As filed with the Securities and Exchange Commission on October 13, 2004
Registration No. 333-103799
================================================================================
--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------
POST-EFFECTIVE AMENDMENT NO. 6
TO
FORM S-11
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------
INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
(Exact name of registrant as specified in governing instruments)
----------
2901 BUTTERFIELD ROAD
OAK BROOK, ILLINOIS 60523
(630) 218-8000
(Address, including zip code, and telephone number,
including, area code of principal executive offices)
----------
ROBERT H. BAUM, ESQ.
VICE CHAIRMAN, EXECUTIVE VICE PRESIDENT AND GENERAL COUNSEL
THE INLAND GROUP, INC.
2901 BUTTERFIELD ROAD
OAK BROOK, ILLINOIS 60523
(630) 218-8000
(Name and address, including zip code, and telephone number,
including area code of agent for service)
----------
WITH A COPY TO:
DAVID J. KAUFMAN, ESQ.
DUANE MORRIS LLP
227 WEST MONROE STREET
SUITE 3400
CHICAGO, ILLINOIS 60606
(312) 499-6700
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================================================================================
This Post-Effective Amendment No. 6 consists of the following:
1. Supplement No. 37 dated October 13, 2004 to the Registrant's Prospectus dated
September 15, 2003, included herewith, which will be delivered as an unattached
document along with the Prospectus dated September 15, 2003.
2. The Registrant's final form of Prospectus dated September 15, 2003,
previously filed pursuant to Rule 424(b)(1) on September 15, 2003 and refiled
herewith.
3. Part II, included herewith.
4. Signatures, included herewith.
SUPPLEMENT NO. 37
DATED OCTOBER 13, 2004
TO THE PROSPECTUS DATED SEPTEMBER 15, 2003
OF INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
We are providing this Supplement No. 37 to you in order to supplement our
prospectus. This supplement updates information in the sections of our
prospectus noted in the table of contents below. This Supplement No. 37
supplements, modifies or supersedes certain information contained in our
prospectus, and prior Supplements No. 1 through 36 (dated October 23, 2003
through October 8, 2004) and must be read in conjunction with our prospectus.
TABLE OF CONTENTS
Supplement No. Prospectus
Page No. Page No.
-------------------------------
Prospectus Summary 1 16
Risk Factors 4 12
Conflicts of Interest 5 36
Compensation Table 5 40
Prior Performance of Our Affiliates 7 47
Management 24 68
Principal Stockholders 30 85
Investment Objectives and Policies 31 88
Real Property Investments 33 98
Management's Discussion and Analysis of Our Financial
Condition and Results of Operations 133 105
Plan of Distribution 152 148
How to Subscribe 153 157
Experts 155 172
PROSPECTUS SUMMARY
THE TYPES OF REAL ESTATE THAT WE MAY ACQUIRE AND MANAGE.
THE FOURTH PARAGRAPH UNDER THIS SECTION ON "THE TYPES OF REAL ESTATE THAT WE MAY
ACQUIRE AND MANAGE", WHICH STARTS ON PAGE 1 OF OUR PROSPECTUS IS SUPERCEDED IN
THE ENTIRETY TO READ AS FOLLOWS:
The geographic focus of our portfolio continues to be western U.S. markets; yet,
at the present time, we believe that properties available for sale east of the
Mississippi River are offering more favorable investment returns. Our objective
continues to be to acquire properties primarily for income as distinguished from
primarily for capital gain. As a result, many of our recently acquired
properties are located in eastern U.S. markets. However, over the long-term, we
expect the portfolio to consist of properties located primarily west of the
Mississippi River. Where feasible, we will endeavor to acquire multiple
properties within the same major metropolitan markets where the acquisitions
result in efficient property management operations with the potential to achieve
market dominance.
1
OUR SPONSOR, OUR ADVISOR AND THE INLAND GROUP.
THE LAST PARAGRAPH UNDER THIS SECTION ON THE "OUR SPONSOR, OUR ADVISOR AND THE
INLAND GROUP" WHICH STARTS ON PAGE 2 OF OUR PROSPECTUS IS SUPERCEDED IN THE
ENTIRETY TO READ AS FOLLOWS:
Our sponsor is Inland Real Estate Investment Corporation, which is owned by The
Inland Group, Inc. The Inland Group, together with its subsidiaries and
affiliates, is a fully-integrated group of legally and financially separate
companies that have been engaged in diverse facets of real estate for over 35
years providing property management, leasing, marketing, acquisition,
disposition, development, redevelopment, syndication, renovation, construction,
finance and other related services. Inland Western Retail Real Estate Advisory
Services, Inc., is a wholly owned subsidiary of our sponsor and is our advisor.
Inland Securities Corporation, another affiliate of The Inland Group, is the
managing dealer of this offering. Inland Western Management Corp., Inland
Northwest Property Management Corp., Inland Southwest Property Management Corp.
and Inland Pacific Property Management Corp., our property managers, are
entities owned principally by individuals who are affiliates of The Inland
Group. The principal executive offices of The Inland Group, our sponsor, and our
advisor are located at 2901 Butterfield Road, Oak Brook, Illinois 60523 and
their telephone number is (630) 218-8000. The principal executive offices of our
property managers are located at 2907 Butterfield Road, Oak Brook, Illinois
60523 and their telephone number is (630) 218-8000.
ORGANIZATIONAL CHART
THE ORGANIZATIONAL CHART UNDER THIS SECTION; WHICH IS LISTED ON PAGE 3 OF OUR
PROSPECTUS IS SUPERCEDED WITH THE FOLLOWING:
2
The following organizational chart depicts the services that affiliates or our
sponsor will render to us and our organizational structure.
ORGANIZATIONAL CHART
------------------ --------- --------- ---------
Daniel L. Goodwin* Robert H. G. Joseph Robert D.
Baum* Cosenza* Parks*
------------------ --------- --------- ---------
|| || || ||
====================================================================
||
-----------------------
THE INLAND GROUP, INC.*
-----------------------
||
||
=======================================================================================================================
|| || || || ||
|| || || || ||
--------------------- ------------------------------------------------- ------------------------------ ------------------ ||
The Inland Services The Inland Property Management Inland Real Inland Real ||
Group, Inc. Group, Inc. Estate Investment Corporation Estate Transaction ||
(our sponsor) Group, Inc. ||
--------------------- ------------------------------------------------- ------------------------------ ------------------ ||
|| || || || ||
|| ============================================================== || || ||
|| || || || || || || ||
|| || || || || || || ||
--------------- ------------------ ------------------ ------------------- ---------------------|| || ||
Inland Risk and Inland Western Inland Northwest Inland Southwest Inland Pacific || || ||
Insurance Management Management Property Management Property Management || || ||
Management Corp. Corp. Corp. Corp. || || ||
Services, Inc. (property manager) (property manager) (property manager) (property manager) || || ||
--------------- ------------------ ------------------ ------------------- ---------------------|| || ||
| | | | | || || ||
| | | | | || || ||
| ============================================================== || || ||
| | || || ||
| | || || ||
| | ======================================================== || ||
| | || || || || ||
| | || || || || ||
| | ----------------- ------------------------------ ------------------ || ----------------------
| | Inland Securities Inland Western Retail Real Inland Partnership || Inland Mortgage
| | Corporation Estate Advisory Services, Inc. Property Sales || Investment Corporation
| | (our advisor) Corporation ||
| | ----------------- ------------------------------ ------------------ || ----------------------
| | | | || ||
| | | | ======================================== ============
| | | | || || || || ||
| | | | ----------- ----------- ------------------ ----------- ----------
------------ | | | Inland Real Inland Real Inland Real Inland Inland
Insurance | | | Estate Estate Estate Mortgage Mortgage
Services | | | Sales, Inc. Development Acquisitions, Inc. Corporation Servicing
------------ | | | ----------- ----------- ------------------ ----------- Corporation
| | | | | | | | -----------
| | | | | | | | |
| | | | | | | | |
| | | | ----------- | | | |
| | | | Real Estate | | | |
| ----------------------- | | ----------- | | | |
| Property Management and | | | | | | |
| Related Services | | | | | | |
| ----------------------- | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | ---------------- ----------------- | ---------------- ----------- --------- ---------
| | Securities Sales Organization, | Construction and Property Mortgage Mortgage
| | Advisory and Real | Development Acquisition Brokerage Loan
| | Estate Services | Services Services Services Servicing
| | ---------------- ----------------- | ---------------- ----------- --------- ---------
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
--------------------------------------------------------------------------------------------------------------------------------
Inland Western Retail Real Estate Trust, Inc.
We will be principally owned by public investors. Ownership is represented by shares of our common stock
--------------------------------------------------------------------------------------------------------------------------------
* The four indicated individuals control The Inland Group, Inc. and own
substantially all of its stock.
Solid lines indicate 100% ownership.
Broken lines indicate service.
3
CONFLICTS OF INTEREST
THE SECOND BULLET POINT UNDER THIS SECTION UNDER "CONFLICTS OF INTEREST" ON PAGE
5 OF OUR PROSPECTUS IS SUPERCEDED IN THE ENTIRETY TO READ AS FOLLOWS:
- substantial compensation payable by us to Inland Securities
Corporation, Inland Western Retail Real Estate Advisory Services,
Inc., Inland Western Management Corp., Inland Northwest Property
Management Corp., Inland Southwest Property Management Corp. and
Inland Pacific Property Management Corp. for their various
services which may not be on market terms and is payable, in most
cases, whether or not our stockholders receive distributions;
COMPENSATION TO BE PAID TO OUR ADVISOR AND AFFILIATES
THE DISCUSSION UNDER THIS SECTION ON THE "ACQUISITION EXPENSES", WHICH STARTS ON
PAGE 6 OF OUR PROSPECTUS, SHOULD READ:
We will reimburse Inland Real Estate Acquisitions, Inc. for costs incurred, on
our behalf, in connection with the acquisition of properties. We will pay an
amount, estimated to be up to 0.5% of the total of (1) the gross offering
proceeds from the sale of 250,000,000 shares, (2) the gross proceeds from the
sale of up to 20,000,000 shares pursuant to the distribution reinvestment
programs. The acquisition expenses for any particular property will not exceed
6% of the gross purchase price of the property.
THE DISCUSSION UNDER THIS SECTION ON THE "INCENTIVE ADVISORY FEE", WHICH STARTS
ON PAGE 7 OF OUR PROSPECTUS, SHOULD READ:
After our stockholders have first received a 10% cumulative, non-compounded
return and a return of their net investment, an incentive advisory fee equal to
15% on net proceeds from the sale of a property will be paid to our advisor.
RISK FACTORS
THE LAST SENTENCE OF THE FIRST PARAGRAPH ON PAGE 12, UNDER THIS HEADING, IS
MODIFIED TO READ AS FOLLOWS:
We will be acquiring properties that are located primarily west of the
Mississippi River and single user net lease properties located anywhere in the
United States and therefore our geographic diversity will be limited.
THE SECOND PARAGRAPH ON PAGE 13, UNDER THIS HEADING, IS DELETED.
THE SECOND TO LAST SENTENCE OF THE THIRD PARAGRAPH ON PAGE 19, UNDER THIS
HEADING IS MODIFIED TO READ AS FOLLOWS:
Our advisor receives fees based on the book value including acquired intangibles
of the properties under management.
THE FIFTH SENTENCE OF THE FIRST PARAGRAPH ON PAGE 20, UNDER THIS HEADING IS
MODIFIED TO READ AS FOLLOWS:
4
Our advisor received fees based on the book value including acquired intangibles
of the properties under management.
CONFLICTS OF INTEREST
THE LAST SENTENCE OF THE FOURTH PARAGRAPH ON PAGE 36, UNDER THIS HEADING, IS
MODIFIED TO READ AS FOLLOWS:
If Inland Retail Real Estate Trust, Inc., does not purchase the prospective
property, it will then be offered to us.
THE SIXTH SENTENCE OF THE FIFTH PARAGRAPH ON PAGE 37, UNDER THIS HEADING IS
MODIFIED TO READ AS FOLLOWS:
Our advisor received fees based on the book value including acquired intangibles
of the properties under management.
COMPENSATION TABLE
THE DISCUSSION UNDER THIS SECTION "NONSUBORDINATED PAYMENTS - OFFERING STAGE" ON
THE MARKETING CONTRIBUTION AND DUE DILIGENCE EXPENSE ALLOWANCE PAID TO THE
MANAGING DEALER AND SOLICITING DEALERS, WHICH STARTS ON PAGE 40 OF OUR
PROSPECTUS, SHOULD READ AS FOLLOWS:
TYPE OF COMPENSATION ESTIMATED MAXIMUM
AND RECIPIENT METHOD OF COMPENSATION DOLLAR AMOUNT
--------------------------------------------------------------------------------------------------------------------------
Marketing contribution and due diligence We will pay an amount equal to 2.5% of The actual amount depends on the
expense allowance paid to the managing the gross offering proceeds to the number of shares. If there are no
dealer and soliciting dealers. managing dealer, all or a portion of special sales, approximately the
which may be passed on to soliciting following amounts will be paid for the
dealers, in lieu of reimbursement of marketing contribution and the due
specific expenses associated with diligence expense allowance:
marketing. We may pay an additional
0.5% of the gross offering proceeds to - $60,000 if we sell the minimum
the managing dealer, which may be number of shares; or
passed on to the soliciting dealers,
for due diligence expenses. We will - $75,000,000 if we sell the maximum
not pay the marketing contribution and number of shares.
due diligence expense allowance in
connection with any special sales,
except those receiving volume
discounts and those described in "Plan
of Distribution - Volume Discounts."
5
THE DISCUSSION UNDER THIS SECTION "SUBORDINATED PAYMENTS - OPERATIONS STAGE" ON
THE ADVISOR ASSET MANAGEMENT FEE PAID TO OUR ADVISOR, WHICH STARTS ON PAGE 43 OF
OUR PROSPECTUS, SHOULD READ AS FOLLOWS:
TYPE OF COMPENSATION AND ESTIMATED MAXIMUM
RECIPIENT METHOD OF COMPENSATION DOLLAR AMOUNT
--------------------------------------------------------------------------------------------------------------------------
OPERATIONAL STAGE
Advisor asset management fee payable to We pay an annual advisor asset The actual amounts to be received
our advisor. management fee of not more than 1% of depend upon the sale price of our
our average assets. Our average assets properties and, therefore, cannot be
means the average of the total book determined at the present time. If we
value including acquired intangibles acquire the advisor, the advisor asset
of our real estate assets plus the management fee will cease.
total value of our loans receivables
secured by real estate, before
reserves for depreciation or bad debts
or other similar non-cash reserves. We
will compute our average assets by
taking the average of these values at
the end of each month during the
quarter for which we are calculating
the fee. The fee is payable quarterly
in an amount equal to 1/4of 1% of
average assets as of the last day of
the immediately preceding quarter. For
any year in which we qualify as a
REIT, our advisor must reimburse us
for the following amounts if any:
(1) the amounts by which our total
operating expenses, the sum of
the advisor asset management fee
plus other operating expenses,
paid during the previous fiscal
year exceed the greater of:
- 2% of our average assets for
that fiscal year, or
- 25% of our net income for
that fiscal year.
(2) plus an amount, which will not
exceed the advisor asset
management fee for that year,
equal to any difference between
the total amount of
distributions to stockholders
for that year and the 6% annual
return on the net investment of
stockholders.
Items such as organization and
offering expenses, property
expenses, interest payments, taxes,
non-cash expenditures, the
incentive advisory fee and
acquisition expenses are excluded
from the definition of total
operating expenses.
See "Management -- Our Advisory
Agreement" for an explanation of
circumstances where the excess
amount specified in clause (1) may
not need to be reimbursed.
6
THE DISCUSSION UNDER THIS SECTION "COMPENSATION TO OFFICERS AND DIRECTORS" ON
THE DIRECTOR FEES, WHICH STARTS ON PAGE 45 OF OUR PROSPECTUS SHOULD READ AS
FOLLOWS:
TYPE OF COMPENSATION AND ESTIMATED MAXIMUM
RECIPIENT METHOD OF COMPENSATION DOLLAR AMOUNT
--------------------------------------------------------------------------------------------------------------------------
Director fees Independent directors receive an We will pay the five independent
annual fee of $5,000 (increasing to directors $25,000 in the aggregate
$10,000 effective October 1, 2004) and (increasing to $50,000 effective
a fee of $500 for attending each October 1, 2004), plus fees for
meeting of the board or one of its attending meetings. As of June 30,
committees in person and $350 for 2004 our five independent directors
attending a meeting via the telephone. were paid fees in the aggregate of
Our officers who are also our $69,250. The actual amounts to be
directors do not receive director received for future meetings depends
fees. upon the number of meetings and their
attendance and, therefore, cannot be
determined at the present time.
THE DISCUSSION UNDER THIS SECTION ON THE "NONSUBORDINATED PAYMENTS - OPERATIONAL
STAGE", WHICH STARTS ON PAGE 41 OF OUR PROSPECTUS, IS MODIFIED AS FOLLOWS:
The last entry "Advisor asset management fee" at the bottom of the page is
deleted.
THE LAST SENTENCE OF THE DISCUSSION ON "ESTIMATED MAXIMUM DOLLAR AMOUNT" UNDER
THIS SECTION ON THE "SUBORDINATED PAYMENTS - OPERATIONAL STAGE", WHICH STARTS ON
PAGE 43 OF OUR PROSPECTUS, IS MODIFIED AS FOLLOWS:
If we acquire the advisor, the advisor asset management fee will cease.
PRIOR PERFORMANCE OF OUR AFFILIATES
PRIOR INVESTMENT PROGRAMS
During the 10-year period ending June 30, 2004, The Inland Group and its
affiliates have sponsored two other REITs and 25 real estate exchange private
placements, which altogether have raised more than $3,093,000,000 from over
75,000 investors. During that period, Inland Real Estate Corporation and Inland
Retail Real Estate Trust, Inc., the other REITs, have raised over $2,959,000,000
from over 75,000 investors. Inland Real Estate Corporation and Inland Retail
Real Estate Trust, Inc. have investment objectives and policies similar to ours
and have invested principally in shopping centers that provide sales of
convenience goods and personal services to neighboring communities in the
Midwest and Southeast areas. However, Inland Real Estate Corporation is now a
self-administered REIT and is no longer affiliated with The Inland Group. Our
investment objectives and policies are similar to those of several of the other
prior investment programs sponsored by our affiliates which have owned and
operated retail properties. However, the vast majority of the other investment
programs sponsored by our affiliates were dissimilar from our operation in that
the prior programs owned apartment properties, pre-development land and whole or
partial interests in mortgage loans.
The information in this section and in the Prior Performance Tables
included in this Post-effective amendment as APPENDIX A shows relevant summary
information concerning real estate programs sponsored by our affiliates. The
purpose is to provide information on the prior performance of these programs so
that you may evaluate the experience of the affiliated companies in sponsoring
similar
7
programs. The following discussion is intended to briefly summarize the
objectives and performance of the prior programs and to disclose any material
adverse business developments sustained by them. Past performance is not
necessarily indicative of future performance.
SUMMARY INFORMATION
The table below provides summarized information concerning prior programs
sponsored by our affiliates for the 10-year period ending June 30, 2004, and is
qualified in its entirety by reference to the introductory discussion above and
the detailed information appearing in the Prior Performance Tables in APPENDIX A
of this post-effective amendment. YOU SHOULD NOT CONSTRUE INCLUSION OF THE
SUCCEEDING TABLES AS IMPLYING IN ANY MANNER THAT WE WILL HAVE RESULTS COMPARABLE
TO THOSE REFLECTED IN THE TABLES BECAUSE THE YIELD AND CASH AVAILABLE AND OTHER
FACTORS COULD BE SUBSTANTIALLY DIFFERENT FOR OUR PROPERTIES. YOU SHOULD NOTE
THAT BY ACQUIRING OUR SHARES, YOU WILL NOT BE ACQUIRING ANY INTERESTS IN ANY
PRIOR PROGRAMS.
8
INLAND RETAIL REAL INLAND REAL ESTATE INLAND REAL ESTATE
ESTATE TRUST, INC. CORPORATION EXCHANGE PRIVATE
REIT REIT PLACEMENT
PROGRAM AS OF PROGRAM AS OF OFFERINGS AS OF
JUNE 30, 2004 JUNE 30, 2004 JUNE 30, 2004
--------------------------------------------------------------------------------------------------------------------
Number of programs sponsored 1 1 25
Aggregate amount raised from investors $ 2,262,634,000 696,827,000 133,628,000
Approximate aggregate number of
investors 59,000 16,000 343
Number of properties purchased 271 146 25
Aggregate cost of properties $ 4,016,367,000 1,276,000,000 294,864,000
Number of mortgages/notes 0 0 0
Principal amount of mortgages/notes $ 0 0 0
Principal of properties (based on cost)
that were:
Commercial--
Retail 90.00% 86.00% 44.82%
Single-user retail net-lease 10.00% 14.00% 9.10%
Nursing homes 0.00% 0.00% 0.00%
Offices 0.00% 0.00% 30.22%
Industrial 0.00% 0.00% 15.86%
Health clubs 0.00% 0.00% 0.00%
Mini-storage 0.00% 0.00% 0.00%
Total commercial 100.00% 100.00% 100.0%
Multi-family residential 0.00% 0.00% 0.00%
Land 0.00% 0.00% 0.00%
Percentage of properties (based on cost)
that were:
Newly constructed (within a year of
acquisition) 36.00% 40.00% 60.00%
Existing construction 64.00% 60.00% 40.00%
Number of properties sold in whole or in
part 0 8 0
Number of properties exchanged 0 0 0
Of the programs included in the above table, Inland Real Estate Corporation
and Inland Retail Real Estate Trust, Inc. have investment objectives similar to
ours. Inland Real Estate Corporation and Inland Retail Real Estate Trust, Inc.
represent approximately 97% of the aggregate amount raised from investors,
approximately 99% of the aggregate number of investors, approximately 95% of the
properties purchased, and approximately 95% of the aggregate cost of the
properties.
During the three years prior to June 30, 2004, Inland Real Estate
Corporation purchased 24 commercial properties and Inland Retail Real Estate
Trust, Inc. purchased 249 commercial properties. Upon written request, you may
obtain, without charge, a copy of Table VI filed with the Securities and
Exchange Commission in Part II of our post-effective amendment.. The table
provides more information about these acquisitions.
PUBLICLY REGISTERED REITS
INLAND REAL ESTATE CORPORATION. Through a total of four public offerings,
the last of which was completed in 1999, Inland Real Estate Corporation sold a
total of 51,642,397 shares of common stock. In addition, as of June 30, 2004,
Inland Real Estate Corporation issued 13,937,881 shares of common stock through
its distribution reinvestment program. As of June 30, 2004, Inland Real Estate
Corporation repurchased
9
5,256,435 shares of common stock through its share repurchase program for an
aggregate amount of $49,159,202. As a result, Inland Real Estate Corporation has
realized total gross offering proceeds of approximately $696,827,000 as of June
30, 2004. On June 9, 2004, Inland Real Estate Corporation listed its shares on
the New York Stock Exchange and began trading under the ticker "IRC".
Inland Real Estate Corporation's objective is to purchase shopping centers
that provide convenience goods, personal services, wearing apparel and hardware
and appliances located within an approximate 400-mile radius of its headquarters
in Oak Brook, Illinois, and to provide, at a minimum, cash distributions on a
quarterly basis and a hedge against inflation through capital appreciation. It
may also acquire single-user retail properties throughout the United States. As
of June 30, 2004, the properties owned by Inland Real Estate Corporation were
generating sufficient cash flow to cover operating expenses plus pay an annual
cash distribution of $0.94 per share paid monthly.
As of June 30, 2004, Inland Real Estate Corporation owned 138 properties
for a total investment of approximately $1,276,000,000. These properties were
purchased with proceeds received from the above described offerings of shares of
its common stock and financings. As of June 30, 2004, Inland Real Estate
Corporation financed approximately $642,783,000 on its properties and had
$110,000,000 outstanding through an unsecured line of credit.
On July 1, 2000, Inland Real Estate Corporation became a self-administered
REIT by completing its acquisition of Inland Real Estate Advisory Service, Inc.,
its advisor, and Inland Commercial Property Management, Inc., its property
manager. The acquisition was accomplished by merging its advisor and its
property manager into two wholly owned subsidiaries of Inland Real Estate
Corporation. As a result of the merger, Inland Real Estate Corporation issued to
our sponsor, the sole shareholder of the advisor, and The Inland Property
Management Group, Inc., the sole shareholder of its property manager, an
aggregate of 6,181,818 shares of Inland Real Estate Corporation's common stock
at $11 per share, or approximately 9.008% of its common stock.
INLAND RETAIL REAL ESTATE TRUST, INC. Through a total of three public
offerings, the last of which was completed in 2003, Inland Retail Real Estate
Trust, Inc. sold a total of 213,699,534 shares of its common stock. In addition,
as of June 30, 2004, Inland Retail Real Estate Trust, Inc. issud 16,028,707
shares through its distribution reinvestment program, and has repurchased a
total of 2,246,611 shares through the share reinvestment program. As a result,
Inland Retail Real Estate Trust Inc. has realized total gross offering proceeds
of approximately $2,262,634,000 as of June 30, 2004.
Inland Retail Real Estate Trust, Inc.'s objective is to purchase shopping
centers east of the Mississippi River in addition to single-user retail
properties in locations throughout the United States, and to provide regular
cash distributions and a hedge against inflation through capital appreciation.
As of June 30, 2004, the properties owned by Inland Retail Real Estate Trust,
Inc. were generating sufficient cash flow to cover operating expenses plus pay
an annual cash distribution of $.83 per share per annum paid monthly.
As of June 30, 2004, Inland Retail Real Estate Trust, Inc. owned 271
properties for a total investment of approximately $4,016,368,000. These
properties were purchased with proceeds received from the above described
offerings of shares of its common stock and financings. As of June 30, 2004,
Inland Retail Real Estate Trust, Inc. financed approximately $2,246,899,000 on
its properties.
10
The following table summarizes distributions for each of the publicly
registered REITS through June 30,2004:
REIT PERFORMANCE
Distributions through June 30, 2004
INLAND REAL ESTATE CORPORATION
OFFERING COMPLETED 1999
----------------------------------------------------------------------------------------
Average Average
Annualized Annualized
Distribution Distribution
for Purchases for Purchases
Total Ordinary Non taxable Capital Gain at $10 per at $11 per
Distribution Income Distribution Distribution Share Share
($) ($) * ($) ** ($) *** ($) ($)
----------------------------------------------------------------------------------------
1995 736,627 694,213 42,414 - 7.6 N/A
1996 3,704,943 3,093,525 611,418 - 8.1 N/A
1997 13,127,597 9,739,233 3,388,364 - 8.6 N/A
1998 35,443,213 27,015,143 8,428,070 - 8.8 7.9
1999 48,379,621 35,640,732 12,738,889 - 8.9 8.0
2000 52,964,010 40,445,730 12,518,280 - 9.0 8.1
2001 58,791,604 45,754,604 12,662,414 374,586 9.3 8.4
2002 60,090,685 41,579,944 18,315,640 195,101 9.4 8.5
2003 61,165,608 47,254,096 13,577,679 333,833 9.4 8.6
2004 30,897,781 30,897,781 * - 9.4 8.6
----------------------------------------------------------
365,301,689 282,115,001 82,283,168 903,520
==========================================================
INLAND RETAIL REAL ESTATE TRUST, INC.
OFFERING COMPLETED 2003
--------------------------------------------------------
Average
Total Ordinary Non Taxable Annualized
Distribution Income Distribution Distribution
($) ($) * ($) ** (%)
--------------------------------------------------------
1999 1,396,861 318,484 1,078,377 7.2
2000 6,615,454 3,612,577 3,002,877 7.7
2001 17,491,342 10,538,534 6,952,808 8.0
2002 58,061,491 36,387,136 21,674,355 8.2
2003 160,350,811 97,571,099 62,779,712 8.3
2004 93,266,206 93,266,206 * 8.3
------------------------------------------
337,182,165 241,694,036 95,488,129
==========================================
ON JUNE 9, 2004 INLAND REAL ESTATE CORPORATION LISTED ITS SHARES ON THE NEW YORK
STOCK EXCHANGE AND BEGAN TRADING UNDER THE SYMBOL "IRC."
* The breakout between ordinary income and return of capital is
finalized on an annual basis after the calendar year end.
** Represents a return of capital for federal income tax purposes.
*** Represents a capital gain distribution for federal income tax
purposes.
11
PRIVATE PARTNERSHIPS
Since our inception and through June 30, 2004, our affiliates have
sponsored 514 private placement limited partnerships which have raised more than
$524,201,000 from approximately 17,000 investors and invested in properties for
an aggregate price of more than $1 billion in cash and notes. Of the 522
properties purchased, 93% have been in Illinois. Approximately 90% of the funds
were invested in apartment buildings, 6% in shopping centers, 2% in office
buildings and 2% in other properties. Including sales to affiliates, 475
partnerships have sold their original property investments. Officers and
employees of our sponsor and its affiliates invested more than $17,000,000 in
these private placement limited partnerships.
From July 1, 1995 through June 30, 2004, investors in The Inland Group
private partnerships have received total distributions in excess of
$271,882,700, consisting of cash flow from partnership operations, interest
earnings, sales and refinancing proceeds and cash received during the course of
property exchanges.
Following a proposal by the former corporate general partner, which was an
affiliate of The Inland Group, investors in 301 private partnerships voted in
1990 to make our sponsor the corporate general partner for those partnerships.
Beginning in December 1993 and continuing into the first quarter of 1994,
investors in 101 private limited partnerships for which our sponsor is the
general partner received letters from it informing them of the possible
opportunity to sell the 66 apartment properties owned by those partnerships to a
to-be-formed REIT in which affiliates of our sponsor would receive stock and
cash and the limited partners would receive cash. The underwriters of this
apartment REIT subsequently advised our sponsor to sell to a third party its
management and general partner's interests in those remaining limited
partnerships not selling their apartment properties to the apartment REIT. Those
not selling their apartment properties constituted approximately 30% of the
Inland-sponsored limited partnerships owning apartment buildings. The
prospective third-party buyers of our sponsor's interests in the remaining
partnerships, however, would make no assurance to support those partnerships
financially. As a result, in a March 1994 letter, our sponsor informed investors
of its decision not to go forward with the formation of the apartment REIT.
Following this decision, two investors filed a complaint in April 1994 in
the Circuit Court of Cook County, Illinois, Chancery Division, purportedly on
behalf of a class of other unnamed investors, alleging that our sponsor had
breached its fiduciary responsibility to those investors whose partnerships
would have sold apartment properties to the apartment REIT. The complaint sought
an accounting of information regarding the apartment REIT matter, an unspecified
amount of damages and the removal of our sponsor as general partner of the
partnerships that would have participated in the sale of properties. In August
1994, the court granted our sponsor's motion to dismiss, finding that the
plaintiffs lacked standing to bring the case individually. The plaintiffs were
granted leave to file an amended complaint. Thereafter, in August 1994, six
investors filed an amended complaint, purportedly on behalf of a class of other
investors, and derivatively on behalf of six limited partnerships of which our
sponsor is the general partner. The derivative counts sought damages from our
sponsor for alleged breach of fiduciary duty and breach of contract, and
asserted a right to an accounting. Our sponsor filed a motion to dismiss in
response to the amended complaint. The suit was dismissed in March 1995 with
prejudice. The plaintiffs filed an appeal in April 1996. After the parties
briefed the issue, arguments were heard by the Appellate Court in February 1997.
In September 1997, the Appellate Court affirmed the trial court decision in
favor of our sponsor.
12
Inland Real Estate Investment Corporation is the general partner of
twenty-seven private limited partnerships and one public limited partnership
that own interests in fifteen buildings that are net leased to Kmart. The
fourteen Kmarts owned by the private limited partnerships are all cross
collateralized. Relating to the Kmart bankruptcy, the status of the fifteen is
as follows:
- CATEGORY 1 - The leases of nine of the Kmarts are current and have been
accepted by Kmart under their Chapter 11 reorganization plan.
- CATEGORY 2 - Kmart assigned its designation rights in one lease to
Kohl's. The lease was amended and extended for Kohl's by IREIC, the
general partner on behalf of the owners and lender; and Kohl's began
paying rent February 12, 2003.
- CATEGORY 3 - Under Kmart's Chapter 11 reorganization plan and upon
emergence from bankruptcy on April 22, 2003, Kmart has rejected the
remaining four property leases, one of which is subject to a ground
lease to Kimco. Kmart ceased paying rent as of May 1, 2003.
IREIC, the General Partner has agreed with the note holders who own the
loan to conduct a liquidation of the 14 properties which comprise Categories 1,
2 and 3. The Category 2 property, which is leased by Kohl's, was sold on
February 19, 2004. As of June 30, 2004, three of the Category 1 K-Mart
properties have been sold. Offers have been received on the remaining six, five
of which are under contract. One of the Category 3 properties has been sold, one
is under contract and two have offers pending as of June 30, 2004.
- CATEGORY 4 - Under Kmart's Chapter 11 reorganization, Kmart rejected the
lease for the property owned by the public limited partnership and
ceased paying rent as of June 29, 2002. The general partner plans to
either re-tenant or sell this facility.
1031 EXCHANGE PRIVATE PLACEMENT OFFERING PROGRAM
In March of 2001, Inland Real Estate Exchange Corporation (IREX) was
established as a subsidiary of Inland Real Estate Investment Corporation. The
main objective of IREX is to provide replacement properties for people wishing
to complete an IRS Section 1031 real estate exchange. Through June 30, 2004,
IREX offered the sale of twenty-five properties with a total property value of
$294,474,000.
LANDINGS OF SARASOTA DBT. Inland Southern Acquisitions, Inc., a Delaware
corporation and an affiliate of IREX acquired The Landings, a multi-tenant
shopping center located in Sarasota, Florida in December 1997 for $9,800,000. In
August 2001, Inland Southern Acquisitions, Inc. contributed 100% of its interest
in the property into Landings of Sarasota DBT, a Delaware business trust,
refinanced the property with a loan of $8,000,000 from Parkway Bank & Trust Co.,
an Illinois banking corporation, and began offering all of its beneficial
interests in the trust to certain qualified persons in need of replacement
properties to complete a 1031 tax-deferred exchange. The total price was
$12,000,000, which consisted of $8,000,000 in debt assumption and $4,000,000 in
equity investment. $200,000 of the offering proceeds were allocated to a
property reserve account. The offering was completed in May 2002 when the
maximum offering amount was raised.
SENTRY OFFICE BUILDING, DBT, a Delaware business trust, purchased a newly
constructed, single-tenant office building in Davenport, Iowa in December 2001
from Ryan Companies US Inc., a Minnesota corporation. The trust financed its
acquisition of the property with a $7,500,000 first mortgage loan from Parkway
Bank & Trust Co., an Illinois banking corporation. In January 2002, Sentry
Office Building Corporation, a Delaware corporation and the initial beneficiary
of the trust, began offering all of its
13
beneficial interests in the trust to certain qualified persons in need of
replacement properties to complete a 1031 tax-deferred exchange. The total price
was $11,000,000, which consisted of $7,500,000 in debt assumption and $3,500,000
in equity investment. $100,000 of the offering proceeds obtained from the new
owners was allocated to a property reserve account. The offering was completed
in April 2002 when the maximum offering amount was raised.
PETS BOWIE DELAWARE BUSINESS TRUST purchased a single-tenant retail
building leased to PETsMART in Bowie, Maryland in October 2001 from PETsMART,
Inc. and Wells Fargo Bank Northwest, N.A. The trust initially financed its
acquisition of the property with a temporary loan of $2,625,305 from Parkway
Bank & Trust Co., an Illinois banking corporation, and then replaced this loan
with a permanent loan of $1,300,000 with the same lender. In May 2002, Pets
Bowie Delaware Business Trust began offering all of its beneficial interests to
certain qualified persons in need of replacement properties to complete a 1031
tax-deferred exchange. The total price was $3,900,000, which consisted of
$1,300,000 in debt assumption and $2,600,000 in equity investment. $90,000 of
the offering proceeds obtained from the new owners was allocated to a property
reserve account. The offering was completed in July 2002 when the maximum
offering amount was raised.
1031 CHATTANOOGA DBT, a Delaware business trust, acquired a retail property
currently leased to Eckerd in Chattanooga, Tennessee in May 2002. The trust
financed the property with a loan of $1,500,000 from Parkway Bank & Trust Co.,
an Illinois banking corporation. In July 2002, 1031 Chattanooga, L.L.C., the
initial beneficiary of 1031 Chattanooga DBT, began offering all of the
beneficial interests of the trust to certain qualified persons in need of
replacement properties to complete a 1031 tax-deferred exchange. The total price
was $3,400,000, which consisted of $1,500,000 in debt assumption and $1,900,000
in equity investment. The offering was completed in May 2003 when the maximum
offering amount was raised.
LANSING SHOPPING CENTER, DBT a Delaware business trust, purchased a newly
constructed, multi-tenant retail shopping center in Lansing, Illinois in June
2002 from LaSalle Bank National Association, as trustee under trust agreement
dated May 22, 2001 and known as Trust No. 127294. The trust financed its
acquisition of the property with a $5,900,000 first mortgage loan from Parkway
Bank & Trust Co., an Illinois banking corporation. In August 2002, Lansing
Shopping Center, L.L.C., a Delaware limited liability company and the initial
beneficiary of Lansing Shopping Center, DBT, began offering all of the
beneficial interests of the trust to certain qualified persons in need of
replacement properties to complete a 1031 tax-deferred exchange. The total price
was $10,900,000, which consisted of $5,900,000 in debt assumption and $5,000,000
in equity investment. $80,000 of the offering proceeds was allocated to a
property reserve account. The offering was completed in September 1001 when the
maximum offering amount was raised.
INLAND 220 CELEBRATION PLACE DELAWARE BUSINESS TRUST purchased a
single-tenant office building currently leased to Walt Disney World Co., a
Florida corporation, in Celebration, Osceola County, Florida, in June 2002 from
Walt Disney World Co. in a sale/leaseback transaction. The trust financed its
acquisition of the property with an $18,000,000 first mortgage loan from Bank of
America, N.A., a national banking association. In September 2002, Inland 220
Celebration Place, L.L.C., a Delaware limited liability company and the initial
beneficiary of Inland 220 Celebration Place Delaware Business Trust, began
offering all of the beneficial interests of the trust to certain qualified
persons in need of replacement properties to complete a 1031 tax-deferred
exchange. The total price was $33,800,000, which consisted of $18,000,000 in
debt assumption and $15,800,000 in equity investment. $50,000 of the offering
proceeds was allocated to a property reserve account. The offering was completed
in September 2003 when the maximum offering amount was raised.
14
TAUNTON CIRCUIT DELAWARE BUSINESS TRUST acquired a retail property
currently leased to Circuit City in Taunton, Massachusetts in July 2002. The
Trust financed the property with a first mortgage of $2,800,000 from MB
Financial Bank. In September 2002, Inland Taunton Circuit, L.L.C., the initial
beneficiary of Taunton Circuit Delaware Business Trust, offered all of its
interest in the trust to a qualified person in need of a replacement property to
complete a 1031 tax-deferred exchange. The total price was $6,550,000, which
consisted of $2,800,000 in debt assumption and $3,750,000 in equity investment.
The offering was completed in September 2002.
BROADWAY COMMONS DELAWARE BUSINESS TRUST acquired a multi-tenant retail
center located in Rochester, Minnesota, in July 2002. The Trust financed the
property with a first mortgage of $8,850,000 from Parkway Bank & Trust Co., an
Illinois banking corporation. In October 2002, Broadway Commons, L.L.C., the
initial beneficiary of Broadway Commons Delaware Business Trust, began offering
all of its beneficial interests in the trust to certain qualified persons in
need of replacement properties to complete a 1031 tax-deferred exchange. The
total price was $17,250,000, which consisted of $8,850,000 in debt assumption
and $8,400,000 in equity investment. $100,000 of the offering proceeds was
allocated to a property reserve account. The offering was completed in December
2003 when the maximum offering amount was raised.
BELL PLAZA 1031, LLC. REHAB ASSOCIATES XIII, INC., an Illinois corporation
and an affiliate of IREX acquired Bell Plaza, a multi-tenant shopping center in
Oak Lawn, IL on August 28, 1998 for $1,675,000. In October 2002, Rehab
Associates XIII contributed 100% of its interest in the property into Bell Plaza
1031, LLC, a Delaware single member limited liability company, and then offered
all of its membership interests in Bell Plaza, LLC to North Forsyth Associates,
a North Carolina general partnership, which was in need of a replacement
property to complete a 1031 tax-deferred exchange. The total price was
$4,030,000, which consisted of $3,140,000 in debt assumption and $890,000 in
equity investment. $25,000 of the offering proceeds was allocated to a property
reserve account. The offering was completed in November 2002.
INLAND 210 CELEBRATION PLACE DELAWARE BUSINESS TRUST purchased a
single-tenant office building, currently leased to Walt Disney World Co., a
Florida corporation, in Celebration, Osceola County, Florida, in June 2002 from
Walt Disney World Co .in a sale/leaseback transaction. The trust financed its
acquisition of the property with a $5,700,000 first mortgage loan from Bear
Stearns Commercial Mortgage, Inc. In January 2003, Inland 210 Celebration Place
Delaware Business Trust sold its fee simple interest in 210 Celebration Place to
Old Bridge Park Celebration, LLC, a Delaware limited liability company, which
was in need of a replacement property to complete a 1031 tax-deferred exchange.
The total price was $12,000,000, which consisted of $5,700,000 in debt
assumption and $6,300,000 in equity investment.
COMPUSA RETAIL BUILDING. Lombard C-USA, L.L.C., a Delaware limited
liability company, purchased a single-tenant retail building leased to CompUSA,
Inc. in Lombard, Illinois in January 2003 from an unrelated third party. The
L.L.C. financed its acquisition of the property with a $4,000,000 loan from Bear
Stearns Commercial Mortgage, Inc. In April 2003, Lombard C-USA, L.L.C. began
offering 99% of the undivided tenant in common interests in the real estate and
improvements thereon located at 2840 S. Highland Avenue, Lombard, DuPage County,
Illinois for $3,910,500 in cash plus the assumption of the existing indebtedness
to certain qualified persons in need of replacement properties to complete a
1031 tax-deferred exchange. The total price was $7,950,000, which consisted of
$4,000,000 in debt assumption and $3,950,000 in equity investment. As required
by the lender, Lombard C-USA, L.L.C. shall retain at least a 1% tenant in common
interest, which is included in the $3,950,000 equity investment. $75,000 of the
offering proceeds was allocated to a property reserve account. The offering was
completed in February 2004 when the maximum offering amount was raised.
15
DEERE DISTRIBUTION FACILITY IN JANESVILLE, WISCONSIN. Janesville 1031,
L.L.C., a Delaware limited liability company, purchased a single-tenant, light
industrial distribution center leased to Deere & Company, a Delaware
corporation, in Janesville, Wisconsin in February 2003 from Ryan Janesville,
L.L.C., a Minnesota corporation and an affiliate of Ryan Companies US, Inc. The
L.L.C. financed its acquisition of the property with a $10,450,000 loan from
Bear Stearns Commercial Mortgage, Inc. In May 2003, Janesville 1031, L.L.C.
began offering 99% of the undivided tenant in common interests in the real
estate and improvements thereon located at 2900 Beloit Avenue, Janesville, Rock
County, Wisconsin for $9,949,500 in cash plus the assumption of the existing
indebtedness to certain qualified persons in need of replacement properties to
complete a 1031 tax-deferred exchange. The total price, $20,500,000, consisted
of $10,450,000 in debt assumption and $10,050,000 in equity investment, 1% of
which was required by the lender to be retained by Janesville 1031, L.L.C.
$100,000 of the offering proceeds was allocated to a property reserve account.
The offering was completed in January 2004 when the maximum offering was raised.
FLEET OFFICE BUILDING. Westminster Office 1031, L.L.C., a Delaware limited
liability company, purchased a single-tenant office building leased entirely to
Fleet National Bank, a national banking association, in Providence, Rhode Island
in April 2003 from Fleet National Bank in a sale/leaseback transaction. The
L.L.C. financed its acquisition of the property with a $12,900,000 loan from
Bear Stearns Commercial Mortgage, Inc. In June 2003, Westminster Office 1031,
L.L.C. began offering 99% of the undivided tenant in common interests in the
real estate and improvements thereon located at 111 Westminster Street,
Providence, Providence County, Rhode Island for $9,900,000 in cash plus the
assumption of the existing indebtedness to certain qualified persons in need of
replacement properties to complete a 1031 tax-deferred exchange. The total
price, $22,900,000, consisted of $12,900,000 in debt assumption and $10,000,000
in equity investment, 1% of which was required by the lender to be retained by
Westminster Office 1031, L.L.C. $150,000 of the offering proceeds was allocated
to a property reserve account. The offering was completed in January 2004 when
the maximum offering was raised.
DEERE DISTRIBUTION FACILITY IN DAVENPORT, IOWA. Davenport 1031, L.L.C., a
Delaware limited liability company, purchased a single-tenant, light industrial
distribution center leased to Quad Cities Consolidation and Distribution, Inc.,
an Illinois corporation, in Davenport, Iowa in April 2003 from Ryan Companies
US, Inc., a Minnesota corporation. The lease is fully guaranteed by Deere &
Company, a Delaware corporation. The L.L.C. financed its acquisition of the
property with a loan from Bear Stearns Commercial Mortgage, Inc. In August 2003,
Davenport 1031, L.L.C. began offering 99% of the undivided tenant in common
interests in the real estate and improvements thereon located at 2900 Research
Parkway, Davenport, Scott County, Iowa for $15,543,000 in cash plus the
assumption of the existing indebtedness to certain qualified persons in need of
replacement properties to complete a 1031 tax-deferred exchange. The total
price, $28,200,000, consisted of $12,500,000 in debt assumption and $15,700,000
in equity investment, 1% of which was required by the lender to be retained by
Davenport 1031, L.L.C. $100,000 of the offering proceeds was allocated to a
property reserve account. The offering was completed in April 2004 when the
maximum offering was raised.
GRAND CHUTE DST, a Delaware statutory trust, purchased a multi-tenant
retail shopping center in Grand Chute, Wisconsin in October 2002 from
Continental 56 Fund Limited Partnership. The trust funded the acquisition of the
property with cash from the sale of 100% of the beneficial interests in the
trust to Grand Chute, L.L.C., a Delaware limited liability company. Subsequent
to the acquisition of the property, the trust obtained a $5,678,350 loan from
Bank of America, N.A. and the proceeds of the loan were distributed to Grand
Chute, L.L.C. as a partial return of its capital contribution. In January 2003,
Grand Chute, L.L.C. began offering all of its beneficial interests in the trust
to certain qualified persons in need of replacement properties to complete a
1031 tax-deferred exchange. The total price was $12,048,350 which consisted of
$5,678,350 in debt assumption and $6,370,000 in equity investment. $478,350 of
the offering proceeds was allocated to four separate property reserve accounts,
three of which
16
were required by the lender. In September 2003, certain information in the
offering was amended and supplemented through the release of the First
Supplement to Private Placement Memorandum. The offering was completed in March
2004 when the maximum offering amount was raised.
MACON OFFICE DST, a Delaware statutory trust, purchased a single-tenant
office complex in Macon, Georgia in October 2002 from UTF Macon, L.L.C. The
trust funded the acquisition of the property with cash from the sale of 100% of
the beneficial interests in the trust to Macon Office, L.L.C., a Delaware
limited liability company. Subsequent to the acquisition of the property, the
trust obtained a $5,560,000 loan from Bank of America, N.A. and the proceeds of
the loan were distributed to Macon Office, L.L.C. as a partial return of its
capital contribution. In October 2003, Macon Office, L.L.C. began offering all
of its beneficial interests in the trust to certain qualified persons seeking a
cash investment, in addition to certain qualified persons in need of replacement
properties to complete a 1031 tax-deferred exchange. The total price was
$12,160,000 which consisted of $5,560,000 in debt assumption and $6,600,000 in
equity investment. $100,000 of the offering proceeds was allocated to a property
reserve account. The offering was completed in March 2004 when the maximum
offering amount was raised.
WHITE SETTLEMENT ROAD INVESTMENT, LLC, a Delaware limited liability
company, acquired a retail property currently leased to Eckerd Corporation in
Fort Worth, Texas in July 2003. The LLC funded the acquisition of the property
with cash from an affiliate and with a short-term loan from Parkway Bank and
Trust Co., an Illinois banking corporation, in the amount of $2,041,000. In
November 2003, Fort Worth Exchange, LLC, a Delaware limited liability company
and initial beneficiary of White Settlement Road Investment, LLC, offered its
entire membership interest in the LLC to a qualified person in need of a
replacement property to complete a 1031 tax-deferred exchange. The total price
was $2,840,000, which consisted of $1,420,000 in debt assumption and $1,420,000
in equity investment. The offering was completed in December 2003. Simultaneous
with the completion of the offering, the short-term loan with Parkway was
converted to a permanent loan and the terms of the loan documents were modified
in accordance with a loan commitment from Parkway.
PLAINFIELD MARKETPLACE. Plainfield 1031, L.L.C., a Delaware limited
liability company, purchased a multi-tenant shopping center located in
Plainfield, IL on December 16, 2003 from Ryan Companies US, Inc., a Minnesota
corporation. The L.L.C. financed its acquisition of the property with a loan
from Bear Stearns Commercial Mortgage, Inc, a New York corporation. In January
2004, Plainfield 1031, L.L.C. began offering 99% of the undivided tenant in
common interests in the real estate and improvements thereon located at 11840
South Route 59, Plainfield, Will County, Illinois for $12,350,250 in cash plus
the assumption of the existing indebtedness to certain qualified persons in need
of replacement properties to complete a 1031 tax-deferred exchange. The total
price, $24,400,000, consisted of $11,925,000 in debt assumption and $12,475,000
in equity investment, 1% of which was required by the lender to be retained by
Plainfield1031, L.L.C. The difference between the real estate acquisition price
of $21,700,000 and the total price of $24,400,000 consists of $950,000
acquisition fee, $150,000 for a property reserve account, and $1,600,000 of
estimated costs and expenses.
PIER 1 RETAIL CENTER. Butterfield-Highland 1031, L.L.C., a Delaware limited
liability company, purchased a multi-tenant retail shopping center on December
30, 2003 from the beneficiary of Trust No. 2314, an unrelated third party, which
trust was held by North Side Community Bank as Trustee under the Trust Agreement
dated December 12, 2003. The L.L.C. financed its acquisition of the property
with a loan from Bear Stearns Commercial Mortgage, Inc, a New York corporation.
In March 2004, Butterfield-Highland 1031, L.L.C. began offering 99% of the
undivided tenant in common interests in the real estate and improvements thereon
located at 2830 S. Highland Avenue, Lombard, Illinois for $4,257,000 in cash
plus the assumption of the existing indebtedness to certain qualified persons in
need of replacement properties to complete a 1031 tax-deferred exchange. The
total price, $8,150,000, consisted of $3,850,000 in debt assumption and
$4,300,000 in equity investment, a minimum of 1% of which is required by the
17
lender to be retained by Butterfield-Highland 1031, L.L.C. The difference
between the real estate acquisition price of $7,025,000 and the total price of
$8,150,000 consists of $350,000 acquisition fee, $100,000 for a property reserve
account, and $675,000 of estimated costs and expenses.
LONG RUN 1031, L.L.C. LR 1031, L.L.C., a Delaware limited liability
company, purchased a multi-tenant retail shopping center on January 27, 2003
from Ryan Lemont, L.L.C., the third party seller and developer of the property.
The L.L.C. financed its acquisition of the property with cash and, on April 24,
2003, placed a loan on the Property in the amount of $4,700,000 from Principal
Commercial Funding, LLC. In June 2004, LR 1031, L.L.C. a Delaware limited
liability company and initial beneficiary of Long Run 1031, L.L.C offered its
entire membership interest in the LLC to a qualified person in need of a
replacement property to complete a 1031 tax-deferred exchange. The total price
was $4,960,000 in cash plus the assumption of the existing indebtedness to
certain qualified persons in need of replacement properties to complete a 1031
tax-deferred exchange. The total price, $9,660,000 consisted of $4,700,000 in
debt assumption and $4,960,000 in equity investment. The difference between the
real estate acquisition price of $8,500,000 and the total price of $9,660,000
consists of $451,347 acquisition fee, $50,000 for a property reserve account,
and $658,653 of estimated costs and expenses.
FORESTVILLE 1031, L.L.C. Forestville Exchange, L.L.C., a Delaware limited
liability company, purchased a single-tenant retail shopping center on November
13, 2003 from Silver Hill, L.L.C., a North Carolina limited liability company,
the property's developer. The L.L.C. financed its acquisition of the property
with cash. In May 2004, Forestville Exchange, L.L.C. a Delaware limited
liability company and initial beneficiary of Forestville 1031, L.L.C offered its
entire membership interest in the LLC to a qualified person in need of a
replacement property to complete a 1031 tax-deferred exchange. The total price
was $3,900,000 in cash plus the assumption of the existing indebtedness to
certain qualified persons in need of replacement properties to complete a 1031
tax-deferred exchange. The total price, $3,900,000000 consisted of $1,793,630 in
debt assumption and $2,106,370 in equity investment. The difference between the
real estate acquisition price of $3,450,000 and the total price of $3,900,000
consists of $172,500 acquisition fee and $277,500 of estimated costs and
expenses.
BED BATH & BEYOND RETAIL CENTER. BBY Schaumburg 1031, L.L.C., a Delaware
limited liability company, purchased a multi-tenant retail shopping center on
April 20, 2004 from the American Real Estate Holdings, L.P. a Delaware limited
partnership, an unrelated third party. The L.L.C. financed its acquisition of
the property with a loan from Bear Stearns Commercial Mortgage, Inc, a New York
corporation. In June 2004, BBY Schaumburg 1031, L.L.C. began offering 99% of the
undivided tenant in common interests in the real estate and improvements thereon
located at 905-915 East Golf Road, Schaumburg, Illinois for $6,633,000 in cash
plus the assumption of the existing indebtedness to certain qualified persons in
need of replacement properties to complete a 1031 tax-deferred exchange. Total
price, $12,605,000, consisted of $6,905,000 in debt assumption and $5,700,000 in
equity investment, 1% of which was required by the lender to be retained by BBY
Schaumburg 1031, L.L.C. The difference between the real estate acquisition price
of $11,655,110 and the total price of $13,605,000 consists of $600,000
acquisition fee, $400,000 for property reserve accounts, and $949,890 of
estimated costs and expenses.
CROSS CREEK COMMONS SHOPPING CENTER. Cross Creek 1031, L.L.C., a Delaware
limited liability company, purchased a multi-tenant retail shopping center on
February 17, 2004 from Buckley Shuler Real Estate, L.L.C., a Georgia limited
liability company, an unrelated third party. The L.L.C. financed its acquisition
of the property with cash and subsequently placed a loan from bear Stearns
Commercial Mortgage on the property. In March 2004, Cross Creek 1031, L.L.C.
began offering 99% of the undivided tenant in common interests in the real
estate and improvements thereon located at 10920-10948 Cross Creek Boulevard,
Tampa, Florida for $6,930,000 in cash plus the assumption of the existing
indebtedness to certain qualified persons in need of replacement properties to
complete a 1031 tax-
18
deferred exchange. As of June 30, 2004 the L.L.C. had raised $2,788,000. Total
price, $12,078,762, consisted of $5,078,762 in debt assumption and $7,000,000 in
equity investment, 1% of which was required by the lender to be retained by
Cross Creek 1031, L.L.C. The difference between the real estate acquisition
price of $10,319,583 and the total price of $12,078,762 consists of $520,000
acquisition fee, $150,000 for a property reserve account, and $1,089,179 of
estimated costs and expenses.
BJ'S SHOPPING CENTER EAST SYRACUSE, NEW YORK. BJS Syracuse 1031, L.L.C., a
Delaware limited liability company, purchased a multi-tenant retail shopping
center on April 30, 2004 from the American Real Estate Holdings, L.P. a Delaware
limited partnership, an unrelated third party. The L.L.C. financed its
acquisition of the property with a loan and cash. In June 2004, BJS Syracuse
1031, L.L.C. began offering 99% of the undivided tenant in common interests in
the real estate and improvements thereon located at 2-4 Chevy Drive, East
Syracuse, New York for $8,365,500 in cash plus the assumption of the existing
indebtedness to certain qualified persons in need of replacement properties to
complete a 1031 tax-deferred exchange. The total price of the purchase was
$15,850,000. Total price, $15,850,000, consisted of $7,400,000 in debt
assumption and $8,450,000 in equity investment, 1% of which was required by the
lender to be retained by BJS Syracuse 1031, L.L.C. The difference between the
real estate acquisition price of $13,500,000 and the total price of $15,850,000
consists of $675,000 acquisition fee, $150,000 for a property reserve account,
and $1,525,000 of estimated costs and expenses.
BARNES & NOBLE RETAIL CENTER CLAY, NEW YORK. Clay 1031, L.L.C., a Delaware
limited liability company, purchased a multi-tenant retail shopping center on
April 15, 2004 from the Clay First Associates, L.L.C., an unrelated third party.
The L.L.C. financed its acquisition of the property with an assumed mortgage and
note for $3,175,000 and cash. In June 2004, Clay 1031, L.L.C. began offering 99%
of the undivided tenant in common interests in the real estate and improvements
thereon located at 3954-3956 Route 31, Clay, New York for $3,930,300 in cash
plus the assumption of the existing indebtedness to certain qualified persons in
need of replacement properties to complete a 1031 tax-deferred exchange. Total
price, $7,145,000, consisted of $3,175,000 in debt assumption and $3,970,000 in
equity investment, 1% of which was required by the lender to be retained by BJS
Syracuse 1031, L.L.C. The difference between the real estate acquisition price
of $6,100,000 and the total price of $7,145,000 consists of $305,000 acquisition
fee, $100,000 for a property reserve account, and $640,000 of estimated costs
and expenses.
19
The following summary table describes the fees and expenses incurred by
each of our entities in our 1031 Exchange Private Placement Offering Project.
Sentry Lansing Inland 220
Landings Office 1031 Shopping Celebration
of Sarasota Building Pets Bowie Chattanooga Center Place
DBT DBT DBT DBT DBT DBT
----------------------------------------------------------------------------------------
Commissions & Fees(1) Up to 8.5% Up to 8.5% Up to 8.5% Up to 8.5% Up to 8.5% Up to 8.5%
Selling Commission To 3rd Party
Reps 6.00% 6.00% 6.00% 6.00% 6.00% 6.00%
Due Diligence Fee 0.50% 0.50% 0.50% 0.50% 0.50% 0.50%
Marketing Expenses 1.00% 1.50% 1.50% 1.50% 1.50% 1.00%
Offering & Organization 1.00% 0.50% 0.50% 0.50% 0.50% 1.00%
Mortgage Broker Fee (IMC)(2) 0.50% 0.50% 0.50% 0.50% 0.50% 0.50%
Acquisition Fee & Carrying
Costs(3)
Acquisition Fee N/A 0.71% 0.77% 0.90% 0.88% 1.18%
Bridge Financing Fees N/A N/A 1.49% 0.50% 0.20% 0.10%
Total Load(4) 11.25%-12.75% 14.23% 13.68% 14.39% 13.68% 13.23%
Asset Management Fees(5) N/A 0.75% 1.00% 0.56% 0.55% 0.52%
Paid by
Property Management Fees(6) 4.5% 5.0% Asset Mgr. 5.0% 5.0% 4.5%
Backend Sales Commission 3.5% 3.5% 3.5% 3.5% 3.5% N/A
Janesville
Inland 210 CompUSA Deere
Taunton Broadway Celebration Retail Distribution
Circuit Commons Bell Plaza Place Building Facility
DBT DBT 1031 LLC DBT LLC 1031 LLC
-----------------------------------------------------------------------------------------
Commissions & Fees(1) Up to 8.0% Up to 8.77% Up to 9.19% Up to 5.27% Up to 8.56% Up to 8.6%
Selling Commission To 3rd Party
Reps 6.00% 6.00% 6.00% 3.81% 6.00% 6.00%
Due Diligence Fee 0.50% 0.50% 0.50% 0.00% 0.50% 0.50%
Marketing Expenses 1.00% 1.00% 1.00% 0.50% 1.00% 1.00%
Offering & Organization 0.50% 1.27% 1.69% 0.96% 1.06% 1.10%
Mortgage Broker Fee (IMC)(2) 0.61% 0.50% 0.50% 0.50% 0.50% 0.50%
Acquisition Fee & Carrying
Costs(3)
Acquisition Fee 0.69% 0.75% N/A 0.89% 0.82% 0.87%
Bridge Financing Fees 0.07% 0.23% N/A 0.23% 0.23% 0.23%
Total Load(4) 11.89% 12.98% 23.02% 10.52% 14.93% 13.93%
Asset Management Fees(5) 0.57% N/A 0.53% 0.53% 0.63% 0.49%
Property Management Fees(6) 4.0% 5.0% 5.0% 4.5% 4.5% 4.5%
Backend Sales Commission N/A N/A 3.5% N/A N/A N/A
20
Davenport White
Fleet Deere Settlement
Office Distribution Grand Macon Road Plainfield
Building Facility Chute Office Investment Marketplace
1031 LLC 1031 LLC DST DST LLC 1031 LLC
-----------------------------------------------------------------------------------------
Commissions & Fees(1) Up to 8.52% Up to 8.42% Up to 8.82% Up to 8.52% Up to 8.52% Up to 8.76%
Selling Commission To 3rd Party
Reps 6.00% 6.00% 6.00% 6.00% 7.04% 6.00%
Due Diligence Fee 0.50% 0.50% 0.50% 0.50% 0.60% 0.50%
Marketing Expenses 1.00% 1.00% 1.00% 1.00% 1.16% 1.00%
Offering & Organization 1.02% 0.92% 1.32% 1.02% 1.66% 1.26%
Mortgage Broker Fee (IMC)(2) 0.50% 0.71% 0.50% 0.50% 0.97% 0.57%
Acquisition Fee & Carrying
Costs(3)
Acquisition Fee 0.85% 0.77% 0.84% 0.72% 8.99% 3.89%
Bridge Financing Fees 0.35% 0.72% 0.13% 0.81% 0.12% 0.92%
Total Load(4) 14.57% 13.18% 12.96% 14.24% 30.90% 6.56%
Asset Management Fees(5) 0.49% 0.50% 0.66% 0.66% 0.00% 0.04%
Property Management Fees(6) 4.5% 4.5% 5.0% 4.5% 5.0% 5.0%
Backend Sales Commission N/A NA NA NA NA NA
Pier 1 Cross
Retail Bed, Bath & Creek
Center Long Run Forestville Beyond Commons
1031 LLC 1031 LLC 1031 LLC 1031 LLC 1031 LLC
------------------------------------------------------------------------
Commissions & Fees(1) Up to 8.73% Up to 8.37% Up to 8.40% Up to 8.70% Up to 8.64%
Selling Commission To 3rd Party
Reps 6.00% 5.84% 5.54% 6.00% 6.00%
Due Diligence Fee 0.50% 0..49% 0.46% 0.50% 0.50%
Marketing Expenses 1.00% 0.97% 0.93% 1.00% 1.00%
Offering & Organization 1.23% 1.07% 1.46% 1.20% 1.14%
Mortgage Broker Fee (IMC)(2) 0.50% 0.47% 0.43% 0.55% 0.40%
Acquisition Fee & Carrying
Costs(3)
Acquisition Fee 4.29% 5.31% 5.00% 5.15% 5.04%
Bridge Financing Fees 0.94%
Total Load(4) 8.28% 22.38% 21.34% 23.13% 22.99%
Asset Management Fees(5) 0.06% 0.20% 0.00% 0.15% 0.11%
Property Management Fees(6) 5.0% 5.0% 5.0% 5.0% 5.0%
Backend Sales Commission NA NA NA N/A NA
21
BJ's Barnes &
Shopping Noble Retail
Center Center
1031 LLC 1031 LLC
----------------------------
Commissions & Fees(1) Up to 8.59% Up to 8.69%
Selling Commission To 3rd Party
Reps 6.00% 6.00%
Due Diligence Fee 0.50% 0.50%
Marketing Expenses 1.00% 1.00%
Offering & Organization 1.09% 1.19%
Mortgage Broker Fee (IMC)(2) 0.50% 0.40%
Acquisition Fee & Carrying
Costs(3)
Acquisition Fee 5.00% 5.00%
Bridge Financing Fees
Total Load(4) 26.04% 23.80%
Asset Management Fees(5) 0.12% 0.13%
Property Management Fees(6) 5.0% 5.0%
Backend Sales Commission NA NA
(1) Commissions and fees are calculated as a percentage of the equity portion
of each deal.
(2) The Mortgage Broker Fee is calculated as a percentage of the debt portion
of each deal.
(3) Acquisition & Carrying Costs are calculated as a percentage of the real
estate acquisition price.
(4) The Total Load is calculated as a percentage of the equity portion of each
deal. The Total Load includes the Commissions & Fees, Mortgage Broker Fee,
Acquisition Fee & Carrying Costs, as well as any other non-affiliated third
party expenses.
(5) Asset Management Fees are calculated as a percentage of the value of the
assets under management. However, for The Landings and Broadway Commons, which
are both Master Lease deals, the Master Tenant Income is the residual cash flow
from the Property after payment of the Master Lease Rent. As a result, it is not
possible to accurately represent the Master Tenant Income as a percentage of the
value of the assets under management.
(6) Property Management Fees are calculated as a percentage of Gross Income
from the property.
The following additional fees are the same for each deal:
Loan Servicing Fee - IMSC will be compensated with a monthly fee equal to
the outstanding principal balance of the loan at the beginning of every month
multiplied by 1/8% then divided by 12. This figure, however, shall never exceed
$10,000, nor be less than $1,200 monthly.
Termination Fees - (i) MASTER LEASE: 8.333% of the last 12 Months of NOI
less Rent payments for the same 12 months multiplied by the number of months
remaining on the then-current term of the Master Lease and (ii) ASSET & PROPERTY
MANAGEMENT AGREEMENTS: The sum of the current monthly AM & PM fees times the
number of months remaining on the term.
22
The following table summarizes cash distributions to investors for each of
the 1031 Exchange Private Placement Offering Projects through June 30, 2004:
1031 EXCHANGE PERFORMANCE
DISTRIBUTIONS THROUGH JUNE 30, 2004
2001 2002 2003
Number Offering Offering Distributions Annual Annual Annual
of Equity Completed To Date Distribution Distribution Distribution
Name of Entity Investors ($) ($) ($) (%) (%) (%)
--------------------------------------------------------------------------------------------------------------------------------
Landings of Sarasota DBT 9 4,000,000 05/ 2002 807,036 8.00 8.00 8.07
Sentry Office Building DBT 7 3,500,000 04/ 2002 676,396 8.20 8.73
Pets Bowie DBT 7 2,600,000 07/ 2002 463,278 8.89 8.89
1031 Chattanooga DBT 9 1,900,000 05/ 2002 317,728 8.19 8.26
Lansing Shopping Center DBT 5 5,000,000 09/ 2001 742,590 8.47 8.29
Inland 220 Celebration Place DBT 35 15,800,000 09/ 2003 1,821,875 8.08 8.10
Taunton Circuit DBT 1 3,750,000 09/ 2002 522,750 8.22 8.31
Broadway Commons DBT 32 8,400,000 12/ 2003 645,185 8.14 8.22
Bell Plaza 1031, LLC 1 890,000 11/ 2003 183,074 13.53 14.67
Inland 210 Celebration Place DBT 1 6,300,000 01/ 2003 762,125 8.23
CompUSA Retail Building, LLC 11 3,950,000 02/ 2004 226,939 8.05
Janesville Deere Distribution
Facility 1031, LLC 35 10,050,000 01/ 2004 489,369 7.23
Fleet Office Building 1031, LLC 30 10,000,000 01/ 2004 440,971 7.19
Davenport Deere Distribution
Facility 1031, LLC 35 15,700,000 04/ 2004 492,322 7.36
Grand Chute DST 29 5,370,000 03/ 2004 129,906 8.48
Macon Office DST 29 6,600,000 03/ 2004 245,266 8.20
White Settlement Road Investment,
LLC 1 1,420,000 12/ 2003 55,849
Plainfield Marketplace 1031, LLC 31 12,475,000 06/ 2004 1,163
Pier 1 Retail Center 1031, LLC 22 4,300,000 06/ 2004 -
Long Run 1031, LLC 1 4,935,000 05/ 2004 -
Forestville 1031, LLC 1 3,900,000 05/ 2004 12,918
Bed, Bath & Beyond 1031, LLC 0 6,633,000 * -
Cross Creek Commons 1031, LLC 11 6,930,000 * -
BJ's Shopping Center 1031, LLC 0 8,365,000 * -
Barnes & Noble Retail Center 1031,
LLC 0 3,930,000 * -
----------- ----------
156,698,000 9,036,740
=========== ==========
2004
Annual
Distribution
Name of Entity (%)
-----------------------------------------------
Landings of Sarasota DBT 8.39
Sentry Office Building DBT 9.25
Pets Bowie DBT 9.12
1031 Chattanooga DBT 8.26
Lansing Shopping Center DBT 8.96
Inland 220 Celebration Place DBT 8.10
Taunton Circuit DBT 8.31
Broadway Commons DBT 8.26
Bell Plaza 1031, LLC 16.05
Inland 210 Celebration Place DBT 8.23
CompUSA Retail Building, LLC 8.17
Janesville Deere Distribution
Facility 1031, LLC 7.35
Fleet Office Building 1031, LLC 7.19
Davenport Deere Distribution
Facility 1031, LLC 7.36
Grand Chute DST 8.49
Macon Office DST 8.20
White Settlement Road Investment,
LLC 8.34
Plainfield Marketplace 1031, LLC 7.09
Pier 1 Retail Center 1031, LLC -
Long Run 1031, LLC -
Forestville 1031, LLC 7.55
Bed, Bath & Beyond 1031, LLC -
Cross Creek Commons 1031, LLC -
BJ's Shopping Center 1031, LLC -
Barnes & Noble Retail Center 1031,
LLC -
* Offering was not complete as of June 30, 2004
-23-
MANAGEMENT
INLAND AFFILIATED COMPANIES
THE DISCUSSION UNDER THIS SECTION WHICH STARTS ON PAGE 64 OF OUR PROSPECTUS IS
MODIFIED AND SUPPLEMENTED BY THE FOLLOWING:
Inland Western Management Corporation, Inland Northwest Property Management
Corp., Inland Southwest Property Management Corp. and Inland Pacific Property
Management Corp., our management companies, were formed to segregate
responsibility for management of our properties from Inland Property Management
companies' growing management portfolio of retail properties. Our property
management companies are responsible for collecting rent, leasing, and
maintaining the retail properties they manage. These properties are primarily
intended to be our properties in our primary geographical area of investment.
Our property management companies are owned primarily by individuals who are
affiliates of Inland.
OUR DIRECTORS AND EXECUTIVE OFFICERS
THE DISCUSSION UNDER THIS SECTION, WHICH STARTS ON PAGE 68 OF OUR PROSPECTUS, IS
MODIFIED AND SUPPLEMENTED BY THE FOLLOWING:
Effective April 1, 2004, Catherine L. Lynch resigned from her position as
Treasurer of our advisor. Effective April 30, 2004, Kelly E. Tucek resigned from
her position as our Treasurer, Principal Accounting Officer and Principal
Financial Officer. Steven P. Grimes has been appointed as our Treasurer and
Principal Financial Officer, and Lori Foust has been appointed as our Principal
Accounting Officer.
COMPENSATION OF DIRECTORS AND OFFICERS
THE DISCUSSION UNDER THIS SECTION WHICH IS LOCATED ON PAGE 71 OF OUR PROSPECTUS
IS MODIFIED AND SUPPLEMENTED BY THE FOLLOWING:
We pay our independent directors an annual fee of $5,000 (increasing to
$10,000 effective October 1, 2004) plus $500 for each in person meeting and $350
for each meeting of the board or a committee of the board attended by telephone,
and reimbursement of their out-of-pocket expenses incurred. Our two other
directors, Robert D. Parks and Brenda G. Gujral, do not receive any fees or
other remuneration for serving as directors.
OUR ADVISOR
THE DISCUSSION UNDER THIS SECTION, WHICH STARTS ON PAGE 73 OF OUR PROSPECTUS, IS
MODIFIED AND SUPPLEMENTED BY THE FOLLOWING INFORMATION:
Our advisor, Inland Western Retail Real Estate Advisory Services, Inc., is an
Illinois corporation and a wholly owned subsidiary of our sponsor. Our
advisor/business manager reviews and updates our mission statement, determines
our businesses' direction, selects the criteria for acquisitions and financing,
adjusts the demographic and geographic parameters, analyzes strategic
alternatives, adjusts our rate of growth to maximize shareholder value, and
updates our business plan that is performed by Inland employees on our behalf
involving the combined efforts of highly skilled technical people with many
years of experience.
Mr. Steven Grimes (age 37) joined our advisor as its Chief Financial Officer on
February 18, 2004. He is responsible for our finances and borrowings. Prior to
joining the advisor, Mr. Grimes was a director with Cohen Financial and was a
senior manager with Deloitte and Touche. Mr. Grimes received his B.S. Degree in
Accounting from Indiana University.
Ms. Lori Foust (age 39) joined our advisor as Vice President on November 17,
2003. Ms. Foust is responsible for our financial and SEC reporting. Prior to
joining the advisor, Ms. Foust was a senior manager in the real estate division
with Ernst and Young, LLP. She received her B.S. Degree in Accounting and her
M.B.A. Degree from University of Central Florida.
-24-
Ms. Debra J. Randall (age 48) joined our advisor as assistant vice president on
January 30, 2004. Ms. Randall is responsible for our financial and SEC
reporting. Prior to joining the advisor, Ms. Randall was a corporate controller
for a privately held real estate company and has over 10 years of real estate
experience at several public accounting firms. She received her B.A. Degree in
Liberal Arts and is in the process of completing her M.A. Degree from DePaul
University. She is a certified public accountant and a member of the Illinois
CPA Society.
The Property Manager and the Management Agreement.
THE DISCUSSION UNDER THIS SECTION WHICH STARTS ON PAGE 77 OF OUR PROSPECTUS IS
DELETED IN ITS ENTIRETY AND SUPPLEMENTED BY THE FOLLOWING:
THE PROPERTY MANAGERS AND THE MANAGEMENT AGREEMENTS
Our present property managers provide property management services to us
under the terms of the management agreements. The property managers provide
services in connection with the rental, leasing, operation and management of the
properties. Our property managers are each Delaware corporations, owned
principally by individuals who are affiliates of The Inland Group. We have
agreed to pay the property managers a monthly management fee in an amount no
greater than 90% of the fee which would be payable to an unrelated party
providing such services, which fee will initially be 4.5% of gross income, as
defined in the relevant management agreement, from the properties managed for
the month for which the payment is made. In addition, we have agreed to
compensate each property managers if it provides us with services other than
those specified in the management agreement. There is a separate management
agreement for each property for an initial term ending as of December 31 in the
year in which the property is acquired, and each management agreement is subject
to three successive three-year renewals, unless either party notifies the other
in writing of its intent to terminate between 60 and 90 days prior to the
expiration of the initial or renewal term. We may terminate with 30 days prior
written notice in the event of gross negligence or malfeasance by the property
manager. The property managers may subcontract the required property management
services for less than the management fee provided in the management agreement.
See "Compensation Table -- Nonsubordinated Payments -- Operational Stage." Our
property managers may form additional property management companies as necessary
to manage the properties we acquire, and may approve of the change of management
of a property from one manager to another.
Our property manager, Inland Western Management Corp., Inland Northwest
Management Corp., Inland Southwest Property Management Corp, and Inland Pacific
Property Management Corp, conduct their activities at their principal executive
office at 2907 Butterfield Road in Oak Brook, Illinois.
See "--The Advisory Agreement" above in this section and "Conflicts of
Interest" for a discussion of our option to acquire or consolidate with the
business conducted by the property managers.
The following sets forth information with respect to the executive officers
and directors of Inland Western Management Corp.
POSITION AND OFFICE WITH
NAME AGE* INLAND WESTERN MANAGEMENT CORP.
---- ---- -------------------------------
Thomas P. McGuinness 47 President and director
Robert M. Barg 50 Senior vice president/treasurer, secretary and director
James H. Neubauer 62 Senior vice president and director
Linda Centanni 49 Vice president
Elizabeth D. McNeely 49 Vice president
Frank Natanek 36 Vice president
Lawrence R. Sajdak, Jr. 24 Assistant vice president
Matthew G. Fiascone 40 Director
Alan F. Kremin 57 Director
----------
*As of January 1, 2004
-25-
THOMAS P. MCGUINNESS joined Inland Property Management in 1982 and became
president of Mid-America Management Corporation in July 1990 and chairman in
2001. He is also president of Inland Property Management, Inc. as well as a
director of Inland Commercial Property Management. He is chairman and a director
of Inland Mid-Atlantic Management Corp. Mr. McGuinness is a licensed real estate
broker; and is past president of the Chicagoland Apartment Association, and past
regional vice president of the National Apartment Association. He is currently
on the board of directors of the Apartment Building Owners and Managers
Association, and is a trustee with the Service Employees' Local No. 1 Health and
Welfare Fund, as well as the Pension Fund and holds CLS and CSM accreditations
from the International Council of Shopping Centers.
ROBERT M. BARG joined the Inland organization in 1986 and is currently the
treasurer of Inland Property Management Group, Inc. Since 2003 he has been a
senior vice president, secretary and treasurer of Inland Western Management
Corp. In July 2004 he became a director of Inland Western Management Corp. as
well as a senior vice president , secretary, treasurer, and a director of Inland
Northwest Management Corp., Inland Pacific Management Corp., and Inland
Southwest Management Corp. He is also a director, senior vice president, and
treasurer of Mid-America Management Corp., and secretary and treasurer of Inland
Southern Management Corp. He was secretary and treasurer of Inland Southeast
Property Management Corp. from 1998 to 2001. Prior to joining the Inland
organization, Mr. Barg was an accounting manager of the Charles H. Shaw Co. He
received his B.S. Degree in Business Administration from the University of
Illinois at Chicago and a Masters Degree from Western Illinois University. Mr.
Barg is a certified public accountant and is a member of the Illinois CRP
Society.
JAMES H. NEUBAUER joined Inland Property Management in 1978 as an on-site
manager. In 1981, he was promoted to the position of director of purchasing.
Subsequently, in 1983, he became an on-site property manager and, in 1984, he
became the president of Inland Western Property Management. From 1985 to 1996,
Mr. Neubauer was president and senior vice president of Mid-America Management
where he was responsible for all rental property operations outside the
Chicagoland metropolitan area, which included New Hampshire, Arizona, Indiana,
Wisconsin and Peoria, Moline and Danville, Illinois. He left Inland in 1996 to
pursue other opportunities and rejoined Inland Southeast Property Management
Corp. in 1999 as senior vice president and in May 2002 was promoted to
president. In June 2004, he became a senior vice president of Inland Northwest
Management Corp., Inland Pacific Management Corp., Inland Southwest Management
Corp. and Inland Western Management Corp. He is a licensed real estate broker in
Florida and holds a B.A. degree from the University of Maryland, a M.A. degree
from Ball State University and a M.B.A. degree from Benedictine College.
LINDA CENTANNI joined Mid-America Management Corp. in 1978 in the business
office and in 1979 she began working in the accounting department specializing
in the area of property management accounts receivable. In 1997 she was promoted
to assistant vice president. Her current responsibilities include supervision of
12 people as department head of both accounts receivable and records. In July
2004 she was promoted to a vice president of Inland Northwest Management Corp.,
Inland Pacific Management Corp., Inland Southwest Management Corp., and Inland
Western Management Corp. Ms. Centanni holds an Illinois real estate salesperson
license.
ELIZABETH D. MCNEELEY joined Inland Southeast Property Management as a
property accountant in January of 2002. In January of 2003 she was promoted to
senior property accountant for Inland Western Management Corp., and in July of
2003 was promoted to a vice president of Inland Northwest Management Corp.,
Inland Pacific Management Corp., Inland Southwest Management Corp., and Inland
Western Management Corp. Prior to joining Inland , Ms. McNeeley was an
accountant for the Burlington Northern Railroad, Pinnacle Relocation and Trase
Miller Teleservices. She also taught mathematics at both the Middle School and
Jr. College level. Ms. McNeeley holds a BA from North Central College and an MA
from DePaul University. She is a licensed Real Estate Sales Agent.
FRANK NATANEK joined The Inland Group in July 2004 as a vice president of
Inland Northwest Property Management Corp., Inland Pacific Management Corp.,
Inland Southwest Management Corp., and Inland Western Management Corp. Prior to
joining Inland, Mr. Natanek worked for the Hallmark Greeting Card Company from
October 2002 to March 2004. Mr. Natanek has a degree from St. Xavier, and a law
degree from Loyola University. In addition Mr. Natanek holds an MBA from the
University of Chicago.
LAWRENCE R. SAJDAK. Mr. Sajdak joined The Inland Group in September 1998 as
a college intern, working every summer and holiday season. He started in the
marketing department and soon became proficient in other departments in
management. He has degrees in chemistry and business from North Central College.
Prior to joining Inland he was
-26-
employed Cintas Corporation. Mr. Sajdak returned to Inland in December 2002 as a
department head in the business management department, and subsequently became a
property manager. In July 2004 Mr. Sajdak was promoted to an assistant vice
president of Inland Western Property Management Corp. and an assistant vice
president of Inland Northwest Property Management Corp. He is a member of the
International Council of Shopping Centers.
MATTHEW G. FIASCONE joined The Inland Group in January 1986 and is
currently senior vice president and a director of Inland Real Estate Development
Corporation. In that position, Mr. Fiascone is responsible for the purchase,
entitlement, development and sale of land owned by investment programs sponsored
by Inland Real Estate Investment Corporation and corporate owned land. He holds
a B.S. degree in economics from Bradley University where as an alumnus he was
named the 2002 Outstanding Young Graduate. Real Estate Chicago magazine named
him to their inaugural "40 under 40" list of the most influential people in
Chicago real estate under 40. He has testified as an expert in the field of land
use and zoning and is a member of the Northern Illinois Commercial Association
of Realtors, the Village of Hinsdale Zoning Board of Appeals, The Urban Land
Institute and is a licensed real estate broker in the state of Illinois.
ALAN F. KREMIN joined The Inland Group in 1982. Mr. Kremin was promoted to
treasurer of The Inland Group, Inland Commercial Property Management, Inc., and
various other Inland Group subsidiaries in March 1991. In his current capacity
as the chief financial officer of The Inland Group, a position he has held since
1991, his responsibilities include financial management, cash budgeting and
corporate taxes for the consolidated group and serving as a director for various
Inland Group subsidiaries and outside affiliated entities, for which he also
serves as treasurer. He is a director of Inland Southeast Property Management
Corp., and in March 2002 he became a director, secretary and treasurer of Inland
Southern Management LLC. In November 2002, he became a director of Mid-Atlantic
Management, LLC. Prior to his current position, Mr. Kremin was treasurer of
Inland Real Estate Investment Corporation from 1986 to 1990, where he supervised
the daily operations of its accounting department. That department encompasses
corporate accounting for the general partner of the Inland Real Estate
Investment Corporation-sponsored limited partnership investment programs. Prior
to joining The Inland Group, Mr. Kremin served for one year as a controller of
CMC Realty and three years as assistant controller of JMB Realty Corporation.
Prior to his real estate experience, Mr. Kremin worked eight years in public
accounting, including four years at Arthur Young & Company. He received his B.S.
degree in accounting from Loyola University. Mr. Kremin is a certified public
accountant, holds securities and insurance licenses and is a licensed real
estate broker.
The following sets forth information with respect to the executive officers
and directors of Inland Northwest Management Corp.
POSITION AND OFFICE
WITH INLAND NORTHWEST
NAME AGE* MANAGEMENT CORP.
---- ---- ----------------
Thomas P. McGuinness 47 President and director
Robert M. Barg 50 Senior vice president/treasurer, secretary and
director
James H. Neubauer 62 Senior vice president
Linda Centanni 49 Vice President
Elizabeth D. McNeely 49 Vice President
Frank Natanek 30 Vice President
Lawrence R. Sajdak, Jr. 24 Assistant vice president
Steven Yee 37 Assistant vice president
Anthony A. Casaccio 48 Director
Alan F. Kremin 57 Director
Pamela C. Stewart 47 Director
----------
*As of January 1, 2004
The biographies of Mr. McGuinness, Mr. Barg, Mr. Neubauer, Ms. Centanni,
Ms. McNeely, Mr. Natanek, Mr. Sajdak and Mr. Kremin are set forth above.
STEVEN YEE joined The Inland Group in February of 2004 as a senior property
manager, and in July 2004, Mr. Yee was promoted to assistant vice president of
Inland Northwest Property Management Corp. Prior to joining Inland he
-27-
worked for Manulife Financial. His was also the director of operations for MB
real estate and a retail property manager for Trammel Crow. His real estate
experience includes managing and leasing retail shopping centers in the greater
Chicagoland area. Mr. Yee attended DePaul University, receiving a degree in real
estate finance. He is a licensed real estate broker, and a member of the
International Council of Shopping Centers, and holds CPM and CCIM designations.
ANTHONY A. CASACCIO joined The Inland Group in 1984 working for Inland
Condo Association Management. From 1987 to 1991 he was president of Partnership
Asset Sales Corporation, and in 1991 when Inland Real Estate Development
Corporation was formed, Mr. Casaccio became the president and a director. Mr.
Casaccio holds a B.S. degree in accounting from DePaul University. He is a
member of the DuPage Association of Realtors, the National Association of
Realtors, Northern Illinois Commercial Association of Realtors, the National
Home Builders Association, the Realtor Association of the Western Suburbs, The
Urban Land Institute and the Oswego Economic Development Corporation. Mr.
Casaccio is a licensed real estate broker in the state of Illinois.
PAMELA C. STEWART joined Midwest Real Estate Equities, Inc., an affiliate
of The Inland Group in 1995 as an acquisition specialist. Prior to joining
Midwest Equities, Ms. Stewart worked for another affiliate company, New
Directions Housing Corporation (NDHC), a not-for-profit organization that
develops affordable housing. In 2002, Ms. Stewart became an assistant vice
president and in 2004, she was promoted to vice president of Midwest Real Estate
Equities, Inc. Ms. Stewart is responsible for acquiring commercial real estate
properties for the company's portfolio and investing corporate funds into
redevelopment projects, including rental properties, shopping centers, office
buildings and industrial buildings. Ms. Stewart is also the corporate asset
management director for The Inland Real Estate Group of Companies. Ms. Stewart
has a B.A. degree in Marketing from Roosevelt University. She is a member of the
National Association of Realtors, the Northern Illinois Commercial Association
of Realtors and she is a Certified Commercial Investment Member (CCIM) and
Candidate. She holds a real estate broker's license in the state of Illinois.
The following sets forth information with respect to the executive officers
and directors of Inland Pacific Management Corp.
POSITION AND OFFICE WITH
NAME AGE* INLAND PACIFIC MANAGEMENT CORP.
---- ---- -------------------------------
Thomas P. McGuinness 47 President and director
Robert M. Barg 50 Senior vice president/treasurer, secretary and
director
James H. Neubauer 62 Senior vice president and director
Linda Centanni 49 Vice President
Elizabeth D. McNeely 49 Vice President
Frank Natanek 30 Vice President
David M. Benjamin 49 Director
Alan F. Kremin 57 Director
----------
*As of January 1, 2004
The biographies of Mr. McGuinness, Mr. Barg, Mr. Neubauer, Ms. Centanni,
Ms. McNeely, Mr. Natanek and Mr. Kremin are set forth above.
DAVID M. BENJAMIN joined The Inland Group in 1983 in the accounting
department and is controller of The Inland Real Estate Group. Mr. Benjamin has
spent his entire accounting career in the real estate industry, working for
American Invesco and Draper and Kramer before coming to Inland. Mr. Benjamin is
responsible for the accounting and corporate income tax preparation of various
Inland entities and he assists in the day to day oversight of The Inland Real
Estate Group accounting department. Mr. Benjamin is a CPA.
The following sets forth information with respect to the executive officers
and directors of Inland Southwest Management Corp.
-28-
POSITION AND OFFICE
WITH INLAND SOUTHWEST
NAME AGE* MANAGEMENT CORP.
---- ---- ----------------
Thomas P. McGuinness 47 President and director
Robert M. Barg 50 Senior vice president/treasurer, secretary and
director
James H. Neubauer 62 Senior vice president
Linda Centanni 49 Vice President
Elizabeth D. McNeely 49 Vice President
Frank Natanek 30 Vice President
Alan F. Kremin 57 Director
Ulana B. Horalewskyj 57 Director
Frances C. Panico 54 Director
----------
*As of January 1, 2004
The biographies of Mr. McGuinness, Mr. Barg, Mr. Neubauer, Ms. Centanni,
Ms. McNeely, Mr. Natanek and Mr. Kremin are set forth above.
ULANA B. HORALEWSKYJ joined The Inland Group in 1990 and is currently
treasurer of Inland Real Estate Exchange Corporation, vice president of Inland
Real Estate Investment Corporation and president of Partnership Ownership
Corporation. In her capacity as vice president of Inland Real Estate Investment
Corporation, Ms. Horalewskyj oversees the cash management and accounting for
over 250 Inland private limited partnerships. Prior to joining Inland, she spent
four years working for an accounting firm and 10 years in the banking industry.
Ms. Horalewskyj received her B.A. from Roosevelt University in Chicago.
FRANCES C. PANICO joined The Inland Group in 1972 and is president of
Inland Mortgage Servicing Corporation and senior vice president of Inland
Mortgage Corporation and Inland Mortgage Investment Corporation. Ms. Panico
oversees the operation of loan services, which has a loan portfolio in excess of
$4,200,000,000. She previously supervised the origination, processing and
underwriting of single-family mortgages, and she packaged and sold mortgages to
secondary markets. Ms. Panico's other primary duties for The Inland Group have
included coordinating collection procedures and overseeing the default analysis
and resolution process. Ms. Panico received her BA Degree in Business and
Communication from Northern Illinois University.
Inland Securities Corporation
THE DISCUSSION UNDER THIS SECTION WHICH STARTS ON PAGE 80 OF OUR PROSPECTUS IS
SUPPLEMENTED BY THE FOLLOWING INFORMATION:
ROBERT J. BABCOCK (age 28) joined Inland Securities Corporation as a vice
president in March 2004. Prior to joining Inland, Mr. Babcock was an external
wholesaler with AEI Fund Management, Inc. and was responsible for wholesaling
public and private net lease real estate investments and 1031 property exchanges
to financial planners. Mr. Babcock began his career as a financial advisor with
American Express Financial Advisors in 1999. He received his bachelor's degree
from Gustavus Adolphus College. Mr. Babcock holds Series 7 and 63 licenses with
the National Association of Securities Dealers, Inc.
FRANK V. PINELLI (age 57) joined Inland Securities Corporation in 2004 as a
vice president. He was previously employed with The Inland Group from 1973-1983
where he worked in property management, real estate sales, and real estate
acquisitions. Prior to rejoining the Inland staff, from 1984-2003 Mr. Pinelli
was a principal in his own real estate firm and developed an international
marketing organization. Mr. Pinelli is a graduate of Southern Illinois
University. He holds Series 7 and 63 licenses with the National Association of
Securities Dealers, Inc and also is licensed as a real estate broker in Illinois
and Oregon.
MATTHEW PODOLSKY (age 32) joined Inland Securities Corporation as a vice
president in April 2003. Mr. Podolsky started his career in real estate in 1994
on the commercial sales and leasing side with Cushman and Wakefield of
California, Inc. Prior to joining Inland Securities Corporation he was a vice
president at CB Richard Ellis, Inc. Mr. Podolsky
-29-
graduated from the University of Arizona with a B.S. in Regional
Development/Urban Planning. He holds Series 7 and 63 licenses with the National
Association of Securities Dealers, Inc. and a real estate license in the state
of California.
DARRELL RAU (age 48) joined Inland Securities Corporation in 2004 as a vice
president of the midwest region where he develops sales and new broker/dealer
relationships. Prior to joining Inland in 2004, Mr. Rau was vice president of
developing markets at CTE Pension Advisors. Mr. Rau graduated magna cum laude
from Northwood University in Midland, Michigan with a degree in Business
Administration. He holds Series 6,7,62 and 63 licenses with the National
Association of Securities Dealers, Inc.
THE SUBSECTION BELOW IS ADDED UNDER THE MANAGEMENT SECTION AND WILL START ON
PAGE 82 IN THE PROSPECTUS AND IS INCLUDED IN ITS ENTIRETY:
COMPLIANCE AND GOVERNANCE
On October 12, 2004, our board of directors unanimously adopted a Code of
Business Conduct and Ethics, Nonretaliation Policy, and Complaint Procedures
for Accounting and Auditing Matters.
PRINCIPAL STOCKHOLDERS
THE FOLLOWING REPLACES THE INFORMATION CONTAINED ON PAGE 85 OF OUR PROSPECTUS
UNDER THE HEADING "PRINCIPAL STOCKHOLDERS".
The following table provides information as of October 7, 2004 regarding the
number and percentage of shares beneficially owned by each director, each
executive officer, all directors and executive officers as a group and any
person known to us to be the beneficial owner of more than 5% of our outstanding
shares. As of October 7 2004, no stockholder beneficially owned more than 5% of
our outstanding shares. As of October 7, 2004, we had approximately 41,000
stockholders of record and approximately 152,126,358 shares of common stock
outstanding. Beneficial ownership includes outstanding shares and shares which
are not outstanding that any person has the right to acquire within 60 days
after the date of this table. However, any such shares which are not outstanding
are not deemed to be outstanding for the purpose of computing the percentage of
outstanding shares beneficially owned by any other person. Except as indicated,
the persons named in the table have sole voting and investing power with respect
to all shares beneficially owned by them.
NUMBER OF SHARES PERCENTAGE OF
BENEFICIAL OWNER BENEFICIALLY OWNED CLASS
Robert D. Parks 96,843.8258(1) *
Roberta S. Matlin 174.8127 *
Scott W. Wilton 0 0
Steven P. Grimes 0 0
Lori J. Foust 0 0
Brenda G. Gujral 0 0
Frank A. Catalano, Jr. 2,000(2) *
Kenneth H. Beard 2,000(2) *
Paul R. Gauvreau 113,731.8436(2) *
Gerald M. Gorski 3,979.4431(2) *
Barbara A. Murphy 2,000(2) *
All directors and executive officers as a group (12 persons) 220,729.9252(1) *
*Less than 1%
(1) Includes 20,000 shares owned by our advisor. Our advisor is a wholly-owned
subsidiary of our sponsor, which is an affiliate of The Inland Group. Mr.
Parks is a control person of The Inland Group and disclaims beneficial
ownership of these shares owned by our advisor.
(2) Includes 2,000 shares issuable upon exercise of options granted to each
independent director under our independent director stock option plan, to
the extent that such options are currently exercisable or will become
exercisable within 60 days after the date of this table.
-30-
INVESTMENT OBJECTIVES AND POLICIES
DISTRIBUTIONS
THE DISCUSSION UNDER THIS SECTION, WHICH STARTS ON PAGE 88 OF OUR PROSPECTUS, IS
SUPPLEMENTED BY THE FOLLOWING:
At the March 19, 2004 regularly scheduled Board meeting, the Board of Directors
unanimously approved a resolution to delegate to our management committee the
authority to make monthly distributions to stockholders on our common stock in
an amount between 6.0% and 7.25% on an annualized basis, for the remainder of
the 2004 calendar year.
Our Board of Directors approved the following distributions payable to holders
of our common stock:
- $.30 per share per annum for the stockholders of record on October 31,
2003, payable on November 10, 2003
- $.50 per share per annum for the stockholders of record on November
30, 2003, payable on December 10, 2003
- $.70 per share per annum for the stockholders of record on December
31, 2003, payable on January 10, 2004
- $.70 per share per annum for the stockholders of record on January 31,
2004, payable on February 10, 2004
- $.70 per share per annum for the stockholders of record on February
29, 2004, payable on March 10, 2004
- $.70 per share per annum for the stockholders of record on March 31,
2004, payable on April 10, 2004
- $.67 per share per annum for the stockholders of record on April 30,
2004, payable on May 10, 2004
- $.675 per share per annum for the stockholders of record on May 31,
2004, payable on June 10, 2004
- $.675 per share per annum for the stockholders of record on June 30,
2004, payable on July 10, 2004
- $.65 per share per annum for the stockholders of record on July 31,
2004, payable on August 10, 2004
- $.65 per share per annum for the stockholders of record on August 31,
2004, payable on September 10, 2004; and
- $.65 per share per annum for the stockholders of record on September
30, 2004, payable on October 10, 2004.
BORROWING
THE DISCUSSION UNDER THIS SECTION, WHICH STARTS ON PAGE 91 OF OUR PROSPECTUS, IS
MODIFIED AND SUPPLEMENTED BY THE FOLLOWING INFORMATION REGARDING OUR BORROWING
POLICIES.
Our board of directors unanimously approved that consistent with our borrowing
policies, we may commit up to the aggregate of $25 million in cash for letters
of credit in order to obtain financing for properties.
Our board of directors adopted a policy to delegate to management the ability to
obtain unsecured general financing facilities up to $150,000,000 requiring a
deposit not to exceed 3% of the facility amount without prior approval by the
board of directors. These facilities would then be matched with specific
properties, which would secure the amounts due under the specific financings.
OTHER INVESTMENTS
THE DISCUSSION UNDER THIS SECTION, WHICH STARTS ON PAGE 93 OF OUR PROSPECTUS, IS
MODIFIED AND SUPPLEMENTED BY THE FOLLOWING:
Our advisor has informed our board of directors that it is increasingly
concerned about the potential that mortgage interest rates we can borrow at will
increase during 2004. Our board of directors, including all of the independent
directors, unanimously approved a resolution for the following:
We may invest in interest rate futures, an interest rate hedging strategy
designed to offset the risks of potential interest rate increases on our
long-term borrowings. Should conditions warrant, this interest rate hedging
strategy will be implemented over a period of time. We intend to invest in up to
$100 million in interest rate futures, both five and seven year treasuries, with
maturities of 90 days. Our initial cash outlay in this interest rate hedging
strategy is expected to be between 1 to 2% of the value of our investment in the
interest rate futures. Risks associated with this interest rate hedging strategy
are primarily associated with declines in interest rates. As rates decline, we
risk having to increase our initial cash outlay, and may incur losses on our
investments in interest rate futures.
-31-
1) An affiliate of our advisor, Inland Investment Advisors, Inc., the
investment advisor, will be managing this interest rate hedging strategy.
Fees paid to the investment advisor are expected to be similar to those
incurred using a third party investment advisor.
2) We may also retain the investment advisor to invest up to $10 million of
our cash in publicly traded investment securities. Fees paid to the
investment advisor are expected to be similar to those incurred using a
third party investment advisor.
3) We may enter into an initial $50 million (which could increase to $100
million) twelve month credit facility with an affiliate of our advisor,
Inland Real Estate Exchange Corporation (IREX) for its 1031 exchange
program. IREX will use the funds to purchase real estate investments that
meet the criterion consistent with our real estate investment policies.
-32-
REAL PROPERTY INVESTMENTS
THE DISCUSSION UNDER THIS SECTION, WHICH STARTS ON PAGE 98 OF OUR PROSPECTUS, IS
MODIFIED AND SUPPLEMENTED BY THE FOLLOWING INFORMATION REGARDING PROPERTIES WE
HAVE ACQUIRED OR INTEND TO ACQUIRE.
BED, BATH & BEYOND PLAZA, MIAMI, FLORIDA
On October 5, 2004, we purchased a shopping center newly constructed during 2003
and 2004 known as Bed, Bath & Beyond Plaza, containing 97,447 gross leasable
square feet. This center has entered into a 65-year ground lease with the owner
of the real property. We are not acquiring the underlying real property but only
the buildings on the real property and will continue to be under a 65 year
ground lease. The center is located at Northwest 107th Avenue and Northwest 19th
Street in Miami, Florida.
We purchased this center from an unaffiliated third party. Our total acquisition
cost was approximately $20,350,000. This amount may increase by additional costs
which have not yet been finally determined. We expect any additional costs to be
insignificant. Our acquisition cost was approximately $209 per square foot of
leasable space.
We purchased this center with our own funds. However, we expect to place
financing on the center at a later date.
We do not intend to make significant repairs and improvements to this center
over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
Four tenants, Bed, Bath & Beyond, Office Depot, Pier 1 Imports and Party City,
will lease more than 10% of the total gross leasable area of the center. The
leases with these tenants require the tenant to pay base annual rent on a
monthly basis as follows:
Base Rent
Approximate Per Square
GLA Leased % of Total Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
---------------------------------------------------------------------------------------
Bed, Bath & Beyond 28,053 29 14.80 03/04 01/20
Office Depot 16,175 17 23.32 08/04 08/09
Pier 1 Imports 10,582 11 27.65 11/03 02/14
Party City 10,930 11 18.12 12/03 08/14
For federal income tax purposes, the depreciable basis in this center will be
approximately $15,263,000. When we calculate depreciation expense for tax
purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
Bed, Bath & Beyond Plaza is a newly constructed center completed during 2003 and
2004. As of September 1, 2004, the property was 100% leased to 16 tenants. The
following table sets forth certain information with respect to those leases:
-33-
Approximate Current Base Rent Per
GLA Leased Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Rent ($) Per Annum ($)
----------------------------------------------------------------------------------
Sally Beauty Supplies 1,368 05/09 40,632 29.70
A+ Nails 1,301 05/09 41,333 31.77
Bo Concept 5,100 06/09 69,193 13.57
Office Depot 16,175 08/09 377,201 23.32
Young Eye Associates 1,299 08/09 36,372 28.00
Cold Stone Creamery 1,592 09/09 48,556 30.50
Pier 1 Imports 10,582 02/14 292,621 27.65
Starbucks 1,402 03/14 55,382 39.50
Sprint PCS 3,622 12/10 118,657 32.76
Moe's Southwestern Grill 2,400 05/14 72,072 30.03
Doral Dentist Partners 1,707 07/14 25,523 14.95
Party City 10,930 08/14 198,052 18.12
Bed, Bath & Beyond 28,053 01/20 415,184 14.80
Fuddruckers 6,000 * 192,444 32.07
Quiznos 1,360 * 38,082 28.00
Cargo Kids! 4,556 * 129,406 28.40
* Lease term information is not currently available.
In general, each tenant will pay its proportionate share of real estate taxes,
insurance and common area maintenance costs, although the leases with some
tenants may provide that the tenant's liability for such expenses is limited in
some way, usually so that their liability for such expenses does not exceed a
specified amount.
GMAC INSURANCE OFFICE BUILDING, WINSTON-SALEM, NORTH CAROLINA
On September 29, 2004, we purchased a commercial office complex, containing
approximately 501,064 of gross leasable square feet. The property is comprised
of an 18-story office building, a six-story office building and various parcels
of land that are used as surface and deck parking lots. The complex is located
at 500 West 5th Street in Winston-Salem, North Carolina.
We purchased this property from an unaffiliated third party. Our total
acquisition cost was approximately $60,000,000. This amount may increase by
additional costs which have not yet been finally determined. We expect any
additional costs to be insignificant. Our acquisition cost was approximately
$120 per square foot of leasable space.
We purchased this property with our own funds. On September 29, 2004, we
obtained financing in the amount of $33,000,000. The loan requires interest only
payments at an annual interest rate of 4.61% and matures October 2009.
We do not intend to make significant repairs and improvements to this property
over the next few years. However, if we were to make any repairs or
improvements, the tenant would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
One tenant, GMAC Insurance, leases 100% of the total gross leasable area of the
property. The lease with this tenant requires the tenant to pay base annual rent
on a monthly basis over the next ten years.
-34-
Base Rent
Approximate Per Square
GLA Leased % of Total Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
-----------------------------------------------------------------------------------------------
GMAC Insurance 501,064 100 10.31 10/04 09/09
10.51 10/09 09/10
10.72 10/10 09/11
10.93 10/11 09/12
11.14 10/12 09/13
11.36 10/13 09/14
For federal income tax purposes, the depreciable basis in this property is
approximately $45,000,000. When we calculate depreciation expense for tax
purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
BOULEVARD AT THE CAPITAL CENTRE, LANDOVER, MARYLAND
On September 8, 2004, we entered into a joint venture with the current owners of
a newly constructed shopping center known as Boulevard at the Capital Centre,
containing 482,377 gross leasable square feet. The center is located on the
Washington D.C. Beltway (I-495 and I-95), in Landover, Maryland. The property is
on a long term ground lease with the Revenue Authority of Prince George's County
for approximately 70 years.
We entered into a joint venture agreement with the current owners of this
property, who are unaffiliated third parties. We made a capital contribution in
the amount of $121,000,000 to this joint venture and received an equity interest
representing a majority ownership and operating control of the joint venture.
We made our capital contribution to the joint venture with our own funds. On
September 8, 2004, we obtained financing in the amount of $71,500,000. The loan
requires interest only payments at an annual rate of 5.12% and matures October
2009. Through additional joint ventures, the joint venture partners may acquire
additional properties, which would be managed by our joint venture partner.
We do not intend to make significant repairs and improvements to this property
over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
One tenant, Lowe's Theaters Magic Johnson, will lease more than 10% of the total
gross leasable area of the property. The lease term has been projected in
accordance with the tenant's lease commencement date. The lease with this tenant
requires the tenant to pay base annual rent on a monthly basis as follows:
Base Rent
Approximate Per Square
GLA Leased % of Total Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
-----------------------------------------------------------------------------------------------
Lowe's Theaters Magic
Johnson* 52,500 11 22.00 10/04 09/24
For federal income tax purposes, the depreciable basis in this property will be
approximately $90,750,000. When we calculate depreciation expense for tax
purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
Boulevard at the Capital Centre was newly constructed in 2004. The property has
been in a leasing up phase and nine tenants have executed leases for retail
space within the shopping center whose leases have not yet commenced. As of
September 1, 2004, this property was 73% occupied with a total of 352,804 square
feet occupied by 57 tenants. The following table sets forth certain information
with respect to those leases:
-35-
Approximate Current Base Rent Per
GLA Leased Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Rent ($) Per Annum ($)
----------------------------------------------------------------------------------
EB Game World 1,200 11/08 40,800 34.00
Claire's Boutique 1,166 11/08 34,980 30.00
Sprint Spectrum 1,965 11/08 49,161 25.02
Nextel 1,871 11/08 74,840 40.00
Kay Jewelers 1,552 12/08 60,000 38.66
Cold Stone Creamery 1,157 02/09 42,809 37.00
Capital Nails 1,500 02/09 60,000 40.00
Sweet Tooth Cakes & Pastries 1,400 02/09 49,000 35.00
Casual Male Big & Tall 3,500 03/09 84,000 24.00
The Classic Woman 2,200 04/09 63,800 29.00
Next Day Blinds * 3,000 09/09 93,000 31.00
Head 2 Head 2,568 12/10 65,484 25.50
Oxford Street 3,400 12/10 85,000 25.00
T-Mobile 1,800 01/11 72,000 40.00
Jilliano Shoes 1,998 01/11 40,955 20.50
Gallery of African Wildlife 2,000 03/11 58,000 29.00
Qdoba Mexican Grill 3,000 11/13 97,500 32.50
LensCrafters 4,653 11/13 139,590 30.00
Pier 1 Imports 10,000 11/13 181,224 18.12
Foot Locker 3,433 11/13 99,557 29.00
Yankee Candle Company 2,000 11/13 48,000 24.00
Men's Wearhouse 6,400 11/13 147,200 23.00
Changes at Capital Centre 4,000 12/13 104,000 26.00
Lucaya 3,000 12/13 63,000 21.00
Quiznos 1,562 12/13 51,546 33.00
Panda Express 2,100 11/13 73,500 35.00
Footaction USA 3,500 11/13 98,000 28.00
Drake's Place 2,000 11/13 48,000 24.00
Penner Clothing 5,194 11/13 142,835 27.50
Shoe City 7,700 11/13 180,950 23.50
Teaming Up/Expressions 3,103 12/13 40,339 13.00
Total Sport 3,756 01/14 103,553 27.57
The Big Screen Store 4,500 01/14 103,500 23.00
Cambridge Beauty Supply 2,900 01/14 75,400 26.00
Payless Shoesource 2,800 01/14 78,400 28.00
The Children's Place 6,000 01/14 132,012 22.00
Lane Bryant 5,000 01/14 120,000 24.00
Starbucks 1,250 02/14 37,500 30.00
Mattress Warehouse 4,112 02/14 102,800 25.00
Honeycomb Hideout 2,500 02/14 68,750 27.50
Technicolor Salon & Spa 4,413 03/14 110,325 25.00
Five Guys Restaurant 1,500 03/14 48,000 32.00
African Stargina 1,500 03/14 47,250 31.50
Babalu/Carraba's Glory Days* 6,085 04/14 146,040 24.00
Kobe Japanese Steakhouse* 7,520 04/14 172,960 23.00
McHunu House of Style 2,900 04/14 76,850 26.50
-36-
Approximate Current Base Rent Per
GLA Leased Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Rent ($) Per Annum ($)
----------------------------------------------------------------------------------
Reggiano's * 2,000 05/14 50,000 25.00
DSW Shoe Warehouse 25,000 07/14 331,250 13.25
Stonefish Grill 6,085 08/14 212,975 35.00
Red Star Tavern 7,661 08/14 268,135 35.00
Soul Fixins'* 2,085 08/14 62,550 30.00
Infusions Cafe* 3,350 09/14 83,750 25.00
Anne Taylor Loft 5,471 01/15 75,000 13.71
Linens 'N Things 34,440 01/15 430,512 12.50
Sports Authority 40,500 01/15 506,250 12.50
Pizzeria Uno 5,719 10/18 110,000 19.23
Bugaboo Creek Steakhouse 6,400 11/18 110,000 17.19
Provident Bank of Maryland 3,215 11/18 95,000 29.55
Borders Books & Music 22,915 11/18 441,801 19.28
Chuck E Cheese 11,300 02/19 95,000 8.41
Office Depot* 18,000 07/19 234,000 13.00
Blu Bambu* 4,050 09/19 113,250 27.96
Circuit City 33,828 01/20 490,506 14.50
Chick-Fil-A 4,250 11/23 85,000 20.00
Golden Corral 11,967 12/23 112,500 9.40
Lowe's Theaters Magic
Johnson* 52,500 09/24 1,155,000 22.00
* As of September 1, 2004, the tenant's lease term had not yet commenced.
In general, each tenant will pay its proportionate share of real estate taxes,
insurance and common area maintenance costs, although the leases with some
tenants may provide that the tenant's liability for such expenses is limited in
some way, usually so that their liability for such expenses does not exceed a
specified amount.
HARRIS TEETER STORE #158, WILMINGTON, NORTH CAROLINA
On September 8, 2004, we purchased a freestanding retail building leased to a
Harris Teeter grocery store, containing 57,230 gross leasable square feet. The
center is located at Wilshire Boulevard and Kerr Avenue in Wilmington, North
Carolina.
We purchased this property from an unaffiliated third party. Our total
acquisition cost was approximately $7,200,000. This amount may increase by
additional costs which have not yet been finally determined. We expect any
additional costs to be insignificant. Our acquisition cost was approximately
$126 per square foot of leasable space.
We purchased this property with our own funds. However, we expect to place
financing on the property at a later date.
We do not intend to make significant repairs and improvements to this property
over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of its lease.
One tenant, Harris Teeter Store #158, leases 100% of the total gross leasable
area of the property. The lease with this tenant requires the tenant to pay base
annual rent on a monthly basis as follows:
Base Rent
Approximate Per Square
GLA Leased % of Total Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
-----------------------------------------------------------------------------------------------
Harris Teeter Store # 158 57,230 100 9.76 05/95 05/15
-37-
For federal income tax purposes, the depreciable basis in this property will be
approximately $5,400,000. When we calculate depreciation expense for tax
purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
HARVEST TOWNE CENTER, KNOXVILLE, TENNESSEE
On September 8, 2004, we purchased an existing shopping center known as Harvest
Towne Center, containing 32,965 gross leasable square feet. The center is
located at 4824 N. Broadway Street in Knoxville, Tennessee.
We purchased this property from an unaffiliated third party. Our total
acquisition cost was approximately $8,950,000. This amount may increase by
additional costs which have not yet been finally determined. We expect any
additional costs to be insignificant. Our acquisition cost was approximately
$272 per square foot of leasable space.
We purchased this property with our own funds. However, we expect to place
financing on the property at a later date.
We do not intend to make significant repairs and improvements to this property
over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
Four tenants, CVS Drug Store, Pet Supplies Plus, Northside Properties and Ross
the Boss, each lease more than 10% of the total gross leasable area of the
property. The leases with these tenants require the tenants to pay base annual
rent on a monthly basis as follows:
Base Rent
Approximate Per Square
GLA Leased % of Total Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
---------------------------------------------------------------------------------------------------
CVS Drug Store 10,125 31 24.50 09/99 01/20
Pet Supplies Plus 8,120 25 14.08 02/96 02/06
Northside Properties 3,480 11 7.64 08/01 Month-to-
Month
Ross the Boss 4,104 12 14.50 10/01 10/06
For federal income tax purposes, the depreciable basis in this property will be
approximately $6,713,000. When we calculate depreciation expense for tax
purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
Harvest Towne Center was built in 1996 to 1999. As of September 1, 2004, this
property was 100% occupied, with a total 32,965 square feet leased to nine
tenants and three ground lease tenants. The following table sets forth certain
information with respect to those leases:
Approximate Current Base Rent Per
GLA Leased Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Rent ($) Per Annum ($)
---------------------------------------------------------------------------------------
Northside Properties 3,480 Month-to-Month 26,587 7.64
Krispy Creme Donuts (Ground Lease) * 06/05 47,600 N/A
Pet Supplies Plus 8,120 02/06 114,365 14.08
Vacuums Unlimited 986 05/06 11,832 12.00
-38-
Base Rent
Approximate Per Square
GLA Leased % of Total Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
-----------------------------------------------------------------------------------------------
Ross the Boss 4,104 10/06 59,508 14.50
Stuart R. Humberg D.C 1,000 11/06 15,815 15.82
US Cleaners, Inc. 1,427 11/07 20,691 14.50
Beneficial Tennessee, Inc. 1,670 07/08 23,380 14.00
Briano's Pizza 2,053 01/08 29,769 14.50
Ruby Tuesday (Ground Lease) * 12/12 59,400 N/A
Taco Bell (Ground Lease) * 11/14 39,996 N/A
CVS Drug Store 10,125 01/20 248,063 24.50
* The ground lease square footage is not currently available.
In general, each tenant will pay its proportionate share of real estate taxes,
insurance and common area maintenance costs, although the leases with some
tenants may provide that the tenant's liability for such expenses is limited in
some way, usually so that their liability for such expenses does not exceed a
specified amount.
LINCOLN PARK, DALLAS, TEXAS
On September 7, 2004, we purchased an existing shopping center known as Lincoln
Park, containing 148,806 gross leasable square feet. The center is located at
7700 W. Northwest Highway in Dallas, Texas.
We purchased this property from an unaffiliated third party. Our total
acquisition cost was approximately $47,550,000. This amount may increase by
additional costs which have not yet been finally determined. We expect any
additional costs to be insignificant. Our acquisition cost was approximately
$320 per square foot of leasable space.
We purchased this property with our own funds. On October 8, 2004, we obtained
financing int he amount of $26,153,000. The loan requires interest only payments
at an annual rate of 4.61% and matures in November 2009.
We do not intend to make significant repairs and improvements to this property
over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
Three tenants, Tom Thumb, Barnes & Noble and The Container Store, each lease
more than 10% of the total gross leasable area of the property. The leases with
these tenants require the tenants to pay base annual rent on a monthly basis as
follows:
Base Rent
Approximate Per Square
GLA Leased % of Total Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
-----------------------------------------------------------------------------------------------
Tom Thumb 50,000 34 11.50 08/98 07/23
Barnes & Noble 29,485 20 21.00 05/98 01/09
The Container Store 25,000 17 29.00 02/00 01/15
For federal income tax purposes, the depreciable basis in this property will be
approximately $35,663,000. When we calculate depreciation expense for tax
purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
Lincoln Park was built in 1998. As of September 1, 2004, this property was 100%
occupied, with a total 148,806 square feet leased to 14 tenants. The following
table sets forth certain information with respect to those leases:
-39-
Approximate Current Base Rent Per
GLA Leased Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Rent ($) Per Annum ($)
------------------------------------------------------------------------------------
Marvin Brown 4,408 05/05 141,000 31.99
T-Mobile 1,402 10/05 68,698 49.00
Maggie Moo's Ice Cream 1,375 12/07 48,125 35.00
Romies Nail Boutique 1,098 12/07 40,626 37.00
Mother's Work 4,012 03/08 144,432 36.00
Blue Mesa Grill 8,250 12/08 235,950 28.60
Elizabeth Arden 6,058 12/08 151,450 25.00
Eyemasters 3,000 12/08 134,400 44.80
Barnes & Noble 29,485 01/09 619,185 21.00
Up in Smoke 1,164 01/09 58,200 50.00
Bag N Baggage 3,554 04/09 106,620 30.00
The Container Store 25,000 01/15 725,000 29.00
Cheesecake Factory 10,000 09/18 347,500 34.75
Tom Thumb 50,000 07/23 575,000 11.50
In general, each tenant will pay its proportionate share of real estate taxes,
insurance and common area maintenance costs, although the leases with some
tenants may provide that the tenant's liability for such expenses is limited in
some way, usually so that their liability for such expenses does not exceed a
specified amount.
SAUCON VALLEY SQUARE, BETHLEHEM, PENNSYLVANIA
On September 7, 2004, we purchased an existing shopping center known as Saucon
Valley Square, containing 80,695 gross leasable square feet. The center is
located on I-78 and Rouse 378 in Bethlehem, Pennsylvania.
We purchased this property from an unaffiliated third party. Our total
acquisition cost was approximately $16,092,600. This amount may increase by
additional costs which have not yet been finally determined. We expect any
additional costs to be insignificant. Our acquisition cost was approximately
$199 per square foot of leasable space.
We purchased this property with our own funds. On September 7, 2004, we obtained
financing in the amount of $8,850,900. The loan requires interest only payments
at an annual rate of 5.115% and matures in October 2009.
We do not intend to make significant repairs and improvements to this property
over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
One tenant, Super Fresh Food Market, leases more than 10% of the total gross
leasable area of the property. The lease with this tenant requires the tenant to
pay base annual rent on a monthly basis as follows:
Base Rent
Approximate Per Square
GLA Leased % of Total Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
-----------------------------------------------------------------------------------------------
Super Fresh Food
Market 47,827 59 13.75 01/99 12/18
For federal income tax purposes, the depreciable basis in this property will be
approximately $12,069,000. When we calculate depreciation expense for tax
purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
-40-
Saucon Valley Square was built in 1999. As of September 1, 2004, this property
was 99% occupied, with a total 79,495 square feet leased to 13 tenants and one
ground lease tenant. The following table sets forth certain information with
respect to those leases:
Approximate Current Base Rent Per
GLA Leased Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Rent ($) Per Annum ($)
----------------------------------------------------------------------------------
Lafayette Ambassador 2,800 03/08 42,900 15.32
Adam's Outdoor Advertising
(Ground Lease) N/A 07/08 3,750 N/A
Kiki Rio's Restaurant 6,208 12/08 88,000 14.18
Holiday Hair 1,200 01/09 20,790 17.33
Casa Mia Pizzeria 2,000 01/09 24,650 12.33
Subway 1,200 02/09 22,050 18.38
Foxes Hallmark 5,200 02/09 96,200 18.50
Blockbuster Video 5,140 03/09 103,468 20.13
No. 1 Chinese Restaurant 1,200 03/09 25,080 20.90
Radio Shack 2,320 03/09 36,800 15.86
Buena Bistro 1,600 05/09 29,840 18.65
Werkheiser Jewelers 1,200 12/13 20,790 17.33
Saucon Valley Cleaners 1,600 01/14 27,720 17.33
Super Fresh Food Market 47,827 12/18 657,621 13.75
In general, each tenant will pay its proportionate share of real estate taxes,
insurance and common area maintenance costs, although the leases with some
tenants may provide that the tenant's liability for such expenses is limited in
some way, usually so that their liability for such expenses does not exceed a
specified amount.
QUAKERTOWN SHOPPING CENTER, QUAKERTOWN, PENNSYLVANIA
We anticipate purchasing a newly constructed shopping center known as Quakertown
Shopping Center, containing 61,832 gross leasable square feet (which includes
3,500 of ground leased space). The center is located at Route 309 and Tollgate
Road in Quakertown, Pennsylvania.
On August 25, 2004, we funded the initial installment of a $12,664,794 first
mortgage in the amount of $11,398,314. The remaining $1,266,480 is expected to
be funded in 2004. The interest rate of this first mortgage is 7.5573% and it
matures in August 2005. We anticipate purchasing the center when the mortgage
matures for approximately $12,665,000. We will use the funds from repayment of
the first mortgage towards our purchase price.
One tenant, Giant Food Stores, leases more than 10% of the total gross leasable
area of the property. The lease with this tenant requires the tenant to pay base
annual rent on a monthly basis as follows:
Base Rent
Approximate Per Square
GLA Leased % of Total Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
-----------------------------------------------------------------------------------------------
Giant Food Stores 54,332 88 15.86 05/04 02/24
For federal income tax purposes, the depreciable basis in this property will be
approximately $9,499,000. When we calculate depreciation expense for tax
purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
-41-
Quakertown Shopping Center was constructed in 2004. As of September 1, 2004,
this property was 100% occupied, with a total 61,832 (including ground leased
space) square feet leased to five tenants. The following table sets forth
certain information with respect to those leases:
Approximate Current Base Rent Per
GLA Leased Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Rent ($) Per Annum ($)
------------------------------------------------------------------------------------
Best Cuts 1,200 02/09 25,200 21.00
Electronics Boutique 1,200 02/14 25,200 21.00
Dry Cleaner Drop Off 1,600 02/14 33,600 21.00
Giant Food Stores 54,332 02/24 861,706 15.86
Perkasie Bank (Ground Lease) 3,500 02/24 90,000 N/A
In general, each tenant will pay its proportionate share of real estate taxes,
insurance and common area maintenance costs, although the leases with some
tenants may provide that the tenant's liability for such expenses is limited in
some way, usually so that their liability for such expenses does not exceed a
specified amount.
THE COLUMNS SHOPPING CENTER, JACKSON, TENNESSEE
On August 24, 2004, we purchased 128,600 square feet of a 173,587 square foot
newly constructed shopping center known as The Columns Shopping Center,
consisting of three phases. The center is located at 1300 Vann Drive in Jackson,
Tennessee.
We purchased this property from an unaffiliated third party. Our total
acquisition cost was approximately $20,770,000. These amounts may increase by
additional costs which have not yet been finally determined. We expect any
additional costs to be insignificant. Our acquisition cost was approximately
$162 per square foot of leasable space.
We purchased this property with our own funds. On October 5, 2004, we obtained
financing in the amount of $11,423,300. The loan requires interest only payments
at an annual rate of 4.91% and matures November 2009.
We do not intend to make significant repairs and improvements to this property
over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
Four tenants, Best Buy, Ross Dress for Less, Marshalls and Bed, Bath & Beyond,
will lease more than 10% of the total gross leasable area of the property. The
lease term will be determined in accordance with the tenant's commencement date.
The lease with this tenant requires the tenant to pay base annual rent on a
monthly basis as follows:
Base Rent
Approximate Per Square
GLA Leased % of Total Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Begnning To
----------------------------------------------------------------------------------------------------------------
Best Buy 30,000 17 16.00 08/03 09/08
16.50 10/08 01/14
Ross Dress for Less* 30,187 17 9.75 * *
Marshalls 28,000 16 7.75 10/03 10/08
8.10 11/08 10/13
Bed, Bath & Beyond 20,000 12 9.75 11/03 01/14
-42-
* Lease term information is based on the date the tenant begins occupancy and is
not currently available.
For federal income tax purposes, the depreciable basis in this property will be
approximately $15,578,000. When we calculate depreciation expense for tax
purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
The Columns Shopping Center was constructed in 2003/2004. As of September 1,
2004, the property was 100% leased to 16 tenants. The following table sets forth
certain information with respect to those leases:
Approximate Base Rent Per
GLA Leased Lease Renewal Current Annual Square Foot
Lessee (Sq. Ft.) Ends Options Rent ($) Per Annum ($)
-----------------------------------------------------------------------------------------------------
Best Buy 30,000 01/14 4/5 yr 480,000 16.00
Old Navy* 14,800 * -- 186,480 12.60
Ross Dress for Less* 30,187 * -- 294,323 9.75
Bed, Bath & Beyond 20,000 01/14 3/5 yr 195,000 9.75
Books A Million 12,500 1/09 4/3 yr 134,375 10.75
Dress Barn 7,700 12/08 3/4 yr 102,795 13.35
Rack Room Shoes 6,000 03/09 3/5 yr 85,500 14.25
Spoil Me Rotten 2,000 03/09 -- 31,000 15.50
Rue 21 4,000 12/09 2/4 yr 60,000 15.00
Don Panchos Restaurant 4,000 04/09 1/5 yr 60,000 15.00
Grass Monkey 1,600 03/09 1/5 yr 24,000 15.00
Wells Fargo 2,400 05/09 1/5 yr 37,200 15.50
Oreck Vacuums 1,600 11/08 1/5 yr 24,800 15.50
Quizno's 1,600 03/14 2/5 yr 28,800 18.00
Shop Space* 7,200 -- -- 115,200 16.00
Marshalls 28,000 10/13 3/5 yr 217,000 7.75
* Lease term information is based on the date the tenant begins occupancy and is
not currently available.
In general, each tenant will pay its proportionate share of real estate taxes,
insurance and common area maintenance costs, although the leases with some
tenants may provide that the tenant's liability for such expenses is limited in
some way, usually so that their liability for such expenses does not exceed a
specified amount.
MITCHELL RANCH PLAZA, NEW PORT RICHEY, FLORIDA
On August 23, 2004, we purchased 200,404 square feet of a portion of a 324,108
square foot newly constructed shopping center known as Mitchell Ranch Plaza. The
center is located at State Road 54 and Little Road in New Port Richey, Florida.
We purchased this property from an unaffiliated third party. Our total
acquisition cost was approximately $34,003,300. This amount may increase by
additional costs which have not yet been finally determined. We expect any
additional costs to be insignificant. Our acquisition cost was approximately
$170 per square foot of leasable space.
We purchased this property with our own funds. On September 2, 2004, we obtained
financing in the amount of $18,700,000. The loan requires interest only payments
at an annual rate of 4.53% and matures October 2007.
We do not intend to make significant repairs and improvements to this property
over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
-43-
Three tenants, Publix, Marshalls and Ross Dress for Less, each leases more than
10% of the total gross leasable area of the property. The leases with these
tenants require the tenants to pay base annual rent on a monthly basis as
follows:
Base Rent
Approximate Per Square
GLA Leased % of Total Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
-----------------------------------------------------------------------------------------------
Publix 44,840 22 9.85 07/03 07/23
Marshalls 30,000 15 7.95 07/03 07/13
Ross Dress for Less 30,176 15 9.75 07/03 01/14
For federal income tax purposes, the depreciable basis in this property will be
approximately $25,503,000. When we calculate depreciation expense for tax
purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
Mitchell Ranch Plaza was constructed in 2003. As of September 1, 2004, this
property was 93% occupied, with a total 185,873 square feet leased to 35
tenants. The following table sets forth certain information with respect to
those leases:
Approximate Current Base Rent Per
GLA Leased Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Rent ($) Per Annum ($)
------------------------------------------------------------------------------------
Cottage Florist 1,200 08/06 22,212 18.51
Cruise Warehouse 900 08/06 18,228 20.25
Pocket Change 1,200 08/06 26,400 22.00
Vitamin Tree 1,200 09/06 22,800 19.00
Tampa Bay Insurance 900 09/06 16,656 18.51
Curves for Women 1,200 09/06 21,900 18.25
Brazilian Tan 1,800 10/06 32,856 18.25
Charles Pope Cellular 1,200 08/08 22,380 18.65
Magic Touch Cleaners 900 08/08 22,800 25.33
La Bebe's Salon 900 08/08 16,428 18.25
Working Cow 1,200 08/08 22,200 18.50
Cellular 1,200 08/08 22,116 18.43
Christos 2,400 09/08 43,200 18.00
Great Clips 1,000 09/08 19,248 19.25
Payless Shoesource 2,400 09/08 60,000 25.00
Aspasia Nails 1,200 09/08 22,200 18.50
Sally Beauty Supply 1,200 09/08 21,300 17.75
George Josef Salon 1,200 09/08 21,900 18.25
China Express 1,200 10/08 23,100 19.25
Trinity Spirits 3,950 10/08 53,280 13.49
American Family Dentist 1,200 10/08 21,780 18.15
VIP Martial Arts 4,050 12/08 67,836 16.75
Carlucci's 3,600 12/08 64,800 18.00
EB Games 1,200 01/09 26,400 22.00
Hallmark Gold Crown 3,950 01/09 65,172 16.50
Beefs O'Brady's 2,800 02/09 50,400 18.00
The Mattress Firm 3,000 02/09 72,300 24.10
The UPS Store 1,200 02/09 21,600 18.00
Cingular Wireless 900 04/09 27,000 30.00
Marshalls 30,000 07/13 238,500 7.95
-44-
Base Rent
Approximate Per Square
GLA Leased % of Total Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
-----------------------------------------------------------------------------------------------
Ross Dress for Less 30,176 01/14 294,216 9.75
Starbucks 1,500 01/14 42,000 28.00
Pier 1 Imports 10,000 02/14 161,796 16.18
PETsMART 19,107 01/19 211,128 11.05
Publix 44,840 07/23 441,672 9.85
* Lease renewal information not currently available.
In general, each tenant will pay its proportionate share of real estate taxes,
insurance and common area maintenance costs, although the leases with some
tenants may provide that the tenant's liability for such expenses is limited in
some way, usually so that their liability for such expenses does not exceed a
specified amount.
GOVERNOR'S MARKETPLACE SHOPPING CENTER, TALLAHASSEE, FLORIDA
On August 17, 2004, we purchased an existing shopping center known as Governor's
Marketplace Shopping Center, containing 265,541 gross leasable square feet. The
center is located on Governor's Square Boulevard, in Tallahassee, Florida.
We purchased this property from an unaffiliated third party with our own funds.
Our total acquisition cost was approximately $32,654,000. This amount may
increase by additional costs which have not yet been finally determined. We
expect any additional costs to be insignificant. Our acquisition cost was
approximately $123 per square foot of leasable space.
On August 17, 2004, we obtained financing on the property in the amount of
$20,625,000. The loan requires interest only payments at an annual rate of
5.185% and matures in September 2009.
We do not intend to make significant repairs and improvements to this property
over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
Three tenants, Bed, Bath & Beyond, Sports Authority and Marshalls, each lease
more than 10% of the total gross leasable area of the property. The leases with
these tenants require the tenants to pay base annual rent on a monthly basis as
follows:
Base Rent
Approximate Per Square
GLA Leased % of Total Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
-----------------------------------------------------------------------------------------------
Bed, Bath & Beyond 35,000 13 10.50 07/00 01/12
11.00 02/12 01/17
Sports Authority 34,775 13 0 08/03 01/04
11.91 01/04 08/08
Marshalls 30,000 11 7.75 05/01 05/06
8.25 06/06 05/11
For federal income tax purposes, the depreciable basis in this property will be
approximately $24,491,000. When we calculate depreciation expense for tax
purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
Governor's Marketplace was built in 2001. As of September 1, 2004, this property
was 84% occupied, with a total 223,902 square feet leased to 21 tenants. The
following table sets forth certain information with respect to those leases:
-45-
Approximate Current Base Rent Per
GLA Leased Renewal Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($)
----------------------------------------------------------------------------------------------------------
Famous Footwear 10,070 07/06 2/5 yr. 156,085 15.50
Student Body 3,721 08/06 1/5 yr. 81,321 21.85
Old Navy 20,000 09/06 2/5 yr. 230,000 11.50
Clark's Maytag 3,466 05/07 2/5 yr. 67,587 19.50
Life's Uniforms 1,217 06/07 1/5 yr. 26,774 22.00
Cingular Wireless 1,200 06/07 2/5 yr. 30,600 25.50
Sprint PCS 4,206 12/07 1/5 yr. 75,708 18.00
Sports Authority 34,775 08/08 5/5 yr. 414,170 11.91
Nextel Communications 1,443 09/08 1/5 yr. 36,075 25.00
ALLTEL 2,000 04/09 1/5 yr. 48,000 24.00
Michaels 23,965 02/11 4/5 yr. 251,633 10.50
Marshalls 30,000 05/11 2/5 yr. 232,500 7.75
Lifeway Christian 6,324 09/11 2/5 yr. 132,804 21.00
Atlanta Bread Company 4,000 11/11 2/5 yr. 94,520 23.63
Boston Market 3,800 11/12 4/5 yr. 60,000 15.79
David's Bridal 9,000 05/13 2/5 yr. 133,200 14.80
Petco 13,750 05/13 3/5 yr. 212,025 15.42
Bombay Company 8,500 08/13 1/5 yr. 208,250 24.50
Qdoba 2,000 04/14 2/5 yr. 42,000 21.00
Cargo Kids 5,465 08/14 - 124,602 22.80
Bed, Bath & Beyond 35,000 01/17 3/5 yr. 367,500 10.50
* The tenant is currently in bankruptcy proceedings and the space has not been
re-leased.
In general, each tenant will pay its proportionate share of real estate taxes,
insurance and common area maintenance costs, although the leases with some
tenants may provide that the tenant's liability for such expenses is limited in
some way, usually so that their liability for such expenses does not exceed a
specified amount.
MANCHESTER MEADOWS, TOWN AND COUNTRY, MISSOURI
On August 12, 2004, we purchased an existing shopping center known as Manchester
Meadows, containing 454,172 gross leasable square feet (which includes 3,412
square feet of ground lease space). The center is located at 13901 Manchester
Road in Town and Country, Missouri.
We purchased this property from an unaffiliated third party. Our total
acquisition cost was approximately $56,481,000. This amount may increase by
additional costs which have not yet been finally determined. We expect any
additional costs to be insignificant. Our acquisition cost was approximately
$124 per square foot of leasable space.
We purchased this property with our own funds. On August 23, 2004, we obtained
financing in the amount of $31,064,550. The loan requires interest only payments
at an annual rate of 4.48% and matures September 2007.
We do not intend to make significant repairs and improvements to this property
over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
Two tenants, Wal-Mart and Home Depot, each lease more than 10% of the total
gross leasable area of the property. The leases with these tenants require the
tenants to pay base annual rent on a monthly basis as follows:
-46-
Base Rent
Approximate Per Square
GLA Leased % of Total Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
-----------------------------------------------------------------------------------------------
Wal-Mart 154,717 34 7.00 04/95 04/15
Home Depot 111,175 24 7.47 11/94 11/19
For federal income tax purposes, the depreciable basis in this property will be
approximately $42,361,000. When we calculate depreciation expense for tax
purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
Manchester Meadows was built in 1994 and 1995. As of September 1, 2004, this
property was 96% occupied, with a total 434,772 square feet leased to 22
tenants. The following table sets forth certain information with respect to
those leases:
Approximate Current Base Rent Per
GLA Leased Renewal Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($)
------------------------------------------------------------------------------------------------------------------
Sears Portrait Studio 2,123 03/05 - 39,063 18.40
Linens 'N Things 34,917 01/05 3/5 yr. 340,441 9.75
HobbyTown USA 2,450 07/05 - 44,100 18.00
Chic Nails 1,400 05/06 - 28,000 20.00
Town & Country Tobacco 1,400 01/07 - 26,600 19.00
Fast Track Fitness 3,000 02/07 - 54,000 18.00
St. Louis Playscapes 3,000 04/07 - 54,000 18.00
United States Postal Service 3,570 04/07 1/5 yr. 63,225 17.71
Cobblestone Shoe Repairs 1,400 04/07 - 27,300 19.50
3 Day Blinds 4,550 03/08 1/5 yr. 104,640 23.00
Art & Frame 1,400 11/08 - 28,000 20.00
St. Louis Playscapes 7,500 12/08 1/5 yr. 150,000 20.00
99 Cent Only Store 3,000 01/09 1/5 yr. 49,500 16.50
Great Clips 1,400 04/09 - 29,400 21.00
Memories Unlimited 2,500 04/09 - 43,750 17.50
OfficeMax 23,920 11/09 3/5 yr. 239,200 10.00
PETsMART 27,438 03/10 4/5 yr. 240,083 8.75
The Sports Authority 40,500 11/14 10/5 yr. 324,000 8.00
Wal-Mart 154,717 04/15 6/5 yr. 1,083,018 7.00
Home Depot 111,175 11/19 10/5 yr. 830,088 7.47
Boston Chicken (Ground Lease) 3,412 08/05 7/5 yr. 79,200 N/A
In general, each tenant will pay its proportionate share of real estate taxes,
insurance and common area maintenance costs, although the leases with some
tenants may provide that the tenant's liability for such expenses is limited in
some way, usually so that their liability for such expenses does not exceed a
specified amount.
THE VILLAGE SHOPPES AT SIMONTON, LAWRENCEVILLE, GEORGIA
On August 9, 2004, we purchased a newly constructed shopping center known as The
Village Shoppes at Simonton, containing 66,415 gross leasable square feet. The
center is located at New Hope Road and Simonton Road in Lawrenceville, Georgia.
-47-
We purchased this property from an unaffiliated third party. Our total
acquisition cost was approximately $13,749,000. This amount may increase by
additional costs which have not yet been finally determined. We expect any
additional costs to be insignificant. Our acquisition cost was approximately
$207 per square foot of leasable space.
We purchased this property with our own funds. On September 30, 2004, we
obtained financing in the amount of $7,561,700. The loan requires interest only
payments at an annual rate of 4.96% and matures October 2009. We do not intend
to make significant repairs and improvements to this property over the next few
years. However, if we were to make any repairs or improvements, the tenants
would be obligated to pay a substantial portion of any monies spent pursuant to
the provisions of their respective leases.
One tenant, Publix, will lease more than 10% of the total gross leasable area of
the property. The lease with this tenant requires the tenant to pay base annual
rent on a monthly basis as follows:
Base Rent
Approximate Per Square
GLA Leased % of Total Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
-----------------------------------------------------------------------------------------------
Publix 44,271 67 10.95 05/04 05/24
For federal income tax purposes, the depreciable basis in this property will be
approximately $10,312,000. When we calculate depreciation expense for tax
purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
The Village Shoppes at Simonton was newly constructed in 2004. As of September
1, 2004, this property was 85% occupied with a total of 56,615 square feet
leased to nine tenants. The following table sets forth certain information with
respect to those leases:
Approximate Current Base Rent Per
GLA Leased Renewal Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($)
----------------------------------------------------------------------------------------------------------
Subway Real Estate Corp. 1,400 04/09 3/5 yr. 32,900 23.50
Dollar Store 2,644 06/09 1/5 yr. 60,812 23.00
South Eastern Dry Cleaners 1,500 07/09 1/5 yr. 42,000 28.00
Pak Mail Center 1,400 07/09 1/5 yr. 35,000 25.00
Nails and Tanning 1,200 07/09 1/5 yr. 30,000 25.00
Pizza Hut of America 1,400 07/10 * 32,900 23.50
Supercuts 1,400 08/09 1/5 yr. 33,600 24.00
New China 1,400 08/09 * 32,200 23.00
Publix 44,271 05/24 * 484,767 10.95
* Lease renewal option information not currently available.
In general, each tenant will pay its proportionate share of real estate taxes,
insurance and common area maintenance costs, although the leases with some
tenants may provide that the tenant's liability for such expenses is limited in
some way, usually so that their liability for such expenses does not exceed a
specified amount.
REISTERSTOWN ROAD PLAZA, BALTIMORE, MARYLAND
On August 4, 2004, we entered into a joint venture agreement with the current
owners of an existing shopping center known as Reisterstown Road Plaza,
containing 779,397 gross leasable square feet. The center is located at
6500-6512 Reisterstown Road, Baltimore, Maryland
-48-
We entered into a joint venture agreement with the current owners of this
property, who are unaffiliated third parties. We made a capital contribution in
the amount of $88,500,000 to this joint venture and received an equity interest
representing a majority ownership and operating control of this joint venture.
We made our capital contribution to the joint venture with our own funds. On
August 11,2004, we obtained financing in the amount of $49,650,000. The loan
requires interest only payments at an annual rate of 5.30% and matures September
2009. Through additional joint ventures, the joint venture partners may acquire
additional properties, which would be managed by our joint venture partner.
We do not intend to make significant repairs and improvements to this property
over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
Three tenants, Home Depot, Public Safety Service and National Wholesale
Liquidators, each lease more than 10% of the total gross leasable area of the
property. The leases with these tenants require the tenants to pay base annual
rent on a monthly basis as follows:
Base Rent
Approximate Per Square
GLA Leased % of Total Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
---------------------------------------------------------------------------------------------------------
Home Depot 115,289 15 5.20 11/02 01/33
Public Safety Service 107,705 14 12.00 01/98 04/11
National Wholesale Liquidators 91,129 12 4.00 05/00 01/11
For federal income tax purposes, the depreciable basis in this property will be
approximately $66,375,000. When we calculate depreciation expense for tax
purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
Reisterstown Road Plaza was built in 1986 and renovated in 2004. As of September
1, 2004, this property was 86% occupied, with a total 668,369 square feet leased
to 72 tenants. The following table sets forth certain information with respect
to those leases:
Approximate Current Base Rent Per
GLA Leased Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Rent ($) Per Annum ($)
---------------------------------------------------------------------------------------------------
African Art and Craft 222 Month To Month 10,800 48.65
Shingar 2,250 09/04 41,333 18.37
Perfumery International, Inc. 200 01/05 16,000 80.00
Injury Treatment Center 3,501 03/05 50,660 14.47
Hip Hop One Stop 238 06/05 10,800 45.38
Baltimore City Community College
(BCCC) 14,620 05/06 189,329 12.95
Royal Gems & Jewelry 330 09/06 13,530 41.00
Time and More 787 09/06 13,355 16.97
Changes 4,500 09/06 27,720 6.16
Burlington Coat Factory 60,000 10/06 342,000 5.70
Gifts and Balloons 238 12/06 12,000 50.42
Avenue 5,000 01/07 71,250 14.25
-49-
Approximate Current Base Rent Per
GLA Leased Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Rent ($) Per Annum ($)
---------------------------------------------------------------------------------------------------
Popeyes 3,523 01/07 59,891 17.00
Bank of America 5,250 01/07 77,976 14.85
Payless Shoes 4,985 07/07 43,519 8.73
Sally Beauty Supply 1,500 11/07 27,000 18.00
Power Gamer 1,902 12/07 31,954 16.80
Nuvo 2,017 12/07 25,213 12.50
Furniture Palace 39,243 12/07 247,231 6.30
Accent Hair 1,690 01/08 35,152 20.80
Rent-A-Center 4,300 01/08 73,100 17.00
Juvenile Justice 7,291 01/08 98,428 13.50
Revelations Shoe Shop 845 03/08 11,314 13.39
Jackson Hewitt Tax Service 1,217 04/08 30,425 25.00
Gallo 5,143 04/08 42,790 8.32
Vogue Hair Supply 1,050 05/08 20,066 19.11
Park West Medical 7,783 06/08 92,229 11.85
Thi Delight 588 08/08 17,640 30.00
Economy Shoes 3,293 09/08 32,930 10.00
Vital Records 11,500 11/08 154,675 13.45
Sepia Sand & Sable 1,267 12/08 20,272 16.00
Shoe Crazy 4,655 02/09 93,100 20.00
An Angel's Touch 1,598 02/09 19,751 12.36
Board of Nursing 15,232 02/09 195,731 12.85
Dollar City 5,181 04/09 51,810 10.00
Curves For Women 1,600 06/09 22,400 14.00
His and Hers 3,478 06/09 76,516 22.00
The Great Cookie 751 06/09 14,344 19.10
Chic Nails 839 08/09 17,770 21.18
New Direction Barber Shop 1,086 12/09 22,372 20.60
Gold Lagoon 839 03/10 13,827 16.48
Provident Bank 2,593 11/10 57,046 22.00
National Wholesale Liquidators 91,129 01/11 364,516 4.00
Public Safety Service 107,705 04/11 1,292,400 12.00
Subway 250 05/12 27,000 108.00
Vision Beauty Supply 2,832 07/12 43,896 15.50
All Eyes 1,857 07/12 28,691 15.45
Plaza Podiatry 1,964 08/12 39,280 20.00
DHMN State (BCCC) 23,250 10/12 290,625 12.50
Mattress Warehouse 4,000 11/12 76,000 19.00
Mall Spirits 2,236 01/13 27,637 12.36
Footlocker 3,000 03/13 54,000 18.00
Square Circle 651 03/13 10,416 16.00
KS Alterations 500 03/13 15,750 31.50
Cobblers And Cleaners 1,374 04/13 27,480 20.00
Social Security Administration 14,885 06/13 145,873 9.80
Evergreen Cafe 835 07/13 25,050 30.00
Sausage Plus 386 07/13 8,492 22.00
Steak Busters 855 07/13 34,200 40.00
Harbor City Bake Shop 1,061 05/13 25,464 24.00
Blackstone Men's Wear 3,540 07/13 46,020 13.00
Lot Stores 5,335 07/13 34,678 6.50
Pick-A-Pretzel 318 07/13 7,950 25.00
-50-
Approximate Current Base Rent Per
GLA Leased Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Rent ($) Per Annum ($)
---------------------------------------------------------------------------------------------------
Burgundy Park Seafood 544 07/13 26,112 48.00
Total Health Center 1,050 09/13 15,750 15.00
Metro II 1,453 10/13 24,701 17.00
Shoe City 6,740 01/14 89,979 13.35
Marshalls 28,500 04/14 299,607 10.50
Original Mamma Lucia 1,695 05/14 59,325 35.00
Baltimore City Community College
WBJC Radio Station 5,010 06/14 64,629 12.90
Applebee's Neighborhood Grill & Bar 6,000 02/18 88,020 14.67
Home Depot 115,289 01/33 600,000 5.20
In general, each tenant will pay its proportionate share of real estate taxes,
insurance and common area maintenance costs, although the leases with some
tenants may provide that the tenant's liability for such expenses is limited in
some way, usually so that their liability for such expenses does not exceed a
specified amount.
WAL-MART SUPERCENTER, JONESBORO, ARKANSAS
On August 4, 2004, we purchased an existing freestanding retail center known as
Wal-Mart Supercenter, containing 149,704 gross leasable square feet. The center
is located at 1911 West Parker Road in Jonesboro, Arkansas.
We purchased this property from an unaffiliated third party. Our total
acquisition cost was approximately $10,853,000. This amount may increase by
additional costs which have not yet been finally determined. We expect any
additional costs to be insignificant. Our acquisition cost was approximately $72
per square foot of leasable space.
We purchased this property with our own funds. On August 6, 2004, we obtained
financing in the amount of $6,088,500. The loan requires interest only payments
at an annual rate of 5.085% and matures September 2009.
We do not intend to make significant repairs and improvements to this property
over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
One tenant, Wal-Mart Supercenter, will lease 100% of the total gross leasable
area of the property. The lease with this tenant requires the tenant to pay base
annual rent on a monthly basis as follows:
Base Rent
Approximate Current Per Square
GLA Leased % of Total Annual Foot Per Renewal Lease Term
Lessee (Sq. Ft.) GLA Rent ($) Annum ($) Options Beginning To
--------------------------------------------------------------------------------------------------------------------------
Wal-Mart
Supercenter 149,704 100 808,402 5.40 5/5 yr. 10/97 10/17
For federal income tax purposes, the depreciable basis in this property will be
approximately $8,140,000. When we calculate depreciation expense for tax
purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
ACADEMY SPORTS & OUTDOORS, HOUMA, LOUISIANA
On July 30, 2004, we purchased a newly constructed freestanding retail center
known as Academy Sports & Outdoors, containing 60,001 gross leasable square
feet. The center is located at 1777 Martin Luther King Boulevard in Houma,
Louisiana.
-51-
We purchased this property from an unaffiliated third party. Our total
acquisition cost was approximately $5,250,000. This amount may increase by
additional costs which have not yet been finally determined. We expect any
additional costs to be insignificant. Our acquisition cost was approximately $88
per square foot of leasable space.
We purchased this property with our own funds. On August 4, 2004, we obtained
financing for this property in the amount of $2,920,000. The loan requires
interest only payments at an annual rate of 5.12% and matures September 2009.
We do not intend to make significant repairs and improvements to this property
over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
One tenant, Academy Sports & Outdoors, will lease 100% of the total gross
leasable area of the property. The lease term will be determined in accordance
with the tenant's commencement date. The lease with this tenant requires the
tenant to pay base annual rent on a monthly basis as follows:
Base Rent
Approximate Current Per Square
GLA Leased % of Total Annual Foot Per Renewal
Lessee (Sq. Ft.) GLA Rent ($) Annum ($) Options Lease Term
-----------------------------------------------------------------------------------------------------------------------
Academy Sports
& Outdoors 60,001 100 420,000 7.00 4/5 yr. 07/04 07/14
7.70 08/14 07/24
For federal income tax purposes, the depreciable basis in this property will be
approximately $3,937,000. When we calculate depreciation expense for tax
purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
FORKS TOWN CENTER, EASTON, PENNSYLVANIA
On July 27, 2004, we purchased an existing shopping center known as Forks Town
Center, containing 92,660 gross leasable square feet (which includes 5,100
square feet of ground lease space). The center is located at 301 Town Center
Boulevard in Easton, Pennsylvania.
We purchased this property from an unaffiliated third party. Our total
acquisition cost was approximately $18,198,700. This amount may increase by
additional costs which have not yet been finally determined. We expect any
additional costs to be insignificant. Our acquisition cost was approximately
$196 per square foot of leasable space.
We purchased this property with our own funds. On August 13, 2004, we obtained
financing in the amount of $10,395,000. The loan requires interest only payments
at an annual rate of 4.97% and matures August 2009.
We do not intend to make significant repairs and improvements to this property
over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
One tenant, Giant Food Stores, leases more than 10% of the total gross leasable
area of the property. The lease with this tenant requires the tenant to pay base
annual rent on a monthly basis as follows:
Base Rent
Approximate Per Square
GLA Leased % of Total Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
-------------------------------------------------------------------------------------------------------
Giant Food Stores 54,300 59 16.04 08/02 08/12
-52-
17.04 09/12 08/17
18.04 09/17 08/22
For federal income tax purposes, the depreciable basis in this property will be
approximately $13,649,000. When we calculate depreciation expense for tax
purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
Forks Town Center was built in 2002. As of September 1, 2004, this property was
96% occupied, with a total 88,660 square feet leased to 14 tenants and ground
lease space leased to two tenants. The following table sets forth certain
information with respect to those leases:
Approximate Current Base Rent Per
GLA Leased Renewal Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($)
-------------------------------------------------------------------------------------------------------------------------
Movie Gallery 3,200 08/07 3/5 yr. 44,800 14.00
Vista Bank United Trust 2,500 12/07 3/5 yr. 50,000 20.00
Subway 1,600 11/07 1/5 yr. 28,000 17.50
H & R Block 1,600 01/08 1/3 yr. 30,400 19.00
Hollywood Tans 2,400 02/08 1/5 yr. 49,416 20.59
PL Nails 1,200 04/08 1/5 yr. 21,600 18.00
China Moon 3,200 04/08 1/5 yr. 48,000 15.00
Catanzaretti's Pizza 2,400 05/08 - 43,200 18.00
Something Different 1,600 09/08 1/5 yr. 32,000 20.00
Holiday Hair 1,600 09/08 - 33,600 21.00
D & J Cleaners 1,200 11/08 1/5 yr. 19,200 16.00
Data Danz Wireless 1,360 03/09 - 20,400 15.00
Fox Hallmark 5,400 08/09 2/5 yr. 129,600 24.00
Giant Food Stores 54,300 08/22 8/5 yr. 870,972 16.04
Giant Gas Station (Ground Lease) 2,400 01/23 8/5 yr. 12,500 N/A
Dunkin Donuts (Ground Lease) 2,700 08/13 3/5 yr. & 1/4 yr. 40,000 N/A
In general, each tenant will pay its proportionate share of real estate taxes,
insurance and common area maintenance costs, although the leases with some
tenants may provide that the tenant's liability for such expenses is limited in
some way, usually so that their liability for such expenses does not exceed a
specified amount.
PLAZA AT MARYSVILLE, MARYSVILLE, WASHINGTON
On July 26, 2004, we purchased an existing shopping center known as Plaza at
Marysville, containing 115,656 gross leasable square feet and one ground lease
space. The center is located at State Avenue and Grove Street, in Marysville,
Washington.
