulatory authority ensures that the Company will not incur costs associated with corrective action. Americans with Disabilities Act Compliance with the Americans with Disabilities Act and Other Laws. Our properties must comply with the federal Americans with Disabilities Act of 1990 (the "ADA"). This law requires that disabled persons must be able to enter and use public properties like our shopping centers. The ADA and state and local laws may require us to modify our properties and may limit renovations. If we fail to obey such laws, we may pay fines or damages. Some Potential Losses Are Not Covered by Insurance We carry comprehensive liability, fire, extended coverage and rental loss insurance on all of our properties. We believe these insurance coverages are reasonably adequate. Certain types of losses, such as lease and other contract claims generally are not insured. Should an uninsured loss or a loss in excess of insured limits occur, we could lose some or all of our investment in a property and future revenue from the property could be adversely affected. We would still owe mortgage debt or other financial obligations related to the property. Our Performance is Subject to Risks Associated With Debt Financing On December 31, 1998, we had $281 million in long term debt. On December 31, 1998, our debt-to-total market capitalization ratio was 46% without conversion of convertible debt and 42% assuming conversion of convertible debt. Of our long term debt, 29% is secured by mortgages on our properties. We must pay our debts on time. We cannot pay dividends to our securityholders unless our debt has been paid when due. Securityholders May Be Adversely Affected by the Dilution of Common Stock The Company may issue additional Shares or OP Units without Securityholder approval. Additionally, each OP Unit may be redeemed by the holder for one share of common stock or, at our option, the cash value of one share of common stock. Such actions may dilute your interest in the Company. Our Liquidity is Subject to the Restrictions on Sale of Certain Properties We currently have agreements that limit our sale of certain properties acquired by LP for up to 10 years. We may enter into similar agreements with future sellers of properties to LP. Such agreements may prevent sales of properties that could be advantageous to our Securityholders, generally. The Ability to Effect Changes in Control of the Company May Be Limited Certain provisions of the law, our governing documents and the Company's Shareholders Rights Plan may have the effect of delaying or preventing a merger or similar transaction that could, if consummated, provide investors with a premium over the then-prevailing market price of the Company's securities. Also, any future series of Preferred Stock may contain certain provisions that could delay or prevent a change of control, or other transaction, that might be favored by certain Securityholders. For a description of the Company's Shareholders Rights Plan, see the Company's current report on Form 8-K dated August 21, 1998. The Company is Subject to Ownership Limits and Certain Adverse Effects of Failing to Qualify as REIT Concentration of Ownership of the Company Is Limited. In order to qualify as a REIT under the Code we must satisfy various tests related to the sources and amounts of our income, the nature of our assets, and our stock ownership. For example, not more than 50% in value of the outstanding shares of the Company may be owned, directly or indirectly, by five or fewer individuals. Our charter authorizes our directors to take such action as may be required to preserve our qualification as a REIT including placing limits on the ownership of our securities. These limits may have the ancillary effect of delaying, deferring or preventing a change in control of the Company. REIT Investment Limitations. We must hold certain types of real estate and other investments. This limits our ability to diversify our assets outside of real estate. Adverse Effects of Failing to Qualify as a REIT. If the Company fails to qualify as a REIT, it will be subject to income taxes on its taxable income. The Company also may be disqualified from treatment as a REIT for the four taxable years following the year during which qualification is lost. This would reduce the net earnings of the Company available for investment or distribution to Securityholders because of the additional tax liability for the year(s) involved. In 9 11 addition, distributions to our Securityholders would no longer be required by the Code. Item 2. Properties. The following tables and notes thereto describe the properties in which the Company had investments at December 31, 1998, as well as the mortgage indebtedness to which the Company's investments were subject. Reference is made to Note 4 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. 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 Leased Year Company Cost FFO Net Income Description Acquired Area 12/31/1998 Completed 12/31/98 12/31/98 1998 (1) 1998 (2) SHOPPING CENTERS Abbeville Plaza 04/86 59,525 sq. ft. 19% 1970 $ 561,850 $ 237,831 $ 17,910 $(41,562) Abbeville, SC Alafaya Commons 11/96 120,586 sq. ft. 96% 1987 10,304,479 10,054,670 1,060,185 938,317 Orlando, FL Ambassador Row 12/94 193,982 sq. ft. 99% 1980 & 9,991,577 9,174,106 1,041,678 818,526 Lafayette, LA 1991 Ambassador Row Courtyard 12/94 155,483 sq. ft. 95% 1986 & 11,844,881 10,933,696 1,211,017 969,376 Lafayette, LA 1991 Asheville Plaza (5) 04/86 49,800 sq. ft. 100% 1967 405,287 261,131 96,282 85,086 Asheville, NC Bay Pointe Plaza (5) 12/98 97,390 sq. ft. 94% 1984 6,388,436 6,381,897 36,099 29,560 St. Petersburg, FL Bluebonnet Village 12/94 90,215 sq. ft. 97% 1983 8,137,457 7,560,832 885,311 736,343 Baton Rouge, LA The Boulevard 12/94 68,012 sq. ft. 54% 1976 & 3,834,345 3,538,934 290,079 214,803 Lafayette, LA 1994 Carolina Place 05/89 36,560 sq. ft. 97% 1989 2,351,494 1,872,094 220,928 170,588 Hartsville, SC Centre Pointe Plaza (5) 12/92 & 163,642 sq. ft. 99% 1989 & 9,293,791 8,028,045 818,068 587,872 Smithfield, NC 12/93 1993 Chadwick Square (5) 01/92 31,700 sq. ft. 100% 1985 1,555,591 1,348,889 168,793 136,609 Hendersonville, NC Charlotte Square (5) 08/98 96,188 sq. ft. 96% 1980 6,005,745 5,965,204 237,274 56,732 Port Charlotte, FL Chastain Square 12/97 74,315 sq. ft. 83% 1981 6,778,976 6,648,116 584,652 457,944 Atlanta, GA Chelsea Place 07/93 81,144 sq. ft. 98% 1992 6,942,585 6,183,547 734,417 594,833 New Port Richey, FL Chester Plaza 04/86 & 71,443 sq. ft. 59% 1967 & 2,301,514 1,548,379 199,486 77,158 Chester, SC 02/92 1992
10 12 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 Leased Year Company Cost FFO Net Income Description Acquired Area 12/31/1998 Completed 12/31/98 12/31/98 1998 (1) 1998 (2) SHOPPING CENTERS Chestnut Square (5) 01/92 39,640 sq. ft. 100% 1985 $ 1,432,106 $ 1,227,350 $ 245,375 $ 213,767 Brevard, NC Colony Square 02/88 50,000 sq. ft. 86% 1987 2,936,430 2,070,715 263,324 171,836 Fitzgerald, GA Commerce Crossing 12/92 100,668 sq. ft. 100% 1988 4,501,943 3,877,731 441,670 335,458 Commerce, GA Country Club Plaza 01/95 64,686 sq. ft. 86% 1982 4,217,057 3,871,619 433,860 335,556 Slidell, LA Countryside Shops 06/94 173,161 sq. ft. 98% 1986,1988 16,809,320 15,524,362 1,894,681 1,599,097 Cooper City, FL & 1991 The Crossing 12/94 113,989 sq. ft. 100% 1988 & 4,604,816 4,238,736 569,565 471,031 Slidell, LA 1993 Daniel Village 03/98 164,549 sq. ft. 95% 1954 & 12,333,120 12,152,978 938,800 758,658 Augusta, GA 1997 Delchamps Plaza 04/88 66,857 sq. ft. 100% 1987 4,586,446 3,450,684 458,097 342,309 Pascagoula, MS Douglas Commons 08/92 97,027 sq. ft. 100% 1988 8,653,687 7,624,724 870,812 700,028 Douglasville, GA Eden Centre (5) 11/94 56,355 sq. ft. 100% 1991 3,549,003 3,246,789 386,165 313,637 Eden, NC Elmwood Oaks 01/92 130,284 sq. ft. 100% 1989 11,209,439 10,046,821 1,250,638 443,605 Harahan, LA Fairview Oaks 06/97 77,052 sq. ft. 100% 1997 7,109,994 6,863,502 722,649 562,749 Ellenwood, GA First Street Station (5) 08/94 52,230 sq. ft. 95% 1989 3,065,440 2,750,050 299,068 223,120 Albemarle, NC Forest Hills Centre (5) 08/90 74,180 sq. ft. 100% 1990 5,551,725 4,643,378 626,824 498,136 Wilson, NC Forrest Gallery (5) 12/92 214,450 sq. ft. 98% 1987 12,745,199 11,091,892 1,064,986 764,386 Tullahoma, TN
11 13 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 Leased Year Company Cost FFO Net Income Description Acquired Area 12/31/1998 Completed 12/31/98 12/31/98 1998 (1) 1998 (2) SHOPPING CENTERS Ft. Walton Beach Plaza 07/86 48,248 sq. ft. 100% 1986 $ 2,676,717 $ 1,887,651 $ 252,628 $ 186,040 Ft. Walton Beach, FL The Galleria (5) 08/86 & 92,344 sq. ft. 93% 1986, 1990 8,523,501 6,548,450 663,913 447,102 Wrightsville Beach, NC 12/87 & 1996 Grassland Crossing 02/97 90,906 sq. ft. 100% 1996 10,128,390 9,705,279 950,651 206,335 Alpharetta, GA Greenwood 07/97 134,132 sq. ft. 92% 1982 & 13,113,217 12,777,364 1,280,253 1,055,371 Palm Springs, FL 1994 Gulf Gate Plaza 06/79 174,566 sq. ft. 74% 1969 & 4,511,576 1,567,813 481,710 290,729 Naples, FL 1974 Harris Teeter 06/88 & 36,535 sq. ft. 100% 1981 & 2,600,657 1,807,797 300,843 223,803 Lexington, VA 06/89 1989 Heritage Walk 06/93 159,362 sq. ft. 100% 1991 & 8,783,529 7,674,559 938,577 739,437 Milledgeville, GA 1992 Hoffner Plaza 06/79 6,000 sq. ft. 67% 1972 581,127 445,458 34,630 18,205 Orlando, FL Lancaster Plaza 04/86 77,400 sq. ft. 100% 1971 1,436,305 848,872 174,995 96,587 Lancaster, SC Lancaster Shopping Center 08/86 & 29,047 sq. ft. 100% 1963 & 1,630,862 1,154,539 164,360 123,248 Lancaster, SC 12/87 1987 Lawrence Commons (5) 08/92 52,295 sq. ft. 93% 1987 3,585,507 3,127,753 351,001 273,661 Lawrenceburg, TN Litchfield Landing 08/86 42,201 sq. ft. 98% 1984 2,647,351 1,961,145 325,542 270,186 North Litchfield, SC Mableton Crossing 06/98 86,819 sq. ft. 96% 1997 8,169,668 8,098,575 375,831 180,473 Mableton, GA Macland Pointe 01/93 79,699 sq. ft. 100% 1992 & 6,140,677 5,407,654 690,464 277,588 Marietta, GA 1993 Madison Centre 08/97 64,837 sq. ft. 100% 1997 5,818,308 5,713,538 583,500 507,336 Madison, AL
12 14 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 Leased Year Company Cost FFO Net Income Description Acquired Area 12/31/1998 Completed 12/31/98 12/31/98 1998(1) 1998(2) SHOPPING CENTERS Market Place 04/97 73,686 sq. ft. 97% 1976 $ 7,174,481 $ 7,035,570 $ 802,915 $ 721,568 Norcross, GA McAlpin Square 12/97 176,807 sq. ft. 65% 1979 6,151,926 5,995,226 1,646,588 1,494,591 Savannah, GA Millervillage Shopping Center 12/94 94,559 sq. ft. 93% 1983 & 7,717,195 7,118,395 795,258 640,765 Baton Rouge, LA 1992 New Smyrna Beach Regional 08/92 118,451 sq. ft. 97% 1987 10,455,201 9,254,734 965,936 753,104 New Smyrna Beach, FL North River Village Center 12/92 & 177,128 sq. ft. 100% 1988 & 10,206,396 9,188,886 1,076,300 879,708 Ellenton, FL 12/93 1993 North Village 08/86 60,356 sq. ft. 100% 1984 3,279,033 2,439,377 314,730 33,202 Center(3) North Myrtle Beach, SC Old Kings Commons 05/88 84,759 sq. ft. 100% 1988 6,151,008 4,847,131 564,967 431,815 Palm Coast, FL Palm Gardens 06/79 49,890 sq. ft. 32% 1970 1,879,069 735,262 1,486,107 1,362,807 Largo, FL Parkmore Plaza 12/92 159,067 sq. ft. 100% 1986 & 8,400,260 7,389,230 910,861 731,413 Milton, FL 1992 Paulding Commons 08/92 192,391 sq. ft. 98% 1991 13,095,512 11,357,957 1,276,871 990,635 Dallas, GA Pensacola Plaza 07/86 56,098 sq. ft. 100% 1985 2,678,939 1,560,180 211,529 106,421 Pensacola, FL Pinhook Plaza 12/94 192,501 sq. ft. 96% 1979 & 11,207,458 10,355,644 1,108,454 379,338 Lafayette, LA 1992 Plaza Acadienne(4) 12/94 105,419 sq. ft. 100% 1980 3,016,749 2,710,703 389,920 177,849 Eunice, LA Plaza North(5) 08/92 47,240 sq. ft. 95% 1986 2,469,023 2,178,175 277,147 231,511 Hendersonville, NC Powers Ferry 05/97 83,101 sq. ft. 80% 1979 & 7,554,455 7,344,854 530,427 338,531 Marietta, GA 1983
13 15 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 Leased Year Company Cost FFO Net Income Description Acquired Area 12/31/1998 Completed 12/31/98 12/31/98 1998(1) 1998 (2) SHOPPING CENTERS Providence Square(5) 12/71 85,930 sq. ft. 94% 1973 $ 4,595,197 $ 1,661,853 $ 523,976 $ 322,124 Charlotte, NC Riverside Square(5) 08/98 103,241 sq. ft. 90% 1987 13,024,842 12,950,556 438,758 69,591 Coral Springs, FL Riverview Shopping Center(5) 03/72 130,058 sq. ft. 88% 1973 & 6,589,592 4,206,206 678,463 439,663 Durham, NC 1994 Salisbury Marketplace(5) 08/96 76,970 sq. ft. 92% 1987 4,651,714 4,425,530 511,624 414,688 Salisbury, NC Scottsville Square 08/92 38,450 sq. ft. 86% 1986 2,565,086 2,150,390 53,942 (54,382) Bowling Green, KY Seven Hills 07/93 64,590 sq. ft. 99% 1991 4,914,220 4,491,129 520,682 440,520 Spring Hill, FL Shelby Plaza(4)(5) 04/86 103,000 sq. ft. 81% 1972 1,682,066 1,007,346 149,673 39,657 Shelby, NC Sherwood South 12/94 75,607 sq. ft. 100% 1972, 1988 2,248,485 2,081,368 352,947 307,311 Baton Rouge, LA & 1992 Shoppes of Silverlakes 11/97 126,638 sq. ft. 93% 1995 & 16,868,742 16,508,019 1,512,054 924,627 Pembroke, FL 1996 Siegen Village 12/94 174,578 sq. ft. 100% 1988 & 9,107,218 8,536,321 1,004,439 826,011 Baton Rouge, LA 1996 Smyrna Village(5) 08/92 83,334 sq. ft. 100% 1992 5,913,492 5,130,424 639,088 512,836 Smyrna, TN Smyth Valley Crossing 12/92 126,841 sq. ft. 100% 1989 7,093,193 6,234,822 624,287 474,023 Marion, VA South Beach Regional 08/92 289,319 sq. ft. 97% 1990 & 21,984,886 18,961,844 2,195,363 1,699,259 Jacksonville 1991 Beach, FL Spalding Village 08/92 235,318 sq. ft. 99% 1989 15,465,057 13,402,496 1,568,533 299,967 Griffin, GA Spring Valley 03/98 75,415 sq. ft. 100% 1988 & 6,104,376 6,005,993 515,704 417,321 Columbia, SC 1997
14 16 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 Leased Year Company Cost FFO Net Income Description Acquired Area 12/31/1998 Completed 12/31/98 12/31/98 1998(1) 1998(2) SHOPPING CENTERS Stadium Plaza 08/92 70,475 sq. ft. 99% 1988 $ 4,488,822 $ 4,056,610 $ 459,522 $ 389,706 Phenix City, AL Stanley Market Place(5) 01/92 40,364 sq. ft. 100% 1980 & 1,867,232 1,578,972 224,072 172,952 Stanley, NC 1991 Tamarac Town Square(5) 08/98 123,385 sq. ft. 90% 1982 10,654,803 10,592,151 319,627 21,052 Tamarac, FL Tarpon Heights 01/95 56,605 sq. ft. 100% 1982 2,837,287 2,622,797 394,351 304,572 Galliano, LA Taylorsville Shopping Center(5) 08/86 & 48,537 sq. ft. 100% 1982 & 2,612,159 1,847,264 271,206 198,762 Taylorsville, NC 12/88 1988 Thomasville Commons 08/92 148,754 sq. ft. 100% 1991 7,221,233 6,203,227 795,968 108,379 Thomasville, NC Town & Country 01/98 71,283 sq. ft. 98% 1993 4,265,496 4,185,487 419,345 175,868 Kissimmee, FL Treasure Coast(5) 08/98 133,781 sq. ft. 100% 1970 & 11,185,860 11,114,006 376,671 139,536 Vero Beach, FL 1995 University Center(5) 12/89 56,180 sq. ft. 95% 1989 3,991,119 3,236,100 368,539 279,703 Greenville, NC Venice Plaza(3) 06/79 155,988 sq. ft. 83% 1971 & 3,002,218 1,145,622 356,361 233,793 Venice, FL 1979 Village at Northshore 12/94 144,373 sq. ft. 100% 1988 & 8,330,713 7,695,467 904,700 260,692 Slidell, LA 1993 Walton Plaza 06/90 43,460 sq. ft. 98% 1991 3,158,124 3,115,469 126,366 83,711 Augusta, GA Waterlick Plaza 10/89 98,694 sq. ft. 87% 1973 & 6,311,631 5,032,548 666,083 514,967 Lynchburg, VA 1988 Watson Central 12/92 & 227,747 sq. ft. 98% 1989 & 13,131,685 11,438,710 1,333,137 1,035,777 Warner Robins, GA 10/93 1993 Wesley Chapel Crossing 12/92 170,792 sq. ft. 100% 1989 10,967,896 9,885,570 1,034,003 850,031 Decatur, GA
15 17 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 Leased Year Company Cost FFO Net Income Description Acquired Area 12/31/1998 Completed 12/31/98 12/31/98 1998(1) 1998(2) SHOPPING CENTERS West Gate Plaza 06/74 & 64,378 sq. ft. 100% 1974 & $ 4,776,992 $ 3,579,197 $ 415,275 $ 258,039 Mobile, AL 01/85 1995 West Towne Square 03/90 89,596 sq. ft. 40% 1988 6,047,549 4,751,487 297,062 139,214 Rome, GA Westgate Square 06/94 104,853 sq. ft. 97% 1984 & 9,365,785 8,546,169 1,096,204 900,772 Sunrise, FL 1988 Willowdaile Shopping Center(5) 08/86 & 120,815 sq. ft. 98% 1986 8,598,078 6,287,800 1,058,467 847,075 Durham, NC 12/87 --------- ------------ ------------ ----------- ----------- 9,470,306 sq. ft 617,410,682 545,325,425 60,202,093 41,782,734 ========= ------------ ------------ ----------- ----------- INDUSTRIAL PROPERTIES Industrial Buildings 06/79 188,513 sq. ft. 82% 1956 & 3,778,080 920,759 332,610 221,538 Charlotte, NC 1963 ========= ------------ ------------ ----------- ----------- SEE NOTES $621,188,758 $546,246,182 $60,534,703 $42,004,272 ============ ============ =========== ===========
16 18 I. EQUITY INVESTMENTS (LAND & BUILDINGS) NOTES: (1) Property FFO represents cash flows from operating activities before interest expense excluding changes in accrued assets and liabilities for fiscal year ended December 31, 1998 or from the date of acquisition (if acquired in 1998) through December 31, 1998. Property FFO is presented as an additional measure in valuing and analyzing the underlying real estate investments. 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 flow from operating, investing, or financing activities as a measure of liquidity. (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 49.5% interest in the property of North Village Center and is entitled to 54.5% of the financial performance of the property. The Company also owns a 75% interest in Venice Plaza Shopping Center. These interests are consolidated for financial reporting purposes and minority interests recorded. (4) Subject to ground leases expiring in 2002 for Shelby Plaza, 2005 for McAlpin Square and 2008 for Plaza Acadienne, with renewal options to extend the terms to 2017, 2033 and 2035, respectively. The Company has options to purchase the land at Shelby Plaza and McAlpin Square. (5) Ownership through IRT Partners L.P. 17 19 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 12/31/98 Completed 12/31/98 1998 (1) 1998 (2) ----------- -------- ----------- -------- --------- -------- -------- -------- OFFICE The Old Phoenix National Bank (3) 12/84 73,074 sq. ft. 100% Various $2,054,328 $313,049 $269,557 Medina County, OH ======= -------------------------------- SHOPPING CENTERS Wal-Mart Stores, Inc. (4) 06/85 54,223 sq. ft. 100% 1985 1,190,594 224,153 174,073 Mathews, LA Wal-Mart Stores, Inc. (4) 07/85 53,571 sq. ft. 100% 1985 1,327,018 175,350 126,274 Marble Falls, TX ------- -------------------------------- 107,794 sq. ft. 2,517,612 399,503 300,347 ======= -------------------------------- $4,571,940 $712,552 $569,904 ================================
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, 1998 or from the date of acquisition (if acquired in 1998) through December 31, 1998. 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 $60,653 was received during the fiscal year ended December 31, 1998. 18 20 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.
