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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(X) ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1996
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OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period From to
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Commission File Number 1-7859
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IRT PROPERTY COMPANY
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(Exact name of registrant as specified in its charter)
Georgia 58-1366611
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
200 Galleria Parkway, Suite 1400
Atlanta, Georgia 30339
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(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:
<TABLE>
<CAPTION>
Name of each exchange on
Title of each class which registered
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<S> <C>
Shares of Common Stock New York Stock Exchange
$1 Par Value
</TABLE>
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. X
---
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
Based upon the assumption that directors and executive officers of the
registrant are not affiliates of the registrant, the aggregate market value of
the voting stock of the registrant held by nonaffiliates of the registrant at
February 21, 1997 was $355,650,720. Presuming that such directors and executive
officers are affiliates of the registrant, the aggregate market value of the
voting stock of the registrant held by nonaffiliates of the registrant at
February 21, 1997 was $351,366,791.
31,968,604 shares of Common Stock, $1 Par Value, outstanding at February 21,
1997.
DOCUMENTS INCORPORATED BY REFERENCE
The information called for by Part III (Items 10, 11, 12 and 13) is incorporated
by reference to the registrant's definitive proxy statement to be filed pursuant
to Regulation 14A.
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CERTAIN MATTERS DISCUSSED UNDER "ITEM 1. BUSINESS," "ITEM 5. MARKET FOR THE
REGISTRANT'S COMMON EQUITY AND RELATED SECURITY HOLDER MATTERS," "ITEM 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS" AND "ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA--NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS" CONTAIN FORWARD-LOOKING STATEMENTS, WITHIN
THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933 AND SECTION 21E OF THE
SECURITIES EXCHANGE ACT OF 1934, INCLUDING, WITHOUT LIMITATION, TAX
CONSIDERATIONS, COMPETITIVE CONDITIONS, REGULATION, DISTRIBUTIONS TO
SHAREHOLDERS, DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION AND LIQUIDITY
OF THE COMPANY AND CERTAIN OTHER MATTERS. READERS OF THIS REPORT SHOULD BE
AWARE THAT THERE ARE VARIOUS FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER
MATERIALLY FROM ANY FORWARD-LOOKING STATEMENTS MADE IN THIS REPORT, WHICH
INCLUDE, WITHOUT LIMITATION, CHANGES IN TAX LAWS OR REGULATIONS; VACANCIES AND
LEASE RENEWALS; TENANT CLOSINGS; THE FINANCIAL CONDITION (INCLUDING POSSIBLE
MERGERS OR BANKRUPTCIES) OF TENANTS; COMPETITION; CHANGES IN NATIONAL AND LOCAL
ECONOMIC CONDITIONS AND POSSIBLE ENVIRONMENTAL LIABILITIES.
PART I
Item 1. Business.
General Development of Business. IRT Property Company (the "Company"),
founded in 1969, is an owner, operator and redeveloper of neighborhood and
community shopping centers located primarily in the Southeastern United States
and anchored by necessity-oriented retailers such as supermarkets, drug stores
and/or discount variety stores. The Company is a self-administered and
self-managed equity real estate investment trust with acquisition,
redevelopment, financing, property management and leasing capabilities. IRT
Property Company was incorporated under the laws of Georgia in June 1979. It was
organized in order to accommodate a merger of Investors Realty Trust, a
Tennessee business trust organized in 1969, and Summit Properties, an Ohio
business trust organized in 1965. That merger was accomplished effective June
20, 1979, and the Company then succeeded to all of the assets and liabilities of
both trusts.
The Company and its predecessor, Investors Realty Trust, have each
elected since their inceptions to be treated as "Real Estate Investment Trusts"
("REITs") under the Internal Revenue Code (the "Code"). The Company intends to
continue such election, although it is not required to do so. For the special
provisions applicable to REITs, reference is made to Sections 856-860 of the
Code, as amended.
The Company has two wholly-owned subsidiaries. IRT Management Company
("IRTMC") was formed in 1990. The only business conducted thus far by IRTMC has
been the purchase of a portion of the Company's 2% convertible subordinated
debentures, which were redeemed in 1992, although it may engage in other
activities in the future. VW Mall, Inc. ("VWM") was formed in July 1994. Upon
its formation, VWM purchased the land underlying Valley West Mall and now holds
the purchase-money mortgage taken back on the sale of Valley West Mall in 1996.
In 1996, IRT Capital Corporation ("IRTCC"), a taxable subsidiary of the
Company, was formed under the laws of Georgia. This taxable subsidiary will have
the ability to develop properties, buy and sell properties, provide equity to
developers who are merchant builders and perform third-party management, leasing
and brokerage. The Company holds 95% of the non-voting common stock and 5% of
the voting common stock of IRTCC. The
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remaining voting common stock is currently held by two executive officers of the
Company. IRTCC is included in the Company's consolidated financial statements
but is taxed as a regular corporation and not as a REIT.
Financial Information and Description of Business. The Company's sole
business is the ownership of real estate investments which consist principally
of equity investments in income-producing properties, with primary emphasis on
neighborhood and community shopping centers in the Southeastern United States.
The Company's investment portfolio also includes some apartment, industrial and
other properties, and to a lesser extent various purchase-money mortgages taken
back on the sales of former equity investments. In addition, the Company has
authority to make other types of equity and mortgage investments in real estate.
The Company considers its investment activity to consist of a single industry
segment.
For a description of the Company's individual investments and of
material developments during the year regarding these investments and the
Company as a whole, reference is made to Items 2 and 7 hereof. For financial
information about the Company's 1993 debenture offering, reference is made to
Items 6 and 7 and to Notes 8 and 19 to the consolidated financial statements.
For information regarding the Company's 1993 common stock offering, reference is
made to Item 7. For financial information regarding the Company's 1996 senior
note offering, reference is made to Items 6 and 7 and to Note 9 to the
consolidated financial statements. For information regarding the Company's 1997
common stock offering and repurchase of a portion of the 7.3% convertible
subordinated debentures, reference is made to Item 7 and to Note 19 to the
consolidated financial statements. Readers are also urged to review the
Company's Annual Report to Shareholders for the year ended December 31, 1996.
In making new real estate investments, the Company intends to continue
to place primary emphasis on obtaining equity interests in well-located
income-producing properties, principally shopping centers in the Southeastern
United States, with attractive yields and potential for increases in income and
capital appreciation. The Company also from time to time considers the
disposition or exchange of existing investments in order to improve its
investment portfolio or increase its funds from operations. Existing investments
are continuously reviewed by Company management, and appropriate programs to
renovate and modernize properties are designed and implemented in order to
improve leasing arrangements,
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thereby increasing funds from operations and property values. The Company's
investment and portfolio management philosophy is designed to implement its
overall objective of maximizing funds from operations and distributions to
shareholders.
The Company directly provides property management and leasing services
for all but one of its operating properties. Self-management enables the Company
to emphasize and more closely control leasing and property management. Internal
property management also provides the Company opportunities for operating
efficiencies by enabling it to acquire additional properties without
proportionate increases in property management expenses. The Company's property
management program is implemented by on-site property managers and property
management and leasing professionals located in offices in Atlanta, Charlotte,
Orlando and New Orleans.
The results of the Company's operations depend upon the performance of
its existing investment portfolio, the availability of suitable opportunities
for new investments and the yields then available on such investments. Such
yields will vary with the type of investment involved, the condition of the
financial and real estate markets, the nature and geographic location of the
investment, competition and other factors. The performance of a real estate
investment company is strongly influenced by the cycles of the real estate
industry. As financial intermediaries providing equity funds for real estate
projects, real estate investment companies are generally subject to the same
market and economic forces as other real estate investors.
Competitive Conditions. In seeking new investment opportunities, the
Company competes with other real estate investors, including pension funds,
foreign investors, real estate partnerships, other real estate investment trusts
and other domestic real estate companies. On properties presently owned by the
Company or in which it has investments, the Company and its tenants and
borrowers compete with other owners of like properties for tenants and/or
customers depending on the nature of the investment. Management believes that
the Company is well positioned to compete effectively for new investments and
tenants.
For any borrowed funds that may be used in new investment activity, the
Company would be in competition with other borrowers seeking both secured and
unsecured borrowings in the banking, real estate lending and public debt
markets. For a description of the Company's mortgage debt, reference is made to
Table V in Item 2
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hereof, to Item 7 and to Note 7 to the consolidated financial statements
included as a part of this report. For a description of the Company's 7.3%
convertible subordinated debentures, reference is made to Item 7 and to Notes 8
and 19 to the consolidated financial statements. For a description of the
Company's 7.45% senior notes, reference is made to Item 7 and to Note 9 to the
consolidated financial statements. For a description of the Company's
$100,000,000 unsecured revolving term loan, reference is made to Item 7 and to
Note 10 to the consolidated financial statements.
Regulation. Investments in real property create a potential for
environmental liability on the part of the owner of or any mortgage lender on
such real property. If hazardous substances are discovered on or emanating from
any of the Company's properties, the owner or operator of the property
(including the Company) may be held strictly liable for all costs and
liabilities relating to such hazardous substances. In 1989, the Company adopted
a policy of obtaining a Phase I environmental study on each property it seeks to
acquire.
The Company's Charlotte, North Carolina industrial facility is among
the sites appearing on the Comprehensive Environmental Response, Compensation
and Liability Information System List ("CERCLIS") maintained by the United
States Environmental Protection Agency ("EPA"). The CERCLIS list contains sites
which have possible environmental contamination. The EPA regularly requests that
state environmental agencies conduct screening site investigations ("SSI") at
various sites appearing on the CERCLIS list. At the request of the EPA, the
North Carolina Department of Environment, Health, and Natural Resources
("DEHNR") conducted an SSI at this facility on May 28, 1991. Following receipt
of results of such SSI, the DEHNR advised the Company that it would not
recommend further action to the EPA with respect to this facility. The Company
understands that the EPA has determined that no further action is necessary at
the site, and the site currently appears in the CERCLIS list as a "delisted"
site.
The Charlotte industrial facility contained underground petroleum and
used oil storage tanks ("USTs") believed to have been owned by the previous
owner of this property. The Company (through an environmental consulting firm)
removed the USTs in December 1993, and on March 2, 1994, DEHNR notified the
Company that certain investigative, corrective and/or remedial actions
("Corrective Actions") must be performed by the Company to, among other things,
determine the level of soil and/or groundwater contamination due to suspected
leakage from some of the USTs. The Company has
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investigated the property to the satisfaction of DEHNR. The investigation
confirmed the presence of petroleum product-related substances in soil and
groundwater at levels that exceed applicable standards. The investigation also
revealed the presence of free phase liquids in one monitoring well at the
property.
The Company has begun removing free phase liquids from the well on the
property. In addition, the Company has submitted to DEHNR a Corrective Action
Plan ("CAP") and schedule to address petroleum-impacted soil and groundwater at
the site. Soil excavation work has been completed, and the Company plans to
address petroleum-impacted groundwater in due course. According to the CAP, the
estimated remaining cost for site remediation ranges from $129,000 to $193,000
over a period of 3 to 6 years. Although the Company believes that certain of the
costs of Corrective Action are reimbursable under the North Carolina Commercial
Leaking Petroleum Underground Storage Tank Cleanup Fund, the Company accrued
$129,000 in 1995 based on these estimates. The CAP may be revised, and the
estimated costs may change, but based on the information presently available,
the Company believes any additional costs of any such Corrective Action would
not have a material adverse effect on the Company's results of operations,
financial position, or liquidity.
During 1996, the Company discovered that additional releases of
petroleum products had occurred at and around a garage facility previously
operated by a former trucking company tenant. An investigation is being
conducted by the Company in order to determine the extent of the related
contamination, and Company management is negotiating with the former tenant to
obtain a contribution to potential clean-up costs. The Company does not believe
the cost of addressing these additional releases will have a material adverse
effect on the Company's results of operations, financial position, or liquidity.
During its soil and groundwater investigation at Bluebonnet Village
Shopping Center in Baton Rouge, Louisiana, the Company's environmental
consultant discovered concentrations of various chemicals in groundwater
monitoring well BB-1 that exceeded the maximum contaminant levels under the
Federal Safe Drinking Water Act ("MCLs"). The Company has notified the Louisiana
Department of Environmental Quality-Groundwater Protection Division ("LDEQ-
GWPD") of such discovery. The Company has been advised that the groundwater
impact appears to be very localized, since six other groundwater monitoring
wells placed around the initial well did not
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exhibit any impact. At the request of LDEQ-GWPD, the Company subsequently
installed two additional wells in the immediate area of well BB-1 and sampled
them at different depths, confirming concentrations of chemicals above MCLs at
that location. There can be no assurance that the LDEQ-GWPD will not require
remediation, but based on information presently available to the Company and
discussions with the Company's environmental consultant, the Company believes
the cost of any such remediation would not have a material adverse effect on the
Company's results of operations, financial position, or liquidity.
Leaking petroleum USTs formerly located at the Company's Venice Plaza
Shopping Center in Venice, Florida, have affected soil and groundwater at this
center. Kash n' Karry Food Stores, Inc., the Florida food division of Lucky
Stores, Inc., formerly operated such USTs at Venice Plaza Shopping Center and is
addressing the releases. No Corrective Action concerning such leaking USTs has
been requested or required of the Company by any federal, state or local agency
or any other party.
Solvents apparently relating to drycleaning activities have been
discovered in soil and groundwater in the immediate vicinity of the premises of
a current tenant operating a dry cleaning facility at the Company's Westgate
Square Shopping Center in Sunrise, Florida. The tenant has agreed to investigate
this discovery, and the Company expects to receive a report from the tenant. In
addition, the Company has been informed that costs of any necessary Corrective
Action may be funded in part through a program established by the State of
Florida. No Corrective Action concerning the solvents has been requested or
required of the Company by any federal, state or local agency or any other
party.
Based on information presently available to the Company, the Company
believes that Kash n' Karry Food Stores, Inc. and/or Lucky Stores, Inc. in the
case of Venice Plaza Shopping Center, or the drycleaning facility tenant in the
case of Westgate Square, have the primary responsibility for undertaking any
necessary Corrective Action at these properties. There can be no assurance that
the Company will not be required to undertake Corrective Action at these sites,
but based on the information presently available to the Company, the Company
believes that the costs of any such Corrective Action would not have a material
adverse effect on the Company's results of operations, financial position, or
liquidity.
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Leaking petroleum USTs and other environmental concerns located on
property owned by third parties may affect certain properties of the Company.
Examples include Gulf Gate Plaza Shopping Center, Naples, Florida; Thomasville
Commons, Thomasville, North Carolina; Wesley Chapel Crossing, Decatur, Georgia;
and Chestnut Square, Brevard, North Carolina. Based on information presently
available to the Company, the Company believes that the third party landowners
or UST operators are responsible for Corrective Action for any such matters.
Accordingly, the Company believes that the costs of any such Corrective Action
would not have a material adverse effect on the Company's results of operations,
financial position, or liquidity.
The Company has not commissioned independent environmental analyses
with respect to properties acquired prior to 1989, except as required pursuant
to a former secured revolving term loan. Phase I environmental site assessments
(which generally did not include environmental sampling, monitoring or
laboratory analysis) were implemented by the Company with respect to those
properties which the Company acquired from 1989 to the present, prior to the
acquisition of such properties. No assurance can be given that hazardous
substances are not located on any of the properties. However, the Company has no
reason to believe that any environmental contamination has occurred nor any
violation of any applicable environmental law, statute, regulation or ordinance
exists that would have a material adverse effect on the Company's results of
operations, financial position or liquidity. The Company presently carries no
insurance coverage for the types of environmental risks described above.
The State of Florida has established a program covering part of the
cost of addressing releases of dry cleaning-related solvents from certain dry
cleaning facilities in the state. The Company has encouraged its dry cleaning
tenants at its Florida properties to enter this program and to investigate
whether their operations have resulted in the release of dry cleaning-related
solvents. These investigations are ongoing and have resulted in the discovery of
releases from dry cleaning tenants to the soil and groundwater at certain
Company properties. Based on the information provided to the Company to date,
the Company believes that the cost of addressing the releases discovered to date
would not have a material adverse effect on the Company's results of operations,
financial position, or liquidity.
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Employees. The Company presently employs 53 persons, 6 of whom are
on-site management and maintenance personnel at three of the Company's real
estate investments.
Item 2. Properties.
The following tables and notes thereto describe the properties in which
the Company had investments at December 31, 1996, as well as the mortgage
indebtedness to which the Company's investments were subject. Reference is made
to Note 3 to the consolidated financial statements included as a part of this
report for information on minimum base rentals on noncancellable operating
leases for the next five years and thereafter.