We purchased this property from an unaffiliated third party. Our total
acquisition cost was approximately $21,266,000. This amount may increase by
additional costs which have not yet been finally determined. We expect any
additional costs to be insignificant. Our acquisition cost was approximately
$184 per square foot of leasable space.
We purchased this property with our own funds. On July 30, 2004, we obtained
financing in the amount of $11,800,000. The loan requires interest only payments
at an annual rate of 5.085% and matures August 2009.
We do not intend to make significant repairs and improvements to this property
over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
-53-
One tenant, Safeway, leases more than 10% of the total gross leasable area of
the property. The lease with this tenant requires the tenant to pay base annual
rent on a monthly basis as follows:
Base Rent
Approximate Per Square
GLA Leased % of Total Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
---------------------------------------------------------------------------------------------
Safeway 53,850 47 11.00 07/01 07/21
For federal income tax purposes, the depreciable basis in this property will be
approximately $15,950,000. When we calculate depreciation expense for tax
purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
Plaza at Marysville was built in 1995. As of September 1, 2004, this property
was 95% occupied, with a total 110,356 square feet leased to 24 tenants and one
ground lease space. The following table sets forth certain information with
respect to those leases:
Approximate Current Base Rent Per
GLA Leased Renewal Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Option Rent ($) Per Annum ($)
-----------------------------------------------------------------------------------------------------------------
Alderwood Auto Glass 1,500 07/05 - 20,112 13.41
Northwest Credit Union 1,300 11/05 1/2 yr. 24,050 18.50
Supercuts 1,300 11/05 2/5 yr. 24,696 19.00
GNC 1,422 01/06 - 25,344 17.82
Marysville Daycare 7,345 01/06 - 97,321 13.25
Alta's Pet Gallery 3,375 05/06 1/5 yr. 45,563 13.50
Papa Murphy's 1,300 07/06 1/5 yr. 26,004 20.00
Safeway District Office 901 07/06 2/5 yr. 12,468 13.84
Mail Box Junction 904 09/06 - 16,272 19.00
Alpha Denture Clinic 904 10/06 - 17,172 19.00
Hi-Tek Nails 863 11/06 1/5 yr. 18,120 21.00
Play It Again Sports 3,000 11/06 1/5 yr. 49,173 16.39
Fowlds Cleaners 1,500 12/06 1/5 yr. 24,000 16.00
Sally Beauty Supplies 1,300 01/07 1/5 yr. 24,696 19.00
The Everett Clinic 1,200 03/07 - 24,600 20.50
Cigar Land 1,050 03/07 1/5 yr. 22,281 21.22
Check into Cash 1,546 07/07 1/3 yr. 30,920 20.00
Edward Jones 1,500 07/08 1/5 yr. 27,750 18.50
Rent-A-Center 3,961 09/08 - 51,492 13.00
The Sun Factory 1,803 09/08 1/5 yr. 32,454 18.00
Hollywood Video 6,540 08/09 2/5 yr. 98,100 15.00
Party City 7,992 01/10 2/5 yr. 107,892 13.50
Safeway Fuel Site (Ground
Lease) N/A 01/11 10/5 yr. 50,000 N/A
Home Street Bank 4,000 12/20 - 80,004 20.00
Safeway 53,850 07/21 8/5 yr. 592,356 11.00
In general, each tenant will pay its proportionate share of real estate taxes,
insurance and common area maintenance costs, although the leases with some
tenants may provide that the tenant's liability for such expenses is limited in
some way, usually so that their liability for such expenses does not exceed a
specified amount.
WRANGLER COMPANY, WESTERN HEADQUARTERS AND DISTRIBUTION FACILITY, EL PASO, TEXAS
-54-
On July 22, 2004, we purchased an existing freestanding office and distribution
center leased to Wrangler Company, containing 316,800 gross leasable square
feet. The center is located at 12173 Rojas Drive in El Paso, Texas.
We purchased this property from an unaffiliated third party. Our total
acquisition cost was approximately $18,476,800. This amount may increase by
additional costs which have not yet been finally determined. We expect any
additional costs to be insignificant. Our acquisition cost was approximately $58
per square foot of leasable space.
We purchased this property with our own funds. On July 26, 2004, we obtained
financing in the amount of $11,300,000. The loan requires interest only payments
at an annual rate of 5.09% and matures August 2009.
We do not intend to make significant repairs and improvements to this property
over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
One tenant, Wrangler Company, will lease 100% of the total gross leasable area
of the property. The lease with this tenant requires the tenant to pay base
annual rent on a monthly basis as follows:
Base Rent
Approximate Current Per Square
GLA Leased % of Total Annual Foot Per Renewal Lease Term
Lessee (Sq. Ft.) GLA Rent ($) Annum ($) Options Beginning To
----------------------------------------------------------------------------------------------------------------------
Wrangler Company 316,800 100 1,504,800 4.75 3/7 yr. 11/93 11/13
For federal income tax purposes, the depreciable basis in this property will be
approximately $13,858,000. When we calculate depreciation expense for tax
purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
GATEWAY PLAZA SHOPPING CENTER, SOUTHLAKE, TEXAS
On July 21, 2004, we purchased an existing shopping center known as Gateway
Plaza Shopping Center, containing 358,501 gross leasable square feet. The center
is located on State Highway 114 and Southlake Boulevard, in Southlake, Texas.
We purchased this property from an unaffiliated third party. Our total
acquisition cost was approximately $33,025,000. This amount may increase by
additional costs which have not yet been finally determined. We expect any
additional costs to be insignificant. Our acquisition cost was approximately $92
per square foot of leasable space.
We purchased this property with our own funds. On September 1, 2004, we obtained
financing in the amount of $18,163,000. The loan requires interest only payments
at an annual rate of 5.10% and matures September 2009.
We do not intend to make significant repairs and improvements to this property
over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
One tenant, Kohl's, leases more than 10% of the total gross leasable area of the
property. The lease with this tenant requires the tenant to pay base annual rent
on a monthly basis as follows:
Base Rent
Approximate Per Square
GLA Leased % of Total Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
---------------------------------------------------------------------------------------------
Kohl's 87,423 24 5.74 08/00 01/21
-55-
For federal income tax purposes, the depreciable basis in this property will be
approximately $24,769,000. When we calculate depreciation expense for tax
purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
Gateway Plaza Shopping Center was built in 2000. As of September 1, 2004, this
property was 90% occupied, with a total 324,240 square feet leased to 25
tenants. The following table sets forth certain information with respect to
those leases:
Approximate Current Base Rent Per
GLA Leased Renewal Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($)
-------------------------------------------------------------------------------------------------------------
Cool Cuts for Kids 1,194 09/05 1/5 yr. 28,656 24.00
Old Navy 25,000 09/05 3/5 yr. 225,000 9.00
Mattress Firm 4,008 09/05 2/5 yr. 88,176 22.00
Rack Room 7,996 09/05 2/5 yr. 147,926 18.50
Carpet Mills of America 3,493 11/05 1/5 yr. 76,846 22.00
Dress Barn 8,127 12/05 3/5 yr. 121,905 15.00
Baker Brothers 3,000 12/05 - 75,000 25.00
Calico Corners 5,278 12/05 2/5 yr. 126,672 24.00
Chipotle Mexican Grill 2,432 12/05 3/5 yr. 59,025 24.27
Fitness Headquarters 2,500 01/06 2/5 yr. 62,500 25.00
Home Theater Store 6,000 02/08 1/6 mo. 156,000 26.00
Shogun Shushi 4,253 05/09 2/5 yr. 114,831 27.00
Michaels 23,838 02/10 4/5 yr. 262,218 11.00
T.J. Maxx 30,600 08/10 3/5 yr. 267,750 8.75
Ultra Cosmetics & Salon 11,250 10/10 3/5 yr. 202,500 18.00
Thomasville Home Furniture 18,615 12/10 2/5 yr. 252,792 13.58
Bed Bath & Beyond 30,000 01/11 4/5 yr. 330,000 11.00
Anamia's Retail 5,058 02/11 2/5 yr. 126,450 25.00
Aaron Brothers Art & Frame 6,500 02/11 2/5 yr. 143,000 22.00
Starbucks 1,830 03/11 2/5 yr. 54,900 30.00
Pearle Vision 3,027 10/12 2/5 yr. 71,437 23.60
Zales 3,587 11/13 3/5 yr. 60,979 17.00
OfficeMax 23,801 01/16 4/5 yr. 261,250 10.98
Bank of America 5,430 12/20 3/5 yr. 190,000 34.99
Kohl's 87,423 01/21 6/5 yr. 502,187 5.74
In general, each tenant will pay its proportionate share of real estate taxes,
insurance and common area maintenance costs, although the leases with some
tenants may provide that the tenant's liability for such expenses is limited in
some way, usually so that their liability for such expenses does not exceed a
specified amount.
WAL-MART SUPERCENTER, BLYTHEVILLE, ARKANSAS
On July 21, 2004, we purchased an existing retail store known as Wal-Mart
Supercenter, containing 183,211 gross leasable square feet. The store is located
at 3700 Highway 18, in Blytheville, Arkansas.
We purchased this property from an unaffiliated third party. Our total
acquisition cost was approximately $12,935,000. This amount may increase by
additional costs which have not yet been finally determined. We expect any
additional costs to be insignificant. Our acquisition cost was approximately $71
per square foot of leasable space.
-56-
We purchased this property with our own funds. On August 31, 2004, we obtained
financing in the amount of $7,100,000. The loan requires interest only payments
at an annual rate of 4.39% and matures September 2007.
We do not intend to make significant repairs and improvements to this property
over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
One tenant, Wal-Mart Supercenter, leases 100% of the total gross leasable area
of the property. The lease with this tenant requires the tenant to pay base
annual rent on a monthly basis as follows:
Base Rent
Approximate Current Per Square
GLA Leased % of Total Annual Foot Per Renewal Lease Term
Lessee (Sq. Ft.) GLA Rent ($) Annum ($) Options Beginning To
---------------------------------------------------------------------------------------------------------------------
Wal-Mart Supercenter 183,211 100 902,422 4.93 6/5 yr. 04/99 04/19
For federal income tax purposes, the depreciable basis in this property will be
approximately $9,701,000. When we calculate depreciation expense for tax
purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
GATEWAY VILLAGE, ANNAPOLIS, MARYLAND
On July 21, 2004, we entered into a joint venture agreement with the current
owners of an existing shopping center known as Gateway Village, containing
273,788 gross leasable square feet. The center is located at Housley Road and
Defense Highway in Annapolis, Maryland.
We entered into a joint venture agreement with the current owners of this
property who are unaffiliated third parties. We made a capital contribution in
the amount of $49,513,455 to this joint venture and received an equity interest
representing a majority ownership and operating control of this joint venture.
We made our capital contribution to the joint venture with our own funds. On
July 21, 2004, we obtained financing in the form of two loans totaling
$31,458,000. The first loan requires interest only payments on $27,233,000 at an
annual rate of the three month LIBOR Rate and 113 basis points and matures July
2009. The second loan requires interest only payments on $4,225,000 at an annual
interest rate of the three month LIBOR Rate and 200 basis points and matures
August 2005. Through additional joint ventures, the joint venture partners may
acquire additional properties, which would be managed by our joint venture
partner.
Three tenants, Safeway, Burlington Coat Factory and Best Buy, each lease more
than 10% of the total gross leasable area of the property. The leases with these
tenants require the tenants to pay base annual rent on a monthly basis as
follows:
Base Rent
Approximate Per Square
GLA Leased % of Total Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
--------------------------------------------------------------------------------------------------------------
Safeway 53,000 19 10.00 06/02 06/22
Burlington Coat Factory 68,400 25 6.00 03/99 02/04
6.29 03/04 02/09
Best Buy 58,000 21 16.00 04/96 04/01
17.00 05/01 04/06
18.00 05/06 04/11
-57-
For federal income tax purposes, the depreciable basis in this property will be
approximately $37,135,000. When we calculate depreciation expense for tax
purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
Gateway Village was built in 1996. As of September 1, 2004, this property was
100% occupied, with a total 273,788 square feet leased to 16 tenants. The
following table sets forth certain information with respect to those leases:
Approximate Current Base Rent Per
GLA Leased Renewal Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($)
------------------------------------------------------------------------------------------------------------------
Rugged Wearhouse 9,981 01/05 2/5 yr. 129,753 13.00
Big Screen Store 3,525 10/05 2/5 yr. 88,125 25.00
Regional Acceptance Corp 2,000 02/06 1/5 yr. 41,524 20.76
Career Partners 1,600 02/06 1/5 yr. 36,716 22.95
Chesapeake Open MRI 3,000 04/06 1/5 yr. 72,120 24.04
Annapolis Hair 6,400 03/07 - 92,383 14.43
US Army 2,877 04/07 1/5 yr. 63,294 22.00
Standard Carpet 3,975 08/07 1/5 yr. 113,279 28.50
Burlington Coat Factory 68,400 02/09 4/5 yr. 430,543 6.29
Jenny Craig 3,200 03/09 1/5 yr. 51,200 16.00
Best Buy 58,000 04/11 3/5 yr. 986,000 17.00
Staples 24,491 08/11 3/5 yr. 404,101 16.50
Sakura 4,600 12/11 2/5 yr. 82,800 18.00
PETsMART 25,416 01/12 5/5 yr. 419,364 16.50
Safeway 53,000 06/22 6/5 yr. 530,000 10.00
Beneficial Maryland 3,323 Month To Month - 63,137 19.00
In general, each tenant will pay its proportionate share of real estate taxes,
insurance and common area maintenance costs, although the leases with some
tenants may provide that the tenant's liability for such expenses is limited in
some way, usually so that their liability for such expenses does not exceed a
specified amount.
TOWSON CIRCLE, TOWSON, MARYLAND
On July 21, 2004, we entered into a joint venture agreement with the current
owners of an existing shopping center known as Towson Circle, containing 116,366
gross leasable square feet of which 8,838 is a ground lease. The center is
located at York, Dulaney Valley and Joppa Roads, in Towson, Maryland.
We entered into a joint venture agreement with the current owners of this
property, who are unaffiliated third parties. We made a capital contribution in
the amount of $28,450,000 to this joint venture and received an equity interest
representing a majority ownership and operating control of this joint venture.
We made our capital contribution to the joint venture with our own funds. On
July 21, 2004, we obtained financing in the form of two loans totaling
$19,197,500. The first loan requires interest only payments on $15,647,500 at an
annual rate of 5.10% and matures July 2009. The second loan requires interest
only payments on $3,550,000 at an annual rate of 3.60% for the first ninety days
and thereafter at the three month LIBOR Rate and 200 basis points. The loan
matures August 2005. Through additional joint ventures, the joint venture
partners may acquire additional properties, which would be managed by our joint
venture partner.
-58-
We do not intend to make significant repairs and improvements to this property
over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
Four tenants, Barnes & Noble, Trader Joe's East, Bally Total Fitness and Pier 1
Imports, each lease more than 10% of the total gross leasable area of the
property. The leases with these tenants require the tenants to pay base annual
rent on a monthly basis as follows:
Base Rent
Approximate Per Square
GLA Leased % of Total Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
---------------------------------------------------------------------------------------------------------
Barnes & Noble 31,222 27 20.42 11/98 01/14
Trader Joe's East 11,875 10 * 09/00 09/10
Bally Total Fitness 21,713 19 20.50 12/99 12/04
21.50 01/05 12/09
22.50 01/10 12/14
Pier 1 Imports 12,252 10 17.06 12/98 12/03
19.62 01/04 12/08
* This tenant's lease pays percentage rent only on a monthly basis.
For federal income tax purposes, the depreciable basis in this property will be
approximately $21,338,000. When we calculate depreciation expense for tax
purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
Towson Circle was built in 1998. As of September 1, 2004, this property was 92%
occupied, with a total 106,621 square feet leased to 13 tenants. The following
table sets forth certain information with respect to those leases:
Approximate Current Base Rent Per
GLA Leased Renewal Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($)
-------------------------------------------------------------------------------------------------------
Mattress Discounters 2,518 05/05 1/5 yr. 62,950 25.00
T-Mobile 1,996 09/05 1/5 yr. 52,346 26.23
Hollywood Tanning System 2,087 09/07 1/5 yr. 53,740 25.75
Nextel 400 03/08 3/5 yr. 24,720 61.80
Sprint PCS 3,128 11/08 - 86,250 27.57
Pier 1 Imports 12,252 12/08 2/5 yr. 240,350 19.62
Storehouse, Inc. 6,345 09/09 - 155,453 24.50
Country Curtains 4,000 07/10 1/5 yr. 80,000 20.00
Trader Joe's East 11,875 09/10 2/5 yr. * N/A
Barnes & Noble 31,222 01/14 3/5 yr. 637,553 20.42
Bally Total Fitness 21,713 12/14 2/5 yr. 445,116 20.50
ATM Machines 247 04/15 - 5,400 21.86
Bahama Breeze Restaurant
(Ground Lease) 8,838 09/18 3/5 yr. 238,336 N/A
-59-
* This tenant's lease pays percentage rent only on a monthly basis.
In general, each tenant will pay its proportionate share of real estate taxes,
insurance and common area maintenance costs, although the leases with some
tenants may provide that the tenant's liability for such expenses is limited in
some way, usually so that their liability for such expenses does not exceed a
specified amount.
TOLLGATE MARKETPLACE, BEL AIR, MARYLAND
On July 19, 2004, we entered into a joint venture agreement with the current
owners of an existing shopping center known as Tollgate Marketplace, containing
392,587 gross leasable square feet. The center is located at Route 24 and Route
1, in Bel Air, Maryland.
We entered into a joint venture agreement with the current owners of this
property, who are unaffiliated third parties. We made a capital contribution in
the amount of $72,100,000 to this joint venture and received an equity interest
representing a majority ownership and operating control of this joint venture.
We made our capital contribution to the joint venture with our own funds. On
July 21, 2004, we obtained financing in the amount of $39,765,000. The loan
requires interest only payments at an annual rate of 2.80% for the first ninety
days and thereafter at the three month LIBOR Rate and 120 basis points. The loan
matures July 2009. Through additional joint ventures, the joint venture partners
may acquire additional properties, which would be managed by our joint venture
partner.
We do not intend to make significant repairs and improvements to this property
over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
Two tenants, Giant Food and Jo Ann Fabrics, each lease more than 10% of the
total gross leasable area of the property. The leases with these tenants require
the tenants to pay base annual rent on a monthly basis as follows:
Base Rent
Approximate Per Square
GLA Leased % of Total Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
-------------------------------------------------------------------------------------------------
Giant Food 40,400 10 4.36 11/79 10/09
Jo Ann Fabrics 46,000 12 11.00 07/98 01/09
For federal income tax purposes, the depreciable basis in this property will be
approximately $54,225,000. When we calculate depreciation expense for tax
purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
Tollgate Marketplace was built in 1979 and renovated in 1994. As of September 1,
2004, this property was 100% occupied, with a total 392,587 square feet leased
to 34 tenants. The following table sets forth certain information with respect
to those leases:
Approximate Current Base Rent Per
GLA Leased Renewal Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($)
-----------------------------------------------------------------------------------------------------------
Sylvan Learning Center 3,900 06/05 1/5 yr. 75,335 19.32
AT & T Wireless 2,000 09/05 1/5 yr. 63,999 32.00
Carvel Ice Cream 1,250 10/05 1/5 yr. 31,250 25.00
Foto Image 1 Hour 1,600 11/05 - 35,200 22.00
Outback Steakhouse 6,200 12/05 3/5 yr. 77,000 12.42
-60-
Approximate Current Base Rent Per
GLA Leased Renewal Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($)
-----------------------------------------------------------------------------------------------------------
Factory Card Outlet 11,500 12/05 2/5 yr. 149,500 13.00
T.J. Maxx 27,769 01/06 - 242,978 8.75
Dubinclipped 1,230 06/06 2/5 yr. 33,495 27.23
Rockway Bedding 3,200 08/06 1/5 yr. 74,400 23.25
Starbucks Coffee 1,200 09/06 2/5 yr. 33,732 28.11
Hollywood Tanning System 3,000 03/07 1/5 yr. 89,115 29.71
Only Nails 1,230 06/07 1/5 yr. 39,147 31.83
Standard Carpet 3,500 07/07 1/5 yr. 92,829 26.52
Rack Room Shoes 6,980 11/07 1/5 yr. 127,385 18.25
JoAnn Fabrics 46,000 01/09 3/5 yr. 506,000 11.00
Red Lobster 8,355 01/09 3/5 yr. 88,563 10.60
Giant Food 40,400 10/09 3/5 yr. 176,341 4.36
Boston Markets 5,200 12/09 - 95,000 18.27
Staples 20,285 12/09 3/5 yr. 303,260 14.95
Pier 1 Imports 9,920 10/10 2/5 yr. 200,681 20.23
Toys "R" Us 30,000 11/10 10/5 yr. 137,499 4.58
TGI Fridays 7,041 12/10 4/5 yr. 151,381 21.50
Petco 12,000 01/11 2/5 yr. 222,000 18.50
The Men's Wearhouse 6,906 02/11 2/5 yr. 151,932 22.00
Joo Dry Cleaners 1,500 03/11 - 31,827 21.22
Sakura 5,380 06/11 2/5 yr. 114,648 21.31
Barnes & Noble Superstores 23,115 01/12 3/5 yr. 369,840 16.00
Michaels 35,000 01/12 3/5 yr. 349,999 10.00
Baja Fresh 3,000 04/12 2/5 yr. 84,000 28.00
First Union Bank 6,050 10/12 2/5 yr. 138,000 22.81
Bassett Furniture 14,144 12/13 2/5 yr. 169,728 12.00
Tollgate Liquors 4,282 04/14 2/5 yr. 51,384 12.00
Pizzeria Uno's 6,360 11/14 4/5 yr. 77,020 12.11
Circuit City 33,090 11/15 4/5 yr. 390,828 11.81
In general, each tenant will pay its proportionate share of real estate taxes,
insurance and common area maintenance costs, although the leases with some
tenants may provide that the tenant's liability for such expenses is limited in
some way, usually so that their liability for such expenses does not exceed a
specified amount.
DORMAN CENTER, SPARTANBURG, SOUTH CAROLINA
On July 16, 2004, we purchased the second phase of Dorman Center, containing
37,200 gross leasable square feet for approximately $7,082,000. We acquired the
first phase of Dorman Center, containing 350,994 gross leaseable square feet on
March 4, 2004 for approximately $43,118,000. The center is located at Blackstock
Road and W.L. Ezell Road, in Spartanburg, South Carolina.
We purchased this property from an unaffiliated third party. Our total
acquisition cost was approximately $50,200,000. This amount may increase by
additional costs which have not yet been finally determined. We expect any
additional costs to be insignificant. Our acquisition cost was approximately
$123 per square foot of leasable space for Phase I and $190 for per square foot
of leasable space for Phase II.
We purchased this property with our own funds. On April 20, 2004, we obtained
financing in the amount of $27,610,000. The loan requires interest only payments
at an annual rate of 4.18% and matures May 1, 2009.
-61-
We do not intend to make significant repairs and improvements to this property
over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
One tenant, Wal-Mart Supercenter, leases more than 10% of the combined total
gross leasable area of the Phase I and Phase II properties. The lease with this
tenant requires the tenant to pay base annual rent on a monthly basis as
follows:
Base Rent
Approximate Per Square
GLA Leased % of Total Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
------------------------------------------------------------------------------------------------------------
Wal-Mart Supercenter 219,622 57 7.45 08/03 08/23
For federal income tax purposes, the total depreciable basis in this property
will be approximately $25,800,000. When we calculate depreciation expense for
tax purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
Dorman Center Phase I was built in 2003 and Dorman Center Phase II was newly
constructed in 2004. As of September 1, 2004, this property was 94% occupied,
with a total 365,394 square feet leased to 23 tenants. The following table sets
forth certain information with respect to those leases:
Approximate Current Base Rent Per
GLA Leased Renewal Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($)
------------------------------------------------------------------------------------------------------------------
DORMAN CENTER I
Happy Nails 2,000 08/06 1/3 yr. 38,000 19.00
Pilgrim's Pathway 2,000 09/06 1/3 yr. 32,000 16.00
Alltel 2,500 09/06 2/3 yr. 45,000 18.00
Payless Shoe Source 2,800 08/08 3/5 yr. 47,600 17.00
Your Dollar Store 5,000 08/08 2/5 yr. 77,500 15.50
JD's Fashion 3,500 08/08 1/5 yr. 63,000 18.00
Lee Jewelers 1,700 09/08 2/5 yr. 33,150 19.50
Catherine's 4,000 09/08 3/5 yr. 69,000 17.25
Super Tans 2,500 10/08 2/3 yr. 42,500 17.00
Pier 1 Imports 10,800 07/13 3/5 yr. 199,800 18.50
Michaels 23,885 09/13 4/5 yr. 249,459 10.44
McAllister's Deli 4,000 10/13 2/5 yr. 66,000 16.50
Moe's Southwestern 3,000 01/14 2/5 yr. 45,000 15.00
Linens 'N Things 25,000 01/14 3/5 yr. 252,050 10.08
Ross Dress for Less 30,187 01/14 4/5 yr. 332,057 11.00
Wal-Mart Supercenter 219,622 08/23 15/5 yr. & 1/4 yr. 1,636,184 7.45
DORMAN CENTER II
American Cash Advance 1,400 04/07 1/3 yr. 24,500 17.50
Cingular Wireless 1,600 05/07 2/2 yr. 28,000 17.50
Aim Mail Center 1,600 06/09 - 28,000 17.50
Sally Beauty Supply 1,400 04/09 2/5 yr. 25,200 18.00
Cost Cutters 1,400 05/09 1/5 yr. 25,900 18.50
American's Home Place 3,500 06/09 2/3 yr. 57,225 16.35
America's Best * 3,000 09/09 1/5 yr. 46,500 15.50
Italian Pie * 3,200 07/14 2/5 yr. 52,800 16.50
Shoe Carnival 12,000 03/14 2/5 yr. 156,000 13.00
* Lease term had not commenced as of September 1, 2004
-62-
In general, each tenant will pay its proportionate share of real estate taxes,
insurance and common area maintenance costs, although the leases with some
tenants may provide that the tenant's liability for such expenses is limited in
some way, usually so that their liability for such expenses does not exceed a
specified amount.
CRANBERRY SQUARE, CRANBERRY TOWNSHIP, PENNSYLVANIA
On July 14, 2004, we purchased an existing shopping center known as Cranberry
Square, containing 195,566 gross leasable square feet. The center is located on
U.S. Route 19 in Cranberry Township, Pennsylvania.
We purchased this property from an unaffiliated third party. Our total
acquisition cost was approximately $20,220,000. This amount may increase by
additional costs which have not yet been finally determined. We expect any
additional costs to be insignificant. Our acquisition cost was approximately
$103 per square foot of leasable space.
We purchased this property with our own funds. On July 16, 2004, we obtained
financing for this property in the amount of $10,900,000. The loan requires
interest only payments at an annual rate of 4.975% and matures August 2009.
We do not intend to make significant repairs and improvements to this property
over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
All five tenants, Barnes & Noble, Dick's Sporting Goods, Best Buy, OfficeMax and
Toys "R" Us, each lease more than 10% of the total gross leasable area of the
property. The leases with these tenants require the tenants to pay base annual
rent on a monthly basis as follows:
Base Rent
Approximate Per Square
GLA Leased % of Total Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
------------------------------------------------------------------------------------------------------------
Barnes & Noble 25,200 13 12.50 11/96 10/06
15.00 11/06 10/11
Dick's Sporting Goods 50,000 26 10.25 02/97 01/12
Best Buy 37,005 19 12.25 11/02 01/08
13.25 02/08 01/13
OfficeMax 23,380 12 10.10 10/96 09/01
10.60 10/01 09/06
10.80 10/06 09/11
Toys "R" Us 45,000 23 3.78 11/96 01/07
4.16 02/07 01/12
For federal income tax purposes, the depreciable basis in this property will be
approximately $15,165,000. When we calculate depreciation expense for tax
purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
Cranberry Square was built in 1996. As of September 1, 2004, this property was
92% occupied, with a total 180,585 square feet leased to five tenants. The
following table sets forth certain information with respect to those leases:
-63-
Approximate Current Base Rent Per
GLA Leased Renewal Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($)
---------------------------------------------------------------------------------------------------------------
OfficeMax 23,380 09/11 3/5 yr. 247,828 10.60
Barnes & Noble 25,200 10/11 2/5 yr. 315,000 12.50
Toys "R" Us 45,000 01/12 6/5 yr. 170,100 3.78
Dick's Sporting Goods 50,000 01/12 3/5 yr. 512,500 10.25
Best Buy 37,005 01/13 4/5 yr. 453,311 12.25
In general, each tenant will pay its proportionate share of real estate taxes,
insurance and common area maintenance costs, although the leases with some
tenants may provide that the tenant's liability for such expenses is limited in
some way, usually so that their liability for such expenses does not exceed a
specified amount.
KOHL'S/WILSHIRE PLAZA III, KANSAS CITY, MISSOURI
On July 13, 2004, we funded $5,750,000 which represents a portion of the
purchase price of a free standing retail center under construction to be known
as Kohl's/Wilshire Plaza III to contain 88,248 gross leasable square feet. The
center is located at I-35 and Highway 152 in Kansas City, Missouri.
We are purchasing this property from an unaffiliated third party. Our total
acquisition cost will be approximately $9,850,000. This amount may increase by
additional costs which have not yet been finally determined. We expect any
additional costs to be insignificant. Our acquisition cost will be approximately
$112 per square foot of leasable space.
In accordance with the terms of the lease agreement with Kohl's, we will
reimburse them for the construction of their retail building in two
installments. We will receive a 7% return on the original amount funded of
$5,750,000 and construction advances to Kohl's until such time as Kohl's lease
commences.
We do not intend to make significant repairs and improvements to this property
over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
One tenant, Kohl's, will lease 100% of the total gross leasable area of the
property. The lease with this tenant requires the tenant to pay base annual rent
on a monthly basis as follows:
Base Rent
Approximate Per Square
GLA Leased % of Total Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
------------------------------------------------------------------------------------------------------------
Kohl's 88,248 100 8.37 11/04 01/24
For federal income tax purposes, the depreciable basis in this property will be
approximately $7,387,500. When we calculate depreciation expense for tax
purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
SHOPPES OF DALLAS, DALLAS, GEORGIA
On July 2, 2004, we purchased a newly constructed shopping center known as
Shoppes of Dallas, containing 70,610 gross leasable square feet. The center is
located at Highway 381 and East Paulding Drive, in Dallas, Georgia.
We purchased this property from an unaffiliated third party. Our total
acquisition cost was approximately $13,052,000. This amount may increase by
additional costs which have not yet been finally determined. We expect any
additional costs to be insignificant. Our acquisition cost was approximately
$185 per square foot of leasable space.
-64-
We purchased this property with our own funds. On September 30, 2004, we
obtained financing in the amount of $7,178,700. The loan requires interest only
payments at an annual rate of 4.96% and matures April 2009.
We do not intend to make significant repairs and improvements to this property
over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
One tenant, Publix, leases more than 10% of the total gross leasable area of the
property. The lease with this tenant requires the tenant to pay base annual rent
on a monthly basis as follows:
Base Rent
Approximate Per Square
GLA Leased % of Total Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Beginning End
------------------------------------------------------------------------------------------------------
Publix 44,840 64 10.25 03/04 03/24
For federal income tax purposes, the depreciable basis in this property will be
approximately $9,789,000. When we calculate depreciation expense for tax
purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
Shoppes of Dallas was newly constructed in 2004. The property is currently in a
leasing up phase and certain tenants have executed leases for retail space
within the shopping center. As of September 1, 2004, this property was 81%
occupied, with a total of 57,440 square feet leased to 11 tenants. In
addition, the seller is funding the shortfall rent for certain tenants until the
space is occupied. The following table sets forth certain information with
respect to those leases:
Approximate Current Base Rent Per
GLA Leased Renewal Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($)
-----------------------------------------------------------------------------------------------------------
Creative Tan 1,200 04/07 1/3 yr. 24,000 20.00
Ladies Fitness Express 1,200 04/07 1/3 yr. 19,800 16.50
Verizon 900 04/07 1/3 yr. 15,300 17.00
Evan Blake Salon 1,200 04/07 1/3 yr. 21,000 17.00
Dollar Train 2,100 06/07 1/3 yr. 36,750 17.50
USA Nails 1,200 03/09 2/5 yr. 28,800 24.00
Great Clips 1,200 04/09 2/5 yr. 26,400 22.00
China Fun 1,200 05/09 2/5 yr. 25,200 21.00
Dry Clean USA 1,200 06/09 2/5 yr. 28,800 24.00
Subway 1,200 07/09 2/5 yr. 22,800 19.00
Publix 44,840 03/24 6/5 yr. 459,600 10.25
In general, each tenant will pay its proportionate share of real estate taxes,
insurance and common area maintenance costs, although the leases with some
tenants may provide that the tenant's liability for such expenses is limited in
some way, usually so that their liability for such expenses does not exceed a
specified amount.
THE SHOPS AT BOARDWALK, KANSAS CITY, MISSOURI
-65-
On July 1, 2004, we purchased a newly constructed shopping center known as The
Shops at Boardwalk, containing 122,413 gross leasable square feet. The center is
located at North Boardwalk Avenue and Ambassador Drive in Kansas City, Missouri.
We purchased this property from an unaffiliated third party. Our total
acquisition cost was approximately $36,642,000. This amount may increase by
additional costs which have not yet been finally determined. We expect any
additional costs to be insignificant. Our acquisition cost was approximately
$299 per square foot of leasable space.
We purchased this property with our own funds. On July 2, 2004, we obtained
financing in the amount of $20,150,000. The loan requires interest only payments
at an annual rate of 4.13% and matures August 2009.
We do not intend to make significant repairs and improvements to this property
over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
One tenant, Borders Books, leases more than 10% of the total gross leasable area
of the property. The lease with this tenant requires the tenant to pay base
annual rent on a monthly basis as follows:
Base Rent
Approximate Per Square
GLA Leased % of Total Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
------------------------------------------------------------------------------------------------------------
Borders Books 19,000 16 13.95 09/02 08/08
14.65 09/08 08/13
15.38 09/13 08/18
16.11 09/18 01/24
For federal income tax purposes, the depreciable basis in this property will be
approximately $27,500,000. When we calculate depreciation expense for tax
purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
The Shops at Boardwalk was newly constructed during 2003 and 2004. The property
is currently in a leasing up phase and certain tenants have executed leases for
retail space within the shopping center. In addition, the seller is funding the
shortfall rent for certain tenants until the space is occupied. As of September
1, 2004, this property was 70% occupied, with a total of 85,924 square feet
leased to twenty tenants. The following table sets forth certain information
with respect to those leases:
Approximate Current Base Rent Per
GLA Leased Renewal Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($)
------------------------------------------------------------------------------------------------------------------
Coldwater Creek * 4,620 Month To Month 2/5 yr. 110,880 24.00
Nextel Communications 2,004 05/08 2/5 yr. 54,108 27.00
Electronic Boutique 2,195 06/08 1/5 yr. 60,582 27.60
Chicos 2,735 07/08 2/5 yr. 68,375 25.00
Planet Sub 3,147 07/08 1/3 yr. & 1/2 yr. 84,969 27.00
Jos. A. Banks 4,200 08/08 1/5 yr. 92,400 22.00
Claire's Boutique 1,200 08/08 1/1 yr. 36,000 30.00
Maurices 3,781 08/08 2/3 yr. 94,525 25.00
Noggin Noodle 2,390 10/08 1/5 yr. 62,140 26.00
Select Comfort 2,158 12/08 1/3 yr. & 1/2 yr. 64,740 30.00
Archivers 5,957 01/09 1/5 yr. 119,140 20.00
-66-
Approximate Current Base Rent Per
GLA Leased Renewal Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($)
------------------------------------------------------------------------------------------------------------------
2nd Swing 3,580 04/09 - 93,080 26.00
J. Jill 4,040 07/13 - 121,200 30.00
Chipolte Mexican Grill 2,801 07/13 2/5 yr. 78,428 28.00
Yankee Candle 2,000 07/13 1/5 yr. 50,000 25.00
Red Star Tavern 7,200 08/13 2/5 yr. 209,061 29.00
Christopher & Banks 3,500 08/13 - 91,000 26.00
Kirklands 4,915 01/14 - 108,130 22.00
Talbots 4,501 01/16 2/4 yr. 117,026 26.00
Borders Books 19,000 01/24 4/5 yr. 265,050 13.95
* Renewal negotiations in progress
In general, each tenant will pay its proportionate share of real estate taxes,
insurance and common area maintenance costs, although the leases with some
tenants may provide that the tenant's liability for such expenses is limited in
some way, usually so that their liability for such expenses does not exceed a
specified amount.
SHOPPES OF PROMINENCE POINT, CANTON, GEORGIA
On June 30, 2004, we purchased a newly constructed shopping center known as
Shoppes of Prominence Point, containing 78,058 gross leasable square feet. The
center is located at Interstate 575 and State Route 5, in Canton, Georgia.
We purchased this property from an unaffiliated third party. Our total
acquisition cost was approximately $18,099,000. This amount may increase by
additional costs which have not yet been finally determined. We expect any
additional costs to be insignificant. Our acquisition cost was approximately
$232 per square foot of leasable space.
We purchased this property with our own funds. On August 13, 2004, we obtained
financing in the amount of $9,954,300. The loan requires interest only payments
at an annual rate of 5.235% and matures September 2009.
We do not intend to make significant repairs and improvements to this property
over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
One tenant, Publix, leases more than 10% of the total gross leasable area of the
property. The lease with this tenant requires the tenant to pay base annual rent
on a monthly basis as follows:
Base Rent
Approximate Per Square
GLA Leased % of Total Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
------------------------------------------------------------------------------------------------------------
Publix 44,840 51 10.80 03/04 03/24
For federal income tax purposes, the depreciable basis in this property will be
approximately $13,574,000. When we calculate depreciation expense for tax
purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
Shoppes of Prominence Point was newly constructed in 2004. As of September 1,
2004, this property was 89% occupied, with a total of 69,358 square feet leased
to 14 tenants. The following table sets forth certain information with
respect to those leases:
-67-
Approximate Current Base Rent Per
GLA Leased Renewal Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($)
-----------------------------------------------------------------------------------------------------------
World Wireless 1,050 03/07 1/3 yr. 21,000 20.00
World Dollar Store 1,610 04/07 1/3 yr. 30,590 19.00
Curves 1,400 04/07 1/3 yr. 27,300 19.50
Prominence Chiropractic 1,400 05/07 1/3 yr. 26,600 19.00
Oceanside Tanning 1,400 04/08 1/4 yr. 32,200 23.00
Bowen's TaeKwonDo Plus 2,450 04/08 1/4 yr. 47,775 19.50
Blockbuster Video 5,268 01/09 4/5 yr. 92,190 17.50
Holly Nails 1,050 04/09 1/4 yr. 25,200 24.00
Yoon Sushi Restaurant 1,400 05/09 1/5 yr. 25,900 18.50
Great Clips 1,400 05/09 2/5 yr. 30,800 22.00
The UPS Store 1,400 05/09 1/5 yr. 26,600 19.00
Mui Lan Restaurant 2,100 05/09 1/5 yr. 40,950 19.50
Beef O'Brady's 2,590 05/12 1/8 yr. 46,620 18.00
Publix 44,840 03/24 6/5 yr. 484,272 10.80
In general, each tenant will pay its proportionate share of real estate taxes,
insurance and common area maintenance costs, although the leases with some
tenants may provide that the tenant's liability for such expenses is limited in
some way, usually so that their liability for such expenses does not exceed a
specified amount.
DAVIS TOWNE CROSSING, NORTH RICHLAND HILLS, TEXAS
On June 30, 2004, we purchased a newly constructed shopping center known as
Davis Towne Crossing, containing 41,349 gross leasable square feet of which
4,000 is a ground lease. The center is located at Davis Boulevard and Precinct
Line Road in North Richland Hills, Texas.
We purchased this property from an unaffiliated third party. Our total
acquisition cost was approximately $9,755,000. This amount may increase by
additional costs which have not yet been finally determined. We expect any
additional costs to be insignificant. Our acquisition cost was approximately
$236 per square foot of leasable space.
We purchased this property with our own funds. On August 9, 2004, we obtained
financing in the amount of $5,365,200. The loan requires interest only payments
at an annual rate of 5.185% and matures September 2009.
We do not intend to make significant repairs and improvements to this property
over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
Two tenants, Lady USA Fitness and Cotton Patch Cafe', each lease more than 10%
of the total gross leasable area of the property. The leases with these tenants
require the tenant to pay base annual rent on a monthly basis as follows:
Base Rent
Approximate Per Square
GLA Leased % of Total Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
------------------------------------------------------------------------------------------------------------
Lady USA Fitness 6,000 14 17.00 10/03 10/08
Cotton Patch Cafe 4,400 11 20.00 12/03 11/08
For federal income tax purposes, the depreciable basis in this property will be
approximately $7,316,000. When we calculate depreciation expense for tax
purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
-68-
Davis Towne Crossing was newly constructed during 2003 and 2004. The property is
currently in a leasing up phase and certain tenants have executed leases for
retail space within the shopping center. In addition, the seller is funding the
shortfall rent for certain tenants until the space is occupied. As of September
1, 2004, this property was 82% occupied with 34,091 square feet leased to
13 tenants. The following table sets forth certain information with
respect to those leases:
Approximate Current Base Rent Per
GLA Leased Renewal Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($)
-----------------------------------------------------------------------------------------------------------
H & R Block 2,264 05/07 1/3 yr. 45,280 20.00
The Scrapbook Palace 3,000 10/07 1/2 yr. 57,000 19.00
RadioShack 2,400 08/08 3/5 yr. 48,000 20.00
Sport Clips 1,440 08/08 2/5 yr. 28,800 20.00
EB Games 1,500 09/08 2/5 yr. 31,500 21.00
Luxury Nails 1,400 09/08 1/5 yr. 29,400 21.00
Friedman's Jewelers 1,727 10/08 3/3 yr. 32,813 19.00
Lady USA Fitness 6,000 10/08 2/5 yr. 102,000 17.00
Cotton Patch Cafe 4,400 11/08 1/5 yr. 88,000 20.00
The UPS Store 1,360 02/09 1/5 yr. 25,840 19.00
Payless Shoes 3,000 07/13 2/5 yr. 54,000 18.00
Quiznos Subs 1,600 11/13 1/5 yr. 30,400 19.00
Washington Mutual (Ground
Lease) 4,000 08/28 4/5 yr. 85,000 N/A
In general, each tenant will pay its proportionate share of real estate taxes,
insurance and common area maintenance costs, although the leases with some
tenants may provide that the tenant's liability for such expenses is limited in
some way, usually so that their liability for such expenses does not exceed a
specified amount.
FULLERTON METROCENTER, FULLERTON, CALIFORNIA
On June 30, 2004, we purchased an existing shopping center known as Fullerton
Metrocenter, containing 253,296 gross leasable square feet. The center is
located at Harbor Boulevard and Orangethorpe Avenue, in Fullerton, California.
We purchased this property from an unaffiliated third party. Our total
acquisition cost was approximately $51,275,000. This amount may increase by
additional costs which have not yet been finally determined. We expect any
additional costs to be insignificant. Our acquisition cost was approximately
$202 per square foot of leasable space.
We purchased this property with our own funds. On July 9, 2004, we obtained
financing in the amount of $28,050,000. The loan requires interest only payments
at an annual rate of 5.09% and matures August 2009.
We do not intend to make significant repairs and improvements to this property
over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
Two tenants, Sportmart and Henry's Marketplace, each lease more than 10% of the
total gross leasable area of the property. The leases with these tenants require
the tenants to pay base annual rent on a monthly basis as follows:
-69-
Base Rent
Approximate Per Square
GLA Leased % of Total Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
------------------------------------------------------------------------------------------------------------
Sportmart 43,660 18 8.25 10/88 10/93
9.10 11/93 10/03
9.95 11/03 02/06
Henry's Marketplace (Wild
Oats) * 28,092 12 16.89 09/04 08/19
For federal income tax purposes, the depreciable basis in this property will be
approximately $38,456,000. When we calculate depreciation expense for tax
purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
Fullerton Metrocenter was built in 1988. As of September 1, 2004, this property
was 82% occupied, with a total 208,174 square feet leased to 40 tenants. The
following table sets forth certain information with respect to those leases:
Approximate Current Base Rent Per
GLA Leased Renewal Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($)
-----------------------------------------------------------------------------------------------------------
H & R Block 5,250 09/04 - 141,816 27.01
Sportmart 43,660 02/06 3/5 yr. 434,334 9.95
La Caffepia 1,245 03/06 - 36,708 29.48
Washington Mutual 1,560 05/06 - 35,604 22.82
Kentucky Fried Chicken 2,304 05/06 - 100,800 43.75
AT & T Wireless Services 2,775 10/06 1/5 yr. 75,980 27.38
Payless Shoes 2,525 10/06 1/5 yr. 49,768 19.71
Jenny Craig 1,900 02/07 - 53,656 28.24
RadioShack 2,050 04/07 1/3 yr. 47,970 23.40
Party America 9,610 05/07 - 128,064 13.33
Adelphia Communications 1,515 06/07 1/5 yr. 41,465 27.37
Quizno's Subs 1,400 08/07 1/5 yr. 40,460 28.90
Brite Dental 2,250 08/07 2/5 yr. 43,920 19.52
Lilacs Flowers and Gifts 1,200 11/07 1/5 yr. 36,408 30.34
GameStop 1,550 12/07 - 36,900 23.81
Ruby's Diner 3,592 02/08 - 106,320 29.60
Pop's Unfinished Furniture 6,650 04/08 2/5 yr. 101,745 15.30
Burger King (Ground Lease) 2,874 04/08 2/5 yr. 130,968 N/A
Wherehouse Entertainment 6,350 06/08 2/5 yr. 99,920 15.74
GMP Vitamin 1,020 07/08 30,681 30.08
Beneficial Finance 1,775 10/08 - 49,956 28.14
Fantastic Sams 1,170 11/08 - 34,728 29.68
Beauty Avenue 5,400 11/08 - 110,808 20.52
Jewelry Mart 7,000 12/08 1/5 yr. 273,432 39.06
Tilly's 6,040 12/08 1/5 yr. 132,276 21.90
Sylvan Learning Center 3,648 05/09 - 71,646 19.64
Miry Collection 4,350 05/09 - 109,260 25.12
Vans 1,650 06/09 - 46,348 28.09
Super Mex Restaurants 5,500 10/09 - 155,556 28.28
Kim Sun Young Salon 1,280 10/09 - 36,732 28.70
Metro Dry Cleaning 1,950 11/09 1/5 yr. 52,332 26.84
Tip Top Nails 900 01/10 1/5 yr. 36,468 40.52
Matsunoya 2,900 06/10 - 75,132 25.91
Baskins-Robbins 1,275 10/10 1/5 yr. 38,052 29.84
-70-
Approximate Current Base Rent Per
GLA Leased Renewal Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($)
-----------------------------------------------------------------------------------------------------------
China Buffet 10,828 06/11 - 184,617 17.05
First Bank and Trust 21,600 02/13 2/5 yr. 201,256 9.31
Orange County Credit Union 4,000 12/13 1/5 yr. 81,600 20.40
Big Island BBQ 1,090 03/14 1/5 yr. 31,392 28.80
Avenue 5,300 01/15 2/5 yr. 104,256 19.67
PETsMART 19,238 03/19 3/5 yr. 278,544 14.48
Henry's Marketplace (Wild
Oats) * 28,092 08/19 474,474 16.89
* Lease had not commenced as of September 1, 2004.
In general, each tenant will pay its proportionate share of real estate taxes,
insurance and common area maintenance costs, although the leases with some
tenants may provide that the tenant's liability for such expenses is limited in
some way, usually so that their liability for such expenses does not exceed a
specified amount.
LOW COUNTRY VILLAGE SHOPPING CENTER, BLUFFTON, SOUTH CAROLINA
On June 30, 2004, we purchased a newly constructed shopping center known as Low
Country Village Shopping Center, containing 76,376 gross leasable square feet
(Phase I). We signed an agreement, subject to conditions, to purchase an
additional 63,460 gross leasable square feet (Phase II) of construction
estimated to be completed in 2004 for approximately $10,542,800. The center is
located at Highway 278 and Foreman Hill Road in Bluffton, South Carolina.
We purchased this property from an unaffiliated third party. Our total
acquisition cost was approximately $9,758,840 for Phase I. This amount may
increase by additional costs which have not yet been finally determined. We
expect any additional costs to be insignificant. Our acquisition cost was
approximately $127 per square foot of leasable space for Phase I and $166 per
square foot of leasable space for Phase II.
We purchased Phase I and intend to purchase Phase II with our own funds. On
October 6, 2004, we obtained financing in the amount of $5,370,000. The loan
requires interest only payments at an annual rate of 4.96% and matures October
2009.
We do not intend to make significant repairs and improvements to this property
over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
Three tenants, Ross Dress for Less, Michaels and PETsMART, lease more than 10%
of the total gross leasable area of the Phase I property. The lease term will be
determined in accordance with the tenant's commencement date. The lease with
this tenant requires the tenant to pay base annual rent on a monthly basis as
follows:
Base Rent
Approximate Per Square
GLA Leased % of Total Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
------------------------------------------------------------------------------------------------------------
Ross Dress for Less 30,131 39 9.75 05/04 04/09
10.25 05/09 04/14
Michaels 21,360 28 9.75 02/04 02/14
PETsMART 19,107 25 12.95 02/04 01/09
13.95 02/09 01/14
14.95 02/14 01/19
For federal income tax purposes, the depreciable basis in this property will be
approximately $15,750,000 for Phase I. When we calculate depreciation expense
for tax purposes, we will use the straight-line method. We depreciate buildings
and improvements based upon estimated useful lives of 40 and 20 years,
respectively.
-71-
Low Country Village Shopping Center is newly constructed in 2004. As of
September 1, 2004, Phase I was 92% occupied, with a total of 70,598 square feet
leased to three tenants. The property is currently in a leasing up phase for
Phase II and certain tenants have executed lease for retail space within the
shopping center. The following table sets forth certain information with respect
to those leases:
Approximate Current Base Rent Per
GLA Leased Renewal Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($)
-----------------------------------------------------------------------------------------------------------
PHASE I
Michaels 21,360 02/14 4/5 yr. 208,260 9.75
Ross Dress for Less 30,131 04/14 4/5 yr. 293,777 9.75
PETsMART 19,107 01/19 3/5 yr. 247,436 12.95
PHASE II
Linens 'N Things* 25,080 07/14 244,530 9.75
Cost Plus World Market* 18,300 01/15 215,025 11.75
* Lease renewal option information is not currently available
In general, each tenant will pay its proportionate share of real estate taxes,
insurance and common area maintenance costs, although the leases with some
tenants may provide that the tenant's liability for such expenses is limited in
some way, usually so that their liability for such expenses does not exceed a
specified amount.
NORTHGATE NORTH, SEATTLE, WASHINGTON
On June 30, 2004, we purchased a newly constructed shopping center known as
Northgate North, containing 302,095 gross leasable square feet. The center is
located at 302 Northeast Northgate Way in Seattle, Washington.
We purchased this property from an unaffiliated third party. Our total
acquisition cost was approximately $48,455,000. This amount may increase by
additional costs which have not yet been finally determined. We expect any
additional costs to be insignificant. Our acquisition cost was approximately
$160 per square foot of leasable space.
We purchased this property with our own funds. On July 14, 2004, we obtained
financing in the amount of $26,650,000. The loan requires interest only payments
at an annual rate of 4.60% and matures July 2008.
We do not intend to make significant repairs and improvements to this property
over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
Two tenants, Target and Best Buy, each leases more than 10% of the total gross
leasable area of the property. The leases with these tenants require the tenants
to pay base annual rent on a monthly basis as follows:
Base Rent
Approximate Per Square
GLA Leased % of Total Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
------------------------------------------------------------------------------------------------------------
Target 147,582 49 4.34 01/01 12/26
Best Buy 51,202 17 25.00 10/00 01/06
27.00 02/06 01/11
29.00 02/11 01/16
31.00 02/16 01/21
-72-
For federal income tax purposes, the depreciable basis in this property will be
approximately $36,341,000. When we calculate depreciation expense for tax
purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
Northgate North was constructed between 2000 and 2003. As of September 1, 2004,
this property was 93% occupied, with a total 281,595 square feet leased to seven
tenants. The following table sets forth certain information with respect to
those leases:
Approximate Current Base Rent Per
GLA Leased Renewal Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($)
-----------------------------------------------------------------------------------------------------------
Qwest Wireless 1,950 12/07 2/5 yr. 40,000 20.51
Quizno's 1,315 07/12 2/5 yr. 41,856 31.83
Olive Garden 7,930 10/12 4/5 yr. 205,000 25.85
Ross Dress for Less 25,278 01/14 4/5 yr. 391,809 15.50
G.I. Joe's (Storage) 1,968 05/18 4/5 yr. 11,808 6.00
G.I. Joe's 44,370 05/18 4/5 yr. 532,440 12.00
Best Buy 51,202 01/21 4/5 yr. 1,280,060 25.00
Target 147,582 12/26 5/5 yr. 640,000 4.34
In general, each tenant will pay its proportionate share of real estate taxes,
insurance and common area maintenance costs, although the leases with some
tenants may provide that the tenant's liability for such expenses is limited in
some way, usually so that their liability for such expenses does not exceed a
specified amount.
PACHECO PASS SHOPPING CENTER, GILROY, CALIFORNIA
We anticipate purchasing a portion of a newly constructed shopping center known
as Pacheco Pass Shopping Center, containing 99,356 gross leasable square feet
(which includes 11,810 square feet of ground lease space). The center is located
at Camino Arroyo and State Highway 152 in Gilroy, California.
On June 30, 2004, we funded the initial installment of a $22,000,000 first
mortgage in the amount of $15,332,906. The remainder of $6,667,094 is expected
to be funded in the fourth quarter of 2004. The interest rate of this first
mortgage is 6.9933% and it matures on July 15, 2005. We anticipate purchasing
the center when the mortgage matures for approximately $24,400,000. We will use
the principal under this mortgage towards our purchase price.
We do not intend to make significant repairs and improvements to this property
over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
Two tenants, Best Buy and Linens 'N Things, will lease more than 10% of the
total gross leasable area of the property. The lease term will be determined in
accordance with the tenant's commencement date. The lease with this tenant
requires the tenant to pay base annual rent on a monthly basis as follows:
Base Rent
Approximate Per Square
GLA Leased % of Total Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
------------------------------------------------------------------------------------------------------------
Best Buy 30,000 30 13.91 11/03 01/14
Linens 'N Things 27,984 28 13.50 03/04 01/15
-73-
For federal income tax purposes, the depreciable basis in this property will be
approximately $18,300,000. When we calculate depreciation expense for tax
purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
Pacheco Pass Shopping Center was newly constructed in 2004. As of September 1,
2004, the property is currently in a leasing up phase and certain tenants have
executed lease for retail space within the shopping center. The following table
sets forth certain information with respect to those leases:
Approximate Current Base Rent Per
GLA Leased Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Rent ($) Per Annum ($)
-------------------------------------------------------------------------------------------
Nextel Communications 1,500 12/10 54,000 36.00
Electronics Boutique 1,500 11/13 52,500 35.00
The Sleep Train 4,550 11/13 111,475 24.50
Best Buy 30,000 01/14 417,240 13.91
Cold Stone Creamery 1,200 01/14 38,880 32.40
Jamba Juice 1,500 01/14 50,400 33.60
Subway 1,500 01/14 54,000 36.00
Sip n' Hot 1,650 01/14 56,925 34.50
Maui Taco 2,528 06/14 87,216 34.50
Monterey Spa & Stove 4,612 07/14 103,770 22.50
Linens 'N Things 27,984 01/15 377,784 13.50
Bank of America (Ground
Lease) N/A 01/24 120,000 N/A
Chili's (Ground Lease) N/A 04/14 100,000 N/A
In general, each tenant will pay its proportionate share of real estate taxes,
insurance and common area maintenance costs, although the leases with some
tenants may provide that the tenant's liability for such expenses is limited in
some way, usually so that their liability for such expenses does not exceed a
specified amount.
LAKEWOOD TOWNE CENTER, LAKEWOOD, WASHINGTON
On June 25, 2004, we purchased an existing shopping center known as Lakewood
Towne Center, containing 578,863 gross leasable square feet. The center is
located at Gravelly Lake Drive and 100th Street, in Lakewood, Washington.
We purchased this property from an unaffiliated third party. Our total
acquisition cost was approximately $81,100,000. This amount may increase by
additional costs which have not yet been finally determined. We expect any
additional costs to be insignificant. Our acquisition cost was approximately
$140 per square foot of leasable space.
We purchased this property with our own funds. On June 30,2004, we obtained
financing in the form of two loans totaling $51,260,000. The first loan requires
interest only payments on $44,000,000 at an annual rate of 2.68% for the first
ninety days and thereafter at the three month LIBOR Rate. This loan matures June
2009. The second loan requires interest only payments on $7,260,000 at an annual
rate of 3.83% for the first ninety days and thereafter at the LIBOR Rate. This
loan matures July 2005.
We do not intend to make significant repairs and improvements to this property
over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
-74-
Two tenants, Gottschalk's and Burlington Coat Factory, each lease more than 10%
of the total gross leasable area of the property. The leases with these tenants
require the tenants to pay base annual rent on a monthly basis as follows:
Base Rent
Approximate Per Square
GLA Leased % of Total Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
-----------------------------------------------------------------------------------------------
Gottschalk's 119,256 21 3.35 03/92 02/12
Burlington Coat Factory 70,533 12 5.50 08/03 08/08
5.75 09/08 08/13
For federal income tax purposes, the depreciable basis in this property will be
approximately $60,825,000. When we calculate depreciation expense for tax
purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
Lakewood Towne Center was rebuilt in 2002 and 2003. As of September 1, 2004,
this property was 94% occupied, with a total 546,713 square feet leased to
25 tenants. The following table sets forth certain information with
respect to those leases:
Approximate Current Base Rent Per
GLA Leased Renewal Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($)
------------------------------------------------------------------------------------------------------------------
Rent-A-Center 4,275 05/05 2/5 yr. 47,025 11.00
Catherine P.S. Plus 4,507 07/05 - 63,098 14.00
Pierce Transit 4,200 07/06 - 42,000 10.00
Merino's Fine Custom 1,095 09/06 1/5 yr. 21,900 20.00
Old Country Buffet 9,500 12/06 2/5 yr. 118,750 12.50
Old Navy 16,172 01/08 2/5 yr. 177,892 11.00
Famous Footwear 8,355 10/08 2/5 yr. 125,325 15.00
Wells Fargo Financial 1,750 11/09 - 18,812 10.75
Lowes Cineplex 48,229 11/11 * 517,014 10.72
Barnes & Noble 23,104 01/12 2/5 yr. 317,680 13.75
Michaels 24,035 02/12 3/5 yr. 288,420 12.00
Gottschalk's 119,256 02/12 - 400,000 3.35
Bed Bath & Beyond 30,530 01/13 3/5 yr. 381,625 12.50
The Dollar Store 15,564 01/13 1/5 yr. 210,114 13.50
Ross Dress for Less 30,151 01/13 4/5 yr. 354,274 11.75
Lakewood Dialysis 9,450 03/13 2/5 yr. 135,418 14.33
Burlington Coat Factory 70,533 08/13 3/5 yr. 387,932 5.50
Office Depot 18,000 09/13 4/5 yr. 265,500 14.75
La Palma Restaurant 5,120 01/14 2/5 yr. 51,200 10.00
Pier 1 Imports 11,142 02/14 2/5 yr. 191,531 17.19
Matherhood Maternity 1,750 05/14 - 42,875 24.50
Avenue 5,682 01/16 3/5 yr. 88,469 15.57
24 Hour Fitness 20,219 12/16 2/5 yr. 279,022 13.80
G.I. Joes 45,005 11/17 4/5 yr. 540,060 12.00
PETsMART 19,089 01/19 4/5 yr. 209,979 11.00
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In general, each tenant will pay its proportionate share of real estate taxes,
insurance and common area maintenance costs, although the leases with some
tenants may provide that the tenant's liability for such expenses is limited in
some way, usually so that their liability for such expenses does not exceed a
specified amount.
JOHN'S CREEK VILLAGE, DULUTH, GEORGIA
On June 23, 2004, we purchased a newly constructed shopping center known as
John's Creek Village, containing 191,752 gross leasable square feet (which
includes 10,555 square feet of ground lease space). The center is located at
11720 Medlock Bridge Road, in Duluth, Georgia.
We purchased this property from an unaffiliated third party. Our total
acquisition cost was approximately $42,503,000. This amount may increase by
additional costs which have not yet been finally determined. We expect any
additional costs to be insignificant. Our acquisition cost was approximately
$222 per square foot of leasable space.
We purchased this property with our own funds. On July 2, 2004, we obtained
financing in the amount of $23,300,000. The loan requires interest only payments
at an annual rate of 5.10% and matures August 2009.
We do not intend to make significant repairs and improvements to this property
over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
Three tenants, LA Fitness, Ross Dress For Less and T.J. Maxx, will lease more
than 10% of the total gross leasable area of the property. The leases with these
tenants require the tenants to pay base annual rent on a monthly basis as
follows:
Base Rent
Approximate Per Square
GLA Leased % of Total Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
-----------------------------------------------------------------------------------------------
LA Fitness 41,000 21 17.00 12/03 12/14
CPI 01/15 04/19
Ross Dress for Less 30,187 16 10.75 05/04 01/15
T.J. Maxx 30,000 16 8.95 09/03 09/13
For federal income tax purposes, the depreciable basis in this property will be
approximately $31,877,200. When we calculate depreciation expense for tax
purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
John's Creek Village was newly constructed in 2003 and 2004. The property is
currently leasing up the remaining vacancies and certain tenants have executed
leases for retail space within the shopping center. As of September 1, 2004,
this property was 71% occupied with a total 136,782 square feet leased to
16 tenants and two ground lease tenants. The following table sets forth certain
information with respect to those leases:
Approximate Current Base Rent Per
GLA Leased Renewal Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($)
-------------------------------------------------------------------------------------------------------
Nextel Communications 1,640 11/08 2/5 yr. 46,740 28.50
American Mattress 6,500 11/08 1/5 yr. 100,750 15.50
Electronics Boutique 1,200 01/09 2/5 yr. 36,000 30.00
State Farm Insurance 1,700 01/09 1/5 yr. 45,050 26.50
T-Mobile 1,500 02/09 1/5 yr. 51,000 34.00
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Cold Stone Creamery 1,360 02/09 2/5 yr. 39,440 29.00
Portrait Innovations 2,375 05/09 - 64,125 27.00
Hollywood Video * 5,020 06/09 124,245 24.75
Hibbett Sporting Goods * 5,000 10/09 72,750 14.55
T.J. Maxx 30,000 09/13 4/5 yr. 268,500 8.95
Dry Cleaners 1,700 12/13 2/5 yr. 47,600 28.00
Chipolte Mexican Grill 3,000 12/13 3/5 yr. 93,000 31.00
Starbucks 1,665 02/14 4/5 yr. 56,527 33.95
Ross Dress for Less 30,187 01/15 4/5 yr. 324,510 10.75
Doctor's Visionworks 2,400 03/14 2/5 yr. 64,800 27.00
LA Fitness 41,000 04/23 3/5 yr. 697,000 17.00
Chili's (Ground Lease) 5,555 05/14 4/5 yr. 100,000 N/A
IHOP (Ground Lease) 5,000 12/23 4/5 yr. 85,000 N/A
* As of September 1, 2004, the tenants have not occupied their space.
In general, each tenant will pay its proportionate share of real estate taxes,
insurance and common area maintenance costs, although the leases with some
tenants may provide that the tenant's liability for such expenses is limited in
some way, usually so that their liability for such expenses does not exceed a
specified amount.
HUEBNER OAKS CENTER, SAN ANTONIO, TEXAS
On June 8, 2004, we purchased an existing shopping center known as Huebner Oaks
Center, containing 286,684 gross leasable square feet (which includes 8,036
square feet of ground lease space). The center is located at I-10 and Huebner
Road, in San Antonio, Texas.
We purchased this property from an unaffiliated third party. Our total
acquisition cost was approximately $79,721,000. This amount may increase by
additional costs which have not yet been finally determined. We expect any
additional costs to be insignificant. Our acquisition cost was approximately
$278 per square foot of leasable space.
We purchased this property with our own funds. On June 22, 2004, we obtained
financing in the form of two loans totaling $48,000,000. The first loan requires
interest only payments on $31,723,000 at an annual rate of 4.20% and matures
July 2010. The second loan requires interest only payments on $16,277,000 at an
annual rate of 3.96% and matures July 2010.
We do not intend to make significant repairs and improvements to this property
over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
One tenant, Bed, Bath & Beyond, leases more than 10% of the total gross leasable
area of the property. The lease with this tenant requires the tenant to pay base
annual rent on a monthly basis as follows:
Base Rent
Approximate Per Square
GLA Leased % of Total Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
-----------------------------------------------------------------------------------------------
Bed, Bath &
Beyond 35,009 12 9.65 03/97 03/02
10.62 04/02 03/07
11.68 04/07 01/08
For federal income tax purposes, the depreciable basis in this property will be
approximately $60,006,000. When we calculate depreciation expense for tax
purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
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Huebner Oaks Center was built between 1997 and 1998. As of September 1, 2004,
this property was 97% occupied, with a total 279,461 square feet leased to 54
tenants and one ground lease tenant. The following table sets forth certain
information with respect to those leases:
Approximate Current Base Rent Per
GLA Leased Renewal Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($)
------------------------------------------------------------------------------------------------------------------
Yankee Candle 2,028 02/05 1/5 yr. 54,756 27.00
Mattress Firm 2,942 05/05 - 64,724 22.00
Compass ATM 60 07/05 1/2 yr. 20,000 N/A
AAA Texas 3,682 11/05 1/5 yr. 77,322 21.00
Marble Slab 1,542 12/05 1/3 yr. & 1/5 yr. 37,008 24.00
Kinko's 4,760 02/06 3/5 yr. 92,249 19.38
EB Game World 1,160 08/06 - 32,480 28.00
Pier 1 Imports 8,990 02/07 3/5 yr. 182,137 20.26
Old Navy 14,000 03/07 1/5 yr. 196,000 14.00
Shoes 4 Kids 1,000 02/07 1/3 yr. 26,500 26.50
La Madeleine 4,200 03/07 2/5 yr. 86,100 20.50
Moon Mippy 930 04/07 1/4 yr. 26,040 28.00
Club Humidor 2,254 06/07 - 54,096 24.00
Cingular Wireless 2,502 06/07 - 60,048 24.00
All Ashore Sportswear 1,264 07/07 - 27,808 22.00
Pearle Vision 2,721 07/07 2/5 yr. 68,025 25.00
Beauty First 3,681 09/07 1/5 yr. 77,301 21.00
Verizon Wireless 1,803 10/07 1/5 yr. 45,075 25.00
Oreck Homecare 1,103 10/07 1/5 yr. 24,266 22.00
Bed, Bath & Beyond 35,009 01/08 2/5 yr. 371,796 10.62
Frankly Fake Copy 854 01/08 1/5 yr. 23,912 28.00
Ross Dress for Less 28,200 01/08 5/5 yr. 267,900 9.50
Men's Wearhouse 4,500 02/08 2/5 yr. 88,020 19.56
Fire Wok 2,500 03/08 1/5 yr. 52,500 21.00
Ride Away Bicycles 3,917 04/08 - 58,755 15.00
Claire's Boutique 1,200 08/08 - 33,600 28.00
Sports Clips 1,057 09/08 - 26,425 25.00
Gap Kids 8,500 09/08 1/5 yr. 180,540 21.24
Victoria's Secret 4,500 09/08 - 94,500 21.00
Bath & Body Works 2,500 09/08 - 58,750 23.50
Lane Bryant 4,500 09/08 - 94,500 21.00
Banana Republic 5,964 09/08 1/5 yr. 114,807 19.25
California Pizza Kitchen 4,301 10/08 2/5 yr. 118,708 27.60
GNC 1,155 10/08 - 28,875 25.00
Hallmark Creations 6,416 10/08 2/5 yr. 130,566 20.35
Barbeques Galore 4,498 11/08 2/5 yr. 124,145 27.60
Abercrombie & Fitch 6,766 11/08 - 135,320 20.00
Casual Male Big & Tall 3,914 12/08 - 90,022 23.00
Eddie Bauer 6,384 01/09 - 193,691 30.34
Gymboree 1,925 01/09 - 46,200 24.00
Ann Taylor 4,500 01/09 - 131,175 29.15
Starbucks 1,690 02/09 2/5 yr. 38,870 23.00
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Approximate Current Base Rent Per
GLA Leased Renewal Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($)
-----------------------------------------------------------------------------------------------------------------
Steak Escape 1,663 03/09 1/5 yr. 39,912 24.00
Cactus Low Carb Superstore 2,083 05/09 1/5 yr. 33,328 16.00
Brighton 1,498 06/09 - 41,285 27.56
Inksell.com 1,000 07/09 1/5 yr. 30,000 30.00
Ben Adams Jewelers 2,233 11/09 - 55,825 25.00
Bombay Company 4,500 12/09 - 121,500 27.00
Talbots 6,314 01/11 1/3 yr. 164,164 26.00
Chico's 3,060 07/11 2/5 yr. 107,100 35.00
Macaroni Grill 7,846 08/12 2/5 yr. 107,000 13.64
American Eagle 5,800 01/14 - 168,200 29.00
Chipotle Mexican Grill 2,556 03/14 2/5 yr. 69,012 27.00
Borders Books 27,500 01/18 5/5 yr. 411,670 14.97
Saltgrass Restaurant (Ground
Lease) 8,036 06/07 4/5 yr. 105,000 N/A
In general, each tenant will pay its proportionate share of real estate taxes,
insurance and common area maintenance costs, although the leases with some
tenants may provide that the tenant's liability for such expenses is limited in
some way, usually so that their liability for such expenses does not exceed a
specified amount.
PINE RIDGE PLAZA, LAWRENCE, KANSAS
On June 7, 2004, we purchased an existing shopping center known as Pine Ridge
Plaza, containing 230,510 gross leasable square feet (which includes 84,676
square feet of ground lease space). The center is located at 3106 - 3140 Iowa
Street, in Lawrence, Kansas.
We purchased this property from an unaffiliated third party. Our total
acquisition cost was approximately $26,982,000. This amount may increase by
additional costs which have not yet been finally determined. We expect any
additional costs to be insignificant. Our acquisition cost was approximately
$117 per square foot of leasable space.
We purchased this property with our own funds. On July 27, 2004, we obtained
financing in the amount of $14,700,000. The loan requires interest only payments
at an annual rate of 5.085% and matures August 2009.
We do not intend to make significant repairs and improvements to this property
over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
Three tenants, Kohl's, T.J. Maxx and Bed, Bath & Beyond, each lease more than
10% of the total gross leasable area of the property. The leases with these
tenants require the tenants to pay base annual rent on a monthly basis as
follows:
Base Rent
Approximate Per Square
GLA Leased % of Total Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
-----------------------------------------------------------------------------------------------
Kohl's * 80,654 35 N/A 03/98 01/19
T.J. Maxx 25,420 11 8.50 04/04 03/09
9.00 04/09 03/14
Bed, Bath & Beyond 24,000 10 10.00 12/03 01/14
* Ground lease
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For federal income tax purposes, the depreciable basis in this property will be
approximately $20,236,000. When we calculate depreciation expense for tax
purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
Pine Ridge Plaza was redeveloped from 1998 through 2004 and the inline strip
center portion of the property was completed in 2001. As of September 1, 2004,
this property was 100% occupied, with a total 230,510 square feet leased to
fourteen tenants. The following table sets forth certain information with
respect to those leases:
Approximate Current Base Rent Per
GLA Leased Renewal Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($)
-----------------------------------------------------------------------------------------------------------
Old Navy 22,000 07/06 2/5 yr. 220,000 10.00
Deals 9,862 08/07 2/5 yr. 128,206 13.00
Electronic Boutique 2,190 03/08 2/5 yr. 41,063 18.75
Approximate Current Base Rent Per
GLA Leased Renewal Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($)
-----------------------------------------------------------------------------------------------------------
Sports Clips 2,190 05/08 1/5 yr. 31,317 14.30
Famous Footwear 12,000 05/11 3/5 yr. 180,000 15.00
Bath & Body Works 2,500 01/12 2/5 yr. 37,500 15.00
Hurst Diamonds 1,375 01/12 1/5 yr. 24,750 18.00
Jason's Deli 5,000 02/12 3/5 yr. 90,000 18.00
Bed, Bath & Beyond 24,000 01/14 3/5 yr. 240,000 10.00
Michaels 21,000 02/14 4/5 yr. 201,495 9.60
T.J. Maxx 25,420 03/14 4/5 yr. 216,070 8.50
Cost Plus World Market 18,297 01/15 3/5 yr. 247,010 13.50
Kohl's (Ground Lease) 80,654 01/19 6/5 yr. 360,000 N/A
IHOP (Ground Lease) 4,022 11/19 3/5 yr. 55,000 N/A
In general, each tenant will pay its proportionate share of real estate taxes,
insurance and common area maintenance costs, although the leases with some
tenants may provide that the tenant's liability for such expenses is limited in
some way, usually so that their liability for such expenses does not exceed a
specified amount.
ECKERD DRUG STORES
On June 3, 2004, we purchased the following four separate existing freestanding
retail properties built between 2003 and 2004 known as Eckerd Drug Stores,
containing a total of 54,912 gross leasable square feet.
Location Square Feet Lease Term Purchase Price ($)
-------- ----------- ---------- ------------------
1100 W. Hampton Boulevard 13,824 06/03/04 - 06/02/24 3,069,000
Greer, South Carolina
2041 S. Croatan Highway 13,824 06/03/04 - 06/02/24 3,650,000
Kill Devil Hills, North Carolina
Broad River and Kennerly 13,440 06/03/04 - 06/02/24 3,260,000
Columbia, South Carolina
1106 Main Street 13,824 06/03/04 - 06/02/24 2,625,000
Crossville, Tennessee
We purchased the four Eckerd Drug Stores from Eckerd, an unaffiliated third
party. Our total acquisition cost, including expenses, was approximately
$12,604,000. This amount may increase by additional costs which have not yet
been finally
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determined. We expect any additional costs to be insignificant. Our acquisition
cost was approximately $230 per square foot of leasable space.
We purchased these properties with our own funds. On July 21, 2004, we obtained
financing in the form of four loans totaling $6,800,000. The loans on each
property are as follows: Eckerd Drug Store in Greer, South Carolina requires
interest only payments on $1,650,000; Eckerd Drug Store in Kill Devil Hills,
North Carolina requires interest only payments on $1,975,000; Eckerd Drug Store
in Columbia, South Carolina requires interest only payments on $1,750,000; and
Eckerd Drug Store in Crossville, Tennessee requires interest only payments on
$1,425,000. The interest rate on all the properties' loans is 5.275% and all the
properties' loans mature August 2009.
In evaluating these properties as potential acquisitions and determining the
appropriate amount of consideration to be paid for the properties, we considered
a variety of factors including location, demographics, quality of tenant, length
of lease, price per square foot, occupancy and the fact that overall rental rate
at the property is comparable to market rates. We believe that each of these
properties is well located, has acceptable roadway access and is well
maintained. These properties will be subject to competition from similar
properties within their market area, and economic performance could be affected
by changes in local economic conditions. We did not consider any other factors
materially relevant to the decision to acquire these properties.
One tenant, Eckerd Drug Store, leases 100% of the total gross leasable area of
each property. The leases with this tenant requires the tenant to pay base
annual rent on a monthly basis as follows:
Approximate GLA % of Total Current Base Rent Per
Lessee/ Leased GLA of each Annual Renewal Square Foot Per
Location (Sq. Ft.) Property Rent ($) Options Annum ($) Lease Term
------------------------------------------------- ------------- -----------------------------------------------------------------
1100 W. Hampton Blvd. 13,824 100 254,727 4/5 yr. 18.43 06/03/04 - 06/02/24
Greer, SC
2041 S. Croatan Hwy. 13,824 100 302,950 4/5 yr. 21.91 06/03/04 - 06/02/24
Kill Devil Hills, NC
Broad River and Kennerly 13,440 100 270,580 4/5 yr. 20.13 06/03/04 - 06/02/24
Columbia, SC
1106 Main Street 13,824 100 217,875 4/5 yr. 15.76 06/03/04 - 06/02/24
Crossville, TN
For federal income tax purposes, the depreciable basis in these properties will
be approximately $9,453,000. When we calculate depreciation expense for tax
purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
PLAZA SANTA FE, PHASE II, SANTA FE, NEW MEXICO
On June 1, 2004, we purchased an existing shopping center known as Plaza Santa
Fe, Phase II, containing 222,389 gross leasable square feet. The center is
located at Cerrilos Road and Zafarano Boulevard in Santa Fe, New Mexico.
We purchased this property from an unaffiliated third party. Our total
acquisition cost was approximately $31,020,600. This amount may increase by
additional costs which have not yet been finally determined. We expect any
additional costs to be insignificant. Our acquisition cost was approximately
$139 per square foot of leasable space.
We purchased this property with our own funds and by assuming the existing
mortgage debt on the property. The outstanding balance on the mortgage debt at
the date of acquisition was $17,551,721. This loan requires monthly principal
-81-
and interest payments based on a fixed interest rate of 6.2% per annum and
cannot be prepaid prior to January 2005. The loan matures on December 1, 2012.
We do not intend to make significant repairs and improvements to this property
over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
Three tenants, Best Buy, Linens 'N Things and T.J. Maxx, each lease more than
10% of the total gross leasable area of the property. The leases with these
tenants require the tenants to pay base annual rent on a monthly basis as
follows:
Base Rent
Approximate Per Square
GLA Leased % of Total Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
-----------------------------------------------------------------------------------------------
Best Buy 31,226 14 13.50 09/01 01/09
14.00 02/09 01/17
Linens 'N Things 31,500 14 13.50 11/00 01/06
14.85 02/06 01/11
16.34 02/11 01/16
T.J. Maxx 30,900 14 10.50 11/00 11/10
For federal income tax purposes, the depreciable basis in this property will be
approximately $23,300,000. When we calculate depreciation expense for tax
purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
Plaza Santa Fe Phase II was built between 2000 to 2002. As of September 1, 2004,
this property was 98% occupied, with a total 217,329 square feet leased to 20
tenants. The following table sets forth certain information with respect to
those leases:
Approximate Current Base Rent Per
GLA Leased Renewal Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($)
------------------------------------------------------------------------------------------------------------
State Farm Insurance 1,250 02/05 2/3 yr. 27,500 22.00
Old Navy 20,115 11/06 2/5 yr. 251,438 12.50
H & R Block 1,900 10/07 1/5 yr. 37,050 19.50
Corral West 7,556 10/07 1/5 yr. 75,560 10.00
Cactus Salon 1,250 01/08 1/5 yr. 30,000 24.00
French & French 3,038 11/08 1/7 yr. 69,874 23.00
Alltel 3,932 12/08 2/5 yr. 112,612 28.64
T.J. Maxx 30,900 11/10 3/5 yr. 324,450 10.50
Michael's 20,280 03/11 3/5 yr. 253,500 12.50
D & A Mattress 4,710 05/11 2/5 yr. 89,490 19.00
Famous Footwear 8,000 01/12 2/5 yr. 136,000 17.00
Super Nails 1,000 05/12 1/5 yr. 30,000 30.00
Quizno's 1,900 08/12 1/5 yr. 37,715 19.85
Osaka Grill 6,000 09/12 2/5 yr. 150,000 25.00
Payless Shoe Source 2,850 09/13 2/5 yr. 57,000 20.00
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Approximate Current Base Rent Per
GLA Leased Renewal Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($)
------------------------------------------------------------------------------------------------------------
Mens Wearhouse 4,505 02/15 1/5 yr. 83,343 18.50
Linens 'N Things 31,500 01/16 3/5 yr. 425,250 13.50
Best Buy 31,226 01/17 2/5 yr. 421,551 13.50
PETsMART 20,010 01/17 3/5 yr. 284,742 14.23
Borders 15,407 01/18 5/5 yr. 234,957 15.25
In general, each tenant will pay its proportionate share of real estate taxes,
insurance and common area maintenance costs, although the leases with some
tenants may provide that the tenant's liability for such expenses is limited in
some way, usually so that their liability for such expenses does not exceed a
specified amount.
NORTHPOINTE PLAZA, SPOKANE, WASHINGTON
On May 28, 2004, we purchased an existing shopping center known as Northpointe
Plaza, containing 377,924 gross leasable square feet (which includes of 18,719
square feet of ground lease space). The center is located at 10100 N. Newport
Highway in Spokane, Washington.
We purchased this property from an unaffiliated third party. Our total
acquisition cost was approximately $48,500,000. This amount may increase by
additional costs which have not yet been finally determined. We expect any
additional costs to be insignificant. Our acquisition cost was approximately
$128 per square foot of leasable space.
We purchased this property with our own funds. On June 4, 2004, we obtained
financing in the amount of $30,850,000. The loan requires interest only payments
at an annual rate of 4.272% and matures May 2009.
We do not intend to make significant repairs and improvements to this property
over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
Three tenants, Safeway, Best Buy and Gart Sports, each leases more than 10% of
the total gross leasable area of the property. The leases with these tenants
require the tenants to pay base annual rent on a monthly basis as follows:
Base Rent
Approximate Per Square
GLA Leased % of Total Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
-----------------------------------------------------------------------------------------------
Safeway 47,000 12 7.09 11/90 10/95
7.43 11/95 11/95
7.44 12/95 10/00
7.80 11/00 11/00
Safeway (continued)
7.82 12/00 10/05
8.19 11/05 11/05
8.21 12/05 11/10
Best Buy 45,000 12 7.56 10/01 01/07
8.12 02/07 01/12
8.71 02/12 01/17
Gart Sports 45,658 12 9.95 10/97 08/98
10.56 09/98 10/02
11.56 11/02 10/07
12.66 11/07 01/13
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For federal income tax purposes, the depreciable basis in this property will be
approximately $36,375,000. When we calculate depreciation expense for tax
purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
Northpointe Plaza was built between 1991 to 1993. As of September 1, 2004,
this property was 99% occupied, with a total 374,807 square feet leased to 27
tenants and four ground lease tenants. The following table sets forth certain
information with respect to those leases:
Approximate Current Base Rent Per
GLA Leased Renewal Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($)
-----------------------------------------------------------------------------------------------------------
RadioShack 2,764 08/05 - 34,550 12.50
Payless Shoes 2,992 11/05 1/5 yr. 52,659 17.60
T.J. Maxx 24,894 01/06 2/5 yr. 186,705 7.50
Sally Beauty Supplies 1,778 03/06 2/5 yr. 22,401 12.60
Corral West 7,560 03/06 1/5 yr. 64,260 8.50
Great Clips 1,600 05/06 - 27,920 17.45
Mother Cupboard 1,600 05/06 1/5 yr. 26,400 16.50
Washington Mutual 4,500 06/06 2/5 yr. 82,404 18.31
Fashion Bug 9,000 01/07 3/5 yr. 81,000 9.00
Pier 1 Imports 10,000 06/07 2/5 yr. 148,200 14.82
Foxy Nails 1,840 10/07 1/5 yr. 31,284 17.00
Payday Plus 1,250 06/08 1/5 yr. 26,400 21.12
Mark Webb 1,500 01/09 - 25,500 17.00
America's Best 4,500 03/09 - 72,000 16.00
Hollywood Video 7,500 08/09 - 141,450 18.86
Safeway 47,000 11/10 7/5 yr. 367,386 7.82
Safeway Gas Bar (Ground Lease) 4,000 01/11 7/5 yr. 98,000 N/A
Bath & Body Works 2,363 01/11 2/5 yr. 42,888 18.15
Marks Hallmark 5,026 01/11 - 75,390 15.00
Mail Boxes, Etc 1,600 07/11 - 27,200 17.00
Red Robin Restaurant (Ground
Lease) 6,469 11/11 4/5 yr. 87,808 N/A
Taco Bell (Ground Lease) 3,000 05/12 4/5 yr. 54,996 N/A
Gart Sports 45,658 01/13 2/5 yr. 527,592 11.56
Old Country Buffet 10,172 01/13 2/5 yr. 140,373 13.80
Azteca Restaurant 5,275 04/13 2/5 yr. 87,860 16.66
Staples 25,356 07/13 3/5 yr. 305,793 12.06
PETsMART 26,175 08/13 4/5 yr. 376,396 14.38
Linens 'N Things 36,554 09/15 3/5 yr. 448,517 12.27
Best Buy 45,000 01/17 3/5 yr. 340,000 7.56
Borders 22,631 01/18 5/5 yr. 178,785 7.90
Applebees (Ground Lease) 5,250 12/27 4/5 yr. 66,999 N/A
-84-
In general, each tenant will pay its proportionate share of real estate taxes,
insurance and common area maintenance costs, although the leases with some
tenants may provide that the tenant's liability for such expenses is limited in
some way, usually so that their liability for such expenses does not exceed a
specified amount.
WATAUGA PAVILION, WATAUGA, TEXAS
On May 21, 2004, we purchased a newly constructed shopping center known as
Watauga Pavilion, containing 205,740 gross leasable square feet. The center is
located at 7600-7620 Denton Highway in Watauga, Texas.
We purchased this property from an unaffiliated third party. Our total
acquisition cost was approximately $35,669,000. This amount may increase by
additional costs which have not yet been finally determined. We expect any
additional costs to be insignificant. Our acquisition cost was approximately
$173 per square foot of leasable space.
We purchased this property with our own funds. On June 7, 2004, we obtained
financing in the amount of $19,617,000. The loan requires interest only payments
at an annual rate of 4.140% and matures June 2010.
We do not intend to make significant repairs and improvements to this property
over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
Three tenants, Oshman's Sporting Goods, Ross Dress for Less and Bed, Bath &
Beyond, each lease more than 10% of the total gross leasable area of the
property. The leases with these tenants require the tenants to pay base annual
rent on a monthly basis as follows:
Base Rent
Approximate Per Square
GLA Leased % of Total Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
-----------------------------------------------------------------------------------------------
Oshman's
Sporting Goods 32,630 16 10.60 03/04 01/10
11.00 02/10 01/15
Ross Dress for
Less 30,187 15 9.25 05/04 05/09
9.50 06/09 01/15
Bed, Bath &
Beyond 24,272 12 7.50 01/04 01/14
For federal income tax purposes, the depreciable basis in this property will be
approximately $26,800,000. When we calculate depreciation expense for tax
purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
Watauga Pavilion was built during 2003 to 2004. As of September 1, 2004, this
property was 93% occupied, with a total 192,155 square feet leased to 14
tenants. The following table sets forth certain information with respect to
those leases:
Approximate Current Base Rent Per
GLA Leased Renewal Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($)
------------------------------------------------------------------------------------------------------------------
Cool Cuts 4 Kids 1,210 10/08 1/5 yr. 25,410 21.00
Sprint Spectrum 2,738 12/08 2/5 yr. 60,236 22.00
-85-
Approximate Current Base Rent Per
GLA Leased Renewal Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($)
------------------------------------------------------------------------------------------------------------------
EB Games 1,500 12/08 2/5 yr. 34,500 23.00
Mattress Giant 5,000 01/09 2/5 yr. 110,000 22.00
Beauty Brands 6,260 02/09 1/5 yr. 138,600 22.14
Half Price Books 9,663 01/14 2/5 yr. 115,956 12.00
Bed, Bath & Beyond 24,272 01/14 3/5 yr. 182,040 7.50
Pier 1 Imports 9,373 02/14 2/5 yr. 161,491 17.23
Office Depot 20,000 04/14 3/5 yr. 260,832 13.00
Party City 12,000 01/15 3/5 yr. 159,000 13.25
Ross Dress for Less 30,130 01/15 5/5 yr. 278,703 9.25
Oshman's Sporting Goods 32,630 01/15 3/5 yr. 345,912 10.60
Cost Plus World Market 17,999 01/15 3/5 yr. 238,487 13.25
PETsMART 19,380 03/19 3/5 yr. 201,552 10.40
In general, each tenant will pay its proportionate share of real estate taxes,
insurance and common area maintenance costs, although the leases with some
tenants may provide that the tenant's liability for such expenses is limited in
some way, usually so that their liability for such expenses does not exceed a
specified amount.
EASTWOOD TOWNE CENTER, LANSING, MICHIGAN
On May 13, 2004, we purchased an existing shopping center known as Eastwood
Towne Center, containing 326,981 gross leasable square feet (which consists of
24,110 square feet of ground lease space). The center is located at 3003 Preyde
Boulevard in Lansing, Michigan.
We purchased this property from an unaffiliated third party. Our total
acquisition cost was approximately $85,000,000. This amount may increase by
additional costs which have not yet been finally determined. We expect any
additional costs to be insignificant. Our acquisition cost was approximately
$260 per square foot of leasable space.
We purchased this property with our own funds. On June 23, 2004, we obtained
financing in the amount of $46,750,000. The loan requies interest only payments
at an annual rate of 4.64% and matures July 2009.
We do not intend to make significant repairs and improvements to this property
over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
One tenant, Dick's Sporting Goods, leases more than 10% of the total gross
leasable area of the property. The lease with this tenant requires the tenant to
pay base annual rent on a monthly basis as follows:
Base Rent
Approximate Per Square
GLA Leased % of Total Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
-----------------------------------------------------------------------------------------------
Dick's Sporting
Goods 45,000 13 0 09/02 06/04
8.00 07/04 01/08
8.50 02/08 01/13
9.00 02/13 01/18
For federal income tax purposes, the depreciable basis in this property will be
approximately $63,750,000. When we calculate depreciation expense for tax
purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
Eastwood Towne Center was built in 2002. As of September 1, 2004, this property
was 99% occupied, with a total 324,020 square feet leased to 60 tenants. The
following table sets forth certain information with respect to those leases:
-86-
Approximate Current Base Rent Per
GLA Leased Renewal Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($)
------------------------------------------------------------------------------------------------------------------
State Employee Credit Union 2,120 09/07 2/5 yr. 74,200 35.00
Panchero's 2,409 09/07 2/5 yr. 52,998 22.00
Claire's 1,200 09/07 1/5 yr. 38,400 32.00
Sprint PCS 1,089 09/07 1/5 yr. 43,560 40.00
Fabiano's Candies 1,090 09/07 1/5 yr. 27,250 25.00
Electronics Boutique 1,148 09/07 2/3 yr. 45,920 40.00
Hallmark 4,500 02/08 2/5 yr. 94,500 21.00
Star Image Photography 825 07/08 3/5 yr. 28,875 35.00
LA Weight Loss 1,100 04/09 - 22,000 20.00
See Optics 1,200 09/09 1/5 yr. 42,000 35.00
Banana Republic 7,000 09/10 1/4 yr. & 1/3 yr. 105,000 15.00
The Gap 7,526 09/10 1/4 yr. & 1/3 yr. 120,416 16.00
Maggie Moo's 1,105 10/10 2/5 yr. 44,200 40.00
Beauty First 3,388 10/10 1/7 yr. 84,700 25.00
Pier 1 Imports 10,002 06/12 2/5 yr. 200,040 20.00
Limited Too 3,980 09/12 1/5 yr. 91,540 23.00
Old Thyme Herbs 1,000 09/12 2/5 yr. 38,000 38.00
Mall Office 1,000 09/12 - 20,000 20.00
Ritz Camera 1,500 09/12 2/5 yr. 37,500 25.00
Johnny Rockets 2,592 09/12 4/5 yr. 85,536 33.00
Oneida 4,000 09/12 1/5 yr. 90,000 22.50
Claddagh Pub 5,987 09/12 2/5 yr. 137,701 23.00
Forever 21 6,838 09/12 2/5 yr. 143,598 21.00
Casual Corner 6,019 09/12 1/5 yr. 150,475 25.00
Subway 1,729 10/12 2/5 yr. 56,192 32.50
Treehouse Toys 4,716 10/12 2/5 yr. 113,184 24.00
Mitchell's Fish Market 7,264 11/12 2/5 yr. 183,416 25.25
Coldwater Creek 6,000 11/12 2/5 yr. 150,000 25.00
J. Crew 6,000 01/13 1/5 yr. 144,000 24.00
Guess 5,000 01/13 - 125,000 25.00
White House Black Market 1,850 01/13 2/5 yr. 61,050 33.00
Express 8,000 01/13 2/5 yr. 192,000 24.00
Victoria's Secret 6,500 01/13 2/5 yr. 156,000 24.00
DSW Shoe Warehouse 25,000 01/13 4/5 yr. 300,000 12.00
Jos A. Banks 4,500 01/13 1/5 yr. 121,500 27.00
American Eagle 5,400 01/13 2/5 yr. 129,600 24.00
Ann Taylor Loft 5,280 01/13 2/5 yr. 132,000 25.00
Bath & Body Works 3,360 01/13 2/5 yr. 80,640 24.00
Yankee Candle 2,500 01/13 2/5 yr. 75,000 30.00
The Children's Place 4,526 01/13 2/5 yr. 117,676 26.00
Aeropostal 3,600 01/13 1/5 yr. 86,400 24.00
Starbuck's 1,440 02/13 4/5 yr. 50,400 35.00
Lane Bryant 5,390 02/13 2/5 yr. 140,140 26.00
McAlister's Deli 3,311 02/13 2/5 yr. 79,464 24.00
Christopher & Banks 3,000 03/13 2/5 yr. 105,000 35.00
Venetian Nails 1,376 04/13 2/5 yr. 48,160 35.00
-87-
Approximate Current Base Rent Per
GLA Leased Renewal Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($)
----------------------------------------------------------------------------------------------------------------
April Cornell 2,250 05/13 2/5 yr. 76,500 34.00
Mother's Work 2,685 06/13 2/5 yr. 93,975 35.00
Capitol Fur 1,100 10/13 2/5 yr. 28,600 26.00
Hampton Jewelers 2,163 10/13 2/5 yr. 43,260 20.00
Talbots 4,800 01/14 2/5 yr. 112,800 23.50
Wlliams-Sonoma 5,500 01/15 - 121,000 22.00
Pottery Barn 10,500 01/15 - 231,000 22.00
Brio/Bravo 7,134 09/17 1/5 yr. 190,000 26.63
Borders (Schuler Books) 24,418 01/18 3/5 yr. 439,524 18.00
Dick's Sporting Goods 45,000 01/18 4/5 yr. 360,000 8.00
CoAmerica (Ground Lease) 3,310 10/18 4/5 yr. 125,000 N/A
Max & Erma's (Ground Lease) 7,000 09/19 4/5 yr. 202,000 N/A
PF Changs (Ground lease) 6,800 11/12 3/5 yr. 60,000 N/A
Smoky Bones (Ground Lease) 7,000 10/13 4/5 yr. 110,000 N/A
In general, each tenant will pay its proportionate share of real estate taxes,
insurance and common area maintenance costs, although the leases with some
tenants may provide that the tenant's liability for such expenses is limited in
some way, usually so that their liability for such expenses does not exceed a
specified amount.
ARVADA MARKETPLACE AND ARVADA CONNECTION, ARVADA, COLORADO
On April 29, 2004, we purchased two existing shopping centers, situated directly
across the street from each other, containing 358,757 total gross leasable
square feet. Arvada Marketplace contains 297,678 square feet and Arvada
Connection contains 61,079 square feet (which includes 2,040 square feet of
ground lease space). The centers are located at 7320-7490 West 52nd Street in
Arvada, Colorado.
We purchased these two centers from one unaffiliated third party. Our total
acquisition cost was approximately $51,550,000. This amount may increase by
additional costs which have not yet been finally determined. We expect any
additional costs to be insignificant. Our acquisition cost was approximately
$144 per square foot of leasable space.
We purchased this property with our own funds. On June 21, 2004, we obtained
financing in the amount of $28,510,000. The loan requires interest only payments
at an annual rate of 4.13% and matures July 2009.
We do not intend to make significant repairs and improvements to this property
over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
Two tenants, Sam's Club and Gart Sports, each lease more than 10% of the total
gross leasable area of Arvada Marketplace and two tenants, Old Country Buffet
and Pier 1 Imports, each lease more than 10% of the total gross leasable area at
Arvada Connection. The leases with these tenants require the tenants to pay base
annual rent on a monthly basis as follows:
Base Rent
Approximate Per Square
GLA Leased % of Total Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
-----------------------------------------------------------------------------------------------
ARVADA MARKETPLACE
Sam's Club 142,491 48 4.04 03/86 07/90
5.25 08/90 06/95
6.31 07/95 03/01
8.01 04/01 03/11
-88-
Base Rent
Approximate Per Square
GLA Leased % of Total Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
-----------------------------------------------------------------------------------------------
Gart Sports 54,903 18 6.24 10/93 01/99
7.15 02/99 12/03
5.75 01/04 01/04
6.50 02/04 01/09
7.25 02/09 01/14
ARVADA CONNECTION
Old Country
Buffet 10,000 16 8.00 09/92 12/97
10.00 01/98 12/02
11.00 01/03 12/07
Pier 1 Imports 8,068 13 14.00 04/88 04/93
15.00 05/93 04/98
15.00 05/98 04/99
15.50 05/99 04/00
16.00 05/00 04/01
16.50 05/01 04/02
17.00 05/02 04/03
17.00 05/03 04/06
18.00 05/06 04/08
For federal income tax purposes, the depreciable basis in this property will be
approximately $38,700,000. When we calculate depreciation expense for tax
purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
Arvada Marketplace and Arvada Connection were built between 1987 through 1990.
As of September 1, 2004, Arvada Marketplace was 97% occupied, with a total
288,819 square feet leased to 26 tenants and Arvada Connection was 78%
occupied, with a total 47,483 square feet leased to 12 tenants. The
following table sets forth certain information with respect to those leases:
Approximate Current Base Rent Per
GLA Leased Renewal Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($)
------------------------------------------------------------------------------------------------------------
ARVADA MARKETPLACE
Carefree Spas & Pools 6,367 Month To Month - 60,000 9.42
Ted Johnson, DDS 1,564 10/04 1/5 yr. 20,301 12.98
Lady of America Fitness 4,200 02/05 1/5 yr. 88,200 21.00
Amanda's Bridal 5,155 05/05 1/5 yr. 54,128 10.50
Fast Signs 1,600 06/05 1/5 yr. 24,000 15.00
American General Finance 1,381 11/05 1/5 yr. 24,168 17.50
Namiko's Restaurant 3,015 02/06 - 53,577 17.77
-89-
Approximate Current Base Rent Per
GLA Leased Renewal Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($)
----------------------------------------------------------------------------------------------------------------
Cruise Holidays 1,400 02/06 - 21,000 15.00
Citifinancial 2,251 12/06 1/5 yr. 35,821 15.91
Elegant Nails 1,000 01/07 - 18,002 18.00
Schlotzsky's Deli 1,900 07/07 - 26,600 14.00
The UPS Store 1,375 12/07 1/5 yr. 24,063 17.50
Supercuts 2,213 12/07 1/5 yr. 37,621 17.00
Fantastic Sam's 1,350 12/07 1/5 yr. 22,275 16.50
Fashion Bug 10,000 03/08 1/15 yr. 80,000 8.00
Subway 1,230 10/08 1/5 yr. 22,140 18.00
RadioShack 2,791 10/08 2/5 yr. 43,958 15.75
Lone Star Steakhouse 6,000 11/08 1/5 yr. 85,430 14.24
Tile for Less 3,016 03/09 - 48,256 16.00
Executive Tans 1,500 06/09 - 22,687 15.13
1st Cleaners 1,400 04/10 1/5 yr. 23,800 17.00
Red Robin Burger 7,300 12/10 1/5 yr. 201,795 27.64
Sam's Club 142,491 03/11 4/5 yr. 1,142,063 8.01
Bennett's Bar-B-Que 6,054 03/12 2/5 yr. 149,836 24.75
Gart Sports 54,903 01/14 2/5 yr. 356,870 6.50
Office Depot 17,363 05/14 3/5 yr. 138,904 8.00
ARVADA CONNECTION
SAS Shoes 2,600 11/04 1/5 yr. 28,600 11.00
Liquor Paradise 2,600 04/06 1/5 yr. 34,450 13.25
Kwal-Howell Paint Center 3,965 05/06 - 58,484 14.75
State Farm Insurance 1,190 07/06 1/5 yr. 20,825 17.50
U-Frame-It 1,680 09/06 - 24,058 14.32
Verizon Wireless 1,400 10/06 - 26,600 19.00
Pier 1 Imports 8,068 04/08 - 137,156 17.00
Household Finance 1,680 11/07 1/5 yr. 25,200 15.00
Old Country Buffet 10,000 12/07 2/5 yr. 110,000 11.00
Taco Bell (Ground Lease) 2,240 12/07 2/5 yr. 74,347 N/A
Waldenbooks & More 7,600 01/09 - 176,700 23.25
IHOP 4,460 01/10 1/3 yr. & 1/4 yr. 101,900 22.85
In general, each tenant will pay its proportionate share of real estate taxes,
insurance and common area maintenance costs, although the leases with some
tenants may provide that the tenant's liability for such expenses is limited in
some way, usually so that their liability for such expenses does not exceed a
specified amount.
ALISON'S CORNER SHOPPING CENTER, SAN ANTONIO, TEXAS
On April 28, 2004, we purchased an existing shopping center known as Alison's
Corner Shopping Center containing 55,066 gross leasable square feet. The center
is located at 2720 SW Military Drive in San Antonio, Texas.
We purchased this property from an unaffiliated third party. Our total
acquisition cost was approximately $7,042,000. This amount may increase by
additional costs which have not yet been finally determined. We expect any
additional costs to be insignificant. Our acquisition cost was approximately
$128 per square foot of leasable space.
We purchased this property with our own funds. On May 10, 2004, we obtained
financing in the amount of $3,850,000. The loan requires interest only payments
at an annual rate of 4.272% and matures June 2010.
-90-
We do not intend to make significant repairs and improvements to this property
over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
Three tenants, Ross Dress for Less, Mattress Firm and Shoe Carnival, each lease
more than 10% of the total gross leasable area of the property. The leases with
these tenants require the tenants to pay base annual rent on a monthly basis as
follows:
Base Rent
Approximate Per Square
GLA Leased % of Total Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
-----------------------------------------------------------------------------------------------
Ross Dress for
Less 30,066 55 10.00 09/03 01/14
Shoe Carnival 12,000 22 13.00 09/03 08/13
Mattress Firm 9,000 16 12.00 01/04 12/08
For federal income tax purposes, the depreciable basis in this property will be
approximately $5,282,000. When we calculate depreciation expense for tax
purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
Alison's Corner was built in 2003. As of September 1, 2004, this property was
100% occupied, with a total 55,066 square feet leased to four tenants. The
following table sets forth certain information with respect to those leases:
Approximate Current Base Rent Per
GLA Leased Renewal Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($)
-------------------------------------------------------------------------------------------------------
Mattress Firm 9,000 12/08 2/5 yr. 108,000 12.00
Dots 4,000 01/09 3/5 yr. 67,000 16.75
Shoe Carnival 12,000 08/13 2/5 yr. 156,000 13.00
Ross Dress for Less 30,066 01/14 5/5 yr. 300,660 10.00
In general, each tenant will pay its proportionate share of real estate taxes,
insurance and common area maintenance costs, although the leases with some
tenants may provide that the tenant's liability for such expenses is limited in
some way, usually so that their liability for such expenses does not exceed a
specified amount.
NORTH RIVERS TOWN CENTER, CHARLESTON, SOUTH CAROLINA
On April 27, 2004, we purchased a portion of a newly constructed shopping center
known as North Rivers Town Center. The property we acquired contains 141,004
gross leasable square feet, (which includes 31,280 square feet of ground lease
space). The center is located at Rivers Avenue and Ashley Phosphate Road in
Charleston, South Carolina.
We purchased this property from an unaffiliated third party. Our total
acquisition cost was approximately $20,100,000. This amount may increase by
additional costs which have not yet been finally determined. We expect any
additional costs to be insignificant. Our acquisition cost was approximately
$142 per square foot of leasable space.
We purchased this property with our own funds. On June 3, 2004, we obtained
financing in the amount of $11,050,000. The loan requires interest only payments
at an annual rate of 4.76% and matures May 2009.
-91-
We do not intend to make significant repairs and improvements to this property
over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
Four tenants, Babies "R" Us, Bed, Bath & Beyond, Ross Dress for Less and Office
Depot, each lease more than 10% of the total gross leasable area of the
property. The leases with these tenants require the tenants to pay base annual
rent on a monthly basis as follows:
Base Rent
Approximate Per Square
GLA Leased % of Total Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
-----------------------------------------------------------------------------------------------
Bed, Bath & Beyond 28,000 20 10.85 11/03 01/14
Ross Dress For Less 30,024 21 11.00 02/04 01/15
Office Depot 16,000 11 11.50 02/04 01/14
Babies "R" Us * 31,280 22 N/A 11/03 01/14
* Ground Lease
For federal income tax purposes, the depreciable basis in this property will be
approximately $15,100,000. When we calculate depreciation expense for tax
purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
North Rivers Town Center was built during 2003 and 2004. As of September 1,
2004, this property was 100% occupied, with a total 141,004 square feet leased
to 15 tenants and a parcel of land lease to one tenant under a ground lease.
The following table sets forth certain information with respect to those
leases:
Approximate Current Base Rent Per
GLA Leased Renewal Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($)
------------------------------------------------------------------------------------------------------------------
All About Cellular 1,400 01/07 1/3 yr. 27,300 19.50
Mattress Gallery 2,400 10/08 2/5 yr. 52,800 22.00
Super Nails 1,400 11/08 1/3 yr. 28,000 20.00
GameStop 1,750 11/08 2/5 yr. 35,000 20.00
Great Clips 1,250 01/09 2/5 yr. 26,250 21.00
Cold Stone Creamery 1,500 01/09 3/5 yr. 30,000 20.00
Firehouse Subs 1,800 02/09 1/6 yr. 36,000 20.00
Towne Centre 1,600 03/09 2/3 yr. 26,400 16.50
Pro Golf of Charleston 4,800 03/10 2/3 yr. 76,800 16.00
David's Bridal 10,000 10/13 2/5 yr. 155,000 15.50
Bed, Bath & Beyond 28,000 01/14 3/5 yr. 303,800 10.85
Office Depot 16,000 01/14 4/5 yr. 184,000 11.50
Babies "R" Us (Ground
Lease) 31,280 01/14 6/5 yr. 160,776 N/A
Just Fresh Bakery & Cafe 4,800 02/14 2/5 yr. 100,800 21.00
-92-
Approximate Current Base Rent Per
GLA Leased Renewal Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($)
----------------------------------------------------------------------------------------------------------
Pearle Vision 3,000 02/14 2/5 yr. 60,000 20.00
Ross Dress For Less 30,024 01/15 4/5 yr. 330,264 11.00
In general, each tenant will pay its proportionate share of real estate taxes,
insurance and common area maintenance costs, although the leases with some
tenants may provide that the tenant's liability for such expenses is limited in
some way, usually so that their liability for such expenses does not exceed a
specified amount.
BLUEBONNET PARC, BATON ROUGE, LOUISIANA
On April 20, 2004, we purchased an existing shopping center known as Bluebonnet
Parc containing 135,289 gross leasable square feet. The center is located at
I-10 and Bluebonnet Road in Baton Rouge, Louisiana.
We purchased this property from an unaffiliated third party. Our total
acquisition cost was approximately $22,000,000. This amount may increase by
additional costs which have not yet been finally determined. We expect any
additional costs to be insignificant. Our acquisition cost was approximately
$163 per square foot of leasable space.
We purchased this property with our own funds. On May 10, 2004, we obtained
financing in the amount of $12,100,000. The loan requires interest only payments
at an annual rate of 4.372% and matures May 2009.
We do not intend to make significant repairs and improvements to this property
over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
Three tenants, Best Buy, Linens `N Things and Cost Plus World Market, each lease
more than 10% of the total gross leasable area of the property. The leases with
these tenants require the tenants to pay base annual rent on a monthly basis as
follows:
Base Rent
Approximate Per Square
GLA Leased % of Total Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
-----------------------------------------------------------------------------------------------
Best Buy 45,439 34 13.00 08/02 01/08
13.50 02/08 01/13
14.25 02/13 01/18
Linens 'N Things 32,418 24 11.50 10/02 01/09
12.50 02/09 01/14
Cost Plus World Market 18,300 14 14.00 12/02 01/09
14.50 02/09 01/14
For federal income tax purposes, the depreciable basis in this property will be
approximately $16,500,000. When we calculate depreciation expense for tax
purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
Bluebonnet Parc was built in 2002. As of September 1, 2004, this property was
95% occupied, with a total 128,289 square feet leased to seven tenants. The
following table sets forth certain information with respect to those leases:
Approximate Current Base Rent Per
GLA Leased Renewal Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($)
----------------------------------------------------------------------------------------------------------
Brook May Music 8,000 06/09 2/5 yr. 128,000 16.00
David's Bridal 9,998 09/12 2/5 yr. 159,968 16.00
Lifeway Christian Bookstore 9,161 10/12 2/5 yr. 141,995 15.50
-93-
Approximate Current Base Rent Per
GLA Leased Renewal Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($)
----------------------------------------------------------------------------------------------------------
Cost Plus World Market 18,300 01/14 3/5 yr. 256,200 14.00
Linens' N Things 32,418 01/14 3/5 yr. 372,807 11.50
The Men's Wearhouse 4,973 02/14 2/5 yr. 99,460 20.00
Best Buy 45,439 01/18 3/5 yr. 590,707 13.00
In general, each tenant will pay its proportionate share of real estate taxes,
insurance and common area maintenance costs, although the leases with some
tenants may provide that the tenant's liability for such expenses is limited in
some way, usually so that their liability for such expenses does not exceed a
specified amount.
BEST ON THE BOULEVARD, LAS VEGAS, NEVADA
On April 14, 2004, we purchased an existing shopping center known as Best on the
Boulevard, containing 204,427 gross leasable square feet. The center is located
at 3820 Maryland Parkway in Las Vegas, Nevada.
We purchased this property from an unaffiliated third party. Our total
acquisition cost was approximately $35,500,000. This amount may increase by
additional costs which have not yet been finally determined. We expect any
additional costs to be insignificant. Our acquisition cost was approximately
$174 per square foot of leasable space.
We purchased this property with our own funds. On May 7, 2004, we obtained
financing in the amount of $19,525,000. The loan requires interest only payments
at an annual rate of 3.99% and matures May 2009.
We do not intend to make significant repairs and improvements to this property
over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to reimburse a substantial portion
of any monies spent pursuant to the provisions of their respective leases.
Three tenants, Best Buy, Barnes & Noble Booksellers and Copeland's Sporting
Goods, each lease more than 10% of the total gross leasable area of the
property. The leases with these tenants require the tenants to pay base annual
rent on a monthly basis as follows:
Base Rent
Approximate Per Square
GLA Leased % of Total Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
-----------------------------------------------------------------------------------------------
Best Buy 57,726 28 15.00 11/94 01/05
CPI 02/05 01/10
CPI 02/10 01/15
Barnes & Noble Booksellers 26,092 13 13.41 09/99 09/04
14.35 10/04 01/10
Copeland's Sporting Goods 25,129 12 27.52 07/97 08/99
13.50 09/99 06/02
15.12 07/02 06/07
16.93 07/07 06/12
For federal income tax purposes, the depreciable basis in this property will be
approximately $26,265,000. When we calculate depreciation expense for tax
purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
-94-
Best on the Boulevard was built during the three year period from 1996 to 1999.
As of September 1, 2004, this property was 77% occupied, with a total 156,756
square feet leased to eight tenants. The following table sets forth certain
information with respect to those leases:
Approximate Current Base Rent Per
GLA Leased Renewal Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($)
------------------------------------------------------------------------------------------------------------
Barnes & Noble Booksellers 26,092 01/10 3/5 yr. 350,000 13.41
Rochester Big & Tall 7,000 08/10 2/5 yr. 201,280 28.75
Deli Planet 4,800 11/10 2/5 yr. 115,200 24.00
Cost Plus World
Market 18,508 02/11 3/5 yr. 303,531 16.40
Hallmark 7,500 02/12 3/5 yr. 205,500 27.40
Copeland's Sporting Goods 25,129 06/12 4/5 yr. 379,950 15.12
Pier 1 Imports 10,001 09/13 3/5 yr. 169,753 16.97
Best Buy 57,726 01/15 2/5 yr. 865,890 15.00
In general, each tenant will pay its proportionate share of real estate taxes,
insurance and common area maintenance costs, although the leases with some
tenants may provide that the tenant's liability for such expenses is limited in
some way, usually so that their liability for such expenses does not exceed a
specified amount.
PARADISE VALLEY MARKETPLACE, PHOENIX, ARIZONA
On April 8, 2004, we purchased an existing shopping center known as Paradise
Valley Marketplace containing 92,158 gross leasable square feet (which includes
10,908 square feet of ground lease space). The center is located at Tatum
Boulevard and Shea Boulevard in Phoenix, Arizona.
We purchased this property from an unaffiliated third party. Our total
acquisition cost was approximately $28,510,000. This amount may increase by
additional costs which have not yet been finally determined. We expect any
additional costs to be insignificant. Our acquisition cost was approximately
$309 per square foot of leasable space. Included in the purchase price was
11,000 square feet is vacant land that has been approved for development.
We purchased this property with our own funds. On June 3, 2004, we obtained
financing in the amount of $15,680,500. The loan requires interest only payments
at an annual rate of 4.55% and matures May 2009.
We do not intend to make significant repairs and improvements to this property
over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
Two tenants, Whole Foods Grocery Store and Eckerd Drug Store, lease more than
10% of the total gross leasable area of the property. The lease with these
tenants require the tenants to pay base annual rent on a monthly basis as
follows:
Base Rent
Approximate Per Square
GLA Leased % of Total Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
-----------------------------------------------------------------------------------------------
Whole Foods 32,000 35 13.50 01/02 01/12
CPI 02/12 01/17
CPI 02/17 01/22
-95-
Eckerd Drug Store * 10,908 12 N/A 07/03 07/23
* Ground Lease
For federal income tax purposes, the depreciable basis in this property will be
approximately $21,383,000. When we calculate depreciation expense for tax
purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
Paradise Valley Marketplace was built in 2002. As of September 1, 2004, this
property was 89% occupied, with a total 82,212 square feet leased to 17
tenants. The following table sets forth certain information with respect to
those leases:
Approximate Current Base Rent Per
GLA Leased Renewal Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($)
----------------------------------------------------------------------------------------------------------
EB Gameworld 1,015 11/05 2/3 yr. 30,450 30.00
Beauty Brands 5,510 12/06 1/5 yr. 176,320 32.00
Verizon Wireless 2,047 12/06 2/3 yr. 65,504 32.00
Soma Restaurant 3,452 10/07 1/5 yr. 108,738 31.50
Ship Rite 1,340 11/07 1/5 yr. 36,575 27.30
So-Oh! Fashion Outlet 1,964 02/08 1/5 yr. 53,028 27.00
Hava Java 1,587 05/08 1/5 yr. 58,846 37.08
Mattress Authority 2,453 08/08 - 75,062 30.60
Kolache Factory 2,100 11/08 2/5 yr. 71,400 34.00
Washington Mutual 4,114 01/09 3/5 yr. 131,648 32.00
The Diamond Source 1,677 11/09 1/3 yr. 46,956 28.00
Baja Fresh 2,544 12/11 2/6 yr. 97,079 38.16
Pick Up Stix 1,820 01/12 2/5 yr. 67,363 37.01
Select Dry Cleaning 2,505 01/13 2/5 yr. 77,404 30.90
The Men's Wearhouse 5,176 03/13 2/5 yr. 165,632 32.00
Whole Foods 32,000 01/22 4/5 yr. 432,000 13.50
Eckerd Drug Store (Ground
Lease) 10,908 07/23 4/5 yr. 205,000 N/A
In general, each tenant will pay its proportionate share of real estate taxes,
insurance and common area maintenance costs, although the leases with some
tenants may provide that the tenant's liability for such expenses is limited in
some way, usually so that their liability for such expenses does not exceed a
specified amount.
HERITAGE TOWNE CROSSING, EULESS, TEXAS
On March 5, 2004, we purchased an existing shopping center known as Heritage
Towne Crossing containing 80,639 gross leasable square feet (which includes
7,246 square feet of ground lease space). The center is located at Glade Road
and State Highway 121 in Euless, Texas.
We purchased this property from an unaffiliated third party. Our total
acquisition cost was approximately $14,567,991. This amount may increase by
additional costs which have not yet been finally determined. We expect any
additional costs to be insignificant. Our acquisition cost was approximately
$181 per square foot of leasable space. A portion of the purchase price will be
held in an escrow, to be paid to the seller when the remaining spaces are
leased.
We purchased this property with our own funds. On April 30, 2004, we obtained
financing in the amount of $8,950,000. The loan requires interest only payments
at an annual rate of 4.374% and matures June 2009.
-96-
We do not intend to make significant repairs and improvements to this property
over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
No individual tenant leases more than 10% of the total gross leasable area of
the property.
For federal income tax purposes, the depreciable basis in this property will be
approximately $12,200,000. When we calculate depreciation expense for tax
purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
Heritage Towne Crossing was built in 2002. As of September 1, 2004, this
property was 89% occupied, with a total 72,119 square feet leased to 29 tenants.
The following table sets forth certain information with respect to those leases:
Approximate Current Base Rent Per
GLA Leased Renewal Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($)
----------------------------------------------------------------------------------------------------------
APB Mortgage 2,530 09/06 1/3 yr. 45,540 18.00
GameStop 1,400 03/07 1/3 yr. 29,400 21.00
Mattress Firm 4,000 04/07 2/5 yr. 96,000 24.00
All Battery Store 2,000 04/07 2/5 yr. 44,000 22.00
Cow Fireworks 1,200 05/07 2/5 yr. 20,400 17.00
Dapper Dan Cleaners 2,000 06/07 1/5 yr. 38,000 19.00
Lava Asian Grill 3,000 07/07 1/5 yr. 51,000 17.00
Salon G 2,800 08/07 1/5 yr. 50,400 18.00
Ultra Tan 1,600 08/07 2/5 yr. 24,000 15.00
Golf USA of Euless 3,473 12/07 1/5 yr. 69,460 20.00
Coppell Spine/Sports Rehab 2,000 03/08 1/3 yr. 38,000 19.00
Sara Donuts 1,400 04/08 1/5 yr. 23,800 17.00
Plato's Closet 3,000 04/08 1/5 yr. 54,000 18.00
Village Barber 1,100 04/08 1/5 yr. 23,100 21.00
Town & Country Tobacco 1,800 04/08 2/5 yr. 32,400 18.00
Parker Uniforms 3,000 05/08 1/5 yr. 42,000 14.00
The Cash Store 1,300 07/08 2/5 yr. 24,700 19.00
Art & Frame Warehouse 2,546 07/08 1/5 yr. 39,463 15.50
Wings to Go 2,000 09/08 1/5 yr. 32,000 16.00
Delicious Delights 1,500 10/08 1/5 yr. 27,000 18.00
Ultima Fitness 2,266 11/08 1/5 yr. 37,389 16.50
Nails Spa 3,410 01/09 1/5 yr. 61,380 18.00
Double Dave's 3,308 03/09 1/5 yr. 54,582 16.50
The Soccer Corner 4,000 05/10 2/5 yr. 62,600 15.65
Panda Express 2,250 04/12 2/5 yr. 47,250 21.00
Washington Mutual 4,000 10/12 4/5 yr. 84,000 21.00
Pearle Vision 1,990 12/12 2/5 yr. 35,820 18.00
Whataburger (Ground lease) 3,500 08/18 3/5 yr. 60,000 N/A
Taco Bell (Ground lease) 3,746 09/23 4/5 yr. 51,000 N/A
In general, each tenant will pay its proportionate share of real estate taxes,
insurance and common area maintenance costs, although the leases with some
tenants may provide that the tenant's liability for such expenses is limited in
some way, usually so that their liability for such expenses does not exceed a
specified amount.
PEORIA CROSSINGS, PEORIA, ARIZONA
-97-
On March 4, 2004, we purchased a newly constructed shopping center known as
Peoria Crossings, containing 213,733 gross leasable square feet. The center is
located at 9350 West Northern Avenue, in Peoria, Arizona.
We purchased this property from an unaffiliated third party. Our total
acquisition cost was approximately $37,368,000. This amount may increase by
additional costs which have not yet been finally determined. We expect any
additional costs to be insignificant. Our acquisition cost was approximately
$175 per square foot of leasable space.
We originally purchased this property with our own funds. On March 5, 2004, we
obtained financing in the amount of $20,497,000. The loan requires interest only
payments at an annual rate of 4.09% and matures April 2009.
We do not intend to make significant repairs and improvements to this property
over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
Three tenants, Ross Dress for Less, Michaels and Petco, each lease more than 10%
of the total gross leasable area of the property. The leases with these tenants
require the tenant to pay base annual rent on a monthly basis as follows:
Base Rent
Approximate Per Square
GLA Leased % of Total Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
-----------------------------------------------------------------------------------------------
Ross Dress for Less 30,171 14 10.00 05/03 01/14
Michaels 24,063 11 11.00 03/02 02/12
Kohl's 88,408 41 8.79 03/04 01/24
For federal income tax purposes, the depreciable basis in this property will be
approximately $28,026,000. When we calculate depreciation expense for tax
purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
Peoria Crossing was built in 2002 and 2003. As of September 1, 2004, this
property was 97% occupied, with a total 207,711 square feet leased to 20
tenants. The following table sets forth certain information with respect to
those leases:
Approximate Current Base Rent Per
GLA Leased Renewal Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($)
----------------------------------------------------------------------------------------------------------
Famous Footwear 10,030 01/08 2/5 yr. 162,988 16.25
EB Games 1,500 01/08 1/5 yr. 37,500 25.00
Sally Beauty Supply 1,200 02/08 1/5 yr. 26,400 22.00
Claire's Boutique 1,269 02/08 1/5 yr. 30,456 24.00
Voice Stream 1,200 02/08 5/1 yr. 32,400 27.00
Sleep America 4,500 03/08 1/5 yr. 112,500 25.00
Cold Stone Creamery 1,400 05/08 5/1 yr. 37,492 26.78
Sarpino's Pizzeria 1,200 07/08 1/5 yr. 32,136 26.78
Great Clips 1,405 08/08 5/1 yr. 36,179 25.75
Julie Nails & Spa 1,300 12/08 1/5 yr. 33,800 26.00
Supercuts 1,202 12/08 2/5 yr. 33,656 28.00
Michaels 24,063 02/12 4/5 yr. 264,693 11.00
Petco 15,216 10/12 2/5 yr. 216,067 14.20
Payless Shoes 4,042 01/13 2/5 yr. 80,840 20.00
-98-
Approximate Current Base Rent Per
GLA Leased Renewal Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($)
----------------------------------------------------------------------------------------------------------
Quizno's 1,400 05/13 2/5 yr. 38,500 27.50
Panda Express 2,205 06/13 2/5 yr. 59,535 27.00
Dress Barn 8,000 06/13 2/5 yr. 140,000 17.50
Anna's Linens 8,000 09/13 2/5 yr. 112,000 14.00
Ross Dress for Less 30,171 01/14 4/5 yr. 301,710 10.00
Kohl's 88,408 01/24 6/5 yr. 777,524 8.79
In general, each tenant will pay its proportionate share of real estate taxes,
insurance and common area maintenance costs, although the leases with some
tenants may provide that the tenant's liability for such expenses is limited in
some way, usually so that their liability for such expenses does not exceed a
specified amount.
PROMENADE AT RED CLIFF, ST. GEORGE, UTAH
On February 13, 2004, we acquired an existing shopping center known as Promenade
at Red Cliff containing 94,364 gross leasable square feet. The center is located
at 250 N. Red Cliffs Drive in St. George, Utah.
We purchased this property from an unaffiliated third party. Our total
acquisition cost was approximately $19,533,000. This amount may increase by
additional costs which have not yet been finally determined. We expect any
additional costs to be insignificant. Our acquisition cost was approximately
$207 per square foot of leasable space.
We purchased this property with our own funds. On April 8, 2004, we obtained
financing in the amount of $10,590,000. The loan requires interest only payments
at an annual rate of 4.29% and matures May 1, 2009.
We do not intend to make significant repairs and improvements to this property
over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
Three tenants, Old Navy, Staples, and Big 5 Sporting Goods, each lease more than
10% of the total gross leasable area of the property. The leases with these
tenants require the tenants to pay base annual rent on a monthly basis as
follows:
Base Rent
Approximate Per Square
GLA Leased % of Total Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
-----------------------------------------------------------------------------------------------
Big 5 Sporting Goods 10,000 11 11.50 06/97 05/02
12.54 06/02 01/07
Old Navy 19,324 20 12.00 02/98 11/03
13.79 12/03 11/08
Staples 22,500 24 11.50 06/97 05/12
For federal income tax purposes, the depreciable basis in this property will be
approximately $14,650,000. When we calculate depreciation expense for tax
purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
Promenade at Red Cliff was built in 1998. As of September 1, 2004, this property
was 95% occupied, with a total 89,480 square feet leased to 18 tenants. The
following table sets forth certain information with respect to those leases:
-99-
Approximate Current Base Rent Per
GLA Leased Renewal Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($)
----------------------------------------------------------------------------------------------------------
Panda Express 1,513 11/04 3/5 yr. 36,312 24.00
Franklin Quest 1,206 12/06 - 30,150 25.00
Hollywood Entertainment 6,200 12/06 2/5 yr. 122,328 19.73
Big 5 Sporting Goods 10,000 01/07 4/5 yr. 125,352 12.54
Vitamin World 1,280 06/07 - 26,880 21.00
Sally Beauty Supply 1,200 06/07 - 22,876 19.06
Gen X Clothing 7,816 06/07 1/5 yr. 131,543 16.83
Prudential 1,017 06/07 1/5 yr. 25,628 25.20
Papa John's Pizza 1,347 12/07 1/5 yr. 35,022 26.00
Durango Grill 2,693 02/08 1/5 yr. 75,404 28.00
Supercuts 1,030 02/08 - 24,720 24.00
Cold Stone Creamery 1,173 08/08 2/5 yr. 33,501 28.56
Approximate Current Base Rent Per
GLA Leased Renewal Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($)
----------------------------------------------------------------------------------------------------------
Country Clutter 1,464 09/08 1/5 yr. 36,600 25.00
Old Navy 19,324 11/08 1/5 yr. 266,575 13.79
Samuri 21 4,057 12/08 1/5 yr. 97,368 24.00
Quiznos 1,424 01/09 1/5 yr. 30,828 21.65
2 Fat Guys Pizza 4,236 02/09 1/5 yr. 91,074 21.50
Staples 22,500 05/12 3/5 yr. 258,750 11.50
In general, each tenant will pay its proportionate share of real estate taxes,
insurance and common area maintenance costs, although the leases with some
tenants may provide that the tenant's liability for such expenses is limited in
some way, usually so that their liability for such expenses does not exceed a
specified amount.
NEWNAN CROSSING WEST AND PHASE II, NEWNAN, GEORGIA
On February 13, 2004, we acquired an existing shopping center known as Newnan
Crossing Phase II containing 160,219 gross leasable square feet (which includes
6,650 square feet of ground lease space), for approximately $22,362,000. This
property is adjacent to Newnan Crossing West, which we acquired on December 24,
2003 for approximately $16,808,000. Newnan Crossing West contains 131,196 gross
leasable square feet. The center is located at 591 Bullsboro Drive in Newnan,
Georgia.
We purchased the property from an unaffiliated third party. This amount may
increase by additional costs which have not been finally determined. We expect
any additional costs to be insignificant. Our acquisition cost was approximately
$139 per square foot, and $128 per square foot of leasable space for Newnan
Crossing Phase II and Newnan Crossing West, respectively. We intend to purchase
an additional 28,000 gross leasable square feet for approximately $4,042,000 in
late 2004 when construction has been completed.
We originally purchased this property with our own funds. On February 17, 2004,
we obtained financing in the amount of $21,543,091. The loan requires interest
only payments at an annual rate of 4.38% and matures March 1, 2009.
We do not intend to make significant repairs and improvements to this property
over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
Three tenants, BJ's Wholesale, T.J. Maxx and Office Depot, each lease more than
10% of the combined total gross leasable area of the West and Phase II
properties The leases with these tenants require the tenant to pay base annual
rent on a monthly basis as follows:
-100-
Base Rent
Approximate Per Square
GLA Leased % of Total Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
-----------------------------------------------------------------------------------------------
Office Depot 30,000 10 10.75 06/99 06/14
T.J. Maxx 30,000 10 7.35 08/99 08/04
8.00 09/04 08/09
BJ's Wholesale 115,396 40 8.75 05/03 04/08
CPI 05/08 04/13
CPI 05/13 04/18
CPI 05/18 05/23
For federal income tax purposes, the depreciable basis will be approximately
$15,930,000 and $11,356,000 for Phase II and West, respectively. When we
calculate depreciation expense for tax purposes, we will use the straight-line
method. We depreciate buildings and improvements based upon estimated useful
lives of 40 and 20 years, respectively.
Newnan Crossing West and Phase II were built in 1999. As of September 1, 2004,
the property was 100% occupied, with a total 291,415 square feet leased to 21
tenants and one ground lease. The following table sets forth certain information
with respect to those leases:
Approximate Current Base Rent Per
GLA Leased Renewal Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($)
----------------------------------------------------------------------------------------------------------
Old Navy 25,000 09/04 2/5 yr. 225,000 9.00
Hallmark 5,000 07/06 2/5 yr. 72,500 14.50
RadioShack 3,000 08/06 2/5 yr. 51,000 17.00
Stratus Communication 1,300 12/06 1/5 yr. 22,750 17.50
Hibbett's Sporting Goods 7,000 01/07 2/5 yr. 94,500 13.50
Crystal Nails & Tan 1,300 04/07 1/5 yr. 23,400 18.00
Ted's Montana Grill 4,000 04/08 4/5 yr. 64,000 16.00
Planet Smoothie 1,040 07/08 1/5 yr. 18,200 17.50
The Corner Tavern 5,000 08/08 2/5 yr. 85,000 17.00
Great Clips 1,200 10/08 1/5 yr. 21,600 18.00
Banana Beach 1,200 12/08 1/5 yr. 21,600 18.00
Cingular Wireless 1,760 12/08 1/5 yr. 31,680 18.00
My Friend's Place 1,600 03/09 2/5 yr. 28,800 18.00
Michaels 23,669 08/09 4/5 yr. 213,336 9.01
T.J. Maxx 30,000 08/09 3/5 yr. 240,000 8.00
Party City 12,000 10/09 2/5 yr. 156,000 13.00
Payless Shoe Source 3,000 11/09 2/5 yr. 48,000 16.00
Rack Room 7,300 01/10 3/5 yr. 124,100 17.00
Sizes Unlimited 5,000 01/12 2/4 yr. 77,500 15.50
O'Charley's (Ground Lease) 6,650 02/14 3/5 yr. 66,000 N/A
Office Depot 30,000 06/14 3/5 yr. 322,500 10.75
BJ's Wholesale 115,396 05/23 4/5 yr. 1,009,715 8.75
In general, each tenant will pay its proportionate share of real estate taxes,
insurance and common area maintenance costs, although the leases with some
tenants may provide that the tenant's liability for such expenses is limited in
some way, usually so that their liability for such expenses does not exceed a
specified amount.
-101-
MACARTHUR CROSSING, LAS COLINAS (IRVING), TEXAS
On February 5, 2004, we purchased an existing shopping center known as MacArthur
Crossing containing 109,755 gross leasable square feet (which includes 6,500
square feet of ground lease space). The center is located at MacArthur Boulevard
and LBJ Freeway in Las Colinas (Irving), Texas.
We purchased this property from an unaffiliated third party. Our total
acquisition cost was approximately $23,102,000. This amount may increase by
additional costs which have not yet been finally determined. We expect any
additional costs to be insignificant. Our acquisition cost was approximately
$210 per square foot of leasable space.
We purchased this property with our own funds. On April 2, 2004, we obtained
financing in the amount of $12,700,000. The loan requires interest only payments
at an annual rate of 4.29% and matures May 1, 2009.
We do not intend to make significant repairs and improvements to this property
over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
One tenant, Stein Mart, leases more than 10% of the total gross leasable area of
the property. The lease with this tenant requires the tenant to pay base annual
rent on a monthly basis as follows:
Base Rent
Approximate Per Square
GLA Leased % of Total Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
-----------------------------------------------------------------------------------------------
Stein Mart 34,000 31 6.75 07/96 07/06
7.25 08/06 07/11
For federal income tax purposes, the depreciable basis in this property will be
approximately $17,340,000. When we calculate depreciation expense for tax
purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
MacArthur Crossing was built in 1995 and 1996. As of September 1, 2004, this
property was 98% occupied, with a total 107,759 square feet leased to 28
tenants. The following table sets forth certain information with respect to
those leases:
Approximate Current Base Rent Per
GLA Leased Renewal Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($)
----------------------------------------------------------------------------------------------------------
Monarch Dental 3,920 12/04 1/5 yr. 66,640 17.00
Valley Ranch Vacations 1,381 06/05 - 24,858 18.00
Regis Haircutters 1,500 01/06 1/5 yr. 37,500 25.00
Custom Clearners 2,100 02/06 1/5 yr. 58,800 28.00
RadioShack 2,000 02/06 1/5 yr. 31,000 15.50
Wolf Camera 1,780 02/06 1/5 yr. 35,600 20.00
Merle Norman 1,457 02/06 1/5 yr. 23,880 16.39
GNC 1,400 02/06 1/5 yr. 25,200 18.00
Rice Boxx 2,101 02/06 - 52,525 25.00
Starbucks Coffee 1,604 03/06 2/5 yr. 32,080 20.00
The UPS Store 1,260 06/06 1/5 yr. 30,240 24.00
Sally Beauty Supply 1,500 06/06 1/5 yr. 29,100 19.40
I Fratelli Restaurant 5,000 08/06 - 107,500 21.50
Subway 1,400 09/06 1/5 yr. 21,000 15.00
-102-
Approximate Current Base Rent Per
GLA Leased Renewal Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($)
----------------------------------------------------------------------------------------------------------
Planet Tan 4,400 10/06 1/5 yr. 70,400 16.00
Blockbuster Video (Ground
Lease) 6,500 12/06 4/5 yr. 127,335 N/A
Flowers For You 2,100 02/07 - 42,000 20.00
Issin Sushi 4,000 03/07 - 80,000 20.00
State Farm Insurance 2,000 04/07 1/5 yr. 34,000 17.00
Eyecare 20/20 2,000 06/07 1/5 yr. 40,000 20.00
Marshall Message Therapy 640 03/08 2/5 yr. 11,520 18.00
TD Waterhouse 2,500 04/08 2/5 yr. 55,000 22.00
Quizno's 2,100 06/09 2/5 yr. 52, 500 25.00
Stein Mart 34,000 07/11 3/5 yr. 229,500 6.75
Mi Cocina 4,964 01/12 2/5 yr. 124,100 25.00
Pei Wei 3,160 02/12 2/5 yr. 96,380 30.50
Mattress Firm 4,000 04/14 2/5 yr. 108,000 27.00
Firestone Tire 6,992 07/16 2/5 yr. 145,000 20.74
In general, each tenant will pay its proportionate share of real estate taxes,
insurance and common area maintenance costs, although the leases with some
tenants may provide that the tenant's liability for such expenses is limited in
some way, usually so that their liability for such expenses does not exceed a
specified amount.
LA PLAZA DEL NORTE, SAN ANTONIO, TEXAS
On January 21, 2004, we purchased an existing shopping center known as La Plaza
Del Norte, containing 320,345 gross leasable square feet. The center is located
at 125 Northwest Loop 410, in San Antonio, Texas.
We purchased this property from an unaffiliated third party. Our total
acquisition cost was approximately $58,143,000. This amount may increase by
additional costs which have not yet been finally determined. We expect any
additional costs to be insignificant. Our acquisition cost was approximately
$182 per square foot of leasable space.
We purchased this property with our own funds. On February 4, 2004, we obtained
financing in the amount of 32,528,000. The loan requires interest only payments
at an annual rate of 4.61% and matures March 1, 2010.
We do not intend to make significant repairs and improvements to this property
over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
Two tenants, Oshman's Sporting Goods and Best Buy, each lease more than 10% of
the total gross leasable area of the property. The leases with these tenants
require the tenant to pay base annual rent on a monthly basis as follows:
Base Rent
Approximate Per Square
GLA Leased % of Total Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
-----------------------------------------------------------------------------------------------
Oshman's Sporting Goods 65,000 20 11.11 09/96 01/02
11.61 02/02 01/07
12.11 02/07 01/12
12.61 02/12 01/17
Best Buy 58,000 18 14.00 08/96 01/02
14.75 02/02 01/07
15.50 02/07 01/12
-103-
14.75 02/02 01/07
15.50 02/07 01/12
For federal income tax purposes, the depreciable basis in this property will be
approximately $43,076,000. When we calculate depreciation expense for tax
purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
La Plaza Del Norte was built in 1996 and 1999. As of September 1, 2004, this
property was 95% occupied, with a total 303,245 square feet leased to 16
tenants. The following table sets forth certain information with respect to
those leases:
Approximate Current Base Rent Per
GLA Leased Renewal Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($)
-------------------------------------------------------------------------------------------------------------
Half Price Books 8,000 10/04 2/5 yr. 84,000 10.50
Lifeway Christian 6,000 11/06 2/5 yr. 132,000 22.00
Pearle Vision 3,500 12/06 2/5 yr. 120,750 34.50
Ross Dress for Less 28,438 01/07 4/5 yr. 288,640 10.15
Office Max 23,229 11/12 2/5 yr. 261,326 11.25
DSW Shoe Warehouse 22,000 04/07 4/5 yr. 374,000 17.00
All Battery Center 1,600 05/07 2/5 yr. 36,800 23.00
Successories 1,200 09/08 1/3 yr. & 1/2 yr. 26,400 22.00
GameStop 2,006 12/08 - 52,156 26.00
David's Bridal 12,000 11/09 2/5 yr. 186,240 15.52
Petco 13,650 11/11 3/5 yr. 278,187 20.38
Cost Plus World Market 18,900 01/12 3/5 yr. 302,400 16.00
Best Buy 58,000 01/12 3/5 yr. 855,500 14.75
Simpson-Williams 9,875 12/12 - 161,600 16.36
Bealls 29,847 01/14 2/5 yr. 194,005 6.50
Oshman's Sporting Goods 65,000 01/17 4/5 yr. 754,650 11.61
In general, each tenant will pay its proportionate share of real estate taxes,
insurance and common area maintenance costs, although the leases with some
tenants may provide that the tenant's liability for such expenses is limited in
some way, usually so that their liability for such expenses does not exceed a
specified amount.
METRO SQUARE CENTER (SUPER VALU SHOPPING CENTER), SEVERN, MARYLAND
On January 20, 2004, we purchased an existing shopping center formerly known as
Super Valu Shopping Center, containing 61,817 gross leasable square feet. The
center is located at 7858 Quarterfield in Severn (Annapolis), Maryland.
We purchased this property from an unaffiliated third party. Our total
acquisition cost was approximately $11,031,000. This amount may increase by
additional costs which have not yet been finally determined. We expect any
additional costs to be insignificant. Our acquisition cost was approximately
$178 per square foot of leasable space.
We purchased this property with our own funds. On April 1, 2004, we obtained
financing in the amount of $6,067,183. The loan requires interest only payments
at an annual rate of 4.28% and matures April 1, 2009.
We do not intend to make significant repairs and improvements to this property
over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
-104-
One tenant, Shoppers Food Warehouse, leases more than 10% of the total gross
leasable area of the property. The lease with this tenant requires the tenant to
pay base annual rent on a monthly basis as follows:
Base Rent
Approximate Per Square
GLA Leased % of Total Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
-----------------------------------------------------------------------------------------------
Shoppers Food Warehouse 58,217 94 14.00 09/99 08/04
14.50 09/04 08/09
15.24 09/09 08/14
16.00 09/14 01/20
For federal income tax purposes, the depreciable basis in this property will be
approximately $8,840,000. When we calculate depreciation expense for tax
purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
Super Valu Shopping Center was built in 1999. As of September 1, 2004, this
property was 100% occupied, with a total 61,817 square feet leased to three
tenants. The following table sets forth certain information with respect to
those leases:
Approximate Current Base Rent Per
GLA Leased Renewal Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($)
----------------------------------------------------------------------------------------------------------
Great Clips 1,200 12/05 5/1 yr. 28,366 23.64
AZZ Cleaners 2,400 12/07 1/5 yr. 55,080 22.95
Shoppers Food Warehouse 58,217 01/20 4/5 yr. 844,146 14.50
In general, each tenant will pay its proportionate share of real estate taxes,
insurance and common area maintenance costs, although the leases with some
tenants may provide that the tenant's liability for such expenses is limited in
some way, usually so that their liability for such expenses does not exceed a
specified amount.
LARKSPUR LANDING, LARKSPUR, CALIFORNIA
On January 14, 2004, we purchased an existing shopping center known as Larkspur
Landing, containing 173,821 gross leasable square feet. The center is located at
2257 Larkspur Landing Circle, in Larkspur, California.
We purchased this property from an unaffiliated third party. Our total
acquisition cost was approximately $61,145,000. This amount may increase by
additional costs which have not yet been finally determined. We expect any
additional costs to be insignificant. Our acquisition cost was approximately
$352 per square foot of leasable space.
We originally purchased this property with our own funds. On January 30, 2004,
we obtained financing in the amount of $33,630,000. The loan requires interest
only payments at an annual rate of 4.45% and matures February 1, 2009.
We do not intend to make significant repairs and improvements to this property
over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
One tenant, Bed, Bath & Beyond, leases more than 10% of the total gross leasable
area of the property. The lease with this tenant requires the tenant to pay base
annual rent on a monthly basis as follows:
-105-
Base Rent
Approximate Per Square
GLA Leased % of Total Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
-----------------------------------------------------------------------------------------------
Bed, Bath & Beyond 42,318 24 20.50 11/02 11/06
21.83 12/06 11/11
23.21 12/11 11/17
For federal income tax purposes, the depreciable basis in this property will be
approximately $45,859,000. When we calculate depreciation expense for tax
purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
Larkspur Landing was built in 1978 and renovated in 2001. As of September 1,
2004, this property was 87% occupied, with a total 150,893 square feet leased to
34 tenants. The following table sets forth certain information with respect to
those leases:
Approximate Current Base Rent Per
GLA Leased Renewal Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($)
----------------------------------------------------------------------------------------------------------
Sushi Ko * 1,709 Month to Month - 51,270 30.00
Golden Gate Printing* 3,287 Month to Month - 30,010 9.13
Sportech 805 03/05 - 16,503 20.50
24 Hour Fitness 17,039 03/05 1/5 yr. 358,926 21.06
Asher Clinic 5,791 04/05 1/5 yr. 152,786 26.38
Roadrunner Burrito 800 06/05 - 30,624 38.28
Redhill 2,688 07/05 - 74,189 27.60
Jaeger 1,500 07/05 - 42,966 28.64
Oliver Allen Corp. 9,392 09/05 1/5 yr. 242,313 25.80
Robert Brugger 880 06/06 - 18,480 21.00
Maxwell Cleaners 2,748 09/06 - 103,874 37.80
Norman Mahan Jewelers 1,333 01/07 - 43,669 32.76
Determined Productions 11,185 03/07 1/4 yr. 608,663 54.42
Larkspur Shoes & Repair 807 03/07 - 23,564 29.20
Larkspur Landing Optomery 1,165 06/07 - 39,598 33.99
Larkspur Landing Pet Clinic 1,141 04/08 - 36,831 32.28
Bay Area Wireless 610 04/08 2/5 yr. 23,790 39.00
American Nails 745 06/08 - 23,691 31.80
AAA 5,245 07/08 2/5 yr. 169,938 32.40
Togo's Eatery 1,625 07/08 - 38,375 23.62
Timothy Bricca DD 1,064 07/08 - 36,133 33.96
All California 3,359 07/08 - 114,172 33.99
Weight Watchers 1,291 09/08 - 61,219 47.42
Cooper Alley 2,000 11/08 - 103,840 51.92
Ragged Sailor 1,207 12/08 - 33,888 28.08
Marin Brewing Co. 5,978 03/11 - 190,219 31.82
Fidelity Investments 7,232 07/11 2/5 yr. 459,955 63.60
Yogalive 6,150 09/12 - 184,500 30.00
Bed, Bath & Beyond 42,318 11/17 3/5 yr. 867,519 20.50
Noonan's Restaurant 6,679 12/18 2/5 yr. 222,878 33.37
Allstate Insurance* 405 Month To Month - 13,365 33.00
Marin Visitor Bureau* 720 Month To Month - 12,000 16.67
Avanti* 1,115 Month To Month - 2,400 2.15
John Connelly* 880 Month To Month - 6,924 7.87
* Renewal negotiations in progress.
-106-
In general, each tenant will pay its proportionate share of real estate taxes,
insurance and common area maintenance costs, although the leases with some
tenants may provide that the tenant's liability for such expenses is limited in
some way, usually so that their liability for such expenses does not exceed a
specified amount.
NORTH RANCH PAVILIONS, THOUSAND OAKS, CALIFORNIA
On January 15, 2004, we purchased an existing shopping center known as North
Ranch Pavilions, containing 62,812 gross leasable square feet. The center is
located at 1125-85 Lindero Road, in Thousand Oaks, California.
We purchased this property from an unaffiliated third party. Our total
acquisition cost was approximately $18,468,000. This amount may increase by
additional costs which have not yet been finally determined. We expect any
additional costs to be insignificant. Our acquisition cost was approximately
$294 per square foot of leasable space.
We purchased this property with our own funds. On March 3, 2004, we obtained
financing in the amount of $10,157,000. The loan requires interest only payments
at an annual rate of 4.12% and matures April 2009.
We do not intend to make significant repairs and improvements to this property
over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
One tenant, Savvy Salon, leases more than 10% of the total gross leasable area
of the property. The lease with this tenant requires the tenant to pay base
annual rent on a monthly basis as follows:
Base Rent
Approximate Per Square
GLA Leased % of Total Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
-----------------------------------------------------------------------------------------------
Savvy Salon 6,500 10 11.71 10/03 01/04
25.20 02/04 01/06
26.76 02/06 01/08
28.32 02/08 01/10
30.00 02/10 01/12
31.80 02/12 02/14
For federal income tax purposes, the depreciable basis in this property will be
approximately $13,851,000. When we calculate depreciation expense for tax
purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
North Ranch Pavilions was built in 1992. As of September 1, 2004, this property
was 89% occupied, with a total 55,928 square feet leased to 24 tenants. The
following table sets forth certain information with respect to those leases:
Approximate Current Base Rent Per
GLA Leased Renewal Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($)
-----------------------------------------------------------------------------------------------------------
Kay's Nails 1,028 10/04 1/3 yr. 24,178 23.52
Prudential Realty 3,379 11/04 - 95,287 28.20
Ilene's Boutique 2,105 12/04 - 51,590 24.51
Seta's Shoes 1,086 04/05 - 19,548 18.00
Walton's Portraits 1,300 08/06 1/5 yr. 29,832 22.95
Postal Club 1,086 10/06 1/5 yr. 24,239 22.32
Dance Trends 2,338 11/06 1/5 yr. 41,523 17.76
Bank of America 4,500 12/06 - 172,980 38.44
Clubhous Cleaners 1,505 12/06 1/5 yr. 43,765 29.08
-107-
Approximate Current Base Rent Per
GLA Leased Renewal Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($)
-----------------------------------------------------------------------------------------------------------
Cookies by Design 1,353 01/07 1/5 yr. 31,822 23.52
Malibu Gymnastics 3,740 02/07 3/3 yr. 67,320 18.00
State Farm Insurance 1,023 03/07 - 22,791 22.28
Malibu Gymnastics 3,040 11/08 5/1 yr. 54,720 18.00
Tae Kwon Do Academy 1,512 06/07 2/5 yr. 34,648 22.92
Treasured Memories 3,691 08/07 1/5 yr. 46,129 12.50
Total Body Fitness 1,998 12/07 1/5 yr. 37,042 18.54
Sudore Pilates 1,346 01/09 1/5 yr. 36,342 27.00
Exotic Thai 1,746 02/11 - 52,380 30.00
Rustico Ristorante 3,495 08/11 2/5 yr. 94,412 27.01
We Frame It 1,526 09/11 1/5 yr. 34,609 22.68
Lamp Post Pizza 3,600 11/11 - 90,145 25.04
Sushi Tei 1,725 07/12 2/5 yr. 52,705 30.55
North Ranch Dentistry 1,306 10/13 2/5 yr. 38,396 29.40
Savvy Salon 6,500 02/14 2/5 yr. 163,800 25.20
In general, each tenant will pay its proportionate share of real estate taxes,
insurance and common area maintenance costs, although the leases with some
tenants may provide that the tenant's liability for such expenses is limited in
some way, usually so that their liability for such expenses does not exceed a
specified amount.
HICKORY RIDGE SHOPPING CENTER, HICKORY, NORTH CAROLINA
On January 9, 2004, we purchased an existing shopping center known as Hickory
Ridge Shopping Center containing 380,487 gross leasable square feet (which
includes 70,127 square feet of ground lease space) . The center is located at
Catawba Valley Road in Hickory, North Carolina.
We purchased this property from an unaffiliated third party. Our total
acquisition cost was approximately $41,900,000. This amount may increase by
additional costs which have not yet been finally determined. We expect any
additional costs to be insignificant. Our acquisition cost was approximately
$110 per square foot of leasable space.
We originally purchased this property with our own funds. On January 23, 2004,
we obtained financing in the amount of $23,650,000. The loan requires interest
only payments as an annual rate of 4.531% and matures February 1, 2009.
We do not intend to make significant repairs and improvements to this property
over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
Three tenants, Best Buy, Kohl's and Dick's Sporting Goods, each lease more than
10% of the total gross leasable area of the property. The leases with these
tenants require the tenants to pay base annual rent on a monthly basis as
follows:
Base Rent
Approximate Per Square
GLA Leased % of Total Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
-----------------------------------------------------------------------------------------------
Best Buy 45,000 12 10.75 07/99 01/15
Dick's Sporting Goods * 45,000 12 N/A 01/00 01/20
Kohl's 86,584 23 6.83 08/99 02/20
* Ground lease
-108-
For federal income tax purposes, the depreciable basis in this property will be
approximately $35,068,000. When we calculate depreciation expense for tax
purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
Hickory Ridge Shopping Center was built in 1999. As of September 1, 2004, this
property was 100% occupied, with a total 380,487 square feet leased to 21
tenants. The following table sets forth certain information with respect to
those leases:
Approximate Current Base Rent Per
GLA Leased Renewal Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($)
------------------------------------------------------------------------------------------------------
Sprint PCS 2,800 10/04 1/5 yr. 50,400 18.00
Great Clips 1,200 12/04 1/5 yr. 23,400 19.50
Osaka Japanese Cuisine 2,100 01/05 1/5 yr. 40,950 19.50
Thai Orchid 2,800 01/05 1/5 yr. 53,200 19.00
Tony's Pizza 2,100 01/05 1/5 yr. 45,150 21.50
Hallmark Cards 6,000 02/05 2/5 yr. 93,900 15.65
EB Games 1,600 10/05 1/5 yr. 32,000 20.00
Factory Mattress 3,600 11/06 1/5 yr. 66,600 18.50
Party City 12,000 06/09 2/5 yr. 162,000 13.50
Marshalls 30,000 08/09 3/5 yr. 234,000 7.80
Old Navy 25,000 01/10 1/5 yr. 212,500 8.50
Shoe Carnival 12,000 01/10 2/5 yr. 129,000 10.75
Family Christian Bookstore 5,000 03/10 2/5 yr. 90,000 18.00
Pier 1 Imports 9,976 03/12 2/5 yr. 174,580 17.50
The Avenue 6,600 01/13 2/5 yr. 78,012 11.82
Best Buy 45,000 01/15 3/5 yr. 483,750 10.75
A.C. Moore 21,000 12/15 3/5 yr. 248,730 11.84
Linens 'N Things 35,000 01/16 3/5 yr. 367,500 10.50
Kohl's 86,584 02/20 6/5 yr. 590,995 6.83
Dicks Sporting Goods
(Ground Lease) 45,000 01/20 6/5 yr. 185,000 N/A
Babies "R" Us (Ground
Lease) 25,127 01/13 6/5 yr. 126,647 N/A
In general, each tenant will pay its proportionate share of real estate taxes,
insurance and common area maintenance costs, although the leases with some
tenants may provide that the tenant's liability for such expenses is limited in
some way, usually so that their liability for such expenses does not exceed a
specified amount.
CORWEST PLAZA, NEW BRITAIN, CONNECTICUT
On January 6, 2004, we purchased an existing shopping center known as CorWest
Plaza containing 115,011 gross leasable square feet. The center is located at
665 and 687 West Main Street in New Britain, Connecticut.
We purchased this property from an unaffiliated third party. Our total
acquisition cost was approximately $33,000,000. This amount may increase by
additional costs which have not yet been finally determined. We expect any
additional costs to be insignificant. Our acquisition cost was approximately
$287 per square foot of leasable space.