Lease Cost to Property Property Date Land Area Year Expiration Company FFO Net Income Description Acquired In Acres Improvements Completed Date 12/31/98 1998 (1) 1998 (2) ----------- -------- -------- ------------ --------- ---- -------- -------- ---------- SHOPPING CENTERS Lawrence County Shopping Center 05/71 13.62 135,605 sq. ft. 1971 2069 (3) $435,994 $ 67,200 $ 67,200 Sybene, OH Grand Marche Shopping Center 09/72 11.38 200,585 sq. ft. 1969 2012 250,500 27,500 27,500 Lafayette, LA Manatee County Shopping Center 05/71 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, 1998. 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. 19 21 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 12/31/98 Date Rate -------- ---- -------- ------------ -------- ---- ---- Wal-Mart - Kearney, NE 2nd Mortgage 8.491 83,249 sq. ft. 594,000 12/98 (1) 7.00% Kearney, NE Wal-Mart - Fremont, NE 2nd Mortgage 7.77 64,890 sq. ft. 406,000 12/98 (1) 7.00% Fremont, NE Mill Creek Club Condominiums 1st Mortgage -- 4 units 23,585 2006- (3) 8.63% - Nashville, TN Participation 2007 12.38% Cypress Chase "A" Condominiums 1st Mortgage 2.00 recreational 114,009 05/09 (4) 10.00% Lauderdale Lakes, FL ---------- 1,137,594 Less interest discounts and negative goodwill (40,419) ---------- $1,097,175 ==========
NOTES: (1) 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. Although the mortgagee was in default of these mortgages as of December 31, 1998 they were paid in full subsequent to year end. On February 3, 1999 the Company received the principle due plus all accrued interest through February 3, 1999. (2) Principal outstanding December 31, 1998 represents the Company's 46.154% participation in the total loan outstanding of $51,104. (3) Monthly payments include principal and interest of $1,472. 20 22 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 12/31/1998 Maturity Date Interest Rate Constant Payment ---------- ---------- ------------- ------------- ---------------- Powers Ferry Plaza $ 625,000 01/31/99 (1) 9.0000% 0 (1) Marietta, GA Pinhook Plaza Phase III 3,381,382 01/01/00 (2) 9.8750% 396,072 Lafayette, LA Macland Pointe 3,613,921 02/01/00 (2) 7.7500% 362,558 Marietta, GA Thomasville Commons 5,423,548 06/01/02 (2) 9.6250% 583,303 Thomasville, NC Town & Country 2,190,432 12/01/02 (2) 7.6500% 214,169 Kissimmee, FL Elmwood Oaks 7,500,000 06/01/05 8.3750% 628,125 (3) Harahan, LA North Village Center 2,382,018 (4) 03/15/09 8.1250% 343,171 North Myrtle Beach, SC Tamarac Town Square (9) 6,530,912 10/01/09 (2) 9.1875% 651,411 Tamarac, FL Spalding Village 11,376,690 09/01/10 (2) 8.1940% 932,206 (5) Griffin, GA Charlotte Square (9) 3,860,904 02/01/11 (2) 9.1875% 393,767 Port Charlotte, FL Riverside Square (9) 8,095,969 03/01/12 (2) 9.1875% 807,514 Coral Springs, FL Village at Northshore 5,251,033 07/01/13 (6) 9.0000% 647,803 Slidell, LA Treasure Coast (9) 5,879,456 04/01/15 8.0000% 646,003 Vero Beach, FL Shoppes of Silverlakes 3,396,975 07/01/15 7.7500% 364,500 Pembroke Pines, FL Grassland Crossing 6,610,717 12/01/16 (2) 7.8650% 622,524 Alpharetta, GA Mableton Crossing 4,500,000 08/15/18 (2) 6.8500% 308,250 (7) Mableton, GA ----------- ---------- 80,618,957 $7,901,376 ========== Interest Premium (8) 1,595,895 ----------- $82,214,852 ===========
NOTES: (1) Accrued and unpaid interest and the outstanding principal paid at maturity 01/31/99. (2) Balloon payment at maturity. (3) Interest only. Entire principal due 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 09/01/00; then principal and interest of $1,158,448 annually for the last 10 years. (6) Callable anytime after 07/30/03. (7) Interest only through 08/15/99; then principal and interest of $376,509 annually for remainder of term. (8) For financial reporting purposes, mortgage indebtedness is valued assuming current interest rates at the date of acquisition. (9) Ownership through IRT Partners L.P. 21 23 VI. SHOPPING CENTER ACQUISITIONS (THOUSANDS, EXCEPT SQUARE FOOTAGE)
Total OP Units Date Rentable Initial Cash Issued Acquired Property Name City, State Sq Ft Cost Paid by LP (1) Mortgage (2) Principal Tenants - ------------------------------------------------------------------------------------------------------------------------------------ 01/13/98 Town & Country Kissimmee, FL 71,283 $ 4,265 $ 2,033 $ 2,232 Albertson's 03/12/98 Spring Valley Commons Columbia, SC 75,415 6,104 6,104 Bi-Lo Eckerd Drugs 03/31/98 Daniel Village Augusta, GA 164,451 12,245 12,245 Bi-Lo Eckerd Drugs 06/11/98 Mableton Crossing Mableton, GA 86,819 8,170 3,670 4,500 (3) Kroger 08/01/98 Charlotte Square Port Charlotte, FL 96,188 6,006 159 1,637 4,210 Publix 08/01/98 Riverside Square Coral Springs, FL 103,241 13,025 316 3,846 8,863 Publix Eckerd Drugs 08/01/98 Tamarac Town Square Tamarac, FL 123,385 10,652 678 2,882 7,092 Publix Eckerd Drugs 08/25/98 Treasure Coast Vero Beach, FL 133,781 11,094 5,157 5,937 Winn-Dixie TJX 12/10/98 Bay Pointe Plaza St. Petersburg, FL 97,390 6,388 6,388 Publix Eckerd Drugs ------------------------------------------------ 951,953 $77,949 $36,750 8,365 $32,834 ================================================
(1) Value of OP Units determined based on value of common stock on date of acquisition. (2) Mortgage assumed from previous owner unless otherwise noted (see Table V, Mortgage Indebtedness). (3) Mortgage placed on property in August 1998. 22 24 VII. PROPERTY ACQUIRED THROUGH FORECLOSURE (IN THOUSANDS, EXCEPT SQUARE FOOTAGE)
Net Book Date Value Property Foreclosed Property Name City, State Sq Ft/Units at Foreclosure Type Principal Tenants - ------------------------------------------------------------------------------------------------------------------------------------ 02/18/1998 Spanish Quarter Apartments (1) Montgomery, AL 276 Units $ 4,478 Apartments N/A 08/31/1998 Walton Plaza (2) Augusta, GA 43,460 3,157 Shopping Center Harris Teeter -------------- $ 7,635 ==============
(1) Property sold August 14, 1998. See 1998 Property Dispositions table. (2) Property acquired by deed in lieu of foreclosure. 23 25 VIII. PROPERTY DISPOSITIONS (IN THOUSANDS, EXCEPT SQUARE FOOTAGE)
Date Sales Cash Financial Property Sold Property Name City, State Sq Ft/Units Price Proceeds Gain Type Principal Tenants - ------------------------------------------------------------------------------------------------------------------------------ 06/30/1998 Plasti-Kote Medina, OH 41,000 $ 827 $ 825 $ 744 Industrial Plasti-Kote Co., Inc. 08/14/1998 Spanish Quarter Apartments (1) Montgomery, AL 276 Units 5,100 4,806 469 Apartments N/A -------------------------- $5,927 $5,631 $1,213 ==========================
(1) Property acquired through foreclosure February 18, 1998. See Property Acquired Through Foreclosure table. Investment in Joint Ventures. During 1997, Capital Corporation entered into a co-development agreement for the development of a Kroger anchored shopping center in Decatur, Georgia. The project is being developed in two phases totaling approximately 140,000 square feet, not including two out parcels, 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 (which is now substantially completed) 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. Capital Corporation was a 50% owner of a joint venture which purchased, in 1996, a 1.31 acre parcel of land located in Savannah, Georgia for development or sale. The Company had approximately $356,000 invested in this joint venture as of December 31, 1997. During March 1998, this parcel was sold for a total profit to the Company of $54,000. Mortgage Investments. The Company obtained a deed in lieu of foreclosure to Walton Plaza, Augusta, Georgia on August 31, 1998. The principal outstanding on the mortgage at the time of foreclosure was $3,157,000. Walton Plaza is a 43,640 square foot shopping center, the anchor tenant of which is a Harris Teeter Supermarket that closed but is obligated to pay rent through March, 2011. Both the Company and Harris Teeter are actively seeking a replacement tenant. Mortgage Indebtedness. During 1998, the Company a) repaid at maturity a $2,224,000 mortgage bearing interest at 11%, b) prepaid two mortgages aggregating $3,525,000 bearing interest at 9.875%, resulting in a $35,000 loss on extinguishment of debt, c) prepaid a $2,175,000 mortgage bearing interest at 10.25%, resulting in a $22,000 loss on extinguishment of debt, d) prepaid a $543,000 mortgage bearing interest at 8.25% and e) repaid a $625,000 installment of a $1,250,000 purchase note bearing interest at 9%. 24 26 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 Securityholders. Not applicable. PART II Item 5. Market for the Registrant's Common Equity and Related Securityholder 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.
1998 High Low ---- ---- --- First Quarter $12.31 $11.25 Second Quarter 12.06 10.19 Third Quarter 11.50 8.38 Fourth Quarter 10.50 8.81 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
b) Approximate number of Equity Securityholders.
Approximate Number of Record Title of Class Holders at March 19, 1999 -------------- ------------------------- Shares of Common Stock 3,000 $1 Par Value
25 27 c) The Company paid quarterly cash dividends per share of common stock during the years 1997 and 1998 as follows:
Cash Dividends 1998 Paid ---- -------------- First Quarter $ .225 Second Quarter .230 Third Quarter .230 Fourth Quarter .230 1997 ---- First Quarter $ .225 Second Quarter .225 Third Quarter .225 Fourth Quarter .225
IRT has paid 84 consecutive quarterly dividends. The current annualized dividend rate is $.92. 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. 26 28 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 1998 1997 1996 1995 1994 ---- ---- ---- ---- ---- Gross revenues $ 79,869,711 $ 67,117,835 $ 60,233,422 $ 60,196,247 $ 49,202,144 ============ ============ ============ ============ ============ Earnings from operations $ 24,690,370 $ 22,215,863 $ 15,602,112 $ 15,550,026 $ 12,788,923 Minority interest of unitholders in operating partnership (261,764) -- -- -- -- (Loss) gain on real estate investments 1,213,090 3,896,817 1,232,092 173,025 (3,825,418) ------------ ------------ ------------ ------------ ------------ Earnings before extraordinary items 25,641,696 26,112,680 16,834,204 15,723,051 8,963,505 Extraordinary items: (Loss) gain on extinguishment of debt (57,003) -- (16,500) (137,260) 3,748,095 ------------ ------------ ------------ ------------ ------------ Net earnings $ 25,584,693 $ 26,112,680 $ 16,817,704 $ 15,585,791 $ 12,711,600 ============ ============ ============ ============ ============ Per share (basic and diluted): Earnings before extraordinary items $ .78 $ .82 $ .65 $ .61 $ .35 Extraordinary items -- -- -- -- .15 ------------ ------------ ------------ ------------ ------------ Net earnings $ .78 $ .82 $ .65 $ .61 $ .50 ============ ============ ============ ============ ============ Dividends paid $ .915 $ .90 $ .90 $ .885 $ .84 ============ ============ ============ ============ ============ Federal income tax status of dividends paid to shareholders: Ordinary income $ .787 $ .73 $ .47 $ .635 $ .72 Capital gain .054 .08 -- -- .04 Return of capital .074 .09 .43 .250 .08 ------------ ------------ ------------ ------------ ------------ $ .915 $ .90 $ .90 $ .885 $ .84 ============ ============ ============ ============ ============ Weighted average shares outstanding Basic 32,940,399 31,867,743 25,749,860 25,590,129 25,349,303 ============ ============ ============ ============ ============ Diluted 33,304,588 31,921,212 25,754,941 25,595,130 25,351,936 ============ ============ ============ ============ ============ Total assets $562,258,903 $498,152,798 $437,694,691 $427,398,018 $428,579,355 ============ ============ ============ ============ ============ Indebtedness: Mortgage notes payable $ 82,214,852 $ 59,558,650 $ 84,000,628 $ 99,188,181 $105,107,084 7.30% convertible subordinated debentures 23,275,000 28,453,000 84,905,000 84,905,000 86,250,000 Senior notes 124,595,045 124,535,765 49,929,110 -- -- Indebtedness to banks 51,500,000 14,400,000 15,000,000 36,000,000 26,000,000 ------------ ------------ ------------ ------------ ------------ $281,584,897 $226,947,415 $233,834,738 $220,093,181 $217,357,084 ============ ============ ============ ============ ============ Shareholders' equity $262,773,214 $259,676,155 $193,354,922 $198,630,147 $203,038,464 ============ ============ ============ ============ ============ Other Data: Funds from operations (1) $ 38,117,585 $ 34,079,239 $ 26,388,787 $ 26,406,099 $ 21,342,209 Assuming conversion of 7.30% debentures: (1) Funds from operations (1) $ 40,323,818 $ 36,542,758 $ 32,952,612 $ 32,982,552 Weighted average shares 35,462,595 34,765,758 33,302,052 33,161,751 Net Cash Flows from (used in) - Operating activities $ 36,785,445 $ 34,792,210 $ 27,751,020 $ 25,946,987 $ 22,511,731 Investing activities $(39,586,620) $(60,273,355) $(15,659,704) $ (7,769,022) $(99,052,456) Financing activities $ 2,869,604 $ 22,582,152 $ (8,933,374) $(20,002,953) $ (247,587)
(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 1998, 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. 27 29 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. Changes in Financial Condition. During 1998, the Company utilized funds of: 1) $77,280,000 for the acquisition of nine shopping center investments, consisting of cash of $36,610,000, OP Units valued at $9,462,000 and mortgage debt of $31,208,000 secured by six of the centers, 2) $9,100,000 to repay six mortgage notes payable. These transactions were funded with cash proceeds of $5,631,000 on the sale of an industrial investment and an apartment complex, the Company's revolving credit facility and internally generated funds. Additionally, during 1998, $5,178,000 of the Company's 7.3% convertible subordinated debentures (the "Convertible Debentures") were converted into 460,263 shares of common stock at $11.25 per share. During 1997, the Company utilized funds of: 1) $79,596,000 for the acquisition of nine shopping center investments, 2) Approximately $38,224,000 in cash plus the issuance of 1,500,000 shares of common stock valued at $11.05 per share to repurchase $54,799,000 of its Convertible Debentures due August 15, 2003, and 3) $34,676,000 to repay five mortgage notes payable at maturity. These transactions were funded with approximately $49,534,000 of proceeds from the issuance of 4,653,747 shares of its common stock at $11.25 per share, net 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 from the sale of an apartment investment, cash proceeds of approximately $3,587,000 from the prepayment of a mortgage loan and internally generated funds, as well as the Company's revolving credit facility. Changes in Results of Operations. During 1998, rental income from the Company's core portfolio of shopping center investments increased approximately $736,000 despite a $190,000 reduction in rental income due to a tenant bankruptcy during 1998. The increase in the Company's core portfolio income was offset by a decrease of approximately $1,198,000 due to two investments sold during the 28 30 fourth quarter of 1997 and one investment sold during the second quarter of 1998 and was supplemented by approximately $10,213,000 of income earned from nine shopping center investments acquired in each of 1997 and 1998. During 1997, rental income from the Company's core portfolio of shopping center investments increased $1,634,000. This increase includes $525,000 of additional income earned from two property expansions completed during 1996 despite a $112,000 reduction in rental income due to a tenant bankruptcy during 1997. The increase in the Company's core portfolio income was offset by a decrease of $257,000 due to one investment sold during the first quarter of 1996 and two investments sold during the fourth quarter of 1997 and was supplemented by $5,913,000 of income earned from two shopping center investments acquired in 1996 and nine shopping center investments acquired during 1997. The percentage leased of the Company's shopping center investments was 94%, 96% and 94% in 1996, 1997 and 1998, respectively. Percentage rentals received from shopping center investments, excluding percentage rentals received from the Wal-Mart investments classified as direct financing leases, totaled $586,000, $649,000 and $776,000 in 1996, 1997 and 1998, respectively. Interest income in 1998 decreased primarily due to decreases of approximately $110,000 on short-term money market investments, $518,000 on the wrap-around mortgage secured by Spanish Quarter Apartments (the borrower defaulted under this mortgage and the Company acquired title through foreclosure of this property in February 1998 and subsequently sold this property in August 1998), $110,000 on the Walton Plaza Shopping Center mortgage (the borrower defaulted under this mortgage and the Company obtained title by deed in lieu of foreclosure in August 1998), and $251,000 on the mortgage secured by Valley West Mall that was paid in full in 1997. The decrease in interest income during 1997 was primarily due to decreases of $62,000 on short-term money market investments and $54,000 on the wrap-around mortgage secured by Spanish Quarter Apartments. 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 decrease in interest income on direct financing leases in 1997 was due to the sale of two Wal-Mart investments in December 1996. Operating expenses related to the Company's core portfolio of real estate investments increased $850,000 during 1998. This 29 31 increase was offset by a decrease of approximately $527,000 due to the sale of three investments during 1997 and 1998. Additionally, operating expenses increased $2,835,000 due to the purchase of nine shopping centers in both 1998 and 1997, $344,000 due to the foreclosure on two properties in 1998, and $366,000 due to the properties under redevelopment in 1998, one of which was acquired in December 1997. Operating expenses related to the Company's core portfolio of real estate investments increased $657,000 during 1997. This increase was offset by a decrease of approximately $5,000 incurred on three investments sold during 1996 and 1997. Additionally, $1,310,000 of operating expenses in 1997 were attributed to the two shopping center investments acquired in late 1996 and the nine shopping center investments acquired during 1997. The net decrease in interest expense on mortgages in 1998 was primarily due to the repayment of various mortgages during 1997 and 1998. During 1998, the Company a) repaid at maturity a $2,224,000 mortgage bearing interest at 11%, b) prepaid two mortgages aggregating $3,525,000 bearing interest at 9.875%, resulting in a $35,000 loss on extinguishment of debt, c) prepaid a $2,175,000 mortgage bearing interest at 10.25%, resulting in a $22,000 loss on extinguishment of debt, d) prepaid a $543,000 mortgage bearing interest at 8.25% and e) repaid a $625,000 installment of a $1,250,000 purchase note bearing interest at 9%. The decrease was offset by the assumption of a $2,232,000 mortgage bearing interest at 7.65% upon the acquisition of Town & Country Shopping Center in January 1998, the assumption of three mortgages for a combined amount of $20,083,000 bearing interest at 9.1875% upon the acquisition of Charlotte Square, Riverside Square and Tamarac Square in August 1998 (these mortgages were discounted to 8% for financial reporting purposes), the assumption of a $5,937,000 mortgage bearing interest at 8% upon the acquisition of Treasure Coast Shopping Center in August 1998 and the placement of a $4,500,000 mortgage on Mableton Crossing in August 1998 (Mableton was acquired without debt in June 1998). 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%. 30 32 Interest on the Convertible Debentures decreased in 1998 due to the repurchase of $54,799,000 of debentures in January 1997, the conversion of $1,653,000 of debentures during 1997 and the conversion of $5,178,000 of debentures in the first quarter of 1998. Interest on the Convertible Debentures decreased in 1997 due to the repurchase of $54,799,000 of debentures in January 1997 and the conversion of $1,653,000 of 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. The increase in interest on 7.25% senior notes in 1998 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 $35,211,000, $14,165,000 and $11,750,000 during 1998, 1997 and 1996, respectively, which resulted in increased interest on bank debt during 1998 and 1997. In addition, the Company incurred commitment fees of $160,110, $212,000 and $221,000 during 1998, 1997 and 1996, 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 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 11 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 1998 was primarily due to the eighteen shopping center investments acquired during 1997 and 1998. 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 decreased in 1998 and 1997 due to the repurchase of $54,799,000 of Convertible Debentures in January 31 33 1997, the conversion of $1,653,000 of Convertible Debentures during 1997 and the conversion of $5,178,000 of Convertible Debentures in the first quarter of 1998. 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 increase in general and administrative expenses in 1998 was primarily due to increased employment related costs which included the implementation of the Incentive Compensation Plan. General and Administrative expenses also include $358,000 in merger related expenses for a merger that was not consummated. The decrease in general and administrative expenses in 1997 was primarily due to decreases in employee benefit costs. 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 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 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 1998, 1997 and 1996, the Company recognized gains on sales of properties of $1,213,000, $3,897,000 and $1,232,000, respectively. During 1998, the Company prepaid three mortgages for total of $5,700,000 and recognized an extraordinary loss of $57,000 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. 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. 32 34 The following data is presented with respect to the calculation of funds from operations under the NAREIT definition for 1998, 1997 and 1996:
1998 1997 1996 ------------ ------------ ------------ Net earnings $ 25,584,693 $ 26,112,680 $ 16,817,704 Gain on real estate investments (1,213,090) (3,896,817) (1,232,092) Loss on extinguishment of debt 57,003 - 16,500 Depreciation* 12,833,290 11,453,460 10,310,344 Amortization of capitalized leasing fees* 349,977 288,152 249,292 Amortization of capitalized leasing income 132,355 121,764 227,039 Nonrecurring merger expenses 373,357 - - ------------ ------------ ------------ Funds from operations 38,117,585 34,079,239 26,388,787 Interest on convertible debentures 1,754,274 2,325,020 6,198,065 Amortization of convertible debenture costs 103,709 138,499 365,760 Amounts attributed to minority interests 357,250 - - ------------ ------------ ------------ Fully diluted funds from operations $ 40,323,818 $ 36,542,758 $ 32,952,612 ============ ============ ============ Applicable weighted average shares 35,462,594 34,765,758 33,302,052 ============ ============ ============
* net of amounts attributed to minority interest 33 35 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 1998, 1997 and 1996:
1998 1997 1996 ---------- ---------- ---------- Tenant improvements: Shopping centers $1,014,078 $ 974,024 $ 812,248 Industrial 16,967 9,391 464,469 ---------- ---------- ---------- Total tenant improvements 1,031,045 983,415 1,276,717 ---------- ---------- ---------- Capital expenditures: Shopping centers 2,114,013 1,044,469 1,030,650 Apartment 0 97,338 537,616 Industrial 130,508 34,531 158,072 ---------- ---------- ---------- Total capital expenditures 2,244,521 1,176,338 1,726,338 ---------- ---------- ---------- Total improvements $3,275,566 $2,159,753 $3,003,055 ========== ========== ========== Leasing fees $ 532,102 $ 268,122 $ 350,989 ========== ========== ==========