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I. EQUITY INVESTMENTS (LAND & BUILDINGS)
The Company had a fee or leasehold interest in land and improvements
thereon as follows:
<TABLE>
<CAPTION>
Percent Cost to Depreciated Property Property
Date Area or Leased Year Company Cost FFO Net Income
Description Acquired Rental Units 12/31/96 Completed 12/31/96 12/31/96 1996(1) 1996(2)
---------- -------- ------------ -------- --------- -------- ------------ --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SHOPPING CENTERS
Abbeville Plaza 4/86 59,525 sq. ft. 50% 1970 $ 539,069 $ 330,699 $ 42,471 $ 23,371
Abbeville, SC
Alafaya Commons 11/96 120,586 sq. ft. 100% 1987 10,249,970 10,240,128 122,359 112,517
Orlando, FL
Ambassador Row 12/94 193,982 sq. ft. 100% 1980 & 9,909,753 9,532,101 871,828 654,372
Lafayette, LA 1991
Ambassador Row Courtyard 12/94 155,483 sq. ft. 82% 1986 & 11,671,220 11,231,379 1,057,679 864,815
Lafayette, LA 1991
Asheville Plaza 4/86 49,800 sq. ft. 100% 1967 405,287 283,523 95,736 84,540
Asheville, NC
Bluebonnet Village 12/94 89,879 sq. ft. 100% 1983 8,085,203 7,801,065 843,165 701,291
Baton Rouge, LA
The Boulevard 12/94 68,012 sq. ft. 100% 1976 & 3,818,271 3,673,417 467,783 395,934
Lafayette, LA 1994
Carolina Place 5/89 36,560 sq. ft. 97% 1989 2,351,494 1,972,774 230,424 180,084
Hartsville, SC
Centre Pointe Plaza 12/92 & 163,642 sq. ft. 100% 1989 & 9,146,002 8,321,508 838,581 627,626
Smithfield, NC 12/93 1993
Chadwick Square 1/92 31,700 sq. ft. 95% 1985 1,456,727 1,311,705 186,033 156,536
Hendersonville, NC
Chelsea Place 7/93 81,144 sq. ft. 100% 1992 6,942,585 6,462,720 727,034 588,278
New Port Richey, FL
Chester Plaza 4/86 & 71,443 sq. ft. 66% 1967 & 2,199,971 1,692,429 217,356 133,674
Chester, SC 2/92 1992
Chestnut Square 1/92 39,640 sq. ft. 100% 1985 1,432,107 1,290,575 243,571 184,191
Brevard, NC
Colony Square 2/88 50,000 sq. ft. 100% 1987 2,936,430 2,257,023 270,562 175,743
Fitzgerald, GA
Commerce Crossing 12/92 100,668 sq. ft. 100% 1988 4,496,343 4,083,621 424,518 321,072
Commerce, GA
Country Club Plaza 1/95 64,686 sq. ft. 92% 1982 4,200,796 4,049,258 452,951 375,655
Slidell, LA
Countryside Shops 6/94 173,161 sq. ft. 100% 1986,1988 16,728,984 16,030,592 1,883,737 1,598,816
Cooper City, FL & 1991
The Crossing 12/94 113,989 sq. ft. 100% 1988 & 4,585,502 4,409,939 541,958 449,977
Slidell, LA 1993
Delchamps Plaza 4/88 66,857 sq. ft. 100% 1987 4,515,233 3,602,513 456,305 47,980
Pascagoula, MS
</TABLE>
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I. EQUITY INVESTMENTS (LAND & BUILDINGS), continued
<TABLE>
<CAPTION>
Percent Cost to Depreciated Property Property
Date Area or Leased Year Company Cost FFO Net Income
Description Acquired Rental Units 12/31/96 Completed 12/31/96 12/31/96 1996(1) 1996(2)
----------- -------- ------------ -------- --------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SHOPPING CENTERS,continued
Douglas Commons 8/92 97,027 sq. ft. 93% 1988 $ 8,609,091 $ 7,916,286 $ 794,580 $ 527,093
Douglasville, GA
Eden Centre 11/94 56,355 sq. ft. 100% 1991 3,527,217 3,370,063 396,958 324,426
Eden, NC
Elmwood Oaks 1/92 130,284 sq. ft. 100% 1989 11,179,205 10,364,764 1,232,447 434,307
Harahan, LA
First Street Station 8/94 52,230 sq. ft. 98% 1989 3,048,068 2,881,681 311,988 240,000
Albemarle, NC
Forest Hills Centre 8/90 74,180 sq. ft. 100% 1990 & 5,534,021 4,883,065 603,525 475,343
Wilson, NC 1995
Forrest Gallery 12/92 214,450 sq. ft. 95% 1987 12,407,118 11,343,960 976,396 695,725
Tullahoma, TN
Ft. Walton Beach Plaza 7/86 48,248 sq. ft. 100% 1986 2,676,717 2,020,823 253,905 187,324
Ft. Walton Beach, FL
The Galleria 8/86 & 92,344 sq. ft. 91% 1986, 1990 8,469,868 6,928,939 538,199 333,343
Wrightsville Beach, NC 12/87 & 1996
Gulf Gate Plaza 6/79 174,566 sq. ft. 82% 1969 & 4,362,744 1,836,360 508,902 260,865
Naples, FL 1974
Harris Teeter 6/88 & 36,535 sq. ft. 100% 1981 & 2,600,657 1,961,877 296,177 219,136
Lexington, VA 6/89 1989
Heritage Walk 6/93 159,362 sq. ft. 100% 1991 & 8,757,752 8,047,091 929,032 729,864
Milledgeville, GA 1992
Hoffner Plaza 6/79 39,370 sq. ft. 20% 1972 1,146,933 394,896 45,363 12,487
Orlando, FL
Lancaster Plaza 4/86 77,400 sq. ft. 100% 1971 1,377,459 937,031 142,341 109,336
Lancaster, SC
Lancaster Shopping Center 8/86 & 29,047 sq. ft. 100% 1963 & 1,595,667 1,201,844 168,461 127,073
Lancaster, SC 12/87 1987
Lawrence Commons 8/92 52,295 sq. ft. 100% 1987 3,576,230 3,271,610 382,608 227,104
Lawrenceburg, TN
Litchfield Landing 8/86 42,201 sq. ft. 98% 1984 2,632,685 2,058,812 329,134 270,011
North Litchfield, SC
Macland Pointe 1/93 79,699 sq. ft. 97% 1992 & 6,113,405 5,634,746 693,513 274,766
Marietta, GA 1993
Masonova Plaza 6/79 157,955 sq. ft. 40% 1969 3,045,552 626,526 55,028 (274,736)
Daytona Beach, FL
Millervillage Shopping Center, 12/94 94,559 sq. ft. 95% 1983 & 7,644,064 7,350,563 755,246 608,010
Baton Rouge, LA 1992
</TABLE>
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I. EQUITY INVESTMENTS (LAND & BUILDINGS), continued
<TABLE>
<CAPTION>
Percent Cost to Depreciated Property Property
Date Area or Leased Year Company Cost FFO Net Income
Description Acquired Rental Units 12/31/96 Completed 12/31/96 12/31/96 1996(1) 1996(2)
----------- -------- ------------ -------- --------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SHOPPING CENTERS,continued
New Smyrna Beach Regional 8/92 118,451 sq. ft. 99% 1987 $10,434,233 $ 9,659,434 $ 944,750 $ 746,314
New Smyrna Beach, FL
North River Village Center 12/92 & 177,128 sq. ft. 100% 1988 & 10,206,395 9,582,069 1,093,460 903,976
Ellenton, FL 12/93 1993
North Village Center (3) 8/86 60,356 sq. ft. 100% 1984 3,279,033 2,595,422 323,421 20,141
North Myrtle Beach, SC
Old Kings Commons 5/88 84,759 sq. ft. 96% 1988 6,114,443 5,076,377 593,354 458,990
Palm Coast, FL
Palm Gardens 6/79 52,670 sq. ft. 95% 1970 2,030,412 1,136,018 269,816 143,236
Largo, FL
Parkmore Plaza 12/92 159,067 sq. ft. 100% 1986 & 8,360,616 7,702,835 928,509 761,180
Milton, FL 1992
Paulding Commons 8/92 192,391 sq. ft. 99% 1991 12,993,743 11,815,785 1,326,866 387,209
Dallas, GA
Pensacola Plaza 7/86 56,098 sq. ft. 100% 1985 2,644,578 1,730,935 227,432 127,418
Pensacola, FL
Pinhook Plaza 12/94 190,319 sq. ft. 98% 1979 & 11,092,104 10,667,967 1,174,291 239,984
Lafayette, LA 1992
Plaza Acadienne (4) 12/94 105,419 sq. ft. 100% 1980 2,963,249 2,813,403 385,080 69,441
Eunice, LA
Plaza North 8/92 47,240 sq. ft. 92% 1986 2,460,095 2,260,519 250,178 204,542
Hendersonville, NC
Providence Square 12/71 85,690 sq. ft. 94% 1973 4,500,471 1,979,621 516,177 328,343
Charlotte, NC
Riverview Shopping Center 3/72 130,058 sq. ft. 84% 1973 & 6,373,546 4,436,976 589,231 382,686
Durham, NC 1994
Salisbury Marketplace 8/96 76,970 sq. ft. 100% 1987 4,611,151 4,578,839 184,718 152,406
Salisbury, NC
Scottsville Square 8/92 38,450 sq. ft. 25% 1986 2,438,203 2,241,276 223,497 178,889
Bowling Green, KY
Seven Hills 7/93 64,890 sq. ft. 100% 1991 4,914,220 4,651,453 521,931 74,104
Spring Hill, FL
Shelby Plaza (4) 4/86 103,000 sq. ft. 67% 1972 1,177,811 709,721 88,831 30,579
Shelby, NC
Sherwood South 12/94 75,607 sq. ft. 100% 1972, 1988 2,035,263 1,959,423 231,687 194,475
Baton Rouge, LA & 1992
Siegen Village 12/94 157,528 sq. ft. 98% 1988 & 8,624,866 8,405,494 651,126 540,253
Baton Rouge, LA 1996
</TABLE>
11
<PAGE> 13
I. EQUITY INVESTMENTS (LAND & BUILDINGS), continued
<TABLE>
<CAPTION>
Percent Cost to Depreciated Property Property
Date Area or eased Year Company Cost FFO Net Income
Description Acquired Rental Units /31/96 Completed 12/31/96 12/31/96 1996(1) 1996(2)
----------- -------- ------------ ------ --------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SHOPPING CENTERS,continued
Smyrna Village 8/92 83,334 sq. ft. 100% 1992 $ 5,850,781 $ 5,318,015 $ 646,344 $ 204,433
Smyrna, TN
Smyth Valley Crossing 12/92 126,841 sq. ft. 99% 1989 7,050,617 6,490,624 649,545 502,560
Marion, VA
South Beach Regional 8/92 289,319 sq. ft. 98% 1990 & 21,889,647 19,849,693 2,174,601 494,769
Jacksonville Beach, FL 1991
Spalding Village 8/92 235,318 sq. ft. 100% 1989 15,425,096 14,028,483 1,595,304 333,795
Griffin, GA
Stadium Plaza 8/92 70,475 sq. ft. 96% 1988 4,463,323 4,168,874 442,173 68,419
Phenix City, AL
Stanley Market Place 1/92 40,364 sq. ft. 100% 1980 & 1,800,935 1,603,875 229,936 189,858
Stanley, NC 1991
Tarpon Heights 1/95 56,605 sq. ft. 100% 1982 2,825,407 2,719,759 364,931 74,562
Galliano, LA
Taylorsville Shopping Center 8/86 & 48,537 sq. ft. 100% 1982 & 2,612,159 1,995,071 263,096 184,711
Taylorsville, NC 1988
Thomasville Commons 8/92 148,754 sq. ft. 98% 1991 7,172,961 6,476,927 796,881 103,003
Thomasville, NC
University Center 12/89 56,180 sq. ft. 95% 1989 3,970,972 3,393,637 381,598 292,296
Greenville, NC
Venice Plaza (3) 6/79 144,850 sq. ft. 94% 1971 & 2,836,514 1,222,409 395,695 258,992
Venice, FL 1979
Village at Northshore 12/94 144,373 sq. ft. 100% 1988 & 8,268,206 7,953,244 900,261 237,187
Slidell, LA 1993
Waterlick Plaza 10/89 98,694 sq. ft. 97% 1973 & 6,311,631 5,335,850 691,651 546,926
Lynchburg, VA 1988
Watson Central 12/92 & 227,747 sq. ft. 95% 1989 & 13,089,669 11,985,346 1,232,656 945,931
Warner Robins, GA 10/93 1993
Wesley Chapel Crossing 12/92 170,792 sq. ft. 98% 1989 10,923,268 10,206,171 970,128 789,923
Decatur, GA
West Gate Plaza 6/74 & 64,378 sq. ft. 98% 1974 & 4,733,395 3,852,031 366,585 206,956
Mobile, AL 1/85 1995
West Towne Square 3/90 89,596 sq. ft. 94% 1988 6,026,201 5,047,378 495,603 339,868
Rome, GA
Westgate Square 6/94 104,853 sq. ft. 96% 1984 & 9,167,698 8,729,573 960,316 778,939
Sunrise, FL 1988
</TABLE>
12
<PAGE> 14
I. EQUITY INVESTMENTS (LAND & BUILDINGS), continued
<TABLE>
<CAPTION>
Percent Cost to Depreciated Property Property
Date Area or Leased Year Company Cost FFO Net Income
Description Acquired Rental Units 12/31/96 Completed 12/31/96 12/31/96 1996(1) 1996(2)
----------- -------- ------------ -------- --------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SHOPPING CENTERS,continued
Willowdaile Shopping Center 8/86 & 120,815 sq. ft. 95% 1986 $8,564,358 $ 6,677,369 $1,029,258 $ 813,278
Durham, NC 12/87
--------- -----------------------------------------------------
7,736,780 sq. ft. 454,212,670 402,665,802 44,498,771 26,768,521
========= -----------------------------------------------------
APARTMENTS
Whitehall Kent Apartments 6/79 188 units 80% 1968 4,181,975 1,890,994 637,710 483,963
Kent, OH
-----------------------------------------------------
INDUSTRIAL PROPERTIES
Industrial Buildings 6/79 188,513 sq. ft. 73% 1956 & 3,586,681 944,191 248,481 248,481
Charlotte, NC 1963
Plasti-Kote 6/79 41,000 sq. ft. 100% 1961 & 482,939 81,390 123,000 123,000
Medina, OH 1966
--------- -----------------------------------------------------
229,513 sq. ft. 4,069,620 1,025,581 371,481 371,481
========= -----------------------------------------------------
$462,464,265 $405,582,377 $45,507,962 $27,623,965
=====================================================
</TABLE>
NOTES:
(1) Property FFO represents cash flows from operating activities before
interest expense excluding changes in accrued assets and liabilities
for the fiscal year ended December 31, 1996 or from the date of
acquisition (if acquired in 1996) through December 31, 1996. Property
FFO should not be considered an alternative to net income or other
measurements under generally accepted accounting principles as an
indicator of operating performance; or to cash flows from operating,
investing, or financing activities as a measure of liquidity. Property
FFO is presented as an additional measure in valuing and analyzing the
underlying real estate investments.
(2) Property Net Income represents net income of the property calculated in
accordance with generally accepted accounting principles, excluding any
allocation of general and administrative expenses of the Company.
(3) The Company owns a 54.5% interest in North Village Center and a 75%
interest in Venice Plaza Shopping Center, which are consolidated for
financial reporting purposes and minority interests recorded.
(4) Subject to ground leases expiring in 1997 for Shelby Plaza and 1998 and
2008 for Plaza Acadienne. The Company has an option to purchase the
land at Shelby Plaza for $265,000 in 1997.
13
<PAGE> 15
II. EQUITY INVESTMENTS (DIRECT FINANCING LEASES)
The Company also had a fee interest in land and improvements thereon in
the following properties occupied by tenants under leases which are
treated as direct financing leases:
<TABLE>
<CAPTION>
Percent Cost to Property Property
Date Leased Year Company FFO Net Income
Description Acquired Square Feet 12/31/96 Completed 12/31/96 1996(1) 1996(2)
----------- -------- ----------- -------- --------- -------- -------- ----------
OFFICE
<S> <C> <C> <C> <C> <C> <C> <C>
The Old Phoenix National Bank(3) 12/84 73,074 sq. ft. 100% Various $2,131,132 $313,049 $279,798
Medina County, OH ======= ---------------------------------------
SHOPPING CENTERS
Wal-Mart Stores, Inc.(4) 6/85 54,223 sq. ft. 100% 1985 1,274,497 201,289 165,312
Mathews, LA
Wal-Mart Stores, Inc.(4) 7/85 53,571 sq. ft. 100% 1985 1,420,430 175,350 135,296
Marble Falls, TX
------- ---------------------------------------
107,794 sq. ft. 2,694,927 376,639 300,608
======= ---------------------------------------
$4,826,059 $689,688 $580,406
=======================================
</TABLE>
NOTES:
(1) Property FFO represents cash flows from operating activities before
interest expense excluding changes in accrued assets and liabilities for
the fiscal year ended December 31, 1996 or from the date of acquisition
(if acquired in 1996) through December 31, 1996. Property FFO should not
be considered an alternative to net income or other measurements under
generally accepted accounting principles as an indicator of operating
performance; or to cash flows from operating, investing or financing
activities as a measure of liquidity. Property FFO is presented as an
additional measure in valuing and analyzing the underlying real estate
investments.
(2) Property Net Income represents net income of the property calculated in
accordance with generally accepted accounting principles, excluding any
allocation of general and administrative expenses of the Company.
(3) This investment represents ten banking facilities leased to The Old
Phoenix National Bank at an annual rental of $313,049. The leases expire
March 2013 with no purchase or renewal options.
(4) These two retail facilities are leased to Wal-Mart Stores, Inc. at a total
annual rental of $332,850 plus percentage rentals of 1% of gross sales in
excess of fourth year sales. The leases expire January 2011, with five
5-year renewal options. There are no purchase options. Percentage rental
of $43,789 was received during the fiscal year ended December 31, 1996.
14
<PAGE> 16
III. EQUITY INVESTMENTS (LAND PURCHASE-LEASEBACKS)
The Company owned land under the following properties, all of which are
net leased back to lessees on terms summarized below. The improvements
on such properties are owned by others but will revert to the Company at
the end of the lease terms unless the purchase options of the lessees, as
referred to below, are exercised. The interest of the Company in two of
the properties is subordinate to first mortgage loans to the lessees,
aggregating $346,782 as of December 31, 1996.
<TABLE>
<CAPTION>
Lease Cost to Property Property
Date Land Area Year Expiration Company FFO Net Income
Description Acquired In Acres Improvements Completed Date 12/31/96 1996(1) 1996(2)
----------- -------- -------- ------------ --------- ---- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SHOPPING CENTERS
Lawrence County Shopping Center 5/71 13.62 135,605 sq. ft. 1971 2069(3) $435,994 $ 67,200 $ 67,200
Sybene, OH
Grand Marche Shopping Center 9/72 11.38 200,585 sq. ft. 1969 2012 250,500 27,500 27,500
Lafayette, LA
Manatee County Shopping Center 5/71 16.00 120,500 sq. ft. 1971 2069 (3) 241,798 30,000 30,000
Bradenton, FL
------- ------------------------------------
456,690 sq. ft. $928,292 $124,700 $124,700
======= ====================================
</TABLE>
NOTES:
(1) Property FFO represents cash flows from operating activities before
interest expense excluding changes in accrued assets and liabilities for
the fiscal year ended December 31, 1996 or from the date of acquisition
(if acquired in 1996) through December 31, 1996. Property FFO should not
be considered an alternative to net income or other measurements under
generally accepted accounting principles as an indicator of operating
performance; or to cash flows from operating, investing or financing
activities as a measure of liquidity. Property FFO is presented as an
additional measure in valuing and analyzing the underlying real estate
investments.
(2) Property Net Income represents net income of the property calculated in
accordance with generally accepted accounting principles, excluding any
allocation of general and administrative expenses of the Company.
(3) Each lessee has a repurchase option exercisable at a specified price (in
each case higher than the cost to the Company of its investment) which
increases annually by a fixed amount.
15
<PAGE> 17
IV. MORTGAGE LOAN INVESTMENTS
The Company had mortgage loans receivable on the following properties:
<TABLE>
<CAPTION>
Security
-------------------------- Principal Stated
Type of Land Area Outstanding Maturity Interest
Location Loan In Acres Improvements 12/31/96 Date Rate
-------- ---- -------- ------------ -------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Walton Plaza Shopping Center 1st Mortgage 5.53 43,460 sq. ft. $3,193,390 8/98 (1) 10.25%
Augusta, GA
Wal-Mart - Kearney, NE 2nd Mortgage 8.491 83,249 sq. ft. 594,000 12/98 (2) 7.00%
Kearney, NE
Wal-Mart - Fremont, NE 2nd Mortgage 7.77 64,890 sq. ft. 406,000 12/98 (2) 7.00%
Fremont, NE
Spanish Quarter Apartments Wrap-Around 15.00 276 units 5,082,089 9/01 (3) (3)
Montgomery, AL Mortgage 215,076 9/01 (3) (3)
Valley West Mall 1st Mortgage 53.64 478,180 sq. ft. 3,780,749 4/01 (4) 9.00%
Glendale, AZ
Mill Creek Club Condominiums 1st Mortgage --- 4 units 27,785 2006-(5) 8.63% -
Nashville, TN Participation 2007 12.38%
Cypress Chase "A" Condominiums 1st Mortgage 2.00 recreational 125,320 5/09 (6) 10.00%
Lauderdale Lakes, FL
------------
13,424,409
Less interest discounts and negative goodwill (241,889)
------------
$ 13,182,520
============
</TABLE>
16
<PAGE> 18
IV. MORTGAGE LOAN INVESTMENTS, continued
NOTES:
(1) Monthly payments of $29,670 of principal and interest at an annual rate of
10.25%, with a balloon payment at maturity August 1, 1998.