We originally purchased this property with our own funds. On January 7, 2004, we
obtained financing in the amount of $18,150,000. The loan requires interest only
payments at an annual rate of 4.56% and matures February 1, 2009.
-109-
We do not intend to make significant repairs and improvements to this property
over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
Three tenants, Super Stop and Shop, Liquor Depot and CVS Pharmacy, each lease
more than 10% of the total gross leasable area of the property. The leases with
these tenants require the tenants to pay base annual rent on a monthly basis as
follows:
Base Rent
Approximate Per Square
GLA Leased % of Total Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
----------------------------------------------------------------------------------------------------
Super Stop & Shop 68,073 59 26.00 05/03 05/08
26.50 06/08 05/13
27.00 06/13 05/18
27.50 06/18 05/23
28.00 06/23 05/28
Base Rent
Approximate Per Square
GLA Leased % of Total Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
----------------------------------------------------------------------------------------------------
CVS Pharmacy 12,150 11 26.00 06/01 01/22
Liquor Depot 14,000 12 14.00 08/01 08/06
16.00 09/06 08/11
For federal income tax purposes, the depreciable basis in this property will be
approximately $26,101,000. When we calculate depreciation expense for tax
purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
CorWest Plaza was built in phases between 1999 to 2003. As of September 1, 2004,
this property was 99% occupied, with a total 114,023 square feet leased to 10
tenants. The following table sets forth certain information with respect to
those leases:
Approximate Current Base Rent Per
GLA Leased Renewal Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($)
-------------------------------------------------------------------------------------------------------
Video One 3,500 09/05 2/3 yr. 49,213 13.52
Rent-A-Center 6,000 02/06 1/5 yr. 90,000 15.00
Cingular Wireless 1,553 06/06 1/5 yr. 27,954 18.00
Subway 1,500 08/06 3/2 yr. 18,702 12.47
Webster Bank 2,147 11/05 2/5 yr. 38,646 18.00
Papa Gino's 3,000 02/11 2/5 yr. 60,000 20.00
Liquor Depot 14,000 08/11 2/5 yr. 196,000 14.00
Frazier's Two Cleaners &
Laundromat 2,100 10/11 2/5 yr. 37,800 18.00
CVS Pharmacy 12,150 01/22 4/5 yr. 315,900 26.00
Super Stop & Shop 68,073 05/28 6/5 yr. 1,769,898 26.00
In general, each tenant will pay its proportionate share of real estate taxes,
insurance and common area maintenance costs, although the leases with some
tenants may provide that the tenant's liability for such expenses is limited in
some way, usually so that their liability for such expenses does not exceed a
specified amount.
-110-
SHAW'S SUPERMARKET, NEW BRITAIN, CONNECTICUT
On December 31, 2003, we purchased a single user retail center known as Shaw's
Supermarket, New Britain, containing 65,658 gross leasable square feet. The
property is located in New Britain, Connecticut.
We purchased this property from an unaffiliated third party. Our total
acquisition cost was approximately $13,656,000. This amount may increase by
additional costs which have not yet been finally determined. We expect any
additional costs to be insignificant. Our acquisition cost was approximately
$208 per square foot of leasable space.
We originally purchased this property with our own funds. On January 28, 2004,
we obtained financing in the amount of $6,450,000. The loan requires interest
only payments as an annual rate of 4.684% and matures November 1, 2008.
We do not intend to make significant repairs and improvements to this property
over the next few years. However, if we were to make any repairs or
improvements, the tenant would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of its lease.
Shaw's Supermarket was built in 1995. One tenant, Shaw's Supermarket, leases
100% of the total gross leasable area of the property. The lease with this
tenant requires the tenant to pay base annual rent on a monthly basis as
follows:
Base Rent
Approximate % of Base Rent Per Square
GLA Leased Total Renewal Per Foot Per Lease Term
Lessee (Sq. Ft.) GLA Options Annum ($) Annum ($) Beginning To
--------------------------------------------------------------------------------------------------------------
Shaw's
Supermarkets-New
Britain 65,658 100 6/5 yr. 1,017,699 15.50 12/95 02/01
1,083,357 16.50 03/01 02/06
1,149,015 17.50 03/06 02/11
1,181,844 18.00 03/11 04/16
For federal income tax purposes, the depreciable basis in this property will be
approximately $10,681,000. When we calculate depreciation expense for tax
purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
PAVILION AT KING'S GRANT, CONCORD, NORTH CAROLINA
On December 31, 2003, we purchased a newly constructed shopping center known as
Pavilion at King's Grant, containing 79,109 gross leasable square feet (which
includes 65,000 square feet of ground lease space). The center is located at
8050 Concord Mills Boulevard in Concord, North Carolina.
We purchased this property from an unaffiliated third party. Our total
acquisition cost was approximately $8,151,000. This amount may increase by
additional costs which have not yet been finally determined. We expect any
additional costs to be insignificant. One tenant, Toys "R" Us, is currently
paying half rent. When the tenant begins paying full rent, we will pay the
balance of the purchase price of approximately $1,563,000. Our total acquisition
cost is expected to be approximately $103 per square foot of leasable space.
We originally purchased this property with our own funds. On April 6, 2004, we
obtained financing in the amount of $5,342,000. The loan requires interest only
payments at an annual rate of 4.39% and matures May 1, 2009.
We do not intend to make significant repairs and improvements to this property
over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
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Two tenants, Toys "R" Us and Olive Garden, each lease more than 10% of the total
gross leasable area of the property. The leases with these tenants require the
tenants to pay base annual rent on a monthly basis as follows:
Base Rent
Approximate Per Square
GLA Leased % of Total Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
----------------------------------------------------------------------------------------------------------
Toys "R" Us * 49,000 62 5.10 10/02 01/13
Olive Garden* 8,500 11 9.41 04/02 04/07
10.35 05/07 04/12
* Ground lease
For federal income tax purposes, the depreciable basis in this property will be
approximately $2,741,000. When we calculate depreciation expense for tax
purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
Pavilion at King's Grant was built in 2002 and 2003. As of September 1, 2004,
this property was 100% occupied, with a total 79,109 square feet leased to four
tenants and three ground lessees. The following table sets forth certain
information with respect to those leases:
Approximate Current Base Rent Per
GLA Leased Renewal Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($)
---------------------------------------------------------------------------------------------------------------------
RadioShack 2,400 04/08 2/5 yr. 40,800 17.00
Bank of America 100 08/08 2/5 yr. 14,400 144.00
Panera Bread 5,609 12/14 2/5 yr. 109,376 19.50
Jared Jewelers 6,000 01/23 2/5 yr. 220,020 36.67
Olive Garden * 8,500 04/12 4/5 yr. 80,000 N/A
Red Lobster * 7,500 05/12 4/5 yr. 80,000 N/A
Toys "R" Us * 49,000 01/13 6/5 yr. 250,000 N/A
* ground lease
In general, each tenant will pay its proportionate share of real estate taxes,
insurance and common area maintenance costs, although the leases with some
tenants may provide that the tenant's liability for such expenses is limited in
some way, usually so that their liability for such expenses does not exceed a
specified amount.
ECKERD DRUG STORES
On December 24, 2003, we purchased the following two separate existing
freestanding retail properties known as Eckerd Drug Stores, containing a total
of 27,648 gross leasable square feet.
Location Square Feet Completion Date Purchase Price ($)
-------- ----------- --------------- ------------------
33rd Street and Santa Fe 13,824 2003 3,364,000
Edmond, Oklahoma
36th and Robinson 13,824 2003 5,288,000
Norman, Oklahoma
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We purchased these Eckerd Drug Stores from an unaffiliated third party. Our
total acquisition cost was approximately $8,652,000. This amount may increase by
additional costs which have not yet been finally determined. We expect any
additional costs to be insignificant. Our acquisition cost was approximately
$313 per square foot of leasable space.
We purchased these properties with our own funds. On April 30, 2004, we obtained
financing in the amounts of $1,850,000 and $2,900,000 for Eckerd Drug Store -
Edmond and Eckerd Drug Store - Norman, respectively. Both loans require interest
only payments at an annual rate of 4.374% and mature June 2009.
One tenant, Eckerd Drug Store, leases 100% of the total gross leasable area of
each property. The leases with this tenant require the tenant to pay base annual
rent on a monthly basis as follows:
% of
Total Base Rent
Approximate GLA of Current Per Square
Lessee/ GLA Leased each Annual Renewal Foot Per Lease Term
Location (Sq. Ft.) Property Rent ($) Options Annum ($) Beginning To
---------------------------------------------------------------------------------------------------------------------------
33rd Street & Santa Fe 13,824 100 289,292 4/5 yr. 20.93 10/03 10/23
Edmond, OK
36th & Robinson 13,824 100 454,806 4/5 yr. 32.90 11/03 11/23
Norman, OK
A twenty year lease commenced as of the date of acquisition with no increases
during the term of the lease. Each lease includes four options, each for a term
of five years.
These properties are on triple net leases and the tenant will be responsible for
all repairs.
For federal income tax purposes, the depreciable basis in these properties will
be approximately $6,770,000 When we calculate depreciation expense for tax
purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
DARIEN TOWNE CENTRE, DARIEN, ILLINOIS
On December 19, 2003, we purchased an existing shopping center known as Darien
Towne Centre containing 223,844 gross leasable square feet (which includes 6,371
square feet of ground lease space). The center is located at 2189 75th Street,
in Darien, Illinois.
We purchased this property from an unaffiliated third party. Our total
acquisition cost was approximately $30,000,000. This amount may increase by
additional costs which have not yet been finally determined. We expect any
additional costs to be insignificant. Our acquisition cost was approximately
$134 per square foot of leasable space.
Simultaneously with the purchase this property, we obtained a new loan in the
amount of $16,500,000. The loan requires interest only payments based on a rate
of 4.65% per annum and matures June 2010.
We do not intend to make significant repairs and improvements to this property
over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
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Three tenants, Home Depot, Circuit City and PETsMART, each lease more than 10%
of the total gross leasable area of the property. The leases with these tenants
require the tenants to pay base annual rent on a monthly basis as follows:
Base Rent
Approximate Per Square
GLA Leased % of Total Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
-------------------------------------------------------------------------------------------------------------
Home Depot 109,200 49 7.98 05/94 04/99
8.35 05/99 04/04
8.60 05/04 04/09
9.10 05/09 04/14
Circuit City 32,984 15 10.50 05/94 01/05
CPI 02/05 01/10
CPI 02/10 01/15
PETsMART 25,487 11 11.20 10/94 09/04
11.70 10/04 09/09
For federal income tax purposes, the depreciable basis in this property will be
approximately $22,468,400. When we calculate depreciation expense for tax
purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
Darien Towne Centre was built in 1994. As of September 1, 2004, this property
was 94% occupied, with a total 210,010 square feet was leased to 12 tenants. The
following table sets forth certain information with respect to those leases:
Approximate Current Base Rent Per
GLA Leased Renewal Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($)
------------------------------------------------------------------------------------------------------------------
Murray's Discount Auto 10,000 10/04 2/5 yr. 110,000 11.00
Signature Cleaners 1,500 11/04 - 37,260 24.84
Gingiss Formalwear 2,000 12/04 - 35,010 17.50
Coldwell Banker 2,468 03/05 - 45,831 18.57
Jenny Craig 2,000 05/07 1/3 yr. 44,000 22.00
Deals 12,000 07/07 1/5 yr. 120,000 10.00
TGI Fridays (Ground Lease) 6,371 05/09 3/5 yr. 79,860 N/A
Great Clips 1,500 08/09 - 33,000 22.00
PETsMART 25,487 09/09 5/5 yr. 285,454 11.20
Panera Bread 4,500 12/12 3/5 yr. 94,500 21.00
Home Depot 109,200 04/14 4/5 yr. 939,120 8.60
Circuit City 32,984 01/15 4/5 yr. 346,332 10.50
In general, each tenant will pay its proportionate share of real estate taxes,
insurance and common area maintenance costs, although the leases with some
tenants may provide that the tenant's liability for such expenses is limited in
some way, usually so that their liability for such expenses does not exceed a
specified amount.
STONY CREEK MARKETPLACE, NOBLESVILLE, INDIANA
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On December 8, 2003, we purchased a newly constructed shopping center known as
Stony Creek Marketplace containing 153,816 gross leasable square feet (which
consists of 8,000 square feet of ground lease space). The center is located at
1713C Mercantile Boulevard in Noblesville, Indiana.
We purchased this property from an unaffiliated third party. Our total
acquisition cost was approximately $25,750,000. This amount may increase by
additional costs which have not yet been finally determined. We expect any
additional costs to be insignificant. Our acquisition cost was approximately
$167 per square foot of leasable space.
We originally purchased this property with our own funds. On January 20, 2004,
we obtained financing in the amount of $14,162,000. The loan requires interest
only payments at an annual rate of 4.77% and matures January 1, 2011.
We do not intend to make significant repairs and improvements to this property
over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
Three tenants, T.J. Maxx, Linens 'N Things and Barnes & Noble, each lease more
than 10% of the total gross leasable area of the property. The leases with these
tenants require the tenants to pay base annual rent on a monthly basis as
follows:
Base Rent
Approximate Per Square
GLA Leased % of Total Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
-------------------------------------------------------------------------------------------------------
T.J. Maxx 30,000 20 9.50 09/03 09/13
Linens 'N Things 28,444 18 11.50 07/03 01/09
12.00 02/09 01/14
Barnes & Noble 22,000 14 13.49 09/03 01/16
For federal income tax purposes, the depreciable basis in this property will be
approximately $17,564,000. When we calculate depreciation expense for tax
purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
Stony Creek Marketplace was built in 2003. As of September 1, 2004, this
property was 100% occupied, with a total 153,816 square feet leased to 20
tenants. The following table sets forth certain information with respect to
those leases:
Approximate Current Base Rent Per
GLA Leased Renewal Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($)
---------------------------------------------------------------------------------------------------------------------
Cingular Wireless 1,487 06/08 2/5 yr. 31,227 21.00
RJ Fastframe 1,618 06/08 1/5 yr. 33,915 20.96
The UPS Store 1,618 08/08 1/5 yr. 33,978 21.00
Scrapbook Corner 4,095 12/08 - 75,758 18.50
Papa Johns Pizza 1,615 01/09 - 33,915 21.00
Giovanni Jewelers 1,615 02/09 1/5 yr. 33,915 21.00
Quizno's Classic Subs 1,600 12/09 2/4 yr. 29,600 18.50
Blockbuster Video 4,892 05/11 2/5 yr. 102,732 21.00
Today's Bedroom One 4,890 06/11 1/5 yr. 90,465 18.50
Panera Bread 4,200 12/12 2/5 yr. 88,200 21.00
Maggie Moo's Ice Cream 1,615 03/13 2/5 yr. 33,915 21.00
Qdoba Mexican Restaurant 2,272 04/13 2/5 yr. 45,440 20.00
Ossip Optomotry, P.C. 3,230 04/13 2/5 yr. 60,563 18.75
Pier 1 Imports 9,375 07/13 2/5 yr. 160,696 17.14
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Approximate Current Base Rent Per
GLA Leased Renewal Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($)
---------------------------------------------------------------------------------------------------------------------
Shoe Carnival 10,000 07/13 2/5 yr. 130,000 13.00
T.J. Maxx 30,000 09/13 3/5 yr. 285,000 9.50
Linens 'N Things 28,444 01/14 3/5 yr. 327,118 11.50
Factory Card Outlet 11,250 01/14 2/5 yr. 160,313 14.25
Barnes & Noble 22,000 01/16 2/5 yr. 296,730 13.49
Logan's Roadhouse (Ground Lease) 8,000 03/18 3/5 yr. 75,500 N/A
In general, each tenant will pay its proportionate share of real estate taxes,
insurance and common area maintenance costs, although the leases with some
tenants may provide that the tenant's liability for such expenses is limited in
some way, usually so that their liability for such expenses does not exceed a
specified amount.
THE SHOPS AT PARK PLACE, PLANO, TEXAS
On October 31, 2003, we acquired an existing shopping center known as The Shops
at Park Place through the purchase of all of the membership interests of the
general partner and the membership interest of limited partner of the limited
partnership holding title to this center. The center contains 116,300 gross
leasable square feet (which includes 3,822 square feet of ground lease space)
and is located at 6401 W. Plano Parkway in Plano, Texas.
An affiliate of our advisor, Inland Park Place Limited Partnership, acquired
this property on September 30, 2003 from CDG Park Place LLC, an unaffiliated
third party for $23,868,000. Inland Park Place Limited Partnership agreed to
sell this property to us when we had raised sufficient funds from the sale of
shares to acquire this property from them. The affiliate agreed to sell us this
property for the price it paid to the unaffiliated third party, plus any actual
costs incurred. Our board of directors unanimously approved acquiring this
property, including a unanimous vote of the independent directors.
Our total acquisition cost was $24,000,000, which included $132,000 of costs
incurred by Inland Park Place Limited Partnership. We expect any additional
costs to be insignificant. Our acquisition cost is approximately $206 per square
foot of leasable space.
As part of the purchase, title to the property was subject to a loan placed on
the property by Inland Park Place Limited Partnership for our benefit. The loan
is in the amount of $13,127,000, requires interest only payments at a rate of
4.71% per annum and matures November 2008. We believe this loan is at least as
equal to what we could have obtained from an unaffiliated third party lender.
We do not intend to make significant repairs and improvements to this property
over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
Four tenants, Walgreens, OfficeMax, Michaels and Bed, Bath & Beyond, each lease
more than 10% of the total gross leasable area of the property. The leases with
these tenants require the tenants to pay base annual rent on a monthly basis as
follows:
Base Rent
Approximate Per Square
GLA Leased % of Total Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
--------------------------------------------------------------------------------------------------------
Walgreens 15,120 13 20.83 05/00 04/60
OfficeMax 23,429 20 13.50 11/01 11/11
14.00 12/11 11/16
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Base Rent
Approximate Per Square
GLA Leased % of Total Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
--------------------------------------------------------------------------------------------------------
Michaels 24,133 21 13.50 08/01 10/11
Bed, Bath & Beyond 25,000 21 11.00 10/01 01/12
For federal income tax purposes, the depreciable basis in this property will be
approximately $13,175,000. When we calculate depreciation expense for tax
purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
The Shops at Park Place was built in 2001. As of September 1, 2004, this
property was 99% leased, with a total 115,460 square feet leased to 11 tenants.
The following table sets forth certain information with respect to those leases:
Approximate Current Base Rent Per
GLA Leased Renewal Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Options Rent ($) Per Annum ($)
----------------------------------------------------------------------------------------------------------------
Ebby Halliday Realty 5,314 10/06 2/5 yr. 154,100 29.00
North Dallas Eye Associates 3,000 10/06 1/5 yr. 90,000 30.00
The Nail Club 1,100 10/06 1/5 yr. 33,000 30.00
Oxford Cleaners 1,042 10/06 1/5 yr. 29,176 28.00
Carpet Mills of America 3,500 11/06 2/5 yr. 91,000 26.00
Michaels 24,133 10/11 3/5 yr. 325,800 13.50
Bed, Bath & Beyond 25,000 01/12 3/5 yr. 275,000 11.00
Salon Boutique 10,000 02/12 2/5 yr. 180,000 18.00
OfficeMax 23,429 11/16 4/5 yr. 316,300 13.50
Walgreens 15,120 04/60 - 315,000 20.83
Chick-Fil-A (Ground Lease) 3,822 10/15 3/5 yr. 78,500 N/A
In general, each tenant will pay its proportionate share of real estate taxes,
insurance and common area maintenance costs, although the leases with some
tenants may provide that the tenant's liability for such expenses is limited in
some way, usually so that their liability for such expenses does not exceed a
specified amount.
POTENTIAL PROPERTY ACQUISITIONS
We are currently considering acquiring the properties listed below. Our decision
to acquire these properties will generally depend upon:
- no material adverse change occurring relating to the properties, the
tenants or in the local economic conditions;
- our receipt of sufficient net proceeds from this offering and
financing proceeds to make these acquisition; and
- our receipt of satisfactory due diligence information including
appraisals, environmental reports and lease information.
Other properties may be identified in the future that we may acquire before or
instead of these properties. We cannot guarantee that we will complete these
acquisitions.
In evaluating these properties as potential acquisitions and determining the
appropriate amount of consideration to be paid for each property, we have
considered a variety of factors including, overall valuation of net rental
income, location, demographics, quality of tenant, length of lease, price per
square foot, occupancy and the fact that overall rental rate at the shopping
center is comparable to market rates. We believe that these properties are well
located, have acceptable roadway access, are well maintained and have been
professionally managed. These properties will be subject to competition from
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similar shopping centers within their market area, and their economic
performance could be affected by changes in local economic conditions. We did
not consider any other factors materially relevant to our decision to acquire
these properties.
PUBLIX SHOPPING CENTER, MT. PLEASANT, SOUTH CAROLINA
We anticipate purchasing a newly constructed shopping center known as Publix
Shopping Center, containing 63,864 gross leasable square feet. The center is
located at US Highway 17 and Park West Boulevard in Mt. Pleasant, South
Carolina.
We anticipate purchasing this property from an unaffiliated third party. Our
total acquisition cost is expected to be approximately $12,101,000. These
amounts may increase by additional costs which have not yet been finally
determined. We expect any additional costs to be insignificant. Our acquisition
cost is expected to be approximately $189 per square foot of leasable space.
We intend to purchase this property with our own funds. However, we expect to
place financing on the property at a later date.
We do not intend to make significant repairs and improvements to this property
over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
One tenant, Publix, leases more than 10% of the total gross leasable area of the
property. The lease with this tenant requires the tenant to pay base annual rent
on a monthly basis as follows:
Base Rent
Approximate Per Square
GLA Leased % of Total Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
-------------------------------------------------------------------------------------------------
Publix 44,840 70 11.50 04/04 04/24
For federal income tax purposes, the depreciable basis in this property will be
approximately $9,076,000. When we calculate depreciation expense for tax
purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
Publix Center is newly constructed and was completed during 2004. As of October
1, 2004, the property was 92% leased to 10 tenants. The following table sets
forth certain information with respect to those leases:
Approximate Current Base Rent Per
GLA Leased Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Rent ($) Per Annum ($)
-----------------------------------------------------------------------------------------
O'Neill Liquor 1,418 04/09 28,324 19.97
Zone 3 Entertainment 3,750 04/09 67,500 18.00
Lady Fitness 1,507 05/09 28,633 19.00
Dry Cleaner 1,000 05/09 19,500 19.50
Cellular Wireless 1,000 06/09 21,500 21.50
Pak Mail 1,000 06/09 21,500 21.50
Chinese Restaurant 1,656 07/09 33,120 20.00
Chiropractor 1,412 07/09 27,534 19.50
Nail Salon 1,000 07/09 20,000 20.00
Publix 44,840 04/24 515,660 11.50
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In general, each tenant will pay its proportionate share of real estate taxes,
insurance and common area maintenance costs, although the leases with some
tenants may provide that the tenant's liability for such expenses is limited in
some way, usually so that their liability for such expenses does not exceed a
specified amount.
OSWEGO COMMONS, OSWEGO, ILLINOIS
We anticipate purchasing a portion of an existing shopping center known as
Oswego Commons. This transaction is comprised of 188,150 gross leasable square
feet. The center is located at 3080 Route 34 in Oswego, Illinois.
We anticipate purchasing this property from an unaffiliated third party. Our
total acquisition cost is expected to be approximately $35,022,000. This amount
may increase by additional costs which have not yet been finally determined. We
expect any additional costs to be insignificant. Our acquisition cost is
expected to be approximately $186 per square foot of leasable space.
We anticipate purchasing this property with our own funds. However, we expect to
place financing on the property at a later date.
We do not intend to make significant repairs and improvements to this property
over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
Three tenants, Dominick's, T.J. Maxx and OfficeMax, each lease more than 10% of
the total gross leasable area of the property. The leases with these tenants
require the tenants to pay base annual rent on a monthly basis as follows:
Base Rent
Approximate Per Square
GLA Leased % of Total Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
-------------------------------------------------------------------------------------------------
Dominick's 65,844 35 12.21 03/02 03/22
T.J. Maxx 28,144 15 10.20 10/02 09/12
OfficeMax 20,015 11 14.00 11/03 10/18
For federal income tax purposes, the depreciable basis in this property will be
approximately $26,267,000 When we calculate depreciation expense for tax
purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
Oswego Commons was constructed in phases from 2002 to 2004. As of October 1,
2004, this property was 98% occupied, with a total 183,950 square feet leased to
21 tenants. The following table sets forth certain information with respect to
those leases:
Approximate Current Base Rent Per
GLA Leased Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Rent ($) Per Annum ($)
----------------------------------------------------------------------------------------
3 Day Blinds 1,802 09/07 44,100 24.47
Quizno's 1,612 09/07 36,864 22.87
Lee Nails 919 10/07 22,938 24.96
EB Games 2,015 01/08 47,352 23.50
All Cleaners 1,100 01/08 28,920 26.29
Lemstone 2,334 10/08 44,340 19.00
American Mattress 4,200 03/09 92,400 22.00
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Approximate Current Base Rent Per
GLA Leased Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Rent ($) Per Annum ($)
----------------------------------------------------------------------------------------
Oreck 1,500 05/09 34,500 23.00
Hallmark 4,413 01/10 72,240 16.37
T-Mobile 1,920 12/11 57,900 30.16
Great Clips 1,163 07/12 27,660 23.78
Panera Bread 4,200 09/12 96,600 23.00
T.J. Maxx 28,144 09/12 287,000 10.20
Coldstone Creamery 1,400 01/13 33,600 24.00
Payless Shoes 2,496 02/13 52,416 21.00
Famous Footwear 9,773 03/13 134,376 13.75
Party City 12,012 03/13 176,448 14.69
Petco 13,788 10/13 181,308 13.15
Zales Jewelry 3,300 04/14 79,200 24.00
OfficeMax 20,015 10/18 280,200 14.00
Dominick's 65,844 03/22 804,000 12.21
In general, each tenant will pay its proportionate share of real estate taxes,
insurance and common area maintenance costs, although the leases with some
tenants may provide that the tenant's liability for such expenses is limited in
some way, usually so that their liability for such expenses does not exceed a
specified amount.
CASA PALOMA SHOPPING CENTER, CHANDLER, ARIZONA
We anticipate purchasing an existing shopping center known as Casa Paloma
Shopping Center, containing 130,096 gross leasable square feet. The center is
located at 7131 W. Ray Road in Chandler, Arizona.
We anticipate purchasing this property from an unaffiliated third party. Our
total acquisition cost is expected to be approximately $43,136,000. This amount
may increase by additional costs which have not yet been finally determined. We
expect any additional costs to be insignificant. Our acquisition cost is
expected to be approximately $332 per square foot of leasable space.
We anticipate purchasing this property with our own funds. However, we expect to
place financing on the property at a later date.
We do not intend to make significant repairs and improvements to this property
over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
Two tenants, AJ's Fine Foods and Creative Leather, each lease more than 10% of
the total gross leasable area of the property. The leases with these tenants
require the tenants to pay base annual rent on a monthly basis as follows:
Base Rent
Approximate Per Square
GLA Leased % of Total Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
-------------------------------------------------------------------------------------------------
AJ's Fine Foods 26,500 20 11.20 04/00 04/25
Creative Leather 13,249 10 15.50 03/00 05/10
For federal income tax purposes, the depreciable basis in this property will be
approximately $32,352,000. When we calculate depreciation expense for tax
purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
Casa Paloma Shopping Center was built in 2000. As of October 1, 2004, this
property was 92% occupied, with a total 120,298 square feet leased to 25
tenants. The following table sets forth certain information with respect to
those leases:
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Approximate Current Base Rent Per
GLA Leased Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Rent ($) Per Annum ($)
----------------------------------------------------------------------------------------------------------
Billy Lewis 2,089 03/05 59,056 28.27
Banana Republic 7,000 04/05 88,000 12.57
Thomas Kinkade Gallery 1,200 05/05 44,400 37.00
ALLTEL 2,731 06/05 104,488 38.26
Coffin & Trout Fine Jewelers 3,525 07/05 147,979 41.98
Cold Stone Creamery 1,205 07/05 45,573 37.82
Valley Nails 1,225 03/06 44,174 36.06
The Gap & Gap Kids 9,000 03/06 180,000 20.00
Paris Paris 1,200 07/08 39,600 33.00
Polka Dot Dreams 1,178 12/08 41,230 35.00
Bath & Body Works 2,400 01/09 61,800 25.75
Ritz Camera 2,744 02/09 80,948 29.50
T-Mobile 1,500 04/09 51,000 34.00
Rolf's Salon 2,400 01/10 82,800 34.50
Chico's 2,000 01/10 65,280 32.64
White House/Black Market (Chico's) 1,500 01/10 48,960 32.64
Showcase Home Entertainment
(Tweeter) 12,000 02/10 216,000 18.00
Sur La Table 5,903 03/10 171,718 29.09
Tomaso's Restaurant 6,794 05/10 165,502 24.36
Creative Leather 13,249 05/10 205,360 15.50
Pei Wei Asian Diner (PF Chang's) 2,800 06/10 95,200 34.00
Talbots 4,091 01/11 109,434 26.75
Ann Taylor 3,964 01/11 122,884 31.00
Bistro Isabele 2,100 10/11 50,400 24.00
AJ's Fine Foods 26,500 04/25 296,800 11.20
In general, each tenant will pay its proportionate share of real estate taxes,
insurance and common area maintenance costs, although the leases with some
tenants may provide that the tenant's liability for such expenses is limited in
some way, usually so that their liability for such expenses does not exceed a
specified amount.
DENTON CROSSING, DENTON, TEXAS
We anticipate purchasing a shopping center that is in the final phase of
construction, and which is known as Denton Crossing, that will contain 329,663
gross leasable square feet when completed. The center is located at 1800 S. Loop
288 in Denton, Texas.
We anticipate purchasing this property from an unaffiliated third party. Our
total acquisition cost is expected to be approximately $63,763,000. These
amounts may increase by additional costs which have not yet been finally
determined. We expect any additional costs to be insignificant. Our acquisition
cost is expected to be approximately $193 per square foot of leasable space.
-121-
We intend to purchase this property with our own funds. However, we expect to
place financing on the property at a later date.
We do not intend to make significant repairs and improvements to this property
over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
One tenant, Oshman's Sporting Goods, leases more than 10% of the total gross
leasable area of the property. The lease with this tenant requires the tenant to
pay base annual rent on a monthly basis as follows:
Base Rent
Approximate Per Square
GLA Leased % of Total Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
------------------------------------------------------------------------------------------------------------------
Oshman's Sporting Goods 50,000 15 10.00 11/03 01/14
For federal income tax purposes, the depreciable basis in this property will be
approximately $47,883,000. When we calculate depreciation expense for tax
purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
Denton Crossing was constructed during 2003 and 2004. The property is currently
leasing up the remaining vacancies and certain tenants have executed lease for
retail space within the shopping center. As of October 1, 2004, the property was
85% leased to 33 tenants. The following table sets forth certain information
with respect to those leases:
Approximate Current Base Rent Per
GLA Leased Annual Square Foot
Lessee (Sq. Ft.) Lease Ends* Rent ($) Per Annum ($)
----------------------------------------------------------------------------------------------------------
Dress Barn 8,000 12/08 120,000 15.00
Lane Bryant 5,000 10/08 95,000 19.00
Chipolte Mexican Grill 2,578 12/08 61,872 24.00
Advance America 1,440 12/08 34,560 24.00
Happy Nails 1,300 12/08 27,235 20.95
Fantasy Nail 1,200 12/08 27,600 23.00
Sally Beauty 1,600 01/09 35,200 22.00
H & R Block 2,000 01/09 47,000 23.50
Roly Poly 1,200 01/09 29,100 24.25
Wing Pit 1,807 03/09 45,175 25.00
Mattress Firm 6,000 05/09 147,000 24.50
Mattress Giant 4,553 05/09 104,719 23.00
T-Mobile 1,873 06/09 45,345 24.21
Old Navy 14,800 07/09 206,460 13.95
Wells Fargo Bank 1,818 08/09 45,450 25.00
Sport Clips 1,458 08/09 31,493 21.60
Rice Boxx Asian Cafe 2,504 09/09 65,104 23.50
Thai Restaurant * 2,000 09/09 46,000 25.00
Motherhood Maternity * 1,800 09/09 41,400 23.00
New York Subway 1,500 09/09 33,750 22.50
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Approximate Current Base Rent Per
GLA Leased Annual Square Foot
Lessee (Sq. Ft.) Lease Ends* Rent ($) Per Annum ($)
----------------------------------------------------------------------------------------------------------
Carvel Ice Cream * 1,207 09/09 30,175 25.00
T.J. Maxx 28,000 09/13 259,000 9.25
Best Buy 30,571 10/13 360,126 11.78
Famous Footwear 10,000 10/13 145,000 14.50
Aveda * 2,000 12/13 47,000 23.50
Hollywood Video 6,350 01/14 125,984 19.84
Cost Plus World Market 18,300 01/14 228,750 12.50
Oshman's Sporting Goods 50,000 01/14 500,000 10.00
Bed, Bath & Beyond 24,000 01/14 234,000 9.75
Michaels 21,163 02/14 222,212 10.50
Pier 1 Imports 9,500 02/14 152,000 16.00
Chaucers * 10,000 09/14 170,000 17.00
Kirkland * 5,000 09/14 115,000 23.00
* Lease term information is based on the estimated date the tenant begins
occupancy and is not currently available.
In general, each tenant will pay its proportionate share of real estate taxes,
insurance and common area maintenance costs, although the leases with some
tenants may provide that the tenant's liability for such expenses is limited in
some way, usually so that their liability for such expenses does not exceed a
specified amount.
MAGNOLIA SQUARE, HOUMA, LOUISIANA
We anticipate purchasing a shopping center being built and which will be known
as Magnolia Square, containing 115,746 gross leasable square feet. The center is
located at Martin Luther King Boulevard in Houma, Louisiana.
We anticipate purchasing this property from an unaffiliated third party. Our
total acquisition cost is expected to be approximately $18,552,000. These
amounts may increase by additional costs which have not yet been finally
determined. We expect any additional costs to be insignificant. Our acquisition
cost is expected to be approximately $160 per square foot of leasable space.
We intend to purchase this property with our own funds. However, we expect to
place financing on the property at a later date.
We do not intend to make significant repairs and improvements to this property
over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
Three tenants, Circuit City, Ross Stores and PETsMART, will lease more than 10%
of the total gross leasable area of the property. The lease term will be
determined in accordance with the tenant's commencement date. The lease with
this tenant requires the tenant to pay base annual rent on a monthly basis as
follows:
Base Rent
Approximate Per Square
GLA Leased % of Total Foot Per
Lessee * (Sq. Ft.) GLA Annum ($)
-------------------------------------------------------------------------------------
Circuit City 20,000 17 13.85
Ross Stores 30,186 26 9.25
PETsMART 20,030 17 12.50
* Lease term information is based on the date the tenant begins occupancy and is
not currently available.
-123-
For federal income tax purposes, the depreciable basis in this property will be
approximately $13,914,000. When we calculate depreciation expense for tax
purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
Magnolia Square is being constructed during 2004. The property is currently
leasing up the remaining vacancies and certain tenants have executed lease for
retail space within the shopping center. As of August 1, 2004, the property was
90% leased to nine tenants. The following table sets forth certain information
with respect to those leases:
Approximate Current Base Rent Per
GLA Leased Annual Square Foot
Lessee* (Sq. Ft.) Rent ($) Per Annum ($)
---------------------------------------------------------------------------------------------
Circuit City 20,000 277,000 13.85
Ross Dress for Less 30,186 279,221 9.25
PETsMART 20,030 250,375 12.50
Dress Barn 7,700 109,725 14.25
Chuck E. Cheese 7,000 126,000 18.00
Sally Beauty Supplies 1,600 26,000 16.25
Dollar Tree 10,030 72,718 7.25
Starbucks 1,600 39,600 24.75
West Marine 6,000 113,700 18.95
* Lease term information is based on the date the tenant begins occupancy and is
not currently available.
In general, each tenant will pay its proportionate share of real estate taxes,
insurance and common area maintenance costs, although the leases with some
tenants may provide that the tenant's liability for such expenses is limited in
some way, usually so that their liability for such expenses does not exceed a
specified amount.
AZALEA SQUARE SHOPPING CENTER, SUMMERVILLE, SOUTH CAROLINA
We anticipate purchasing a portion of a newly constructed shopping center known
as Azalea Square Shopping Center, containing 395,156 gross leasable square feet
(which includes one ground lease space). We intend to purchase 181,360 square
feet of that shopping center including the ground lease space. The center is
located at U.S. 17-A and Interstate 26 in Summerville, South Carolina.
We anticipate purchasing this property from an unaffiliated third party. Our
total acquisition cost is expected to be approximately $30,012,500. This amount
may increase by additional costs which have not yet been finally determined. We
expect any additional costs to be insignificant. Our acquisition cost is
expected to be approximately $165 per square foot of leasable space.
We intend to purchase this property with our own funds. However, we expect to
place financing on the property at a later date.
We do not intend to make significant repairs and improvements to this property
over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
Five tenants, T.J. Maxx, Linens 'N Things, Ross Dress for Less, Cost Plus World
Market and PETsMART, each leases more than 10% of the total gross leasable area
of the property we are purchasing. The leases with these tenants require the
tenants to pay base annual rent on a monthly basis as follows:
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Approximate Base Rent Per
GLA Leased % of Total Square Foot Lease Term
Lessee (Sq. Ft.) GLA Per Annum ($) Beginning To
-------------------------------------------------------------------------------------------------------
T.J. Maxx 30,000 17 7.75 06/04 05/14
Linens 'N Things 25,000 14 10.75 06/04 05/14
Ross Dress for Less 30,000 17 9.50 06/04 05/14
Cost Plus World Market 18,300 10 12.50 06/04 05/14
PETsMART 19,107 11 11.00 06/04 05/19
For federal income tax purposes, the depreciable basis in this property will be
approximately $22,509,000. When we calculate depreciation expense for tax
purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
Azalea Square is newly constructed in 2004. The property is currently leasing up
the remaining vacancies and certain tenants have executed lease for retail space
within the shopping center. As of September 1, 2004, the property was 95% leased
to 18 tenants. The following table sets forth certain information with respect
to those leases:
Approximate Current Base Rent Per
GLA Leased Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Rent ($) Per Annum ($)
------------------------------------------------------------------------------------------------------
Lee Spa Nails 1,500 05/09 36,000 24.00
S&K Menswear 3,603 05/09 64,854 18.00
Marble Slab Creamery 1,200 05/09 26,400 22.00
EB Games 1,600 05/09 36,800 23.00
Sport Clips 1,200 05/09 25,200 21.00
Dress Barn 8,050 05/09 120,750 15.00
Phone Smart 1,800 05/09 37,800 21.00
Artisan Jewelers 2,400 05/09 57,600 24.00
T.J. Maxx 30,000 05/14 232,500 7.75
Cost Plus World Market 18,300 05/14 228,750 12.50
Pier 1 Imports 10,800 05/14 167,400 15.50
Shoe Carnival 9,000 05/14 112,500 12.50
Ross Dress for Less 30,000 05/14 285,000 9.50
Linens 'N Things 25,000 05/14 268,750 10.75
PETsMART 19,107 05/19 210,177 11.00
Hibbett Sporting Goods 5,000 05/14 70,000 14.00
McAllisters Deli 3,600 05/14 75,600 21.00
Logans (Ground Lease) * 05/24 65,000 N/A
* To be determined
In general, each tenant will pay its proportionate share of real estate taxes,
insurance and common area maintenance costs, although the leases with some
tenants may provide that the tenant's liability for such expenses is limited in
some way, usually so that their liability for such expenses does not exceed a
specified amount.
-125-
ACADEMY SPORTS & OUTDOORS, PORT ARTHUR, TEXAS
We anticipate purchasing a newly constructed freestanding retail center known as
Academy Sports & Outdoors, containing 61,001 gross leasable square feet. The
center is located at Memorial Boulevard at Highway 365 in Port Arthur, Texas.
We anticipate purchasing this property from an unaffiliated third party. Our
total acquisition cost is expected to be approximately $5,000,000. This amount
may increase by additional costs which have not yet been finally determined. We
expect any additional costs to be insignificant. Our acquisition cost is
expected to be approximately $82 per square foot of leasable space.
We intend to purchase this property with our own funds. However, we expect to
place financing on the property at a later date.
We do not intend to make significant repairs and improvements to this property
over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
One tenant, Academy Sports & Outdoors, will lease 100% of the total gross
leasable area of the property. The lease term will be determined in accordance
with the tenant's commencement date. The lease with this tenant requires the
tenant to pay base annual rent on a monthly basis as follows:
Approximate GLA Base Rent Per Square
Lessee Leased (Sq. Ft.) % of Total GLA Foot Per Annum ($) Lease Term*
-------------------------------------------------------------------------------------------------------------------
Academy Sports & Outdoors 61,001 100 6.56 20 Years
* Lease term has not been determined at the time of this report
For federal income tax purposes, the depreciable basis in this property will be
approximately $3,750,000. When we calculate depreciation expense for tax
purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
LAKE MARY POINTE, ORLANDO, FLORIDA
We anticipate purchasing an existing shopping center known as Lake Mary Pointe,
containing 51,052 gross leasable square feet. The center is located at U.S.
17/92 and Weldon Boulevard, in Orlando, Florida.
We anticipate purchasing this property from an unaffiliated third party. Our
total acquisition cost is expected to be approximately $6,650,000. This amount
may increase by additional costs which have not yet been finally determined. We
expect any additional costs to be insignificant. Our acquisition cost is
expected to be approximately $130 per square foot of leasable space.
We intend to purchase this property with our own funds. However, we expect to
place financing on the property at a later date.
We do not intend to make significant repairs and improvements to this property
over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
One tenant, Publix, leases more than 10% of the total gross leasable area of the
property. The lease with this tenant requires the tenant to pay base annual rent
on a monthly basis as follows:
Approximate GLA Base Rent Per
Leased Square Foot Per Lease Term
Lessee (Sq. Ft.) % of Total GLA Annum ($) Beginning To
-------------------------------------------------------------------------------------------------------
Publix 37,866 74 8.60 12/99 12/19
-126-
For federal income tax purposes, the depreciable basis in this property will be
approximately $4,987,000. When we calculate depreciation expense for tax
purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
Lake Mary Pointe was built in 1999. As of September 1, 2004, this property was
96% occupied, with a total 48,952 square feet leased to nine tenants. The
following table sets forth certain information with respect to those leases:
Approximate Base Rent Per
GLA Leased Current Annual Square Foot Per
Lessee (Sq. Ft.) Lease Ends Rent ($) Annum ($)
-------------------------------------------------------------------------------------------------------------------
GNC 1,050 12/04 23,930 22.79
Hair Cuttery 1,050 02/05 23,237 22.13
Avenue Nails 1,043 08/05 24,969 23.94
Pak Mail Center 1,050 09/05 23,006 21.91
Vivonia's Italian Pizzeria 3,750 09/06 81,938 21.85
White Swan Cleaners 1,050 01/09 16,800 16.00
Subway 1,050 02/09 17,063 16.25
China Cook 1,043 07/11 20,161 19.33
Publix 37,866 12/19 325,648 8.60
In general, each tenant will pay its proportionate share of real estate taxes,
insurance and common area maintenance costs, although the leases with some
tenants may provide that the tenant's liability for such expenses is limited in
some way, usually so that their liability for such expenses does not exceed a
specified amount.
WINCHESTER COMMONS, MEMPHIS, TENNESSEE
We anticipate purchasing an existing shopping center known as Winchester
Commons, containing 93,024 gross leasable square feet. The center is located on
7956 Winchester Road, in Memphis, Tennessee.
We anticipate purchasing this property from an unaffiliated third party. Our
total acquisition cost is expected to be approximately $13,073,000. This amount
may increase by additional costs which have not yet been finally determined. We
expect any additional costs to be insignificant. Our acquisition cost is
expected to be approximately $141 per square foot of leasable space.
We intend to purchase this property with our own funds. However, we expect to
place financing on the property at a later date.
We do not intend to make significant repairs and improvements to this property
over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
One tenant, Kroger, leases more than 10% of the total gross leasable area of the
property. The lease with this tenant requires the tenant to pay base annual rent
on a monthly basis as follows:
Approximate Base Rent Per
GLA Leased Square Foot Per Lease Term
Lessee (Sq. Ft.) % of Total GLA Annum ($) Beginning To
---------------------------------------------------------------------------------------------------------------------
Kroger 59,670 64 8.24 05/99 04/19
-127-
For federal income tax purposes, the depreciable basis in this property will be
approximately $9,805,000. When we calculate depreciation expense for tax
purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
Winchester Commons was built in 1999. As of September 1, 2004, this property was
100% occupied, with a total 93,024 square feet leased to 16 tenants. The
following table sets forth certain information with respect to those leases:
Approximate Base Rent Per
GLA Leased Current Annual Square Foot Per
Lessee (Sq. Ft.) Lease Ends Rent ($) Annum ($)
-------------------------------------------------------------------------------------------------------------------
For Your Eyes Only 2,220 05/04 45,443 20.47
Fantastic Sam's 1,600 06/04 28,000 17.50
Giant TV 1,600 09/04 27,200 17.00
The Steak Escape 1,600 01/05 26,400 16.50
Shirley's Hallmark 4,400 02/05 52.800 12.00
The Wine Cellar 4,000 03/06 66,000 16.50
China Dragon Restaurant 2,400 10/06 39,600 16.50
Dental Partners of Tennessee 2,000 01/07 35,500 17.75
Sunsations 1,600 07/07 27.200 17.00
Greg Pickett Golf 1,600 01/09 27,712 17.32
The UPS Store 2,000 01/09 34,000 17.00
Southwinds Cleaners 1,600 01/09 27,200 17.00
Nextel Communications 1,600 06/09 33,600 21.00
East End Grill 3,600 07/09 59,400 16.50
Kroger 59,670 04/19 491,681 8.24
In general, each tenant will pay its proportionate share of real estate taxes,
insurance and common area maintenance costs, although the leases with some
tenants may provide that the tenant's liability for such expenses is limited in
some way, usually so that their liability for such expenses does not exceed a
specified amount.
LAKEPOINTE TOWNE CROSSING, LEWISVILLE, TEXAS
We anticipate purchasing a newly constructed shopping center known as Lakepointe
Towne Crossing, containing 193,502 gross leasable square feet. The center is
located at 715 Hebron Parkway, in Lewisville, Texas.
We anticipate purchasing this property from an unaffiliated third party. Our
total acquisition cost is expected to be approximately $39,482,000. This amount
may increase by additional costs which have not yet been finally determined. We
expect any additional costs to be insignificant. Our acquisition cost is
expected to be approximately $204 per square foot of leasable space.
We intend to purchase this property with our own funds. However, we expect to
place financing on the property at a later date.
We do not intend to make significant repairs and improvements to this property
over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
Three tenants, Sportsman's Warehouse, Circuit City and Ross Dress for Less, will
lease more than 10% of the total gross leasable area of the property. The lease
term has been determined in accordance with the tenant's projected lease
commencement date. The leases with these tenants require the tenants to pay base
annual rent on a monthly basis as follows:
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Base Rent
Approximate Per Square
GLA Leased % of Total Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
-----------------------------------------------------------------------------------------------------------------
Sportsman's Warehouse 45,250 23 12.00 08/04 08/19
Circuit City 33,862 18 14.00 06/04 01/19
Ross Dress for Less 30,187 16 9.75 04/03 04/23
For federal income tax purposes, the depreciable basis in this property will be
approximately $29,611,000. When we calculate depreciation expense for tax
purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
Lakepointe Towne Crossing was newly constructed in 2004. As of September 1,
2004, the property is currently in a leasing up phase and certain tenants have
executed leases for retail space within the shopping center. The following table
sets forth certain information with respect to those leases:
Approximate Current Base Rent Per
GLA Leased Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Rent ($) Per Annum ($)
-----------------------------------------------------------------------------------------------------
Mattress Firm 6,500 08/08 162,500 25.00
Hawk Electronics 5,000 10/08 125,000 25.00
EB Games 1,500 10/08 34,500 23.00
Carter Floors and Countertops 2,240 12/08 51,520 23.00
Great Clips 1,200 10/09 28,800 24.00
Dr. John Launius 2,880 11/10 63,360 22.00
Pei Wei Asian Diner 3,300 10/13 85,800 26.00
Moe's Southwest Grill 3,121 11/13 78,025 25.00
Circuit City 33,862 01/19 474,068 14.00
Sportsman's Warehouse 45,250 08/19 543,000 12.00
Ross Dress for Less 30,187 04/23 294,323 9.75
In general, each tenant will pay its proportionate share of real estate taxes,
insurance and common area maintenance costs, although the leases with some
tenants may provide that the tenant's liability for such expenses is limited in
some way, usually so that their liability for such expenses does not exceed a
specified amount.
MANSFIELD TOWNE CROSSING, MANSFIELD, TEXAS
We anticipate purchasing a newly constructed shopping center known as Mansfield
Towne Crossing, containing 111,898 gross leasable square feet of which 4,500 is
on a ground lease. The center is located at Highway 287 and Debbie Lane, in
Mansfield, Texas.
We anticipate purchasing this property from an unaffiliated third party. Our
total acquisition cost is expected to be approximately $19,967,700. This amount
may increase by additional costs which have not yet been finally determined. We
expect any additional costs to be insignificant. Our acquisition cost is
expected to be approximately $178 per square foot of leasable space.
We intend to purchase this property with our own funds. However, we expect to
place financing on the property at a later date.
-129-
We do not intend to make significant repairs and improvements to this property
over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
Two tenants, Ross Dress for Less and Staples, will lease more than 10% of the
total gross leasable area of the property. The lease term will be determined in
accordance with the tenant's projected lease commencement date. The leases with
these tenants require the tenants to pay base annual rent on a monthly basis as
follows:
Base Rent
Approximate Per Square
GLA Leased % of Total Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
------------------------------------------------------------------------------------------------------------------
Ross Dress for Less 30,187 27 9.25 10/04 01/15
Staples 20,388 18 10.50 08/03 08/18
For federal income tax purposes, the depreciable basis in this property will be
approximately $14,975,800. When we calculate depreciation expense for tax
purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
Mansfield Towne Crossing was newly constructed in 2004. As of September 1, 2004,
the property is currently in a leasing up phase and certain tenants have
executed leases for retail space within the shopping center . The following
table sets forth certain information with respect to those leases:
Approximate Current Base Rent Per
GLA Leased Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Rent ($) Per Annum ($)
-------------------------------------------------------------------------------------------------------
AT & T Wireless 2,500 07/08 55,000 22.00
EB Games 1,500 09/08 31,500 21.00
Sport Clips 1,440 10/08 30,240 21.00
Luxury Nails 1,013 02/09 20,259 20.00
Dr. Michael Poison 1,060 05/09 20,140 19.00
Robertson Pools 1,440 06/09 27,360 19.00
Bath Junkie 1,200 06/09 22,800 19.00
Subway 1,600 07/09 30,400 19.00
GNC 1,200 09/09 22,800 19.00
The Cash Store 1,600 09/09 30,400 19.00
Creekside Collections 3,811 09/09 62,882 16.50
Zales Jewelers 3,000 12/13 64,500 21.50
Famous Footwear 8,000 01/14 120,000 15.00
Payless Shoes 3,000 01/14 54,000 18.00
Ross Dress for Less 30,187 01/15 279,229 9.25
Pier 1 Imports 10,800 02/15 162,000 15.00
Staples 20,388 08/18 214,074 10.50
Regions Bank (Ground
Lease) 4,500 01/23 75,000 N/A
-130-
In general, each tenant will pay its proportionate share of real estate taxes,
insurance and common area maintenance costs, although the leases with some
tenants may provide that the tenant's liability for such expenses is limited in
some way, usually so that their liability for such expenses does not exceed a
specified amount.
PLEASANT RUN TOWNE CROSSING, CEDAR HILL, TEXAS
We anticipate purchasing a newly constructed shopping center known as Pleasant
Run Towne Crossing, containing 225,431 gross leasable square feet of which
20,200 is on ground leases. The center is located at Pleasant Run and Highway
67, in Cedar Hill, Texas.
We anticipate purchasing this property from an unaffiliated third party. Our
total acquisition cost is expected to be approximately $41,417,800. This amount
may increase by additional costs which have not yet been finally determined. We
expect any additional costs to be insignificant. Our acquisition cost is
expected to be approximately $176 per square foot of leasable space.
We intend to purchase this property with our own funds. However, we expect to
place financing on the property at a later date.
We do not intend to make significant repairs and improvements to this property
over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
Two tenants, Oshman's Sporting Goods and Circuit City, will lease more than 10%
of the total gross leasable area of the property. The lease term will be
determined in accordance with the tenant's lease commencement date. The leases
with these tenants require the tenants to pay base annual rent on a monthly
basis as follows:
Base Rent
Approximate Per Square
GLA Leased % of Total Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
---------------------------------------------------------------------------------------------------------------
Oshman's Sporting Goods 40,954 17 10.00 05/04 04/14
Circuit City 32,570 14 14.00 11/03 01/18
For federal income tax purposes, the depreciable basis in this property will be
approximately $31,063,400. When we calculate depreciation expense for tax
purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
Pleasant Run Towne Crossing was newly constructed in 2004. As of September 1,
2004, the property is currently in a leasing up phase and certain tenants have
executed leases for retail space within the shopping center. The following table
sets forth certain information with respect to those leases:
Approximate Current Base Rent Per Square
GLA Leased Annual Foot
Lessee (Sq. Ft.) Lease Ends Rent ($) Per Annum ($)
----------------------------------------------------------------------------------------------------------------------------
The Maytag Store 5,225 04/09 94,050 18.00
Justice Just for Girls 4,500 04/09 81,000 18.00
Sleep Experts 4,500 06/09 99,000 22.00
Mattress Firm 6,000 08/09 132,000 22.00
ASAP Mail 2,000 08/09 40,000 20.00
Luxury Nails 1,200 08/09 25,200 21.00
Brook Mays Music 6,250 09/09 112,500 18.00
Michaels 21,390 11/13 224,595 10.50
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Approximate Current Base Rent Per Square
GLA Leased Annual Foot
Lessee (Sq. Ft.) Lease Ends Rent ($) Per Annum ($)
---------------------------------------------------------------------------------------------------------------------------
Bombay Company 4,500 11/13 81,000 18.00
Bed, Bath & Beyond 22,000 01/14 220,000 10.00
Half Price Books 10,108 02/14 121,296 12.00
Mothers Work 1,805 03/14 36,100 20.00
Zales Jewelry 3,000 05/14 66,000 22.00
Vitamin Shop 5,000 08/14 135,000 27.00
Panera Bread 4,999 10/14 119,976 24.00
Oshman's Sporting Goods 40,954 01/15 409,540 10.00
Circuit City 32,570 01/18 455,980 14.00
JP Morgan Chase Bank (Ground Lease) 4,700 02/24 84,999 N/A
Saltgrass Steakhouse (Ground Lease) 8,500 05/24 84,999 N/A
Joe's Crab Shack (Ground Lease) 7,000 05/24 75,000 N/A
In general, each tenant will pay its proportionate share of real estate taxes,
insurance and common area maintenance costs, although the leases with some
tenants may provide that the tenant's liability for such expenses is limited in
some way, usually so that their liability for such expenses does not exceed a
specified amount.
We will obtain an appraisal on this property prior to acquisition. As with any
other property we acquire, our property manager will receive a property
management fee for managing this property and our advisor will receive an
advisor asset management fee.
As of September 8, 2004, we have over of $141,000,000 in pending acquisitions
and we believe, based in part on projected sales of our common stock, that cash
on hand and future financings will provide us with sufficient cash to close
these properties at the time of their projected closings.
TERMINATED CONTRACTS
Our Board of Directors previously approved the acquisition of Albertson's
Grocery Store in Loveland, Colorado, Mall 205 and Plaza 205, Portland, Oregon,
Eckerd Drug Store at Danforth and Santa Fe in Edmond, Oklahoma and Woodbury
Village Shopping Center (disclosed as probable), Shaw's Supermarket at Bristol,
Connecticut ( disclosed as probable) and Peoria Station (disclosed as probable).
Based on information received during our due diligence process, we have decided
not to acquire the properties and our affiliate has terminated the contracts on
these acquisitions.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
We electronically file our annual report on Form 10-K, quarterly reports on Form
10-Q, current reports on Form 8-K and all amendments to those reports with the
Securities and Exchange Commission (SEC). The public may read and copy any of
the reports that are filed with the SEC at the SEC's Public Reference Room at
405 Fifth Street, NW, Washington, DC 20549. The public may obtain information on
the operation of the Public Reference room by calling the SEC at (800)-SEC-0330.
The SEC maintains an Internet site at (www.sec.gov) that contains reports, proxy
and information statements and other information regarding issuers that file
electronically.
CERTAIN STATEMENTS IN THIS "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS" AND ELSEWHERE IN THIS POST-EFFECTIVE
AMENDMENT CONSTITUTE "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF THE
FEDERAL PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. THESE FORWARD-LOOKING
STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS
WHICH MAY CAUSE OUR ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS TO BE MATERIALLY
DIFFERENT FROM ANY FUTURE RESULTS, PERFORMANCE OR ACHIEVEMENTS EXPRESSED OR
IMPLIED BY THESE FORWARD-LOOKING STATEMENTS.
The following discussion and analysis relates to the three and six months ended
June 30, 2004. The period from March 5, 2003 (inception) to June 30, 2003 is not
comparable because no properties were owned by us during that 2003 period. You
should read the following discussion and analysis along with our consolidated
financial statements and the related notes included in this report.
Overview
We were formed to acquire and manage a diversified portfolio of real estate,
principally multi-tenant shopping centers. We operate as a real estate
investment trust or REIT for Federal and state income tax purposes. We have
initially focused on acquiring properties in the Western states. We have begun
to acquire and plan to continue acquiring properties in the Western states. We
may also acquire retail properties in locations throughout the United States.
Inland Western Retail Real Estate Advisory Services, Inc. or our advisor has
been retained to manage, for a fee, our day-to-day affairs, subject to the
supervision of our board of directors.
Our goal is to purchase properties principally west of the Mississippi River and
evaluate potential acquisition opportunities of properties east of the
Mississippi River on a property by property basis, taking into consideration
investment objectives and available funds. As of July 31, 2004 we have purchased
14 additional properties located in the states of Arkansas, Georgia, Louisiana,
Maryland, Missouri, Pennsylvania, South Carolina, Texas and Washington.
During the six months ended June 30, 2004, we purchased 34 properties, of which
13 were not located in our primary geographical area of interest. We purchased
these 13 properties because we had the unique opportunity of taking advantage of
our advisor's acquisition pipeline of properties located east of the Mississippi
River which generally, continue to have rates of return above those located in
the Western United States. Our strategy in purchasing these properties was to
deploy stockholder funds promptly and generate income for us as early as
possible, while investing in properties which met our acquisition criteria.
During the second quarter of 2004, the retail sector has remained relatively
stable as a result of sustained consumer spending, which has helped maintain
retail sales growth despite subsequent terrorist threats and the Iraqi war. A
modest pace of new retail construction, and the expansion strategy of some
retailers, who are renting more space to maintain market share and revenue
growth and offset declining same store sales have also contributed to the
stability.
While sustained consumer spending, spurred by low interest rates, has helped to
maintain retail sales growth, changing demographics and consumer preferences
have resulted in a fundamental shift in consumer spending patterns and the
emergence of discount retail as a dominant category. Today almost 75% of general
merchandise sales occur at a discount department store or a warehouse
club/supercenter. As a result of this trend, some conventional department stores
are struggling and a number of local, regional and national retailers have been
forced to voluntarily close their stores or file for bankruptcy protection. Some
bankrupt retailers have reorganized their operations and/or sold stores to
stronger operators. In some instances, bankruptcies and store closings may
create opportunities to lease space at higher rents to tenants with
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better sales performance. Therefore, we do not expect store closings or
bankruptcy reorganizations to have a material impact on our consolidated
financial position or the results of our operations in the near term.
We believe our risk exposure to potential future downturns in the economy is
mitigated because the tenants at our current and targeted properties, to a large
extent, consist or will consist of: retailers who serve primary
non-discretionary shopping needs, such as grocers and pharmacies; discount
chains that can compete effectively during an economic downturn; and national
tenants with strong credit ratings who can withstand a downturn. We believe that
the diversification of our current and targeted tenant base and our focus on
creditworthy tenants further reduces our risk exposure.
We are subject to risks existing due to a concentration of any single tenant
within the portfolio. Currently, the largest tenant by leased area is Best Buy,
which has nine leases representing approximately 428,643 square feet, or
approximately 4.5% of the total gross leasable area owned by us as of July 31,
2004. The annualized base rental income from these leases is approximately
$6,276,746, or approximately 5.2% of the total annualized base rental income,
based on our portfolio of properties as of July 31, 2004. The two largest
tenants in annualized base rental income are Best Buy and Ross Dress for Less
which together total approximately $9,764,088 or 8.1% of the total annualized
base rental income, based on our portfolio of properties as of July 31, 2004.
We are in the process of offering our common stock and have raised $850,239,770
as of June 30, 2004. We raised on average approximately $120 million per month
during the second quarter of 2004.
As of June 30, 2004, we owned a portfolio of forty-two properties located in
Arizona, California, Colorado, Connecticut, Georgia, Illinois, Indiana, Kansas,
Louisiana, Maryland, Michigan, Nevada, New Mexico, North Carolina, Oklahoma,
South Carolina, Texas, Utah, and Washington containing an aggregate of
approximately 7,143,674 square feet of gross leasable area. As of June 30, 2004,
approximately 92% of gross leasable area in the properties was physically
leased.
The following is a summary of the properties we own as of June 30, 2004:
Gross Amount of
Leasable Mortgages
Area Date Year Built/ Payable at
Property (Sq Ft) Acquired Renovated 06/30/04
--------------- ------- -------- --------- --------
Alison's Corner 55,066 04/04 2003 $ 3,850,000
San Antonio, TX
Arvada Connection and Arvada Marketplace 358,094 04/04 1987/1990 28,510,000
Arvada, CO
Best on the Boulevard 204,627 04/04 1996/1999 19,525,000
Las Vegas, NV
Bluebonnet Parc 135,289 04/04 2002 12,100,000
Baton Rouge, LA
CorWest Plaza 115,011 01/04 1999/2003 18,150,000
New Britain, CT
Darien Towne Centre 223,876 12/03 1994 16,500,000
Darien, IL
Davis Towne Crossing 41,391 06/04 2004 -
North Richland Hills, TX
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Gross Amount of
Leasable Mortgages
Area Date Year Built/ Payable at
Property (Sq Ft) Acquired Renovated 06/30/04
--------------- ------- -------- --------- --------
Dorman Center - Phase I 350,994 03/04 2003 27,610,000
Spartanburg, SC
Eastwood Towne Center 334,454 05/04 2002 46,750,000
Lansing, MI
Eckerd Drug Store 13,440 06/04 2004 -
Columbia, SC
Eckerd Drug Store 13,824 06/04 2004 -
Crossville, TN
Eckerd Drug Store 13,824 12/03 2003 1,850,000
Edmund, OK
Eckerd Drug Store 13,824 06/04 2004 -
Greer, SC
Eckerd Drug Store 13,824 06/04 2004 -
Kill Devil Hills, NC
Eckerd Drug Store 13,824 12/03 2003 2,900,000
Norman, OK
Fullerton Metrocenter 242,080 06/04 1988 -
Fullerton, CA
Heritage Towne Crossing 80,574 03/04 2002 8,950,000
Euless, TX
Hickory Ridge 380,487 01/04 1999 23,650,000
Hickory, NC
Huebner Oaks Center 286,738 06/04 1998 48,000,000
San Antonio, TX
John's Creek Village 191,475 06/04 2004 -
Duluth, GA
La Plaza Del Norte 320,362 01/04 1996/1999 32,528,000
San Antonio, TX
Lakewood Towne Center 577,863 06/04 1988/2003 51,260,000
Lakewood, WA
Larkspur Landing 173,814 01/04 1978/2001 33,630,000
Larkspur, CA
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Gross Amount of
Leasable Mortgages
Area Date Year Built/ Payable at
Property (Sq Ft) Acquired Renovated 06/30/04
--------------- ------- -------- --------- --------
Low Country Village 76,376 06/04 2004 -
Bluffton, SC
MacArthur Crossing 110,975 02/04 1996 12,700,000
Los Colinas, TX
Metro Square Center 61,817 01/04 1999 6,067,183
Severn, MD
Newnan Crossing I & II 291,833 12/03 & 1999/2003 21,543,091
Newnan, GA 03/04
Northgate North 302,744 06/04 2004 -
Seattle, WA
Northpointe Plaza 378,890 05/04 1991/1993 30,850,000
Spokane, WA
North Ranch Pavilions 62,812 01/04 1992 10,157,400
Thousand Oaks, CA
North Rivers Town Center 141,167 04/04 2004 11,050,000
Charleston, SC
Paradise Valley Marketplace 92,164 04/04 2002 15,680,500
Phoenix, AZ
Pavilion at King's Grant 79,009 12/03 2003 5,342,000
Concord, NC
Peoria Crossings 213,733 03/04 2003 20,497,400
Peoria, AZ
Pine Ridge Plaza 230,493 06/04 1998/2004 -
Lawrence, KS
Plaza Santa Fe II 222,411 06/04 2000/2002 17,551,721
Santa Fe, NM
Promenade at Red Cliff 94,936 02/04 1997 10,590,000
St. George, UT
Shaw's Supermarket 65,658 12/03 1995 6,450,000
New Britain, CT
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Gross Amount of
Leasable Mortgages
Area Date Year Built/ Payable at
Property (Sq Ft) Acquired Renovated 06/30/04
--------------- ------- -------- --------- --------
Shops at Park Place 116,300 10/03 2001 13,127,000
Plano, TX
Shoppes of Prominence Point 88,058 06/04 2004 -
Canton, GA
Stony Creek Market Place 153,803 12/03 2003 14,162,000
Noblesville, IN
Watauga Pavilion 205,740 05/04 2004 17,100,000
Watauga, TX --------- -------------
Total 7,143,674 $ 588,631,295
========= =============
The square footage for Arvada Connection , Darien Towne Centre, Davis Towne
Crossing, Eastwood Towne Center, Heritage Towne Crossing, Hickory Ridge, Huebner
Oaks Center, John's Creek Village, MacArthur Crossing, Newnan Crossing I & II,
Northpointe Plaza, North Rivers Town Center, Paradise Valley Marketplace,
Pavilion at King's Grant, Pine Ridge Plaza, Shops at Park Place and Stony Creek
Market Place includes 2,240, 6,371, 4,000, 24,110, 7,246, 70,127, 8,036, 10,555,
6,500, 6,650, 18,719, 31,280, 10,908, 65,000, 84,676, 3,822 and 8,000
respectively, square feet of space leased to tenants under ground lease
agreements.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
GENERAL.
The following disclosure pertains to critical accounting policies and estimates
we believe are most "critical" to the portrayal of our financial condition and
results of operations which require our most difficult, subjective or complex
judgments. These judgments often result from the need to make estimates about
the effect of matters that are inherently uncertain. Critical accounting
policies discussed in this section are not to be confused with accounting
principles and methods disclosed in accordance with accounting principles
generally accepted in the United States of America or GAAP. GAAP requires
information in financial statements about accounting principles, methods used
and disclosures pertaining to significant estimates. This discussion addresses
our judgment pertaining to trends, events or uncertainties known which were
taken into consideration upon the application of those policies and the
likelihood that materially different amounts would be reported upon taking into
consideration different conditions and assumptions.
ACQUISITION OF INVESTMENT PROPERTY
We allocate the purchase price of each acquired investment property between
land, building and improvements, acquired above market and below market leases,
in-place lease value, and any assumed financing that is determined to be above
or below market terms. In addition, we allocate a portion of the purchase price
to the value of customer relationships and as of June 30, 2004, no cost has been
allocated to such relationships. The allocation of the purchase price is an area
that requires judgment and significant estimates. We use the information
contained in the independent appraisal obtained at acquisition as the primary
basis for the allocation to land and building and improvements. The aggregate
value of intangibles is measured based on the difference between the stated
price and the property value calculation as if vacant. We determine whether any
financing assumed is above or below market based upon comparison to similar
financing terms for similar investment properties. We also allocate a portion of
the purchase price to the estimated acquired in-place lease costs based on
estimated lease execution costs for similar leases as well as lost rent payments
during assumed lease up period when calculating as if vacant fair values. We
consider various factors including geographic location and size of leased space.
We
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also evaluate each acquired lease based upon current market rates at the
acquisition date and we consider various factors including geographical
location, size and location of leased space within the investment property,
tenant profile, and the credit risk of the tenant in determining whether the
acquired lease is above or below market lease costs. After an acquired lease is
determined to be above or below market lease costs, we allocate a portion of the
purchase price to such above or below acquired lease costs based upon the
present value of the difference between the contractual lease rate and the
estimated market rate. The determination of the discount rate used in the
present value calculation is based upon the "risk free rate." This discount rate
is a significant factor in determining the market valuation which requires our
judgment of subjective factors such as market knowledge, economics,
demographics, location, visibility, age and physical condition of the property.
IMPAIRMENT OF LONG-LIVED ASSETS. We conduct an impairment analysis on a
quarterly basis in accordance with Statement of Financial Accounting Standards
No. 144 or SFAS 144 to ensure that the property's carrying value does not exceed
its fair value. If this were to occur, we are required to record an impairment
loss. The valuation and possible subsequent impairment of investment properties
is a significant estimate that can and does change based on our continuous
process of analyzing each property and reviewing assumptions about uncertain
inherent factors, as well as the economic condition of the property at a
particular point in time.
COST CAPITALIZATION AND DEPRECIATION POLICIES. Our policy is to review all
expenses paid and capitalize any items exceeding $5,000 which are deemed to be
an upgrade or a tenant improvement. These costs are capitalized and are included
in the investment properties classification as an addition to buildings and
improvements.
Buildings and improvements are depreciated on a straight-line basis based upon
estimated useful lives of 30 years for buildings and improvements, and 15 years
for site improvements. The portion of the purchase price allocated to acquired
above market costs and acquired below market costs are amortized on a
straight-line basis over the life of the related lease as an adjustment to net
rental income. Acquired in-place lease costs, other leasing costs, and tenant
improvements are amortized on a straight-line basis over the life of the related
lease as a component of amortization expense.
The application of SFAS 141 and SFAS 142 resulted in the recognition upon
acquisition of additional intangible assets and liabilities relating to our real
estate acquisitions during the quarter ended June 30, 2004. The portion of the
purchase price allocated to acquired above market lease costs and acquired below
market lease costs are amortized on a straight-line basis over the life of the
related lease as an adjustment to rental income. Amortization pertaining to the
above market lease costs of $475,574 was applied as a reduction to rental income
for the three months ended June 30, 2004 and $813,177 for the six months ended
June 30, 2004. Amortization pertaining to the below market lease costs of
$545,784 was applied as an increase to rental income for the three months ended
June 30, 2004 and $902,613 for the six months ended June 30, 2004. The table
below presents the amortization during the next five years related to the
acquired above market lease costs and the below market lease costs for
properties owned at June 30, 2004:
July 1, 2004
through
December 31,
Amortization of: 2004 2005 2006 2007 2008 Thereafter
---- ---- ---- ---- ---- ----------
Acquired above
market lease costs $ (1,469,181) (2,938,359) (2,885,842) (2,119,421) (1,980,185) (12,903,389)
Acquired below
market lease costs 2,823,964 5,471,188 5,065,985 4,646,973 4,096,500 27,155,016
-----------------------------------------------------------------------------------------------
Net rental income
increase $ 1,354,783 2,532,829 2,180,143 2,527,552 2,116,315 14,251,627
===============================================================================================
Acquired in-place lease
intangibles $ (4,842,059) (9,684,122) (9,684,122) (9,684,122) (9,684,122) (50,916,901)
The portion of the purchase price allocated to acquired in-place lease costs are
amortized on a straight line basis over the life of the related lease. We
incurred amortization expense pertaining to acquired in-place lease costs of
$1,495,955 for the
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three months ended June 30, 2004 and $2,293,994 for the six months ended June
30, 2004. The table above presents the amortization during the next five years
related to acquired in-place lease costs for properties owned at June 30, 2004.
Cost capitalization and the estimate of useful lives requires our judgment and
includes significant estimates that can and do change based on our process which
periodically analyzes each property and on our assumptions about uncertain
inherent factors.
REVENUE RECOGNITION. We recognize rental income on a straight-line basis over
the term of each lease. The difference between rental income earned on a
straight-line basis and the cash rent due under the provisions of the lease
agreements is recorded as deferred rent receivable and is included as a
component of accounts and rents receivable in the accompanying consolidated
balance sheets. We anticipate collecting these amounts over the terms of the
leases as scheduled rent payments are made.
Reimbursements from tenants for recoverable real estate tax and operating
expenses are accrued as revenue in the period the applicable expenditures are
incurred. We make certain assumptions and judgments in estimating the
reimbursements at the end of each reporting period. Should the actual results
differ from our judgment, the estimated reimbursement could be negatively
affected and would be adjusted appropriately.
In conjunction with certain acquisitions, we receive payments under master lease
agreements pertaining to certain, non-revenue producing spaces either at the
time of, or subsequent to, the purchase of some of our properties. Upon receipt
of the payments, the receipts are recorded as a reduction in the purchase price
of the related properties rather than as rental income. These master leases were
established at the time of purchase in order to mitigate the potential negative
effects of loss of rent and expense reimbursements. Master lease payments are
received through a draw of funds escrowed at the time of purchase and may cover
a period from one to three years. These funds may be released to either us or
the seller when certain leasing conditions are met. Restricted cash includes
funds received by third party escrow agents, from sellers, pertaining to master
lease agreements. We record such escrows as both an asset and a corresponding
liability, until certain leasing conditions are met.
We accrue lease termination income if there is a signed termination letter
agreement, all of the conditions of the agreement have been met, and the tenant
is no longer occupying the property.
INTEREST RATE FUTURES CONTRACTS. We enter into interest rate futures contracts
or treasury contracts as a means of reducing our exposure to rising interest
rates. At inception, contracts are evaluated in order to determine if they will
qualify for hedge accounting treatment and will be accounted for either on a
deferral, accrual or market value basis depending on the nature of our hedge
strategy and the method used to account for the hedged item. Hedge criteria
include demonstrating the manner in which the hedge will reduce risk,
identifying the specific asset, liability or firm commitment being hedged, and
citing the time horizon being hedged.
During the second quarter of 2004, we entered into treasury contracts with a
futures commission merchant with a total notional amount of $95.0 million with
yields ranging from 3.85% for 5 year treasury contracts to 4.63% for 10 year
treasury contracts and maturities at various dates in 2004. The amount required
to be on deposit at June 30, 2004 for these treasury contracts had a cost basis
and liquidation value of $2,137,000 and $789,000, respectively. As these
treasury contracts are not offsetting future commitments and therefore do not
qualify as hedges, the net loss of approximately $1,348,000 at June 30, 2004 is
recognized currently in earnings and is included in interest expense in the
Consolidated Statement of Operations.
LIQUIDITY AND CAPITAL RESOURCES
GENERAL.
Our principal demands for funds have been for property acquisitions, for the
payment of operating expenses and dividends, and for the payment of interest on
outstanding indebtedness. Generally, cash needs for items other than property
acquisitions have been met from operations, and property acquisitions have been
funded by a public offering of our shares of common stock. However, there may be
a passage of time between the sale of the shares and our purchase of properties,
which may result in a delay in the benefits to stockholders of returns generated
from property operations. Our advisor
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evaluates potential additional property acquisitions and Inland Real Estate
Acquisitions, Inc., one of the affiliates of our sponsor, engages in
negotiations with sellers on our behalf. After a purchase contract is executed
which contains specific terms, the property will not be purchased until due
diligence, which includes review of the title insurance commitment, an appraisal
and an environmental analysis, is successfully completed. In some instances, the
proposed acquisition still requires the negotiation of final binding agreements,
which may include financing documents. During this period, we may decide to
temporarily invest any unused proceeds from the offering in certain investments
that could yield lower returns than other investments, such as the properties.
These lower returns may affect our ability to make distributions.
Potential future sources of capital include proceeds from the public or private
offering of our equity or debt securities, secured or unsecured financings from
banks or other lenders, proceeds from the sale of properties, as well as
undistributed funds from operations. We anticipate that during the current year
we will (i) acquire additional existing shopping centers, (ii) develop
additional shopping center sites and (iii) continue to pay distributions to
stockholders, and each is expected to be funded mainly from proceeds of our
public offerings of shares, cash flows from operating activities, financings and
other external capital resources available to us.
Our leases typically provide that the tenant bears responsibility for
substantially all property costs and expenses associated with ongoing
maintenance and operation, including utilities, property taxes and insurance. In
addition, in some instances our leases provide that the tenant is responsible
for roof and structural repairs. Certain of our properties are subject to leases
under which we retain responsibility for certain costs and expenses associated
with the property. We anticipate that capital demands to meet obligations
related to capital improvements with respect to properties will be minimal for
the foreseeable future and can be met with funds from operations and working
capital.
If necessary, we may use financings or other sources of capital in the event of
unforeseen significant capital expenditures.
We believe that our current capital resources (including cash on hand) and
anticipated financings are sufficient to meet our liquidity needs for the
foreseeable future.
LIQUIDITY
OFFERING. As of June 30, 2004, subscriptions for a total of 85,098,440 shares
had been received from the public, which include the 20,000 shares issued to the
advisor and 748,245 shares distributed pursuant to the DRP as of June 30, 2004.
As a result of such sales, we received a total of $850,239,770 of gross offering
proceeds as of June 30, 2004.
MORTGAGE DEBT. As of June 30, 2004 we have obtained mortgage debt on thirty-one
properties totaling $588,631,295. With the exception of Plaza Santa Fe II, these
loans require monthly payments of interest only and bear interest at a range
between 2.68% and 4.77% per annum. The mortgage loan on Plaza Santa Fe II
requires monthly payments of principal and interest at 6.20% per annum, and
payments into taxes, insurance and replacement reserve escrows.
During the period from July 1, 2004 through July 31, 2004 we obtained mortgage
financing on properties that we purchased during 2004 totaling approximately
$204,300,000 that require monthly payments of interest only and bear interest at
a range of 4.13% to 5.10% per annum or LIBOR plus 113 to 200 basis points.
From January 1, 2004 through July 31, 2004, we entered into numerous interest
rate lock agreements, as described below, to secure the interest rate on
mortgage debt on properties we currently own or will purchase in the future. The
funds under the rate agreements and the deposits are applied to the mortgage
fundings as they occur.
On February 9, 2004, we entered into an agreement with Bear Stearns Commercial
Mortgage, Inc. We paid a rate lock deposit of $1,200,000 to lock the interest
rate at 4.372% for a period of 90 days on $60,000,000 in principal, all of which
has been applied to closed mortgage fundings.
On March 5, 2004 and March 11, 2004, we entered into two separate rate lock
agreements with Principal Life Insurance Company. We paid a rate lock deposit of
$500,000 for each agreement to lock the interest rate at 4.13% and 4.09%,
respectively, for a period of 120 days. Each rate lock is on $50,000,000 in
principal, all of which has been applied to closed mortgage fundings.
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On May 18, 2004, we entered into a rate lock agreement with Allstate
Investments, LLC. We paid a rate lock deposit of $750,000 to lock the interest
rate at 5.05% for a period of 120 days on $75,000,000 in principal. Of this
amount, $16,362,500 has been applied to closed mortgage fundings, with the
remainder allocated to new or pending acquisitions.
On June 2, 2004, we entered into a rate lock agreement with Bear Stearns
Commercial Mortgage, Inc. We paid a rate lock deposit of $4,000,000 to lock the
interest rate at 5.12% for a period of 90 days on $200,000,000 in principal,
$196,000,000 of which has been allocated to new or pending acquisitions.
On June 3, 2004, we entered into a rate lock agreement with KeyBank National
Association. We paid a rate lock deposit of $1,000,000 to lock the interest rate
at 4.995% for a period of 90 days on $100,000,000 in principal, all of which has
been allocated to new or pending acquisitions.
On June 3, 2004, we entered into a rate lock agreement with Allstate
Investments, LLC. We paid a rate lock deposit of $500,000 to lock the interest
rate at 4.91% for a period of 120 days on $50,000,000 in principal, all of which
has been allocated to new or pending acquisitions.
On June 25, 2004, we entered into a rate lock agreement with Principal Real
Estate Investors, LLC. We paid a rate lock deposit of $600,000 to lock the
interest rate at 4.48% for a period of 120 days on $60,000,000 in principal, all
of which has been allocated to new or pending acquisitions.
On July 2, 2004, we entered into two separate rate lock agreements with Bear
Stearns Commercial Mortgage, Inc. We paid one rate lock deposit of $400,000 to
lock the interest rate at 5.06% for a period of 90 days on $20,000,000 in
principal. We paid a second rate lock deposit of $600,000 to lock the interest
rate at 5.01% for a period of 90 days on $30,000,000 in principal. Collectively,
$35,000,000 has been allocated to new or pending acquisitions.
On July 9, 2004, we entered into a rate lock agreement with LaSalle Bank
National Association. We paid a rate lock deposit of $500,000 to lock the
interest rate at 5.04% for a period of 90 days on $50,000,000 in principal, all
of which has been allocated to new or pending acquisitions.
On July 16, 2004, we entered into a rate lock agreement with Nomura Credit &
Capital, Inc. We paid a rate lock deposit of $500,000 to lock the interest rate
at 4.815% for a period of 90 days on $50,000,000 in principal.
LINE OF CREDIT. On February 6, 2004, we increased our unsecured line of credit
arrangement with KeyBank N.A. to $225,000,000 from $150,000,000. The funds from
this line of credit may be used to provide funds from the time a property is
purchased until permanent debt is placed on that property. The line requires
interest only payments monthly at the rate equal to the London InterBank Offered
Rate or LIBOR plus 175 basis points which ranged from 2.875% to 3.125% during
the quarter ended June 30, 2004. We are also required to pay, on a quarterly
basis, an amount ranging from .15% to .30%, per annum, on the average daily
undrawn funds under this line. The line of credit requires compliance with
certain covenants, such as debt service ratios, minimum net worth requirements,
distribution limitations and investment restrictions. In addition to, and in
conjunction with these financial covenants, we maintain a cash collateral
account. Amounts deposited in the cash collateral account provide that loan to
value covenants required under the line are not exceeded. Funds may be deposited
into and with drawn from the cash collateral account as our properties are
purchased without debt. As of June 30, 2004, we were in compliance with such
covenants and $20,448,822 was deposited in the cash collateral account. The
outstanding balance on the line of credit was $110,000,000 as of June 30, 2004
at a weighted average interest rate of 3.01% per annum.
STOCKHOLDER LIQUIDITY. We provide the following programs to facilitate
investment in the shares and to provide limited, interim liquidity for
stockholders until such time as a market for the shares develops:
The DRP allows stockholders who purchase shares pursuant to the offerings to
automatically reinvest distributions by purchasing additional shares from us.
Such purchases will not be subject to selling commissions or the marketing
contribution and due diligence expense allowance and will be sold at a price of
$9.50 per share. As of June 30, 2004, we issued 748,245 shares pursuant to the
DRP for an aggregate amount of $7,108,326.
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Subject to certain restrictions, the share repurchase program provides existing
stockholders with limited, interim liquidity by enabling them to sell shares
back to us at the following prices:
One year from the purchase date, at $9.25 per share;
Two years from the purchase date, at $9.50 per share;
Three years from the purchase date, at $9.75 per share; and
Four years from the purchase date, at the greater of $10.00 per share,
or a price equal to 10 times our "funds available for distribution"
per weighted average shares outstanding for the prior calendar year.
Shares purchased by us will not be available for resale. As of June 30, 2004, no
shares have been repurchased.
CAPITAL RESOURCES
We expect to meet our short-term operating liquidity requirements generally
through our net cash provided by property operations. We also expect that our
properties will generate sufficient cash flow to cover our operating expenses
plus pay a monthly distribution on our weighted average shares. Operating cash
flows are expected to increase as additional properties are added to our
portfolio.
We believe that we should put mortgage debt on or leverage our properties at
approximately 50% of their value. We also believe that we can borrow at the
lowest overall cost of funds or interest rate by placing individual financing on
each of our properties. Accordingly, mortgage loans will generally have been
placed on each property at the time that the property is purchased, or shortly
thereafter, with the property solely securing the financing.
During the six months ended June 30, 2004, we closed on mortgage debt with a
principal amount of $559,004,295. At June 30, 2004, the weighted average cost of
mortgage funds was approximately 4.30%. $507,744,295 of these mortgage loans are
fixed-rate loans that bear interest at a rate between 3.96% and 6.20% per annum.
The remaining $51,260,000 represents variable-rate loans with a weighted average
interest rate of 2.84% per annum at June 30, 2004.
With the exception of the mortgage loan on Plaza Santa Fe II, all of the loans
closed during the six months ended June 30, 2004 require monthly payments of
interest only and may be prepaid with a penalty after specific lockout periods.
The mortgage loan on Plaza Santa Fe II requires monthly payments of principal
and interest, as well as payments into tax, insurance, and replacement reserve
escrows and has no prepayment privileges.
Although the loans we closed are generally non-recourse, occasionally, when it
is deemed to be advantageous, we may guarantee all or a portion of the debt on a
full-recourse basis. Individual decisions regarding interest rates,
loan-to-value, fixed versus variable-rate financing, maturity dates and related
matters are often based on the condition of the financial markets at the time
the debt is incurred, which conditions may vary from time to time.
Distributions are determined by our board of directors with the advice of the
advisor and are dependent on a number of factors, including the amount of funds
available for distribution, flow of funds, our financial condition, any decision
by our board of directors to reinvest funds rather than to distribute the funds,
our capital expenditures, the annual distribution required to maintain REIT
status under the Internal Revenue Code and other factors the board of directors
may deem relevant.
CASH FLOWS FROM OPERATING ACTIVITIES
Cash flows provided by operating activities were approximately $15,697,000 for
the six month period ended June 30, 2004, which is due primarily to net income
from property operations.
CASH FLOWS FROM INVESTING ACTIVITIES
Cash flows used in investing activities were approximately $1,148,663,000 for
the six month period ended June 30, 2004 which were primarily used for the
acquisition of 34 properties for approximately $1,090,426,000.
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As of July 31, 2004, we had approximately $200,000,000 available for investment
in additional properties. As of July 31, 2004 we are considering the acquisition
of approximately $501,000,000 in properties. We are currently in the process of
obtaining financings on properties which have been purchased, as well as certain
of the properties which we anticipate purchasing. It is our intention to finance
each of our acquisitions either at closing or subsequent to closing. As a result
of the intended financings and based on our current experience in raising funds
in our offering, we believe that we will have sufficient resources to acquire
these properties.
CASH FLOWS FROM FINANCING ACTIVITIES
Cash flows provided by financing activities was approximately $1,195,482,000 for
the six month period ended June 30, 2004. We generated proceeds from the sale of
shares, net of offering costs paid, of approximately $593,471,000. We generated
approximately $541,453,000 from the issuance of new mortgages secured by 29 of
our properties and $105,000,000 from funding on the line of credit. We paid
approximately $10,154,000 for loan fees and approximately $13,255,000 in
distributions to our stockholders for the six months ended June 30, 2004. The
sponsor has agreed to advance us amounts to pay a portion of these distributions
until funds from operations are adequate to cover distributions.
Given the current size of our offering, as of July 31, 2004, we could raise
approximately $1.5 billion of additional capital. However, there can be no
assurance that we will raise this amount of money or that we will be able to
acquire additional attractive properties.
We are exposed to interest rate changes primarily as a result of our long-term
debt used to maintain liquidity and fund capital expenditures and expansion of
our real estate investment portfolio and operations. Our interest rate risk
management objectives are to limit the impact of interest rate changes on
earnings and cash flows and to lower our overall borrowing costs. To achieve our
objectives we borrow primarily at fixed rates or variable rates with the lowest
margins available and, in some cases, with the ability to convert variable rates
to current market fixed rates at the time of conversion.
EFFECTS OF TRANSACTIONS WITH RELATED AND CERTAIN OTHER PARTIES
SERVICES PROVIDED BY AFFILIATES OF THE ADVISOR As of June 30, 2004, we had
incurred $93,674,110 of offering costs, of which $70,096,693 was paid or accrued
to affiliates. In accordance with the terms of our offering, the advisor has
guaranteed payment of all public offering expenses (excluding sales commissions
and the marketing contribution and the due diligence expense allowance) in
excess of 5.5% of the gross proceeds of the offering or gross offering proceeds
or all organization and offering expenses (including selling commissions) which
together exceed 15% of gross offering proceeds. As of June 30, 2004, offering
costs did not exceed the 5.5% and 15% limitations. We anticipate that these
costs will not exceed these limitations upon completion of the offering. Any
excess amounts at the completion of the offering will be reimbursed by the
advisor.
The advisor and its affiliates are entitled to reimbursement for salaries and
expenses of employees of the advisor and its affiliates relating to the
offering. In addition, an affiliate of the advisor is entitled to receive
selling commissions, and the marketing contribution and due diligence expense
allowance from us in connection with the offering. Such costs are offset against
the stockholders' equity accounts. Such costs totaled $70,096,693 as of June 30,
2004, of which $468,907 was unpaid at June 30, 2004.
The advisor and its affiliates are entitled to reimbursement for general and
administrative expenses of the advisor and its affiliates relating to our
administration. Such costs are included in general and administrative expenses
to affiliates, professional services to affiliates, and acquisition cost
expenses to affiliates, in addition to costs that were capitalized pertaining to
property acquisitions. During the six months ended June 30, 2004, we incurred
$637,359 of these costs, of which $218,000 remained unpaid as of June 30, 2004.
An affiliate of the advisor provides loan servicing to us for an annual fee.
Such costs are included in property operating expenses to affiliates. The
agreement allows for annual fees totaling .03% of the first $1 billion in
mortgage balance outstanding and .01% of the remaining mortgage balance, payable
monthly. Such fees totaled $21,276 for the six months ended June 30, 2004.
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The advisor contributed $200,000 to our capital for which it received 20,000
shares.
We use the services of an affiliate of the advisor to facilitate the mortgage
financing that we obtained on some of the properties purchased. We pay the
affiliate .02% of the principal balance of mortgage loans obtained. Such costs
are capitalized as loan fees and amortized over the respective loan term. During
the six months ended June 30, 2004, we paid loan fees totaling $1,122,042 to
this affiliate.
We pay an advisor asset management fee of not more than 1% of our average
assets. Our average asset value is defined as the average of the total book
value of our real estate assets invested in equity interests plus our loans
receivable secured by real estate, before reserves for depreciation, reserves
for bad debt or other similar non-cash reserves. We compute our average assets
by taking the average of these values at the end of each month for which we are
calculating the fee. The fee is payable quarterly in an amount equal to 1/4 of
1% of average assets as of the last day of the immediately preceding quarter.
For any year in which we qualify as a REIT, our advisor must reimburse us for
the following amounts if any: (1) the amounts by which our total operating
expenses, the sum of the advisor asset management fee plus other operating
expenses, paid during the previous fiscal year exceed the greater of: (i) 2% of
our average assets for that fiscal year, or (ii) 25% of our net income for that
fiscal year; plus (2) an amount, which will not exceed the advisor asset
management fee for that year, equal to any difference between the total amount
of distributions to stockholders for that year and the 6% minimum annual return
on the net investment of stockholders. For the six months ended June 30, 2004,
we neither paid nor accrued such fees because the advisor agreed to forego such
fees for the first and second quarters of 2004.
The property managers, entities owned principally by individuals who are
affiliates of the advisor, are entitled to receive property management fees
totaling 4.5% of gross operating income, for management and leasing services. We
incurred property management fees of $1,154,272 for the six months ended June
30, 2004. None remained unpaid as of June 30, 2004.
We established a discount stock purchase policy for our affiliates and
affiliates of the advisor that enables the affiliates to purchase shares of
common stock at either $8.95 or $9.50 a share depending on when the shares are
purchased. We sold 510,839 shares to affiliates and recognized an expense
related to these discounts of $336,129 for the six months ended June 30, 2004.
As of June 30, 2004 we were due funds from our affiliate in the amount of
$1,553,689, $1,551,739 of which is due from our sponsor for reimbursement of a
portion of the distributions paid by us during 2004. The remaining $1,950 is due
from an affiliate for costs paid on their behalf by the Company. The sponsor has
agreed to advance to us amounts to pay a portion of distributions to our
stockholders until funds from operations are adequate to cover the
distributions. The sponsor forgave $2,369,139 of these amounts during the second
quarter of 2004 and these funds are no longer due. As of June 30, 2004 we owe
funds to the sponsor in the amount of $1,253,477 for repayment of the funds
advanced for payment of distributions.
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OFF-BALANCE SHEET ARRANGEMENTS, CONTRACTUAL OBLIGATIONS, LIABILITIES AND
CONTRACTS AND COMMITMENTS
The table below presents our obligations and commitments to make future payments
under debt obligations and lease agreements as of June 30, 2004.
Payments Due by Period
----------------------
Less than More than
Contractual Obligations Total 1 year 1-3 years 3-5 years 5 years
----------------------- ---------------------------------------------------------------------------------------
Long-Term Debt $ 588,631,295 - 7,260,000 298,839,074 282,532,221
Line of Credit 110,000,000 110,000,000 - - -
CONTRACTS AND COMMITMENTS
The purchase and sale contract for Pavilion at King's Grant, provides that if
anytime during the period January 1, 2004 through December 31, 2007 the tenant,
Toys R' Us, should increase its base rent up to a maximum amount of $250,000 and
no decrease has occurred in their requirement to pay for a certain percentage of
expenses at the property, then we would be obligated to pay the seller
additional funds related to the purchase based on an agreed income
capitalization formula. We have not reserved any funds for this contingency.
In connection with the purchase of Stony Creek Market Place, we are obligated to
purchase the seller's interest in the leases if the seller exercises the right
to develop and lease a vacant 50,000 pad site within 48 months after the closing
date of December 8, 2003, which was included in the purchase of the property. In
connection with the purchase of Newnan Crossing, we are obligated to purchase
the remaining portion of the shopping center that is currently under
construction, once construction has been completed and a major tenant has moved
in and commenced payment of rent, with the additional purchase price based on an
agreed upon income capitalization formula. In connection with the purchase of
Arvada Connection and Arvada Marketplace, we are obligated to purchase a parcel
of the shopping center that may be redeveloped by the seller within the next
three years. If the seller does not redevelop the parcel by the end of the
redevelopment period, then we are obligated to purchase the parcel for $750,000.
In connection with the purchase of Eastwood Town Center, we are obligated to pay
the remaining purchase price of $3,836,317 once a major tenant's base rent
increases upon two shadow anchor's commencement of operations. In connection
with the purchase of Watauga Pavilion, we are obligated to pay the remaining
purchase price of $2,146,000 once a major has moved in and commenced payment of
rent. In connection with the purchase of John's Creek Village, we are obligated
to pay the remaining purchase price of $13,385,390 once the remaining vacancies
have been leased and the respective tenants have moved in and commenced payment
of rent. We have not reserved any funds for these contingencies.
In connection with the purchase of Dorman Center, we were obligated to purchase
a portion of the shopping center that was under construction, once construction
has been completed and the respective tenants have moved in and commenced
payment of rent, with the additional purchase price of the center based on an
agreed upon income capitalization formula. As part of the commitment to purchase
this remaining portion of the shopping center, we had deposited one million
dollars of earnest money with the seller. In addition, in conjunction with the
financing of Dorman Center on April 20, 2004, we were required to obtain a $3.65
million irrevocable letter of credit for a one year period. Once we purchased
the remaining portion of Dorman Center, and met certain occupancy requirements
the letter of credit will be released. On July 16, 2004, we purchased the
remaining portion of Dorman Center and the irrevocable letter of credit is still
outstanding as the occupancy requirements had not been met as of July 31, 2004.
In connection with the purchase of Low Country Village, we were obligated to
purchase a portion of the shopping center that is currently under construction,
once construction has been completed and the respective tenants have moved in
and commenced payment of rent, with the additional purchase price of the center
based on an agreed upon income capitalization formula. As part of the commitment
to purchase this remaining portion of the shopping center, we had deposited
$300,000 of earnest money with an escrow agent. In addition we are obligated to
pay the remaining purchase price on the first phase based on an income
capitalization formula not to exceed $1,355,096 once the remaining vacancies
have been leased and the
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respective tenants have moved in and commenced payment of rent. In connection
with the note receivable related to Pacheco Pass, when the note is repaid, we
are obligated to purchase the property for $24,000,000.
In connection with the purchase of Larkspur Landing, the Company assumed a
liability in the amount of $1,982,504 for tenant improvements and leasing
commission obligations. As of June 30, 2004, the remaining liability after
disbursements was $1,375,521.
Subsequent to June 30, 2004, we purchased 14 properties for a purchase price of
approximately $342,000,000. In addition, we are currently considering acquiring
13 properties for an estimated purchase price of $501,000,000. Our decision to
acquire each property generally depends upon no material adverse change
occurring relating to the property, the tenants or in the local economic
conditions, and our receipt of satisfactory due diligence information including
appraisals, environmental reports and lease information prior to purchasing the
property.
RESULTS OF OPERATIONS
GENERAL
The following discussion is based primarily on our consolidated financial
statements as of June 30, 2004 and for the three and six months ended June 30,
2004.
Properties Square
Purchased Feet
Quarter Ended per Quarter Acquired Purchase Price
------------- ----------- -------- --------------
March 31, 2003 None N/A N/A
June 30, 2003 None N/A N/A
September 30, 2003 None N/A N/A
December 31, 2003 8 797,490 $ 127,195,469
March 31, 2004 11 2,126,152 $ 384,052,586
June 30, 2004 23 4,220,032 $ 713,925,077
----------------------------------------------------
Total 42 7,143,674 $ 1,225,173,132
====================================================
RENTAL INCOME, REAL ESTATE TAX RECOVERY, COMMON AREA COST RECOVERY AND
ADDITIONAL RENTAL INCOME. Rental income consists of basic monthly rent and
percentage rental income due pursuant to tenant leases. Real estate tax
recovery, common area cost recovery and additional rental income consist of
property operating expenses recovered from the tenants including real estate
taxes, property management fees and insurance. Rental income was $22,885,718 and
all additional rental income was $6,094,809 for the six months ended June 30,
2004.
INTEREST INCOME. Interest income consists primarily of interest earned from
short term investments that are held by us. Interest income was $456,462 for the
six month period ended June 30, 2004. This results primarily from interest
earned on cash for the six months ended June 30, 2004.
PROFESSIONAL SERVICES. Professional services consist of fees to accountants and
lawyers. Professional services expense was $156,130 for the six months ended
June 30, 2004. This results from professional services required as the business
and investor base grows. Accounting fees comprise the majority of the
professional services expense.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses consist
of salaries and computerized information services costs reimbursed to affiliates
for maintaining our accounting and investor records, affiliates common share
purchase discounts, insurance, postage, and printer costs. These expenses were
$1,158,137 for the six months ended June 30, 2004 and resulted from increased
services required as we acquire properties and grow our portfolio of investment
properties and our investor base.
PROPERTY OPERATING EXPENSES. Property operating expenses consist of property
management fees and property operating
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expenses, including real estate taxes, costs of owning and maintaining shopping
centers, insurance, and maintenance to the exterior of the buildings and the
parking lots. These expenses were $6,664,346 for the six months ended June 30,
2004.
INTEREST. Interest was $8,357,449 for the six months ended June 30, 2004 and is
due to the financing on 31 properties as of June 30, 2004 and funds drawn during
the first quarter of 2004 on the line of credit.
DEPRECIATION. Depreciation expense was $7,493,738 and is due to depreciation on
the properties owned during the six months ended June 30, 2004.
AMORTIZATION. Amortization expense was $2,934,613 and is due to the application
of SFAS 141 and SFAS 142 resulting in the amortization of intangible assets of
approximately $97 million and loan fees of $4 million during the six months
ended June 30, 2004.
FUNDS FROM OPERATIONS
One of our objectives is to provide cash distributions to our stockholders from
cash generated by our operations. Cash generated from operations is not
equivalent to our net income from continuing operations as determined under
Generally Accepted Accounting Principles in the United States of America or
GAAP. Due to certain unique operating characteristics of real estate companies,
the National Association of Real Estate Investment Trusts or NAREIT, an industry
trade group, has promulgated a standard known as "Funds from Operations" or
"FFO" for short, which it believes more accurately reflects the operating
performance of a REIT such as us. As defined by NAREIT, FFO means net income
computed in accordance with GAAP, excluding gains (or losses) from sales of
property, plus depreciation on real property and amortization, and after
adjustments for unconsolidated partnerships and joint ventures in which the REIT
holds an interest. We have adopted the NAREIT definition for computing FFO
because management believes that, subject to the following limitations, FFO
provides a basis for comparing our performance and operations to those of other
REITs. The calculation of FFO may vary from entity to entity since
capitalization and expense policies tend to vary from entity to entity. Items
which are capitalized do not impact FFO, whereas items that are expensed reduce
FFO. Consequently, our presentation of FFO may not be comparable to other
similarly-titled measures presented by other REITs. FFO is not intended to be an
alternative to "Net Income" as an indicator of our performance nor to "Cash
Flows from Operating Activities" as determined by GAAP as a measure of our
capacity to pay distributions. We believe that FFO is a better measure of our
operating performance because FFO excludes non-cash items from GAAP net income.
This allows us to compare our relative property performance to determine our
return on capital. Management uses the calculation of FFO for several reasons.
We use FFO to compare our performance to that of other REITs in our peer group.
Additionally, we use FFO in conjunction with our acquisition policy to determine
investment capitalization strategy. FFO is calculated as follows:
Six months
ended
June 30, 2004
--------------------
Net income $ 2,147,141
Depreciation and amortization related to
investment properties 9,788,099
--------------------
Funds from operations (1) $ 11,935,240
====================
(1) FFO does not represent cash generated from operating activities
calculated in accordance with GAAP and is not necessarily indicative of
cash available to fund cash needs. FFO should not be considered as an
alternative to net income as an indicator of our operating performance
or as an alternative to cash flow as a measure of liquidity.
The following table lists the approximate physical occupancy levels and gross
leasable area for our investment properties as of June 30, 2004 and December 31,
2003. The weighted average gross leasable area occupied at June 30, 2004 and
December 31, 2003 was 92% and 98%, respectively. N/A indicates the property was
not owned by us at the end of the period.
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June 30, 2004 December 31, 2003
------------- -----------------
GLA GLA
Properties: Occupied (%) Occupied (%)
----------- -------- --- -------- ---
Alison's Corner, San Antonio, TX 55,066 100 N/A N/A
Arvada Connection and Marketplace, Arvada, CO 340,859 95 N/A N/A
Best on the Boulevard, Las Vegas, NV 156,756 77 N/A N/A
Bluebonnet Parc, Baton Rouge, LA 120,289 89 N/A N/A
CorWest Plaza, New Britain, CT 114,023 99 N/A N/A
Darien Towne Centre, Darien, IL 210,010 94 212,682 95
Davis Towne Crossing, North Richland Hills, TX 34,131 83 N/A N/A
Dorman Center - Phase I, Spartanburg, SC 342,494 98 N/A N/A
Eastwood Towne Center, Lansing, MI 324,020 97 N/A N/A
Eckerd Drug Store, Columbia, SC 13,440 100 N/A N/A
Eckerd Drug Store, Crossville, TN 13,824 100 N/A N/A
Eckerd Drug Store, Edmund, OK 13,824 100 13,824 100
Eckerd Drug Store, Greer, SC 13,824 100 N/A N/A
Eckerd Drug Store, Kill Devil Hills, NC 13,824 100 N/A N/A
Eckerd Drug Store, Norman, OK 13,824 100 13,824 100
Fullerton Metrocenter, Fullerton, CA 225,040 93 N/A N/A
Heritage Towne Crossing, Euless, TX 68,811 85 N/A N/A
Hickory Ridge, Hickory, NC 380,487 100 N/A N/A
Huebner Oaks Center, San Antonio, TX 277,461 97 N/A N/A
John's Creek Village, Duluth, GA 140,930 71 N/A N/A
La Plaza Del Norte, San Antonio, TX 304,540 95 N/A N/A
Lakewood Towne Center, Lakewood, WA 544,926 94 N/A N/A
Larkspur Landing, Larkspur, CA 154,067 88 N/A N/A
Low Country Village, Bluffton, SC 70,598 92 N/A N/A
MacArthur Crossing, Los Colinas, TX 104,935 95 N/A N/A
Metro Square Center, Severn, MD 61,817 100 N/A N/A
Newnan Crossing, Newnan, GA 288,055 99 127,260 97
Northpointe Plaza, Seattle, WA 375,324 99 N/A N/A
North Ranch Pavilions, Thousand Oaks, CA 55,928 89 N/A N/A
North Rivers Town Center, Charleston, SC 141,167 100 N/A N/A
Northgate North, Seattle, WA 282,595 93 N/A N/A
Paradise Valley Marketplace, Phoenix, AZ 80,535 87 N/A N/A
Pavilion at King's Grant, Concord, NC 79,009 100 79,009 100
Peoria Crossings, Peoria, AZ 209,123 98 N/A N/A
Pine Ridge Plaza, Lawrence, KS 230,493 100 N/A N/A
Plaza Santa Fe II, Santa Fe, NM 217,329 98 N/A N/A
Promenade at Red Cliff, St. George, UT 87,109 92 N/A N/A
Shaw's Supermarket, New Britain, CT 65,658 100 65,658 100
Shops at Park Place, Plano, TX 116,300 100 116,300 100
Shoppes of Prominence Point, Canton, GA 74,208 84 N/A N/A
Stony Creek Market Place, Noblesville, IN 153,803 100 150,727 98
Watauga Pavilion, Watauga, TX 180,941 88 N/A N/A
------------- -------------
6,751,397 779,284
============= =============
As part of the purchase of Darien Towne Centre, CorWest Plaza, La Plaza Del
Norte, Dorman Center - Phase I, Peoria Crossings, Paradise Valley Marketplace,
Best on the Boulevard and Bluebonnet Parc, we are entitled to receive payments
in accordance with a master lease agreement for space, which was not producing
revenue either at the time of or subsequent to the purchase. The master lease
agreement covers rental payments due for periods ranging between three months
and three years from the purchase date or until the space is leased. The
percentage in the table above does not include non-revenue producing space
covered by the master lease agreement. The master lease agreements combined with
the physical occupancy results in an economic occupancy ranging between 71% and
100% at June 30, 2004.
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SUBSEQUENT EVENTS
We paid distributions of $4,317,876 to our stockholders in July 2004.
We issued 15,834,545 shares of common stock from July 1, 2004 through July 31,
2004, resulting in a total of 100,932,985 shares of common stock outstanding. As
of July 31, 2004, subscriptions for a total of 99,943,622 shares were received
resulting in total gross offering proceeds of $999,357,068 and an additional
992,862 shares were issued pursuant to the DRP for $9,432,194 of additional
gross proceeds.
On July 12, 2004, the sponsor repaid a portion of its payable to us in the
amount of $298,262.
We have acquired the following properties during the period July 1 to July 31,
2004. The respective acquisitions are summarized in the table below.
APPROXIMATE GROSS LEASABLE
DATE YEAR PURCHASE PRICE AREA
ACQUIRED PROPERTY BUILT ($) (SQ. FT.) MAJOR TENANTS
-------- -------- ----- --- --------- -------------
07/01/04 Shoppes at Boardwalk 2003/ 36,642,049 122,413 Borders Books
2004
07/02/04 Shoppes of Dallas 2004 13,052,126 70,610 Publix
07/13/04 Wilshire Plaza III 2004 5,750,000 88,248 Kohl's
07/14/04 Cranberry Square 1996-1997 20,219,563 195,566 Dick's Sporting Goods
Toys R Us
Best Buy
Barnes & Noble
Office Max
07/16/04 Dorman Center Phase II 2004 7,081,662 37,200 Shoe Carnival
07/19/04 Tollgate Marketplace 1977/ 72,300,000 393,395 Giant Food
1994 JoAnn Fabrics
Circuit City
Toys R Us
07/21/04 Gateway Plaza 2000 33,025,276 358,193 Kohl's
07/21/04 Gateway Village 1996 49,513,455 273,904 Safeway
Burlington Coat Factory
Best Buy
07/21/04 Towson Circle 1988 28,450,000 116,954 Barnes & Noble
Bally Fitness
07/21/04 Wal-Mart Supercenter 2004 12,935,000 183,211 Walmart SuperCenter
07/22/04 Wrangler Company Western 1993 18,476,792 316,800 Wrangler
Headquarters
07/26/04 Plaza at Marysville 1995 21,266,000 115,656 Safeway
07/27/04 Forks Town Center 2002 18,198,701 87,560 Giant Foods
07/30/04 Academy Sports 2004 5,250,000 60,001 Academy Sports
-149-
The mortgage debt and financings obtained during the period July 1, 2004 to July
31, 2004, are detailed in the list below.
DATE MATURITY PRINCIPAL BORROWED
FUNDED MORTGAGE PAYABLE ANNUAL INTEREST RATE DATE ($)
-------------------------------------------------------------------------------------------------------------------
07/02/04 John's Creek Village 5.100% 08/01/09 23,300,000
07/02/04 Shoppes at Boardwalk 4.130% 07/01/09 20,150,000
07/09/04 Fullerton Metrocenter 5.09% 08/01/09 28,050,000
07/14/04 Northgate North 4.60% 07/01/08 26,650,000
07/16/04 Cranberry Square 4.975% 08/01/09 10,900,000
07/21/04 Gateway Village LIBOR + 1.13% 07/01/09 27,233,000
LIBOR + 2.00% 08/01/05 4,225,000
07/21/04 Tollgate Marketplace LIBOR + 1.20% 06/01/09 39,765,000
07/21/04 Towson Circle 5.10% 07/01/09 15,647,500
LIBOR + 2.00% 08/01/05 3,550,000
07/21/04 Eckerds Drug Stores (4) 5.275% 08/01/09 6,800,000
07/26/04 Wrangler Company Western Headquarters 5.090% 08/01/09 11,300,000
07/27/04 Pine Ridge Plaza 5.085% 08/01/09 14,700,000
07/30/04 Plaza at Marysville 5.085% 08/01/09 11,800,000
We are currently considering acquiring 13 properties for an estimated purchase
price of $501,000,000. Our decision to acquire each property will generally
depend upon no material adverse change occurring relating to the property, the
tenants or in the local economic conditions, and our receipt of satisfactory due
diligence information including appraisals, environmental reports and lease
information prior to purchasing the property. For further information on these
potential property acquisitions and financings, see "Real Property Investments"
included elsewhere in this post-effective amendment.
INFLATION
For our multi-tenant shopping centers, inflation is likely to increase rental
income from leases to new tenants and lease renewals, subject to market
conditions. Our rental income and operating expenses for those properties owned,
or to be owned and operated under triple-net leases, are not likely to be
directly affected by future inflation, since rents are or will be fixed under
the leases, and property expenses are the responsibility of the tenants. The
capital appreciation of triple-net leased properties is likely to be influenced
by interest rate fluctuations. To the extent that inflation determines interest
rates, future inflation may have an effect on the capital appreciation of
triple-net leased properties. As of June 30, 2004, we owned seven single-user
triple-net leased properties.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We may be exposed to interest rate changes primarily as a result of long-term
debt used to maintain liquidity and fund capital expenditures and expansion of
our real estate investment portfolio and operations. Our interest rate risk
management objectives will be to limit the impact of interest rate changes on
earnings and cash flows and to lower its overall borrowing costs. To achieve our
objectives we will borrow primarily at fixed rates or variable rates with the
lowest margins available and in some cases, with the ability to convert variable
rates to fixed rates.
We may use derivative financial instruments to hedge exposures to changes in
interest rates on loans secured by our properties. To the extent we do, we are
exposed to credit risk and market risk. Credit risk is the failure of the
counterparty to perform under the terms of the derivative contract. When the
fair value of a derivative contract is positive, the counterparty owes us, which
creates credit risk for us. When the fair value of a derivative contract is
negative, we owe the
-150-
counterparty and, therefore, it does not possess credit risk. It is our policy
to enter into these transactions with the same party providing the financing,
with the right of offset. In the alternative, we will minimize the credit risk
in derivative instruments by entering into transactions with high-quality
counterparties. Market risk is the adverse effect on the value of a financial
instrument that results from a change in interest rates. The market risk
associated with interest-rate contracts is managed by establishing and
monitoring parameters that limit the types and degree of market risk that may be
undertaken.
During the second quarter 2004, the Company entered into derivative financial
instruments ("treasury contracts") to offset exposures to increases in interest
rates with a notional amount of $95.0 million with yields ranging from 3.85% for
5 year treasury contracts to 4.63% for 10 year treasury contracts and maturities
at various dates in 2004. Amounts required to be on deposit at June 30, 2004 for
these treasury contracts had a cost basis and liquidation value of $2,137,000
and $789,000, respectively. Therefore, the Company recognized a net loss on
these treasury contracts of about $1,348,000 at June 30, 2004. To offset the net
loss recognized on these treasury contracts, we took advantage of the lower
treasury yields which caused the loss on the treasury contracts and secured
permanent financing in the amount of $410,000,000 for pending acquisitions.
With regard to variable rate financing, we assess interest rate cash flow risk
by continually identifying and monitoring changes in interest rate exposures
that may adversely impact expected future cash flows and by evaluating hedging
opportunities. We maintain risk management control systems to monitor interest
rate cash flow risk attributable to both of our outstanding or forecasted debt
obligations as well as our potential offsetting hedge positions. The risk
management control systems involve the use of analytical techniques, including
cash flow sensitivity analysis, to estimate the expected impact of changes in
interest rates on our future cash flows.
While this hedging strategy will have the effect of smoothing out interest rate
fluctuations, the result may be to reduce the overall returns on your
investment.
The fair value of our debt approximates its carrying amount as of June 30, 2004.
Our interest rate risk is monitored using a variety of techniques. The table
below presents the principal amounts and weighted average interest rates by year
and expected maturity to evaluate the expected cash flows and sensitivity to
interest rate changes.
2004 2005 2006 2007 2008 Thereafter
------ ------ ------ ------ -------- ------------
Maturing debt
Fixed rate debt (mortgage
loans) - - - - $ 19,577,000 $ 517,794,295
Variable rate debt (including
line of credit) $ 110,000,000 7,260,000 - - - 44,000,000
Average interest rate on debt:
Fixed rate debt (mortgage
loans) - - - - 4.70% 4.43%
Variable rate debt (including
line of credit) 3.01% 3.83% - - - 2.68%
We have $161,260,000 of variable rate interest averaging 2.96% as of June 30,
2004. An increase in the variable interest rate on this debt constitutes a
market risk. If interest rates increase by 1%, based on debt outstanding as of
June 30, 2004, interest expense increases by $1,612,600 on an annual basis.
-151-
PLAN OF DISTRIBUTION
THE FOLLOWING NEW SUBSECTION IS INSERTED AT THE END OF THIS SECTION ON PAGE 148
OUR PROSPECTUS.
UPDATE
The following table updates shares sold in our offering as of October 7, 2004:
Commission
Gross and fees Net
Shares proceeds ($) ($) (1) proceeds ($)
---------------------------------------------------------------------
From our advisor 20,000 200,000 - 200,000
Our offering dated September 15, 2003: 150,064,893 1,500,518,947 156,894,266 1,363,218,601
Shares sold pursuant to our distribution
reinvestment program 2,041,465 19,393,919 - 19,393,919
---------------------------------------------------------------------
152,126,358 1,520,112,866 156,894,266 1,363,218,600
=====================================================================
(1) Inland Securities Corporation serves as dealer manager of this offering and
is entitled to receive selling commissions and certain other fees, as discussed
further in our prospectus.
On September 8, 2004, we filed a registration statement on Form S-11 to register
an additional 250,000,000 shares of common stock and up to 20,000,000 shares of
our common stock for participants in our distribution reinvestment and share
repurchase program. The registration statement has not been declared effective
by the Securities and Exchange Commission, and there is no assurance when and if
it will be declared effective.
SUBSCRIPTION PROCESS
THE FOLLOWING NEW PARAGRAPH IS INSERTED AT THE END OF THIS SECTION ON PAGE 150
OF OUR PROSPECTUS.
Currently we issue paper stock certificates for all subscriptions for common
stock accepted by us. We also are responsible for all stock books and records
and serve as our own stock transfer agent, processing stock transfers. We are
currently moving to a "book entry" system for our stock records. Under a book
entry system, we would no longer issue paper stock certificates. Using this
system would eliminate the need for safekeeping by you to protect against loss,
theft or destruction of stock certificates. We are currently interviewing firms
to serve as our stock transfer agent. When we hire a third party stock transfer
agent, we may need to modify our distribution reinvestment program and some of
our other stock holding processes. For example, its likely that we will no
longer issue fractional shares. Further it is likely we will ask all
stockholders to remit currently outstanding stock certificates so that they may
be held in book entry form. Therefore, in order to transition into the book
entry form, effective October 1, 2004 we will no longer be issuing stock
certificates for new subscriptions or for shares earned through participation in
the Distribution Reinvestment Program. All shares will be held in book entry
form.
VOLUME DISCOUNTS
THE DISCUSSION UNDER THIS SECTION, WHICH STARTS ON PAGE 152 OF OUR PROSPECTUS,
IS CHANGED IN FULL AND SUPPLEMENTED BY THE FOLLOWING:
Investors making an initial purchase of at least $250,010 of common stock
(25,001 shares) through the same soliciting dealer will receive a reduction of
the reallowable 7.0% selling commission payable in connection with the purchase
of those shares in accordance with the following schedule:
-152-
Amount of Purchaser's Investment Maximum
Amount of Selling -------------------------------- Commission
Volume Discount From To Per Share
------------------------------------------------------------------------------------------------
1% $ 250,010 $ 500,000 6%
2% $ 500,010 $ 1,000,000 5%
3% $ 1,000,010 $ 2,500,000 4%
4% $ 2,500,010 $ 5,000,000 3%
5% $ 5,000,010 $ 10,000,000 2%
6% $ 10,000,010 more than 1%
$ 10,000,000
Any reduction in the amount of the selling commissions in respect of volume
discounts received will be credited to the investor in the form of additional
whole shares or fractional shares. Selling commissions will not be paid on any
such whole shares or fractional shares issued for a volume discount.
Some purchases may be combined for the purpose of qualifying for a volume
discount, and for determining commissions payable to the managing dealer or the
soliciting dealers, so long as all the combined purchases are made through the
same soliciting dealer. Subscriptions made in this offer will be combined with
other subscriptions in this offering for the purposes of computing amounts
invested. Purchases by spouses will also be combined with other purchases by you
and will be combined with other purchases of common stock to be held as a joint
tenant or as tenants-in-common by you with others for purposes of computing
amounts invested. Purchases by entities not required to pay federal income tax
may only be combined with purchases by other entities not required to pay
federal income tax for purposes of computing amounts invested if investment
decision are made by the same person. If the investment decisions are made by in
independent investment advisor, that investment adviser may not have any direct
or indirect beneficial interest in any of the entities not required to pay
federal income tax whose purchases are sought to be combined. You must mark the
"Additional Investment" space on the subscription agreement signature page in
order for purchases to be combined. We are not responsible for failing to
combine purchases if you fail to mark the "Additional Investment" space.
If the subscription agreements for the purchases to be combined are submitted at
the same time, then the additional common stock to be credited to you as a
result of such combined purchases will be credited on a pro rata basis. If the
subscription agreements for the purchases to be combined are not submitted at
the same time, then any additional common stock to be credited as a result of
the combined purchases will be credited to the last component purchase, unless
we are otherwise directed in writing at the time of the submission. However, the
additional common stock to be credited to any entities not required to pay
federal income tax whose purchases are combined for purposes of the volume
discount will be credited only on a pro rata basis based on the amount of the
investment of each entity not required to pay federal income tax and their
combined purchases.
Notwithstanding the preceding paragraphs, you may not receive a discount greater
than 5% on any purchase of shares if you already own, or may be deemed to
already own, any shares. This restriction may limit the amount of the volume
discount available to you after your initial purchase and the amount of
additional shares that you may be credited as a result of the combination of
purchases.
In the case of subsequent investments or combined investments, a volume discount
will be given only on the portion of the subsequent or combined investment that
caused the investment to exceed the breakpoint. For example, if you are
investing $50,000 with us today, but had previously invested $240,000, these
amounts can be combined to reach the $250,010 breakpoint, which will entitle you
to a lower sales commission on your current $50,000 investment.
HOW TO SUBSCRIBE
THE FIRST SENTENCE OF THE THIRD BULLET POINT ON PAGE 157, UNDER THIS HEADING, IS
MODIFIED TO READ AS FOLLOWS:
Deliver a check for the full purchase price of the shares being subscribed for,
payable to "LBNA/Escrow Agent for IWRRETI", along with the completed
subscription agreement to the soliciting dealer.
-153-
RELATIONSHIPS AND RELATED TRANSACTIONS
SUBORDINATED PAYMENTS
THE DISCUSSION UNDER THIS SECTION WHICH STARTS ON PAGE 170 OF OUR PROSPECTUS IS
MODIFIED AND SUPPLEMENTED BY THE FOLLOWING:
TYPE OF COMPENSATION ESTIMATED MAXIMUM
AND RECIPIENT METHOD OF COMPENSATION DOLLAR AMOUNT
------------------------------ ------------------------------------------------ ----------------------------------
OPERATIONAL STAGE
Advisor asset management fee We pay an annual advisor asset management fee The actual amounts to be received
payable to our advisor. of not more than 1% of our average assets. depend upon the sale price of our
Our average assets means the average of the properties and, therefore, cannot
total book value including acquired be determined at the present time.
intangibles of our real estate assets plus the If we acquire the advisor, the
total value of our loans receivables secured advisor asset management fee will
by real estate, before reserves for cease.
depreciation or bad debts or other similar
non-cash reserves. We will compute our
average assets by taking the average of these
values at the end of each month during the
quarter for which we are calculating the fee.
The fee is payable quarterly in an amount equal
to 1/4 of 1% of average assets as of the last
day of the immediately preceding quarter. For
any year in which we qualify as a REIT, our
advisor must reimburse us for the following
amounts if any:
(1) the amounts by which our total operating
expenses, the sum of the advisor asset
management fee plus other operating
expenses, paid during the previous fiscal
year exceed the greater of:
- 2% of our average assets for that
fiscal year, or
- 25% of our net income for that
fiscal year.
(2) plus an amount, which will not exceed the
advisor asset management fee for that year,
equal to any difference between the total
amount of distributions to stockholders for
that year and the 6% annual return on the
net investment of stockholders.
Items such as organization and offering
expenses, property expenses, interest payments,
taxes, non-cash expenditures, the incentive
advisory fee and acquisition expenses are
excluded from the definition of total operating
expenses.
See "Management -- Our Advisory Agreement" for
an explanation of circumstances where the excess
amount specified in clause (1) may not need to
be reimbursed.
-154-
EXPERTS
The following financial statements have been incorporated by reference herein in
reliance upon the reports of KPMG LLP, independent registered public accounting
firm, incorporated by reference herein, and upon the authority of said firm as
experts in accounting and auditing:
- the historical summary of gross income and - the historical summary of gross income and
direct operating expenses of Shops at Park Place direct operating expenses of Peoria Crossing
for the year ended December 31, 2002, for the year ended December 31, 2003,
- the historical summary of gross income and - the historical summary of gross income and
direct operating expenses of Darien Towne Center direct operating expenses of Dorman Centre for
for the year ended December 31, 2002, the year ended December 31, 2003,
- the combined historical summary of gross - the historical summary of gross income and
income and direct operating expenses of direct operating expenses of Heritage Towne
Properties Acquired from Thomas Enterprises for Crossing for the year ended December 31, 2003,
the year ended December 31, 2003,
- the historical summary of gross income and - the historical summary of gross income and
direct operating expenses of Hickory Ridge for direct operating expenses of Paradise Valley
the year ended December 31, 2003, Marketplace for the year ended December 31,
2003,
- the historical summary of gross income and - the historical summary of gross income and
direct operating expenses of CorWest Plaza for direct operating expenses of Best on the
the period from May 29, 2003 through December Boulevard for the year ended December 31, 2003,
31, 2003,
- the historical summary of gross income and - the historical summary of gross income and
direct operating expenses of Metro Square Center direct operating expenses of Bluebonnet Parc
(SuperValue) for the year ended December 31, for the year ended December 31, 2003,
2003,
- the historical summary of gross income and - the historical summary of gross income and
direct operating expenses of Larkspur Landing direct operating expenses of North Rivers Town
for the year ended December 31, 2003, Center for the period of October 1, 2003
(commencement of operations) to December 31,
2003,
- the historical summary of gross income and - the historical summary of gross income and
direct operating expenses of North Ranch direct operating expenses of Arvada
Pavilion for the year ended December 31, 2003, Marketplace and Connection for the year ended
December 31, 2003,
- the historical summary of gross income and - the historical summary of gross income and
direct operating expenses of La Plaza Del Norte direct operating expenses of Eastwood Town
for the year ended December 31, 2003, Center for the year ended December 31, 2003,
- the historical summary of gross income and - the historical summary of gross income and
direct operating expenses of MacArthur Crossing direct operating expenses of Watauga Pavilion
for the year ended December 31, 2003, for the period of August 15, 2003
(commencement of operations) to December 31,
2003,
- the historical summary of gross income and - the historical summary of gross income and
direct operating expenses of Promenade at direct operating expenses of Northpointe
-155-
Red Cliff for the year ended December 31, 2003, Plaza for the year ended December 31, 2003,
- the historical summary of gross income and - the historical summary of gross income and
direct operating expenses of Huebner Oaks Center direct operating expenses of Plaza Santa Fe II
for the year ended December 31, 2003, for the year ended December 31, 2003,
- and the historical summary of gross income
and direct operating expenses of Pine Ridge
Plaza for the year ended December 31, 2003.
The following financial statements have been included herein in reliance upon
the reports of KPMG LLP, independent registered public accounting firm,
appearing elsewhere herein, and upon the authority of said firm as experts in
accounting and auditing:
- the balance sheet of Inland Western Retail - the historical summary of gross income and
Real Estate Trust, Inc. as of June 30, 2003, direct operating expenses of Peoria Station
for the year ended December 31, 2002,
- the consolidated balance sheet of Inland - the historical summary of gross income and
Western Retail Real Estate Trust, Inc. as of direct operating expenses of Lakewood Town
December 31, 2003 and the related consolidated Center for the year ended December 31, 2003,
statements of operations, stockholders' equity
and cash flows for the period from March 5, 2003
(inception) through December 31, 2003 and
related financial statement schedule,
- the historical summary of gross income and - the historical summary of gross income and
direct operating expenses of John's Creek direct operating expenses of Davis Towne
Village for the period from September 21, 2003 Crossing for the period from July 18, 2003
(commencement of operations) to December 31, (commencement of operations) to December 31,
2003, 2003,
- the historical summary of gross income and - the historical summary of gross income and
direct operating expenses of Fullerton direct operating expenses of Cranberry Square
Metrocenter for the year ended December 31, 2003, for the year ended December 31, 2003,
- the historical summary of gross income and - the historical summary of gross income and
direct operating expenses of Northgate North for direct operating expenses of Safeway Plaza at
the year ended December 31, 2003, Marysville for the year ended December 31,
2003,
- the historical summary of gross income and - the historical summary of gross income and
direct operating expenses of Gateway Plaza direct operating expenses of The Shops at
Shopping Center for the year ended December 31, Boardwalk for the period from May 30, 2003
2003, (commencement of operations) to December 31,
2003,
- the historical summary of gross income and - the combined historical summary of gross
direct operating expenses of Forks Town Center income and direct operating expenses of the
for the year ended December 31, 2003, Properties owned by Capital Centre, LLC,
Gateway Village Limited Partnership, Bel Air
Square Joint Venture, Towson Circle Joint
Venture LLP, and Reisterstown Plaza Holdings,
LLC for the
-156-
year ended December 31, 2003,
- the historical summary of gross income and - the historical summary of gross income and
direct operating expenses of Manchester Meadows direct operating expenses of Mitchell Ranch
for the year ended December 31, 2003, Plaza for the period from June 30, 2003
(commencement of operations) to December 31,
2003,
- the historical summary of gross income and - the historical summary of gross income and
direct operating expenses of Governor's direct operating expenses of Saucon Valley
Marketplace for the year ended December 31, 2003, Square for the year ended December 31, 2003,
- the historical summary of gross income and - and the historical summary of gross income
direct operating expenses of The Columns for the and direct operating expenses of Lincoln Park
period from October 8, 2003 (commencement of for the year ended December 31, 2003.
operations) to December 31, 2003,
-157-
APPENDIX A
PRIOR PERFORMANCE TABLES
The following prior performance tables contain information concerning real
estate programs sponsored by affiliates of our advisor which have investment
objectives similar to ours. This information has been summarized in narrative
form under "Prior Performance of Our Affiliates" in the prospectus. The tables
provide information on the performance of a number of programs. You can use the
information to evaluate the experience of our advisor's affiliates as sponsors
of the programs. The inclusion of these tables does not imply that we will make
investments comparable to those reflected in the tables or that investors in our
shares will experience returns comparable to those experienced in the programs
referred to in these tables. If you purchase our shares, you will not acquire
any ownership in any of the programs to which these tables relate. The tables
consist of:
Table I Experience in Raising and Investing Funds
Table II Compensation to IREIC and Affiliates
Table III Operating Results of Prior Programs
Table IV Results of Completed Programs
Table V Sales or Disposals of Properties
Table VI Acquisition of Properties by Programs*
* Our prospective investors may obtain copies of Table VI by contacting Inland
Western Retail Real Estate Advisory Services, Inc., our advisor.
Table VI is included in Part II of the Post Effective Amendment No. 5 to Form
S-11 Registration Statement filed with the Securities and Exchange Commission on
September 15, 2004. Upon written request to us or our advisor, any prospective
investor may obtain, without charge, a copy of Table VI. See also "Where You Can
Find More Information" for information on examining at, or obtaining copies
from, offices of the SEC.
Upon written request, any potential investor may obtain, without charge, the
most recent annual report on Form 10-K filed with the SEC by any public program
sponsored by any of the Inland's affiliated companies which has reported to the
SEC within the last 24 months. For a reasonable fee, the affiliated companies
will provide copies of any exhibits to such annual reports upon request.
Our investment objectives are to: (i) provide regular distributions to
stockholders in amounts which may exceed our taxable income due to the non-cash
nature of depreciation expense and, to such extent, will constitute a tax-
deferred return of capital, but in no event less than 90% of our taxable income,
pursuant to the REIT requirements; (ii) provide a hedge against inflation by
entering into leases which contain clauses for scheduled rent escalations or
participation in the growth of tenant sales, permitting us to increase
distributions and provide capital appreciation; and (iii) preserve stockholders'
capital.
The following programs have investment objectives similar to ours and are
included in the tables. Inland Retail Real Estate Trust, Inc. or IRRETI and
Inland Real Estate Corporation or IREC are two REITs formed primarily to invest
in multi-tenant shopping centers, Inland's Monthly Income Fund, L.P. and Inland
Monthly Income Fund II, L.P. are public real estate limited partnerships formed
primarily to acquire, operate and sell existing residential and commercial real
properties. Inland Mortgage Investors Fund, L.P., Inland Mortgage Investors
Fund-II, L.P. and Inland Mortgage Investors Fund III, L.P. were public real
estate limited partnerships formed primarily to make or acquire loans secured by
mortgages on improved, income producing multifamily residential properties.
A-1
TABLE I
EXPERIENCE IN RAISING AND INVESTING FUNDS
(000's omitted)
Table I is intended to present information on a dollar and percentage basis
showing the experience of Inland Real Estate Investment Corporation ("IREIC"),
of which the Advisor is a wholly owned subsidiary, in raising and investing
funds in prior programs where the offering closed in the three years prior to
December 31, 2003. The table is intended to focus on the dollar amount available
for investment in properties expressed as a percentage of total dollars raised.
Inland Retail Real Estate Trust, Inc. is the only program that closed in the
three years ended December 31, 2003.
Inland Retail
Real Estate
Trust, Inc.
-------------
1 Program
-------------
Dollar amount offered (A) $ 2,500,000
Dollar amount raised (B) 2,223,010 100.00%
Less offering expenses:
Syndication fees (C) 194,194 8.74
Other fees (D) 20,861 .94
Organizational fees - -
Reserves (E) 22,230 1.00
------------- --------
Available for investment $ 1,985,725 89.32%
============= ========
Acquisition costs:
Cash down payments $ 1,340,382
Repayment of indebtedness 543,206
Investment in securities 8,052
-------------
Total acquisition costs $ 1,891,640
=============
Percent leverage 53%
Date offerings commenced (F)
Length of offering (F)
Months to invest 90% of amount available for
investment (measured from beginning of offering) (F)
A-2
TABLE I-(Continued)
EXPERIENCE IN RAISING AND INVESTING FUNDS (A)
NOTES TO TABLE I
(A) This amount does not reflect shares offered for distribution to
stockholders participating in Inland Retail Real Estate Trust Inc.'s
distribution reinvestment program.
(B) These figures are cumulative and are as of December 31, 2003. The dollar
amount raised represents the cash proceeds collected by the program,
including shares sold pursuant to our distribution reinvestment program and
net of shares repurchased pursuant to our share repurchase program.
(C) Syndication fees are paid by the program to an affiliate, Inland Securities
Corporation, or unaffiliated third parties commissions for the sale of
shares. All of these syndication fees were used to pay commissions and
expenses of the offerings.
(D) Other fees are paid by the program to unaffiliated parties and consist
principally of printing, selling and registration costs related to the
offering.
(E) Generally, a working capital reserve is established to fund property
upgrades and future cash flow deficits, if any, among other things.
(F) On February 11, 1999, the program commenced an initial public offering, on
a best effort basis, of 50,000,000 shares of common stock at $10.00 per
share. On February 1, 2001, the program commenced an offering of an
additional 50,000,000 shares at $10.00 per share, on a best efforts basis.
On June 7, 2002, the program commenced an offering of an additional
150,000,000 shares at $10.00 per share, on a best efforts basis. As of
December 31, 2003, substantially all proceeds available for investment from
the offerings were invested in real properties.
A-3
TABLE II
COMPENSATION TO IREIC AND AFFILIATES (A)
(000'S OMITTED)
Table II summarizes the amount and type of compensation paid to Inland Real
Estate Investment Corporation and its affiliates during the three years ended
December 31, 2003 in connection with the prior programs.
Some partnerships acquired their properties from affiliates of our advisor which
had purchased such properties from unaffiliated third parties.
Inland's Inland
Inland Retail Inland Real Monthly Monthly
Real Estate Estate Income Income
Trust, Inc. Corporation Fund, L.P. Fund II, L.P.
------------- ----------- ----------- -------------
Date offering commenced 02/11/99 10/14/94 08/03/87 08/04/88
Dollar amount raised $ 2,223,010 686,602 30,000 25,324
============= =========== =========== =============
Total amounts paid to general partner or
affiliates from proceeds of offerings:
Selling commissions and underwriting fees 194,194(C) 49,869(C) 273(B) 423(B)
Other offering expenses (D) 2,762 2,350 116 230
Acquisition cost and expense 1,725 925 2,550(E) 1,706(E)
============= =========== =========== =============
Dollar amount of cash available from operations
before deducting payments to general partner or
affiliates (F) 264,442 217,142 4,522 3,505
============= =========== =========== =============
Amounts paid to general partner or affiliates
related to operations: (J)
Property management fees (G) 19,526 0 52 49
Advisor asset management fee 20,824 0 0 0
Accounting services 0 0 52 49
Data processing service 0 0 25 24
Legal services 0 0 15 10
Professional services 162 0 0 0
Mortgage servicing fees 495 0 0 0
Acquisition costs expensed 309 0 0 0
Other administrative services 3,303 0 69 51
Dollar amount of property sales and refinancings
before payments to general
partner and affiliates (H):
Cash 0 22,978 34 0
Notes 0 0 0 0
Dollar amounts paid or payable to general partner
or affiliates from sales and
refinancings (I):
Sales commissions 0 0 0 0
Participation in cash distributions 0 0 0 0
A-4
TABLE II
COMPENSATION TO IREIC AND AFFILIATES (A)
NOTES TO TABLE II
(A) The figures in this Table II relating to proceeds of the offerings are
cumulative and are as of December 31, 2003 and the figures relating to cash
available from operations are for the three years ending December 31, 2003.
The dollar amount raised represents the cash proceeds collected by the
partnerships or program. Amounts paid or payable to IREIC or affiliates
from proceeds of the offerings represent payments made or to be made to
IREIC and affiliates from investor capital contributions.
(B) The selling commissions paid to an affiliate is net of amounts which were
in turn paid to third party soliciting dealers.
(C) The selling commissions paid to an affiliate includes amounts which were in
turn paid to third party soliciting dealers.
(D) Consists of legal, accounting, printing and other offering expenses,
including amounts to be paid to Inland Securities Corporation to be used as
incentive compensation to its regional marketing representatives and
amounts for reimbursement of the general partner for marketing, salaries
and direct expenses of its employees while directly engaged in registering
and marketing the Units and other marketing and organization expenses.
(E) Represents acquisition fees paid to IREIC and its affiliates in connection
with the acquisition of properties.
(F) See Note (B) to Table III.
(G) An affiliate provides property management services for all properties
acquired by the partnerships or program. Management fees have not exceeded
4.5% of the gross receipts from the properties managed.
(H) See Table V and Notes thereto regarding sales and disposals of properties.
(I) Real estate sales commissions and participations in cash distributions are
paid or payable to IREIC and/or its affiliates in connection with the sales
of properties in the public partnership programs. Payments of all amounts
shown are subordinated to the receipt by the limited partners of their
original capital investment. See Table V and Notes thereto.
(J) On July 1, 2000, IREC completed the acquisition of Inland Real Estate
Advisory Services, Inc., the former advisor, and Inland Commercial Property
Management, Inc., the former property manager (the "Merger"). Each of these
entities was merged into subsidiaries that are wholly owned by IREC. As a
result of the merger, IREC is now "self-administered." IREC no longer pays
advisory or property management fees or other expenses to affiliates but
instead has hired an internal staff to perform these tasks.
A-5
TABLE III
OPERATING RESULTS OF PRIOR PROGRAMS
Table III presents operating results for programs, the offerings of which closed
during each of the five years ended December 31, 2003. The operating results
consist of:
- The components of taxable income (loss);
- Taxable income or loss from operations and property sales;
- Cash available and source, before and after cash distributions to
investors; and
- Tax and distribution data per $1,000 invested.
Based on the following termination dates of the offerings, only IRRETI is
included in Table III.
- Inland's Monthly Income Fund, L.P. - offering terminated in 1988
- Inland Monthly Income Fund II, L.P. - offering terminated in 1990
- Inland Mortgage Investors Fund, L.P. - offering terminated in 1987
- Inland Mortgage Investors Fund - II, L.P. - offering terminated in 1988
- Inland Mortgage Investors Fund III, L.P. - offering terminated in 1991
- Inland Real Estate Corporation - offering terminated in 1998
A-6
TABLE III
OPERATING RESULTS OF PRIOR PROGRAMS
(000'S OMITTED, EXCEPT FOR AMOUNTS PRESENTED PER $1,000 INVESTED)
INLAND RETAIL REAL ESTATE TRUST INC.
2003 2002 2001 2000 1999
---------- --------- --------- --------- ---------
Gross revenues $ 317,828 116,011 37,755 22,124 6,030
Profit on sale of properties 0 0 0 0 0
Less:
Operating expenses 78,568 27,614 10,178 6,279 1,872
Interest expense 62,349 23,508 9,712 8,127 2,368
Program expenses 22,069 7,998 1,219 905 369
Depreciation & amortization 85,006 29,395 8,653 4,752 1,253
---------- --------- --------- --------- ---------
Net income (loss)-GAAP basis $ 69,836 27,496 7,993 2,061 168
========== ========= ========= ========= =========
Taxable income (loss) (A): 0 0 0 0 0
========== ========= ========= ========= =========
Cash available (deficiency) from
operations (B) 147,403 55,250 17,170 5,366 2,538
Cash available from sales (C) 828 0 0 0 0
---------- --------- --------- --------- ---------
Total cash available before
distributions and special items 148,231 55,250 17,170 5,366 2,538
Less distributions to investors:
From operations 152,888 52,156 15,963 6,099 1,065
From sales and refinancings 0 0 0 0 0
---------- --------- --------- --------- ---------
Cash available after distributions
before special items (4,657) 3,094 1,207 (733) 1,473
Special items: 0 0 0 0 0
---------- --------- --------- --------- ---------
Cash available after distributions and
special items $ (4,657) 3,094 1,207 (733) 1,473
========== ========= ========= ========= =========
Tax data per $1,000 invested (A): 0 0 0 0 0
Distribution data per $1,000 invested:
Cash distributions to investors:
Source (on GAAP basis):
Investment income .83 .83 .81 .77 .72
Source (on cash basis):
Sales 0 0 0 0 0
Operations (D) .83 .83 .81 .77 .72
Percent of properties remaining unsold 100%
==========
A-7
TABLE III--(CONTINUED)
OPERATING RESULTS OF PRIOR PROGRAMS
NOTES TO TABLE III
(A) IRRETI qualified as real estate investment trusts ("REITs") under the
Internal Revenue Code for federal income tax purposes. Since it qualified
for taxation as a REIT, it generally will not be subject to federal income
tax to the extent it distributes its REIT taxable income to its
stockholders. If IRRETI fails to qualify as a REIT in any taxable year, it
will be subject to federal income tax on its taxable income at regular
corporate tax rates. However, even if the program qualifies for taxation as
a REIT, it may be subject to certain state and local taxes on its income
and property and federal income and excise taxes on its undistributed
income.
(B) "Cash Available (Deficiency) from Operations," represents all cash revenues
and funds received by the programs, including but not limited to operating
income less operating expenses, and interest income. These amounts do not
include payments made by the programs from offering proceeds nor do they
include proceeds from sales or refinancings. These amounts also exclude
advances from or repayments to IREIC and affiliates which are disclosed
elsewhere in the table and include principal payments on long-term debt.
For example:
Inland Retail Real Estate Trust Inc.
(000's omitted)
2003 2002 2001 2000 1999
--------------------------------------------------------------
Net cash provided by
operating activities per
the Form 10-K annual
report $ 149,081 55,594 17,427 5,604 2,648
Principal payments on
long-term debt (1,678) (344) (257) (238) (110)
--------------------------------------------------------------
$ 147,403 55,250 17,170 5,366 2,538
==============================================================
(C) See Table V and Notes thereto regarding sales and disposals of properties.
A-8
TABLE III--(CONTINUED)
OPERATING RESULTS OF PRIOR PROGRAMS
NOTES TO TABLE III
(D) Distributions by a REIT to the extent of its current and accumulated
earnings and profits for federal income tax purposes are taxable to
stockholders as ordinary income. Distributions in excess of these earnings
and profits generally are treated as a non-taxable reduction of the
stockholder's basis in the shares to the extent thereof, and thereafter as
taxable gain (a return of capital). These distributions in excess of
earnings and profits will have the effect of deferring taxation of the
amount of the distribution until the sale of the stockholder's shares.
Inland Retail Real Estate Trust, Inc.
2003 2002 2001 2000 1999
--------------------------------------------------------------
% of Distribution representing:
Ordinary income 60.85 62.65 60.49 54.55 22.23
Return of Capital 39.15 37.35 39.51 45.45 77.77
--------------------------------------------------------------
100.00 100.00 100.00 100.00 100.00
==============================================================
A-9
TABLE IV
RESULTS OF COMPLETED PROGRAMS
(000'S OMITTED, EXCEPT FOR AMOUNTS PRESENTED PER $1,000 INVESTED)
Table IV is a summary of operating and disposition results of prior programs
sponsored by affiliates of our advisor, which during the five years ended prior
to December 31, 2003 have sold their properties and either hold notes with
respect to such sales or have liquidated. One program with investment objectives
similar to ours disposed of all of its properties during the five years ended
prior to December 31, 2003.
Inland Mortgage
Program Name Investors Fund, L.P.
-------------------------------------------------------------------------
Dollar amount raised 10,065
Number of properties/loans purchased 15
Date of closing of offering 02/87
Date of first sale of property 12/88
Date of final sale of property 03/99
Tax and distribution data per $1,000 invested (A):
Federal income tax results:
Ordinary income (loss):
Operations 547
Recapture 0
Capital Gain 30
Deferred Gain:
Capital 0
Ordinary 0
Cash distributions to investors (cash basis):
Source (on GAAP basis)
Investment income 624
Return of capital 745
Source (on cash basis)
Sales 745
Operations 624
(A) Data per $1,000 invested is presented as of December 31, 2003. See Table V
and Notes thereto regarding sales and disposals of properties.
A-10
TABLE V
SALES OR DISPOSALS OF PROPERTIES
Table V presents information on the results of the sale or disposals of
properties in programs with investment objectives similar to ours during the
three years ended December 31, 2003. Since January 1, 2001, programs sponsored
by affiliates of our advisor had seven sales transactions. The table provides
certain information to evaluate property performance over the holding period
such as:
- Sales proceeds received by the partnerships in the form of cash down
payments at the time of sale after expenses of sale and secured notes
received at sale;
- Cash invested in properties;
- Cash flow (deficiency) generated by the property;
- Taxable gain (ordinary and total); and
- Terms of notes received at sale.
A-11
TABLE V (CONTINUED)
SALES OR DISPOSALS OF PROPERTIES (A)
(000'S OMITTED)
Cash Selling Adjust.
Received, Commissions Secured Resulting
net of Paid or Mortgage Notes from
Date Date of Closing Payable to at Time of Received Application
Acquired Sale Costs(B) Inland Sale at Sale of GAAP
-------- --------- --------- ----------- ---------- -------- -----------
IREC - Lincoln Park Place 01/24/97 04/17/01 1,314 0 1,050 0 0
IREC - Antioch Plaza 12/95 03/28/02 943 0 875 0 0
IREC - Shorecrest Plaza 07/97 06/12/02 3,107 0 2,978 0 0
IREC - Popeye's 06/97 04/08/03 343 0 0 0 0
IREC - Summit of Park Ridge 12/96 12/24/03 3,578 0 1,600 0 0
IREC - Eagle Country Market 11/97 12/24/03 5,182 0 1,450 0 0
IREC - Eagle Ridge Center 04/99 12/30/03 3,185 0 3,000 0 0
Net Original Partnership
Selling Mortgage Capital
Price Financing Invested (C) Total
------- --------- ------------ -----
IREC - Lincoln Park Place 2,364 0 1,897 1,897
IREC - Antioch Plaza 1,818 875 753 1,628
IREC - Shorecrest Plaza 6,085 2,978 2,947 5,925
IREC - Popeye's 343 0 346 346
IREC - Summit of Park Ridge 5,178 0 5,181 5,181
IREC - Eagle Country Market 6,632 0 6,635 6,635
IREC - Eagle Ridge Center 6,185 0 6,187 6,187
Amount of
Excess (deficiency) of subsidies
property operating included in Total Taxable
cash receipts over cash operating cash Gain (loss) Ordinary Income Capital
expenditures (D) receipts from Sale from Sale Gain (loss)
----------------------- ------------------ ------------- --------------- -----------
IREC - Lincoln Park Place 218 0 467 0 467
IREC - Antioch Plaza 130 0 0(E) 0 0
IREC - Shorecrest Plaza 1,556 0 0(E) 0 0
IREC - Popeye's 241 0 3 0 3
IREC - Summit of Park Ridge 1,399 0 0(E) 0 0
IREC - Eagle Country Market 1,290 0 0(E) 0 0
IREC - Eagle Ridge Center 1,441 0 0(E) 0 0
A-12
TABLE V - (CONTINUED)
SALES OR DISPOSALS OF PROPERTIES
NOTES TO TABLE V
(A) The table includes all sales of properties by the programs with investment
objectives similar to ours during the three years ended December 31, 2003.
All sales have been made to parties unaffiliated with the partnerships.
(B) Consists of cash payments received from the buyers and the assumption of
certain liabilities by the buyers at the date of sale, less expenses of
sale.
(C) Amounts represent the dollar amount raised from the offerings, less sales
commissions and other offering expenses plus additional costs incurred on
the development of the land parcels.
(D) Represents "Cash Available (Deficiency) from Operations (including
subsidies)" as adjusted for applicable "Fixed Asset Additions" through the
year of sale.
(E) For tax purposes, this sale qualified as part of a tax-deferred exchange.
As a result, no taxable gain will be recognized until the replacement
property is disposed of in a subsequent taxable transaction.