Liquidity and Capital Resources. In 1998 and 1997, 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, the issuance of OP Units 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 8 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. 34 36 For additional information on the outstanding debentures and senior notes, reference is made to Note 9 and Note 10 to the consolidated financial statements included as a part of this report. In May 1998, the Company filed a shelf registration statement covering up to $300 million of common stock, preferred stock, depositary shares and warrants. The Company intends to use the net proceeds of any offerings under such shelf registration for general corporate purposes, which may include, without limitation, repayment of maturing obligations, redemption of outstanding indebtedness or other securities, financing future acquisitions and for working capital. As of December 31, 1998, there had been no issuances of securities in connection with such shelf registration statement. On December 15, 1995, the Company entered into a $100,000,000 unsecured revolving term loan maturing January 4, 1999, subject to extension. The maturity date is currently 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, 1998 and 1997, the borrowings under this credit facility totaled $51,500,000 and $14,400,000, respectively. For additional information on this revolving term loan, reference is made to Note 11 to the consolidated financial statements included as a part of this report. In connection with the Company's formation of LP and its proposed operations, the Company's senior bank creditors requested that LP guarantee the Company's indebtedness under the Company's existing unsecured revolving term loan. As a result, the Company and its bank creditors entered into an Amended and Restated Loan Agreement as of September 9, 1998 (the "Amended and Restated Agreement"). Under the terms of the Amended and Restated Agreement, (i) LP, Capital Corporation and IRTAL guaranteed the Company's indebtedness, (ii) the maturity of the revolving term loan has been extended, and (iii) certain financial ratios have been modified. The Company's Dividend Reinvestment Plan allowed 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. This plan was amended in July 1998 to eliminate the discount. During 1998, 1997 and 1996, the Company received net proceeds under this plan of $1,739,000, $2,864,000 and $1,024,000, respectively. 35 37 Inflation 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. During 1996, the Company discovered that releases of petroleum products had occurred at and around a garage facility previously operated by a former tenant at the Company's Charlotte, North Carolina industrial facility. The Company is continuing to evaluate the extent of the related contamination, and Company management is negotiating with the former tenant to obtain contribution for potential cleanup costs. At this time, the Company does not believe the cost of addressing these additional releases will have a material adverse effect on the Company's financial condition. Certain of the Company's properties have environmental concerns that have been or are being addressed. The Company maintains only limited insurance coverage for this type of environmental risk. Although no assurance can be given that Company properties will not be affected adversely in the future by environmental problems, the Company presently believes that there are no environmental matters that are reasonably likely to have a material adverse effect on the Company's financial position. See "Regulation." Recent Accounting Pronouncements. In 1998 the Company adopted SFAS No. 130, "Reporting Comprehensive Income." SFAS No. 130 established standards for reporting and disclosing comprehensive income (defined as revenues, expenses, gains and losses that under generally accepted accounting principles are not included in net income) and its components. As of December 31, 1998 the Company had no items of other comprehensive income. In 1998 the Company adopted SFAS No.131, "Disclosures about Segments of an Enterprise and Related Information." SFAS No. 131 established standards for reporting financial and descriptive information about operating segments in annual financial statements. Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. The Company's chief operating decision maker is its senior management group. 36 38 The Company owns and operates retail shopping centers in nine states in the southeast. Such shopping centers generate rental and other revenue through the leasing of shop spaces to a diverse base of tenants. The Company evaluates the performance of each of its shopping centers on an individual basis. However, because each of the shopping centers have similar economic characteristics and tenants, the shopping centers have been aggregated into one reportable segment. In June 1998 SFAS No.133, "Accounting for Derivative Instruments and Hedging Activities" was issued establishing accounting and reporting standards requiring that every derivative instrument (including certain derivative instruments embedded in other contracts) be recorded in the balance sheet as either an asset or liability measured at its fair market value. SFAS No. 133 requires that changes in the derivatives fair market value be recognized currently in earnings unless specific hedge accounting criteria are met. Special accounting for qualifying hedges allows a derivative's gains and losses to offset related results on the hedged item in the income statement and requires that a company must formally document, designate, and assess the effectiveness of transactions that receive hedge accounting. The Company has never used derivative instruments or hedging activities. Year 2000 Readiness Disclosure. The Company has assessed the possible effects of the Year 2000 computer problem in connection with its technology investments and operations. Management currently believes the Company has limited exposure and expects the cost of addressing all Year 2000 issues to be less than $30,000 in 1999. As part of its assessment, Company management evaluated Year 2000 compliance by those with which it does business and to date has not discovered any Year 2000 problem with significant counter parties that it believes are reasonably likely to have a material adverse effect upon the Company. Due to the nature of Year 2000 issues, the Company realizes that additional information can come to light at any time during the coming year and the Company intends to continue to monitor significant counterparties in the future in the event that circumstances change. Overall, however, even with Year 2000-related failures at major tenants, the Company believes that it can receive its rent payments via alternative methods of payment. However, no assurance can be given that potential Year 2000 problems at those companies with which 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. The Company designates each of the statements made by it herein as a Year 2000 Readiness Disclosure. Such statements are made pursuant to the Year 2000 Information and Readiness Disclosure Act. 37 39 Item 7A. Quantitative and Qualitative Disclosures About Market Risk Interest Rate Risk IRT's exposure to market risk for changes in interest rates relates primarily to its line of credit facility. IRT has no involvement with derivative financial instruments. The table below provides information about IRT's financial instruments that are sensitive to changes in interest rates or market conditions, including estimated fair values for IRT's interest rate sensitive liabilities as of December 31, 1998. As the table incorporates only those exposures that exist as of December 31, 1998, it does not consider exposures which could arise after that date. Moreover, because there were no firm commitments to actually sell the obligations at fair value as of December 31, 1998, the information presented has limited predictive value. As a result, IRT's ultimate realized gain or loss with respect to interest rate fluctuations will depend on the exposures that arise during a future period and prevailing interest rates. Dollar amounts in the following table are in thousands.
Expected Maturity/Principal Repayment December 31, ------------------------------------------------------------------------------------------- Nominal Interest Total Fair Rate 1999 2000 2001 2002 2003 Thereafter Balance Value -------- ---- ---- ---- ---- ---- ---------- ------- ------- Interest-Sensitive Liabilities: Lines of Credit Facilities- variable rate 6.69% $ -- $ -- $51,500 $ -- $ -- $ -- $51,500 $51,500 7.3% Convertible Subordinated Debentures- fixed rate 7.3% -- -- -- -- 23,275 -- 23,275 22,286 7.25% Senior Notes- fixed rate 7.25% -- -- -- -- -- 75,000 75,000 74,633 7.45% Senior Notes- fixed rate 7.45% -- -- 50,000 -- -- -- 50,000 49,962
38 40 Item 8. Financial Statements and Supplementary Data. IRT PROPERTY COMPANY & SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page ---- Report of Independent Public Accountants 40 Consolidated Balance Sheets - December 31, 1998 and 1997 41 Consolidated Statements of Earnings - For the Years Ended December 31, 1998, 1997 and 1996 42 Consolidated Statements of Changes in Shareholders' Equity - For the Years Ended December 31, 1998, 1997 and 1996 43 Consolidated Statements of Cash Flows - For the Years Ended December 31, 1998, 1997 and 1996 44 Notes to Consolidated Financial Statements - December 31, 1998, 1997 and 1996 45 Schedules: III Real Estate and Accumulated Depreciation 64 IV Mortgage Loans on Real Estate 80
39 41 Report of Independent Public Accountants To IRT Property Company: We have audited the accompanying consolidated balance sheets of IRT PROPERTY COMPANY (a Georgia corporation) and subsidiaries as of December 31, 1998 and 1997, 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, 1998. 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, 1998 and 1997, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1998, 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 29, 1999 40 42 IRT PROPERTY COMPANY & SUBSIDIARIES CONSOLIDATED BALANCE SHEETS December 31, 1998 and 1997
1998 1997 ------------- ------------- ASSETS Real estate investments: Rental properties $ 622,117,050 $ 537,160,220 Accumulated depreciation (74,942,576) (62,526,989) ------------- ------------- 547,174,474 474,633,231 Net investment in direct financing leases 4,571,940 4,704,295 Investment in joint venture - 355,832 Mortgage loans, net 1,097,175 9,321,205 ------------- ------------- Net real estate investments 552,843,589 489,014,563 Cash and cash equivalents 343,778 275,349 Accrued interest receivable 58,954 528,094 Prepaid expenses and other assets 9,012,582 8,334,792 ------------- ------------- $ 562,258,903 $ 498,152,798 ============= ============= LIABILITIES & SHAREHOLDERS' EQUITY Liabilities: Mortgage notes payable, net $ 82,214,852 $ 59,558,650 7.30% convertible subordinated debentures, net 23,275,000 28,453,000 Senior notes, net 124,595,045 124,535,765 Indebtedness to banks 51,500,000 14,400,000 Accrued interest 3,612,186 3,754,984 Accrued expenses and other liabilities 6,464,504 6,718,749 Deferred income taxes - 1,055,000 ------------- ------------- Total liabilities 291,661,587 238,476,148 ------------- ------------- Commitments and Contingencies (Note 17 and Note 18) Minority interest payable 7,824,101 495 Shareholders' Equity: Common stock, $1 par value, 75,000,000 shares authorized; 33,251,763 shares issued and outstanding in 1998 and 32,385,664 shares in 1997 33,251,763 32,385,664 Preferred stock, $1 par value, authorized 10,000,000 shares; none issued - - Additional paid-in capital 272,974,700 263,786,165 Deferred compensation/stock loans (2,385,417) - Cumulative distributions in excess of net earnings (41,067,831) (36,495,674) ------------- ------------- Total shareholders' equity 262,773,215 259,676,155 ------------- ------------- $ 562,258,903 $ 498,152,798 ============= =============
The accompanying notes are an integral part of these consolidated balance sheets. 41 43 IRT PROPERTY COMPANY & SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS For the Years Ended December 31, 1998, 1997 and 1996
1998 1997 1996 ------------ ----------- ------------ Revenues: Income from rental properties $ 78,937,147 $65,215,479 $ 57,925,659 Interest income 362,659 1,330,080 1,388,733 Interest on direct financing leases 569,905 572,276 919,030 ------------ ----------- ------------ 79,869,711 67,117,835 60,233,422 ------------ ----------- ------------ Expenses: Operating expenses of rental properties 17,944,408 14,075,505 12,113,108 Interest on mortgages 5,727,268 6,249,412 7,750,389 Interest on debentures 1,745,274 2,325,020 6,198,065 Interest on senior notes 9,221,781 5,796,718 2,798,433 Interest on indebtedness to banks 2,577,651 1,216,204 1,003,331 Depreciation 12,925,299 11,453,460 10,310,344 Amortization of debt costs 436,988 422,606 595,604 General & administrative 4,654,693 3,363,047 3,862,036 ------------ ----------- ------------ Total expenses 55,233,362 44,901,972 44,631,310 ------------ ----------- ------------ Equity in income of joint venture 54,021 - - ------------ ----------- ------------ Income before minority interest, gain on sales of properties and extraordinary item 24,690,370 22,215,863 15,602,112 Minority interest of unitholders in operating partnership (261,764) - - Gain on sales of properties 1,213,090 3,896,817 1,232,092 ------------ ----------- ------------ Income before extraordinary item 25,641,696 26,112,680 16,834,204 Extraordinary item: Loss on extinguishment of debt (57,003) - (16,500) ------------ ----------- ------------ Net Earnings $ 25,584,693 $26,112,680 $ 16,817,704 ============ =========== ============ Per Share (Note 12): Basic $ 0.78 $ 0.82 $ 0.65 ============ =========== ============ Diluted $ 0.78 $ 0.82 $ 0.65 ============ =========== ============ Weighted average number of shares outstanding: Basic 32,940,399 31,867,743 25,749,860 ============ =========== ============ Diluted 33,304,588 31,921,212 25,754,941 ============ =========== ============
The accompanying notes are an integral part of these consolidated financial statements. 42 44 IRT PROPERTY COMPANY & SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY For the Years Ended December 31, 1998, 1997 and 1996
Cumulative Additional Deferred Distributions Total Common Paid-In Compensation/ in Excess of Shareholders' Stock Capital Stock Loans Net Earnings Equity ----- ------- ----------- ------------ ------ 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 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 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 Net earnings - 25,584,693 25,584,693 Dividends declared - $.915 per share - (30,156,850) (30,156,850) Issuance of shares under Dividend Reinvestment Plan, net 163,505 1,575,853 - - 1,739,358 Conversion of debentures, net 460,263 4,595,696 - - 5,055,959 Exercise of stock options 2,811 17,616 - - 20,427 Issuance of restricted stock to employees 119,760 1,130,240 (1,250,000) - - Amortization of deferred compensation - - 114,583 - 114,583 Issuance of shares subject to employee loans 119,760 1,130,240 (1,250,000) - - Adjustments for minority interest of unitholders in operating partnership for issuance of additional units - 738,890 - - 738,890 ----------- ------------- ------------ ------------ ------------- Balance at December 31, 1998 $33,251,763 $ 272,974,700 $ (2,385,417) $(41,067,831) $ 262,773,215 =========== ============= ============ ============ =============
The accompanying notes are an integral part of these consolidated financial statements. 43 45 IRT PROPERTY COMPANY & SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS For the Years Ended December 31, 1998, 1997 and 1996
1998 1997 1996 ------------ ------------ ------------ Cash flows from operating activities: Net earnings $ 25,584,693 $ 26,112,680 $ 16,817,704 Adjustments to reconcile earnings to net cash from operating activities: Depreciation 12,925,299 11,453,460 10,310,344 Gain on sales of properties (1,213,090) (3,896,817) (1,232,092) Extraordinary loss on extinguishment of debt 57,003 - 16,500 Minority interest expense 261,764 - - Amortization of deferred compensation 114,583 - - Amortization of debt costs and discount 496,268 455,261 608,016 Amortization of capital leasing income 132,355 121,764 227,039 Changes in accrued assets and liabilities: Decrease in accrued interest on debentures (142,798) (1,556,817) - Increase in accrued interest on senior notes - 2,039,063 931,250 Increase in interest receivable, prepaid expenses and other assets (1,112,206) (478,335) (839,832) (Decrease) increase in accrued expenses and other liabilities (318,426) 541,951 912,091 ------------ ------------ ------------ Net cash flows from operating activities 36,785,445 34,792,210 27,751,020 ------------ ------------ ------------ Cash flows used in investing activities: Proceeds from sales of properties, net 5,782,542 6,076,520 5,658,531 Non-operating distributions from unconsolidated joint venture 355,832 - - Additions to real estate investments, net (45,749,013) (70,211,190) (21,079,093) Collections of mortgage loans, net 24,019 3,861,315 116,690 Contributions to joint venture - - (355,832) ------------ ------------ ------------ Net cash flows used in investing activities (39,586,620) (60,273,355) (15,659,704) ------------ ------------ ------------ Cash flows from (used in) financing activities: Cash dividends paid, net (28,417,492) (26,018,800) (22,142,109) Issuance of common stock, net - 49,534,496 - Exercise of stock options 20,427 105,251 18,463 Principal amortization of mortgage notes payable (1,083,812) (1,146,359) (1,238,802) Repayment of mortgage notes payable (9,092,919) (34,840,154) (13,948,751) Increase in mortgage notes payable 4,400,446 - - Increase (decrease) in bank indebtedness, net 37,100,000 (600,000) (21,000,000) Issuance of senior notes, net - 73,817,209 49,394,325 Repurchase of 7.3% convertible subordinated debentures, net - (38,269,338) - Cash in lieu of fractional shares on conversion of debentures (43) (153) - Extraordinary loss on extinguishment of debt (57,003) - (16,500) ------------ ------------ ------------ Net cash flows from (used in) financing activities 2,869,604 22,582,152 (8,933,374) ------------ ------------ ------------ Net increase (decrease) in cash and cash equivalents 68,429 (2,898,993) 3,157,942 Cash and cash equivalents at beginning of year 275,349 3,174,342 16,400 ------------ ------------ ------------ Cash and cash equivalents at end of year $ 343,778 $ 275,349 $ 3,174,342 ============ ============ ============ Supplemental disclosures of cash flow information: - ------------------------------------------------- Total cash paid during the year for interest $ 19,008,087 $ 15,517,788 $ 17,077,993 ============ ============ ============
The accompanying notes are an integral part of these consolidated financial statements. 44 46 IRT PROPERTY COMPANY & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1998, 1997 and 1996 (Unaudited with respect to square footage) 1. ORGANIZATION AND NATURE OF OPERATIONS: IRT Property Company ("The Company"), founded in 1969, is a self-administered and self-managed equity real estate investment trust ("REIT") 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 6.6% of the Company's gross revenues. In 1998 IRT Partners L.P. ("LP"), a Georgia limited partnership, was formed to enhance the acquisition opportunities of IRT Property Company by offering potential sellers the ability to engage in tax-deferred sales in exchange for Operating Partnership Units ("OP Units") of LP which may be redeemable for shares of Company common stock. The Company serves as general partner of LP and has contributed 20 of its shopping centers and related assets and cash to LP in exchange for OP Units and partnership interests. As a result, the Company and one of its wholly-owned subsidiaries IRT Management Company ("Management Company") own approximately 92.5% of LP as of December 31, 1998, which is included in the Company's consolidated financial statements. 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. In 1996, IRT Capital Corporation ("Capital Corporation"), a taxable subsidiary of the Company, was formed under the laws of Georgia. This taxable subsidiary has the ability to develop properties, buy and sell properties, provide equity to 45 47 developers 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 Capital Corporation. The remaining voting common stock is currently held by a former member of the Board of Directors of IRT Property Company and an executive officer of the Company. Additionally, Capital Corporation is taxed as a regular corporation and not as a REIT. 2. 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 its affiliated subsidiary, LP. Intercompany transactions and balances have been eliminated in consolidation. The Company's investment in Capital Corporation has been accounted for under the equity method of accounting. 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. 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. 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 46 48 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 consistent with the guidelines of Statement of Accounting Standards No. 128, "Earnings Per Share." See Note 12 for the required disclosures. Reclassification of Prior Year Amounts- Certain items in the consolidated financial statements have been reclassified to conform with the 1998 presentation. Recent Accounting Pronouncements- In 1998 the Company adopted SFAS No. 130, "Reporting Comprehensive Income". SFAS No. 130 established standards for reporting and disclosing comprehensive income (defined as revenues, expenses, gains and losses that under generally accepted accounting principles are not included in net income) and its components. As of December 31, 1998 the Company had no items of other comprehensive income. In 1998 the Company adopted SFAS No.131, "Disclosures about Segments of an Enterprise and Related Information". SFAS No. 131 established standards for reporting financial and descriptive information about operating segments in annual financial statements. Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. The Company's chief operating decision maker is its senior management group. The Company owns and operates retail shopping centers in 47 49 nine states in the southeast. Such shopping centers generate rental and other revenue through the leasing of shop spaces to a diverse base of tenants. The Company evaluates the performance of each of its shopping centers on an individual basis. However, because each of the shopping centers have similar economic characteristics and tenants, the shopping centers have been aggregated into one reportable segment. In June 1998 SFAS No.133, "Accounting for Derivative Instruments and Hedging Activities" was issued establishing accounting and reporting standards requiring that every derivative instrument (including certain derivative instruments embedded in other contracts) be recorded in the balance sheet as either an asset or liability measured at its fair market value. SFAS No. 133 requires that changes in the derivatives fair market value be recognized currently in earnings unless specific hedge accounting criteria are met. Special accounting for qualifying hedges allows a derivative's gains and losses to offset related results on the hedged item in the income statement and requires that a company must formally document, designate, and assess the effectiveness of transactions that receive hedge accounting. The Company has never used derivative instruments or hedging activities. Income Taxes- The Company has in past years elected to qualify, and intends to continue such election, to be taxed as a 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. Additionally, Capital Corporation, formed to provide management and other services to third and related parties, is a separate taxable entity. The tax attributes of this entity are immaterial to the accompanying consolidated financial statements. 3. 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. 48 50 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 10. 4. RENTAL PROPERTIES: Rental properties are comprised of the following:
December 31, ----------------------------- 1998 1997 ---- ---- Land covered by purchase- leaseback agreements $ 928,292 $ 928,292 Land related to buildings and improvements 143,647,452 118,374,360 Buildings & improvements 477,541,306 417,857,568 ----------- ----------- $622,117,050 $537,160,220 ============ ============
Upon expiration of the leases for land covered by purchase-leaseback agreements, all improvements on the land will become the property of the Company. The lessees of two of the leaseback purchase agreements 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 ---- ------ 1999 $ 65,046,535 2000 58,867,367 2001 51,454,170 2002 44,072,728 2003 39,056,170 Thereafter 255,113,495 ------------ $513,610,465 ============
49 51 Shopping Center Acquisitions (in thousands, except square footage)
Total OP Units Date Rentable Initial Cash Issued Acquired Property Name City, State Sq Ft Cost Paid by LP (1) Mortgage (2) Principal Tenants - ---------------------------------------------------------------------------------------------------------------------------------- 01/13/98 Town & Country Kissimmee, FL 71,283 $4,265 $ 2,033 $2,232 Albertson's 03/12/98 Spring Valley Commons Columbia, SC 75,415 6,104 6,104 Bi-Lo Eckerd Drugs 03/31/98 Daniel Village Augusta, GA 164,451 12,245 12,245 Bi-Lo Eckerd Drugs 06/11/98 Mableton Crossing Mableton, GA 86,819 8,170 3,670 4,500 (3) Kroger 08/01/98 Charlotte Square Port Charlotte, FL 96,188 6,006 159 1,637 4,210 Publix 08/01/98 Riverside Square Coral Springs, FL 103,241 13,025 316 3,846 8,863 Publix Eckerd Drugs 08/01/98 Tamarac Town Square Tamarac, FL 123,385 10,652 678 2,882 7,092 Publix Eckerd Drugs 08/25/98 Treasure Coast Vero Beach, FL 133,781 11,094 5,157 5,937 Winn-Dixie TJX 12/10/98 Bay Pointe Plaza St. Petersburg, FL 97,390 6,388 6,388 Publix Eckerd Drugs -------------------------------------------------- 951,953 $77,949 $36,750 8,365 $32,834 ==================================================
(1) Value of OP Units determined based on value of common stock on date of acquisition. (2) Mortgage assumed from previous owner unless otherwise noted. (3) Mortgage placed on property in August 1998. Property Acquired through Foreclosure (in thousands, except square footage)
Net Book Date Value Property Foreclosed Property Name City, State Sq Ft/Units at Foreclosure Type Principal Tenants - ------------------------------------------------------------------------------------------------------------------------------------ 02/18/98 Spanish Quarter Apartments (1) Montgomery, AL 276 Units $ 4,478 Apartments N/A 08/31/98 Walton Plaza (2) Augusta, GA 43,460 3,157 Shopping Center Harris Teeter -------- $ 7,635 ========
(1) Property sold August 14, 1998. See Property Dispositions table. (2) Property acquired by deed in lieu of foreclosure. Property Dispositions (in thousands, except square footage)
Date Sales Cash Financial Property Sold Property Name City, State Sq Ft/Units Price Proceeds Gain Type Principal Tenants - ----------------------------------------------------------------------------------------------------------------------------- 06/30/98 Plasti-Kote Medina, OH 41,000 $ 827 $ 825 $ 744 Industrial Plasti-Kote Co., Inc. 08/14/98 Spanish Quarter Apartments (1) Montgomery, AL 276 Units 5,100 4,806 469 Apartments N/A -------------------------- $5,927 $ 5,631 $ 1,213 ==========================
(1) Property acquired through foreclosure February 18, 1998. See Property Acquired Through Foreclosure table. 50 52 5. NET INVESTMENT IN DIRECT FINANCING LEASES: As of December 31, 1998, 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 $399,503, $381,414 and $376,639 in 1998,1997 and 1996 respectively . 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, $132,355, $121,764 and $227,039 were recorded as amortization of capitalized leasing income in 1998, 1997 and 1996, respectively. The Company is to receive minimum lease payments of $645,899 per year during 1999 through 2003 and a total of $5,253,386 thereafter through the remaining lease terms. 6. INVESTMENT IN JOINT VENTURE: Capital Corporation was 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. In March 1998, this parcel was sold for a total sales price of $464,000. The Company recognized equity in income from the joint venture of approximately $54,000. 7. 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, 1998 and 1997, as follows: Based on current rates at which similar loans would be made, the estimated fair value of mortgage loans was approximately $1,160,000 and $9,394,000 at December 31, 1998 and 1997, respectively.