(2) Monthly payments of $3,465 and $2,368 interest only for Kearney and
Fremont, respectively, with the entire principal balance due at maturity
December 31, 1998. These purchase-money second mortgages are subordinate
to a first mortgage having a balance of $4,500,000 as of December 31,
1996.
(3) Modified effective December 1, 1994 to extend the term for 3 years to
September 1, 2001 and to reduce the cash interest rate from 10% to 9.5%
prospectively, requiring monthly payments of $45,382 of principal and
interest for the remaining term, with a balloon payment at maturity.
Additional interest at an annual rate of 1% accrues for the periods
September 1, 1984 through August 31, 1989 and September 1, 1991 through
August 31, 2001 and is payable at maturity or on sale of the property. In
addition, during 1995 the Company funded additional principal of $260,000
under this mortgage to make certain capital improvements, requiring
monthly payments of $4,703 of principal and interest. This wrap-around
mortgage is subject to two first mortgages having an aggregate balance of
$717,316 as of December 31, 1996. See Table V. Mortgage Indebtedness for a
summary of the terms of the first mortgages.
(4) Monthly payments of $30,576 of principal and interest at an annual rate of
9.00%, with a balloon payment at maturity April 1, 2001.
(5) Principal outstanding December 31, 1996 represents the Company's 46.154%
participation in the total loan outstanding of $60,201.
(6) Monthly payments include principal and interest of $1,472.
17
<PAGE> 19
V. MORTGAGE INDEBTEDNESS
Indebtedness of the Company secured by its investments (not including
mortgage debt owed by lessees of its land purchase-leaseback investments)
was as follows:
<TABLE>
<CAPTION>
Principal Balance Annual
Investment 12/31/96 Maturity Date Interest Rate Constant Payment
---------- ------- ------------- ------------- ----------------
<S> <C> <C> <C> <C>
Seven Hills 3,800,000 2/01/97 (8) 9.750% 370,500 (1)
Spring Hill, FL
Delchamps Plaza 3,185,364 8/01/97 (3) 9.375% 349,335
Pascagoula, MS
Paulding Commons 8,641,795 8/01/97 (3) 7.600% 762,561
Dallas, GA (4)
Smyrna Village 4,128,857 8/01/97 (3) 7.600% 364,335
Smyrna, TN (4)
South Beach Regional 15,148,573 8/01/97 (3) 7.600% 1,396,598
Jacksonville Beach, FL (4)
Tarpon Heights 2,383,454 3/01/98 11.000% 262,180 (1)
Galliano, LA
Pinhook Plaza Phase I 1,822,859 1/01/00 (3) 9.875% 250,320
Lafayette, LA Phase II 1,925,448 1/01/00 (3) 9.875% 258,504
Phase III 3,493,779 1/01/00 (3) 9.875% 396,072
Macland Pointe 3,766,276 2/01/00 (3) 7.750% 362,558
Marietta, GA
Plaza Acadienne 2,312,707 7/01/00 (3) 10.250% 317,420
Eunice, LA
Thomasville Commons 5,534,642 6/01/02 (3) 9.625% 583,303
Thomasville, NC
Spanish Quarter Apartments 717,315 7/15/02 8.250% 162,360
Montgomery, AL
Elmwood Oaks 7,500,000 6/01/05 8.375% 628,125 (1)
Harahan, LA
North Village Center 2,657,308 (2) 3/15/09 8.125% 343,171
North Myrtle Beach, SC
Spalding Village 11,376,691 9/01/10 (3) 8.194% 932,206 (5)
Griffin, GA
Village at Northshore 5,570,632 7/01/13 (6) 9.000% 647,803
Slidell, LA ----------- ----------
83,965,700 $8,387,351
==========
Interest Premium(7) 34,928
-----------
$84,000,628
===========
</TABLE>
18
<PAGE> 20
V. MORTGAGE INDEBTEDNESS. continued
NOTES:
(1) Interest only. Entire principal due at maturity.
(2) Although the Company is a partner or joint venturer in this investment,
100% of the mortgage note payable is recorded for financial reporting
purposes.
(3) Balloon payment at maturity.
(4) The Company has the option to extend for two additional years.
(5) Interest only through 9/01/00; then principal and interest of $1,158,448
annually for the last 10 years.
(6) Callable anytime after 7/30/03.
(7) For financial reporting purposes, mortgage indebtedness is valued assuming
current interest rates at the dates of acquisition.
(8) Repaid at maturity subsequent to December 31, 1996.
19
<PAGE> 21
Rental Properties. On June 26, 1996, the Company purchased 1.97 acres
of land adjacent to its Lawrence Commons Shopping Center investment in
Lawrenceburg, Tennessee for approximately $100,000 cash. The parcel of land was
purchased to allow an expansion of the anchor tenant space by approximately
20,000 square feet. The Company has committed to reimburse the anchor tenant for
the cost of the expansion, not to exceed $2,100,000, provided the expansion is
completed prior to October 1, 1997. The anchor tenant's annual rent increased
by 11% of the land cost from the date of purchase and will increase by 10.33%
of the expansion costs upon funding.
On August 30, 1996, the Company acquired Salisbury Marketplace in
Salisbury, North Carolina for $4,611,000 cash, consisting of the initial
purchase price of $4,600,000 and approximately $11,000 of acquisition costs.
This property contains approximately 77,000 square feet of retail space and is
anchored by Food Lion and Revco.
On November 25, 1996, the Company acquired Alafaya Commons in Orlando,
Florida for $10,250,000 cash, consisting of the initial purchase price of
$10,200,000 and approximately $50,000 of acquisition costs. This property
contains approximately 121,000 square feet of retail space and is anchored by
Publix and JoAnn Fabrics.
During 1996, the Company completed construction of a 10,800 square foot
expansion at The Galleria Shopping Center in Wrightsville Beach, North Carolina
for a total cost of approximately $921,000 of which approximately $24,000
represented capitalized interest costs. Of the total cost of this expansion,
approximately $34,000 was funded in 1995. Additionally, the Company funded
approximately $18,000 of additional costs in connection with an expansion of
Forest Hills Shopping Center in Wilson, North Carolina which was substantially
completed in 1995.
During 1996, the Company completed construction of a 41,800 square foot
expansion at its Siegen Village Shopping Center in Baton Rouge, Louisiana. This
expansion included the construction of a 31,300 square foot store for an
additional anchor tenant and 10,500 square feet of local shop space. The cost of
this expansion totaled approximately $2,210,000 of which approximately $39,000
represented capitalized interest costs.
20
<PAGE> 22
Mortgage Investments. During 1996, the Company took back a $3,800,000
purchase-money first mortgage on the sale of one shopping center investment and
two purchase-money second mortgages totaling $1,000,000 on the sale of two
net-leased retail facilities.
Mortgage Indebtedness. During 1996, the Company (a) repaid at maturity a
$6,263,000 mortgage bearing interest at 9.78%, (b) repaid at maturity a
$1,052,000 mortgage bearing interest at 13.875% (discounted to 9.5% for
financial reporting purposes), (c) prepaid a $2,727,000 mortgage bearing
interest at 9.375%, resulting in a $16,500 loss on extinguishment of debt, (d)
prepaid a $57,000 mortgage bearing interest at 8.50% and (e) repaid at maturity
a $3,850,000 mortgage bearing interest at 9.50%.
Item 3. Legal Proceedings.
There are no material pending legal proceedings of which the Company is
aware involving the Company or its properties.
Item 4. Submission of Matters to a Vote of Security Holders.
Not applicable.
21
<PAGE> 23
PART II
Item 5. Market for the Registrant's Common Equity and Related
Security Holder Matters.
a) The following table shows the high and low sale prices for the Company's
common stock, as reported on the New York Stock Exchange for the periods
indicated.
<TABLE>
<CAPTION>
High Low
---- ---
1995
----
<S> <C> <C>
First Quarter $10.38 $ 9.00
Second Quarter 10.38 9.00
Third Quarter 10.13 9.13
Fourth Quarter 10.00 9.13
1996
----
First Quarter $ 9.88 $ 9.00
Second Quarter 9.63 9.13
Third Quarter 9.63 9.25
Fourth Quarter 11.75 9.38
</TABLE>
b) Approximate number of Equity Security Holders.
<TABLE>
<CAPTION>
Approximate Number of Record
Title of Class Holders at February 21, 1997
-------------- ----------------------------
<S> <C>
Shares of Common Stock
$1 Par Value 3,500
</TABLE>
c) IRT Property Company paid quarterly cash dividends during
the years 1995 and 1996 as follows:
<TABLE>
<CAPTION>
Cash Dividends Paid
-------------------
1995
----
<S> <C>
First Quarter $ .210
Second Quarter .225
Third Quarter .225
Fourth Quarter .225
1996
----
First Quarter $ .225
Second Quarter .225
Third Quarter .225
Fourth Quarter .225
</TABLE>
22
<PAGE> 24
IRT has paid 76 consecutive quarterly dividends. The
current annualized dividend rate is $.90. The Company does not foresee
any restrictions upon its ability to continue its dividend payment
policy of distributing at least the 95% of its otherwise taxable
ordinary income required for qualification as a REIT.
23
<PAGE> 25
Item 6. Selected Consolidated Financial Data
The following table sets forth selected consolidated financial data for the
Company and should be read in conjunction with the consolidated financial
statements and notes thereto included elsewhere in this report.
<TABLE>
<CAPTION>
December 31,
---------------------------------------------------------------------------------
As of or for the years ended 1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Gross revenues $ 60,233,422 $ 60,196,247 $ 49,202,144 $ 45,062,911 $ 34,006,687
============= ============= ============= ============= =============
Earnings from operations $ 15,602,112 $ 15,550,026 $ 12,788,923 $ 11,772,265 $ 7,441,692
Gain (loss) on real estate investments 1,232,092 173,025 (3,825,418) 4,556,511 3,547,071
------------- ------------- ------------- ------------- -------------
Earnings before extraordinary items 16,834,204 15,723,051 8,963,505 16,328,776 10,988,763
Extraordinary items:
Gain (loss) on extinguishment of debt (16,500) (137,260) 3,748,095 (1,440,478) (14,811)
------------- ------------- ------------- ------------- -------------
Net earnings $ 16,817,704 $ 15,585,791 $ 12,711,600 $ 14,888,298 $ 10,973,952
============= ============= ============= ============= =============
Per share:
Earnings before extraordinary items $ .65 $ .61 $ .35 $ .72 $ .74
Extraordinary items -- -- .15 (.06) --
------------- ------------- ------------- ------------- -------------
Net earnings $ .65 $ .61 $ .50 $ .66 $ .74
============= ============= ============= ============= =============
Dividends paid $ .90 $ .885 $ .84 $ .84 $ .81
============= ============= ============= ============= =============
Federal income tax status of dividends
paid to shareholders:
Ordinary income $ .47 $ .635 $ .72 $ .39 $ .39
Capital gain -- -- .04 .45 .42
Return of capital .43 .250 .08 -- --
------------- ------------- ------------- ------------- -------------
$ .90 $ .885 $ .84 $ .84 $ .81
============= ============= ============= ============= =============
Weighted average shares outstanding 25,749,860 25,590,129 25,349,303 22,457,131 14,896,369
============= ============= ============= ============= =============
Total assets $ 437,694,691 $ 427,398,018 $ 428,579,355 $ 402,319,125 $ 297,590,922
============= ============= ============= ============= =============
Indebtedness:
Mortgage notes payable $ 84,000,628 $ 99,188,181 $ 105,107,084 $ 98,878,505 $ 115,379,078
7.30% convertible subordinated debentures 84,905,000 84,905,000 86,250,000 86,250,000 --
2.00% convertible subordinated debentures -- -- -- -- 5,730,000
7.45% senior notes 49,929,110 -- -- -- --
Indebtedness to banks 15,000,000 36,000,000 26,000,000 -- 1,200,100
------------- ------------- ------------- ------------- -------------
$ 233,834,738 $ 220,093,181 $ 217,357,084 $ 185,128,505 $ 122,309,178
============= ============= ============= ============= =============
Shareholders' equity $ 193,354,922 $ 198,630,147 $ 203,038,464 $ 210,335,167 $ 168,574,002
============= ============= ============= ============= =============
Other Data:
Funds from operations(1) $ 26,388,787 $ 26,406,099 $ 21,342,209 $ 19,768,618 $ 13,901,941
Assuming conversion of 7.30% debentures:(1)
Funds from operations(1) $ 32,952,612 $ 32,982,552
Weighted average shares 33,296,971 33,156,750
Net Cash Flows from (used in) -
Operating Activities $ 27,751,020 $ 25,946,987 $ 22,511,731 $ 19,116,142 $ 14,274,651
Investing Activities $ (15,659,704) $ (7,769,022) $ (99,052,456) $ (16,990,558) $ (55,114,524)
Financing Activities $ (8,933,374) $ (20,002,953) $ (247,587) $ 76,370,567 $ 40,247,232
</TABLE>
(1) NAREIT defines funds from operations as net income before gains (losses)
on real estate investments and extraordinary items plus depreciation and
amortization of capitalized leasing costs. Conversion of the 7.30%
convertible debentures is dilutive and therefore assumed for 1996 and 1995.
Management believes funds from operations should be considered along with,
but not as an alternative to, net income as defined by generally accepted
accounting principles as a measure of the Company's operating performance.
Funds from operations does not represent cash generated from operating
activities in accordance with generally accepted accounting principles and
is not necessarily indicative of cash available to fund cash needs. See
Item 7.
24
<PAGE> 26
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Changes in Financial Condition. During 1996, the Company
utilized funds of:
a) $14,861,000 for the acquisition of two shopping center
investments,
b) $3,215,000 to fund expansion or redevelopment costs of
four existing investments,
c) $13,949,000 to repay three mortgage notes payable at
maturity and prepay two mortgage notes payable,
d) $21,000,000 to paydown the balance outstanding on the
Company's $100,000,000 unsecured revolving term loan,
and
e) $356,000 for an equity contribution to a joint venture.
These transactions were funded with approximately $49,394,000 of net proceeds
from the issuance of the 7.45% senior notes due April 1, 2001, cash proceeds of
approximately $5,659,000 on sales of one shopping center investment and two
net-leased retail facilities, and internally generated funds.
During 1995, the Company utilized funds of:
a) $6,820,000, exclusive of an $81,000 premium recorded on
the valuation of the mortgage debt, for the acquisition
of two shopping center investments, consisting of cash
of approximately $4,437,000 and the assumption of
mortgage debt of approximately $2,383,000 secured by
one of the centers,
b) $3,223,000 to fund expansions or redevelopment costs of
five existing investments,
c) $260,000 to fund capital improvements under its
mortgage loan investment secured by Spanish Quarter
Apartments, and
d) $6,837,000 to repay three mortgage notes payable at
maturity and pay down two mortgage notes payable on
refinancing.
25
<PAGE> 27
These transactions were funded with $10,000,000 of borrowings under the
Company's revolving term loan, cash proceeds of approximately $1,311,000 on
sales of two parcels of land and three shopping center investments, and
internally generated funds. Additionally, in March 1995, $1,345,000 of the
Company's 7.3% convertible subordinated debentures were converted into 119,554
shares of common stock at $11.25 per share.
Changes in Results of Operations. During 1996, rental income from the
Company's core portfolio of shopping center investments increased approximately
$1,078,000. This increase includes approximately $273,000 of additional income
earned from four property expansions completed during 1995 and 1996 and is net
of approximately $159,000 less income earned during 1996 due to two tenant
bankruptcies during 1995. The increase in the Company's core portfolio income
was offset by approximately $62,000 less income earned on three investments sold
during 1995 and approximately $1,466,000 less income earned due to the sale of
Valley West Mall in March 1996 and was supplemented by approximately $367,000 of
income earned from two shopping center investments acquired August 30, 1996 and
November 25, 1996. The decrease in income for Valley West Mall included
approximately $127,000 of property tax reimbursements due to the tenants as a
result of a reduction in property taxes for 1994 and 1995 awarded by the State
of Arizona in 1996.
The $13,327,000 increase in income from rental properties during 1995
was primarily due to approximately $13,619,000 of income earned from the 17
shopping centers acquired during 1994 and 1995 and property expansions and
redevelopments funded by the Company during 1994 and 1995. This was partially
offset by $862,000 less income earned from the investments sold and targeted for
sale during 1995.
The percentage leased of the Company's shopping center investments
decreased from 93% in 1994 to 92% in 1995 and increased to 94% in 1996. The
average occupancy of the Company's Ohio apartment investment decreased from 92%
in 1994 to 90% in 1995 and to 84% in 1996. Percentage rentals received from
shopping center investments, excluding percentage rentals received from the
Wal-Mart investments classified as direct financing leases, totaled
approximately $470,000 in 1994, $576,000 in 1995 and $586,000 in 1996.
26
<PAGE> 28
The increase in interest income during 1996 was primarily due to
approximately $256,000 of income earned on the purchase-money mortgage taken
back on the sale of Valley West Mall in March 1996 and approximately $233,000 of
income earned on short-term money market investments during 1996.
The decrease in interest income during 1995 was primarily the result of
the investment of the remaining proceeds of the Company's 1993 public offerings
in December 1994. During 1994, the Company earned approximately $2,388,000 on
short-term money market investments.
The decrease in interest on direct financing leases in 1996 is due to a
decrease in percentage rentals received from the four Wal-Mart investments and
the sale of two of these investments in December 1996. The Company received
percentage rentals of approximately $44,000, $347,000 and $292,000 during 1996,
1995 and 1994, respectively. Wal-Mart had ceased operations in three of the
four Wal-Mart investments, from which the Company received approximately
$305,000 and $256,000 of percentage rentals during 1995 and 1994, respectively.
Wal-Mart remains liable under the leases which expire in January 2011 and
continues to pay base rentals, but no further percentage rentals are
anticipated to be earned from the remaining vacant facility.
Operating expenses related to the Company's core portfolio of real
estate investments increased approximately $695,000 during 1996. This increase
was offset by approximately $18,000 less expenses incurred on three investments
sold during 1995. In addition, approximately $1,358,000 less expenses were
incurred due to the sale of Valley West Mall in March 1996. The decrease for
Valley West Mall included a property tax refund for 1994 and 1995 of
approximately $325,000 awarded by the State of Arizona during the first quarter
of 1996. Additionally, approximately $60,000 of operating expenses were incurred
by two shopping center investments acquired August 30, 1996 and November 25,
1996.
The increases in operating expenses of rental properties and
depreciation during 1995 were primarily due to property acquisitions and
dispositions during the two-year period. The Company acquired two shopping
center investments in 1995 and 15 in 1994. The additional operating expenses and
depreciation related to these centers was partially offset by the sale of three
shopping
27
<PAGE> 29
center investments in 1995. Depreciation also increased in 1995 due to two
property redevelopments and four property expansions purchased or funded during
1995 and 1994.