A-13
INDEX TO FINANCIAL STATEMENTS
PAGE
INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.:
Consolidated Balance Sheets at June 30, 2004 (unaudited) and December 31, 2003 (audited) F-1
Consolidated Statements of Operations for the three and six months ended June 30, 2004, three months F-3
ended June 30, 2003, and the period from March 5, 2003 (inception) through June 30, 2003
(unaudited)
Consolidated Statement of Stockholders' Equity for the six month period ended June 30, 2004 F-4
(unaudited)
Consolidated Statements of Cash Flows for six months ended June 30, 2004, and the period from March F-5
5, 2003 (inception) to June 30, 2003 (unaudited)
Notes to Consolidated Financial Statements (unaudited) F-7
Pro Forma Consolidated Balance Sheet (unaudited) at June 30, 2004 F-21
Notes to Pro Forma Consolidated Balance Sheet (unaudited) at June 30, 2004 F-23
Pro Forma Consolidated Statement of Operations (unaudited) for the six months ended June 30, 2004 F-25
Notes to Pro Forma Consolidated Statement of Operations (unaudited) for the six months ended June F-27
30, 2004
Pro Forma Consolidated Statements of Operations (unaudited) for the year ended December 31, 2003 F-30
Notes to Pro Forma Consolidated Statements of Operations (unaudited) for December 31, 2003 F-32
JOHN'S CREEK VILLAGE:
(a) Report of Independent Registered Public Accounting Firm F-36
(b) Historical Summary of Gross Income and Direct Operating Expenses for the period from September F-37
21, 2003 (commencement of operations) to December 31, 2003 and the six months ended June 30,
2004 (unaudited)
(c) Notes to Historical Summary of Gross Income and Direct Operating Expenses for the period from
September 21, 2003 (commencement of operations) to December 31, 2003 and the six months
ended June 30, 2004 (unaudited)
LAKEWOOD TOWN CENTER
(a) Report of Independent Registered Public Accounting Firm F-40
(b) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December F-41
31, 2003 and the six months ended June 30, 2004 (unaudited)
(c) Notes to Historical Summary of Gross Income and Direct Operating Expenses for the year ended F-42
December 31, 2003 and the six months ended June 30, 2004 (unaudited)
F-i
PAGE
FULLERTON METROCENTER:
(a) Report of Independent Registered Public Accounting Firm F-44
(b) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December F-45
31, 2003 and the six months ended June 30, 2004 (unaudited)
(c) Notes to Historical Summary of Gross Income and Direct Operating Expenses for the year ended F-46
December 31, 2003 and the six months ended June 30, 2004 (unaudited)
DAVIS TOWNE CROSSING:
(a) Report of Independent Registered Public Accounting Firm F-48
(b) Historical Summary of Gross Income and Direct Operating Expenses for the period from July 18, F-49
2003 (commencement of operations) to December 31, 2003 and the six months ended June 30,
2004 (unaudited)
(c) Notes to Historical Summary of Gross Income and Direct Operating Expenses for the period from F-50
July 18, 2003 (commencement of operations) to December 31, 2003 and the six months ended
June 30, 2004 (unaudited)
NORTHGATE NORTH:
(a) Report of Independent Registered Public Accounting Firm F-52
(b) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December F-53
31, 2003 and the six months ended June 30, 2004 (unaudited)
(c) Notes to Historical Summary of Gross Income and Direct Operating Expenses for the year ended F-54
December 31, 2003 and the six months ended June 30, 2004 (unaudited)
CRANBERRY SQUARE:
(a) Report of Independent Registered Public Accounting Firm F-56
(b) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December F-57
31, 2003 and the six months ended June 30, 2004 (unaudited)
(c) Notes to Historical Summary of Gross Income and Direct Operating Expenses for the year ended F-58
December 31, 2003 and the six months ended June 30, 2004 (unaudited)
GATEWAY PLAZA SHOPPING CENTER:
(a) Report of Independent Registered Public Accounting Firm F-60
(b) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December F-61
31, 2003 and the six months ended June 30, 2004 (unaudited)
(c) Notes to Historical Summary of Gross Income and Direct Operating Expenses for the year ended F-62
December 31, 2003 and the six months ended June 30, 2004 (unaudited)
F-ii
PAGE
SAFEWAY PLAZA AT MARYSVILLE:
(a) Report of Independent Registered Public Accounting Firm F-64
(b) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December F-65
31, 2003 and the six months ended June 30, 2004 (unaudited)
(c) Notes to Historical Summary of Gross Income and Direct Operating Expenses for the year ended F-66
December 31, 2003 and the six months ended June 30, 2004 (unaudited)
FORKS TOWN CENTER:
(a) Report of Independent Registered Public Accounting Firm F-68
(b) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December F-69
31, 2003 and the six months ended June 30, 2004 (unaudited)
(c) Notes to Historical Summary of Gross Income and Direct Operating Expenses for the year ended F-70
December 31, 2003 and the six months ended June 30, 2004 (unaudited)
CAPITAL CENTRE, LLC, GATEWAY VILLAGE LIMITED PARTNERSHIP, BEL AIR SQUARE JOINT VENTURE, TOWSON
CIRCLE JOINT VENTURE LLP AND REISTERSTOWN PLAZA HOLDINGS, LLC:
(a) Report of Independent Registered Public Accounting Firm F-72
(b) Combined Historical Summary of Gross Income and Direct Operating Expenses for the year ended F-73
December 31, 2003 and the six months ended June 30, 2004 (unaudited)
(c) Notes to the Combined Historical Summary of Gross Income and Direct Operating Expenses for the F-74
year ended December 31, 2003 and the six months ended June 30, 2004 (unaudited)
THE SHOPS AT BOARDWALK:
(a) Report of Independent Registered Public Accounting Firm F-77
(b) Historical Summary of Gross Income and Direct Operating Expenses for the period from May 30, F-78
2003 (commencement of operations) to December 31, 2003 and the six months ended June 30,
2004 (unaudited)
(c) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the period F-79
from May 30, 2003 (commencement of operations) to December 31, 2003 and the six months
ended June 30, 2004 (unaudited)
MANCHESTER MEADOWS:
(a) Report of Independent Registered Public Accounting Firm F-81
(b) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December F-82
31, 2003 and the six months ended June 30, 2004 (unaudited)
(c) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the year F-83
ended December 31, 2003 and the six months ended June 30, 2004 (unaudited)
F-iii
PAGE
GOVERNOR'S MARKETPLACE:
(a) Report of Independent Registered Public Accounting Firm F-85
(b) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December F-86
31, 2003 and the six months ended June 30, 2004 (unaudited)
(c) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the year F-87
ended December 31, 2003 and the six months ended June 30, 2004 (unaudited)
MITCHELL RANCH PLAZA:
(a) Report of Independent Registered Public Accounting Firm F-89
(b) Historical Summary of Gross Income and Direct Operating Expenses for the period from June 30, F-90
2003 (commencement of operations) to December 31, 2003 and the six months ended June 30,
2004 (unaudited)
(c) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the period F-91
from June 30, 2003 (commencement of operations) to December 31, 2003 and the six months
ended June 30, 2004 (unaudited)
THE COLUMNS:
(a) Report of Independent Registered Public Accounting Firm F-93
(b) Historical Summary of Gross Income and Direct Operating Expenses for the period from October 8, F-94
2003 (commencement of operations) to December 31, 2003 and the six months ended June 30,
2004 (unaudited)
(c) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the period F-95
from October 8, 2003 (commencement of operations) to December 31, 2003 and the six months
ended June 30, 2004 (unaudited)
SAUCON VALLEY SQUARE:
(a) Report of Independent Registered Public Accounting Firm F-97
(b) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December F-98
31, 2003 and the six months ended June 30, 2004 (unaudited)
(c) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the year F-99
ended December 31, 2003 and the six months ended June 30, 2004 (unaudited)
LINCOLN PARK:
(a) Report of Independent Registered Public Accounting Firm F-101
(b) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December F-102
31, 2003 and the six months ended June 30, 2004 (unaudited)
(c) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the year F-103
ended December 31, 2003 and the six months ended June 30, 2004 (unaudited)
F-iv
PAGE
SHOPPES AT PROMINENCE POINT:
(a) Historical Summary of Gross Income and Direct Operating Expenses for the period from March 1, F-105
2004 (commencement of operations) to June 30, 2004 (unaudited)
(b) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the period F-106
from March 1, 2004 (commencement of operations) to June 30, 2004 (unaudited)
LOW COUNTRY VILLAGE:
(a) Historical Summary of Gross Income and Direct Operating Expenses for the period from February F-107
1, 2004 (commencement of operations) to June 30, 2004 (unaudited)
(b) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the period F-108
from February 1, 2004 (commencement of operations) to June 30, 2004 (unaudited)
SHOPPES AT DALLAS:
(a) Historical Summary of Gross Income and Direct Operating Expenses for the period from March 1, F-109
2004 (commencement of operations) to June 30, 2004 (unaudited)
(b) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the period F-110
from March 1, 2004 (commencement of operations) to June 30, 2004 (unaudited)
DORMAN CENTRE - PHASE II:
(a) Historical Summary of Gross Income and Direct Operating Expenses for the period from March 15, F-111
2004 (commencement of operations) to June 30, 2004 (unaudited)
(b) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the period F-112
from March 15, 2004 (commencement of operations) to June 30, 2004 (unaudited)
VILLAGE SHOPPES AT SIMONTON:
(a) Historical Summary of Gross Income and Direct Operating Expenses for the period from May 1, F-113
2004 (commencement of operations) to June 30, 2004 (unaudited)
(b) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the period F-114
from May 1, 2004 (commencement of operations) to June 30, 2004 (unaudited)
HARVEST TOWN CENTER:
(a) Historical Summary of Gross Income and Direct Operating Expenses for the year ended December F-115
31, 2003 and the six months ended June 30, 2004 (unaudited)
(b) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the year F-116
ended December 31, 2003 and the six months ended June 30, 2004 (unaudited)
BED, BATH & BEYOND PLAZA:
(c) Historical Summary of Gross Income and Direct Operating Expenses for the period from March 3, F-117
2004 (commencement of operations) to June 30, 2004 (unaudited)
(d) Notes to the Historical Summary of Gross Income and Direct Operating Expenses for the period F-118
from March 3, 2004 (commencement of operations) to June 30, 2004 (unaudited)
F-v
PAGE
INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.:
(a) Report of Independent Registered Public Accounting Firm F-119
(b) Consolidated Balance Sheet at December 31, 2003 (audited) F-120
(c) Consolidated Statement of Operations for the period from March 5, 2003 (inception) through
December 31, 2003 (audited) F-122
(d) Consolidated Statement of Stockholders' Equity for the period from March 5, 2003 (inception) to
December 31, 2003 (audited) F-123
(e) Consolidated Statement of Cash Flows for the period from March 5, 2003 (inception) to December
31, 2003 (audited) F-124
(f) Notes to Consolidated Financial Statements (audited) F-126
F-vi
INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
(A Maryland Corporation)
Consolidated Balance Sheets
June 30, 2004 and December 31, 2003
ASSETS
June 30, 2004
(unaudited) December 31, 2003
--------------- -----------------
Investment properties:
Land $ 271,843,244 $ 36,280,244
Building and other improvements 901,659,236 86,439,670
--------------- ----------------
1,173,502,480 122,719,914
Less accumulated depreciation (7,634,235) (140,497)
--------------- -----------------
Net investment properties 1,165,868,245 122,579,417
Cash and cash equivalents (including cash held by management company of
$3,748,091 and $238,878 as of June 30, 2004 and December 31, 2003,
respectively) 126,897,006 64,381,134
Restricted cash (Note 2) 40,445,609 -
Investment in marketable securities 1,047,708 -
Investment in treasury contracts 788,873
Restricted escrows 643,085 -
Accounts and rents receivable (net of allowance of $33,047
and $0 as of June 30, 2004 and December 31, 2003,
respectively) 6,292,894 1,147,551
Due from affiliates 1,553,689 918,750
Note receivable 15,600,975 7,552,155
Acquired in-place lease intangibles (net of accumulated amortization of
$2,345,767 and $51,773 as of June 30, 2004 and December 31, 2003,
respectively) 94,495,448 8,753,908
Acquired above market lease intangibles (net of accumulated amortization of
$818,404 and $5,227 as of June 30, 2004 and December 31, 2003,
respectively) 24,296,377 1,590,446
Loan fees (net of accumulated amortization of $665,087 and $24,835 as of June
30, 2004 and December 31, 2003, respectively) 3,474,737 1,434,160
Other assets 51,021,601 3,744,642
--------------- -----------------
Total assets $ 1,532,426,247 $ 212,102,163
=============== =================
See accompanying notes to consolidated financial statements.
F-1
INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
(A Maryland Corporation)
Consolidated Balance Sheets
(continued)
June 30, 2004 and December 31, 2003
LIABILITIES AND STOCKHOLDERS' EQUITY
June 30, 2004
(Unaudited) December 31, 2003
--------------- -----------------
Liabilities:
Accounts payable $ 2,079,367 $ 150,332
Accrued offering costs due to affiliates 468,907 1,369,366
Accrued interest payable 1,088,198 -
Tenant improvements payable 2,042,004 4,845
Accrued real estate taxes 5,833,125 1,392,069
Distributions payable 4,317,876 927,539
Security deposits 1,271,174 108,189
Mortgages 588,631,295 29,627,000
Line of credit 110,000,000 5,000,000
Prepaid rental income and other liabilities 2,435,385 178,676
Advances from sponsor 1,253,477 1,202,519
Acquired below market lease intangibles (net of accumulated
amortization of $917,999 and $15,386 as of June 30, 2004
and December 31, 2003, respectively) 49,259,626 5,910,413
Restricted cash liability (Note 2) 19,996,787 -
Due to affiliates 318,000 2,502,436
--------------- -----------------
Total liabilities 788,995,221 48,373,384
--------------- -----------------
Stockholders' equity:
Preferred stock, $.001 par value, 10,000,000 shares
authorized, none outstanding - -
Common stock, $.001 par value, 250,000,000 shares
authorized, 85,098,440 and 18,737,141 shares issued and
outstanding as of June 30, 2004 and December 31, 2003,
respectively 85,098 18,737
Additional paid-in capital (net of offering costs of
$93,674,110 and $22,144,814 as of June 30, 2004 and
December 31, 2003, respectively, of which $70,096,693 and
$16,859,779 was paid or accrued to affiliates as of June 30,
2004 and December 31, 2003, respectively) 759,254,752 165,168,650
Accumulated distributions in excess of net income/(loss) (15,956,532) (1,458,608)
Accumulated other comprehensive income 47,708 -
--------------- -----------------
Total stockholders' equity 743,431,026 163,728,779
--------------- -----------------
Commitments and contingencies (Note 11)
Total liabilities and stockholders' equity $ 1,532,426,247 $ 212,102,163
=============== =================
See accompanying notes to consolidated financial statements.
F-2
INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
(A Maryland Corporation)
Consolidated Statements of Operations
For the three and six months ended June 30, 2004, three months ended June 30,
2003 and the period from March 5, 2003 (inception) through June 30, 2003
(unaudited)
Period from
March 5, 2003
Three months Three months Six months (inception)
ended ended ended through
June 30, 2004 June 30, 2003 June 30, 2004 June 30, 2003
------------- ------------- ------------- --------------
Income:
Rental income, including above and
below market lease costs $ 15,332,713 - $ 22,885,718 -
Real estate tax recovery income 1,710,281 - 2,617,011 -
Common area costs recovery income 2,341,231 - 3,182,289 -
Additional rental income 290,189 - 295,509 -
Other income 14,709 - 15,939 -
Interest income 246,855 - 456,462 -
---------------------------------------------------------------------
Total income 19,935,978 - 29,452,928 -
---------------------------------------------------------------------
Expenses:
Professional services 99,714 - 156,130 -
General and administrative expenses
to affiliates 348,133 450 784,142 2,250
General and administrative expenses
to non-affiliates 73,053 - 373,995 7,500
Property operating expenses to
affiliates 740,857 - 1,154,272 -
Property operating expenses to non-
affiliates 1,876,074 - 2,496,063 -
Real estate taxes 2,026,543 - 3,014,011 -
Interest 5,798,856 - 8,357,449 -
Depreciation 4,894,432 - 7,493,738 -
Amortization 1,841,033 - 2,934,613 -
Acquisition cost expenses to
affiliates 16,720 - 70,089 -
Acquisition cost expenses to
non-affiliates 109,190 - 471,285 -
---------------------------------------------------------------------
Total expenses 17,824,605 450 27,305,787 9,750
---------------------------------------------------------------------
Net income (loss) $ 2,111,373 $ (450) $ 2,147,141 $ (9,750)
=====================================================================
Other comprehensive income:
Unrealized gain on investment securities 47,708 - 47,708 -
---------------------------------------------------------------------
Comprehensive income (loss) $ 2,159,081 $ (450) $ 2,194,849 $ (9,750)
=====================================================================
Net income(loss) per common share, basic
and diluted $ .04 $ (.02) $ .04 $ (.49)
=====================================================================
Weighted average number of common shares
outstanding, basic and diluted 59,688,094 20,000 48,805,229 20,000
=====================================================================
See accompanying notes to consolidated financial statements
F-3
INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
(A Maryland Corporation)
Consolidated Statement of Stockholders' Equity
For the six month period ended June 30, 2004
(unaudited)
ACCUMULATED
DISTRIBUTIONS ACCUMULATED
ADDITIONAL IN EXCESS OF OTHER
NUMBER OF COMMON PAID-IN NET INCOME COMPREHENSIVE
SHARES STOCK CAPITAL (LOSS) INCOME TOTAL
------------ ------------ ------------- ------------- ------------- -------------
Balance at December 31, 2003 18,737,141 $ 18,737 $ 165,168,650 $ (1,458,608) $ - $ 163,728,779
Net income - - - 2,147,141 - 2,147,141
Unrealized gain on investment securities - - - - 47,708 47,708
Distributions declared - - - (16,645,065) - (16,645,065)
Proceeds from offering 65,632,103 65,632 655,981,999 - - 656,047,631
Offering costs - - (71,529,296) - - (71,529,296)
Proceeds from dividend reinvestment
program 729,196 729 6,926,631 - - 6,927,360
Forgiveness of affiliate debt 2,369,139 2,369,139
Issuance of stock options and discounts
on shares issued to affiliates - - 337,629 - - 337,629
------------ ------------ ------------- ------------ ------------ ------------
Balance at June 30, 2004 85,098,440 $ 85,098 $ 759,254,752 (15,956,532) $ 47,708 $ 743,431,026
============ ============ ============= ============ ============ =============
See accompanying notes to consolidated financial statements.
F-4
INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
(A Maryland Corporation)
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the six months ended June 30, 2004, and the period from March 5, 2003
(inception) through June 30, 2003.
(unaudited)
Period from
March 5, 2003
Six months (inception)
ended through
June 30, 2004 June 30, 2003
----------------- -----------------
Cash flows from operations:
Net income (loss) $ 2,147,141 $ (9,750)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation 7,493,738 -
Amortization 2,934,613 -
Amortization of acquired above market leases 813,177 -
Amortization of acquired below market leases (902,613) -
Rental income under master leases 363,940 -
Straight line rental income (752,757) -
Issuance of stock options and discount on shares
issued to affiliates 337,629 2,250
Realized loss on sale of treasury contracts 1,346,502
Changes in assets and liabilities:
Accounts and rents receivable net of change in
allowance of $33,047 and $0 for June 30, 2004 and
June 30, 2003, respectively. (4,392,586) -
Other assets (1,614,964) -
Accounts payable 1,372,477 -
Accrued interest payable 1,088,198 -
Accrued real estate taxes 2,042,475 -
Security deposits 1,162,985 -
Prepaid rental and recovery income and other
liabilities 2,256,709 7,500
----------------- -----------------
Net cash flows provided by operating activities 15,696,664 -
----------------- -----------------
Cash flows used in investing activities:
Purchase of investment securities and treasury
contracts (3,135,375) -
Restricted escrows (643,085) -
Purchase of investment properties (1,023,122,692) -
Payment of leasing fees (22,200)
Tenant improvements payable 1,515,802 -
Acquired above market leases (23,519,108) -
Acquired in-place lease intangibles (88,035,534) -
Acquired below market leases 44,251,826 -
Other assets (38,167,012) -
Funding of note receivable (15,600,975) -
Due to affiliate (2,184,436) -
----------------- -----------------
Net cash flows used in investing activities (1,148,662,789) -
----------------- -----------------
See accompanying notes to financial statements
F-5
INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
(A Maryland Corporation)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(continued)
For the six months ended June 30, 2004, and the period from March 5, 2003
(inception) through June 30, 2003.
(unaudited)
Period from
March 5,2003
(inception)
Six months ended through
June 30, 2004 June 30, 2003
----------------- -----------------
Cash flows from financing activities:
Proceeds from offering 658,416,770 200,000
Proceeds from the dividend reinvestment program 6,927,360 -
Payment of offering costs (71,873,197) -
Proceeds from mortgage debt 541,452,574 -
Proceeds from unsecured line of credit 105,000,000 -
Restricted cash collateral (20,448,822) -
Loan fees and deposits (10,153,979) -
Distributions paid (13,254,728) -
Due from affiliates 1,785,158 -
Forgiveness of affiliate debt (2,369,139) -
----------------- -----------------
Net cash flows provided by financing activities 1,195,481,997 200,000
----------------- -----------------
Net increase in cash and cash equivalents 62,515,872 200,000
Cash and cash equivalents, at beginning of period 64,381,134 -
----------------- -----------------
Cash and cash equivalents, at end of period $ 126,897,006 $ 200,000
================= =================
Supplemental disclosure of cash flow information:
Cash paid for interest $ 5,922,749 $ -
================= =================
Restricted cash $ (19,996,787) $ -
Restricted cash liability 19,996,787 -
================= =================
Supplemental schedule of non-cash investing and
financing activities:
Purchase of investment properties $ (1,051,146,506) $ -
Assumption of mortgage debt 17,551,721 -
Write-off of acquisition reserve 521,357 -
Purchase price adjustments 2,398,581 -
Conversion of mortgage receivable to investment property 7,552,155 -
------------------ -----------------
$ (1,023,122,692) $ -
================= =================
Distributions payable $ 4,317,876 $ -
================= =================
Accrued offering costs payable $ 1,025,465 $ 691,911
================= =================
See accompanying notes to financial statements
F-6
INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
(A Maryland Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Organization
Inland Western Retail Real Estate Trust, Inc. (the "Company") was formed on
March 5, 2003 to acquire and manage a diversified portfolio of real estate,
primarily multi-tenant shopping centers. The Advisory Agreement provides for
Inland Western Retail Real Estate Advisory Services, Inc. (the "Advisor"), an
Affiliate of the Company, to be the Advisor to the Company. On September 15,
2003, the Company commenced an initial public offering of up to 250,000,000
shares of common stock at $10 each and the issuance of 20,000,000 shares at
$9.50 each which may be distributed pursuant to the Company's distribution
reinvestment program.
The Company is qualified and has elected to be taxed as a real estate investment
trust ("REIT") under the Internal Revenue Code of 1986, as amended, for federal
income tax purposes commencing with the tax year ending December 31, 2003. Since
the Company qualifies for taxation as a REIT, the Company generally will not be
subject to federal income tax to the extent it distributes at least 90% of its
REIT taxable income to its stockholders. If the Company fails to qualify as a
REIT in any taxable year, the Company will be subject to federal income tax on
its taxable income at regular corporate tax rates. Even if the Company qualifies
for taxation as a REIT, the Company may be subject to certain state and local
taxes on its income and property and federal income and excise taxes on its
undistributed income.
The Company provides the following programs to facilitate investment in the
Company's shares and to provide limited liquidity for stockholders.
The Company allows stockholders who purchase shares in the offering to purchase
additional shares from the Company by automatically reinvesting distributions
through the distribution reinvestment program ("DRP"), subject to certain share
ownership restrictions. Such purchases under the DRP are not subject to selling
commissions or the marketing contribution and due diligence expense allowance,
and are made at a price of $9.50 per share.
The Company will repurchase shares under the share repurchase program ("SRP"),
if requested, at least once quarterly on a first-come, first-served basis,
subject to certain restrictions. Subject to funds being available, the Company
will limit the number of shares repurchased during any calendar year to 5% of
the weighted average number of shares outstanding during the prior calendar
year. Funding for the SRP will come exclusively from proceeds that the Company
receives from the sale of shares under the DRP and such other operating funds,
if any, as the Company's board of directors, at its sole discretion, may reserve
for this purpose. The board, at its sole discretion, may choose to terminate the
share repurchase program after the end of the offering period, or reduce the
number of shares purchased under the program, if it determines that the funds
allocated to the SRP are needed for other purposes, such as the acquisition,
maintenance or repair of properties, or for use in making a declared
distribution. A determination by the board to eliminate or reduce the share
repurchase program will require the unanimous affirmative vote of the
independent directors. As of June 30, 2004, no shares have been repurchased by
the Company.
The accompanying consolidated financial statements include the accounts of the
Company, as well as all wholly owned subsidiaries. Wholly owned subsidiaries
generally consist of limited liability companies ("LLC's"). The effects of all
significant intercompany transactions have been eliminated.
F-7
INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
(A Maryland Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
(2) Summary of Significant Accounting Policies
The accompanying consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in the United States of
America ("GAAP") for interim financial information and with the instructions to
Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all
of the information and footnotes required by accounting principles generally
accepted in the United States of America for complete financial statements.
Readers of this Quarterly Report should refer to the audited financial
statements of Inland Western Retail Real Estate Trust, Inc. for the fiscal year
ended December 31, 2003, which are included in the Company's 2003 Annual Report,
as certain footnote disclosures contained in such audited financial statements
have been omitted from this Report.
Certain reclassifications have been made to the 2003 financial statements to
conform to the 2004 presentations.
The Company classifies its investment in securities in one of three categories:
trading, available-for-sale, or held-to-maturity. Trading securities are bought
and held principally for the purpose of selling them in the near term.
Held-to-maturity securities are those securities in which the Company has the
ability and intent to hold the security until maturity. All securities not
included in trading or held-to-maturity are classified as available for sale.
Investment in securities at June 30, 2004 consists of common stock investments
and is classified as available-for-sale securities and is recorded at fair
value. Unrealized holding gains and losses on available-for-sale securities are
excluded from earning and reported as a separate component of other
comprehensive income until realized. Realized gains and losses from the sale of
available-for-sale securities are determined on a specific identification basis.
A decline in the market value of any available-for-sale security below cost that
is deemed to be other than temporary, results in a reduction in the carrying
amount to fair value. The impairment is charged to earnings and a new costs
basis for the security is established. To determine whether an impairment is
other than temporary, the Company considers whether it has the ability and
intent to hold the investment until a market price recovery and considers
whether evidence indicating the cost of the investment is recoverable outweighs
evidence to the contrary. Evidence considered in this assessment includes the
reasons for the impairment, the severity and duration of the impairment, changes
in value subsequent to year end and forecasted performance of the investee. Of
the investment securities held on June 30, 2004, the Company has accumulated
other comprehensive income of $47,708. The Company considers all highly liquid
investments purchased with a maturity of three months or less to be cash
equivalents and are carried at cost, which approximates market.
The Company enters into interest rate futures contracts or treasury contracts as
a means of reducing our exposure to rising interest rates. At inception,
contracts are evaluated in order to determine if they will qualify for hedge
accounting treatment and will be accounted for either on a deferral, accrual or
market value basis depending on the nature of our hedge strategy and the method
used to account for the hedged item. Hedge criteria include demonstrating the
manner in which the hedge will reduce risk, identifying the specific asset,
liability or firm commitment being hedged, and citing the time horizon being
hedged.
During the second quarter of 2004, the Company entered into treasury contracts
with a futures commission merchant with a total notional amount of $95.0 million
with yields ranging from 3.85% for 5 year treasury contracts to 4.63% for 10
year treasury contracts and maturities at various dates in 2004. The amount
required to be on deposit at June 30, 2004 for these treasury contracts had a
cost basis and liquidation value of $2,137,000 and $789,000, respectively. As
these treasury contracts are not offsetting future commitments and therefore do
not qualify as hedges, the net loss of approximately $1,348,000 at June 30, 2004
is recognized currently in earnings and is included in interest expense in the
Consolidated Statement of Operations.
F-8
INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
(A Maryland Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
The Company allocates the purchase price of each acquired investment property
between land, building and improvements, acquired above market and below market
leases, in-place lease value, and any assumed financing that is determined to be
above or below market terms. In addition, we allocate a portion of the purchase
price to the value of the customer relationships and as of June 30, 2004, no
cost has been allocated to such relationships. The allocation of the purchase
price is an area that requires judgment and significant estimates. The Company
uses the information contained in the independent appraisal obtained at
acquisition as the primary basis for the allocation to land and building and
improvements. The aggregate value of intangibles is measured based on the
difference between the stated price and the property value calculated as if
vacant. The Company determines whether any financing assumed is above or below
market based upon comparison to similar financing terms for similar investment
properties. The Company also allocates a portion of the purchase price to the
estimated acquired in-place lease costs based on estimated lease execution costs
for similar leases as well as lost rent payments during assumed lease-up period
when calculating as if vacant fair values. The Company considers various factors
including geographic location and size of leased space. The Company also
evaluates each acquired lease based upon current market rates at the acquisition
date and considers various factors including geographical location, size and
location of leased space within the investment property, tenant profile, and the
credit risk of the tenant in determining whether the acquired lease is above or
below market lease costs. After an acquired lease is determined to be above or
below market lease costs, the Company allocates a portion of the purchase price
to such above or below acquired lease costs based upon the present value of the
difference between the contractual lease rate and the estimated market rate. The
determination of the discount rate used in the present value calculation is
based upon the "risk free rate." This discount rate is a significant factor in
determining the market valuation which requires the Company's judgment of
subjective factors such as market knowledge, economics, demographics, location,
visibility, age and physical condition of the property.
The application of SFAS 141 and SFAS 142 resulted in the recognition upon
acquisition of additional intangible assets and liabilities relating to real
estate acquisitions during the quarter ended June 30, 2004. The portion of the
purchase price allocated to acquired above market lease costs and acquired below
market lease costs are amortized on a straight line basis over the life of the
related lease as an adjustment to rental income. Amortization pertaining to the
above market lease costs of $475,574 was applied as a reduction to rental income
for the three months ended June 30, 2004 and $813,177 for the six months ended
June 30, 2004. Amortization pertaining to the below market lease costs of
$545,784 was applied as an increase to rental income for the three months ended
June 30, 2004 and $902,613 for the six months ended June 30, 2004.
The portion of the purchase price allocated to acquired in-place lease
intangibles is amortized on a straight line basis over the life of the related
lease. The Company incurred amortization expense pertaining to acquired in-place
lease intangibles of $1,495,955 for the three month period ended June 30, 2004
and $2,293,994 for the six month period ended June 30, 2004.
The table below presents the amortization during the next five years related to
the acquired above market lease costs and the below market lease costs for
properties owned at June 30, 2004.
F-9
INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
(A Maryland Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
July 1, 2004
through
December 31,
Amortization of: 2004 2005 2006 2007 2008 Thereafter
------------- ---------- ---------- ---------- ---------- -----------
Acquired above
market lease costs $ (1,469,181) (2,938,359) (2,885,842) (2,119,421) (1,980,185) (12,903,389)
Acquired below
market lease costs 2,823,964 5,471,188 5,065,985 4,646,973 4,096,500 27,155,016
--------------------------------------------------------------------------------------------------
Net rental income
increase $ 1,354,783 2,532,829 2,180,143 2,527,552 2,116,315 14,251,627
==================================================================================================
Acquired in-place lease
intangibles $ (4,842,059) (9,684,122) (9,684,122) (9,684,122) (9,684,122) (50,916,901)
In conjunction with certain acquisitions, the Company receives payments under
master lease agreements pertaining to certain, non-revenue producing spaces
either at the time of, or subsequent to, the purchase of some of the Company's
properties. Upon receipt of the payments, the receipts are recorded as a
reduction in the purchase price of the related properties rather than as rental
income. These master leases were established at the time of purchase in order to
mitigate the potential negative effects of loss of rent and expense
reimbursements. Master lease payments are received through a draw of funds
escrowed at the time of purchase and may cover a period from one to three years.
These funds may be released to either the Company or the seller when certain
leasing conditions are met. Restricted cash includes funds received by third
party escrow agents, from sellers, pertaining to master lease agreements and the
line of credit cash collateral account (see Note 8). The Company records the
third party escrow funds as both an asset and a corresponding liability, until
certain leasing conditions are met.
The Company accrues lease termination income if there is a signed termination
agreement, all of the conditions of the agreement have been met, and the tenant
is no longer occupying the property.
Restricted escrows primarily consist of lenders' restricted escrows and earnout
escrows. Earnout escrows are established upon the acquisition of certain
investment properties for which the funds may be released to the seller when
certain leasing conditions have been met.
Notes receivable relate to real estate financing arrangements and bear interest
at a market rate based on the borrower's credit quality and are recorded at face
value. Interest is recognized over the life of the note. The Company requires
collateral for the notes.
F-10
INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
(A Maryland Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
A note is considered impaired pursuant to Financial Accounting Standards Board's
Statement of Financial Accounting Standards or SFAS No. 114, Accounting by
Creditors for Impairment of a Loan. Pursuant to SFAS No. 114, a note is impaired
if it is probable that the Company will not collect all principal and interest
contractually due. The impairment is measured based on the present value of
expected future cash flows discounted at the note's effective interest rate. The
Company does not accrue interest when a note is considered impaired. When
ultimate collectibility of the principal balance of the impaired not is in
doubt, all cash receipts on impaired notes are applied to reduce the principal
amount of such notes until the principal has been recovered and are recognized
as interest income, thereafter.
The carrying amount of the Company's debt approximates fair value. The carrying
amount of the Company's other financial instruments approximate fair value
because of the relatively short maturity of these instruments.
(3) Transactions with Affiliates
The Advisor contributed $200,000 to the capital of the Company for which it
received 20,000 shares of common stock.
As of June 30, 2004 and December 31, 2003, the Company had incurred $93,674,110
and $22,144,814 of offering costs, of which $70,096,693 and $16,859,779,
respectively, were paid or accrued to affiliates. Pursuant to the terms of the
offering, the Advisor has guaranteed payment of all public offering expenses
(excluding sales commissions and the marketing contribution and the due
diligence expense allowance) in excess of 5.5% of the gross proceeds of the
offering or all organization and offering expenses (including selling
commissions) which together exceed 15% of gross proceeds. As of June 30, 2004
and December 31, 2003, offering costs did not exceed the 5.5% and 15%
limitations. The Company anticipates that these costs will not exceed these
limitations upon completion of the offering.
The Company pays an advisor asset management fee of not more than 1% of the
average assets. Average asset value is defined as the average of the total book
value of the Company's real estate assets plus the Company's loans receivable
secured by real estate, before reserves for depreciation, reserves for bad debt
or other similar non-cash reserves. The Company computes the average assets by
taking the average of these values at the end of each month for which the fee is
being calculated. The fee is payable quarterly in an amount equal to 1/4 of 1%
of average assets as of the last day of the immediately preceding quarter. For
any year in which the Company qualifies as a REIT, the advisor must reimburse
the Company for the following amounts if any: (1) the amounts by which total
operating expenses, the sum of the advisor asset management fee plus other
operating expenses, paid during the previous fiscal year exceed the greater of:
(i) 2% of average assets for that fiscal year, or (ii) 25% of net income for
that fiscal year; plus (2) an amount, which will not exceed the advisor asset
management fee for that year, equal to any difference between the total amount
of distributions to stockholders for that year and the 6% minimum annual return
on the net investment of stockholders. The Company neither paid nor accrued such
fees because the Advisor agreed to forego such fees for the six months ended
June 30, 2004.
F-11
INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
(A Maryland Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
The Advisor and its affiliates are entitled to reimbursement for salaries and
expenses of employees of the Advisor and its affiliates relating to the
offering. In addition, an affiliate of the Advisor is entitled to receive
selling commissions, and the marketing contribution and due diligence expense
allowance from the Company in connection with the offering. Such costs are
offset against the Stockholders' equity accounts. Such costs totaled $70,096,693
as of June 30, 2004, of which $468,907 was unpaid at June 30, 2004.
The Advisor and its affiliates are entitled to reimbursement for general and
administrative costs of the Advisor and its affiliates relating to the Company's
administration. Such costs are included in general and administrative expenses
to affiliates, professional services to affiliates, and acquisition cost
expenses to affiliates, in addition to costs that were capitalized pertaining to
property acquisitions. For the three month period ended June 30, 2004 and the
six month period ended June 30, 2004, the Company incurred $371,336 and $637,359
of these costs, respectively, of which $218,000 remained unpaid as of June 30,
2004.
An affiliate of the Advisor provides loan servicing to the Company for an annual
fee. The agreement allows for annual fees totaling .03% of the first $1 billion
in mortgage balance outstanding and .01% of the remaining mortgage balances,
payable monthly. Such fees totaled $17,065 for the three months ended June 30,
2004 and $21,276 for the six months ended June 30, 2004, respectively.
The Company used the services of an affiliate of the Advisor to facilitate the
mortgage financing that the Company obtained on some of the properties
purchased. The Company pays the affiliate .02% of the principal amount of each
loan obtained on the Company's behalf. Such costs are capitalized as loan fees
and amortized over the respective loan term. For the three months ended June 30,
2004 and for the six months ended June 30, 2004, the Company paid loan fees
totaling $754,229 and $1,122,042 to this affiliate, respectively.
The property managers, entities owned principally by individuals who are
affiliates of the Advisor, are entitled to receive property management fees
totaling 4.5% of gross operating income, for management and leasing services.
The Company incurred property management fees of $740,857 and $1,154,272 for the
three and six months ended June 30, 2004, respectively. None remained unpaid as
of June 30, 2004.
The Company established a discount stock purchase policy for affiliates of the
Company and the Advisor that enables the affiliates to purchase shares of common
stock at a discount at either $8.95 or $9.50 per share depending on when the
shares are purchased. The Company sold 70,933 and 510,839 shares to affiliates
and recognized an expense related to these discounts of $36,129 and $336,129 for
the three and six months ended June 30, 2004, respectively.
As of June 30, 2004 and December 31, 2003 the Company was due funds from
affiliates in the amount of $1,553,689 and $918,750, respectively which is
comprised of $1,551,739 and $845,000, respectively, which is due from the
sponsor for reimbursement of a portion of distributions paid in 2004. The
remaining $1,950 and $73,750 as of June 30, 2004 and December 31, 2003,
respectively is due from an affiliate for costs paid on their behalf by the
Company. The sponsor has agreed to advance funds to the Company for a portion of
distributions paid to the Company's shareholders until funds from operations are
adequate to cover the distributions. The Sponsor forgave $2,369,139 of these
amounts during the second quarter of 2004 and these funds are no longer due and
are recorded as a contribution to capital in the accompanying consolidated
financial statements. As of June 30, 2004 the Company owed funds to the sponsor
in the amount of $1,253,477 for repayment of these advances.
F-12
INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
(A Maryland Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
As of June 30, 2004 and December 31, 2003 the Company owed funds to an affiliate
in the amount of $100,000 and $2,154,158, respectively, for the reimbursement of
costs paid by the affiliate on behalf of the Company. Both amounts were repaid
during 2004.
(4) Stock Option Plan
The Company has adopted an Independent Director Stock Option Plan which, subject
to certain conditions, provides for the grant to each independent director of an
option to acquire 3,000 shares following their becoming a director and for the
grant of additional options to acquire 500 shares on the date of each annual
stockholders' meeting. The options for the initial 3,000 shares are exercisable
as follows: 1,000 shares on the date of grant and 1,000 shares on each of the
first and second anniversaries of the date of grant. The subsequent options will
be exercisable on the second anniversary of the date of grant. The initial
options will be exercisable at $8.95 per share. The subsequent options will be
exercisable at the fair market value of a share on the last business day
preceding the annual meeting of stockholders. As of June 30, 2004 and December
31, 2003 we have issued 3,500 and 3,000 options, respectively, to acquire shares
to each of our independent directors, for a total of 17,500 and 15,000 options,
of which none have been exercised or expired.
(5)Leases
Master Lease Agreements
In conjunction with certain acquisitions, the Company received payments under
master lease agreements pertaining to some non-revenue producing spaces at the
time of purchase, for periods ranging from three months to three years after the
date of purchase or until the spaces are leased. As these payments are received,
they are recorded as a reduction in the purchase price of the respective
property rather than as rental income. The cumulative amount of such payments
was $363,940 as of June 30, 2004.
F-13
INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
(A Maryland Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Operating leases
Minimum lease payments to be received in the future under operating leases,
excluding rental income under master lease agreements and assuming no expiring
leases are renewed, are as follows:
Minimum Lease
Payments
--------------
2004 $ 62,521,155
2005 75,836,691
2006 72,899,152
2007 67,164,946
2008 61,756,105
Thereafter 365,242,447
--------------
Total $ 705,420,496
==============
The remaining lease terms range from one year to 55 years. Pursuant to the lease
agreements, tenants of the property are required to reimburse the Company for
some or all of their pro rata share of the real estate taxes, operating expenses
and management fees of the properties. Such amounts are included in additional
rental income.
(6) Note Receivable
The note receivable balance of $15,600,975 as of June 30, 2004 consisted of an
installment note from Newman Development Group of Gilroy, L.L.C. that matures on
July 15, 2005. This note is secured by a first mortgage on Pacheco Pass Shopping
Center. Interest only is due in advance on the first of each month at a rate of
6.993% per annum. Upon closing, an interest reserve escrow totaling three months
of interest payments was established.
The note receivable balance of $7,552,155 as of December 31 2003 consists of an
installment note from Fourth Quarter Properties XIV, LLC (Fourth) that matured
on January 15, 2004. This installment note was secured by a 49% interest in
Fourth, which owned the remaining portion of the Newnan Crossing shopping center
and was also guaranteed personally by the owner of Fourth. Interest only at a
rate of 7.6192% per annum was due on the note. The installment note was advanced
to Fourth in contemplation of the Company purchasing the remaining portions of
Newnan Crossing. The Company did not call the note on January 15, 2004 and
subsequently purchased the property on February 13, 2004 at which time the note
was paid in full by Fourth as a credit to the purchase price of the property.
(7) Mortgages Payable
Mortgage loans outstanding as of June 30, 2004 were $588,631,295, of which
$537,371,295 had fixed rates ranging from 3.96% to 6.20%. The remaining
$51,260,000 represented a variable rate loan with a weighted average interest
rate of 2.84% at June 30, 2004. Retail properties with a net carrying value of
$956,666,641 at June 30, 2004 and related tenant leases are pledged as
collateral.
As of June 30, 2004, scheduled maturities for the Company's outstanding mortgage
indebtedness have various due dates through December 2012. At June 30, 2004, the
weighted average interest rate on the Company's mortgage debt was 4.3%. With the
exception of the mortgage loan on Plaza Santa Fe II, all of the Company's
F-14
INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
(A Maryland Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
mortgage loans as of June 30, 2004 require monthly payments of interest only and
may be prepaid with a penalty after specific lockout periods. The mortgage loan
on Plaza Santa Fe II requires monthly payments of principal and interest, as
well as payments into tax, insurance, and replacement reserve escrows. The loan
has no prepayment privileges.
The Company guarantees repayment of $1,083,333 of principal on the Pavilion at
King's Grant mortgage debt.
The debt is cross-collateralized among the properties in connection with the
financing of Heritage Towne Crossing and Eckerd Drug Stores in Norman and
Edmond, OK.
(8) Line of Credit
On February 6, 2004, the Company increased its unsecured line of credit
arrangement with KeyBank N.A. to $225,000,000 from $150,000,000. The funds from
this line of credit may be used to provide liquidity from the time a property is
purchased until permanent debt is placed on that property. The line requires
interest only payments monthly at the rate equal to the London InterBank Offered
Rate or LIBOR plus 175 basis points which ranged from 2.875% to 3.125% during
the quarter ended June 30, 2004. The Company is also required to pay, on a
quarterly basis, an amount ranging from .15% to .30%, per annum, on the average
daily undrawn funds under this line. The line of credit requires compliance with
certain covenants, such as debt service ratios, minimum net worth requirements,
distribution limitations and investment restrictions. As of June 30, 2004, the
Company was in compliance with such covenants. In addition to, and in
conjunction with these financial covenants, the Company maintains a cash
collateral account. Amounts deposited in the cash collateral account provide
that loan to value covenants required under the line are not exceeded. Funds may
be deposited into and withdrawn from the cash collateral account as the
Company's properties are purchased without debt. Amounts deposited in the cash
collateral account are included in Restricted Cash on the Consolidated Balance
Sheet. There was $20,448,822 deposited in the cash collateral account which was
required by the lender as of June 30, 2004. The outstanding balance on the line
of credit was $110,000,000 as of June 30, 2004 at a weighted average interest
rate of 3.01% per annum.
(9) Segment Reporting
The Company owns and seeks to acquire multi-tenant shopping centers primarily in
the western United States. The Company's shopping centers are typically anchored
by discount retailers, home improvement retailers, grocery and drugstores
complemented with additional stores providing a wide range of other goods and
services to shoppers.
The Company assesses and measures operating results on an individual property
basis for each of its properties based on net property operations. Since all of
the Company's properties exhibit highly similar economic characteristics, cater
to the day-to-day living needs of their respective surrounding communities, and
offer similar degrees of risk and opportunities for growth, the properties have
been aggregated and reported as one operating segment.
F-15
INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
(A Maryland Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Net property operations are summarized in the following table for the three and
six months ended June 30, 2004, along with a reconciliation to net income.
Six months Three months
ended ended
June 30, 2004 June 30, 2004
--------------- ---------------
Property rental income and additional rental income $ 28,980,527 $ 19,674,414
Total property operating expenses (6,664,346) (4,643,474)
Interest expense (8,357,449) (5,798,856)
--------------- ---------------
Net property operations 13,958,732 9,232,084
--------------- ---------------
Interest income 456,462 14,709
Less non-property expenses:
Professional services (156,130) (99,714)
General and administrative expenses (1,158,137) (421,186)
Acquisition cost expenses to affiliates (541,374) (125,910)
Depreciation and amortization (10,428,351) (6,735,465)
Other income (expense) 15,939 246,855
--------------- ---------------
Net income $ 2,147,141 $ 2,111,373
=============== ===============
The following table summarizes property asset information as of June 30, 2004
and December 31, 2003.
June 30, 2004 December 31, 2003
---------------- ------------------
Total assets:
Shopping centers $ 1,367,535,186 $ 142,804,128
Non-segment assets 164,891,061 69,298,035
------------------ ------------------
$ 1,532,426,247 $ 212,102,163
================== ==================
The Company does not derive any of its consolidated revenue from foreign
countries and does not have any major customers that individually account for
10% or more of the Company's consolidated revenues.
(10) Earnings (loss) per Share
Basic earnings (loss) per share ("EPS") is computed by dividing income by the
weighted average number of common shares outstanding for the period (the "common
shares"). Diluted EPS is computed by dividing net income (loss) by the common
shares plus shares issuable upon exercising options or other contracts. As a
result of the net loss incurred in 2003, diluted weighted average shares
outstanding do not give effect to common stock equivalents as to do so would be
anti-dilutive. As of June 30, 2004, options to purchase 15,000 shares of common
stock at an exercise price of $8.95 per share were outstanding. These options
were not included in the computation of basic or diluted EPS as the effect would
be immaterial.
F-16
INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
(A Maryland Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
The basic and diluted weighted average number of common shares outstanding were
59,688,094 for the three months ended June 30, 2004 and 48,805,229 for the six
months ended June 30, 2004.
(11) Commitments and Contingencies
The purchase and sale contract for Pavilion at King's Grant, provides that if
anytime during the period January 1, 2004 through December 31, 2007 the tenant
Toys R' Us should increase its base rent up to a maximum amount of $250,000 and
no decrease has occurred in their requirement to pay for a certain percentage of
expenses at the property, then the Company would be obligated to pay the seller
additional funds related to the purchase based on an agreed income
capitalization formula. The Company has not reserved any funds for this
contingency.
In connection with the purchase of Stony Creek Market Place, the Company is
obligated to purchase the Seller's interest in the leases if the Seller
exercises the right to develop and lease a vacant 50,000 pad site within 48
months after the closing date of December 8, 2003, which was included in the
purchase of the property. In connection with the purchase of Newnan Crossing,
the Company is obligated to purchase the remaining portion of the shopping
center that is currently under construction, once construction has been
completed and a major tenant has moved in and commenced payment of rent, with
the additional purchase price based on an agreed upon income capitalization
formula. In connection with the purchase of Arvada Connection and Arvada
Marketplace, the Company is obligated to purchase a parcel of the shopping
center that may be redeveloped by the Seller within the next three years. If the
Seller does not redevelop the parcel by the end of the redevelopment period,
then the Company is obligated to purchase the parcel for $750,000. In connection
with the purchase of Eastwood Towne Center, the Company is obligated to pay the
remaining purchase price of $3,836,317 once a major tenant's base rent increases
upon two shadow anchor's commencement of operations. In connection with the
purchase of Watauga Pavilion, the Company is obligated to pay the remaining
purchase price of $2,146,000 once a major tenant has moved in and commenced
payment of rent. In connection with the purchase of John's Creek Village, the
Company is obligated to pay the remaining purchase price of $13,385,390 once the
remaining vacancies have been leased and the respective tenants have moved in
and commenced payment of rent. The Company has not reserved any funds for these
contingencies.
In connection with the purchase of Dorman Center, the Company was obligated to
purchase a portion of the shopping center that was under construction, once
construction was completed and the respective tenants had moved in and commenced
payment of rent, with the additional purchase price of the center based on an
agreed upon income capitalization formula. As part of the commitment to purchase
this remaining portion of the shopping center, the Company had deposited one
million dollars of earnest money with the Seller. In addition, in conjunction
with the financing of Dorman Center on April 20, 2004, the Company was required
to obtain a $3.65 million irrevocable letter of credit for a one year period.
Once the Company purchased the remaining portion of Dorman Center, and met
certain occupancy requirements, the letter of credit will be released. On July
16, 2004, the Company purchased the remaining portion of Dorman Center and the
irrevocable letter of credit is still outstanding as the occupancy requirements
had not been met as of July 31, 2004.
In connection with the purchase of Low Country Village, the Company is obligated
to purchase a portion of the shopping center that is currently under
construction, once construction has been completed and the respective tenants
have moved in and commenced payment of rent, with the additional purchase price
of the center based on an agreed upon income capitalization formula. As part of
the commitment to purchase this remaining portion of the shopping center, the
Company had deposited $300,000 of earnest money with an escrow agent. In
addition the Company is obligated to pay the remaining purchase price on the
first phase based on an income capitalization formula not to exceed $1,355,096
once the remaining vacancies have been leased and the respective tenants have
moved in and commenced payment of rent.
F-17
INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
(A Maryland Corporation)
Notes to Consolidated Financial Statements
(continued)
In connection with the note receivable related to Pacheco Pass, when the note
receivable is repaid, the Company is obligated to purchase the property for
approximately $24,000,000.
In connection with the purchase of Larkspur Landing, the Company assumed a
liability in the amount of $1,982,504 for tenant improvements and leasing
commission obligations. As of June 30, 2004, the remaining liability after
disbursements is $1,375,521.
The Company is currently considering acquiring 13 properties for an estimated
purchase price of $501,000,000. The Company's decision to acquire each property
will generally depend upon no material adverse change occurring relating to the
property, the tenants or in the local economic conditions and the Company's
receipt of satisfactory due diligence information including appraisals,
environmental reports and lease information prior to purchasing the property.
(12) Subsequent Events
The Company issued 15,834,545 shares of common stock from July 1, 2004 through
July 31, 2004 in connection with the offering, resulting in gross proceeds of
$158,220,959.
On July 12, 2004, the sponsor repaid a portion of its payable to the Company in
the amount of $298,262.
The Company paid distributions of $4,317,876 to its stockholders in July 2004.
F-18
INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
(A Maryland Corporation)
Notes to Consolidated Financial Statements
(continued)
The Company has acquired the following properties or joint venture interests in
properties during the period July 1 to July 31, 2004. The respective
acquisitions are summarized in the table below.
APPROXIMATE GROSS LEASABLE
DATE YEAR PURCHASE PRICE AREA
ACQUIRED PROPERTY BUILT ($) (SQ. FT.) MAJOR TENANTS
-------- -------- ----- --- --------- -------------
07/01/04 Shoppes at Boardwalk 2003/ 36,642,049 122,413 Borders Books
2004
07/02/04 Shoppes of Dallas 2004 13,052,126 70,610 Publix
07/13/04 Wilshire Plaza III 2004 5,750,000 88,248 Kohl's
07/14/04 Cranberry Square 1996- 20,219,563 195,566 Dick's Sporting Goods
1997 Toys R Us
Best Buy
Barnes & Noble
Office Max
07/16/04 Dorman Center Phase II 2004 7,081,662 37,200 Shoe Carnival
07/19/04 Tollgate Marketplace 1977/ 72,300,000 393,395 Giant Food
1994 JoAnn Fabrics
07/21/04 Gateway Plaza 2000 33,025,276 358,193 Kohl's
07/21/04 Gateway Village 1996 49,513,455 273,904 Safeway
Burlington Coat Factory
Best Buy
07/21/04 Towson Circle 1988 28,450,000 116,954 Barnes & Noble
Bally Fitness
07/21/04 Wal-Mart Supercenter 2004 12,935,000 183,211 Wal-Mart SuperCenter
07/22/04 Wrangler Company Western 1993 18,476,792 316,800 Wrangler
Headquarters
07/26/04 Plaza at Marysville 1995 21,266,000 115,656 Safeway
07/27/04 Forks Town Center 2002 18,198,701 87,560 Giant Foods
07/30/04 Academy Sports 2004 5,250,000 60,001 Academy Sports
The Company funded $5,750,000 which represents a portion of the purchase price
of a shopping center under construction to be known as Wilshire Plaza III to
contain 88,248 gross leasable square feet leased to Kohl's. The Company's total
acquisition cost will be approximately $9,850,000. In accordance with the terms
of the purchase agreement with the seller, the Company will advance funds for
the construction of the retail building in two installments. The Company will
receive a 7% return on the original amount funded of $5,750,000 and on
additional construction advances to the seller until such time as Kohl's lease
commences.
F-19
INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
(A Maryland Corporation)
Notes to Consolidated Financial Statements
(continued)
The Company entered into joint venture agreements with the current owners of
three shopping centers known as Tollgate Marketplace, Gateway Village, and
Towson Circle. The Company made capital contributions to these joint ventures
and received equity interests representing majority ownership and operating
control of these joint ventures.
The mortgage debt and financings obtained during the period July 1, 2004 to July
31, 2004, are detailed in the list below.
DATE MATURITY PRINCIPAL BORROWED
FUNDED MORTGAGE PAYABLE ANNUAL INTEREST RATE DATE ($)
-----------------------------------------------------------------------------------------------------------
07/02/04 John's Creek Village 5.100% 08/01/09 23,300,000
07/02/04 Shoppes at Boardwalk 4.130% 07/01/09 20,150,000
07/09/04 Fullerton Metrocenter 5.09% 08/01/09 28,050,000
07/14/04 Northgate North 4.60% 07/01/08 26,650,000
07/16/04 Cranberry Square 4.975% 08/01/09 10,900,000
07/21/04 Gateway Village LIBOR + 1.13% 07/01/09 27,233,000
LIBOR + 2.00% 08/01/05 4,225,000
07/21/04 Tollgate Marketplace LIBOR + 1.20% 06/01/09 39,765,000
07/21/04 Towson Circle 5.10% 07/01/09 15,647,500
LIBOR + 2.00% 08/01/05 3,550,000
07/21/04 Eckerds Drug Stores (4) 5.275% 08/01/09 6,800,000
07/26/04 Wrangler Company Western Headquarters 5.090% 08/01/09 11,300,000
07/27/04 Pine Ridge Plaza 5.085% 08/01/09 14,700,000
07/30/04 Plaza at Marysville 5.085% 08/01/09 11,800,000
F-20
Inland Western Retail Real Estate Trust, Inc.
Pro Forma Consolidated Balance Sheet
June 30, 2004
(unaudited)
The following unaudited Pro Forma Consolidated Balance Sheet is presented as if
the acquisitions of the properties and the issuance of the notes receivable had
occurred on June 30, 2004.
This unaudited Pro Forma Consolidated Balance Sheet is not necessarily
indicative of what the actual financial position would have been at June 30,
2004, nor does it purport to represent our future financial position. No pro
forma adjustments have been made for any potential property acquisitions
identified as of October 13, 2004. The Company does not consider these
properties as probable under Rule 3-14 of Regulation S-X as the Company has not
completed the due diligence process on these properties. Additionally, the
Company has not received sufficient offering proceeds or obtained firm financing
commitments to acquire all of these properties as of October 13, 2004. The
Company believes it will have sufficient cash from offering proceeds raised and
from additional financing proceeds to acquire these properties if and when the
Company is prepared to acquire these properties.
F-21
Inland Western Retail Real Estate Trust, Inc.
Pro Forma Consolidated Balance Sheet
June 30, 2004
(unaudited)
Historical Pro Forma
(A) Adjustments Pro Forma
------------------------------------------------------
ASSETS
Net investment properties (B) $ 1,165,868,245 838,256,000 2,004,124,245
Cash and cash equivalents 126,897,006 348,293,000 475,190,006
Restricted cash 40,445,609 - 40,445,609
Investment in treasury securities 1,047,708 - 1,047,708
Investment in treasury contracts 788,873 - 788,873
Restricted escrows 643,085 - 643,085
Accounts and rents receivable 6,292,894 - 6,292,894
Due from affiliates 1,553,689 - 1,553,689
Note receivable 15,600,975 12,818,000 28,418,975
Acquired in-place lease intangibles (B) (D) 94,495,448 55,800,000 150,295,448
Acquired above market lease intangibles (B) (D) 24,296,377 15,666,000 39,962,377
Other assets (G) 51,021,601 (45,448,000) 5,573,601
Loan fees 3,474,737 - 3,474,737
------------------------------------------------------
Total assets $ 1,532,426,247 1,225,385,000 2,757,811,247
======================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable 2,079,367 - 2,079,367
Accrued offering costs to affiliates 468,907 - 468,907
Tenant improvement payable 2,042,004 - 2,042,004
Accrued interest payable 1,088,198 - 1,088,198
Accrued real estate taxes 5,833,125 - 5,833,125
Distributions payable 4,317,876 - 4,317,876
Mortgage payable (B) (E) 588,631,295 595,134,500 1,183,765,795
Line of credit 110,000,000 - 110,000,000
Acquired below market lease intangibles (B) (D) 49,259,626 21,027,000 70,286,626
Advances from sponsor 1,253,477 - 1,253,477
Security deposits 1,271,174 - 1,271,174
Due to affiliates 318,000 - 318,000
Prepaid rent and other liabilities 2,435,385 - 2,435,385
Restricted cash liability 19,996,787 - 19,996,787
------------------------------------------------------
Total liabilities 788,995,221 616,161,500 1,405,156,721
======================================================
Common stock (C) 85,098 69,230 154,328
Additional paid-in capital (net of offering costs) (C) 759,254,752 609,154,270 1,368,409,022
Accumulated distributions in excess of net income
(loss) (F) (15,956,532) - (15,956,532)
Accumulated other comprehensive income 47,708 - 47,708
------------------------------------------------------
Total stockholders' equity 743,431,026 609,223,500 1,352,654,526
------------------------------------------------------
Total liabilities and stockholders' equity $ 1,532,426,247 1,225,385,000 2,757,811,247
======================================================
See accompanying notes to pro forma consolidated balance sheet.
F-22
Inland Western Retail Real Estate Trust, Inc.
Notes to Pro Forma Consolidated Balance Sheet
June 30, 2004
(unaudited)
(A) The historical column represents our Consolidated Balance Sheet as of June
30, 2004 as filed with the Securities Exchange Commission on Form 10-Q. As
of June 30, 2004, the Company had sold 85,078,440 shares to the public and
748,245 shares were issued pursuant to the Company's distribution
reinvestment program. As a result, the Company received $850,039,770 of
gross offering proceeds. In addition, the Company received the Advisor's
capital contribution of $200,000 for which the Advisor was issued 20,000
shares.
(B) The pro forma adjustments reflect the acquisition of the following
properties. The mortgages payable represent mortgages obtained from a third
party, either assumed as part of the acquisition or subsequent to
acquisition. No pro forma adjustment has been made for prorations or other
closing costs as the amounts are not significant:
Acquisition Mortgage
Price Payable
-----------------------------------
The Shops at Boardwalk $ 36,642,000 20,150,000
Shoppes of Dallas 13,052,000 7,179,000
Kohl's - Wilshire Plaza III 5,750,000 -
Cranberry Square 20,220,000 10,900,000
Dorman Centre - Phase II 7,082,000 -
Tollgate Marketplace 72,300,000 39,765,000
Gateway Village (Loan Note A) 49,513,000 27,233,000
Gateway Village (Loan Note B) - 4,225,000
Towson Circle (Loan Note A) 28,450,000 15,647,500
Towson Circle (Loan Note B) - 3,550,000
Gateway Plaza 33,025,000 18,163,000
Wal-Mart Supercenter - Blytheville 12,935,000 7,100,000
Wrangler Company Western Headquarters 18,477,000 11,300,000
Plaza at Marysville 21,266,000 11,800,000
Forks Town Center 18,199,000 10,395,000
Academy Sports - Houma 5,250,000 2,920,000
Wal-Mart Supercenter - Jonesboro 10,853,000 6,088,500
Reisterstown Road Plaza 88,453,000 49,650,000
Village Shoppes at Simonton 13,750,000 7,562,000
Manchester Meadows 56,200,000 31,065,000
Governor's Marketplace 32,654,000 20,625,000
Mitchell Ranch Plaza 34,000,000 18,700,000
The Columns 20,770,000 11,423,000
Saucon Valley Square 16,093,000 8,851,000
Lincoln Park 47,211,000 26,153,000
Harris Teeter - Wilmington 7,200,000 -
Harvest Town Center 8,950,000 -
Boulevard at the Capital Centre 130,050,000 71,500,000
GMAC Insurance 60,000,000 33,000,000
Bed, Bath & Beyond Plaza 20,350,000 -
-----------------------------------
Total $ 888,695,000 474,945,000
===================================
F-23
Inland Western Retail Real Estate Trust, Inc.
Notes to Pro Forma Consolidated Balance Sheet
June 30, 2004
(unaudited)
Allocation of net investments in properties:
Land $ 138,347,000
Building and improvements 699,909,000
Acquired in-place lease intangibles 55,800,000
Acquired above market lease intangibles 15,666,000
Acquired below market lease intangibles (21,027,000)
----------------
Total $ 888,695,000
================
(C) Additional offering proceeds of $692,300,000, net of additional offering
costs of $83,076,500 are reflected as received as of June 30, 2004, prior
to the purchase of the properties and are limited to offering proceeds
necessary to acquire the properties and offering proceeds actually received
as of October 13, 2004. Offering costs consist principally of registration
costs, printing and selling costs, including commissions.
(D) Acquired intangibles represent above and below market leases and the
difference between the property valued with the existing in-place leases
and the property valued as if vacant. The value of the acquired leases will
be amortized over the lease term.
(E) Additional mortgages payable of $595,134,500, reflected as funded as of
June 30, 2004, includes $474,945,000 of mortgages payable obtained
subsequent to the acquisition of the properties described in (B) and
$120,189,500 of new financing placed on previously acquired properties.
(F) No pro forma assumptions have been made for the additional payment of
distributions resulting from the additional proceeds raised.
(G) Change in other assets of $45,448,000 includes $7,773,000 of prepaid loan
fees applied to mortgage payables obtained subsequent to the acquisition of
the properties described in (B) and $37,675,000 of advance purchase
deposits on properties purchased as described in (B).
F-24
Inland Western Retail Real Estate Trust, Inc.
Pro Forma Consolidated Statement of Operations
For the six months ended June 30, 2004
(unaudited)
The following unaudited Pro Forma Consolidated Statement of Operations is
presented to give effect the acquisition of the properties indicated in Note B
of the Notes to the Pro Forma Consolidated Statement of Operations as though
they occurred on January 1, 2003 or the date significant operations commenced.
No pro forma adjustments have been made for any potential property acquisitions
identified as of October 13, 2004. The Company does not consider these
properties as probable under Rule 3-14 of Regulation S-X as the Company has not
completed the due diligence process on these properties. Additionally, the
Company has not received sufficient offering proceeds or obtained firm financing
commitments to acquire all of these properties as of October 13, 2004. The
Company believes it will have sufficient cash from offering proceeds raised and
from additional financing proceeds to acquire these properties if and when the
Company is prepared to acquire these properties. No pro forma adjustments were
made for Eckerd - Greer, Eckerd - Kill Devil Hills, Eckerd - Columbia, Eckerd -
Crossville, Kohl's - Wilshire Plaza III or Academy Sports - Houma, as the
properties were completed in 2004 and there were no significant operations prior
to our acquisition. No pro forma adjustments were made related to the Pacheco
Pass and Quakertown notes receivable as the properties were completed in 2004
and there were no significant operations prior to our funding of the notes
receivable.
This unaudited Pro Forma Consolidated Statement of Operations is not necessarily
indicative of what the actual results of operations would have been for the six
months ended June 30, 2004, nor does it purport to represent our future results
of operations.
F-25
Inland Western Retail Real Estate Trust, Inc.
Pro Forma Consolidated Statement of Operations
For the six months ended June 30, 2004 (unaudited)
Pro Forma
Historical Adjustments
(A) (B) Pro Forma
------------------------------------------------------
Rental income $ 22,885,718 51,107,881 73,993,599
Additional rent 6,110,748 11,510,417 17,621,165
Interest income 456,462 - 456,462
------------------------------------------------------
Total income 29,452,928 62,618,298 92,071,226
------------------------------------------------------
General and administrative expenses 1,314,267 - 1,314,267
Advisor asset management fee (C) - - -
Property operating expenses 5,510,074 17,255,351 22,765,425
Management fee (F) 1,154,272 2,791,203 3,945,475
Interest expense (H) 8,357,449 19,055,007 27,412,456
Depreciation (D) 7,493,738 19,901,787 27,395,525
Amortization (G) 2,934,613 5,290,280 8,224,893
Acquisition costs 541,374 - 541,374
------------------------------------------------------
Total expenses 27,305,787 64,293,628 91,599,415
------------------------------------------------------
Net income (loss) $ 2,147,141 (1,675,330) 471,811
======================================================
Unrealized gain/loss on investment
securities 47,708 - 47,708
------------------------------------------------------
Comprehensive income $ 2,194,849 (1,675,330) 519,519
======================================================
Weighted average number of shares of
common stock outstanding,
basic and diluted (E) 48,805,229 154,328,000
================ ================
Net income (loss) per share, basic and
diluted (E) .04 --
================ ================
See accompanying notes to pro forma consolidated statement of operations.
F-26
Inland Western Retail Real Estate Trust, Inc.
Notes to Pro Forma Consolidated Statement of Operations
For the six months ended June 30, 2004
(unaudited)
(A) The historical information represents the historical statement of
operations of the Company for the period from January 1, 2004 to June 30,
2004 as filed with the Securities Exchange Commission on Form 10-Q.
(B) Total pro forma adjustments for acquisitions consummated as of October 13,
2004 are as though the properties were acquired January 1, 2003. No
adjustment was made for Eckerd - Greer, Eckerd - Kill Devil Hills, Eckerd -
Columbia, Eckerd - Crossville, Kohl's - Wilshire Plaza III or Academy
Sports - Houma as the properties were completed in 2004 and there were no
significant operations prior to our acquisition. No pro forma adjustments
were made related to the Pacheco Pass and Quakertown notes receivable as
the properties were completed in 2004 and there were no significant
operations prior to our funding of the notes receivable.
Gross Income
& Direct Total
Operating Pro Forma Pro Forma
Expenses (1) Adjustments Adjustments
------------------------------------------------------
Rental income $ 52,473,519 (1,365,638) 51,107,881
Additional rental income 11,510,417 - 11,510,417
------------------------------------------------------
Total income 63,983,936 (1,365,638) 62,618,298
------------------------------------------------------
Advisor asset management fee - - -
Property operating expenses 17,255,351 - 17,255,351
Management fees - 2,791,203 2,791,203
Interest expense - 19,055,007 19,055,007
Depreciation - 19,901,787 19,901,787
Amortization - 5,290,280 5,290,280
------------------------------------------------------
Total expenses 17,255,351 47,038,277 64,293,628
------------------------------------------------------
Net income (loss) $ 46,728,585 (48,403,915) (1,675,330)
======================================================
(1) Unaudited combined gross income and direct operating expenses based on
information provided by the Seller for the following properties:
Newnan Crossing II, Hickory Ridge, CorWest Plaza, Metro Square (Super Value)
Center, Larkspur Landing, North Ranch Pavilion, La Plaza Del Norte, MacArthur
Crossing, Promenade at Red Cliff, Peoria Crossings, Dorman Center - Phase I,
Heritage Towne Crossing, Paradise Valley Marketplace, Best on the Boulevard,
Bluebonnet Parc, North Rivers Town Center, Alison's Corner, Arvada Connection
and Arvada Marketplace, Eastwood Town Center, Watauga Pavilion, Northpointe
Plaza, Plaza Santa Fe II, Pine Ridge Plaza, Huebner Oaks Center, John's Creek
Village, Lakewood Towne Center, Shoppes at Prominence Point, Northgate North,
Davis Towne Crossing, Fullerton Metrocenter, Low Country Village, The Shops at
Boardwalk, Shoppes of Dallas, Cranberry Square, Dorman Center - Phase II,
Tollgate Marketplace, Gateway Village, Towson Circle, Gateway Plaza, Plaza at
Marysville, Forks Town Center, Reisterstown Road Plaza, Village Shoppes at
Simonton, Manchester Meadows, Governor's Marketplace, Mitchell Ranch Plaza, The
Columns, Saucon Valley Square, Lincoln Park, Harvest Towne Center, Boulevard at
the Capital Centre and Bed, Bath & Beyond Plaza.
F-27
Inland Western Retail Real Estate Trust, Inc.
Notes to Pro Forma Consolidated Statement of Operations
For the six months ended June 30, 2004
(unaudited)
Gross rental income based on information provided by tenant net leases for
the following properties:
Wal-Mart Supercenter - Blytheville, Wrangler Company Western Headquarters,
Wal-Mart Supercenter - Jonesboro, Harris Teeeter - Wilmington and GMAC
Insurance.
(C) The advisor asset management fee is expected to be subordinated to the
shareholders' receipt of a stated return thus no amount is reflected.
(D) Buildings and improvements will be depreciated on a straight line basis
based upon estimated useful lives of 30 years for building and improvements
and 15 years for site improvements. That portion of the purchase price that
is allocated to above or below lease intangibles will be amortized on a
straight line basis over the life of the related leases as an adjustment to
rental income. Other leasing costs, tenant improvements and in-place lease
intangibles will be amortized on a straight line basis over the life of the
related leases as a component of amortization expense.
(E) The pro forma weighted average shares of common stock outstanding for the
six months ended June 30, 2004 was calculated using the additional shares
sold to purchase each of the properties on a weighted average basis plus
the 20,000 shares purchased by the Advisor in connection with our
organization.
(F) Management fees are calculated as 4.5% of gross revenues pursuant to the
management agreement.
(G) The value of the acquired leases will be amortized over the lease term.
(H) The pro forma adjustments relating to interest expense were based on the
following debt terms:
Principal Interest Maturity
Property Balance Rate (%) Date
----------------------------------------------------------------------------------------------------------------
The Shops at Boardwalk $ 20,150,000 4.130 08/09
Cranberry Square 10,900,000 4.975 08/09
Tollgate Marketplace 39,765,000 LIBOR + 120 07/09
Gateway Village (Loan Note A) 27,233,000 LIBOR + 113 07/09
Gateway Village (Loan Note B) 4,225,000 LIBOR + 200 08/05
Towson Circle (Loan Note A) 15,647,500 5.100 07/09
Towson Circle (Loan Note B) 3,550,000 LIBOR + 200 08/05
Wrangler Company Western Headquarters 11,300,000 5.090 08/27
Plaza at Marysville 11,800,000 5.085 08/09
Forks Town Center 10,395,000 4.970 09/09
Academy Sports - Houma 2,920,000 5.120 09/09
Wal-Mart Supercenter - Jonesboro 6,088,500 5.085 09/09
Reisterstown Road Plaza 49,650,000 5.300 09/09
Governor's Marketplace 20,625,000 5.185 09/09
John's Creek Village 23,300,000 5.100 08/09
Fullerton Metrocenter 28,050,000 5.090 08/09
Northgate North 26,650,000 4.600 07/08
Eckerd Drug Stores (4) 6,800,000 5.275 08/09
Pine Ridge Plaza 14,700,000 5.085 08/09
Davis Towne Crossing 5,365,200 5.185 09/09
F-28
Inland Western Retail Real Estate Trust, Inc.
Notes to Pro Forma Consolidated Statement of Operations
For the six months ended June 30, 2004
(unaudited)
Principal Interest Maturity
Property Balance Rate (%) Date
----------------------------------------------------------------------------------------------------------------
Shoppes at Prominence Point 9,954,300 5.235 09/09
Newnan Crossing 21,543,000 4.380 03/09
Shaw's Supermarket - New Britain 6,450,000 4.680 11/08
Stony Creek Marketplace 14,162,000 4.770 01/11
CorWest Plaza 18,150,000 4.560 02/09
Hickory Ridge 23,650,000 4.531 02/09
Larkspur Landing 33,630,000 4.450 02/09
North Ranch Pavilion 10,157,000 4.120 04/09
La Plaza Del Norte 32,528,000 4.610 03/10
Peoria Crossings 20,497,000 4.090 04/09
Eckerd - Edmund 1,850,000 4.374 06/09
Eckerd - Norman 2,900,000 4.374 06/09
Pavilion at King's Grant 5,342,000 4.390 05/09
Metro Square Center 6,067,000 4.280 04/09
MacArthur Crossing 12,700,000 4.290 05/09
Promenade at Red Cliff 10,590,000 4.290 05/09
Dorman Center Phase I 27,610,000 4.180 05/09
Heritage Towne Crossing 8,950,000 4.374 06/09
Paradise Valley Marketplace 15,681,000 4.550 05/09
Best on the Boulevard 19,525,000 3.990 05/09
Bluebonnet Parc 12,100,000 4.372 05/09
North River Town Center 11,050,000 4.760 05/09
Alison's Corner 3,850,000 4.272 06/10
Watauga Pavilion 17,100,000 4.140 06/10
Northpointe Plaza 30,850,000 4.272 05/09
Plaza Santa Fe II 17,552,000 6.200 12/12
Arvada Marketplace and Arvada Connection 28,510,000 4.130 07/09
Huebner Oaks Center (Loan Note A) 31,723,000 4.200 07/10
Huebner Oaks Center (Loan Note B) 16,277,000 3.960 07/10
Eastwood Towne Center 46,750,000 4.640 07/09
Lakewood Towne Center (Loan Note A) 44,000,000 2.680 06/09
Lakewood Towne Center (Loan Note B) 7,260,000 3.830 07/05
Wal-Mart Supercenter - Blytheville 7,100,000 4.390 09/09
Manchester Meadows 31,065,000 4.480 09/07
Gateway Plaza 18,163,000 5.100 09/09
Mitchell Ranch Plaza 18,700,000 4.480 10/09
Saucon Valley Square 8,851,000 5.115 10/09
Boulevard at the Capital Centre 71,500,000 5.120 10/09
Shoppes of Dallas 7,179,000 4.960 04/09
Village Shoppes at Simonton 7,562,000 4.960 10/09
The Columns 11,423,000 4.910 11/09
GMAC Insurance 33,000,000 4.610 10/09
Low Country Village 5,370,000 4.960 10/09
Lincoln Park 26,153,000 4.610 11/09
F-29
Inland Western Retail Real Estate Trust, Inc.
Pro Forma Consolidated Statement of Operations
For the year ended December 31, 2003
(unaudited)
The following unaudited Pro Forma Consolidated Statement of Operations is
presented to give effect the acquisition of the properties indicated in Note B
of the Notes to the Pro Forma Consolidated Statement of Operations as though
they occurred on January 1, 2003 or the date significant operations commenced.
No pro forma adjustments have been made for any potential property acquisitions
identified as of October 13, 2004. The Company does not consider these
properties as probable under Rule 3-14 of Regulation S-X as the Company has not
completed the due diligence process on these properties. Additionally, the
Company has not received sufficient offering proceeds or obtained firm financing
commitments to acquire all of these properties as of October 13, 2004. The
Company believes it will have sufficient cash from offering proceeds raised and
from additional financing proceeds to acquire these properties if and when the
Company is prepared to acquire these properties. No pro forma adjustments were
made for Eckerd-Edmond or Eckerd-Norman as the properties were completed in 2003
and there were no significant operations prior to our acquisition. No pro forma
adjustments were made for Eckerd-Greer, Eckerd-Kill Devil Hills,
Eckerd-Columbia, Eckerd-Crossville, Shoppes at Prominence Point, Low Country
Village, Shoppes of Dallas, Kohl's - Wilshire Plaza III, Dorman Center - Phase
II, Academy Sports - Houma, Village Shoppes at Simonton or Bed, Bath & Beyond
Plaza, as the properties were completed in 2004 and there were no significant
operations in 2003. No pro forma adjustments were made related to the Pacheco
Pass and Quakertown notes receivable as the properties were completed in 2004
and there were no significant operations prior to our funding of the notes
receivable.
This unaudited Pro Forma Consolidated Statement of Operations is not necessarily
indicative of what the actual results of operations would have been for the year
ended December 31, 2003, nor does it purport to represent our future results of
operations.
F-30
Inland Western Retail Real Estate Trust, Inc.
Pro Forma Consolidated Statement of Operations
For the year ended December 31, 2003 (unaudited)
Pro Forma Pro Forma
Historical Adjustments Adjustments
(A) (B) (C) Pro Forma
-------------------------------------------------------------------------
Rental income $ 606,645 108,122,552 10,96,862 119,691,059
Additional rent 137,988 26,674,826 693,274 27,506,088
Interest income 37,648 - - 37,648
-------------------------------------------------------------------------
Total income 782,281 134,797,378 11,655,136 147,234,795
-------------------------------------------------------------------------
General and administrative expenses 315,263 - - 315,263
Advisor asset management fee (D) - - - -
Property operating expenses 126,617 38,477,976 665,308 39,269,901
Management fee (G) 16,627 5,970,605 530,038 6,517,270
Interest expense (I) 135,735 38,933,377 3,600,788 42,669,900
Depreciation (E) 140,497 39,374,885 4,065,313 43,580,695
Amortization (H) 81,558 12,744,922 759,779 13,586,259
Acquisition costs 139,263 - - 139,263
-------------------------------------------------------------------------
Total expenses 955,560 135,501,765 9,621,226 146,078,551
-------------------------------------------------------------------------
Net income (loss) $ (173,279) (704,387) 2,033,910 1,156,244
=========================================================================
Weighted average number of shares of
common stock outstanding,
basic and diluted (F) 2,520,986 154,328,000
================ ================
Net income (loss) per share, basic and
diluted (F) (.07) .01
================ ================
See accompanying notes to pro forma consolidated statement of operations.
F-31
Inland Western Retail Real Estate Trust, Inc.
Notes to Pro Forma Consolidated Statement of Operations
For the year ended December 31, 2003
(unaudited)
(A) The historical information represents the historical statement of
operations of the Company for the period from March 5, 2003 (inception) to
December 31, 2003 as filed with the Securities Exchange Commission on Form
10-K.
(B) Total pro forma adjustments for acquisitions consummated as of October 13,
2004 are as though the properties were acquired January 1, 2003.
Gross Income
& Direct Total
Operating Pro Forma Pro Forma
Expenses (1) Adjustments Adjustments
------------------------------------------------------
Rental income $ 111,056,594 (2,934,042) 108,122,552
Additional rental income 26,674,826 - 26,674,826
------------------------------------------------------
Total income 137,731,420 (2,934,042) 134,797,378
------------------------------------------------------
Advisor asset management fee - - -
Property operating expenses 38,477,976 - 38,477,976
Management fees - 5,970,605 5,970,605
Interest expense - 38,933,377 38,933,377
Depreciation - 39,374,885 39,374,885
Amortization - 12,744,922 12,744,922
------------------------------------------------------
Total expenses 38,477,976 97,023,789 135,501,765
------------------------------------------------------
Net income (loss) $ 99,253,444 (99,957,831) (704,387)
======================================================
(1) Audited combined gross income and direct operating expenses as prepared in
accordance with Rule 3-14 of Regulation S-X for the following properties:
Shops at Park Place, Darien Towne Center, Newnan Crossing Phase I and II,
Pavilion at Kings Grant, Hickory Ridge, CorWest Plaza, Metro Square (Super
Value) Center, Larkspur Landing, North Ranch Pavilion, La Plaza Del Norte,
MacArthur Crossing, Promenade at Red Cliff, Peoria Crossings, Dorman Center
- Phase I, Heritage Towne Crossing, Paradise Valley Marketplace, Best on
the Boulevard, Bluebonnet Parc, North Rivers Town Center, Arvada Connection
and Arvada Marketplace, Eastwood Town Center, Watauga Pavilion, Northpointe
Plaza, Plaza Santa Fe II, Pine Ridge Plaza, Huebner Oaks Center, John's
Creek Village, Lakewood Towne Center, Northgate North, Davis Towne
Crossing, Fullerton Metrocenter, The Shops at Boardwalk, Cranberry Square,
Tollgate Marketplace, Gateway Village, Towson Circle, Gateway Plaza, Plaza
at Marysville, Forks Town Center, Reisterstown Road Plaza, Manchester
Meadows, Governor's Marketplace, Mitchell Ranch Plaza, The Columns, Saucon
Valley Square, Lincoln Park and Boulevard at the Capital Centre.
F-32
Inland Western Retail Real Estate Trust, Inc.
Notes to Pro Forma Consolidated Statement of Operations
For the year ended December 31, 2003
(unaudited)
(C) Total pro forma adjustments for acquisitions consummated as of October 13,
2004 are as though the properties were acquired January 1, 2003. No pro
forma adjustments were made for the Eckerds - Edmond and the Eckerds -
Norman as the properties were completed in 2003 and there were no
significant operations prior to our acquisition. No pro forma adjustments
were made for Eckerd - Greer, Eckerd - Kill Devil Hills, Eckerd - Columbia,
Eckerd - Crossville, Shoppes at Prominence Point, Low Country Village,
Shoppes of Dallas, Kohl's - Wilshire Plaza III, Dorman Center - Phase II,
Academy Sports - Houma, Village Shoppes at Simonton or Bed, Bath & Beyond
Plaza, as the properties were completed in 2004 and there were no
significant operations in 2003. No pro forma adjustments were made related
to the Pacheco Pass and Quakertown notes receivable as the properties were
completed in 2004 and there were no significant operations prior to our
funding of the notes receivable.
Gross Income
& Direct Total
Operating Pro Forma Pro Forma
Expenses (1) Adjustments Adjustments
------------------------------------------------------
Rental income $ 11,089,469 (127,607) 10,961,862
Additional rental income 693,274 - 693,274
------------------------------------------------------
Total income 11,782,743 (127,607) 11,655,136
------------------------------------------------------
Advisor asset management fee - - -
Property operating expenses 665,308 - 665,308
Management fees - 530,038 530,038
Interest expense - 3,600,788 3,600,788
Depreciation - 4,065,313 4,065,313
Amortization - 759,779 759,779
------------------------------------------------------
Total expenses 665,308 8,955,918 9,621,226
------------------------------------------------------
Net income (loss) $ 11,117,435 (9,083,525) 2,033,910
======================================================
(1) Unaudited combined gross income and direct operating expenses based on
information provided by the Seller for the following properties:
Stony Creek Marketplace, Shaw's Supermarket (New Britain), Alison's Corner,
and Harvest Towne Center.
Gross rental income based on information provided by tenant net leases for
the following properties:
Wal-Mart Supercenter - Blytheville, Wrangler Company Western Headquarters,
Wal-Mart Supercenter - Jonesboro, Harris Teeter - Wilmington and GMAC
Insurance.
F-33
Inland Western Retail Real Estate Trust, Inc.
Notes to Pro Forma Consolidated Statement of Operations
For the year ended December 31, 2003
(unaudited)
(D) The advisor asset management fee is expected to be subordinated to the
shareholders' receipt of a stated return thus no amount is reflected.
(E) Buildings and improvements will be depreciated on a straight line basis
based upon estimated useful lives of 30 years for building and improvements
and 15 years for site improvements. That portion of the purchase price that
is allocated to above or below lease intangibles will be amortized on a
straight line basis over the life of the related leases as an adjustment to
rental income. Other leasing costs, tenant improvements and in-place lease
intangibles will be amortized on a straight line basis over the life of the
related leases as a component of amortization expense.
(F) The pro forma weighted average shares of common stock outstanding for the
year ended December 31, 2003 was calculated using the additional shares
sold to purchase each of the properties on a weighted average basis plus
the 20,000 shares purchased by the Advisor in connection with our
organization.
(G) Management fees are calculated as 4.5% of gross revenues pursuant to the
management agreement.
(H) The value of the acquired leases will be amortized over the lease term.
(I) The pro forma adjustments relating to interest expense were based on the
following debt terms:
Principal Interest Maturity
Property Balance Rate (%) Date
---------------------------------------------------------------------------------------------------------------
The Shops at Boardwalk $ 20,150,000 4.130 08/09
Cranberry Square 10,900,000 4.975 08/09
Tollgate Marketplace 39,765,000 LIBOR + 120 07/09
Gateway Village (Loan Note A) 27,233,000 LIBOR + 113 07/09
Gateway Village (Loan Note B) 4,225,000 LIBOR + 200 08/05
Towson Circle (Loan Note A) 15,647,500 5.100 07/09
Towson Circle (Loan Note B) 3,550,000 LIBOR + 200 08/05
Wrangler Company Western Headquarters 11,300,000 5.090 08/27
Plaza at Marysville 11,800,000 5.085 08/09
Forks Town Center 10,395,000 4.970 09/09
Academy Sports - Houma 2,920,000 5.120 09/09
Wal-Mart Supercenter - Jonesboro 6,088,500 5.085 09/09
Reisterstown Road Plaza 49,650,000 5.300 09/09
Governor's Marketplace 20,625,000 5.185 09/09
John's Creek Village 23,300,000 5.100 08/09
Fullerton Metrocenter 28,050,000 5.090 08/09
Northgate North 26,650,000 4.600 07/08
Eckerd Drug Stores (4) 6,800,000 5.275 08/09
Pine Ridge Plaza 14,700,000 5.085 08/09
Davis Towne Crossing 5,365,200 5.185 09/09
Shoppes at Prominence Point 9,954,300 5.235 09/09
Shops at Park Place 13,127,000 4.710 11/08
Darien Towne Center 16,500,000 4.650 06/10
Newnan Crossing 21,543,000 4.380 03/09
Shaw's Supermarket - New Britain 6,450,000 4.680 11/33
F-34
Inland Western Retail Real Estate Trust, Inc.
Notes to Pro Forma Consolidated Statement of Operations
For the year ended December 31, 2003
(unaudited)
Principal Interest Maturity
Property Balance Rate (%) Date
---------------------------------------------------------------------------------------------------------------
Stony Creek Marketplace 14,162,000 4.770 01/11
CorWest Plaza 18,150,000 4.560 02/09
Hickory Ridge 23,650,000 4.531 02/09
Larkspur Landing 33,630,000 4.450 02/09
North Ranch Pavilion 10,157,000 4.120 04/09
La Plaza Del Norte 32,528,000 4.610 03/10
Peoria Crossings 20,497,000 4.090 04/09
Eckerd - Edmund 1,850,000 4.374 06/09
Eckerd - Norman 2,900,000 4.374 06/09
Pavilion at King's Grant 5,342,000 4.390 05/09
Metro Square Center 6,067,000 4.280 04/09
MacArthur Crossing 12,700,000 4.290 05/09
Promenade at Red Cliff 10,590,000 4.290 05/09
Dorman Center Phase I 27,610,000 4.180 05/09
Heritage Towne Crossing 8,950,000 4.374 06/09
Paradise Valley Marketplace 15,681,000 4.550 05/09
Best on the Boulevard 19,525,000 3.990 05/09
Bluebonnet Parc 12,100,000 4.372 05/09
North River Town Center 11,050,000 4.760 05/09
Alison's Corner 3,850,000 4.272 06/10
Watauga Pavilion 17,100,000 4.140 06/10
Northpointe Plaza 30,850,000 4.272 05/09
Plaza Santa Fe II 17,552,000 6.200 12/12
Arvada Marketplace and Arvada Connection 28,510,000 4.130 07/09
Huebner Oaks Center (Loan Note A) 31,723,000 4.200 07/10
Huebner Oaks Center (Loan Note B) 16,277,000 3.960 07/10
Eastwood Towne Center 46,750,000 4.640 07/09
Lakewood Towne Center (Loan Note A) 44,000,000 2.680 06/09
Lakewood Towne Center (Loan Note B) 7,260,000 3.830 07/05
Wal-Mart Supercenter - Blytheville 7,100,000 4.390 09/09
Manchester Meadows 31,065,000 4.480 09/07
Gateway Plaza 18,163,000 5.100 09/09
Mitchell Ranch Plaza 18,700,000 4.480 10/09
Saucon Valley Square 8,851,000 5.115 10/09
Boulevard at the Capital Centre 71,500,000 5.120 10/09
Shoppes of Dallas 7,179,000 4.960 04/09
Village Shoppes at Simonton 7,562,000 4.960 10/09
The Columns 11,423,000 4.910 11/09
GMAC Insurance 33,000,000 4.610 10/09
Low Country Village 5,370,000 4.960 10/09
Lincoln Park 26,153,000 4.610 11/09
F-35
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors
Inland Western Retail Real Estate Trust, Inc.
We have audited the accompanying Historical Summary of Gross Income and Direct
Operating Expenses ("Historical Summary") of John's Creek Village ("the
Property") for the period from September 21, 2003 (commencement of operations)
to December 31, 2003. This Historical Summary is the responsibility of
management of Inland Western Retail Real Estate Trust, Inc. Our responsibility
is to express an opinion on the Historical Summary based on our audit.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
Historical Summary is free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the Historical Summary. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall presentation of the Historical Summary. We believe that
our audit provides a reasonable basis for our opinion.
The accompanying Historical Summary was prepared for the purpose of complying
with the rules and regulations of the Securities and Exchange Commission and for
inclusion in the Registration Statement on Form S-11 of Inland Western Retail
Real Estate Trust, Inc., as described in note 2. It is not intended to be a
complete presentation of the Property's revenues and expenses.
In our opinion, the Historical Summary referred to above presents fairly, in all
material respects, the gross income and direct operating expenses described in
note 2 of John's Creek Village for the year ended December 31, 2003, in
conformity with U.S. generally accepted principles.
KPMG LLP
Chicago, Illinois
August 13, 2004
F-36
JOHN'S CREEK VILLAGE
Historical Summary of Gross Income and Direct Operating Expenses
For the period from September 21, 2003 (commencement of operations) to
December 31, 2003 and the six months ended June 30, 2004 (unaudited)
For the period from
September 21, 2003
For the (commencement of
six months ended operations)to
June 30, 2004 December 31, 2003
-------------------------------------
(unaudited)
Gross income:
Base rental income $ 834,163 143,640
Operating expense and real estate tax recoveries 327,885 11,701
-------------------------------------
Total gross income 1,162,048 155,341
-------------------------------------
Direct operating expenses:
Operating expenses 46,272 22,596
Real estate taxes 340,373 3,764
Insurance 13,215 478
-------------------------------------
Total direct operating expenses 399,860 26,838
-------------------------------------
Excess of gross income over direct operating expenses $ 762,188 128,503
=====================================
See accompanying notes to historical summary of gross income and direct
operating expense.
F-37
JOHN'S CREEK VILLAGE
Notes to Historical Summary of Gross Income and Direct Operating Expenses
For the period from September 21, 2003 (commencement of operations) to
December 31, 2003 and the six months ended June 30, 2004 (unaudited)
(1) Business
John's Creek Village (the Property) is located in Duluth, Georgia. The Property
consists of approximately 190,444 square feet of gross leasable area and was 47%
leased and occupied at December 31, 2003. The Property is leased to eight
tenants of which one tenant accounts for approximately 55% of base rental
revenue for the period from September 21, 2003 (commencement of operations) to
December 31, 2003. On June 23, 2004, Inland Western Retail Real Estate Trust,
Inc. ("IWRRETI") acquired the Property from an unaffiliated third-party seller.
John's Creek Village was under construction during 2003 and commenced operations
on September 21, 2003 with a portion of the Property's gross leasable area
(representing approximately 90,005 square feet) complete as of December 31,
2003. The remaining portion of the Property's gross leasable area (representing
the remaining approximately 100,439 square feet) is under construction and
scheduled to be completed during 2004.
(2) Basis of Presentation
The Historical Summary of Gross Income and Direct Operating Expenses
("Historical Summary") has been prepared for the purpose of complying with Rule
3-14 of the Securities and Exchange Commission Regulation S-X and for inclusion
in the Registration Statement on Form S-11 of IWRRETI and is not intended to be
a complete presentation of the Property's revenues and expenses. The Historical
Summary has been prepared on the accrual basis of accounting and requires
management of the Property to make estimates and assumptions that affect the
reported amounts of the revenues and expenses during the reporting period.
Actual results may differ from those estimates.
All adjustments necessary for a fair presentation have been made to the
accompanying unaudited amounts for the six months ended June 30, 2004.
(3) Gross Income
The Property leases retail space under various lease agreements with its
tenants. All leases are accounted for as operating leases. The leases include
provisions under which the Property is reimbursed for common area, real estate,
and insurance costs. Revenue related to these reimbursed costs is recognized in
the period the applicable costs are incurred and billed to tenants pursuant to
the lease agreements. Certain leases contain renewal options at various periods
at various rental rates. Certain of the leases contain provision for contingent
rentals. Recognition of contingent rental income is deferred until the target
that triggers the contingent rental income is achieved. No contingent rent was
earned during the period from September 21, 2003 (commencement of operations) to
December 31, 2003.
The Property has two ground leases that are classified as operating leases with
terms extending through December 31, 2023 and May 31, 2014. Total ground lease
income was $2,054 and is included in base rental income in the accompanying
Historical Summary for the period from September 21, 2003 (commencement of
operations) to December 31, 2003.
Although certain leases may provide for tenant occupancy during periods for
which no rent is due and/or increases exist in minimum lease payments over the
term of the lease, rental income accrues for the full period of occupancy on a
straight-line basis. Related adjustments increased base rental income by $1,473
for the period from September 21, 2003 (commencement of operations) to December
31, 2003.
F-38
JOHN'S CREEK VILLAGE
Notes to Historical Summary of Gross Income and Direct Operating Expenses
For the period from September 21, 2003 (commencement of operations) to
December 31, 2003 and the six months ended June 30, 2004 (unaudited)
Minimum rents to be received from tenants under operating leases, which terms
range from five to 20 years, in effect at December 31, 2003, are as follows:
YEAR TOTAL
-------------------------------------------------
2004 $ 1,668,326
2005 1,743,692
2006 1,754,959
2007 1,763,747
2008 1,759,391
Thereafter 12,090,223
-------------------
$ 20,780,338
===================
(4) Direct Operating Expenses
Direct operating expenses include only those costs expected to be comparable to
the proposed future operations of the Property. Repairs and maintenance expenses
are charged to operations as incurred. Costs such as depreciation, amortization,
management fees, interest expense related to mortgage debt not assumed, and
professional fees are excluded from the Historical Summary.
F-39
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors
Inland Western Retail Real Estate Trust, Inc.
We have audited the accompanying Historical Summary of Gross Income and Direct
Operating Expenses ("Historical Summary") of Lakewood Towne Center ("the
Property") for the year ended December 31, 2003. This Historical Summary is the
responsibility of management of Inland Western Retail Real Estate Trust, Inc.
Our responsibility is to express an opinion on the Historical Summary based on
our audit.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
Historical Summary is free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the Historical Summary. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall presentation of the Historical Summary. We believe that
our audit provides a reasonable basis for our opinion.
The accompanying Historical Summary was prepared for the purpose of complying
with the rules and regulations of the Securities and Exchange Commission and for
inclusion in the Registration Statement on Form S-11 of Inland Western Retail
Real Estate Trust, Inc., as described in note 2. It is not intended to be a
complete presentation of the Property's revenues and expenses.
In our opinion, the Historical Summary referred to above presents fairly, in all
material respects, the gross income and direct operating expenses described in
note 2 of Lakewood Towne Center for the year ended December 31, 2003, in
conformity with U.S. generally accepted accounting principles.
KPMG LLP
Chicago, Illinois
July 15, 2004
F-40
LAKEWOOD TOWNE CENTER
Historical Summary of Gross Income and Direct Operating Expenses
For the year ended December 31, 2003 and the six months ended June 30, 2004
(unaudited)
For the For the year
six months ended ended
June 30, 2004 December 31, 2003
-----------------------------------
(unaudited)
Gross income:
Base rental income $ 2,688,280 4,540,210
Contingent Rent - 67,758
Operating expense and real estate tax recoveries 643,743 1,270,667
-----------------------------------
Total gross income 3,332,023 5,878,635
-----------------------------------
Direct operating expenses:
Operating expenses 370,699 741,397
Real estate taxes 313,628 597,386
Insurance 87,680 180,379
-----------------------------------
Total direct operating expenses 772,007 1,519,162
-----------------------------------
Excess of gross income over direct operating expenses $ 2,560,016 4,359,473
===================================
See accompanying notes to historical summary of gross income and direct
operating expense.
F-41
LAKEWOOD TOWNE CENTER
Notes to Historical Summary of Gross Income and Direct Operating Expenses
For the year ended December 31, 2003 and the six months ended June 30, 2004
(unaudited)
(1) Business
Lakewood Towne Center (the Property) is located in Lakewood, Washington. The
Property consists of approximately 579,000 square feet of gross leasable area
and was approximately 93% occupied at December 31, 2003. The Property is leased
to twenty-four tenants of which five tenants account for approximately 51% of
base rental revenue for the year ended December 31, 2003. On June 25, 2004,
Inland Western Retail Real Estate Trust, Inc. ("IWRRETI") acquired the Property
from an unaffiliated third-party.
(2) Basis of Presentation
The Historical Summary of Gross Income and Direct Operating Expenses
("Historical Summary") has been prepared for the purpose of complying with Rule
3-14 of the Securities and Exchange Commission Regulation S-X and for inclusion
in the Registration Statement on Form S-11 of IWRRETI and is not intended to be
a complete presentation of the Property's revenues and expenses. The Historical
Summary has been prepared on the accrual basis of accounting and requires
management of the Property to make estimates and assumptions that affect the
reported amounts of the revenues and expenses during the reporting period.
Actual results may differ from those estimates.
All adjustments necessary for a fair presentation have been made to the
accompanying unaudited amounts for the six months ended June 30, 2004.
(3) Gross Income
The Property leases retail space under various lease agreements with its
tenants. All leases are accounted for as operating leases. The leases include
provisions under which the Property is reimbursed for common area, real estate,
and insurance costs. Revenue related to these reimbursed costs is recognized in
the period the applicable costs are incurred and billed to tenants pursuant to
the lease agreements. Certain leases contain renewal options at various periods
at various rental rates. Certain of the leases contain provision for contingent
rentals. Recognition of contingent rental income is deferred until the target
that triggers the contingent rental income is achieved. Contingent rent of
$67,758 was earned during the year ended December 31, 2003.
Although certain leases may provide for tenant occupancy during periods for
which no rent is due and/or increases exist in minimum lease payments over the
term of the lease, rental income accrues for the full period of occupancy on a
straight-line basis. Related adjustments increased base rental income by
$300,309 for the year ended December 31, 2003.
F-42
LAKEWOOD TOWNE CENTER
Notes to Historical Summary of Gross Income and Direct Operating Expenses
For the year ended December 31, 2003 and the six months ended June 30, 2004
(unaudited)
Minimum rents to be received from tenants under operating leases which terms
range from two to 20 years, in effect at December 31, 2003, are as follows:
YEAR TOTAL
-------------------------------------------------
2004 $ 5,177,316
2005 5,141,493
2006 5,082,303
2007 5,100,379
2008 5,061,449
Thereafter 25,865,016
-------------------
$ 51,427,956
===================
(4) Direct Operating Expenses
Direct operating expenses include only those costs expected to be comparable to
the proposed future operations of the Property. Repairs and maintenance expenses
are charged to operations as incurred. Costs such as depreciation, amortization,
management fees, interest expense related to mortgage debt not assumed, and
professional fees are excluded from the Historical Summary.
F-43
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors
Inland Western Retail Real Estate Trust, Inc.
We have audited the accompanying Historical Summary of Gross Income and Direct
Operating Expenses ("Historical Summary") of Fullerton Metrocenter ("the
Property") for the year ended December 31, 2003. This Historical Summary is the
responsibility of management of Inland Western Retail Real Estate Trust, Inc.
Our responsibility is to express an opinion on the Historical Summary based on
our audit.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
Historical Summary is free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the Historical Summary. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall presentation of the Historical Summary. We believe that
our audit provides a reasonable basis for our opinion.
The accompanying Historical Summary was prepared for the purpose of complying
with the rules and regulations of the Securities and Exchange Commission and for
inclusion in the Registration Statement on Form S-11 of Inland Western Retail
Real Estate Trust, Inc., as described in note 2. It is not intended to be a
complete presentation of the Property's revenues and expenses.
In our opinion, the Historical Summary referred to above presents fairly, in all
material respects, the gross income and direct operating expenses described in
note 2 of Fullerton Metrocenter for the year ended December 31, 2003, in
conformity with U.S. generally accepted accounting principles.
KPMG LLP
Chicago, Illinois
August 3, 2004
F-44
FULLERTON METROCENTER
Historical Summary of Gross Income and Direct Operating Expenses
For the year ended December 31, 2003 and the six months ended June 30, 2004
(unaudited)
For the For the year
six months ended ended
June 30, 2004 December 31, 2003
------------------------------------
(unaudited)
Gross income:
Base rental income $ 1,639,005 3,523,208
Operating expense and real estate tax recoveries 531,978 971,604
------------------------------------
Total gross income 2,170,983 4,494,812
------------------------------------
Direct operating expenses:
Operating expenses 376,538 658,405
Ground lease expense 207,500 415,000
Real estate taxes 178,938 357,876
Insurance 19,569 39,138
------------------------------------
Total direct operating expenses 782,545 1,470,419
------------------------------------
Excess of gross income over direct operating expenses $ 1,388,438 3,024,393
====================================
See accompanying notes to historical summary of gross income and direct
operating expense.
F-45
FULLERTON METROCENTER
Notes to Historical Summary of Gross Income and Direct Operating Expenses
For the year ended December 31, 2003 and the six months ended June 30, 2004
(unaudited)
(1) Business
Fullerton Metrocenter (the Property) is located in Fullerton, California. The
Property consists of approximately 254,880 square feet of gross leasable area
and was approximately 78% occupied at December 31, 2003. The Property is leased
to forty-one tenants of which two tenants account for approximately 19% of base
rental revenue for the year ended December 31, 2003. On June 30, 2004, Inland
Western Retail Real Estate Trust, Inc. ("IWRRETI") acquired the Property from an
unaffiliated third-party.
(2) Basis of Presentation
The Historical Summary of Gross Income and Direct Operating Expenses
("Historical Summary") has been prepared for the purpose of complying with Rule
3-14 of the Securities and Exchange Commission Regulation S-X and for inclusion
in the Registration Statement on Form S-11 of IWRRETI and is not intended to be
a complete presentation of the Property's revenues and expenses. The Historical
Summary has been prepared on the accrual basis of accounting and requires
management of the Property to make estimates and assumptions that affect the
reported amounts of the revenues and expenses during the reporting period.
Actual results may differ from those estimates.
All adjustments necessary for a fair presentation have been made to the
accompanying unaudited amounts for the six months ended June 30, 2004.
(3) Gross Income
The Property leases retail space under various lease agreements with its
tenants. All leases are accounted for as operating leases. The leases include
provisions under which the Property is reimbursed for common area, real estate,
and insurance costs. Revenue related to these reimbursed costs is recognized in
the period the applicable costs are incurred and billed to tenants pursuant to
the lease agreements. Certain leases contain renewal options at various periods
at various rental rates. Certain of the leases contain provision for contingent
rentals. Recognition of contingent rental income is deferred until the target
that triggers the contingent rental income is achieved. Contingent rent of
$268,823 was earned during the year ended December 31, 2003 and recorded as base
rental income in the accompanying Historical Summary.
Although certain leases may provide for tenant occupancy during periods for
which no rent is due and/or increases exist in minimum lease payments over the
term of the lease, rental income accrues for the full period of occupancy on a
straight-line basis. Related adjustments decreased base rental income by
$143,851 for the year ended December 31, 2003.
F-46
FULLERTON METROCENTER
Notes to Historical Summary of Gross Income and Direct Operating Expenses
For the year ended December 31, 2003 and the six months ended June 30, 2004
(unaudited)
Minimum rents to be received from tenants under operating leases which terms
range from one to 17 years, in effect at December 31, 2003, are as follows:
YEAR TOTAL
-------------------------------------------------
2004 $ 3,518,723
2005 3,284,218
2006 2,801,342
2007 2,405,044
2008 1,754,107
Thereafter 2,995,333
-------------------
$ 16,758,767
===================
(4) Direct Operating Expenses
Direct operating expenses include only those costs expected to be comparable to
the proposed future operations of the Property. Repairs and maintenance expenses
are charged to operations as incurred. Costs such as depreciation, amortization,
management fees, interest expense related to mortgage debt not assumed, and
professional fees are excluded from the Historical Summary.
The property is subject to a ground lease with annual payments, payable to an
unaffiliated third party, of $415,000 until maturity. The ground lease matures
in 2050.
F-47
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors
Inland Western Retail Real Estate Trust, Inc.
We have audited the accompanying Historical Summary of Gross Income and Direct
Operating Expenses ("Historical Summary") of Davis Towne Crossing ("the
Property") for the period from July 18, 2003 (commencement of operations) to
December 31, 2003. This Historical Summary is the responsibility of management
of Inland Western Retail Real Estate Trust, Inc. Our responsibility is to
express an opinion on the Historical Summary based on our audit.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
Historical Summary is free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the Historical Summary. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall presentation of the Historical Summary. We believe that
our audit provides a reasonable basis for our opinion.
The accompanying Historical Summary was prepared for the purpose of complying
with the rules and regulations of the Securities and Exchange Commission and for
inclusion in the Registration Statement on Form S-11 of Inland Western Retail
Real Estate Trust, Inc., as described in note 2. It is not intended to be a
complete presentation of the Property's revenues and expenses.
In our opinion, the Historical Summary referred to above presents fairly, in all
material respects, the gross income and direct operating expenses described in
note 2 of Davis Towne Crossing for the period of July 18, 2003 (commencement of
operations) to December 31, 2003, in conformity with U.S. generally accepted
principles.
KPMG LLP
Chicago, Illinois
July 30, 2004
F-48
DAVIS TOWNE CROSSING
Historical Summary of Gross Income and Direct Operating Expenses
For the period from July 18, 2003 (commencement of operations) to
December 31, 2003 and the six months ended June 30, 2004 (unaudited)
For the period from
July 18, 2003
For the (commencement of
six months ended operations)to
June 30, 2004 December 31, 2003
---------------------------------------
(unaudited)
Gross income:
Base rental income $ 317,309 141,436
Operating expense and real estate tax recoveries 78,451 57,649
Other income 918 -
---------------------------------------
Total gross income 396,678 199,085
---------------------------------------
Direct operating expenses:
Operating expenses 45,368 75,557
Real estate taxes 45,426 22,713
Insurance 20,484 10,242
---------------------------------------
Total direct operating expenses 122,278 108,512
---------------------------------------
Excess of gross income over direct operating expenses $ 274,400 90,573
=======================================
See accompanying notes to historical summary of gross income and direct
operating expense.
F-49
DAVIS TOWNE CROSSING
Notes to Historical Summary of Gross Income and Direct Operating Expenses
For the period from July 18, 2003 (commencement of operations) to
December 31, 2003 and the six months ended June 30, 2004 (unaudited)
(1) Business
Davis Towne Crossing (the Property) is located in North Richland Hills, Texas.
The Property consists of approximately 41,000 square feet of gross leasable area
and was approximately 83% occupied at December 31, 2003. The Property is leased
to thirteen tenants of which two tenants account for approximately 43% of base
rental revenue for the period of July 18, 2003 (commencement of operations) to
December 31, 2003. On June 30, 2004, Inland Western Retail Real Estate Trust,
Inc. ("IWRRETI") acquired the Property from an unaffiliated third-party.
Davis Towne Crossing was under construction during 2003 and commenced operations
July 18, 2003, with construction complete as of December 31, 2003.
(2) Basis of Presentation
The Historical Summary of Gross Income and Direct Operating Expenses
("Historical Summary") has been prepared for the purpose of complying with Rule
3-14 of the Securities and Exchange Commission Regulation S-X and for inclusion
in the Registration Statement on Form S-11 of IWRRETI and is not intended to be
a complete presentation of the Property's revenues and expenses. The Historical
Summary has been prepared on the accrual basis of accounting and requires
management of the Property to make estimates and assumptions that affect the
reported amounts of the revenues and expenses during the reporting period.
Actual results may differ from those estimates.
All adjustments necessary for a fair presentation have been made to the
accompanying unaudited amounts for the six months ended June 30, 2004.
(3) Gross Income
The Property leases retail space under various lease agreements with its
tenants. All leases are accounted for as operating leases. The leases include
provisions under which the Property is reimbursed for common area, real estate,
and insurance costs. Revenue related to these reimbursed costs is recognized in
the period the applicable costs are incurred and billed to tenants pursuant to
the lease agreements. Certain leases contain renewal options at various periods
at various rental rates. Certain of the leases contain provision for contingent
rentals. Recognition of contingent rental income is deferred until the target
that triggers the contingent rental income is achieved. No contingent rent was
earned during the period of July 18, 2003 (commencement of operations) to
December 31, 2003.
In addition, rental income includes $5,963 of rent from one tenant that pays
monthly rent based upon a percentage of monthly sales in lieu of minimum rents
provided in the lease. The minimum rents schedule below excludes such tenant.
The Property has one ground lease that is classified as an operating lease with
terms extending through August 2028. Total ground lease income was $34,509 and
is included in base rental income in the accompanying Historical Summary for the
period of July 18, 2003 (commencement of operations) to December 31, 2003.
Although certain leases may provide for tenant occupancy during periods for
which no rent is due and/or increases exist in minimum lease payments over the
term of the lease, rental income accrues for the full period of occupancy on a
straight-line basis. Related adjustments increased base rental income by $5,344
for the period of July 18 2003 (commencement of operations) to December 31,
2003.
F-50
DAVIS TOWNE CROSSING
Notes to Historical Summary of Gross Income and Direct Operating Expenses
For the period from July 18, 2003 (commencement of operations) to
December 31, 2003 and the six months ended June 30, 2004 (unaudited)
Minimum rents to be received from tenants under operating leases, which terms
range from three to 25 years, in effect at December 31, 2003, are as follows:
YEAR TOTAL
-------------------------------------------------
2004 $ 653,726
2005 658,033
2006 658,033
2007 631,620
2008 541,343
Thereafter 2,270,444
-------------------
$ 5,413,199
===================
(4) Direct Operating Expenses
Direct operating expenses include only those costs expected to be comparable to
the proposed future operations of the Property. Repairs and maintenance expenses
are charged to operations as incurred. Costs such as depreciation, amortization,
management fees, interest expense related to mortgage debt not assumed, and
professional fees are excluded from the Historical Summary.
F-51
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors
Inland Western Retail Real Estate Trust, Inc.
We have audited the accompanying Historical Summary of Gross Income and Direct
Operating Expenses ("Historical Summary") of Northgate North ("the Property")
for the year ended December 31, 2003. This Historical Summary is the
responsibility of management of Inland Western Retail Real Estate Trust, Inc.
Our responsibility is to express an opinion on the Historical Summary based on
our audit.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
Historical Summary is free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the Historical Summary. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall presentation of the Historical Summary. We believe that
our audit provides a reasonable basis for our opinion.
The accompanying Historical Summary was prepared for the purpose of complying
with the rules and regulations of the Securities and Exchange Commission and for
inclusion in the Registration Statement on Form S-11 of Inland Western Retail
Real Estate Trust, Inc., as described in note 2. It is not intended to be a
complete presentation of the Property's revenues and expenses.
In our opinion, the Historical Summary referred to above presents fairly, in all
material respects, the gross income and direct operating expenses described in
note 2 of Northgate North for the year ended December 31, 2003, in conformity
with U.S. generally accepted accounting principles.
KPMG LLP
Chicago, Illinois
August 13, 2004
F-52
NORTHGATE NORTH
Historical Summary of Gross Income and Direct Operating Expenses
For the year ended December 31, 2003 and the six months ended June 30, 2004
(unaudited)
For the For the year
six months ended ended
June 30, 2004 December 31, 2003
-------------------------------------
(unaudited)
Gross income:
Base rental income $ 1,674,674 3,092,086
Operating expense and real estate tax recoveries 684,620 1,242,613
-------------------------------------
Total gross income 2,359,294 4,334,699
-------------------------------------
Direct operating expenses:
Operating expenses 433,953 867,906
Real estate taxes 197,392 375,985
Insurance 103,050 206,100
-------------------------------------
Total direct operating expenses 734,395 1,449,991
-------------------------------------
Excess of gross income over direct operating expenses $ 1,624,899 2,884,708
=====================================
See accompanying notes to historical summary of gross income and direct
operating expense.
F-53
NORTHGATE NORTH
Notes to Historical Summary of Gross Income and Direct Operating Expenses
For the year ended December 31, 2003 and the six months ended June 30, 2004
(unaudited)
(1) Business
Northgate North (the Property) is located in Seattle, Washington. The Property
consists of 302,461 square feet of gross leasable area and was approximately 93%
occupied at December 31, 2003. The Property is leased to nine tenants of which
four tenants account for approximately 86% of base rental revenue for the year
ended December 31, 2003. On June 30, 2004, Inland Western Retail Real Estate
Trust, Inc. ("IWRRETI") acquired the Property from an unaffiliated third-party.
(2) Basis of Presentation
The Historical Summary of Gross Income and Direct Operating Expenses
("Historical Summary") has been prepared for the purpose of complying with Rule
3-14 of the Securities and Exchange Commission Regulation S-X and for inclusion
in the Registration Statement on Form S-11 of IWRRETI and is not intended to be
a complete presentation of the Property's revenues and expenses. The Historical
Summary has been prepared on the accrual basis of accounting and requires
management of the Property to make estimates and assumptions that affect the
reported amounts of the revenues and expenses during the reporting period.
Actual results may differ from those estimates.
All adjustments necessary for a fair presentation have been made to the
accompanying unaudited amounts for the six months ended June 30, 2004.
(3) Gross Income
The Property leases retail space under various lease agreements with its
tenants. All leases are accounted for as operating leases. The leases include
provisions under which the Property is reimbursed for common area, real estate,
and insurance costs. Revenue related to these reimbursed costs is recognized in
the period the applicable costs are incurred and billed to tenants pursuant to
the lease agreements. Certain leases contain renewal options at various periods
at various rental rates. Certain of the leases contain provision for contingent
rentals. Recognition of contingent rental income is deferred until the target
that triggers the contingent rental income is achieved. No contingent rent was
earned during the year ended December 31, 2003.
Although certain leases may provide for tenant occupancy during periods for
which no rent is due and/or increases exist in minimum lease payments over the
term of the lease, rental income accrues for the full period of occupancy on a
straight-line basis. Related adjustments increased base rental income by
$353,216 for the year ended December 31, 2003.
F-54
NORTHGATE NORTH
Notes to Historical Summary of Gross Income and Direct Operating Expenses
For the year ended December 31, 2003 and the six months ended June 30, 2004
(unaudited)
Minimum rents to be received from tenants under operating leases which terms
range from five to 25 years, in effect at December 31, 2003, are as follows:
YEAR TOTAL
-------------------------------------------------
2004 $ 3,161,072
2005 3,162,848
2006 3,258,533
2007 3,271,528
2008 3,292,733
Thereafter 38,248,658
-------------------
$ 54,395,372
===================
(4) Direct Operating Expenses
Direct operating expenses include only those costs expected to be comparable to
the proposed future operations of the Property. Repairs and maintenance expenses
are charged to operations as incurred. Costs such as depreciation, amortization,
management fees, interest expense related to mortgage debt not assumed, and
professional fees are excluded from the Historical Summary.
F-55
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors
Inland Western Retail Real Estate Trust, Inc.
We have audited the accompanying Historical Summary of Gross Income and Direct
Operating Expenses ("Historical Summary") of Cranberry Square ("the Property")
for the year ended December 31, 2003. This Historical Summary is the
responsibility of management of Inland Western Retail Real Estate Trust, Inc.
Our responsibility is to express an opinion on the Historical Summary based on
our audit.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
Historical Summary is free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the Historical Summary. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall presentation of the Historical Summary. We believe that
our audit provides a reasonable basis for our opinion.
The accompanying Historical Summary was prepared for the purpose of complying
with the rules and regulations of the Securities and Exchange Commission and for
inclusion in the Registration Statement on Form S-11 of Inland Western Retail
Real Estate Trust, Inc., as described in note 2. It is not intended to be a
complete presentation of the Property's revenues and expenses.
In our opinion, the Historical Summary referred to above presents fairly, in all
material respects, the gross income and direct operating expenses described in
note 2 of Cranberry Square for the year ended December 31, 2003, in conformity
with U.S. generally accepted accounting principles.
KPMG LLP
Chicago, Illinois
August 1, 2004
F-56
CRANBERRY SQUARE
Historical Summary of Gross Income and Direct Operating Expenses
For the year ended December 31, 2003 and the six months ended June 30, 2004
(unaudited)
For the For the year
six months ended ended
June 30, 2004 December 31, 2003
-------------------------------------
(unaudited)
Gross income:
Base rental income $ 870,100 1,740,201
Operating expense and real estate tax recoveries 186,206 353,892
-------------------------------------
Total gross income 1,056,306 2,094,093
-------------------------------------
Direct operating expenses:
Operating expenses 60,482 115,963
Real estate taxes 148,030 273,704
Insurance 6,765 13,640
-------------------------------------
Total direct operating expenses 215,277 403,307
-------------------------------------
Excess of gross income over direct operating expenses $ 841,029 1,690,786
=====================================
See accompanying notes to historical summary of gross income and direct
operating expense.
F-57
CRANBERRY SQUARE
Notes to Historical Summary of Gross Income and Direct Operating Expenses
For the year ended December 31, 2003 and the six months ended June 30, 2004
(unaudited)
(1) Business
Cranberry Square (the Property) is located in Cranberry Township, Pennsylvania.
The Property consists of approximately 195,566 square feet of gross leasable
area and was approximately 92% occupied at December 31, 2003. The Property is
leased to five tenants of which three tenants account for approximately 76% of
base rental revenue for the year ended December 31, 2003. On July 14, 2004,
Inland Western Retail Real Estate Trust, Inc. ("IWRRETI") acquired the Property
from an unaffiliated third-party.
(2) Basis of Presentation
The Historical Summary of Gross Income and Direct Operating Expenses
("Historical Summary") has been prepared for the purpose of complying with Rule
3-14 of the Securities and Exchange Commission Regulation S-X and for inclusion
in the Registration Statement on Form S-11 of IWRRETI and is not intended to be
a complete presentation of the Property's revenues and expenses. The Historical
Summary has been prepared on the accrual basis of accounting and requires
management of the Property to make estimates and assumptions that affect the
reported amounts of the revenues and expenses during the reporting period.
Actual results may differ from those estimates.
All adjustments necessary for a fair presentation have been made to the
accompanying unaudited amounts for the six months ended June 30, 2004.
(3) Gross Income
The Property leases retail space under various lease agreements with its
tenants. All leases are accounted for as operating leases. The leases include
provisions under which the Property is reimbursed for common area, real estate,
and insurance costs. Revenue related to these reimbursed costs is recognized in
the period the applicable costs are incurred and billed to tenants pursuant to
the lease agreements. Certain leases contain renewal options at various periods
at various rental rates. Certain of the leases contain provision for contingent
rentals. Recognition of contingent rental income is deferred until the target
that triggers the contingent rental income is achieved. No contingent rent was
earned during the year ended December 31, 2003.
Although certain leases may provide for tenant occupancy during periods for
which no rent is due and/or increases exist in minimum lease payments over the
term of the lease, rental income accrues for the full period of occupancy on a
straight-line basis. Related adjustments increased base rental income by $54,138
for the year ended December 31, 2003.
F-58
CRANBERRY SQUARE
Notes to Historical Summary of Gross Income and Direct Operating Expenses
For the year ended December 31, 2003 and the six months ended June 30, 2004
(unaudited)
Minimum rents to be received from tenants under operating leases which terms
range from ten to 15 years, in effect at December 31, 2003, are as follows:
YEAR TOTAL
-------------------------------------------------
2004 $ 1,723,839
2005 1,723,839
2006 1,728,158
2007 1,815,820
2008 1,820,320
Thereafter 5,872,510
-------------------
$ 14,684,486
===================
(4) Direct Operating Expenses
Direct operating expenses include only those costs expected to be comparable to
the proposed future operations of the Property. Repairs and maintenance expenses
are charged to operations as incurred. Costs such as depreciation, amortization,
management fees, interest expense related to mortgage debt not assumed, and
professional fees are excluded from the Historical Summary.
F-59
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors
Inland Western Retail Real Estate Trust, Inc.
We have audited the accompanying Historical Summary of Gross Income and Direct
Operating Expenses ("Historical Summary") of Gateway Plaza Shopping Center ("the
Property") for the year ended December 31, 2003. This Historical Summary is the
responsibility of management of Inland Western Retail Real Estate Trust, Inc.
Our responsibility is to express an opinion on the Historical Summary based on
our audit.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
Historical Summary is free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the Historical Summary. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall presentation of the Historical Summary. We believe that
our audit provides a reasonable basis for our opinion.
The accompanying Historical Summary was prepared for the purpose of complying
with the rules and regulations of the Securities and Exchange Commission and for
inclusion in the Registration Statement on Form S-11 of Inland Western Retail
Real Estate Trust, Inc., as described in note 2. It is not intended to be a
complete presentation of the Property's revenues and expenses.
In our opinion, the Historical Summary referred to above presents fairly, in all
material respects, the gross income and direct operating expenses described in
note 2 of Gateway Plaza Shopping Center for the year ended December 31, 2003, in
conformity with U.S. generally accepted accounting principles.
KPMG LLP
Dallas, Texas
August 18, 2004
F-60
GATEWAY PLAZA SHOPPING CENTER
Historical Summary of Gross Income and Direct Operating Expenses
For the year ended December 31, 2003 and the six months ended June 30, 2004
(unaudited)
For the For the year
six months ended ended
June 30, 2004 December 31, 2003
-------------------------------------
(unaudited)
Gross income:
Base rental income $ 2,080,063 4,118,141
Operating expense and real estate tax recoveries 706,337 1,360,980
-------------------------------------
Total gross income 2,786,400 5,479,121
-------------------------------------
Direct operating expenses:
Operating expenses 198,640 466,631
Ground rent expense 1,496,542 2,993,084
Real estate taxes 542,676 1,033,669
Insurance 48,686 101,711
-------------------------------------
Total direct operating expenses 2,286,544 4,595,095
-------------------------------------
Excess of gross income over direct operating expenses $ 499,856 884,026
=====================================
See accompanying notes to historical summary of gross income and direct
operating expense.
F-61
GATEWAY PLAZA SHOPPING CENTER
Notes to Historical Summary of Gross Income and Direct Operating Expenses
For the year ended December 31, 2003 and the six months ended June 30, 2004
(unaudited)
(1) Business
Gateway Plaza Shopping Center (the Property) is located in Southlake, Texas. The
Property consists of approximately 358,193 square feet of gross leasable area
and was approximately 89% occupied at December 31, 2003. The Property is leased
to twenty-five tenants of which one tenant accounts for approximately 13% of
base rental revenue for the year ended December 31, 2003. On July 21, 2004,
Inland Western Retail Real Estate Trust, Inc. ("IWRRETI") acquired the Property
from an unaffiliated third-party.
(2) Basis of Presentation
The Historical Summary of Gross Income and Direct Operating Expenses
("Historical Summary") has been prepared for the purpose of complying with Rule
3-14 of the Securities and Exchange Commission Regulation S-X and for inclusion
in the Registration Statement on Form S-11 of IWRRETI and is not intended to be
a complete presentation of the Property's revenues and expenses. The Historical
Summary has been prepared on the accrual basis of accounting and requires
management of the Property to make estimates and assumptions that affect the
reported amounts of the revenues and expenses during the reporting period.
Actual results may differ from those estimates.
All adjustments necessary for a fair presentation have been made to the
accompanying unaudited amounts for the six months ended June 30, 2004.
(3) Gross Income
The Property leases retail space under various lease agreements with its
tenants. All leases are accounted for as operating leases. The leases include
provisions under which the Property is reimbursed for common area, real estate,
and insurance costs. Revenue related to these reimbursed costs is recognized in
the period the applicable costs are incurred and billed to tenants pursuant to
the lease agreements. Certain leases contain renewal options at various periods
at various rental rates. Certain of the leases contain provision for contingent
rentals. Recognition of contingent rental income is deferred until the target
that triggers the contingent rental income is achieved. No contingent rent was
earned during the year ended December 31, 2003.
Although certain leases may provide for tenant occupancy during periods for
which no rent is due and/or increases exist in minimum lease payments over the
term of the lease, rental income accrues for the full period of occupancy on a
straight-line basis. Related adjustments increased base rental income by $83,000
for the year ended December 31, 2003.
F-62
GATEWAY PLAZA SHOPPING CENTER
Notes to Historical Summary of Gross Income and Direct Operating Expenses
For the year ended December 31, 2003 and the six months ended June 30, 2004
(unaudited)
Minimum rents to be received from tenants under operating leases, excluding
tenant reimbursements of operating expenses, which terms range from five to 20
years, in effect at December 31, 2003, are as follows:
YEAR TOTAL
-------------------------------------------------
2004 $ 3,961,000
2005 3,870,000
2006 3,126,000
2007 3,127,000
2008 2,990,000
Thereafter 14,635,000
-------------------
$ 31,709,000
===================
(4) Direct Operating Expenses
Direct operating expenses include only those costs expected to be comparable to
the proposed future operations of the Property. Repairs and maintenance expenses
are charged to operations as incurred. Costs such as depreciation, amortization,
management fees, interest expense related to mortgage debt not assumed, and
professional fees are excluded from the Historical Summary.
The property is subject to a ground lease with annual payments, payable to an
unaffiliated third party. The ground lease matures in 2073. Although the ground
lease provides for increases in minimum rent payments over the term of the
lease, ground lease expense accrues on a straight-line basis. The straight-line
adjustment increased ground rent expense by approximately $1,785,000 for the
year ended December 31, 2003.
Minimum rents to be paid to the unafffiliated third party under the ground lease
in effect at December 31, 2003, are as follows:
YEAR TOTAL
-------------------------------------------------
2004 $ 1,339,368
2005 1,339,368
2006 1,339,368
2007 1,339,368
2008 1,339,368
Thereafter 210,231,145
-------------------
$ 216,927,985
===================
F-63
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors
Inland Western Retail Real Estate Trust, Inc.
We have audited the accompanying Historical Summary of Gross Income and Direct
Operating Expenses ("Historical Summary") of Safeway Plaza at Marysville ("the
Property") for the year ended December 31, 2003. This Historical Summary is the
responsibility of management of Inland Western Retail Real Estate Trust, Inc.
Our responsibility is to express an opinion on the Historical Summary based on
our audit.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
Historical Summary is free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the Historical Summary. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall presentation of the Historical Summary. We believe that
our audit provides a reasonable basis for our opinion.
The accompanying Historical Summary was prepared for the purpose of complying
with the rules and regulations of the Securities and Exchange Commission and for
inclusion in the Registration Statement on Form S-11 of Inland Western Retail
Real Estate Trust, Inc., as described in note 2. It is not intended to be a
complete presentation of the Property's revenues and expenses.
In our opinion, the Historical Summary referred to above presents fairly, in all
material respects, the gross income and direct operating expenses described in
note 2 of Safeway Plaza at Marysville for the year ended December 31, 2003, in
conformity with U.S. generally accepted accounting principles.
KPMG LLP
Chicago, Illinois
August 3, 2004
F-64
SAFEWAY PLAZA AT MARYSVILLE
Historical Summary of Gross Income and Direct Operating Expenses
For the year ended December 31, 2003 and the six months ended June 30, 2004
(unaudited)
For the For the year
six months ended ended
June 30, 2004 December 31, 2003
-------------------------------------
(unaudited)
Gross income:
Base rental income $ 763,686 1,513,469
Operating expense and real estate tax recoveries 179,865 358,545
-------------------------------------
Total gross income 943,551 1,872,014
-------------------------------------
Direct operating expenses:
Operating expenses 82,014 164,027
Real estate taxes 79,251 150,954
Insurance 17,081 34,162
-------------------------------------
Total direct operating expenses 178,346 349,143
-------------------------------------
Excess of gross income over direct operating expenses $ 765,205 1,522,871
=====================================
See accompanying notes to historical summary of gross income and direct
operating expense.
F-65
SAFEWAY PLAZA AT MARYSVILLE
Notes to Historical Summary of Gross Income and Direct Operating Expenses
For the year ended December 31, 2003 and the six months ended June 30, 2004
(unaudited)
(1) Business
Safeway Plaza at Marysville (the Property) is located in Marysville, Washington.
The Property consists of approximately 116,000 square feet of gross leasable
area and was approximately 97% occupied at December 31, 2003. The Property is
leased to one tenant that accounts for approximately 39% of base rental revenue
for the year ended December 31, 2003. On July 26, 2004, Inland Western Retail
Real Estate Trust, Inc. ("IWRRETI") acquired the Property from an unaffiliated
third-party.
(2) Basis of Presentation
The Historical Summary of Gross Income and Direct Operating Expenses
("Historical Summary") has been prepared for the purpose of complying with Rule
3-14 of the Securities and Exchange Commission Regulation S-X and for inclusion
in the Registration Statement on Form S-11 of IWRRETI and is not intended to be
a complete presentation of the Property's revenues and expenses. The Historical
Summary has been prepared on the accrual basis of accounting and requires
management of the Property to make estimates and assumptions that affect the
reported amounts of the revenues and expenses during the reporting period.
Actual results may differ from those estimates.
All adjustments necessary for a fair presentation have been made to the
accompanying unaudited amounts for the six months ended June 30, 2004.
(3) Gross Income
The Property leases retail space under various lease agreements with its
tenants. All leases are accounted for as operating leases. The leases include
provisions under which the Property is reimbursed for common area, real estate,
and insurance costs. Revenue related to these reimbursed costs is recognized in
the period the applicable costs are incurred and billed to tenants pursuant to
the lease agreements. Certain leases contain renewal options at various periods
at various rental rates.
The Property has one ground lease that is classified as an operating lease with
terms extending through July 31, 2011. Total ground lease income was $50,000 and
is included in base rental income in the accompanying Historical Summary for the
year ended December 31, 2003.
Although certain leases may provide for tenant occupancy during periods for
which no rent is due and/or increases exist in minimum lease payments over the
term of the lease, rental income accrues for the full period of occupancy on a
straight-line basis. Related adjustments increased base rental income by $23,176
for the year ended December 31, 2003.
F-66
SAFEWAY PLAZA AT MARYSVILLE
Notes to Historical Summary of Gross Income and Direct Operating Expenses
For the year ended December 31, 2003 and the six months ended June 30, 2004
(unaudited)
Minimum rents to be received from tenants under operating leases which terms
range from three to 17 years, in effect at December 31, 2003, are as follows:
YEAR TOTAL
-------------------------------------------------
2004 $ 1,510,279
2005 1,492,217
2006 1,277,628
2007 1,072,386
2008 1,027,416
Thereafter 8,958,070
-------------------
$ 15,337,996
===================
(4) Direct Operating Expenses
Direct operating expenses include only those costs expected to be comparable to
the proposed future operations of the Property. Repairs and maintenance expenses
are charged to operations as incurred. Costs such as depreciation, amortization,
management fees, interest expense related to mortgage debt not assumed, and
professional fees are excluded from the Historical Summary.
F-67
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors
Inland Western Retail Real Estate Trust, Inc.
We have audited the accompanying Historical Summary of Gross Income and Direct
Operating Expenses ("Historical Summary") of Forks Town Center ("the Property")
for the year ended December 31, 2003. This Historical Summary is the
responsibility of management of Inland Western Retail Real Estate Trust, Inc.
Our responsibility is to express an opinion on the Historical Summary based on
our audit.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
Historical Summary is free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the Historical Summary. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall presentation of the Historical Summary. We believe that
our audit provides a reasonable basis for our opinion.
The accompanying Historical Summary was prepared for the purpose of complying
with the rules and regulations of the Securities and Exchange Commission and for
inclusion in the Registration Statement on Form S-11 of Inland Western Retail
Real Estate Trust, Inc., as described in note 2. It is not intended to be a
complete presentation of the Property's revenues and expenses.
In our opinion, the Historical Summary referred to above presents fairly, in all
material respects, the gross income and direct operating expenses described in
note 2 of Forks Town Center for the year ended December 31, 2003, in conformity
with U.S. generally accepted accounting principles.
KPMG LLP
Chicago, Illinois
August 11, 2004
F-68
FORKS TOWN CENTER
Historical Summary of Gross Income and Direct Operating Expenses
For the year ended December 31, 2003 and the six months ended June 30, 2004
(unaudited)
For the For the year
six months ended ended
June 30, 2004 December 31, 2003
-------------------------------------
(unaudited)
Gross income:
Base rental income $ 771,917 1,376,494
Operating expense and real estate tax recoveries 189,220 350,400
-------------------------------------
Total gross income 961,137 1,726,894
-------------------------------------
Direct operating expenses:
Operating expenses 81,011 162,022
Real estate taxes 110,551 189,136
Insurance 7,880 15,759
-------------------------------------
Total direct operating expenses 199,442 366,917
-------------------------------------
Excess of gross income over direct operating expenses $ 761,695 1,359,977
=====================================
See accompanying notes to historical summary of gross income and direct
operating expense.
F-69
FORKS TOWN CENTER
Notes to Historical Summary of Gross Income and Direct Operating Expenses
For the year ended December 31, 2003 and the six months ended June 30, 2004
(unaudited)
(1) Business
Forks Town Center (the Property) is located in Easton, Pennsylvania. The
Property consists of approximately 93,000 square feet of gross leasable area and
was approximately 97% occupied at December 31, 2003. The Property is leased to
sixteen tenants of which one tenant accounts for approximately 66% of base
rental revenue for the year ended December 31, 2003. On July 27, 2004, Inland
Western Retail Real Estate Trust, Inc. ("IWRRETI") acquired the Property from an
unaffiliated third-party.
A portion of Forks Town Center (representing approximately 75,000 square feet of
the Property's gross leasable area) was completed as of December 31, 2002. The
remaining portion f the Property (representing the remaining approximately 18,
000 square feet of the Property's gross leasable area) was under construction
and completed during 2003.
(2) Basis of Presentation
The Historical Summary of Gross Income and Direct Operating Expenses
("Historical Summary") has been prepared for the purpose of complying with Rule
3-14 of the Securities and Exchange Commission Regulation S-X and for inclusion
in the Registration Statement on Form S-11 of IWRRETI and is not intended to be
a complete presentation of the Property's revenues and expenses. The Historical
Summary has been prepared on the accrual basis of accounting and requires
management of the Property to make estimates and assumptions that affect the
reported amounts of the revenues and expenses during the reporting period.
Actual results may differ from those estimates.
All adjustments necessary for a fair presentation have been made to the
accompanying unaudited amounts for the six months ended June 30, 2004.
(3) Gross Income
The Property leases retail space under various lease agreements with its
tenants. All leases are accounted for as operating leases. The leases include
provisions under which the Property is reimbursed for common area, real estate,
and insurance costs. Revenue related to these reimbursed costs is recognized in
the period the applicable costs are incurred and billed to tenants pursuant to
the lease agreements. Certain leases contain renewal options at various periods
at various rental rates.
Although certain leases may provide for tenant occupancy during periods for
which no rent is due and/or increases exist in minimum lease payments over the
term of the lease, rental income accrues for the full period of occupancy on a
straight-line basis. Related adjustments increased base rental income by $53,375
for the year ended December 31, 2003.
F-70
FORKS TOWN CENTER
Notes to Historical Summary of Gross Income and Direct Operating Expenses
For the year ended December 31, 2003 and the six months ended June 30, 2004
(unaudited)
Minimum rents to be received from tenants under operating leases which terms
range from three to 20 years, in effect at December 31, 2003, are as follows:
YEAR TOTAL
-------------------------------------------------
2004 $ 1,488,512
2005 1,493,112
2006 1,480,646
2007 1,438,846
2008 1,158,106
Thereafter 13,467,776
-------------------
$ 20,526,998
===================
Base rental income includes $36,000 of rent from one tenant that subsequently
terminated its rental agreement in June 2004. The minimum rents schedule above
includes $177,000 related to such tenant, as the lease was still valid as of
December 31, 2003.
(4) Direct Operating Expenses
Direct operating expenses include only those costs expected to be comparable to
the proposed future operations of the Property. Repairs and maintenance expenses
are charged to operations as incurred. Costs such as depreciation, amortization,
management fees, interest expense related to mortgage debt not assumed, and
professional fees are excluded from the Historical Summary.
F-71
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors
Inland Western Retail Real Estate Trust, Inc.
We have audited the accompanying Combined Historical Summary of Gross Income and
Direct Operating Expenses ("Historical Summary") of the Properties owned by
Capital Centre, LLC, Gateway Village Limited Partnership, Bel Air Square Joint
Venture, Towson Circle Joint Venture LLP, and Reisterstown Plaza Holdings, LLC
(collectively the "Properties") for the year ended December 31, 2003. This
Combined Historical Summary is the responsibility of management of Inland
Western Retail Real Estate Trust, Inc. Our responsibility is to express an
opinion on the Historical Summary based on our audit.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the Combined
Historical Summary is free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the Combined Historical Summary. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall presentation of the Combined Historical Summary. We
believe that our audit provides a reasonable basis for our opinion.
The accompanying Combined Historical Summary was prepared for the purpose of
complying with the rules and regulations of the Securities and Exchange
Commission and for inclusion in the Registration Statement on Form S-11 of
Inland Western Retail Real Estate Trust, Inc., as described in note 2. It is not
intended to be a complete presentation of the Properties' revenues and expenses.
In our opinion, the Combined Historical Summary referred to above presents
fairly, in all material respects, the gross income and direct operating expenses
described in note 2 of the Properties owned by Capital Centre, LLC, Gateway
Village limited Partnership, Bel Air Square Joint Venture, Towson Circle Joint
Venture LLP, and Reisterstown Plaza Holdings, LLC for the year ended December
31, 2003, in conformity with U.S. generally accepted accounting principles.
KPMG LLP
Chicago, Illinois
August 6, 2004
F-72
CAPITAL CENTRE, LLC, GATEWAY VILLAGE LIMITED PARTNERSHIP, BEL AIR SQUARE JOINT
VENTURE, TOWSON CIRCLE JOINT VENTURE LLP, AND REISTERSTOWN PLAZA HOLDINGS, LLC
Historical Summary of Gross Income and Direct Operating Expenses
For the year ended December 31, 2003 and the six months ended June 30, 2004
(unaudited)
For the For the year
six months ended ended
June 30, 2004 December 31, 2003
-------------------------------------
(unaudited)
Gross income:
Base rental income $ 11,388,110 17,102,545
Operating expense and real estate tax recoveries 1,935,133 3,537,216
Other Income 104,905 88,513
-------------------------------------
Total gross income 13,428,148 20,728,274
-------------------------------------
Direct operating expenses:
Operating expenses 2,479,864 4,282,398
Real estate taxes 997,206 1,352,455
Insurance 293,718 599,009
Ground Rent 73,147 24,382
-------------------------------------
Total direct operating expenses 3,843,935 6,258,244
-------------------------------------
Excess of gross income over direct operating expenses $ 9,584,213 14,470,030
=====================================
See accompanying notes to historical summary of gross income and direct
operating expense.
F-73
CAPITAL CENTRE, LLC, GATEWAY VILLAGE LIMITED PARTNERSHIP, BEL AIR SQUARE JOINT
VENTURE, TOWSON CIRCLE JOINT VENTURE LLP AND REISTERSTOWN PLAZA HOLDINGS, LLC
Notes to Combined Historical Summary of Gross Income and
Direct Operating Expenses
For the year ended December 31, 2003 and the six months ended June 30, 2004
(unaudited)
(1) Business
The Properties owned by Capital Centre, LLC, Gateway Village Limited
Partnership, Bel Air Square Joint Venture, Towson Circle Joint Venture LLP, and
Reisterstown Plaza Holdings, LLC (collectively the "Properties") consists of the
following:
Gross Occupancy at
Leasable December 31,
Area 2003
Entity Name (unaudited) Location (unaudited)
----------------------------------------------------------------------------------------------------------------
Capital Centre, LLC Boulevard at Capital Centre 515,000 Landover, MD 59%
Gateway Village Limited Partnership Gateway Village 274,000 Annapolis, MD 98%
Bel Air Square Joint Venture Tollgate Marketplace 393,000 Bel Air, MD 99%
Towson Circle Joint Venture, LLP Towson Circle 178,000 Towson, MD 91%
Reisterstown Plaza Holdings, LLC Reisterstown Road Plaza 782,000 Baltimore, MD 89%
Thirteen tenants account for 40% or the Properties' base rental income.
Inland Western Retail Real Estate Trust, Inc. ("IWRRETI") through established
limited liability companies ("LLC's") entered into contracts to become joint
venture partners in the ownership and operation of the Properties with
unaffiliated third parties. IWRRETI has contributed into all but Capital Centre
LLC.
In each instance IWRRETI owns or will own a 95% profits interest in the LLC's
and will control the LLC's management and operation of the Properties. The
Historical Summary represents the combination of the Propertes described above
prior to IWRRETI's contribution into the LLCs. There were no transactions
between the Properties which required elimination in combination.
A portion of Boulevard at Capital Centre and Reisterstown Road Plaza
(representing approximately 321,000 and 694,000 square feet, respectively) of
the Properties gross leasable area was under construction and completed during
2003. The remaining portion f the Properties' gross leasable area (representing
approximately 194,000 and 88,000 square feet, respectively) was under
construction as of December 31, 2003. Real estate taxes and ground rent are
excluded in the Combined Historical Summary related to the portions of the
Properties under construction.
F-74
CAPITAL CENTRE, LLC, GATEWAY VILLAGE LIMITED PARTNERSHIP, BEL AIR SQUARE JOINT
VENTURE, TOWSON CIRCLE JOINT VENTURE LLP AND REISTERSTOWN PLAZA HOLDINGS, LLC
Notes to Combined Historical Summary of Gross Income and
Direct Operating Expenses
For the year ended December 31, 2003 and the six months ended June 30, 2004
(unaudited)
(2) Basis of Presentation
The Combined Historical Summary of Gross Income and Direct Operating Expenses
("Combined Historical Summary") has been prepared for the purpose of complying
with Rule 3-14 of the Securities and Exchange Commission Regulation S-X and for
inclusion in the Registration Statement on Form S-11 of IWRRETI and is not
intended to be a complete presentation of the Property's revenues and expenses.
The Combined Historical Summary has been prepared on the accrual basis of
accounting and requires management of the Property to make estimates and
assumptions that affect the reported amounts of the revenues and expenses during
the reporting period. Actual results may differ from those estimates.
All adjustments necessary for a fair presentation have been made to the
accompanying unaudited amounts for the six months ended June 30, 2004.
(3) Gross Income
The Property leases retail space under various lease agreements with its
tenants. All leases are accounted for as operating leases. The leases include
provisions under which the Property is reimbursed for common area, real estate,
and insurance costs. Revenue related to these reimbursed costs is recognized in
the period the applicable costs are incurred and billed to tenants pursuant to
the lease agreements. Certain leases contain renewal options at various periods
at various rental rates. Certain of the leases contain provision for contingent
rentals. Recognition of contingent rental income is deferred until the target
that triggers the contingent rental income is achieved. Contingent rent of
$384,157 was earned during the year ended December 31, 2003 and included in base
rental income in the Combined Historical Summary.
In addition, rental income included $51,381 of rent from three tenants that pay
monthly rent based upon a percentage of monthly sales in lieu of minimum rents
provided in the lease. The minimum rents schedule below excludes such tenants.
Although certain leases may provide for tenant occupancy during periods for
which no rent is due and/or increases exist in minimum lease payments over the
term of the lease, rental income accrues for the full period of occupancy on a
straight-line basis. Related adjustments increased base rental income by
$385,193 for the year ended December 31, 2003.
F-75
CAPITAL CENTRE, LLC, GATEWAY VILLAGE LIMITED PARTNERSHIP, BEL AIR SQUARE JOINT
VENTURE, TOWSON CIRCLE JOINT VENTURE LLP AND REISTERSTOWN PLAZA HOLDINGS, LLC
Notes to Combined Historical Summary of Gross Income and
Direct Operating Expenses
For the year ended December 31, 2003 and the six months ended June 30, 2004
(unaudited)
Minimum rents to be received from tenants under operating leases which terms
range from one year to 25 years, in effect at December 31, 2003, are as follows:
YEAR TOTAL
-------------------------------------------------
2004 $ 23,146,780
2005 25,731,908
2006 25,160,727
2007 24,317,293
2008 23,244,717
Thereafter 160,625,600
-------------------
$ 282,227,025
===================
(4) Direct Operating Expenses
Direct operating expenses include only those costs expected to be comparable to
the proposed future operations of the Property. Repairs and maintenance expenses
are charged to operations as incurred. Costs such as depreciation, amortization,
management fees, interest expense related to mortgage debt not assumed, and
professional fees are excluded from the Combined Historical Summary.
Boulevard at Capital Centre is subject to a ground lease with annual payments,
payable to an unaffiliated third party. The ground lease matures in 2070.
Although the ground lease provides for increases in minimum rent payments over
the term of the lease, ground lease expense accrues on a straight-line basis.
The related adjustment increased ground rent expense by approximately $9,078 for
the year ended December 31, 2003.
Minimum rents to be paid to the unaffiliated third party under the ground lease
in effect at December 31, 2003 are as follows:
YEAR TOTAL
-------------------------------------------------
2004 $ 92,824
2005 94,057
2006 97,433
2007 98,579
2008 99,791
Thereafter 9,477,524
-------------------
$ 9,960,208
===================
F-76
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors
Inland Western Retail Real Estate Trust, Inc.
We have audited the accompanying Historical Summary of Gross Income and Direct
Operating Expenses ("Historical Summary") of The Shops at Boardwalk ("the
Property") for the period from May 30, 2003 (commencement of operations) to
December 31, 2003. This Historical Summary is the responsibility of management
of Inland Western Retail Real Estate Trust, Inc. Our responsibility is to
express an opinion on the Historical Summary based on our audit.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
Historical Summary is free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the Historical Summary. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall presentation of the Historical Summary. We believe that
our audit provides a reasonable basis for our opinion.
The accompanying Historical Summary was prepared for the purpose of complying
with the rules and regulations of the Securities and Exchange Commission and for
inclusion in the Registration Statement on Form S-11 of Inland Western Retail
Real Estate Trust, Inc., as described in note 2. It is not intended to be a
complete presentation of the Property's revenues and expenses.
In our opinion, the Historical Summary referred to above presents fairly, in all
material respects, the gross income and direct operating expenses described in
note 2 of The Shops at Boardwalk for the period from May 30, 2003 (commencement
of operations) to December 31, 2003, in conformity with U.S. generally accepted
accounting principles.
KPMG LLP
Chicago, Illinois
August 25, 2004
F-77
THE SHOPS AT BOARDWALK
Historical Summary of Gross Income and Direct Operating Expenses
For the period from May 30, 2003 (commencement of operations) to
December 31, 2003, and the six months ended June 30, 2004 (unaudited)
For the period from
May 30, 2003
For the (commencement of
six months ended operations) to
June 30, 2004 December 31, 2003
---------------------------------------
(unaudited)
Gross income:
Base rental income $ 976,541 707,251
Operating expense and real estate tax recoveries 357,069 94,219
---------------------------------------
Total gross income 1,333,610 801,470
---------------------------------------
Direct operating expenses:
Operating expenses 288,162 234,198
Real estate taxes 207,700 9,280
Insurance 18,684 24,417
---------------------------------------
Total direct operating expenses 514,546 267,895
---------------------------------------
Excess of gross income over direct operating expenses $ 819,064 533,575
=======================================
See accompanying notes to historical summary of gross income and direct
operating expense.
F-78
THE SHOPS AT BOARDWALK
Notes to Historical Summary of Gross Income and Direct Operating Expenses
For the period from May 30, 2003 (commencement of operations) to
December 31, 2003, and the six months ended June 30, 2004 (unaudited)
(1) BUSINESS
The Shops at Boardwalk ("the Property") is located in Kansas City,
Missouri. The Property consists of approximately 123,265 square feet of
gross leasable area and was approximately 61.97% occupied at December 31,
2003. The Property is leased to 18 tenants of which one tenant that
accounts for approximately 16% of base rental revenue for the period from
May 30, 2003 (commencement of operations) to December 31, 2003. On July 1,
2004, Inland Western Retail Real Estate Trust, Inc. ("IWRRETI") acquired
the Property from an unaffiliated third-party.
(2) BASIS OF PRESENTATION
The Historical Summary of Gross Income and Direct Operating Expenses
("Historical Summary") has been prepared for the purpose of complying with
Rule 3-14 of the Securities and Exchange Commission Regulation S-X and for
inclusion in the Registration Statement on Form S-11 of IWRRETI and is not
intended to be a complete presentation of the Property's revenues and
expenses. The Historical Summary has been prepared on the accrual basis of
accounting and requires management of the Property to make estimates and
assumptions that affect the reported amounts of the revenues and expenses
during the reporting period. Actual results may differ from those
estimates.
All adjustments necessary for a fair presentation have been made to the
accompanying unaudited amounts for the six months ended June 30, 2004.
(3) GROSS INCOME
The Property leases retail space under various lease agreements with its
tenants. All leases are accounted for as operating leases. The leases
include provisions under which the Property is reimbursed for common area,
real estate, and insurance costs. Revenue related to these reimbursed costs
is recognized in the period the applicable costs are incurred and billed to
tenants pursuant to the lease agreements. Certain leases contain renewal
options at various periods at various rental rates. Certain of the leases
contain provision for contingent rentals. Recognition of contingent rental
income is deferred until the target that triggers the contingent rental
income is achieved. No contingent rent was earned during the period from
May 30, 2003 (commencement of operations) to December 31, 2003.
Although certain leases may provide for tenant occupancy during periods for
which no rent is due and/or increases exist in minimum lease payments over
the term of the lease, rental income accrues for the full period of
occupancy on a straight-line basis. Related adjustments increased base
rental income by $184,160 for the period from May 30, 2003 (commencement of
operations) to December 31, 2003.
F-79
THE SHOPS AT BOARDWALK
Notes to Historical Summary of Gross Income and Direct Operating Expenses
For the period from May 30, 2003 (commencement of operations) to
December 31, 2003, and the six months ended June 30, 2004 (unaudited)
Minimum rents to be received from tenants under operating leases, which
terms range from five to 20 years, in effect at December 31, 2003, are as
follows:
YEAR TOTAL
-------------------------------------------------
2004 $ 1,716,081
2005 1,978,726
2006 1,988,182
2007 1,998,578
2008 1,748,381
Thereafter 9,118,444
-------------------
$ 18,548,392
===================
(4) DIRECT OPERATING EXPENSES
Direct operating expenses include only those costs expected to be comparable to
the proposed future operations of the Property. Repairs and maintenance expenses
are charged to operations as incurred. Costs such as depreciation, amortization,
management fees, interest expense related to mortgage debt not assumed, and
professional fees are excluded from the Historical Summary.
F-80
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors
Inland Western Retail Real Estate Trust, Inc.
We have audited the accompanying Historical Summary of Gross Income and Direct
Operating Expenses ("Historical Summary") of Manchester Meadows ("the Property")
for the year ended December 31, 2003. This Historical Summary is the
responsibility of management of Inland Western Retail Real Estate Trust, Inc.
Our responsibility is to express an opinion on the Historical Summary based on
our audit.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
Historical Summary is free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the Historical Summary. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall presentation of the Historical Summary. We believe that
our audit provides a reasonable basis for our opinion.
The accompanying Historical Summary was prepared for the purpose of complying
with the rules and regulations of the Securities and Exchange Commission and for
inclusion in Post-Effective Amendment No. 5 to the Registration Statement on
Form S-11 of Inland Western Retail Real Estate Trust, Inc., as described in note
2. It is not intended to be a complete presentation of the Property's revenues
and expenses.
In our opinion, the Historical Summary referred to above presents fairly, in all
material respects, the gross income and direct operating expenses described in
note 2 of Manchester Meadows for the year ended December 31, 2003, in conformity
with U.S. generally accepted accounting principles.
KPMG LLP
Chicago, Illinois
September 1, 2004
F-81
MANCHESTER MEADOWS
Historical Summary of Gross Income and Direct Operating Expenses
For the year ended December 31, 2003 and the six months ended June 30, 2004
(unaudited)
For the For the year
six months ended ended
June 30, 2004 December 31, 2003
-------------------------------------
(unaudited)
Gross income:
Base rental income $ 2,041,721 4,035,915
Contingent Rent - 17,086
Operating expense and real estate tax recoveries 644,313 1,223,383
-------------------------------------
Total gross income 2,686,034 5,276,384
-------------------------------------
Direct operating expenses:
Operating expenses 200,959 360,741
Real estate taxes 397,296 785,067
Insurance 48,066 95,178
-------------------------------------
Total direct operating expenses 646,321 1,240,986
-------------------------------------
Excess of gross income over direct operating expenses $ 2,039,713 4,035,398
=====================================
See accompanying notes to historical summary of gross income and direct
operating expense.
F-82
MANCHESTER MEADOWS
Notes to Historical Summary of Gross Income and Direct Operating Expenses
For the year ended December 31, 2003 and the six months ended June 30, 2004
(unaudited)
(1) BUSINESS
Manchester Meadows ("the Property") is located in Town and Country,
Missouri. The Property consists of 454,172 square feet of gross leasable
area and was approximately 99% occupied at December 31, 2003. The Property
is leased to a total of 22 tenants, of which two tenants account for
approximately 47% of base rental revenue for the year ended December 31,
2003. On August 12, 2004, Inland Western Retail Real Estate Trust, Inc.
("IWRRETI") acquired the Property from an unaffiliated third-party.
(2) BASIS OF PRESENTATION
The Historical Summary of Gross Income and Direct Operating Expenses
("Historical Summary") has been prepared for the purpose of complying with
Rule 3-14 of the Securities and Exchange Commission Regulation S-X and for
inclusion in the Post-Effective Amendment No. 5 to the Registration
Statement on Form S-11 of IWRRETI and is not intended to be a complete
presentation of the Property's revenues and expenses. The Historical
Summary has been prepared on the accrual basis of accounting and requires
management of the Property to make estimates and assumptions that affect
the reported amounts of the revenues and expenses during the reporting
period. Actual results may differ from those estimates.
All adjustments necessary for a fair presentation have been made to the
accompanying unaudited amounts for the six months ended June 30, 2004.
(3) GROSS INCOME
The Property leases retail space under various lease agreements with its
tenants. All leases are accounted for as operating leases. The leases
include provisions under which the Property is reimbursed for common area,
real estate, and insurance costs. Revenue related to these reimbursed costs
is recognized in the period the applicable costs are incurred and billed to
tenants pursuant to the lease agreements. Certain leases contain renewal
options at various periods at various rental rates. Certain of the leases
contain provision for contingent rentals. Recognition of contingent rental
income is deferred until the target that triggers the contingent rental
income is achieved. Contingent rent of $17,086 was earned during the year
ended December 31, 2003.
The Property has one ground lease that is classified as an operating lease
with a term extending until August 31, 2005. Total ground lease income was
$75,600 and is included in base rental income in the accompanying
Historical Summary for the year ended December 31, 2003.
Although certain leases may provide for tenant occupancy during periods for
which no rent is due and/or increases exist in minimum lease payments over
the term of the lease, rental income accrues for the full period of
occupancy on a straight-line basis. Related adjustments decreased base
rental income by $10,221 for the year ended December 31, 2003.
F-83
MANCHESTER MEADOWS
Notes to Historical Summary of Gross Income and Direct Operating Expenses
For the year ended December 31, 2003 and the six months ended June 30, 2004
(unaudited)
Minimum rents to be received from tenants under operating leases, which
terms range from five to 25 years, in effect at December 31, 2003, are as
follows:
TOTAL
-------------
$ 3,790,741
2,996,909
2,880,005
2,766,580
2,702,438
18,154,477
-------------
$ 33,291,150
=============
(4) DIRECT OPERATING EXPENSES
Direct operating expenses include only those costs expected to be
comparable to the proposed future operations of the Property. Repairs and
maintenance expenses are charged to operations as incurred. Costs such as
depreciation, amortization, management fees, interest expense related to
mortgage debt not assumed, and professional fees are excluded from the
Historical Summary.