1998 1997 ---------------------- ---------------------- Number Amount Number Amount of Loans Outstanding of Loans Outstanding -------- ----------- -------- ------------ First mortgage 1 $ 114,009 2 $3,283,231 Mortgage participation 1 23,585 1 25,753 Wrap-around mortgage - - 1 5,212,708 Second mortgage 2 1,000,000 2 1,000,000 -- ---------- -- ---------- 4 1,137,594 6 9,521,692 Less-Interest discounts and negative goodwill - (40,419) - (200,487) -- ---------- -- ---------- Mortgage loans, net 4 $1,097,175 6 $9,321,205 -- ---------- -- ----------
51 53 During the fourth quarter of 1997, the borrower under the Spanish Quarter Apartments wrap around mortgage loan defaulted under the terms of the mortgage, and on February 18, 1998, the Company obtained title to the property through foreclosure. On August 14, 1998, the Company sold Spanish Quarter Apartments for approximately $5,100,000. The Company received net cash proceeds from the sale of approximately $4,806,000 and recognized a gain, net of deferred income tax, of approximately $469,000 for financial reporting purposes. On August 1, 1998, the borrower under the Walton Plaza first mortgage defaulted under the terms of the mortgage and on August 31, 1998, the Company obtained title to Walton Plaza through a deed in lieu of foreclosure. Management believes that the market value of the property equals or exceeds the net carrying value of the wrap-around mortgage. Annual principal payments applicable to mortgage loan investments in the next five years and thereafter are as follows:
Year Amount ------ ---------- 1999 $1,005,976 2000 6,805 2001 7,719 2002 8,724 2003 9,828 Thereafter 58,123 ---------- $1,097,175 ==========
Based on current rates at which similar loans would be made, the estimated fair value of mortgage loans was approximately $1,160,000 and $9,394,000 at December 31, 1998 and 1997, respectively. 8. MORTGAGE NOTES PAYABLE: Mortgage notes payable are collateralized by various real estate investments having a net carrying value of approximately $131,784,000 as of December 31, 1998. These notes have stated interest rates ranging from 6.85% to 9.875% and are due in monthly installments with maturity dates ranging from 1999 to 2018. During 1998, the Company a) repaid at maturity a $2,224,000 mortgage bearing interest at 11%, b) prepaid two mortgages aggregating $3,525,000 bearing interest at 9.875%, resulting in a $35,000 extraordinary loss on extinguishment of debt, c) prepaid a $2,175,000 mortgage bearing interest at 10.25%, resulting in a $22,000 extraordinary loss on extinguishment of debt and d) prepaid a $543,000 mortgage bearing interest at 8.25% and e) repaid a $625,000 installment of a $1,250,000 purchase note bearing interest at 9%. Principal amortization and balloon payments applicable to mortgage notes payable in the next five years and thereafter are as follows:
Principal Balloon Year Amortization Payments Total ---- ------------ -------- ----- 1999 $ 1,178,143 $ 625,000 $ 1,803,143 2000 1,229,168 6,837,352 8,066,520 2001 1,505,590 -- 1,505,590 2002 1,579,787 7,155,174 8,734,961 2003 1,617,939 -- 1,617,939 Thereafter 23,883,268 35,007,536 58,890,804 ----------- ----------- ----------- $30,993,895 $49,625,062 $80,618,957 Interest Premium 1,595,895 ----------- $82,214,852
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 $88,622,000 and $64,229,000 at December 31, 1998 and 1997, respectively. 52 54 9. CONVERTIBLE SUBORDINATED DEBENTURES: Effective August 31, 1993, the Company issued $86,250,000 of 7.3% convertible subordinated debentures due August 15, 2003, ("The Convertible Debenture") $23,275,000 of which is outstanding as of December 31, 1998. 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 toredeem 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 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. During 1998, $5,178,000 of these debentures were converted into 460,263 shares of common stock. Based upon the conversion price, 2,068,889 authorized but unissued common shares have been reserved for possible issuance if the $23,275,000 debentures outstanding at December 31, 1998 are converted. 53 55 Based on the closing market price at year end, the estimated fair value of the Convertible Debentures was approximately $22,286,000 and $29,307,000 at December 31, 1998 and 1997, respectively. 10. 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 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. 11. INDEBTEDNESS TO BANKS: On December 15, 1995, the Company obtained a $100,000,000 unsecured revolving term loan the maturity of which was extended through January 4, 2001. The Company may request to extend the maturity date for an additional twelve-month period beyond the existing maturity date. The Company may elect to pay interest at either a) the lenders prime, adjusted daily, or b) the 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%. The Applicable Margin based on the Company's current rating is 1.25%. LIBOR borrowings may be set for the term selected by the Company not to exceed 12 months. 54 56 Prepayments may be made on all advances, provided that the Company may be required to reimburse the lenders for any loss or out-of-pocket expense incurred in connection with any LIBOR prepayment. The Company pays an annual fee of 25 basis points on the unused portion of the loan commitment. Since June 1997, this fee has been 15 basis points, whenever the unused commitment is less than 50% 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, 1998, the Company may borrow the maximum commitment amount. The Company and its bank creditors entered into an Amended and Restated Loan Agreement as of September 9, 1998 (the "Amended and Restated Agreement"). Under the terms of the Amended and Restated Agreement, LP guarantees the Company's indebtedness. The following data is presented with respect to the revolving term loan agreement in 1998 and 1997:
1998 1997 ---- ---- Unused at year-end $48,500,000 $85,600,000 Average borrowing for the period 35,211,000 14,165,000 Maximum amount outstanding during the period 52,000,000 64,700,000 Average interest rate for the period 6.87% 7.09% Interest rate at year-end 6.69% 7.45%
The Company incurred commitment fees of approximately $160,110 and $212,000 for the years ended December 31, 1998 and 1997, respectively, based on the aggregate unused portion of the commitment. 55 57 12. EARNINGS PER SHARE:
Per-Share Income Shares Amount ------ ------ ------ For the year ended December 31, 1998 - ------------------------------------ Basic Net Earnings available to shareholders $25,584,693 32,940,399 $0.78 ===== Options outstanding (See Note 14) - 22,607 Minority interest LP 261,764 339,776 Restricted stock - 1,806 ----------- ---------- Diluted Net Earnings available to shareholders $25,846,457 33,304,588 $0.78 =========== ========== ===== For the year ended December 31, 1997 - ------------------------------------ Basic Net Earnings available to shareholders $26,112,680 31,867,743 $0.82 ===== Options outstanding (See Note 14) - 53,469 ----------- ---------- Dilute Net Earnings available to shareholders $26,112,680 31,921,212 $0.82 =========== ========== ===== For the year ended December 31, 1996 - ------------------------------------ Basic Net Earnings available to shareholders $16,817,704 25,749,860 $0.65 ===== Options outstanding (See Note 14) - 5,081 ----------- ---------- Diluted Net Earnings available to shareholders $16,817,704 25,754,941 $0.65 =========== ========== =====
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 of the Convertible Debentures and certain stock options, using the treasury stock method, have been excluded from the calculation of dilutive earnings per share, as they are anti-dilutive. 56 58 13. CASH DISTRIBUTIONS AND DIVIDEND REINVESTMENT PLAN: The taxability of per share distributions paid to shareholders during the years ended December 31, 1998, 1997 and 1996 was as follows:
1998 1997 1996 ---- ---- ---- Ordinary income $.787 $ .730 $ .470 Capital gains .054 .080 -- Return of capital .074 .090 .430 ----- ------ ------ $.915 $ .900 $ .900 ===== ====== ======
In addition, the 5% discount received upon purchase of shares under the Dividend Reinvestment Plan is taxable as ordinary income to the participant. The Company's Dividend Reinvestment Plan allowed 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. This plan was amended in July 1998 to eliminate the discount. During 1998, 1997 and 1996, the Company received net proceeds under this plan of $1,739,000, $2,864,000 and $1,024,000, respectively. 14. STOCK OPTIONS: Effective May 8, 1989, the Company adopted and its shareholders approved the 1989 Stock Option Plan (the "1989 Plan"). 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. Effective June 18, 1998 the Company adopted and its shareholders approved the 1998 Long-Term Incentive Plan (the "1998 Plan"). The 1998 Plan includes provisions for the granting of ISOs, nonqualified options, stock appreciation 57 59 rights, performance shares, restricted stock, dividend equivalents, and other stock-based awards. Under the terms of the 1998 Plan, the option exercise price shall be no less than the fair market value of the optioned shares at the date of the grant. 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:
1998 1997 ---- ---- Net Earnings: As Reported $25,846,457 $26,112,680 Pro Forma $25,411,748 $26,006,756 EPS (Basic and Diluted): As Reported $ 0.78 $ 0.82 Pro Forma $ 0.77 $ 0.82
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. The weighted average fair value of options granted is $1.10 and $1.11 for 1998 and 1997, 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 1998 and 1997, respectively: risk-free interest rates of 5.48% and 6.28% for qualified employee options, 5.54% and 6.50% for director options; expected dividend yields of 7.87% and 7.91% for qualified employee options, 8.62% and 7.74% for director options; expected lives of 5 years; expected volatility of 21% and 20%. 58 60 Details of the stock option activity during 1998, 1997 and 1996 are as follows:
Number of Shares ---------------- Option Price Employees Directors Per Share --------- --------- -------------- 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 Granted, 1998 150,300 -- $11.688-$11.813 Granted, 1998 -- 7,500 $10.4375 Exercised, 1998 (4,750) -- $9.25 Expired unexercised, 1998 (42,575) -- $9.25-$12.60 ------- ------ Options outstanding, December 31, 1998 485,968 67,500 ======= ======
15. DEFERRED COMPENSATION AND STOCK LOANS: On June 18, 1998, 119,760 restricted shares of common stock (the "Restricted Shares") were granted and 119,760 shares (the "Loan Shares") were issued pursuant to full recourse loans due 6/18/2008 made to certain Company officers as incentives for future services. The Restricted Shares and the Loan Shares were valued at the closing price of the Company's common stock on June 18, 1998 of $10.437. 59 61 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 $145,000, $131,000 and $56,000 to the 401(k) Plan in 1998, 1997 and 1996, respectively. The Company accrued approximately $179,000 under the Cash in Lieu of Pension program in 1996. 17. COMMITMENTS AND CONTINGENCIES: Capital Corporation 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 out parcels, 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. 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. 60 62 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 Executive Vice Presidents. These are generally similar to the Change In Control provisions contained in the President's Employment Agreement and 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. The Change In Control Employment Agreement with the former CFO expired upon her resignation December 31, 1998. 18. ENVIRONMENTAL INVESTIGATIONS: During 1996, the Company discovered that releases of petroleum products had occurred at and around a garage facility previously operated by a former tenant at the Company's Charlotte, North Carolina industrial facility. The Company is continuing to evaluate the extent of the related contamination, and Company management is negotiating with the former tenant to obtain contribution for potential cleanup costs. At this time, the Company does not believe the cost of addressing these additional releases will have a material adverse effect on the Company's financial condition. Certain of the Company's properties have environmental concerns that have been or are being addressed. The Company maintains only limited insurance coverage for this type of environmental risk. Although no assurance can be given that Company properties will not be affected adversely in the future by environmental problems, the Company presently believes that there are no environmental matters that are reasonably likely to have a material adverse effect on the Company's financial position. 61 63 19. EVENTS (UNAUDITED) SUBSEQUENT TO DATE OF AUDITORS' REPORT: On February 25, 1999, the Company, entered into a $40 million loan secured by first mortgages on eight properties at an approximate cost of $625,000. This loan is a 25 year fully amortizing loan that bears a fixed interest rate of 6.5%. The Company's cost basis of these eight properties as of December 31, 1998 was approximately $73,865,000. On February 26, 1999, IRT Partners L.P. acquired a shopping center in Miami, Florida for total consideration of approximately $9,908,000, including approximately $100,000 of acquisition costs. The consideration was the assumption of an existing mortgage of approximately $5,742,000 and cash of approximately $4,166,000. On March 15, 1999, IRT Partners L.P. acquired a shopping center in Atlanta, Georgia for approximately $5,596,000 cash, consisting of the initial purchase price of $5,325,000, $246,000 of capital expenditures and $25,000 of acquisition costs. 62 64 20. QUARTERLY FINANCIAL INFORMATION (UNAUDITED): The following is a summary of the unaudited quarterly financial information for the years ended December 31, 1998 and 1997.