The decrease in interest expense on mortgages in 1996 is due to the
repayment of five mortgages during 1996 and the repayment of four and
refinancing of two mortgages during 1995. During 1996, the Company (a) repaid at
maturity a $6,263,000 mortgage bearing interest at 9.78%, (b) repaid at maturity
a $1,052,000 mortgage bearing interest at 13.875% (discounted to 9.5% for
financial reporting purposes), (c) prepaid a $2,727,000 mortgage bearing
interest at 9.375%, resulting in a $16,500 loss on extinguishment of debt, (d)
prepaid a $57,000 mortgage bearing interest at 8.50% and (e) repaid at maturity
a $3,850,000 mortgage bearing interest at 9.50%.
The 1995 and 1994 acquisitions resulted in increased interest expense
on mortgages in 1995. The increase in 1995 was partially offset by (a) the
repayment of a $1,750,000 variable rate mortgage in May 1995, (b) the
refinancing of a $9,000,000 mortgage in June 1995, reducing the face of the
mortgage to $7,500,000 and the interest rate from 9.75% to 8.375%, (c) the
maturity of a 9.5% fully amortized mortgage note payable in August 1995, (d) the
refinancing of a $12,330,000 mortgage in September 1995, reducing the face of
the mortgage to $11,377,000 and the interest rate from 9.375% to 8.194%, (e) the
repayment of an $860,000 mortgage at 13.875% (discounted to 9.5% for financial
reporting purposes) in November 1995, and (f) the repayment of a $1,774,000
variable rate interest only mortgage in December 1995.
The Company had average borrowings under its revolving term loan of
approximately $11,750,000, $33,507,000 and $789,000 during 1996, 1995 and 1994,
respectively, which resulted in decreased interest on bank debt during 1996 and
increased interest on bank debt during 1995. In addition, the Company incurred
commitment fees of approximately $221,000, $21,000 and $95,000 during 1996, 1995
and 1994, respectively, based on the aggregate unused portion of the commitment.
The Company's revolving term loan commitment increased to $100,000,000 from
$50,000,000 in December 1995. The interest rate on the $50 million secured
revolver was, at the option of the Company, either prime or 1.25% over adjusted
LIBOR. The $50 million revolver was replaced December 15, 1995 with a $100
million unsecured revolver with an interest rate, at the option of the Company,
of either LIBOR plus an Applicable Margin or prime. The current Applicable
Margin for LIBOR borrowings is 1.5%.
28
<PAGE> 30
The increases in general and administrative expenses in 1996 and 1995
were primarily due to the costs of increased administrative and property
management personnel, increased shareholder relations costs, increased state
franchise taxes and director's fees, the appointment of a new President and
Chief Operating Officer in October 1995, as well as approximately $50,000 and
$97,000 of costs incurred in due diligence on potential mergers and
acquisitions which were not consummated during 1996 and 1995, respectively.
The amount of gains recognized on sales of investments have fluctuated
and in the future may continue to fluctuate depending upon sales activity in any
given year. During 1996, 1995 and 1994, the Company recognized gains on sales of
properties of approximately $1,232,000, $173,000 and $257,000, respectively. The
gain in 1994 was more than offset by $4,125,000 of reductions in carrying values
of certain investments, primarily Valley West Mall. These adjustments to
carrying value were a result of the Company's quarterly evaluations of its
individual investments based on current and forecasted net operating income of
the investment, competition resulting from new properties in the market place
and other changes in the local economy. The development of a new mall which
would directly compete with Valley West Mall was announced in 1992, and in
November 1992, one of the anchor tenants at Valley West gave notice to terminate
its lease effective November 1993. Based on this lease termination and the
predicted impact of the new mall when opened on the tenants of Valley West, the
Company determined that a permanent impairment of $3,565,000 had occurred and
reflected such writedown in its financial statements during the fourth quarter
of 1992. The new mall opened for business in October 1993, the terminating
tenant ceased operations in November 1993, and another anchor tenant changed its
business to an outlet concept. After a concerted leasing effort which commenced
in 1992, review of tenant sales reductions since the opening of the new mall,
meetings with the City and potential purchasers of the center, and restructuring
of the Company's ownership in this investment, including prepayment of the
mortgage and negotiations with the land lessor concerning a joint venture or the
ultimate purchase of the underlying land, the Company determined that a further
permanent impairment of the value of this mall had developed. An additional
indicator of value was the discount received by the Company in the prepayment of
the underlying mortgage debt in June 1994. Accordingly, the Company recorded an
additional writedown of this investment in June 1994. In March 1996, this
investment was sold at a cost approximating book value.
29
<PAGE> 31
During 1996, the Company prepaid a $2,727,000 mortgage and recognized
an extraordinary loss of $16,500 on the early extinguishment of debt.
During 1995, the Company replaced its $50 million secured revolving
term loan with a $100 million unsecured revolving term loan and recognized an
extraordinary loss on the extinguishment of the old revolver of $137,000. During
1994, the Company recognized an extraordinary gain of approximately $3,748,000
on the purchase of the 9.5% mortgage note payable secured by Valley West Mall.
The mortgage had an outstanding balance of $8,248,000 and was purchased for
$4,500,000.
Funds From Operations. Effective January 1, 1996, the Company adopted
the NAREIT definition of funds from operations. NAREIT defines funds from
operations as net income before gains (losses) on real estate investments and
extraordinary items plus depreciation and amortization of capitalized leasing
costs. Interest on debentures and amortization of convertible debenture costs
are added to funds from operations when assumed conversion of the debentures is
dilutive. Conversion of the debentures is dilutive and therefore assumed for
1996 and 1995. Management believes funds from operations should be considered
along with, but not as an alternative to, net income as defined by generally
accepted accounting principles as a measure of the Company's operating
performance. Funds from operations does not represent cash generated from
operating activities in accordance with generally accepted accounting
principles and is not necessarily indicative of cash available to fund cash
needs.
30
<PAGE> 32
The following data is presented with respect to the calculation of
funds from operations under the NAREIT definition for 1996, 1995 and 1994:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Net earnings $ 16,817,704 $ 15,585,791 $ 12,711,600
Loss (gain) on real estate
investments (1,232,092) (173,025) 3,825,418
Loss (gain) on extinguishment
of debt 16,500 137,260 (3,748,095)
Depreciation 10,310,344 10,427,268 8,214,192
Amortization of capitalized
leasing fees 249,292 230,642 173,075
Amortization of capitalized
leasing income 227,039 198,163 166,019
------------ ------------ ------------
Funds from operations 26,388,787 26,406,099 $ 21,342,209
============
Interest on convertible
debentures 6,198,065 6,210,062
Amortization of convertible
debenture costs 365,760 366,391
------------ ------------
Fully diluted funds from
operations $ 32,952,612 $ 32,982,552
============ ============
Applicable weighted average
shares 33,296,971 33,156,750 25,349,303
============ ============ ============
</TABLE>
During 1994, the Company had an average of approximately $57,000,000 of
the proceeds of the August 1993 equity and debenture offerings invested in
short-term money market investments earning an average interest rate of
approximately 4.2%. This resulted in temporary dilution in funds from
operations. This temporary dilution ceased when the remaining cash was invested
in higher-yielding real estate investments on December 21, 1994.
In addition, funds from operations for 1995 and 1994 did not include
rental income received through the rental guarantees related to major portfolio
acquisitions completed in July and December 1992. Rental income covered by the
guarantees for 17 centers totaled approximately $64,000 and $510,000 for 1995
and 1994, respectively.
31
<PAGE> 33
Additional Information. The following data is presented with respect to
amounts incurred for improvements to the Company's real estate investments and
for leasing fees during 1996, 1995 and 1994:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Tenant Improvements:
Shopping Centers $ 812,248 $ 812,919 $ 646,699
Industrial 464,469 -- --
------------ ------------ ------------
Total Tenant
Improvements 1,276,717 812,919 646,699
------------ ------------ ------------
Capital Expenditures:
Shopping Centers 1,030,650 298,006 440,226
Apartment 537,616 89,075 102,453
Industrial 158,072 302 63,982
------------ ------------ ------------
Total Capital
Expenditures 1,726,338 387,383 606,661
------------ ------------ ------------
Total Improvements $ 3,003,055 $ 1,200,302 $ 1,253,360
============ ============ ============
Leasing Fees $ 350,989 $ 382,042 $ 286,389
============ ============ ============
</TABLE>
Liquidity and Capital Resources. In 1996 and 1995, the Company's
dividends, mortgage amortization payments and capital improvements were funded
primarily by funds from operations and also through supplemental funding from
available cash investments, bank borrowings and other sources. The Company
believes that dividends, mortgage amortization payments and necessary capital
improvements will continue to be funded primarily by funds from operations.
Other planned activities, including property acquisitions, certain capital
improvement programs and debt repayments are expected to be funded to the extent
necessary by bank borrowings, mortgage financing, periodic sales or exchanges of
existing properties and public or private offerings of stock or debt.
For a description of the Company's mortgage debt, reference is made to
Table V in Item 2 hereof and to Note 7 to the consolidated financial statements
included as a part of this report. For a description of commitments and
contingencies, reference is made to Notes 17 and 18 to the consolidated
financial statements included as a part of this report.
In 1995, the Company filed a shelf registration statement covering up
to $200 million of common stock, senior debt and subordinated debt. The Company
intends to use the net proceeds of
32
<PAGE> 34
any offerings under such shelf registration to repay debt; to improve, expand
or redevelop its properties; to acquire additional properties; and for working
capital. Approximately $119 million of capital has been raised by the Company
under this shelf registration, including $50 million of senior debt issued in
March 1996, 4,653,747 shares of common stock issued in a January 1997 public
offering and 1,500,000 shares of common stock issued in January 1997 in
connection with the purchase by the Company of $54,799,000 of its 7.3%
convertible subordinated debentures.
On March 26, 1996, the Company issued $50,000,000 of 7.45% senior notes
due April 1, 2001. The senior notes were issued at a discount of $83,500 which
will be amortized over the life of the notes for financial reporting purposes.
Net proceeds from the issuance totaled approximately $49,394,000. For more
information regarding the senior notes, reference is made to Note 9 to the
consolidated financial statements.
On January 14 and 22, 1997, the Company completed the offering of
4,653,747 shares of its common stock at $11.25 per share. The net proceeds from
the offering totaled approximately $49,500,000.
On January 17, 1997, the Company completed the repurchase of
$54,799,000 of its 7.3% convertible subordinated debentures due August 15, 2003
in a private transaction with a single debenture holder. The debentures were
repurchased by the Company at par plus accrued interest. The seller had informed
the Company that the seller had both $54,799,000 par value of the debentures and
a short position of 1,500,000 shares in the Company's common stock. The
consideration paid by the Company was comprised of 1,500,000 shares of common
stock, valued for purposes of the exchange at $11.05 per share, and cash in the
amount of $39,913,000, for a total consideration of $56,488,000, which included
$1,689,000 of accrued interest. The debentures repurchased were canceled by the
Company, and based upon the $11.25 conversion price, 2,676,089 authorized but
unissued common shares have been reserved for possible issuance if the remaining
$30,106,000 debentures outstanding at January 30, 1997 are converted.
On August 31, 1993, the Company completed concurrent public offerings
of 4,127,580 shares of its common stock and $86,250,000 of 7.3% convertible
subordinated debentures for net proceeds aggregating approximately $126,330,000.
33
<PAGE> 35
On November 1, 1990, the Company obtained a $25,000,000 secured
revolving term loan maturing November 1, 1995. On July 31, 1992, the loan
agreement was modified to increase the commitment from $25,000,000 to
$50,000,000 and to extend the maturity from November 1, 1995 to August 1, 1997.
The interest rate on this loan was either prime or 1.25% over adjusted LIBOR, at
the option of the Company. On December 15, 1995, the Company terminated this
$50,000,000 secured revolving term loan.
On December 15, 1995, the Company obtained a $100,000,000 unsecured
revolving term loan maturing January 4, 1999. Not later than June 30 of each
year commencing June 30, 1996, the Company may request to extend the maturity
date for an additional twelve-month period beyond the existing maturity date. In
accordance with the terms of the agreement, during 1996 the Company extended the
maturity date for an additional twelve-month period to January 4, 2000. The
interest rate is, at the option of the Company, either prime, fluctuating daily
or LIBOR plus the "Applicable Margin" (currently 1.5%), which is subject to
adjustment based upon the rating of the senior unsecured long-term debt
obligations of the Company. The Company may borrow, repay and/or reborrow under
this loan at any time. As of December 31, 1996 and 1995, the borrowings under
this credit facility totaled $15,000,000 and $36,000,000, respectively. For
additional information on this revolving term loan, reference is made to Note 10
to the consolidated financial statements.
The Company's 7.3% convertible subordinated debentures are convertible
into common stock of the Company at any time prior to maturity on August 15,
2003 at $11.25 per share, subject to adjustment in certain events. In March
1995, $1,345,000 of the Company's 7.3% convertible subordinated debentures were
converted into 119,554 shares of common stock at $11.25 per share. The remaining
$84,905,000 of debentures was outstanding as of December 31, 1996 and 1995,
respectively. In January 1997, the Company repurchased and canceled $54,799,000
of these debentures. For additional information on the debentures, reference is
made to Notes 8 and 19 to the consolidated financial statements.
The Company's Dividend Reinvestment Plan allows shareholders to elect
to reinvest all or a portion of their distributions in newly issued shares of
the Company at 95% of the market price of the shares. During 1996, 1995 and
1994, the Company received net proceeds under this plan of $1,024,000,
$1,107,000 and $938,000, respectively. For additional information on the
Dividend
34
<PAGE> 36
Reinvestment Plan, reference is made to Note 13 to the consolidated financial
statements.
Inflationary and Economic Factors. The effects of inflation upon the
Company's results of operations and investment portfolio are varied. From the
standpoint of revenues, inflation has the dual effect of both increasing the
tenant revenues upon which percentage rentals are based and allowing increased
fixed rentals as rental rates rise generally to reflect higher construction
costs on new properties. This positive effect is partially offset by increasing
operating expenses, but usually not to the extent of the increases in revenues.
Environmental Factors. On March 2, 1994, the Company was advised by the
North Carolina Department of Environment, Health and Natural Resources that
certain Corrective Actions must be performed at the Company's Charlotte, North
Carolina industrial facility. According to the CAP, the estimated remaining cost
for site remediation ranges from $129,000 to $193,000 over a period of 3 to 6
years. Although the Company believes that certain of the costs of Corrective
Action are reimburseable under the North Carolina Leaking Petroleum Underground
Storage Tank Cleanup Fund, the Company accrued $129,000 in 1995 based on these
estimates. The CAP may be revised, and the estimated costs may change, but based
on the information presently available, the Company believes any additional
costs of any such Corrective Action would not have a material adverse effect on
the Company's results of operations, financial position or liquidity.
During 1996, the Company discovered that additional releases of
petroleum products had occurred at and around a garage facility previously
operated by a former trucking company tenant. An investigation is being
conducted by the Company in order to determine the extent of the related
contamination, and Company management is negotiating with the former tenant to
obtain a contribution to potential clean-up costs. The Company does not believe
the cost of addressing these additional releases will have a material adverse
effect on the Company's results of operations, financial position or liquidity.
During its soil and groundwater investigation at the Bluebonnet Village
Shopping Center in Baton Rouge, Louisiana, the Company's environmental
consultant discovered concentrations of various chemicals in groundwater that
exceeded the maximum contaminant levels under the Federal Safe Drinking Water
Act. For
35
<PAGE> 37
additional information, see "Regulation" under Item 1 and Note 18 to the
consolidated financial statements included as a part of this report. Based on
the information presently available, the Company believes the costs of any
corrective action would not have a material adverse effect on the Company's
results of operations, financial position or liquidity.
Recent Accounting Pronouncements. Effective January 1996, the Company
adopted Statement of Financial Accounting Standards No. 121 ("FAS 121"),
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed Of." FAS 121 establishes standards for determining when
impairment losses on long-lived assets have occurred and how impairment losses
should be measured. This standard had no effect on the Company's financial
statements.
The Company accounts for its stock-based compensation plans under
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees." Effective January, 1996, the Company adopted the disclosure option
of Statement of Financial Accounting Standards No. 123 ("FAS 123"), "Accounting
for Stock-based Compensation." FAS 123 requires that companies which do not
choose to account for stock-based compensation as prescribed by the statement
shall disclose the pro forma effects on earnings and earnings per share as if
FAS 123 had been adopted. Additionally, certain other disclosures are required
with respect to stock compensation and the assumptions used to determine the
pro forma effects of FAS 123. Reference is made to Note 14 to the consolidated
financial statements for the required disclosures.
36
<PAGE> 38
Item 8. Financial Statements and Supplementary Data.
IRT PROPERTY COMPANY
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Public Accountants 38
Consolidated Balance Sheets -
December 31, 1996 and 1995 39
Consolidated Statements of Earnings -
For the Years Ended December 31, 1996,
1995 and 1994 40
Consolidated Statements of Changes
in Shareholders' Equity - For the Years Ended
December 31, 1996, 1995 and 1994 41
Consolidated Statements of Cash Flows -
For the Years Ended December 31, 1996,
1995 and 1994 42
Notes to Consolidated Financial Statements -
December 31, 1996, 1995 and 1994 44
Schedules:
Schedule
Number
III Real Estate and Accumulated Depreciation 67
IV Mortgage Loans on Real Estate 79
</TABLE>
37
<PAGE> 39
AALLP LETTERHEAD
Report of Independent Public Accountants
To The Shareholders of
IRT Property Company:
We have audited the accompanying consolidated balance sheets of IRT
PROPERTY COMPANY (a Georgia corporation) and subsidiaries as of December 31,
1996 and 1995, and the related consolidated statements of earnings, changes in
shareholders' equity, and cash flows for each of the three years in the period
ended December 31, 1996. These financial statements and the schedules referred
to below are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and schedules based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of IRT Property Company
and subsidiaries as of December 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedules listed in the index to
consolidated financial statements are presented for purposes of complying with
the Securities and Exchange Commission's rules and are not part of the basic
financial statements. These schedules have been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in our
opinion, fairly state in all material respects the financial data required to be
set forth therein in relation to the basic financial statements taken as a
whole.
ARTHUR ANDERSEN LLP
Atlanta, Georgia
January 30, 1997
38
<PAGE> 40
IRT PROPERTY COMPANY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
------------- -------------
<S> <C> <C>
ASSETS
Real estate investments:
Rental properties $ 463,392,557 $ 452,508,601
Accumulated depreciation (56,881,888) (51,600,890)
------------- -------------
406,510,669 400,907,711
Net investment in direct financing leases 4,826,059 9,097,717
Investment in joint venture 355,832 --
Mortgage loans, net 13,182,520 8,499,210
------------- -------------
Net real estate investments 424,875,080 418,504,638
Cash and cash equivalents 3,174,342 16,400
Accrued interest receivable 488,663 544,073
Prepaid expenses and other assets 9,156,606 8,332,907
------------- -------------
$ 437,694,691 $ 427,398,018
============= =============
LIABILITIES & SHAREHOLDERS' EQUITY
Liabilities:
Mortgage notes payable plus net interest premium
of $34,928 in 1996 and $78,657 in 1995 $ 84,000,628 $ 99,188,181
7.30% convertible subordinated debentures due
August 15, 2003 84,905,000 84,905,000
7.45% senior notes due April 1, 2001, net of
interest discount of $70,890 49,929,110 --
Indebtedness to banks 15,000,000 36,000,000
Accrued interest on debentures 2,341,488 2,341,488
Accrued interest on senior notes 931,250 --
Accrued expenses and other liabilities 6,177,293 5,265,202
Deferred income taxes 1,055,000 1,068,000
------------- -------------
Total liabilities 244,339,769 228,767,871
------------- -------------
Commitments and Contingencies (Notes 17 and 18)
Shareholders' Equity:
Common stock, $1 par value, 75,000,000 shares
authorized; 25,807,302 shares issued and
outstanding in 1996 and 25,689,002 shares in
1995 25,807,302 25,689,002
Additional paid-in capital 201,273,343 200,318,168
Cumulative distributions in excess of net
earnings (33,725,723) (27,377,023)
------------- -------------
Total shareholders' equity 193,354,922 198,630,147
------------- -------------
$ 437,694,691 $ 427,398,018
============= =============
</TABLE>
The accompanying notes are an integral part of these
consolidated balance sheets.