F-84
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors
Inland Western Retail Real Estate Trust, Inc.
We have audited the accompanying Historical Summary of Gross Income and Direct
Operating Expenses ("Historical Summary") of Governor's Marketplace ("the
Property") for the year ended December 31, 2003. This Historical Summary is the
responsibility of management of Inland Western Retail Real Estate Trust, Inc.
Our responsibility is to express an opinion on the Historical Summary based on
our audit.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
Historical Summary is free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the Historical Summary. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall presentation of the Historical Summary. We believe that
our audit provides a reasonable basis for our opinion.
The accompanying Historical Summary was prepared for the purpose of complying
with the rules and regulations of the Securities and Exchange Commission and for
inclusion in Post-Effective Amendment No. 5 to the Registration Statement on
Form S-11 of Inland Western Retail Real Estate Trust, Inc., as described in note
2. It is not intended to be a complete presentation of the Property's revenues
and expenses.
In our opinion, the Historical Summary referred to above presents fairly, in all
material respects, the gross income and direct operating expenses described in
note 2 of Governor's Marketplace for the year ended December 31, 2003, in
conformity with U.S. generally accepted accounting principles.
KPMG LLP
Chicago, Illinois
September 3, 2004
F-85
GOVERNOR'S MARKETPLACE
Historical Summary of Gross Income and Direct Operating Expenses
For the year ended December 31, 2003 and the six months ended June 30, 2004
(unaudited)
For the For the year
six months ended ended
June 30, 2004 December 31, 2003
-----------------------------------
(unaudited)
Gross income:
Base rental income $ 1,445,892 2,391,430
Operating expense and real estate tax recoveries 171,315 312,733
-----------------------------------
Total gross income 1,617,207 2,704,163
-----------------------------------
Direct operating expenses:
Operating expenses 102,701 179,023
Real estate taxes 91,472 147,863
Insurance 173,835 273,576
-----------------------------------
Total direct operating expenses 368,008 600,462
-----------------------------------
Excess of gross income over direct operating expenses $ 1,249,199 2,103,701
===================================
See accompanying notes to historical summary of gross income and direct
operating expense.
F-86
GOVERNOR'S MARKETPLACE
Notes to Historical Summary of Gross Income and Direct Operating Expenses
For the year ended December 31, 2003 and the six months ended June 30, 2004
(unaudited)
(1) Business
Governor's Marketplace ("the Property") is located in Tallahassee, Florida. The
Property consists of approximately 265,541 square feet of gross leasable area
and was approximately 83% occupied at December 31, 2003. The Property is leased
to 18 tenants of which five tenants account for approximately 53% of base rental
revenue for the year ended December 31, 2003. On August 17, 2004, Inland Western
Retail Real Estate Trust, Inc. ("IWRRETI") acquired the Property from an
unaffiliated third-party.
A portion of Governor's Marketplace was under construction during 2003.
Operations commenced on July 28, 2000 with a portion of the Property's gross
leasable area (representing 220,850 square feet) completed as of December 31,
2003. Of the remaining portion of the Property's gross leasable area, 16,690
square feet is under construction and scheduled to be completed during 2004.
28,001 square feet is undeveloped land.
(2) Basis of Presentation
The Historical Summary of Gross Income and Direct Operating Expenses
("Historical Summary") has been prepared for the purpose of complying with Rule
3-14 of the Securities and Exchange Commission Regulation S-X and for inclusion
in Post-Effective Amendment No. 5 to the Registration Statement on Form S-11 of
IWRRETI and is not intended to be a complete presentation of the Property's
revenues and expenses. The Historical Summary has been prepared on the accrual
basis of accounting and requires management of the Property to make estimates
and assumptions that affect the reported amounts of the revenues and expenses
during the reporting period. Actual results may differ from those estimates.
All adjustments necessary for a fair presentation have been made to the
accompanying unaudited amounts for the six months ended June 30, 2004.
(3) Gross Income
The Property leases retail space under various lease agreements with its
tenants. All leases are accounted for as operating leases. The leases include
provisions under which the Property is reimbursed for common area, real estate,
and insurance costs. Revenue related to these reimbursed costs is recognized in
the period the applicable costs are incurred and billed to tenants pursuant to
the lease agreements. Certain leases contain renewal options at various periods
at various rental rates. Certain of the leases contain provision for contingent
rentals. Recognition of contingent rental income is deferred until the target
that triggers the contingent rental income is achieved. No contingent rent was
earned during the year ended December 31, 2003.
The Property has one ground lease that is classified as an operating lease with
terms extending through November 30, 2012. Total ground lease income was $63,600
and is included in base rental income in the accompanying Historical Summary for
the year ended December 31, 2003.
Although certain leases may provide for tenant occupancy during periods for
which no rent is due and/or increases exist in minimum lease payments over the
term of the lease, rental income accrues for the full period of occupancy on a
straight-line basis. Related adjustments increased base rental income by
$223,324 for the year ended December 31, 2003.
F-87
GOVERNOR'S MARKETPLACE
Notes to Historical Summary of Gross Income and Direct Operating Expenses
For the year ended December 31, 2003 and the six months ended June 30, 2004
(unaudited)
Minimum rents to be received from tenants under operating leases, which terms
range from five to 16 years, in effect at December 31, 2003, are as follows:
YEAR TOTAL
-------------------------------------------------
2004 $ 2,870,026
2005 3,028,732
2006 2,901,670
2007 2,529,017
2008 2,260,420
Thereafter 8,985,450
-------------------
$ 22,575,315
===================
(4) Direct Operating Expenses
Direct operating expenses include only those costs expected to be comparable to
the proposed future operations of the Property. Repairs and maintenance expenses
are charged to operations as incurred. Costs such as depreciation, amortization,
management fees, insurance, interest expense related to mortgage debt not
assumed, and professional fees are excluded from the Historical Summary.
The property is subject to ground leases with fixed annual payments, payable to
an unaffiliated third party, of $270,000 until September 30, 2085, and $60,000
until December 31, 2087. In addition, the property incurred overage rent of
$12,876 for the twelve months ended December 31, 2003. The ground leases mature
in 2085 and 2087, respectively. A portion of the ground lease expense has been
capitalized in 2003 as the Property was under construction.
Fixed minimum rents to be paid to the unaffiliated third party under the ground
lease in effect at December 31, 2003 are as follows:
YEAR TOTAL
-------------------------------------------------
2004 $ 330,000
2005 330,000
2006 330,000
2007 330,000
2008 330,000
Thereafter 25,530,000
-------------------
$ 27,180,000
===================
F-88
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors
Inland Western Retail Real Estate Trust, Inc.
We have audited the accompanying Historical Summary of Gross Income and
Direct Operating Expenses ("Historical Summary") of Mitchell Ranch Plaza
("the Property") for the period from June 30, 2003 (commencement of
operations) to December 31, 2003. This Historical Summary is the
responsibility of management of Inland Western Retail Real Estate Trust, Inc.
Our responsibility is to express an opinion on the Historical Summary based
on our audit.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
Historical Summary is free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the Historical Summary. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall presentation of the Historical Summary. We believe
that our audit provides a reasonable basis for our opinion.
The accompanying Historical Summary was prepared for the purpose of complying
with the rules and regulations of the Securities and Exchange Commission and
for inclusion in the Post-Effective Amendment No. 5 to the Registration
Statement on Form S-11 of Inland Western Retail Real Estate Trust, Inc., as
described in note 2. It is not intended to be a complete presentation of the
Property's revenues and expenses.
In our opinion, the Historical Summary referred to above presents fairly, in
all material respects, the gross income and direct operating expenses
described in note 2 of Mitchell Ranch Plaza for the period from June 30, 2003
(commencement of operations) to December 31, 2003, in conformity with U.S.
generally accepted accounting principles.
KPMG LLP
Chicago, Illinois
September 1, 2004
F-89
MITCHELL RANCH PLAZA
Historical Summary of Gross Income and Direct Operating Expenses
For the period from June 30, 2003 (commencement of operations) to
December 31, 2003 and the six months ended June 30, 2004 (unaudited)
For the period from
June 30, 2003
For the six months (commencement of
ended operations) to
June 30, 2004 December 31, 2003
----------------------------------------
(unaudited)
Gross income:
Base rental income $ 1,122,351 580,219
Operating expense and real estate tax recoveries 187,757 126,065
----------------------------------------
Total gross income 1,310,108 706,284
----------------------------------------
Direct operating expenses:
Operating expenses 90,848 84,005
Real estate taxes 90,030 48,985
Insurance 21,402 6,147
----------------------------------------
Total direct operating expenses 202,280 139,137
----------------------------------------
Excess of gross income over direct operating expenses $ 1,107,828 567,147
========================================
See accompanying notes to historical summary of gross income and direct
operating expense.
F-90
MITCHELL RANCH PLAZA
Notes to Historical Summary of Gross Income and Direct Operating Expenses
For the period from June 30, 2003 (commencement of operations) to
December 31, 2003 and the six months ended June 30, 2004 (unaudited)
(1) Business
Mitchell Ranch Plaza ("the Property") is located in New Port Richey, Florida.
The Property consists of approximately 200,304 square feet of gross leasable
area and was approximately 85% occupied at December 31, 2003. The Property is
leased to 33 tenants of which three tenants account for approximately 72% of
base rental revenue for the period from June 30, 2003 (commencement of
operations) to December 31, 2003. On August 25, 2004, Inland Western Retail Real
Estate Trust, Inc. ("IWRRETI") acquired the Property from an unaffiliated
third-party.
(2) Basis of Presentation
The Historical Summary of Gross Income and Direct Operating Expenses
("Historical Summary") has been prepared for the purpose of complying with Rule
3-14 of the Securities and Exchange Commission Regulation S-X and for inclusion
in the Post-Effective Amendment No. 5 to the Registration Statement on Form S-11
of IWRRETI and is not intended to be a complete presentation of the Property's
revenues and expenses. The Historical Summary has been prepared on the accrual
basis of accounting and requires management of the Property to make estimates
and assumptions that affect the reported amounts of the revenues and expenses
during the reporting period. Actual results may differ from those estimates.
All adjustments necessary for a fair presentation have been made to the
accompanying unaudited amounts for the six months ended June 30, 2004.
(3) Gross Income
The Property leases retail space under various lease agreements with its
tenants. All leases are accounted for as operating leases. The leases include
provisions under which the Property is reimbursed for common area, real estate,
and insurance costs. Revenue related to these reimbursed costs is recognized in
the period the applicable costs are incurred and billed to tenants pursuant to
the lease agreements. Certain leases contain renewal options at various periods
at various rental rates. Certain of the leases contain provision for contingent
rentals. Recognition of contingent rental income is deferred until the target
that triggers the contingent rental income is achieved. No contingent rent was
earned during the period from June 30, 2003 (commencement of operations) to
December 31, 2003.
Although certain leases may provide for tenant occupancy during periods for
which no rent is due and/or increases exist in minimum lease payments over the
term of the lease, rental income accrues for the full period of occupancy on a
straight-line basis. Related adjustments increased base rental income by $77,602
for the period from June 30, 2003 (commencement of operations) to December 31,
2003.
F-91
MITCHELL RANCH PLAZA
Notes to Historical Summary of Gross Income and Direct Operating Expenses
For the period from June 30, 2003 (commencement of operations) to
December 31, 2003 and the six months ended June 30, 2004 (unaudited)
Minimum rents to be received from tenants under operating leases, which terms
range from three to 20 years, in effect at December 31, 2003, are as follows:
YEAR TOTAL
-------------------------------------------
2004 $ 2,237,421
2005 2,279,929
2006 2,253,825
2007 2,127,567
2008 2,058,164
Thereafter 12,355,030
----------------
$ 23,311,936
================
(4) Direct Operating Expenses
Direct operating expenses include only those costs expected to be comparable to
the proposed future operations of the Property. Repairs and maintenance expenses
are charged to operations as incurred. Costs such as depreciation, amortization,
management fees, interest expense related to mortgage debt not assumed, and
professional fees are excluded from the Historical Summary.
F-92
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors
Inland Western Retail Real Estate Trust, Inc.
We have audited the accompanying Historical Summary of Gross Income and Direct
Operating Expenses ("Historical Summary") of The Columns ("the Property") for
the period from October 8, 2003 (commencement of operations) to December 31,
2003. This Historical Summary is the responsibility of management of Inland
Western Retail Real Estate Trust, Inc. Our responsibility is to express an
opinion on the Historical Summary based on our audit.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
Historical Summary is free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the Historical Summary. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall presentation of the Historical Summary. We believe that
our audit provides a reasonable basis for our opinion.
The accompanying Historical Summary was prepared for the purpose of complying
with the rules and regulations of the Securities and Exchange Commission and for
inclusion in the Post-Effective Amendment No. 5 to the Registration Statement on
Form S-11 of Inland Western Retail Real Estate Trust, Inc., as described in note
2. It is not intended to be a complete presentation of the Property's revenues
and expenses.
In our opinion, the Historical Summary referred to above presents fairly, in all
material respects, the gross income and direct operating expenses described in
note 2 of The Columns for the period from October 8, 2003 (commencement of
operations) to December 31, 2003, in conformity with U.S. generally accepted
accounting principles.
KPMG LLP
Chicago, Illinois
September 10, 2004
F-93
THE COLUMNS
Historical Summary of Gross Income and Direct Operating Expenses
For the period from October 8, 2003 (commencement of operations) to
December 31, 2003 and the six months ended June 30, 2004 (unaudited)
For the period from
October 8, 2003
For the six months (commencement of
ended operations) to
June 30, 2004 December 31, 2003
-----------------------------------
(unaudited)
Gross income:
Base rental income $ 615,902 239,197
Operating expense and real estate tax recoveries 105,488 25,794
-----------------------------------
Total gross income 721,390 264,991
-----------------------------------
Direct operating expenses:
Operating expenses 51,836 29,157
Real estate taxes 66,571 2,180
Insurance 12,662 6,503
-----------------------------------
Total direct operating expenses 131,069 37,840
-----------------------------------
Excess of gross income over direct operating expenses $ 590,321 227,151
===================================
See accompanying notes to historical summary of gross income and direct
operating expense.
F-94
THE COLUMNS
Historical Summary of Gross Income and Direct Operating Expenses
For the period from October 8, 2003 (commencement of operations) to
December 31, 2003 and the six months ended June 30, 2004 (unaudited)
(1) Business
The Columns ("the Property") is located in Jackson, Tennessee. The Property
consists of approximately 128,600 square feet of gross leasable area and was
approximately 78% occupied at December 31, 2003. The Property is leased to five
tenants of which two tenants account for approximately 71% of base rental
revenue for the period from October 8, 2003 (commencement of operations) to
December 31, 2003. On August 25, 2004, Inland Western Retail Real Estate Trust,
Inc. ("IWRRETI") acquired the Property from an unaffiliated third-party.
The Columns was under construction during 2003 and commenced operations October
8, 2003, with construction complete as of December 31, 2003.
(2) Basis of Presentation
The Historical Summary of Gross Income and Direct Operating Expenses
("Historical Summary") has been prepared for the purpose of complying with Rule
3-14 of the Securities and Exchange Commission Regulation S-X and for inclusion
in the Post-Effective Amendment No. 5 to the Registration Statement on Form S-11
of IWRRETI and is not intended to be a complete presentation of the Property's
revenues and expenses. The Historical Summary has been prepared on the accrual
basis of accounting and requires management of the Property to make estimates
and assumptions that affect the reported amounts of the revenues and expenses
during the reporting period. Actual results may differ from those estimates.
All adjustments necessary for a fair presentation have been made to the
accompanying unaudited amounts for the six months ended June 30, 2004.
(3) Gross Income
The Property leases retail space under various lease agreements with its
tenants. All leases are accounted for as operating leases. The leases include
provisions under which the Property is reimbursed for common area, real estate,
and insurance costs. Revenue related to these reimbursed costs is recognized in
the period the applicable costs are incurred and billed to tenants pursuant to
the lease agreements. Certain leases contain renewal options at various periods
at various rental rates. Certain of the leases contain provision for contingent
rentals. Recognition of contingent rental income is deferred until the target
that triggers the contingent rental income is achieved. No contingent rent of
was earned during the period from October 8, 2003 (commencement of operations)
to December 31, 2003.
In addition, rental income includes $9,732 of rent from one tenant that pays
monthly rent based upon a percentage of monthly sales in lieu of minimum rents
provided in the lease as the cotenancy requirement was not met for the period
from October 8, 2003 (commencement of operations) to December 31, 2003.
Although certain leases may provide for tenant occupancy during periods for
which no rent is due and/or increases exist in minimum lease payments over the
term of the lease, rental income accrues for the full period of occupancy on a
straight-line basis. Related adjustments increased base rental income by $2,774
for the period from October 8, 2003 (commencement of operations) to December 31,
2003.
F-95
THE COLUMNS
Historical Summary of Gross Income and Direct Operating Expenses
For the period from October 8, 2003 (commencement of operations) to
December 31, 2003 and the six months ended June 30, 2004 (unaudited)
Minimum rents to be received from tenants under operating leases, which terms
range from five to ten years, in effect at December 31, 2003, are as follows:
YEAR TOTAL
-------------------------------------------
2004 $ 1,346,993
2005 1,480,470
2006 1,482,468
2007 1,485,966
2008 1,489,103
Thereafter 4,900,972
----------------
$ 12,185,972
================
(4) Direct Operating Expenses
Direct operating expenses include only those costs expected to be comparable to
the proposed future operations of the Property. Repairs and maintenance expenses
are charged to operations as incurred. Costs such as depreciation, amortization,
management fees, interest expense related to mortgage debt not assumed, and
professional fees are excluded from the Historical Summary.
F-96
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors
Inland Western Retail Real Estate Trust, Inc.
We have audited the accompanying Historical Summary of Gross Income and Direct
Operating Expenses ("Historical Summary") of Saucon Valley Square ("the
Property") for the year ended December 31, 2003. This Historical Summary is the
responsibility of management of Inland Western Retail Real Estate Trust, Inc.
Our responsibility is to express an opinion on the Historical Summary based on
our audit.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
Historical Summary is free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the Historical Summary. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall presentation of the Historical Summary. We believe that
our audit provides a reasonable basis for our opinion.
The accompanying Historical Summary was prepared for the purpose of complying
with the rules and regulations of the Securities and Exchange Commission and for
inclusion in Post-Effective Amendment No. 5 to the Registration Statement on
Form S-11 of Inland Western Retail Real Estate Trust, Inc., as described in note
2. It is not intended to be a complete presentation of the Property's revenues
and expenses.
In our opinion, the Historical Summary referred to above presents fairly, in all
material respects, the gross income and direct operating expenses described in
note 2 of Saucon Valley Square for the year ended December 31, 2003, in
conformity with U.S. generally accepted accounting principles.
KPMG LLP
Chicago, Illinois
September 7, 2004
F-97
SAUCON VALLEY SQUARE
Notes to Historical Summary of Gross Income and Direct Operating Expenses
For the year ended December 31, 2003 and the six months ended June 30, 2004
(unaudited)
For the six months
ended For the year ended
June 30, 2004 December 31, 2003
--------------------------------------
(unaudited)
Gross income:
Base rental income $ 606,848 1,213,696
Operating expense and real estate tax recoveries 116,965 285,028
-----------------------------------
Total gross income 723,813 1,498,724
-----------------------------------
Direct operating expenses:
Operating expenses 46,772 149,770
Real estate taxes 67,547 128,661
-----------------------------------
Total direct operating expenses 114,319 278,431
-----------------------------------
Excess of gross income over direct operating expenses $ 609,494 1,220,293
===================================
See accompanying notes to historical summary of gross income and direct
operating expense.
F-98
SAUCON VALLEY SQUARE
Notes to Historical Summary of Gross Income and Direct Operating Expenses
For the year ended December 31, 2003 and the six months ended June 30, 2004
(unaudited)
(1) Business
Saucon Valley Square ("the Property") is located in Bethlehem, PA. The Property
consists of approximately 80,695 square feet of gross leasable area and was
approximately 100% occupied at December 31, 2003. The Property is leased to 15
tenants of which one tenant accounts for approximately 73% of base rental
revenue for the year ended December 31, 2003. On September 7, 2004, Inland
Western Retail Real Estate Trust, Inc. ("IWRRETI") acquired the Property from an
unaffiliated third-party.
(2) Basis of Presentation
The Historical Summary of Gross Income and Direct Operating Expenses
("Historical Summary") has been prepared for the purpose of complying with Rule
3-14 of the Securities and Exchange Commission Regulation S-X and for inclusion
in Post-Effective Amendment No. 5 to the Registration Statement on Form S-11 of
IWRRETI and is not intended to be a complete presentation of the Property's
revenues and expenses. The Historical Summary has been prepared on the accrual
basis of accounting and requires management of the Property to make estimates
and assumptions that affect the reported amounts of the revenues and expenses
during the reporting period. Actual results may differ from those estimates.
All adjustments necessary for a fair presentation have been made to the
accompanying unaudited amounts for the six months ended June 30, 2004.
(3) Gross Income
The Property leases retail space under various lease agreements with its
tenants. All leases are accounted for as operating leases. The leases include
provisions under which the Property is reimbursed for common area, real estate,
and insurance costs. Revenue related to these reimbursed costs is recognized in
the period the applicable costs are incurred and billed to tenants pursuant to
the lease agreements. Certain leases contain renewal options at various periods
at various rental rates.
The Property has one ground lease that is classified as an operating lease with
terms extending through July 12, 2008 . Total ground lease income was $3,750 and
is included in base rental income in the accompanying Historical Summary for the
year ended December 31, 2003.
Although certain leases may provide for tenant occupancy during periods for
which no rent is due and/or increases exist in minimum lease payments over the
term of the lease, rental income accrues for the full period of occupancy on a
straight-line basis. Related adjustments increased base rental income by $52,248
for the year ended December 31, 2003.
F-99
SAUCON VALLEY SQUARE
Notes to Historical Summary of Gross Income and Direct Operating Expenses
For the year ended December 31, 2003 and the six months ended June 30, 2004
(unaudited)
Minimum rents to be received from tenants under operating leases, which terms
range from three to 15 years, in effect at December 31, 2003, are as follows:
YEAR TOTAL
-------------------------------------------
2004 $ 910,599
2005 845,071
2006 845,071
2007 845,071
2008 821,160
Thereafter 7,271,335
----------------
$ 11,538,307
================
(4) Direct Operating Expenses
Direct operating expenses include only those costs expected to be comparable to
the proposed future operations of the Property. Repairs and maintenance expenses
are charged to operations as incurred. Costs such as depreciation, amortization,
management fees, interest expense related to mortgage debt not assumed, and
professional fees are excluded from the Historical Summary.
F-100
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors
Inland Western Retail Real Estate Trust, Inc.:
We have audited the accompanying Historical Summary of Gross Income and Direct
Operating Expenses (Historical Summary) of Lincoln Park Shopping Center (the
Property) for the year ended December 31, 2003. This Historical Summary is the
responsibility of management of Inland Western Retail Real Estate Trust, Inc.
Our responsibility is to express an opinion on the Historical Summary based on
our audit.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
Historical Summary is free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the Historical Summary. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall presentation of the Historical Summary. We believe that
our audit provides a reasonable basis for our opinion.
The accompanying Historical Summary was prepared for the purpose of complying
with the rules and regulations of the Securities and Exchange Commission and for
inclusion in Post-Effective Amendment No. 5 to the Registration Statement on
Form S-11 of Inland Western Retail Real Estate Trust, Inc., as described in note
2. It is not intended to be a complete presentation of the Property's revenues
and expenses.
In our opinion, the Historical Summary referred to above presents fairly, in all
material respects, the gross income and direct operating expenses described in
note 2 of Lincoln Park Shopping Center for the year ended December 31, 2003, in
conformity with U.S. generally accepted accounting principles.
Dallas, Texas
September 13, 2004
F-101
LINCOLN PARK SHOPPING CENTER
Historical Summary of Gross Income and Direct Operating Expenses
For the year ended December 31, 2003 and the six months ended June 30, 2004
(unaudited)
For the six
months ended For the year ended
June 30, 2004 December 31, 2003
----------------------------------
(unaudited)
Gross income:
Base rental income $ 1,713,722 3,386,458
Operating expense and real estate tax recoveries 607,814 1,179,700
----------------------------------
Total gross income 2,321,536 4,566,158
----------------------------------
Direct operating expenses:
Operating expenses 266,185 442,073
Real estate taxes 445,322 871,151
Insurance 12,566 33,190
----------------------------------
Total direct operating expenses 724,073 1,346,414
----------------------------------
Excess of gross income over direct operating expenses $ 1,597,463 3,219,744
==================================
See accompanying notes to historical summary of gross income and direct
operating expense.
F-102
LINCOLN PARK SHOPPING CENTER
Notes to Historical Summary of Gross Income and Direct Operating Expenses
For the year ended December 31, 2003 and the six months ended June 30, 2004
(unaudited)
(1) Business
Lincoln Park Shopping Center (the Property) is located in Dallas, Texas. The
Property consists of approximately 148,806 square feet of gross leasable area
and was 97% occupied at December 31, 2003. The Property is leased to 13 tenants
of which 4 tenants account for approximately 68% of base rental revenue for the
year ended December 31, 2003. On September 7, 2004, Inland Western Retail Real
Estate Trust, Inc. (IWRRETI) acquired the Property from an unaffiliated
third-party.
(2) Basis of Presentation
The Historical Summary of Gross Income and Direct Operating Expenses (Historical
Summary) has been prepared for the purpose of complying with Rule 3-14 of the
Securities and Exchange Commission Regulation S-X and for inclusion in
Post-Effective Amendment No. 5 to the Registration Statement on Form S-11 of
IWRRETI and is not intended to be a complete presentation of the Property's
revenues and expenses. The Historical Summary has been prepared on the accrual
basis of accounting and requires management of the Property to make estimates
and assumptions that affect the reported amounts of the revenues and expenses
during the reporting period. Actual results may differ from those estimates.
All adjustments necessary for a fair presentation have been made to the
accompanying unaudited amounts for the six months ended June 30, 2004.
(3) Gross Income
The Property leases retail space under various lease agreements with its
tenants. All leases are accounted for as operating leases. The leases include
provisions under which the Property is reimbursed for common area, real estate,
and insurance costs. Revenue related to these reimbursed costs is recognized in
the period the applicable costs are incurred and become billable to tenants
pursuant to the lease agreements. Certain leases contain renewal options at
various periods at various rental rates. Certain of the leases contain provision
for contingent rentals. Recognition of contingent rental income is deferred
until the target that triggers the contingent rental income is achieved.
Contingent rent of approximately $19,000 was earned during the year ended
December 31, 2003.
Although certain leases may provide for tenant occupancy during periods for
which no rent is due and/or increases exist in minimum lease payments over the
term of the lease, rental income accrues for the full period of occupancy on a
straight-line basis. Related adjustments increased base rental income by
approximately $141,000 for the year ended December 31, 2003.
F-103
LINCOLN PARK SHOPPING CENTER
Notes to Historical Summary of Gross Income and Direct Operating Expenses
For the year ended December 31, 2003 and the six months ended June 30, 2004
(unaudited)
Minimum rents to be received from tenants under operating leases, excluding
tenant reimbursements of operating expenses, which terms range from 5 to 25
years, in effect at December 31, 2003, are as follows:
Year Total
-------------------------------------------------
2004 $ 3,342,000
2005 3,299,000
2006 3,203,000
2007 3,207,000
2008 3,005,000
Thereafter 19,704,000
-------------------
$ 35,760,000
===================
Tenant reimbursements of operating expenses are included in operating expense
and real estate tax recoveries in the accompanying Historical Summary.
(4) Direct Operating Expenses
Direct operating expenses include only those costs expected to be comparable to
the proposed future operations of the Property. Repairs and maintenance expenses
are charged to operations as incurred. Costs such as depreciation, amortization,
management fees, interest expense related to mortgage debt not assumed, and
professional fees are excluded from the Historical Summary.
F-104
SHOPPES AT PROMINENCE POINT
Historical Summary of Gross Income and Direct Operating Expenses
For the period from March 1, 2004 (commencement of operations) to June 30, 2004
(unaudited)
For the period from
March 1, 2004
(commencement of
oeprations) to
June 30, 2004
--------------------
Gross income:
Base rental income $ 264,247
Operating expense and real estate tax recoveries 35,817
--------------------
Total gross income 300,064
--------------------
Direct operating expenses:
Operating expenses 9,259
Real estate taxes 32,055
Insurance 4,590
--------------------
Total direct operating expenses 45,904
--------------------
Excess of gross income over direct operating expenses $ 254,160
====================
See accompanying notes to historical summary of gross income and direct
operating expense.
F-105
SHOPPES AT PROMINENCE POINT
Notes to Historical Summary of Gross Income and Direct Operating Expenses
For the period from March 1, 2004 (commencement of operations) to June 30, 2004
(unaudited)
1. Basis of Presentation
The Historical Summary of Gross Income and Direct Operating Expenses for the
period from March 1, 2004 (commencement of operations) to June 30, 2004 has been
prepared from the operating statements provided by the owners of the property
during that period and requires management of Shoppes at Prominence Point to
make estimates and assumptions that affect the amounts of the revenues and
expense during that period. Actual results may differ from those estimates. The
property was completed in 2004 and had no significant operations through the
date of acquisition.
All adjustments necessary for a fair presentation have been made to the
accompanying unaudited amounts for the period from March 1, 2004 (commencement
of operations) to June 30, 2004.
F-106
LOW COUNTRY VILLAGE
Historical Summary of Gross Income and Direct Operating Expenses
For the period from February 1, 2004 (commencement of operations) to
June 30, 2004 (unaudited)
For the period from
February 1, 2004
(commencement of
operations) to
June 30, 2004
--------------------
Gross income:
Base rental income $ 301,293
Operating expense and real estate tax recoveries 49,137
--------------------
Total gross income 350,430
--------------------
Direct operating expenses:
Operating expenses 4,715
Real estate taxes 38,184
Insurance 21,110
--------------------
Total direct operating expenses 64,009
--------------------
Excess of gross income over direct operating expenses $ 286,421
====================
See accompanying notes to historical summary of gross income and direct
operating expense.
F-107
LOW COUNTRY VILLAGE
Notes to Historical Summary of Gross Income and Direct Operating Expenses
For the period from February 1, 2004 (commencement of operations) to
June 30, 2004 (unaudited)
1. Basis of Presentation
The Historical Summary of Gross Income and Direct Operating Expenses for the
period from February 1, 2004 (commencement of operations) to June 30, 2004 has
been prepared from the operating statements provided by the owners of the
property during that period and requires management of Low Country Village to
make estimates and assumptions that affect the amounts of the revenues and
expense during that period. Actual results may differ from those estimates. The
property was completed in 2004 and had no significant operations through the
date of acquisition.
All adjustments necessary for a fair presentation have been made to the
accompanying unaudited amounts for the period from February 1, 2004
(commencement of operations) to June 30, 2004.
F-108
SHOPPES OF DALLAS
Historical Summary of Gross Income and Direct Operating Expenses
For the period from March 1, 2004 (commencement of operations) to June 30, 2004
(unaudited)
For the period from
March 1, 2004
(commencement of
operations) to
June 30, 2004
--------------------
Gross income:
Base rental income $ 195,042
Operating expense and real estate tax recoveries 23,198
--------------------
Total gross income 218,240
--------------------
Direct operating expenses:
Operating expenses 11,199
Real estate taxes 3,781
Insurance 4,014
--------------------
Total direct operating expenses 18,994
--------------------
Excess of gross income over direct operating expenses $ 199,246
====================
See accompanying notes to historical summary of gross income and direct
operating expense.
F-109
SHOPPES OF DALLAS
Notes to Historical Summary of Gross Income and Direct Operating Expenses
For the period from March 1, 2004 (commencement of operations) to June 30, 2004
(unaudited)
1. Basis of Presentation
The Historical Summary of Gross Income and Direct Operating Expenses for the
period from March 1, 2004 (commencement of operations) to June 30, 2004 has been
prepared from the operating statements provided by the owners of the property
during that period and requires management of Shoppes of Dallas to make
estimates and assumptions that affect the amounts of the revenues and expense
during that period. Actual results may differ from those estimates. The property
was completed in 2004 and had no significant operations through the date of
acquisition.
All adjustments necessary for a fair presentation have been made to the
accompanying unaudited amounts for the period from March 1, 2004 (commencement
of operations) to June 30, 2004.
F-110
DORMAN CENTRE - PHASE II
Historical Summary of Gross Income and Direct Operating Expenses
For the period from March 15, 2004 (commencement of operations) to June 30, 2004
(unaudited)
For the period from
March 15, 2004
(commencement of
operations) to
June 30, 2004
--------------------
Gross income:
Base rental income $ 78,177
Operating expense and real estate tax recoveries 13,140
--------------------
Total gross income 91,317
--------------------
Direct operating expenses:
Operating expenses 4,518
Real estate taxes 29,016
Insurance 1,403
--------------------
Total direct operating expenses 34,937
--------------------
Excess of gross income over direct operating expenses $ 56,380
====================
See accompanying notes to historical summary of gross income and direct
operating expense.
F-111
DORMAN CENTER - PHASE II
Notes to Historical Summary of Gross Income and Direct Operating Expenses
For the period from March 15, 2004 (commencement of operations) to June 30, 2004
(unaudited)
1. Basis of Presentation
The Historical Summary of Gross Income and Direct Operating Expenses for the
period from March 15, 2004 (commencement of operations) to June 30, 2004 has
been prepared from the operating statements provided by the owners of the
property during that period and requires management of Dorman Center - Phase II
to make estimates and assumptions that affect the amounts of the revenues and
expense during that period. Actual results may differ from those estimates. The
property was completed in 2004 and had no significant operations through the
date of acquisition.
All adjustments necessary for a fair presentation have been made to the
accompanying unaudited amounts for the period from March 15, 2004 (commencement
of operations) to June 30, 2004.
F-112
VILLAGE SHOPPES AT SIMONTON
Historical Summary of Gross Income and Direct Operating Expenses
For the period from May 1, 2004 (commencement of operations) to June 30, 2004
(unaudited)
For the period from
May 1, 2004
(commencement of
operations) to
June 30, 2004
--------------------
Gross income:
Base rental income $ 65,553
Operating expense and real estate tax recoveries 18,393
--------------------
Total gross income 83,946
--------------------
Direct operating expenses:
Operating expenses 4,240
Real estate taxes 17,348
Insurance 3,875
--------------------
Total direct operating expenses 25,463
--------------------
Excess of gross income over direct operating expenses $ 58,483
====================
See accompanying notes to historical summary of gross income and direct
operating expense.
F-113
VILLAGE SHOPPES AT SIMONTON
Notes to Historical Summary of Gross Income and Direct Operating Expenses
For the period from May 1, 2004 (commencement of operations) to June 30, 2004
(unaudited)
1. Basis of Presentation
The Historical Summary of Gross Income and Direct Operating Expenses for the
period from May 1, 2004 (commencement of operations) to June 30, 2004 has been
prepared from the operating statements provided by the owners of the property
during that period and requires management of Village Shoppes at Simonton to
make estimates and assumptions that affect the amounts of the revenues and
expense during that period. Actual results may differ from those estimates. The
property was completed in 2004 and had no significant operations through the
date of acquisition.
All adjustments necessary for a fair presentation have been made to the
accompanying unaudited amounts for the period from May 1, 2004 (commencement of
operations) to June 30, 2004.
F-114
HARVEST TOWNE CENTER
Historical Summary of Gross Income and Direct Operating Expenses
For the year ended December 31, 2003 and the six months ended June 30, 2004
(unaudited)
For the six months
ended For the year ended
June 30, 2004 December 31, 2003
---------------------------------------
Gross income:
Base rental income $ 348,503 655,423
Operating expense and real estate tax recoveries 49,445 90,044
---------------------------------------
Total gross income 397,948 745,467
---------------------------------------
Direct operating expenses:
Operating expenses 22,463 43,617
Real estate taxes 25,957 45,585
Insurance 5,311 10,312
---------------------------------------
Total direct operating expenses 53,731 99,514
---------------------------------------
Excess of gross income over direct operating expenses $ 344,217 645,953
=======================================
See accompanying notes to historical summary of gross income and direct
operating expense.
F-115
HARVEST TOWNE CENTER
Notes to Historical Summary of Gross Income and Direct Operating Expenses
For the year ended December 31, 2003 and the six months ended June 30, 2004
(unaudited)
1. Basis of Presentation
The Historical Summary of Gross Income and Direct Operating Expenses for the
year ended December 31, 2003 and the six months ended June 30, 2004,
respectively, has been prepared from the operating statements provided by the
owners of the property during that period and requires management of Harvest
Towne Center to make estimates and assumptions that affect the amounts of the
revenues and expense during that period. Actual results may differ from those
estimates. The property was completed in 2004 and had no significant operations
through the date of acquisition.
All adjustments necessary for a fair presentation have been made to the
accompanying unaudited amounts for the year ended December 31, 2003 and the six
months ended June 30, 2004, respectively.
F-116
BED, BATH & BEYOND PLAZA
Historical Summary of Gross Income and Direct Operating Expenses
For the period from March 3, 2004 (commencement of operations) to June 30, 2004
(unaudited)
For the period from
March 3, 2004
(commencement of
operations) to
June 30, 2004
--------------------
(unaudited)
Gross income:
Base rental income $ 378,432
Operating expense and real estate tax recoveries 45,399
--------------------
Total gross income 423,831
--------------------
Direct operating expenses:
Operating expenses 74,921
Real estate taxes 52,800
Insurance 213
--------------------
Total direct operating expenses 127,934
--------------------
Excess of gross income over direct operating expenses $ 295,897
====================
See accompanying notes to historical summary of gross income and direct
operating expense.
F-117
BED, BATH & BEYOND PLAZA
Notes to Historical Summary of Gross Income and Direct Operating Expenses
For the period from March 3, 2004 (commencement of operations) to June 30, 2004
(unaudited)
1. Basis of Presentation
The Historical Summary of Gross Income and Direct Operating Expenses for the
period from March 3, 2004 (commencement of operations) to June 30, 2004 has been
prepared from the operating statements provided by the owners of the property
during that period and requires management of Bed, Bath & Beyond Plaza to make
estimates and assumptions that affect the amounts of the revenues and expense
during that period. Actual results may differ from those estimates. The property
was completed in 2004 and had no significant operations during 2003.
All adjustments necessary for a fair presentation have been made to the
accompanying unaudited amounts for the period from March 3, 2004 (commencement
of operations) to June 30, 2004.
F-118
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders
Inland Western Retail Real Estate Trust, Inc.:
We have audited the consolidated financial statements of Inland Western Retail
Real Estate Trust, Inc. (the Company) as listed in the accompanying index. In
connection with our audit of the consolidated financial statements, we also have
audited the financial statement schedule as listed in the accompanying index.
These consolidated financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements and financial statement
schedule based on our audit.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Inland Western
Retail Real Estate Trust, Inc. as of December 31, 2003 and the results of their
operations and their cash flows for the period from March 5, 2003 (inception) to
December 31, 2003, in conformity with U.S. generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly, in all material respects, the information set forth
therein.
KPMG LLP
Chicago, Illinois
February 13, 2004
F-119
INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
(A Maryland Corporation)
Consolidated Balance Sheet
December 31, 2003
ASSETS
Investment properties:
Land $ 36,280,244
Building and other improvements 86,439,670
--------------
122,719,914
Less accumulated depreciation (140,497)
--------------
Net investment properties 122,579,417
Cash and cash equivalents 64,381,134
Accounts and rents receivable 1,147,551
Due from affiliates 918,750
Note receivable 7,552,155
Acquired in-place lease intangibles (net of accumulated
amortization of $51,773) 8,753,908
Acquired above market lease intangibles (net of accumulated
amortization of $5,227) 1,590,446
Loan fees (net of accumulated amortization of $24,835) 1,434,160
Other assets 3,744,642
--------------
Total assets $ 212,102,163
==============
See accompanying notes to consolidated financial statements.
F-120
INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
(A Maryland Corporation)
Consolidated Balance Sheet
(continued)
December 31, 2003
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities:
Accounts payable $ 505,448
Accrued offering costs due to affiliates 1,369,366
Accrued real estate taxes 1,392,069
Distributions payable 927,539
Security deposits 108,189
Mortgages payable 29,627,000
Line of credit 5,000,000
Prepaid rental and recovery income 104,756
Advances from sponsor 1,202,519
Acquired below market lease intangibles (net of accumulated
amortization of $15,386) 5,910,413
Other liabilities 71,927
Due to affiliates 2,154,158
--------------
Total liabilities 48,373,384
--------------
Stockholders' equity:
Preferred stock, $.001 par value, 10,000,000 shares
authorized, none outstanding -
Common stock, $.001 par value, 250,000,000 shares
authorized, 18,737,141 shares issued and outstanding 18,737
Additional paid in capital (net of offering costs of
$22,144,814 of which $1,369,366 was paid or accrued to
affiliates) 165,168,650
Accumulated distributions in excess of net loss (1,458,608)
--------------
Total stockholders' equity 163,728,779
--------------
Commitments and contingencies (Note 11)
Total liabilities and stockholders' equity $ 212,102,163
==============
See accompanying notes to consolidated financial statements.
F-121
INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
(A Maryland Corporation)
Consolidated Statement of Operations
For the period from March 5, 2003 (inception) through December 31, 2003
Income:
Rental income $ 606,645
Real estate tax recovery income 95,654
Common area costs recovery income 42,334
Interest income 37,648
--------------
Total income 782,281
--------------
Expenses:
Professional services 88,058
General and administrative expenses to affiliates 104,259
General and administrative expenses to non-affiliates 127,896
Property operating expenses to affiliates 16,627
Property operating expenses to non-affiliates 30,963
Real estate tax 95,654
Interest 135,735
Depreciation 140,497
Amortization 76,608
Acquisition cost expenses to affiliates 7,563
Acquisition cost expenses to non-affiliates 131,700
--------------
Total expenses 955,560
--------------
Net loss $ (173,279)
==============
Net loss per common share, basic and diluted $ (.07)
==============
Weighted average number of common shares outstanding, basic
and diluted 2,520,986
==============
See accompanying notes to consolidated financial statements
F-122
INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
(A Maryland Corporation)
Consolidated Statement of Stockholders' Equity
For the period from March 5, 2003 (inception) to December 31, 2003
ACCUMULATED
ADDITIONAL DISTRIBUTIONS
NUMBER OF COMMON PAID-IN IN EXCESS OF
SHARES STOCK CAPITAL NET INCOME TOTAL
--------------------------------------------------------------------------
Balance at March 5, 2003 (inception) - - - - -
Net loss - - - (173,279) (173,279)
Distributions declared ($.15 per weighted average
number of common shares outstanding) - - - (1,285,329) (1,285,329)
Proceeds from offering 18,718,092 18,718 187,127,565 - 187,146,283
Offering costs - (22,144,814) - (22,144,814)
Proceeds from DRP 19,049 19 180,949 - 180,968
Common stock option expense - - 4,950 - 4,950
--------------------------------------------------------------------------
Balance at December 31, 2003 18,737,141 $ 18,737 $ 165,168,650 $ (1,458,608) $ 163,728,779
==========================================================================
See accompanying notes to consolidated financial statements.
F-123
INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
(A Maryland Corporation)
STATEMENT OF CASH FLOWS
For the period from March 5, 2003 (inception) through December 31, 2003
Cash flows from operations:
Net loss $ (173,279)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation 140,497
Amortization 76,608
Amortization on acquired above market leases 5,227
Amortization on acquired below market leases (15,386)
Stock option expense 4,950
Changes in assets and liabilities:
Accounts and rents receivable (1,147,551)
Accrued real estate taxes 1,240,567
Accounts payable 306,996
Prepaid rental and recovery income 104,756
Other liabilities 71,927
Security deposits 108,189
--------------
Net cash flows provided by operating activities 723,501
--------------
Cash flows from investing activities:
Purchase of investment properties (122,719,914)
Acquired above market leases (1,595,673)
Acquired in place lease intangibles (8,805,681)
Acquired below market leases 5,925,799
Other assets (830,697)
Funding of note receivable (7,552,155)
Due to affiliates 2,154,158
--------------
Net cash flows used in investing activities (133,424,163)
--------------
Cash flows from financing activities:
Proceeds from offering 187,146,283
Proceeds from the DRP 180,968
Payment of offering costs (20,775,448)
Loan proceeds 29,627,000
Proceeds from unsecured line of credit 5,000,000
Loan fees (4,022,986)
Distributions paid (357,790)
Due from affiliates (918,750)
Advances from sponsor 1,202,519
--------------
Net cash flows provided by financing activities 197,081,796
--------------
See accompanying notes to financial statements
F-124
INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
(A Maryland Corporation)
STATEMENT OF CASH FLOWS
(continued)
For the period from March 5, 2003 (inception) through December 31, 2003
Net increase in cash and cash equivalents $ 64,381,134
Cash and cash equivalents, at beginning of period -
--------------
Cash and cash equivalents, at end of period $ 64,381,134
==============
Supplement disclosure of cash flow information:
Cash paid for interest $ 135,735
==============
Supplement schedule of non-cash financing activities:
Distributions payable $ 927,539
==============
Accrued offering costs payable $ 1,369,366
==============
See accompanying notes to financial statements
F-125
INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
(A Maryland Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2003
(1) Organization
Inland Western Retail Real Estate Trust, Inc. (the "Company") was formed on
March 5, 2003 to acquire and manage a diversified portfolio of real estate,
primarily multi-tenant shopping centers. The Advisory Agreement provides for
Inland Western Retail Real Estate Advisory Services, Inc. (the "Advisor"), an
Affiliate of the Company, to be the Advisor to the Company. On September 15,
2003, the Company commenced an initial public offering of up to 250,000,000
shares of common stock at $10 each and the issuance of 20,000,000 shares at
$9.50 each which may be distributed pursuant to the Company's distribution
reinvestment program.
The Company is qualified and has elected to be taxed as a real estate investment
trust ("REIT") under the Internal Revenue Code of 1986, as amended, for federal
income tax purposes commencing with the tax year ending December 31, 2003. Since
the Company qualifies for taxation as a REIT, the Company generally will not be
subject to federal income tax to the extent it distributes at least 90% of its
REIT taxable income to its stockholders. If the Company fails to qualify as a
REIT in any taxable year, the Company will be subject to federal income tax on
its taxable income at regular corporate tax rates. Even if the Company qualifies
for taxation as a REIT, the Company may be subject to certain state and local
taxes on its income and property and federal income and excise taxes on its
undistributed income.
The Company provides the following programs to facilitate investment in the
Company's shares and to provide limited liquidity for stockholders.
The Company allows stockholders who purchase shares in the offering to purchase
additional shares from the Company by automatically reinvesting distributions
through the distribution reinvestment program ("DRP"), subject to certain share
ownership restrictions. Such purchases under the DRP are not be subject to
selling commissions or the marketing contribution and due diligence expense
allowance, and are made at a price of $9.50 per share.
The Company will repurchase shares under the share repurchase program ("SRP"),
if requested, at least once quarterly on a first-come, first-served basis,
subject to certain restrictions. Subject to funds being available, the Company
will limit the number of shares repurchased during any calendar year to 5% of
the weighted average number of shares outstanding during the prior calendar
year. Funding for the SRP will come exclusively from proceeds that the Company
receives from the sale of shares under the DRP and such other operating funds,
if any, as the Company's board of directors, at its sole discretion, may reserve
for this purpose. The board, at its sole discretion, may choose to terminate the
share repurchase program after the end of the offering period, or reduce the
number of shares purchased under the program, if it determines that the funds
allocated to the SRP are needed for other purposes, such as the acquisition,
maintenance or repair of properties, or for use in making a declared
distribution. A determination by the board to eliminate or reduce the share
repurchase program will require the unanimous affirmative vote of the
independent directors. As of December 31, 2003, no shares have been repurchased
by the Company.
The accompanying Consolidated Financial Statements include the accounts of the
Company, as well as all wholly owned subsidiaries. Wholly owned subsidiaries
generally consist of limited liability companies ("LLC's"). The effects of all
significant intercompany transactions have been eliminated.
F-126
INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
(A Maryland Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
December 31, 2003
(2) Summary of Significant Accounting Policies
The preparation of the financial statements in conformity with accounting
principles generally accepted in the United State of America ("GAAP") requires
management of the Company to make estimates and assumptions relating to the
reported amount of assets and liabilities and the disclosure of contingent
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting periods. Actual results
could differ from those estimates.
Highly liquid investments with a maturity of three months or less when purchased
are classified as cash equivalents.
Costs associated with the offering are deferred and charged against the gross
proceeds of the offering upon closing. Formation and organizational costs are
expensed as incurred. As of December 31, 2003, $7,500 of organizational costs
were expensed.
The Company applies the fair value method of accounting as prescribed by SFAS
No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION for its stock options granted.
Under this method, the Company will report the value of granted options as a
charge against earnings ratably over the vesting period.
Real estate acquisitions are recorded at costs less accumulated depreciation.
Ordinary repairs and maintenance are expensed as incurred.
Depreciation expense is computed using the straight line method. Building and
improvements are depreciated based upon estimated useful lives of 30 years for
building and improvements and 15 years for site improvements.
The Company performed an impairment analysis for its long-lived assets in
accordance with Statement of Financial Accounting Standards No. 144 ("SFAS 144")
to ensure that the investment property's carrying value does not exceed its fair
value. The valuation analysis performed by the Company was based upon many
factors which require difficult, complex or subjective judgments to be made.
Such assumptions include projecting vacancy rates, rental rates, operating
expenses, lease terms, tenant financial strength, economy, demographics,
property location, capital expenditures and sales value among other assumptions
to be made upon valuing each property. This valuation is sensitive to the actual
results of any of these uncertain factors, either individually or taken as a
whole. Based upon the Company's judgment, no impairment was warranted as of
December 31, 2003.
Tenant improvements are amortized on a straight line basis over the life of the
related lease as a component of amortization expense.
Leasing fees are amortized on a straight-line basis over the life of the related
lease.
Loan fees are amortized on a straight-line basis over the life of the related
loans.
F-127
INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
(A Maryland Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
December 31, 2003
The Company allocates the purchase price of the each acquired investment
property between land, building and improvements, acquired above market and
below market leases, in-place lease value, customer relationship value, and any
assumed financing that is determined to be above or below market terms. The
allocation of the purchase price is an area that requires judgment and
significant estimates. The Company uses the information contained in the
independent appraisal obtained at acquisition as the primary basis for the
allocation to land and building and improvements. The aggregate value of
intangibles is measured based on the difference between the stated price and the
property value as if vacant. The Company determines whether any financing
assumed is above or below market based upon comparison to similar financing
terms for similar investment properties. The Company also allocates a portion of
the purchase price to the estimated acquired in-place lease costs based on
estimated lease execution costs for similar leases and we consider various
factors including geographic location and size of leased space. The Company also
evaluates each acquired lease based upon current market rates at the acquisition
date and we consider various factors including geographical location, size and
location of leased space within the investment property, tenant profile, and the
credit risk of the tenant in determining whether the acquired lease is above or
below market lease costs. After an acquired lease is determined to be above or
below market lease costs, the Company allocates a portion of the purchase price
to such above or below acquired lease costs based upon the present value of the
difference between the contractual lease rate and the estimated market rate. The
determination of the discount rate used in the present value calculation is
based upon the "risk free rate." This discount rate is a significant factor in
determining the market valuation which requires our judgment of subjective
factors such as market knowledge, economic, demographics, location, visibility,
location, age and physical condition of the property.
The application of SFAS 141 and SFAS 142 resulted in the recognition upon
acquisition of additional intangible assets and liabilities relating to the 2003
real estate acquisitions. The portion of the purchase price allocated to
acquired above market lease costs and acquired below market lease costs are
amortized on a straight line basis over the life of the related lease as an
adjustment to rental income. Amortization pertaining to the above market lease
costs of $5,227 was applied as a reduction to rental income for the period from
March 5, 2003 (inception) to December 31, 2003. Amortization pertaining to the
below market lease costs of $15,386 was applied as an increase to rental income
for the period from March 5, 2003 (inception) to December 31, 2003. The table
below presents the amortization during the next five years related to the
acquired above market lease costs and the below market lease costs for
properties owned at December 31, 2003:
Amortization of: 2004 2005 2006 2007 2008 Thereafter
---- ---- ---- ---- ---- ----------
Acquired above
market lease costs (431,185) (431,185) (429,043) (37,016) (37,016) (225,001)
Acquired below
market lease costs 582,355 582,355 582,355 561,053 531,230 3,071,065
Net rental income
increase / (decrease) 151,170 151,170 153,312 524,037 494,214 2,846,064
Acquired in place lease
intangibles 963,821 963,821 963,821 963,821 963,821 3,934,803
The portion of the purchase price allocated to acquired in-place lease
intangibles are amortized on a straight line basis over the life of the related
lease. We incurred amortization expense pertaining to acquired in-place lease
intangibles of $51,773 for the period from March 5, 2003 (inception) to December
31, 2003.
F-128
INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
(A Maryland Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
December 31, 2003
Rental income is recognized on a straight-line basis over the term of each
lease. The difference between rental income earned on a straight-line basis and
the cash rent due under the provisions of the lease agreements is recorded as
deferred rent receivable and is included as a component of accounts and rents
receivable in the accompanying consolidated balance sheets.
The carrying amount of the Company's debt approximates fair value. The carrying
amount of the Company's other financial instruments approximate fair value
because of the relatively short maturity of these instruments.
Staff Accounting Bulletin 101, "Revenue Recognition in Financial Statements"
("SAB 101"), determined that a lessor should defer recognition of contingent
rental income (i.e. percentage/excess rent) until the specified target (i.e.
breakpoint) that triggers the contingent rental income is achieved. The Company
records percentage rental revenue in accordance with the SAB 101.
(3) Transactions with Affiliates
The Advisor contributed $200,000 to the capital of the Company for which it
received 20,000 shares of common stock.
As of December 31, 2003, the Company had incurred $22,144,814 of offering costs.
Pursuant to the terms of the offering, the Advisor has guaranteed payment of all
public offering expenses (excluding sales commissions and the marketing
contribution and the due diligence expense allowance) in excess of 5.5% of the
gross proceeds of the offering or all organization and offering expenses
(including selling commissions) which together exceed 15% of gross proceeds. As
of December 31, 2003, offering costs did not exceed the 5.5% and 15%
limitations. The Company anticipates that these costs will not exceed these
limitations upon completion of the offering.
Certain compensation and fees payable to the Advisor for services to be provided
to the Company are limited to maximum amounts.
Nonsubordinated payments:
Offering stage:
Selling commissions 7.5% of the sale price for each share
Marketing contribution 3.0% of the gross offering proceeds
and due diligence
allowance
Reimbursable expenses We will reimburse our sponsor for actual costs incurred, on our
and other expenses of behalf, in connection with the offering
issuance
Acquisition stage:
Acquisition expenses We will reimburse an affiliate of our Advisor for costs incurred,
on our behalf, in connection with the acquisition of properties
F-129
INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
(A Maryland Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
December 31, 2003
Operational stage:
Property management fee THIS FEE 4.5% of the gross income from the properties. (cannot exceed 90%
TERMINATES UPON A BUSINESS of the fee which would be payable to an unrelated third party)
COMBINATION WITH THE PROPERTY
MANAGEMENT COMPANY.
Loan servicing fee .03% of the total principal amount of the loans being serviced
For each full year, up to the first $100 million and a lesser
percentage on a sliding scale thereafter
Other property level services Compensation for these services will not exceed 90% of that which
would be paid to any third party for such services
Reimbursable expenses relating to The compensation and reimbursements to our Advisor and its
administrative services affiliates will be approved by a majority of our directors
Liquidation stage:
Property disposition fee THIS FEE Lesser of 3% of sales price or 50% of the customary commission
TERMINATES UPON A BUSINESS which would be paid to a third party
COMBINATION WITH THE ADVISOR
Subordinated payments:
Operational stage:
Advisor asset management fee THIS Not more than 1% per annum of our average assets; Subordinated
FEE TERMINATES UPON A BUSINESS to a non-cumulative, non-compounded return, equal to 6% per annum
COMBINATION WITH THE ADVISOR
Liquidation stage:
Incentive advisory fee THIS FEE After the stockholders have first received a10% cumulative, A
TERMINATES UPON BUSINESS non-compounded return per year and a return of their net
COMBINATION WITH THE ADVISOR investment, an incentive advisory fee equal to 15% on net
proceeds from the sale of a property will be paid to the Advisor
On October 31, 2003, the Company acquired an existing shopping center known as
The Shops at Park Place through the purchase of all of the membership interests
of the general partner and the membership interests of the limited partner of
the limited partnership holding title to this property. The center contains
approximately 116,300 gross leasable square feet and is located in Plano, Texas.
An affiliate of our Advisor, Inland Park Place Limited Partnership, acquired
this property on September 30, 2003 from CDG Park Place LLC, an unaffiliated
third party for $23,868,000. Inland Park Place Limited Partnership agreed to
sell this property to the Company when sufficient funds from the sale of shares
to acquire
F-130
INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
(A Maryland Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
December 31, 2003
this property were raised. Inland Park Place Limited Partnership agreed to sell
this property to the Company for the price the affiliate paid to the
unaffiliated third party, plus any actual costs incurred. The Company's board of
directors unanimously approved acquiring this property, including a unanimous
vote of the independent directors. The total acquisition cost to the Company was
$24,000,000, which included $132,000 of costs incurred by the affiliate.
The Advisor and its affiliates are entitled to reimbursement for salaries and
expenses of employees of the Advisor and its affiliates relating to the
offering. In addition, an affiliate of the Advisor is entitled to receive
selling commissions, and the marketing contribution and due diligence expense
allowance from the Company in connection with the offering. Such costs are
offset against the Stockholders' equity accounts. Such costs totaled $16,859,779
for the period from March 5, 2003 (inception) to December 31, 2003, of which
$1,369,366 was unpaid at December 31, 2003.
The Advisor and its affiliates are entitled to reimbursement for general and
administrative costs of the Advisor and its affiliates relating to our
administration. Such costs are included in general and administrative expenses
to affiliates, professional services to affiliates, and acquisition cost
expenses to affiliates, in addition to costs that were capitalized pertaining to
property acquisitions. During the period from March 5, 2003 (inception) to
December 31, 2003, the Company incurred $194,017 of these costs, of which
$40,703 remained unpaid as of December 31, 2003.
An affiliate of the Advisor provides loan servicing to the Company for an annual
fee. The agreement allows for annual fees totaling .05% of the first
$100,000,000 in mortgage balance outstanding and .03% of the remaining mortgage
balance, payable monthly. Such fees totaled $328 in the period from March 5,
2003 (inception) to December 31, 2003.
The Company used the services of an affiliate of the Advisor to facilitate the
mortgage financing that the Company obtained on some of the properties
purchased. Such costs are capitalized as loan fees and amortized over the
respective loan term. During the period from March 5, 2003 (inception) to
December 31, 2003, the Company paid loan fees totaling $59,523 to this
affiliate.
The property managers, entities owned principally by individuals who are
affiliates of the Advisor, are entitled to receive property management fees
totaling 4.5% of gross operating income, for management and leasing services.
The Company incurred and paid property management fees of $16,627 for the period
from March 5, 2003 (inception) to December 31, 2003. None remained unpaid as of
December 31, 2003.
The Company established a discount stock purchase policy for affiliates of the
Company and the Advisor that enables the affiliates to purchase shares of common
stock at a discount at either $8.95 or $9.50 per share depending when the shares
are purchased. The Company sold 59,497 shares to affiliates and recognized an
expense related to these discounts of $62,472 for the period from March 5, 2003
(inception) to December 31, 2003.
As of December 31, 2003 the Company was due funds from affiliates in the amount
of $918,750 which is comprised of $73,750 due from an affiliate for costs paid
on their behalf by the Company and $845,000 which is due from the sponsor for
reimbursement of December distributions paid in January by the Company. The
sponsor has agreed to advance funds to the Company for distributions paid to our
shareholders until funds from operations are adequate to cover the
distributions. As of December 31, 2003 the Company owed funds to the sponsor in
the amount of $1,202,517 for repayment of these funds.
As of December 31, 2003 the Company owed funds to an affiliate in the amount of
$2,154,158 for the reimbursement of costs paid by the affiliate on behalf of the
Company.
F-131
INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
(A Maryland Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
December 31, 2003
(3) Stock Option Plan
The Company has adopted an Independent Director Stock Option Plan which, subject
to certain conditions, provides for the grant to each independent director of an
option to acquire 3,000 shares following their becoming a director and for the
grant of additional options to acquire 500 shares on the date of each annual
stockholders' meeting. The options for the initial 3,000 shares are exercisable
as follows: 1,000 shares on the date of grant and 1,000 shares on each of the
first and second anniversaries of the date of grant. The subsequent options will
be exercisable on the second anniversary of the date of grant. The initial
options will be exercisable at $8.95 per share. The subsequent options will be
exercisable at the fair market value of a share on the last business day
preceding the annual meeting of stockholders. As of December 31, 2003, we have
issued 3,000 options to acquire shares to each of our independent directors, for
a total of 15,000 options, of which none have been exercised or expired.
The per share weighted average fair value of options granted was $0.60 on the
date of the grant using the Black Scholes option-pricing model with the
following assumptions: expected dividend yield of 8%, risk free interest rate of
2.0%, expected life of five years and expected volatility rate of 18.0%. The
Company has recorded $3,000 as expense for the 5,000 options (1,000 options per
director) vesting upon the date of grant as of December 31, 2003 and will record
the remaining $6,000 in expense ratably over the remaining two-year vesting
period.
(4) New Accounting Pronouncements
In January 2003, FASB ISSUED INTERPRETATION 46, Consolidation of Variable
Interest Entities or Interpretation 46, which addresses the consolidation of
certain entities in which a company has a controlling financial interest through
means other than voting rights. This interpretation was revised in December
2003. For calendar year companies, Interpretation 46 contains an effective date
of December 31, 2003 for special purpose entities and periods ending after March
15, 2004 for all other entities. The Company does not own interests in special
purpose entities and management does not believe that the adoption of
Interpretation 46 will have a material impact on the Company's financial
statements.
On May 15, 2003, the Financial Accounting Standards Board issued Statement No.
150, ACCOUNTING FOR CERTAIN FINANCIAL INSTRUMENTS WITH CHARACTERISTICS OF BOTH
LIABILITIES AND EQUITY. The Statement requires issuers to classify as
liabilities (or assets in some circumstances) three classes of freestanding
financial instruments that embody obligations for the issuer. Generally, the
Statement is effective for financial instruments entered into or modified after
May 31, 2003 and is otherwise effective at the beginning of the first interim
period beginning after June 15, 2003. The Company adopted the provisions of the
Statement on July 1, 2003.
The Company did not enter into any financial instruments within the scope of the
Statement during the period from March 5, 2003 (inception) to December 31, 2003.
To the extent stockholders request shares to be repurchased by the Company under
the Share Repurchase Program, the Company's obligation to repurchase such shares
will be classified as a liability at the redemption amount at the date
documentation is complete and accepted by the Company in accordance with the
plan documents.
F-132
INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
(A Maryland Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
December 31, 2003
(5) Leases
Minimum lease payments to be received in the future under operating leases,
assuming no expiring leases are renewed, are as follows:
Minimum Lease
Payments
----------------
2004 $ 10,053,640
2005 9,758,805
2006 9,684,354
2007 9,273,557
2008 9,033,324
Thereafter 78,836,462
----------------
Total $ 126,640,142
----------------
The remaining lease terms range from one year to 56 years. Pursuant to the lease
agreements, tenants of the property are required to reimburse the Company for
some or all of their pro rata share of the real estate taxes, operating expenses
and management fees of the properties. Such amounts are included in additional
rental income.
(6) Note Receivable
The note receivable balance of $7,552,155 as of December 31 2003 consists of an
installment note from Fourth Quarter Properties XIV, LLC (Fourth) that matures
on January 15, 2004. This installment note is secured by a 49% interest in
Fourth, which owns the remaining portion of the Newnan Crossing shopping center
and is also guaranteed personally by the owner of Fourth. Interest only at a
rate of 7.6192% per annum is due on the note.
The installment note was advanced to Fourth in contemplation of the Company
purchasing the remaining portions of Newnan Crossing. The Company did not call
the note on January 15, 2004 and subsequently purchased the property on February
13, 2004 at which time the note was paid in full by Fourth.
F-133
INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
(A Maryland Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
December 31, 2003
(7) Mortgages Payable
Mortgages payable consist of the following at December 31, 2003:
BALANCE AT
INTEREST MATURITY DECEMBER 31,
FIXED RATE MORTGAGES PAYABLE RATE AT DATE 2003
---------------------------------------------------------------------------------------
Property as collateral:
Darien Commons 4.65% 06/01/10 $ 16,500,000
Park Place 4.71% 11/01/08 13,127,000
-------------
Total Fixed Rate Mortgages Payable $ 29,627,000
=============
The following table shows the mortgage debt maturing during the next five years
as of December 31, 2003.
2004 $ -
2005 -
2006 -
2007 -
2008 13,127,000
Thereafter 16,500,000
---------------
$ 29,627,000
===============
All of the Company's mortgage loans require monthly payments of interest only.
The fixed-rate loans may be prepaid with a penalty after specific lockout
periods.
On February 9, 2004, the Company entered into a rate lock agreement with Bear
Stearns and paid a rate lock deposit of $1,200,000 to lock the interest rate at
4.372% for a period of 90 days on $60,000,000. The rate lock was entered into to
secure the interest rate on mortgage debt to be identified as debt is placed on
properties the Company currently owns or will acquire in the future.
(8) Line of Credit
On December 24, 2003, the Company entered into a $150,000,000 unsecured line of
credit arrangement with KeyBank N.A. for a period of one year. The funds from
this line of credit will be used to provide liquidity from the time a property
is purchased until permanent debt is place on the property. The Company is
required to pay interest only on the outstanding balance from time to time under
the line at the rate equal to LIBOR plus 175 basis points. The Company is also
required to pay, on a quarterly basis, an amount ranging from .15% to .30%, per
annum, on the average daily undrawn funds remaining under this line. The line of
credit requires compliance with certain covenants, such as debt service rations,
minimum net worth requirements, distribution limitations and investment
restrictions. As of December 31, 2003, the Company was in compliance with such
covenants. In connection with obtaining this line of credit, the Company paid
fees in an amount totaling approximately $1,044,000 (which includes a .65%
commitment fee). The outstanding balance on the line of credit was $5,000,000 as
of December 31, 2003 with an effective interest rate of 2.9375% per annum.
F-134
INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
(A Maryland Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
December 31, 2003
(9) Segment Reporting
The Company owns and seeks to acquire multi-tenant shopping centers primarily in
the western United States. All of the Company's shopping centers are currently
located in Connecticut, Georgia, Illinois, Indiana, North Carolina, Oklahoma,
and Texas. The Company's shopping centers are typically anchored by grocery and
drugstores complemented with additional stores providing a wide range of other
goods and services to shoppers.
The Company assesses and measures operating results on an individual property
basis for each of its properties based on net property operations. Since all of
the Company's properties exhibit highly similar economic characteristics, cater
to the day-to-day living needs of their respective surrounding communities, and
offer similar degrees of risk and opportunities for growth, the properties have
been aggregated and reported as one operating segment.
Net property operations are summarized in the following table for the period
from March 5, 2003 (inception) to December 31, 2003, and a reconciliation to net
loss.
Property rental and additional rental
income $ 744,633
Total property operating expenses (143,244)
Mortgage interest (132,471)
------------------
Net property operations 468,918
------------------
Interest income 37,648
Less non-property expenses:
Professional services (88,058)
General and administrative expenses (235,419)
Acquisition cost expenses (139,263)
Depreciation and amortization (217,105)
------------------
Net loss $ (173,279)
==================
The following table summarizes property asset information as of December 31,
2003.
Total assets:
Shopping centers $ 142,804,128
Non-segment assets 69,298,035
------------------
$ 212,102,163
==================
The Company does not derive any of it's consolidated revenue from foreign
countries and does not have any major customer that individually account for 10%
or more of the Company's consolidated revenues
F-135
INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
(A Maryland Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
December 31, 2003
(10) Earnings (loss) per Share
Basic and diluted earnings (loss) per share ("EPS") is computed by dividing
income by the weighted average number of common shares outstanding for the
period (the "common shares"). As a result of the net loss incurred in 2003,
diluted weighted average shares outstanding do not give effect to common stock
equivalents as to do so would be anti-dilutive.
The basic and diluted weighted average number of common shares outstanding were
2,520,986 for the period from March 5, 2003 (inception) to December 31, 2003.
(11) Commitments and Contingencies
On December 10, 2003, in connection with the purchase of Stony Creek Market
Place, the Company entered into an earnout agreement with the seller of the
property. The earnout agreement stipulates that the seller shall retain the
right, for a 48 month period after the date of purchase, to purchase the
development and leasing rights to a vacant 50,000 square foot padsite included
in the purchase of the property. If the seller develops and leases the padsite
within the 48 month period, the Company is required to purchase the seller's
interest in the leases based on an agreed upon base rent divider stipulated in
the purchase and sale agreement. If the base rent divider should fall above or
below certain limits, then the seller and purchaser have certain rights to
terminate this agreement.
On December 31, 2003, in connection with the purchase of Pavilion at King's
Grant, the purchase and sale contract stipulates that if anytime during the
period from January 1, 2004 through December 31, 2007 the tenant, Toys R Us
located in the shopping center, should increase their base rent up to a maximum
amount of $250,000 and no decrease occurs in their requirement to pay for a
certain percentage of expenses at the property, then the Company would be
obligated to pay the seller additional funds related to the purchase based on a
income capitalization formula stipulated in the purchase and sale agreement.
After December 31, 2007 the Company is no longer obligated to pay the seller
additional funds.
As part of the purchase and sale agreement for Newnan Crossing, the Company is
obligated to purchase the remaining portion of the shopping center that is
currently under construction (approximately 28,000 square feet to be occupied by
Linen's N Things) after construction is complete and the tenant has moved in and
is paying rent. The purchase price for this portion of the center will be based
on an income capitalization formula.
(12) Subsequent Events
The Company issued 12,698,273 shares of common stock from January 1, 2004
through February 13, 2004 in connection with the offering, resulting in gross
proceeds of $126,917,854.
The Company is currently considering acquiring seven properties for an estimated
purchase price of $167,000,000. Our decision to acquire each property will
generally depend upon no material adverse change occurring relating to the
property, the tenants or in the local economic conditions and our receipt of
satisfactory due diligence information including appraisals, environmental
reports and lease an information prior to purchasing the property.
The Company has signed an application for an addition of $75,000,000 to the line
of credit with Key Bank. Fundings under the line of credit will require interest
only payments based on the provisions of the existing line of credit with Key
Bank. As of February 13, 2004, the Company's outstanding balance owed on the
line of credit is $70,000,000.
F-136
INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
(A Maryland Corporation)
Notes to Consolidated Financial Statements
(continued)
December 31, 2003
The Company has acquired the following properties during the period January 1 to
February 13, 2004. The respective acquisitions are summarized in the table
below.
APPROXIMATE GROSS LEASABLE
DATE YEAR PURCHASE PRICE AREA
ACQUIRED PROPERTY BUILT ($) (SQ. FT.) MAJOR TENANTS
-------- -------- ----- --- --------- -------------
01/06/04 CorWest Plaza 2000/ 33,000,000 115,011 Stop & Shop
New Britain, CT 2001 CVS Pharmacy
Liquor Depot
01/09/04 Hickory Ridge 1999 41,900,000 310,360 Best Buy
Hickory, NC Kohl's
Marshall's
Linens N Things
Old Navy
Party City
Shoe Carnival
A.C. Moore
01/14/04 Larkspur Landing 1978/ 61,100,000 173,814 Bed Bath & Beyond
Larkspur, CA 2001 24 Hour Fitness
01/15/04 North Ranch Pavilions 1992 18,468,000 62,812 Bank of America
Thousand Oaks, CA
01/20/04 Metro Square Center 1999 11,031,000 61,817 Shoppers Food
Severn, MD Warehouse
01/21/04 La Plaza Del Norte 1996/ 59,100,000 320,362 Best Buy
San Antonia, TX 1999 Bealls
Ross Stores
Office Max
Oshman's Superstores
Cost Plus
DSW Shoe Warehouse
David's Bridal
Petco
02/05/04 MacArthur Crossing 1995/ 23,100,000 110,975 Stein Mart
Los Colinas, TX 1996
02/13/04 Promenade at Red Cliff 1999/ 19,618,000 94,936 Old Navy
St. George, UT 1998 Staples
Big 5 Sporting Goods
02/13/04 Newnan Crossing, Phase II 1997 22,362,000 153,798 TJ Maxx
Newnan, GA Office Depot
Old Navy
Michaels
Party City
F-137
INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
(A Maryland Corporation)
Notes to Consolidated Financial Statements
(continued)
December 31, 2003
The mortgage debt and financings obtained subsequent to December 31, 2003, are
detailed in the list below.
DATE MATURITY PRINCIPAL BORROWED
FUNDED MORTGAGE PAYABLE ANNUAL INTEREST RATE DATE ($)
---------------------------------------------------------------------------------------------------------------
2/04/04 La Plaza Del Norte 4.61% 03/01/10 32,528,000
San Antonio, TX
1/30/04 Larkspur Landing 4.45% 02/01/09 33,630,000
Larkspur, CA
1/28/04 Shaw's - New Britain (A) 4.684% 11/01/33 6,450,000
New Britain, CT
1/21/04 Hickory Ridge 4.531% 02/01/09 23,650,000
Hickory, NC
1/07/04 Cor West Plaza 4.56% 02/01/09 18,150,000
New Britain, CT
1/05/04 Stony Creek Marketplace 4.77% 01/01/11 14,162,000
Noblesville, IN
(A) In connection with the financing of Shaw's - New Britain on January 28,
2004, the Park Place mortgage debt was modified to be cross-collateralized
with the Shaw's - New Britain mortgage debt. All other terms of the Park
Place debt generally remained the same.
(13) Supplemental Financial Information (unaudited)
The following represents the results of operations, for the each quarterly
period, during 2003.
2003
Dec. 31 Sept. 30 June 30 March 31
--------------------------------------------------------
Total income $ 782,281 - - -
Net loss (123,235) (32,794) (9,750) (7,500)
Net loss, per common share, basic and diluted: (.01) (1.64) (.49) (.38)
Weighted average number of common shares outstanding,
basic and diluted 8,319,975 20,000 20,000 20,000
F-138
INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
(A MARYLAND CORPORATION)
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 2003
Initial Costs (A) Gross Amount At Which Carried At End of Period
--------------------------- ----------------------------------------------
Buildings Adjustments Buildings
And to And
Encumbrance Land Improvements Basis Land Improvements Total (C)
------------- ------------ ------------ ----------- ------------ ------------ --------------
Darien Commons 16,500,000 7,000,000 22,468,408 - 7,000,000 22,468,408 29,468,408
Eckerd Drug Store -
Edmund - 975,000 2,400,249 - 975,000 2,400,249 3,375,249
Eckerd Drug Store -
Norman - 932,000 4,369,730 - 932,000 4,369,730 5,301,730
Newnan Crossing - 4,542,244 12,188,579 - 4,542,244 12,188,579 16,730,823
Park Place 13,127,000 9,096,000 13,174,867 - 9,096,000 13,174,867 22,270,867
Pavilion at King's
Grant - 4,300,000 2,741,212 - 4,300,000 2,741,212 7,041,212
Shaw's Supermarket - 2,700,000 11,532,191 - 2,700,000 11,532,191 14,232,191
Stony Creek Market
Place - 6,735,000 17,564,434 - 6,735,000 17,564,434 24,299,434
-----------------------------------------------------------------------------------------------------------
Total: $ 29,627,000 $ 36,280,244 $ 86,439,670 - $ 36,280,244 $ 86,439,670 $ 122,719,914
===========================================================================================================
Accumulated
Depreciation Date Date
(D) Constructed Acquired
------------- ------------ ------------
Darien Commons 56,280 1994 12/03
Eckerd Drug Store -
Edmund - 2003 12/03
Eckerd Drug Store -
Norman - 2003 12/03
Newnan Crossing 84,217 1999 12/03
Park Place - 2001 10/03
Pavilion at King's
Grant - 2002/2003 12/03
Shaw's Supermarket - 1995 12/03
Stony Creek Market
Place - 2003 12/03
-------------
Total: $ 140,497
=============
F-139
INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
(A Maryland Corporation)
Schedule III (continued)
Real Estate and Accumulated Depreciation
December 31, 2003
Notes:
(A) The initial cost to the Company represents the original purchase price of
the property, including amounts incurred subsequent to acquisition which
were contemplated at the time the property was acquired.
(B) The aggregate cost of real estate owned at December 31, 2003 for Federal
income tax purposes was approximately $127,195,000 (unaudited).
(C) Reconciliation of real estate owned:
Balance at March 5, 2003 (inception) $ -
Purchases of property 127,195,469
Acquired in-place lease intangibles (8,805,681)
Acquired above market lease intangibles (1,595,673)
Acquired below below market lease
intangibles 5,925,799
------------------
Balance at December 31, 2003 $ 122,719,914
==================
(D) Reconciliation of accumulated depreciation:
Balance at March 5, 2003 (inception) $ -
Depreciation expense 140,497
------------------
Balance at December 31, 2003 $ 140,497
==================
F-140
PROSPECTUS
270,000,000 shares of common stock - maximum offering
200,000 shares of common stock - minimum offering
Inland Western Retail Real Estate Trust, Inc.
a Real Estate Investment Trust
$10.00 per share: Minimum Initial Purchase - 300 shares (100 shares for
Tax-Exempt Entities)
We intend to operate as a real estate investment trust or a REIT beginning with
the tax year ending December 31, 2003. We are not currently qualified as a REIT
for federal income tax purposes. We will not be requesting a ruling from the
Internal Revenue Service to qualify as a REIT. We were formed in 2003 to acquire
and manage properties which are located mainly in states west of the Mississippi
River. No public market currently exists for our shares of common stock and our
shares cannot be readily sold.
We are offering 250,000,000 shares to investors who meet our suitability
standards; and up to 20,000,000 shares to participants in our reinvestment plan
(at $9.50 per share).
A minimum of 200,000 shares of common stock must be sold within one year from
the date of this prospectus, unless extended, or we will terminate this offering
and we will return your subscription payments, with interest within five
business days after termination of this offering. Prior to the sale of the
minimum offering, your subscription payments will be placed in an escrow account
held by the escrow agent, LaSalle Bank National Association. The managing dealer
of the offering, Inland Securities Corporation, is our affiliate. The managing
dealer is not required to sell any specific number or dollar amount of shares
but will use its best efforts to sell the 250,000,000 of our shares. This
offering will end no later than September 15, 2004, unless we elect to extend it
to a date no later than September 15, 2005 in states that permit us to make this
extension.
INVESTING IN OUR COMPANY INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS"
BEGINNING ON PAGE 11 FOR A DISCUSSION OF THE MATERIAL RISK FACTORS WHICH SHOULD
BE CONSIDERED IN CONNECTION WITH YOUR INVESTMENT IN OUR COMMON STOCK. THESE
RISKS INCLUDE:
- our common stock is not currently listed or traded on an exchange and
cannot be readily sold (and sales by stockholders may be made at a loss);
- we have no operating history nor established financing sources;
- we have identified only one property to be purchased with the proceeds of
this offering;
- if we raise the minimum amount, we will not have sufficient resources to
acquire the identified property. We need to raise in excess of $26 million
to acquire this property;
- we have no ownership in our advisor and the advisor is owned by our sponsor
or their affiliates;
- our advisor and its affiliates will receive substantial fees, including
participation in proceeds from the sales, refinancing or liquidation of our
assets;
- our advisor, property manager and two of our directors are subject to
conflicts of interest as a result of their affiliation with The Inland
Group;
- there are limits on ownership, transferability and redemption of shares;
- risks that incentive structure of fees payable to our advisor and its
affiliates may encourage our advisor to make investments that have greater
risks to generate higher fees; and
- although we anticipate that aggregate borrowings will not exceed 55% of the
combined fair market value of our properties, our charter imposes a
limitation on our borrowings of less than 300% of net assets and there are
risks associated with a high amount of leverage.
We are unable to specifically quantify the above risk factors. The use of
forecasts in this offering is prohibited. Any representations to the contrary
and any predictions, written or oral, as to the amount or certainty of any
present or future cash benefit or tax consequence which may flow from an
investment in this program is not permitted. Any stockholder loss of capital
will be limited to the amount of their investment. You should purchase these
securities only if you can afford a complete loss of your investment.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
Per Share Min. Offering Max. Offering
Public offering price, primary shares (1)....... $ 10.00 $ 2,000,000 $ 2,500,000,000
Public offering price, distribution
reinvestment program.................... $ 9.50 $ 0 $ 190,000,000
Selling commissions (1)................ $ 1.05 $ 210,000 $ 262,500,000
Proceeds, before expenses, to us.... $ 8.95 $ 1,790,000 $ 2,452,500,000
(1) The selling commission only applies to sales of primary shares and is
composed of a 7.5% selling commission (7.0% of which is reallowable), 2.5%
marketing allowance and .5% due diligence expense allowance.
The date of this Prospectus is September 15, 2003.
FOR RESIDENTS OF MICHIGAN ONLY:
A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
DEPARTMENT OF CONSUMER & INDUSTRY SERVICES, MICHIGAN OFFICE OF FINANCIAL AND
INSURANCE SERVICES. THE DEPARTMENT HAS NOT UNDERTAKEN TO PASS UPON THE VALUE OF
THESE SECURITIES NOR TO MAKE ANY RECOMMENDATIONS AS TO THEIR PURCHASE.
THE USE OF THIS PROSPECTUS IS CONDITIONED UPON ITS CONTAINING ALL MATERIAL FACTS
AND THAT ALL STATEMENTS CONTAINED THEREIN ARE TRUE AND CAN BE SUBSTANTIATED. THE
DEPARTMENT HAS NOT PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
NO BROKER-DEALER, SALESMAN, AGENT OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THE
OFFERING HEREBY MADE OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS OR EFFECTIVE
LITERATURE.
THIS IS A BEST EFFORTS OFFERING, AND WE RESERVE THE RIGHT TO ACCEPT OR REJECT
ANY SUBSCRIPTION AND WILL PROMPTLY NOTIFY THE SUBSCRIBER OF ACCEPTANCE OR
REJECTION. THERE IS NO ASSURANCE THAT THIS OFFERING WILL ALL BE SOLD. THERE ARE
NO ASSURANCES AS TO WHAT SIZE WE MAY REACH.
THERE IS NO ASSURANCE THAT OUR OPERATIONS WILL BE PROFITABLE OR THAT LOSSES WILL
NOT OCCUR.
IT IS NOT OUR POLICY TO REDEEM OUR STOCK (EXCEPT AS PROVIDED IN THIS OFFERING).
ANY REPRESENTATIONS CONTRARY TO ANY OF THE FOREGOING SHOULD BE REPORTED
FORTHWITH TO THE OFFICE OF FINANCIAL AND INSURANCE SERVICE AT 611 West Ottawa
Street, 2nd Floor Ottawa Building, P.O. Box 30701, Lansing, MI 48909-8201, or
Telephone (877) 999-6442.
WHO MAY INVEST
In order to purchase shares, you must:
- Meet the financial suitability standards, and
- Purchase a minimum number of shares.
SUITABILITY STANDARDS
Because an investment in our common stock is risky and is a long-term
investment, it is suitable for you only if you have adequate financial means,
you have no immediate need for liquidity in your investment and you can bear the
complete loss of your investment.
We have established financial suitability standards for investors who
purchase shares of our common stock. In addition, residents of some states must
meet higher suitability standards under state law. These standards require you
to meet the applicable criteria below. In determining your net worth, do not
include your home, home furnishings or your automobile. INVESTORS WITH
INVESTMENT DISCRETION OVER ASSETS OF AN EMPLOYEE BENEFIT PLAN COVERED BY ERISA
SHOULD CAREFULLY REVIEW THE INFORMATION IN THE SECTION ENTITLED, "ERISA
CONSIDERATIONS."
GENERAL STANDARDS FOR ALL INVESTORS
- Minimum net worth of at least $150,000; or
- Minimum annual gross income of at least $45,000 and net worth of at
least $45,000. Standards for Maine Residents
- Minimum net worth of $200,000, or
- Minimum annual gross income of $50,000 and a minimum net worth of
$50,000.
Standards for Arizona, California, Iowa, Massachusetts, Michigan, Missouri,
Oregon or Tennessee Residents
- Minimum net worth of $225,000, or
- Minimum annual gross income of $60,000 and a minimum net worth of
$60,000.
Standards for Kansas, Missouri, Ohio and Pennsylvania Residents
- In addition to meeting the actual standard for all investors, your
investment may not exceed 10% of your liquid net worth.
In the case of sales to fiduciary accounts, these minimum standards must be
met by the beneficiary, the fiduciary account, or by the donor or grantor who
directly or indirectly supplies the funds to purchase the common stock if the
donor or the grantor is the fiduciary. INVESTORS WITH INVESTMENT DISCRETION OVER
ASSETS OF AN EMPLOYEE BENEFIT PLAN COVERED UNDER ERISA SHOULD CAREFULLY REVIEW
THE INFORMATION ENTITLED "ERISA CONSIDERATIONS."
In the case of gifts to minors, the suitability standards must be met by
the custodian account or by the donor.
MINIMUM PURCHASE
Subject to the restrictions imposed by state law, we will sell shares of
our common stock only to investors who initially purchase a minimum of 300
shares of common stock for a total purchase price of $3,000, or tax-exempt
entities which purchase a minimum of 100 shares of common stock for a total
purchase price of $1,000. For investors living in Iowa, the minimum investment
for IRAs will be 300 shares of common stock for a total purchase price of
$3,000, and for investors living in Minnesota, the minimum investment for IRAs
and qualified plan accounts will be 200 shares of common stock for a total
purchase price of $2,000. Tax-exempt entities are generally any investor that is
exempt from federal income taxation, including:
- a pension, profit-sharing, retirement, IRA or other employee benefit
plan which satisfies the requirements for qualification under Section
401(a), 414(d) or 414(e) of the Internal Revenue Code;
- a pension, profit-sharing, retirement, IRA or other employee benefit
plan which meets the requirements of Section 457 of the Internal
Revenue Code;
- trusts that are otherwise exempt under Section 501(a) of the Internal
Revenue Code;
- a voluntary employees' beneficiary association under Section 501(c)(9)
of the Internal Revenue Code; or
- an IRA which meets the requirements of Section 408 of the Internal
Revenue Code.
The term "plan" includes plans subject to Title I of ERISA, other employee
benefit plans and IRAs subject to the prohibited transaction provisions of
Section 4975 of the Internal Revenue Code, governmental or church plans that are
exempt from ERISA and Section 4975 of the Internal Revenue Code, but that may be
subject to state law requirements, or other employee benefit plans.
Subject to any restrictions imposed by state law, subsequent additional
investments by current investors require a minimum investment of $25. This
limitation does not apply to the purchase of shares through the dividend
reinvestment provision.
[THE BALANCE OF THIS PAGE WAS INTENTIONALLY LEFT BLANK]
TABLE OF CONTENTS
PAGE
PROSPECTUS SUMMARY ............................................................................................. 1
Inland Western Retail Real Estate Trust, Inc. ........................................................ 1
The types of real estate that we may acquire and manage .............................................. 1
Our sponsor, our advisor and The Inland Group ........................................................ 2
Conflicts of interest ................................................................................ 5
Compensation to be paid to our advisor and affiliates ................................................ 6
Primary business objective and strategies ............................................................ 7
Shares sold before the offering ...................................................................... 8
Terms of the offering ................................................................................ 8
Is an investment in us appropriate for you? .......................................................... 8
Distributions ........................................................................................ 9
Real property investments ............................................................................ 9
Share repurchase program ............................................................................. 9
Estimated Use of Proceeds ............................................................................ 10
RISK FACTORS ................................................................................................... 11
The price of our common stock is subjective and may not bear any relationship to what a
stockholder could receive if it was sold ........................................................ 11
Our common stock is not currently listed on an exchange or trading market and cannot be
readily sold .................................................................................... 11
You do not know what real properties and other assets we may acquire in the future, and must
rely on our advisor, our board and officers to select them and stockholders will not
participate in these decisions .................................................................. 11
Competition with third parties in acquiring properties will reduce our profitability and the
return on your investment ....................................................................... 11
We will compete with real estate investment programs sponsored by companies affiliated with
us for the acquisition of properties and for the time and services of personnel ................. 12
We plan to incur mortgage indebtedness and other borrowings, which may reduce the funds
available for distribution, may increase the risk of loss since defaults may result in
foreclosure and mortgages may include cross-collateralization or cross-default provisions
that increase the risk that more than one property may be affected by a default ................. 12
If we have insufficient working capital reserves, we will have to obtain financing from
other sources ................................................................................... 12
The types of properties which we intend to acquire and the area in which we may acquire
retail centers is limited ....................................................................... 13
The aggregate amount we may borrow is limited under our articles of incorporation .................... 13
We have no operating history, and so we have no history of earnings upon which you could
evaluate our business ........................................................................... 13
Because of the way we are organized, we would be a difficult takeover target. This could
depress the price of our stock and inhibit a management change .................................. 13
Your investment return may be reduced if we are required to register as an investment
company under the Investment Company Act ........................................................ 15
There are many factors which can affect distributions to stockholders ................................ 16
Our derivative financial instruments used to hedge against interest rate fluctuations could
reduce the overall returns on your investment ................................................... 17
We could issue more shares in the future, which could reduce the market price of our
outstanding shares .............................................................................. 17
i
Our share repurchase program is limited to .50% of the weighted average number of shares of
our stock outstanding during the prior calendar year and may be changed or terminated by us,
thereby reducing the potential liquidity of your investment ..................................... 17
Stockholders have limited control over changes in our policies ....................................... 17
If we invest in joint ventures, the objectives of our partners may conflict with our
objectives ...................................................................................... 17
If we sell properties by providing financing to purchasers, we will bear the risk of default
by the purchaser ................................................................................ 18
If we do not raise sufficient funds, we may not fulfill our investment objectives, including
asset diversification ........................................................................... 18
Delays in acquisitions of properties may have an adverse effect ...................................... 18
We may not be able to immediately invest proceeds in real estate, which will harm your
returns ......................................................................................... 18
We depend on our board of directors, advisor and property manager and losing those
relationships could negatively affect our operations ............................................ 19
There are conflicts of interest between us and our affiliates ........................................ 19
We cannot predict the amounts of compensation to be paid to our advisor and our other
affiliates ...................................................................................... 21
The managing dealer has not made an independent review of us or the prospectus ....................... 21
Our rights and the rights of our stockholders to take action against our directors and
officers and the advisor are limited ............................................................ 21
The business of our advisor and our property manager may be acquired by us without further
action of our stockholders ...................................................................... 22
Your percentage of ownership may become diluted if we issue new shares of stock ...................... 22
There are inherent risks with real estate investments ................................................ 22
Adverse economic conditions in our primary geographic region and in the market for retail
space could reduce our income and distributions to you .......................................... 23
Rising expenses could reduce cash flow and funds available for future acquisitions ................... 23
If our tenants are unable to make rental payments, if their rental payments are reduced, or
if they terminate a lease, our financial condition and ability to pay distributions will be
adversely affected .............................................................................. 23
Our financial condition and ability to make distributions may be adversely affected by the
bankruptcy or insolvency, a downturn in the business, or a lease termination of a tenant
that occupies a large area of the retail center or an anchor tenant ............................. 24
If a tenant claims bankruptcy, we may be unable to collect balances due under relevant leases ........ 24
We may incur additional costs in acquiring or re-leasing retail properties ........................... 24
Our properties will be subject to competition for tenants and customers .............................. 24
Our properties will face competition which may affect tenants' ability to pay rent and the
amount of rent paid to us and in turn affect the cash available for distributions and the
amount of distributions ......................................................................... 25
We may be restricted from re-leasing space ........................................................... 25
We may be unable to sell a property if or when we decide to do so .................................... 25
If we suffer losses that are not covered by insurance or that are in excess of insurance
coverage, we could lose invested capital and anticipated profits ................................ 25
Terrorist attacks, such as the attacks that occurred in New York and Washington, D.C. on
September 11, 2001, and other acts of violence or war may affect the markets in which we
operate, our operations and our profitability ................................................... 26
Real estate related taxes may increase and if these increases are not passed on to tenants,
our income will be reduced ...................................................................... 26
Revenue from our properties depends on the amount of our tenants' retail revenue, making us
vulnerable to general economic downturns and other conditions affecting the retail industry ..... 26
ii
The costs of compliance with environmental laws and other governmental laws and regulations
may adversely affect our income and the cash available for any distributions .................... 27
Our costs associated with complying with the Americans with Disabilities Act may affect cash
available for distributions ..................................................................... 27
If a sale or leaseback transaction is recharacterized, our financial condition could be
adversely affected............................................................................... 28
We may incur additional costs in acquiring newly constructed properties which may adversely
affect cash available for distributions to you .................................................. 28
Our investments in unimproved real property may result in additional cost to us to comply
with re-zoning restrictions or environmental regulations ........................................ 28
Construction and development activities will expose us to risks such as cost overruns,
carrying costs of projects under construction or development, availability and costs of
materials and labor, weather conditions and government regulation ............................... 28
We may acquire or finance properties with lock-out provisions which may prohibit us from
selling a property, or may require us to maintain specified debt levels for a period of
years on some properties ........................................................................ 29
Your investment has various federal income tax risks ................................................. 29
If we fail to qualify as a REIT or to maintain our REIT status, our dividends will not be
deductible to us, and our income will be subject to taxation .................................... 29
You may have tax liability on distributions you elect to reinvest in common stock .................... 29
The opinion of Duane Morris LLP regarding our status as a REIT does not guarantee our
ability to remain a REIT ........................................................................ 29
Even REITS are subject to federal and state income taxes ............................................. 30
An investment in our common stock may not be suitable for every employee benefit plan ................ 30
The annual statement of value that we will be sending to stockholders subject to ERISA and
to certain other plan stockholders is only an estimate and may not reflect the actual value
of our shares ................................................................................... 30
CAUTIONING NOTE REGARDING FORWARD-LOOKING STATEMENTS ........................................................... 32
HOW WE OPERATE ................................................................................................. 34
CONFLICTS OF INTEREST .......................................................................................... 36
COMPENSATION TABLE ............................................................................................. 39
ESTIMATED USE OF PROCEEDS ...................................................................................... 46
PRIOR PERFORMANCE OF OUR AFFILIATES ............................................................................ 47
Prior Investment Programs ............................................................................ 47
Summary Information .................................................................................. 47
Publicly Registered REITs ............................................................................ 49
Publicly Registered Limited Partnerships ............................................................. 51
Private Partnerships ................................................................................. 51
Private Placement Real Estate Equity Program ......................................................... 53
Private Placement Note and Mortgage Program .......................................................... 54
1031 Exchange Private Placement Offering Program ..................................................... 55
Summary Tables ....................................................................................... 62
MANAGEMENT ..................................................................................................... 64
Inland Affiliated Companies .......................................................................... 64
Our General Management ............................................................................... 67
Our Directors and Executive Officers ................................................................. 68
Committees of Our Board of Directors ................................................................. 70
Compensation of Directors and Officers ............................................................... 71
Executive Compensation ............................................................................... 71
iii
Independent Director Stock Option Plan ............................................................... 71
Our Advisor .......................................................................................... 73
Our Advisory Agreement ............................................................................... 73
The Property Manager and the Management Agreement .................................................... 77
Inland Securities Corporation ........................................................................ 80
LIMITATION OF LIABILITY AND INDEMNIFICATION OF DIRECTORS, OFFICERS AND OUR ADVISOR ............................. 83
PRINCIPAL STOCKHOLDERS ......................................................................................... 85
OUR STRUCTURE AND FORMATION .................................................................................... 86
Structure ............................................................................................ 86
SELECTED FINANCIAL DATA ........................................................................................ 87
INVESTMENT OBJECTIVES AND POLICIES ............................................................................. 88
General .............................................................................................. 88
Distributions ........................................................................................ 88
Types of Investments ................................................................................. 88
Property Acquisition Standards ....................................................................... 89
Description of Leases ................................................................................ 90
Property Acquisition ................................................................................. 91
Borrowing ............................................................................................ 91
Sale or Disposition of Properties .................................................................... 92
Change in Investment Objectives and Policies ......................................................... 93
Investment Limitations ............................................................................... 93
Other Investments .................................................................................... 93
Appraisals ........................................................................................... 93
Return of Uninvested Proceeds ........................................................................ 94
Additional Offerings and Exchange Listing ............................................................ 94
Joint Ventures ....................................................................................... 95
Construction and Development Activities .............................................................. 95
Other Policies ....................................................................................... 96
REAL PROPERTY INVESTMENTS ...................................................................................... 98
Investing in REITS ................................................................................... 98
General .............................................................................................. 98
Insurance Coverage on Properties .....................................................................100
Properties ...........................................................................................100
Potential Property Acquisitions ......................................................................101
Potential Property: Peoria Station, Peoria, Arizona ..................................................102
CAPITALIZATION .................................................................................................104
MANAGEMENT'S DISCUSSION AND ANALYSIS OF OUR FINANCIAL CONDITION ................................................105
Liquidity and Capital Resources ......................................................................105
Capital Resources ....................................................................................106
Results of Operations ................................................................................108
Funds from Operations ................................................................................108
Initial Property .....................................................................................108
Critical Accounting Policies .........................................................................108
New Accounting Pronouncement ........................................................................ 111
Inflation ............................................................................................111
Quantitative and Qualitative Disclosures About Market Risk ...........................................111
DESCRIPTION OF SECURITIES ......................................................................................113
iv
Authorized Stock .....................................................................................113
Common Stock .........................................................................................113
Preferred Stock ......................................................................................114
Issuance of Additional Securities and Debt Instruments ...............................................115
Restrictions on Issuance of Securities ...............................................................115
Restrictions on Ownership and Transfer ...............................................................115
Provisions of Maryland Law and of Our Articles of Incorporation and Bylaws ...........................118
SHARES ELIGIBLE FOR FUTURE SALE ................................................................................120
Shares to be Outstanding or Issuable upon Exercise or Conversion of Other Outstanding
Securities ......................................................................................120
Securities Act Restrictions ..........................................................................120
Independent Director Stock Option Plan ...............................................................121
Effect of Availability of Shares on Market Price of Shares ...........................................121
Registration Rights ..................................................................................121
SUMMARY OF OUR ORGANIZATIONAL DOCUMENTS ........................................................................123
Articles of Incorporation and Bylaw Provisions .......................................................123
Stockholders' Meetings ...............................................................................123
Board of Directors ...................................................................................124
Stockholder Voting Rights ............................................................................124
Rights of Objecting Stockholders .....................................................................125
Stockholder Lists; Inspection of Books and Records ...................................................125
Amendment of the Organizational Documents ............................................................126
Dissolution or Termination of the Company ............................................................126
Advance Notice of Director Nominations and New Business ..............................................126
Restrictions on Certain Conversion Transactions and Roll-Ups .........................................127
Limitation on Total Operating Expenses ...............................................................129
Transactions with Affiliates .........................................................................130
Restrictions on Borrowing ............................................................................130
Restrictions on Investments ..........................................................................131
FEDERAL INCOME TAX CONSIDERATIONS ..............................................................................134
Federal Income Taxation as a REIT ....................................................................134
Federal Income Taxation of Stockholders ..............................................................140
Other Tax Considerations .............................................................................143
ERISA CONSIDERATIONS ...........................................................................................145
PLAN OF DISTRIBUTION ...........................................................................................148
General ..............................................................................................148
Escrow Conditions ....................................................................................148
Subscription Process .................................................................................149
Representations and Warranties in the Subscription Agreement .........................................150
Determination of Your Suitability as an Investor .....................................................150
Compensation We Will Pay for the Sale of Our Shares ..................................................151
Volume Discounts .....................................................................................152
Deferred Commission Option ...........................................................................153
Indemnification ......................................................................................155
HOW TO SUBSCRIBE ...............................................................................................157
SALES LITERATURE ...............................................................................................159
DISTRIBUTION REINVESTMENT AND SHARE REPURCHASE PROGRAMS ........................................................160
v
Distribution Reinvestment Program ....................................................................160
Share Repurchase Program .............................................................................161
REPORTS TO STOCKHOLDERS ........................................................................................164
PRIVACY POLICY NOTICE ..........................................................................................165
LITIGATION .....................................................................................................165
RELATIONSHIPS AND RELATED TRANSACTIONS .........................................................................166
LEGAL MATTERS ..................................................................................................172
EXPERTS ........................................................................................................172
WHERE YOU CAN FIND MORE INFORMATION ............................................................................172
Index to Financial Statements ..................................................................................F-i
Appendix A - Prior Performance Tables ..........................................................................A-1
Appendix B - Dividend Reinvestment Plan ........................................................................B-1
Appendix C - Subscription Agreement ............................................................................C-1
Appendix D - Transfer on Death Designation .....................................................................D-1
Appendix E1 - Letter of Direction .............................................................................E1-1
Appendix E2 - Notice of Revocation ............................................................................E2-1
Appendix F - Privacy Policy Notice .............................................................................F-1
vi
PROSPECTUS SUMMARY
This summary highlights all of the material information in this prospectus.
Because this is a summary, it does not contain all the information that may be
important to you. You should read this entire prospectus and its appendices
carefully before you decide to invest in our shares of common stock.
INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
We are a Maryland corporation formed in March 2003. We intend to operate as
a real estate investment trust, or a REIT, for federal and state income tax
purposes beginning with the tax year ending December 31, 2003. We intend that
our company will own all of our assets, either directly or indirectly. We
currently have one stockholder, our advisor, Inland Western Retail Real Estate
Advisory Services, Inc. In March 2003, our advisor purchased from us 20,000
shares for $10 per share for an aggregate purchase price of $200,000 in
connection with our organization.
Our principal executive offices are located at 2901 Butterfield Road, Oak
Brook, Illinois 60523 and our telephone number is (630) 218-8000.
THE TYPES OF REAL ESTATE THAT WE MAY ACQUIRE AND MANAGE
Our advisor is experienced in acquiring and managing real estate,
particularly retail focused shopping centers. We intend to acquire and manage a
diversified (by geographical location and by type and size of retail centers)
portfolio of real estate primarily improved for use as retail establishments,
principally multi-tenant shopping centers. Our portfolio will consist
predominantly of grocery and discount store anchored retail, including net lease
retail. We may acquire certain mixed use properties that may include lodging,
office and/or multi-family residential if they are part of a retail center. And,
we may also acquire other types of retail shopping centers, such as enclosed
malls, outlet malls and power centers. We also anticipate acquiring real estate
improved with other commercial facilities which provide goods and services as
well as double or triple net leased properties, which are either commercial or
retail, including properties acquired in sale and leaseback transactions. A
triple-net leased property is one which is leased to a tenant who is responsible
for the base rent and all costs and expenses associated with their occupancy,
including property taxes, insurance, repairs and maintenance. We have, however,
only identified one property in Phoenix, Arizona, to purchase from the proceeds
of this offering.
The retail centers we intend to acquire would be located primarily in
states west of the Mississippi River in the United States. Where feasible, we
will endeavor to acquire multiple properties within the same major metropolitan
markets where the acquisitions result in efficient property management
operations with the potential to achieve market dominance.
We do not intend to invest in real estate properties that are primarily:
- farms;
- health care facilities;
- industrial properties;
- leisure home sites;
- manufacturing facilities;
- mining properties;
1
- ranches;
- single-family residential properties;
- timberlands; or
- unimproved properties not intended to be developed (vacant land).
Subject to compliance with the applicable requirement under the federal
income tax laws, we may also undertake construction and development activities
and render services in connection with such activities.
OUR SPONSOR, OUR ADVISOR AND THE INLAND GROUP
Our sponsor is Inland Real Estate Investment Corporation, which is owned by
The Inland Group, Inc. The Inland Group, together with its subsidiaries and
affiliates, is a fully-integrated group of legally and financially separate
companies that have been engaged in diverse facets of real estate for over 35
years providing property management, leasing, marketing, acquisition,
disposition, development, redevelopment, syndication, renovation, construction,
finance and other related services. Inland Western Retail Real Estate Advisory
Services, Inc., is a wholly owned subsidiary of our sponsor and is our advisor.
Inland Securities Corporation, another affiliate of The Inland Group, is the
managing dealer of this offering. Inland Western Management Corp., our property
manager, is an entity owned principally by individuals who are affiliates of The
Inland Group. The principal executive offices of The Inland Group, our sponsor,
our advisor and our property manager are located at 2901 Butterfield Road, Oak
Brook, Illinois 60523 and their telephone number is (630) 218-8000.
2
The following organizational chart depicts the services that affiliates or our
sponsor will render to us and our organizational structure.
ORGANIZATIONAL CHART
--------- --------- --------- ---------
Daniel L. Robert H. G. Joseph Robert D.
Goodwin* Baum* Cosenza* Parks*
--------- --------- --------- ---------
|| || || ||
===========================================================
||
-----------------------
THE INLAND GROUP, INC.*
-----------------------
||
=============================================================================================================
|| || || || |
--------------- ------------------- ----------------- ------------------ |
The Inland The Inland Property Inland Real Inland Real |
Services Group, Management Estate Investment Estate Transaction |
Inc. Group, Inc. Corporation Group, Inc. |
(our sponsor) |
--------------- ------------------- ----------------- ------------------- |
| | | | |
| | ========================================== | |
| | || || || | |
| | ----------- --------------------- ------------------ | ----------------------
| | Inland Inland Western Retail Inland Partnership | Inland Mortgage
--------------- ----------------- Securities Real Estate Advisory Property Sales | Investment Corporation
Inland Risk and Inland Western Corporation Services, Inc. Corporation |
Insurance Management Corp. (our advisor) |
Management (property manager) ----------- --------------------- ------------------ | ----------------------
Services, Inc. | | | |
--------------- ----------------- | | | |
| | | | ================================ =================
| | | | || || || || ||
| | | | ------------- ----------- ------------- ----------- ---------------
| | | | Inland Real Inland Real Inland Real Inland Inland Mortgage
--------- | | | Estate Sales, Estate Estate Mortgage Servicing
Insurance | | | Inc. Development Acquisitions, Corporation Corporation
Services | | | Corporation Inc.
--------- | | | ------------- ----------- ------------- ----------- ---------------
| | | | | | | | |
| | | | | | | | |
| | | | -------------- | | | |
| | | | Real Estate | | | |
| | | | Sales Services | | | |
| | | | -------------- | | | |
| | | | | | | | |
| | | | | | | | |
| -------------------- ---------- --------------- | ----------------- ----------- ---------- -------------
| Property Management Securities Organization, | Construction and Property Mortgage Mortgage Loan
| and Related Services Sales Advisory | Development Acquisition Brokerage Servicing
| and Real Estate | Services Services Services
| Services |
| -------------------- ---------- --------------- | ----------------- ----------- ---------- -------------
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
------------------------------------------------------------------------------------------------------------------------------------
Inland Western Retail Real Estate Trust, Inc.
We will be principally owned by public investors. Ownership is represented by shares of our common stock
------------------------------------------------------------------------------------------------------------------------------------
Solid lines indicate 100% ownership.
Broken lines indicate service.
* The four indicated individuals control The Inland Group, Inc. and own
substantially all of its stock.
3
Investment in shares of our common stock involves risks. If we are unable
to effectively manage the impact of these risks, we may not meet our investment
objectives and, therefore, you may lose some or all of your investment. The
following is a summary of the material risks which we believe are most relevant
to an investment in the shares. These risks are generally listed in the order of
priority.
- our common stock is not currently listed or traded on an exchange and
cannot be readily sold (and sales by stockholders may be made at a
loss);
- we have no operating history nor established financing sources;
- we have identified only one property to be purchased with the proceeds
of this offering;
- if we raise the minimum amount, we will not have sufficient resources
to acquire the identified property. We need to raise in excess of $26
million to acquire this property;
- although we anticipate that aggregate borrowings will not exceed 55%
of the combined fair market value of our properties, our charter
imposes a limitation on our borrowings of less than 300% of net assets
and there are risks associated with a high amount of leverage;
- we have no ownership in our advisor and the advisor is owned by our
sponsor or their affiliates;
- our advisor and its affiliates will receive substantial fees,
including participation in proceeds from the sales, refinancing or
liquidation of our assets;
- our advisor, property manager and two of our directors are subject to
conflicts of interest as a result of their affiliation with The Inland
Group, including conflicts of interest relating to:
- the negotiation of the terms of the advisors and property
management agreements;
- the allocation of their time between us and their other business
ventures;
- decisions whether to acquire and dispose of properties;
- the purchase and sale of properties to or from the advisor and
our affiliates; and
- the allocation of investment opportunities between us and their
other business ventures.
- the management fee structure could result in our advisor recommending
riskier or more speculative investments;
- we may make distributions that include a return of principal for
federal tax purposes;
- we may fail to qualify as a REIT;
- there are limits on ownership, transferability and redemption of
shares;
- our investment policies and strategies may be changed without
stockholder consent;
- our investments will lack geographic diversification;
4
- we will not be able to meet our business objectives if we only acquire
one single net leased property; and
- risks that incentive structure of fees payable to our advisor and its
affiliates may encourage our advisor to make investments that have
greater risks to generate higher fees.
CONFLICTS OF INTEREST
CONFLICTS OF INTEREST EXIST BETWEEN US AND SOME OF OUR AFFILIATES, INCLUDING OUR
ADVISOR. THESE AFFILIATES INCLUDE, INLAND REAL ESTATE CORPORATION, INLAND RETAIL
REAL ESTATE TRUST, INC. AND INLAND REAL ESTATE EXCHANGE CORPORATION. INLAND REAL
ESTATE CORPORATION IS A PUBLICLY REGISTERED REIT. INLAND REAL ESTATE CORPORATION
IS A SELF-ADMINISTERED REIT AND IS NO LONGER AFFILIATED WITH THE INLAND GROUP.
INLAND REAL ESTATE CORPORATION PURCHASES SHOPPING CENTERS LOCATED IN THE
MIDWEST. INLAND RETAIL REAL ESTATE TRUST, INC. IS AFFILIATED WITH THE INLAND
GROUP. INLAND RETAIL REAL ESTATE TRUST, INC. PURCHASES SHOPPING CENTERS LOCATED
EAST OF THE MISSISSIPPI RIVER. INLAND REAL ESTATE EXCHANGE CORPORATION IS A
SUBSIDIARY OF INLAND REAL ESTATE INVESTMENT CORPORATION. INLAND REAL ESTATE
EXCHANGE CORPORATION PROVIDES REPLACEMENT PROPERTIES FOR PEOPLE WISHING TO
COMPLETE AN IRS SECTION 1031 REAL ESTATE EXCHANGE. Midwest Real Estate Equities,
Inc. is not a subsidiary of The Inland Group, Inc or its affiliates but does
have some of the same shareholders as The Inland Group, Inc. Midwest Real Estate
Equities buys, manages and sells commercial and multi-family property.
Some of these conflicts include:
- competition for the time and services of personnel that work for us
and our affiliates, including, such persons as Daniel L. Goodwin,
Robert H. Baum, G. Joseph Cosenza, Robert D. Parks, Roberta S. Matlin,
Scott W. Wilton, Kelly E. Tucek, and Brenda G. Gujral, which may limit
the amount of time these people may spend on our business matters;
- substantial compensation payable by us to Inland Securities
Corporation, Inland Western Retail Real Estate Advisory Services, Inc.
and Inland Western Management Corp. for their various services which
may not be on market terms and is payable, in most cases, whether or
not our stockholders receive distributions;
- competition for properties, although our affiliates are governed by
the Property Acquisition Service Agreement which, with certain
limitations, gives us a right of first refusal for all properties west
of the Mississippi River;
- acquisition of properties from an affiliate who has a contract to
acquire it from PDG America; and
- the possibility that we may do business with entities that have
pre-existing relationships with our affiliates which may result in a
conflict between our business and the ongoing business relationships
our affiliates have with each other.
Conflicts of interest may also arise in connection with the potential sale or
refinancing of our properties or the enforcement of agreements.
We have an option to acquire or consolidate into us the business conducted
by our advisor and/or our property manager for shares of common stock.
5
COMPENSATION TO BE PAID TO OUR ADVISOR AND AFFILIATES
We intend to pay our advisor and affiliates substantial fees for managing
our business.
We will also pay the advisor and other affiliates of our sponsor a number
of other fees for services or expense reimbursements during our offering,
operational and liquidation stage.
Set forth below is a tabular summary of fees and compensation payable to our
advisor and other affiliates.
Type of Compensation
Nonsubordinated payments:
Offering stage:
Selling commissions 7.5% of the sale price for each share
Estimated maximum: $187,500,000
Marketing contribution and due diligence 3.0% of the gross offering proceeds
allowance Estimated maximum: $75,000,000
Reimbursable expenses and other We will reimburse our sponsor for
expenses of issuance actual costs incurred on our behalf in
connection with this offering.
Estimated amount: $14,684,000
Acquisition stage:
Acquisition expenses We will reimburse Inland Real Estate
Acquisitions, Inc. for costs incurred,
on our behalf, in connection with the
acquisition of properties:
Estimated maximum: $13,450,000
Operational stage:
Property management fee 4.5% of the gross income from the
This fee terminates upon A BUSINESS COMBINATION properties. (cannot exceed 90% of the
WITH OUR PROPERTY MANAGER. fee which would be payable to an
unrelated third party). Actual amounts
cannot be determined at the present
time. We will pay the fee for services
in connection with the rental, leasing,
operation and management of the
properties.
Loan servicing fee .08% of the total principal amount of
the loans being serviced for each full
year, up to the first $100 million and
a lesser percentage on a sliding scale
thereafter. Actual amounts cannot be
determined at the present time.
Reimbursable expenses relating to administrative The compensation and reimbursements to
services our advisor and its affiliates will be
approved by a majority of our
directors. Actual amounts cannot be
determined at the present time. These
may include cost of goods and services
and non-supervisory services performed
directly for us by independent parties.
6
Liquidation stage:
Property disposition fee Lesser of 3% of sales price or 50% of
THIS FEE TERMINATES UPON A BUSINESS the customary commission which would be
COMBINATION WITH OUR ADVISOR. paid to a third party. Actual amounts
cannot be determined at the present time.
Subordinated payments:
Operational stage:
Advisor asset management fee Not more than 1% per annum of our
THIS FEE TERMINATES UPON A BUSINESS average assets; subordinated to a
COMBINATION WITH OUR ADVISOR. non-cumulative, non-compounded return,
equal to 6% per annum. Actual amounts
cannot be determined at the present
time. We will pay the fee for services
in connection with our day-to-day
operations, including administering our
bookkeeping and accounting functions,
services as our consultant in
connection with policy decisions made
by our board, managing our properties
or causing them to be managed by
another party and providing other
services as our board deems
appropriate.
Liquidation stage:
Incentive advisory fee After our stockholders have first
THIS FEE TERMINATES UPON A BUSINESS received a 10% cumulative,
COMBINATION WITH THE ADVISOR. non-compounded return and a return on
their net investment, an incentive
advisory fee equal to 15% on net
proceeds from the sale of a property
will be paid to our advisor. Actual
amounts cannot be determined at the
present time. We will pay the fee for
services in connection with the
disposition of our properties.
PRIMARY BUSINESS OBJECTIVE AND STRATEGIES
Our primary business objective is to enhance the performance and value of
our properties through active management. Key elements of our strategy are:
Acquisitions:
- To selectively acquire real properties that are diversified types and
well-located.
- To selectively acquire properties on an all-cash basis if necessary to
provide us with a competitive advantage over potential purchasers who
must secure financing. We may, however, acquire properties subject to
existing indebtedness if we believe this is in our best interest. We
may acquire properties free and clear of permanent mortgage debt by
paying the entire purchase price of each property in cash or for
shares, interests in entities that own one or more of our properties
or a combination of these. However, as of the date of this prospectus,
we had not paid the purchase price of any properties using shares or
interests in entities that will own our properties.
7
- To diversify geographically within the states west of the Mississippi
by acquiring properties primarily located in major metropolitan areas
to minimize the potential adverse impact of economic downturns in
local markets.
Operations:
- We intend to actively manage costs and minimize operating expenses by
centralizing all management, leasing, marketing, financing,
accounting, renovation and data processing activities.
- We intend to improve rental income and cash flow by aggressively
marketing rentable space.
- We intend to emphasize regular maintenance and periodic renovation to
meet the needs of tenants and to maximize long-term returns.
- We intend to maintain a diversified tenant base at our retail centers,
consisting primarily of retail tenants providing consumer goods and
services.
SHARES SOLD BEFORE THE OFFERING
This is our initial public offering. We issued 20,000 shares of our common
stock for $10 per share, or an aggregate purchase price of $200,000, to our
advisor in connection with our organization.
TERMS OF THE OFFERING
If we only sell the minimum offering, we will have sold a total of 220,000
shares. If we sell the maximum amount of shares under the offering, we will have
sold a total of 250,020,000. These numbers do not include shares issued upon
exercise of options granted and which may be granted under our independent
director stock option plan.
We are offering a minimum of 200,000 shares ($2,000,000) and a maximum of
250,000,000 shares ($2,500,000,000). We are offering 250,000,000 shares on a
best efforts basis through the managing dealer at $10.00 per share, subject to
discounts in some cases. An offering on a best efforts basis is one in which the
securities dealers participating in the offering are under no obligation to
purchase any of the securities being offered and, therefore, no specified number
of securities are guaranteed to be sold and no specified amount of money is
guaranteed to be raised from the offering.
We are also offering up to 20,000,000 shares at a purchase price of $9.50
per share to stockholders who elect to participate in our distribution
reinvestment program.
The offering price of our shares is subjective and was determined by our
board of directors. Our board of directors determined the offering price based
upon the offering price of earlier REITs organized by our sponsor, the range of
other REITs that do not have a public trading market and the recommendation of
the managing dealer based on its consultations with likely soliciting dealers.
IS AN INVESTMENT IN US APPROPRIATE FOR YOU?
An investment in us might be appropriate as part of your investment
portfolio if:
- You are looking for regular distributions. We intend to pay regular
monthly distributions to our domestic stockholders and regular
quarterly distributions to our foreign
8
stockholders. The maximum time that you should have to wait to receive
the first distribution is 45 days from the date in which we accept
your subscription.
- You are looking for a hedge against inflation. We intend to hedge
against inflation by entering into leases with tenants which provide
for scheduled rent escalations or participation in the growth of
tenant sales. This is designed to provide increased distributions and
capital appreciation.
- You are looking for capital preservation and appreciation. We intend
to acquire a portfolio of diverse properties, usually on an all cash
basis, that are well located. After acquiring these properties, we may
finance them, but we anticipate that aggregate borrowings secured by
our properties will not exceed 55% of their combined fair market
value.
WE CANNOT GUARANTEE THAT WE WILL ACHIEVE THESE OBJECTIVES.
DISTRIBUTIONS
We intend to pay regular monthly distributions to our domestic stockholders
and regular quarterly distributions to our foreign stockholders. The maximum
time that you should have to wait to receive the first distribution is 45 days
from the date in which we accept your subscription.
In order to maintain our REIT status under federal income tax laws, we
intend to distribute at least 90% of our taxable income to our stockholders. For
federal income tax purposes only, we may make distributions that include a
return of principal or an amount in excess of 95% of cash available to us.
REAL PROPERTY INVESTMENTS
We have identified one property for purchase in the state of Arizona.
We anticipate purchasing an existing shopping center known as Peoria
Station, which will contain 181,500 gross leasable square feet upon completion
of the current redevelopment. The center currently contains 140,019 gross
leasable square feet. The center is located at 10160 North 67th Avenue in
Peoria, Arizona.
An affiliate of our advisor has entered into a contract to acquire this
property. We anticipate that the affiliate will assign this purchase contract to
us for no cost to us. We would then anticipate purchasing Peoria Station from
PDG America, an unaffiliated third party. Our total acquisition cost, including
expenses, is expected to be approximately $25,867,000. This amount may be
adjusted based on actual rental rates achieved on the redeveloped square feet.
This amount may also increase by additional costs, which have not yet been
finally determined. We expect any additional costs to be insignificant. Our
acquisition cost is expected to be approximately $143 per square foot of
leasable space.
SHARE REPURCHASE PROGRAM
We intend to institute a share repurchase program. Our share repurchase
program may provide eligible stockholders with limited interim liquidity by
enabling them to sell shares back to us. The prices at which shares may be sold
back to us will be one year from the purchase date at $9.25 per share; two years
from the purchase date at $9.50 per share; three years from the purchase date at
$9.75 per share; and four years from the purchase date at the greater of $10.00
per share or a price equal to ten times our "funds available for distribution"
per weighted average share outstanding for the prior calendar year. We may
terminate, reduce or otherwise change the above share repurchase program.
9
ESTIMATED USE OF PROCEEDS
The amounts listed in the table below represent our current estimates
concerning the use of the offering proceeds. Since these are estimates, they may
not accurately reflect the actual receipt or application of the offering
proceeds. This first scenario assumes we sell the minimum number of 200,000
shares of common stock in this offering. The second scenario assumes:
- we sell the maximum of 250,000,000 shares in this offering at $10 per
share; and
- we sell the maximum of 20,000,000 shares in our distribution
reinvestment program at $9.50 per share.
Under both scenarios we have not given effect to any special sales or
volume discounts which could reduce selling commissions.
MAXIMUM OFFERING
(INCLUDING SHARES SOLD UNDER THE
MINIMUM OFFERING DISTRIBUTION REINVESTMENT
200,000 SHARES PROGRAM)
--------------------------------- ---------------------------------
AMOUNT PERCENT AMOUNT PERCENT
--------------- --------------- --------------- ---------------
Gross proceeds .............. $ 2,000,000 100.0% $ 2,690,000,000 100.00%
--------------- --------------- --------------- ---------------
Less expenses:
Selling commissions ..... 150,000 7.5% 187,500,000 6.97%
Marketing contribution .. 60,000 3.0% 75,000,000 2.79%
Organization and offering 90,000 4.5% 14,684,000 .55%
--------------- --------------- --------------- ---------------
Total expenses .......... 300,000 15.0% 277,184,000 10.30%
--------------- --------------- --------------- ---------------
Gross amount available ...... 1,700,000 85.0% 2,412,816,000 89.70%
Less
Acquisition expenses .... 10,000 0.5% 13,450,000 0.50%
Working capital reserve . 20,000 1.0% 26,900,000 1.00%
--------------- --------------- --------------- ---------------
Net cash available .......... $ 1,670,000 83.50% $ 2,372,466,000 88.20%
=============== =============== =============== ===============
10
RISK FACTORS
An investment in our shares involves significant risks and therefore is
suitable only for those persons who understand those risks and the consequences
of their investment and who are able to bear the risk of loss of their entire
investment. You should consider the following material risks in addition to
other information set forth elsewhere in this prospectus before making your
investment decisions.
THE PRICE OF OUR COMMON STOCK IS SUBJECTIVE AND MAY NOT BEAR ANY
RELATIONSHIP TO WHAT A STOCKHOLDER COULD RECEIVE IF IT WAS SOLD. Our board of
directors determined the offering price of our shares of common stock based on
the following factors:
- the offering price of the earlier REITs organized by our sponsor;
- the range of offering prices of other REITs that do not have a public
trading market; and
- the recommendation of the managing dealer based on its consultations
with likely soliciting dealers.
However, the offering price of our shares of common stock may not be the
same as the price at which the shares may trade if they were listed on an
exchange or actively traded by brokers, nor of the proceeds that a stockholder
may receive if we were liquidated or dissolved. As such, any sales may be made
at a loss.
OUR COMMON STOCK IS NOT CURRENTLY LISTED ON AN EXCHANGE OR TRADING MARKET
AND CANNOT BE READILY SOLD. There is currently no public trading market for the
shares and we cannot assure you that one will develop. We may never list the
shares for trading on a national stock exchange or include the shares for
quotation on a national market system. The absence of an active public market
for our shares could impair your ability to sell our stock at a profit or at
all. By September 15, 2008 our board of directors will determine whether it is
in our best interests to apply to have the shares listed on a national stock
exchange or included for quotation on a national market system if we meet the
applicable listing requirements at that time.
YOU DO NOT KNOW WHAT REAL PROPERTIES AND OTHER ASSETS WE MAY ACQUIRE IN THE
FUTURE, AND MUST RELY ON OUR ADVISOR, OUR BOARD AND OFFICERS TO SELECT THEM AND
STOCKHOLDERS WILL NOT PARTICIPATE IN THESE DECISIONS. We intend to acquire
commercial retail properties. We have only recently identified one property we
intend to acquire. However, no information is available as to the
identification, location, operating histories, lease terms or other relevant
economic and financial data of any real properties or other assets we may
purchase in the future. As a result, you must rely on us to locate and acquire
suitable investment properties. In addition, our board of directors may approve
future equity offerings or obtain financing, the proceeds of which may be
invested in additional properties; therefore, you will not have an opportunity
to evaluate all of the properties that will be in our portfolio. Stockholders
will not participate in evaluating these investment opportunities. Nonetheless,
you will be unable to evaluate the manner in which we invest the proceeds of
this offering or the economic merit of particular properties prior to their
acquisition. This prospectus only describes the parameters we will use to
acquire additional real properties and other assets.
COMPETITION WITH THIRD PARTIES IN ACQUIRING PROPERTIES WILL REDUCE OUR
PROFITABILITY AND THE RETURN ON YOUR INVESTMENT. We compete with many other
entities engaged in real estate investment activities, many of which have
greater resources than we do. Larger REITs may enjoy significant competitive
advantages that result from, among other things, a lower cost of capital and
enhanced operating efficiencies. In addition, the number of entities and the
amount of funds competing for suitable
11
investment properties may increase. This will result in increased demand for
these assets and therefore increased prices paid for them. If we pay higher
prices for properties, our profitability is reduced and you will experience a
lower return on your investment.
WE WILL COMPETE WITH REAL ESTATE INVESTMENT PROGRAMS SPONSORED BY COMPANIES
AFFILIATED WITH US FOR THE ACQUISITION OF PROPERTIES AND FOR THE TIME AND
SERVICES OF PERSONNEL. Affiliated companies have previously sponsored other
REITs, private real estate equity programs and private placement mortgage and
note programs, and affiliated companies in the future may sponsor other real
estate investment programs. These affiliated companies include Inland Real
Estate Corporation, Inland Retail Real Estate Trust, Inc., Inland Real Estate
Exchange Corporation and other entities to be formed by The Inland Group, Inc.
We will compete with these existing and future real estate investment programs
for the acquisition of properties of a type suitable for our investment, for the
time and services of personnel of our advisor and affiliates of our advisor in
connection with our operation and the management of our assets, and for
obtaining and retaining investors for our common stock. We will be limited to
acquiring properties that are located west of the Mississippi River and single
net lease properties located anywhere in the United States and therefore our
geographic diversity will be limited.
WE PLAN TO INCUR MORTGAGE INDEBTEDNESS AND OTHER BORROWINGS, WHICH MAY
REDUCE THE FUNDS AVAILABLE FOR DISTRIBUTION, MAY INCREASE THE RISK OF LOSS SINCE
DEFAULTS MAY RESULT IN FORECLOSURE AND MORTGAGES MAY INCLUDE
CROSS-COLLATERALIZATION OR CROSS-DEFAULT PROVISIONS THAT INCREASE THE RISK THAT
MORE THAN ONE PROPERTY MAY BE AFFECTED BY A DEFAULT. We may, in some instances,
use either existing financing or borrow new funds to acquire properties. We
intend to incur or increase our mortgage debt by obtaining loans secured by
selected or all of the real properties to obtain funds to acquire additional
real properties. We may also borrow funds if necessary to satisfy the
requirement that we distribute to stockholders as dividends at least 90% of our
annual REIT taxable income, or otherwise as is necessary or advisable to assure
that we maintain our qualification as a REIT for federal income tax purposes.
We may incur mortgage debt on a particular real property if we believe the
property's projected cash flow is sufficient to service the mortgage debt.
However, if there is a shortfall in cash flow, then the amount available for
distributions to stockholders may be affected. In addition, incurring mortgage
debt increases the risk of loss since defaults on indebtedness secured by
properties may result in foreclosure actions initiated by lenders and our loss
of the property securing the loan which is in default. For tax purposes, a
foreclosure of any of our properties would be treated as a sale of the property
for a purchase price equal to the outstanding balance of the debt secured by the
mortgage. If the outstanding balance of the debt secured by the mortgage exceeds
our basis in the property, we would recognize taxable income on foreclosure, but
would not receive any cash proceeds. We may give full or partial guarantees to
lenders of mortgage debt to the entity that owns our properties. In such cases,
we will be responsible to the lender for satisfaction of the debt if it is not
paid by such entity. If any mortgages contain cross-collateralization or
cross-default provisions, there is a risk that more than one real property may
be affected by a default.
If mortgage debt is unavailable at reasonable rates, we will not be able to
place financing on the properties, which could reduce distributions per share.
If we place mortgage debt on the properties, we run the risk of being unable to
refinance the properties when the loans come due, or of being unable to
refinance on favorable terms. If interest rates are higher when the properties
are refinanced, our net income could be reduced, which would reduce cash
available for distribution to stockholders and may prevent us from raising
capital by issuing more stock and may prevent us from borrowing more money.
IF WE HAVE INSUFFICIENT WORKING CAPITAL RESERVES, WE WILL HAVE TO OBTAIN
FINANCING FROM OTHER SOURCES. We intend to establish working capital reserves
which we believe are adequate to cover our cash needs. However, if these
reserves are insufficient to meet our cash needs, we may have to obtain
12
financing from either affiliated or unaffiliated sources to fund our cash
requirements. We cannot assure you that sufficient financing will be available
or, if available, will be available on economically feasible terms or on terms
acceptable to us. Additional borrowing for working capital purposes will
increase our interest expense and therefore, our financial condition and our
ability to pay distributions may be adversely affected.
THE TYPES OF PROPERTIES WHICH WE INTEND TO ACQUIRE AND THE AREA IN WHICH WE
MAY ACQUIRE RETAIL CENTERS IS LIMITED. We intend to primarily acquire and manage
retail centers. Our acquisition of retail centers is limited primarily to states
west of the Mississippi River. Adverse economic conditions affecting that area
could adversely affect our profitability to a greater degree than if we had
diversified our investments to include other types of real estate over a larger
geographic region.
WE CURRENTLY PLAN TO ACQUIRE ONLY ONE SINGLE NET LEASED PROPERTY. We
currently only have an agreement to acquire one single net leased property. We
will not be able to meet our business objectives if we only acquire one single
net leased property. This limitation could have an adverse effect on our
business.
THE AGGREGATE AMOUNT WE MAY BORROW IS LIMITED UNDER OUR ARTICLES OF
INCORPORATION. Our articles of incorporation limit the aggregate amount we may
borrow, secured and unsecured, to 300% of our net assets, absent a satisfactory
showing that a higher level is appropriate. That limitation could have adverse
consequences on our business, including:
- freezing our ability to purchase properties;
- causing us to lose our REIT status if borrowing was necessary to
distribute the required minimum amount of cash to our stockholders for
us to qualify as a REIT;
- causing operational problems if there are cash flow shortfalls for
working capital purposes; and
- resulting in the loss of a property if, for example, financing was
necessary to cure a default on a mortgage.
In order to change this limitation, we must obtain approval by a majority
of our independent directors and by a majority of our stockholders. There will
be a delay before approval can be obtained, if it can be obtained at all. It is
possible that even if the required approval is obtained, it may not be obtained
in sufficient time to avoid the adverse consequences of not having the
additional funding when it is needed.
WE HAVE NO OPERATING HISTORY, AND SO WE HAVE NO HISTORY OF EARNINGS UPON
WHICH YOU COULD EVALUATE OUR BUSINESS. We were incorporated on March 5, 2003. We
have only recently begun operations. We have not acquired any properties or
hired any employees. Therefore, we have no operating history upon which you can
evaluate our business and prospects. We have no income, cash flow, funds from
operations or funds available to make distributions to you. We may be unable to
conduct our business as we intend to do. You must carefully consider the risks
and uncertainties frequently encountered in new companies like ours. Because we
have no operating history, we have no historical basis for predicting if our
business will be successful.
BECAUSE OF THE WAY WE ARE ORGANIZED, WE WOULD BE A DIFFICULT TAKEOVER
TARGET. THIS COULD DEPRESS THE PRICE OF OUR STOCK AND INHIBIT A MANAGEMENT
CHANGE. Provisions which may have an anti takeover effect and inhibit a change
in our management include:
13
- THERE ARE OWNERSHIP LIMITS AND RESTRICTIONS ON TRANSFERABILITY AND
OWNERSHIP IN OUR ARTICLES OF INCORPORATION. In order for us to qualify
as a REIT, no more than 50% of the outstanding shares of our stock may
be beneficially owned, directly or indirectly, by five or fewer
individuals at any time during the last half of each taxable year. To
assure that we will not fail to qualify as a REIT under this test, our
articles of incorporation provide that, commencing March 1, 2003,
subject to some exceptions, no person may beneficially own more than
9.8% of our common stock.
This restriction may:
- have the effect of delaying, deferring or preventing a change in
control of us, including an extraordinary transaction (such as a
merger, tender offer or sale of all or substantially all of our
assets) that might involve a premium price for holders of our
common stock; or
- compel a stockholder who had acquired more than 9.8% of our stock
to dispose of the additional shares and, as a result, to forfeit
the benefits of owning the additional shares.
- OUR ARTICLES OF INCORPORATION PERMIT OUR BOARD OF DIRECTORS TO ISSUE
PREFERRED STOCK WITH TERMS THAT MAY DISCOURAGE A THIRD PARTY FROM
ACQUIRING US. Our articles of incorporation permit our board of
directors to issue, without stockholder approval, up to 10 million
shares of preferred stock. The board may classify or reclassify any
unissued preferred stock and establish preferences, conversion or
other rights, voting power, restrictions, limitations as to dividends
and other distributions, qualifications, or terms or conditions of
redemption, of any preferred stock. Thus, our board could authorize,
without the approval by our stockholders, the issuance of preferred
stock with terms and conditions which could have the effect of
delaying, deferring or preventing a change in control of us, including
an extraordinary transaction (such as merger, tender offer or sale of
all or substantially all of our assets) that might provide a premium
for holders of our common stock.
- MARYLAND LAW MAY DISCOURAGE A THIRD PARTY FROM ACQUIRING US. Maryland
law restricts mergers and other business combinations between us and
an interested stockholder. Under the Maryland Business Combination
Act, an anti-takeover statute, for a period of five years after the
most recent acquisition of stock by an interested stockholder, we may
not engage in any merger or other business combination with that
interested stockholder or any affiliate of that interested
stockholder. After the five-year period, any merger or other business
combination must be approved by our board of directors and by at least
80% of all the votes entitled to be cast by holders of outstanding
shares of our voting stock and two-thirds of all the votes entitled to
be cast by holders of outstanding shares of our voting stock other
than the interested stockholder with whom the business combination is
to be effected unless, among other things, the stockholders of the
company receive in the business combination a minimum consideration
for their common stock equal to the highest price paid by the
interested stockholder for its common stock. However, our articles of
incorporation provide that the business combination provisions of
Maryland law do not apply to any business combination involving us and
our affiliates. As a result, the five-year prohibition and the
super-majority stockholder vote requirements will not apply to any
business combinations between us and our affiliates. The Maryland
Business Combination Act could have the effect of discouraging offers
from third parties to acquire us and of increasing the
14
difficulty of successfully completing a business combination. See
"Description of Securities - Provisions of Maryland Law and our
Articles of Incorporation and Bylaws."
- MARYLAND LAW ALSO LIMITS THE ABILITY OF A THIRD PARTY TO BUY A LARGE
STAKE IN US AND EXERCISE VOTING POWER IN ELECTING DIRECTORS. Maryland
law provides a second anti-takeover statute, its Control Share
Acquisition Act, which provides that "control shares" of a Maryland
corporation acquired in a "control share acquisition" have no voting
rights except to the extent approved by the corporation's
disinterested stockholders by a vote of a two-thirds of the votes
entitled to be cast on the matter; shares of stock owned by interested
stockholders, that is, by the acquirer, by officers or by directors
who are employees of the corporation, are not entitled to be cast on
the matter. "Control shares" are voting shares of stock which would
entitle the acquirer to exercise voting power in electing directors
within specified ranges of voting power. Control shares do not include
shares the acquiring person is then entitled to vote as a result of
having previously obtained stockholder approval. A "control share
acquisition" means the acquisition of control shares. The control
share acquisition statute does not apply (i) to shares acquired in a
merger, consolidation or share exchange if the corporation is a party
to the transaction or (ii) to acquisitions approved or exempted by the
articles of incorporation or bylaws of the corporation. Our bylaws
exempt our affiliates from the Maryland control share acquisition
statute. This statute could have the effect of discouraging offers
from third parties to acquire us and increasing the difficulty of
successfully completing this type of offer by anyone other than our
affiliates or any of their affiliates. See "Description of Securities
- Provisions of Maryland Law and our Articles of Incorporation and
Bylaws - Control Share Acquisition."
YOUR INVESTMENT RETURN MAY BE REDUCED IF WE ARE REQUIRED TO REGISTER AS AN
INVESTMENT COMPANY UNDER THE INVESTMENT COMPANY ACT. We are not registered as an
investment company under the Investment Company Act of 1940. If we were
obligated to register as an investment company, we would have to comply with a
variety of substantive requirements under the Investment Company Act. These
requirements include:
- limitations on capital structure;
- restrictions on specified investments;
- prohibitions on transactions with affiliates; and
- compliance with reporting, record keeping, voting, proxy disclosure
and other rules and regulations that would significantly change our
operations.
In order to maintain our exemption from regulation under the Investment
Company Act of 1940, we must engage primarily in the business of buying real
estate, and these investments must be made within a year after the offering
ends. If we are unable to invest a significant portion of the proceeds of this
offering in properties within one year of the termination of the offering, we
may avoid being required to register as an investment company by temporarily
investing any unused proceeds in government securities with low returns. This
would reduce the cash available for distribution to investors and possibly lower
your returns.
To maintain compliance with the Investment Company Act exemption, we may be
unable to sell assets we would otherwise want to sell and may need to sell
assets we would otherwise wish to retain. In addition, we may have to acquire
additional income or loss generating assets that we might not otherwise
15
have acquired or may have to forgo opportunities to acquire interests in
companies that we would otherwise want to acquire and would be important to our
strategy.
If we were required to register as an investment company but failed to do
so, we would be prohibited from engaging in our business, and criminal and civil
actions could be brought against us. In addition, our contracts would be
unenforceable unless a court were to require enforcement, and a court could
appoint a receiver to take control of us and liquidate our business.
THERE ARE MANY FACTORS WHICH CAN AFFECT DISTRIBUTIONS TO STOCKHOLDERS.
Distributions will be based principally on cash available from our properties,
real estate securities, and other investments. The amount of cash available for
distributions will be affected by many factors, such as our ability to buy
properties as offering proceeds become available, the yields on securities of
other REITs which we invest in, and our operating expense levels, as well as
many other variables. Actual cash available for distributions may vary
substantially from estimates. We can give no assurance that we will be able to
pay or maintain distributions or that distributions will increase over time. Nor
can we give any assurance that rents from the properties will increase, that the
securities we buy will increase in value or provide increased dividends over
time, or that future acquisitions of real properties or our investments in
securities will increase our cash available for distributions to stockholders.
Our actual results may differ from the assumptions used by our board of
directors in establishing the initial distribution rate to stockholders. Some of
these factors are beyond our control, and a change in any one factor could
adversely affect our ability to pay future distributions:
- If one or more tenants defaults or terminates their lease, there could
be a decrease or cessation of rental payments which would mean less
cash available for distributions.
- Cash available for distributions may be reduced if we are required to
spend money to correct defects or to make improvements to properties.
- Cash available to make distributions may decrease if the assets we
acquire have lower yields than expected.
- There may be a delay between the sale of the common stock and our
purchase of real properties. During that time, we may invest in lower
yielding short term instruments, which could result in a lower yield
on your investment.
- Federal income tax laws require REITs to distribute at least 90% of
their taxable income to stockholders. This limits the earnings which
we may retain for corporate growth, such as property acquisition,
development or expansion and makes us more dependent upon additional
debt or equity financing than corporations which are not REITs. If we
borrow more funds in the future, more of our operating cash will be
needed to make debt payments and cash available for distributions may
therefore decrease.
- In connection with future property acquisitions, we may issue
additional shares of common stock or interests in other entities that
own our properties. We cannot predict the number of shares of common
stock, units or interests which we may issue, or the effect that these
additional shares might have on cash available for distributions to
you. If we issue additional shares, they could reduce the cash
available for distributions to you.
- We make distributions to our stockholders to comply with the
distribution requirements of the Internal Revenue Code and to
eliminate, or at least minimize, exposure to federal income taxes and
the nondeductible REIT excise tax. Differences in timing between the
16
receipt of income and the payment of expenses and the effect of
required debt payments could require us to borrow funds on a short
term basis to meet the distribution requirements that are necessary to
achieve the tax benefits associated with qualifying as a REIT.
OUR DERIVATIVE FINANCIAL INSTRUMENTS USED TO HEDGE AGAINST INTEREST RATE
FLUCTUATIONS COULD REDUCE THE OVERALL RETURNS ON YOUR INVESTMENT. We may use
derivative financial instruments to hedge exposures to changes in interest rates
on loans secured by our properties. To the extent we do, we are exposed to
credit risk and market risk. Credit risk is the failure of the counterparty to
perform under the terms of the derivative contract. When the fair value of a
derivative contract is positive, the counterparty owes us, which creates credit
risk for us. When the fair value of a derivative contract is negative, we owe
the counterparty and, therefore, it does not possess credit risk.
Our hedging strategy and use of derivative financial instruments may reduce
the overall returns on your investments.
As we have yet to raise any money, our board has not yet established
policies and procedures regarding our use of derivative financial instruments
for hedging or other purposes.
WE COULD ISSUE MORE SHARES IN THE FUTURE, WHICH COULD REDUCE THE MARKET
PRICE OF OUR OUTSTANDING SHARES. We have the power to issue more shares of our
common stock in the future. We cannot predict the effect on the market price of
our outstanding common stock, if any, of future sales by us of shares of our
common stock, or the availability of shares for future sales through the
exercise of options granted to independent directors under our independent
director stock option plan. The issuance of these additional shares, or the
perception that these shares could be issued, could adversely affect the
prevailing market prices, if any, for our common stock.
OUR SHARE REPURCHASE PROGRAM IS LIMITED TO 5% OF THE WEIGHTED AVERAGE
NUMBER OF SHARES OF OUR STOCK OUTSTANDING DURING THE PRIOR CALENDAR YEAR AND MAY
BE CHANGED OR TERMINATED BY US, THEREBY REDUCING THE POTENTIAL LIQUIDITY OF YOUR
INVESTMENT. In accordance with our share repurchase program, a maximum of 5% of
the weighed average number of shares of our stock outstanding during the prior
calendar year may be repurchased by us. This standard limits the number of
shares we can purchase. Our board also has the ability to change or terminate,
at any time, our share repurchase program. If we terminate or modify our share
repurchase program or if we do not have sufficient funds available to repurchase
all shares that our stockholders request to repurchase, then our stockholders'
ability to liquidate their shares will be diminished.
STOCKHOLDERS HAVE LIMITED CONTROL OVER CHANGES IN OUR POLICIES. Our board
of directors determines our major policies, including our investment objectives,
financing, growth, debt capitalization, REIT qualification and distributions.
Our board of directors may amend or revise these and other policies without a
vote of the stockholders. This means that stockholders will have limited control
over changes in our policies.
IF WE INVEST IN JOINT VENTURES, THE OBJECTIVES OF OUR PARTNERS MAY CONFLICT
WITH OUR OBJECTIVES. We may make investments in joint ventures or other
partnership arrangements between us and affiliates of our sponsor or with
unaffiliated third parties. Investments in joint ventures which own real
properties may involve risks otherwise not present when we purchase real
properties directly. For example, our co venturer may file for bankruptcy
protection, may have economic or business interests or goals which are
inconsistent with our interests or goals, or may take actions contrary to our
instructions, requests, policies or objectives. Among other things, actions by a
co venturer might subject real properties owned by the
17
joint venture to liabilities greater than those contemplated by the terms of the
joint venture or other adverse consequences.
IF WE SELL PROPERTIES BY PROVIDING FINANCING TO PURCHASERS, WE WILL BEAR
THE RISK OF DEFAULT BY THE PURCHASER. If we decide to sell any of our
properties, we will use our best efforts to sell for cash. However, we may sell
our properties by providing financing to purchasers. When we provide financing
to purchasers, we will bear the risk of default by the purchaser and will be
subject to remedies provided by law. There are no limitations or restrictions on
our ability to take purchase money obligations. We may therefore take a purchase
money obligation secured by a mortgage as part payment for the purchase price.
The terms of payment to us will be affected by custom in the area where the
property being sold is located and the then-prevailing economic conditions. If
we receive promissory notes or other property in lieu of cash from property
sales, the distribution of the proceeds of sales to our stockholders, or their
reinvestment in other properties, will be delayed until the promissory notes or
other property are actually paid, sold, refinanced or otherwise disposed of. In
some cases, we may receive initial down payments in cash and other property in
the year of sale in an amount less than the selling price and subsequent
payments will be spread over a number of years.
IF WE DO NOT RAISE SUFFICIENT FUNDS, WE MAY NOT FULFILL OUR INVESTMENT
OBJECTIVES, INCLUDING ASSET DIVERSIFICATION. We are making this offering on a
best efforts basis and it is conditioned on the sale of at least 200,000 shares
of common stock for $2,000,000. Because this offering will be made on a best
efforts basis, our potential profitability and our ability to continue to
diversify our investments, both geographically and by type of properties
purchased, will be limited by the amount of funds we raise. We will be able to
purchase additional properties only as additional funds are raised. We cannot
guarantee that we will sell the minimum number of shares and, if we do not, all
proceeds from subscribers will be returned to them together with the interest
earned on the proceeds. We have committed to pay approximately $26 million for
the property to be purchased by us located in Phoenix, Arizona. In addition,
expenses that we will incur in connection with this offering will impact the
amount of funds that we have available to fulfill our investment objectives. If
we only sell the minimum amount, we will incur $300,000 in expenses, and
therefore will only have $1.7 million available for investment purposes. Funds
that we apply towards offering expenses will reduce the amount of funds
available for investment purposes. If we do not raise the minimum offering
amount, then we will not be able to fulfill our investment objectives. See "Plan
of Distribution -- Escrow Conditions" for explanations of when uninvested
proceeds and escrowed funds will be returned to you. If we sell the maximum
amount, we estimate our total expenses will be $277 million, leaving
approximately $2.4 billion available for investment purposes.
DELAYS IN ACQUISITIONS OF PROPERTIES MAY HAVE AN ADVERSE EFFECT. Delays we
encounter in the selection, acquisition and development of properties could
adversely affect your returns and distributions on your investment. Where we
acquire properties prior to the start of construction or during the early stages
of construction, it will typically take several months to complete construction
and rent available space. Therefore, you could suffer delays in your
distributions attributable to those particular properties. In addition, it takes
a certain amount of time to locate, negotiate an acceptable purchase contract,
conduct due diligence and ultimately acquire a property. If we are unable to
invest our offering proceeds in income producing real properties in a timely
manner, this may adversely affect the funds available for distribution.
WE MAY NOT BE ABLE TO IMMEDIATELY INVEST PROCEEDS IN REAL ESTATE, WHICH
WILL HARM YOUR RETURNS. Until we invest the proceeds of this offering in real
estate investments, we may invest in short-term, highly liquid or other
authorized investments. Such short-term investments are not likely to earn as
high a return as we expect to earn on our real estate investments, and we cannot
guarantee how long it will take us to fully invest the proceeds of this offering
in real estate investments. If we are unable to locate and
18
close on real estate investments promptly, or in a manner consistent with the
capital we raise, the funds available for your distributions could be reduced.
WE DEPEND ON OUR BOARD OF DIRECTORS, ADVISOR AND PROPERTY MANAGER AND
LOSING THOSE RELATIONSHIPS COULD NEGATIVELY AFFECT OUR OPERATIONS. Our board of
directors has supervisory control over all aspects of our operations. Our
ability to achieve our investment objectives will depend to a large extent on
the board's ability to oversee, and the quality of, the management provided by
the advisor, the property manager, their affiliates and employees for day-to-day
operations. Therefore, we depend heavily on the ability of the advisor and its
affiliates to retain the services of each of its executive officers and key
employees. However, none of these individuals has an employment agreement with
the advisor or its affiliates. The loss of any of these individuals could have a
material adverse effect on us. These individuals include Robert D. Parks, G.
Joseph Cosenza, Thomas P. McGuinness, Roberta S. Matlin and Brenda G. Gujral.
Our advisor must reimburse us for certain operational stage expenses
exceeding 15%. If the advisor's net worth or cash flow is not sufficient to
cover these expenses, we will not be reimbursed.
THERE ARE CONFLICTS OF INTEREST BETWEEN US AND OUR AFFILIATES. Our
operation and management may be influenced or affected by conflicts of interest
arising out of our relationship with our affiliates. Our advisor and its
affiliates are or will be engaged in other activities that will result in
potential conflicts of interest with the services that the advisor and
affiliates will provide to us. Those officers could take actions that are more
favorable to other entities than to us. The resolution of conflicts in favor of
other entities could have a negative impact on our financial performance. These
affiliates include, Inland Retail Real Estate Trust, Inc., Inland Western Retail
Real Estate Advisory Services, Inc., Inland Real Estate Corporation, Inland Real
Estate Exchange Corporation and entities to be formed by The Inland Group, Inc.,
Inland Western Retail Real Estate Advisory Services, Inc., our advisor. Inland
Real Estate Corporation is a publicly registered REIT. Inland Real Estate
Corporation is a self-administered REIT and is no longer affiliated with The
Inland Group. Inland Real Estate Corporation purchases shopping centers located
in the Midwest. Inland Retail Real Estate Trust, Inc. is affiliated with The
Inland Group, Inc. Inland Retail Real Estate Trust, Inc. purchases shopping
centers located east of the Mississippi River. Inland Real Estate Exchange
Corporation is a subsidiary of Inland Real Estate Investment Corporation. Inland
Real Estate Exchange Corporation provides replacement properties for people
wishing to complete an IRS Section 1031 real estate exchange. Our advisor
receives fees based on the book value of the properties under management.
Specific conflicts of interest between us and our affiliates include:
- WE MAY ACQUIRE PROPERTIES FROM AFFILIATES OF OUR SPONSOR IN
TRANSACTIONS IN WHICH THE PRICE WILL NOT BE THE RESULT OF ARM'S LENGTH
NEGOTIATIONS. The prices we pay to affiliates of our sponsor for our
properties will be equal to the prices paid by them, plus the costs
incurred by them relating to the acquisition and financing of the
properties. These prices will not be the subject of arm's length
negotiations, which could mean that the acquisitions may be on terms
less favorable to us than those negotiated in an arm's-length
transaction. The result of these transactions could cause us to pay
more for particular properties than we would have in an arm's length
transaction and therefore, adversely effect our cash flow and our
ability to pay your distributions.
- WE MAY PURCHASE REAL PROPERTIES FROM PERSONS WITH WHOM OUR ADVISOR OR
ITS AFFILIATES HAVE PRIOR BUSINESS RELATIONSHIPS AND OUR INTERESTS IN
THESE BUSINESS RELATIONSHIPS MAY BE DIFFERENT FROM THE INTERESTS OF
OUR ADVISOR OR ITS AFFILIATES IN THESE BUSINESS RELATIONSHIPS. We may
purchase properties from third parties who have sold properties in the
past, or who may sell properties in the future, to our advisor or its
19
affiliates. If we purchase properties from these third parties, our
advisor will experience a conflict between our current interests and
its interest in preserving any ongoing business relationship with
these sellers. This could result in our advisor or its affiliates
recommending properties that may be in the best interest of the third
party seller, but not our best interest. This could adversely impact
our portfolio by causing us to invest in properties that are not
necessarily in our best interest.
- OUR ADVISOR AND ITS AFFILIATES RECEIVE COMMISSIONS, FEES AND OTHER
COMPENSATION BASED UPON OUR INVESTMENTS AND THEREFORE OUR ADVISOR AND
ITS AFFILIATES MAY RECOMMEND THAT WE MAKE INVESTMENTS IN ORDER TO
INCREASE THEIR COMPENSATION. Our advisor and its affiliates receive
commissions, fees and other compensation based upon our investments.