1998 ----------------------------------------------------------------------- First Second Third Fourth Quarter Quarter Quarter Quarter ------- ------- ------- ------- Revenues $18,527,190 $19,906,484 $20,816,824 $20,619,213 =========== =========== =========== =========== Income before minority interest, gain on sales of properties and extraordinary item $ 6,054,744 $ 5,633,194 $ 6,918,973 $ 6,083,459 Minority interest of unitholders in operating partnership -- -- (104,473) (157,291) Gain on sales of properties -- 744,074 469,016 -- ----------- ----------- ----------- ----------- Income before extraordinary item 6,054,744 6,377,268 7,283,516 5,926,168 Extraordinary item: Loss on Extinguishment of Debt -- -- (57,003) -- ----------- ----------- ----------- ----------- Net Earnings $ 6,054,744 $ 6,377,268 $ 7,226,513 $5,926,168 =========== -========== =========== =========== Per Share: Basic $ .19 $ .19 $ .22 $ .18 =========== ========== =========== =========== Diluted $ .19 $ .19 $ .22 $ .18 =========== ========== =========== =========== 1997 ------------------------------------------------------------------------- First Second Third Fourth Quarter Quarter Quarter Quarter ------- ------- ------- ------- Revenues $16,032,212 $16,543,840 $17,188,894 $17,352,889 =========== =========== =========== =========== Income before gain on sales of properties and extraordinary item $ 5,458,274 $ 5,658,714 $ 5,483,826 $ 5,615,049 Gain on sales of properties -- -- -- 3,896,817 ----------- ------------ ----------- ----------- Income 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 $ .19 $ .17 $ .17 $ .29 =========== ========== =========== =========== Diluted $ .19 $ .17 $ .17 $ .29 =========== ========== =========== ===========
63 65 IRT PROPERTY COMPANY SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION December 31, 1998
Estimated Costs Gross Amount Accumulated Useful Initial Capitalized at Which Depreciation Life of Cost to Subsequent to Carried at at Close Buildings Date Year Description Encumbrances Company Acquisition Close of Year of Year (Years) Acquired Completed - ---------------- ------------ --------- ------------- ------------- ------------ --------- --------- ----------- Abbeville Plaza Abbeville, SC Land $ -- $ 48,066 $ -- $ 48,066 $ -- 21 April, 1986 1970 Buildings 458,062 55,722 513,784 324,019 Alafaya Commons Orlando, FL Land -- 5,525,976 -- 5,525,976 -- 40 November, 1996 1987 Buildings 4,723,994 54,509 4,778,503 249,809 Ambassador Row Lafayette, LA Land -- 2,451,860 -- 2,451,860 -- 40 December, 1994 1980 & Buildings 7,244,580 295,137 7,539,717 817,471 1991 Ambassador Row Courtyard Lafayette, LA Land -- 2,899,438 -- 2,899,438 -- 40 December, 1994 1986 & Buildings 8,698,313 247,130 8,945,443 911,185 1991 Asheville Plaza (1) Asheville, NC Land -- 52,710 15,000 67,710 -- 30 April, 1986 1967 Buildings 335,717 1,860 337,577 144,156 Bay Pointe (1) St. Petersburg, FL Land -- 3,249,918 -- 3,249,918 -- 40 December, 1998 1998 Buildings 3,138,518 -- 3,138,518 6,539 Bluebonnet Village Baton Rouge, LA Land -- 2,540,594 (4,802) 2,535,792 -- 40 December, 1994 1983 Buildings 5,509,995 91,670 5,601,665 576,625
64 66 IRT PROPERTY COMPANY SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION December 31, 1998
Estimated Costs Gross Amount Accumulated Useful Initial Capitalized at Which Depreciation Life of Cost to Subsequent to Carried at at Close Buildings Date Year Description Encumbrances Company Acquisition Close of Year of Year (Years) Acquired Completed - ------------------ ------------ --------- ------------- ------------- ------------ ---------- ----------- ---------- The Boulevard Lafayette, LA Land $ -- $ 948,334 $ -- $ 948,334 $ -- 40 December, 1994 1976 & Buildings 2,845,003 41,008 2,886,011 295,411 1994 Carolina Place Hartsville, SC Land -- 345,000 -- 345,000 -- 40 May, 1989 1989 Buildings 2,006,494 -- 2,006,494 479,400 Centre Pointe Plaza (1) Smithfield, NC Land -- 983,612 12,583 996,195 -- 40 December, 1992 & 1989 & Buildings 8,002,885 294,711 8,297,596 1,265,746 December, 1993 1993 Chadwick Square (1) Hendersonville, NC Land -- 276,778 -- 276,778 -- 40 January, 1992 1985 Buildings 1,179,949 98,864 1,278,813 206,702 Charlotte Square (1) Port Charlotte, FL Land 3,860,904 2,113,763 -- 2,113,763 -- 40 August, 1998 1998 Buildings 3,891,982 -- 3,891,982 40,541 Chastain Square Atlanta, GA Land -- 1,689,421 -- 1,689,421 -- 40 December, 1997 1981 Buildings 5,068,661 20,894 5,089,555 130,860 Chelsea Place New Port Richey, FL Land -- 1,387,517 -- 1,387,517 -- 40 July, 1993 1992 Buildings 5,550,068 5,000 5,555,068 759,038
65 67 IRT PROPERTY COMPANY SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION December 31, 1998
Estimated Costs Gross Amount Accumulated Useful Initial Capitalized at Which Depreciation Life of Cost to Subsequent to Carried at at Close Buildings Date Year Description Encumbrances Company Acquisition Close of Year of Year (Years) Acquired Completed - ------------------ ------------- -------- ------------- ------------- ------------- --------- ----------- --------- Chester Plaza Chester, SC Land $ -- $ 68,649 $ 143,504 $ 212,153 $ -- 16 April, 1986 & 1967 & Buildings 414,117 1,675,244 2,089,361 753,135 February, 1992 1992 Chestnut Square (1) Brevard, NC Land -- 295,984 -- 295,984 -- 40 January, 1992 1985 Buildings 1,113,464 22,658 1,136,122 204,756 Colony Square Fitzgerald, GA Land -- 272,833 -- 272,833 -- 40 February, 1988 1987 Buildings 2,455,826 207,771 2,663,597 865,715 Commerce Crossing Commerce, GA Land -- 379,648 889 380,537 -- 40 December, 1992 1988 Buildings 4,089,737 31,669 4,121,406 624,212 Country Club Plaza Slidell, LA Land -- 1,068,686 -- 1,068,686 -- 40 January, 1995 1982 Buildings 3,010,039 138,332 3,148,371 345,438 Countryside Shops Cooper City, FL Land -- 5,652,437 -- 5,652,437 -- 40 June, 1994 1986, 1988 Buildings 10,977,241 179,642 11,156,883 1,284,958 & 1991 The Crossing Slidell, LA Land -- 1,282,036 -- 1,282,036 -- 40 December, 1994 1988 & Buildings 3,213,616 109,164 3,322,780 366,080 1993
66 68 IRT PROPERTY COMPANY SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION December 31, 1998
Estimated Costs Gross Amount Accumulated Useful Initial Capitalized at Which Depreciation Life of Cost to Subsequent to Carried at at Close Buildings Date Year Description Encumbrances Company Acquisition Close of Year of Year (Years) Acquired Completed ----------- ------------ ------- ------------- ------------- ------------ ---------- -------- --------- Daniel Village Augusta, GA Land $ -- $ 2,632,857 $ -- $ 2,632,857 $ -- 40 March, 1998 1998 Buildings 9,612,077 88,186 9,700,263 180,142 Delchamps Plaza Pascagoula, MS Land -- 359,000 -- 359,000 -- 40 April, 1988 1987 Buildings 4,130,247 97,199 4,227,446 1,135,762 Douglas Commons Douglasville, GA Land -- 2,543,385 2,951 2,546,336 -- 40 August, 1992 1988 Buildings 5,958,475 148,876 6,107,351 1,028,963 Eden Centre (1) Eden, NC Land -- 625,901 -- 625,901 -- 40 November, 1994 1991 Buildings 2,901,316 21,786 2,923,102 302,214 Elmwood Oaks Harahan, LA Land 7,500,000 4,558,654 -- 4,558,654 -- 40 January, 1992 1989 Buildings 6,560,014 90,771 6,650,785 1,162,618 Fairview Oaks Ellenwood, GA Land -- 713,978 -- 713,978 -- 40 June, 1997 1997 Buildings 6,396,016 -- 6,396,016 246,492 First Street Station (1) Albemarle, NC Land -- 201,811 -- 201,811 -- 40 August, 1994 1989 Buildings 2,832,859 30,770 2,863,629 315,390
67 69 IRT PROPERTY COMPANY SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION December 31, 1998
Estimated Costs Gross Amount Accumulated Useful Initial Capitalized at Which Depreciation Life of Cost to Subsequent to Carried at at Close Buildings Date Year Description Encumbrances Company Acquisition Close of Year of Year (Years) Acquired Completed ----------- ------------ ------- ------------- ------------- ------------ --------- -------- --------- Forest Hills Centre (1) Wilson, NC Land $ -- $ 869,981 $ (9,160) $ 860,821 $ -- 40 August, 1990 1990 & Buildings 4,120,606 570,298 4,690,904 908,347 1995 Forrest Gallery (1) Tullahoma, TN Land -- 2,136,921 10,639 2,147,560 -- 40 December, 1992 1987 Buildings 9,977,815 619,824 10,597,639 1,653,307 Ft. Walton Beach Plaza Ft. Walton Beach, FL Land -- 787,583 -- 787,583 -- 30 July, 1986 1986 Buildings 1,860,360 28,774 1,889,134 789,066 The Galleria (1) Wrightsville Beach, NC Land -- 1,069,672 -- 1,069,672 -- 40 August, 1986 & 1986, 1990 Buildings 6,138,818 1,315,011 7,453,829 1,975,051 December, 1987 &1996 Grassland Crossing Alpharetta, GA Land 6,610,717 1,075,000 -- 1,075,000 -- 40 February, 1997 1996 Buildings 8,831,655 221,735 9,053,390 423,111 Greenwood Shopping Center Palm Springs, FL Land -- 4,129,000 -- 4,129,000 -- 40 July, 1997 1982 & Buildings 8,953,855 30,362 8,984,217 335,853 1994 Gulf Gate Plaza Naples, FL Land -- 277,562 -- 277,562 -- 28 June, 1979 1969 & Buildings 1,857,532 2,376,482 4,234,014 2,943,763 1974
68 70 IRT PROPERTY COMPANY SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION December 31, 1998
Estimated Costs Gross Amount Accumulated Useful Initial Capitalized at Which Depreciation Life of Cost to Subsequent to Carried at at Close Buildings Date Year Description Encumbrances Company Acquisition Close of Year of Years (Years) Acquired Completed ----------- ------------ ------- ----------- ------------- -------- ------- -------- --------- Harris Teeter Lexington, VA Land $ -- $ 312,105 $ -- $ 312,105 $ -- 30 June, 1988 & 1981 & Buildings 1,638,552 650,000 2,288,552 792,860 June, 1989 1989 Heritage Walk Milledgeville, GA Land -- 810,292 -- 810,292 -- 40 June,1993 1991 & Buildings 7,944,260 28,977 7,973,237 1,108,970 1992 Hoffner Plaza Orlando, FL Land -- 337,182 77,728 414,910 -- 28 June, 1979 1972 Buildings 146,554 19,663 166,217 135,669 Lancaster Plaza Lancaster, SC Land -- 120,790 -- 120,790 -- 30 April, 1986 1971 Buildings 743,852 571,663 1,315,515 587,433 Lancaster Shopping Center Lancaster, SC Land -- 338,355 -- 338,355 -- 30 August, 1986 & 1963 & Buildings 1,227,552 64,955 1,292,507 476,323 December, 1987 1987 Lawrence Commons (1) Lawrenceburg, TN Land -- 816,482 -- 816,482 -- 40 August, 1992 1987 Buildings 2,728,692 40,333 2,769,025 457,754 Litchfield Landing North Litchfield, SC Land -- 475,000 -- 475,000 -- 40 August, 1986 1984 Buildings 2,118,429 53,922 2,172,351 686,206
69 71 IRT PROPERTY COMPANY SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION December 31, 1998
Estimated Costs Gross Amount Accumulated Useful Initial Capitalized at Which Depreciation Life of Cost to Subsequent to Carried at at Close Buildings Date Year Description Encumbrances Company Acquisition Close of Year of Year (Years) Acquired Completed ----------- ------------ ------- ----------- ------------- -------- ------- -------- --------- Mableton Crossing Mableton, GA Land $4,500,000 $2,780,814 $ -- $2,780,814 $ -- 40 June, 1998 1998 Buildings 5,388,854 -- 5,388,854 71,093 Macland Pointe Marietta, GA Land 3,613,921 1,252,098 (5,875) 1,246,223 -- 40 January, 1993 1992 & Buildings 4,317,234 577,220 4,894,454 733,023 1993 Madison Centre Huntsville, AL Land -- 2,772,000 -- 2,772,000 -- 40 August, 1997 1997 Buildings 3,046,308 -- 3,046,308 104,770 Market Place Norcross, GA Land -- 3,819,654 -- 3,819,654 -- 40 April, 1997 1976 Buildings 3,253,872 100,955 3,354,827 138,911 McAlpin Square Savannah, GA Land -- -- -- -- -- 40 December, 1997 1979 Buildings 6,151,926 -- 6,151,926 156,700 Millervillage Shopping Center Baton Rouge, LA Land -- 1,926,535 -- 1,926,535 -- 40 December, 1994 1983 & Buildings 5,661,992 128,668 5,790,660 598,800 1992 New Smyrna Beach Regional New Smyrna Beach, FL Land -- 3,704,368 6,757 3,711,125 -- 40 August, 1992 1987 Buildings 6,400,556 343,520 6,744,076 1,200,467
70 72 IRT PROPERTY COMPANY SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION December 31, 1998
Estimated Costs Gross Amount Accumulated Useful Initial Capitalized at Which Depreciation Life of Cost to Subsequent to Carried at at Close Buildings Date Year Description Encumbrances Company Acquisition Close of Year of Years (Years) Acquired Completed ----------- ------------ ------- ----------- ------------- -------- ------- -------- --------- North River Village Ellenton, FL Land $ -- $ 2,949,031 $ -- $ 2,949,031 $ -- 40 December, 1992 & 1993 & Buildings 7,161,093 96,272 7,257,365 1,017,510 December, 1993 1998 North Village Center North Myrtle Beach, SC Land 2,382,018 483,400 -- 483,400 -- 37 August, 1986 1984 Buildings 2,785,154 10,479 2,795,633 839,656 Old Kings Commons Palm Coast, FL Land -- 1,491,458 -- 1,491,458 -- 40 May, 1988 1988 Buildings 4,474,372 185,178 4,659,550 1,303,877 Palm Gardens Largo, FL Land -- 98,279 -- 98,279 -- 26 June, 1979 1970 & Buildings 657,716 1,123,074 1,780,790 1,143,807 1993 Parkmore Plaza Milton, FL Land -- 1,799,419 8,141 1,807,560 -- 40 December, 1992 1986 & Buildings 6,454,261 138,439 6,592,700 1,011,030 1992 Paulding Commons Dallas, GA Land -- 2,312,372 2,687 2,315,059 -- 40 August, 1992 1991 Buildings 10,606,781 173,672 10,780,453 1,737,555 Pensacola Plaza Pensacola, FL Land -- 130,688 -- 130,688 -- 30 July, 1986 1985 Buildings 2,392,249 156,002 2,548,251 1,118,759
71 73 IRT PROPERTY COMPANY SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION December 31, 1998
Estimated Costs Gross Amount Accumulated Useful Initial Capitalized at Which Depreciation Life of Cost to Subsequent to Carried at at Close Buildings Date Year Description Encumbrances Company Acquisition Close of Year of Year (Years) Acquired Completed ----------- ------------ ------- ----------- ------------- -------- ------- -------- --------- Pinhook Plaza Lafayette, LA Land $3,381,382 $2,768,151 $ -- $2,768,151 $ -- 40 December, 1994 1979 & Buildings 8,304,453 134,854 8,439,307 851,814 1992 Plaza Acadienne Eunice, LA Land -- -- -- -- -- 40 December, 1994 1980 Buildings 2,917,925 98,824 3,016,749 306,046 Plaza North (1) Hendersonville, NC Land -- 657,797 121 657,918 -- 40 August, 1992 1986 Buildings 1,795,992 15,113 1,811,105 290,848 Powers Ferry Plaza Marietta, GA Land 625,000 1,725,213 -- 1,725,213 -- 40 May, 1997 1979 & Buildings 5,785,034 44,208 5,829,242 209,601 1983 Providence Square (1) Charlotte, NC Land -- 450,000 300 450,300 -- 35 December, 1971 1973 Buildings 1,895,606 2,249,291 4,144,897 2,933,344 Riverside Square (1) Coral Springs, FL Land 8,095,969 5,893,410 -- 5,893,410 -- 40 August, 1998 1998 Buildings 7,131,432 -- 7,131,432 74,286 Riverview Shopping Center (1) Durham, NC Land -- 400,000 322 400,322 -- 35 March, 1972 1973 & Buildings 1,822,918 4,366,352 6,189,270 2,383,386 1994
72 74 IRT PROPERTY COMPANY SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION December 31, 1998
Estimated Costs Gross Amount Accumulated Useful Initial Capitalized at Which Depreciation Life of Cost to Subsequent to Carried at at Close Buildings Date Year Description Encumbrances Company Acquisition Close of Year of Year (Years) Acquired Completed ----------- ------------ ------- ----------- ------------- -------- ------- -------- --------- Salisbury Marketplace(1) Salisbury, NC Land $ -- $ 733,599 $ -- $ 733,599 $ -- 40 August, 1996 1987 Buildings 3,877,552 40,563 3,918,115 226,184 Scottsville Square Bowling Green, KY Land -- 653,010 765 653,775 -- 20 August, 1992 1986 Buildings 1,782,340 128,971 1,911,311 414,696 Seven Hills Spring Hill, FL Land -- 1,903,090 -- 1,903,090 -- 40 July, 1993 1991 Buildings 2,976,628 34,502 3,011,130 423,091 Shelby Plaza(1) Shelby, NC Land -- -- -- -- -- 21 April, 1986 1972 Buildings 937,483 744,583 1,682,066 674,720 Sherwood South Baton Rouge, LA Land -- 496,174 -- 496,174 -- 40 December, 1994 1972, 1988 Buildings 1,488,521 263,790 1,752,311 167,117 & 1992 Shoppes of Silverlakes Pembroke Pines, FL Land 3,396,975 4,042,613 -- 4,042,613 -- 40 November, 1997 1995 & Buildings 12,826,129 -- 12,826,129 360,723 1996 Siegen Village Baton Rouge, LA Land -- 2,375,168 (325,000) 2,050,168 -- 40 December, 1994 1988 & Buildings 6,952,314 104,736 7,057,050 570,897 1996
73 75 IRT PROPERTY COMPANY SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION December 31, 1998
Estimated Costs Gross Amount Accumulated Useful Initial Capitalized at Which Depreciation Life of Cost to Subsequent to Carried at at Close Buildings Date Year Description Encumbrances Company Acquisition Close of Year of Years (Years) Acquired Completed ----------- ------------ ------- ----------- ------------- -------- ------- -------- --------- Smyrna Village(1) Smyrna, TN Land $ -- $ 968,358 $ 20,601 $ 988,959 $ -- 40 August, 1992 1992 Buildings 4,743,708 180,825 4,924,533 783,068 Smyth Valley Crossing Marion, VA Land -- 1,693,137 6,523 1,699,660 -- 40 December, 1992 1989 Buildings 5,231,283 162,250 5,393,533 858,371 South Beach Regional Jacksonville Beach, FL Land -- 3,957,680 19,710 3,977,390 -- 40 August, 1992 1990 & Buildings 17,130,242 877,254 18,007,496 3,023,042 1991 Spalding Village Griffin, GA Land 11,376,690 2,813,854 3,281 2,817,135 -- 40 August, 1992 1989 Buildings 12,470,446 177,476 12,647,922 2,062,561 Spring Valley Commons Columbia, SC Land -- 1,382,000 -- 1,382,000 -- 40 March, 1998 1998 Buildings 4,722,376 -- 4,722,376 98,383 Stadium Plaza Phenix City, AL Land -- 1,828,942 2,130 1,831,072 -- 40 August, 1992 1988 Buildings 2,614,155 43,595 2,657,750 432,212 Stanley Market Place(1) Stanley, NC Land -- 198,103 -- 198,103 -- 35 January, 1992 1980 & Buildings 1,602,832 66,297 1,669,129 288,260 1991
74 76 IRT PROPERTY COMPANY SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION December 31, 1998
Estimated Costs Gross Amount Accumulated Useful Initial Capitalized at Which Depreciation Life of Cost to Subsequent to Carried at at Close Buildings Date Year Description Encumbrances Company Acquisition Close of Year of Years (Years) Acquired Completed ----------- ------------ ------- ----------- ------------- -------- ------- -------- --------- Tamarac Square(1) Tamarac, FL Land $ 6,530,912 $4,637,325 -- $ $4,637,325 $ -- 40 August, 1998 1998 Buildings 6,014,619 2,859 6,017,478 62,652 Tarpon Heights Galliano, LA Land -- 705,570 -- 705,570 -- 40 January, 1995 1982 Buildings 2,116,712 15,005 2,131,717 214,490 Taylorsville Shopping Center(1) Taylorsville, NC Land -- 89,689 -- 89,689 -- 40 August, 1986 & 1982 & Buildings 1,443,704 1,078,766 2,522,470 764,895 December, 1988 1988 Thomasville Commons Thomasville, NC Land 5,423,548 963,333 -- 963,333 -- 40 August, 1992 1991 Buildings 6,183,052 74,848 6,257,900 1,018,006 Town & Country Kissimmee, FL Land 2,190,432 1,065,129 -- 1,065,129 -- 40 January, 1998 1998 Buildings 3,200,367 -- 3,200,367 80,009 Treasure Coast(1) Vero Beach, FL Land 5,879,456 2,471,286 -- 2,471,286 -- 40 May, 1998 1998 Buildings 8,622,474 92,100 8,714,574 71,854 University Center(1) Greenville, NC Land -- 750,000 -- 750,000 -- 40 December, 1989 1989 Buildings 3,159,065 82,054 3,241,119 755,019
75 77 IRT PROPERTY COMPANY SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION December 31, 1998
Estimated Costs Gross Amount Accumulated Useful Initial Capitalized at Which Depreciation Life of Cost to Subsequent to Carried at at Close Buildings Date Year Description Encumbrances Company Acquisition Close of Year of Years (Years) Acquired Completed ----------- ------------ ------- ----------- ------------- -------- ------- -------- --------- Venice Plaza Venice, FL Land $ -- $ 333,127 $ -- $ 333,127 $ -- 27 June, 1979 1971 & Buildings 1,973,023 696,068 2,669,091 1,856,596 1979 Village at Northshore Slidell, LA Land 5,251,033 2,065,633 -- 2,065,633 -- 40 December, 1994 1988 & Buildings 6,196,900 68,180 6,265,080 635,246 1993 Walton Plaza Augusta, GA Land -- 597,553 -- 597,553 -- 40 August, 1998 1991 Buildings 2,560,571 -- 2,560,571 42,655 Waterlick Plaza Lynchburg, VA Land -- 1,071,000 -- 1,071,000 -- 40 October, 1989 1973 & Buildings 5,091,222 149,409 5,240,631 1,279,083 1988 Watson Central Warner Robins, GA Land -- 1,645,548 12,478 1,658,026 -- 40 December, 1992 1989 & Buildings 11,316,940 156,719 11,473,659 1,692,975 & October, 1993 1993 Wesley Chapel Crossing Decatur, GA Land -- 3,828,806 9,154 3,837,960 -- 40 December, 1992 1989 Buildings 7,031,767 98,169 7,129,936 1,082,326 West Gate Plaza Mobile, AL Land -- 475,270 -- 475,270 -- 25 June, 1974 & 1974 & Buildings 3,781,823 519,899 4,301,722 1,197,795 January, 1985 1995
76 78 IRT PROPERTY COMPANY SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION December 31, 1998
Estimated Costs Gross Amount Accumulated Useful Initial Capitalized at Which Depreciation Life of Cost to Subsequent to Carried at at Close Buildings Date Year Description Encumbrances Company Acquisition Close of Year of Years (Years) Acquired Completed ----------- ------------ ------- ----------- ------------- -------- ------- -------- --------- West Towne Square Rome, GA Land $ -- $ 324,800 $ -- $ 324,800 $ -- 40 March, 1990 1988 Buildings 5,580,776 141,973 5,722,749 1,296,062 Westgate Square Sunrise, FL Land -- 2,228,724 -- 2,228,724 -- 40 June, 1994 1984 & Buildings 6,850,131 286,930 7,137,061 819,616 1988 Willowdaile Shopping Center(1) Durham, NC Land -- 936,977 (60,579) 876,398 -- 40 August, 1986 & 1986 Buildings 7,351,612 370,068 7,721,680 2,310,278 December, 1987 Industrial Buildings Charlotte, NC - Industrial Land -- 143,160 178,490 321,650 -- 14 June, 1979 1956 & Buildings 2,170,057 1,286,373 3,456,430 2,857,321 1963 Plasti-Kote Medina, OH - Industrial Land -- 81,390 (81,390) -- -- 14 June, 1979 1961 & Buildings 346,979 (346,979) -- -- 1966 Lawrence County Shopping Center Sybene, OH Land -- 435,994 -- 435,994 -- May, 1971 1971 Grand Marche Shopping Center Lafayette, LA Land -- 250,000 500 250,500 -- September, 1972 1969
77 79 IRT PROPERTY COMPANY SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION December 31, 1998
Estimated Costs Gross Amount Accumulated Useful Initial Capitalized at Which Depreciation Life of Cost to Subsequent to Carried at at Close Buildings Date Year Description Encumbrances Company Acquisition Close of Year of Years (Years) Acquired Completed ----------- ------------ ------- ----------- ------------- -------- ------- -------- --------- Manatee County Shopping Center Bradenton, FL Land $ -- $ 241,798 $ -- $ 241,798 $ -- May, 1971 1971 ----------- ------------ ----------- ------------ ----------- $80,618,957 $593,888,622 $28,228,428 $622,117,050 $74,942,576 =========== ============ =========== ============ ===========
(1) Ownership through IRT Partners L.P. 78 80 IRT PROPERTY COMPANY SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION December 31, 1998 NOTE: Real estate activity is summarized as follows:
Year Ended December 31, ------------------------------------------------------- 1998 1997 1996 ---- ---- ---- RENTAL PROPERTIES: Cost - Balance at beginning of year $ 537,160,220 $ 463,392,557 $ 452,508,601 Acquisitions and improvements 90,035,993 81,755,725 21,109,810 Retirements -- (663,197) -- Reduction in carrying value -- -- -- ------------- ------------- ------------- 627,196,213 544,485,085 473,618,411 Cost of properties sold (5,079,163) (7,324,865) (10,225,854) ------------- ------------- ------------- Balance at end of year $ 622,117,050 $ 537,160,220 $ 463,392,557 ============= ============= ============= Accumulated depreciation - Balance at beginning of year $ 62,526,989 $ 56,881,888 $ 51,600,890 Depreciation 12,925,299 11,453,460 10,310,344 Retirements -- (663,197) -- ------------- ------------- ------------- 75,452,288 67,672,151 61,911,234 Accumulated depreciation related to rental properties sold (509,712) (5,145,162) (5,029,346) ------------- ------------- ------------- Balance at end of year $ 74,942,576 $ 62,526,989 $ 56,881,888 ============= ============= =============
79 81 IRT PROPERTY COMPANY SCHEDULE IV MORTGAGE LOANS ON REAL ESTATE December 31, 1998
Principal Amount of Face Amount Loans Subject Final Periodic and Carrying to Delinquent Type of Type of Interest Maturity Payment Amount of Principal Location of Property Loan Property Rate Date Terms Prior Liens Mortgages or Interest - -------------------- ---- -------- ---- ---- ----- ----------- --------- ----------- (See Notes) (See Notes) Kearney, NE Second Mortgage Shopping Center 7.00% December, 1998 (1) 2,625,900 594,000 594,000 Fremont, NE Second Mortgage Shopping Center 7.00% December, 1998 (1) 1,794,800 406,000 406,000 Lauderdale Lakes, FL First Mortgage Condominiums 10.00% May, 2009 (2) -- 114,009 -- Nashville, TN First Mortgage Condominiums 8.63%- 2006-2007 (2) -- 23,585 -- Participation 12.38% ---------- ---------- 4,420,700 1,137,594 Less interest discounts and negative goodwill -- (40,419) ---------- ---------- $4,420,700 $1,097,175 ========== ==========