39
<PAGE> 41
IRT PROPERTY COMPANY
CONSOLIDATED STATEMENTS OF EARNINGS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Revenues:
Income from rental properties $ 57,925,659 $ 58,008,386 $ 44,681,220
Interest, including $232,519 in 1996 and
$2,388,308 in 1994 on cash equivalents 1,388,733 899,454 3,267,486
Interest on direct financing leases 919,030 1,288,407 1,253,438
------------ ------------ ------------
60,233,422 60,196,247 49,202,144
------------ ------------ ------------
Expenses:
Operating expenses of rental properties 12,113,108 12,733,705 10,318,596
Interest on mortgages 7,750,389 9,150,400 8,191,240
Interest on debentures 6,198,065 6,210,062 6,202,025
Interest on senior notes 2,798,433 -- --
Interest on indebtedness to banks 1,003,331 2,211,980 159,603
Depreciation 10,310,344 10,427,268 8,214,192
Amortization of debt costs 595,604 445,907 446,454
General & administrative 3,862,036 3,466,899 2,881,111
------------ ------------ ------------
44,631,310 44,646,221 36,413,221
------------ ------------ ------------
Earnings before gain (loss) on real
estate investments and
extraordinary item 15,602,112 15,550,026 12,788,923
------------ ------------ ------------
Gain (loss) on real estate investments:
Gain on sales of properties 1,232,092 173,025 300,036
Valuation loss -- -- (4,125,454)
------------ ------------ ------------
1,232,092 173,025 (3,825,418)
------------ ------------ ------------
Earnings before extraordinary item 16,834,204 15,723,051 8,963,505
Extraordinary item -
Gain (loss) on extinguishment of debt (16,500) (137,260) 3,748,095
------------ ------------ ------------
Net earnings $ 16,817,704 $ 15,585,791 $ 12,711,600
============ ============ ============
Per Share:
Earnings before extraordinary item $ 0.65 $ 0.61 $ 0.35
Extraordinary item -- -- 0.15
------------ ------------ ------------
Net earnings $ 0.65 $ 0.61 $ 0.50
============ ============ ============
Weighted average number of shares
outstanding 25,749,860 25,590,129 25,349,303
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
40
<PAGE> 42
IRT PROPERTY COMPANY
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
Cumulative
Additional Distributions Total
Common Paid-In in Excess of Shareholders'
Stock Capital Net Earnings Equity
----- ------- ------------ ------
<S> <C> <C> <C> <C>
Balance at December 31, 1993 $25,288,624 $196,793,150 $(11,746,607) $210,335,167
Net earnings - - 12,711,600 12,711,600
Cash dividends declared -
$.84 per share - - (21,284,741) (21,284,741)
Issuance of shares under
Dividend Reinvestment Plan, net 99,477 838,273 - 937,750
Exercise of Incentive Stock
Options 1,010 2,131 - 3,141
Issuance of shares for the
acquisition of properties 31,636 303,911 - 335,547
----------- ------------ ------------ ------------
Balance at December 31, 1994 25,420,747 197,937,465 (20,319,748) 203,038,464
Net earnings - - 15,585,791 15,585,791
Cash dividends declared -
$.885 per share - - (22,643,066) (22,643,066)
Issuance of shares under
Dividend Reinvestment Plan, net 121,831 985,430 - 1,107,261
Conversion of debentures, net 119,554 1,175,718 - 1,295,272
Exercise of Incentive Stock
Options 7,000 46,375 - 53,375
Issuance of shares for the
acquisition of properties 19,870 173,180 - 193,050
----------- ------------ ------------ ------------
Balance at December 31, 1995 25,689,002 200,318,168 (27,377,023) 198,630,147
Net earnings - - 16,817,704 16,817,704
Cash dividends declared -
$.90 per share - - (23,166,404) (23,166,404)
Issuance of shares under
Dividend Reinvestment Plan, net 112,561 911,734 - 1,024,295
Exercise of Incentive Stock
Options 2,400 16,063 - 18,463
Issuance of shares for the
acquisition of properties 3,339 27,378 - 30,717
----------- ------------ ------------ ------------
Balance at December 31, 1996 $25,807,302 $201,273,343 $(33,725,723) $193,354,922
=========== ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
41
<PAGE> 43
IRT PROPERTY COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings $ 16,817,704 $ 15,585,791 $12,711,600
Adjustments to reconcile net earnings to net
cash flows from operating activities:
Depreciation 10,310,344 10,427,268 8,214,192
Loss (gain) on real estate investments (1,232,092) (173,025) 3,825,418
Extraordinary loss (gain) 16,500 137,260 (3,748,095)
Amortization of debt costs and discount 608,016 445,907 446,454
Amortization of capitalized leasing
income 227,039 198,163 166,019
------------ ----------- ------------
26,747,511 26,621,364 21,615,588
Changes in accrued assets and liabilities:
Increase (decrease) in accrued
interest on debentures - (37,095) 262,343
Increase in accrued interest on senior
notes 931,250 - -
Increase in interest receivable,
prepaid expenses and other
assets (839,832) (1,187,639) (592,782)
Increase in accrued expenses and other
liabilities 912,091 550,357 1,226,582
------------ ----------- ------------
Net cash flows from operating activities 27,751,020 25,946,987 22,511,731
------------ ----------- ------------
Cash flows from (used in) investing activities:
Proceeds from sales of properties, net 5,658,531 1,310,531 562,070
Additions to real estate investments, net -
Acquisitions, expansions and renovations (18,076,038) (7,672,184) (98,461,982)
Improvements (3,003,055) (1,200,302) (1,253,360)
Collections of mortgage loans, net 116,690 52,933 100,816
Additions to mortgage loans - (260,000) -
Contributions to joint venture (355,832) - -
------------ ------------ ------------
Net cash flows used in investing
activities (15,659,704) (7,769,022) (99,052,456)
------------ ------------ ------------
Cash flows from (used in) financing activities:
Cash dividends paid, net of dividends reinvested (22,142,109) (21,535,805) (20,346,991)
Cash in lieu of fractional shares on
conversion of debentures - (15) -
Exercise of Incentive Stock Options, net 18,463 53,375 3,141
Issuance of 7.45% senior notes, net 49,394,325 - -
Principal amortization of mortgage notes payable, net (1,238,802) (1,546,572) (1,273,737)
Repayment of mortgage notes payable, net (13,948,751) (6,836,676) (8,378,095)
Increase (decrease) in bank indebtedness, net (21,000,000) 10,000,000 26,000,000
Extraordinary item -
Gain (loss) on extinguishment of debt (16,500) (137,260) 3,748,095
------------ ------------ ------------
Net cash flows used in financing
activities (8,933,374) (20,002,953) (247,587)
------------ ------------ ------------
Net increase (decrease) in cash and cash
equivalents 3,157,942 (1,824,988) (76,788,312)
Cash and cash equivalents at beginning of year 16,400 1,841,388 78,629,700
------------ ------------ ------------
Cash and cash equivalents at end of year $ 3,174,342 $ 16,400 $ 1,841,388
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
42
<PAGE> 44
IRT PROPERTY COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Supplemental disclosures of cash flow information:
Cash paid during the year for interest related to:
Mortgage notes payable $ 7,868,231 $ 9,207,974 $ 8,082,615
Convertible subordinated debentures,
including $94,225 capitalized in 1994 6,198,065 6,247,157 6,033,906
Senior notes, including $59,663
capitalized in 1996 1,997,736 - -
Indebtedness to banks, including $2,853
capitalized in 1996 and $93,591
capitalized in 1995 1,013,961 2,449,034 153,941
----------- ----------- ------------
Total cash paid during the year for
interest $17,077,993 $17,904,165 $ 14,270,462
=========== =========== ============
Supplemental schedule of noncash
investing and financing activities:
Acquisitions, expansions and renovations:
Cost of acquisitions, expansions and
renovations $18,106,755 $10,329,579 $114,677,940
Additions to mortgage notes payable -
Assumed, including interest premium at
date of acquisition of $80,890 in 1995 - (2,464,345) (15,880,411)
Issuance of common stock (30,717) (193,050) (335,547)
----------- ----------- ------------
Cash paid for acquisitions, expansions
and renovations of real estate
investments $18,076,038 $ 7,672,184 $ 98,461,982
=========== =========== ============
Sales of Properties:
Gross proceeds from sales of properties $10,458,531 $ 1,310,531 $ 562,070
Additions to mortgage loans (4,800,000) - -
----------- ----------- ------------
Cash proceeds from sales of properties,
net $ 5,658,531 $ 1,310,531 $ 562,070
=========== =========== ============
Conversion of debentures:
Debentures converted $ - $ 1,345,000 $ -
Associated unamortized debenture costs - (49,713) -
Equity issued on conversion - (1,295,272) -
----------- ----------- ------------
Cash paid in lieu of fractional shares $ - $ 15 $ -
=========== =========== ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
43
<PAGE> 45
IRT PROPERTY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 and 1994
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Consolidation-
The accompanying consolidated financial statements include the
accounts of IRT Property Company and its wholly-owned subsidiaries, IRT
Management Company and VW Mall, Inc., and IRT Capital Corporation, its
taxable subsidiary, (collectively, the "Company"). Intercompany
transactions and balances have been eliminated in consolidation.
Business -
IRT Property Company, founded in 1969, is a self-administered
and self-managed equity real estate investment trust which invests
primarily in neighborhood and community shopping centers which are
located in the Southeastern United States and are anchored by
necessity-oriented retailers such as supermarkets, drug stores and/or
discount variety stores. No one retailer accounts for more than 6.5% of
the Company's gross revenues.
In 1996, IRT Capital Corporation ("IRTCC"), a taxable
subsidiary of the Company, was formed under the laws of Georgia. This
taxable subsidiary will have the ability to develop properties, buy and
sell properties, provide equity to developers who are merchant builders
and perform third-party management, leasing and brokerage. The Company
holds 95% of the non-voting common stock and 5% of the voting common
stock of IRTCC. The remaining voting common stock is currently held by
two executive officers of the Company. IRTCC is included in the
Company's consolidated financial statements but is taxed as a regular
corporation and not as a REIT.
44
<PAGE> 46
Income Taxes-
The Company has in past years elected to qualify, and intends
to continue such election, to be taxed as a "Real Estate Investment
Trust" ("REIT") under Sections 856-860 of the Internal Revenue Code, as
amended. In general terms, under such Code provisions a trust or
corporation which, in any taxable year, meets certain requirements and
distributes to its shareholders at least 95% of its taxable income will
not be subject to Federal income tax to the extent of the income which
it distributes.
The Company computes taxable income on a basis different from
that used for financial reporting purposes due to differences in the
estimated useful lives used to compute depreciation, timing differences
in the recognition of loan commitment fees, and certain interest
discounts which are not recognized for tax purposes. The Company also
reports certain gains on sales of properties on the installment basis
for tax purposes.
Income Recognition-
The Company follows the policy of suspending the accrual of
income on any investments where interest or rental payments are
delinquent 60 days or more. Percentage rental income is recorded upon
collection.
Gains from the sale of real estate are deferred until such
time as minimum down payment and loan amortization requirements are met
in conformity with the provisions of Statement of Financial Accounting
Standards No. 66. Interest discounts are imputed on financed sales when
the contractual interest rates are less than prevailing market rates at
the time of sale.
Depreciation-
The Company provides depreciation on buildings and other
improvements on the straight-line basis over their estimated useful
lives. Such lives are from 14 to 40 years for buildings and 6 years for
improvements. Maintenance and repairs are charged to expense as
incurred, while significant improvements are capitalized. The profit or
loss on assets retired or otherwise disposed of is credited or charged
to
45
<PAGE> 47
operations and the cost and related accumulated depreciation are
removed from the asset and accumulated depreciation accounts.
Valuation Loss-
The need for any allowance for possible losses or
reductions in carrying values applicable to the Company's investments
is evaluated by management by means of quarterly reviews of the
portfolio on an individual investment basis considering such factors as
current and projected net operating income and other market factors.
Rental properties are carried at the lower of depreciated cost or net
realizable value.
Use of Estimates -
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could
differ from those estimates.
Cash Equivalents-
The Company considers all highly liquid investments with a
maturity of three months or less when purchased to be cash equivalents.
Earnings Per Share-
Earnings per share is computed by dividing net earnings by the
weighted average number of shares outstanding. The effect on earnings
per share assuming conversion of the 7.3% convertible subordinated
debentures would be anti-dilutive. Exercise of the outstanding stock
options would not have a material dilutive effect on earnings per
share.
46
<PAGE> 48
Reclassification of Prior Year Amounts-
Certain items in the consolidated financial statements have
been reclassified to conform with the 1996 presentation.
Recent Accounting Pronouncements-
Effective January 1996, the Company adopted Statement of
Financial Accounting Standards No. 121 ("FAS 121"), "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of." FAS 121 establishes standards for determining when
impairment losses on long-lived assets have occurred and how impairment
losses should be measured. This standard had no effect on the
Company's financial statements.
The Company accounts for its stock-based compensation plans
under Accounting Principles Board Opinion No. 25 ("APB 25"),
"Accounting for Stock Issued to Employees." Effective January 1996,
the Company adopted the disclosure option of Statement of Financial
Accounting Standards No. 123 ("FAS 123"), "Accounting for Stock-based
Compensation." FAS 123 requires that companies which do not choose to
account for stock-based compensation as prescribed by the statement
shall disclose the pro forma effects on earnings and earnings per share
as if FAS 123 had been adopted. Additionally, certain other disclosures
are required with respect to stock compensation and the assumptions
used to determine the pro forma effects of FAS 123. See Note 14 for the
required disclosures.
2. PUBLIC OFFERINGS:
On March 26, 1996, the Company issued $50,000,000 of 7.45%
senior notes due April 1, 2001. The senior notes were issued at a
discount of $83,500 which will be amortized over the life of the notes
for financial reporting purposes. Net proceeds from the issuance
totaled approximately $49,394,000. For more information regarding the
senior notes, see Note 9.
See Note 19 for a description of issuances of common stock in
January 1997.
47
<PAGE> 49
3. RENTAL PROPERTIES:
Rental properties are comprised of the following:
December 31,
---------------------------------
1996 1995
---- ----
Land covered by purchase-
leaseback agreements $ 928,292 $ 928,292
Land related to buildings
and improvements 97,319,967 92,453,973
Buildings & improvements 365,144,298 359,126,336
------------ ------------
$463,392,557 $452,508,601
============ ============
Upon expiration of the leases for land covered by
purchase-leaseback agreements, all improvements on the land will become
the property of the Company.
On March 31, 1996, the Company sold Valley West Mall in
Glendale, Arizona for a total sales price of $5,450,000. The Company
received net cash proceeds from this sale of approximately $1,389,000
and took back a purchase-money mortgage of $3,800,000. The purchase-
money mortgage, which matures April 1, 2001, bears interest at an
annual rate of 9% and is payable in monthly installments of $30,576
with a balloon payment at maturity.
On June 26, 1996, the Company purchased 1.97 acres of land
adjacent to its Lawrence Commons Shopping Center investment in
Lawrenceburg, Tennessee for approximately $100,000 cash. The parcel of
land was purchased to allow an expansion of the anchor tenant space by
approximately 20,000 Square Feet. The Company has committed to
reimburse the anchor tenant for the cost of the expansion, not to
exceed $2,100,000, provided the expansion is completed prior to
October 1, 1997. The anchor tenant's annual rent increased by 11% of
the land cost from the date of purchase and will increase by 10.33% of
the expansion costs upon funding.
On August 30, 1996, the Company acquired Salisbury Marketplace
in Salisbury, North Carolina for $4,611,000 cash,
48
<PAGE> 50
consisting of the initial purchase price of $4,600,000 and $11,000 of
acquisition costs.
On November 25, 1996, the Company acquired Alafaya Commons in
Orlando, Florida for $10,250,000 cash, consisting of the initial
purchase price of $10,200,000 and $50,000 of acquisition costs.
At December 31, 1996, land covered by two purchase-leaseback
agreements having an aggregate cost of $677,792 is subordinate to first
mortgage liens of $346,782 which are on both land and improvements but
are not obligations of the Company. In addition, the lessees of these
two properties have the option, subject to certain conditions, to
repurchase the land. Such option prices are for amounts greater than
the Company's carrying value of the related land.
Minimum base rentals on noncancellable operating leases for
the Company's shopping center, industrial and land purchase-leaseback
investments for the next five years and thereafter are as follows:
Year Amount
---- ------
1997 $ 48,474,000
1998 44,391,000
1999 39,830,000
2000 35,461,000
2001 31,938,000
Thereafter 240,338,000
------------
$440,432,000
============
4. NET INVESTMENT IN DIRECT FINANCING LEASES:
On December 24, 1996, the Company sold two of the four retail
facilities leased to Wal-Mart Stores, Inc. for a total sales price of
$5,350,000. The Company received net cash proceeds from this sale of
approximately $4,269,000 and took back purchase-money second mortgages
totaling $1,000,000. The purchase-money second mortgages, which mature
December 31, 1998, bear interest at an annual rate of 7%. Interest is
payable monthly with the entire principal due at maturity.
49
<PAGE> 51
As of December 31, 1996, two retail facilities are leased to
Wal-Mart Stores, Inc. at a total annual rental of $332,850 plus
percentage rentals of 1% of gross sales in excess of the tenant's
actual sales for its fiscal year ended January 31, 1990. Rental income
from these leases and the two facilities sold in December 1996,
totaled $919,030 (including $43,789 of percentage rentals) in 1996,
$1,175,284 (including $347,359 of percentage rentals) in 1995 and
$1,120,161 (including $292,236 of percentage rentals) in 1994.
The Company acquired ten branch bank buildings in a 1984
merger. These facilities are leased to The Old Phoenix National Bank at
a total annual rental of $313,049.
Of the total rental income on direct financing leases,
$227,039, $198,163 and $166,019 were recorded as amortization of
capitalized leasing income in 1996, 1995 and 1994, respectively.
The Company is to receive minimum lease payments of $645,899
per year during 1997 through 2001 and a total of $6,545,184 thereafter
through the remaining lease terms. The estimated residual values of the
leased properties included in net investment in direct financing leases
totaled $292,290 and $644,872 as of December 31, 1996 and 1995,
respectively.
5. INVESTMENT IN JOINT VENTURE
IRTCC is a 50% owner of a joint venture which purchased a 1.31
acre parcel of land located in Savannah, Georgia, for development or
sale.