They benefit by us retaining ownership of our assets and leveraging
our assets, while you may be better served by sale or disposition or
not leveraging the assets. In addition, our advisor's ability to
receive fees and reimbursements depends on our continued investment in
properties and in other assets which generate fees. Our advisor
received fees based on the book value of the properties under
management. Our property manager receives fees based on the income
from properties under management. Therefore, our advisor and/or
property manager may recommend that we purchase properties that
generate fees for our advisor and property manager, but are not
necessarily the most suitable investment for our portfolio. In
addition, our affiliates, who receive fees, including our advisor, may
recommend that we acquire properties, which may result in our
incurring substantive amounts of indebtedness. Therefore, the interest
of our advisor and its affiliates in receiving fees may conflict with
our ability to earn income and may result in our incurring substantive
amounts of indebtedness. The resolution of this conflict of interest
may adversely impact our cash flow and our ability to pay your
distributions.
- OUR ADVISOR MAY HAVE CONFLICTING FIDUCIARY OBLIGATIONS IF WE ACQUIRE
PROPERTIES WITH ITS AFFILIATES. Our advisor may cause us to acquire an
interest in a property through a joint venture with its affiliates. In
these circumstances, our advisor will have a fiduciary duty to both us
and its affiliates participating in the joint venture. The resolution
of this conflict of interest may cause the advisor to sacrifice our
best interest in favor of the seller of the property and therefore, we
may enter into a transaction that is not in our best interest. The
resolution of this conflict of interest may negatively impact our
financial performance.
- THERE IS COMPETITION FOR THE TIME AND SERVICES OF OUR ADVISOR AND OUR
ADVISOR MAY NOT DEDICATE THE TIME NECESSARY TO MANAGER OUR BUSINESS.
We rely on our advisor and its affiliates for our daily operation and
the management of our assets. Our officers and other personnel of our
advisor and its affiliates have conflicts in allocating their
management time, services and functions among the real estate
investment programs they currently service and any future real estate
investment programs or other business ventures which they may organize
or serve. Those personnel could take actions that are more favorable
to other entities than to us. The resolution of conflicts in favor of
other entities could have a negative impact on our financial
performance.
- INLAND SECURITIES CORPORATION IS PARTICIPATING AS MANAGING DEALER IN
THE SALE OF THE SHARES. Inland Securities Corporation is our managing
dealer of this offering and is affiliated with The Inland Group. Our
managing dealer is entitled to selling commissions, reimbursement for
marketing and due diligence expenses, and the receipt of warrants. Our
managing dealer may be subject to a conflict of interest arising out
of
20
its participation in this offering and its affiliation with The Inland
Group in performing its "due diligence" obligations which arise under
the Securities Act of 1933. The resolution of this conflict of
interest could have a negative impact on our financial performance.
- WE MAY ACQUIRE THE BUSINESS OF OUR ADVISOR AND OUR PROPERTY MANAGER
WITHOUT FURTHER ACTION BY OUR STOCKHOLDERS. During the term of our
agreements with our advisor and our property manager, we have the
option to acquire or consolidate the business conducted by them
without any consent of our stockholders, our advisor or our property
manager. We may elect to exercise this right at any time after
September 15, 2008. This unfettered discretion could cause us to take
action that otherwise we would not be able to do and therefore, could
have a negative impact on our financial performance.
- WE DO NOT HAVE ARM'S-LENGTH AGREEMENTS, WHICH COULD CONTAIN TERMS
WHICH ARE NOT IN OUR BEST INTEREST. As we have noted, our agreements
and arrangements with our advisor or any of its affiliates, including
those relating to compensation, are not the result of arm's length
negotiations. These agreements may contain terms that our not in our
best interest and would not otherwise be applicable if we entered into
arm's-length agreements. See "Conflicts of Interest" for a discussion
of various conflicts of interest.
WE CANNOT PREDICT THE AMOUNTS OF COMPENSATION TO BE PAID TO OUR ADVISOR AND
OUR OTHER AFFILIATES. Because the fees that we will pay to our advisor and our
other affiliates are based on the level of our business activity, it is not
possible to predict the amounts of compensation that we will be required to pay
these entities. In addition, because key employees of our affiliates are given
broad discretion to determine when to consummate a transaction, we rely on these
key persons to dictate the level of our business activity. Fees paid to our
affiliates will reduce funds available for distribution. Because we cannot
predict the amount of fees due to these affiliates, we cannot predict how
precisely such fees will impact our distributions.
THE MANAGING DEALER HAS NOT MADE AN INDEPENDENT REVIEW OF US OR THE
PROSPECTUS. The managing dealer, Inland Securities Corporation, is one of our
affiliates and will not make an independent review of us or the offering.
Accordingly, you do not have the benefit of an independent review of the terms
of this offering. Further, the due diligence investigation of us by the managing
dealer, also an affiliate, cannot be considered to be an independent review and,
therefore, may not be as meaningful as a review conducted by an unaffiliated
broker-dealer or investment banker. In addition, a substantial portion of the
proceeds of the offering will be paid to the managing dealer for managing the
offering, including cash selling commissions, a marketing contribution and a due
diligence expense allowance.
OUR RIGHTS AND THE RIGHTS OF OUR STOCKHOLDERS TO TAKE ACTION AGAINST OUR
DIRECTORS AND OFFICERS AND THE ADVISOR ARE LIMITED. Maryland law provides that a
director has no liability in the capacity as a director if he performs his
duties in good faith, in a manner he reasonably believes to be in our best
interests, and with the care that an ordinary prudent person in a like position
would use under similar circumstances. Maryland law also provides that an act by
a director of a Maryland corporation is presumed to satisfy the standards of the
preceding sentence. Additionally, our articles of incorporation limit the
liability of our directors and officers to us and to our stockholders for
monetary damages to the maximum extent permitted under Maryland law. Our
articles of incorporation, in the case of our directors, officers, employees and
agents, and the advisory agreement, in the case of the advisor, require us to
indemnify our directors, officers, employees and agents and the advisor for
actions taken by them in good faith and without negligence or misconduct.
Moreover, we have entered into separate indemnification agreements with each of
our directors and some of our executive officers. As a result, we and our
stockholders may have more limited rights against our directors, officers,
employees and agents,
21
and the advisor than might otherwise exist under common law. In addition, we may
be obligated to fund the defense costs incurred by our directors, officers,
employees and agents or the advisor in some cases. See "Limitation of Liability
and Indemnification of Directors, Officers and Our Advisors."
THE BUSINESS OF OUR ADVISOR AND OUR PROPERTY MANAGER MAY BE ACQUIRED BY US
WITHOUT FURTHER ACTION OF OUR STOCKHOLDERS. During the term of our agreements
with our advisor and our property manager, we have the option to cause the
business conducted by our advisor and/or our property manager (including all of
their assets) to be acquired by or consolidated into us, without any consent of
our stockholders, our advisor or our property manager or their respective board
of directors or stockholders or shareholders in certain instances. We may elect
to exercise this right as soon as any time after five years from the date of
this prospectus. Our decision to exercise this right will be determined by a
vote of a majority of our directors not otherwise interested in the transaction
(including a majority of our independent directors). Our advisor and our
property manager and/or their respective stockholders and shareholders will
receive in connection with such an acquisition and in exchange for the transfer
of all of the stock or assets of our advisor and/or our property manager, as the
case may be, and for terminating their contractual relationships with us and the
release or waiver of all their fees payable under the provisions of those
contractual arrangements until their stated termination, but not paid, a
determinable number of our shares. We will be obligated to pay any fees accrued
under such contractual arrangements for services rendered through the closing of
such acquisitions. In the event such an acquisition transaction is structured as
a purchase of assets by us or a share exchange in which we are the acquiring
corporation, our articles of incorporation and Maryland law will permit us to
enter into and to consummate such a transaction without obtaining the approval
of our stockholders. We do not presently intend to seek such stockholder
approval if it is not then required by Maryland law or our articles of
incorporation. Any such transaction will occur, if at all, only if our board of
directors obtains a fairness opinion from a recognized financial advisor or
institution providing valuation services to the effect that the consideration to
be paid therefore is fair, from a financial point of view, to our stockholders.
As a result, our stockholders will not have a right to vote on a decision to
acquire the advisor or property manager and such transaction could dilute your
holdings.
YOUR PERCENTAGE OF OWNERSHIP MAY BECOME DILUTED IF WE ISSUE NEW SHARES OF
STOCK. Stockholders have no rights to buy additional shares of stock in the
event we issue new shares of stock, known as preemptive rights. We may issue
common stock, convertible debt or preferred stock in a subsequent public
offering or a private placement, upon exercise of options, or to sellers of
properties we directly or indirectly acquire instead of, or in addition to, cash
consideration. Investors purchasing common stock in this offering who do not
participate in any future stock issues will experience dilution in the
percentage of the issued and outstanding stock they own. Your investment will
not be diluted as a result of any future stock issues if we sell any
subsequently issued common stock for cash or property having a value of not less
than $10 per share. Options to purchase common stock to be issued to independent
directors under our independent director stock option plan, and/or convertible
securities, if any, likely will be exercised or converted at a time when we seek
to obtain needed capital through a new offering of our securities and on terms
more favorable than those provided by the offered securities. As long as options
on convertible securities remain unexercised or unconverted, the terms on which
we could raise additional capital may be adversely affected, increasing the
likelihood of your ownership percentage being diluted.
THERE ARE INHERENT RISKS WITH REAL ESTATE INVESTMENTS. All real property
investments are subject to some degree of risk. Equity real estate investments
cannot be quickly converted to cash. This limits our ability to promptly vary
our portfolio in response to changing economic, financial and investment
conditions. Real property investments are also subject to adverse changes in
general economic conditions or local conditions which reduce the demand for
rental space. Other factors also affect real estate values, including:
22
- possible federal, state or local regulations and controls affecting
rents, prices of goods, fuel and energy consumption and prices, water
and environmental restrictions;
- increasing labor and material costs; and
- the attractiveness of the property to tenants in the neighborhood.
The yields available from equity investments in real estate depend in large
part on the amount of rental income earned, as well as property operating
expenses and other costs we incur. If our properties do not generate revenues
sufficient to meet operating expenses, we may have to borrow amounts to cover
fixed costs, and our cash available for distributions may be adversely affected.
Prior investment programs of our sponsor experienced mortgage defaults and
restructuring of debt. The principal real estate related adverse effects
experienced by prior investment programs sponsored by The Inland Group and its
affiliates were mortgage defaults and restructuring of debt.
ADVERSE ECONOMIC CONDITIONS IN OUR PRIMARY GEOGRAPHIC REGION AND IN THE
MARKET FOR RETAIL SPACE COULD REDUCE OUR INCOME AND DISTRIBUTIONS TO YOU. Our
properties will be located mainly in states west of the Mississippi River in the
United States. Our properties will primarily be used as retail establishments,
principally multi-tenant shopping centers. The economic performance of our
properties could be affected by changes in local economic conditions. Our
performance is therefore linked to economic conditions in this region and in the
market for retail space generally. Therefore, to the extent that there are
adverse economic conditions in this region and in the market for retail space
generally that impact the market rents for retail space, such conditions could
result in a reduction of our income and cash available for distributions and
thus affect the amount of distributions we can make to you.
In addition, we intend to predominantly own and operate grocery and
discount anchored retail centers. To the extent that the investing public has a
negative perception of the retail sector, the value of our common stock may be
negatively impacted, thereby resulting in the shares trading at a discount below
the inherent value of our assets as a whole.
RISING EXPENSES COULD REDUCE CASH FLOW AND FUNDS AVAILABLE FOR FUTURE
ACQUISITIONS. Our properties and any properties we buy in the future, are and
will be subject to operating risks common to real estate in general, any or all
of which may negatively affect us. If any property is not fully occupied or if
rents are being paid in an amount that is insufficient to cover operating
expenses, we could be required to expend funds with respect to that property for
operating expenses. The properties will be subject to increases in tax rates,
utility costs, operating expenses, insurance costs, repairs and maintenance and
administrative expenses.
While some of our properties may be leased on a triple-net-lease basis or
require the tenants to pay a portion of such expenses, renewals of leases or
future leases may not be negotiated on that basis, in which event we will have
to pay those costs. If we are unable to lease properties on a triple-net-lease
basis or on a basis requiring the tenants to pay all or some of such expenses,
or if tenants fail to pay required tax, utility and other impositions, we could
be required to pay those costs which could adversely affect funds available for
future acquisitions or cash available for distributions.
IF OUR TENANTS ARE UNABLE TO MAKE RENTAL PAYMENTS, IF THEIR RENTAL PAYMENTS
ARE REDUCED, OR IF THEY TERMINATE A LEASE, OUR FINANCIAL CONDITION AND ABILITY
TO PAY DISTRIBUTIONS WILL BE ADVERSELY AFFECTED. We are subject to the risk that
tenants, as well as lease guarantors, if any, may be unable to make their lease
payments or may decline to extend a lease upon its expiration. A default by a
tenant, the failure of a guarantor to fulfill its obligations or other premature
termination of a lease, or a tenant's
23
election not to extend a lease upon its expiration, could have an adverse effect
on our financial condition and our ability to pay distributions.
OUR FINANCIAL CONDITION AND ABILITY TO MAKE DISTRIBUTIONS MAY BE ADVERSELY
AFFECTED BY THE BANKRUPTCY OR INSOLVENCY, A DOWNTURN IN THE BUSINESS, OR A LEASE
TERMINATION OF A TENANT THAT OCCUPIES A LARGE AREA OF THE RETAIL CENTER OR AN
ANCHOR TENANT. Generally, any tenant occupying a large portion of the gross
leasable area of a retail center, a tenant of any of the triple-net single-user
retail properties outside the primary geographical area of investment, commonly
referred to as an anchor tenant, or a tenant that is an anchor tenant at more
than one retail center, may become insolvent, may suffer a downturn in business,
or may decide not to renew its lease. Any of these events would result in a
reduction or cessation in rental payments to us and would adversely affect our
financial condition. A lease termination by an anchor tenant could result in
lease terminations or reductions in rent by other tenants whose leases permit
cancellation or rent reduction if an anchor tenant's lease is terminated. In
certain properties where there are large tenants, other tenants may require that
if certain large tenants or "shadow" tenants discontinue operations, a right of
termination or reduced rent may exist. In such event, we may be unable to
re-lease the vacated space. Similarly, the leases of some anchor tenants may
permit the anchor tenant to transfer its lease to another retailer. The transfer
to a new anchor tenant could cause customer traffic in the retail center to
decrease and thereby reduce the income generated by that retail center. A
transfer lease to a new anchor tenant could also allow other tenants to make
reduced rental payments or to terminate their leases at the retail center. If we
are unable to re-lease the vacated space to a new anchor tenant, we may incur
additional expenses in order to re-model the space to be able to re-lease the
space to more than one tenant.
IF A TENANT CLAIMS BANKRUPTCY, WE MAY BE UNABLE TO COLLECT BALANCES DUE
UNDER RELEVANT LEASES. Any or all of the tenants, or a guarantor of a tenant's
lease obligations, could be subject to a bankruptcy proceeding pursuant to Title
11 of the bankruptcy laws of the United States. Such a bankruptcy filing would
bar all efforts by us to collect pre-bankruptcy debts from these entities or
their properties, unless we receive an enabling order from the bankruptcy court.
Post-bankruptcy debts would be paid currently. If a lease is assumed, all
pre-bankruptcy balances owing under it must be paid in full. If a lease is
rejected by a tenant in bankruptcy, we would have a general unsecured claim for
damages. If a lease is rejected, it is unlikely we would receive any payments
from the tenant because our claim is capped at the rent reserved under the
lease, without acceleration, for the greater of one year or 15% of the remaining
term of the lease, but not greater than three years, plus rent already due but
unpaid. This claim could be paid only in the event funds were available, and
then only in the same percentage as that realized on other unsecured claims.
A tenant or lease guarantor bankruptcy could delay efforts to collect past
due balances under the relevant leases, and could ultimately preclude full
collection of these sums. Such an event could cause a decrease or cessation of
rental payments which would mean a reduction in our cash flow and the amount
available for distributions to you. In the event of a bankruptcy, we cannot
assure you that the tenant or its trustee will assume our lease. If a given
lease, or guaranty of a lease, is not assumed, our cash flow and the amounts
available for distributions to you may be adversely affected.
WE MAY INCUR ADDITIONAL COSTS IN ACQUIRING OR RE-LEASING RETAIL PROPERTIES.
Some of the properties we may acquire may be designed or built primarily for a
particular tenant or a specific type of use. If a tenant fails to renew its
lease or defaults on its lease obligations, we may not be able to readily market
the property to a new tenant without substantial capital improvements or
remodeling, which may adversely affect our results of operation and financial
condition.
OUR PROPERTIES WILL BE SUBJECT TO COMPETITION FOR TENANTS AND CUSTOMERS. We
intend to locate our properties in developed areas. Therefore, there are and
will undoubtedly be numerous other retail
24
properties within the market area of each of our properties which will compete
with our properties and which will compete with us for tenants. The number of
competitive properties could have a material effect on our ability to rent space
at our properties and the amount of rents charged. We could be adversely
affected if additional competitive properties are built in locations competitive
with our properties, causing increased competition for customer traffic and
creditworthy tenants. This could result in decreased cash flow from tenants and
may require us to make capital improvements to properties which we would not
have otherwise made, thus affecting cash available for distributions, and the
amount available for distributions to you.
OUR PROPERTIES WILL FACE COMPETITION WHICH MAY AFFECT TENANTS' ABILITY TO
PAY RENT AND THE AMOUNT OF RENT PAID TO US AND IN TURN AFFECT THE CASH AVAILABLE
FOR DISTRIBUTIONS AND THE AMOUNT OF DISTRIBUTIONS. Each of our properties will
be subject to competition from similar retail centers within their respective
market areas. Other retail centers within the market area of our properties will
compete with our properties for customers affecting their cash flows and thus
affecting their ability to pay rent. In addition, some of our tenant rent
payments may be based on the amount of sales revenue generated by them. If these
tenants experience competition, the amount of their rent may decrease and our
cash flow will decrease.
WE MAY BE RESTRICTED FROM RE-LEASING SPACE. In many cases, tenant leases
will contain provisions giving the tenant the exclusive right to sell particular
types of merchandise or provide specific types of services within the particular
retail center, or limit the ability of other tenants to sell such merchandise or
provide such services. When re-leasing space after a vacancy is required, these
provisions may limit the number and types of prospective tenants for the vacant
space. The failure to re-lease or to re-lease on satisfactory terms could result
in a reduction of net income, funds from operations and cash available for
distributions and, thus affect the amount of distributions to you.
WE MAY BE UNABLE TO SELL A PROPERTY IF OR WHEN WE DECIDE TO DO SO. The real
estate market is affected by many factors, such as general economic conditions,
availability of financing, interest rates and other factors, including supply
and demand, that are beyond our control. We cannot predict whether we will be
able to sell any property for the price or on the terms set by us, or whether
any price or other terms offered by a prospective purchaser would be acceptable
to us. We cannot predict the length of time needed to find a willing purchaser
and to close the sale of a property.
We may be required to expend funds to correct defects or to make
improvements before a property can be sold. We cannot assure you that we will
have funds available to correct such defects or to make such improvements.
In acquiring a property, we may agree to restrictions that prohibit the
sale of that property for a period of time or impose other restrictions, such as
a limitation on the amount of debt that can be placed or repaid on that
property. These provisions would restrict our ability to sell a property.
IF WE SUFFER LOSSES THAT ARE NOT COVERED BY INSURANCE OR THAT ARE IN EXCESS
OF INSURANCE COVERAGE, WE COULD LOSE INVESTED CAPITAL AND ANTICIPATED PROFITS.
Each tenant is responsible for insuring its goods and premises and, in some
circumstances, may be required to reimburse us for a share of the cost of
acquiring comprehensive insurance for the property, including casualty,
liability, fire and extended coverage customarily obtained for similar
properties in amounts which our advisor determines are sufficient to cover
reasonably foreseeable losses. Tenants of single-user properties leased on a
triple-net-lease basis typically are required to pay all insurance costs
associated with those properties. Material losses may occur in excess of
insurance proceeds with respect to any property as insurance may not have
sufficient resources to fund the losses. However, there are types of losses,
generally of a catastrophic nature, such as losses due to wars, acts of
terrorism, earthquakes, floods, hurricanes, pollution or
25
environmental matters, which are either uninsurable or not economically
insurable, or may be insured subject to limitations, such as large deductibles
or copayments. Insurance risks associated with potential terrorism acts could
sharply increase the premium we pay for coverage against property and casualty
claims. Additionally, mortgage lenders in some cases have begun to insist that
specific coverage against terrorism be purchased by commercial property owners
as a condition for providing mortgage loans. It is uncertain whether such
insurance policies will be available, or available at reasonable cost, which
could inhibit our ability to finance or refinance our potential properties. In
such instances, we may be required to provide other financial support, either
through financial assurances or self-insurance, to cover potential losses. We
cannot assure you that will have adequate coverage for such losses. The
Terrorism Risk Insurance Act of 2002 is designed for a sharing of terrorism
losses between insurance companies and the federal government. We cannot be
certain how this act will impact us or what additional cost to us, if any, could
result. If such an event occurred to, or caused the destruction of, one or more
of our properties, we could lose both our invested capital and anticipated
profits from such property.
TERRORIST ATTACKS, SUCH AS THE ATTACKS THAT OCCURRED IN NEW YORK AND
WASHINGTON, D.C. ON SEPTEMBER 11, 2001, AND OTHER ACTS OF VIOLENCE OR WAR MAY
AFFECT THE MARKETS IN WHICH WE OPERATE, OUR OPERATIONS AND OUR PROFITABILITY.
Terrorist attacks may negatively affect our operations and your investment in
our common shares. We cannot assure you that there will not be further terrorist
attacks against the United States or United States businesses. Properties we may
acquire may be located in areas that may be susceptible to attack, which may
make these properties more likely to be viewed as terrorist targets than
similar, less recognizable properties. These attacks or armed conflicts may
directly impact the value of our properties through damage, destruction, loss or
increased security costs. We may obtain terrorism insurance as required by our
lenders. The terrorism insurance that we obtain may not be sufficient to cover
loss for damages to our properties as a result of terrorist attacks. In
addition, certain losses resulting from these types of events are uninsurable
and others would not be covered by our current terrorism insurance. Additional
terrorism insurance may not be available at a reasonable price or at all.
The United States' armed conflict in Iraq could have a further impact on
our tenants. The consequences of any armed conflict are unpredictable, and we
may not be able to foresee events that could have an adverse effect on our
business or your investment.
More generally, any of these events could result in increased volatility in
or damage to the United States and worldwide financial markets and economy. They
also could result in a continuation of the current economic uncertainty in the
United States or abroad. Our revenues will be dependent upon payment of rent by
retailers, which may be particularly vulnerable to uncertainty in the local
economy. Adverse economic conditions could affect the ability of our tenants to
pay rent, which could have a material adverse effect on our operating results
and financial condition, as well as our ability to pay distributions to
stockholders.
REAL ESTATE RELATED TAXES MAY INCREASE AND IF THESE INCREASES ARE NOT
PASSED ON TO TENANTS, OUR INCOME WILL BE REDUCED. Some local real property tax
assessors may seek to reassess some of our properties as a result of our
acquisition of the property. Generally, from time to time our property taxes
increase as property values or assessment rates change or for other reasons
deemed relevant by the assessors. An increase in the assessed valuation of a
property for real estate tax purposes will result in an increase in the related
real estate taxes on that property. Although some tenant leases may permit us to
pass through such tax increases to the tenants for payment, there is no
assurance that renewal leases or future leases will be negotiated on the same
basis. Increases not passed through to tenants will adversely affect our income,
cash available for distributions, and the amount of distributions to you.
REVENUE FROM OUR PROPERTIES DEPENDS ON THE AMOUNT OF OUR TENANTS' RETAIL
REVENUE, MAKING US VULNERABLE TO GENERAL ECONOMIC DOWNTURNS AND OTHER CONDITIONS
AFFECTING THE RETAIL INDUSTRY. Some of
26
our leases may provide for base rent plus contractual base rent increases. Some
of our leases may also include a percentage rent clause for additional rent
above the base amount based upon a specified percentage of the sales our tenants
generate.
Under those leases which contain percentage rent clauses, our revenue from
tenants may increase as the sales of our tenants increase. Generally, retailers
face declining revenues during downturns in the economy. As a result, the
portion of our revenue which we derive from percentage rent leases could decline
upon a general economic downturn.
THE COSTS OF COMPLIANCE WITH ENVIRONMENTAL LAWS AND OTHER GOVERNMENTAL LAWS
AND REGULATIONS MAY ADVERSELY AFFECT OUR INCOME AND THE CASH AVAILABLE FOR ANY
DISTRIBUTIONS. All real property and the operations conducted on real property
are subject to federal, state and local laws and regulations relating to
environmental protection and human health and safety. These laws and regulations
generally govern wastewater discharges, air emissions, the operation and removal
of underground and above-ground storage tanks, the use, storage, treatment,
transportation and disposal of solid and hazardous materials, and the
remediation of contamination associated with disposals. Some of these laws and
regulations may impose joint and several liability on tenants, owners or
operators for the costs of investigation or remediation of contaminated
properties, regardless of fault or the legality of the original disposal. Under
various federal, state and local laws, ordinances and regulations, a current or
previous owner, developer or operator of real estate may be liable for the costs
of removal or remediation of hazardous or toxic substances at, on, under, or in
its property. The costs of removal or remediation could be substantial. In
addition, the presence of such substances, or the failure to properly remediate
such substances, may adversely affect our ability to sell or rent such property
or to use such property as collateral for future borrowing.
Some of these laws and regulations have been amended so as to require
compliance with new or more stringent standards as of future dates. Compliance
with new or more stringent laws or regulations, stricter interpretation of
existing laws or the future discovery of environmental contamination may require
material expenditures by us. We cannot assure that future laws, ordinances or
regulations will not impose any material environmental liability, or that the
current environmental condition of our properties will not be affected by the
operations of the tenants, by the existing condition of the land, by operations
in the vicinity of the properties, such as the presence of underground storage
tanks, or by the activities of unrelated third parties.
These laws typically allow liens to be placed on the affected property. In
addition, there are various local, state and federal fire, health, life-safety
and similar regulations which we may be required to comply with, and be subject
to liability in the form of fines or damages for noncompliance.
State and federal laws in this area are constantly evolving, and we intend
to monitor these laws and take commercially reasonable steps to protect
ourselves from the impact of these laws, including obtaining environmental
assessments of each property acquired. We cannot assure that such assessments
will reveal all environmental liabilities or that a prior owner of a property
did not create a material environmental condition not known to us. We cannot
predict what other environmental legislation or regulations will be enacted in
the future, how existing or future laws or regulations will be administered or
interpreted, or what environmental conditions may be found to exist in the
future. We cannot assure that our business, assets, results of operations,
liquidity or financial condition will not be adversely affected by these laws,
which may adversely affect cash available for distributions, and the amount of
distributions to you.
OUR COSTS ASSOCIATED WITH COMPLYING WITH THE AMERICANS WITH DISABILITIES
ACT MAY AFFECT CASH AVAILABLE FOR DISTRIBUTIONS. Our properties will be subject
to the Americans with Disabilities Act of 1990.
27
Under the Disabilities Act, all places of public accommodation are required to
comply with federal requirements related to access and use by disabled persons.
The Disabilities Act has separate compliance requirements for "public
accommodations" and "commercial facilities" that generally requires that
buildings and services, including restaurants and retail stores, be made
accessible and available to people with disabilities. The Disabilities Act's
requirements could require removal of access barriers and could result in the
imposition of injunctive relief, monetary penalties, or, in some cases, an award
of damages. We will attempt to acquire properties which comply with the
Disabilities Act or place the burden on the seller or other third party, such as
a tenant, to ensure compliance with the Disabilities Act. However, we cannot
assure that we will be able to acquire properties or allocate responsibilities
in this manner. If we cannot, our funds used for Disabilities Act compliance may
affect cash available for distributions and the amount of distributions to you.
IF A SALE OR LEASEBACK TRANSACTION IS RECHARACTERIZED, OUR FINANCIAL
CONDITION COULD BE ADVERSELY AFFECTED. We may enter into sale and leaseback
transactions, where we would purchase a property and then lease the same
property back to the person from whom we purchased it. In the event of the
bankruptcy of a tenant, a transaction structured as a sale and leaseback may be
recharacterized as either a financing or a joint venture, either of which
outcomes could adversely affect our business.
If the sale and leaseback were recharacterized as a financing, we might not
be considered the owner of the property, and as a result would have the status
of a creditor in relation to the tenant. In that event, we would no longer have
the right to sell or encumber our ownership interest in the property. Instead,
we would have a claim against the tenant for the amounts owed under the lease,
with the claim arguably secured by the property. The tenant/debtor might have
the ability to propose a plan restructuring the term, interest rate and
amortization schedule of its outstanding balance. If confirmed by the bankruptcy
court, we could be bound by the new terms, and prevented from foreclosing our
lien on the property. These outcomes could adversely affect our cash flow and
the amount available for distributions to you.
If the sale and leaseback were recharacterized as a joint venture, we and
our lessee could be treated as co-venturers with regard to the property. As a
result, we could be held liable, under some circumstances, for debts incurred by
the lessee relating to the property. The imposition of liability on us could
adversely affect our cash flow and the amount available for distributions to our
stockholders.
WE MAY INCUR ADDITIONAL COSTS IN ACQUIRING NEWLY CONSTRUCTED PROPERTIES
WHICH MAY ADVERSELY AFFECT CASH AVAILABLE FOR DISTRIBUTIONS TO YOU. We intend to
primarily acquire existing or newly constructed properties. We may purchase
properties that are subject to completion of construction and development. The
builder's failure to perform may result in tenants terminating leases. These
actions may increase our costs or necessitate legal action by us to rescind our
purchase of a property, to compel performance, or to sue for damages. Any such
legal action may result in increased costs to us.
OUR INVESTMENTS IN UNIMPROVED REAL PROPERTY MAY RESULT IN ADDITIONAL COST
TO US TO COMPLY WITH RE-ZONING RESTRICTIONS OR ENVIRONMENTAL REGULATIONS. We may
invest up to 10% of our assets in unimproved real property. Investments in
unimproved properties are subject to the risks of real estate investments in
general. The are also subject to risks and uncertainties associated with
re-zoning the land for higher use or development and environmental concerns of
governmental entities and/or community groups. We do not intend to invest in any
unimproved property which is not intended to be developed.
CONSTRUCTION AND DEVELOPMENT ACTIVITIES WILL EXPOSE US TO RISKS SUCH AS
COST OVERRUNS, CARRYING COSTS OF PROJECTS UNDER CONSTRUCTION OR DEVELOPMENT,
AVAILABILITY AND COSTS OF MATERIALS AND LABOR, WEATHER CONDITIONS AND GOVERNMENT
REGULATION. Should we elect to engage in construction and development
activities, in accordance with current pronouncements of the Internal Revenue
Service, we
28
intend to have our employees only perform oversight and review functions. These
functions may include selecting sites, reviewing construction and tenant
improvement design proposals, negotiating and contracting for feasibility
studies, supervising compliance with local, state or federal laws and
regulations, negotiating contracts, oversight of construction, accounting and
obtaining financing. We will retain an independent general contractor to perform
the actual physical construction work on tenant improvements or the installation
of heating ventilation and air conditioning systems. These activities will
expose us to risks inherent in construction and development, including cost
overruns, carrying costs of projects under construction or development,
availability and costs of materials and labor, adverse weather conditions and
governmental regulation.
WE MAY ACQUIRE OR FINANCE PROPERTIES WITH LOCK-OUT PROVISIONS WHICH MAY
PROHIBIT US FROM SELLING A PROPERTY, OR MAY REQUIRE US TO MAINTAIN SPECIFIED
DEBT LEVELS FOR A PERIOD OF YEARS ON SOME PROPERTIES. Lock out provisions could
materially restrict us from selling or otherwise disposing of or refinancing
properties. These provisions would affect our ability to turn our investments
into cash and thus affect cash available for distributions to you. Lock out
provisions may prohibit us from reducing the outstanding indebtedness with
respect to any properties, refinancing such indebtedness on a nonrecourse basis
at maturity, or increasing the amount of indebtedness with respect to such
properties.
Lock out provisions could impair our ability to take actions during the
lock-out period that would otherwise be in the best interests of our
stockholders and, therefore, may have an adverse impact on the value of the
shares, relative to the value that would result if the lock-out provisions did
not exist. In particular, lock out provisions could preclude us from
participating in major transactions that could result in a disposition of our
assets or a change in control even though that disposition or change in control
might be in the best interests of our stockholders.
YOUR INVESTMENT HAS VARIOUS FEDERAL INCOME TAX RISKS. Although the
provisions of the Internal Revenue Code relevant to your investment are
generally described in the section of the prospectus titled "Federal Income Tax
Considerations," we strongly urge you to consult your own tax advisor concerning
the effects of federal, state and local income tax law on an investment and on
your individual tax situation.
IF WE FAIL TO QUALIFY AS A REIT OR TO MAINTAIN OUR REIT STATUS, OUR
DIVIDENDS WILL NOT BE DEDUCTIBLE TO US, AND OUR INCOME WILL BE SUBJECT TO
TAXATION. We intend to qualify as a REIT under the Internal Revenue Code of
1986, as amended, which will afford us significant tax advantages. The
requirements for this qualification, however, are complex. If we fail to meet
these requirements, our dividends will not be deductible to us and we will have
to pay a corporate level tax on our income. This would substantially reduce our
cash available to pay distributions and your yield on your investment. In
addition, tax liability might cause us to borrow funds, liquidate some of our
investments or take other steps which could negatively affect our operating
results. Moreover, if our REIT status is terminated because of our failure to
meet a technical REIT test, we would be disqualified from electing treatment as
a REIT for the four taxable years following the year in which REIT status is
lost.
YOU MAY HAVE TAX LIABILITY ON DISTRIBUTIONS YOU ELECT TO REINVEST IN COMMON
STOCK. If you participate in our distribution reinvestment program, you will be
deemed to have received, and for income tax purposes will be taxed on, the
amount reinvested in common stock. As a result, unless you are a tax-exempt
entity, you may have to use funds from other sources to pay your tax liability
on the value of the common stock received.
THE OPINION OF DUANE MORRIS LLP REGARDING OUR STATUS AS A REIT DOES NOT
GUARANTEE OUR ABILITY TO REMAIN A REIT. Our legal counsel, Duane Morris LLP,
will render its opinion upon commencement of this offering that we will qualify
as a REIT, based upon our representations as to the
29
manner in which we will be owned, invest in assets, and operate, among other
things. Our qualification as a REIT depends upon our ability to meet, through
investments, actual operating results, distributions, and satisfaction of
specific stockholder rules, the various tests imposed by the Internal Revenue
Code. Duane Morris LLP will not review these operating results or compliance
with the qualification standards. This means that we cannot assure you that we
will satisfy the REIT requirements in the future. Also, this opinion represents
Duane Morris LLP's legal judgment based on the law in effect as of the date of
this prospectus and is not binding on the Internal Revenue Service, and could be
subject to modification or withdrawal based on future legislative, judicial or
administrative changes to the federal income tax laws, any of which could be
applied retroactively
EVEN REITS ARE SUBJECT TO FEDERAL AND STATE INCOME TAXES. Even if we
qualify and maintain our status as a REIT, we may become subject to federal
income taxes and related state taxes. For example, if we have net income from a
"prohibited transaction," such income will be subject to a 100% tax. We may not
be able to make sufficient distributions to avoid excise taxes applicable to
REITS. We may also decide to retain income we earn from the sale or other
disposition of our property and pay income tax directly on such income. In that
event, our stockholders would be treated as if they earned that income and paid
the tax on it directly. However, stockholders that are tax-exempt, such as
charities or qualified pension plans, would have no benefit from their deemed
payment of such tax liability. In addition, we may also be subject to state and
local taxes on our income or property, either directly or at the level of the
operating partnership or at the level of the other companies through which we
indirectly own our assets. We cannot assure you that we will be able to continue
to satisfy the REIT requirements.
IN VIEW OF THE COMPLEXITY OF THE TAX ASPECTS OF THE OFFERING, PARTICULARLY
IN LIGHT OF THE FACT THAT SOME OF THE TAX ASPECTS OF THE OFFERING WILL NOT BE
THE SAME FOR ALL INVESTORS, PROSPECTIVE INVESTORS ARE STRONGLY ADVISED TO
CONSULT THEIR TAX ADVISORS WITH SPECIFIC REFERENCE TO THEIR OWN TAX SITUATION
PRIOR TO AN INVESTMENT IN SHARES OF OUR COMMON STOCK.
AN INVESTMENT IN OUR COMMON STOCK MAY NOT BE SUITABLE FOR EVERY EMPLOYEE
BENEFIT PLAN. When considering an investment in our common stock, an individual
with investment discretion over assets of any pension plan, profit-sharing plan,
retirement plan, IRA or other employee benefit plan covered by ERISA should
consider whether the investment satisfies the fiduciary requirements of ERISA
and other applicable laws. In particular, attention should be paid to the
diversification requirements of Section 404(a)(1)(C) of ERISA in light of all
the facts and circumstances, including the portion of the plan's portfolio of
which the investment will be a part. All plan investors should also consider
whether the investment is prudent and meets plan liquidity requirements as there
may be only a limited market in which to sell or otherwise dispose of our common
stock, and whether the investment is permissible under the plan's governing
instrument. We have not, and will not, evaluate whether an investment in our
common stock is suitable for any particular plan. Rather, we will accept
entities as stockholders if an entity otherwise meets the suitability standards.
THE ANNUAL STATEMENT OF VALUE THAT WE WILL BE SENDING TO STOCKHOLDERS
SUBJECT TO ERISA AND TO CERTAIN OTHER PLAN STOCKHOLDERS IS ONLY AN ESTIMATE AND
MAY NOT REFLECT THE ACTUAL VALUE OF OUR SHARES. The annual statement of value
will report the value of each common stock based as of the close of our fiscal
year. No independent appraisals will be obtained and the value will be based
upon an estimated amount we determine would be received if our properties and
other assets were sold as of the close of our fiscal year and if such proceeds,
together with our other funds, were distributed pursuant to a liquidation.
However, the net asset value of each share of common stock will be deemed to be
$10 during this offering and for the first three years following the termination
of this offering. Because this is only an estimate, we may subsequently revise
any annual valuation that is provided. We cannot assure that:
30
- a value included in the annual statement could actually be realized by
us or by our stockholders upon liquidation;
- stockholders could realize that value if they were to attempt to sell
their common stock; or
- an annual statement of value would comply with any reporting and
disclosure or annual valuation requirements under ERISA or other
applicable law. We will stop providing annual statements of value if
the common stock becomes listed for trading on a national stock
exchange or included for quotation on a national market system.
[THE BALANCE OF THIS PAGE WAS INTENTIONALLY LEFT BLANK]
31
CAUTIONING NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus includes forward-looking statements that reflect
management's expectations and projections about our future results, performance,
prospects and opportunities. We have attempted to identify these forward-looking
statements by using words such as "may," "will," "expects," "anticipates,"
"believes," "intends," "expects," "estimates," "could" or similar expressions.
These forward-looking statements are based on information currently available to
us and are subject to a number of known and unknown risks, uncertainties and
other factors which may cause our actual results, performance or achievements to
be materially different from any future results, performance or achievements
expressed or implied by these forward-looking statements. These factors include,
among other things, and are detailed on the previous pages:
- our common stock is not currently listed or traded on an exchange and
cannot be readily sold;
- we have no operating history nor established financing sources;
- we have identified only one property to be purchased with the proceeds
of this offering;
- if we raise the minimum amount, we will not have sufficient resources
to acquire the identified property. We need to raise in excess of $26
million to acquire this property;
- although we anticipate that aggregate borrowings will not exceed 55%
of the combined fair market value of our properties, our charter
imposes a limitation on our borrowings of less than 300% of net assets
and there are risks associated with a high amount of leverage;
- we have no ownership in our advisor and the advisor is owned by our
sponsor or their affiliates;
- our advisor and its affiliates will receive substantial fees,
including participation in proceeds from the sales, refinancing or
liquidation of our assets;
- our advisor, property manager and two of our directors are subject to
conflicts of interest as a result of their affiliation with The Inland
Group, including conflicts of interest relating to:
- the negotiation of the terms of the advisors and property management
agreements;
- the allocation of their time between us and their other business
ventures;
- decisions whether to acquire and dispose of properties;
- the purchase and sale of properties to or from the advisor and our
affiliates; and
- the allocation of investment opportunities between us and their other
business ventures.
- the management fee structure could result in our advisor recommending
riskier or more speculative investments;
- we may make distributions that include a return of principal for
federal tax purposes;
32
- we may fail to qualify as a REIT;
- there are limits on ownership, transferability and redemption of
shares;
- our investment policies and strategies may be changed without
stockholder consent;
- our investments will lack geographic diversification;
- we will not be able to meet our business objectives if we only acquire
one single net leased property; and
- risks that incentive structure of fees payable to our advisor and its
affiliates may encourage our advisor to make investments that have
greater risks to generate higher fees.
You should not place undue reliance on any forward-looking statements.
Except as otherwise required by federal securities laws, we undertake no
obligation to publicly update or revise any forward-looking statements, whether
as a result of new information, future events, changed circumstances or any
other reason after the date of this prospectus.
[THE BALANCE OF THIS PAGE WAS INTENTIONALLY LEFT BLANK]
33
HOW WE OPERATE
We intend to operate as a REIT for federal and state income tax purposes.
Our sponsor is Inland Real Estate Investment Corporation. Our sponsor was
instrumental in our organization.
We contract with Inland Western Retail Real Estate Advisory Services, Inc.
for its services as our advisor. Our advisor has the responsibility for our
day-to-day operations and the management of our assets.
In addition to the services of our advisor, we contract with Inland Western
Management Corp. for their services as our property manager. Inland Western
Management Corp. provides the day-to-day property management services for all of
our properties.
Our sponsor, Inland Real Estate Investment Corporation, is owned by The
Inland Group, Inc. Our advisor Inland Western Retail Real Estate Advisory
Services, Inc., is owned by our sponsor, and thus is indirectly controlled by
The Inland Group. In addition, our property manager, Inland Western Management
Corp. is owned by individuals who are affiliates of the Inland Group.
The Inland Group, together with its subsidiaries and affiliates, is a
fully-integrated group of legally and financially separate companies that have
been engaged in diverse facets of real estate for over 35 years providing the
following and other related services:
Property management Leasing
Marketing Acquisition
Disposition Development
Redevelopment Syndication
Renovation Construction
Finance Other related services
34
The following organizational chart depicts the services that affiliates or our
sponsor will render to us and our organizational structure.
ORGANIZATIONAL CHART
--------- --------- --------- ---------
Daniel L. Robert H. G. Joseph Robert D.
Goodwin* Baum* Cosenza* Parks*
--------- --------- --------- ---------
|| || || ||
===========================================================
||
-----------------------
THE INLAND GROUP, INC.*
-----------------------
||
=============================================================================================================
|| || || || |
--------------- ------------------- ----------------- ------------------ |
The Inland The Inland Property Inland Real Inland Real |
Services Group, Management Estate Investment Estate Transaction |
Inc. Group, Inc. Corporation Group, Inc. |
(our sponsor) |
--------------- ------------------- ----------------- ------------------- |
| | || | |
| | ========================================== | |
| | || || || | |
| | ----------- --------------------- ------------------ | ----------------------
| | Inland Inland Western Retail Inland Partnership | Inland Mortgage
--------------- ----------------- Securities Real Estate Advisory Property Sales | Investment Corporation
Inland Risk and Inland Western Corporation Services, Inc. Corporation |
Insurance Management Corp. (our advisor) |
Management (property manager) ----------- --------------------- ------------------ | -----------------------
Services, Inc. | | | |
--------------- ----------------- | | | |
| | | | ============================ =================
| | | | || || || || ||
| | | | ------------- ----------- ------------- ----------- ---------------
| | | | Inland Real Inland Real Inland Real Inland Inland Mortgage
--------- | | | Estate Sales, Estate Estate Mortgage Servicing
Insurance | | | Inc. Development Acquisitions, Corporation Corporation
Services | | | Corporation Inc.
--------- | | | ------------- ----------- ------------- ----------- ---------------
| | | | | | | | |
| | | | | | | | |
| | | | ------------- | | | |
| | | | Real Estate | | | |
| | | | Sales Services | | | |
| | | | ------------- | | | |
| | | | | | | | |
| | | | | | | | |
| -------------------- ---------- --------------- | ----------------- ----------- --------- -------------
| Property Management Securities Organization, | Construction and Property Mortgage Mortgage Loan
| and Related Services Sales Advisory | Development Acquisition Brokerage Servicing
| and Real Estate | Services Services Services
| Services |
| -------------------- ----------- --------------- | ----------------- ------------ --------- -------------
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
------------------------------------------------------------------------------------------------------------------------------------
Inland Western Retail Real Estate Trust, Inc.
We will be principally owned by public investors. Ownership is represented by shares of our common stock
------------------------------------------------------------------------------------------------------------------------------------
Solid lines indicate 100% ownership.
Broken lines indicate service.
* The four indicated individuals control The Inland Group, Inc. and own
substantially all of its stock.
35
CONFLICTS OF INTEREST
We are subject to conflicts of interest arising out of our relationship
with our sponsor, our advisor and their affiliates. All of our agreements and
arrangements with our advisor and its affiliates, including those relating to
compensation, are not the result of arm's length negotiations. Some of the
conflicts inherent in our transactions with our advisor and its affiliates, and
the limitations on our advisor adopted to address these conflicts, are described
below. Our advisor and its affiliates will try to balance our interests with
their own. However, to the extent that our advisor or its affiliates take
actions that are more favorable to other entities than to us, these actions
could have a negative impact on our financial performance and, consequently, on
distributions to you and the value of our stock. In addition, our directors and
officers and security holders may engage for their own account in business
activities of the types conducted or to be conducted by us and our subsidiaries.
THERE MAY BE CONFLICTING INVESTMENT OPPORTUNITIES AMONG AFFILIATES OF OUR
ADVISOR AND THE INLAND GROUP. Affiliates of our advisor and The Inland Group
have sponsored multiple previous investment programs. Our sponsor may also
sponsor other programs which may have investment objectives similar to ours.
Therefore, our sponsor, our advisor and their affiliates could face conflicts of
interest in determining which investment programs will have the first
opportunity to acquire real properties and other assets as they become
available.
In order to address this situation, we have an agreement with our advisor,
some of its affiliates, and Inland Retail Real Estate Trust, Inc., another REIT
sponsored by our sponsor. This agreement gives us the right to purchase property
in our primary geographic area of investment, which includes the states west of
the Mississippi River, placed under contract by our advisor or any of its
affiliates, if we are able to close the purchase within 60 days. Similarly,
Inland Retail Real Estate Trust, Inc. has the first opportunity to purchase
properties in its primary geographical area of investment, which is located in
states east of the Mississippi.
IN THE SITUATION INVOLVING SINGLE USER NET LEASED RETAIL PROPERTY LOCATED
ANYWHERE WITHIN THE UNITED STATES, AND BOTH OF US HAVE FUNDS AVAILABLE TO MAKE
THE PURCHASE, THE PROSPECTIVE PROPERTY WILL FIRST BE OFFERED TO INLAND RETAIL
REAL ESTATE TRUST, INC. IF INLAND REAL ESTATE TRUST, INC. DOES NOT PURCHASE THE
PROSPECTIVE PROPERTY, IT WILL THEN BE OFFERED TO US.
Factors which may be considered in connection with evaluating the
suitability of the prospective property or other asset for investment by a
particular investment program include:
- the effect of the acquisition on the diversification of each program's
portfolio;
- the amount of funds available for investment;
- cash flow; and
- the estimated income tax effects of the purchase and subsequent
disposition.
We currently focus on purchase of properties in the states west of the
Mississippi River which is outside Inland Retail Real Estate Trust Inc.'s
primary geographic area of investment. However, if any conflicts do arise, they
will be resolved as provided in the agreement with our advisor discussed above.
We currently have identified one property for purchase located in Phoenix,
Arizona. Neither The Inland Group nor any of its affiliates owns or has any
interest in properties adjacent to this property.
36
All actions taken by our advisor or its affiliates which present potential
conflicts with us will be APPROVED BY A MAJORITY OF OUR INDEPENDENT DIRECTORS.
WE MAY ACQUIRE PROPERTIES FROM AFFILIATES OF OUR SPONSOR. The prices we pay
to affiliates of our sponsor for these properties will be equal to the prices
paid by them, plus the costs incurred by them relating to the acquisition and
financing of the properties. These prices will not be the subject of arm's
length negotiations, which could mean that the acquisitions may be on terms less
favorable to us than those negotiated in an arm's-length transaction. However,
our articles of incorporation provide that the purchase price of any property
acquired from an affiliate may not exceed its fair market value as determined by
a competent independent appraiser. In addition, the price must be approved by a
majority of our directors who have no financial interest in the transaction. If
the price to us exceeds the cost paid by our affiliate, there must be
substantial justification for the excess cost.
WE MAY PURCHASE REAL PROPERTIES FROM PERSONS WITH WHOM AFFILIATES OF OUR
ADVISOR HAVE PRIOR BUSINESS RELATIONSHIPS. We may purchase properties from third
parties who have sold properties in the past, or who may sell properties in the
future, to our advisor or its affiliates. If we purchase properties from these
third parties, our advisor will experience a conflict between our current
interests and its interest in preserving any ongoing business relationship with
these sellers. Nevertheless, our advisor has a fiduciary obligation to us.
PROPERTY MANAGEMENT SERVICES ARE BEING PROVIDED BY A COMPANY OWNED
PRINCIPALLY BY AFFILIATES OF THE INLAND GROUP. Our property manager, which is
owned principally by individuals who are our affiliates, provides property
management services to us pursuant to management services agreements which we
can terminate only in the event of gross negligence or willful misconduct on the
part of the property manager. However, our property management services
agreement provides that we pay our property manager a monthly management fee of
no greater than 90% of the fee which would be payable to an unrelated third
party providing such services. In addition, the advisor and the property manager
believe that the property manager has sufficient personnel and other required
resources to discharge all responsibilities to us.
OUR ADVISOR AND ITS AFFILIATES RECEIVE COMMISSIONS, FEES AND OTHER
COMPENSATION BASED UPON OUR INVESTMENTS. We believe that the compensation we
will pay to our advisor and its affiliates is no more than what we would pay for
similar services performed by independent firms. Some compensation is payable
whether or not there is cash available to make distributions to our
stockholders. To the extent this occurs, our advisor and its affiliates benefit
from us retaining ownership of our assets and leveraging our assets, while our
stockholders may be better served by sale or disposition or not leveraging the
assets. In addition, the advisor's ability to receive fees and reimbursements
depends on our continued investment in properties and in other assets which
generate fees. Our advisor received fees based on the book value of the
properties under management. Our property manager receives fees based on the
income from properties under management. Therefore, our advisor and/or property
manager may recommend that we purchase properties that generate fees for our
advisor and property manager, but are not necessarily the most suitable
investment for our portfolio. In addition, our affiliates, who receive fees,
including our advisor, may recommend that we acquire properties, which may
result in our incurring substantive amounts of indebtedness. Therefore, the
interest of the advisor and its affiliates in receiving fees may conflict with
the interest of our stockholders in earning income on their investment in our
common stock. Our advisor and its affiliates recognize that they have a
fiduciary duty to us and our stockholders, and have represented to us that their
actions and decisions will be made in the manner most favorable to us and our
stockholders.
While we will not make loans to our advisor or its affiliates, we may
borrow money from them for various purposes, including funding working capital
requirements. If we do, the terms, such as the
37
interest rate, security, fees and other charges, will be at least as favorable
to us as those which would be charged by unaffiliated lending institutions in
the same locality on comparable loans. Any money borrowed from an affiliate of
The Inland Group is expected to be repaid within 180 days.
Our advisor and its affiliates may do business with others who do business
with us, although presently there are no instances of this. However, our advisor
or its affiliates may not receive rebates or participate in any reciprocal
business arrangements which would have the effect of circumventing our agreement
with our advisor.
OUR ADVISOR MAY HAVE CONFLICTING FIDUCIARY OBLIGATIONS IF WE ACQUIRE
PROPERTIES WITH ITS AFFILIATES. Our advisor may cause us to acquire an interest
in a property through a joint venture with its affiliates. In these
circumstances, our advisor will have a fiduciary duty to both us and its
affiliates participating in the joint venture. In order to minimize the conflict
between these fiduciary duties, the advisory agreement provides guidelines for
investments in joint ventures with affiliates. In addition, our articles of
incorporation require a majority of our disinterested directors to determine
that the transaction is fair and reasonable to us and is on terms and conditions
no less favorable than from unaffiliated third parties entering into the
venture.
THERE IS COMPETITION FOR THE TIME AND SERVICES OF OUR ADVISOR. We rely on
our advisor and its affiliates for our daily operation and the management of our
assets. Personnel of our advisor and its affiliates have conflicts in allocating
their management time, services and functions among the real estate investment
programs they currently service and any future real estate investment programs
or other business ventures which they may organize or serve. Our advisor and its
affiliates believe they have enough staff to perform their responsibilities in
connection with all of the real estate programs and other business ventures in
which they are involved.
INLAND SECURITIES CORPORATION IS PARTICIPATING AS MANAGING DEALER IN THE
SALE OF THE SHARES. Inland Securities Corporation is the managing dealer of the
offering and is affiliated with The Inland Group. The managing dealer is
entitled to selling commissions, reimbursement for marketing and due diligence
expenses, and the receipt of warrants. The managing dealer may be subject to a
conflict of interest arising out of its participation in this offering and its
affiliation with The Inland Group in performing its "due diligence" obligations
which arise under the Securities Act of 1933. However, the managing dealer
believes it has and will continue to properly perform these "due diligence"
activities.
WE MAY ACQUIRE THE BUSINESS OF OUR ADVISOR AND OUR PROPERTY MANAGER WITHOUT
FURTHER ACTION BY OUR STOCKHOLDERS. During the term of our agreements with our
advisor and our property manager, we have the option to acquire or consolidate
the business conducted by them without any consent of our stockholders, our
advisor or our property manager. We may elect to exercise this right at any time
after September 15, 2008. Before this date, we need the consent of the advisor
and the property manager to exercise this right. Our decision to exercise this
right will be determined by a vote of a majority of our disinterested directors.
Our advisor and our property manager and their shareholders will receive shares
of our common stock in the acquisition. The transaction will occur, if at all,
only if the board of directors obtains a fairness opinion from a recognized
financial valuation service provider to the effect that the consideration to be
paid is fair, from a financial point of view, to our stockholders. We will be
obligated to pay any fees accrued under any contractual arrangements we have
with the advisor and/or the property manager for services rendered through the
closing of such acquisitions.
WE DO NOT HAVE ARM'S-LENGTH AGREEMENTS. As we have noted, our agreements
and arrangements with our advisor or any of its affiliates, including those
relating to compensation, are not the result of arm's length negotiations, but
we believe these agreements and arrangements approximate the terms of arm's
length transactions.
38
COMPENSATION TABLE
The compensation arrangements between us and our advisor, The Inland Group
and its affiliates, were not determined by arm's-length negotiations. See
"Conflicts of Interest." The following table discloses the compensation which we
may pay our advisor and its affiliates. In those instances in which there are
maximum amounts or ceilings on the compensation which may be received, our
advisor and its affiliates may not recover any excess amounts for those services
by reclassifying them under a different compensation or fee category.
We define net income as total revenues less expenses other than additions
to reserves for depreciation or bad debts or other similar non-cash reserves.
When we use the term "net income" for purposes of calculating some expenses and
fees, it excludes the gain from the sale of our assets. This definition of net
income is prescribed by the Statement of Policy Regarding REITs adopted by the
North American Securities Administrators Association, Inc., or NASAA; but it is
not in accordance with generally accepted accounting principles in the United
States, because depreciation and other non-cash reserves are not deducted in
determining net income under the NASAA REIT Statement. Excluding depreciation
will result in not reimbursing our Advisor for a non-cash expenditure and not
excluding the gain from the sale of our assets could result in greater net
income on which the 25% reimbursement to our Advisor is allowed.
NONSUBORDINATED PAYMENTS
The following aggregate amounts of compensation, allowances and fees we may
pay to our advisor and its affiliates are not subordinated to the returns on net
investments that we are required to pay to our stockholders.
TYPE OF COMPENSATION ESTIMATED MAXIMUM
AND RECIPIENT METHOD OF COMPENSATION DOLLAR AMOUNT
------------------------------ ------------------------------------------------ ------------------------------------------------
OFFERING STAGE
Selling commissions payable to We will pay a selling commission of 7.5% of the The actual amount depends upon the amount of
the managing dealer and sale price for each share (and reallow 7%), shares sold. We will not pay selling commissions
dealers designated by the subject to reduction for special sales under the if the minimum offering is not sold. If only the
managing dealers referred to circumstances as described in the "Plan of minimum offering is sold and there are no
as soliciting dealers. Neither Distribution - Compensation - We Will Pay For special sales, a total of $150,000 in selling
the managing dealer, the the Sale of Our Shares." commissions will be paid. A total of
soliciting dealers, nor our $187,500,000 in selling commissions will be paid
officers or directors will be We will permit the managing dealer and its if the maximum offering is sold and there are no
permitted to purchase shares respective officers and employees and certain of special sales.
of our stock in order to meet its affiliates to purchase shares net of sales
the minimum thresholds. commissions and the marketing contribution and
due diligence expense allowance or for $8.95 per
share.
Also, soliciting dealers and their respective
officers and employees and certain of their
respective affiliates who request and are
entitled to purchase shares net of selling
commissions may make an initial purchase of
shares net of sales commissions or for $9.30 per
share; however, any subsequent purchases of
shares by any such persons are limited to a
maximum discount of 5%.
39
TYPE OF COMPENSATION ESTIMATED MAXIMUM
AND RECIPIENT METHOD OF COMPENSATION DOLLAR AMOUNT
------------------------------ ------------------------------------------------ ------------------------------------------------
Marketing contribution and due We will pay an amount equal to 2.5% of the gross The actual amount depends on the number of
diligence expense allowance offering proceeds to the managing dealer, all or shares. If there are no special sales,
paid to the managing dealer a portion of which may be passed on to approximately the following amounts will be paid
and soliciting dealers. soliciting dealers, in lieu of reimbursement of for the marketing contribution and the due
specific expenses associated with marketing. We diligence expense allowance:
may pay an additional 0.5% of the gross offering
proceeds to the managing dealer, which will be - $60,000 if we sell the minimum number of
passed on to the soliciting dealers, for due shares; or
diligence expenses. We will not pay the
marketing contribution and due diligence expense - $75,000,000 if we sell the maximum number of
allowance in connection with any special sales, shares.
except those receiving volume discounts and
those described in "Plan of Distribution -
Volume Discounts."
Other expenses of issuance We expect to incur the following expenses in All amounts other than the Securities and
and distribution connection with this offering: Exchange Commission registration fee and the
NASD filing fee are estimates. The actual
Securities and Exchange amounts of these expenses cannot be determined
Commission registration fee $ 217,621 at the present time. We estimate the total
NASD filing fee $ 30,500 amount of the issuance and distribution expenses
Printing and mailing expenses $ 3,500,000 to be approximately $14,684,121.
Blue Sky fees and expenses $ 136,000
Legal fees and expenses $ 650,000
Accounting fees and expenses $ 650,000
Advertising and sales literature $ 5,000,000
Due diligence $ 3,000,000
Transfer Agent fees $ 800,000
Data processing fees $ 500,000
Bank fees and other
administrative expenses $ 200,000
We will reimburse our sponsor for actual costs Expenses of approximately $691,911 have been
incurred in connection with the offering on our advanced by our sponsor through June 30, 2003 in
behalf. However, if the aggregate of all connection with this offering. We may reimburse
offering expenses, including selling for offering expenses advanced:
commissions, the marketing contribution and due - $90,000 if we sell the minimum offering
diligence expense allowance, exceeds 15% of the based on the 15% limitation; or
gross offering proceeds, or if the aggregate of
all offering expenses, excluding the selling - $14,684,000 if we sell the maximum
expenses, exceeds 5.5% of the gross offering offering.
proceeds, our advisor or its affiliates will
promptly pay the excess and we will have no If the offering is not successful, then our
liability for these expenses at any time sponsor will be solely responsible for the
afterward. organization and offering expenses to the extent
it has not been reimbursed.
40
TYPE OF COMPENSATION ESTIMATED MAXIMUM
AND RECIPIENT METHOD OF COMPENSATION DOLLAR AMOUNT
------------------------------ ------------------------------------------------ ------------------------------------------------
ACQUISITION STAGE
Acquisition expenses paid to We will pay an amount, estimated to be up to We may pay the following amounts for the
our advisor's affiliates, 0.5% of the total of (1) the gross offering reimbursement of acquisition expenses:
Inland Real Estate proceeds from the sale of 250,000,000 shares,
Acquisitions, Inc., The Inland (2) the gross proceeds from the sale of up to - no more than $10,000 if the minimum number
Real Estate Group, Inc. and 20,000,000 shares pursuant to the distribution of shares are sold; or
Inland Western Management reinvestment programs. The acquisition expenses
Corp. for any particular property will not exceed 6% - no more than $13,450,000 if the maximum
of the gross purchase price of the property. number of shares are sold and all of the
20,000,000 shares are sold pursuant to the
However, if we request additional services, the distribution reinvestment program.
compensation will be provided on separate
agreed-upon terms and the rate will be approved However, the actual amounts cannot be determined
by a majority of disinterested directors, at the present time.
including a majority of the disinterested
independent directors, as fair and reasonable
for us.
Interest expenses paid to our We may borrow money from our advisor and its The actual amounts are dependent on actual
advisor and Inland Mortgage affiliates in order to acquire properties. In borrowings. Therefore, these amounts cannot be
Corporation in connection with such instances, we will pay our advisor and its determined at the present time.
loans. affiliates interest, at prevailing market rates.
TYPE OF COMPENSATION ESTIMATED MAXIMUM
AND RECIPIENT METHOD OF COMPENSATION DOLLAR AMOUNT
------------------------------ ------------------------------------------------ ------------------------------------------------
OPERATIONAL STAGE
Property management fee paid We will pay a monthly fee of 4.5% of the gross The actual amounts are dependent upon results of
to our property manager, income from the properties. We will also pay a operations and, therefore, cannot be determined
Inland Western Management monthly fee for any extra services equal to no at the present time. If we acquire the
Corp. We will pay the fee for more than 90% of that which would be payable to businesses of our advisor and/or our property
services in connection with an unrelated party providing the services. The manager, the property management fees will
the rental, leasing, operation property manager may subcontract its duties for cease.
and management of the a fee that may be less than the fee provided for
properties. in the management services agreements.
Advisor asset management fee. We will pay our advisor an asset management fee The actual amounts are dependent upon results of
We will pay the fee for after our stockholders have first received a 6% operations and, therefore, cannot be determined
services in connection with annual return. at the present time.
our day-to-day operations,
including making strategic
decisions, performing
day-to-day operations that
include accounting, investment
advisory services, risk
management services and tax
reduction services and
providing other services as
our board deems appropriate.
41
TYPE OF COMPENSATION ESTIMATED MAXIMUM
AND RECIPIENT METHOD OF COMPENSATION DOLLAR AMOUNT
------------------------------ ------------------------------------------------ ------------------------------------------------
OPERATIONAL STAGE
Reimbursable expenses to our We will reimburse some expenses of the advisor. The actual amounts are dependent upon results of
advisor. These may include The compensation and reimbursements to our operations and, therefore, cannot be determined
costs of goods and services, advisor will be approved by a majority of our at the present time.
administrative services and directors and a majority of our independent
non-supervisory services directors as fair and reasonable for us.
performed directly for us by
independent parties.
We will reimburse some Inland Risk and Insurance Management Services The actual amounts are dependent upon results of
expenses of the Inland Risk charges us $50 per hour for assistance in operations and, therefore, cannot be determined
and Insurance Management obtaining insurance coverage. Any commissions at the present time.
Services for insurance they receive are credited against this hourly
coverage. rate. We believe this hourly rate is
approximately 90% of the rate charged by
unaffiliated third parties. The compensation to
this company will be approved by a majority of
our directors and a majority of our independent
directors as fair and reasonable for us.
We will compensate the Inland Inland Mortgage Servicing Corporation charges us The actual amounts are dependent upon results of
Mortgage Servicing Corporation .03% per year on the first billion dollars of operations and, therefore, cannot be determined
and Inland Mortgage Investment mortgages serviced and .01% thereafter. Inland at the present time.
Corporation for purchase, sale Mortgage Investment Corporation charges us .02%
and servicing of mortgages. of the principal amount of each loan placed. The
compensation to these companies will be approved
by a majority of our directors and a majority of
our independent directors as fair and reasonable
for us.
TYPE OF COMPENSATION ESTIMATED MAXIMUM
AND RECIPIENT METHOD OF COMPENSATION DOLLAR AMOUNT
------------------------------ ------------------------------------------------ ------------------------------------------------
LIQUIDATION STAGE
Property disposition fee We may pay a property disposition fee to our The actual amounts to be received depend upon
payable to our advisor's advisor and its affiliates if we sell any of our the sale price of our properties and, therefore,
affiliates, Inland Real Estate real property in an amount equal to the lesser cannot be determined at the present time. If we
Sales, Inc. and Inland of: acquire the advisor, the property disposition
Partnership Property Sales fee will cease.
Corp. 1. 3% of the contract sales price of the
property; or
2. 50% of the customary commission which would
be paid to a third party broker for the
sale of a comparable property.
The amount paid, when added to the
42
TYPE OF COMPENSATION AND ESTIMATED MAXIMUM
RECIPIENT METHOD OF COMPENSATION DOLLAR AMOUNT
------------------------------ ------------------------------------------------ ------------------------------------------------
LIQUIDATION STAGE
sums paid to unaffiliated parties, will not
exceed either the customary commission or an
amount equal to 6% of the contracted for sales
price. Payment of such fees will be made only if
the advisor provides a substantial service in
connection with the sale of the property. See
"Management -- Our Advisory Agreement."
SUBORDINATED PAYMENTS
We may pay the following additional fees to our advisor after returns on
net investment have been paid to the stockholders:
TYPE OF COMPENSATION ESTIMATED MAXIMUM
AND RECIPIENT METHOD OF COMPENSATION DOLLAR AMOUNT
------------------------------ ------------------------------------------------ ------------------------------------------------
OPERATIONAL STAGE
Advisor asset management fee We pay an annual advisor asset management fee of The actual amounts to be received depend upon
payable to our advisor. not more than 1% of our average assets. Our the sale price of our properties and, therefore,
average assets means the average of the total cannot be determined at the present time. If we
book value of our real estate assets plus the acquire the advisor, the property disposition
total value of our loans receivables secured by fee will cease.
real estate, before reserves for depreciation or
bad debts or other similar non-cash reserves. We
will compute our average assets by taking the
average of these values at the end of each month
during the quarter for which we are calculating
the fee. The fee is payable quarterly in an
amount equal to 1/4 of 1% of average assets as
of the last day of the immediately preceding
quarter. For any year in which we qualify as a
REIT, our advisor must reimburse us for the
following amounts if any:
(1) the amounts by which our total operating
expenses, the sum of the advisor asset
management fee plus other operating
expenses, paid during the previous fiscal
year exceed the greater of:
- 2% of our average assets for that fiscal
year, or
- 25% of our net income for that fiscal year.
(2) an amount, which will not exceed the
advisor asset management fee for that year,
equal to any difference between the total
amount of distributions to stockholders for
that year and the 6% annual return on the
net investment of stockholders.
Items such as organization and offering
expenses, property expenses, interest payments,
43
taxes, non-cash expenditures, the incentive
advisory fee and acquisition expenses are
excluded from the definition of total operating
expenses.
See "Management -- Our Advisory Agreement" for
an explanation of circumstances where the excess
amount specified in clause (1) may not need to
be reimbursed.
TYPE OF COMPENSATION AND ESTIMATED MAXIMUM
RECIPIENT METHOD OF COMPENSATION DOLLAR AMOUNT
------------------------------ ------------------------------------------------ ------------------------------------------------
LIQUIDATION STAGE
Incentive advisory fee payable We will pay to the advisor an amount equal to The actual amounts to be received depend upon
to our advisor. 15% of the net proceeds from the sale of a the sale price of our properties and,
property after the stockholders have first therefore, cannot be determined at the present
received: time. If we acquire or consolidate with the
business conducted by our advisor, the
(1) a cumulative non-compounded return equal to incentive advisory fee will terminate.
10% a year on their net investment; and
(2) their net investment.
44
COMPENSATION TO OFFICERS AND DIRECTORS
We expect to pay the following to our directors (as our officers are not
paid directly by us):
TYPE OF COMPENSATION AND ESTIMATED MAXIMUM
RECIPIENT METHOD OF COMPENSATION DOLLAR AMOUNT
------------------------------ ------------------------------------------------ ------------------------------------------------
Director fees Independent directors receive an annual fee of We will pay the five independent directors
$5,000 and a fee of $500 for attending each $25,000 in the aggregate, plus fees for
meeting of the board or one of its committees in attending meetings. The actual amounts to be
person and $350 for attending a meeting via the received for meetings depends upon the number
telephone. Our officers who are also our of meetings and their attendance and,
directors do not receive director fees. therefore, cannot be determined at the present
time.
Stock options to independent Each independent director receives This form of compensation is not paid in cash.
directors
- an initial option to purchase 3,000 shares
of common stock at a price of $8.95 per
share, when they become an independent
director, subject to some conditions; and
- each year on the date of the stockholders'
annual meeting, an additional option to
purchase 500 shares of common stock at an
exercise price equal to the then fair
market value per share. For additional
information on this option plan, see
"Management -- Independent Director Stock
Option Plan."
45
ESTIMATED USE OF PROCEEDS
The amounts listed in the table below represent our current estimates
concerning the use of the offering proceeds. Since these are estimates, they may
not accurately reflect the actual receipt or application of the offering
proceeds. This first scenario assumes we sell the minimum number of 200,000
shares of common stock in this offering. The second scenario assumes:
- we sell the maximum of 250,000,000 shares in this offering at $10 per
share; and
- we sell the maximum of 20,000,000 shares in our distribution
reinvestment program at $9.50 per share.
Under both scenarios we have not given effect to any special sales or
volume discounts which could reduce selling commissions.
MAXIMUM OFFERING
(INCLUDING SHARES SOLD UNDER THE
MINIMUM OFFERING DISTRIBUTION REINVESTMENT
200,000 SHARES PROGRAM)
---------------------------------- ----------------------------------
AMOUNT PERCENT AMOUNT PERCENT
--------------- --------------- --------------- ---------------
Gross offering proceeds ............................ $ 2,000,000 100.0% $ 2,690,000,000 100.00%
--------------- --------------- --------------- ---------------
Less expenses:
Selling commission ............................. 150,000 7.5% 187,500,000 6.97%
Marketing contribution and due diligence expense
allowance .................................... 60,000 3.0% 75,000,000 2.79%
Organization and offering expenses ............. 90,000 4.5% 14,684,000 0.55%
--------------- --------------- --------------- ---------------
Total public offering expenses ................. 300,000 15.0% 277,184,000 10.30%
--------------- --------------- --------------- ---------------
Gross amount available for investment .............. 1,700,000 85.0% 2,412,816,000 89.70%
Less: acquisition expenses .................... 10,000 0.5% 13,450,000 0.50%
Less: working capital reserve ................. 20,000 1.0% 26,900,000 1.00%
--------------- --------------- --------------- ---------------
Net cash portion of gross offering proceeds
available for the purchase of properties ...... $ 1,670,000 83.5% $ 2,372,466,000 88.20%
=============== =============== =============== ===============
46
PRIOR PERFORMANCE OF OUR AFFILIATES
PRIOR INVESTMENT PROGRAMS
During the 10-year period ending June 30, 2003, The Inland Group and its
affiliates have sponsored two other REITs, one other public real estate equity
program, one private real estate equity program, four private placement mortgage
and note programs and 13 real estate exchange private placements, which
altogether have raised more than $2,934,000,000 from over 64,000 investors.
During that period, the public real estate equity programs raised over
$32,000,000 from over 2,000 investors; the private real estate equity program
raised $2,275,000 from 80 investors; and the private placement mortgage and note
programs raised $15,831,000 from 373 investors. In addition, Inland Real Estate
Corporation and Inland Retail Real Estate Trust, Inc., the other REITs, have
raised over $2,835,000,000 from over 77,000 investors. Inland Real Estate
Corporation and Inland Retail Real Estate Trust, Inc. have investment objectives
and policies similar to ours and have invested principally in shopping centers
that provide sales of convenience goods and personal services to neighboring
communities in the Midwest and Southeast areas. However, Inland Real Estate
Corporation is now a self-administered REIT and is no longer affiliated with The
Inland Group. Our investment objectives and policies are similar to those of
several of the other prior investment programs sponsored by our affiliates which
have owned and operated retail properties. However, the vast majority of the
other investment programs sponsored by our affiliates were dissimilar from our
operation in that the prior programs owned apartment properties, pre-development
land and whole or partial interests in mortgage loans.
The information in this section and in the Prior Performance Tables
included in this supplement as APPENDIX A shows relevant summary information
concerning real estate programs sponsored by our affiliates. The purpose is to
provide information on the prior performance of these programs so that you may
evaluate the experience of the affiliated companies in sponsoring similar
programs. The following discussion is intended to briefly summarize the
objectives and performance of the prior programs and to disclose any material
adverse business developments sustained by them. Past performance is not
necessarily indicative of future performance.
SUMMARY INFORMATION
The table below provides summarized information concerning prior programs
sponsored by our affiliates for the 10-year period ending June 30, 2003, and is
qualified in its entirety by reference to the introductory discussion above and
the detailed information appearing in the Prior Performance Tables in Appendix A
of the prospectus. YOU SHOULD NOT CONSTRUE INCLUSION OF THE SUCCEEDING TABLES AS
IMPLYING IN ANY MANNER THAT WE WILL HAVE RESULTS COMPARABLE TO THOSE REFLECTED
IN THE TABLES BECAUSE THE YIELD AND CASH AVAILABLE AND OTHER FACTORS COULD BE
SUBSTANTIALLY DIFFERENT FOR OUR PROPERTIES. YOU SHOULD NOTE THAT BY ACQUIRING
OUR SHARES, YOU WILL NOT BE ACQUIRING ANY INTERESTS IN ANY PRIOR PROGRAMS.
47
INLAND RETAIL INLAND REAL
REAL ESTATE ESTATE PRIOR PUBLIC
TRUST, INC. CORPORATION REAL ESTATE
REIT REIT EQUITY
PROGRAM AS OF PROGRAM AS OF PROGRAMS AS OF
JUNE 30, JUNE 30, JUNE 30,
2003 2003(2) 2003
------------------ ------------------ ------------------
Number of programs sponsored 1 1 1
Aggregate amount raised from investors $ 2,156,104,000 679,780,000 32,399,000
Approximate aggregate number of
investors 58,000 19,000 2,600
Number of properties purchased 201 140 18
Aggregate cost of properties(1) $ 2,835,000,000 1,251,000,000 25,945,000
Number of mortgages/notes 0 0 0
Principal amount of mortgages/notes $ 0 0 0
Principal of properties (based on cost)
that were:
Commercial--
Retail 92.00% 85.00% 0.00%
Single-user retail net-lease 8.00% 15.00% 0.00%
Nursing homes 0.00% 0.00% 0.00%
Offices 0.00% 0.00% 0.00%
Industrial 0.00% 0.00% 0.00%
Health clubs 0.00% 0.00% 0.00%
Mini-storage 0.00% 0.00% 0.00%
Total commercial 100.00% 100.00% 0.00%
Multi-family residential 0.00% 0.00% 0.00%
Land 0.00% 0.00% 100.00%
Percentage of properties (based on cost)
that were:
Newly constructed (within a year of
acquisition) 58.00% 32.00% 0.00%
Existing construction 42.00% 68.00% 0.00%
Number of properties sold (3) 0 3 14
Number of properties exchanged 0 0 0
Number of mortgages/notes repaid 0 0 0
PRIOR PRIVATE INLAND REAL
REAL ESTATE ESTATE
EQUITY AND EXCHANGE
MORTGAGE PRIVATE
AND NOTE PLACEMENT
PROGRAMS AS OF OFFERINGS AS OF
JUNE 30, JUNE 30,
2003 2003
------------------ ------------------
Number of programs sponsored 5 13
Aggregate amount raised from investors 18,106,000 48,055,000
Approximate aggregate number of
investors 453 97
Number of properties purchased 7 13
Aggregate cost of properties(1) 1,951,930 151,317,000
Number of mortgages/notes 365 0
Principal amount of mortgages/notes 15,831,000 0
Principal of properties (based on cost)
that were:
Commercial--
Retail 0.00% 24.90%
Single-user retail net-lease 0.00% 13.20%
Nursing homes 0.00% 0.00%
Offices 0.00% 49.30%
Industrial 0.00% 12.60%
Health clubs 0.00% 0.00%
Mini-storage 0.00% 0.00%
Total commercial 0.00% 100.00%
Multi-family residential 0.00% 0.00%
Land 100.00% 0.00%
Percentage of properties (based on cost)
that were:
Newly constructed (within a year of
acquisition) 0.00% 47.70%
Existing construction 0.00% 52.30%
Number of properties sold (3) 6 0
Number of properties exchanged 0 0
Number of mortgages/notes repaid 0 0
48
(1) Includes purchase price and acquisition fees and expenses.
(2) On July 1, 2000, the prior REIT program, Inland Real Estate
Corporation, became a separate, self-managed entity.
(3) Number of properties sold in whole or in part.
Of the programs included in the above table, Inland Real Estate Corporation
and Inland Retail Real Estate Trust, Inc. have investment objectives similar to
ours. Inland Real Estate Corporation and Inland Retail Real Estate Trust, Inc.
represent approximately 97% of the aggregate amount raised from investors,
approximately 95% of the aggregate number of investors, approximately 91% of the
properties purchased, and approximately 97% of the aggregate cost of the
properties.
During the three years prior to June 30, 2003, Inland Real Estate
Corporation purchased 20 commercial properties and Inland Retail Real Estate
Trust, Inc. purchased 201 commercial properties. Upon written request, you may
obtain, without charge, a copy of Table VI filed with the Securities and
Exchange Commission in Part II of our registration statement. The table provides
more information about these acquisitions.
PUBLICLY REGISTERED REITs
INLAND REAL ESTATE CORPORATION. On October 14, 1994, Inland Real Estate
Corporation commenced an initial public offering of 5,000,000 shares of common
stock at $10 per share. As of July 24, 1996, it had received subscriptions for a
total of 5,000,000 shares, thereby completing the initial offering. On July 24,
1996, it commenced an offering of an additional 10,000,000 shares of common
stock at $10 per share. As of July 10, 1997, it had received subscriptions for a
total of 10,000,000 shares, thereby completing its second offering. On July 14,
1997, Inland Real Estate Corporation commenced a third offering of an additional
20,000,000 shares of common stock at $10 per share. As of March 19, 1998, Inland
Real Estate Corporation had received subscriptions for a total of 20,000,000
shares, thereby completing the third offering. On April 7, 1998, Inland Real
Estate Corporation commenced a fourth offering of an additional 25,000,000
shares at $11 per share. Inland Real Estate Corporation elected to terminate the
fourth offering as of December 31, 1998, after receiving subscriptions for a
total of 16,642,397 shares. In addition, as of June 30, 2003, Inland Real Estate
Corporation issued 11,720,169 shares of common stock through its distribution
reinvestment program. As of June 30, 2003, Inland Real Estate Corporation
repurchased 4,578,588 shares of common stock through its share repurchase
program for an aggregate amount of $42,552,838. As a result, Inland Real Estate
Corporation's gross offering proceeds totaled approximately $679,780,000 for all
of such offerings, as of June 30, 2003. Inland Real Estate Corporation's
objective is to purchase shopping centers that provide convenience goods,
personal services, wearing apparel and hardware and appliances located within an
approximate 400-mile radius of its headquarters in Oak Brook, Illinois, and to
provide, at a minimum, cash distributions on a quarterly basis and a hedge
against inflation through capital appreciation. It may also acquire single-user
retail properties throughout the United States. As of June 30, 2003, the
properties owned by Inland Real Estate Corporation were generating sufficient
cash flow to cover operating expenses plus pay an annual cash distribution of
$0.94 per share paid monthly.
As of June 30, 2003, Inland Real Estate Corporation financed approximately
$685,237,000 on 124 of its 140 properties. Inland Real Estate Corporation's 140
properties, a total investment of approximately $1,251,000,000 at June 30, 2003,
were purchased with proceeds received from the above described offerings of
shares of its common stock and financings. From December 31, 1995 through June
30, 2003, distributions have totaled $303,438,218, of which $234,358,143 was
ordinary income
49
distribution from operating cash flow, $68,705,489 was return of capital for
federal income tax purposes from operating cash flow and $374,586 from capital
gain distributions.
Through June 30, 2003, distributions were as follows:
Total Ordinary Return of Capital Gain
Distribution Income Capital * Distribution
-----------------------------------------------------------
1995 $ 736,627 694,213 42,414 -
1996 3,704,943 3,093,525 611,418 -
1997 13,127,597 9,739,233 3,388,364 -
1998 35,443,213 27,015,143 8,428,070 -
1999 48,379,621 35,640,732 12,738,889 -
2000 52,964,010 40,445,730 12,518,280 -
2001 58,791,604 45,754,604 12,662,414 374,586
2002 60,090,685 41,775,045 18,315,640 -
2003 30,199,918 30,199,918 - -
-----------------------------------------------------------
$ 303,438,218 234,358,143 68,705,489 374,586
===========================================================
* Represents a return of capital for federal income tax
purposes.
On July 1, 2000, Inland Real Estate Corporation became a
self-administered REIT by completing its acquisition of Inland Real Estate
Advisory Service, Inc., its advisor, and Inland Commercial Property Management,
Inc., its property manager. The acquisition was accomplished by merging its
advisor and its property manager into two wholly owned subsidiaries of Inland
Real Estate Corporation. As a result of the merger, Inland Real Estate
Corporation issued to our sponsor, the sole shareholder of the advisor, and The
Inland Property Management Group, Inc., the sole shareholder of its property
manager, an aggregate of 6,181,818 shares of Inland Real Estate Corporation's
common stock at $11 per share, or approximately 9.008% of its common stock.
INLAND RETAIL REAL ESTATE TRUST, INC. On February 11, 1999, Inland
Retail Real Estate Trust, Inc. commenced an initial public offering of
50,000,000 shares of common stock at $10 per share. As of January 31, 2001, it
had sold 13,687,349 shares in its first offering resulting in gross proceeds of
$136,454,948. In addition, it received $200,000 from its advisor for 20,000
shares. As of January 31, 2001, the first offering terminated. Inland Retail
Real Estate Trust, Inc. commenced a second offering on February 1, 2001. As of
August 29, 2002, it had sold 50,000,000 shares in its second offering resulting
in gross proceeds of $497,842,917, thereby completing the second offering.
Inland Retail Real Estate Trust, Inc. commenced a third offering on June 7,
2002. As of June 30, 2003, it had sold 147,516,470 shares in its third offering,
resulting in gross proceeds of $1,471,607,427. An additional 6,049,526 shares
had been sold pursuant to Inland Retail Real Estate Trust, Inc.'s distribution
reinvestment program as of June 30, 2003, for which it has received additional
net proceeds of $57,470,497. As of June 30, 2003, Inland Retail Real Estate
Trust, Inc. has repurchased 793,588 shares through its share repurchase program
resulting in disbursements totaling $7,471,853. As a result, Inland Retail Real
Estate Trust, Inc.'s net offering proceeds from all offerings total
approximately $2,156,104,000 as of June 30, 2003, including amounts raised
through its distribution reinvestment program, net of shares repurchased through
its share repurchase program.
50
Inland Retail Real Estate Trust, Inc.'s objective is to purchase
shopping centers east of the Mississippi River in addition to single-user retail
properties in locations throughout the United States, and to provide regular
cash distributions and a hedge against inflation through capital appreciation.
As of June 30, 2003, the properties owned by Inland Retail Real Estate Trust,
Inc. were generating sufficient cash flow to cover operating expenses plus pay
an annual cash distribution of $.83 per share per annum paid monthly. Through
June 30, 2003, distributions totaled $151,320,937. Through June 30, 2003,
distributions were as follows:
Total Ordinary Return of
Distribution Income Capital*
----------------------------------------------
1999 $ 1,396,861 $ 318,484 $ 1,078,377
2000 6,615,454 3,612,577 3,002,877
2001 17,491,342 10,538,534 6,952,808
2002 58,061,491 36,387,136 21,674,355
2003 67,755,789 67,755,789 -
----------------------------------------------
$ 151,320,937 $ 118,612,520 $ 32,708,417
==============================================
*Represents a return of capital for federal income tax purposes.
As of June 30, 2003, Inland Retail Real Estate Trust, Inc. had
acquired 201 properties and had seven parcels under development for a total
investment of approximately $2,835,000,000. These properties were purchased with
proceeds received from the above described offerings of shares of its common
stock and financings. As of June 30, 2003, Inland Retail Real Estate Trust, Inc.
financed approximately $1,215,200,000 on its properties.
PUBLICLY REGISTERED LIMITED PARTNERSHIPS
INLAND CAPITAL FUND, L.P. - The offering period for this fund began
December 13, 1991 and ended August 23, 1993. The objectives were to invest in
pre-development land on an all-cash basis and realize appreciation of such land
upon resale.
Inland Capital Fund raised $32,399,282 from 2,683 investors and
purchased, with the net proceeds available for investment, 18 land parcels, one
of which included a house and several outbuildings, for an aggregate purchase
price of $25,945,989. As of June 30, 2003, this fund has had multiple sales
transactions involving the house and portions of 14 parcels which generated
approximately $28,049,000 in net sales proceeds, including notes receivable of
approximately $1,311,000. Its cost basis in the land parcels sold was
approximately $13,990,000 resulting in a gain, net of selling expenses and
commissions, of approximately $14,059,000 for financial reporting purposes.
In the opinion of Inland Real Estate Investment Corporation, the
partnership is currently meeting its investment objectives and has, through
completed sales transactions, realized significant capital appreciation on the
assets sold. Cash distributions to limited partners through June 30, 2003
totaled $22,335,763, all from the sale of land parcels.
PRIVATE PARTNERSHIPS
Since our inception and through June 30, 2003, including the programs
described below under " - Private Placement Real Estate Equity Program," and "
-- Private Placement Note and Mortgage Program" in this section, our affiliates
have sponsored 514 private placement limited partnerships which have raised
51
more than $524,201,000 from approximately 17,000 investors and invested in
properties for an aggregate price of more than $1 billion in cash and notes. Of
the 522 properties purchased, 93% have been in Illinois. Approximately 90% of
the funds were invested in apartment buildings, 6% in shopping centers, 2% in
office buildings and 2% in other properties. Including sales to affiliates, 320
partnerships have sold their original property investments. Officers and
employees of our sponsor and its affiliates invested more than $17,000,000 in
these private placement limited partnerships.
From January 1, 1993 through June 30, 2003, investors in The Inland
Group private partnerships have received total distributions in excess of
$282,938,000, consisting of cash flow from partnership operations, interest
earnings, sales and refinancing proceeds and cash received during the course of
property exchanges.
Following a proposal by the former corporate general partner, which
was an affiliate of The Inland Group, investors in 301 private partnerships
voted in 1990 to make our sponsor the corporate general partner for those
partnerships.
Beginning in December 1993 and continuing into the first quarter of
1994, investors in 101 private limited partnerships for which our sponsor is the
general partner received letters from it informing them of the possible
opportunity to sell the 66 apartment properties owned by those partnerships to a
to-be-formed REIT in which affiliates of our sponsor would receive stock and
cash and the limited partners would receive cash. The underwriters of this
apartment REIT subsequently advised our sponsor to sell to a third party its
management and general partner's interests in those remaining limited
partnerships not selling their apartment properties to the apartment REIT. Those
not selling their apartment properties constituted approximately 30% of the
Inland-sponsored limited partnerships owning apartment buildings. The
prospective third-party buyers of our sponsor's interests in the remaining
partnerships, however, would make no assurance to support those partnerships
financially. As a result, in a March 1994 letter, our sponsor informed investors
of its decision not to go forward with the formation of the apartment REIT.
Following this decision, two investors filed a complaint in April 1994
in the Circuit Court of Cook County, Illinois, Chancery Division, purportedly on
behalf of a class of other unnamed investors, alleging that our sponsor had
breached its fiduciary responsibility to those investors whose partnerships
would have sold apartment properties to the apartment REIT. The complaint sought
an accounting of information regarding the apartment REIT matter, an unspecified
amount of damages and the removal of our sponsor as general partner of the
partnerships that would have participated in the sale of properties. In August
1994, the court granted our sponsor's motion to dismiss, finding that the
plaintiffs lacked standing to bring the case individually. The plaintiffs were
granted leave to file an amended complaint. Thereafter, in August 1994, six
investors filed an amended complaint, purportedly on behalf of a class of other
investors, and derivatively on behalf of six limited partnerships of which our
sponsor is the general partner. The derivative counts sought damages from our
sponsor for alleged breach of fiduciary duty and breach of contract, and assert
a right to an accounting. Our sponsor filed a motion to dismiss in response to
the amended complaint. The suit was dismissed in March 1995 with prejudice. The
plaintiffs filed an appeal in April 1996. After the parties briefed the issue,
arguments were heard by the Appellate Court in February 1997. In September 1997,
the Appellate Court affirmed the trial court decision in favor of our sponsor.
Inland Real Estate Investment Corporation is the general partner of 27
private limited partnerships and one public limited partnership that own
interests in 15 buildings that are net leased to Kmart. The 14 Kmarts owned by
the private limited partnerships are all cross collateralized. Relating to the
Kmart bankruptcy, the status of the 15 is as follows:
52
- CATEGORY 1 - The leases of nine (9) of the Kmarts are current and
have been accepted by Kmart under their Chapter 11 reorganization
plan.
- CATEGORY 2 - Kmart assigned its designation rights in one lease
to Kohl's; the lease was amended and extended for Kohl's by
IREIC, the general partner on behalf of the owners and lender;
and Kohl's began paying rent February 12, 2003.
- CATEGORY 3 - Under Kmart's Chapter 11 reorganization plan and
upon emergence from bankruptcy on April 22, 2003, Kmart has
rejected the remaining 4 property leases; one of which is subject
to a ground lease to Kimco. Kmart ceased paying rent as of May 1,
2003. The general partner's, IREIC's, plans for these properties
include, but are not limited to the following: 1) renegotiation
of the loan encumbering the property; 2) re-tenanting the
facility; 3) sale of the asset; or 4) deed in lieu of
foreclosure. While it is too early to predict an outcome, the
limited partners that own these Kmarts could lose their
properties in foreclosure.
- CATEGORY 4 - Under Kmart's Chapter 11 reorganization, Kmart
rejected the lease for the property owned by the public limited
partnership and ceased paying rent as of June 29, 2002. The
general partner plans to either re-tenant or sell this facility.
PRIVATE PLACEMENT REAL ESTATE EQUITY PROGRAM
WISCONSIN CAPITAL LAND FUND, L.P., an Illinois limited partnership,
was formed in October 1992. The objectives were to invest in pre-development
land in the Madison, Wisconsin area on an all-cash basis and realize
appreciation of the land upon resale. The offering period for units in this
privately offered partnership began in October 1992 and ended on June 14, 1993
with the maximum amount, $2,275,000, raised from 88 investors. This fund bought
seven parcels of land in the Madison, Wisconsin area with the proceeds of the
offering.
On October 1, 1997, Parcel 6 located in Windsor, Wisconsin, was sold
for $566,597 which is equal to 191% of the original parcel capital. Investors
received a $375,000 distribution from this sale.
On March 19, 1998, the fund sold parcels 3 and 7 for a total of
$2,150,000, of which $1,900,000 was distributed to investors.
On January 5, 1999, parcels 1 and 4 were sold for $1,325,000 and
investors received a $1,137,500 distribution.
The fund has sold all 63 of the improved lots in Parcel 5 in the
Village of Mt. Horeb for total gross sale proceeds of $2,361,750. Through June
30, 2003, $562,500 from lot sales has been distributed to investors.
Through June 30, 2003, investors have received $1,747 for every $1,000
invested or a total of $3,975,000 in distributions. As of June 30, 2003, there
were 88 investors in this partnership. The partnership has one remaining asset
consisting of 60.876 acres in the Madison, Wisconsin area.
Our dealer manager received sales commission equal to 9% of the
offering proceeds from which a selling commission of 8% was re-allowed to
soliciting dealers. In addition, 0.5% of the offering proceeds were re-allowed
to soliciting dealers as reimbursement for due diligence expenses. Additionally,
3.3% of the offering proceeds were used to reimburse the general partner, Inland
Real Estate Investment Corporation, and its affiliates for out-of-pocked
expenses associated with the offering and acquisition of the land parcels.
53
During the operating phase of the partnership, the general partner
will receive an asset management fee paid annually, equal to 1% of the original
cost of the partnership of the parcels. In addition, the general partner and its
affiliates will be reimbursed for direct expenses relating to the administration
of the partnership and its assets, subject to certain limitations.
An affiliate of the general partner will participate in real estate
brokerage commissions as each parcel is sold, but such commissions will be
subordinated to the return of that portion of the limited partners' original
investment attributable to that parcel plus a 6% per annum, non-compounded
cumulative return on parcel capital.
The general partner may share in the net proceeds from the sale of the
parcels, but such share of sales proceeds will be subordinated, to the return of
the limited partners' original capital and receipt of a 15% per annum,
non-compounded cumulative return. The sharing arrangement of net sale proceeds
after the 15% cumulative return will be 65% to the limited partners and 35% to
the general partner.
PRIVATE PLACEMENT NOTE AND MORTGAGE PROGRAM
9% MONTHLY CASH FUND, L.P., an Illinois limited partnership offering
investments in promissory notes to accredited investors, was sponsored by our
sponsor in February 1993. The offering period for this program began February 1,
1993 and ended on May 17, 1993, when the maximum amount of $4,000,000 was raised
from 78 investors. The partnership issued notes maturing August 1, 1999 and
providing a 9% annual return. This fund invested in loans made to an affiliate
of our sponsor secured by collateral assignments of third party mortgage loans
owned by the affiliate. Our sponsor guarantees the return of capital to
noteholders and the 9% annual return. Cash distributions through September 30,
1999 totaled $6,291,146, of which $2,291,146 was interest earnings and
$4,000,000 was a return of capital. This partnership was completed in August
1999.
9% MONTHLY CASH FUND II, L.P., was an Illinois limited partnership
offering investments in promissory notes to accredited investors, with
investment objectives identical to those of 9% Monthly Cash Fund, L.P. Our
sponsor sponsored it in April 1993. The offering period for this program began
April 5, 1993 and ended July 23, 1993, with the maximum amount of $4,000,000
raised from 82 investors. The partnership issued notes maturing February 1, 2000
that provided a 9% annual return. The partnership invested in a loan made to an
affiliate or our sponsor secured by collateral assignments of third-party
mortgage loans owned by the affiliate. Our sponsor guarantees the return of
capital to noteholders and the 9% annual return. Cash distributions through
March 31, 2000 totaled $6,417,653, of which $2,417,653 was interest earnings and
$4,000,000 was a return of capital. This partnership was completed in February
2000. All fees and expenses including sales commission and due diligence expense
to our dealer-manager equal to 9.5% (of which 8% was re-allowed to soliciting
dealers as sales commission and up to 0.5% as reimbursable due diligence
expenses) and the costs of the memorandum, tax consulting and advise (which were
anticipated to be approximately $30,000 were absorbed by the sponsor, Inland
Real Estate Investment Corporation, and were not paid from the proceeds of the
offering.
IMC NOTE ISSUE #2 1993, offering investments in promissory notes was
sponsored by Inland Mortgage Corporation, an Illinois corporation and an
affiliate of our sponsor, in July 1993. The offering period for this program
began August 25, 1993 and closed on June 13, 1994 after raising $6,800,000.
Inland Mortgage Corporation issued notes maturing December 31, 2003, providing
for interest at the rate of 8% per annum with 100% return of principal
guaranteed by our sponsor. Proceeds of the offering have been used to invest in
a mortgage loan secured by an apartment property in Manchester, New Hampshire,
owned by an affiliate of our sponsor. Investors may also receive additional
income dependent on the future sale of the property. Inland Mortgage Corporation
made an initial distribution to investors of escrow interest totaling $13,685 in
November 1993. Cash distributions through June 30, 2003 totaled
54
$5,147,928, of which $5,128,472 was interest earnings and $19,456 was subsidy
income from our sponsor pursuant to the guarantee for that program. As of June
30, 2003, there were 169 noteholders. All fees and expenses incurred in
connection with the offer and sale of the Notes - including sales commission and
due diligence expense to dealer-manager, Inland Securities Corporation, equal to
8.5% (of which 6.5% was re-allowed to soliciting dealers as sales commissions,
0.5% as a marketing fee, and up to 0.5% as reimbursable due diligence expenses)
and the costs of the memorandum, tax counseling and advise (which were
anticipated to be approximately $41,000), as well as other costs associated with
the refinancing of the property (such as title, surveys, appraisals, recording
charges, etc.) were advanced by the sponsor (IREIC) and were not paid from the
proceeds of the offering.
INLAND CONDOMINIUM FINANCING FUND, L.P., an Illinois limited
partnership offering investment in promissory notes, was sponsored by our
sponsor in December 1993. The offering period for this program began December
15, 1993 and closed on June 30, 1994. This partnership offered notes in the
principal amount of $1,031,000 maturing July 1, 2001, with interest at the rate
of 10% per annum and 100% return of principal guaranteed by our sponsor. The
proceeds of the offering were used to make unsecured loans to limited
partnerships which are affiliates of our sponsor, for the purposes of paying
expenses relating to the conversion of apartment properties owned by those
partnerships to condominiums, and conducting condominium unit sales and other
partnership expenses. Cash distributions began in March 1994. Distributions
through November 17, 1997 totaled $1,411,617, of which $380,617 was interest
earnings and $1,031,000 was a return of capital. There were 36 investors in this
partnership. This partnership was completed in 1997. All fees and expenses
incurred in connection with the offering - including sales commission and due
diligence expense to dealer-manager, Inland Securities Corporation, equal to
8.5% (of which 6.5% was re-allowed to soliciting dealers as sales commissions,
0.5% as a marketing fee and up to 0.5% as reimbursable due diligence expenses)
and the costs of the memorandum, tax counseling and advice (which were
anticipated to be approximately $45,000), as well as other costs associated with
the funding of the conversion loans were advanced by the sponsor (IREIC) and
were not paid from the proceeds of the offering.
1031 EXCHANGE PRIVATE PLACEMENT OFFERING PROGRAM
In March of 2001, Inland Real Estate Exchange Corporation (IREX) was
established as a subsidiary of Inland Real Estate Investment Corporation. The
objective of IREX is to provide replacement properties for people wishing to
complete an IRS Section 1031 real estate exchange. Through June 30, 2003, IREX
offered the sale of ten properties with a total property value of $105,810,559.
LANDINGS OF SARASOTA DBT. Inland Southern Acquisitions, Inc., a
Delaware corporation and an affiliate of IREX acquired the Landings, a
multi-tenant shopping center located in Sarasota, Florida in December 1997 for
$9,800,000. In August 2001, Inland Southern Acquisitions, Inc. contributed 100%
of its interest in the property into Landings of Sarasota DBT, a Delaware
business trust, refinanced the property with a loan of $8,000,000 from Parkway
Bank & Trust Co., an Illinois banking corporation, and began offering all of its
beneficial interests in the trust to certain qualified persons in need of
replacement properties to complete a 1031 tax-deferred exchange. The total price
was $12,000,000, which consisted of $8,000,000 in debt assumption and $4,000,000
in equity investment. $200,000 of the offering proceeds were allocated to a
property reserve account. The offering was completed in May 2002 when the
maximum offering amount was raised. The private placement memorandum projected a
first year annualized cash on cash return of 8.00%. Through June 30, 2003, cash
distributions to the owners totaled $482,236, based on the actual holding period
of each individual investor. As of June 30, 2003, there were nine investors in
this trust.
55
SENTRY OFFICE BUILDING, DBT, a Delaware business trust, purchased a
newly constructed, single-tenant office building in Davenport, Iowa in December
2001 from Ryan Companies US Inc., a Minnesota corporation. The trust financed
its acquisition of the property with a $7,500,000 first mortgage loan from
Parkway Bank & Trust Co., an Illinois banking corporation. In January 2002,
Sentry Office Building Corporation, a Delaware corporation and the initial
beneficiary of the trust, began offering all of its beneficial interests in the
trust to certain qualified persons in need of replacement properties to complete
a 1031 tax-deferred exchange. The total price was $11,000,000, which consisted
of $7,500,000 in debt assumption and $3,500,000 in equity investment. $100,000
of the proceeds obtained from the new owners was allocated to a property reserve
account. The offering was completed in April 2002 when the maximum offering
amount was raised. The private placement memorandum projected a first-year
annualized cash on cash return of 8.20%. Through June 30, 2003, cash
distributions to the owners totaled $363,223, based on the actual holding period
of each individual investor. As of June 30, 2003, there were six investors in
this trust.
PETS BOWIE DELAWARE BUSINESS TRUST purchased a single-tenant retail
building leased to PETsMART in Bowie, Maryland in October 2001 from PETsMART,
Inc. and Wells Fargo Bank Northwest, N.A. The trust initially financed its
acquisition of the property with a temporary loan of $2,625,305 from Parkway
Bank & Trust Co., an Illinois banking corporation, and then replaced this loan
with a permanent loan of $1,300,000 with the same lender. In May 2002, Pets
Bowie Delaware Business Trust began offering all of its beneficial interests to
certain qualified persons in need of replacement properties to complete a 1031
tax-deferred exchange. The total price was $3,900,000, which consisted of
$1,300,000 in debt assumption and $2,600,000 in equity investment. $90,000 of
the proceeds obtained from the new owners was allocated to a property reserve
account. The offering was completed in July 2002 when the maximum offering
amount was raised. The private placement memorandum projected a first year
annualized cash on cash return of 8.89%. Through June 30, 2003, cash
distributions to the owners totaled $231,314, based on the actual holding period
of each individual investor. As of June 30, 2003, there were seven investors in
this trust.
1031 CHATTANOOGA DBT, a Delaware business trust, acquired a retail
property currently leased to Eckerd in Chattanooga, Tennessee in May 2002. The
trust financed the property with a loan of $1,500,000 from Parkway Bank & Trust
Co., an Illinois banking corporation. In July 2002, 1031 Chattanooga, L.L.C.,
the initial beneficiary of 1031 Chattanooga DBT, began offering all of the
beneficial interests of the trust to certain qualified persons in need of
replacement properties to complete a 1031 tax-deferred exchange. The total price
was $3,400,000, which consisted of $1,500,000 in debt assumption and $1,900,000
in equity investment. As of June 30, 2003, the offering is still in process,
with 95.1295% ($1,807,460) of the capital raised. The private placement
memorandum projected a first-year annualized cash on cash return of 8.26%.
Through June 30, 2003, cash distributions to the owners totaled $160,855, based
on the actual holding period of each individual investor. As of June 30, 2003,
there were 11 investors in this trust.
LANSING SHOPPING CENTER, DBT purchased a newly constructed,
multi-tenant retail shopping center in Lansing, Illinois in June 2002 from
LaSalle Bank National Association, as trustee under trust agreement dated May
22, 2001 and known as Trust No. 127294. The Trust financed its acquisition of
the property with a $5,900,000 first mortgage loan from Parkway Bank & Trust
Co., an Illinois banking corporation. In August 2002, Lansing Shopping Center,
L.L.C., a Delaware limited liability company and the initial beneficiary of
Lansing Shopping Center, DBT, began offering all of the beneficial interests of
the trust to certain qualified persons in need of replacement properties to
complete a 1031 tax-deferred exchange. The total price was $10,900,000, which
consisted of $5,900,000 in debt assumption and $5,000,000 in equity investment.
$80,000 of the proceeds obtained from the new owners was allocated to a property
reserve account. The private placement memorandum projected a first year
annualized cash on cash return of 8.47%. Through June 30, 2003, cash
distributions to the owners totaled $314,014, based on
56
the actual holding period of each individual investor. As of June 30, 2003,
there were five investors in this trust.
INLAND 220 CELEBRATION PLACE DELAWARE BUSINESS TRUST purchased a
single-tenant office building currently leased to Disney in Celebration, Osceola
County, Florida, in June 2002 from Walt Disney World Co., a Florida corporation.
The trust financed its acquisition of the property with an $18,000,000 first
mortgage loan from Bank of America, N.A., a national banking association. In
September 2002, Inland 220 Celebration Place, L.L.C., a Delaware limited
liability company and the initial beneficiary of Inland 220 Celebration Place
Delaware Business Trust, began offering all of the beneficial interests of the
trust to certain qualified persons in need of replacement properties to complete
a 1031 tax-deferred exchange. The total price was $33,800,000, which consisted
of $18,000,000 in debt assumption and $15,800,000 in equity investment. $50,000
of the proceeds obtained from the new owners was allocated to a property reserve
account. As of June 30, 2003, the offering is still in process, with 89.8075%
($14,189,578) of the capital raised. The private placement memorandum projected
a first year annualized cash on cash return of 8.08%. Through June 30, 2003,
cash distributions to the owners totaled $852,564, based on the actual holding
period of each individual investor. As of June 30, 2003, there were 32 investors
in this trust.
TAUNTON CIRCUIT DELAWARE BUSINESS TRUST acquired a retail property
currently leased to Circuit City in Taunton, Massachusetts in July 2002. The
Trust financed the property with a first mortgage of $2,800,000 from MB
Financial Bank. In September 2002, Inland Taunton Circuit, L.L.C., the initial
beneficiary of Taunton Circuit Delaware Business Trust, offered all of its
interest in the trust to a qualified person in need of a replacement property to
complete a 1031 tax-deferred exchange. The total price was $6,550,000, which
consisted of $2,800,000 in debt assumption and $3,750,000 in equity investment.
The offering was completed in September 2002. The private placement memorandum
projected a first-year annualized cash on cash return of 8.31%. Through June 30,
2003, cash distributions to the owner totaled $210,950. As of June 30, 2003,
there was one investor in this trust.
BROADWAY COMMONS DELAWARE BUSINESS TRUST acquired a multi-tenant
retail center located in Rochester, Minnesota, in July 2002. The Trust financed
the property with a first mortgage of $8,850,000 from Parkway Bank & Trust Co.,
an Illinois banking corporation. In October 2002, Broadway Commons, L.L.C., the
initial beneficiary of Broadway Commons Delaware Business Trust, began offering
all of its beneficial interests in the trust to certain qualified persons in
need of replacement properties to complete a 1031 tax-deferred exchange. The
total price was $17,250,000, which consisted of $8,850,000 in debt assumption
and $8,400,000 in equity investment. $100,000 of the offering proceeds obtained
from the new owners was allocated to a property reserve account. As of June 30,
2003, the offering is still in process, with approximately 70.5434% ($5,925,643)
of the capital raised. The private placement memorandum projected an initial
annualized cash on cash return of 8.14%. Through June 30, 2003, cash
distributions to the owners totaled $447,625, based on the actual holding period
of each individual owner. As of June 30, 2003, there were 21 investors in this
trust.
BELL PLAZA 1031, LLC. Rehab Associates XIII, Inc., an Illinois
corporation and an affiliate of IREX acquired Bell Plaza, a multi-tenant
shopping center in Oak Lawn, IL on August 28, 1998 for $1,675,000. In October
2002, Rehab Associates XIII contributed 100% of its interest in the property
into Bell Plaza 1031, LLC, a Delaware single member limited liability company,
and then offered all of its membership interests in Bell Plaza, LLC to North
Forsyth Associates, a North Carolina general partnership, which was in need of a
replacement property to complete a 1031 tax-deferred exchange. The total price
was $4,030,000, which consisted of $3,140,000 in debt assumption and $890,000 in
equity investment. $25,000 of the proceeds obtained by the new owner was
allocated to a property reserve account. The offering was completed in November
2002. The private placement memorandum projected a first-year annualized cash on
cash return of 14.30%, calculated based on the total original investment of
57
$890,000. Through June 30, 2003, cash distributions to the owner totaled
$46,849. As of June 30, 2003, there was one investor in this limited liability
company.
INLAND 210 CELEBRATION PLACE DELAWARE BUSINESS TRUST purchased a
single-tenant office building, currently leased in Celebration, Osceola County,
Florida, in June 2002 from Walt Disney World Co., a Florida corporation. The
trust financed its acquisition of the property with a $5,700,000 first mortgage
loan from Bear Stearns Commercial Mortgage, Inc. In January 2003, Inland 210
Celebration Place Delaware Business Trust sold its fee simple interest in 210
Celebration Place to Old Bridge Park Celebration, LLC, a Delaware limited
liability company, which was in need of a replacement property to complete a
1031 tax-deferred exchange. The total price was $12,000,000, which consisted of
$5,700,000 in debt assumption and $6,300,000 in equity investment. Through June
30, 2003, cash flow to the new owner totaled $245,712. As of June 30, 2003, this
property was owned by one investor.
COMPUSA RETAIL BUILDING. Lombard C-USA, L.L.C., a Delaware limited
liability company, purchased a single-tenant retail building leased to CompUSA,
Inc. in Lombard, Illinois in January 2003 from an unrelated third party. The
L.L.C. financed its acquisition of the property with a $4,000,000 loan from Bear
Stearns Commercial Mortgage, Inc. In April 2003, Lombard C-USA, L.L.C. began
offering all of the undivided tenant in common interests in the real estate and
improvements thereon located at 2840 S. Highland Avenue, Lombard, DuPage County,
Illinois for $3,950,000 in cash plus the assumption of the existing indebtedness
to certain qualified persons in need of replacement properties to complete a
1031 tax-deferred exchange. The total price was $7,950,000, which consisted of
$4,000,000 in debt assumption and $3,950,000 in equity investment. As required
by the lender, Lombard C-USA, L.L.C. shall retain at least a 1% tenant in common
interest, which is included in the $3,950,000 equity investment. $75,000 of the
offering proceeds was allocated to a property reserve account. As of June 30,
2003, the offering is still in process. The private placement memorandum
projected a first-year annualized cash on cash return of 8.05%. Through June 30,
2003, Lombard C-USA, L.L.C. remains the sole investor in the property.
DEERE DISTRIBUTION FACILITY. Janesville 1031, L.L.C., a Delaware
limited liability company, purchased a single-tenant, light industrial
distribution center leased to Deere & Company, a Delaware corporation, in
Janesville, Wisconsin in February 2003 from Ryan Janesville, L.L.C., a Minnesota
corporation and an affiliate of Ryan Companies US, Inc. The L.L.C. financed its
acquisition of the property with a $10,450,000 loan from Bear Stearns Commercial
Mortgage, Inc. In May 2003, Janesville 1031, L.L.C. began offering 99% of the
undivided tenant in common interests in the real estate and improvements thereon
located at 2900 Beloit Avenue, Janesville, Rock County, Wisconsin for $9,949,500
in cash plus the assumption of the existing indebtedness to certain qualified
persons in need of replacement properties to complete a 1031 tax-deferred
exchange. The total price, $20,500,000, consisted of $10,450,000 in debt
assumption and $10,050,000 in equity investment, 1% of which was required by the
lender to be retained by Janesville 1031, L.L.C. $100,000 of the offering
proceeds was allocated to a property reserve account. As of June 30, 2003, the
offering is still in process. The private placement memorandum projected a
first-year annualized cash on cash return of 7.23%. Through June 30, 2003,
Janesville 1031, L.L.C. remains the sole investor in the property.
FLEET OFFICE BUILDING. Westminster Office 1031, L.L.C., a Delaware
limited liability company, purchased a single-tenant office building leased
entirely to Fleet National Bank, a national banking association, in Providence,
Rhode Island in April 2003 from Fleet National Bank in a sale/leaseback
transaction. The L.L.C. financed its acquisition of the property with a
$12,900,000 loan from Bear Stearns Commercial Mortgage, Inc. In June 2003,
Westminster Office 1031, L.L.C. began offering 99% of the undivided tenant in
common interests in the real estate and improvements thereon located at 111
Westminster Street, Providence, Providence County, Rhode Island for $9,000,000
in cash plus the assumption of the existing indebtedness to certain qualified
persons in need of replacement properties to
58
complete a 1031 tax-deferred exchange. The total price, $22,900,000, consisted
of $12,900,000 in debt assumption and $10,000,000 in equity investment, 1% of
which was required by the lender to be retained by Westminster Office 1031,
L.L.C. $150,000 of the offering proceeds was allocated to a property reserve
account. As of June 30, 2003, the offering is still in process. The private
placement memorandum projected a first-year annualized cash on cash return of
7.19%. Through June 30, 2003, Westminster Office 1031, L.L.C. remains the sole
investor in the property.
59
The following summary table describes the fees and expenses incurred
by each of our entities in our 1031 Exchange Private Placement Offering Project.
1031 Lansing Inland 220
Landings of Sentry Office Pets Bowie Chattanooga Shopping Celebration
Sarasota DBT Building DBT DBT DBT Center, DBT Place DBT
---------------------------------------------------------------------------------------------------------------------------------
Commissions & Fees(1) Up to 8.5% Up to 8.5% Up to 8.5% Up to 8.5% Up to 8.5% Up to 8.5%
---------------------------------------------------------------------------------------------------------------------------------
SELLING COMMISSION TO
3rd PARTY REPS 6.00% 6.00% 6.00% 6.00% 6.00% 6.00%
---------------------------------------------------------------------------------------------------------------------------------
DUE DILIGENCE FEE 0.50% 0.50% 0.50% 0.50% 0.50% 0.50%
---------------------------------------------------------------------------------------------------------------------------------
MARKETING EXPENSES 1.00% 1.50% 1.50% 1.50% 1.50% 1.00%
---------------------------------------------------------------------------------------------------------------------------------
OFFERING & ORGANIZATION 1.00% 0.50% 0.50% 0.50% 0.50% 1.00%
---------------------------------------------------------------------------------------------------------------------------------
Mortgage Broker Fee (IMC)(2) 0.50% 0.50% 0.50% 0.50% 0.50% 0.50%
---------------------------------------------------------------------------------------------------------------------------------
Acquisition Fee & Carrying
Costs(3)
---------------------------------------------------------------------------------------------------------------------------------
ACQUISITION FEE N/A 0.71% 0.77% 0.90% 0.88% 1.18%
---------------------------------------------------------------------------------------------------------------------------------
BRIDGE FINANCING FEES N/A NA 1.49% 0.50% 0.20% 0.10%
---------------------------------------------------------------------------------------------------------------------------------
Total Load(4) 11.25%-12.75% 14.23% 13.68% 14.39% 13.68% 13.23%
---------------------------------------------------------------------------------------------------------------------------------
Asset Management Fees(5) NA 0.75% 1.00% 0.56% 0.55% 0.52%
---------------------------------------------------------------------------------------------------------------------------------
Property Management Fees(6) 4.5% 5.0% Paid by 5.0% 5.0% 4.5%
Asset Mgr.
---------------------------------------------------------------------------------------------------------------------------------
Taunton Broadway Inland 210 CompUSA
Circuit Commons DBT Bell Plaza Celebration Retail
DBT DBT 1031, LLC Place DBT Building
----------------------------------------------------------------------------------------------------------------
Commissions & Fees(1) Up to 8.0% Up to 8.77% Up to 9.19% Up to 7.72% Up to 8.56%
----------------------------------------------------------------------------------------------------------------
SELLING COMMISSION TO
3rd PARTY REPS 6.00% 6.00% 6.00% 3.81% 6.00%
----------------------------------------------------------------------------------------------------------------
DUE DILIGENCE FEE 0.50% 0.50% 0.50% 0.00% 0.50%
----------------------------------------------------------------------------------------------------------------
MARKETING EXPENSES 1.00% 1.00% 1.00% 0.50% 1.00%
----------------------------------------------------------------------------------------------------------------
OFFERING & ORGANIZATION 0.50% 1.27% 1.69% 0.96% 1.06%
----------------------------------------------------------------------------------------------------------------
Mortgage Broker Fee (IMC)(2) 0.61% 0.50% 0.50% 0.50% 0.50%
----------------------------------------------------------------------------------------------------------------
Acquisition Fee & Carrying
Costs(3)
----------------------------------------------------------------------------------------------------------------
ACQUISITION FEE 0.69% 0.75% NA 0.89% 0.82%
----------------------------------------------------------------------------------------------------------------
BRIDGE FINANCING FEES 0.07% 0.23% NA 0.23% 0.23%
----------------------------------------------------------------------------------------------------------------
Total Load(4) 11.89% 12.98% 23.02% 10.52% 14.93%
----------------------------------------------------------------------------------------------------------------
Asset Management Fees(5) 0.57% NA 0.53% 0.53% 0.63%
----------------------------------------------------------------------------------------------------------------
Property Management Fees(6) 4.0% 5.0% 5.0% 4.5% 4.5%
----------------------------------------------------------------------------------------------------------------
Deere
Distribution Fleet Office
Facility Building
----------------------------------------------------------------------
Commissions & Fees(1) Up to 8.6% Up to 8.52%
----------------------------------------------------------------------
SELLING COMMISSION TO
3rd PARTY REPS 6.00% 6.00%
----------------------------------------------------------------------
DUE DILIGENCE FEE 0.50% 0.50%
----------------------------------------------------------------------
MARKETING EXPENSES 1.00% 1.00%
----------------------------------------------------------------------
OFFERING & ORGANIZATION 1.10% 1.02%
----------------------------------------------------------------------
Mortgage Broker Fee (IMC)(2) 0.50% 0.50%
----------------------------------------------------------------------
Acquisition Fee & Carrying
Costs(3)
----------------------------------------------------------------------
ACQUISITION FEE 0.87% 0.85%
----------------------------------------------------------------------
BRIDGE FINANCING FEES 0.23% 0.35%
----------------------------------------------------------------------
Total Load(4) 13.93% 14.57%
----------------------------------------------------------------------
Asset Management Fees(5) 0.49% 0.49%
----------------------------------------------------------------------
Property Management Fees(6) 4.5% 4.5%
----------------------------------------------------------------------
Backend Sales Commission 3.5% 3.5% 3.5% 3.5% 3.5% N/A
---------------------------------------------------------------------------------------------------------------------------------
Backend Sales Commission N/A NA 3.5% NA NA
----------------------------------------------------------------------------------------------------------------
Backend Sales Commission NA NA
----------------------------------------------------------------------
----------
(1) Commissions and fees are calculated as a percentage of the equity
portion of each deal.
(2) The Mortgage Broker Fee is calculated as a percentage of the debt
portion of each deal.
(3) Acquisition & Carrying Costs are calculated as a percentage of
the real estate acquisition price.
(4) The Total Load is calculated as a percentage of the equity
portion of each deal. The Total Load includes the Commissions & Fees, Mortgage
Broker Fee, Acquisition Fee & Carrying Costs, as well as any other
non-affiliated third party expenses.
(5) Asset Management Fees are calculated as a percentage of the value
of the assets under management. However, for The Landings and Broadway Commons,
which are both Master Lease deals, the Master Tenant Income is the residual cash
flow from the Property after payment of the Master Lease Rent.
(6) Property Management Fees are calculated as a percentage of Gross
Income from the property.
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61
SUMMARY TABLES
The following summary tables describe information concerning the prior
programs discussed above through June 30, 2003.
Affiliates of The Inland Group formed Inland Capital Fund, L.P. and
Wisconsin Capital Land Fund, L.P. as pure capital appreciation investments. No
current return from rents or interest was contemplated or available because
capital was invested in non-income producing vacant land parcels. Limited
partners receive distributions on an irregular basis, only as a result of a sale
of the vacant land parcels. These distributions consist of both the return of
the invested capital amount allocated to the purchase of the parcel or parcels
sold plus the profit on the involved parcels as measured by the sale price, net
of costs of the sale, minus the fully loaded purchase price, or allocated
capital. The method of measuring return on investment to date is on a sold
parcel by parcel basis as follows:
62
Return on Investment Return on Investment
----------------------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL
FULLY LOADED RETURN ON
NET SALES PURCHASE PRICE ALLOCATED CAPITAL AVERAGE
PRICES OF (ALLOCATED GROSS RETURN % (GROSS RETURN NUMBER OF
PARCELS CAPITAL OF NET PROFITS ON (NET %/AVERAGE NUMBER YEARS OF
SOLD TO PARCELS SOLD PARCELS SOLD TO PROFIT/ALLOCATED OF YEARS OF CAPITAL
FUND DATE LESS TO DATE) = DATE CAPITAL) CAPITAL INVESTED) INVESTED
----------------------------------------------------------------------------------------------------------------------------------
Inland Capital
Fund, L.P. 28,049,000 13,990,000 14,059,000 100% 9.14% 11.00
Wisconsin Land
Fund, L.P. 4,137,818 2,120,803 2,017,015 95% 9.05% 10.50
CUMULATIVE DISTRIBUTIONS TO LIMITED PARTNERS
RETURN ON
CAPITAL RETURN OF RETURN ON INVESTMENT PER
RAISED TOTAL = INVESTMENT + INVESTMENT YEAR
------------------------------------------------------------------------------------------------------------------
Employee Appreciation Fund, L.P.* 400,000 502,198 400,000 102,198 10.00%
Inland Condominium Financing Fund, L.P. 1,031,000 1,411,617 1,031,000 380,617 10.00%
9% Monthly Cash Fund, L.P. 4,000,000 6,291,146 4,000,000 2,291,146 9.00%
9% Monthly Cash Fund II, L.P. 4,000,000 6,417,653 4,000,000 2,417,653 9.00%
IMC Note Issue #2 1993 6,800,000 5,147,928 0 5,147,928 8.00%
* Returns of Capital prior to Final Distribution.
63
MANAGEMENT
INLAND AFFILIATED COMPANIES
The Inland Group, Inc. was started by a group of Chicago
schoolteachers in 1967, and incorporated the following year. The founders of The
Inland Group and its affiliates are still centered in the Chicago metropolitan
area. Over the past 35 years, The Inland Group and its affiliates have
experienced significant growth and now make up a fully-integrated group of
legally and financially separate companies that have been engaged in diverse
facets of real estate providing property management, leasing, marketing,
acquisition, disposition, development, redevelopment, renovation, construction,
finance, investment products, and other related services. The Inland Real Estate
Group of Companies (sometimes referred to as "Inland") represents the marketing
name for these separate legal entities that are either subsidiaries of the same
entity, affiliates of each other, share some common ownership or were previously
sponsored by Inland Real Estate Investment Corporation. Inland in the aggregate
was ranked by Crain's Chicago Business in April 2003 as the 33rd largest
privately held company headquartered in the Chicago area. Among the affiliates
of Inland is one of the largest property management firm in Illinois and one of
the largest commercial real estate and mortgage banking firms in the Midwest.
As of June 30, 2003 Inland and its affiliates have more than 800
employees, own properties in 39 states, and have managed assets in excess of $5
billion. The senior management includes executives of The Inland Group and its
affiliates. Our management personnel have substantial experience in a full range
of real estate services. Our top seven senior executives have an average of over
25 years experience in the real estate industry.
Our advisor and managing dealer are affiliates of Inland. The relevant
skills and experience of each of the Inland affiliated companies, developed over
the course of more than 35 years in business, primarily in the Chicago
metropolitan area, are available to us in the conduct of our business.
As of June 30, 2003, our sponsor, Inland Real Estate Investment
Corporation, is the general partner of limited partnerships which own in excess
of 5,800 acres of pre-development land in the Chicago area, as well as
16,871,522 square feet of real property in Chicago and nationwide.
Inland developed expertise in real estate financing as it bought and
sold properties over the years. Inland Mortgage Corporation was incorporated in
1977. As of June 30, 2003 Inland Mortgage Corporation has originated more than
$6 billion in financing including loans to third parties and affiliated
entities.
Inland Mortgage Investment Corporation and Inland Mortgage Servicing
Corporation were incorporated in 1990, delineating the functions and duties
associated with financing. As of June 30, 2003, Inland Mortgage Investment
Corporation owned a $73,947,500 loan portfolio, and Inland Mortgage Servicing
Corporation serviced a loan portfolio of 503 loans exceeding $2,117,699,700.
The Inland Property Management companies are responsible for
collecting rent, and leasing and maintaining the rental properties they manage.
As of June 30, 2003 Inland Property Management companies manage
42,982,552 million square feet of commercial properties in 39 states. A
substantial portion of the portfolio, approximately 10.8 million square feet,
consists of properties leased on a triple-net lease basis to creditworthy
tenants. This means that the tenant operates and maintains the property and pays
rent that is net of taxes, insurance, and
64
operating expenses. They also manage more than 11,000 multi-family units that
are principally located in the Chicago metropolitan area.
Inland Western Management Corporation, our management company, was
incorporated in January 2003 to segregate responsibility for management of our
properties from Inland Property Management companies' growing management
portfolio of retail properties. Our property management company will be
responsible for collecting rent, leasing, and maintaining the retail properties
it will manage. These properties are primarily intended to be our properties in
our primary geographical area of investment. Our property management company is
owned primarily by individuals who are affiliates of Inland.
Inland Real Estate Acquisitions, Inc., another company affiliated with
Inland, has extensive experience in acquiring real estate for investment. Over
the years, it and its affiliates have acquired more than 1,100 properties.
Inland Real Estate Development Corporation, an affiliate of Inland,
has expertise in rezoning and developing real estate for industrial,
residential, and commercial use. It has constructed more than 3,000 single
family and multi-family units and developed over one million square feet of
commercial space. As of June 30, 2003, Inland Real Estate Development
Corporation had more than 5,000 acres of prime land available for development.
Inland Real Estate Sales, Inc., another affiliate of Inland, is one of
the largest "mid-market" commercial brokerage specialists in the Midwest. In the
last three years it has completed more than $175 million in commercial real
estate sales. Inland Real Estate Sales, Inc. has been involved in the sale of
more than 40,000 multi-family units and over 10 million square feet of
commercial property.
See also "Prior Performance of our Affiliates" and APPENDIX A - "Prior
Performance Tables" for information concerning over $2.8 billion raised from
over 77,000 investors in connection with two other REITs, one other public real
estate equity program, one private real estate equity program and five private
placement mortgage and note programs and nine real estate exchange private
placement offerings sponsored by The Inland Group affiliated companies during
the 10-year period ending June 30, 2003, and the prior performance of those
programs. During the last 35 years, more than 10,000 investors were in the
Inland Group's 231 completed programs as of June 23, 2003, with no investor
losses of initial invested capital in any completed equity program.
The following sets forth information with respect to the directors and
principal executive officers of The Inland Group:
NAME AGE* POSITION AND OFFICE WITH THE INLAND GROUP
---- ---- -----------------------------------------
Daniel L. Goodwin 59 Chairman, president and director
Robert H. Baum 59 Vice chairman, executive vice president - general
counsel and director
G. Joseph Cosenza 59 Vice chairman and director
Robert D. Parks 59 Director
----------
*As of January 1, 2003
65
Messrs. Goodwin, Baum, Cosenza and Parks were the founders of Inland.
DANIEL L. GOODWIN, is a founding and controlling stockholder of and
the Chairman of the Board and Chief Executive Officer of The Inland Group, Inc.
Mr. Goodwin also serves as a director or officer of entities wholly owned or
controlled by The Inland Group. In addition, Mr. Goodwin is the Chairman of the
Board and Chief Executive Officer of Inland Mortgage Investment Corporation and
Chairman and Chief Executive Officer of Inland Bancorp, a bank holding company.
He also oversees numerous stock market investment portfolios and is the advisor
for Inland Mutual Fund Trust, a publicly traded mutual fund.
HOUSING. Mr. Goodwin is a member of the National Association of
Realtors, the Illinois Association of Realtors and the Northern Illinois
Commercial Association of Realtors. He is also the author of a nationally
recognized real estate reference book for the management of residential
properties. Mr. Goodwin serves on the Board of the Illinois State Affordable
Housing Trust Fund. He served as an advisor for the Office of Housing
Coordination Services of the State of Illinois, and as a member of the Seniors
Housing Committee of the National Multi-Housing Council. He has served as
Chairman of the DuPage County Affordable Housing Task Force. Mr. Goodwin also
serves as Chairman of New Directions Affordable Housing Corporation.
EDUCATION. Mr. Goodwin obtained his Bachelor's and Master's Degrees
from Illinois State universities. Following graduation, he taught for five years
in the Chicago Public Schools. More recently, Mr. Goodwin has served as a member
of the Board of Governors of Illinois State Colleges and Universities. He is
Vice Chairman of the Board of Trustees of Benedictine University, Vice Chairman
of the Board of Trustees of Springfield College and Chairman of the Board of
Trustees of Northeastern Illinois University.
ROBERT H. BAUM has been with The Inland Group and has affiliates since
1968 and is one of the four original principals. Mr. Baum is vice chairman and
executive vice president-general counsel of The Inland Group. In his capacity as
general counsel, Mr. Baum is responsible for the supervision of the legal
activities of The Inland Group and its affiliates. This responsibility includes
the supervision of The Inland Group Law Department and serving as liaison with
outside counsel. Mr. Baum has served as a member of the North American
Securities Administrators Association Real Estate Advisory Committee and as a
member of the Securities Advisory Committee to the Secretary of State of
Illinois. He is a member of the American Corporation Counsel Association and has
also been a guest lecturer for the Illinois State Bar Association. Mr. Baum has
been admitted to practice before the Supreme Court of the United States, as well
as the bars of several federal courts of appeals and federal district courts and
the State of Illinois. He is also an Illinois licensed real estate broker. He
has served as a director of American National Bank of DuPage and currently
serves as a director of Inland Bancorp Holding Company and of Westbank. Mr. Baum
also is a member of the Governing Council of Wellness House, a charitable
organization that provides emotional support for cancer patients and their
families.
G. JOSEPH COSENZA has been with The Inland Group and its affiliates
since 1968 and is one of the four original principals. Mr. Cosenza is a director
and vice chairman of The Inland Group and oversees, coordinates and directs The
Inland Group organization's many enterprises. In addition, Mr. Cosenza
immediately supervises a staff of 16 persons who engage in property
acquisitions. Mr. Cosenza has been a consultant to other real estate entities
and lending institutions on property appraisal methods.
66
Mr. Cosenza received his B.A. Degree from Northeastern Illinois
University and his Masters Degree from Northern Illinois University. From 1967
to 1968, he taught in the La Grange Illinois School District and, from 1968 to
1972, he served as assistant principal and taught in the Wheeling, Illinois
School District. Mr. Cosenza has been a licensed real estate broker since 1968
and an active member of various national and local real estate associations,
including the National Association of Realtors and the Urban Land Institute.
Mr. Cosenza has also been chairman of the board of American National
Bank of DuPage and has served on the board of directors of Continental Bank of
Oakbrook Terrace. He was the chairman and is presently a director of Westbank in
Westchester, Hillside and Lombard, Illinois.
ROBERT D. PARKS has been a director of The Inland Group since 1968 and
is one of the four original principals. He has been our chairman, chief
executive officer, and an affiliated director since our formation. He is
chairman of our sponsor and a director of our managing dealer. Mr. Parks is
president, chief executive officer and a director of Inland Real Estate
Corporation. He is a director of Inland Real Estate Advisory Services, Inc.,
Inland Investment Advisors, Inc., Partnership Ownership Corp., Inland Southern
Acquisitions, Inc. and Inland Southeast Investment Corp. He is chairman, chief
executive officer and director of Inland Retail Real Estate Trust, Inc. and a
trustee of Inland Mutual Fund Trust, Inc.
Mr. Parks is responsible for the ongoing administration of existing
investment programs, corporate budgeting and administration for our sponsor. He
oversees and coordinates the marketing of all investments and investor
relations.
Prior to joining Inland, Mr. Parks was a school teacher in Chicago's
public schools. He received his B.A. Degree from Northeastern Illinois
University and his M.A. Degree from the University of Chicago. He is a
registered Direct Participation Program Limited Principal with the National
Association of Securities Dealers, Inc. He is also a member of the Real Estate
Investment Association, the Financial Planning Association, the Foundation for
Financial Planning, as well as a member of the National Association of Real
Estate Investment Trusts, Inc.
OUR GENERAL MANAGEMENT
We operate under the direction of our board of directors. Our board is
responsible for our business and management. Our board sets our policies and
strategies. Our advisor is responsible for the day-to-day management of our
affairs and the implementation of the policies of our board. Inland Western
Management Corp. is responsible for managing, maintaining and leasing the
individual properties. Inland Real Estate Acquisitions, Inc. is responsible for
acquiring properties. Inland Risk and Insurance Management Services, Inc., an
affiliate of The Inland Group, Inc., is responsible for providing insurance
coverage on the properties. Inland Mortgage Corporation, Inland Mortgage
Servicing Corporation and Inland Mortgage Investment Corporation are responsible
for the purchase, sales and servicing of mortgages. See "Compensation Table" for
a description for the fees paid to our affiliates.
67
OUR DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth information with respect to our
directors and executive officers:
NAME AGE POSITION AND OFFICE WITH US
---------- ------- ---------------------------------------
Robert D. Parks .............. 59 Chairman, chief executive officer and
affiliated director
Roberta S. Matlin ............. 58 Vice president -- administration
Scott W. Wilton ............... 42 Secretary
Kelly E. Tucek ................ 40 Treasurer
Brenda G. Gujral .............. 60 Affiliated director
Frank A. Catalano, Jr ......... 41 Independent director
Kenneth H. Beard .............. 63 Independent director
Paul R. Gauvreau .............. 63 Independent director
Gerald M. Gorski .............. 60 Independent director
Barbara A. Murphy ............. 65 Independent director
----------
*As of January 1, 2003
ROBERTA S. MATLIN has been our vice president of administration since
our formation. Ms. Matlin joined Inland in 1984 as director of investor
administration and currently serves as senior vice president of investments of
our sponsor, directing its day-to-day internal operations. Ms. Matlin is a
director of our sponsor and of our managing dealer. Since 1998, she has been
vice president of administration of Inland Retail Real Estate Trust and was vice
president of administration of Inland Real Estate Corporation from 1995 until
2000. She is president and a director of Inland Investment Advisors, Inc. and
Intervest Southern Real Estate Corporation, and a trustee and executive vice
president of Inland Mutual Fund Trust. Prior to joining Inland, she worked for
the Chicago Region of the Social Security Administration of the United States
Department of Health and Human Services. Ms. Matlin is a graduate of the
University of Illinois. She holds Series 7, 22, 24, 39, 63 and 65 licenses from
the National Association of Securities Dealers, Inc.
SCOTT W. WILTON has been our secretary since our formation. Mr. Wilton
joined The Inland Group in January 1995. He is assistant vice president of The
Inland Real Estate Group, Inc. and assistant counsel with The Inland Real Estate
Group law department. In 1998, Mr. Wilton became secretary of Inland Retail Real
Estate Trust, Inc. and Inland Retail Real Estate Advisory Services, Inc. In
2001, he became the Secretary of Inland Real Estate Exchange corporation. Mr.
Wilton is involved in all aspects of The Inland Group's business, including real
estate acquisitions and financing, securities law and corporate governance
matters, leasing and tenant matters, and litigation management. He received B.S.
degrees in economics and history from the University of Illinois at Champaign
1982 and his law degree from Loyola University of Chicago, Illinois 1985. Prior
to joining The Inland Group, Mr. Wilton worked for the Chicago law firm of
Williams, Rutstein, Goldfarb, Sibrava and Midura, Ltd., specializing in real
estate and corporate transactions and litigation.
KELLY E. TUCEK has been our treasurer since our formation. Ms. Tucek
joined The Inland Group in 1989 and is an Assistant Vice President of Inland
Real Estate Investment Corporation. As of August 1996, Ms. Tucek is responsible
for the Investment Accounting Department, which includes all public partnership
accounting functions along with quarterly and annual SEC filings. Prior to
joining Inland, Ms. Tucek was on the audit staff of Coopers and Lybrand since
1984. She received her B.A. Degree in Accounting and Computer Science from North
Central College.
68
BRENDA G. GUJRAL, an affiliated director, is president, chief
operating officer and a director of Inland Real Estate Investment Corporation,
the parent company of our advisor. She is also president, chief operating
officer and a director of our managing dealer. Mrs. Gujral is also a director of
Inland Investment Advisors, Inc., an investment advisor.
Mrs. Gujral has overall responsibility for the operations of Inland
Real Estate Investment Corporation, including the distribution of checks to over
50,000 investors, the review of periodic communications to those investors, the
filing of quarterly and annual reports for Inland Real Estate Investment
Corporation-sponsored publicly registered investment programs with the
Securities and Exchange Commission, compliance with other Securities and
Exchange Commission and National Association of Securities Dealers securities
regulations both for Inland Real Estate Investment Corporation and Inland
Securities Corporation, review of asset management activities and marketing and
communications with the independent broker-dealer firms selling current and
prior Inland Real Estate Investment Corporation sponsored investment programs.
She works with internal and outside legal counsel in structuring Inland Real
Estate Investment Corporation's investment programs and in connection with the
preparation of its offering documents and registering the related securities
with the Securities and Exchange Commission and state securities commissions.
Mrs. Gujral has been with the Inland organization for 22 years,
becoming an officer in 1982. Prior to joining the Inland organization, she
worked for the Land Use Planning Commission establishing an office in Portland,
Oregon to implement land use legislation for that state.
She is a graduate of California State University. She holds Series 7,
22, 39 and 63 licenses from the National Association of Securities Dealers and
is a member of The National Association of Real Estate Investment Trusts. Ms.
Gujral is also a member of the Financial Planning Association, the Foundation
for Financial Planning and the National Association for Female Executives.
FRANK A. CATALANO, JR. has served as president of Catalano &
Associates since 1999. Catalano & Associates is a real estate company that
includes brokerage, property management and rehabilitation and leasing of office
buildings. Mr. Catalano's experience also includes mortgage banking. Since 2002,
he has been a vice president of First Home Mortgage Company. Prior to that,
Mr. Catalano was a regional manager at Flagstar Bank. He also was president and
chief executive officer of CCS Mortgage, Inc. from 1995 through 2000, when
Flagstar Bank acquired it.
Mr. Catalano is a member of the Elmhurst, IL Chamber of Commerce and
as past chairman of the board, he is also a member of the Elmhurst Jaycees,
Elmhurst Hospital Board of Governors, Elmhurst Kiwanis and is currently the
President of Elmhurst Historical Museum Commission. Mr. Catalano holds a
mortgage broker's license.
KENNETH H. BEARD was president and chief executive officer of Exelon
Services, an energy services company from 1999-2002, where he had responsibility
for financial performance including being accountable for creating business
strategy, growing the business through acquisition, integrating acquired
companies and developing infrastructure for the combined acquired businesses.
Exelon Services is a subsidiary of Exelon Corporation, a New York Stock Exchange
listed company. Prior to that position, from 1974 to 1999, Mr. Beard was the
founder, president and chief executive officer of Midwest Mechanical, Inc., a
heating, ventilation and air conditioning company providing innovative and cost
effective construction services and solutions for commercial, industrial, and
institutional facilities. From 1964 to 1974 Mr. Beard was employed at The Trane
Company, a manufacturer of heating, ventilating and air conditioning equipment
having positions in sales, sales management and general management.
69
Mr. Beard holds a MBA and BSCE from the University of Kentucky and is
a licensed mechanical engineer. He is on the board of directors of the Wellness
House in Hinsdale, Illinois, a cancer support organization, and Harris Bank -
Hinsdale, serves on the Dean's Advisory Council of the University of Kentucky,
School of Engineering, and is a past member of the Oak Brook, Illinois Plan
Commission (1981-1991).
PAUL R. GAUVREAU is the retired chief financial officer, financial
vice president and treasurer of Pittway Corporation, New York Stock exchange
listed manufacturer and distributor of professional burglar and fire alarm
systems and equipment from 1966 until its sale to Honeywell, Inc. in 2001. He
was president of Pittway's non-operating real estate and leasing subsidiaries
through 2001. He was a financial consultant to Honeywell, Inc.; Genesis Cable,
L.L.C.; ADUSA, Inc. He was a director and audit committee member of Cylink
Corporation, a Nasdaq Stock Market listed manufacturer of voice and data
security products from 1998 until its merger with Safenet, Inc. in February
2003. Prior to 1995, he was a director and acting chief financial officer
instrumental in 1996 Cylink initial public offering.
Mr. Gauvreau holds a MBA from the University of Chicago an a BSC from
Loyola University of Chicago. He is on the Board of Trustees and Vice Chairman
of the Finance Committee of Benedictine University, Lisle, Illinois; a member of
the Board of Trustees of the Chaddick Institute of DePaul University, Chicago,
Illinois; and a member of the board of directors and treasurer of the Children's
Brittle Bone Foundation, Pleasant Prairie, Wisconsin.
GERALD M. GORSKI is a partner in the law firm of Gorski and Good,
Wheaton Illinois. Mr. Gorski's practice is limited to governmental law. His firm
represents numerous units of local government in Illinois and Mr. Gorski has
served as a Special Assistant State's Attorney and Special Assistant Attorney
General in Illinois. He received a Bachelor of Arts degree from North Central
College with majors in Political Science and Economics and a Juris Doctor degree
from DePaul University Law School where he was placed on the Deans Honor List.
Mr. Gorski serves as the Vice-Chairman of the Board of Commissioners for the
DuPage Airport Authority. He has written numerous articles on various legal
issues facing Illinois municipalities; has been a speaker at a number of
municipal law conferences and is a member of the Illinois Bar Association, the
Institute for Local Government Law and the International Municipal Lawyers
Association.
BARBARA A. MURPHY is the Chairwoman of the DuPage Republican Party.
Ms. Murphy is also a member of Illinois Motor Vehicle Review Board and a member
of Matrimonial Fee Arbitration Board. Ms. Murphy is a Milton Township Trustee
and a committeeman for Milton Township Republican Central Committee. Ms. Murphy
previously served as State Central Committeewoman for the Sixth Congressional
District and has also served on the DuPage Civic Center Authority Board, the
DuPage County Domestic Violence Task Force, and the Illinois Toll Highway
Advisory Committee. Ms. Murphy is a founding member of the Family Shelter
Service Board. As an active volunteer for Central DuPage Hospital, she acted as
the "surgery hostess" (cared for families while a family member was undergoing
surgery). Ms. Murphy was a department manager and buyer for J.W. Robinson's and
Bloomingdale's and the co-owner of Daffy Down Dilly Gift Shop.
COMMITTEES OF OUR BOARD OF DIRECTORS
Our bylaws provide that our board may establish such committees as the
board believes appropriate. The board will appoint the members of the committee
in the board's discretion. Our bylaws require that a majority of the members of
each committee of our board is to be comprised of independent directors.
70
AUDIT COMMITTEE. Our bylaws provide for our board to designate an
audit committee consisting of at least three independent directors and for all
committee members to be independent directors. Our board will designate three of
the independent directors as the members of the audit committee. The audit
committee makes recommendations concerning the engagement of independent public
accountants, reviews the plans and results of the audit engagement with the
independent public accountants, approves professional services provided by, and
the independence of, the independent public accountants, considers the range of
audit and non-audit fees and consults with the independent public accountants
regarding the adequacy of our internal accounting controls.
EXECUTIVE COMMITTEE. Our board may establish an executive committee
consisting of three directors, including two independent directors. The
executive committee would likely exercise all powers of the board in the
management of the business and affairs of our company, except for those which
require actions by all of the directors or by the independent directors under
our articles of incorporation or bylaws or under applicable law.
MANAGEMENT AND DISCLOSURE COMMITTEE. Our board may establish a
management disclosure committee to assist in reviewing our disclosures, controls
and procedures. The committee may include our directors and directors and
officers of our advisor.
EXECUTIVE COMPENSATION COMMITTEE. Our board may establish an executive
compensation committee consisting of three directors, including two independent
directors, to establish compensation policies and programs for our executive
officers. The executive compensation committee will exercise all powers of our
board in connection with establishing and implementing compensation matters,
including incentive compensation and benefit plans.
COMPENSATION OF DIRECTORS AND OFFICERS
We pay our independent directors an annual fee of $5,000 plus $500 for
each in person meeting and $350 for each meeting of the board or a committee of
the board attended by telephone, and reimbursement of their out-of-pocket
expenses incurred. Our two other directors, Robert D. Parks and Brenda G.
Gujral, do not receive any fees or other remuneration for serving as directors.
EXECUTIVE COMPENSATION
We have no employees and our executive officers will not receive any
compensation from us for their services as such officers. Our executive officers
are officers of one or more of our affiliates, and are compensated by those
entities, in part, for their services rendered to us.
INDEPENDENT DIRECTOR STOCK OPTION PLAN
We have an independent director stock option plan under which
non-employee directors, as defined under Rule 16b-3 of the Securities Exchange
Act of 1934, are eligible to participate.
We have authorized and reserved a total of 75,000 shares of our common
stock for issuance under our independent director stock option plan. The number
and type of shares which could be issued under the plan may be adjusted if we
are the surviving entity after a reorganization or merger or if our stock
splits, is consolidated or we are recapitalized. If this occurs, the exercise
price of the options will be correspondingly adjusted.
The independent director stock option plan provides for the grant of
non-qualified stock options to purchase 3,000 shares to each independent
director upon his or her appointment if they meet the
71
conditions in the plan. The plan also provides for subsequent grants of options
to purchase 500 shares on the date of each annual stockholder's meeting to each
independent director then in office. However, options may not be granted at any
time when the grant, along with the grants to be made at the same time to other
independent directors, would exceed 10% of our issued and outstanding shares. We
have granted options to purchase 3,000 shares at $8.95 per share to each of our
five independent directors. The option price for subsequent options will be
equal to the fair market value of a share on the last business day preceding the
annual meeting of stockholders. The option price will be fixed at $8.95 per
share until the earlier of the termination of this offering or two years after
the commencement of this offering.
One-third of the options granted following an individual initially
becoming an independent director are exercisable beginning on the date of their
grant, one-third will first become exercisable on the first anniversary of the
date of their grant, and the remaining one-third will first become exercisable
on the second anniversary of the date of their grant. All other options granted
under the independent director stock option plan will become fully exercisable
on the second anniversary of their date of grant.
Options granted under the independent director stock option plan are
exercisable until the first to occur of
- the tenth anniversary of the date of grant,
- the removal for cause of the independent director as an
independent director, or
- three months following the date the independent director ceases
to be an independent director for any other reason except death
or disability.
The options may be exercised by payment of cash or through the delivery of
common stock. They are generally exercisable in the case of death or disability
for a period of one year after death or the disabling event, provided that the
death or disabling event occurs while the person is an independent director.
However, if the option is exercised within the first six months after it becomes
exercisable, any shares issued pursuant to such exercise may not be sold until
the six month anniversary of the date of the grant of the option.
Notwithstanding any other provisions of the independent director stock option
plan to the contrary, no option issued pursuant thereto may be exercised if such
exercise would jeopardize our status as a REIT under the Internal Revenue Code.
No option may be sold, pledged, assigned or transferred by an
independent director in any manner otherwise than by will or by the laws of
descent or distribution.
Upon our dissolution, liquidation, reorganization, merger or
consolidation as a result of which we are not the surviving corporation, or upon
sale of all or substantially all of our property, the independent director stock
option plan will terminate, and any outstanding unexercised options will
terminate and be forfeited. However, holders of options may exercise any options
that are otherwise exercisable immediately prior to the dissolution,
liquidation, consolidation or merger. Additionally, our board may provide for
any or all of the following alternatives:
- for the assumption by the successor corporation of the options
previously granted or the substitution by the corporation for the
options covering the stock of the successor corporation, or a
parent or subsidiary thereof, with appropriate adjustments as to
the number and kind of shares and exercise prices;
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- for the continuance of the independent director stock option plan
by such successor corporation in which event the independent
director stock option plan and the options will continue in the
manner and under the terms so provided; or
- for the payment in cash or common stock in lieu of and in
complete satisfaction of the options.
OUR ADVISOR
Our advisor, Inland Western Retail Real Estate Advisory Services,
Inc., is an Illinois corporation and a wholly owned subsidiary of our sponsor.
The following table sets forth information regarding the executive officers and
directors of our advisor, all of whom have held their positions and offices
since its formation in 1998. The biographies of Messrs. Parks, Cosenza, and
Goodwin are set forth above under "-- Inland Affiliated Companies" and the
biography of Mr. Wilton is set forth under "-- Our Directors and Executive
Officers."
NAME AGE POSITION AND OFFICE WITH OUR ADVISOR
---- --- ------------------------------------------
Daniel L. Goodwin ....... 59 Director
Robert D. Parks ......... 59 Director and president
G. Joseph Cosenza ....... 59 Director
Brenda G. Gujral ........ 60 Vice president
Catherine L. Lynch ...... 44 Treasurer
Scott W. Wilton ......... 42 Secretary
----------
*As of January 1, 2003
CATHERINE L. LYNCH joined the Inland organization in 1989 and is the
treasurer/secretary of our sponsor. Ms. Lynch is responsible for managing the
corporate accounting department of our sponsor. Ms. Lynch is also the
treasurer/secretary and a director of the dealer manager and treasurer of Inland
Retail Real Estate Advisory Services and Inland Investment Advisors, Inc. Prior
to joining the Inland organization, Ms. Lynch worked in the field of public
accounting for KPMG Peat Marwick LLP since 1980. She received her B.S. Degree in
Accounting from Illinois State University. Ms. Lynch is a certified public
accountant and a member of the American Institute of Certified Public
Accountants and the Illinois CPA Society. She is registered with the National
Association of Securities Dealers, Inc. as a financial operations principal.
OUR ADVISORY AGREEMENT
DUTIES OF OUR ADVISOR. Under the terms of our advisory agreement, our
advisor, generally has responsibility for our day-to-day operations. This
includes the following:
- administering our bookkeeping and accounting functions,
- serving as our consultant in connection with policy decisions to
be made by our board, managing our properties or causing them to
be managed by another party, and
- rendering other services as our board deems appropriate.
Our advisor is subject to the supervision of its board and has only such
functions as are delegated to it by its board.
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TERM OF THE ADVISORY AGREEMENT. The advisory agreement has an initial
term of three years and is renewable for successive one-year terms upon the
mutual consent of the parties. It may be terminated by either party, by mutual
consent of the parties or by a majority of the independent directors or the
advisor, as the case may be, upon 60 days' written notice. If the advisory
agreement is terminated, the advisor must cooperate with us and take all
reasonable steps requested by our board to assist it in making an orderly
transition of the advisory function. Our board shall determine that any
successor advisor possesses sufficient qualifications to perform the advisory
function for us and justify the compensation provided for in its contract with
us.
COMPENSATION TO ADVISOR. The advisory agreement provides for the
advisor to be paid:
- an advisor asset management fee after the stockholders have first
received a 6% annual return; and
- a property disposition fee; and
- an incentive advisory fee from the net proceeds of a sale of a
property after the stockholders have first received a 10%
cumulative return and a return of their net investment.
If the advisor or its affiliates perform services that are outside of
the scope of the advisory agreement, we will compensate them at rates and in
amounts agreed upon by the advisor and the independent directors.
The advisor bears the expenses it incurs in connection with performing
its duties under the advisory agreement. These include:
- employee expenses;
- travel and other expenses of its directors, officers and
employees;
- rent;
- telephone;
- equipment expenses to the extent they relate to the office
maintained by both us and the advisor; and
- miscellaneous administrative expenses incurred in supervising,
monitoring and inspecting real property or our other investments
or relating to its performance under the advisory agreement. The
advisor is reimbursed for the cost to it and its affiliates of
goods and services used for and by us and obtained from
unaffiliated parties. It is also reimbursed for related
administrative services. We bear our own expenses for functions
the advisor is not required to perform under the advisory
agreement. These generally include capital raising and financing
activities, corporate governance matters and other activities not
directly related to our properties.
REIMBURSEMENT BY ADVISOR. For any year in which we qualify as a REIT,
our advisor must reimburse us for the amounts, if any:
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- by which our total operating expenses paid during the previous
fiscal year exceed the greater of
- 2% of our average assets for that fiscal year or
- 25% of our net income, before any additions to or allowance
for reserves for depreciation, amortization or bad debts or
other similar low-cash reserves before any gain from the
sale of our assets, for that fiscal year;
- PLUS an amount, so long as it does not exceed the amount of the
advisor asset management fee for that year, equal to any deficit
between the total amount of distributions to stockholders for
such fiscal year and the current return. Current return refers to
a cumulative, non-compounded return, equal to 6% per annum on net
investment.
The advisor is also obligated to pay organization and offering expenses in
excess of specified levels. See "Compensation Table" for a description of the
fees and reimbursements to which the advisor is entitled. Provided however, only
so much of the excess specified in the first bullet point above will be required
to be reimbursed as the board, including a majority of the independent
directors, determines should justifiably be reimbursed in light of such
unanticipated, unusual or non-recurring factors which may have occurred within
60 days after the end of the quarter for which the excess occurred. In this
event, the stockholders will be sent a written disclosure and explanation of the
factors the independent directors considered in arriving at the conclusion that
the higher total operating expenses were justified.