NOTES: (1) Monthly payments are interest only; principal due at maturity. The principal of these mortgages was due December 31, 1998 but was not received until February 3, 1999. (2) Monthly payments include principal and interest. Mortgage loan activity is summarized as follows:
Year Ended December 31, --------------------------------------------------- 1998 1997 1996 ---- ---- ---- Balance at beginning of year $ 9,321,205 $ 13,182,520 $ 8,499,210 New mortgage loans -- -- -- Additions to mortgage loans -- -- 4,800,000 Amortization of interest discounts and negative goodwill 160,068 41,402 45,998 Collections of principal (8,384,098) (3,902,717) (162,688) ----------- ------------ ------------ Balance at end of year $ 1,097,175 $ 9,321,205 $ 13,182,520 =========== ============ ============
80 82 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. Not applicable. 81 83 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 1999 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. 82 84 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, 1998 and 1997 Consolidated Statements of Earnings for the Years Ended December 31, 1998, 1997 and 1996 Consolidated Statements of Changes in Shareholders' Equity for the Years Ended December 31, 1998, 1997 and 1996 Consolidated Statements of Cash Flows for the Years Ended December 31, 1998, 1997 and 1996 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 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. 3.2 The Company's By-Laws, as amended, were filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1995, which is incorporated by reference herein. 3.2.1 Amendments to By-laws of IRT Property Company filed as an exhibit to the Company's report on Form 8-K dated August 21, 1998, 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. 83 85 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. 4.6 Supplemental Indenture No. 3, dated September 9, 1998, between IRT Property Company and SunTrust Bank, Atlanta was filed as an exhibit to the Company's Form 8-K dated September 15, 1998, 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. 84 86 10.5 IRT Property Company Long-Term Incentive Plan was filed in the Company's Definitive Proxy Statement dated May 22, 1998, which is incorporated by reference herein. 10.6 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. 10.7 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. 10.7.1 Consulting Agreement between the Company and Donald W. MacLeod dated June 12, 1997, which amends the Agreement contained in Exhibit 10.7, 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. 10.8 Amended and Restated Employment Agreement between the Company and Thomas H. McAuley dated as of November 11, 1997 was filed as an exhibit to the Company's Form 10-K for the year ended December 31, 1997, which is incorporated by reference herein. 10.9 Change in Control Employment Agreement between the Company and Mary M. Thomas dated as of November 11, 1997 was filed as an exhibit to the Company's Form 10-K for the year ended December 31, 1997, which is incorporated by reference herein. 10.10 Change in Control Employment Agreement between the Company and W. Benjamin Jones III dated as of November 11, 1997 was filed as an exhibit to the Company's Form 10-K for the year ended December 31, 1997, which is incorporated by reference herein. 10.11 Change in Control Employment Agreement between the Company and Robert E. Mitzel dated as of November 11, 1997 was filed as an exhibit to the Company's Form 10-K for the year ended December 31, 1997, which is incorporated by reference herein. 10.12 Amended and Restated Loan Agreement, dated as of September 9, 1998, by and among the Company and NationsBank, N.A., AmSouth Bank and First Union National Bank, as Banks, NationsBank, N.A., as the Swing Loan Lender, and NationsBank, N.A., as the Administrative Agent for the Banks, including the Guaranty filed as an exhibit to the Company's report on Form 8-K dated September 15, 1998, which is incorporated by reference herein. 85 87 10.13 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. 10.13.1 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. 10.13.2 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. 10.14 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 which is incorporated by reference herein. 10.15 Agreement of Limited Partnership of IRT Partners L.P., and Amendment No. 1 was filed as an exhibit to the Company's report on Form 8-K dated September 15, 1998, which is incorporated by reference herein. 10.16 Loan Agreement dated February 25, 1999 between IRT Property Company, IRT Alabama, Inc. and General Electric Capital Assurance Company. 10.17 Secured Promissory Note from Mary M. Thomas to IRT Property Company dated June 18, 1998 was filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1998, which is incorporated by reference herein. 10.18 Pledge Agreement by and between Mary M. Thomas and IRT Property Company dated June 18, 1998 was filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1998, which is incorporated by reference herein. 10.19 Restricted Stock Award Agreement by and between Mary M. Thomas and IRT Property Company dated June 18, 1998 was filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1998, which is incorporated by reference herein. 86 88 10.20 Secured Promissory Note from W. Benjamin Jones III to IRT Property Company dated June 18, 1998 was filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1998, which is incorporated by reference herein. 10.21 Pledge Agreement by and between W. Benjamin Jones III and IRT Property Company dated June 18, 1998 was filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1998, which is incorporated by reference herein. 10.22 Restricted Stock Award Agreement by and between W. Benjamin Jones III and IRT Property Company dated June 18, 1998 was filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1998, which is incorporated by reference herein. 10.23 Secured Promissory Note from Robert E. Mitzel to IRT Property Company dated June 18, 1998 was filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1998, which is incorporated by reference herein. 10.24 Pledge Agreement by and between Robert E. Mitzel and IRT Property Company dated June 18, 1998 was filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1998, which is incorporated by reference herein. 10.25 Restricted Stock Award Agreement by and between Robert E. Mitzel and IRT Property Company dated June 18, 1998 was filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1998, which is incorporated by reference herein. 10.26 Secured Promissory Note from Thomas H. McAuley to IRT Property Company dated June 18, 1998 was filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1998, which is incorporated by reference herein. 10.27 Pledge Agreement by and between Thomas H. McAuley and IRT Property Company dated June 18, 1998 was filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1998, which is incorporated by reference herein. 10.28 Restricted Stock Award Agreement by and between Thomas H. McAuley and IRT Property Company dated June 18, 1998 was filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1998, which is incorporated by reference herein. 10.29 Separation Agreement between the Company and Mary M. Thomas, dated January 13, 1999. 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, 333-38847, 333-62435, and 333-38847. 27. Financial Data Schedule (for SEC use only) 99. Audited Financial statements of IRT Partners L.P. as of and for the period from inception (July 15, 1998) through December 31, 1998. Reports on Form 8-K. No reports on Form 8-K were filed by the Company during the fourth quarter of 1998. 87 89 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 31, 1999 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 31, 1999 - ---------------------------- Executive Officer Thomas H. McAuley and Director /s/ James G. Levy Senior Vice March 31, 1999 - ---------------------------- President, Chief James G. Levy Accounting Officer (Principal Financial & Accounting Officer) /s/ Patrick L. Flinn Director March 31, 1999 - ---------------------------- Patrick L. Flinn /s/ Homer B. Gibbs, Jr. Director March 31, 1999 - ---------------------------- Homer B. Gibbs, Jr. /s/ Samuel W. Kendrick Director March 31, 1999 - ---------------------------- Samuel W. Kendrick /s/ Bruce A. Morrice Director March 31, 1999 - ---------------------------- Bruce A. Morrice 88 EX-10.16 2 LOAN AGREEMENT 1 LOAN AGREEMENT THIS LOAN AGREEMENT ("Agreement") made and entered into this 25th day of February, 1999, by and between IRT PROPERTY COMPANY, a Georgia corporation and IRT Alabama, INC., an Alabama corporation (individually and collectively the "Borrower"), and GENERAL ELECTRIC CAPITAL ASSURANCE COMPANY, a Delaware corporation ("Lender"). PRELIMINARY RECITALS A. The Borrower consists of two (2) affiliated corporations, each organized for the purpose of owning commercial properties. B. The Borrower is the owner of those certain retail facilities later defined as the "Retail Facilities." C. Borrower has applied to Lender and Lender has agreed, pursuant to those Loan Commitments dated October 26, 1998, as modified and amended prior to acceptance (individually and collectively "Commitments"), to loan to Borrower the cumulative amount of Forty Million and 00/100 ($40,000,000.00), which loan is later defined herein as the "Loan." D. Pursuant to the Commitments the Lender and Borrower are entering into this Agreement to set forth the terms and conditions under which the Loan will be made and the terms of repayment thereof. E. The Loan will be evidenced by a series of notes in the aggregate amount of Forty Million and 00/100 Dollars ($40,000,000.00), all as more fully defined and set forth in this Agreement. NOW, THEREFORE, in consideration of the premises and the mutual covenants hereinafter contained, the parties hereto agree as follows: 1. DEFINITIONS. In addition to the defined terms appearing above, capitalized terms used in this Agreement shall have (unless otherwise provided elsewhere in this Agreement) the following respective meanings when used herein: "Agreement" shall mean this Loan Agreement, including all amendments, modifications and supplements hereto and any appendices, exhibits and schedules to any of the foregoing, and shall refer to this Loan Agreement as the same may be in effect at the time such reference becomes operative. "Ancillary Agreements" shall mean any supplemental agreement, undertaking, instrument, document or other writing executed by Borrower as a condition to advances or funding under this Agreement or otherwise in connection -1- 2 herewith, including, without limitation, the Loan Documents and all amendments and supplements thereto. "Appraisal" shall mean, as to each Property, the appraisal delivered to the Lender under the terms of the Commitments. "Assets" shall mean, collectively, the Retail Facilities. "Assignment of Rents and Leases" shall mean the Assignment of Rents and Leases executed by Borrower for each of the Retail Facilities. "Business Day" shall mean any day that is not a Saturday, a Sunday or a day on which banks are required or permitted to be closed in the State of Georgia. "Charges" shall mean all federal, state, county, city, municipal, local, foreign or other governmental taxes at the time due and payable, levies, assessments, charges, liens, claims or encumbrances upon or relating to (i) the Assets, (ii) the Obligations, (iii) the Borrower's employees, payroll, income or gross receipts, (iv) the Borrower's ownership or use of any of the Assets, or (v) any other aspect of the Borrower's business. "Closing Date" shall mean the actual date of the closing of the Loan. "Code" shall mean the Uniform Commercial Code of each jurisdiction in which a Retail Facility is located, as in effect from time to time. "Collateral" shall mean the collateral covered by the Collateral Documents. "Collateral Documents" shall mean the following documents given as additional security for the Loan with respect to each Retail Facility and consisting of the following, to wit: The Mortgages The Assignment of Rents and Leases The Indemnities The UCC Financing Statements "Environmental Indemnity" shall mean the Indemnity executed by the Borrower to Lender indemnifying and holding the Lender harmless against Hazardous Substances, any Release or Remedial Action. "Event of Default" shall have the meaning assigned to such term in Section 5.1 hereof. -2- 3 "Financing Statements" shall mean financing statements filed under the provisions of the Code given by the parties to the Collateral Documents as may be necessary to perfect any security interests granted thereunder. "Governmental Authority" shall mean any nation or government, any state or other political subdivision thereof, and any agency, department or other entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government. "Retail Facilities" shall mean the following Retail Facilities located as follows: Chastain Square Retail Atlanta, Georgia A retail property consisting of approximately 74,315 square feet of buildings on a site of approximately 386,377 square feet located at 4279 Roswell Road, N.E., Atlanta, Georgia 30342, sometimes herein referred to as "Chastain Square Retail." Fairview Oaks Retail Ellenwood, Georgia A retail property consisting of approximately 77,052 square feet of buildings on a site of approximately 451,804 square feet located at 129 Fairview Road, Ellenwood, Georgia 30049, sometimes herein referred to as "Fairview Oaks Retail." Madison Centre Retail Madison, Alabama A retail property consisting of approximately 64,837 square feet of buildings on a site of approximately 402,233 square feet located at Alabama Highway 20 and Shelton Road, Madison, Alabama 35738, sometimes herein referred to as "Madison Centre Retail." Daniel Village Retail Augusta, Georgia A retail property consisting of approximately 164,549 square feet of buildings on a site of approximately 709,156 square feet, located at Wrightsboro Road, Augusta, Georgia 30909, sometimes herein referred to as "Daniel Village Retail." -3- 4 Paulding Commons Retail Hiram, Georgia A retail property consisting of approximately 192,391 square feet of buildings on a site of approximately 959,148 square feet located at 2221 Highway 278 at Highway 92, Hiram, Georgia 30141, sometimes herein referred to as "Paulding Commons Retail." Douglas Commons Retail Douglasville, Georgia A retail property consisting of approximately 97,027 square feet of buildings on a site of approximately 443,048 square feet located at 8471 - 8515 Hospital Drive, Douglasville, Georgia 30134, sometimes herein referred to as "Douglas Commons Retail." Wesley Chapel Crossing Retail Decatur, Georgia A retail property consisting of approximately 170,792 square feet of buildings on a site of approximately 1,004,276 square feet located at 2440-2460 Wesley Chapel Road, Decatur, Georgia 30035, sometimes herein referred to as "Wesley Chapel Crossing Retail." Siegen Village Retail Baton Rouge, Louisiana A retail property consisting of approximately 174,578 square feet of buildings on a site of approximately 343,556 square feet located at Siegen Lane and Interstate 10, Baton Rouge, Louisiana 70824, sometimes herein referred to as "Siegen Village Retail." "Lender" shall mean General Electric Capital Assurance Company, a Delaware corporation and any future holder of all or any portion of the Notes. "Lien" shall mean any mortgage, deed to secure debt or deed of trust (including any mortgage, pledge, hypothecation, assignment, deposit arrangement, lien, Charge that becomes a lien on real property, claim, security interest, easement or encumbrance, or preference, priority or other security agreement of any kind or nature whatsoever (including, without limitation, any lease (but not including a tenant lease of a unit within a Retail Facility made in the ordinary course of business and in compliance with the Loan Documents) or title retention agreement, any financing lease having substantially the same economic effect as any of the foregoing, and the filing of, or agreement to give, any financing statement perfecting a security interest under the Code or comparable law of any jurisdiction). -4- 5 "Loan" shall mean a loan to be made by the Lender to the Borrower pursuant to this Agreement in the aggregate amount of Forty Million and 00/100 Dollars ($40,000,000.00). The Loan is to be evidenced by the Notes. "Loan Year" shall mean a full calendar year of twelve (12) months commencing on February 1 of each year and ending January 31 of the next year and including in the first Loan Year any days before February 1, 1999. "Loan Documents" shall mean this Agreement, the Notes, the SNDAs, the Collateral Documents, and all other agreements, instruments, documents and certificates, including, without limitation, pledges, powers of attorney, consents, assignments, contracts, notices, and all other written matter whether heretofore, now or hereafter executed by or on behalf of the Borrower and delivered to Lender, in connection with this Agreement or the transactions contemplated hereby. "Mandatory Release" shall mean the required release of a particular Retail Facility from the lien or liens of the Mortgage at Borrower's written request upon the payment to the Lender of the Release Price. "Maturity Date" shall mean the earliest of (i) February 28, 2024, or (ii) the date of acceleration of the Loan pursuant to the terms hereof. "Mortgages" shall mean those respective mortgages, deeds of trust and deeds to secure debt executed by the Borrower creating a first mortgage lien on and security interest in the individual Retail Facility securing the respective Note for that particular Retail Facility and those respective mortgages and deeds to secure debt executed by the Borrower creating a second mortgage lien on and security interest in each individual Retail Facility and securing the Notes other than the Note secured by the first mortgage lien on such Retail Facility. "Notes" shall mean the series of notes executed and delivered by the Borrower to the Lender pursuant to this Agreement in the aggregate amount of $40,000,000.00 secured by the Mortgages and in the respective amounts as follows:
Note Amount Retail Facility ----------- --------------- $4,300,000.00 Chastain Square $5,300,000.00 Fairview Oaks $4,300,000.00 Madison Centre $4,700,000.00 Daniel Village $7,300,000.00 Paulding Commons $5,600,000.00 Douglas Commons $3,750,000.00 Wesley Chapel $4,750,000.00 Siegen Retail
-5- 6 When the context requires each individual note shall be referred to as "Note" or with reference to the particular Retail Facility as in "Chastain Square Note," "Fairview Oaks Note," etc. Each of the Notes shall be cross-defaulted to all of the other Notes, collateralized by a first mortgage lien on and security interest in the respective Retail Facility and cross-collateralized by a second mortgage lien on and security interest in each of the seven other Retail Facilities. "Obligations" shall mean all loans, advances, debts, liabilities, and obligations, for monetary amounts (whether or not such amounts are liquidated or determinable) owing by the Borrower to Lender, and all covenants and duties regarding such amounts, of any kind or nature, present or future, whether or not evidenced by any note, agreement or other instrument arising under any of the Loan Documents. This term includes, without limitation, all interest, charges, expenses, attorneys' fees and any other sum chargeable to the Borrower under any of the Loan Documents. "Organizational Documents" shall mean in the case of the Borrower the documents organizing and creating the corporations consisting of the following for each such entity: Articles of Incorporation By-Laws Good Standing Certificate from its state of incorporation Certificate of Good Standing as a foreign corporation from each state in which the Retail Facilities which it owns or operates are located Resolutions of its Board of Directors authorizing the incurring of the Loan and the execution and delivery of the Loan Documents "Permitted Encumbrances" shall mean (i) liens for taxes or assessments or other governmental charges not yet due and payable or to the extent that nonpayment thereof is expressly permitted by this Agreement; and (ii) liens, restrictions, and encumbrances listed in the title insurance policy issued in connection with each Retail Facility insuring Lender in this transaction (including in particular tenants in possession under unrecorded leases from whom Subordination, Nondisturbance and Attornment Agreements are not required. The leasehold interests of tenants from whom Subordination, Nondisturbance and Attornment Agreements are required may be shown in the title insurance policy as subordinate items). "Persons" shall mean any individual, sole proprietorship, partnership, joint venture, trust, unincorporated organization, association, corporation, institution, public benefit corporation, entity or government (whether federal, state, county, city, municipal or otherwise, including, without limitation, any instrumentality, division, agency, body or department thereof). -6- 7 "Premises" shall mean each Retail Facility from and after the date the Borrower acquires title to such Retail Facility, including, without limitation, all right, title and interest of the Borrower, if any, in and to the streets, the land lying in the bed of any streets, roads or avenues, opened or proposed, in front of, adjoining, or abutting such land to the center line thereof, the air space and development rights pertaining to such land and right to use such air space and development rights, all rights of way, privileges, liberties, tenements, hereditaments, and appurtenances belonging or in any way appertaining thereto, all fixtures, all easements now or hereafter benefiting such land and all royalties and rights appertaining to the use and enjoyment of such land, including, without limitation, all alley, vault, drainage, mineral, water, oil, and gas rights, together with all of the buildings and other improvements now or hereafter erected on such land, and all fixtures and equipment, furnishings, furniture and articles of personal property appertaining thereto, additions thereto and substitutions and replacements thereof. When the context addresses a single property, the term "Premises" shall be construed to refer to the single "Retail Facility," as the context requires. "Properties" shall mean the Retail Facilities. "Release" shall mean the release from the lien of the Loan Documents of a particular property under the conditions in the Agreement. "Title" shall mean Commonwealth Land Title Insurance Company, 255 Park Square Court, 400 Sibley Street, St. Paul, Minnesota 55101. "Transfer" shall mean any sale, pledge, assignment, mortgage, encumbrance, security interest, consensual lien, hypothecation, transfer or divesture, the effect of which is to grant another an interest in the Premises or the Undersigned, either directly or indirectly, including an interest taken as security but not including a tenant lease of a unit within a Retail Facility made in the ordinary course of business and in compliance with the Loan Documents. Any change in the legal or equitable title of the Premises or in the beneficial ownership of a Premises whether or not of record and whether or not for consideration shall be deemed a Transfer. The words "herein," "hereof" and "hereunder" and other words of similar import refer to this Agreement as a whole, including the Exhibits and Schedules hereto, as the same may from time to time be amended, modified or supplemented and not to any particular section, subsection or clause contained in this Agreement. Wherever from the context it appears appropriate, each term stated in either the singular or plural shall include the singular and the plural, and pronouns stated in the masculine, feminine or neuter gender shall include the masculine, the feminine and the neuter. -7- 8 2. AMOUNT AND TERMS OF LOAN 2.1 Loan. Upon and subject to the terms and conditions hereof and the Commitments, Lender agrees to advance to Borrower an aggregate principal amount of $40,000,000.00 by federal wire transfer to the escrow account of Title for disbursement in accordance with this Agreement. 