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<PAGE> 52
6. MORTGAGE LOANS:
The Company's investments in mortgage loans, all of which are
secured by real estate investments, are summarized by type of loan at
December 31, 1996 and 1995, as follows:
1996 1995
----------------------- -----------------------
Number Amount Number Amount
of Loans Outstanding of Loans Outstanding
-------- ----------- -------- -----------
First mortgage 3 $ 7,099,459 2 $3,358,578
Mortgage
participation 1 27,785 1 38,415
Wrap-around
mortgage 1 5,297,165 1 5,390,104
Second mortgage 2 1,000,000 - -
-- ----------- -- ----------
7 13,424,409 4 8,787,097
Less-Interest
discounts and
negative
goodwill - (241,889) - (287,887)
-- ----------- -- ----------
Mortgage
loans, net 7 $13,182,520 4 $8,499,210
== =========== == ==========
During 1996, the Company took back a $3,800,000
purchase-money first mortgage on the sale of one shopping center
investment and two purchase-money second mortgages totaling
$1,000,000 on the sale of two net-leased retail facilities. See Notes
3 and 4 for additional information.
During April 1994, the borrower under the Spanish Quarter
Apartments wrap-around mortgage loan filed Chapter 11 bankruptcy. In
December 1994, the Bankruptcy Court approved the plan of
reorganization which amended the loan effective December 1, 1994 to
extend the term for 3 years to September 1, 2001 and to reduce the cash
interest rate from 10% to 9.5% prospectively. Additional interest at an
annual rate of 1% continues to accrue through the remainder of the
term. In addition, during 1995, the Company funded additional principal
of $260,000 under this mortgage for capital improvements. The
51
<PAGE> 53
terms of the restructured debt call for total proceeds over the
remaining term of the mortgage in excess of the carrying value of the
indebtedness at the time of the restructuring. Therefore, no loss has
been recorded related to the restructuring in accordance with
SFAS No. 15.
Annual principal payments applicable to mortgage loan
investments in the next five years and thereafter are as follows:
Year Amount
---- ------
1997 $ 120,992
1998 4,269,853
1999 121,371
2000 137,630
2001 8,460,589
Thereafter 72,085
-----------
$13,182,520
===========
Based on current rates at which similar loans would be made,
the estimated fair value of mortgage loans was approximately
$13,698,000 and $9,079,000 at December 31, 1996 and 1995, respectively.
7. MORTGAGE NOTES PAYABLE:
Mortgage notes payable are collateralized by various real
estate investments having a net carrying value of approximately
$113,791,000 as of December 31, 1996. These notes have stated interest
rates ranging from 7.6% to 11.0% and are due in monthly installments
with maturity dates ranging from 1997 to 2013.
During 1996, the Company (a) repaid at maturity a $6,263,000
mortgage bearing interest at 9.78%, (b) repaid at maturity a $1,052,000
mortgage bearing interest at 13.875% (discounted to 9.5% for financial
reporting purposes), (c) prepaid a $2,727,000 mortgage bearing interest
at 9.375%, resulting in a $16,500 loss on extinguishment of debt, (d)
prepaid a $57,000 mortgage bearing interest at 8.50%; and (e) repaid at
maturity a $3,850,000 mortgage bearing interest at 9.50%.
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<PAGE> 54
Principal amortization and balloon payments applicable to
mortgage notes payable in the next five years and thereafter are as
follows:
BALLOON
YEAR AMORTIZATION PAYMENTS TOTAL
---- ------------ -------- -----
1997 $ 1,056,875 $34,676,185 $35,733,060
1998 881,160 2,385,917 3,267,077
1999 958,888 - 958,888
2000 695,988 12,079,779 12,775,767
2001 810,483 - 810,483
Thereafter 9,846,276 20,609,077 30,455,353
----------- ----------- -----------
$14,249,670 $69,750,958 $84,000,628
=========== =========== ===========
Based on the borrowing rates currently available to the
Company for mortgages with similar terms and maturities, the estimated
fair value of mortgage notes payable was approximately $85,213,000 and
$99,417,000 at December 31, 1996 and 1995, respectively.
8. CONVERTIBLE SUBORDINATED DEBENTURES:
Effective August 31, 1993, the Company issued $86,250,000 of
7.3% convertible subordinated debentures due August 15, 2003,
$84,905,000 of which is outstanding as of December 31, 1996. Interest
on the debentures is payable semi-annually on February 15 and August
15. The debentures are convertible at any time prior to maturity into
common stock of the Company at $11.25 per share, subject to adjustment
in certain events. The Company has the option to redeem the debentures
at par at any time after August 15, 1996.
In March 1995, $1,345,000 of the Company's 7.3% convertible
subordinated debentures were converted into 119,554 shares of common
stock at $11.25 per share. Based upon the $11.25 conversion price,
7,547,111 authorized but unissued common shares have been reserved for
possible issuance if the $84,905,000 debentures outstanding at December
31, 1996 are converted.
Costs associated with the issuance of the debentures were
approximately $3,701,000 and are being amortized over the life of the
debentures.
53
<PAGE> 55
Based on the closing market price at year end, the estimated
fair value of the 7.3% debentures was approximately $84,905,000 and
$80,660,000 at December 31, 1996 and 1995, respectively. See Note 19
for a description of the Company's repurchase and cancellation of
$54,799,000 of these debentures in January 1997.
9. SENIOR NOTES:
On March 26, 1996, the Company issued $50,000,000 of 7.45%
senior notes due April 1, 2001. The senior notes were issued at a
discount of $83,500 which will be amortized over the life of the notes
for financial reporting purposes. Net proceeds from the issuance
totaled approximately $49,394,000.
Interest on the senior notes is payable semi-annually on April
1 and October 1. Costs associated with the issuance of the senior notes
totaled approximately $522,000 and are being amortized over the life of
the notes.
10. INDEBTEDNESS TO BANKS:
On December 15, 1995, the Company terminated its $50,000,000
secured revolving term loan and obtained a $100,000,000 unsecured
revolving term loan maturing January 4, 1999. Not later than June 30th
of each year commencing June 30, 1996, the Company may request to
extend the maturity date for an additional twelve-month period beyond
the existing maturity date. In accordance with the terms of the
agreement, during 1996 the Company extended the maturity date for an
additional twelve-month period to January 4, 2000.
The interest rate is, at the option of the Company, either a)
prime, fluctuating daily, or b) the adjusted London Interbank Offered
Rates ("LIBOR"), plus the "Applicable Margin" ranging from 1.3% to 1.5%
based upon the rating of the senior unsecured long-term debt
obligations of the Company. LIBOR borrowings may be set for periods of
one, two, three, six or twelve months at the option of the Company. The
Applicable Margin based on the Company's current rating is 1.5%.
Prepayments may be made on prime rate and LIBOR advances
provided that the Company will reimburse the lenders for any loss or
out-of-pocket expense incurred in connection with any
54
<PAGE> 56
LIBOR prepayment. The Company pays a fee of 0.25% per annum of
the aggregate unused portion of the commitment.
The loan agreement contains restrictive covenants pertaining
to net worth, the ratio of debt to equity, interest coverage, debt
service coverage, net operating losses, and the ratio of total
liabilities to total assets. The Company has agreed not to encumber
certain properties ("Negative Pledge Properties"). The commitment may
fluctuate up to a maximum of $100,000,000 based on 65% of the value of
the Negative Pledge Properties and as of December 31, 1996, the Company
may borrow the maximum commitment amount.
The previous $50,000,000 revolving term loan which was
terminated in December 1995 bore interest at either prime or 1.25% over
LIBOR and was secured.
The following data is presented with respect to the revolving
term loan agreements in 1996 and 1995:
1996 1995
---- ----
Unused at year-end $85,000,000 $64,000,000
Average borrowing for
the period 11,750,000 33,507,000
Maximum amount outstanding
during the period 48,000,000 36,000,000
Average interest rate for
the period 7.04% 7.63%
Interest rate at
year-end 7.06% 7.44%
The Company incurred commitment fees of approximately $221,000
and $21,000 for the years ended December 31, 1996 and 1995,
respectively, based on the aggregate unused portion of the commitment.
The Company's revolving term loan commitment increased to $100,000,000
from $50,000,000 in December, 1995.
11. DEFERRED INCOME TAXES, GAIN ON SALES AND VALUATION LOSS:
During 1984, the Company recognized a gain on sale for
financial reporting purposes, net of a deferred tax provision of
$1,122,000, which reflected the timing differences arising from the
Company's election to recognize the gain on this
55
<PAGE> 57
property sale on the installment basis for tax purposes.
Installment gains are recognized for tax purposes based on the
principal payments received in each year under the purchase-money
financing taken back on the sales.
The purchase-money financing on this sale commenced principal
amortization in 1987 based on a 25-year amortization period, with a
balloon payment in 2001. The Company had a deferred tax liability
related to this sale of $1,055,000 and $1,068,000 at December 31, 1996
and 1995, respectively. Should the Company elect to distribute the
taxable installment gain recognized in future years to its shareholders
as capital gain distributions, the reversal of this previously recorded
tax liability would be reflected in income for financial reporting
purposes in the periods in which the distributions are elected.
During 1996, the Company sold one shopping center investment
and two net leased facilities for gains totaling approximately
$1,232,000. During 1995, the Company sold three shopping
center investments and two parcels of land for gains totaling
approximately $160,000. In addition, the Company recorded gains of
approximately $2,000 on the condemnation of 2,814 square feet of land
at two of the Company's shopping center investments. During 1994, the
Company sold two parcels of land for gains totaling approximately
$257,000.
In 1994, the Company recorded approximately $4,125,000 of
reductions in the carrying values of certain investments, primarily
Valley West Mall due to permanent impairments in the values of the
investments. In addition, in December 1992 the Company recorded a
$3,565,000 reduction in the carrying value of Valley West Mall. These
adjustments to carrying value were a result of the Company's quarterly
evaluations of its individual investments based on current and
forecasted net operating income of the investment, competition
resulting from new properties in the market place and other changes in
the local economy. For tax purposes, these losses were not recognized
until the investment was sold in March 1996 at a cost approximating
book value for financial reporting purposes.
56
<PAGE> 58
12. EXTRAORDINARY ITEM:
During 1996, the Company prepaid a $2,727,000 mortgage and
recognized an extraordinary loss of $16,500 on the early extinguishment
of debt.
During 1995, the Company recognized an extraordinary loss of
approximately $137,000 on the early extinguishment of debt. This
extraordinary loss represented the unamortized portion of loan costs on
the $50 million secured revolver terminated in December 1995.
During 1994, the Company purchased the 9.5% mortgage note
payable secured by Valley West Mall in Glendale, Arizona for
$4,500,000. The mortgage note payable had an outstanding principal
balance of $8,248,000 at the time of purchase, which resulted in an
extraordinary gain on extinguishment of this indebtedness of
approximately $3,748,000 for both financial reporting and tax purposes.
13. CASH DISTRIBUTIONS AND DIVIDEND REINVESTMENT PLAN:
The taxability of per share distributions paid to shareholders
during the years ended December 31, 1996, 1995 and 1994 was as follows:
1996 1995 1994
---- ---- ----
Ordinary income $ .47 $.635 $ .72
Capital gains - - .04
Return of capital .43 .250 .08
----- ----- -----
$. 90 $.885 $ .84
===== ===== =====
In addition, the 5% discount received upon purchase of shares
under the Dividend Reinvestment Plan is taxable as ordinary income to
the participant.
In 1984, the Company implemented a Dividend Reinvestment Plan
(the "Plan") under which shareholders of the Company may elect to
reinvest all or a portion of their dividends in the purchase of newly
issued shares of the Company. The price of shares so purchased is 95%
of the average high and low sales prices of the Company's common stock
on the applicable dividend payment date. During 1996, 1995 and 1994,
shares
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<PAGE> 59
issued under the Plan totaled 112,561, 121,831 and 99,477,
respectively, and dividends totaling $1,024,295, $1,107,261 and
$937,750, respectively, were reinvested to purchase these shares.
14. STOCK OPTIONS:
Effective May 8, 1989, the Company adopted and its
shareholders approved the 1989 Stock Option Plan (the "1989 Plan"). In
May 1993, the shareholders approved a 750,000 share increase in the
number of shares authorized to be granted under the 1989 Plan. The 1989
Plan, which expires on May 8, 1999, replaces the prior Key Employee
Stock Option Plan (the "Prior Plan"), except that options granted under
the Prior Plan and unexercised as of the date of the 1989 Plan shall
remain in full force and effect.
The 1989 Plan includes provisions for a) the granting of both
Incentive Stock Options ("ISOs") (as defined in Section 422A of the
Internal Revenue Code) and nonqualified options to officers and
employees and b) the automatic granting of nonqualified options for
1,250 shares to each non-employee director upon the election and each
annual re-election of each non-employee director. Under the terms of
the 1989 Plan, the option price shall be no less than the fair market
value of the optioned shares at the date of grant. The options are
automatically vested and expire after ten years.
The Company accounts for these plans under APB 25, under which
no compensation cost has been recognized.
Had compensation cost for these plans been determined
consistent with FAS 123, the Company's net income and earnings per
share would have been reduced to the following pro forma amounts:
1996 1995
---- ----
Net Earnings: As Reported $16,817,704 $15,585,792
Pro Forma $16,749,336 $15,430,583
EPS: As Reported $0.65 $0.61
Pro Forma $0.65 $0.60
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<PAGE> 60
Because the FAS 123 method of accounting has not been applied
to options granted prior to January 1, 1995, the resulting pro forma
compensation cost may not be representative of that to be expected in
future years.
The weighted average fair value of options granted is $0.72
and $1.13 for 1996 and 1995, respectively. The fair value of each
option grant is estimated on the date of grant using the Black-Scholes
option pricing model with the following weighted-average assumptions
used for grants in 1996 and 1995, respectively: risk-free interest
rates of 5.38% and 7.87% for qualified employee options, 6.66% and
6.02% for director options and 6.12% for non-qualified employee options
granted in 1995; expected dividend yields of 9.62% and 8.30% for
qualified employee options, 9.47% and 8.62% for director options and
8.94% for non-qualified employee options granted in 1995; expected
lives of 5 years; expected volatility of 23%.
59
<PAGE> 61
Details of the stock option activity during 1996, 1995 and
1994 are as follows:
Number of Shares
---------------- Option Price
Employees Directors Per Share
--------- --------- ---------
Options outstanding,
December 31, 1993 181,215 40,000 $7.63-$15.10
Granted, 1994 66,000 - $10.75
Granted, 1994 - 7,500 $10.63
Exercised, 1994 (6,210) - $7.63-$10.24
Expired unexercised,
1994 (16,350) - $9.25-$15.10
------- ------
Options outstanding,
December 31, 1994 224,655 47,500 $7.63-$15.10
Granted, 1995 80,500 - $10.13
Granted, 1995 - 7,500 $ 9.75
Granted, 1995 50,000 - $ 9.63
Exercised, 1995 (7,000) - $ 7.63
Expired unexercised,
1995 (12,000) - $10.13-$12.00
------- ------
Options outstanding,
December 31, 1995 336,155 55,000 $7.63-$15.10
Granted, 1996 89,000 - $ 9.25
Granted, 1996 - 6,250 $ 9.75
Exercised, 1996 (2,400) - $7.63-$9.25
Expired unexercised,
1996 (25,562) - $9.25-$14.90
------- ------
Options outstanding,
December 31, 1996 397,193 61,250 $7.63-$15.10
======= ======
There are currently ISOs outstanding on 437,193 shares
(including 39,375 shares granted under the Prior Plan), non-qualified
options outstanding on 111,250 shares, and 502,300 unoptioned shares
remaining in the 1989 Plan after the granting of ISOs for 90,000
additional shares at $11.375 per share on January 2, 1997.
60
<PAGE> 62
15. EMPLOYEE RETIREMENT BENEFITS:
Effective June 30, 1990, the Board of Directors terminated a
defined contribution pension plan which had been adopted in 1980 and
implemented a program of year-end cash payments to certain employees of
the Company ("Cash in Lieu of Pension"). The Cash in Lieu of Pension
program was terminated upon the adoption of the Company's 401(k) Plan
effective August 1, 1996.
Under the Cash in Lieu of Pension, participants received a
year-end cash payment from the Company, the amount of which was based
upon each participant's length of service with the Company. Each
participant who had been employed by the Company for more than five
years received a year-end cash payment equal to 12% of his or her
salary. Each participant with less than five years received year-end
cash payments in graduated amounts designed to produce a cumulative 12%
payment after completion of five years of service. Amounts accrued
through July 31, 1996 for participants having less than five years of
service will be paid by the Company in the future as years of service
are completed. The Company accrued approximately $179,000, $200,000 and
$168,000 under this program in 1996, 1995 and 1994, respectively.
Under the Company's 401(k) Plan, employees who have completed
one year of service and are at least 18 years of age are eligible for
participation in the plan. Employees may elect to make contributions to
the plan, and the Company matches 100% of such contributions up to 6%
of the individual participant's compensation, based on the length of
service. The Company contributed approximately $56,000 to the 401(k)
Plan for the period August 1 through December 31, 1996.
Certain employees whose time in service with the Company was
significantly greater than that of the remaining employees were
provided with employment contracts during 1980. These employment
contracts call for annual payments to each of these employees equal to
12% of the employee's salary in the event the Company's pension plan is
terminated and deferred compensation amounts to be paid at retirement.
The Company accrued approximately $23,000 for these contracts in each
of 1996, 1995 and 1994.
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<PAGE> 63
The Company currently has no postretirement or postemployment
benefits, and therefore Statements of Financial Accounting Standards
Nos. 106 and 112 have no effect on the Company.
16. TRANSACTIONS WITH RELATED PARTIES:
The holdback shares and dividend equivalents related thereto
on the Sofran Centers were issued or paid to entities which were
directly or indirectly owned or controlled by Norman Zavalkoff, a
director of the Company from August 14, 1992 to January 27, 1994, and
nine other investors. (See Note 17).
17. COMMITMENTS AND CONTINGENCIES:
During 1992, the Company purchased 17 shopping centers (the
"Sofran Centers" and the "Dreyfus Centers") which had certain rental
guaranties from the sellers. At the time of the purchases, 290,762
shares of the Company's common stock (representing approximately
$3,003,000 of the purchase prices) were retained as "holdback shares."
The Company was required to issue all or a portion of the holdback
shares at various dates over the holdback periods if certain occupancy
levels on a portfolio basis or on agreed-upon spaces were achieved by
the end of the respective periods.
The Sofran holdback, which expired January 1995, contained a
total of 169,290 shares. Over the term of this holdback, 9,182 shares
were earned by and issued to the sellers and the remaining 160,108
shares were forfeited.
The Dreyfus holdback, which expired December 1995, contained a
total of 121,472 shares. Over the term of this holdback, 86,781 shares
were earned by and issued to the sellers and the remaining 34,691
shares were forfeited.
The shares issued represented additional cost of acquisition
for financial reporting purposes. In addition, during the holdback
periods, the sellers were entitled to amounts equivalent to dividends
on the holdback shares until such time as their right to receive such
holdback shares was extinguished. The Company paid dividend equivalents
of $41,637 during 1994 to the sellers of the Sofran Centers. Also, the
Company paid dividend equivalents of $12,100 and
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<PAGE> 64
$45,700 during 1995 and 1994, respectively, to the sellers of the
Dreyfus Centers. These payments were considered part of the cost of
acquisition on the respective payment dates.