BUSINESS COMBINATION BETWEEN US AND THE ADVISOR. Many REITs that are
listed on a national stock exchange or included for quotation on a national
market system are considered self-administered, because their employees perform
all significant management functions. In contrast, those that are not
self-administered, like us, typically engage a third-party, such as our advisor,
to perform management functions on its behalf. If for any reason the independent
directors determine that we should become self-administered, the advisory
agreement permits the business conducted by the advisor, including all of its
assets, to be acquired by or consolidated into us. A similar provision is
included in each management agreement permitting acquisition of the business
conducted by the respective property manager, including all of its assets. Until
September 15, 2008, such a business combination could only take place with our
consent and that of the advisor and property manager. After September 15, 2008,
we could acquire these companies in a business combination without their
consent.
If the businesses conducted by the advisor and/or a property manager
are acquired by or consolidated into us, the advisor and/or the property manager
and/or their respective stockholders or members will receive a number of shares
in exchange for terminating their respective management agreements and the
release and waiver of all fees payable under them. We will be obligated to pay
any fees accrued under such contractual arrangements for services rendered
through the closing of the acquisitions.
The number of shares we will issue to the advisor and/or the property
managers, as the case may be, will be determined as follows:
- We will first send an election notice to the advisor and/or the
property manager, as the case may be, of our election to proceed
with such a transaction.
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- Next, the net income of the advisor and/or the property manager,
as the case may be, for the calendar monthly period immediately
preceding the calendar month in which the business combination
agreement is signed, as determined by an independent audit
conducted in accordance with generally accepted auditing
standards, will be annualized. The advisor or the property
manager will bear the cost of the audit.
- The annualized net income will then be multiplied by 90% and
divided by our funds from operations per weighted average share.
Funds from operations per weighted average share will be equal to
our annualized funds from operations per weighted average share
for the fiscal quarter immediately preceding the fiscal quarter
in which the business combination agreement is signed, all based
upon our quarterly report delivered to stockholders.
Funds from operations means generally net income in accordance with
generally accepted accounting principles, excluding gains or losses, from debt
restructuring and sales of properties, plus depreciation of real property and
amortization, and after adjustments for unconsolidated partnerships and joint
ventures.
The resulting quotient will constitute the number of shares to be
issued by us to the advisor or the property manager, or their respective
shareholders or members, as the case may be. Delivery of the shares and the
closing of the transaction to occur within 90 days of delivery after the
election notice.
Under some circumstances, this kind of transaction can be entered into
and consummated without seeking specific stockholder approval. See "Conflicts of
Interest." Any transaction like this will occur, if at all, only if our board
obtains a fairness opinion from a recognized financial advisor or institution
providing valuation services to the effect that the consideration to be paid is
fair to the stockholders from a financial point of view. If the advisory
agreement is terminated for any reason other than our acquisition of the
business conducted by the advisor, then all obligations of the advisor and its
affiliates to offer properties to us will also terminate.
LIABILITY AND INDEMNIFICATION OF ADVISOR. Under the advisory
agreement, we are required to indemnify the advisor and to pay or reimburse
reasonable expenses in advance of final disposition of a proceeding with respect
to the advisor's acts or omissions. However, this is only a requirement so long
as:
- the advisor determined in good faith that the course of conduct
which caused a loss or liability was in our best interest;
- the advisor was acting on behalf of or performing services for
us;
- the liability or loss was not the result of misconduct on the
part of the advisor; and
- the indemnification or agreement to hold harmless is recoverable
only out of our net assets and not from the assets of the
stockholders.
We will advance amounts to those entitled to indemnification for legal
and other expenses only if:
- the legal action relates to acts or omissions concerning the
performance of duties or services by the person seeking
indemnification for or on our behalf;
76
- the legal action is initiated by a third party and a court of
competent jurisdiction specifically approves its advancement; and
- the person seeking indemnification who is receiving the advances
undertakes to repay the advanced funds to us, together with the
applicable legal rate of interest thereon, if such party is found
not to be entitled to indemnification.
Inland Retail Real Estate Trust, Inc. is still offering its securities
and has not fully invested all of its anticipated funds available for
investment. Accordingly, material conflicting investment opportunities between
them and us could be expected. However, we have initially focused our purchase
of retail centers to those west of the Mississippi River, which is outside
Inland Retail Real Estate Trust, Inc.'s primary geographic area of investment.
However, if any conflicts do arise, they will be resolved as provided in the
property acquisition service agreement.
THE PROPERTY MANAGER AND THE MANAGEMENT AGREEMENT
Our present property manager provides property management services to
us under the terms of the management agreement. The property manager provides
services in connection with the rental, leasing, operation and management of the
properties. Our property manager is a Delaware corporation, owned principally by
individuals who are affiliates of The Inland Group. We have agreed to pay the
property manager a monthly management fee in an amount no greater than 90% of
the fee which would be payable to an unrelated party providing such services,
which fee will initially be 4.5% of gross income, as defined in the management
agreement from the properties managed for the month for which the payment is
made. In addition, we have agreed to compensate the property manager if it
provides us with services other than those specified in the management
agreement. There will be a separate management agreement for each property for
an initial term ending as of December 31 in the year in which the property is
acquired, and each management agreement will be subject to three successive
three-year renewals, unless either party notifies the other in writing of its
intent to terminate between 60 and 90 days prior to the expiration of the
initial or renewal term. We may terminate with 30 days prior written notice in
the event of gross negligence or malfeasance by the property manager. The
property manager may subcontract the required property management services for
less than the management fee provided in the management agreement. See
"Compensation Table -- Nonsubordinated Payments -- Operational Stage." Our
property manager may form additional property management companies as necessary
to manage the properties we acquire, and may approve of the change of management
of a property from one manager to another.
Our property manager, Inland Western Management Corp., conducts its
activities at its principal executive office at 2901 Butterfield Road in Oak
Brook, Illinois.
See "--The Advisory Agreement" above in this section and "Conflicts of
Interest" for a discussion of our option to acquire or consolidate with the
business conducted by the property managers.
The following sets forth information with respect to the executive
officers and directors of the Inland Western Management Corp.
77
POSITION AND OFFICE
WITH INLAND WESTERN
NAME AGE* MANAGEMENT CORP.
---- ---- -------------------
Thomas P. McGuiness .............. 46 Chairman, director and chief
executive officer
JoAnn Armenta .................... 29 Senior vice president, director
and secretary
James H. Neubauer................. 61 Senior vice president and
director
Alan F. Kremin.................... 56 Director
Anthony Casaccio.................. 47 Director
----------
*As of January 1, 2003
THOMAS P. MCGUINNESS joined Inland Property Management in 1982 and
became president of Mid-America Management Corporation in July 1990 and chairman
in 2001. He is also president of Inland Property Management, Inc. as well as a
director of Inland Commercial Property Management. He is chairman and a director
of Inland Mid-Atlantic Management Corp. Mr. McGuinness is a licensed real estate
broker; and is past president of the Chicagoland Apartment Association, and past
regional vice president of the National Apartment Association. He is currently
on the board of directors of the Apartment Building Owners and Managers
Association, and is a trustee with the Service Employees' Local No. 1 Health and
Welfare Fund, as well as the Pension Fund and holds CLS and CSM accreditations
from the International Council of Shopping Centers.
JOANN ARMENTA joined Inland Property Management in 1992 working in
residential management. Ms. Armenta became involved with commercial properties
in 1995 overseeing the management of retail, office and industrial properties.
She has managed a portfolio of retail properties for Inland Commercial Property
Management and was promoted to senior property manager supervising one-half of
the property managers. In 2001, she left Inland Commercial Property Management
and accepted a position as Assistant Vice President for Inland Southern Corp.
Also, she was promoted to Vice President of Inland Mid-Atlantic Management Corp.
Her responsibilities in these positions include being in charge of due diligence
for all retail acquisitions in approximately 15 states. In 2002 alone she was
responsible for all due diligence on approximately 12 million square feet
including the pro formas, site inspections, tenant interviews; engineering
reports and upgrades. She has also been responsible for coordinating the
transition from a property in the due diligence process to the seamless folding
of the property into property operations.
Mrs. Armenta is also the sole training coordinator for Inland
Southeast Property Management Corp., Inland Southern Management Corp., and
Inland Mid-Atlantic Management Corp. for all new property managers and
employees. In addition, she oversees the management of a portfolio of over two
million square feet in the Chicago metropolitan area managing retail, office and
light industrial.
Ms. Armenta holds a CSM accreditation with the International Council
of Shopping Centers.
JAMES H. NEUBAUER joined Inland Property Management in 1978. In 1981,
he was promoted to the position of director of purchasing. Subsequently, in
1983, he became a regional property manager with responsibility for residential
and retail mixed use properties. In 1984, he became the president of Inland
Western Property Management, responsible for a portfolio of properties in
Arizona. From 1985 to
78
1996, Mr. Neubauer was senior vice president of Mid-America Management where he
was responsible for all rental property operations outside the Chicagoland
metropolitan area, which included New Hampshire, Arizona, Indiana and Wisconsin.
He left Inland Southeast Property Management Corp. as senior vice president and
in May 2002 was promoted to President. He has achieved the Certified property
Manager (CPM) designation. He is also a member of the International Council of
Shopping Centers and is a licensed real estate broker in Florida. He holds a
B.A. degree from the University of Maryland, a M.A. degree from Ball State
University and a M.B.A. degree from Benedictine College.
ALAN F. KREMIN joined The Inland Group in 1982. Mr. Kremin was
promoted to treasurer of The Inland Group, Inland Commercial Property
Management, Inc., and various other Inland Group subsidiaries in March 1991. In
his current capacity as the chief financial officer of The Inland Group, a
position he has held since 1991, his responsibilities include preparation of
consolidated federal and state corporate tax returns, cash budgeting for the
consolidated group and serving as a director for various Inland Group
subsidiaries, for which he also serves as treasurer. He is a director of Inland
Southeast Property Management Corp., and in March 2002 he became a director,
secretary and treasurer of Inland Southern Management LLC. Prior to his current
position, Mr. Kremin was treasurer of Inland Real Estate Investment Corporation
from 1986 to 1990, when he supervised the daily operations of its accounting
department. That department encompasses corporate accounting for the general
partner of the Inland Real Estate Investment Corporation-sponsored limited
partnership investment programs. Prior to joining The Inland Group, Mr. Kremin
served for one year as a controller of CMC Realty and three years as assistant
controller of JMB Realty Corporation. Prior to his real estate experience, Mr.
Kremin worked eight years in public accounting, including four years at Arthur
Young & Company. He received his B.S. degree in accounting from Loyola
University. Mr. Kremin is a certified public accountant, holds securities and
insurance licenses and is a licensed real estate broker.
ANTHONY A. CASACCIO joined Inland in 1984, working for Inland Condo
Association Management. From 1987 to 1991 he was president of Partnership Asset
Sales Corporation, where he was responsible for the disposition of over 20,000
apartment units located in northeast Illinois and nearby states, as well as
non-residential properties leased to nursing homes, health clubs, office,
industrial and shopping center tenants. In 1991 when Inland Real Estate
Development Corporation was formed, Mr. Casaccio became the president and a
director. Still serving in those capacities, Mr. Casaccio is responsible for the
disposition of raw land investment programs for which he is also a senior vice
president of the sponsor, which owns more than 10,000 acres of development land
in Chicago's suburban counties.
In connection with land development, Mr. Casaccio, in addition to the
sales of improved and raw land parcels, oversees land planning activities
associated with readying land for sale, including zoning and annexation,
negotiations with local municipal school, sanitary district and county
authorities, submission of concept plans, preliminary and site amenities, final
plats of subdivision; and completion of infrastructure improvements such as
roads, sewer and water lines stormwater management facilities and site
amenities. He is also a director and the secretary/treasurer of IRED Development
Management, Inc.
Mr. Casaccio holds a B.S. degree in accounting from DePaul University.
He is a member of the Realtor Association of the Western Suburbs (IL), the Fox
Valley (IL) Association of Realtors, the Tri-County Board of Realtors, the
National Association of Realtors, the Home Builders Association of Greater
Chicago, the Northern Illinois Home Builders Association and the Urban Land
Institute. He is a licensed real estate broker in the state of Illinois.
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INLAND SECURITIES CORPORATION
Inland Securities Corporation, our managing dealer, was formed in
1984. It is registered under the applicable federal and state securities laws
and is qualified to do business as a securities broker-dealer throughout the
United States. Since its formation, the managing dealer has provided the
marketing function for distribution of the investment products sponsored by our
sponsor. It does not render these services to anyone other than affiliates of
The Inland Group, and it does nor focus its efforts on the retail sale side of
the securities business. It is a member firm of the National Association of
Securities Dealers, Inc.
The following table sets forth information with respect to the
directors, officers and principal employees of Inland Securities Corporation
involved in national sales and marketing activities of Inland Securities
Corporation. The biography of Mr. Parks set forth above under "-Inland
Affiliated Companies" in this section and the biographies of Mrs. Gujral and Ms.
Matlin are set forth above under "-Our Directors and Executive Officers" in this
section. The biography of Ms. Lynch is also set forth above under "--Our
Advisor."
POSITION AND OFFICE
NAME AGE* WITH OUR MANAGING DEALER
---- ---- ------------------------
Brenda G. Gujral.............. 60 President, chief operating officer and director
Roberta S. Matlin............. 58 Vice president and director
Catherine L. Lynch............ 44 Treasurer, secretary and director
Robert D. Parks............... 59 Director
Brian Conlon.................. 44 Executive vice president
R. Martel Day................. 53 Executive vice president - national sales and
marketing
Fred C. Fisher................ 58 Senior vice president
David Bassitt................. 60 Senior vice president
John Cunningham............... 44 Senior vice president
Tomas Giardino................ 28 Vice president
Curtis Shoch.................. 30 Vice president
Shawn Vaughan................. 31 Vice president
Mark Lavery................... 27 Vice president
Ralph Rudolph................. 39 Vice president
----------
*As of January 1, 2003
BRIAN M. CONLON joined Inland Securities Corporation as executive vice
president in September 1999. Prior to joining Inland, Mr. Conlon was executive
vice president and chief operating officer of Wells Real Estate Funds, where he
was responsible for overseeing day to day operations of the firm's real estate
investment and capital raising initiatives. Mr. Conlon is a General Securities
Principal, is licensed as a real estate broker in Georgia, and has earned the
Certified Financial Planner and Certified Commercial Investment Member
designations. Mr. Conlon currently serves on the national board of directors for
the Financial Planning Association. Mr. Conlon holds Series 7, 24 and 63
licenses with the National Association of Securities Dealers, Inc.
R. MARTEL DAY is executive vice president-national sales and marketing
for Inland Securities Corporation. He joined Inland Securities Corporation in
1984 as a regional representative in the southeast. Since then, he has served as
regional vice president, senior vice president, and national marketing director.
Mr. Day is currently responsible for expanding Inland Securities Corporation's
selling group and working closely with broker-dealers in the selling group to
maximize sales.
80
Mr. Day has developed and presented numerous motivational and sales
training workshops over the past 20 years. He graduated with an engineering
degree from the Georgia Institute of Technology. Mr. Day holds General
Securities and Registered Investment Advisor licenses from the National
Association of Securities Dealers, and is an associate member of The National
Association of Real Estate Investment Trusts. He is a director of Inland
Investment Advisors, Inc., an Inland affiliated company.
FRED C. FISHER is a senior vice president of Inland Securities
Corporation, which he joined in 1984. Mr. Fisher began his career with Inland
Securities Corporation as regional vice president for the midwest region. In
1994, he was promoted to senior vice president. Mr. Fisher received his
bachelor's degree from John Carroll University. Before joining Inland Securities
Corporation, he spent nine years as a regional sales manager for the S.S. Pierce
Company. Mr. Fisher holds Series 7, 22 and 63 licenses with the National
Association of Securities Dealers, Inc.
DAVID BASSITT joined Inland Securities Corporation as a senior vice
president in March 2001. Prior to joining Inland, Mr. Bassitt was director of
financial services with AEI Fund Management, Inc. and was responsible for
wholesaling public and private net lease real estate investments and 1031
property exchanges to financial planners. Mr. Bassitt received his bachelor's
degree from Ferris State University, and a master's degree from St. Cloud
University. Mr. Bassitt holds Series 6, 7, 22 and 63 licenses with the National
Association of Securities Dealers, Inc.
JOHN CUNNINGHAM is a senior vice president of Inland Securities
Corporation. He joined an affiliate of The Inland Group in January 1995 as a
commercial real estate broker. In March 1997, Mr. Cunningham was hired by Inland
Securities Corporation as a regional representative for the western region, and
he was promoted to a vice president in 1999. In 2002, he became senior vice
president of the western region. Mr. Cunningham graduated from Governors State
University with a B.S. degree in business administration, concentrating in
marketing. Before joining the Inland organization, Mr. Cunningham owned and
operated his own business and developed real estate. He holds Series 7 and
Series 63 licenses with the National Association of Securities Dealers, Inc.
TOMAS GIARDINO joined Inland Securities Corporation as vice president
in September 2000. Prior to joining Inland, Mr. Giardino was the director of
mutual fund sales at SunAmerica Securities, where he was responsible for
increasing the market share of nine focus firms at the broker dealer.
Mr. Giardino entered the securities industry in January 1999. Prior to entering
the securities industry, Mr. Giardino was in the advertising field for four
years. Mr. Giardino received his B.A. in political science from Arizona State
University in May 1998. He holds Series 7, 63 and 65 licenses with the National
Association of Securities Dealers, Inc.
CURTIS SHOCH joined Inland Securities Corporation as vice president in
January 2000. Prior to joining Inland, Mr. Shoch was assistant vice president at
Wells Real Estate Funds, where he was responsible for launching new real estate
investment alternatives in the southeastern United States. Mr. Shoch began his
career in 1994 with Keogler Investment Advisory Services. Mr. Shoch graduated
from Lynchburg College in Lynchburg, Virginia in 1994 with a major in marketing
and an emphasis in finance. He is a Registered Representative as well as a
Registered Investment Advisor. Mr. Shoch holds Series 7, 63 and 65 licenses with
the National Association of Securities Dealers, Inc.
SHAWN VAUGHAN joined Inland Securities Corporation as vice president
in August 2000. Prior to joining Inland, Mr. Vaughan was assistant vice
president at Wells Real Estate Funds, where he was responsible for marketing
real estate investments in the mid-Atlantic region. Mr. Vaughan started his
career in financial services in 1994 on the retail side of the business with a
successful financial planning
81
firm. During this time, he was responsible for handling every aspect of the
financial planning process. Mr. Vaughan holds Series 7 and 63 licenses with the
National Association of Securities Dealers, Inc.
MARK LAVERY joined Inland Securities Corporation as a vice president
in April 2001. Prior to joining Inland, Mr. Lavery was with Charles Schwab,
where he was on an active trade team. Mr. Lavery began his career with
Investment Planners. Mr. Lavery graduated from Milliken University in 1997 with
a B.S. in finance. Mr. Lavery holds Series 7 and 66 licenses with the National
Association of Securities Dealers, Inc.
RALPH RUDOLPH joined Inland Securities Corporation in 1995 as a
regional representative for midwest team and was promoted to a vice president in
2000. Prior to joining Inland, Mr. Rudolph served in the United States Marine
Corp. and worked for another broker-dealer. He is a graduate of Elmhurst College
with a degree in business administration. Mr. Rudolph holds Series 7 and 63
licenses with the National Association of Securities Dealers, Inc.
82
LIMITATION OF LIABILITY AND INDEMNIFICATION OF
DIRECTORS, OFFICERS AND OUR ADVISOR
The laws that we are subject to and our articles of incorporation
provide that our advisor and directors are deemed to be in a fiduciary
relationship to us and our stockholders and that our directors have a fiduciary
duty to the stockholders to supervise our relationship with the advisor.
Maryland law provides that a director has no liability in the capacity
as a director if he performs his duties in good faith, in a manner he reasonably
believes to be in our best interests, and with the care that an ordinary prudent
person in a like position would use under similar circumstances. Maryland law
also provides that an act by a director of a Maryland corporation is presumed to
satisfy the standards of the preceding sentence. Our articles of incorporation
and bylaws provide that the liability of our directors and officers is limited
to the fullest extent permitted by Maryland law and that none of our directors
and officers will be liable to us or to any of our stockholders for money
damages, including for breach of their fiduciary duty to us. As a result, our
directors and officers will not be liable for monetary damages unless:
- the person actually received an improper benefit or profit in
money, property or services; and
- the person is adjudged to be liable based on a finding that the
person's action, or failure to act, was the result of active and
deliberate dishonesty and was material to the cause of action
adjudicated in the proceeding.
Except as described below, our articles of incorporation authorize and
direct us to indemnify and pay or reimburse reasonable expenses to any director,
officer, employee or agent we employ, and the advisor and its affiliates, to the
fullest extent permitted by Maryland law. As long as we qualify as a REIT we
will not indemnify or reimburse the expenses of any director, officer, employee,
agent or the advisor or its affiliates unless:
- the directors have determined, in good faith, that the course of
conduct which caused the loss or liability was in our best
interests;
- the person seeking indemnification was acting on our behalf or
performing services for us;
- the liability or loss was not the result of negligence or
misconduct on the part of the person seeking indemnification,
except that if the person seeking indemnification is or was an
independent director, the liability or loss will not have been
the result of gross negligence or willful misconduct; and
- such indemnification or agreement to be held harmless is
recoverable only out of our net assets and not from the assets of
the stockholders.
As long as we qualify as a REIT, we will not indemnify any director,
officer, employee, agent or the advisor or its affiliates for losses,
liabilities or expenses arising from or out of an alleged violation of federal
or state securities laws unless one or more of the following conditions are met:
- there has been a successful adjudication on the merits of each
count involving alleged securities law violations;
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- the claims have been dismissed with prejudice on the merits by a
court of competent jurisdiction; or
- a court of competent jurisdiction approves a settlement of the
claims and finds that indemnification of the settlement and
related costs should be made, and the court considering the
request has been advised of the position of the Securities and
Exchange Commission and the published position of any state
securities regulatory authority in which our securities were
offered and sold as to indemnification for securities law
violations.
We will advance amounts to a person entitled to indemnification for
legal and other expenses and costs incurred as a result of any legal action for
which indemnification is being sought only in accordance with Maryland law and,
as long as we qualify as a REIT, only if all of the following conditions are
satisfied:
- the legal action relates to acts or omissions relating to the
performance of duties or services by the person seeking
indemnification for us or on our behalf;
- the legal action is initiated by a third party who is not a
stockholder or the legal action is initiated by a stockholder
acting in his or her capacity as such and a court of competent
jurisdiction specifically approves advancement; and
- the person seeking indemnification undertakes in writing to repay
us the advanced funds, together with interest at the applicable
legal rate of interest, if the person seeking indemnification is
found not to be entitled to indemnification.
We may purchase and maintain insurance or provide similar protection
on behalf of any director, officer, employee, agent or the advisor or its
affiliates against any liability asserted which was incurred in any such
capacity with us or arising out of such status; provided, however, that we will
not incur the costs of any liability insurance which insures any person against
liability for which he, she or it could not be indemnified under our articles of
incorporation. We may enter into any contract for indemnity and advancement of
expenses with any director, officer, employee or agent as may be determined by
the board and as permitted by law. As of the date of this prospectus, we have
not purchased any insurance on behalf of any person but we intend to.
We have entered into separate indemnification agreements with each of
our directors and some of our executive officers. The indemnification agreements
will require that we indemnify our directors and officers to the fullest extent
permitted by law, and advance to the directors and officers all related
expenses, subject to reimbursement if it is subsequently determined that
indemnification is not permitted. The agreements provide that we also must
indemnify and advance all expenses incurred by directors and officers seeking to
enforce their rights under the indemnification agreements and cover directors
and officers under the our directors' and officers' liability insurance, if any.
Although the indemnification agreements offer substantially the same scope of
coverage afforded by provisions in our articles of incorporation and the bylaws,
they provide greater assurance to directors and officers that indemnification
will be available, because as a contract, it cannot be unilaterally modified by
the board or by the stockholders to eliminate the rights it provides.
We have been advised that, in the opinion of the Securities and
Exchange Commission, any indemnification that applies to liabilities arising
under the Securities Act is contrary to public policy and, therefore,
unenforceable.
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PRINCIPAL STOCKHOLDERS
The following table sets forth information as of September 10, 2003
regarding the number and percentage of shares beneficially owned by each
director, each executive officer, all directors and executive officers as a
group, and any person known to us to be the beneficial owner of more than 5% of
our outstanding shares. As of September 10, 2003, we had one stockholder of
record. Beneficial ownership includes outstanding shares and shares which are
not outstanding that any person has the right to acquire within 60 days after
the date of this table. However any such shares which are not outstanding are
not deemed to be outstanding for the purpose of computing the percentage of
outstanding shares beneficially owned by any other person. Except as indicated,
the persons named in the table have sole voting and investing power with respect
to all shares beneficially owned by them.
NUMBER OF SHARES
BENEFICIAL OWNER BENEFICIALLY OWNED PERCENT OF CLASS
------------------------------------ ------------------ ----------------
Robert D. Parks 20,000 (1) 100%
Roberta S. Matlin 0 *
Scott W. Wilton 0 *
Kelly E. Tucek 0 *
Brenda G. Gujral 0 *
Frank A. Catalano, Jr. 1,000 (2) *
Kenneth H. Beard 1,000 (2) *
Paul R. Gauvreau 1,000 (2) *
Gerald M. Gorski 1,000 (2) *
Barbara A. Murphy 1,000 (2) *
All directors and executive officers 25,000 (1) 100%
as a group (10 persons)
----------
*Less than 1%
(1) Includes 20,000 shares owned by our advisor. Our advisor is a
wholly-owned subsidiary of our sponsor, which is an affiliate of The
Inland Group. Mr. Parks is a control person of The Inland Group and
disclaims beneficial ownership of these shares owned by our advisor.
(2) Includes 1,000 shares issuable upon exercise of options granted to
each independent director under our independent director stock option
plan, to the extent that such options are currently exercisable or
will become exercisable within 60 days after the date of this table.
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OUR STRUCTURE AND FORMATION
We were formed in March 2003 as a Maryland corporation. Our articles
of incorporation and bylaws became operative on March 5, 2003. Our existence is
perpetual.
STRUCTURE
We intend to own all of our assets, either directly or indirectly. Our
advisor contributed $200,000 to us for 20,000 shares of our common stock to form
us. Our advisor has agreed to not sell their initial investment while the
advisor remains our sponsor, but may transfer these shares to its own
affiliates. A REIT may conduct some of its business and hold some of its
interests in properties in "qualified REIT subsidiaries," which must be owned
100% by the REIT or through "taxable REIT subsidiaries" which may be wholly or
partially owned. Although we currently do not intend to have any qualified REIT
subsidiaries, we may in the future decide to conduct some business or hold some
of our interests in properties in qualified REIT subsidiaries.
See "How We Operate - Organizational Chart" for a diagram depicting
the services to be rendered by our affiliates to us, as well as our
organizational structure.
If only the minimum offering of 200,000 shares is sold, such shares
will represent 90.91% of the issued and outstanding shares, and the advisor's
20,000 shares will then represent 9.09% of the issued and outstanding shares. If
250,000,000 of the shares offered by this prospectus are sold, such shares will
represent 99.99% of the issued and outstanding shares, and the advisor's 20,000
shares will then represent only 0.01% of the issued and outstanding shares.
We will form entities to acquire each of the properties to be owned by
us. They will be owned or controlled directly or indirectly by us.
Robert D. Parks, Brenda G. Gujral, Roberta S. Matlin, Daniel L.
Goodwin, Catherine L. Lynch, and Kelly E. Tucek are considered our promoters.
Mr. Parks is our chairman and a director. Ms. Gujral is a director. Ms. Matlin
is our vice president. Ms. Tucek is our treasurer. None of our promoters are
employed by us. Other than Mr. Parks and Ms. Gujral, Ms. Matlin or Ms. Tucek,
none of our promoters are officers or directors of us.
[THE BALANCE OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
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SELECTED FINANCIAL DATA
As of the date of this prospectus, we have not yet had any operations.
Therefore, we have not had any income, cash flow, funds from operations, or
funds available for distributions, nor have we declared any distributions or
issued any shares to public investors. We have sold 20,000 shares to the advisor
for an aggregate purchase price of $200,000. See "Management's Discussion and
Analysis of Our Financial Condition," and our financial statements and related
notes thereto appearing elsewhere in this Prospectus.
[THE BALANCE OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
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INVESTMENT OBJECTIVES AND POLICIES
GENERAL
Our investment objectives are to:
- make regular distributions to the stockholders, which may be in
amounts which may exceed our taxable income due to the non-cash
nature of depreciation expense and, to such extent, will
constitute a tax-deferred return of capital, but in no event less
than 90% of our taxable income;
- provide a hedge against inflation by entering into leases which
contain clauses for scheduled rent escalations or participation
in the growth of tenant sales, permitting us to increase
distributions and realize capital appreciation; and
- preserve stockholders' capital.
It is our policy to acquire properties primarily for income as distinguished
from primarily for possible capital gain.
DISTRIBUTIONS
Federal income tax law requires that a REIT distribute annually at
least 90% of its REIT Taxable Income. See "Federal Income Tax Considerations --
Federal Income Taxation as a REIT." In order to qualify for REIT status we may
be required to make distributions in excess of cash available. For a discussion
of the tax treatment of distributions to you, see "Federal Income Tax
Considerations."
We anticipate that distributions will be paid to our domestic
stockholders on a monthly basis and to our foreign stockholders on a quarterly
basis. Distributions will be at the discretion of the board. Our ability to pay
distributions and the size of these distributions will depend upon a variety of
factors. We cannot assure that distributions will continue to be made or that
any particular level of distributions established in the future, if any, will be
maintained by us.
TYPES OF INVESTMENTS
We were formed to acquire and manage a portfolio of real estate which
is diversified by geographical location and by type and size of retail centers.
Our properties will consist of real estate primarily improved for use as retail
establishments, principally multi-tenant shopping centers. Our real estate will
be located mainly in the states west of the Mississippi River in the United
States. We will endeavor to acquire multiple properties within the same major
metropolitan markets where acquisitions result in efficient property operations
with the potential to achieve market leverage. See "Real Property Investments --
General."
Most of these properties will be subject to "net" leases. "Net" leases
typically require tenants to pay a share, either pro rata or fixed, of all or a
majority of the operating expenses. Operating expenses include real estate
taxes, special assessments, utilities, insurance, common area maintenance and
building repairs related to the property, as well as base rent payments.
We may also acquire real estate improved with other commercial
facilities which provide goods and services as well as those leased on a double
or triple-net-lease basis which are either commercial or
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retail. Triple-net-leases also require the tenant to pay a base minimum annual
rent with periodic increases. We may enter into sale and leaseback transactions
in which we will purchase a property and lease the property to the seller of the
property.
To provide us with a competitive advantage over potential purchasers
of properties who must secure financing, we intend to acquire properties free
and clear of permanent mortgage debt. We will do this by paying the entire
purchase price of property in cash, shares, interest in entities that own our
properties or a combination of any of these. We may incur debt of a property to
acquire properties where our board determines that incurring such debt is in our
best interest. In addition, from time to time, we intend to acquire some
properties without financing and later incur mortgage debt secured by selected
or all such properties if favorable financing terms are available. We will use
the proceeds from such loans to acquire additional properties. See "Borrowing"
under this section for a more detailed explanation of our borrowing intentions
and limitations.
We may purchase properties subject to completion of construction in
accordance with terms and conditions we specify. In these cases, we will be
obligated to purchase the property at the completion of construction, if
construction conforms to definitive plans, specifications and costs approved by
us and embodied in the construction contract, as well as, in most instances,
satisfaction that agreed upon percentages of the property are leased. We will
receive a certificate of an architect, engineer or other appropriate party,
stating that the property complies with all plans and specifications. We may
construct or develop properties, and render services in connection with the
development or construction, subject to compliance with applicable requirements
under federal income tax laws. Construction and development activities will
expose us to risks such as cost overruns, carrying costs of projects under
construction and development, availability and costs of materials and labor, our
inability to obtain tenants, weather conditions, and government regulation.
See "- Investment Limitations" under this section and "Summary of Our
Organizational Documents -- Restrictions on Investments" for investment
limitations.
PROPERTY ACQUISITION STANDARDS
We have signed a property acquisition service agreement with Inland
Real Estate Acquisitions, Inc. Under that agreement, Inland Real Estate
Acquisitions has agreed to seek properties for us and to perform due diligence
on the properties and negotiate the terms of the purchase. Through its
experience with the acquisition of over 1,000 real properties by our affiliates,
the advisor believes Inland Real Estate Acquisitions has the ability to identify
quality real properties capable of meeting our investment objectives. When
evaluating property, Inland Real Estate Acquisitions will consider a number of
factors, including a real property's:
- geographic location and type;
- construction quality and condition;
- current and projected cash flow;
- potential for capital appreciation;
- lease rent roll, including the potential for rent increases;
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- potential for economic growth in the tax and regulatory
environment of the community in which the property is
located;
- potential for expanding the physical layout of the property
and/or the number of sites;
- occupancy and demand by tenants for properties of a similar
type in the same geographic vicinity;
- prospects for liquidity through sale, financing or
refinancing of the property;
- competition from existing properties and the potential for
the construction of new properties in the area; and
- treatment under applicable federal, state and local tax and
other laws and regulations.
Inland Real Estate Acquisitions also requires the seller of a property
to provide a current Phase I environmental report and, if necessary, a Phase II
environmental report.
Before purchasing a property, Inland Real Estate Acquisitions examines
and evaluates the potential value of the site, the financial condition and
business history of the property, the demographics of the area in which the
property is located or to be located, the proposed purchase price, geographic
and market diversification and potential sales. In a sale-leaseback situation,
since the seller of the property generally is assuming the operating risk, the
price paid for the property by us may be greater than if it was not leased back
to the seller. All acquisitions from our affiliates must be approved by a
majority of our directors, including a majority of the independent directors.
DESCRIPTION OF LEASES
When spaces become vacant or existing leases expire, we anticipate
entering into "net" leases. Net leases require tenants to pay a share, either
pro rata or fixed, of all or a majority of the operating expenses, including
real estate taxes, special assessments, insurance, utilities, common area
maintenance and building repairs related to the properties, as well as base rent
payments. We intend to include provisions which increase the amount of base rent
payable at various points during the lease term and/or provide for the payment
of additional rent calculated as a percentage of a tenant's gross sales above
predetermined thresholds in most leases. The leases with most anchor tenants
generally have initial terms of 10 to 25 years, with one or more renewal options
available to the tenant. By contrast, smaller tenant leases typically have
three- to five-year terms.
Triple net leases generally have a term of 15 to 25 years and are
typically not less than 10 years. In addition, the tenant of a triple-net-lease
is responsible for the base rent in addition to the costs and expenses related
to property taxes, insurance, repairs and maintenance applicable to the leased
space.
Each net lease tenant is required to pay its share of the cost of the
liability insurance covering the property in which it is a tenant. The
third-party liability coverage insures, among others, us, our advisor and our
property manager. Typically, each tenant is required to obtain, at its own
expense, property insurance naming us as the insured party for fire and other
casualty losses in an amount equal to the full value of its premises and the
contents of the premises. All property insurance must be approved by the
property manager. In general, the net lease may be assigned or subleased with
our prior written consent,
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but the original tenant must remain liable under the lease unless the assignee
meets income and net worth tests.
In connection with sale and leaseback transactions, the tenant is
responsible for paying a predetermined minimum annual rent generally based upon
our cost of purchasing the land and building. In addition to the base rent,
these tenants are generally responsible for the costs and expenses related to
property taxes, insurance, repairs and maintenance applicable to the leased
space.
PROPERTY ACQUISITION
We anticipate acquiring fee interests in properties, although other
methods of acquiring a property may be used if we deem it to be advantageous.
For example, we may acquire properties through a joint venture or the
acquisition of substantially all of the interests of an entity which in turn
owns the real property. We may also use separate entities to acquire a property.
Such entities will be formed solely for the purpose of acquiring a property or
properties. See " -- Joint Ventures" in this section and "Federal Income Tax
Considerations -- Federal Income Taxation as a REIT."
Our advisor and its affiliates may purchase properties in their own
name, assume loans in connection with the purchase or loan and temporarily hold
title to the properties for the purpose of facilitating acquisition or financing
by us, the completion of construction of the property or any other purpose
related to our business.
Under our articles of incorporation, we are prohibited from purchasing
a property from an affiliate unless a majority of the directors not interested
in the transaction and a majority of our independent directors approve the
purchase as fair and reasonable to us and at a cost to us no greater than the
cost of the asset to our affiliate. However, the cost to us may be greater than
the cost to our affiliate if a substantial justification for the excess exists
and such excess is reasonable. Our policy currently provides that in no event
may our cost of the asset exceed its appraised value at the time we acquire the
property.
If remodeling is required prior to the purchase of a property, we will
pay a negotiated maximum amount either upon completion or in installments
commencing prior to completion. The price will be based on the estimated cost of
remodeling. In such instances, we will also have the right to review the
tenant's books during and following completion of the remodeling to verify
actual costs. If substantial disparity exists between estimated and actual
costs, an adjustment in the purchase price may be negotiated. If remodeling is
required after the purchase of a property, an affiliate of our advisor may serve
as construction manager for a fee no greater than 90% of the fee a third party
would charge for such services.
BORROWING
We intend to acquire properties free and clear of permanent mortgage
indebtedness by paying the entire purchase price in cash or for shares, limited
partnership units in the operating partnership, interest in our subsidiaries
that own our properties, or a combination of any of these. However, we may incur
indebtedness to acquire properties where our board determines that it is in our
best interest. On properties purchased without financing, we may later incur
mortgage debt by obtaining loans secured by selected properties, if favorable
financing terms are available. We will use the proceeds from such loans to
acquire additional properties. We may also incur debt to finance improvements to
our properties. Aggregate borrowings secured by all of our properties will not
exceed 55% of their combined fair market value. Our articles of incorporation
provide that the aggregate amount of borrowing in relation to the net
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assets, in the absence of a satisfactory showing that a higher level is
appropriate, not exceed 300% of net assets. Net assets means our total assets,
other than intangibles at cost before deducting depreciation or other non-cash
reserves less our total liabilities, calculated at least quarterly on a basis
consistently applied. Any excess in borrowing over such 300% of net assets level
must be approved by a majority of our independent directors, disclosed to our
stockholders in our next quarterly report to stockholders, along with
justification for such excess.
We may incur debt secured by our properties, but most likely on a
non-recourse basis, some of which may be subject to certain carve outs. This
means that a lender's rights on default will generally be limited to foreclosing
on the property. We may secure recourse financing or provide a guarantee to
lenders if we believe this may result in more favorable terms. When we give a
guaranty for a property, we will be responsible to the lender for the
satisfaction of the indebtedness if it is not paid by the property. We do not
borrow funds from a program sponsored by our advisor or its affiliates which
makes or invests in mortgage loans. We seek to obtain financing which will
result in the most favorable overall economic benefit while balancing various
risk factors associated with the debt. At certain times the majority of debt may
require level payments and at others the majority may be based on variable
rates. We have determined that it may be in our best interest to make use of
mortgages the majority of which provide for a balloon payment. There are no
prescribed limits on the number or amount of mortgages which may be placed on
any one property. Any mortgages secured by a property will comply with the
restrictions set forth by the Commissioner of Corporations of the State of
California.
SALE OR DISPOSITION OF PROPERTIES
Our board will determine whether a particular property should be sold
or otherwise disposed of after considering the relevant factors, including
performance or projected performance of the property and market conditions, with
a view toward achieving our principal investment objectives.
We intend to hold our properties for a minimum of four years prior to
selling them. See "Federal Income Tax Considerations -- Federal Income Taxation
as a REIT." We also intend to reinvest the proceeds from the sale, financing,
refinancing or other disposition of our properties into additional properties.
Alternatively, we may use these proceeds to fund maintenance or repair of
existing properties or to increase reserves for such purposes. The objective of
reinvesting the sale, financing and refinancing proceeds in new properties is to
increase our real estate assets, and our net income, which our board believes
will enhance our chances of having our shares traded in a public trading market.
Notwithstanding this policy, the board, in its discretion, may distribute all or
part of the proceeds from the sale, financing, refinancing or other disposition
of all or any of our properties to our stockholders. In determining whether to
distribute these proceeds to stockholders, the board will consider, among other
factors, the desirability of properties available for purchase, real estate
market conditions, the likelihood of the listing of our shares on a national
stock exchange or including the shares for quotation on a national market system
and compliance with the applicable requirements under federal income tax law
under federal income tax laws. Because we may reinvest the proceeds from the
sale, financing or refinancing of our properties, we could hold stockholders'
capital indefinitely. However, upon the affirmative vote of a majority of the
shares of common stock, we will be forced to liquidate our assets and dissolve.
When we sell a property, we intend to obtain an all-cash sale price.
However, we may take a purchase money obligation secured by a mortgage on the
property as partial payment, and there are no limitations or restrictions on our
ability to take such purchase money obligations. The terms of payment to us will
be affected by custom in the area in which the property being sold is located
and the then prevailing economic conditions. If we receive notes and other
property instead of cash from sales, these proceeds, other than any interest
payable on these proceeds, will not be available for distributions until
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and to the extent the notes or other property are actually paid, sold,
refinanced or otherwise disposed. Therefore, the distribution of the proceeds of
a sale to the stockholders may be delayed until that time. In these cases, we
will receive payments in cash and other property in the year of sale in an
amount less than the selling price and subsequent payments will be spread over a
number of years. See "Federal Income Tax Considerations."
CHANGE IN INVESTMENT OBJECTIVES AND POLICIES
Our stockholders have no voting rights to implement our investment
objectives and policies. Our board has the responsibility for our investment
objectives and policies. Our board may not, however, make any material changes
regarding the restrictions on investment policies set forth in our articles of
incorporation without amending the articles of incorporation. Any amendment to
our articles of incorporation requires the affirmative vote of a majority of our
then outstanding voting shares of common stock. See "Summary of Our
Organizational Documents -- Restrictions on Investments."
INVESTMENT LIMITATIONS
We will not:
- invest more than 10% of our total assets in unimproved real
property (and will only invest in unimproved real property
intended to be developed) or in mortgage loans on unimproved
real property;
- invest in commodities or commodity future contracts;
- issue redeemable shares of common stock;
- issue shares on a deferred payment basis or other similar
arrangement; and
- operate in such a manner as to be classified as an
"investment company" for purposes of the Investment Company
Act. See "Summary of Our Organizational Documents --
Restrictions on Investments" for additional investment
limitations.
We do not intend to engage in hedging or similar activities for
speculative purposes.
We have no current plans to invest any proceeds from this offering, or
other funds, in the securities of other issuers for the purpose of exercising
control over such other issuers.
OTHER INVESTMENTS
Consistent with our investment limitations, we may from time to time
invest amounts of money in the securities of other companies that may or may not
be REITs or companies related to real estate to seek superior returns on these
investments. In addition, we may make loans to third parties from time to time
in connection with retail centers we intend to purchase or on a short-term basis
to real estate ventures.
APPRAISALS
All real property acquisitions to be made by us will be supported by
an appraisal prepared by a competent, independent appraiser who is a
member-in-good standing of the Appraisal Institute prior to
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the purchase of the property. Our policy currently provides that the purchase
price of each property will not exceed its appraised value at the time of our
acquisition of the property. Appraisals are, however, estimates of value and
should not be relied on as measures of true worth or realizable value. We will
maintain the appraisal in our records for at least five years, and copies of
each appraisal will be available for review by stockholders upon their request.
RETURN OF UNINVESTED PROCEEDS
If at least 200,000 shares are not sold within six months from the
original effective date of this prospectus, all funds received from subscribers
will be promptly returned to them, together with any interest earned on the
funds. We would expect to return funds to subscribers within five business days
after the offering is terminated if at least 200,000 shares are not sold within
six months from the original effective date of this prospectus. Any of the
proceeds of this offering allocable to investments in real property which have
not been invested in real property or committed for investment within the later
of 24 months from the original effective date of this prospectus or 12 months
from the termination of the offering, will be distributed to the stockholders.
All funds we receive out of the escrow account will be available for our general
use from the time we receive them until expiration of the period discussed in
the prior sentence. We may use these funds to:
- fund expenses incurred to operate the properties which have
been acquired,
- reimburse the advisor for our expenses, to the extent
allowable under the advisory agreement,
- pay the advisor its compensation under the advisory
agreement; and
- pay the property manager its property management fee under
the management agreement
See "Estimated Use of Proceeds" and "Plan of Distribution -- Escrow
Conditions." We will not segregate funds separate from our other funds pending
investment, and interest will be payable to the stockholders if uninvested funds
are returned to them.
ADDITIONAL OFFERINGS AND EXCHANGE LISTING
We anticipate that by September 15, 2008, our board will determine
when, and if, to apply to have our shares of common stock listed for trading on
a national stock exchange or included for quotation on a national market system,
if we meet the then applicable listing requirements; and/or whether to commence
subsequent offerings after completion of this offering. We believe that an
exchange listing or inclusion of our shares in a national market system may
allow us to increase our size, portfolio diversity, stockholder liquidity,
access to capital and stability, and decrease our operating costs through
economies of scale. However, we cannot assure that such listing or inclusion
will ever occur. If it is not feasible to list shares or include them in a
national market system by September 15, 2008, our board may decide to sell our
assets individually, list our shares at a future date; or liquidate us within
ten years of such date. The sale of all or substantially all of our assets as
well as our liquidation would also require the affirmative vote of a majority of
the then-outstanding voting shares of stock.
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JOINT VENTURES
We may invest in joint venture arrangements with other public real
estate programs formed by our advisor or any of its affiliates if a majority of
our directors not otherwise interested in the transaction and a majority of our
independent directors approve the transaction as being fair and reasonable. In
addition, the investment by each joint venture partner must be substantially on
the same terms and conditions as those received by other joint venturers.
We may also invest in general partnerships or joint venture
arrangements with our affiliates as co-owners of a property. The general
partnership or joint venture agreement for these investments will provide that
we will be able to increase our equity participation in such entity as we
receive additional proceeds of the offering. As a result, we will ultimately own
a 100% equity ownership of the property and the affiliated general or joint
venture partner will not be entitled to any profit or other benefit on the sale
of its equity participation to us. Once we own, directly or indirectly, 100% of
the ownership interests in the general partnership or joint venture entity, we
will determine whether the continued existence of that entity is necessary. For
example, we may determine to continue the existence of the entity to minimize
expenses or to meet lender requirements.
In addition, we may enter into joint venture or partnership
arrangements with unaffiliated third parties. Therefore, we may enter into
acquisitions with sellers who are desirous of transactions in tax advantaged
structures such as arrangements typically referred to as "Down REITs." A Down
REIT is an organizational structure in which, in addition to owning indirect
interests in real estate properties through the ownership of an interest in a
lower-tier operating partnership (as in an UPREIT), a REIT also owns real estate
properties directly at the REIT level. In a Down REIT structure, because the
REIT owns real estate properties directly, the value of the REIT shares do not
bear a direct relationship with the value of an interest in the lower-tier Down
REIT operating partnership. You should consider the potential risk that our
non-affiliated joint venture partner may be unable to agree with us on a matter
material to the joint venture. See "Risk Factors -- Risks Related to the
Offering."
We are unable to estimate the proportion of our assets that may be
invested in joint venture interests.
CONSTRUCTION AND DEVELOPMENT ACTIVITIES
From time to time, we may attempt to enhance investment opportunities
by undertaking construction and development activities and rendering services in
connection with them. Our advisor has advised us that, in its view, we may be
able to reduce overall purchase costs if we were to undertake construction and
development rather than merely being limited to purchasing properties subject to
completion of construction by a third party. The construction and development
activities would expose us to such risks as cost overruns, carrying costs of
projects under construction or development, availability and costs of materials
and labor, weather conditions, government regulation and our inability to obtain
tenants. We nevertheless have concluded that our investment prospects would be
enhanced by permitting us to engage in construction and development activities
so long as such activities did not cause us to lose our status as a REIT. To
comply with the applicable requirements under federal income tax law under
federal income tax law, and until the Internal Revenue Service changes its
pronouncements with regard to these requirements, we intends to limit our
construction and development activities to the performance of oversight and
review functions, including reviewing the construction and tenant improvement
design proposals, negotiating and contracting for feasibility studies and
supervising compliance with local, state or federal laws and regulations,
negotiating contracts, oversight of construction, accounts, and obtaining
financing. In addition to using independent contractors to provide services in
connection with the
95
operation of our properties, we may also use "taxable REIT subsidiaries" to
carry out these functions. See "Federal Future Tax Considerations - Federal
Income Taxation as a REIT" for a discussion of a "taxable REIT subsidiary." We
will retain independent contractors to perform the actual physical construction
work on tenant improvements, the installation of heating, ventilation and air
conditioning systems. See "Real Property Investments - General" for a detailed
description of the types of properties we may invest in.
OTHER POLICIES
Before we purchase a particular property, we may obtain an option to
purchase the property. The amount paid for the option, if any, usually would be
surrendered if the property was not purchased and normally would be credited
against the purchase price if the property was purchased. See "Real Property
Investments - General" for a detailed description of the types of properties we
may invest in.
We hold all funds, pending investment in properties, in assets which
will allow us to continue to qualify as a REIT. These investments are highly
liquid and provide for appropriate safety of principal and may include, but are
not limited to, investments such as bonds issued by the Government National
Mortgage Association, or GNMA, and real estate mortgage investment conduits also
known as REMICs. See "Federal Income Tax Considerations - Federal Income
Taxation as a REIT."
We will not make distributions-in-kind, except for:
- distributions of readily marketable securities;
- distributions of beneficial interests in a liquidating trust
established for our dissolution and the liquidation of our assets
in accordance with the terms of our articles of incorporation; or
- distributions of in-kind property which meet all of the following
conditions:
- our board of directors advises each stockholder of the risks
associated with direct ownership of the in-kind property;
- our board of directors offers each stockholder the election
of receiving in-kind property distributions; and
- the directors distribute in-kind property only to those
stockholders who accept our offer.
Although our articles of incorporation and bylaws do not prohibit the
following, we have no current plans to:
- underwrite the securities of other issuers;
- invest in real estate mortgages; or
- invest the proceeds of the offering, other than on a temporary
basis, in non-real estate related investments.
96
We may change our current plans, without stockholder approval, if our board of
directors determines that it would be in the best interests of our stockholder
to engage in any such transaction.
Although we are authorized to issue senior securities, we have no
current plans to do so. See "Description of Securities - Preferred Stock," "-
Issuance of Additional Securities and Debt Instruments" and "- Restrictions on
Issuance of Securities."
[THE BALANCE OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
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REAL PROPERTY INVESTMENTS
INVESTING IN REITS
A real estate investment trust or REIT is a company that owns and, in most
cases, operates income-producing properties. To qualify as a REIT, generally a
company must annually distribute at least 90% of its taxable income to
stockholders.
According to the National Association of Real Estate Investment Trusts
(NAREIT), dividend growth for publicly traded REITs has consistently outpaced
inflation. Stock price appreciation for publicly-traded REITs has historically
tracked the rate of increase in the Consumer Price Index, according to NAREIT.
This information is based on REITs that are listed and traded on a national
exchange and would not be representative of an investment in a REIT that is not
publicly traded such as us, and there is no assurance that an investment in a
non-publicly traded REIT will produce comparable results.
An analysis of historical data on publicly-traded REITs by Ibbotson
Associates, a leading financial research firm, concluded that REITs have a low
correlation with other stocks and bonds and represent a potentially powerful
diversification tool. Ibbotson noted, "The asset allocation decision is the most
important determinant of portfolio performance, outweighing the benefits of
market timing and security selection." In particular, Ibbotson found that REITs
may boost return and reduce risk when added to a diversified portfolio. Ibbotson
also found that REITs outperformed most other major market benchmarks over the
1972-2002 period with much less volatility. There can be no assurance that
future performance will mirror past performance and that these results would be
comparable to non-traded REITs, like us.
GENERAL
Our advisor is experienced in acquiring and managing real estate,
particularly retail focused shopping centers. We intend to acquire and manage a
diversified (by geographical location and by type and size of retail centers)
portfolio of real estate primarily improved for use as retail establishments,
principally multi-tenant shopping centers. Our portfolio will consist
predominantly of grocery and discount store anchored retail, including net lease
retail. We may acquire certain mixed use properties that may include lodging,
office and/or multi-family residential if they are part of a retail center. And,
we may also acquire other types of retail shopping centers, such as enclosed
malls, outlet malls and power centers. We also anticipate acquiring real estate
improved with other commercial facilities which provide goods and services as
well as double or triple net leased properties, which are either commercial or
retail, including properties acquired in sale and leaseback transactions. A
triple-net leased property is one which is leased to a tenant who is responsible
for the base rent and all costs and expenses associated with their occupancy,
including property taxes, insurance, repairs and maintenance.
The retail centers we intend to acquire would be located primarily in
states west of the Mississippi River in the United States. Where feasible, we
will endeavor to acquire multiple properties within the same major metropolitan
markets where the acquisitions result in efficient property management
operations with the potential to achieve market dominance.
We do not intend to invest in real estate properties that are primarily:
- farms;
- health care facilities;
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- industrial properties;
- leisure home sites;
- manufacturing facilities;
- mining properties;
- ranches;
- single-family residential properties;
- timberlands; or
- unimproved properties not intended to be developed (vacant land).
Subject to compliance with the applicable requirement under the federal
income tax laws, we may also undertake construction and development activities
and render services in connection with such activities.
See "Investment Objectives and Policies" generally pertaining to our
policies relating to the maintenance, operation and disposition of our
properties.
We intend to initially focus on acquisition activity in major metropolitan
areas in the western United States. The western United States, which consists of
the southwest, rocky mountain and far west states, is projected to experience
the most growth of any region of the country over the next 25 years. Population
is expected to increase by 33.5 million between 2000 and 2025. Most of the
states in the region will experience population growth rates ahead of the
national average. In addition, the western region is forecast to lead the nation
in the rate of employment growth. The western states will generate 22.8 million
new jobs between 1999 and 2025 and account for 38% of total United States job
growth.
California is projected to show the largest gains in population and
employment; however, the region's growth is expected to become more dispersed as
other western states experience higher rates of growth. Texas is expected to
retain its position as the second largest state, with a population likely to
exceed 29.8 million by 2025. Nevada is likely to experience the fastest rate of
growth (2.4% annually between 2000 and 2025), followed by Arizona, Utah, Idaho,
Colorado, Texas, New Mexico, Oregon and Washington.
Employment growth is expected to follow a similar pattern. Nevada, Arizona
and Utah are projected to lead the nation by generating the fastest rate of
annual employment growth. Several western cities are expected to rank among the
nation's ten fastest growing metropolitan markets. These areas include Laredo
and Austin-San Marcos in Texas, Las Vegas in Nevada, Provo-Orem in Utah and
Phoenix-Mesa in Arizona.
The Western region benefits from the diversity of its economy, which has
enabled many western states to maintain employment and income growth even when
some sectors experience reduced demand. Agriculture, natural resources,
manufacturing, trade and services are all represented in the region's economy.
In addition many of the goods and services produced in the west have
international markets. Much of the total United States output of agricultural
products, oil and natural gas, lumber and wood products and electronic equipment
is produced in the West.
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INSURANCE COVERAGE ON PROPERTIES
We carry comprehensive general liability coverage and umbrella liability
coverage on all of our properties with limits of liability which we deem
adequate to insure against liability claims and provide for the costs of
defense. Similarly, we are insured against the risk of direct physical damage in
amounts we estimate to be adequate to reimburse us on a replacement cost basis
for costs incurred to repair or rebuild each property, including loss of rental
income during the reconstruction period. In addition, we intend to insure our
properties against loss caused by earthquake and flood if deemed necessary and
economically justified. The form of management agreement for each property
specifically provides for us to procure and carry public liability, fire and
extended coverage, burglary and theft, rental interruption, flood, if
appropriate, and boiler, if appropriate, insurance. The cost of such insurance
is passed through to tenants whenever possible. Insurance risks associated with
potential terrorism acts could sharply increase the premiums we pay for coverage
against property and casualty claims. Additional, mortgage lenders in some cases
have begun to insist that specific coverage against terrorism be purchased by
commercial property owners as a condition for providing mortgage loans. It is
uncertain whether such insurance policies will be available, or available at
reasonable cost, which could inhibit our ability to finance or refinance our
properties. In such instances, we may be required to provide other financial
support, either through financial assurances or self-insurance, to cover
potential losses. We cannot assure you that we will have adequate coverage for
such losses. Legislation has been enacted to provide federal insurance for
property losses due to terrorism. We cannot be certain what impact this
legislation will have on us or what additional costs to us, if any, could
result.
PROPERTIES
An affiliate, Inland Real Estate Acquisitions, Inc., has entered into an
agreement to acquire a community shopping center in Phoenix, Arizona. This
Safeway-anchored grocery shopping center has approximately 180,000 square feet.
We intend to primarily invest in retail properties ranging from 100,000 to
300,000 square feet in size, we may also purchase larger shopping centers, and
properties in larger centers. We may also purchase these larger shopping
centers, and properties in larger centers, in the future if such purchases are
approved by our board of directors, including a majority of the independent
directors.
We expect that our neighborhood and community shopping centers will be
"anchored" or "shadow-anchored" by a national or regional discount department
store, supermarket or drugstore. A "shadow-anchor" is an anchor tenant that has
leased space in that portion of the center not owned or controlled by us.
In evaluating each of our properties as a potential acquisition and
determining the appropriate amount of consideration to be paid for the property,
we consider a variety of factors including overall valuation of net rental
income, location, demographics, tenant mix, quality of tenants, length of
leases, price per square foot, occupancy and that overall rental rates at each
property are comparable to market rates. We anticipate that each property will
be located within a vibrant economic area. We believe that each of the
properties will be well-located, will have acceptable roadway access, will
attract high quality tenants, will be well-maintained and will have been
professionally managed. Nonetheless, each property will be subject to
competition from similar shopping centers within its market area, and its
economic performance could be affected by changes in local economic conditions.
We generally do not consider any other factors materially relevant to the
decision to acquire each of the properties.
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When we calculate depreciation expense for tax purposes, we use the
straight-line method. We depreciate buildings and improvements based upon
estimated useful lives of 40 and 20 years, respectively.
A substantial portion of our income will consist of rent received under
long-term leases. In general, each tenant pays its proportionate share of real
estate taxes, insurance and common area maintenance costs, although the leases
with some tenants provide that the tenant's liability for such expenses is
limited in some way, usually so that their liability for such expenses does not
exceed a specified amount.
A lease termination by an anchor tenant could result in lease terminations
or reductions in rent by other tenants whose leases permit cancellation or rent
reduction if another tenant's lease is terminated. We may own centers where the
tenants may have rights to terminate their leases if certain other tenants are
no longer open for business. These "co-tenancy" provisions may also exist in
some leases where we own a portion of a shopping center and one or more of the
anchor tenants leases space in that portion of the center not owned or
controlled by us. If such tenants were to vacate their space, tenants with
co-tenancy provisions would have the right to terminate their leases with us, or
seek a rent reduction from us.
Some of our leases may also contain provisions requiring the payment of
additional rent calculated as a percentage of tenants' gross sales above
predetermined thresholds.
We seek to reduce our operating and leasing risks through geographic and
tenant diversity.
We will receive an appraisal for each of our properties which states that
it was prepared in conformity with the Code of Professional Ethics Standards of
Professional Appraisal Practice of the Appraisal Institute and the Uniform
Standards of Professional Appraisal Practice of the Appraisal Foundation by an
independent appraiser who is a member of the Appraisal Institute. Appraisals are
estimates of value and should not be relied on as a measure of truth worth or
realizable value.
In cases where we have purchased properties from our affiliates, our
directors, including the independent directors, must approve the acquisitions of
the properties from our affiliates as being fair and reasonable.
POTENTIAL PROPERTY ACQUISITIONS
We are currently considering acquiring the one property in Phoenix,
Arizona. Our decision to acquire this property will generally depend upon:
- no material adverse change occurring in the property, the tenants or
the local economic conditions;
- our receipt of sufficient net proceeds from this offering to make this
acquisition or sufficient availability of credit; and
- our receipt of satisfactory due diligence information including
appraisals, environmental reports and lease information.
Other properties may be identified in the future that we may acquire before
or instead of this property. We cannot guarantee that we will complete this
acquisition.
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POTENTIAL PROPERTY: PEORIA STATION, PEORIA, ARIZONA
We anticipate purchasing an existing shopping center known as Peoria
Station, which will contain 181,500 gross leasable square feet upon completion
of the current redevelopment. The center currently contains 140,019 gross
leasable square feet. The center is located at 10160 North 67th Avenue in
Peoria, Arizona.
Inland Real Estate Acquisitions, Inc., an affiliate of our advisor, has
entered into a contract to acquire this property. We anticipate that Inland Real
Estate Acquisitions will assign this purchase contract to us at no cost. We
would then anticipate purchasing Peoria Station from PDG America, an
unaffiliated third party. Our total acquisition cost, including expenses, is
expected to be approximately $25,867,000. This amount may be adjusted based on
actual rental rates achieved on the redeveloped square feet. This amount may
also increase by additional costs, which have not yet been finally determined.
We expect any additional costs to be insignificant. Our acquisition cost is
expected to be approximately $143 per square foot of leasable space.
We may place financing on the property at the time of acquisition.
In evaluating this property as a potential acquisition and determining the
appropriate amount of consideration to be paid for the property, we considered a
variety of factors including overall valuation of net rental income, location,
demographics, tenant mix, quality of tenants, length of leases, price per square
foot, occupancy and the fact that overall rental rates at the shopping center
are comparable to market rates. We believe that this property is well located,
has acceptable roadway access, attracts high-quality tenants, is well maintained
and has been professionally managed. This property will be subject to
competition from similar shopping centers within its market area, and its
economic performance could be affected by changes in local economic conditions.
We did not consider any other factors materially relevant to the decision to
acquire this property.
We do not intend to make significant repairs and improvements to this
property over the next few years. However, if we were to make any repairs or
improvements, the tenants would be obligated to pay a substantial portion of any
monies spent pursuant to the provisions of their respective leases.
Peoria Station was built in 1987 and redeveloped in 2002/2003. As of June
30, 2003, this property was 98% leased. We anticipate that all existing leases
will be assigned to us.
For federal income tax purposes, the depreciable basis in this property
will be approximately $19,400,000. When we calculate depreciation expense for
tax purposes, we will use the straight-line method. We depreciate buildings and
improvements based upon estimated useful lives of 40 and 20 years, respectively.
Two tenants, Safeway and LA Fitness, each lease more than 10% of the total
gross leasable area of the property. The leases with these tenants require the
tenants to pay base annual rent on a monthly basis as follows:
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Base Rent
Approximate Per Square
GLA Leased % of Total Foot Per Lease Term
Lessee (Sq. Ft.) GLA Annum ($) Beginning To
---------------------------------------------------------------------------------
Safeway 55,471 31% 5.60 04/01/95 12/31/97
6.92 01/01/98 12/31/17
LA Fitness 40,916 23% 6.60 05/01/02 01/31/03
13.20 02/01/03 01/31/07
* 02/01/07 01/31/12
* 02/01/12 01/31/17
* Rent increases by CPI
As of June 30, 2003, a total 137,319 square feet was leased to 17 tenants
at this property. The following table sets forth certain information with
respect to those leases:
Approximate Base Rent Per
GLA Leased Current Annual Square Foot
Lessee (Sq. Ft.) Lease Ends Rent ($) Per Annum ($)
---------------------------------------------------------------------------
Blackbelt Academy 1,800 08/03 23,886 13.27
Barro's Pizza 2,400 08/03 36,000 15.00
Ombundsman
Education 1,763 11/03 28,208 16.00
Melly's Hallmark 3,000 01/04 40,500 13.50
Smartcare Medical
Center 1,200 10/04 30,724 25.60
Other Mothers 4,197 12/04 65,054 15.50
Circus Cleaners 900 01/05 14,362 15.96
Cents Store 5,300 04/05 57,400 10.83
H & R Block 1,800 04/05 33,048 18.36
Great Clips 1,200 06/05 21,900 18.25
Peter Piper Pizza 11,067 12/05 138,337 12.50
#1 Nails 900 01/06 14,812 16.46
Tan Banana 1,800 09/06 30,600 17.00
China Palace 1,885 08/07 41,885 22.22
Dunkin Donuts 1,720 04/09 51,416 29.89
LA Fitness 40,916 01/17 540,091 13.20
Safeway 55,471 12/17 383,859 6.92
In general, each tenant pays its proportionate share of real estate taxes,
insurance and common area maintenance costs, although the leases with some
tenants provide that the tenant's liability for such expenses is limited in some
way, usually so that their liability for such expenses does not exceed a
specified amount.
We will obtain an appraisal on this property prior to acquisition. As with
any other property we acquire, our property manager will receive a property
management fee for managing this property and our advisor will receive an
advisor asset management fee.
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CAPITALIZATION
The following table sets forth our historical capitalization as of June 30,
2003 and our pro forma capitalization as of that date as adjusted to give effect
to the sale of 200,000 shares of common stock and the application of the
estimated net proceeds therefrom as described in "Estimated Use of Proceeds." We
were originally capitalized in March 2003 through the cash contribution of
$200,000 by the advisor, for which the advisor received 20,000 shares of common
stock. Additionally, the table does not include shares of common stock issuable
upon the exercise of options which may be, but have not been, granted under our
independent director stock option plan. The information set forth in the
following table should be read in conjunction with our historical financial
statements included elsewhere in this prospectus and the discussion set forth in
"Management's Discussion and Analysis of Our Financial Condition--Liquidity and
Capital Resources."
June 30, 2003
Historical Pro Forma
------------ ------------
DEBT:
Mortgage notes payable................................................... $ 0 $ 0
STOCKHOLDERS' EQUITY:
Preferred stock, $.001 par value, 10,000,000 authorized, none
outstanding.............................................................. 0 0
Common stock, $.001 par value, 350,000,000 authorized, 20,000
shares issued and outstanding historical; 220,000 shares
issued and outstanding pro forma ...................................... 20 220
Additional paid-in capital............................................... 202,230 1,902,030
Retained earnings deficit................................................ (9,750) (9,750)
------------ ------------
Total stockholders' equity............................................. 192,500 1,892,500
------------ ------------
Total capitalization................................................... $ 192,500 $ 1,892,500
============ ============
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF OUR
FINANCIAL CONDITION
Certain statements contained in this "Management's Discussion and Analysis
of Our Financial Condition" and elsewhere in this prospectus constitute
"forward-looking statements" within the meaning of the Federal Private
Securities Litigation Reform Act of 1995. See "Cautionary Note Regarding
Forward-Looking Statements." You should read the following discussion along with
our financial statements and the related notes included in this prospectus.
LIQUIDITY AND CAPITAL RESOURCES
We were formed in March 2003 to acquire and manage a diversified portfolio
of real estate, primarily located in states west of the Mississippi River. We
may also acquire single-user retail properties in locations throughout the
United States, certain of which may be sale and leaseback transactions, net
leased to creditworthy tenants. The advisor has guaranteed payment of all public
offering expenses (excluding selling commissions and other fees payable to the
managing dealer) in excess of 5.5% of the gross offering proceeds or all
organization and offering expenses (including such selling expenses) which
together exceeds 15% of the gross offering proceeds.
We will provide the following programs to facilitate investment in the
shares and to provide limited liquidity for stockholders until such time as a
market for the shares develops:
The distribution reinvestment program will allow stockholders who purchase
shares pursuant to this offering to automatically reinvest distributions by
purchasing additional shares from us. Such purchases will not be subject to
selling commissions or the marketing contribution and due diligence expense
allowance and will be sold at a price of $9.50 per share.
The share repurchase program will provide existing stockholders with
limited, interim liquidity by enabling them to sell shares back to us. The
prices at which shares may be sold back to us are as follows:
- One year from the purchase date, at $9.25 per share;
- Two years from the purchase date, at $9.50 per share;
- Three years from the purchase date, at $9.75 per share; and
- Four years from the purchase date, at the greater of: $10.00 per
share; or a price equal to ten times our "funds available for
distribution" per weighted average share outstanding for per prior
calendar year.
Shares purchased by us will not be available for resale. During any offering,
the repurchase price shall be equal to or below the price of the shares offered
in any offering.
The net proceeds of the offering will enable us to purchase properties. It
is our policy to acquire properties free and clear of permanent mortgage
indebtedness if we deem it advantageous by paying the entire purchase price of
each property in cash or for shares, interest in entities that own our
properties, or a combination of these means, and to selectively encumber all or
some properties. We may, however, acquire properties subject to existing
indebtedness. Following acquisition, the proceeds from such loans will be used
to acquire additional properties to increase cash flow and provide further
diversity. If the
105
offering is not fully sold, our ability to diversify our investments may be
diminished. Our advisor expects that the cash to be generated from operations of
the properties identified for acquisition, which we intend to acquire if
sufficient proceeds are raised in the offering, will be adequate to pay our
operating expenses and provide distributions to stockholders.
Our management will monitor the various qualification tests we must meet to
maintain our status as a REIT. We test large ownership of the shares upon
purchase to determine that no more than 50% in value of the outstanding shares
is owned, directly or indirectly, by five or fewer persons or entities at any
time. Our management also determines, on a quarterly basis, that the gross
income, asset and distribution tests described in the section entitled "Federal
Income Tax Considerations -- Federal Income Taxation as a REIT" are met. On an
ongoing basis, as we and the advisor perform due diligence on potential
purchases of properties or temporary investment of uninvested capital,
management of both entities will determine that the income from the new asset
will qualify for REIT purposes.
CAPITAL RESOURCES
As of the date of this prospectus, we have identified one property in which
to invest. If the minimum 200,000 shares are sold, we would not have sufficient
resources to acquire the property identified.
We have rights to purchase an investment property currently being
redeveloped, known as Peoria Station, from an unaffiliated third party for
approximately $25,867,000. This amount may be adjusted based on actual rental
rates achieved on the redeveloped square feet. We expect to purchase this
property by November 1, 2003, however, the seller may extend the closing date if
minimum rental rates stated in the contract have not yet been achieved.
The number of properties we will acquire will depend upon the amount of the
net proceeds of the offering. The advisor is not aware of any material trends,
favorable or unfavorable, in either capital resources or the outlook for
long-term cash generation, nor does it expect any material changes in the
availability and relative cost of such capital resources, other than as referred
to herein.
The advisor has guaranteed payment of all organization and offering
expenses, including selling commissions and the other fees payable to the
managing dealer, in excess of 15% of the gross offering proceeds of the offering
and all organization and offering expenses, excluding such selling expenses, in
excess of 5.5% of the gross offering proceeds. In addition, if we do not sell
the minimum offering, neither our sponsor nor our advisor will be reimbursed for
any organization and offering expenses.
As of June 30, 2003, we had incurred $691,911 of offering and organization
costs, all of which was advanced by our advisor.
Certain compensation and fees payable to our advisor for services to be
provided to us are limited to maximum amounts. Set forth below is a table
describing compensation and fees payable by us to our advisor.
106
Nonsubordinated payments:
Offering stage:
Selling commissions 7.5% of the sale price for each share
Marketing contribution and due 3.0% of the gross offering proceeds
diligence allowance
Reimbursable expenses and other We will reimburse our sponsor for
expenses of issuance actual costs incurred, on our behalf, in
connection with the offering
Acquisition stage:
Acquisition expenses We will reimburse an affiliate of
our advisor for costs incurred, on
our behalf, in connection with the
acquisition of properties
Operational stage
Property management fee. THIS FEE 4.5% of the gross income from the
TERMINATES UPON A BUSINESS properties. (Cannot exceed 90% of
COMBINATION WITH OUR PROPERTY the fee which would be payable to
MANAGER an unrelated third party)
Loan servicing fee .08% of the total principal amount
of the loans being serviced for
each full year, up to the first
$100 million and a lesser
percentage on a sliding scale
thereafter
Reimbursable expenses relating to The compensation and reimbursements
administrative services to our advisor and its affiliates
will be approved by a majority of
our directors
Liquidation stage:
Property disposition fee. THIS FEE Lesser of 3% of sales price or 50%
TERMINATES UPON A BUSINESS of the customary commission which
COMBINATION WITH THE ADVISOR would be paid to a third party
Subordinated payments:
Operational stage:
Advisor asset management fee. Not more than 1% per annum of our
THIS FEE TERMINATES UPON A average assets; subordinated to a
BUSINESS COMBINATION WITH OUR non-cumulative, non-compounded return,
ADVISOR equal to 6% per annum
Liquidation stage:
Incentive advisory fee. THIS FEE After our stockholders have first
TERMINATES UPON A BUSINESS received a 10% cumulative, non-
COMBINATION WITH OUR ADVISOR compounded return and a return on
their net investment, an incentive
advisory fee equal to 15% on net
proceeds from the sale of a property
will be paid to our advisor
As of the date of this prospectus, we have no current plans to acquire the
property manager or advisor. No subscriptions for shares have been received from
the public. The only funds received to date are from the advisor's contribution
of $200,000 for 20,000 common shares.
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RESULTS OF OPERATIONS
As of the date of this prospectus, we have not yet had any operations. We
intend to use the proceeds of this offering as set forth under "Estimated Use of
Proceeds," principally to acquire properties. Our primary business objective
will be to enhance the performance and value of our properties through
management strategies designed to meet the needs of an evolving retail
marketplace.
As we have not acquired any properties yet, our advisor is not aware of any
known trends or uncertainties, other than national economic conditions, which
have had or which may be reasonably expected to have a material impact,
favorable or unfavorable, on revenues or income from the acquisition and
operation of real properties other than those referred to in the prospectus.
We have paid no distributions yet.
FUNDS FROM OPERATIONS
One of our objectives is to provide cash distributions to our stockholders
from cash generated by our operations. Cash generated from operations is not
equivalent to our net operating income as determined under accounting principles
generally accepted in the United States of America or GAAP. Due to certain
unique operating characteristics of real estate companies, the National
Association of REITs, also known as "NAREIT", an industry trade group, has
promulgated a standard known as "Funds from Operations" or "FFO" for short,
which it believes more accurately reflects the operating performance of a REIT
such as ours. As defined by NAREIT, FFO means net income computed in accordance
with GAAP, less extraordinary, unusual and non-recurring items, excluding gains
(or losses) from debt restructuring and sales of properties plus depreciation
and amortization and after adjustments for unconsolidated partnership and joint
ventures in which the REIT holds an interest. We have adopted the NAREIT
definition for computing FFO because management believes that, subject to the
following limitations, FFO provides a basis for comparing our performance and
operations to those of other REITs. The calculation of FFO may vary from entity
to entity since capitalization and expense policies tend to vary from entity to
entity. Items which are capitalized do not impact FFO, whereas items that are
expensed reduce FFO. Consequently, the presentation of FFO by us may not be
comparable to other similarly titled measures presented by other REITs. FFO is
not intended to be an alternative to "Net Income" as an indicator of our
performance nor to "Cash Flows from Operating Activities" as determined by GAAP
as a measure of our capacity to pay distributions.
INITIAL PROPERTY
We have the right to acquire a neighborhood center, being the initial
property. If sufficient funds are raised in the offering, we will, subject to
certain conditions, acquire the initial property from an unaffiliated third
party. See "Real Property Investments" for a more detailed description of the
initial property.
CRITICAL ACCOUNTING POLICIES
GENERAL.
The following disclosure pertains to critical accounting policies
management believes will be most "critical" to the portrayal of our financial
condition and results of operations which require management's most difficult,
subjective or complex judgments. These judgments often result from the need to
make estimates about the effect of matters that are inherently uncertain.
Critical accounting
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policies discussed in this section are not to be confused with accounting
principles and methods disclosed in accordance with GAAP. GAAP requires
information in financial statements about accounting principles, methods used
and disclosures pertaining to significant estimates. This discussion addresses
judgments known to management pertaining to trends, events or uncertainties
known which will be taken into consideration upon the application of those
policies and the likelihood that materially different amounts would be reported
upon taking into consideration different conditions and assumptions.
VALUATION AND ALLOCATION OF INVESTMENT PROPERTY. In order to ascertain the
value of an investment property management will take into consideration many
factors which require difficult, subjective or complex judgments to be made.
These judgments require management to make assumptions when valuing each
investment property. Such assumptions include projecting vacancy rates, rental
rates, property operating expenses, capital expenditures, and debt financing
rates, among others. The capitalization rate is also a significant driving
factor in determining the property valuation which requires management's
judgment of factors such as market knowledge, historical experience, length of
leases, tenant financial strength, economy, demographics, environment, property
location, visibility, age, and physical condition, and investor return
requirements, among others. Furthermore, at the acquisition date, every property
acquired will be supported by an independent appraisal. All of the
aforementioned factors are taken as a whole by management in determining the
valuation. The valuation is sensitive to the actual results of any of these
uncertain factors, either individually or taken as a whole. Should the actual
results, differ from management's judgment, the valuation could be negatively
effected.
We will allocate the purchase price of the each acquired investment
property between land, building and improvements, acquired favorable and
unfavorable leases, lease origination value (the market cost avoidance of
executing each acquired lease), and any assumed financing that is determined to
be above or below market terms. The allocation of the purchase price is an area
that requires complex judgments and significant estimates. We use the
information contained in the independent appraisal we obtained as the primary
basis for the allocation to land and building improvements. We determine whether
any financing assumed is above or below market based upon comparison to similar
financing terms for similar investment properties. We also will allocate a
portion of the purchase price to the estimated lease origination value based on
estimated lease execution costs for similar leases and consider various factors
including geographic location and size of leased space. We also will evaluate
each acquired lease based upon current market rates at the acquisition date and
consider various factors including geographical location, size and location of
leased space within the investment property, tenant profile and the credit risk
of the tenant in determining whether the acquired lease is favorable or
unfavorable. After an acquired lease is determined to be favorable or
unfavorable, we will allocate a portion of the purchase price to such favorable
or unfavorable acquired lease based upon the present value of the difference
between the contractual lease rate and the estimated market rate. The
determination of the discount rate used in the present value calculation is
based upon the "risk free rate" for each individual lease and primarily based
upon the credit worthiness of each individual tenant.
On a quarterly basis, we will conduct an impairment analysis in accordance
with Statement of Financial Accounting Standards No. 144 to ensure that the
property's carrying value does not exceed its fair value. If this were to occur,
we are required to record an impairment loss.
The valuation and allocation of purchase price, and possible subsequent
impairment of investment properties is a significant estimate that can and does
change based on management's continuous process of analyzing each property and
on management's assumptions about uncertain inherent factors.
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COST CAPITALIZATION AND DEPRECIATION POLICIES. Our policy will be to review
all expenses paid and capitalize any item exceeding a threshold deemed to be an
upgrade or a tenant improvement that is included in the investment property
asset classification. In addition, we will capitalize costs incurred during the
development period, including direct costs and indirect costs such as
construction, insurance, architectural costs, and legal fees, interest and other
financing costs, and real estate taxes. We will cease capitalization of indirect
costs once management considers the property is substantially complete and
available for occupancy.
Buildings and improvements will be depreciated on a straight line basis
based upon estimated useful lives of 30 years for buildings and improvements and
15 years for site improvements. That portion of the purchase price is allocated
to acquired favorable and unfavorable leases will be amortized on a straight
line basis over the life of the related lease as an adjustment to rental income.
Lease origination value, other leasing costs, and tenant improvements will be
amortized on a straight line basis over the life of the related lease as a
component of amortization expense.
Cost capitalization and the estimate of useful lives requires management
judgment and includes significant estimates that can and do change based on
management's continuous process of analyzing each property and on management's
assumptions about uncertain inherent factors.
REVENUE RECOGNITION. We will recognize rental income on a straight-line
basis over the term of each lease. The difference between rental income earned
on a straight line basis and the cash rent due under the provisions of the lease
agreements will be recorded as deferred rent receivable and is included as a
component of accounts and rents receivable in the accompanying consolidated
balance sheets. We anticipate collecting these amounts over the terms of the
leases as scheduled rent payments are made.
Reimbursements from tenants for recoverable real estate tax and operating
expenses will be accrued as revenue in the period the applicable expenditures
are incurred. Management makes certain assumptions and judgments in estimating
the reimbursements at the end of each reporting period. Should the actual
results differ from management's judgment, the estimated reimbursement could be
negatively effected adjusted appropriately.
In connection with certain acquisitions, we will receive payments under
master lease agreements pertaining to some non-revenue producing spaces either
at the time or subsequent to the purchase. GAAP requires that as these payments
are received, they be recorded as a reduction in the purchase price rather than
as rental income. These master leases may be established at the time of purchase
in order to mitigate the potential negative effects of rent and occupancy
assumptions utilized in the valuation of the investment property. Master lease
payments will be received through a draw of funds escrowed at the time of
purchase and will be for a period from one to three years. There is no assurance
that upon the expiration of the master leases agreements that the valuation
factors pertaining to rent and occupancy assumed by management will be met.
Should the actual results differ from management's judgment, the property
valuation could be negatively or positively affected.
VALUATION OF ACCOUNTS AND RENTS RECEIVABLE. Management will take into
consideration certain factors that require judgments to be made as to the
collectability of receivables. Collectability factors taken into consideration
are the amounts outstanding, payment history, and financial strength of the
tenant, which taken as a whole determines the valuation.
REIT STATUS. In order to maintain our status as a REIT, we are required to
distribute at least 90% of its REIT taxable income to our stockholders. We must
also meet certain asset and income tests, as well as other requirements. We will
monitor the business and transactions that may potentially impact our
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REIT status. If we fail to qualify as a REIT in any taxable year, we will be
subject to Federal income tax (including any applicable alternative minimum tax)
on our taxable income at regular corporate rates.
NEW ACCOUNTING PRONOUNCEMENT
On May 15, 2003, the Financial Accounting Standards Board issued Statement No.
150, ACCOUNTING FOR CERTAIN FINANCIAL INSTRUMENTS WITH CHARACTERISTICS OF BOTH
LIABILITIES AND EQUITY. The Statement requires issuers to classify as
liabilities (or assets in some circumstances) three classes of freestanding
financial instruments that embody obligations for the issuer.
Generally, the Statement is effective for financial instruments entered into or
modified after May 31, 2003 and is otherwise effective at the beginning of the
first interim period beginning after June 15, 2003. The Company adopted the
provisions of the Statement on July 1, 2003.
The Company did not enter into any financial instruments within the scope of the
Statement during June 2003. To the extent stockholders request shares to be
repurchased by the Company under the Share Repurchase Program, the Company's
obligation to repurchase such shares will be classified as a liability at the
redemption amount at the date documentation is complete and accepted by the
Company in accordance with the plan documents.
INFLATION
Inflation is likely to increase rental income from leases to new tenants
and lease renewals, subject to market conditions, for any retail centers we
acquire. Our rental income and operating expenses for any properties to be owned
and operated on a triple-net lease basis are not likely to be directly affected
by future inflation, since rents are or will be fixed under those leases and
property expenses are the responsibility of the tenants. The capital
appreciation of properties leased on triple-net lease basis is likely to be
influenced by interest rate fluctuations. To the extent that inflation
determines interest rates, future inflation may have an effect on the capital
appreciation of properties leased on a triple-net-lease basis.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We may be exposed to interest rate changes primarily as a result of
long-term debt used to maintain liquidity and fund capital expenditures and
expansion of our real estate investment portfolio and operations. Our interest
rate risk management objectives will be to limit the impact of interest rate
changes on earnings and cash flows and to lower its overall borrowing costs. To
achieve our objectives we will borrow primarily at fixed rates or variable rates
with the lowest margins available and in some cases, with the ability to convert
variable rates to fixed rates.
We may use derivative financial instruments to hedge exposures to changes
in interest rates on loans secured by our properties. To the extent we do, we
are exposed to credit risk and market risk. Credit risk is the failure of the
counterparty to perform under the terms of the derivative contract. When the
fair value of a derivative contract is positive, the counterparty owes us, which
creates credit risk for us. When the fair value of a derivative contract is
negative, we owe the counterparty and, therefore, it does not possess credit
risk. It is our policy to enter into these transactions with the same party
providing the financing, with the right of offset. In the alternative, we will
minimize the credit risk in derivative instruments by entering into transactions
with high-quality counterparties. Market risk is the adverse effect on the value
of a financial instrument that results from a change in interest rates. The
market risk
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associated with interest-rate contracts is managed by establishing and
monitoring parameters that limit the types and degree of market risk that may be
undertaken.
With regard to variable rate financing, we assess interest rate cash flow
risk by continually identifying and monitoring changes in interest rate
exposures that may adversely impact expected future cash flows and by evaluating
hedging opportunities. We maintain risk management control systems to monitor
interest rate cash flow risk attributable to both of our outstanding or
forecasted debt obligations as well as our potential offsetting hedge positions.
The risk management control systems involve the use of analytical techniques,
including cash flow sensitivity analysis, to estimate the expected impact of
changes in interest rates on our future cash flows.
While this hedging strategy will have the effect of smoothing out interest
rate fluctuations, the result may be to reduce the overall returns on your
investments.
As we have yet to raise any money, our board has not yet established
policies and procedures regarding our use of derivative financial instruments
for hedging or other purposes.
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DESCRIPTION OF SECURITIES
We were formed under the laws of the State of Maryland. Your rights are
governed by Maryland law, our articles of incorporation and our bylaws. The
following summary of the terms of our stock is only a summary and you should
refer to our articles of incorporation and bylaws for a full description. Copies
of our articles of incorporation and bylaws are filed as exhibits to the
registration statement of which this prospectus is a part. You can obtain copies
of our articles of incorporation and bylaws and every other exhibit to our
registration statement. See "Where You Can Find More Information," below.
AUTHORIZED STOCK
Our articles of incorporation provide that we may issue up to 350,000,000
shares of common stock and 10,000,000 shares of preferred stock. Upon completion
of this offering, if 250,000,000 shares are sold, there will be 250,020,000
shares of common stock outstanding and no preferred stock outstanding.
As permitted by Maryland law, our articles of incorporation contain a
provision permitting the board, without any action by the stockholders, to amend
our articles of incorporation from time to time, to increase or decrease the
aggregate number of shares of stock and the number of shares of stock of any
class or series that we have authority to issue. Our articles of incorporation
also contain a provision permitting our board of directors, without any action
by stockholders, to classify or reclassify any unissued common stock or
preferred stock into one or more classes or series by setting or changing the
preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends or distributions, qualifications or terms or
conditions of redemption of any new class or series of shares of stock.
Nevertheless, certain laws to which we are subject require the approval by a
majority of our then outstanding shares to amend our articles of incorporation
to increase or decrease the number of shares authorized by our articles of
incorporation.
We believe that the power of our board to issue additional authorized but
unissued shares of common stock or preferred stock and to classify or reclassify
shares of stock will provide us with increased flexibility in structuring
possible future financings and acquisitions and in meeting other needs which
might arise. Following amendment of our articles of incorporation to increase
the number of our authorized shares, our board would be able to issue the
additional common stock or preferred stock without further action by our
stockholders.
COMMON STOCK
Upon issuance of our shares for full payment in accordance with the terms
of this offering, all of the common stock we are offering will be duly
authorized, fully paid and nonassessable. Subject to the preferential rights of
any other class or series of stock and to the provisions of our articles of
incorporation regarding the restriction on the transfer of shares of our stock,
holders of our common stock will be entitled to receive distributions if
authorized and declared by our board and to share ratably in our assets
available for distribution to the stockholders in the event of a liquidation,
dissolution or winding-up.
Each outstanding share of our common stock entitles the holder to one vote
on all matters submitted to a vote of stockholders, including the election of
directors. There is no cumulative voting in the election of directors, which
means that the holders of a majority of the outstanding common stock can elect
all of the directors then standing for election, and the holders of the
remaining common stock will not be able to elect any directors.
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Holders of our common stock have no conversion, sinking fund, redemption,
exchange or appraisal rights, and have no preemptive rights to subscribe for any
of our securities. Our articles of incorporation provide that holders of our
common stock are not entitled to exercise any rights of an objecting stockholder
provided for under Maryland law. Shares of our common stock have equal dividend,
distribution, liquidation and other rights.
Under Maryland law and our articles of incorporation, we cannot make
certain material changes to our business form or operations without the approval
of stockholders holding at least a majority of the shares of stock entitled to
vote on the matter. The following events, however, do not require stockholder
approval:
- share exchanges in which we are the acquiror;
- mergers with or into a 90 percent or more owned subsidiary;
- mergers in which we do not:
- reclassify or change the terms of any of our stock that is
outstanding immediately before the effective time of the merger;
- amend our articles of incorporation; and
- issue in the merger more than 20 percent of the number of shares
of any class or series of stock outstanding immediately before
the merger; and
- transfers of less than substantially all of our assets. Our articles
of incorporation provide that the sale of two-thirds or more of our
assets or the then current fair market value of our properties and
mortgages other than in the ordinary course of our business will be
considered the sale of substantially all of our assets.
Our bylaws provide that the presence in person or by proxy by the holders
of a majority of our outstanding shares will constitute a quorum for the
transaction of business at a meeting of our stockholders. Our articles of
incorporation provide that the election of directors requires a majority of all
the votes present in person or by proxy at a meeting of our stockholders at
which a quorum is present. Our articles of incorporation also provide that the
affirmative vote of the holders of a majority of our outstanding common stock
may remove any director with or without cause.
We will act as our own registrar and transfer agent for our common stock.
PREFERRED STOCK
Shares of our preferred stock may be issued in the future in one or more
series as authorized by our board. Prior to the issuance of shares of any
series, our board is required by Maryland law and our articles of incorporation
to fix the terms, preferences, conversion or other rights, voting powers,
restrictions, limitations as to dividends or other distributions, qualifications
and terms or conditions of redemption for each series. Because our board has the
power to establish the preferences, powers and rights of each series of
preferred stock, it may, without any consideration or approval by our
stockholders, provide the holders of any series of preferred stock with
preferences, powers and rights, voting or otherwise, senior to the rights of
holders of our common stock. The issuance of preferred stock could have the
effect of delaying, deferring or preventing a change of control of us, including
an extraordinary
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transaction (such as merger, tender offer or sale of all or substantially all of
our assets) that might provide a premium price for holders of our common stock.
We have no present plans to issue any preferred stock.
ISSUANCE OF ADDITIONAL SECURITIES AND DEBT INSTRUMENTS
Our directors are authorized to issue additional stock or other convertible
securities for cash, property or other consideration on such terms as they may
deem advisable. Our directors are also authorized to classify or reclassify any
unissued shares of our capital stock without approval of the holders of our
outstanding securities. Subject to some restrictions, our directors may cause us
to issue debt obligations, including debt with conversion privileges on more
than one class of our capital stock. Our directors may issue debt obligations on
such terms and conditions as they may determine, including debt with conversion
privileges, where the holders of our debt obligations may acquire our common
stock. Subject to some restrictions, our directors may also cause us to issue
warrants, options and rights to buy our common stock on such terms as they deem
advisable to our stockholders, as part of a financing arrangement, or pursuant
to stock option plans. Our directors may cause us to issue warrants, options and
rights to buy our common stock and debt with conversion privileges even though
their exercise or conversion could result in dilution in the value of our
outstanding common stock.
RESTRICTIONS ON ISSUANCE OF SECURITIES
Our articles of incorporation provide that we will not issue:
- common stock which is redeemable at the option of the holder;
- debt securities unless the historical debt service coverage in the
most recently completed fiscal year is sufficient to properly service
the higher level of debt;
- options or warrants to purchase stock to our advisor, sponsor,
director(s) or any affiliates of our advisor, sponsor or directors
except on the same terms as sold to the general public and in an
amount not to exceed 10% of our outstanding common or preferred stock
on the date of grant of any options or warrants; or
- stock on a deferred payment basis or similar arrangement.
Our articles of incorporation also provide that we will not issue nonvoting
or assessable common stock or warrants, options or similar evidences of rights
to buy stock unless they are issued to the holders of stock ratably, as part of
a financing arrangement or as part of a stock plan to our directors, officers or
employees.
RESTRICTIONS ON OWNERSHIP AND TRANSFER
In order for us to continue to qualify as a REIT under the Internal Revenue
Code, shares of our stock must be beneficially owned by 100 or more persons
during at least 335 days of a taxable year of twelve months (other than the
first year for which an election to be a REIT has been made) or during a
proportionate part of a shorter taxable year. Also not more than 50% of the
value of our outstanding shares of stock may be owned, directly or indirectly,
by five or fewer individuals (as defined in the Internal Revenue Code to include
some entities such as qualified person plans) during the last half of a taxable
year (other than the first year for which an election to be a REIT has been
made).
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Our articles of incorporation, subject to some exceptions, contain
restrictions on the number of shares of our stock that a person may own. Our
articles of incorporation prohibit any person from acquiring or holding,
directly or indirectly, shares of stock in excess of 9.8% in value of the
aggregate of our outstanding shares of stock. In addition, our articles of
incorporation prohibit any person from acquiring or holding, directly or
indirectly, shares of common stock in excess of 9.8% of the aggregate number of
our outstanding shares of common stock. The 9.8% common stock ownership limit
must be measured in terms of the more restrictive of value or number of shares.
Our board of directors, in its sole discretion, may exempt a person from
the 9.8% limit and the common stock ownership limit. However, the board may not
grant such an exception to any person whose ownership, direct or indirect, of in
excess of 9.8% of the value of our outstanding shares of stock would result in
us being "closely held" within the meaning of Section 856(h) of the Internal
Revenue Code or otherwise would result in us failing to qualify as a REIT. In
order to be considered as an excepted holder, a person also must not own,
directly or indirectly, an interest in any of our tenants (or in a tenant of any
entity owned or controlled by us) that would cause us to own, directly or
indirectly, more than a 9.9% interest in such a tenant. The person seeking an
exemption must represent to our board's satisfaction that it will not violate
these two restrictions. The person also must agree that any violation or
attempted violation of any of these restrictions will result in the automatic
transfer of the shares of stock causing the violation to a trust as explained
below. Our board may require a ruling from the Internal Revenue Service or an
opinion of counsel, in either case in form and substance satisfactory to our
board of directors in its sole discretion, in order to determine or ensure our
status as a REIT.
In addition, our articles of incorporation prohibit any person from
beneficially or constructively owning shares of our common or preferred stock
that would result in us being "closely held" within the meaning of Section
856(h) of the Internal Revenue Code. Our articles of incorporation further
provide that any transfer of our common stock or preferred stock that would
result in our common stock and preferred stock being beneficially owned by fewer
than 100 persons will be void. Any person who acquires or attempts or intends to
acquire beneficial or constructive ownership of our common or preferred stock
that will or may violate any of the foregoing restrictions on transferability
and ownership, or any person who would have owned shares of our common or
preferred stock that resulted in a transfer of shares to the trust, is required
to give us notice immediately and to provide us with such other information as
we may request in order to determine the effect of such transfer on our status
as a REIT. The foregoing restrictions on transferability and ownership will not
apply if our board determines that it is no longer in our best interests to
attempt to qualify, or to continue to qualify, as a REIT.
If any transfer of shares of our stock occurs which, if effective, would
result in any person beneficially or constructively owning shares of our stock
in excess or in violation of the above transfer or ownership limitations, then
the number of shares of our stock the beneficial or constructive ownership of
which would cause the person to violate the limitations will be automatically
transferred under the provisions of our articles of incorporation to a trust for
the exclusive benefit of one or more charitable beneficiaries within the meaning
of 501(c)(3) of the Internal Revenue Code. The proposed transferee that exceeds
the ownership limitations will not acquire any rights in these shares. The
automatic transfer is deemed effective as of the close of business on the
business day, as defined in our articles of incorporation, prior to the date of
the violative transfer. Shares of stock held in the trust will continue as
issued and outstanding common stock or preferred stock. The proposed transferee
will not benefit economically from ownership or any shares of stock held in the
trust, will have no rights to dividends and will not possess any rights to vote
or other rights attributable to the shares of stock held in the trust. The
trustee of the trust will have all voting rights and rights to dividends or
other distributions with respect to shares of stock held in the trust. The
voting rights and rights to dividends will be exercised for the exclusive
benefit of the charitable beneficiary. Any dividend or other distribution paid
prior to our
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discovery that shares of stock have been transferred to the trustee will be paid
by the recipient of the dividend or distribution to the trustee upon demand, and
any dividend or other distributions authorized but unpaid will be paid when due
to the trustee. Any dividend or distribution paid to the trustee will be held in
trust for the charitable beneficiary. The proposed transferee will have no
voting rights with respect to shares of stock held in the trust. Subject to
Maryland law, effective as of the date that such shares of stock have been
transferred to the trust, the trustee will have the authority at his sole
discretion (i) to rescind as void any vote cast by the proposed transferee prior
to our discovery that such shares have been transferred to the trust and (ii) to
recast such vote in accordance with the desires of the trustee acting for the
benefit of the charitable beneficiary. However, if we have already taken
irreversible corporate action, then the trustee will not have the authority to
rescind and recast the vote.
Within twenty days of receiving notice from us that shares have been
transferred to the trust, the trustee shall sell the shares to a person,
designated by the trustee, whose ownership of the shares will not violate the
ownership limitations set forth in the articles of incorporation. Upon the sale,
the interest of the charitable beneficiary in the shares sold will terminate and
the trustee will distribute the net proceeds of the sale to the proposed
transferee and to the charitable beneficiary as follows. The proposed transferee
will receive the lesser of (i) the price paid by him for the shares or, if the
proposed transferee did not give value for the shares in connection with the
event causing the shares to be held in the trust (e.g. a gift, devise or other
such transaction), the market price, as defined in our articles of
incorporation, of the shares on the day of the event causing the shares to
beheld in the trust and (ii) the price per share received by the trustee from
the sale or other disposition of the shares held in the trust. Any net sale
proceeds in excess of the amount payable to the proposed transferee will be paid
immediately to the charitable beneficiary. If, prior to our discovery that
shares of stock have been transferred to the trust, such shares are sold by the
proposed transferee, then (i) shares will be deemed to have been sold on behalf
of the trust and (ii) to the extent that the proposed transferee received an
amount for such shares that exceeds the amount that the proposed transferee was
entitled to receive, the excess will be paid to the trustee upon demand.
In addition, shares of our stock held in the trust will be deemed to have
been offered for sale to us or our designees, at a price per share equal to the
lesser of (i) the price per share in the transaction that resulted in the
transfer to the trust, or, in the case of a devise or gift, the market price at
the time of the devise or gift, and (ii) the market price on the date we, or our
designate, accept such offer. We can accept this offer until the trustee has
sold the shares held in the trust. Upon a sale to us, the interest of the
charitable beneficiary in the shares sold will terminate and the trustee will
distribute the net proceeds of the sale to the proposed transferee.
Our articles of incorporation require all persons who own more than 5%, or
any lower percentages as required pursuant to the Internal Revenue Code or the
regulations under the Internal Revenue Code, of our outstanding common and
preferred stock, within 30 days after the end of each taxable year, to provide
to us written notice stating their name and address, the number of shares of
common and preferred stock they beneficially own directly or indirectly, and a
description of how the shares are held. In addition, each beneficial owner must
provide to us any addition information as we may request in order to determine
the effect, if any, of their beneficial ownership on our status as a REIT and to
ensure compliance with the 9.8% ownership limit. In addition, each stockholder
will, upon demand, be required to provide us any information as we may request,
in good faith, in order to determine our status as a REIT and to comply with the
requirements of any taxing authority or governmental authority or to determine
such compliance.
All certificates representing any shares of our common or preferred stock
will bear a legend referring to the restrictions described above.
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PROVISIONS OF MARYLAND LAW AND OF OUR ARTICLES OF INCORPORATION AND BYLAWS
The following paragraphs summarize some provisions of Maryland law and the
material terms of our articles of incorporation and bylaws. The following
summary does not purport to be complete and is subject to and qualified in its
entirety by reference to Maryland law and our articles of incorporation and
bylaws, copies of which are exhibits to the registration statement of which the
prospectus is a part. See "Where You Can Find More Information."
BUSINESS COMBINATIONS. Under the Maryland Business Combination Act, an
anti-takeover statute, completion of a business combination (including a merger,
consolidation, share exchange or an asset transfer or issuance or
reclassification of equity securities) between a Maryland corporation and an
interested stockholder is prohibited for five years following the most recent
date on which the interested stockholder becomes an interested stockholder.
Maryland law defines an interested stockholder as any person who beneficially
owns ten percent or more of the voting power of the corporation's shares or an
affiliate or associate of the corporation who, at any time within the two-year
period prior to the date in question, was the beneficial owner of ten percent or
more of the voting power of the then-outstanding voting stock of the corporation
(an interested stockholder) or an affiliate of such interested stockholder. A
person is not an interested stockholder if, prior to the most recent time at
which the person would otherwise have become an interested stockholder, the
board of directors of the Maryland corporation approved the transaction which
otherwise would have resulted in the person becoming an interested stockholder.
The board of directors may provide that its approval is subject to compliance
with any terms and conditions determined by the board. Following the five-year
prohibition period, any such business combination with that interested
stockholder must be recommended by the board of directors of such corporation
and approved by the affirmative vote of at least:
- 80% of the votes entitled to be cast by holders of outstanding shares
of voting stock of the corporation; and
- two-thirds of the votes entitled to be cast by holders of voting stock
of the corporation other than shares held by the interested
stockholder with whom (or with whose affiliate) the business
combination is to be effected or held by an affiliate or associate of
the interested stockholder, unless, among other conditions, the
corporation's common stockholders receive a minimum price (as defined
in the Maryland business combination statute) equal to the highest
price paid by the interested stockholder for its shares and the
consideration is received in cash or in the same form as previously
paid by the interested stockholder for its shares.
These provisions of Maryland law do not apply, however, to business
combinations that are approved or exempted by our board of directors prior to
the time that the interested stockholder becomes an interested stockholder. As
permitted under Maryland law, our articles of incorporation exempt any business
combinations involving us and The Inland Group or any of its affiliates. As a
result, the five-year prohibition and the super-majority vote requirement will
not apply to any business combinations between The Inland Group or any affiliate
of The Inland Group and us. Therefore, The Inland Group or any affiliate of The
Inland Group may be able to enter into business combinations with us, which may
or may not be in the best interests of the stockholders.
CONTROL SHARE ACQUISITION. Maryland's Control Share Acquisition Act, an
anti-takeover statute, prohibits interested stockholders from engaging in
self-dealing business combinations with a Maryland corporation, except to the
extent approved by the corporation's disinterested stockholders. Maryland law
provides that control shares of a Maryland corporation acquired in a control
share acquisition have no
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voting rights except to the extent approved by the corporation's disinterested
stockholders by a vote of two-thirds of the votes entitled to be cast on the
matter, excluding shares owned by the corporation's disinterested stockholders,
whom the Act defines as (1) the acquiring person, (2) the corporation's officers
and (3) employees of the corporation who are also directors. Control shares mean
voting shares which, if aggregated with all other voting shares owned by an
acquiring person or which the acquiring person can exercise or direct the
exercise of voting power, would entitle the acquiring person to exercise or
direct the exercise of voting power of shares of the corporation in electing
directors within one of the following ranges of voting power:
- one-tenth or more but less than one-third;
- one-third or more but less than a majority; or
- a majority or more of all voting power.
Control shares do not include shares the acquiring person is then entitled
to vote as a result of having previously obtained stockholder approval. A
control share acquisition occurs when, subject to some exceptions, a person
directly or indirectly acquires ownership or the power to direct the exercise of
voting power of issued and outstanding control shares. A person who has made or
proposes to make a control share acquisition, upon satisfaction of some specific
conditions, including an undertaking to pay expenses, may compel our board to
call a special meeting of stockholders to be held within 50 days after that
person's demand upon the corporation to consider the voting rights to be
accorded to the control shares. If no request for a meeting is made, we may
present the question at any stockholders' meeting.
If voting rights are not approved at the meeting or if the acquiring person
does not deliver an acquiring person statement as required by the statute, then,
subject to some statutory conditions and limitations, the corporation may redeem
any or all of the control shares (except those for which voting rights have
previously been approved) for fair value determined, without regard to the
absence of voting rights for the control shares, as of the date of the last
control share acquisition by the acquiror or of any meeting of stockholders at
which the voting rights of such shares are considered and not approved. If
voting rights for control shares are approved at a stockholders meeting and the
acquiror becomes entitled to vote a majority of the shares entitled to vote, all
other stockholders may exercise appraisal rights and be entitled to receive in
cash the fair value for their shares of our stock. The fair value of the shares
as determined for purposes of such appraisal rights may not be less than the
highest price per share paid by the acquiror in the control share acquisition.
The control share acquisition statute does not apply to shares acquired in
a merger, consolidation or share exchange if the corporation is party to the
transaction or to acquisitions approved or exempted by the articles of
incorporation or bylaws of the corporation.
Our bylaws contain a provision exempting from the control share acquisition
statute any and all acquisitions by The Inland Group or any affiliate of The
Inland Group of our shares of stock.
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SHARES ELIGIBLE FOR FUTURE SALE
SHARES TO BE OUTSTANDING OR ISSUABLE UPON EXERCISE OR CONVERSION OF OTHER
OUTSTANDING SECURITIES
Upon the completion of the offering and the consummation of the formation
transactions, we expect to have outstanding 270,020,000 shares of common stock.
This includes:
- the 20,000 shares purchased by our advisor;
and assumes that:
- we sell all 250,000,000 shares of common stock offered on a best
efforts basis in this initial public offering;
- we sell all 20,000,000 shares to be issued under our distribution
reinvestment program described in this offering; and
- that there is no exercise of options which are expected to be
outstanding and exercisable.
In addition, we have reserved:
- 75,000 shares for issuance upon exercise of options which may be
granted under our independent director stock option plan.
Subject to the provisions of our articles of incorporation, we could issue
an undetermined number of shares of our common or preferred stock in the
discretion of our board and without the approval by our stockholders:
- directly for equity interests in real properties; or
- upon exchange of any interests in entities that own our properties or
in other companies we control, which might be issued for equity
interests in real properties.
All of the common stock we are offering by this prospectus will be freely
tradable in the public market, should a public market develop, which we cannot
guarantee, without restriction or limitation under the Securities Act of 1933 by
persons other than our affiliates and soliciting dealers considered
underwriters. However, all common stock issuable by us in this offering and
otherwise will be subject to the restrictions explained under "Description Of
Securities - Restrictions on Ownership and Transfer."
SECURITIES ACT RESTRICTIONS
The common stock owned by our affiliates will be subject to Rule 144
adopted under the Securities Act and may not be sold in the absence of
registration under the Securities Act unless an exemption from registration is
available, including exemptions contained in Rule 144.
In general, under Rule 144, a person, or persons whose common stock is
aggregated with them in accordance with Rule 144, who has beneficially owned
securities acquired from an issuer or an affiliate of the issuer for at least
one year, would be entitled, within any three-month period, to sell a number of
shares of common stock that does not exceed the greater of (1) 1% of the
then-outstanding number of shares or (2) the average weekly reported trading
volume of the common stock on a national securities
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exchange or market during the four calendar weeks preceding each sale. Sales
under Rule 144 must be transacted in the manner specified by Rule 144 and must
meet requirements for public notice as well as public information about us. Any
person who (1) is not deemed to have been our affiliate at any time during the
three months preceding a sale, and (2) has beneficially owned our common stock
for at least two years, would be entitled to sell the common stock under Rule
144(k) without regard to the volume limitations, manner of sale provisions,
notice requirements or public information requirements of Rule 144. An
affiliate, for purposes of the Securities Act, is a person that directly, or
indirectly, through one or more intermediaries, controls, or is controlled by,
or under common control with, us.
INDEPENDENT DIRECTOR STOCK OPTION PLAN
We have established an independent director stock option plan for the
purpose of attracting and retaining independent directors. See
"Management--Independent Director Stock Option Plan." We will issue in the
aggregate options to purchase 9,000 shares of our common stock to our
independent directors, at the exercise price of $8.95 per share, when, and if,
we have 90,000 shares of common stock issued and outstanding. One-third of the
shares will be exercisable upon their grant. An additional 66,000 shares will be
available for future option grants under the independent director stock option
plan. See "Management--Independent Director Stock Option Plan" for additional
information regarding the independent director stock option plan. Rule 701 under
the Securities Act provides that common stock acquired on the exercise of
outstanding options by affiliates may be resold by them subject to all
provisions of Rule 144 except its one-year minimum holding period. We intend to
register the common stock to be issued under the independent director stock
option plan in a registration statement or statements on SEC Form S-8 or other
appropriate form.
EFFECT OF AVAILABILITY OF SHARES ON MARKET PRICE OF SHARES
Prior to the date of this prospectus, there has been no public market for
our common stock. No assurance can be given that a public market for our common
stock will develop. We cannot predict the effects that future sales of common
stock, including sales under Rule 144, or the availability of common stock for
future sale will have on the market price, if any, prevailing from time to time.
Sales of substantial amounts of our common stock, including shares issued upon
the exercise of options or the perception that these sales could occur, could
adversely affect prevailing market prices of our common stock and impair our
ability to obtain additional capital through the sale of equity securities. See
"Risk Factors--Risks Related to the Offering." For a description of restrictions
on transfers of common stock, see "Description of Securities--Restrictions on
Ownership and Transfer." Also, see the following section regarding registration
rights.
REGISTRATION RIGHTS
In the future we may grant "demand" and/or "piggyback" registration rights
to:
- stockholders receiving our common stock directly in exchange for their
equity interests in assets of theirs we would acquire; and
- persons receiving interests in any real property partnership for their
interests in real properties we would acquire.
"Piggyback" registration rights allow the holder to have his, her or its
shares registered along with our shares ONLY at such time(s) in the future when
we would choose to register some of our shares for financing purposes - that is,
to join with us in the registration of our shares. "Demand" registration rights
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permit the holder of demand rights to REQUIRE us to register with the SEC his,
her or its shares at such time(s) as the holder requests, regardless of any
desire by us to register our own shares for financing purposes, even if we do
not have sufficient capital resources to effect a registration of shares.
These rights will be for registration under the Securities Act of any of
our common stock acquired by them directly. The terms and conditions of any
agreements for registration rights will be negotiated and determined at such
future time as we determine advisable in connection with the acquisition of one
or more properties. Our future granting of registration rights could include
registration of the subject shares at our expense. If that were the case, our
obligation could result in a substantial expense to us at a time when we might
not be able to afford such an expense and could also hinder our future attempts
to obtain financing.
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SUMMARY OF OUR ORGANIZATIONAL DOCUMENTS
Each stockholder is bound by and is deemed to have agreed to the terms of
our organizational documents by his, her or its election to become a stockholder
of our company. Our organizational documents consist of our articles of
incorporation and bylaws. Our directors, including all the independent
directors, reviewed and unanimously ratified our articles of incorporation and
bylaws at our first board meeting, which was required. The following is a
summary of material provisions of our organizational documents and does not
purport to be complete. This summary is qualified in its entirety by specific
reference to the organizational documents filed as exhibits to our registration
statement of which this prospectus is a part. See "Where You Can Find More
Information."
Our articles of incorporation were filed with the State Department of
Assessments and Taxation of Maryland and became operative on March 5, 2003. Our
articles of incorporation were filed in Maryland, and provide that we have
perpetual existence. The bylaws in their present form became operative when our
board approved them on March 5, 2003. Neither our articles of incorporation nor
bylaws have an expiration date. As a result, they will remain operative in their
current form throughout our existence, unless they are amended or we are
dissolved.
ARTICLES OF INCORPORATION AND BYLAW PROVISIONS
The stockholders' rights and related matters are governed by our articles
of incorporation and bylaws and Maryland law. Some provisions of the articles of
incorporation and bylaws, summarized below, may make it more difficult to change
the composition of our board and could have the effect of delaying, deferring,
preventing a change in control of us, including an extraordinary transaction
(such as a merger, tender offer or sale of all or substantially all of our
assets) that might provide a premium price for holders of our common stock.
STOCKHOLDERS' MEETINGS
Our bylaws provide that an annual meeting of the stockholders will be held
on the date and at such time as our board may designate. However, the meeting
will not be held less than 30 days after the delivery of our annual report to
stockholders. The purpose of each annual meeting of the stockholders is to elect
directors and to transact any other proper business. The chairman, the
president, a majority of the directors or a majority of the independent
directors may call a special meeting of the stockholders. The secretary or some
other officer must call a special meeting when stockholders holding 10% or more
of the outstanding shares entitled to vote make a written request for a meeting.
The written request may be in person or by mail and must state the purpose(s) of
the meeting and the matters to be acted upon. We have entered into an agreement
with Inland Real Estate Investment Corporation, our sponsor, which provides that
it will pay for the reasonably estimated cost to prepare and mail a notice of
any special meeting of stockholders requested by the stockholders. The meeting
will be held on a date not less than 15 nor more than 60 days after the
distribution of the notice, at the time and place specified in the notice.
Except as provided in the preceding sentence, we will give notice of any annual
or special meeting of stockholders not less than 10 nor more than 90 days before
the meeting. The notice will state the purpose of the meeting. At any meeting of
the stockholders, each stockholder is entitled to one vote for each share owned
of record on the applicable record date. In general, the presence in person or
by proxy of a majority of the outstanding shares entitled to vote at a meeting
will constitute a quorum. The affirmative vote of a majority of the shares of
our stock, present in person or by proxy at a meeting of stockholders duly
called and at which a quorum is present, will be sufficient, without the
necessity for concurrence by the directors, to elect the directors. A majority
of the votes cast at a meeting of stockholders duly called and at which a quorum
is present will be sufficient to approve any other matter which may properly
come
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before the meeting, unless more than a majority of the votes cast is required by
statute or our articles of incorporation.
BOARD OF DIRECTORS
Our articles of incorporation and bylaws provide that we may not have fewer
than three nor more than eleven directors. Our bylaws currently provide that the
number of directors shall be seven. Our articles of incorporation require that a
majority of our directors must be independent directors. Independent directors
are directors who are not and have not been affiliated with us, our sponsor, or
our advisor, within the two years prior to their becoming our independent
director and who perform no services on our behalf other than as a director. A
vacancy on the board caused by the death, resignation or incapacity of a
director or by an increase in the number of directors, within the limits
described above, may be filled by the vote of a majority of the remaining
directors whether or not the voting directors constitute a quorum. Our articles
of incorporation require that our independent directors must nominate
replacements to vacancies in independent director positions irrespective of how
the vacancy arises. Our bylaws provide that a vacancy on our board caused by an
increase in the number of directors may be filled by a majority of the entire
board; that when a vacancy occurs as a result of the removal of a director by
our stockholders, the vacancy must be filled by a majority vote of our
stockholders; and that any director may resign at any time and may be removed
with or without cause by the affirmative vote of the holders of not less than a
majority of the outstanding shares. Our bylaws provide that the majority of
members of each committee of our board of directors be comprised of independent
directors and that all the members of our audit committee be independent
directors.
Our articles of incorporation provide that a director must have at least
three years of relevant experience and demonstrate the knowledge required to
successfully acquire and manage the type of assets that we intend to acquire. At
least one of our independent directors must have three years of relevant real
estate experience.
STOCKHOLDER VOTING RIGHTS
Each share of our common stock has one vote on each matter submitted to a
vote of stockholders. Shares of common stock do not have cumulative voting
rights or preemptive rights. Stockholders may vote in person or by proxy.
Directors are elected when they receive the majority of votes of holders of
shares present in person or by proxy at a stockholders' meeting, provided there
was a quorum when the meeting commenced. A quorum is reached when the
stockholders holding a majority of the outstanding shares entitled to vote are
present either in person or represented by proxy. All questions other than
election of directors, removal of a director or directors and except as set
forth below must be decided by a majority of the votes cast at a meeting at
which a quorum is present. Maryland law provides that any action required or
permitted to be taken at a meeting of stockholders may be taken without a
meeting by the unanimous written consent of all stockholders (which may be
impracticable for a publicly held corporation).
The approval by our board and by holders of at least a majority of our
outstanding voting shares of stock is necessary for us to do any of the
following:
- amend our articles of incorporation, except to increase or decrease
authorized stock as permitted by Maryland law;
- transfer all or substantially all of our assets other than in the
ordinary course of business;
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- engage in mergers, consolidations or share exchanges, except in
certain circumstances; or
- dissolve or liquidate.
Our articles of incorporation provide that a sale of two-thirds or more of
our assets, based on the total number or the current fair market value of
properties and mortgages we own, is a sale of substantially all of our assets.
See "Description of Securities -- Common Stock" for an explanation of instances
where stockholder approval is not required.
Our articles of incorporation provide that neither the advisor, the
sponsor, the directors, nor any affiliate may vote their shares of stock or
consent on matters submitted to the stockholders regarding the removal of the
advisor, the sponsor, the directors or any affiliate or any transaction between
us and any of them. For purposes of determining the necessary percentage and
interest of shares needed to approve a matter on which the advisor, the sponsor,
the directors and any affiliate may not vote or consent, the shares of our
common stock owned by them will not be included.
RIGHTS OF OBJECTING STOCKHOLDERS
As permitted by Maryland law, our articles of incorporation provide that
our stockholders are not entitled to exercise any rights of an objecting
stockholder provided for under Maryland law. As a result of this provision, our
stockholders will not have any right to dissent under Maryland law to an
extraordinary transaction, such as the merger of our company into another
company or the sale of all or substantially all of our assets, and in the
proceedings to receive a cash payment representing the fair value of their
shares of our common stock.
STOCKHOLDER LISTS; INSPECTION OF BOOKS AND RECORDS
Any stockholder or his designated representative will be permitted access
to all of our records at all reasonable times and may inspect and copy any of
them for the purposes specified below. We maintain an alphabetical list of
names, record addresses and business telephone numbers, if any, of all
stockholders with the number of shares held by each at our principal office. The
stockholder list is updated at least quarterly and is open for inspection by a
stockholder or his designated agent at the stockholder's request. A stockholder
may request a copy of the stockholder list to find out about matters relating to
the stockholder's voting rights and their exercise under federal proxy laws. We
will mail the stockholder list to any stockholder requesting it within 10 days
of receiving the request. We may impose a reasonable charge for expenses
incurred in reproducing the list.
If our advisor or directors neglect or refuse to produce or mail a copy of
the stockholder list as requested, then in accordance with applicable law and
our articles of incorporation, the advisor and the directors will be liable to
the stockholder who requested the list. Their liability will include the costs,
including reasonable attorneys' fees, incurred by the stockholder in compelling
the production of the list and actual damages suffered by the stockholder
because of the refusal or neglect. However, the fact that the actual purpose of
the request is to secure the list for the purpose of selling it, or using it for
a commercial or other purpose is a defense against liability for refusal to
supply the list. We may require the stockholder requesting the list to represent
that the stockholder list is not requested for a commercial purpose unrelated to
the stockholder's interest in us.
In addition, our books and records are open for inspection by state
securities administrators upon reasonable notice and during normal business
hours at our principal place of business.
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AMENDMENT OF THE ORGANIZATIONAL DOCUMENTS
Our articles of incorporation may be amended, after approval by our board,
by the affirmative vote of a majority of our then-outstanding voting shares of
stock. Our bylaws may be amended in a manner not inconsistent with the articles
of incorporation and bylaws by a majority vote of our directors present at the
board meeting.
DISSOLUTION OR TERMINATION OF THE COMPANY
As a Maryland corporation, we may be dissolved under Maryland law at any
time with the approval of a majority of our outstanding shares of stock.
However, we anticipate that by September 15, 2008, our board will determine
whether to:
- apply to have our shares of common stock listed for trading on a
national stock exchange or included for quotation on a national market
system, provided we meet the then applicable listing requirements;
and/or
- commence subsequent offerings after completion of the offering.
If listing our shares of common stock is not feasible by that time, our
board may decide to:
- sell our assets individually, provided, however, that if this action
would constitute the sale of all or substantially all of our assets,
such an action is approved by the holders of at least a majority of
the then-outstanding voting shares of stock;
- list our shares of common stock at a future date; or
- liquidate us within 10 years of such date, provided however, that such
an action is approved by the holders of at least a majority of our
then-outstanding voting shares of stock.
ADVANCE NOTICE OF DIRECTOR NOMINATIONS AND NEW BUSINESS
Our bylaws provide that, with respect to our annual meeting of
stockholders, nominations for election to our board and the proposal of business
to be considered by stockholders may be made only:
- in accordance with our notice of the meeting;
- by or at the direction of our board; or
- by a stockholder who was a stockholder of record both at the time of
the giving of notice and at the time of the meeting, who is entitled
to vote at the meeting and who has complied with the advance notice
procedures set forth in the bylaws.
Our bylaws also provide that, with respect to special meetings of
stockholders, only the business specified in our notice of meeting may be
brought before a meeting of stockholders and nominations for election to the
board may be made only:
- in accordance with our notice of the meeting;
- by or at the direction of our board; or
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- provided that our board has determined that directors will be elected
at the meeting, by a stockholder who was a stockholder of record both
at the time of the giving of notice and at the time of the annual
meeting, who is entitled to vote at the meeting and has complied with
the advance notice procedures set forth in our bylaws.
A stockholder's notice for an annual meeting must be delivered to our secretary
at our principal executive offices:
- not less than 45 days prior to the first anniversary of the date of
mailing of the notice of the previous year's annual meeting; or
- if the number of directors to be elected is increased and there is no
announcement of that fact, at least 70 days before the first
anniversary of the date of mailing of the notice of the previous
year's annual meeting, or not later than the close of business on the
tenth day of our first public announcement.
A stockholder's notice for a special meeting must be delivered to our secretary
at our principal executive offices:
- not earlier than the ninetieth day prior to the special meeting, and
- not later than the close of business on the later of either:
- the sixtieth day prior to the special meeting; or
- the tenth day following the day of our first public announcement
of the date of the special meeting and the nominees proposed by
our board to be elected at the meeting.
RESTRICTIONS ON CERTAIN CONVERSION TRANSACTIONS AND ROLL-UPS
Our articles of incorporation require that some transactions involving an
acquisition, merger, conversion or consolidation in which our stockholders
receive securities in a surviving entity, a roll-up entity, must be approved by
the holders of a majority of our then-outstanding shares. Approval by a majority
of our then-outstanding shares for a transaction resulting in a roll-up entity
is only required, however, until our board determines that it is no longer in
our best interest to attempt or continue to qualify as a REIT. The holders of a
majority of the shares do not need to approve any such transaction effected
because of changes in applicable law, or to preserve tax advantages for a
majority in interest of our stockholders.
A roll-up entity is a partnership, REIT, corporation, trust or other entity
that would be created or would survive after the successful completion of a
proposed roll-up transaction. A roll-up does not include (1) a transaction
involving securities that have been listed on a national securities exchange or
traded through The Nasdaq Stock Market -- Nasdaq National Market for at least 12
months, or (2) a transaction involving our conversion to a trust or association
form if, as a consequence of the transaction, there will be no significant
adverse change in any of the following:
- stockholders' voting rights;
- our term and existence;
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- sponsor or advisor compensation; or
- our investment objectives.
In the event of a proposed roll-up, an appraisal of all our assets must be
obtained from a person with no current or prior business or personal
relationship with our advisor or directors. Further, that person must be
substantially engaged in the business of rendering valuation opinions of assets
of the kind we hold. The appraisal must be included in a prospectus used to
offer the securities of a roll-up entity. It must also be filed with the
Securities and Exchange Commission and the state regulatory commissions as an
exhibit to the registration statement for the offering of the roll-up entity's
shares. As a result, an issuer using the appraisal will be subject to liability
for violation of Section 11 of the Securities Act and comparable provisions
under state laws for any material misrepresentations or material omissions in
the appraisal. Our assets will be appraised in a consistent manner and the
appraisal will:
- be based on an evaluation of all relevant information;
- indicate the value of our assets as of a date immediately prior to the
announcement of the proposed roll-up transaction; and
- assume an orderly liquidation of our assets over a 12-month period.
The terms of the engagement of the appraiser will clearly state that the
engagement is for the benefit of us and our stockholders. A summary of the
independent appraisal, indicating all material assumptions underlying it, will
be included in a report to the stockholders in the event of a proposed roll-up.
We may not participate in any proposed roll-up which would:
- result in the stockholders of the roll-up entity having rights which
are more restrictive to stockholders than those provided in our
articles of incorporation, including any restriction on the frequency
of meetings;
- result in the stockholders having less comprehensive voting rights
than are provided in our articles of incorporation;
- result in the stockholders having greater liability than provided in
our articles of incorporation;
- result in the stockholders having fewer rights to receive reports than
those provided in our articles of incorporation;
- result in the stockholders having access to records that are more
limited than those provided for in our articles of incorporation;
- include provisions which would operate to materially impede or
frustrate the accumulation of shares by any purchaser of the
securities of the roll-up entity, except to the minimum extent
necessary to preserve the tax status of the roll-up entity;
- limit the ability of an investor to exercise its voting rights in the
roll-up entity on the basis of the number of the shares held by that
investor;
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- result in investors in the roll-up having less comprehensive rights of
access to the records of the roll-up than those provided in our
articles of incorporation; or
- place any of the costs of the transaction on us if the roll-up is not
approved by our stockholders.
However, with the prior approval of a majority of our then-outstanding shares of
our stock, we may participate in a proposed roll-up if the stockholders would
have rights and be subject to restrictions comparable to those contained in our
articles of incorporation.
Stockholders who vote "no" on the proposed roll-up will have the choice of:
- accepting the securities of the roll-up entity offered; or
- one of either:
- remaining as our stockholders and preserving their interests on
the same terms and conditions as previously existed; or
- receiving cash in an amount equal to their pro rata share of the
appraised value of our net assets.
These provisions in our articles of incorporation, bylaws and Maryland law
could have the effect of delaying, deferring or preventing a change in control
of us, including an extraordinary transaction (such as a merger, tender offer or
sale of all or substantially all of our assets) that might provide a premium
price for holders of our common stock.
The limitations and restrictions set forth below under " -- Limitation on
Total Operating Expenses," " -- Transactions with Affiliates," and " --
Restrictions on Borrowing" in this section will be effective until our board
determines that it is no longer in our or our stockholders' best interests that
we continue to operate as a REIT, or until such time as we fail to qualify as a
REIT.
LIMITATION ON TOTAL OPERATING EXPENSES
Our articles of incorporation provide that, subject to the conditions
described in the following paragraph, our annual total operating expenses in any
fiscal year shall not exceed the greater of 2% of our average assets or 25% of
our net income, before any additions to or allowances for reserves for
depreciation, amortization or bad debts or other similar non-cash reserve and
before any gain from the sale of an our assets. Our independent directors have a
fiduciary responsibility to limit our annual total operating expenses to amounts
that do not exceed these limits. Our independent directors may, however,
determine that a higher level of total operating expenses is justified for such
period because of unusual and non-recurring expenses. Such a finding by our
independent directors and the reasons supporting it shall be recorded in our
minutes of meetings of our directors. If at the end of any fiscal quarter our
total operating expenses for the 12 months then ended are more than 2% of
average assets or more than 25% of net income, before any additions to or
allowances for reserves for depreciation, amortization or bad debts or other
similar non-cash revenues and before any gain from the sale of our assets,
whichever is greater, as described above, we will disclose this in writing to
the stockholders within 60 days of the end of the fiscal quarter. If our
independent directors conclude that higher total operating expenses are
justified, the disclosure will also contain an explanation of the conclusion. If
total operating expenses exceed the limitations described above and if our
directors are unable to conclude that the excess was justified, then the advisor
will reimburse us the amount by which the aggregate annual total operating
expenses we paid
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or incurred exceed the limitation. We must make the reimbursement within 60 days
after the end of the fiscal year.
TRANSACTIONS WITH AFFILIATES
Our articles of incorporation impose restrictions on transactions between
us and our advisor, sponsor and any director or their affiliates as follows:
- SALES AND LEASES TO US. We will not purchase property from our
sponsor, advisor, directors or any of their affiliates, unless a
majority or our disinterested directors, including a majority of our
disinterested independent directors, approves it as fair and
reasonable for us. The price to us can be no greater than the cost of
the asset to our sponsor, adviser, director or their affiliate. If our
price to us is greater than such cost, there must be substantial,
reasonable justification for the excess cost. In no event will our
cost for the property exceed its appraised value at the time we
acquired it.
- SALES AND LEASES TO SPONSOR, ADVISOR, DIRECTOR OR ANY AFFILIATE. Our
sponsor, advisor, directors or any of their affiliates will not
acquire assets from us unless a majority of disinterested directors,
including a majority of our disinterested independent directors,
approves the transaction as being fair and reasonable to us. We may
lease assets to our sponsor, advisor, director or any of their
affiliates, but still only if a majority of our disinterested
directors, including a majority of our disinterested independent
directors, approves it as fair and reasonable to us.
- LOANS. We will not make loans to our sponsor, advisor, directors or
any of their affiliates except as provided in clauses (4) and (6)
under " -- Restrictions on Investments" below in this section, or to
our wholly owned subsidiaries. Also, we may not borrow money from our
sponsor, advisor, director or any of their affiliates, unless a
majority of our disinterested directors, including a majority of our
disinterested independent directors, approves the transaction as fair,
competitive and commercially reasonable and no less favorable to us
than loans between unaffiliated parties under the same circumstances.
- INVESTMENTS. We will not invest in joint ventures with our sponsor,
advisor, directors or any of their affiliates, unless a majority of
our disinterested directors, including a majority of our disinterested
independent directors, approves the transaction as fair and reasonable
to us and on substantially the same terms and conditions as those
received by the other joint ventures. Neither can we invest in equity
securities unless a majority of our disinterested directors, including
a majority of our disinterested independent directors, approves the
transaction as being fair, competitive and commercially reasonable.
- OTHER TRANSACTIONS. All other transactions between us and our sponsor,
advisor, directors or any of their affiliates, require approval by a
majority of our disinterested directors, including a majority of our
disinterested independent directors, as being fair and reasonable and
on terms and conditions not less favorable to us than those available
from unaffiliated third parties.
RESTRICTIONS ON BORROWING
We may not incur indebtedness to enable us to make distributions except as
necessary to satisfy the requirement to distribute at least the percentage of
our REIT taxable income required for annual distribution of dividends by the
Internal Revenue Code of 1986, or otherwise as necessary or advisable to
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ensure that we maintain our qualification as a REIT for federal income tax
purposes. Our aggregate borrowings, secured and unsecured, will be reasonable in
relation to our net assets and will be reviewed by our board at least quarterly.
We anticipate that, in general, aggregate borrowings secured by all our
properties will not exceed 55% of their combined fair market value. This
anticipated amount of leverage will be achieved over time. Our articles of
incorporation provide that the aggregate amount of borrowing in relation to our
net assets will, in the absence of a satisfactory showing that a higher level of
borrowing is appropriate, not exceed 300% of net assets. Any excess in borrowing
over such 300% of net assets level will be:
approved by a majority of our independent directors;
- disclosed to our stockholders in our next quarterly report to them,
along with justification for such excess; and
- subject to approval of our stockholders.
See "Investment Objectives and Policies -- Borrowing."
RESTRICTIONS ON INVESTMENTS
The investment policies set forth in our articles of incorporation have
been approved by a majority of independent directors. Our articles of
incorporation prohibit our investments in:
- any foreign currency or bullion;
- short sales; and
- any security in any entity holding investments or engaging in
activities prohibited by our articles of incorporation.
In addition to other investment restrictions imposed by our directors from
time to time consistent with our objective to qualify as a REIT, we will observe
the following restrictions on our investments as set forth in our articles of
incorporation:
(1) Not more than 10% of our total assets will be invested in unimproved
real property or mortgage loans on unimproved real property. For
purposes of this paragraph, "unimproved real property" does not
include properties acquired for the purpose of producing rental or
other operating income, properties under development or construction,
and properties under contract for development or in planning for
development within one year.
(2) We will not invest in commodities or commodity future contracts. This
limitation does not apply to interest rate futures when used solely
for hedging purposes.
(3) We will not invest in contracts for the sale of real estate.
(4) We will not invest in or make mortgage loans unless we obtain an
appraisal of the underlying property. Mortgage indebtedness on any
property will not exceed the property's appraised value. In cases in
which the majority of independent directors so determine, and in all
cases in which the mortgage loan involves our advisor, sponsor,
directors or their affiliates, we must obtain the appraisal from an
independent expert. We
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will keep the appraisal in our records for at least five years, where
it will be available for inspection and duplication by any
stockholder. In addition to the appraisal, we will also obtain a
mortgagee's or owner's title insurance policy or commitment as to the
priority of the mortgage or condition of the title. We will not invest
in real estate contracts of sale otherwise known as land sale
contracts.
(5) We will not make or invest in mortgage loans, including construction
loans, on any one property if the aggregate amount of all outstanding
mortgage loans outstanding on the property, including our loans, would
exceed an amount equal to 85% of the appraised value of the property.
However, if there is substantial justification due to other
underwriting criteria and provided that loans would not exceed the
appraised value of the property at the date of the loans, we could
invest in mortgage loans that exceed 85% of the appraised value of the
property. The aggregate amount of all mortgage loans outstanding on
the property, including the loans of the REIT, shall include all
interest (excluding contingent participation in income and/or
appreciation in value of the mortgaged property), the current payment
of which may be deferred pursuant to the terms of such loans, to the
extent that deferred interest on each loan exceeds 5% per annum of the
principal balance of the loan.
(6) We will not make or invest in any mortgage loans that are subordinate
to any mortgage or equity interest of the advisor, the sponsor, any
director or their affiliates.
(7) We will not invest in equity securities unless a majority of our
disinterested directors, including a majority of our disinterested
independent directors, approves the transaction as being fair,
competitive and commercially reasonable. Investments in entities
affiliated with our advisor, the sponsor, any director or their
affiliates are subject to the restrictions on joint venture
investments. Notwithstanding these restrictions, we may purchase our
own securities when traded on a national securities exchange or market
if a majority of our directors, including a majority of our
independent directors, determines the purchase to be in our best
interests.
(8) We will not engage in any short sale nor will we borrow on an
unsecured basis if the borrowing will result in an asset coverage of
less than 300%.
(9) To the extent we invest in properties, a majority of the directors,
including a majority of the independent directors, will approve the
consideration paid for such properties based on the fair market value
of the properties. If a majority of independent directors so
determines, the fair market value will be determined by a qualified
independent real estate appraiser selected by our independent
directors. If any property is acquired from our sponsor, our advisor,
any director, or any of their affiliates, the provisions on
transactions with affiliates will apply.
(10) We will not invest in debt that is secured by a mortgage on real
property that is subordinate to the lien of other debt, except where
the amount of total debt does not exceed 90% of the appraised value of
the property. The value of all of these investments may not exceed 25%
of our tangible assets. The value of all investments in this debt that
does not meet these requirements will be limited to 10% of our
tangible assets, which would be included within the 25% limitation.
(11) We will not engage in trading, as compared with investment,
activities.
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(12) We will not engage in underwriting activities, or distribute as agent,
securities issued by others.
(13) We will not acquire securities in any entity holding investments or
engaging in activities prohibited by the restrictions on investments
set forth in the foregoing clauses (1) through (12). Temporary
investments in cash may be in such entities.
Our independent directors will review our investment policies at least
annually to determine whether our policies that we are following are in the best
interests of our stockholders. Subject to the above restrictions and so long as
we qualify as a REIT, a majority of our directors, including a majority of our
independent directors, may alter the investment policies if they determine that
a change is in our best interests.
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FEDERAL INCOME TAX CONSIDERATIONS
We intend to qualify as a REIT under the applicable provisions of the
Internal Revenue Code of 1986, as amended, and the Treasury regulations
promulgated thereunder and receive the beneficial federal income tax treatment
described below. However, we cannot assure you that we will meet the applicable
requirements under federal income tax laws, which are highly technical and
complex. The following discusses the applicable requirements under federal
income tax laws, the federal income tax consequences to maintaining REIT status
and the material federal income tax consequences to you. Duane Morris LLP has
acted and will act as our tax counsel in connection with our election to be
taxed as a REIT, and has rendered the opinion set forth below. Some of the
federal income tax implications of your investment are set forth in the
"--Federal Income Taxation of Stockholders" section below. We, however, urge you
to consult your tax advisor with respect to the federal, state, local, foreign
and other tax consequences of the purchase, ownership and disposition of common
shares which may be particular to your tax situation.
In brief, a corporation that invests primarily in real estate can, if it
complies with the provisions in Sections 856-860 of the Internal Revenue Code,
qualify as a REIT and claim federal income tax deductions for the dividends it
pays to its stockholders. Such a corporation generally is not taxed on its net
income that is currently distributed to its shareholders. This treatment
substantially eliminates the "double taxation" that a corporation and its
shareholders generally bear together. However, as discussed in greater detail
below, a corporation could be subject to federal income tax in some
circumstances even if it qualifies as a REIT, and would likely suffer adverse
consequences, including reduced cash available for distribution to its
stockholders, if it failed to qualify as a REIT. We intend to operate in a
manner that permits us to elect REIT status for the taxable year ending December
31, 2003, and to maintain this status in each taxable year thereafter, so long
as REIT status remains advantageous.
Duane Morris LLP is of the opinion, assuming that the actions described in
this section are completed on a timely basis and we timely file the requisite
elections, that we have been organized in conformity with the requirements for
qualification as a REIT beginning with our taxable year ending December 31,
2003, and our proposed method of operation (as described in this prospectus)
will enable us to satisfy the applicable requirements under federal income tax
laws for qualification as a REIT. This opinion has been filed as an exhibit to
the registration statement of which this prospectus is a part, and is based and
conditioned, in part, on various assumptions made by Duane Morris LLP and
representations made to Duane Morris LLP by us and the advisor as to factual
matters. Our qualification and federal income tax treatment as a REIT depends
upon our ability to meet, through operation of the properties we acquire and our
investment in other assets, the applicable requirements under federal income tax
laws. Duane Morris LLP has not reviewed, and will not in the future review,
these operating results for compliance with the applicable requirements under
federal income tax laws. Therefore, we cannot assure you that our actual
operating results will allow us to satisfy the applicable requirements under
federal income tax laws in any taxable year. In addition, this opinion
represents Duane Morris LLP's legal judgment and is not binding on the Internal
Revenue Service.
FEDERAL INCOME TAXATION AS A REIT
GENERAL. In any year in which we qualify as a REIT and have a valid
election in place, we will claim deductions for the dividends we pay to the
stockholders, and therefore will not be subject to federal income tax on that
portion of our REIT Taxable Income as defined Section 857(b)(2) of the Internal
Revenue Code or REIT capital gain which is distributed to our stockholders. We
will, however, be subject to federal income tax at normal corporate rates on any
REIT Taxable Income or capital gain not distributed.
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Although we can eliminate or substantially reduce our federal income tax
liability by maintaining our REIT status and paying sufficient dividends, we
could be subject to federal income tax on certain items of income. If we fail to
satisfy either the 95% Gross Income Test or the 75% Gross Income Test (each of
which is described below), yet maintain our REIT status by meeting other
requirements, we will be subject to a penalty tax based on the amount of income
which caused us to fail these tests, as described below. We will also be subject
to a 100% federal income tax on the net income from any "prohibited
transaction," as described below. In addition, in order to retain our REIT
status, we generally must distribute annually at least 90% of our REIT Taxable
Income for such year. While we are not required to distribute REIT net capital
gain income for any year in order to retain our REIT status, we will pay tax on
such income to the extent we do not distribute it in such year. We may also be
subject to the corporate alternative minimum tax. Additionally, we will be
subject to federal income tax at the highest corporate rate on certain
"nonqualifying" income from foreclosure property. In general, foreclosure
property consists of property acquired (by foreclosure or otherwise) in
connection with the default of a loan secured by such property.
REIT QUALIFICATION TESTS. The Code defines a REIT as a corporation, trust
or association:
- that is managed by one or more trustees or directors;
- the beneficial ownership of which is evidenced by transferable shares
or by transferable certificates of beneficial interest;
- that would be taxable as a domestic corporation but for its status as
a REIT;
- that is neither a financial institution nor an insurance company;
- the beneficial ownership of which is held by 100 or more persons on at
least 335 days in each full taxable year, proportionately adjusted for
a partial taxable year;
- generally in which, at any time during the last half of each taxable
year, no more than 50% in value of the outstanding stock is owned,
directly, or indirectly, by five or fewer individuals or certain
entities; and
- that meets the gross income, asset and annual distribution
requirements, described in greater detail below.
The first four and last conditions must be met during each taxable year for
which REIT status is sought, while the other two conditions do not have to be
met until after the first taxable year for which a REIT election is made.
Although the 25% Asset Test (as defined below) generally prevents a REIT
from owning more than 10% of the voting stock of an entity other than another
REIT, the Internal Revenue Code provides an exception for ownership of voting
stock in a "qualified REIT subsidiary." A qualified REIT subsidiary is a
corporation that is wholly owned by a REIT throughout its existence. For
purposes of the 25% Asset Test and the Gross Income Tests described below, all
assets, liabilities and tax attributes of a qualified REIT subsidiary are
treated as owned by the REIT. A qualified REIT subsidiary is not subject to
federal income tax, but may be subject to state or local tax. We may hold
investments through qualified REIT subsidiaries.
We, in satisfying the general tests described above, must meet, among
others, the following requirements:
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- SHARE OWNERSHIP TESTS. The common stock and any other stock we issue must
be held by a minimum of 100 persons (determined without attribution to the
owners of any entity owning our stock) for at least 335 days in each full
taxable year, proportionately adjusted for partial taxable years. In
addition, at all times during the second half of each taxable year, no more
than 50% in value of our stock may be owned, directly or indirectly, by
five or fewer individuals (determined with attribution to the owners of any
entity owning our stock). However, these two requirements do not apply
until after the first taxable year an entity elects REIT status. In
addition, our articles of incorporation contain provisions restricting the
transfer of our stock, which provisions are intended to assist us in
satisfying both requirements. Furthermore, the distribution reinvestment
program contains provisions that prevent it from causing a violation of
these tests as do the terms of the options granted to the independent
directors and the warrants issuable to the dealer manager and soliciting
dealers. Pursuant to the applicable requirements under federal income tax
laws, we will maintain records which disclose the actual ownership of the
outstanding stock, and demand written statements each year from the record
holders of specified percentages of the stock disclosing the beneficial
owners. Those stockholders failing or refusing to comply with our written
demand are required by the Internal Revenue Code and our articles of
incorporation to submit, with their tax returns, a similar statement
disclosing the actual ownership of stock and certain other information. See
"Description of Securities--Restrictions on ownership and transfer."
- ASSET TESTS. We must satisfy, at the close of each calendar quarter of the
taxable year, two tests based on the composition of our assets. After
initially meeting the Asset Tests at the close of any quarter, we will not
lose our status as a REIT for failure to satisfy the Asset Tests at the end
of a later quarter solely due to changes in value of our assets. In
addition, if the failure to satisfy the Asset Tests results from an
acquisition during a quarter, the failure can be cured by disposing of
nonqualifying assets within 30 days after the close of that quarter. We
intend to maintain adequate records of the value of our assets to insure
compliance with these tests, and will act within 30 days after the close of
any quarter as may be required to cure any noncompliance.
75% ASSET TEST. At least 75% of the value of our assets must be
represented by "real estate assets," cash, cash items (including
receivables) and government securities. Real estate assets include (i) real
property (including interests in real property and interests in mortgages
on real property), (ii) shares in other qualifying REITs, and (iii) any
property (not otherwise a real estate asset) attributable to the temporary
investment of "new capital" in stock or a debt instrument, but only for the
one-year period beginning on the date we received the new capital. Property
will qualify as being attributable to the temporary investment of new
capital if the money used to purchase the stock or debt instrument is
received by us in exchange for our stock (other than amounts received
pursuant to our distribution reinvestment program) or in a public offering
of debt obligations that have a maturity of at least five years.
Additionally, regular and residual interests in a real estate mortgage
investment conduit, known as a REMIC, and regular interests in a financial
asset securitization trust, known as a FASIT, are considered real estate
assets. However, if less than 95% of the assets of a REMIC or FASIT are
real estate assets, we will be treated as holding a proportionate share of
the assets and income of the REMIC or FASIT directly.
When we purchase new real estate properties, we intend that the
purchase contracts will apportion no more than 5% of the purchase price of
any property to property other than "real property," as defined in the
Code. In addition, we intend to invest funds not used to acquire properties
in cash sources, "new capital" investments or other liquid investments
which will allow us to qualify under the 75% Asset Test. Therefore, our
investment in the real properties will constitute "real estate assets" and
should allow us to meet the 75% Asset Test.
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25% ASSET TEST. The remaining 25% of our assets may generally be
invested subject to the following restrictions: If we invest in any
securities that do not qualify under the 75% Asset Test, such securities
may not exceed either (i) 5% of the value of our assets as to any one
issuer; or (ii) 10% of the outstanding securities by vote or value of any
one issuer.
Modifications apply to the 25% Asset Test for qualified REIT
subsidiaries and taxable REIT subsidiaries. As discussed above, the stock
of a "qualified REIT subsidiary" is not counted for purposes of the 25%
Asset Test. A qualified REIT subsidiary is a corporation that is wholly
owned by a REIT throughout the subsidiary's existence. All assets,
liabilities and tax attributes of a qualified REIT subsidiary are treated
as belonging to the REIT. A qualified REIT subsidiary is not subject to
federal income tax, but may be subject to state or local tax. We may hold
investments through qualified REIT subsidiaries.
Additionally, for purposes of the 25% Asset Test, securities of a
taxable REIT subsidiary are excepted from the 10% vote and value
limitations on a REIT's ownership of securities of a single issuer.
However, no more than 20% of the value of a REIT may be represented by
securities of one or more taxable REIT subsidiaries. A taxable REIT
subsidiary is a corporation (other than another REIT) that is owned in
whole or in part by a REIT, and joins in an election with the REIT to be
classified as a taxable REIT subsidiary. Corporations that directly or
indirectly operate or manage lodging or health care facilities cannot be
taxable REIT subsidiaries. A corporation that is 35% owned by a taxable
REIT subsidiary will also be treated as a taxable REIT subsidiary. A
taxable REIT subsidiary may not be a qualified REIT subsidiary, and vice
versa. As described below regarding the 75% Gross Income Test, a taxable
REIT subsidiary is utilized in much the same way an independent contractor
is used to provide certain types of services without causing the REIT to
receive or accrue certain types of non-qualifying income. In addition to
utilizing independent contractors to provide certain services in connection
with the operation of our properties, we may also utilize taxable REIT
subsidiaries to carry out these functions.
We intend to invest funds not otherwise invested in properties in cash
sources and other liquid investments in a manner which will enable us to
satisfy the 25% Asset Test.
GROSS INCOME TESTS. We must satisfy for each calendar year two separate
tests based on the composition of our gross income, as defined under our method
of accounting.
THE 75% GROSS INCOME TEST. At least 75% of our gross income for the
taxable year must result from (i) rents from real property, (ii) interest
on obligations secured by mortgages on real property or on interests in
real property, (iii) gains from the sale or other disposition of real
property (including interests in real property and interests in mortgages
on real property) other than property held primarily for sale to customers
in the ordinary course of our trade or business, (iv) dividends from other
qualifying REITs and gain (other than gain from prohibited transactions)
from the sale of shares of other qualifying REITs, (v) other specified
investments relating to real property or mortgages thereon, and, (vi) for a
limited time, qualified temporary investment income, as defined under the
75% Asset Test. We intend to invest funds not otherwise invested in real
properties in cash sources or other liquid investments in a manner that
will allow us to qualify under the 75% Gross Income Test.
Income attributable to a lease of real property will generally qualify
as "rents from real property" under the 75% Gross Income Test (and the 95%
Gross Income Test, described below), subject to the rules discussed below:
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- Rent from a particular tenant will not qualify if we, or an owner of
10% or more of our stock, directly or indirectly, owns 10% or more of
the voting stock or the total number of shares of all classes of stock
in, or 10% or more assets or net profits of, the tenant.
- The portion of rent attributable to personal property rented in
connection with real property will not qualify, unless the portion
attributable to personal property is 15% or less of the total rent
received under, or in connection with, the lease.
- Generally, rent will not qualify if it is based in whole, or in part,
on the income or profits of any person from the underlying property.
However, rent will not fail to qualify if it is based on a fixed
percentage (or designated varying percentages) of receipts or sales,
including amounts above a base amount so long as the base amount is
fixed at the time the lease is entered into, the provisions are in
accordance with normal business practice and the arrangement is not an
indirect method for basing rent on income or profits.
- Rental income will not qualify if we furnish or render services to
tenants or manage or operate the underlying property, other than
through a permissible "independent contractor" from whom we derive no
revenue, or through a taxable REIT subsidiary. This requirement,
however, does not apply to the extent that the services, management or
operations we provide are "usually or customarily rendered" in
connection with the rental of space, and are not otherwise considered
"rendered to the occupant."
With respect to the "usual or customarily rendered" rule, our tenants will
receive some services in connection with their leases to the real properties. We
believe that the services to be provided are usually or customarily rendered in
connection with the rental of the properties, and, therefore, that providing
these services will not cause the rents we receive with respect to the
properties to fail to qualify as rents from real property for purposes of the
75% Gross Income Test (and the 95% Gross Income Test, described below). The
board of directors intends to hire qualifying independent contractors or to
utilize taxable REIT subsidiaries to render services which it believes, after
consultation with Duane Morris LLP, are not usually or customarily rendered in
connection with the rental of space.
THE 95% GROSS INCOME TEST. In addition to deriving 75% of our gross income
from the sources listed above, at least 95% of our gross income (excluding gross
income from prohibited transactions) for the taxable year must be derived from
(i) sources which satisfy the 75% Gross Income Test, (ii) dividends, (iii)
interest, or (iv) gain from the sale or disposition of stock or other securities
that are not assets held primarily for sale to customers in the ordinary course
of our trade or business. It is important to note that dividends and interest on
obligations not collateralized by an interest in real property qualify under the
95% Gross Income Test, but not under the 75% Gross Income Test. We intend to
invest funds not otherwise invested in properties in cash sources or other
liquid investments which will allow us to qualify under the 95% Gross Income
Test.
Our share of income from the properties will primarily give rise to rental
income and gains on sales of the properties, substantially all of which will
generally qualify under the 75% gross income and 95% Gross Income Tests. Our
anticipated operations indicate that it is likely that we will have little or no
nonqualifying income to cause adverse federal income tax consequences.
If we fail to satisfy either the 75% Gross Income Test or the 95% Gross
Income Test for any taxable year, we may retain our status as a REIT for such
year if we satisfy the Internal Revenue Service that: (i) the failure was due to
reasonable cause and not due to willful neglect, (ii) we attach to our return a
schedule describing the nature and amount of each item of our gross income, and
(iii) any incorrect information on such schedule was not due to fraud with
intent to evade federal income tax. If this relief
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provision is available, we would remain subject to a 100% tax based upon the
amount by which we failed the 75% Gross Income Test or the 95% Gross Income
Test.
ANNUAL DISTRIBUTION REQUIREMENTS. In addition to the other tests described
above, we are required to distribute dividends (other than capital gain
dividends) to the stockholders each year in an amount at least equal to the
excess of: (1) the sum of: (a) 90% of our REIT Taxable Income (determined
without regard to the deduction for dividends paid and by excluding any net
capital gain); and (b) 90% of the excess of the net income (after tax) from
foreclosure property; less (2) the sum of certain types of items of non-cash
income. Whether sufficient amounts have been distributed is based on amounts
paid in the taxable year to which they relate, or in the following taxable year
if we: (1) declare a dividend before the due date of our tax return (including
extensions), (2) distribute the dividend within the 12-month period following
the close of the taxable year (and not later than the date of the first regular
dividend payment made after such declaration), and (3) file an election with our
tax return. Additionally, dividends that we declare in October, November or
December in a given year payable to stockholders of record in any such month
will be treated as having been paid on December 31 of that year so long as the
dividends are actually paid during January of the following year. If we fail to
meet the annual distribution requirements as a result of an adjustment to our
federal income tax return by the Internal Revenue Service, we may cure the
failure by paying a "deficiency dividend" (plus penalties and interest to the
Internal Revenue Service) within a specified period.
If we do not distribute all of our net capital gain or distribute at least
90%, but less than 100% of our REIT Taxable Income, we will be subject to
federal income tax on the undistributed portion. Furthermore, to the extent that
we fail to distribute by year end at least the sum of: (1) 85% of our REIT
Taxable Income for such year; (2) 95% of our REIT capital gain net income for
such year; and (3) any undistributed taxable income from prior years, we would
be subject to an excise tax equal to 4% of the difference between the amount
required to be distributed under this formula and the amount actually
distributed.
We intend to pay sufficient dividends each year to satisfy the annual
distribution requirements and avoid federal income tax on net capital gains. It
is possible that we may not have sufficient cash or other liquid assets to meet
the annual distribution requirements due to tax accounting rules and other
timing differences. We will closely monitor the relationship between our REIT
Taxable Income and cash flow and, if necessary to comply with the annual
distribution requirements, will borrow funds to fully provide the necessary cash
flow.
FAILURE TO QUALIFY AS A REIT. If we fail to qualify for federal income tax
purposes as a REIT in any taxable year and the relief provisions are not
available or cannot be met, we will not be able to deduct our dividends and will
be subject to federal income tax (including any applicable alternative minimum
tax) on our taxable income at regular corporate rates, thereby reducing cash
available for distributions. In such event, all distributions to stockholders
(to the extent of our current and accumulated earnings and profits), will be
taxable as ordinary income. This "double taxation" results from our failure to
qualify as a REIT. Unless entitled to relief under specific statutory
provisions, we will not be eligible to elect REIT status for the four taxable
years following the year during which qualification was lost.