2.2 Interest on the Loan. Interest shall be payable on the Loan at the following rates: (a) Interest Rate. During the entire term of the Loan, the interest rate shall be at a per annum rate of six and one-half (6.5%) ("Interest Rate"), computed in accordance with the terms of the Notes. (b) Default Rate. If an Event of Default occurs, then, at the option of the Lender during the entire period during which such Event of Default shall occur and be continuing interest shall be payable on the whole of the unpaid principal sum at a per annum rate of interest equal to the lesser of (i) the maximum lawful rate of interest permitted to be paid on the respective Notes, or (ii) eleven and one-half percent (11.5%) per annum ("Default Rate"), whether or not the Lender has exercised its option to accelerate the maturity of the Note(s) and declare the entire unpaid principal balance due and payable. (c) Savings Clause. Notwithstanding anything to the contrary set forth in this Section 2.2, if at any time until payment in full of all of the Obligations, the Interest Rate payable on any Note exceeds the highest rate of interest permissible under any law which a court of competent jurisdiction shall, in a final determination, deem applicable to a particular Note (the "Maximum Lawful Rate"), then in such event and so long as the Maximum Lawful Rate would be so exceeded, the Interest Rate shall be equal to the Maximum Lawful Rate; provided, however, that if at any time thereafter the Interest Rate is less than the Maximum Lawful Rate, Borrower shall continue to pay interest on that particular Note at the Maximum Lawful Rate until such time as the total interest received by Lender on that Note is equal to the total interest which Lender would have received had the Interest Rate been (but for the operation of this paragraph) the interest rate payable since the initial funding of the Loan. Thereafter, the interest rate payable on that particular Note shall be the Interest Rate unless and until the Interest Rate again exceeds the Maximum Lawful Rate, in which event this paragraph shall again apply. In no event shall the total interest received by Lender on a particular Note exceed the amount which such Lender could lawfully have received had the interest due hereunder been calculated for the full term hereof at the Maximum Lawful Rate. In the event the Maximum Lawful Rate is calculated pursuant to this paragraph, such interest shall be calculated at a daily rate equal to the Maximum -8- 9 Lawful Rate divided by the number of days in the year in which such calculation is made. In the event that a court of competent jurisdiction, notwithstanding the provisions of this Section 2.2, shall make a final determination that Lender has received interest under any Note in excess of the Maximum Lawful Rate, Lender shall, to the extent permitted by applicable law, promptly apply such excess first to any interest due and not yet paid under that Note, then to the outstanding principal due under that Note, then to other unpaid Obligations and thereafter shall refund any excess to Borrower or as a court of competent jurisdiction may otherwise order. (d) Late Charge. In the event that any payment required under the Notes is not received by lender within ten (10) days of its due date, the Borrower agrees to pay a late charge of five percent (5%) of the amount of the unpaid payment to defray the costs of the Lender incident to collecting such late payment. This late charge shall apply individually to all payments past due and there will be no daily pro rata adjustment. This provision shall not be deemed to excuse a late payment or be deemed a waiver of any other rights the Lender may have, including the right to declare the entire unpaid principal and interest immediately due and payable. 2.3 Prepayment. The Loan may be prepaid in whole or in part upon payment of the Prepayment Fee set forth in the Notes. Any prepayment shall be made on thirty (30) days advance written notice to the Lender. No Prepayment Fee shall be required for a prepayment of principal attributable to the receipt of proceeds of insurance or condemnation. 2.4 Single Loan. All of the obligations of Borrower arising under this Agreement and the other Loan Documents shall constitute one general obligation of the Borrower secured by the Lender's Lien on all of the Assets. 3. CONDITIONS PRECEDENT 3.1 Conditions to Loan. Borrower represents and warrants to Lender that all conditions contained in the Commitment that are precedent to the closing have been satisfied or have been waived by Lender. 4. SURVIVAL OF OBLIGATIONS 4.1 Survival of Obligations Upon Termination of Financing Agreement. Except as otherwise expressly provided for in the Loan Documents, no termination or cancellation (regardless of cause or procedure) of any financing arrangement under this Agreement shall in any way affect or impair the powers, obligations, duties, rights and liabilities of the Borrower or the rights of Lender relating to any transaction or event occurring prior to such termination. Except as otherwise expressly provided herein or in -9- 10 any other Loan Document, all undertakings, agreements, covenants, warranties and representations contained in the Loan Documents shall survive such termination or cancellation and shall continue in full force and effect until such time as all of the Obligations have been paid in full in accordance with the terms of the agreements creating such Obligations, at which time the same shall terminate. 5. EVENTS OF DEFAULT; RIGHTS AND REMEDIES 5.1 Events of Default: The occurrence of an Event of Default under any of the Notes or of an Event of Default under any Deed to Secure Debt or Mortgage securing said Notes (regardless of the reason therefor) shall constitute an "Event of Default" hereunder. 5.2 Remedies. Upon the occurrence of any Event of Default, the Lender may declare the entire unpaid principal balance of the Loan together with all fees and interest due and payable in full, and may, without demand, advertisement, or notice of any kind (except such notice as may be required by the Loan Documents) and all of which are to the extent permitted by law, expressly waived: (a) Enforce the payment and performance of obligations owed by the Borrower under any of the Loan Documents and this Agreement. (b) Enforce the provisions of this Agreement. (c) Notify all obligors under any Collateral that the Collateral has been assigned to the Lender and that all payments thereon are to be made directly to the Lender or such other party as may be designated by the Lender; settle, compromise, or release, in whole or in part, any amounts owing on the Collateral, or by any such obligor on any portion of the Collateral, on terms acceptable to the Lender; enforce payment and prosecute any action or proceeding with respect to any and all Collateral; and where any such Collateral is in default, foreclose on and enforce security interests in, such Collateral by any available judicial procedure or without judicial process and sell property acquired as a result of any such foreclosure. (d) Exercise all rights and remedies of a secured creditor under the Code, including, but not limited to selling the Collateral at public or private sale. The Lender shall give the debtor not less than ten (10) days' notice of any such public sale or of the date after which private sale may be held. The Borrower agrees that ten (10) days' notice shall be reasonable notice. At any such sale the Collateral may be sold as an entirety or in separate parts, as the Lender may determine. The Lender may, without notice or publication, adjourn under any Financing Statement any public or private sale or cause the same to be adjourned from time to time by announcement at the time and place fixed for the sale, and such sale may be made at any -10- 11 time or place to which the same may be so adjourned. In case of any sale of all or any part of the Collateral on credit or for future delivery, the Collateral so sold may be retained by the Lender until the selling price is paid by the purchaser thereof, but the Lender shall not incur any liability in case of the failure of such purchaser to take up and pay for the Collateral so sold and, in the case of any such failure, such Collateral may again be sold upon like notice. The Lender may, however, instead of exercising the power of sale herein conferred upon it, proceed by a suit or suits at law or in equity to collect all amounts due upon the Collateral or to foreclose the pledge and sell the Collateral or any portion thereof under a judgment or decree of a court or courts of competent jurisdiction, or both. (e) Proceed against the Borrower on one or more of the Notes. (f) Enforce one or more of the Mortgages. (g) Exercise any rights granted under the Loan Documents permitting the Lender to enter into possession of one or more of the Retail Facilities and in furtherance thereof operate the same or engage a third party operator to enter into and operate one or more of the Retail Facilities. 5.3 Waivers by the Borrower. Except as otherwise provided for in this Agreement and applicable law, Borrower waives (iii) presentment, demand and protest and notice of presentment, dishonor, notice of intent to accelerate and notice of acceleration, (iv) all rights to notice and a hearing prior to Lender's taking possession or control of, or to Lender's replevy, attachment or levy upon, the Assets or any bond or security which might be required by any court prior to allowing Lender to exercise any of its remedies, and (v) the benefit of all valuation, appraisal and exemption laws. The Borrower acknowledges that it has been advised by counsel of its choice with respect to this Agreement, the other Loan Documents and the transactions evidenced by this Agreement and the other Loan Documents. 5.4 Upon an Event of Default, the Lender shall have the right at any time and from time to time, without notice, to set-off and to appropriate or apply any and all property or indebtedness of any kind at any time held or owing by the Lender to or for the credit of the account of the Borrower against and on account of the obligations and liabilities of the Borrower under the Note and this Agreement, irrespective of whether or not the Lender shall have made any demand hereunder and whether or not said obligations and liabilities shall have matured. 6. MISCELLANEOUS 6.1 Complete Agreement; Modification of Agreement; Sale of Interest (a) The Loan Documents constitute the complete agreement between the parties with respect to the subject matter hereof and may not be -11- 12 modified, altered or amended except by an agreement in writing signed by the Borrower and Lender. (b) Borrower hereby consents to Lender's sale, assignment, transfer or other disposition, at any time or times, of any of the Loan Documents or of any portion thereof or interest therein, including, without limitation, the sale of participation rights in the Loan and Loan Documents to commercial banks, savings banks, pension plans, savings and loan associations, insurance companies, other financial institutions and lenders engaged in the commercial banking market place. The Borrower agrees to use its best efforts to assist and cooperate with Lender in any manner reasonably requested by lender to effect the sale of any participation in, or any assignment of the Loan, any of the Loan Documents or of any portion thereof or interest therein, including, without limitation, assistance in the preparation of appropriate disclosure documents or placement memoranda, provided that Borrower shall not be required to participate in the selling process in a manner which could rise to liability on their part under Sections 11 or 12 of the Securities Act of 1933 or other federal or state securities laws. (c) No amendment or waiver of any provision of this Agreement or the Notes or any other Loan Document, nor consent to any departure by the Borrower therefrom, or release of any Asset from the Lien granted to Lender hereunder, shall in any event be effective unless the same shall be in writing and signed by Lender, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. 6.2 Fees and Expenses. Borrower shall pay all reasonable out-of-pocket expenses of Lender in connection with the preparation of the Loan Documents (including all environmental appraisals and structural appraisals and the administration of the Loan made pursuant hereto (including the reasonable fees and expenses of all of its counsel and advisors retained in connection with the Loan Documents and the transactions contemplated thereby and advice in connection therewith) and all fees and expenses of Lender. If, any time or times, regardless of the existence of an Event of Default (except with respect to paragraphs (a) and (d) below, which shall be subject to an Event of Default having occurred and be continuing), Lender shall employ counsel or other advisors for advice or other representation or shall incur reasonable legal or other costs and expenses in connection with: (a) any amendment, modification or waiver of, or consent with respect to, any of the Loan Documents or advice in connection with the administration of the Loan made pursuant hereto or its rights hereunder or thereunder; -12- 13 (b) any litigation, content, dispute, suit, proceeding or action (whether instituted by Lender, the Borrower, any Indemnitor or any other Person) in any way relating to the Assets, any of the Loan Documents or any other agreements to be executed or delivered in connection herewith (including, without limitation, any lenders' liability claim, contest, dispute, suit, proceeding or action); (c) any attempt to enforce any rights of Lender against the Borrower or any other Person, that may be obligated to Lender by virtue of any of the Loan Documents; (d) any attempt to verify, protect, collect, sell, liquidate or otherwise dispose of the Assets; then, and in any such event, the reasonable attorneys' and other parties' fees arising from such services, including those of any appellate proceedings, and all reasonable expenses, costs, charges and other fees incurred by such counsel and others in any way or respect arising in connection with or relating to any of the events or actions described in this Section shall be payable, on demand, by Borrower to Lender and shall be additional obligations secured under this Agreement and the other Loan Documents. Without limiting the generality of the foregoing, such expenses, costs, charges and fees may include: reasonable paralegal fees, costs and expenses; accountants' and investment bankers' fees, costs and expenses; court costs and expenses; photocopying and duplicating expenses; court reporter fees, costs and expenses; long distance telephone charges; air express charges; telegram charges; secretarial overtime charges; and expenses for travel, lodging and food paid or incurred in connection with the performance of such legal services. Notwithstanding anything in this Agreement or any of the Loan Documents to the contrary, all references to the collection of attorneys' fees and costs shall mean attorneys' fees and costs actually incurred, and while such attorneys' fees shall be reasonable in amount, such reasonable amount shall not be determined by the statutory provision for attorneys' fees nor the definition of reasonable attorneys fees under OCGA ss. 13-1-11. 6.3 No Waiver by Lender. Lender's failure, at any time or times, to require strict performance by Borrower of any provision of this Agreement and any of the other Loan Documents shall not waive, affect or diminish any right of Lender thereafter to demand strict compliance and performance therewith. Any suspension or waiver by Lender of an Event of Default by Borrower under the Loan Documents shall not suspend, waive or affect any other Event of Default by Borrower under this Agreement and any of the other Loan Documents whether the same is prior or subsequent thereto and whether of the same or of a different type. None of the undertakings, agreements, warranties, covenants and representations contained in this Agreement or any of the other Loan Documents shall be deemed to have been suspended or waived by Lender, unless such suspension or waiver is by an instrument in writing signed by an officer of Lender and directed to Borrower specifying such suspension or waiver. -13- 14 6.4 Remedies. Lender's rights and remedies under this Agreement shall be cumulative and non-exclusive of any other rights and remedies which Lender may have under any other agreement, including, without limitation, the Loan Documents, by operation of law or otherwise. 6.5 WAIVER OF JURY TRIAL. BORROWER HEREBY WAIVES TRIAL BY JURY AND RIGHTS OF SET-OFF IN ANY LITIGATION IN ANY COURT WITH RESPECT TO, IN CONNECTION WITH, OR ARISING OUT OF THIS AGREEMENT, THE OTHER LOAN DOCUMENTS, THE OBLIGATIONS OR THE COLLATERAL, OR ANY INSTRUMENT OR DOCUMENT DELIVERED PURSUANT HERETO OR THERETO, OR ANY OTHER CLAIM OR DISPUTE HOWSOEVER ARISING, BETWEEN BORROWER AND THE LENDER. BORROWER CONFIRMS THAT THE FOREGOING WAIVERS ARE INFORMED AND FREELY MADE. 6.6 GOVERNING LAW. EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN ANY OF THE LOAN DOCUMENTS, IN ALL RESPECTS, INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE, THIS AGREEMENT AND THE OBLIGATIONS ARISING HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF GEORGIA APPLICABLE TO CONTRACTS MADE AND PERFORMED IN SUCH STATE, WITHOUT REGARD TO THE PRINCIPLES THEREOF REGARDING CONFLICT OF LAWS, AND ANY APPLICABLE LAWS OF THE UNITED STATES OF AMERICA. 6.7 CONSENT TO JURISDICTION AND VENUE; SERVICE OF PROCESS. BORROWER AGREES THAT, IN ADDITION TO ANY OTHER COURTS THAT MAY HAVE JURISDICTION UNDER APPLICABLE LAWS, ANY ACTION OR PROCEEDING TO ENFORCE OR ARISING OUT OF THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS MAY BE COMMENCED IN ANY STATE OR FEDERAL COURT LOCATED IN THE STATE OF GEORGIA, AND BORROWER CONSENTS AND SUBMITS IN ADVANCE TO SUCH JURISDICTION AND AGREES THAT VENUE WILL BE PROPER IN SUCH COURTS ON ANY SUCH MATTER. THE CHOICE OF FORUM SET FORTH IN THIS SECTION SHALL NOT BE DEEMED TO PRECLUDE THE ENFORCEMENT OF ANY JUDGMENT OBTAINED IN SUCH FORUM, OR THE TAKING OF ANY ACTION UNDER THIS AGREEMENT TO ENFORCE THE SAME, IN ANY APPROPRIATE JURISDICTION. 6.8 Notices. Any notices and other communications permitted or required by the provisions of this Mortgage (except for telephonic notices expressly permitted) shall be in writing and shall be deemed to have been properly given or served by depositing the same with the United States Postal Service, or any official successor thereto, designated as Registered or Certified Mail, Return Receipt Requested, bearing adequate postage, or delivery by reputable private carrier such as Federal Express, Airborne, DHL or similar -14- 15 overnight delivery service, and addressed as hereinafter provided. Each such notice shall be effective upon being deposited as aforesaid. The time period within which a response to any such notice must be given, however, shall commence to run from the date of receipt of the notice by the addressee thereof. Rejection or other refusal to accept or the inability to deliver because of changed address of which no notice was given shall be deemed to be receipt of the notice sent. By giving to the other party hereto at least ten (10) days' notice thereof, either party hereto shall have the right from time to time and at any time during the term of this Mortgage to change its address and shall have the right to specify as its address any other address within the United States of America. Each notice to Lender shall be addressed as follows: General Electric Capital Assurance Company P. O. Box 490 Seattle, Washington 98111-0490 ATTN: Real Estate Department Each notice to Borrower shall be addressed as follows: IRT Property Company 200 Galleria Parkway, Suite 1400, Atlanta, Georgia 30339 IRT Alabama, Inc. 200 Galleria Parkway, Suite 1400, Atlanta, GA 30339 6.9 Survival. The representations and warranties in this Agreement shall survive the execution, delivery and acceptance hereof by the parties hereto and the closing of the transactions described herein or related hereto. 6.10 Section Titles. The Section titles and Table of Contents contained in this Agreement are and shall be without substantive meaning or content of any kind whatsoever and are not a part of the agreement between the parties hereto. 6.11 Counterparts. It is understood and agreed that this Agreement may be executed in several counterparts, each of which shall, for all purposes, be deemed an original and all of such counterparts, taken together, shall constitute one and the same agreement, even though all of the parties hereto may not have executed the same counterpart of this Agreement. 6.12 Siegen Village Tract. Borrower and Lender acknowledge that Borrower may sell a tract of land adjacent to Siegen Village Retail. In the event of such a sale, Lender shall cooperate in good faith with Borrower for the purpose of creating such use restrictions and easements between Siegen Village Retail and the adjacent parcel as Borrower deems reasonable or necessary to satisfy the business and/or legal requirements -15- 16 of Borrower and/or the purchaser of the adjacent tract, including those with respect to use restrictions, parking, ingress and egress and easements necessary to comply with applicable law or to provide utility services to either Siegen Village Retail or the adjacent tract. All such easements may be expressly made superior to the Mortgage. Executed by the parties hereto. IRT PROPERTY COMPANY By: /s/ Kip R. Marshall --------------------------------- Its: Senior Vice President --------------------------------- IRT ALABAMA, INC. By: /s/ W. Benjamin Jones III --------------------------------- Its: Vice President --------------------------------- GENERAL ELECTRIC CAPITAL ASSURANCE COMPANY By: /s/ Janet M. Aaron --------------------------------- Its: Vice President --------------------------------- -16- EX-10.29 3 SEPARATION AGREEMENT 1 SEPARATION AGREEMENT This Separation Agreement is made and entered into by and between IRT director and officer, Mary M. Thomas ("Thomas"), on her own behalf, and IRT Property Company on behalf of the Company, its other directors and officers, agents, successors and assigns (collectively referred to herein as "IRT"). 1. After discussion with IRT President Thomas H. McAuley regarding the business changes desired by McAuley and the Board of Directors, and the cooperation requested from Thomas concerning this and future matters, Thomas has agreed to tender her resignation from the company and from the Board of Directors effective December 31, 1998. In consideration of such action and the promises made by Thomas in this Agreement and the actions to be taken by her, IRT agrees to the following: (a) Thomas's current salary level and benefits will remain in effect until December 31, 1998; (b) A separation/transition incentive in the amount of $202,000.00 will be paid to Thomas on or before the 19th day of January 1999; (c) To the extent legally allowed, the company will match up to $10,000.00 in contributions by Thomas to the company 401K plan in 1999. Should the company determine such a match is not allowed, this amount will be paid to Thomas as soon as practicable but no later than December 31, 1999; (d) For purposes of continuance of dental and health insurance Thomas will make a COBRA election immediately after December 31, 1998, and the company will pay directly all such premiums for medical and dental insurance through December 31, -1- 2 1999. The company will likewise, for one year period only, expend an amount of money equal to the per capita premium it is currently paying for IRT senior executives for group life and disability, to procure whatever amount of life and disability insurance for Thomas such premium amount will cover. To the extent practicable, Thomas will be offered proposed allocations between various life and disability policies for her designation; (e) On January 31, 1999, Thomas will be vested for 10% of her "IRT Restricted Stock grant" pursuant to the IRT Restricted Stock Award Agreement of June 18, 1998. The remainder of any of Thomas's "restricted stock" and any rights thereto are forfeited; (f) The $250,000.00 IRT Stock Purchase loan, previously given to Thomas (Promissory Note dated June 18, 1998) will be extended until December 31, 1999, but Thomas will pay for all interest payments and accrued interest under the terms of the Loan. In the event Thomas desires, on or before December 31, 1999, to sell to IRT the 23,952 shares of IRT stock currently held as collateral, and retire the underlying note, IRT agrees to repurchase those shares of stock for $10.437541 per share (the original purchase price); (g) Any benefits available to departing employees, or former employees, if any, under the IRT 1989 Stock Option Plan and the IRT Key Employee Stock Option Plan, shall be available to Thomas under the terms of the Plans; (h) The company will provide to Thomas, for one dollar or less the Compaq computer and printer presently in Thomas' office with any nonproprietary software; (i) The company will reimburse Thomas up to $600.00 for basic and advanced computer classes taken in the first nine months of 1999; - 2 - 3 (j) The company will provide reasonable out-placement services through Transition Solutions, Inc. until either June 30, 1999 or until the date upon which Thomas is re-employed, which ever is earlier, as well as provide a letter of reference emphasizing her strongest skills, should she so desire; and (k) As Thomas has returned to IRT, at the time of her resignation, the automobile she was driving, the company will pay Thomas the sum of $10,000.00 on or before the 19th day of January, 1999 for transition transportation costs. 