Additionally, the seller of one of the Dreyfus Centers pledged
115,343 of its IRT Property Company shares to the Company as collateral
for a guarantee of rents payable by one of the anchor tenants which
had filed bankruptcy. For the period December 23, 1992 through
December 31, 1996, 58,066 shares held as collateral were released to
the seller and 12,140 shares were retired, leaving a balance of 45,137
shares.
Effective October 1, 1995, the Company entered into agreements
with the Chairman, the President and the Executive Vice President and
Chief Financial Officer. The agreements contain provisions entitling
each such officer to receive from two to three times his or her annual
compensation (as defined) if there is a change in control of the
Company (as defined) and a termination of his or her employment.
Additionally, the President's agreement entitles him to
receive an amount equal to his annual compensation (as defined) if his
employment is terminated within two years (a) by the Company without
cause or (b) by the President if his position and duties are materially
reduced or diminished.
See Note 3 for a description of the Company's commitment to
fund the expansion of the anchor tenant's space at Lawrence Commons
Shopping Center.
The Company has entered into contracts to purchase two
shopping center investments for an aggregate sales price of
approximately $16.7 million. One center is scheduled to close in
February 1997 for approximately $9.9 million. The other center is
scheduled to close in April 1997 subject to obtaining a set-back
variance with respect to the center under contract and an adjoining
property.
18. ENVIRONMENTAL INVESTIGATIONS:
The Charlotte industrial facility contained underground
petroleum and used oil storage tanks ("USTs") believed to have been
owned by the previous owner of this property. The Company (through an
environmental consulting firm) removed the
63
<PAGE> 65
USTs in December 1993, and on March 2, 1994, DEHNR notified the
Company that certain investigative, corrective and/or remedial actions
("Corrective Actions") must be performed by the Company to, among
other things, determine the level of soil and/or groundwater
contamination due to suspected leakage from some of the USTs. The
Company has investigated the property to the satisfaction of DEHNR.
The investigation confirmed the presence of petroleum product-related
substances in soil and groundwater at levels that exceed applicable
standards. The investigation also revealed the presence of free phase
liquids in one monitoring well at the property.
The Company has begun removing free phase liquids from the
well on the property. In addition, the Company has submitted to DEHNR a
Corrective Action Plan ("CAP") and schedule to address
petroleum-impacted soil and groundwater at the site. Soil excavation
work has been completed, and the Company plans to address
petroleum-impacted groundwater in due course. According to the CAP, the
estimated remaining cost for site remediation ranges from $129,000 to
$193,000 over a period of 3 to 6 years. Although the Company believes
that certain of the costs of Corrective Action are reimbursable under
the North Carolina Commercial Leaking Petroleum Underground Storage
Tank Cleanup Fund, the Company accrued $129,000 in 1995 based on these
estimates. The CAP may be revised, and the estimated costs may change,
but based on the information presently available, the Company believes
any additional costs of any such Corrective Action would not have a
material adverse effect on the Company's results of operations,
financial position or liquidity.
During 1996, the Company discovered that additional releases
of petroleum products had occurred at and around a garage facility
previously operated by a former trucking company tenant. An
investigation is being conducted by the Company in order to determine
the extent of the related contamination, and Company management is
negotiating with the former tenant to obtain a contribution to
potential clean-up costs. The Company does not believe the cost of
addressing these additional releases will have a material adverse
effect on the Company's results of operations, financial position or
liquidity.
During its soil and groundwater investigation at Bluebonnet
Village Shopping Center in Baton Rouge, Louisiana,
64
<PAGE> 66
the Company's environmental consultant discovered concentrations of
various chemicals in a single groundwater monitoring well that
exceeded the maximum contaminant levels under the Federal Safe
Drinking Water Act. The Company has notified the Louisiana Department
of Environmental Quality-Groundwater Protection Division
("LDEQ-GWPD") of such discovery. The Company has been advised that the
groundwater impact appears to be very localized, since six other
groundwater monitoring wells placed around the initial well did not
exhibit any impact. There can be no assurance that the LDEQ-GWPD will
not require remediation, but based on information presently available
to the Company and discussions with the Company's environmental
consultant, the Company believes the cost of any such remediation
would not have a material adverse effect on the Company's results of
operations, financial position or liquidity.
19. SUBSEQUENT EVENTS
On January 14 and 22, 1997, the Company completed the offering
of 4,653,747 shares of its common stock at $11.25 per share. The net
proceeds from the offering totaled approximately $49,500,000.
On January 17, 1997, the Company completed the repurchase of
$54,799,000 of its 7.3% convertible subordinated debentures due August
15, 2003 in a private transaction with a single debenture holder. The
debentures were repurchased by the Company at par plus accrued
interest. The seller had informed the Company that the seller had both
$54,799,000 par value of the debentures and a short position of
1,500,000 shares in the Company's common stock. The consideration paid
by the Company was comprised of 1,500,000 shares of common stock,
valued for purposes of the exchange at $11.05 per share, and cash in
the amount of $39,913,000, for a total consideration of $56,488,000,
which included $1,689,000 of accrued interest. The repurchase of the
debentures was transacted on January 17, 1997, pursuant to a Purchase
and Standstill Agreement under which the seller agreed to eliminate its
short position in Company common stock, after which the seller did not
own any Company securities. The seller further agreed not to take any
position with respect to any Company securities or to attempt to
influence Company policies or management in the future. The debentures
repurchased were canceled by the Company, and based upon the $11.25
conversion price, 2,676,089 authorized
65
<PAGE> 67
but unissued common shares have been reserved for possible issuance if
the remaining $30,106,000 debentures outstanding at January 30, 1997
are converted. Additional paid-in-capital was reduced by approximately
$1,553,000 of unamortized issuance costs associated with the
debentures repurchased and canceled.
66
<PAGE> 68
20. QUARTERLY FINANCIAL INFORMATION (UNAUDITED):
The following is a summary of the unaudited quarterly financial
information for the years ended December 31, 1996 and 1995.
<TABLE>
<CAPTION>
1996
---------------------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
<S> <C> <C> <C>
Revenues $14,863,553 $15,030,256 $15,146,092 $15,193,521
=========== =========== =========== ===========
Earnings before gain (loss) on real
estate investments and extraordinary
item $ 3,902,526 $ 3,987,558 $ 4,095,170 $ 3,616,858
Gain (loss) on real estate investments 207,496 (12,874) - 1,037,470
----------- ----------- ----------- -----------
Earnings before extraordinary
item 4,110,022 3,974,684 4,095,170 4,654,328
Extraordinary item - (16,500) - -
----------- ----------- ----------- -----------
Net earnings $ 4,110,022 $ 3,958,184 $ 4,095,170 $ 4,654,328
=========== =========== =========== ===========
Per Share:
Earnings before extraordinary
item $ .16 $ .15 $ .16 $ .18
Extraordinary item - - - -
----------- ----------- ----------- -----------
Net earnings $ .16 $ .15 $ .16 $ .18
=========== =========== =========== ===========
<CAPTION>
1995
---------------------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
<S> <C> <C> <C>
Revenues $15,280,307 $14,837,565 $14,986,831 $15,091,544
=========== =========== =========== ===========
Earnings before gain (loss) on real
estate investments and extraordinary
item $ 4,196,221 $ 3,890,861 $ 3,910,440 $ 3,552,504
Gain (loss) on real estate investments (16,673) (58,084) - 247,782
----------- ----------- ----------- -----------
Earnings before extraordinary
item 4,179,548 3,832,777 3,910,440 3,800,286
Extraordinary item - - - (137,260)
----------- ----------- ----------- -----------
Net earnings $ 4,179,548 $ 3,832,777 $ 3,910,440 $ 3,663,026
=========== =========== =========== ===========
Per Share:
Earnings before extraordinary
item $ .16 $ . 15 $ .15 $ .14
Extraordinary item - - - -
----------- ----------- ----------- -----------
Net earnings $ .16 $ .15 $ .15 $ .14
=========== =========== =========== ===========
</TABLE>
67
<PAGE> 69
IRT PROPERTY COMPANY SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1996
<TABLE>
<CAPTION>
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
----------- ------------ ------- ----------- ------------- ------- ------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Abbeville Plaza
Abbeville, SC
Land $ - $ 48,066 $ - $ 48,066 $ - 30 April, 1986 1970
Buildings 458,062 32,941 491,003 208,370
Alafaya Commons
Orlando, FL
Land - 5,525,976 - 5,525,976 - 40 November, 1996 1987
Buildings 4,723,994 - 4,723,994 9,842
Ambassador Row
Lafayette, LA
Land - 2,451,860 - 2,451,860 - 40 December, 1994 1980 &
Buildings 7,244,580 213,313 7,457,893 377,652 1991
Ambassador Row Courtyard
Lafayette, LA
Land - 2,899,438 - 2,899,438 - 40 December, 1994 1986 &
Buildings 8,698,313 73,469 8,771,782 439,841 1991
Asheville Plaza
Asheville, NC
Land - 52,710 15,000 67,710 - 30 April, 1986 1967
Buildings 335,717 1,860 337,577 121,764
Bluebonnet Village
Baton Rouge, LA
Land - 2,540,594 - 2,540,594 - 40 December, 1994 1983
Buildings 5,509,995 34,614 5,544,609 284,138
The Boulevard
Lafayette, LA
Land - 948,334 - 948,334 - 40 December, 1994 1976 &
Buildings 2,845,003 24,934 2,869,937 144,854 1994
Carolina Place
Hartsville, SC
Land - 345,000 - 345,000 - 40 May, 1989 1989
Buildings 2,006,494 - 2,006,494 378,720
</TABLE>
68
<PAGE> 70
IRT PROPERTY COMPANY SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1996
<TABLE>
<CAPTION>
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
----------- ------------ ------- ----------- ------------- ------- ------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Centre Pointe Plaza
Smithfield, NC
Land $ - $ 983,612 $ 12,583 $ 996,195 $ - 40 December, 1992 1989 &
Buildings 8,002,885 146,922 8,149,807 824,494 1993
Chadwick Square
Hendersonville, NC
Land - 276,778 - 276,778 - 40 January, 1992 1985
Buildings 1,179,949 - 1,179,949 145,022
Chelsea Place
New Port Richey, FL
Land - 1,387,517 - 1,387,517 - 40 July, 1993 1992
Buildings 5,550,068 5,000 5,555,068 479,865
Chester Plaza
Chester, SC
Land - 68,649 143,504 212,153 - 30 April, 1986 & 1967 &
Buildings 414,117 1,573,701 1,987,818 507,542 February, 1992 1992
Chestnut Square
Brevard, NC
Land - 295,984 - 295,984 - 40 January, 1992 1985
Buildings 1,113,464 22,659 1,136,123 141,532
Colony Square
Fitzgerald, GA
Land - 272,833 - 272,833 - 40 February, 1988 1987
Buildings 2,455,826 207,771 2,663,597 679,407
Commerce Crossing
Commerce, GA
Land - 379,648 889 380,537 - 40 December, 1992 1988
Buildings 4,089,737 26,069 4,115,806 412,722
Country Club Plaza
Slidell, LA
Land - 1,068,686 1,068,686 - 40 January, 1995 1982
Buildings 3,010,039 122,071 3,132,110 151,538
</TABLE>
69
<PAGE> 71
IRT PROPERTY COMPANY SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1996
<TABLE>
<CAPTION>
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
----------- ------------ ------- ----------- ------------- ------- ------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Countryside Shops
Cooper City, FL
Land $ - $ 5,675,614 $ - $ 5,675,614 $ - 40 June, 1994 1986, 1988
Buildings 10,954,065 99,305 11,053,370 698,392 & 1991
The Crossing
Slidell, LA
Land - 1,282,036 - 1,282,036 - 40 December, 1994 1988 &
Buildings 3,213,616 89,850 3,303,466 175,563 1993
Delchamps Plaza
Pascagoula, MS
Land 3,185,364 359,000 - 359,000 - 40 April, 1988 1987
Buildings 4,130,247 25,986 4,156,233 912,720
Douglas Commons
Douglasville, GA
Land - 2,543,385 2,951 2,546,336 - 40 August, 1992 1988
Buildings 5,958,475 104,280 6,062,755 692,805
Eden Centre
Eden, NC
Land - 625,901 - 625,901 - 40 November, 1994 1991
Buildings 2,901,316 - 2,901,316 157,154
Elmwood Oaks
Harahan, LA
Land 7,500,000 4,558,654 - 4,558,654 - 40 January, 1992 1989
Buildings 6,560,014 60,537 6,620,551 814,441
First Street Station
Albemarle, NC
Land - 202,578 - 202,578 - 40 August, 1994 1989
Buildings 2,832,092 13,398 2,845,490 166,387
Forest Hills Centre
Wilson, NC
Land - 869,981 (9,160) 860,821 - 40 August, 1990 1990 &
Buildings 4,120,606 552,594 4,673,200 650,956 1995
</TABLE>
70
<PAGE> 72
IRT PROPERTY COMPANY SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1996
<TABLE>
<CAPTION>
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
----------- ------------ ------- ----------- ------------- ------- ------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Forrest Gallery
Tullahoma, TN
Land $ - $ 2,137,692 $ 10,639 $ 2,148,331 $ - 40 December, 1992 1987
Buildings 9,977,044 281,743 10,258,787 1,063,158
Ft. Walton Beach Plaza
Ft. Walton Beach, FL
Land - 787,583 - 787,583 - 30 July, 1986 1986
Buildings 1,860,360 28,774 1,889,134 655,894
The Galleria
Wrightsville Beach, NC
Land - 1,069,672 - 1,069,672 - 40 August, 1986 & 1986,
Buildings 6,138,818 1,261,378 7,400,196 1,540,929 December, 1987 1990 &
1996
Gulf Gate Plaza
Naples, FL
Land - 277,562 - 277,562 - 28 June, 1979 1969 &
Buildings 1,857,532 2,227,650 4,085,182 2,526,384 1974
Harris Teeter
Lexington, VA
Land - 312,105 - 312,105 - 30 June, 1988 & 1981 &
Buildings 1,638,552 650,000 2,288,552 638,780 June, 1989 1989
Heritage Walk
Milledgeville, GA
Land - 810,292 - 810,292 - 40 June, 1993 1991 &
Buildings 7,944,260 3,200 7,947,460 710,661 1992
Hoffner Plaza
Orlando, FL
Land - 185,293 - 185,293 - 28 June, 1979 1972
Buildings 476,469 485,171 961,640 752,037
Lancaster Plaza
Lancaster, SC
Land - 120,790 - 120,790 - 30 April, 1986 1971
Buildings 743,852 512,817 1,256,669 440,428
</TABLE>
71
<PAGE> 73
IRT PROPERTY COMPANY SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1996
<TABLE>
<CAPTION>
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
----------- ------------ ------- ----------- ------------- ------- ------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Lancaster Shopping Center
Lancaster, SC
Land $ - $ 338,355 $ - $ 338,355 $ - 30 August, 1986 & 1963 &
Buildings 1,227,552 29,760 1,257,312 393,823 December, 1987 1987
Lawrence Commons
Lawrenceburg, TN
Land - 815,653 829 816,482 - 40 August, 1992 1987
Buildings 2,728,692 31,056 2,759,748 304,620
Litchfield Landing
North Litchfield, SC
Land - 475,000 - 475,000 - 40 August, 1986 1984
Buildings 2,118,429 39,256 2,157,685 573,872
Macland Pointe
Marietta, GA
Land 3,766,276 1,252,098 - 1,252,098 - 40 January, 1993 1992 &
Buildings 4,317,234 544,073 4,861,307 478,659 1993
Masonova Plaza
Daytona Beach, FL
Land - 296,643 - 296,643 - 16 June, 1979 1969
Buildings 1,680,977 1,067,932 2,748,909 2,419,026
Millervillage Shopping Center
Baton Rouge, LA
Land - 1,926,535 - 1,926,535 - 40 December, 1994 1983 &
Buildings 5,661,992 55,537 5,717,529 293,501 1992
New Smyrna Beach Regional
New Smyrna Beach, FL
Land - 3,704,368 6,757 3,711,125 - 40 August, 1992 1987
Buildings 6,400,556 322,552 6,723,108 774,799
North River Village
Ellenton, FL
Land - 2,949,031 - 2,949,031 - 40 December, 1992 & 1988 &
Buildings 7,161,093 96,271 7,257,364 624,326 December, 1993 1993
</TABLE>
72
<PAGE> 74
IRT PROPERTY COMPANY SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1996
<TABLE>
<CAPTION>
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
----------- ------------ ------- ----------- ------------- ------- ------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
North Village Center
North Myrtle Beach, SC
Land $ 2,657,308 $ 483,400 $ - $ 483,400 $ - 37 August, 1986 1984
Buildings 2,785,154 10,479 2,795,633 683,611
Old Kings Commons
Palm Coast, FL
Land - 1,491,458 - 1,491,458 - 40 May, 1988 1988
Buildings 4,474,372 148,613 4,622,985 1,038,066
Palm Gardens
Largo, FL
Land - 98,279 - 98,279 - 26 June, 1979 1970 &
Buildings 657,716 1,274,417 1,932,133 894,394 1993
Parkmore Plaza
Milton, FL
Land - 1,799,419 8,141 1,807,560 - 40 December, 1992 1986 &
Buildings 6,454,261 98,795 6,553,056 657,781 1992
Paulding Commons
Dallas, GA
Land 8,641,795 2,312,372 2,687 2,315,059 - 40 August, 1992 1991
Buildings 10,606,781 71,903 10,678,684 1,177,958
Pensacola Plaza
Pensacola, FL
Land - 130,688 - 130,688 - 30 July, 1986 1985
Buildings 2,392,249 121,641 2,513,890 913,643
Pinhook Plaza
Lafayette, LA
Land 7,242,086 2,768,151 - 2,768,151 - 40 December, 1994 1979 &
Buildings 8,304,453 19,500 8,323,953 424,137 1992
Plaza Acadienne
Eunice, LA
Land 2,312,707 - - - - 40 December, 1994 1980
Buildings 2,917,925 45,324 2,963,249 149,846
</TABLE>
73
<PAGE> 75
IRT PROPERTY COMPANY SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1996
<TABLE>
<CAPTION>
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
----------- ------------ ------- ----------- ------------- ------- ------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Plaza North
Hendersonville, NC
Land $ - $ 657,797 $ 121 $ 657,918 $ - 40 August, 1992 1986
Buildings 1,795,992 6,185 1,802,177 199,576
Providence Square
Charlotte, NC
Land - 450,000 300 450,300 - 35 December, 1971 1973
Buildings 1,895,606 2,154,565 4,050,171 2,520,850
Riverview Shopping Center
Durham, NC
Land - 400,000 322 400,322 - 35 March, 1972 1973 &
Buildings 1,822,918 4,150,306 5,973,224 1,936,570 1994
Salisbury Marketplace
Salisbury, NC
Land - 733,599 - 733,599 - 40 August, 1996 1987
Buildings 3,877,552 - 3,877,552 32,312
Scottsville Square
Bowling Green, KY
Land - 653,010 765 653,775 - 40 August, 1992 1986