2. In consideration of the payments, benefits, and mutual promises and obligations herein described pursuant to this agreement, the parties as referenced below agree as follows: (a) the parties hereby fully release and discharge each other, (IRT to include its past and present officers, shareholders, directors, agents and representatives) of and from all claims of any type and nature whatsoever, which each now have or claims to have, or might hereafter have or claim, under any federal, state or local laws, or the common laws of any state. This release is intended by both parties to be comprehensive to preclude any future claims or legal actions, and to completely eliminate the risk and expense and inconvenience to the parties from any such actions. The parties represent that they have not filed, and will not file, any complaint, charge or lawsuit against each other; that they know of no basis for any such claims, and this document is signed in good faith to resolve any and all matters between the parties. In particular, Thomas also acknowledges she has asserted no informal legal claims concerning any aspect of her past work duties, employment, or separation; and avows she has no evidence whatsoever of any illegal actions concerning any - 3 - 4 aspect of her employment or the company's dealings with her; and understands that in view of this stipulated absence of any issues of contention and the parties' mutual belief in that fact, the Board is extending substantial consideration to Thomas. This release is not intending to include or apply to a breach of the terms of this Agreement by any party. Further, this release is not intended to apply, nor does it include a release of claims for defense, indemnity, or contribution by Thomas against IRT or its insurers in the event any entity or individual asserts a claim against Thomas as a result of her status as an employee, officer, or director of IRT, and allegedly arising out of, or relating to, any conduct, duty, action or failure of conduct, duty or action on the part of Thomas as employee, officer and/or director of IRT; (b) Thomas will provide full cooperation and transition of her former employment duties and, after her departure, will respond within a reasonable business time frame to all reasonable inquiries from company personnel concerning any financial, legal, or securities issues which may arise following her departure from active employment. In the event Thomas is required by IRT to spend any significant time reviewing documents, ledgers, or other data or information, or is required to meet with company personnel or their agents or attorneys about a particular matter, Thomas will be compensated by the Company at the rate of $200.00 per hour, which amount represents an amount commensurate with consultants with the experience and background of Thomas, and further, bears direct relation to Thomas's overall compensation while an officer of the Company and on the Board; (c) Thomas will keep the terms, amount and facts of this separation Agreement confidential and shall not disclose them except to immediate family members, her attorneys, accountants, financial and tax advisers who, in turn, agree in writing to the - 4 - 5 confidential provisions in paragraph 5. Nothing herein, however, shall prohibit Thomas from discussing the Agreement or disclosing the terms hereof pursuant to lawful subpoena, other court order, or federal regulation, or in the event a dispute arises between the parties as a result of breach or alleged breach of this agreement; (d) Thomas agrees that she will not use any information confidential to IRT in a way that would likely be detrimental to IRT's business relationships; (e) Thomas agrees to return to IRT all company property belonging to IRT which was obtained by Thomas as a consequence of her employment with IRT; and (f) Thomas agrees not to make any public statement to media or investor groups or to engage in any private conduct which may reasonably be expected to have the effect of harming the reputation or business of IRT, including its officers and directors. 3. EEOC regulations require a specific notice to Thomas, given here, that her waiver of claims includes all claims under the Age Discrimination in Employment Act. While only this statute is specifically mentioned, it is understood by the parties that the release in paragraph 2(a) above does in fact cover all claims of all types including all conceivable claims of employment discrimination. 4. It is stipulated that this Agreement and Release, if signed, is executed by Thomas knowingly and voluntarily, and that the financial consideration stated above is acknowledged as not being compensation previously owed to Thomas. Thomas has twenty-one days to consider the merits of this agreement with her own professional counsel, and will have seven days after any such written acceptance to revoke, in writing, such - 5 - 6 acceptance. Any earlier date in this agreement on which a payment or action by IRT is required, shall be extended until the day after this "revocation date" (i.e. seven days from the date of initial written acceptance) to insure any payments made or actions taken by IRT, are done pursuant to a valid agreement which has not been subsequently revoked. 5. This Agreement and the terms hereof shall be binding upon and inure to the benefit of each of the parties hereto and each of their heirs, executors, conservators, administrators, successors and assigns, and in the event of Thomas' death, any amounts payable to her shall be paid to her estate or legal representative thereof. Further, the confidential nature of this Agreement and the terms set forth in Paragraph 2(c) shall likewise be binding upon Thomas' family member, attorneys, and tax and financial advisors. 6. Each of the parties agrees to execute any and all additional documents necessary to effectuate the provisions of this Agreement. 7. This Agreement shall be interpreted in accordance with the laws of the State of Georgia. 8. This Agreement constitutes the only existing and valid agreement between the parties. This Agreement sets forth the entire Agreement between the parties hereto and fully supersedes any and all prior agreements or understandings between the parties pertaining to the subject matter hereof (with the exception of the plans and benefits, and the terms thereof, referenced and incorporated in this agreement by reference.) Thomas - 6 - 7 acknowledges that except as otherwise provided herein, no other promises or agreements of any kind have been made to her or with her by any person whatsoever to cause her o sign this Agreement. This Agreement can be changed or amended only by subsequent written amendment specifically referencing this document which is signed by the parties. EXECUTIVE: /s/ Mary M. Thomas --------------------------------------- Mary M. Thomas 1/13/99 --------------------------------------- Date IRT Property Company: By: /s/ Thomas H. McAuley ------------------------------------ Its: CEO ----------------------------------- 1/13/99 --------------------------------------- Date - 7 - EX-11 4 COMPUTATION OF PER SHARE EARNINGS 1 Item 14
EXHIBIT 11 Computation of Per Share Earnings 1998 1997 1996 ---- ---- ---- Basic: Net earnings $25,584,693 $26,112,680 $16,817,704 =========== =========== =========== Net earnings available to common shareholders $25,584,693 $26,112,680 $16,817,704 =========== =========== =========== Average common shares outstanding 32,940,399 31,867,743 25,749,860 =========== =========== =========== Basic earnings per share $ 0.78 $ 0.82 $ 0.65 =========== =========== =========== Diluted: Net earnings $25,584,693 $26,112,680 $16,817,704 Minority interest OP unitholders 261,764 -- -- ----------- ----------- ----------- $25,846,457 $26,112,680 $16,817,704 =========== =========== =========== Net earnings available to common shareholders $25,846,457 $26,112,680 $16,817,704 =========== =========== =========== Dilutive stock options 22,607 53,469 5,081 Dilutive stock loans 1,806 -- -- Dilutive OP Units 339,776 -- -- Average common shares outstanding 32,940,399 31,867,743 25,749,860 ----------- ----------- ----------- Average diluted common shares outstanding 33,304,588 31,921,212 25,754,941 =========== =========== =========== Basic earnings per share $ 0.78 $ 0.82 $ 0.65 =========== =========== ===========
EX-21 5 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 IRT Partners L.P. Georgia 1998
All are wholly-owned subsidiaries of the Company except IRT Capital Corporation ("Capital Corporation") and IRT Partners L.P. ("LP"). The Company owns 96% of Capital Corporation's non-voting common stock and 1% of its voting stock. The Company and IRT Management Company combined, own 92.5% of IRT Partners L.P. EX-23 6 CONSENT OF ARTHUR ANDERSEN LLP 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 29, 1999 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, 33-38847, 333-62435 and 333-38847. ARTHUR ANDERSEN LLP Atlanta, Georgia March 31, 1999 EX-27 7 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, 1998, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR DEC-31-1998 JAN-01-1998 DEC-31-1998 344 0 59 0 0 9,416 626,688 75,943 562,259 10,077 281,585 0 0 33,252 229,522 562,259 0 79,870 0 0 35,524 0 19,709 0 0 24,690 0 0 0 25,585 0.78 0.78
EX-99 8 AUDITED FINANCIAL STATEMENTS 1 EXHIBIT 99 Report of Independent Public Accountants To IRT Partners, L.P.: We have audited the accompanying balance sheet of IRT Partners, L.P. (a Georgia limited partnership) as of December 31, 1998, and the related statements of earnings, changes in partners' capital, and cash flows for the period from inception (July 15, 1998) to December 31, 1998. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit 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 audit provides 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 Partners, L.P., as of December 31, 1998, and the results of its operations and its cash flows for the period from inception (July 15, 1998) to December 31, 1998, in conformity with generally accepted accounting principals. ARTHUR ANDERSEN LLP Atlanta, Georgia January 29, 1999 2 IRT PARTNERS L.P. BALANCE SHEET December 31, 1998
ASSETS Rental properties ...................... $139,936,508 Accumulated depreciation ............... (19,099,297) ------------ 120,837,211 Cash & cash equivalents ................ 1,103,387 Prepaid expenses and other assets ...... 1,268,792 ------------ $123,209,390 ============ LIABILITIES & PARTNERS' CAPITAL Liabilities: Mortgage notes payable, net .......... $ 25,963,136 Advances from affiliate, net ......... 32,990 Accrued expenses and other liabilities 1,660,334 ------------ 27,656,460 ------------ Limited partners' capital interest (779,385 OP Units), at redemption value .................................. 7,793,850 Commitments and contingencies (Note 5) Partners' Capital: General partner ( 103,982 OP units) ... 955,529 Limited partner (9,514,844 OP units) ... 86,803,551 ------------ Total partners' capital ......... 87,759,080 ------------ $123,209,390 ============
The accompanying notes are an integral part of this balance sheet. 1 3 IRT PARTNERS L.P. STATEMENT OF EARNINGS For the Period from Inception (July 15, 1998) through December 31, 1998 Income from rental properties ........... $7,187,107 ---------- Expenses: Operating expenses of rental properties 1,794,406 Interest on mortgages ................. 836,085 Depreciation .......................... 1,280,532 General & administrative .............. 1,438 ---------- 3,912,461 ---------- Net Earnings ................... $3,274,646 ==========
The accompanying notes are an integral part of this financial statement. 2 4 IRT PARTNERS, L.P. STATEMENT OF CHANGES IN PARTNERS' CAPITAL For the Period from Inception (July 15, 1998) through December 31, 1998
Limited Total Partners' General Limited Partners' Capital Partner Partner Capital Interest ------- ------- ------- -------- Opening balance ...... $ -- $ -- $ -- $ -- Initial capital contributions....... 832,250 74,651,612 75,483,862 Issuance of units for acquisitions of real estate...... -- -- -- 7,741,100 Cash contributions for acquisitions of real estate ............. 112,949 11,181,958 11,294,907 -- Issuance of units for cash ............... 7,355 675,418 682,773 52,750 Distributions ........ (29,771) (2,715,328) (2,745,099) (232,009) Net earnings ......... 32,746 2,980,136 3,012,882 261,764 Adjustment to reflect limited partners' capital interest at redemption value ... -- 29,755 29,755 (29,755) -------- ----------- ----------- ---------- Balance at December 31, 1998 .... $955,529 $86,803,551 $87,759,080 $7,793,850 ======== =========== =========== ==========
The accompanying notes are an integral part of this financial statement. 3 5 IRT PARTNERS L.P. STATEMENT OF CASH FLOWS For the Period from Inception (July 15, 1998) through December 31, 1998
Cash flows from operating activities: Net earnings ............................................................... $ 3,274,646 Adjustments to reconcile earnings to net cash from operating activities: Depreciation ........................................................... 1,280,532 Changes in accrued assets and liabilities: Decrease in prepaid expenses and other assets ........................ 117,194 Decrease in accrued expenses and other liabilities ................... (543,824) ------------ Net cash flows from operating activities................................ 4,128,548 ------------ Cash flows used in investing activities: Additions to real estate investments, net .................................. (11,973,238) ------------ Net cash flows used in investing activities............................. (11,973,238) ------------ Cash flows used in financing activities: Cash distributions paid .................................................... (2,241,585) Principal amortization of mortgage notes payable ........................... (138,235) Net advances from affiliate ................................................ 32,990 Issuance of units for cash ................................................. 11,294,907 ------------ Net cash flows from financing activities ............................... 8,948,077 ------------ Net increase in cash and cash equivalents .................................... 1,103,387 Cash and cash equivalents at beginning of period ............................. -- ------------ Cash and cash equivalents at end of period ................................... $ 1,103,387 ============ Supplemental disclosures of cash flow information: Cash paid during the period for interest ..................................... $ 662,997 ============
The accompanying notes are an integral part of this financial statement. 4 6 IRT PARTNERS L. P. NOTES TO FINANCIAL STATEMENTS December 31, 1998 (Unaudited with respect to square footage) 1. ORGANIZATION AND NATURE OF OPERATIONS: IRT Partners L.P. ("LP"), a Georgia limited partnership formed July 15, 1998, is the entity through which IRT Property Company (the "Company"), a self-administered and self-managed real estate investment trust, conducts a portion of its business and owns (either directly or through subsidiaries) a portion of its assets. The Company is the sole general partner of LP and maintains an indirect partnership interest through its wholly-owned subsidiary, IRT Management Company. The Company initially contributed 20 shopping centers, related assets and cash to LP in exchange for 8,486,217 limited partnership units ("OP Units"). Subsequently, the Company was issued additional OP Units, in exchange for cash contributions, to fund the acquisition of additional shopping centers. At December 31, 1998, the Company was a 92.5% economic owner of LP. LP was formed by the Company in order to enhance the Company's acquisition opportunities by offering potential sellers the ability to engage in tax deferred sales of properties in exchange for OP Units. In August 1998, certain unaffiliated persons contributed their interests in three Florida shopping centers to LP in exchange for 774,110 OP Units. LP is obligated to redeem each OP Unit held by a person other than the Company, at the request of the holder, for cash equal to the fair market value of a share of the Company's common stock at the time of such redemption, provided that the Company may elect to acquire any such OP Unit presented for redemption for one common share or cash. Such limited partnership interest held by persons unaffiliated with the Company is reflected as "Limited Partners' Capital Interest," in the accompanying balance sheets at the cash redemption amount on the balance sheet date. Federal income tax laws require the Company, as a REIT, to distribute 95% of its ordinary taxable income. LP makes distributions to holders of OP units to enable the Company to satisfy this requirement. As of December 31, 1998 LP owns 25 neighborhood and community shopping centers located in Florida, Tennessee and North Carolina. The shopping centers are anchored by necessity-oriented retailers such as supermarkets, drug stores and/or discount variety stores. 5 7 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Income Recognition- LP 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. Depreciation- LP 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. 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- LP considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. Recent Accounting Pronouncements- In 1998 LP adopted SFAS No. 130, "Reporting Comprehensive Income". SFAS No. 130 established standards for reporting and disclosing comprehensive income (defined as revenues, expenses, gains and losses that under generally accepted accounting principles are not included in net income) and its components. As of December 31, 1998 LP had no items of other comprehensive income. In 1998 LP adopted SFAS No.131, "Disclosures about 6 8 Segments of an Enterprise and Related Information". SFAS No. 131 established standards for reporting financial and descriptive information about operating segments in annual financial statements. Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. LP's chief operating decision maker is its senior management group. LP owns and operates retail shopping centers in three states in the southeast. Such shopping centers generate rental and other revenue through the leasing of shop spaces to a diverse base of tenants. LP evaluates the performance of each of its shopping centers on an individual basis. However, because each of the shopping centers have similar economic characteristics and tenants, the shopping centers have been aggregated into one reportable segment. In June 1998 SFAS No.133, "Accounting for Derivative Instruments and Hedging Activities" was issued establishing accounting and reporting standards requiring that every derivative instrument (including certain derivative instruments embedded in other contracts) be recorded in the balance sheet as either an asset or liability measured at its fair market value. SFAS No. 133 requires that changes in the derivatives fair market value be recognized currently in earnings unless specific hedge accounting criteria are met. Special accounting for qualifying hedges allows a derivative's gains and losses to offset related results on the hedged item in the income statement and requires that a company must formally document, designate, and assess the effectiveness of transactions that receive hedge accounting. LP has never used derivative instruments or hedging activities. Income Taxes- No federal or state income taxes are reflected in the accompanying financial statements since LP is a partnership and its partners are required to include their respective share of profits and losses in their income tax returns. 7 9 3. RENTAL PROPERTIES: Rental properties are comprised of the following:
1998 December 31, ------------ Land related to buildings and improvements ............................................... $ 30,760,904 Buildings & improvements ......................................... 109,175,604 ------------ $139,936,508 ============
Minimum base rentals on noncancellable operating leases for LP's shopping center investments for the next five years and thereafter are as follows:
Year Amount ---- ------ 1999 $14,394,562 2000 13,091,637 2001 11,211,991 2002 9,662,647 2003 8,376,385 Thereafter 40,606,421 ----------- $97,343,643 ===========
1998 SHOPPING CENTER ACQUISITIONS (IN THOUSANDS, EXCEPT SQUARE FOOTAGE)
Total OP Units Date Rentable Initial Cash Issued Mortgages Acquired Property Name City, State Sq Ft Cost Paid by LP(1) Assumed Principal Tenants - ---------------------------------------------------------------------------------------------------------------------------------- 08/01/98 Charlotte Square Port Charlotte, FL 96,188 $ 6,006 $ 159 1,637 $ 4,210 Publix 08/01/98 Riverside Square Coral Springs, FL 103,241 13,025 316 3,846 8,863 Publix Eckerd Drugs 08/01/98 Tamarac Town Square Tamarac, FL 123,385 10,652 678 2,882 7,092 Publix Eckerd Drugs 08/25/98 Treasure Coast Vero Beach, FL 133,781 11,094 5,157 5,937 Winn-Dixie TJX 12/10/1998 Bay Pointe Plaza St. Petersburg, FL 97,390 6,388 6,388 Publix Eckerd Drugs -------------------------------------------------- 553,985 $47,165 $12,698 8,365 $26,102 ==================================================
(1) Value of OP Units determined based on value of common stock on date of acquisition. 4. MORTGAGE NOTES PAYABLE: Mortgage notes payable are collateralized by various real estate investments having a net carrying value of approximately $40,622,000 as of December 31, 1998. These notes have stated interest rates ranging from 8.00% to 9.1875% and are due in monthly installments with maturity dates ranging from 2009 to 2015. 8 10 Principal amortization and balloon payments applicable to mortgage notes payable in the next five years and thereafter are as follows:
Principle Balloon Year Amortization Payments Total ---- ------------ -------- ----- 1999 $ 343,018 $ -- $ 343,018 2000 373,554 -- 373,554 2001 406,822 -- 406,822 2002 443,068 -- 443,068 2003 482,560 -- 482,560 Thereafter 7,246,762 15,071,457 22,318,219 ----------- ----------- ----------- $ 9,295,784 $15,071,457 $24,367,241 Interest Premium 1,595,895 ----------- $25,963,136 ===========
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 $28,267,000 at December 31, 1998. 5. ENVIRONMENTAL INVESTIGATIONS: LP is not aware of any environmental problems on the properties owned. While LP has not obtained phase one environmental surveys on those properties owned by LP and located in North Carolina, and the fact that phase one environmentals which have been obtained provide no assurance that properties will not be adversely affected in the future by environmental problems, LP presently believes that there are no environmental matters that are reasonably likely to have a material adverse effect on LP's financial position. 9 11 6. EVENTS (UNAUDITED) SUBSEQUENT TO DATE OF AUDITOR'S REPORT: On February 26, 1999, LP acquired a shopping center in Miami, Florida for total consideration of approximately $9,908,000, including approximately $100,000 of acquisition costs. The consideration was the assumption of an existing mortgage of approximately $5,742,000 and cash of approximately $4,166,000. On March 15, 1999, LP acquired a shopping center in Atlanta, Georgia for approximately $5,596,000 cash, consisting of the initial purchase price of $5,325,000, $246,000 of capital expenditures and $25,000 of acquisition costs. -10- -----END PRIVACY-ENHANCED MESSAGE-----