Buildings 1,782,340 2,088 1,784,428 196,927
Seven Hills
Spring Hill, FL
Land 3,800,000 1,903,090 - 1,903,090 - 40 July, 1993 1991
Buildings 2,976,628 34,502 3,011,130 262,767
Shelby Plaza
Shelby, NC
Land - - - - - 30 April, 1986 1972
Buildings 937,483 240,328 1,177,811 468,090
Sherwood South
Baton Rouge, LA
Land - 496,174 - 496,174 - 40 December, 1994 1972, 1988
Buildings 1,488,521 50,568 1,539,089 75,840 & 1992
</TABLE>
74
<PAGE> 76
IRT PROPERTY COMPANY SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1996
<TABLE>
<CAPTION>
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
----------- ------------ ------- ----------- ------------- ------- ------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Siegen Village
Baton Rouge, LA
Land $ - $ 2,375,168 $ (325,000) $ 2,050,168 $ - 40 December, 1994 1988 &
Buildings 6,513,078 61,620 6,574,698 219,372 1996
Smyrna Village
Smyrna, TN
Land 4,128,857 968,358 20,601 988,959 - 40 August, 1992 1992
Buildings 4,743,708 118,114 4,861,822 532,766
Smyth Valley Crossing
Marion, VA
Land - 1,693,137 6,523 1,699,660 - 40 December, 1992 1989
Buildings 5,231,283 119,674 5,350,957 559,993
South Beach Regional
Jacksonville Beach, FL
Land 15,148,573 3,972,815 19,710 3,992,525 - 40 August, 1992 1990 &
Buildings 17,115,106 782,016 17,897,122 2,039,954 1991
Spalding Village
Griffin, GA
Land 11,376,691 2,813,854 3,281 2,817,135 - 40 August, 1992 1989
Buildings 12,470,446 137,515 12,607,961 1,396,613
Stadium Plaza
Phenix City, AL
Land - 1,828,942 2,130 1,831,072 - 40 August, 1992 1988
Buildings 2,614,155 18,096 2,632,251 294,449
Stanley Market Place
Stanley, NC
Land - 198,103 - 198,103 - 35 January, 1992 1980 &
Buildings 1,602,832 - 1,602,832 197,060 1991
Tarpon Heights
Galliano, LA
Land 2,418,382 705,570 705,570 - 40 January, 1995 1982
Buildings 2,116,712 3,125 2,119,837 105,648
</TABLE>
75
<PAGE> 77
IRT PROPERTY COMPANY SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1996
<TABLE>
<CAPTION>
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
----------- ------------ ------- ----------- ------------- ------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Taylorsville Shopping Center
Taylorsville, NC
Land $ - $ 89,689 $ - $ 89,689 $ - 40 August, 1986 & 1982 &
Buildings 1,443,704 1,078,766 2,522,470 617,088 December, 1988 1988
Thomasville Commons
Thomasville, NC
Land 5,534,642 963,333 - 963,333 - 40 August, 1992 1991
Buildings 6,183,052 26,576 6,209,628 696,034
University Center
Greenville, NC
Land - 750,000 - 750,000 - 40 December, 1989 1989
Buildings 3,159,065 61,907 3,220,972 577,335
Venice Plaza
Venice, FL
Land - 333,127 - 333,127 - 27 June, 1979 1971 &
Buildings 1,887,721 615,666 2,503,387 1,614,105 1979
Village at Northshore
Slidell, LA
Land 5,570,632 2,065,633 - 2,065,633 - 40 December, 1994 1988 &
Buildings 6,196,900 5,673 6,202,573 314,962 1993
Waterlick Plaza
Lynchburg, VA
Land - 1,071,000 - 1,071,000 - 40 October, 1989 1973 &
Buildings 5,091,222 149,409 5,240,631 975,781 1988
Watson Central
Warner Robins, GA
Land - 1,645,548 12,478 1,658,026 - 40 December, 1992 & 1989 &
Buildings 11,316,940 114,703 11,431,643 1,104,322 October, 1993 1993
Wesley Chapel Crossing
Decatur, GA
Land - 3,828,806 9,154 3,837,960 - 40 December, 1992 1989
Buildings 7,031,767 53,541 7,085,308 717,097
</TABLE>
76
<PAGE> 78
IRT PROPERTY COMPANY SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1996
<TABLE>
<CAPTION>
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
----------- ------------ ------- ----------- ------------- ------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
West Gate Plaza
Mobile, AL
Land $ - $ 475,270 $ - $ 475,270 $ - 25 June, 1974 & 1974 &
Buildings 3,771,825 486,300 4,258,125 881,364 January, 1985 1995
West Towne Square
Rome, GA
Land - 324,800 - 324,800 - 40 March, 1990 1988
Buildings 5,580,776 120,625 5,701,401 978,823
Westgate Square
Sunrise, FL
Land - 2,238,886 - 2,238,886 - 40 June, 1994 1984 &
Buildings 6,839,969 88,843 6,928,812 438,125 1988
Willowdaile Shopping Center
Durham, NC
Land - 936,977 (60,579) 876,398 - 40 August, 1986 & 1986
Buildings 7,351,612 336,348 7,687,960 1,886,988 December, 1987
Whitehall Kent Apartments
Kent, OH
Land - 136,404 117,938 254,342 - 29 June, 1979 1968
Buildings 2,136,996 1,790,637 3,927,633 2,290,982
Industrial Buildings
Charlotte, NC - Industrial
Land - 143,160 178,490 321,650 - 14 June, 1979 1956 &
Buildings 2,170,057 1,094,974 3,265,031 2,642,492 1963
Plasti-Kote
Medina, OH - Industrial
Land - 81,390 - 81,390 - 14 June, 1979 1961 &
Buildings 346,979 54,570 401,549 401,549 1966
Lawrence County
Shopping Center
Sybene, OH
Land - 435,994 - 435,994 - May, 1971 1971
</TABLE>
77
<PAGE> 79
IRT PROPERTY COMPANY SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1996
<TABLE>
<CAPTION>
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
----------- ------------ ------- ----------- ------------- ------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Grand Marche $ $ $ $ $
Shopping Center
Lafayette, LA
Land - 250,000 500 250,500 - September, 1972 1969
Manatee County
Shopping Center
Bradenton, FL
Land - 241,798 - 241,798 - May, 1971 1971
----------- ------------ ----------- ------------ -----------
$83,283,313 $436,394,647 $26,997,910 $463,392,557 $56,881,888
=========== ============ =========== ============ ===========
</TABLE>
78
<PAGE> 80
<TABLE>
<CAPTION>
IRT PROPERTY COMPANY SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1996
NOTE:
Real estate activity is summarized as follows:
Year Ended December 31,
--------------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
RENTAL PROPERTIES:
Cost -
Balance at beginning of year $452,508,601 $442,642,705 $331,012,764
Acquisitions and improvements 21,109,810 11,518,502 115,813,729
Retirements - - -
Reduction in carrying value - - (3,878,754)
------------ ------------ ------------
473,618,411 454,161,207 442,947,739
Cost of properties sold (10,225,854) (1,652,606) (305,034)
------------ ------------ ------------
Balance at end of year $463,392,557 $452,508,601 $442,642,705
============ ============ ============
Accumulated depreciation -
Balance at beginning of year $ 51,600,890 $ 41,677,722 $ 33,463,530
Depreciation 10,310,344 10,427,268 8,214,192
Retirements - - -
------------ ------------ ------------
61,911,234 52,104,990 41,677,722
Accumulated depreciation related to
rental properties sold (5,029,346) (504,100) -
------------ ------------ ------------
Balance at end of year $ 56,881,888 $ 51,600,890 $ 41,677,722
============ ============ ============
</TABLE>
79
<PAGE> 81
IRT PROPERTY COMPANY
MORTGAGE LOANS ON REAL ESTATE
December 31, 1996
<TABLE>
<CAPTION>
Final Periodic
Type of Type of Interest Maturity Payment
Location of Property Loan Property Rate Date Terms Prior Liens
- -------------------- ---- -------- ---- ---- ----- -----------
(See Notes) (See Notes)
<S> <C> <C> <C> <C> <C>
Augusta, GA First Mortgage Shopping Center 10.25% August, 1998 (1) $
Kearney, NE Second Mortgage Shopping Center 7.00% December, 1998 (2) 2,673,000
Fremont, NE Second Mortgage Shopping Center 7.00% December, 1998 (2) 1,827,000
Montgomery, AL Wrap-Around Apartments (3) September, 2001 (3) -
Glendale, AZ First Mortgage Shopping Center 9.00% April, 2001 (1) -
Lauderdale Lakes, FL First Mortgage Condominiums 10.00% May, 2009 (4) -
Nashville, TN First Mortgage Condominiums 8.63% - 2006-2007 (4) -
Participation 12.38%
------------
4,500,000
Less interest discounts and negative goodwill -
------------
$ 4,500,000
============
<CAPTION>
SCHEDULE IV
Principal
Amount of
Face Amount Loans Subject
and Carrying to Delinquent
Amount of Principal
Location of Property Mortgages or Interest
- -------------------- --------- -----------
<S> <C> <C>
Augusta, GA $ 3,193,390 -
Kearney, NE 594,000 -
Fremont, NE 406,000 -
Montgomery, AL 5,297,165 -
Glendale, AZ 3,780,749 -
Lauderdale Lakes, FL 125,320 -
Nashville, TN 27,785 -
-----------
13,424,409
(241,889)
-----------
$13,182,520
===========
</TABLE>
NOTES:
(1) Monthly payments of principal and interest, with balloon payments at
maturity.
(2) Monthly payments are interest only; principal due at maturity.
(3) Modified effective, December 1, 1994 to extend the term for 3 years to
September 1, 2001 and to reduce the cash interest rate from 10% to 9.5%
prospectively, requiring monthly payments of $45,382 of principal and
interest for the remaining term, with a balloon payment at maturity.
Additional interest at an annual rate of 1% accrues for the periods
September 1,1984 through August 31, 1989 and September 1,1991 through
August 31, 2001 and is payable at maturity or on sale of the property. In
addition, the Company funded additional principal of $260,000 under this
mortgage during 1995 to make certain capital improvements. This
wrap-around mortgage is subject to one first mortgage having a balance of
$717,315 as of December 31, 1996.
(4) Monthly payments include principal and interest.
80
<PAGE> 82
SCHEDULE IV
IRT PROPERTY COMPANY
SCHEDULE IV MORTGAGE LOANS ON REAL ESTATE
December 31, 1996
NOTE:
Mortgage loan activity is summarized as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Balance at beginning of year $ 8,499,210 $8,292,143 $8,392,959
New mortgage loans - - -
Additions to mortgage loans 4,800,000 260,000 -
Amortization of interest discounts and negative
goodwill 45,998 45,193 7,076
Collections of principal (162,688) (98,126) (107,892)
----------- ---------- ----------
Balance at end of year $13,182,520 $8,499,210 $8,292,143
=========== ========== ==========
</TABLE>
81
<PAGE> 83
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K.
Financial Statements and Schedules. Included in Part II of this Report
are the following:
Report of Independent Public Accountants
Consolidated Balance Sheets at December 31, 1996 and 1995
Consolidated Statements of Earnings for the Years Ended December 31, 1996,
1995 and 1994
Consolidated Statements of Changes in Shareholders' Equity for the Years
Ended December 31, 1996, 1995 and 1994
Consolidated Statements of Cash Flows for the Years Ended December 31,
1996, 1995 and 1994
Notes to Consolidated Financial Statements
Schedule III - Real Estate and Accumulated Depreciation
Schedule IV - Mortgage Loans on Real Estate
Exhibits.
(3)(a) The Company's Articles of Incorporation, as amended, were filed
as Exhibit 4.1 to the Company's Registration Statement on Form
S-3 (No. 33-65604) dated July 6, 1993, to which reference is
hereby made.
(3)(b) The Company's By-Laws, as amended, were filed as Exhibit 3 to
the Company's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1995, to which reference is hereby made.
(4)(a) The Indenture dated August 15, 1993 between the Company and
Trust Company Bank, as Trustee, relating to the 7.3% Convertible
Subordinated Debentures due August 15, 2003 was filed as an
exhibit to the Company's Form 10-K for the year ended December
31, 1993, to which reference is hereby made.
82
<PAGE> 84
(4)(b) The form of 7.3% Convertible Subordinated Debenture was included
in (4)(a) above.
(4)(c) The Indentures dated as of November 9, 1995 between the Company
and SunTrust Bank, Atlanta, as Trustee, relating to Senior Debt
Securities and Subordinated Debt Securities were filed as an
exhibit to the Company's Form 10-K for the year ended December
31, 1995, to which reference is hereby made.
(4)(d) First Supplemental Indenture dated as of March 26, 1996 between
IRT Property Company and SunTrust Bank, Atlanta was filed as an
exhibit to the Company's Form 8-K dated March 26, 1996, to which
reference is hereby made.
(10)(a) The Deferred Compensation Agreement between the Company and
Donald W. MacLeod was filed as an exhibit to the Company's
Registration Statement on Form S-2 (No. 2-88716) dated January 4,
1984, to which reference is hereby made.
(10)(b) The Company's 1989 Stock Option Plan was filed as an exhibit to
the Company's Form 8-K dated March 22, 1989, to which reference
is hereby made.
(10)(c) Amendment No. 1 to the Company's 1989 Stock Option Plan was
filed as an exhibit to the Company's Form 10-K for the year
ended December 31, 1993, to which reference is hereby made.
(10)(d) The Company's Key Employee Stock Option Plan was filed as an
exhibit to the Company's Registration Statement on Form S-2 (No.
2-88716) dated January 4, 1984, to which reference is hereby
made.
(10)(e) The Company's Deferred Compensation Plan for Outside Directors
dated December 22, 1995 was filed as an exhibit to the Company's
Form 10-K for the year ended December 31, 1995, to which
reference is hereby made.
83
<PAGE> 85
(10)(f) Agreements between the Company and Donald W. MacLeod, Thomas H.
McAuley and Mary M. Thomas effective October 1, 1995 were filed
as an exhibit to the Company's Form 10-K for the year ended
December 31, 1995, to which reference is hereby made.
(10)(g) The Company's amended and restated $50 million revolving term
loan agreement dated July 31, 1992 was filed as Exhibit (10)(e)
to the Company's Form 10-K for the year ended December 31, 1992,
to which reference is hereby made. The Company's revolving term
loan agreement dated November 1, 1990 was filed as Exhibit
(10)(e) to the Company's Form 10-K for the year ended December
31, 1990, to which reference is hereby made.
(10)(h) The Company's $100 million revolving term loan agreement dated
December 15, 1995 was filed as an exhibit to the Company's Form
8-K dated January 2, 1996, to which reference is hereby made.
(10)(i) The Real Property Purchase Agreement and first amendment
thereto dated June 23, 1992 relative to the Company's
acquisition of the ten Sofran Centers was filed as an exhibit to
the Company's report on Form 8-K dated August 12, 1992 (date of
event reported, July 31, 1992), to which reference is hereby
made.
(10)(j) Form of Agreement for the Sale and Purchase of Property dated
October 30, 1992 and the letter amendment thereto dated November
19, 1992 relative to the Company's acquisition of the seven
Dreyfus Centers was filed as an exhibit to the Company's report
on Form 8-K dated January 6, 1993 (date of event reported,
December 23, 1992), to which reference is hereby made.
(10)(k) The letter agreement dated December 23, 1992 between the IBM
Retirement Plan Trust Fund and its seven wholly-owned
subsidiaries and the Company was filed as an exhibit to the
Company's report on Form 8-K dated January 6, 1993 (date of event
reported, December 23, 1992), to which reference is hereby made.
84
<PAGE> 86
(21) The Company has two wholly-owned subsidiaries, IRT Management
Company ("IRTMC") and VW Mall, Inc. ("VWM"), which are Georgia
corporations. IRTMC was formed in 1990 and VWM in 1994. A
taxable subsidiary of the Company, IRT Capital Corporation
("IRTCC"), was formed in 1996 as a Georgia corporation, and the
Company owns 95% of IRTCC's non-voting common stock and 5% of its
voting common stock.
(23) Consent of Arthur Andersen LLP to the incorporation of their
report included in this Form 10-K in the Company's previously
filed Registration Statements File Nos. 33-65604, 33-66780,
33-51238, 33-59938, 33-64628, 33-64741 and 33-63523.
(27) Financial Data Schedule (for S.E.C. use only)
Reports on Form 8-K. The Company filed a Current Report on Form 8-K dated
January 14, 1997 (date of event reported, January 14, 1997), reporting under
Items 5 and 7, the underwritten offering of 4,000,000 shares of Common Stock
at a price to the public of $11.25 per share on January 14, 1997, which Form
8-K is incorporated herein by reference.
The Company filed a Current Report on Form 8-K dated January 17, 1997,
(date of event reported, January 17, 1997), reporting under Item 5 the
repurchase of $54,799,000 of its 7.3% convertible subordinated debentures due
August 15, 2003 in a private transaction with a single debenture holder on
January 17, 1997, which Form 8-K is incorporated herein by reference.
85
<PAGE> 87
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
February 26, 1997 IRT PROPERTY COMPANY
By: /s/ Donald W. MacLeod
---------------------
Donald W. MacLeod
Chairman of the Board
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
<S> <C> <C>
/s/ Donald W. MacLeod Chairman of the February 26, 1997
- ---------------------------- Board and Director
Donald W. MacLeod
/s/ Thomas H. McAuley President, Chief February 26, 1997
- ---------------------------- Executive Officer
Thomas H. McAuley and Director
/s/ Mary M. Thomas Executive Vice February 26, 1997
- ---------------------------- President, Chief
Mary M. Thomas Financial Officer
and Director (Principal
Financial & Accounting
Officer)
/s/ Homer B. Gibbs, Jr. Director February 26, 1997
- ----------------------------
Homer B. Gibbs, Jr.
/s/ Samuel W. Kendrick Director February 26, 1997
- ----------------------------
Samuel W. Kendrick
/s/ Bruce A. Morrice Director February 26, 1997
- ----------------------------
Bruce A. Morrice
/s/ James H. Nobil Director February 26, 1997
- ----------------------------
James H. Nobil
/s/ Louis P. Wolfort Director February 26, 1997
- ----------------------------
Louis P. Wolfort
</TABLE>
86
<PAGE> 1
EXHIBIT (23)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
IRT Property Company:
As independent public accountants, we hereby consent to the
incorporation by reference of our reports dated January 30, 1997 and
to all references to our Firm, included in this Form 10-K, into the
Company's previously filed Registration Statements File Nos. 33-65604,
33-66780, 33-51238, 33-59938, 33-64628 33-64741 and 33-63523.
ARTHUR ANDERSEN LLP
Atlanta, Georgia
February 25, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF IRT PROPERTY COMPANY AS OF AND FOR THE YEAR ENDED
DECEMBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 3,174
<SECURITIES> 0
<RECEIVABLES> 489
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 12,820
<PP&E> 468,219
<DEPRECIATION> 56,882
<TOTAL-ASSETS> 437,695
<CURRENT-LIABILITIES> 9,450
<BONDS> 233,835
0
0
<COMMON> 25,807
<OTHER-SE> 167,548
<TOTAL-LIABILITY-AND-EQUITY> 437,695
<SALES> 0
<TOTAL-REVENUES> 60,233
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 26,285
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 18,346
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 15,602
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 16,818
<EPS-PRIMARY> 0.65
<EPS-DILUTED> 0
</TABLE>