PROHIBITED TRANSACTIONS. As discussed above, we will be subject to a 100%
federal income tax on any net income derived from "prohibited transactions." Net
income derived from prohibited transactions arises from the sale or exchange of
property held for sale to customers in the ordinary course of our business which
is not foreclosure property. There is an exception to this rule for sales of
property that:
- is a real estate asset under the 75% Asset Test;
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- has been held for at least four years;
- has aggregate expenditures which are includable in the basis of the
property not in excess of 30% of the net selling price;
- in certain cases, was held for production of rental income for at
least four years;
- when combined with other sales in the year, either does not cause the
REIT to have made more than seven sales of property during the taxable
year, or occurs in a year when the REIT disposes of less than 10% of
its assets (measured by federal income tax basis and ignoring
involuntary dispositions and sales of foreclosure property); and
- in certain cases, substantially all of the marketing and development
expenditures were made through an independent contractor.
Although we may eventually sell some or all of our properties, our primary
intention in acquiring and operating the properties is the production of rental
income and we do not expect to hold any property for sale to customers in the
ordinary course of our business.
FEDERAL INCOME TAXATION OF STOCKHOLDERS
TAXATION OF TAXABLE DOMESTIC STOCKHOLDERS. As long as we qualify as a REIT,
distributions paid to our domestic stockholders out of current or accumulated
earnings and profits (and not designated as capital gain dividends) will be
ordinary dividend income. Distributions in excess of current and accumulated
earnings and profits are treated first as a tax-deferred return of capital to
the stockholder, reducing the stockholder's tax basis in his or her common stock
by the amount of such distribution, and then to the extent such a distribution
exceeds a stockholder's tax basis, as capital gain. Because earnings and profits
are reduced for depreciation and other noncash items, it is possible that a
portion of each distribution will constitute a tax-deferred return of capital.
Additionally, because distributions in excess of earnings and profits reduce the
stockholder's basis in our stock, this will increase the stockholder's gain on
any subsequent sale of the stock.
Dividend income is characterized as "portfolio" income under the passive
loss rules and cannot be offset by a stockholder's current or suspended passive
losses. Corporate stockholders cannot claim the dividends received deduction for
such dividends unless we lose our REIT status. Distributions that are designated
as capital gain dividends will be taxed as long-term capital gains to the extent
they do not exceed our actual net capital gain for the taxable year. However,
corporate stockholders may be required to treat up to 20% of some types of
capital gain dividends as ordinary income. Although stockholders generally
recognize taxable income in the year that a distribution is received, any
distribution we declare in October, November or December of any year and is
payable to a stockholder of record on a specific date in any such month will be
treated as both paid by us and received by the stockholder on December 31 of the
year it was declared even if paid by us during January of the following calendar
year. Because we are not a pass-through entity for federal income tax purposes,
stockholders may not use any of our operating or capital losses to reduce their
tax liabilities. We may also decide to retain, rather than distribute, our net
long-term capital gains and pay any tax thereon. In this case, stockholders
would include their proportionate shares of such gains in income and receive a
credit on their returns for their proportionate share of our tax payments.
In general, the sale of common stock held for more than 12 months will
produce long-term capital gain or loss. All other sales of common stock
generally will produce short-term gain or loss. In each case, the gain or loss
is equal to the difference between the amount of cash and fair market value of
any property received from the sale and the stockholder's basis in the common
stock sold. However, any loss
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from a sale or exchange of common stock by a stockholder who has held such stock
for six months or less will be treated as a long-term capital loss, to the
extent of our distributions that the stockholder treated as long-term capital
gains.
We will report to our domestic stockholders and to the Internal Revenue
Service the amount of dividends paid during each calendar year, and the amount
(if any) of federal income tax we withhold. A stockholder may be subject to
backup withholding (the current rate of which is 30%) with respect to dividends
paid unless such stockholder: (a) is a corporation or comes within other exempt
categories; or (b) provides us with a taxpayer identification number, certifies
as to no loss of exemption, and otherwise complies with applicable requirements.
A stockholder that does not provide us with its correct taxpayer identification
number may also be subject to penalties imposed by the Internal Revenue Service.
Any amount paid as backup withholding can be credited against the stockholder's
federal income tax liability. In addition, we may be required to withhold a
portion of distributions made to any stockholders who fail to certify their
nonforeign status to us. See "--Taxation of Foreign Stockholders" in this
section.
TAXATION OF TAX EXEMPT STOCKHOLDERS. Our distributions to a stockholder
that is a tax-exempt entity should not constitute unrelated business taxable
income, or UBTI, unless the stockholder borrows funds (or otherwise incurs
acquisition indebtedness within the meaning of the Internal Revenue Code) to
acquire its common shares, or the common shares are otherwise used in an
unrelated trade or business of the tax-exempt entity.
Special rules apply to the ownership of REIT shares by certain tax-exempt
pension trusts. If we would fail to satisfy the "five or fewer" share ownership
test (discussed above with respect to the Share Ownership tests) because the
stock held by tax-exempt pension trusts was viewed as being held by the trusts
rather than by their respective beneficiaries, tax-exempt pension trusts owning
more than 10% by value of our stock may be required to treat a percentage of our
dividends as UBTI. This rule applies if: (1) at least one tax-exempt pension
trust owns more than 25% by value of our shares, or (2) one or more tax-exempt
pension trusts (each owning more than 10% by value of our shares) hold in the
aggregate more than 50% by value of our shares. The percentage treated as UBTI
is our gross income (less direct expenses) derived from an unrelated trade or
business (determined as if we were a tax-exempt pension trust) divided by our
gross income from all sources (less direct expenses). If this percentage is less
than 5%, however, none of the dividends will be treated as UBTI. Because of the
restrictions in our articles of incorporation of incorporation regarding the
ownership concentration of our common stock, we believe that a tax-exempt
pension trust should not become subject to these rules. However, because our
common shares may be publicly traded, we can give no assurance of this.
Prospective tax-exempt purchasers should consult their own tax advisors as
to the applicability of these rules and consequences to their particular
circumstances.
TAXATION OF FOREIGN STOCKHOLDERS. The following discussion is intended only
as a summary of the rules governing federal income taxation of nonresident alien
individuals, foreign corporations, foreign partnerships, and foreign trusts and
estates. These rules are quite complex and prospective foreign stockholders
should consult with their own tax advisors to determine the impact of federal,
state, and local income tax laws including any reporting requirements with
respect to their investment in our REIT.
In general, foreign stockholders will be subject to regular U.S. income tax
with respect to their investment if such investment is "effectively connected"
with the conduct of a trade or business in the U.S. A corporate foreign
stockholder that receives (or is deemed to have received) income that is
effectively connected with a U.S. trade or business may also be subject to the
30% "branch profits tax" under Code Section 884, which is payable in addition to
regular federal corporate income tax. The
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following discussion applies to foreign stockholders whose investment is not
considered "effectively connected."
Generally, any dividend that constitutes ordinary income for federal income
tax purposes will be subject to a U.S. tax equal to the lesser of 30% of the
gross amount of dividends or the rate in an applicable tax treaty. Generally, a
distribution that does not exceed our earnings and profits will be treated as a
dividend taxable as ordinary income. A distribution in excess of our earnings
and profits is treated first as a nontaxable return of capital that will reduce
a foreign stockholder's basis in its common stock (but not below zero) and then
as gain from the disposition of such common stock, subject to the rules
discussed below for dispositions.
Our distributions that are attributable to gain from the sale or exchange
of a "U.S. real property interest" are taxed to a foreign stockholder as if the
distributions were gains "effectively connected" with a United States trade or
business conducted by such foreign shareholder. As a result, a foreign
stockholder will be taxed on these amounts at the capital gain rates applicable
to a U.S. stockholder (subject to any applicable alternative minimum tax and a
special alternative minimum tax in the case of nonresident alien individuals).
In addition, such dividends may also be subject to a 30% branch profits tax when
made to a corporate foreign stockholder that is not entitled to treaty
exemptions.
We will report to our foreign stockholders and the Internal Revenue Service
the amount of dividends paid during each calendar year, and the amount (if any)
of federal income tax we withhold. These information reporting requirements
apply regardless of whether withholding was reduced or eliminated in any
applicable tax treaty. Copies of these information returns may also be made
available under the provisions of a specific treaty or agreement with the tax
authorities in the country in which the foreign stockholder resides. As
discussed below, withholding tax rates of 30% and 35% may apply to distributions
on common stock to foreign stockholders.
Although tax treaties may reduce our withholding obligations, we will
generally be required to withhold from dividends to foreign stockholders, and
remit to the Internal Revenue Service, 35% of any distribution that could be
designated as a capital gain dividend (regardless of the amount actually
designated as a capital gain dividend) and 30% of ordinary dividends paid out of
earnings and profits. In addition, if we designate prior dividends as capital
gain dividends, subsequent dividends, up to the amount of such prior dividends,
will be treated as capital gain dividends for withholding purposes. The amount
of federal income tax withheld is creditable against the foreign stockholder's
federal income tax liability, and if the amount of tax we withhold exceeds the
U.S. tax liability, the foreign stockholder may file for a refund of such excess
from the Internal Revenue Service. (Note that the 35% withholding tax rate on
capital gain dividends currently corresponds to the maximum income tax rate
applicable to corporations, but is higher than the 20% maximum rate on long-term
capital gains of individuals.)
Applicable Treasury regulations provide certain presumptions under which a
foreign stockholder would be subject to backup withholding and information
reporting until we receive certification from these stockholders of their
foreign status. The regulations generally require a foreign stockholder to
provide us with federal Form W-8BEN referred to as a Certificate of Foreign
Status of Beneficial Owner for United States Tax Withholding, Form W-8ECI
referred to as a Certificate of Foreign Person's Claim for Exemption From
Withholding on Income Effectively Connected With the Conduct of a Trade or
Business in the United States, or Form W-8EXP referred to as a Certificate of
Foreign Government or Other Foreign Organization for United States Tax
Withholding certifying the foreign stockholder's entitlement to the benefits of
any treaty.
Unless the common shares constitute a "U.S. real property interest" under
Section 897 of the Internal Revenue Code, gain on a sale of common stock by a
foreign stockholder generally will not be
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subject to U.S. income taxation unless (i) investment in the common stock is
effectively connected with the foreign stockholder's U.S. trade or business, in
which case, as discussed above, the foreign shareholder would be subject to the
federal income tax, or (ii) the foreign stockholder is a nonresident alien
individual who was present in the United States for 183 days or more during the
taxable year, in which case the nonresident alien individual may be subject to a
30% tax on such gain.
The common shares will not constitute a "U.S. real property interest" if we
are a "domestically controlled REIT." A domestically controlled REIT is a REIT,
which at all times during the preceding five-year period, had less than 50% in
value of its common stock held directly or indirectly by foreign stockholders.
We (or, if shorter, the period during which the REIT is in existence) expect to
be a domestically controlled REIT, and, therefore, the sale of common stock
should not be subject to such taxation for foreign stockholders, except as
discussed above. However, because the common shares may be (but are not
guaranteed to be) publicly traded, we can not assure you that we will continue
to be a domestically controlled REIT. If we do not constitute a domestically
controlled REIT, whether a foreign stockholder's gain on the sale of stock is
subject to federal income tax as a sale of a U.S. real property interest depends
primarily on whether the common shares are "regularly traded" on an established
securities market and on the size of the selling stockholder's interest. If the
gain on the sale of common shares is subject to federal income tax under these
rules, the foreign stockholder would be subject to the same treatment as a U.S.
stockholder with respect to the gain (subject to applicable alternative minimum
tax and a special alternative minimum tax in the case of nonresident alien
individuals). In any event, a purchaser of common stock from a foreign
stockholder will not be required to withhold on the purchase price if the
purchased shares are "regularly traded" on an established securities market or
if we are a domestically controlled REIT. Otherwise, the purchaser of stock may
be required to withhold 10% of the purchase price and remit this amount to the
Internal Revenue Service.
If the proceeds of a disposition of common stock are paid by or through a
U.S. office of a broker-dealer, the payment is generally subject to information
reporting and to backup withholding (the current rate of which is 30%) unless
the disposing foreign stockholder certifies as to his name, address and non-U.S.
status or otherwise establishes an exemption. Generally, U.S. information
reporting and backup withholding may not apply to a payment of disposition
proceeds if the payment is made outside the U.S. through a foreign office of a
foreign broker-dealer. Prospective foreign purchasers should consult their tax
advisers concerning these rules.
OTHER TAX CONSIDERATIONS
DISTRIBUTION REINVESTMENT PROGRAM. Stockholders who participate in the
distribution reinvestment program will recognize taxable dividend income in the
amount they would have received had they elected not to participate, even though
they receive no cash. These deemed dividends will be treated as actual dividends
from us to the participating stockholders and will retain the character and
federal income tax effects applicable to all dividends. See "--Taxation of
Stockholders" in this section. Stock received under the program will have a
holding period beginning with the day after purchase, and a federal income tax
basis equal to its cost, which is the gross amount of the deemed distribution.
STATE AND LOCAL TAXES. We and you may be subject to state or local taxation
in various jurisdictions, including those in which we transact business or
reside. Our and your state and local tax treatment may not conform to the
federal income tax consequences discussed above. Consequently, you should
consult your own tax advisors regarding the effect of state and local tax laws
on an investment in the common shares.
LEGISLATIVE PROPOSALS. You should recognize that our and your present
federal income tax treatment may be modified by legislative, judicial or
administrative actions at any time, which may be
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retroactive in effect. The rules dealing with federal income taxation are
constantly under review by Congress, the Internal Revenue Service and the
Treasury Department, and statutory changes as well as promulgation of new
regulations, revisions to existing statutes, and revised interpretations of
established concepts occur frequently. We are not currently aware of any pending
legislation that would materially affect our or your taxation as described in
this prospectus. You should, however, consult your advisors concerning the
status of legislative proposals that may pertain to a purchase of common shares.
President Bush has proposed to exempt certain dividend payments made by certain
corporations from federal taxation. We cannot be sure what impact, if any, any
possible legislation could have on us or you as a stockholder.
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ERISA CONSIDERATIONS
The following is a summary of material considerations arising under ERISA,
including the prohibited transaction provisions of ERISA, and of Section 4975 of
the Internal Revenue Code that may be relevant to a prospective purchaser of the
shares where such prospective purchaser is an employee benefit plan, IRA or
other tax-exempt entity under the Internal Revenue Code. This discussion does
not deal with all aspects of ERISA or Section 4975 of the Internal Revenue Code
or, to the extent not preempted, state law that may be relevant to particular
employee benefit plan stockholders (including plans subject to Title I of ERISA,
other employee benefit plans and IRAs subject to the prohibited transaction
provisions of Section 4975 of the Internal Revenue Code, and governmental plans
and church plans that are exempt from ERISA and Section 4975 of the Internal
Revenue Code but that may be subject to state law and other Internal Revenue
Code requirements) in light of their particular circumstances.
A FIDUCIARY MAKING THE DECISION TO INVEST IN SHARES ON BEHALF OF A
PROSPECTIVE INVESTOR WHICH IS A PENSION, PROFIT-SHARING, RETIREMENT, IRA OR
OTHER EMPLOYEE BENEFIT PLAN IS ADVISED TO CONSULT ITS OWN LEGAL ADVISOR
REGARDING THE SPECIFIC CONSIDERATIONS ARISING UNDER ERISA, SECTION 4975 OF THE
INTERNAL REVENUE CODE, AND (TO THE EXTENT NOT PREEMPTED) STATE LAW WITH RESPECT
TO THE PURCHASE, OWNERSHIP, OR SALE OF SHARES BY SUCH BENEFIT PLAN. BENEFIT
PLANS SHOULD ALSO CONSIDER THE ENTIRE DISCUSSION UNDER THE PRECEDING SECTION
ENTITLED "FEDERAL INCOME TAX CONSIDERATIONS," AS MATERIAL CONTAINED THEREIN IS
RELEVANT TO ANY DECISION BY A BENEFIT PLAN TO PURCHASE THE SHARES.
In considering whether to invest a portion of the assets of a benefit plan
in shares, fiduciaries of the benefit plan should consider, among other things,
whether the investment:
- will be in accordance with the governing documents of the benefit
plan and is authorized and consistent with their fiduciary
responsibilities under ERISA;
- will allow the benefit plan to satisfy the diversification
requirements of ERISA, if applicable;
- will result in UBTI to the benefit plan (see "Federal Income Tax
Considerations -- Taxation of Stockholders -- Taxation of
Tax-Exempt Stockholders");
- will be sufficiently liquid for the benefit plan after taking
this investment into account; and
- is prudent and in the best interests of the benefit plan, its
participants and beneficiaries under ERISA standards.
The fiduciary of an IRA or a benefit plan not subject to Title I of ERISA
because it is a governmental or church plan or because it does not cover common
law employees should consider that such an IRA or non-ERISA plan may be subject
to prohibitions against certain related-party transactions under Section 503 of
the Internal Revenue Code, which operate similar to the prohibited transaction
rules of ERISA and the Internal Revenue Code. In addition, the fiduciary of any
governmental or church plan must consider applicable state or local laws, if
any, and the restrictions and duties of common law, if any, imposed upon such
plan. We express no opinion on whether an investment in shares is appropriate or
permissible for any governmental or church plan under Section 503 of the
Internal Revenue Code, or under any state, county, local, or other law
respecting such plan.
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In addition to imposing general fiduciary standards of investment prudence
and diversification, ERISA and the corresponding provisions of the Internal
Revenue Code prohibit a wide range of transactions involving the assets of the
benefit plan and persons who have certain specified relationships to the benefit
plan ("parties in interest" under ERISA and "disqualified persons" under the
Internal Revenue Code).
Benefit plan fiduciaries may not enter into a prohibited transaction
involving "plan assets" and a "party in interest" or "disqualified person" with
respect to a plan investor, unless an exemption applies. A prohibited
transaction may occur if our assets are deemed to be assets of a benefit plan
(i.e., the "look-through rule") which invests in shares and thereafter a "party
in interest" or a "disqualified person" deals with the assets in a manner not
permitted under ERISA or the Internal Revenue Code. Under such circumstances,
any person that exercises authority or control with respect to the management or
disposition of benefit plan assets is a benefit plan fiduciary and, therefore,
is a "party in interest" and a "disqualified person" capable of participating in
a prohibited transaction with the benefit plan. Thus, the actions of an employee
of ours in dealing with our assets could, under certain circumstances, cause a
benefit plan which invests in the shares to be a participant in a prohibited
transaction. While "plan assets" are not defined in ERISA or the Internal
Revenue Code, the United States Department of Labor, or the DOL, has issued
regulations that provide guidance on the circumstances under which a benefit
plan's investment in shares will be subject to the "look-through rule" and thus
result in our assets being deemed benefit plan assets. The DOL regulations
provide an exception to the "look-through rule" for a benefit plan which invests
in a "publicly-offered security." This exception would apply to the shares, if
they are part of a class of securities that is "widely-held,"
"freely-transferable," and either registered under Section 12(b) or 12(g) of the
Securities Exchange Act of 1934, or sold to the benefit plan pursuant to an
effective registration statement under the Securities Act of 1933, provided the
class of securities of which the security is a part are registered under the
Securities Exchange Act of 1934 within 120 days or such longer period as is
allowed by the Securities and Exchange Commission after the end of the fiscal
year of the issuer during which the offering occurred. The shares are being sold
in an offering registered under the Securities Act of 1933 and we represent that
the class of securities of which the shares are a part have been registered
under the Securities Exchange Act within the applicable time limits.
The DOL regulations indicate that a security is "widely-held" only if it is
part of a class of securities that is owned by 100 or more investors independent
of the issuer and of one another. A security will not fail to be "widely-held"
because the number of independent investors falls below 100 subsequent to the
initial offering as a result of events beyond the issuer's control. We expect
(although no assurances can be given) that the shares will be held by over 100
independent investors and, therefore, should be considered "widely-held."
The DOL regulations further provide that whether a security is
"freely-transferable" is a factual question to be determined on the basis of all
relevant facts and circumstances. The DOL regulations state that generally, when
a security is part of an offering in which the minimum investment is $10,000 or
less, as is the case with this offering, certain restrictions ordinarily will
not, alone or in combination, affect the determination of the finding that such
securities are "freely-transferable." One such example under the DOL regulations
is that a restriction or prohibition against a transfer or assignment which
would result in a termination or reclassification of an entity for federal or
state income tax purposes will not affect the determination of whether
securities are "freely transferable." We believe that the ownership limits
imposed under our charter of incorporation on the transfer of the shares are
designed to prevent violations of the five or fewer requirement of federal
income tax laws (which would cause a termination of REIT status for tax
purposes) or are otherwise permitted under the DOL regulations and, therefore,
will not cause the shares to not be "freely-transferable."
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The DOL regulations are interpretive in nature and, therefore, no assurance
can be given that the DOL and the United States Department of the Treasury will
not conclude that the shares are not "freely-transferable," or not
"widely-held." However, we believe that the shares are "publicly offered
securities" for purposes of the DOL regulations and that:
- our assets will not be deemed to be "plan assets" of any benefit
plan that invests in the shares; and
- any person who exercises authority or control with respect to our
assets should not be treated as a benefit plan fiduciary of any
benefit plan that invests in the shares, for purposes of the
prohibited transaction rules of ERISA and Section 4975 of the
Internal Revenue Code.
In addition, a prohibited transaction may also occur under ERISA or the
Internal Revenue Code where there are circumstances indicating that:
- investment in the shares is made or retained for the purposes of
avoiding application of the fiduciary standards of ERISA;
- the investment in the REIT constitutes an arrangement under which
it is expected that the REIT will engage in transactions which
would otherwise be prohibited if entered into directly by the
benefit plan purchasing the shares;
- the investing benefit plan, by itself, has the authority or
influence to cause the REIT to engage in such transactions; or
- the person who is prohibited from transacting with the investing
benefit plan may, but only with the aid of its affiliates and the
investing benefit plan, cause the REIT to engage in such
transactions with such person.
In any event, a fiduciary or other person investing "plan assets" of any
benefit plan should not purchase shares if we or any of our affiliates either:
- have investment discretion with respect to the investment of such
assets; or
- have authority or responsibility to give or regularly gives investment
advice with respect to such assets, for a fee, pursuant to an
agreement or understanding that such advice will serve as a primary
basis for investment decisions with respect to such assets and that
such advice will be based on the particular investment needs of such
benefit plan.
Unless an exemption is available for an employer maintaining or
contributing to such benefit plans, any such purchase might result in a
non-exempt prohibited transaction under ERISA or Section 4975 of the Internal
Revenue Code.
See "Risk Factors -- Employee Benefit Plan Risks -- Annual Statement of
Value is an Estimate" for an explanation of the annual statement of value we
will provide stockholders subject to ERISA.
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PLAN OF DISTRIBUTION
GENERAL
Of the 270,000,000 shares of our common stock offered by this prospectus,
we are offering:
- up to 250,000,000 shares at a purchase price of $10.00 per share
through Inland Securities Corporation, the managing dealer, to the
public on a best-efforts basis. Our managing dealer is one of our
affiliates. A "best-efforts" basis means that neither the managing
dealer nor the soliciting dealers are under any obligation to purchase
any of the shares being offered. Therefore, no specified number of
shares are guaranteed to be sold and no specified amount of money is
guaranteed to be raised from this offering.
- up to 20,000,000 shares at a purchase price of $9.50 per share for
issuance through our distribution reinvestment program which will
provide you with an opportunity to purchase additional shares of our
common stock at a reduced rate by reinvesting your distributions.
The offering price of our stock is subjective and was determined by our
board of directors. Our board of directors determined the offering price based
on the offering price of earlier REITs organized by our sponsor, the range of
offering prices of other REITs that do not have a public trading market and the
recommendation of the managing dealer based on its consultations with likely
soliciting dealers. This offering will commence as of the date of this
prospectus. If the minimum offering of 200,000 shares is not sold by
September 15, 2004, we will cancel this offering and your investment will be
returned to you within five business days after cancellation with any interest
earned on your investment and with no deduction from your investment. If the
minimum offering of 200,000 shares of common stock is sold and if this offering
continues thereafter, the offering will terminate on or before, September 15,
2004, unless we elect to extend it to a date no later than September 15, 2005,
in states that permit an extension. We reserve the right to terminate this
offering at any time.
Our dealer manager is a wholly owned subsidiary of our sponsor, Inland Real
Estate Investment Corporation. Our dealer manager was also the dealer manager
for the offerings for Inland Real Estate Corporation and Inland Retail Real
Estate Trust, Inc. Inland Real Estate Corporation raised approximately
$679,780,000 in its offering. As of June 30, 2003, Inland Retail Real Estate
Trust, Inc. raised approximately $2,156,104,000 in its offering.
Our sponsor is an affiliate of our dealer manager.
ESCROW CONDITIONS
If you are qualified to participate in this offering, the proceeds from
your subscription will be deposited in a segregated escrow account with the
escrow agent, LaSalle Bank National Association, 120 South LaSalle Street,
Chicago, Illinois, and will be held in trust for your benefit, pending release
to us. Your investment will not be commingled with any other funds. None of the
common stock offered by this prospectus will be sold, no commissions or fees
will be paid, and your initial admission as a stockholder will not take place
unless the escrow agent has received and accepted paid subscriptions for at
least 200,000 shares of common stock for $2,000,000 within six months from the
date of this prospectus. If subscriptions for at least the minimum offering have
not been received, accepted, and paid for within six months from the date of
this prospectus, the escrow agent will promptly refund your investment, together
with your pro rata share of any interest earned. If a refund is made, our
sponsor will pay any escrow fees.
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The escrow agreement between us, the managing dealer and the escrow agent
provides that escrowed funds will be invested by the escrow agent in an interest
bearing account with the power of investment in short term securities issued or
guaranteed by the United States Government which can be readily sold, or other
investments permitted under the Securities Exchange Act of 1934. Additionally,
as soon as we have received subscription proceeds for at least 200,000 shares of
our common stock, we may invest the proceeds in other short term investments
which can be readily sold, with appropriate safety of principal. After the
minimum offering amount is sold, subscription proceeds are expected to be
released to us as subscriptions are accepted. We will accept or reject
subscriptions within 10 days after our receipt of a fully completed copy of the
subscription agreement and payment for the number of shares of common stock
subscribed for.
The interest, if any, earned on subscription proceeds relating to the
minimum offering prior to the release of the subscription proceeds to us from
escrow will be distributed to you on a pro rata basis within 30 days after the
end of the quarter during which you were admitted as a stockholder. After your
initial admission as a stockholder in connection with the sale of at least
200,000 shares, you will not be entitled to interest earned on our funds or to
receive interest on your investment.
The escrow agreement provides that the escrow agent will be appointed as an
investment manager by a named fiduciary of any ERISA plan that is providing
money to the escrow. The escrow agreement among us, the managing dealer, and the
escrow agent also provides (1) that until all the conditions precedent for
transferring the monies held in escrow are met, the escrow property may be
considered plan assets under ERISA and the escrow holder shall act as a
fiduciary to any benefit plan with respect to those assets, and (2) that the
property will be returned to the benefit plan if the conditions precedent are
not met in a reasonable period of time.
SUBSCRIPTION PROCESS
We are offering up to 250,000,000 shares of our common stock to the public
through the managing dealer and the soliciting dealers. The agreement between
our managing dealer and the soliciting dealers requires the soliciting dealers
to make diligent inquiries of you in order to determine whether a purchase of
our common stock is suitable for you, and to transmit promptly to us the
completed subscription documentation and any supporting documentation we may
reasonably require.
The managing dealer or a soliciting dealer is also required to deliver to
you a copy of this prospectus and its appendices. We plan to make this
prospectus and the appendices available electronically to the managing dealer
and the soliciting dealers, as well as to provide them paper copies. As a
result, if the managing dealer or a soliciting dealer chooses, with your prior
consent, it may provide you with the option of receiving this prospectus and the
appendices electronically. In any case, however, you may always receive a paper
copy upon request. For at least six years, we shall maintain records of the
information we have to determine that an investment in our shares is suitable
and appropriate for a stockholder.
Our common stock is being sold as subscriptions for the common stock are
received and accepted by us, subject to the satisfaction by us of the escrow
conditions described in the section immediately above. We have the unconditional
right to accept or reject your subscription within 10 days after our receipt of
a fully completed copy of the subscription agreement and payment for the number
of shares of common stock subscribed for. If we accept your subscription, a
confirmation will be mailed to you not more than three business days after our
acceptance. No sale of our common stock may be completed until at least five
business days after the date you receive this prospectus and, if required by
state regulatory authorities, a copy of our organizational documents. If for any
reason your subscription is rejected, your
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funds and your subscription agreement will be returned to you, without interest
or deduction, within 10 days after receipt.
REPRESENTATIONS AND WARRANTIES IN THE SUBSCRIPTION AGREEMENT
The subscription agreement requires you to make the following factual
representations:
- Your tax identification number set forth in the subscription agreement
is accurate and you are not subject to backup withholding;
- You received a copy of this prospectus not less than five business
days prior to signing the subscription agreement (unless your state
requires otherwise);
- You meet the minimum income, net worth and any other applicable
suitability standards established for you, as described in "Who May
Invest," which appears earlier in this prospectus;
- You are purchasing our common stock for your own account; and
- You acknowledge that our common stock cannot be readily sold.
Each of the above representations is included in the subscription agreement
in order to help satisfy our responsibility to make every reasonable effort to
determine that the purchase of our common stock is a suitable and appropriate
investment for you and that appropriate income tax reporting information is
obtained. We will not sell any common stock to you unless you are able to make
the above factual representations by executing the subscription agreement.
By executing the subscription agreement, you will not be waiving any rights
under the federal securities laws.
DETERMINATION OF YOUR SUITABILITY AS AN INVESTOR
We, our managing dealer, each soliciting dealer and our sponsor will make
reasonable efforts to determine that you satisfy the suitability standards set
forth herein and that an investment in our common stock is an appropriate
investment for you. The soliciting dealers must determine whether you can
reasonably benefit from this investment. In making this determination, the
soliciting dealers will consider whether:
- you have the capability of understanding fundamental aspects of our
business based on your employment experience, education, access to
advice from qualified sources such as attorneys, accountants and tax
advisors and prior experience with investments of a similar nature;
- you have an apparent understanding of:
- the fundamental risks and possible financial hazards of this type
of investment;
- that the shares cannot be readily sold;
- the role of our advisor in directing or managing your investment
in us; and
- the tax consequences of your investment; and
- you have the financial capability to invest in our common stock.
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By executing the subscription agreement, each soliciting dealer
acknowledges its determination that our common stock is a suitable investment
for you. Each soliciting dealer is required to represent and warrant that it has
complied with all applicable laws in determining the suitability of our common
stock as an investment for you. We and our affiliates will coordinate the
processes and procedures used by the managing dealer and the soliciting dealers
and, where necessary, implement additional reviews and procedures to determine
that you meet the suitability standards set forth in this prospectus.
COMPENSATION WE WILL PAY FOR THE SALE OF OUR SHARES
Except for the special sales described later in this section, we will pay
the managing dealer cash selling commissions of 7.5% on all of the up to
250,000,000 shares of common stock sold on a best-efforts basis. Of this 7.5%
selling commissions, the managing dealer will reallow up to 7% to soliciting
dealers as compensation for their services in soliciting and obtaining
subscriptions from you and other investors. Except for the special sales
described later in this section, we will pay an additional 2.5% of the gross
proceeds from this offering to the managing dealer as a marketing contribution
in lieu of reimbursement of expenses associated with marketing, and we may
reimburse the managing dealer for its bona fide due diligence expenses and for
those of the soliciting dealers. The maximum reimbursement, however, will not
exceed 0.5% of the gross proceeds from the up to 250,000,000 shares sold. The
managing dealer may, at its discretion, retain or give all or any portion of the
marketing contribution and due diligence expense allowance to soliciting
dealers. Generally, the managing dealer will not give any portion of the
marketing contribution to soliciting dealers unless they have a prescribed
minimum annual sales volume of our common stock. Marketing and due diligence
costs paid by the managing dealer on behalf of, or to, the soliciting dealers
will be deducted from any marketing contribution or due diligence expense
allowance otherwise payable to the soliciting dealers.
The following table shows the compensation payable to our dealer manager.
TYPE OF COMPENSATION AMOUNT ESTIMATED MAXIMUM AMOUNT
--------------------------------------------------------
Selling commissions 7.5% of sale price for
each share $ 187,500,000
--------------------------------------------------------
Marketing contribution and due 3% of gross offering
diligence allowance proceeds $ 75,000,000
--------------------------------------------------------
We will not pay selling commissions, marketing contributions or due
diligence expense allowances in connection with the following special sales:
- the sale of common stock in connection with the performance of
services to our employees, directors and associates and our
affiliates, our advisor, affiliates of our advisor, the managing
dealer or their respective officers and employees and some of their
affiliates; and
- the purchase of common stock under the distribution reinvestment
program.
- No selling commissions will be paid in connection with the following
special sales:
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- the sale of our common stock to one or more soliciting dealers and to
their respective officers and employees and some of their respective
affiliates who request and are entitled to purchase common stock net
of selling commissions;
- the sale of common stock to investors whose contracts for investment
advisory and related brokerage services include a fixed or "wrap" fee
feature; and
- the common stock credited to an investor as a result of a volume
discount.
It is illegal for us to pay or award any commissions or other compensation
to any person engaged by you for investment advice as an inducement to such
advisor to advise you to purchase our common stock; however, nothing herein will
prohibit a registered broker dealer or other properly licensed person from
earning a sales commission in connection with a sale of the common stock.
We will not pay any registered investment advisory fees in connection with
any purchase by you of our common stock, although you may elect to have your
registered investment advisory fees deducted from your account with us and paid
directly to your registered investment advisor. See "How to Subscribe."
VOLUME DISCOUNTS
Investors making an initial purchase of at least $250,010 worth of common
stock (25,001 shares) through the same soliciting dealer may receive a reduction
of the reallowable 7.0% selling commission payable in connection with the
purchase of those shares in accordance with the following schedule:
AMOUNT OF PURCHASER'S INVESTMENT
AMOUNT OF SELLING MAXIMUM COMMISSION
VOLUME DISCOUNT FROM TO PER SHARE
----------------- ------------ ------------ ------------------
1% $ 250,010 $ 500,000 6%
2% $ 500,010 $ 1,000,000 5%
3% $ 1,000,010 $ 2,500,000 4%
4% $ 2,500,010 $ 5,000,000 3%
5% $ 5,000,010 $ 10,000,000 2%
6% $ 10,000,010 more than 1%
$ 10,000,000
Any reduction in the amount of the selling commissions in respect of volume
discounts received may be credited to the investor in the form of additional
whole shares or fractional shares. Selling commissions will not be paid on any
such whole shares or fractional shares issued for a volume discount.
Some purchases may be combined for the purpose of qualifying for a volume
discount, and for determining commissions payable to the managing dealer or the
soliciting dealers, so long as all the combined purchases are made through the
same soliciting dealer. You may combine subscriptions made in this offer with
other subscriptions in this offering for the purposes of computing amounts
invested. Purchases by spouses may also be combined and purchases by you may be
combined with other purchases of common stock to be held as a joint tenant or as
tenants-in-common by you with others for purposes of computing amounts invested.
Purchases by entities not required to pay federal income tax may only be
combined with purchases by other entities not required to pay federal income tax
for purposes of computing amounts invested if investment decisions are made by
the same person. If the
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investment decisions are made by an independent investment adviser, that
investment adviser may not have any direct or indirect beneficial interest in
any of the entities not required to pay federal income tax whose purchases are
sought to be combined. You must mark the "Additional Investment" space on the
subscription agreement signature page in order for purchases to be combined. We
are not responsible for failing to combine purchases if you fail to mark the
"Additional Investment" space.
If the subscription agreements for the purchases to be combined are
submitted at the same time, then the additional common stock to be credited to
you as a result of such combined purchases will be credited on a pro rata basis.
If the subscription agreements for the purchases to be combined are not
submitted at the same time, then any additional common stock to be credited as a
result of the combined purchases will be credited to the last component
purchase, unless we are otherwise directed in writing at the time of the
submission. However, the additional common stock to be credited to any entities
not required to pay federal income tax whose purchases are combined for purposes
of the volume discount will be credited only on a pro rata basis based on the
amount of the investment of each entity not required to pay federal income tax
and their combined purchases.
Notwithstanding the preceding paragraphs, you may not receive a discount
greater than 5% on any purchase of shares if you already own, or may be deemed
to already own, any shares. This restriction may limit the amount of the volume
discount available to you after your initial purchase and the amount of
additional shares that you may be credited as a result of the combination of
purchases.
If the dollar amount of commissions paid for combined purchases exceeds the
maximum commissions for combined purchases, taking the volume discount into
effect, the managing dealer will be obligated to return to us, and soliciting
dealers will be obligated to return to the managing dealer, any excess
commissions received. The managing dealer and we may adjust any future
commissions due for any such excess commissions that are not returned.
DEFERRED COMMISSION OPTION
DETERMINATION OF THE NUMBER OF SHARES TO BE ISSUED AND THE AMOUNT OF THE
DEFERRED SELLING COMMISSIONS. You may agree with the participating soliciting
dealer and the managing dealer to have selling commissions due with respect to
the purchase of your shares paid over a period of up to six years pursuant to a
deferred commission option arrangement. Our net proceeds from this offering will
not be affected by the election of the deferred commission option. Under this
arrangement and based upon a $10 per share deemed value to each share issued, if
you elect the deferred commission option, you will pay a 1.5% selling commission
upon subscription, of which 1% will be reallowed upon subscription, rather than
the 7.5% selling commission, of which 7% is reallowable, and we will deduct an
amount equal to up to 1% selling commission per year thereafter for up to the
next six years from cash distributions otherwise payable to you. For example, if
you elect the deferred commission option, you will be required to pay a total of
$9.40 per share purchased upon subscription, rather than $10 per share, with
respect to which $0.15 per share will be payable as selling commissions due upon
subscription, of which $0.10 per share will be reallowed (based on the number of
shares that would have been issued if the deferred commission option had not
been elected). For example, for a $100,000 initial investment, we will issue
10,638.298 shares ($100,000 divided by $9.40), and you would pay maximum selling
commissions of $1,500 upon subscription ($0.15 times the 10,000 shares which
would have been issued for $100,000 if the deferred commission option had not
been elected), of which $1,000 is reallowable. For each of the up to six years
following the subscription, on a date or dates to be determined from time to
time by the managing dealer (initially contemplated to be monthly as of when
distributions are paid), we will deduct $0.10 per share (based on the number of
shares that would have been issued if the deferred commission option had not
been elected) on an annual basis from cash distributions otherwise payable to
you. This amount will be used to pay deferred commission obligations. In the
example of an initial cash investment of $100,000,
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$1,000 would be deducted on an annual basis and used in the above described
manner for each of the six years following the subscription. The managing dealer
will pay the selling commissions paid upon subscription and in each of the
following up to six years, which selling commissions may be reallowed to the
soliciting dealer by the managing dealer and the deferred commission obligations
would be satisfied.
As in any volume discount situation, selling commissions are not paid on
any shares issued for a volume discount. Therefore, when the deferred commission
option is used, we will not make deductions for deferred commission obligations
from cash distributions payable on the shares issued for a volume discount,
because there will not be any deferred commission obligation as to those
particular shares. The number of shares issued, if any, for a volume discount,
will be determined as provided above under "Plan of Distribution--Volume
Discounts."
TAXES. If you elect the deferred commission option and you are subject to
federal income taxation, you will incur tax liability for cash distributions
payable to them with respect to their shares even though we will withhold such
cash distributions and will instead pay third parties to satisfy deferred
commission obligations.
SUBSCRIPTION AGREEMENT. If you wish to elect the deferred commission
option, you must make the election on the subscription agreement/signature page.
In addition, the broker-dealer must also complete and sign the subscription
agreement/signature page to acknowledge its agreement to the deferred commission
option.
AUTHORIZATION TO WITHHOLD CASH DISTRIBUTIONS. If you elect the deferred
commission option you will be authorizing us to withhold cash distributions
otherwise payable to you for the purpose of paying selling commissions due under
the deferred commission option; provided, however, that in no event may we
withhold in excess of $0.60 per share in the aggregate (lower when the volume
discount provisions are also applicable and less than 6% of the selling
commissions are deferred) under the deferred commission option.
ACCELERATION OF DEFERRED COMMISSION OBLIGATION. If our shares become listed
for trading on a national securities exchange or included for quotation on a
national market system, or such listing or inclusion is reasonably anticipated
to occur at any time prior to the satisfaction of the remaining deferred
commission obligations, we will accelerate the remaining selling commissions due
under the deferred commission option. In such event, we will provide notice of
such acceleration to stockholders who have elected the deferred commission
option. The amount of the remaining selling commissions due will be deducted and
paid by us out of cash distributions otherwise payable to such stockholders
during the time period prior to any such listing of the shares for trading on a
national securities exchange or inclusion for quotation on a national market
system. However, in no event may we withhold in excess of $0.60 per share in the
aggregate during the six-year period following the subscription. The maximum
amount that we may withhold and the maximum number of years for which we may
offer selling commissions will be lower when the volume discount provisions are
also applicable and less than 6% of the selling commissions are deferred. To the
extent that the cash distributions during such time period are insufficient to
satisfy the remaining deferred selling commissions due, the obligation of us and
our stockholders to make any further payments of deferred selling commissions
under the deferred commission option shall terminate and the managing dealer
(and participating soliciting dealers if the deferred selling commissions are
reallowed to them by the managing dealer) will not be entitled to receive any
further portion of the unpaid deferred selling commissions following any such
listing for trading or inclusion for quotation of our shares.
In addition, if you elect the deferred commission option and subsequently
elect to participate in our share repurchase program or request that we transfer
your shares for any other reason prior to the time
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that the remaining deferred selling commissions have been deducted from cash
distributions otherwise payable to you during the mentioned period of up to six
years, then we will accelerate the remaining selling commissions due under the
deferred commission option. In such event, we shall provide notice of such
acceleration to you, and:
- in the case of an election to sell the shares under our share
repurchase program, you will be required to pay to us the unpaid
portion of the remaining deferred commission obligation prior to or
concurrently with our purchase of your shares pursuant to our share
repurchase program or we may deduct such unpaid portion of the
remaining deferred commission obligation from the amount otherwise due
to you for our purchase of your shares under our share repurchase
program; or
- if you request that we transfer the shares for any other reason, you
will not be entitled to effect any such transfer until you first
either:
- pay to us the unpaid portion of the remaining deferred commission
obligation; or
- provide a written instrument in form and substance satisfactory
to us, and appropriately signed by the transferee, to the effect
that the proposed transferee agrees to have the unpaid portion of
the remaining deferred commission obligation deducted from cash
distributions otherwise payable to the transferee during the
remaining portion of the specified up to six year period.
LEGEND. All certificates representing any shares that elect the deferred
commission option (including any shares issued for the volume discount in
connection with the election of the deferred commission option) will bear a
legend referring to the fact that such shares are subject to the terms of the
deferred commission option including the withholding of cash distributions
otherwise payable to the stockholders for the purpose of paying the deferred
selling commission obligation.
MARKETING CONTRIBUTION AND DUE DILIGENCE EXPENSE ALLOWANCE. The marketing
contribution of 2.5% and the due diligence expense allowance of 0.5% will be
payable by us on the gross offering proceeds for all of the shares issued based
on an assumed price of $10 per share. We will pay those amounts due from the
proceeds we receive at the time of the initial investment.
INDEMNIFICATION
We will indemnify the managing dealer and the soliciting dealers against
liabilities, including liabilities under the Securities Act of 1933, if one or
more of the following conditions are met:
- there has been a successful adjudication on the merits of each count
involving alleged securities law violations as to the particular
indemnitee and a court of competent jurisdiction has approved
indemnification of the litigation costs; or
- the claims have been dismissed with prejudice on the merits by a court
of competent jurisdiction as to the particular indemnitee and the
court has approved indemnification of the litigation costs; or
- a court of competent jurisdiction approves a settlement of the claims
against a particular indemnitee and approves indemnification of the
settlement and related costs after being advised of the position of
the Securities and Exchange Commission and the published opinions of
any state securities regulatory authority in which our common stock
was offered and sold respecting the availability and/or propriety of
indemnification for
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securities law violations. The soliciting dealer will be required to
indemnify us and our advisor against such liabilities.
In the opinion of the Securities and Exchange Commission, indemnification
for liabilities arising under the Securities Act of 1933 is against public
policy and, therefore, unenforceable. The managing dealer and each of the
soliciting dealers may be deemed to be an "underwriter" as that term is defined
in the Securities Act of 1933.
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HOW TO SUBSCRIBE
Investors who meet the suitability standards described above may purchase
shares of common stock. See "Who May Invest" and "Plan of Distribution --
Determination of Your Suitability as an Investor," above, for the suitability
standards. Investors who want to purchase shares must proceed as follows:
- Read the entire prospectus and the current supplement(s), if any,
accompanying the prospectus.
- Complete the execution copy of the subscription agreement. A specimen
copy of the subscription agreement, including instructions for
completing it, is included in the prospectus as Appendix C.
- Deliver a check for the full purchase price of the shares being
subscribed for, payable to "LNB/Escrow Agent for IWRRET ", along with
the completed subscription agreement to the soliciting dealer. If you
are qualified to participate in this offering, for administrative
convenience, the proceeds from your subscription will be deposited in
a segregated escrow account with the escrow agent, LaSalle Bank
National Association, 120 South LaSalle Street, Chicago, Illinois, and
will be held in trust for your benefit, pending release to us. Your
investment will not be commingled with any other funds. Subject to us
selling the minimum amount, subscription proceeds are expected to be
released to us as subscriptions are accepted. We will accept or reject
subscriptions within ten days after we receive them. The name of your
soliciting dealer appears on your subscription agreement.
- By executing the subscription agreement and paying the full purchase
price for the shares subscribed for, each investor attests that he or
she meets the suitability standards as stated in the subscription
agreement and agrees to be bound by all of its terms.
In addition, if a subscriber elects the deferred commission option, he or
she must do so by completing and signing the subscription agreement/signature
page of the form of subscription agreement. The soliciting dealer must also
complete and sign the subscription agreement/signature page to acknowledge its
agreement to the deferred commission option. This is more fully explained under
"Plan of Distribution - Deferred Commission Option."
A sale of the shares may not be completed until at least five business days
after the subscriber receives the prospectus. Within 10 days, and generally
within 24 hours, of our receipt of each completed subscription agreement, we
will accept or reject the subscription. If we accept the subscription, we will
mail a confirmation within three days. If for any reason we reject the
subscription, we will promptly return the check and the subscription agreement,
without interest or deduction, within 10 days after we received it.
An approved trustee must process through us and forward to us subscriptions
made through individual retirement accounts, Keogh plans and 401(k) plans. In
the case of individual retirement accounts, Keogh plans and 401(k) plan
stockholders, we will send the confirmation to the trustee.
You have the option of placing a transfer on death, or TOD, designation on
your shares purchased in this offering. A TOD designation transfers ownership of
the shares to your designated beneficiary upon your death. This designation may
only be made by individuals, not entities, who are the sole or joint owners with
right of survivorship of the shares. This option, however, is not available to
residents of the States of Louisiana, New York, and North Carolina. If you would
like to place a transfer on death
157
designation on your shares, you must check the TOD box on the subscription
agreement and you must complete and return the transfer on death form included
as Appendix D to this prospectus in order to effect the designation.
You may elect to have any registered investment advisory fees deducted from
your account with us and paid directly to your registered investment advisor by
completing and signing a letter of instruction (in the form attached as Appendix
E1 to this prospectus). The letter of instruction will authorize us to deduct a
specified dollar amount or percentage of distributions paid by us as advisory
fees payable to your registered investment advisor on a periodic basis.
The letter of instruction will be irrevocable and we will continue to pay
advisory fees payable from your account until such time as you provide us with a
notice (in the form attached as Appendix E2 to this prospectus) of your election
to terminate deductions from your account for the purposes of such advisory
fees.
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SALES LITERATURE
In addition to and apart from this prospectus, we may use certain
supplemental sales material in connection with the offering. This material,
prepared by our advisor, may consist of a brochure describing the advisor and
its affiliates and our objectives. The material may also contain pictures and
summary descriptions of properties similar to those we intend to acquire that
our affiliates have previously acquired. This material may also include
audiovisual materials and taped presentations highlighting and explaining
various features of the offering, properties of prior real estate programs and
real estate investments in general; and articles of incorporation and
publications concerning real estate. Business reply cards, introductory letters
and seminar invitation forms may be sent to the dealer members of the National
Association of Securities Dealers designated by Inland Securities Corporation
and prospective investors. No person has been authorized to prepare for, or
furnish to, a prospective investor any sales literature other than that
described herein and "tombstone" newspaper advertisements or solicitations of
interest that are limited to identifying the offering and the location of
sources of further information.
The use of any sales materials is conditioned upon filing with and, if
required, clearance by appropriate regulatory agencies. Such clearance (if
provided), however, does not indicate that the regulatory agency allowing the
use of the materials has passed on the merits of the offering or the adequacy or
accuracy of the materials.
This offering is made only by means of this prospectus. Except as described
herein, we have not authorized the use of other supplemental literature or sales
material in connection with this offering.
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DISTRIBUTION REINVESTMENT AND SHARE REPURCHASE PROGRAMS
DISTRIBUTION REINVESTMENT PROGRAM
Our distribution reinvestment program provides our stockholders with an
opportunity to purchase additional shares of common stock by reinvesting
distributions. Stockholders who elect to participate in the distribution
reinvestment program will authorize us to use distributions payable to them to
purchase additional shares of common stock. A participant will not be able to
acquire common stock under the program if the purchase would cause it to exceed
the 9.8% ownership limit or would violate any of the other share ownership
restrictions imposed by our articles of incorporation.
As further explained below, purchases under the distribution reinvestment
program are made at a price, $9.50 per share at first, equal to 95% of the
market price of a share of common stock on the date of purchase until such time
as our shares are listed on a national stock exchange or included for quotation
on a national market system. This reduced price reflects a decrease in costs
associated with these issuances. Participants in the distribution reinvestment
program may also purchase fractional shares of common stock, so that 100% of
distributions will be used to acquire common stock. Common stock will be
purchased under the distribution reinvestment program on the record date for the
distribution used to purchase the common stock. Distributions on common stock
acquired under the distribution reinvestment program will be paid at the same
time as distributions are paid on common stock purchased outside the program and
are calculated with a daily record and distribution declaration date. Each
participant agrees that if, at any time prior to listing the common stock on a
national stock exchange or inclusion of them for quotation on a national market
system, he or she fails to meet the suitability requirements for making an
investment in us or cannot make the other representations or warranties set
forth in the subscription agreement, he or she will promptly notify us in
writing.
Beginning with the first distribution paid after the effective date of the
offering, participants will acquire our shares at a fixed price of $9.50 per
share. This will continue until the earlier of (1) the increase of the public
offering price per share of common stock in the offering from $10 per share, if
there is an increase, and (2) the termination of the offering. Thereafter,
participants may acquire our shares at a price equal to 95% of the market price
of a share on the date of purchase until our shares are listed on a national
stock exchange or included for quotation on a national market system. In the
event of listing or inclusion, we will purchase shares for the distribution
reinvestment program on the exchange or market at the prevailing market price.
We will then sell the shares to stockholders at that price. The discount from
the public offering price per share will not exceed 5% of the market price of a
share on the date of purchase. It is possible that a secondary market will
develop for the shares, and that the prices on the secondary market will be
lower or higher than the price of shares purchased through the distribution
reinvestment program. Neither we nor our affiliates will receive a fee for
selling shares through the distribution reinvestment program. We do not warrant
or guarantee that participants will acquire shares at the lowest possible price
through the program.
A participant may stop participating in the distribution reinvestment
program at any time without penalty, by delivering written notice to us. Prior
to listing the shares on a national securities exchange or including them for
quotation on a national market system, any transfer of shares by a participant
to a non-participant will terminate participation in the distribution
reinvestment program with respect to the transferred shares. Within 90 days
after the end of our fiscal year, we will:
- issue certificates showing ownership of shares purchased through the
distribution reinvestment program during the prior fiscal year,
ownership of these shares will be in book-entry form prior to the
issuance of certificates; and
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- provide each participant with an individualized report on his or her
investment, including the purchase date(s), purchase price and number
of shares owned, as well as the dates of distribution and amount of
distributions received during the prior fiscal year.
The individualized statement to participants will include receipts and purchases
relating to each participant's participation in the distribution reinvestment
program including the tax consequences relative thereto. The directors,
including a majority of independent directors, by majority vote may amend or
terminate the distribution reinvestment program upon 30 days notice to
participants.
Stockholders who participate in the distribution reinvestment program will
recognize dividend income, taxable to the extent of our current or accumulated
earnings and profits, in the amount and as though they had received the cash
rather than purchased shares through the distribution reinvestment program.
These deemed dividends will be treated as actual dividends and will retain the
character and tax effects applicable to all dividends. In addition, the 5%
discount applicable to shares purchased under the dividend reinvestment program
will itself be treated as a deemed distribution to the purchaser. Shares
received under the distribution reinvestment program will have a holding period,
for tax purposes, beginning with the day after purchase, and a tax basis equal
to their cost, which is the gross amount of the deemed distribution. See
"Federal Income Tax Considerations -- Federal Income Taxation of Stockholders"
for a full discussion of the tax effects of dividend distributions.
As explained under "Description of Securities -- Restrictions on Ownership
and Transfer," the certificates representing shares purchased through the
distribution reinvestment program will bear a legend referring to the
restrictions on their ownership and transfer.
SHARE REPURCHASE PROGRAM
The share repurchase program may, subject to certain restrictions discussed
below, provide eligible stockholders with limited, interim liquidity by enabling
them to sell shares back to us. The prices at which shares may be sold back to
us are as follows:
- One year from the purchase date, at $9.25 per share;
- Two years from the purchase date, at $9.50 per share;
- Three years from the purchase date, at $9.75 per share; and
- Four years from the purchase date, at the greater of: $10.00 per
share; or a price equal to 10 times our "funds available for
distribution" per weighted average share outstanding for the prior
calendar year.
During any offering, the repurchase price shall be equal to or below the
price of the shares offered in any offering. A stockholder must have
beneficially held the shares for at least one year prior to offering them for
sale to us through the share repurchase program. However, if a stockholder dies,
we may waive this one-year holding period for the beneficiaries or heirs, as
appropriate.
We will make repurchases under the share repurchase program, if requested
by a stockholder, monthly. Subject to funds being available, we will limit the
number of shares repurchased during any calendar year to five percent (5%) of
the weighted average number of shares outstanding during the prior calendar
year. Funding for the share repurchase program will come exclusively from
proceeds we receive from the sale of shares under our distribution reinvestment
plan and other operating funds, if any, as the board, at its sole discretion,
may reserve for this purpose.
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A stockholder may request that his or her shares be repurchased by
submitting a written request, and then generally within one week an assignment
form is sent for execution by the stockholder or his custodian/trustee along
with a request to return the certificate of ownership.
At the end of each month, the completed requests are reviewed. It is
possible that a stockholder may not have his or her entire request honored due
to the funds available. If that were to occur, the shares would then be
purchased on a "pro rata basis" and the portion of his or her request
unfulfilled would then be held until the next month, unless withdrawn.
We accept shares on a pro rata basis. Consequently, a stockholder might not
be able to have us repurchase his or her shares. Therefore, that stockholder
might not be able to sell or otherwise liquidate his or her shares and might
have to hold his or her shares for an indeterminate period of time.
Following commencement of our offering, we will be subject to the reporting
requirements of the Securities Exchange Act of 1934. In this regard, we will
prepare and file with the SEC annual reports on SEC Form 10-K and quarterly
reports on SEC Form 10-Q; we will provide copies of these filings to our
stockholders regularly following our filing with the SEC. Additionally, we will
amend on a quarterly basis the registration statement of which this prospectus
is a part; we will distribute to our stockholders the updated prospectus
regularly.
Any stockholder who wishes us to repurchase his or her shares must
beneficially own the shares for at least one year. Our obligation to repurchase
any shares under the program is conditioned upon our having sufficient funds
available for repurchase of shares and the other conditions of the plan. The
stockholder should direct a written request to Ms. Roberta S. Matlin, Vice
President of Administration, Inland Western Retail Real Estate Trust, Inc., 2901
Butterfield Road Oak Brook, Illinois 60523. The request must state the name of
the person/entity who owns the shares, the date of purchase of the subject
shares and the number of shares to be repurchased. We will forward an assignment
form to the owner of record of the subject shares for execution. The requesting
stockholder must properly execute and return the form along with the stock
certificate for the shares to be repurchased and evidence that no lien or
encumbrance is on the shares. Upon receipt of the form, if satisfactory evidence
is not provided, we will conduct a Uniform Commercial Code (UCC) search to
ensure that no liens are held against the shares at the cost of $100 to the
stockholder, which will be deducted from the proceeds of the repurchase. We use
a third party to conduct this UCC search. The repurchase will occur on a prorata
basis each month assuming all documentation is complete, including a negative
response from a UCC search. If the UCC search determines that a lien exists
against the shares, we will charge the requesting stockholder for the UCC
search. If we do not have sufficient funds available for repurchase of the
entire request or we exceed the share limitation, we will purchase only those
shares for which we have sufficient funds available or are below the limitation;
and we will place the requesting stockholder's request into the next month until
funds become available sufficient to complete the transaction or we do not
exceed the limitation.
If a stockholder wishes to withdraw his or her request to have his or her
shares repurchased, the stockholder must notify us in writing. We will not
repurchase that stockholder's shares so long as we receive the written request
to withdraw prior to the date we send payment to the applicable stockholder. The
requesting stockholder will be responsible for payment of the $100 UCC search
fee even if that stockholder withdraws his or her request, if we have conducted
a UCC search.
There is no limit on the number of shares that an individual stockholder
may request to be repurchased, subject to the limitations regarding availability
of funds and the aggregate amount of stock that we are permitted to purchase
under the program.
162
Payment for repurchased shares from the time of the initial request to
receipt of the funds is usually three to four weeks dependent upon receipt of
the executed assignment form and certificate of ownership, and completion of a
UCC search to ensure that no liens are held against the stock or other
satisfactory evidence.
The board, at its sole discretion, may choose to terminate the share
repurchase program after the end of the offering period, or reduce the number of
shares purchased under the program, if it determines that the funds allocated to
the share repurchase program are needed for other purposes, such as the
acquisition, maintenance or repair of properties, or for use in making a
declared distribution. A determination by the board to eliminate or reduce the
share repurchase program will require the unanimous affirmative vote of the
independent directors.
We cannot guarantee that the funds set aside for the share repurchase
program will be sufficient to accommodate all requests made each year. If no
funds are available for the program when repurchase is requested, the
stockholder may withdraw the request, or ask that we honor the request when
funds are available. Pending requests would be pro rated, depending upon
availability of funds.
Stockholders are not required to sell their shares to us. The share
repurchase program is only intended to provide interim liquidity for
stockholders until a liquidity event occurs, such as the listing of the shares
on a national securities exchange, inclusion of the shares for quotation on a
national market system, or our merger with a listed company. The share
repurchase plan will be terminated if the shares become listed on a national
securities exchange or included for quotation on a national market system. We
cannot guarantee that a liquidity event will occur.
Shares we purchase under the share repurchase program will be canceled, and
will have the status of authorized but unissued shares. Shares we acquire
through the share repurchase program will not be reissued unless they are first
registered with the Securities and Exchange Commission under the Securities Act
of 1933 and under appropriate state securities laws or otherwise issued in
compliance with such laws.
If we terminate, reduce or otherwise change the share repurchase program,
we will send a letter to stockholders informing them of the change at least 30
days in advance, and we will disclose the changes in quarterly reports filed
with the Securities and Exchange Commission on Form 10-Q.
See "Plan of Distribution -- Deferred Commission Option" for an explanation
of what will be required of the stockholder if the stockholder has elected the
deferred commission option and subsequently elects to participate in our share
repurchase program while there is an unpaid portion of the remaining deferred
commission obligation.
[THE BALANCE OF THIS PAGE WAS INTENTIONALLY LEFT BLANK]
163
REPORTS TO STOCKHOLDERS
Our advisor will keep, or cause to be kept, full and true books of account
on an accrual basis of accounting, in accordance with generally accepted
accounting principles. All of these books of account, together with a copy of
our articles of incorporation, will at all times be maintained at our principal
office, and will be open to inspection, examination and duplication at
reasonable times by the stockholders or their agents.
The advisor will submit to each stockholder our audited annual reports
within 120 days following the close of each fiscal year. The annual reports will
contain the following:
- audited financial statements;
- the ratio of the costs of raising capital during the period to the
capital raised;
- the aggregate amount of advisory fees and the aggregate amount of fees
paid to the advisor and any affiliate of the advisor, including fees
or charges paid to the advisor and to any affiliate of the advisor by
third parties doing business with us;
- our total operating expenses, stated as a percentage of the average
assets and as a percentage of net income;
- a report from the independent directors that the policies we follow
are in the best interests of our stockholders and the basis for such
determination; and
- separately stated, full disclosure of all material terms, factors and
circumstances surrounding any and all transactions involving us, the
directors, the advisor and any of their affiliates occurring in the
year for which the annual report is made. Independent directors are
specifically charged with the duty to examine and comment in the
report on the fairness of such transactions.
In addition, unaudited quarterly reports containing the information
required by Form 10-Q will be submitted to each stockholder within 60 days after
the end of the first three fiscal quarters.
At the same time as any distribution, we will provide stockholders with a
statement disclosing the source of the funds distributed. If the information is
not available when the distribution is made, we will provide a statement setting
forth the reasons why the information is not available. In no event will the
information be provided to stockholders more than 60 days after we make the
distribution.
Within 60 days following the end of any calendar quarter during the period
of the offering in which we have closed an acquisition of a property, we will
submit a report to each stockholder containing:
- the location and a description of the general character of the
property acquired during the quarter;
- the present or proposed use of the property and its suitability and
adequacy for that use;
- the terms of any material leases affecting the property;
- the proposed method of financing, if any, including estimated down
payment, leverage ratio, prepaid interest, balloon payment(s),
prepayment penalties, "due-on-sale" or
164
encumbrance clauses and possible adverse effects thereof and similar
details of the proposed financing plan; and
- a statement that title insurance has been or will be obtained on the
property acquired.
- In addition, we will send a report to each stockholder and submit to
prospective investors when the advisor believes a property will
probably be acquired:
- on specified terms, i.e., upon completion of due diligence which
includes review of the title insurance commitment, appraisal and
environmental analysis; and
- involving the use of 10% or more, on a cumulative basis, of the net
proceeds of the offering.
After the completion of the last acquisition, the advisor will, upon
request, send a schedule to the Commissioner of Corporations of the State of
California. The schedule, verified under the penalty of perjury, reflects: each
acquisition made; the purchase price paid; the aggregate of all acquisition
expenses paid on each transaction; and a computation showing compliance with our
articles of incorporation. We will, upon request, submit to the Commissioner of
Corporations of the State of California or to any of the various state
securities administrators, any report or statement required to be distributed to
stockholders pursuant to our articles of incorporation or any applicable law or
regulation.
The accountants we regularly retain will prepare our federal tax return and
any applicable state income tax returns. We will submit appropriate tax
information to the stockholders within 30 days following the end of each of our
fiscal years. We will not provide a specific reconciliation between generally
accepted accounting principles and income tax information to the stockholders.
However, the reconciling information will be available in our office for
inspection and review by any interested stockholder. Annually, at the same time
as the dissemination of appropriate tax information to stockholders, we will
provide each stockholder with an individualized report on his or her investment,
including the purchase date(s), purchase price and number of shares owned, as
well as the dates of distribution and amounts of distributions received during
the prior fiscal year. The individualized statement to stockholders will include
any purchases of shares under the distribution reinvestment program.
Stockholders requiring individualized reports on a more frequent basis may
request these reports. We will make every reasonable effort to supply more
frequent reports, as requested, but we may, at our sole discretion, require
payment of an administrative charge either directly by the stockholder, or
through pre-authorized deductions from distributions payable to the stockholder
making the request.
See "Risk Factors -- Employee Benefit Plan Risks" for an explanation of the
annual statement of value we provide to stockholders subject to ERISA.
PRIVACY POLICY NOTICE
To help you understand how we protect your personal information, we have
included our Privacy Policy Notice as Appendix F to this Prospectus. This Notice
describes our current privacy policy and practices. Should you decide to
establish or continue a shareholder relationship with us, we will advise you of
our policy and practices at least once annually, as required by law.
LITIGATION
We are not subject to any material pending legal proceedings.
165
RELATIONSHIPS AND RELATED TRANSACTIONS
We have entered into agreements to pay our advisor and its affiliates
certain fees or other compensation for providing services to us.
The compensation arrangements between us and our advisor, The Inland Group
and its affiliates, were not determined by arm's-length negotiations. See
"Conflicts of Interest." The following table discloses the compensation which we
may pay our advisor and its affiliates. In those instances in which there are
maximum amounts or ceilings on the compensation which may be received, our
advisor and its affiliates may not recover any excess amounts for those services
by reclassifying them under a different compensation or fee category.
We define net income as total revenues less expenses other than additions
to reserves for depreciation or bad debts or other similar non-cash reserves.
When we use the term "net income" for purposes of calculating some expenses and
fees, it excludes the gain from the sale of our assets. This definition of net
income is prescribed by the Statement of Policy Regarding REITs adopted by the
North American Securities Administrators Association, Inc., or NASAA; but it is
not in accordance with generally accepted accounting principles in the United
States, because depreciation and other non-cash reserves are not deducted in
determining net income under the NASAA REIT Statement. Excluding depreciation
will result in not reimbursing our Advisor for a non-cash expenditure and not
excluding the gain from the sale of our assets could result in greater net
income on which the 25% reimbursement to our Advisor is allowed.
NONSUBORDINATED PAYMENTS
The following aggregate amounts of compensation, allowances and fees we may
pay to our advisor and its affiliates are not subordinated to the returns on net
investments that we are required to pay to our stockholders.
TYPE OF COMPENSATION ESTIMATED MAXIMUM
AND RECIPIENT METHOD OF COMPENSATION DOLLAR AMOUNT
----------------------------- ---------------------------------------------------- -------------------------------
OFFERING STAGE
Selling commissions payable We will pay a selling commission of 7.5% of the sale The actual amount depends upon
to the managing dealer and price for each share (and reallow 7%), subject to the amount of shares sold. We
dealers designated by the reduction for special sales under the circumstances will not pay selling
managing dealer referred to as described in the "Plan of Distribution - commissions if the minimum
as soliciting dealers. Compensation - We Will Pay For the Sale of Our offering is not sold. If only
Neither the managing dealer, Shares." the minimum offering is sold
the soliciting dealers, nor and there are no special sales,
our officers or directors We will permit the managing dealer and its a total of $150,000 in selling
will be offered to purchase respective officers and employees and certain of its commissions will be paid. A
shares of our stock in order affiliates to purchase shares net of sales total of $187,500,000 in
to meet the minimum commissions and the marketing contribution and due selling commissions will be
thresholds. diligence expense allowance or for $8.95 per share. paid if the maximum offering is
sold and there are no special
Also, soliciting dealers and their respective sales.
officers and employees and certain of their
respective affiliates who request and are
entitled to purchase shares net of selling
commissions may make an initial purchase of
shares net of sales commissions or for $9.30 per
share; however, any subsequent purchases of
shares by any such persons are limited to a
maximum discount of 5%.
166
TYPE OF COMPENSATION ESTIMATED MAXIMUM
AND RECIPIENT METHOD OF COMPENSATION DOLLAR AMOUNT
----------------------------- ---------------------------------------------------- -------------------------------
Marketing contribution and due We will pay an amount equal to 2.5% of the gross The actual amount depends on
diligence expense allowance offering proceeds to the managing dealer, all or a the number of shares. If there
paid to the managing dealer portion of which may be passed on to soliciting are no special sales,
and soliciting dealers. dealers, in lieu of reimbursement of specific approximately the following
expenses associated with marketing. We may pay an amounts will be paid for the
additional 0.5% of the gross offering proceeds to marketing contribution and the
the managing dealer, which may be passed on to the due diligence expense
soliciting dealers, for due diligence expenses. We allowance:
will not pay the marketing contribution and due
diligence expense allowance in connection with any - $60,000 if we sell the
special sales, except those receiving volume minimum number of shares;
discounts and those described in "Plan of or
Distribution - Volume Discounts."
- $75,000,000 if we sell the
maximum number of shares.
Other expenses of issuance We expect to incur the following expenses in All amounts other than the
and distribution connection with this offering: Securities and Exchange
Commission registration fee
Securities and Exchange and the NASD filing fee are
Commission registration estimates. The actual amounts
fee $ 217,621 of these expenses cannot be
NASD filing fee $ 30,500 determined at the present
Printing and mailing time. We estimate the total
expenses $ 3,500,000 amount of the issuance and
Blue Sky fees and distribution expenses to be
expenses $ 136,000 approximately $14,684,121.
Legal fees and
expenses $ 650,000
Accounting fees and
expenses $ 650,000
Advertising and sales
literature $ 5,000,000
Due diligence $ 3,000,000
Data Processing fees $ 500,000
Bank fees and other
administrative
expenses $ 200,000
We will reimburse our sponsor for actual costs Expenses of approximately
incurred in connection with the offering on our $691,911 have been advanced by
behalf. However, if the aggregate of all offering our sponsor through June 30,
expenses, including selling commissions, the 2003 in connection with this
marketing contribution and due diligence expense offering. We may reimburse for
allowance, exceeds 15% of the gross offering offering expenses advanced:
proceeds, or if the aggregate of all offering - $90,000 if we sell the
expenses, excluding the selling expenses, exceeds minimum offering based on
5.5% of the gross offering proceeds, our advisor or the 15% limitation; or
its affiliates will promptly pay the excess and we
will have no liability for these expenses at any - $14,684,000 if we sell the
time afterward. maximum offering.
If the offering is not
successful, then our sponsor
will be solely responsible for
the organization and offering
expenses to the extent it has
not been reimbursed.
167
ESTIMATED MAXIMUM
TYPE OF COMPENSATION AND RECIPIENT METHOD OF COMPENSATION DOLLAR AMOUNT
---------------------------------- ---------------------------------------------------- -------------------------------
ACQUISITION STAGE
Acquisition expenses paid to We will pay an amount, estimated to be up to 0.5% We may pay the following
our advisor and its of the total of (1) the gross offering proceeds amounts for the reimbursement
affiliates. from the sale of 250,000,000 shares, (2) the gross of acquisition expenses:
proceeds from the sale of up to 20,000,000 shares
pursuant to the distribution reinvestment - no more than $10,000 if the
programs. The acquisition expenses for any minimum number of shares
particular property will not exceed 6% of the are sold; or
gross purchase price of the property.
- no more than $13,450,000 if
However, if we request additional services, the the maximum number of
compensation will be provided on separate shares are sold and all of
agreed-upon terms and the rate will be approved by the 20,000,000 shares are
a majority of disinterested directors, including a sold pursuant to the
majority of the disinterested independent distribution reinvestment
directors, as fair and reasonable for us. program.
However, the actual amounts
cannot be determined at the
present time.
Interest expenses paid to our We may borrow money from our advisor and its The actual amounts are
advisor and its affiliates and affiliates in order to acquire properties. In such dependent on actual
Inland Mortgage Corporation in instances, we will pay our advisor and its borrowings. Therefore, these
connection with loans. affiliates customary interest payments. amounts cannot be determined
at the present time.
ESTIMATED MAXIMUM
TYPE OF COMPENSATION AND RECIPIENT METHOD OF COMPENSATION DOLLAR AMOUNT
---------------------------------- ---------------------------------------------------- -------------------------------
OPERATIONAL STAGE
Property management fee paid We will pay a monthly fee of 4.5% of the gross The actual amounts are
to our property manager, income from the properties. We will also pay a dependent upon results of
Inland Western Management monthly fee for any extra services equal to no operations and, therefore,
Corp. We will pay the fee for more than 90% of that which would be payable to an cannot be determined at the
services in connection with unrelated party providing the services. The present time. If we acquire
the rental, leasing, operation property manager may subcontract its and/or our the businesses of our advisor
and management of the property manager, duties for a fee that may be
properties. less than the property management fees the fee
provided for in the management will cease.
services agreements.
Advisor asset management fee. We will pay our advisor an asset management fee The actual amounts are
We will pay the fee for after our stockholders have first received a 6% dependent upon results of
services in connection with annual return. operations and, therefore,
our day-to-day operations, cannot be determined at the
including making strategic present time.
decisions, performing
day-to-day operations that
include accounting,
168
investment advisory services,
risk management services and
tax reduction services and
providing other services as
our board deems appropriate.
ESTIMATED MAXIMUM
TYPE OF COMPENSATION AND RECIPIENT METHOD OF COMPENSATION DOLLAR AMOUNT
---------------------------------- ---------------------------------------------------- -------------------------------
OPERATIONAL STAGE
Reimbursable expenses to our We will reimburse some expenses of the advisor. The actual amounts are
advisor. These may include The compensation and reimbursements to our advisor dependent upon results of
costs of goods and services, will be approved by a majority of our directors operations and, therefore,
administrative services and and a majority of our independent directors as cannot be determined at the
non-supervisory services fair and reasonable for us. present time.
performed directly for us by
independent parties.
We will reimburse some Inland Risk and Insurance Management Services The actual amounts are
expenses of the Inland Risk charges us $50 per hour for assistance in dependent upon results of
and Insurance Management obtaining insurance coverage. Any commissions they operations and, therefore,
Services for insurance receive are credited against this hourly rate. We cannot be determined at the
coverage. believe this hourly rate is approximately 90% of present time.
the rate charged by unaffiliated third parties.
The compensation to this company will be approved
by a majority of our directors and a majority of
our independent directors as fair and reasonable
for us.
We will compensate the Inland Inland Mortgage Servicing Corporation charges us The actual amounts are
Mortgage Servicing Corporation .03% per year on the first billion dollars of dependent upon results of
and Inland Mortgage Investment mortgages serviced and .01% thereafter. Inland operations and, therefore,
Corporation for purchase, sale Mortgage Investment Corporation charges us .02% of cannot be determined at the
and servicing of mortgages. the principal amount of each loan placed. The present time.
compensation to these companies will be approved
by a majority of our directors and a majority of
our independent directors as fair and reasonable
for us.
ESTIMATED MAXIMUM
TYPE OF COMPENSATION AND RECIPIENT METHOD OF COMPENSATION DOLLAR AMOUNT
---------------------------------- ---------------------------------------------------- -------------------------------
LIQUIDATION STAGE
Property disposition fee We may pay a property disposition fee to our The actual amounts to be
payable to our advisor's advisor and its affiliates if we sell any of our received depend upon the sale
affiliates, Inland Real real property in an amount equal to the lesser of: price of our properties and,
Estate Sales, Inc. and Inland therefore, cannot be
Partnership Property Sales 3. 3% of the contract sales price of the property; determined at the present
Corp. or time. If we acquire the
advisor, the property
disposition fee will
169
ESTIMATED MAXIMUM
TYPE OF COMPENSATION AND RECIPIENT METHOD OF COMPENSATION DOLLAR AMOUNT
---------------------------------- ---------------------------------------------------- -------------------------------
LIQUIDATION STAGE
4. 50% of the customary commission which would be cease.
paid to a third party broker for the sale of a
comparable property.
The amount paid, when added to the sums paid to
unaffiliated parties, will not exceed either the
customary commission or an amount equal to 6% of
the contracted for sales price. Payment of such
fees will be made only if the advisor provides a
substantial service in connection with the sale of
the property. See "Management -- Our Advisory
Agreement."
SUBORDINATED PAYMENTS
We may pay the following additional fees to our advisor after returns on
net investment have been paid to the stockholders:
TYPE OF COMPENSATION ESTIMATED MAXIMUM
AND RECIPIENT METHOD OF COMPENSATION DOLLAR AMOUNT
---------------------------------- ---------------------------------------------------- -------------------------------
OPERATIONAL STAGE
Advisor asset management fee We pay an annual advisor asset management fee of The actual amounts to be
payable to our advisor. not more than 1% of our average assets. Our received depend upon the sale
average assets means the average of the total book price of our properties and,
value of our real estate assets plus the total therefore, cannot be
value of our loans receivables secured by real determined at the present
estate, before reserves for depreciation or bad time. If we acquire the
debts or other similar non-cash reserves. We will advisor, the property
compute our average assets by taking the average disposition fee will cease.
of these values at the end of each month during
the quarter for which we are calculating the fee.
The fee is payable quarterly in an amount equal
to 1/4 of 1% of average assets as of the last day of
the immediately preceding quarter. For any year in
which we qualify as a REIT, our advisor must
reimburse us for the following amounts if any:
(3) the amounts by which our total operating
expenses, the sum of the advisor asset
management fee plus other operating expenses,
paid during the previous fiscal year exceed
the greater of:
- 2% of our average assets for that fiscal year,
or
- 25% of our net income for that fiscal year.
(4) an amount, which will not exceed the advisor
asset management fee for that year, equal to
any difference between the
170
total amount of distributions to stockholders
for that year and the 6% annual return on the
net investment of stockholders.
Items such as organization and offering expenses,
property expenses, interest payments, taxes,
non-cash expenditures, the incentive advisory fee
and acquisition expenses are excluded from the
definition of total operating expenses.
See "Management -- Our Advisory Agreement" for an
explanation of circumstances where the excess
amount specified in clause (1) may not need to be
reimbursed.
TYPE OF COMPENSATION ESTIMATED MAXIMUM
AND RECIPIENT METHOD OF COMPENSATION DOLLAR AMOUNT
----------------------------- ---------------------------------------------------- -----------------------------------
LIQUIDATION STAGE
Incentive advisory fee We will pay to the advisor an amount equal to 15% The actual amounts to be
payable to our advisor. of the net proceeds from the sale of a property received depend upon the sale
after the stockholders have first received: price of our properties and,
therefore, cannot be
(1) a cumulative non-compounded return equal to determined at the present
10% a year on their net investment; and time. If we acquire or
consolidate with the business
(2) their net investment. conducted by our advisor, the
incentive advisory fee will
terminate.
171
LEGAL MATTERS
Duane Morris LLP, Washington, D.C., has passed upon the legality of the
common stock and Duane Morris LLP, Philadelphia, Pennsylvania, has passed upon
legal matters in connection with our status as a REIT for federal income tax
purposes. Duane Morris LLP is generally referred to in this prospectus as Duane
Morris. Duane Morris does not purport to represent our stockholders or potential
investors, who should consult their own counsel. Duane Morris also provides
legal services to affiliates of our advisor.
Duane Morris has reviewed the statements in the section in the prospectus
titled "Federal Income Tax Considerations" and elsewhere as they relate to
federal income tax matters and the statements in the section in the prospectus
titled "ERISA Considerations."
EXPERTS
The balance sheet of Inland Western Retail Real Estate Trust, Inc. as of
June 30, 2003, and the historical summary of gross income and direct operating
expenses of Peoria Station for the year ended December 31, 2002, have been
included herein in reliance upon the reports of KPMG LLP, independent
accountants, appearing elsewhere herein, and upon the authority of said firm as
experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We are filing this registration statement on Form S-11 with the Securities
and Exchange Commission in connection with our initial public offering. We are
required to file annual, quarterly and current reports, proxy statements and
other information with the Securities and Exchange Commission.
This prospectus is part of the registration statement and does not contain
all of the information included in the registration statement and all of its
exhibits, certificates and schedules. Whenever a reference is made in this
prospectus to any contract or other document of ours, the reference may not be
complete and you should refer to the exhibits that are a part of the
registration statement for a copy of the contract or document.
You can read our registration statement and our future SEC filings over the
Internet at www.sec.gov. You may also read and copy any document we file with
the SEC at its Public Reference Room at 450 Fifth Street, N.W., Washington, D.C.
20549.
You may also obtain copies of the documents at prescribed rates by writing
to the Public Reference Section of the SEC at 450 Fifth Street, N.W.,
Washington, D.C. 20549. Please call the SEC at 1 800 SEC-0330 or e-mail at
publicinfo@sec.gov for further information on the operation of the public
reference facilities.
172
INDEX TO FINANCIAL STATEMENTS
AND
FINANCIAL STATEMENTS
1. INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.:
(a) Report of Independent Registered Public Accounting Firm F-1
(b) Balance Sheet at June 30, 2003 F-2
(c) Notes to Balance Sheet at June 30, 2003 F-3
2. PEORIA STATION:
(a) Report of Independent Registered Public Accounting Firm F-8
(b) Historical Summary of Gross Income and Direct Operating Expenses for the
year ended December 31, 2002 and six months ended June 30, 2003
(unaudited) F-9
(c) Notes to the Historical Summary of Gross Income and Direct
Operating Expenses for the year ended December 31, 2002 and
six months ended June 30, 2003 (unaudited) F-10
F-i
Report of Independent
Registered Public Accounting Firm
Board of Directors
Inland Western Retail Real Estate Trust, Inc.
We have audited the accompanying balance sheet of Inland Western Retail Real
Estate Trust, Inc. (the "Company") as of June 30, 2003. This financial statement
is the responsibility of the Company's management. Our responsibility is to
express an opinion on this financial statement based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the balance sheet
is free of material misstatement. An audit of a balance sheet includes
examining, on a test basis, evidence supporting the amounts and disclosures in
that balance sheet. An audit of a balance sheet also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall balance sheet presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of Inland Western Retail Real Estate
Trust, Inc. as of June 30, 2003, in conformity with U.S. generally accepted
accounting principles.
KPMG LLP
Chicago, Illinois
August 15, 2003
F-1
Inland Western Retail Real Estate Trust, Inc.
(A Maryland Corporation)
BALANCE SHEET
June 30, 2003
ASSETS
Cash $ 200,000
Deferred offering costs 684,411
------------
Total assets $ 884,411
============
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities:
Accrued offering expenses $ 691,911
Commitments and contingencies (Note 3)
Stockholder's equity:
Preferred stock, $.001 par value,
10,000,000 shares authorized, none
outstanding -
Common stock, $.001 par value,
350,000,000 shares authorized, 20,000
shares issued and outstanding 20
Additional paid in capital 202,230
Retained earnings deficit (9,750)
------------
Total stockholders' equity 192,500
------------
Total liabilities and stockholders' equity $ 884,411
============
See accompanying notes to balance sheet.
F-2
Inland Western Retail Real Estate Trust, Inc.
(A Maryland Corporation)
NOTES TO BALANCE SHEET
June 30, 2003
(1) Organization
Inland Western Retail Real Estate Trust, Inc. (the "Company") was formed on
March 5, 2003 to acquire and manage a diversified portfolio of real estate,
primarily multi-tenant shopping centers and has not commenced operations. The
Advisory Agreement (the "Agreement") provides for Inland Western Retail Real
Estate Advisory Services, Inc. (the "Advisor"), an Affiliate of the Company, to
be the Advisor to the Company. The Company contemplates the sale of up to
250,000,000 shares of common stock ("Shares") at $10 each in an initial public
offering (the "Offering") to be registered with the Securities and Exchange
Commission (the "Registration Statement") and the issuance of 20,000,000 shares
at $9.50 each which may be distributed pursuant to the Company's distribution
reinvestment program. No shares will be sold unless subscriptions for at least
200,000 shares (the minimum offering) have been obtained within one year after
commencement of the Offering.
The Company intends to qualify as a real estate investment trust ("REIT") under
the Internal Revenue Code of 1986, as amended, for federal income tax purposes
commencing with the tax year ending December 31, 2003. If the Company qualifies
for taxation as a REIT, the Company generally will not be subject to federal
income tax to the extent it distributes its REIT taxable income to its
stockholders. If the Company fails to qualify as a REIT in any taxable year, the
Company will be subject to federal income tax on its taxable income at regular
corporate tax rates. Even if the Company qualifies for taxation as a REIT, the
Company may be subject to certain state and local taxes on its income and
property and federal income and excise taxes on its undistributed income.
The Company will provide the following programs to facilitate investment in the
Company's shares and to provide limited liquidity for stockholders.
The Company will allow stockholders who purchase shares in the offering to
purchase additional shares from the Company by automatically reinvesting
distributions through the distribution reinvestment program ("DRP"), subject to
certain share ownership restrictions. Such purchases under the DRP will not be
subject to selling commissions or the marketing contribution and due diligence
expense allowance, and are made at a price of $9.50 per share.
The Company will repurchase shares under the share repurchase program ("SRP"),
if requested, monthly on a first-come, first-served basis, subject to certain
restrictions. Subject to funds being available, the Company will limit the
number of shares repurchased during any calendar year to 5% of the weighted
average number of shares outstanding during the prior calendar year. Funding for
the SRP will come exclusively from proceeds that the Company receives from the
sale of shares under the DRP and such other operating funds, if any, as the
Company's Board of Directors, at its sole discretion, may reserve for this
purpose. The board, at its sole discretion, may choose to terminate the share
repurchase program after the end of the offering period, or reduce the number of
shares purchased under the program, if it determines that the funds allocated to
the share repurchase program are needed for other purposes, such as the
acquisition, maintenance or repair of properties, or for use in making a
declared distribution. A determination by the board to eliminate or reduce the
share repurchase program will require the unanimous affirmative vote of the
independent directors.
F-3
Inland Western Retail Real Estate Trust, Inc.
(A Maryland Corporation)
NOTES TO BALANCE SHEET
(continued)
June 30, 2003
(2) Summary of Significant Accounting Policies
The preparation of a balance sheet requires management of the Company to make a
number of estimates and assumptions relating to the reported amount of assets
and liabilities and the disclosure of contingent assets and liabilities at the
date of the balance sheet. Actual results could differ from those estimates.
Costs associated with the offering are deferred and charged against the gross
proceeds of the offering upon closing. Formation and organizational costs are
expensed as incurred. As of June 30, 2003, $7,500 of organizational costs were
expensed.
The Company applies the fair value method of accounting as prescribed by SFAS
No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION for its stock options granted.
Under this method, the Company will report the value of granted options as a
charge against earnings ratably over the vesting period.
(3) Transactions with Affiliates
The Advisor contributed $200,000 to the capital of the Company for which it
received 20,000 shares of common stock.
As of June 30, 2003, the Company had incurred $691,911 of offering and
organization costs, all of which was advanced by the Advisor. Pursuant to the
terms of the offering, the Advisor has guaranteed payment of all public offering
expenses (excluding sales commissions and the marketing contribution and the due
diligence expense allowance) in excess of 5.5% of the gross proceeds of the
offering or all organization and offering expenses (including selling
commissions) which together exceed 15% of gross proceeds. In the event that the
minimum offering is not successful, an Affiliate of the Advisor will bear the
related costs of the Offering.
F-4
Inland Western Retail Real Estate Trust, Inc.
(A Maryland Corporation)
NOTES TO BALANCE SHEET
(continued)
June 30, 2003
Certain compensation and fees payable to the Advisor for services to be provided
to the Company are limited to maximum amounts.
Nonsubordinated payments:
Offering stage:
Selling commissions 7.5% of the sale price for each share
Marketing contribution 3.0% of the gross offering proceeds
and due diligence
allowance
Reimbursable expenses We will reimburse our sponsor for
and other expenses of actual costs incurred, on our behalf,
issuance in connection with the offering.
Acquisition stage:
Acquisition expenses We will reimburse an affiliate of our
Advisor for costs incurred, on our
behalf, in connection with the
acquisition of properties
Operational stage:
Property management fee 4.5% of the gross income from the
THIS FEE TERMINATES UPON A properties. (cannot exceed 90% of the
BUSINESS COMBINATION WITH THE fee which would be payable to an
PROPERTY MANAGEMENT COMPANY. unrelated third party)
Loan servicing fee .08% of the total principal amount of
the loans being serviced for each full
year, up to the first $100 million and
a lesser percentage on a sliding scale
thereafter
Reimbursable expenses The compensation and reimbursements to
relating to administrative our advisor and its affiliates will be
services approved by a majority of our
directors.
F-5
Inland Western Retail Real Estate Trust, Inc.
(A Maryland Corporation)
NOTES TO BALANCE SHEET
(continued)
June 30, 2003
Liquidation stage:
Property disposition fee Lesser of 3% of sales price or 50% of
THIS FEE TERMINATES UPON customary the commission which would
A BUSINESS COMBINATION be paid to a third party
WITH THE ADVISOR
Subordinated payments:
Operational stage:
Advisor asset management fee Not more than 1% per annum of our
THIS FEE TERMINATES UPON A average assets; Subordinated to a
BUSINESS COMBINATION WITH non-cumulative, non-compounded return,
THE ADVISOR equal to 6% per annum
Liquidation stage:
Incentive advisory fee After the stockholders have first
THIS FEE TERMINATES UPON A received a 10% cumulative,
BUSINESS COMBINATION WITH non-compounded return and a return on
THE ADVISOR their net investment, an incentive
advisory fee equal to 15% on net
proceeds from the sale of a property
will be paid to the Advisor.
(3) Commitments
The Company has adopted an Independent Director Stock Option Plan which, subject
to certain conditions, provides for the grant to each Independent Director of an
option to acquire 3,000 shares following their becoming a Director and for the
grant of additional options to acquire 500 shares on the date of each annual
stockholders' meeting. The options for the initial 3,000 shares are exercisable
as follows: 1,000 shares on the date of grant and 1,000 shares on each of the
first and second anniversaries of the date of grant. The subsequent options will
be exercisable on the second anniversary of the date of grant. The initial
options will be exercisable at $8.95 per share. The subsequent options will be
exercisable at the fair market value of a share on the last business day
preceding the annual meeting of stockholders. As of June 30, 2003, we have
issued 3,000 options to acquire shares to each of our Independent Directors, for
a total of 9,000 options, of which none have been exercised or expired.
F-6
Inland Western Retail Real Estate Trust, Inc.
(A Maryland Corporation)
NOTES TO BALANCE SHEET
(continued)
June 30, 2003
The per share weighted average fair value of options granted was $0.60 on the
date of the grant using the Black Scholes option-pricing model with the
following assumptions: expected dividend yield of 8%, risk free interest rate of
2.0%, expected life of five years and expected volatility rate of 18.0%. The
Company has recorded $2,250 as expense for the 3,000 options (1,000 options per
director) vesting upon the date of grant and will record the remaining $3,150 in
expense ratably over the two-year vesting period.
The Company anticipates that the aggregate borrowings related to all of the
Company's properties will be limited to certain maximum amounts. See "Investment
Objectives and Policies" elsewhere in this Prospectus for a description of such
maximum borrowing amounts.
The Company has rights to purchase an investment property currently being
redeveloped, known as Peoria Station, from an unaffiliated third party for
approximately $25,867,000. This amount may be adjusted based on actual rental
rates achieved on the redeveloped square feet. The Company expects to purchase
this property by November 1, 2003, however, the seller may extend the closing
date if minimum rental rates stated in the contract have not yet been achieved.
(4) New Accounting Pronouncement
On May 15, 2003, the Financial Accounting Standards Board issued Statement No.
150, ACCOUNTING FOR CERTAIN FINANCIAL INSTRUMENTS WITH CHARACTERISTICS OF BOTH
LIABILITIES AND EQUITY. The Statement requires issuers to classify as
liabilities (or assets in some circumstances) three classes of freestanding
financial instruments that embody obligations for the issuer.
Generally, the Statement is effective for financial instruments entered into or
modified after May 31, 2003 and is otherwise effective at the beginning of the
first interim period beginning after June 15, 2003. The Company adopted the
provisions of the Statement on July 1, 2003.
The Company did not enter into any financial instruments within the scope of the
Statement during June 2003. To the extent stockholders request shares to be
repurchased by the Company under the Share Repurchase Program, the Company's
obligation to repurchase such shares will be classified as a liability at the
redemption amount at the date documentation is complete and accepted by the
Company in accordance with the plan documents.
F-7
Report of Independent
Registered Public Accounting Firm
The Board of Directors
Inland Western Retail Real Estate Trust, Inc.
We have audited the accompanying Historical Summary of Gross Income and Direct
Operating Expenses ("Historical Summary") of Peoria Station ("the Property") for
the year ended December 31, 2002. This Historical Summary is the responsibility
of the management of Inland Western Retail Real Estate Trust, Inc. Our
responsibility is to express an opinion on the Historical Summary based on our
audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the Historical
Summary is free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the Historical
Summary. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
presentation of the Historical Summary. We believe that our audit provides a
reasonable basis for our opinion.
The accompanying Historical Summary was prepared for the purpose of complying
with the rules and regulations of the Securities and Exchange Commission and for
inclusion in the Registration Statement on Form S-11 of Inland Western Retail
Real Estate Trust, Inc., as described in note 2. The presentation is not
intended to be a complete presentation of the Property's revenues and expenses.
In our opinion, the Historical Summary referred to above presents fairly, in all
material respects, the gross income and direct operating expenses described in
note 2 of Peoria Station for the year ended December 31, 2002, in conformity
with U.S. generally accepted accounting principles.
KPMG LLP
Chicago, Illinois
March 10, 2003
F-8
PEORIA STATION
Historical Summary of Gross Income and Direct Operating Expenses
For the year ended December 31, 2002
and the six months ended June 30, 2003 (unaudited)
December 31, June 30,
2002 2003 (unaudited)
------------------ ------------------
Gross income:
Base rental income $ 1,524,218 779,009
Operating expense and real estate tax recoveries 479,053 229,566
------------------ ------------------
Total gross income 2,003,271 1,008,575
------------------ ------------------
Direct operating expenses:
Operating expenses 130,419 59,264
Real estate taxes 322,362 155,379
Insurance 26,179 14,923
------------------ ------------------
Total direct operating expenses 478,960 229,566
------------------ ------------------
Excess of gross income over direct operating expenses $ 1,524,310 779,009
================== ==================
See accompanying notes to historical summary of gross income and direct
operating expense.
F-9
PEORIA STATION
Notes to Historical Summary of Gross Income and Direct Operating Expenses
For the year ended December 31, 2002
and the six months ended June 30, 2003 (unaudited)
(1) Business
Peoria Station (the "Property") is located in Phoenix, Arizona. The Property
consists of 140,019 square feet of gross leasable area and was 100% occupied at
December 31, 2002. Three tenants account for 66% of base rental revenue. Inland
Real Estate Acquisitions, Inc., on behalf of Inland Western Retail Real Estate
Trust, Inc. ("IWRRETI"), has signed a purchase and sale agreement for the
purchase of the Property from an unaffiliated third-party ("Seller").
(2) Basis of Presentation and Combination
The Historical Summary of Gross Income and Direct Operating Expenses
("Historical Summary") has been prepared for the purpose of complying with Rule
3-14 of the Securities and Exchange Commission Regulation S-X and for inclusion
in the Registration Statement on Form S-11 of IWRRETI and is not intended to be
a complete presentation of the Property's revenues and expenses. The Historical
Summary has been prepared on the accrual basis of accounting and requires
management of the Property to make estimates and assumptions that affect the
reported amounts of the revenues and expenses during the reporting period.
Actual results may differ from those estimates.
All adjustments necessary for a fair presentation have been made to the
accompanying unaudited amounts for the six months ended June 30, 2003.
(3) Gross Income
The Property leases retail space under various lease agreements with its
tenants. All leases are accounted for as operating leases. The leases include
provisions under which the Property is reimbursed for common area, real estate,
and insurance costs. Revenue related to these reimbursed costs is recognized in
the period the applicable costs are incurred and billed tenants pursuant to the
lease agreements. Certain leases contain renewal options at various periods at
various rental rates. None of the existing leases include any contingent
rentals.
Although certain leases may provide for tenant occupancy during periods for
which no rent is due and/or increases exist in minimum lease payments over the
term of the lease, rental income accrues for the full period of occupancy on a
straight-line basis. Related adjustments increased base rental income by
$335,653 for the year ended December 31, 2002.
F-10
PEORIA STATION
Notes to Historical Summary of Gross Income and Direct Operating Expenses
For the year ended December 31, 2002
and the six months ended June 30, 2003 (unaudited)
Minimum rents to be received from tenants under operating leases, which terms
range from three to thirty-one years, in effect at December 31, 2002, are as
follows:
Year Total
--------------- --------------
2003 $ 1,563,237
2004 1,765,821
2005 1,611,422
2006 1,513,498
2007 1,331,269
Thereafter 14,420,530
--------------
Total $ 22,205,777
==============
(4) Direct Operating Expenses
Direct operating expenses include only those costs expected to be comparable to
the proposed future operations of the Property. Repairs and maintenance expenses
are charged to operations as incurred. Costs such as depreciation, amortization,
management fees, interest expense related to mortgage debt not assumed, and
professional fees are excluded from the Historical Summary.
F-11
APPENDIX A
PRIOR PERFORMANCE TABLES
The following prior performance tables contain information concerning real
estate programs sponsored by affiliates of our advisor which have investment
objectives similar to ours. This information has been summarized in narrative
form under "Prior Performance of Our Affiliates" in the prospectus. The tables
provide information on the performance of a number of programs. You can use the
information to evaluate the experience of our advisor's affiliates as sponsors
of the programs. The inclusion of these tables does not imply that we will make
investments comparable to those reflected in the tables or that investors in our
shares will experience returns comparable to those experienced in the programs
referred to in these tables. If you purchase our shares, you will not acquire
any ownership in any of the programs to which these tables relate. The tables
consist of:
Table I Experience in Raising and Investing Funds (unaudited)
Table II Compensation to IREIC and Affiliates (unaudited)
Table III Operating Results of Prior Programs (unaudited)
Table IV Results of Completed Programs (unaudited)
Table V Sales or Disposals of Properties (unaudited)
Table VI Acquisition of Properties by Programs* (unaudited)
* Our prospective investors may obtain copies of Table VI by contacting Inland
Western Retail Real Estate Advisory Services, Inc., our advisor.
Table VI is included in Part II of the Registration Statement filed with the
Securities and Exchange Commission of which this Prospectus is a part. Upon
written request to us or our advisor, any prospective investor may obtain,
without charge, a copy of Table VI. See also "Where You Can Find More
Information" for information on examining at, or obtaining copies from, offices
of the SEC.
Upon written request, any potential investor may obtain, without charge, the
most recent annual report on Form 10-K filed with the SEC by any public program
sponsored by any of the Inland's affiliated companies which has reported to the
SEC within the last 24 months. For a reasonable fee, the affiliated companies
will provide copies of any exhibits to such annual reports upon request.
Our investment objectives are to: (i) provide regular distributions to
stockholders in amounts which may exceed our taxable income due to the non-cash
nature of depreciation expense and, to such extent, will constitute a tax-
deferred return of capital, but in no event less than 90% of our taxable income,
pursuant to the REIT requirements; (ii) provide a hedge against inflation by
entering into leases which contain clauses for scheduled rent escalations or
participation in the growth of tenant sales, permitting us to increase
distributions and provide capital appreciation; and (iii) preserve stockholders'
capital.
The following programs have investment objectives similar to ours and are
included in the tables. Inland Retail Real Estate Trust, Inc. and Inland Real
Estate Corporation are two REITs formed primarily to invest in multi-tenant
shopping centers, Inland's Monthly Income Fund, L.P. and Inland Monthly Income
Fund II, L.P. are public real estate limited partnerships formed primarily to
acquire, operate and sell existing residential and commercial real properties.
Inland Mortgage Investors Fund, L.P., Inland Mortgage Investors Fund-II, L.P.
and Inland Mortgage Investors Fund III, L.P. were public real estate limited
partnerships formed primarily to make or acquire loans secured by mortgages on
improved, income producing multifamily residential properties.
A-1
TABLE I
EXPERIENCE IN RAISING AND INVESTING FUNDS
Table I is intended to present information on a dollar and percentage basis
showing the experience of Inland Real Estate Investment Corporation ("IREIC"),
of which the Advisor is a wholly owned subsidiary, in raising and investing
funds in prior programs where the offering closed in the three years prior to
December 31, 2002. The table is intended to focus on the dollar amount available
for investment in properties expressed as a percentage of total dollars raised.
However, since no offering closed in the three years prior to December 31, 2002,
Table I is not included.
TABLE II
COMPENSATION TO IREIC AND AFFILIATES (A)
Table II summarizes the amount and type of compensation paid to Inland Real
Estate Investment Corporation and its affiliates during the three years ended
December 31, 2002 in connection with the prior programs.
Some partnerships acquired their properties from affiliates of our Advisor which
had purchased such properties from unaffiliated third parties.
A-2
TABLE II
COMPENSATION TO IREIC AND AFFILIATES (A)
(000'S OMITTED)
Inland's Inland
Inland Retail Inland Real Monthly Monthly
Real Estate Estate Income Income
Trust, Inc. Corporation Fund, L.P. Fund II, L. P.
----------------------------------------------------------------------------
Date offering commenced 02/11/99 10/14/94 08/03/87 08/04/88
Dollar amount raised $ 1,217,656 673,860 30,000 25,324
==========================================================================
Total amounts paid to general partner or affiliates
from proceeds of offerings:
Selling commissions and underwriting fees 105,809(C) 49,869(C) 273(B) 423(B)
Other offering expenses (D) 5,786 2,350 116 230
Acquisition cost and expense 844 925 2,550(E) 1,706(E)
==========================================================================
Dollar amount of cash available from
operations before deducting payments to
general partner or affiliates (F) 78,357 201,947 4,867 4,286
==========================================================================
Amounts paid to general partner or affiliates
related to operations: (J)
Property management fees (G) 7,403 3,045 69 55
Advisor asset management fee 5,413 2,414 0 0
Accounting services 578 77 50 48
Data processing service 229 43 27 27
Legal services 94 54 14 11
Mortgage servicing fees 253 50 0 0
Mortgage interest expense 0 27 0 0
Acquisition costs expensed 33 138 0 0
Other administrative services 849 138 70 44
Property upgrades 0 0 0 0
Dollar amount of property sales and
refinancings before payments to general
partner and affiliates (H):
Cash 0 1,314 4,964 0
Notes 0 0 0 0
Dollar amounts paid or payable to general
partner or affiliates from sales and
refinancings (I):
Sales commissions 0 0 0 0
Participation in cash distributions 0 0 0 0
A-3
TABLE II
COMPENSATION TO IREIC AND AFFILIATES (A)
NOTES TO TABLE II
(A) The figures in this Table II relating to proceeds of the offerings are
cumulative and are as of December 31, 2002 and the figures relating to cash
available from operations are for the three years ending December 31, 2002.
The dollar amount raised represents the cash proceeds collected by the
partnerships or program. Amounts paid or payable to IREIC or affiliates
from proceeds of the offerings represent payments made or to be made to
IREIC and affiliates from investor capital contributions.
(B) The selling commissions paid to an affiliate is net of amounts which were
in turn paid to third party soliciting dealers.
(C) The selling commissions paid to an affiliate includes amounts which were in
turn paid to third party soliciting dealers.
(D) Consists of legal, accounting, printing and other offering expenses,
including amounts to be paid to Inland Securities Corporation to be used as
incentive compensation to its regional marketing representatives and
amounts for reimbursement of the general partner for marketing, salaries
and direct expenses of its employees while directly engaged in registering
and marketing the Units and other marketing and organization expenses.
(E) Represents acquisition fees paid to IREIC and its affiliates in connection
with the acquisition of properties.
(F) See Note (B) to Table III.
(G) An affiliate provides property management services for all properties
acquired by the partnerships or program. Management fees have not exceeded
4.5% of the gross receipts from the properties managed.
(H) See Table V and Notes thereto regarding sales and disposals of properties.
(I) Real estate sales commissions and participations in cash distributions are
paid or payable to IREIC and/or its affiliates in connection with the sales
of properties in the public partnership programs. Payments of all amounts
shown are subordinated to the receipt by the limited partners of their
original capital investment. See Table V and Notes thereto.
(J) On July 1, 2000, IREC completed the acquisition of Inland Real Estate
Advisory Services, Inc., the former advisor, and Inland Commercial Property
Management, Inc., the former property manager (the "Merger"). Each of these
entities was merged into subsidiaries that are wholly owned by IREC. As a
result of the merger, IREC is now "self-administered." IREC no longer pays
advisory or property management fees but instead has hired an internal
staff to perform these tasks.
A-4
TABLE III
OPERATING RESULTS OF PRIOR PROGRAMS
Table III presents operating results for programs, the offerings of which closed
during each of the five years ended December 31, 2002. The operating results
consist of:
- The components of taxable income (loss);
- Taxable income or loss from operations and property sales;
- Cash available and source, before and after cash distributions to
investors; and
- Tax and distribution data per $1,000 invested.
Based on the following termination dates of the offerings, only IREC is included
in Table III.
- Inland Retail Real Estate Trust, Inc. - currently offering shares
- Inland's Monthly Income Fund, L.P. - offering terminated in 1988
- Inland Monthly Income Fund II, L.P. - offering terminated in 1990
- Inland Mortgage Investors Fund, L.P. - offering terminated in 1987
- Inland Mortgage Investors Fund-II, L.P. - offering terminated in 1988
- Inland Mortgage Investors Fund III, L.P. - offering terminated in 1991
A-5
TABLE III
OPERATING RESULTS OF PRIOR PROGRAMS
(000'S OMITTED, EXCEPT FOR AMOUNTS PRESENTED PER $1,000 INVESTED)
INLAND REAL ESTATE CORPORATION
2002 2001 2000 1999 1998 1997 1996 1995
--------------------------------------------------------------------------------------
Gross revenues $ 156,358 155,048 150,892 123,788 73,302 29,422 6,328 1,180
Profit on sale of properties 1,546 467 0 0 0 0 0 0
Less:
Merger consideration costs (D) 0 0 68,775 0 0 0 0 0
Operating expenses 48,967 47,477 47,727 40,303 21,017 8,863 1,873 327
Interest expense 34,428 34,797 33,682 25,654 13,422 5,655 597 164
Program expenses 5,805 5,367 6,493 7,298 3,114 1,576 449 22
Depreciation & amortization 29,428 27,208 26,219 20,361 11,663 4,681 957 170
--------------------------------------------------------------------------------------
Net income (loss)-GAAP basis $ 39,276 40,666 (32,004) 30,172 24,086 8,647 2,452 497
======================================================================================
Taxable income (loss) (A): 0 0 0 0 0 0 0 0
======================================================================================
Cash available (deficiency) from
operations (B) 69,451 74,062 58,434 53,636 40,142 15,857 5,530 978
Cash available from sales (C) 8,175 2,364 0 0 0 0 0 0
--------------------------------------------------------------------------------------
Total cash available before
distributions and special items 77,626 76,426 58,434 53,636 40,142 15,857 5,530 978
Less distributions to investors:
From operations 61,913 62,367 54,368 48,773 33,454 11,899 3,286 607
From sales and refinancings 0 467 0 0 0 0 0 0
--------------------------------------------------------------------------------------
Cash available after distributions
before special items 15,713 13,592 4,066 4,863 6,688 3,958 2,244 371
Special items: 0 0 0 0 0 0 0 0
--------------------------------------------------------------------------------------
Cash available after distributions
and special items $ 15,713 13,592 4,066 4,863 6,688 3,958 2,244 371
======================================================================================
Tax data per $1,000 invested (A): 0 0 0 0 0 0 0 0
Distribution data per $1,000 invested:
Cash distributions to investors:
Source (on GAAP basis):
Investment income 94 93 90 89 88 86 82 78
Source (on cash basis):
Sales 0 0 0 0 0 0 0 0
Operations (E) 94 93 90 89 88 86 82 78
Percent of properties remaining
unsold(F) 100.00%
=========
A-6
TABLE III--(CONTINUED)
OPERATING RESULTS OF PRIOR PROGRAMS
NOTES TO TABLE III
(A) Inland Real Estate Corporation qualified as a real estate investment trust
("REIT") under the Internal Revenue Code for federal income tax purposes
commencing with the tax year ending December 31, 1995. Since it qualified
for taxation as a REIT, it generally will not be subject to federal income
tax to the extent it distributes its REIT taxable income to its
stockholders. If Inland Real Estate Corporation fails to qualify as a REIT
in any taxable year, it will be subject to federal income tax on its
taxable income at regular corporate tax rates. However, even if the program
qualifies for taxation as a REIT, it may be subject to certain state and
local taxes on its income and property and federal income and excise taxes
on its undistributed income.
(B) "Cash Available (Deficiency) from Operations," represents all cash revenues
and funds received by the programs, including but not limited to operating
income less operating expenses, and interest income. These amounts do not
include payments made by the programs from offering proceeds nor do they
include proceeds from sales or refinancings. These amounts also exclude
advances from or repayments to IREIC and affiliates which are disclosed
elsewhere in the table and include principal payments on long-term debt.
For example:
Inland Real Estate Corporation
(000's omitted)
2002 2001 2000 1999 1998 1997 1996 1995
--------------------------------------------------------------------------------------
Net cash provided by
operating activities per
the Form 10-K annual
report or 10-Q quarterly
report $ 69,500 74,091 58,505 53,724 40,216 15,924 5,530 978
Principal payments on
long-term debt (49) (29) (71) (88) (74) (67) - -
--------------------------------------------------------------------------------------
$ 69,451 74,062 58,434 53,636 40,142 15,857 5,530 978
======================================================================================
(C) See Table V and Notes thereto regarding sales and disposals of properties.
(D) On July 1, 2000, IREC completed the acquisition of Inland Real Estate
Advisory Services, Inc., the former advisor, and Inland Commercial Property
Management, Inc., the former property manager (the "Merger"). Each of these
entities was merged into subsidiaries that are wholly owned by IREC. IREC
issued an aggregate of 6,181,818 shares of its common stock valued at
$11.00 per share to Inland Real Estate Investment Corporation and The
Inland Property Management Group, Inc. The expense of these shares and
additional costs relating to the merger are reported as an operational
expense on IREC's Consolidated Statements of Operations.
A-7
TABLE III--(CONTINUED)
OPERATING RESULTS OF PRIOR PROGRAMS
NOTES TO TABLE III
(E) Distributions by IREC to the extent of its current and accumulated earnings
and profits for federal income tax purposes are taxable to stockholders as
ordinary income. Distributions in excess of these earnings and profits
generally are treated as a non-taxable reduction of the stockholder's basis
in the shares to the extent thereof, and thereafter as taxable gain (a
return of capital). These distributions in excess of earnings and profits
will have the effect of deferring taxation of the amount of the
distribution until the sale of the stockholder's shares.
2002 2001 2000 1999 1998 1997 1996 1995
------------------------------------------------------------------------------
% of Distribution
representing:
Ordinary income 69.52 78.33 76.37 73.67 76.22 74.19 83.50 94.24
Return of Capital 30.48 21.67 23.63 26.33 23.78 25.81 16.50 5.76
------------------------------------------------------------------------------
100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00
(F) Percent of properties remaining unsold represents original total
acquisition costs of properties retained divided by original total
acquisition cost of all properties in the program, plus the total of
uninvested offering proceeds (if any). Sales proceeds from the sale of
three properties were used to acquire new properties.
A-8
TABLE IV
RESULTS OF COMPLETED PROGRAMS
(000'S OMITTED, EXCEPT FOR AMOUNTS PRESENTED PER $1,000 INVESTED)
Table IV is a summary of operating and disposition results of prior programs
sponsored by affiliates of our advisor, which during the five years ended prior
to December 31, 2002 have sold their properties and either hold notes with
respect to such sales or have liquidated. Three programs with investment
objectives similar to ours have disposed of all of their properties during the
five years ended prior to December 31, 2002.
INLAND MORTGAGE INLAND MORTGAGE INLAND MORTGAGE
PROGRAM NAME INVESTORS FUND, L.P. INVESTORS FUND L.P.- II INVESTORS FUND III, L.P.
Dollar amount raised 10,065 9,388 2,837
Number of properties/loans purchased 15 13 7
Date of closing of offering 02/87 08/88 01/91
Date of first sale of property 12/88 09/89 06/93
Date of final sale of property 03/99 12/98 10/98
Tax and distribution data per
$1,000 invested (A):
Federal income tax results:
Ordinary income (loss):
Operations 547 633 419
Recapture 0 0 0
Capital Gain 30 0 0
Deferred Gain:
Capital 0 0 0
Ordinary 0 0 0
Cash distributions to investors (cash basis):
Source (on GAAP basis)
Investment income 624 631 421
Return of capital 745 809 827
Source (on cash basis)
Sales 745 809 827
Operations 624 631 421
(A) Data per $1,000 invested is presented as of December 31, 2002. See Table V
and Notes thereto regarding sales and disposals of properties.
A-9
TABLE V
SALES OR DISPOSALS OF PROPERTIES
Table V presents information on the results of the sale or disposals of
properties in programs with investment objectives similar to ours during the
three years ended December 31, 2002. Since January 1, 2000, programs sponsored
by affiliates of our advisor had five sales transactions. The table provides
certain information to evaluate property performance over the holding period
such as:
- Sales proceeds received by the partnerships in the form of cash down
payments at the time of sale after expenses of sale and secured notes
received at sale;
- Cash invested in properties;
- Cash flow (deficiency) generated by the property;
- Taxable gain (ordinary and total); and
- Terms of notes received at sale.
The entities listed in Table V are Inland's Monthly Income Fund, L.P. and IREC.
- Inland Real Estate Corporation - offering terminated in 1999.
SALES OR DISPOSALS OF PROPERTIES (A)
(000'S OMITTED)
Cash Selling Mortgage Secured
Received, Commissions at Notes
Date Date of net of Closing Paid or Payable Time of Received
Acquired Sale Costs(B) to Inland Sale at Sale
-------------------------------------------------------------------------------------------------------------------------
Monthly Income Fund I - McHenry Plaza 10/19/87 07/19/00 3,249 69 0 0
Monthly Income Fund I - Rantoul Walmart 08/05/88 11/17/00 1,715 83 985 0
IREC - Lincoln Park Place 01/24/97 04/17/01 1,314 0 1,050 0
IREC - Antioch Plaza 12/95 03/28/02 943 0 875 0
IREC - Shorecrest Plaza 07/97 06/12/02 3,107 0 2,989 0
Adjust
Resulting Partnership
from Net Original Capital
Application Selling Mortgage Invested
of GAAP Price Financing (C) Total
-------------------------------------------------------------------------------------------------------
Monthly Income Fund I - McHenry Plaza 0 3,180 0 1,967 1,967
Monthly Income Fund I - Rantoul Walmart 0 2,617 0 2,656 2,656
IREC - Lincoln Park Place 0 2,364 0 1,897 1,897
IREC - Antioch Plaza 0 1,818 875 753 1,628
IREC - Shorecrest Plaza 0 6,085 2,978 2,947 5,925
Excess (deficiency) of Amount of
property operating cash subsidies included Total Taxable
receipts over cash in operating cash Gain (loss) Ordinary Income Capital
expenditures (D) receipts from Sale from Sale Gain (loss)
-----------------------------------------------------------------------------------------------------------------------------------
Monthly Income Fund I - McHenry Plaza 1,092 0 374 0 374
Monthly Income Fund I - Rantoul Walmart 2,534 0 787 0 787
IREC - Lincoln Park Place 218 0 467 0 467
IREC - Antioch Plaza 130 0 0(E) 0 0
IREC - Shorecrest Plaza 1,556 0 0(E) 0 0
A-10
TABLE V - (CONTINUED)
SALES OR DISPOSALS OF PROPERTIES
NOTES TO TABLE V
(A) The table includes all sales of properties by the programs with investment
objectives similar to ours during the three years ended December 31, 2002.
All sales have been made to parties unaffiliated with the partnerships.
(B) Consists of cash payments received from the buyers and the assumption of
certain liabilities by the buyers at the date of sale, less expenses of
sale.
(C) Amounts represent the dollar amount raised from the offerings, less sales
commissions and other offering expenses plus additional costs incurred on
the development of the land parcels.
(D) Represents "Cash Available (Deficiency) from Operations (including
subsidies)" as adjusted for applicable "Fixed Asset Additions" through the
year of sale.
(E) For tax purposes, this sale qualified as part of a tax-deferred exchange.
As a result, no taxable gain will be recognized until the replacement
property is disposed of in a subsequent taxable transaction.
A-11
APPENDIX B
DIVIDEND REINVESTMENT PLAN
INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
DISTRIBUTION REINVESTMENT PROGRAM
Inland Western Retail Real Estate Trust, Inc., a Maryland corporation (the
"Company"), pursuant to its Articles of Incorporation (the "Articles") has
adopted a Distribution Reinvestment Program (the "DRP"), the terms and
conditions of which are set forth below. Capitalized terms shall have the same
meaning as set forth in the Company's Prospectus dated September 15, 2003 (as
the same may be supplemented or modified from time to time) unless otherwise
defined herein.
i. Distributions. As agent for the Stockholders who purchase Shares from
the Company pursuant to the prospectus dated September 15, 2003 (the "Offering")
and elect to participate in the DRP (the "Participants"), the Company will apply
all distributions, paid with respect to the Shares held by each Participant (the
"Distributions"), including Distributions paid with respect to any full or
fractional Shares acquired under the DRP, to the purchase of the Shares for said
Participants directly, if permitted under state securities laws and, if not,
through the Dealer Manager or Soliciting Dealers registered in the Participant's
state of residence. Neither the Company nor its Affiliates will receive a fee
for selling Shares under the DRP.
ii. Procedure for Participation. Any Stockholder who purchases Shares
pursuant to the Company's Offering may elect to become a Participant by
completing and executing the Subscription Agreement or other appropriate
authorization form as may be available from the Company, the Dealer Manager or
the Soliciting Dealer. Participation in the DRP will begin with the next
Distribution payable after receipt of a Participant's subscription or
authorization. Shares will be purchased under the DRP on the record date for the
Distribution used to purchase the Shares. Distributions for Shares acquired
under the DRP will be paid at the same time as Distributions are paid on Shares
purchased outside the DRP and are calculated with a daily record and
Distribution declaration date. Each Participant agrees that if, at any time
prior to listing of the Shares on a national stock exchange or inclusion of the
Shares for quotation on a national market system, he or she fails to meet the
suitability requirements for making an investment in the Company or cannot make
the other representations or warranties set forth in the Subscription Agreement,
he or she will promptly so notify the Company in writing.
iii. Purchase of Shares. Participants will acquire Shares from the Company
at a fixed price of $10.00 per Share until the first to occur of (i) the
termination of the Offering, or (ii) the public offering price per Share in the
Offering is increased above $10.00 per share. Thereafter, Participants will
acquire Shares from the Company at a price equal to 95% of the Market Price of a
Share on the date of purchase until such time as the Company's Shares are listed
on a national stock exchange or included for quotation on a national market
system. In the event of such listing or inclusion, Shares purchased by the
Company for the DRP will be purchased on such exchange or market, at the
prevailing market price, and will be sold to Stockholders at such price. The
discount per Share is never intended to exceed 5% of the current Market Price of
a Share on the date of purchase. Participants in the DRP may also purchase
fractional Shares so that 100% of the Distributions will be used to acquire
Shares. However, a Participant will not be able to acquire Shares under the DRP
to the extent such purchase would cause it to exceed the Ownership Limit or
other Share ownership restrictions imposed by the Articles.
It is possible that a secondary market will develop for the Shares, and
that the Shares may be bought and sold on the secondary market at prices lower
or higher than the $10.00 per Share price which will be paid under the DRP.
The Company shall endeavor to acquire Shares on behalf of Participants at
the lowest price then available. However, the Company does not guarantee or
warrant that the Participant will be acquiring Shares at the lowest possible
price.
If the Company's Shares are listed on a national stock exchange or included
for quotation on a national market system, the reservation of any Shares from
the Offering for issuance under the DRP, which have not been
B-1
issued as of the date of such listing or inclusion, will be canceled, and such
Shares will continue to have the status of authorized but unissued Shares. Those
unissued Shares will not be issued unless they are first registered with the
Securities and Exchange Commission (the "Commission") under the Act and under
appropriate state securities laws or are otherwise issued in compliance with
such laws.
It is understood that reinvestment of Distributions does not relieve a
Participant of any income tax liability which may be payable on the
Distributions.
iv. Share Certificates. Within 90 days after the end of the Company's
fiscal year, the Company will issue certificates evidencing ownership of Shares
purchased through the DRP during the prior fiscal year. The ownership of the
Shares will be in book-entry form prior to the issuance of such certificates.
v. Reports. Within 90 days after the end of the Company's fiscal year,
the Company will provide each Participant with an individualized report on his
or her investment, including the purchase date(s), purchase price and number of
Shares owned, as well as the dates of distribution and amounts of Distributions
received during the prior fiscal year. The individualized statement to
Stockholders will include receipts and purchases relating to each Participant's
participation in the DRP including the tax consequences relative thereto.
vi. Termination by Participant. A Participant may terminate participation
in the DRP at any time, without penalty, by delivering to the Company a written
notice. Prior to listing of the Shares on a national stock exchange or inclusion
of the Shares for quotation on a national market system, any transfer of Shares
by a Participant to a non-Participant will terminate participation in the DRP
with respect to the transferred Shares. If a Participant terminates DRP
participation, the Company will provide the terminating Participant with a
certificate evidencing the whole shares in his or her account and a check for
the cash value of any fractional share in such account. Upon termination of DRP
participation, Distributions will be distributed to the Stockholder in cash.
vii. Amendment or Termination of DRP by the Company. The Directors of the
Company may by majority vote (including a majority of the Independent Directors)
amend or terminate the DRP for any reason upon 30 days' written notice to the
Participants.
viii. Liability of the Company. The Company shall not be liable for any act
done in good faith, or for any good faith omission to act, including, without
limitation, any claims or liability: (a) arising out of failure to terminate a
Participant's account upon such Participant's death prior to receipt of notice
in writing of such death; and (b) with respect to the time and the prices at
which Shares are purchased or sold for a Participant's account. To the extent
that indemnification may apply to liabilities arising under the Act or the
securities laws of a state, the Company has been advised that, in the opinion of
the Commission and certain state securities commissioners, such indemnification
is contrary to public policy and, therefore, unenforceable.
ix. Governing Law. This DRP shall be governed by the laws of the State
of Maryland.
B-2
APPENDIX C
INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
INSTRUCTIONS TO SUBSCRIBERS
[LOGO]
Any person desiring to subscribe for our common shares should
carefully read and review the Prospectus, as supplemented to
date, and if he/she desires to subscribe for shares, complete the
Subscription Agreement/Signature Page that follows these
instructions. Follow the appropriate instructions listed below
for the items indicated. Please print in ballpoint pen or type
the information.
A - INVESTMENT
Item (1)a Enter the dollars and cents amount of the purchase and the number
of shares to be purchased. Minimum purchase 300 shares ($3,000).
Qualified Plans 100 shares ($1,000). (Iowa requires 300 shares
($3,000) for IRA accounts; Minnesota requires 200 shares ($2,000)
for IRA and qualified accounts).
Check the box to indicate whether this is an initial or an
additional investment. The "Additional Investment" box must be
checked in order for this subscription to be combined with
another subscription for purposes of a volume discount. A
COMPLETED SUBSCRIPTION AGREEMENT IS REQUIRED FOR EACH INITIAL AND
ADDITIONAL INVESTMENT.
Item (1)b Deferred Commission Option: Please check the box if you have
agreed with your Soliciting Dealer to elect the Deferred
Commission Option, as described in the Prospectus, as
supplemented to date. By electing the Deferred Commission Option,
you are required to pay only $9.40 per share purchased upon
subscription. For the next six years, following the year of
subscription, you will have a sales commission of $0.10 per share
deducted from and paid out of cash distributions otherwise
distributable to you. Election of the Deferred Commission Option
shall authorize the Company to withhold such amounts from cash
distributions otherwise payable to you and to pay them as
described in the "Plan of Distribution-Deferred Commission
Option" section of the Prospectus, as supplemented to date.
Item (1)c Check the box to indicate whether the Registered Representative
chooses to purchase common stock net of selling commissions.
B - TYPE OF OWNERSHIP
FOR NON-CUSTODIAL OWNERSHIP ACCOUNTS, please mail the properly
completed and executed Subscription Agreement/Signature Page and
your check MADE PAYABLE TO "LBNA/ESCROW AGENT FOR IWRRET" to:
Inland Securities Corporation, 2901 Butterfield Road, Oak Brook,
Illinois 60523, Attn: Investor Services. If you have questions,
please call 800-826-8228.
FOR CUSTODIAL OWNERSHIP ACCOUNTS, checks should be MADE PAYABLE
TO THE CUSTODIAN AND SENT ALONG WITH THIS PROPERLY COMPLETED AND
EXECUTED FORM TO THE CUSTODIAN.
Item (2)a Check the appropriate box to indicate the type of entity that is
subscribing. (Entities for non-custodial ownership accounts
appear on the left side; entities for custodial ownership
accounts appear on the right side.) If this is an additional
purchase, this should be completed exactly the same as previous
investment. If the entity is a pension or profit sharing plan,
indicate whether it is taxable or exempt from taxation under
Section 501A of the Internal Revenue Code. Note: Pension or
profit sharing plan appears under non-custodial ownership as well
as custodial ownership -- check non-custodial ownership if the
plan has a trustee; custodial ownership if the plan has a
custodian. If you check the Individual Ownership box and you wish
to designate a Transfer on Death beneficiary, you may check the
"TOD" box and you must fill out the Transfer on Death Form in
order to effect the designation.
Item (2)b Enter the exact name of the custodian or trustee and mailing
address. IF THIS IS AN ADDITIONAL PURCHASE BY A QUALIFIED PLAN,
PLEASE USE THE SAME EXACT PLAN NAME AS PREVIOUSLY USED.
Item (2)c The custodian must complete this box by entering its custodian
Tax ID number (for tax purposes), custodial account number and
its telephone number.
C - SUBSCRIBER INFORMATION
Item (3) For non-custodial ownership accounts, enter the exact name in
which the shares are to be held. For co-subscribers enter the
names of all subscribers. For custodial ownership accounts, enter
FBO the name of the subscriber.
Item (4) Enter mailing address, city, state, and zip code of the
subscriber. Note: The custodian or trustee of custodial ownership
accounts is the mailing address or address of record completed in
Item (2) b.
Item (5) Enter the residence address if different than the mailing address
in Item (4). For custodial ownership accounts, enter the
residence address of the subscriber.
Item (6) Enter home telephone, business telephone and email address.
Item (7) Enter birth date of subscriber and co-subscriber, if applicable,
or date of incorporation.
Item (8) Enter the Social Security number of subscriber and co-subscriber,
if applicable. The subscriber is certifying that this number is
correct. For custodial ownership accounts, enter the subscriber's
Social Security number (for identification purposes). Enter Tax
ID number, if applicable.
Item (9) Check the appropriate box. If the subscriber is a non-resident
alien, he must apply to the United States Internal Revenue
Service for an identification number via Form SS-4 for an
individual or SS-5 for a corporation, and supply the number to
the Company as soon as it is available.
Item (10) Check this box if the subscriber is an employee of Inland or an
individual who has been continuously affiliated with Inland as an
independent contractor.
D - DISTRIBUTION OPTIONS
CHECK THE APPROPRIATE BOX TO INDICATE DISTRIBUTION OPTIONS FOR
NON-CUSTODIAL OWNERSHIP ACCOUNTS.
Item (11)a Check if you desire distributions to be mailed to address of
record in Section C, Item (4) above.
Item (11)b Check if you desire to participate in Distribution Reinvestment
Program.
Item (11)c If subscriber desires direct deposit of his/her/their cash
distributions to an account or address other than as set forth in
the Subscription Agreement/Signature Page, check the preferred
option and complete the required information. For ACH, indicate
whether it is a checking or savings account, and enter the name
of the institution/individual, mailing address, ABA number, and
account number. MUST ENCLOSE VOIDED CHECK, if applicable.
CHECK THE APPROPRIATE BOX TO INDICATE DISTRIBUTION OPTIONS FOR
CUSTODIAL OWNERSHIP ACCOUNTS.
Item (12)a Check if you desire distributions to be mailed to custodian.
Item (12)b Check if you desire to participate in Distribution Reinvestment
Program.
E - SIGNATURE
Item (13) The Subscription Agreement/Signature Page MUST BE EXECUTED by the
subscriber(s), and if applicable, the trustee or custodian.
F - BROKER/DEALER REGISTERED REPRESENTATIVE
Item (14) Enter the Registered Representative name, address, B/D Rep ID
number, telephone number, and e-mail address. Also, enter the
name of the broker/dealer, home office address, and B/D Client
Account number. By executing the Subscription Agreement/Signature
Page, the Registered Representative substantiates compliance with
the conduct rules of the NASD, by certifying that the Registered
Representative has reasonable grounds to believe, based on
information obtained from the investor concerning his, her or its
investment objectives, other investments, financial situation and
needs and any other information known by such Registered
Representative, that investment in the Company is suitable for
such investor in light of his, her or its financial position, net
worth and other suitability characteristics and that the
Registered Representative has informed the investor of all
pertinent facts relating to the liability, liquidity and
marketability of an investment in the Company during its term.
The Registered Representative (authorized signature) should sign
where provided.
Item (14)a Check the box to indicate whether the broker/dealer agrees to the
Deferred Commission Option if the subscriber has elected the
deferred Commission Option; the broker/dealer must sign to
acknowledge that agreement.
Item (14)b Check the box to indicate whether the Registered Representative
chooses to purchase common stock net of selling commissions.
G - REGISTERED INVESTMENT ADVISOR (RIA)
Item (15) Check the box to indicate whether this subscription was solicited
or recommended by an investment advisor/broker/dealer whose
agreement with the subscriber includes a fixed or "wrap" fee
feature for advisory and related brokerage services, and,
accordingly, may not charge the regular selling commission. NO
SALES COMMISSIONS ARE PAID ON THESE ACCOUNTS. This box must be
checked in order for such subscriber(s) to purchase shares net of
the selling commissions.
C-1
SUBMISSION OF SUBSCRIPTION
FOR NON-CUSTODIAL OWNERSHIP ACCOUNTS, the properly completed and executed
Subscription Agreement/Signature Page together with a check MADE PAYABLE TO
"LBNA/ESCROW AGENT FOR IWRRET" should be mailed to: Inland Securities
Corporation, 2901 Butterfield Road, Oak Brook, Illinois 60523. Attn: Investor
Services.
FOR CUSTODIAL OWNERSHIP ACCOUNTS, checks should be MADE PAYABLE TO THE CUSTODIAN
AND SENT ALONG WITH THIS PROPERLY COMPLETED AND EXECUTED FORM TO THE CUSTODIAN.
NOTE: If a person other than the person in whose name the shares will be held
is reporting the income received from the Company, you must notify the
Company in writing of that person's name, address and Social Security
number.
ALL INVESTORS AND THEIR REGISTERED REPRESENTATIVES MUST SIGN THE SUBSCRIPTION
AGREEMENT/ SIGNATURE PAGE PRIOR TO TENDERING ANY FUNDS FOR INVESTMENT IN SHARES.
CALIFORNIA INVESTORS
All Certificates representing shares which are sold in the State of California
will bear the following legend conditions: IT IS UNLAWFUL TO CONSUMMATE A SALE
OR TRANSFER OF THIS SECURITY OR ANY INTEREST THEREIN, OR TO RECEIVE ANY
CONSIDERATION THEREFORE, WITHOUT THE PRIOR WRITTEN CONSENT OF THE COMMISSIONER
OF CORPORATIONS OF THE STATE OF CALIFORNIA, EXCEPT AS PERMITTED IN THE
COMMISSIONER'S RULES.
Any subscriber seeking to purchase shares pursuant to a discount offered by the
Company must submit such request in writing and set forth the basis for the
request. Any such request will be subject to verification by the Company.
Lack of Liquidity: There is no current market for the shares and the investors
may not be able to sell the securities.
SPECIAL SUITABILITY STANDARDS
CERTAIN STATES HAVE IMPOSED SPECIAL FINANCIAL SUITABILITY STANDARDS FOR
SUBSCRIBERS WHO PURCHASE SHARES.
IF THE SUBSCRIBER IS A RESIDENT OF MAINE, THE SUBSCRIBER MUST HAVE EITHER: (i) A
MINIMUM NET WORTH (EXCLUDING HOME, HOME FURNISHINGS AND AUTOMOBILES) OF
$200,000; OR (ii) A MINIMUM ANNUAL GROSS INCOME OF $50,000 AND A MINIMUM NET
WORTH (EXCLUSIVE OF HOME, HOME FURNISHINGS AND AUTOMOBILES) OF $50,000.
IF THE SUBSCRIBER IS A RESIDENT OF ARIZONA, CALIFORNIA, IOWA, MASSACHUSETTS,
MICHIGAN, MISSOURI, OREGON OR TENNESSEE, THE SUBSCRIBER MUST HAVE EITHER: (i) A
MINIMUM NET WORTH (EXCLUDING HOME, HOME FURNISHINGS AND AUTOMOBILES) OF
$225,000; OR (II) A MINIMUM ANNUAL GROSS INCOME OF $60,000 AND A MINIMUM NET
WORTH (EXCLUSIVE OF HOME, HOME FURNISHINGS AND AUTOMOBILES) OF $60,000.
IN ADDITION, IF THE SUBSCRIBER IS A RESIDENT OF KANSAS, OHIO OR PENNSYLVANIA,
THE INVESTMENT MAY NOT EXCEED 10% OF THE INVESTOR'S LIQUID NET WORTH.
WE INTEND TO ASSERT THE FOREGOING REPRESENTATIONS AS A DEFENSE IN ANY SUBSEQUENT
LITIGATION WHERE SUCH ASSERTION WOULD BE RELEVANT. WE HAVE THE RIGHT TO ACCEPT
OR REJECT THIS SUBSCRIPTION IN WHOLE OR IN PART, SO LONG AS SUCH PARTIAL
ACCEPTANCE OR REJECTION DOES NOT RESULT IN AN INVESTMENT OF LESS THAN THE
MINIMUM AMOUNT SPECIFIED IN THE PROSPECTUS. AS USED ABOVE, THE SINGULAR INCLUDES
THE PLURAL IN ALL RESPECTS IF SHARES ARE BEING ACQUIRED BY MORE THAN ONE PERSON.
AS USED IN THIS SUBSCRIPTION AGREEMENT, "INLAND" REFERS TO INLAND REAL ESTATE
GROUP, INC. AND ITS AFFILIATES. THIS SUBSCRIPTION AGREEMENT AND ALL RIGHTS
HEREUNDER SHALL BE GOVERNED BY, AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF
THE STATE OF ILLINOIS.
BY EXECUTING THIS SUBSCRIPTION AGREEMENT, THE SUBSCRIBER IS NOT WAIVING ANY
RIGHTS UNDER THE FEDERAL SECURITIES LAWS.
ACH LANGUAGE
I (WE) HEREBY AUTHORIZE INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
("COMPANY") TO DEPOSIT DISTRIBUTIONS FROM MY (OUR) INTEREST IN STOCK OF THE
COMPANY INTO THE ACCOUNT LISTED IN SECTION D OF SUBSCRIPTION AGREEMENT AT THE
FINANCIAL INSTITUTION INDICATED IN SECTION D OF SUBSCRIPTION AGREEMENT. I
FURTHER AUTHORIZE THE COMPANY TO DEBIT MY ACCOUNT NOTED IN SECTION D OF
SUBSCRIPTION AGREEMENT IN THE EVENT THAT THE COMPANY ERRONEOUSLY DEPOSITS
ADDITIONAL FUNDS TO WHICH I AM NOT ENTITLED, PROVIDED THAT SUCH DEBIT SHALL NOT
EXCEED THE ORIGINAL AMOUNT OF THE ERRONEOUS DEPOSIT. IN THE EVENT THAT I
WITHDRAW FUNDS ERRONEOUSLY DEPOSITED INTO MY ACCOUNT BEFORE THE COMPANY REVERSES
SUCH DEPOSIT, I AGREE THAT THE COMPANY HAS THE RIGHT TO RETAIN ANY FUTURE
DISTRIBUTIONS THAT I AM ENTITLED UNTIL THE ERRONEOUSLY DEPOSITED AMOUNTS ARE
RECOVERED BY THE COMPANY.
THIS AUTHORIZATION IS TO REMAIN IN FULL FORCE AND EFFECT UNTIL THE COMPANY HAS
RECEIVED WRITTEN NOTICE FROM ME OF THE TERMINATION OF THIS AUTHORIZATION IN TIME
TO ALLOW REASONABLE OPPORTUNITY TO ACT ON IT, OR UNTIL THE COMPANY HAS SENT ME
WRITTEN NOTICE OF TERMINATION OF THIS AUTHORIZATION.
C-2
INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
2901 BUTTERFIELD ROAD, OAK BROOK, ILLINOIS 60523 ~ 800.826.8228
SUBSCRIPTION AGREEMENT/SIGNATURE PAGE FOR PROSPECTUS DATED ______________
[LOGO]
PLEASE READ THIS SUBSCRIPTION AGREEMENT/SIGNATURE PAGE AND THE
TERMS AND CONDITIONS BEFORE SIGNING.
SUBSCRIBER MUST READ THE SUBSCRIPTION INSTRUCTIONS.
A - INVESTMENT
(1)a This subscription is in the amount of $_________________ for the purchase
of ________________ shares of Inland Western Retail Real Estate Trust,
Inc. at $10 per share. Minimum initial investment: 300 shares (100 shares
for IRA, Keogh and qualified plan accounts-Iowa requires 300 Shares for
IRA accounts; Minnesota requires 200 shares for IRA and qualified plan
accounts).
THIS IS AN: / / INITIAL INVESTMENT / / ADDITIONAL INVESTMENT A completed
Subscription Agreement is required for each initial and additional
investment.
(1)b / / CHECK THE BOX TO ELECT THE DEFERRED COMMISSION OPTION. (This election
must be agreed to by the broker/dealer listed on the following page)
(1)c / / REGISTERED REPRESENTATIVE NAV PURCHASE
B - TYPE OF OWNERSHIP
NON-CUSTODIAL OWNERSHIP
MAKE CHECK PAYABLE TO: LBNA/ESCROW AGENT FOR IWRRET
(2)a / / INDIVIDUAL OWNERSHIP - one signature required
/ / TOD (FILL OUT TOD FORM TO EFFECT DESIGNATION)
/ / JOINT TENANTS WITH RIGHT OF SURVIVORSHIP - all parties must sign
/ / COMMUNITY PROPERTY - all parties must sign
/ / TENANTS IN COMMON - all parties must sign
/ / TENANTS BY THE ENTIRETY - all parties must sign
/ / CORPORATE OWNERSHIP - authorized signature required
/ / PARTNERSHIP OWNERSHIP - authorized signature required
/ / LLC OWNERSHIP - authorized signature required
/ / UNIFORM GIFTS TO MINORS ACT - custodian signature required
STATE OF ________________ A CUSTODIAN FOR______________________
/ / PENSION OR PROFIT SHARING PLAN - trustee signature(s) required
/ / TAXABLE / / EXEMPT UNDER Section 501A
NAME OF TRUSTEE OR OTHER ADMINISTRATOR_________________________
_______________________________________________________________
/ / TRUST - trustee or grantor signature(s) required
/ / TAXABLE / / GRANTOR A OR B DATE TRUST ESTABLISHED ______
NAME OF TRUSTEE OR OTHER ADMINISTRATOR_________________________
_______________________________________________________________
/ / ESTATE - personal representative signature required
/ / OTHER (SPECIFY) ______________________________________________
CUSTODIAL OWNERSHIP
MAKE CHECK PAYABLE TO THE CUSTODIAN LISTED BELOW AND SEND ALL PAPERWORK
DIRECTLY TO THE CUSTODIAN
(2)a / / TRADITIONAL IRA - custodian signature required
/ / ROTH IRA - custodian signature required
/ / KEOGH - trustee signature required
/ / SIMPLIFIED EMPLOYEE PENSION/TRUST (S.E.P.) - trustee signature
required
/ / PENSION OR PROFIT SHARING PLAN - custodian signature required
/ / TAXABLE / / EXEMPT UNDER Section 501A
NAME OF TRUSTEE OR OTHER ADMINISTRATOR_________________________
_______________________________________________________________
/ / OTHER (SPECIFY) _______________________________________________
(2)b
___________________________________________________________________
NAME OF CUSTODIAN OR TRUSTEE
___________________________________________________________________
MAILING ADDRESS
___________________________________________________________________
CITY, STATE, ZIP
(2)c CUSTODIAN INFORMATION TO BE COMPLETED BY CUSTODIAN LISTED ABOVE
CUSTODIAN TAX ID # -
CUSTODIAL ACCOUNT #
CUSTODIAN TELEPHONE - -
C - SUBSCRIBER INFORMATION
(3) SUBSCRIBER
/ / Mr. / / Mrs. / / Ms.
CO-SUBSCRIBER
/ / Mr. / / Mrs. / / Ms.
(4) MAILING ADDRESS
CITY, STATE & ZIP CODE
(5) RESIDENCE ADDRESS
(if different from above)
CITY, STATE & ZIP CODE
(6) HOME TELEPHONE - - BUSINESS TELEPHONE - -
EMAIL ADDRESS
(7) BIRTH DATE/DATE / / MM/DD/YYYY
OF INCORPORATION
CO-SUBSCRIBER BIRTH / / MM/DD/YYYY
DATE
(8) SOCIAL SECURITY # - -
CO-SUBSCRIBER SOCIAL - -
SECURITY #
TAX ID # -
(9) PLEASE INDICATE CITIZENSHIP STATUS
/ / U.S. CITIZEN / / RESIDENT ALIEN / / NON-RESIDENT ALIEN
(10) / / EMPLOYEE OR AFFILIATE
C-3
D - DISTRIBUTION OPTIONS
DISTRIBUTION OPTIONS FOR NON-CUSTODIAL ACCOUNTS
(11)a / / MAIL TO ADDRESS OF RECORD
(11)b / / DISTRIBUTION REINVESTMENT PROGRAM: Subscriber elects to participate
in the Distribution Reinvestment Program described in the Prospectus.
(11)c / / DISTRIBUTIONS DIRECTED TO:
/ / VIA MAIL COMPLETE INFORMATION BELOW.
/ / VIA ELECTRONIC DEPOSIT (ACH) COMPLETE INFORMATION BELOW. See ACH
language on page 2 of the instructions. MUST ENCLOSE VOIDED CHECK
/ / CHECKING / / SAVINGS
___________________________________________________________________
NAME OF BANK, BROKERAGE FIRM OR INDIVIDUAL
___________________________________________________________________
MAILING ADDRESS
___________________________________________________________________
CITY, STATE, ZIP
BANK ABA # (FOR ACH ONLY) ACCOUNT NUMBER-MUST BE FILLED IN
MUST ENCLOSE VOIDED CHECK
DISTRIBUTION OPTIONS FOR CUSTODIAL ACCOUNTS
(12)a / / MAIL TO CUSTODIAL ACCOUNT
(12)b / / DISTRIBUTION REINVESTMENT PROGRAM: Subscriber elects to participate
in the Distribution Reinvestment Program described in the Prospectus.
E - SIGNATURE
(13) THE UNDERSIGNED CERTIFIES, under penalties of perjury (i) that the
taxpayer identification number shown on the Subscription
Agreement/Signature Page is true, correct and complete, and (ii) that he
is not subject to backup withholding either because he has not been
notified that he is subject to backup withholding as a result of a
failure to report all interest or distributions, or the Internal Revenue
Service has notified him that he is no longer subject to backup
withholding.
The undersigned further acknowledges and/or represents (or in the case of
fiduciary accounts, the person authorized to sign on such Investor's
behalf) the following:
(a) acknowledges receipt, not less than five (5) business days prior to
the signing of this Subscription Agreement, of the Prospectus of the
COMPANY RELATING TO THE SHARES, WHEREIN THE TERMS AND CONDITIONS OF
THE OFFERING OF THE SHARES ARE DESCRIBED, including among other
things, the restrictions on ownership and transfer of shares, which
require, under certain circumstances, that a holder of shares shall
give written notice and provide certain information to the Company.
(Does not apply to Minnesota residents.)
(b) represents that I (we) either: (i) have a net worth (excluding home,
home furnishings and automobiles) of at least $45,000 and estimate
that (without regard to investment in the Company) I (we) have gross
income due in the current year of at least $45,000; or (ii) have a
net worth (excluding home, home furnishings and automobiles) of at
least $150,000 or such higher suitability as may be required by
certain states and set forth on page 2 hereof; IN THE CASE OF SALES
TO FIDUCIARY ACCOUNTS, THE SUITABILITY STANDARDS MUST BE MET BY THE
BENEFICIARY, THE FIDUCIARY ACCOUNT OR BY THE DONOR OR GRANTOR WHO
DIRECTLY OR INDIRECTLY SUPPLIES THE FUNDS FOR THE PURCHASE OF THE
SHARES.
(c) represents that the investor is purchasing the shares for his or her
own account and if I am (we are) purchasing shares on behalf of a
trust or other entity of which I am (we are) trustee(s) or authorized
agent(s) I (we) have due authority to execute the Subscription
Agreement/Signature Page and do hereby legally bind the trust or
other entity of which I am (we are) trustee(s) or authorized
agent(s).
(d) acknowledges that the shares are not liquid; (not required for
Minnesota or Maine residents)
(e) if an Affiliate of the Company, represents that the shares are being
purchased for investment purposes only and not for immediate resale.
X
--------------------------------- ----------------------------------
SIGNATURE -- REGISTERED OWNER DATE
X X
--------------------------------- ----------------------------------
SIGNATURE -- CO-OWNER (IF APPLICABLE) AUTHORIZED SIGNATURE (CUSTODIAN OR
TRUSTEE IF APPLICABLE)
A SALE OF THE SHARES MAY NOT BE COMPLETED UNTIL AT LEAST FIVE BUSINESS DAYS
AFTER THE DATE THE SUBSCRIBER RECEIVES THE PROSPECTUS.
F - BROKER/DEALER-REGISTERED REPRESENTATIVE
(14) BROKER/DEALER DATA--COMPLETED BY SELLING REGISTERED REPRESENTATIVE
(PLEASE USE REP'S ADDRESS--NOT HOME OFFICE)
NAME OF REGISTERED
REPRESENTATIVE
/ / Mr. / / Mrs. / / Ms.
MAILING ADDRESS
CITY, STATE &
ZIP CODE
BROKER/DEALER
NAME
HOME OFFICE
MAILING ADDRESS
CITY, STATE &
ZIP CODE
B/D CLIENT
ACCOUNT NUMBER #
B/D REP ID NUMBER #
- -
REGISTERED REPRESENTATIVE'S TELEPHONE
HAVE YOU CHANGED BROKER/DEALERS? / / YES / / NO
----------------------------------------------------------
REGISTERED REPRESENTATIVE'S E-MAIL
X
----------------------------------------------------------
SIGNATURE--REGISTERED REPRESENTATIVE
X
----------------------------------------------------------
SIGNATURE--BROKER/DEALER (IF APPLICABLE)
(14)a / / DEFERRED COMMISSION OPTION: Requires broker/dealer signature:
------
(14)b / / REGISTERED REPRESENTATIVE NAV PURCHASE
G - REGISTERED INVESTMENT ADVISOR (RIA)
(15) REGISTERED INVESTMENT ADVISOR (RIA) NO SALES COMMISSIONS ARE PAID ON
THESE ACCOUNTS. / / CHECK ONLY IF investment is made through the RIA in
its capacity as an RIA and not in its capacity as a Registered
Representative, if applicable, whose agreement with the subscriber
includes a fixed or "wrap" fee feature for advisory and related brokerage
services. If an owner or principal or any member of the RIA firm is an
NASD licensed Registered Representative affiliated with a broker/dealer,
the transaction should be conducted through that broker/dealer, not
through the RIA.
C-4
APPENDIX D
[LOGO]
INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
TRANSFER ON DEATH FORM (T.O.D.)
THIS FORM IS NOT VALID FOR TRUST OR IRA ACCOUNTS.
Please mail this form to:
Inland Securities Corporation, Attn: Investor Services
Use this form to designate 2901 Butterfield Road, Oak Brook,
a T.O.D. beneficiary (ies) Illinois 60523
800.826.8228
A - INVESTOR INFORMATION
1. Name of registered owner(s), exactly as name(s) appear(s) on stock
certificate or subscription agreement:
______________________________________________________________________
______________________________________________________________________
2. Social Security number(s) of registered owner(s):
- - - -
3. Daytime phone number:
- -
4. State of Residence:
______________________________________________________________________
Not accepted from residents of Louisiana, New York or North Carolina
B - TRANSFER ON DEATH DESIGNATION
I authorize Inland Western Retail Real Estate Trust, Inc. to register all of my
shares of its common stock in beneficiary form, assigning ownership on my death
to my beneficiary(ies). I understand that if more than one beneficiary is
listed, percentages for each must be designated. If percentages are not
designated, the shares will be divided equally. Percentages must equal 100%.
Additional beneficiaries may be listed on a separate page.
1. Name of Primary Beneficiary:
______________________________________________________________________
2. Social Security Number: - -
OR Tax Identification Number: -
3. Percentage: %
1. Name of Primary Beneficiary:
______________________________________________________________________
2. Social Security Number: - -
OR Tax Identification Number: -
3. Percentage: %
1. Name of Primary Beneficiary:
______________________________________________________________________
2. Social Security Number: - -
OR Tax Identification Number: -
3. Percentage: %
1. Name of Primary Beneficiary:
______________________________________________________________________
2. Social Security Number: - -
OR Tax Identification Number: -
3. Percentage: %
C - SIGNATURE
By signing below, I (we) authorize Inland Western Retail Real Estate Trust, Inc.
to register all of my (our) shares of its common stock in T.O.D. form. The
designation(s) will be effective on the date of receipt. Accordingly, I (we)
hereby revoke any beneficiary designation(s) made previously with respect to my
(our) Inland shares. I (we) have reviewed the information set forth below. I
(we) agree on behalf of myself (ourselves) and my (our) heirs, assigns,
executors, administrators and beneficiaries to indemnify and hold harmless
Inland Western Retail Real Estate Trust, Inc. and any and all of its affiliates,
agents, successors and assigns, and their respective directors, officers and
employees, from and against any and all claims, liability, damages, actions and
expenses arising directly or indirectly out of or resulting from the transfer of
my (our) shares in accordance with this T.O.D. designation.
I (we) further understand that Inland Western Retail Real Estate Trust, Inc.
cannot provide any legal advice and I (we) agree to consult with my (our)
attorney, if necessary, to make certain that the T.O.D. designation is
consistent with my (our) estate and tax planning. Sign exactly as the name(s)
appear(s) on the stock certificate or subscription agreement. All registered
owners must sign. THIS AUTHORIZATION FORM IS SUBJECT TO THE ACCEPTANCE OF INLAND
WESTERN RETAIL REAL ESTATE TRUST, INC.
X X
------------------ ------------ ------------------- ---------
Signature Date Signature Date
TRANSFER ON DEATH INFORMATION
- A Transfer on Death (T.O.D.) designation transfers ownership of shares to the
registered owner's beneficiary(ies) upon death; provided that Inland Western
Retail Real Estate Trust, Inc. receives proof of death and other
documentation it deems necessary or appropriate.
- Until the death of the account owner(s), the T.O.D. beneficiary(ies) has
(have) no present interest in, or authority over, the T.O.D. account.
- A T.O.D. designation will be accepted only where (1) shares are owned by a
natural person and registered in that individual's name or (2) by two or more
natural persons as joint tenants with rights of survivorship.
- Accounts registered to trusts, corporations, charities, and other such
entities may not declare a T.O.D. designation because they are considered
perpetual. These entities, however, may be listed as a beneficiary on a
T.O.D. for accounts registered to a natural person.
- A T.O.D. designation made by joint tenants with rights of survivorship does
not take effect until the last of all multiple owners dies. The surviving
owners may revoke or change the T.O.D. designation at any time.
- If the beneficiary(ies) does (do) not survive the registered owner(s), the
shares will be treated as belonging to the decedent's estate.
- A minor may not be named as a beneficiary.
- A T.O.D. designation will not be accepted from residents of Louisiana, New
York or North Carolina.
- A T.O.D. designation and all rights related thereto shall be governed by the
laws of the state of Illinois.
- A T.O.D. designation may be voided at any time by Inland Western Retail Real
Estate Trust, Inc., in its sole discretion, if there is any doubt as to the
validity or effectiveness of a T.O.D. designation.
D-1
APPENDIX E1
LETTER OF DIRECTION
_________________, 2003
Inland Real Estate Investment Corporation
2901 Butterfield Road
Oak Brook, Illinois 60523
RE: Registered Investment Advisory Fees
Account No. ______________ ("Account")
You are hereby instructed and authorized by me to deduct advisory fees payable
to ________________, my registered investment advisor, in the following amount
from my Account, and to pay such amount by wire transfer in immediately
available funds to my registered investment advisor, upon each distribution by
Inland Western Retail Real Estate Trust, Inc. (the "Company") on my Account, as
payment for my registered investment advisor's advisory fees (select only one).
(1) $________________; OR
(2) _______________% Annual Fee (calculated on a monthly basis) of the
Asset Value to be paid by the Company on my Account.
I understand and acknowledge that any and all advisory fees payable to my
registered investment advisor are my sole responsibility and you are paying the
amounts directed by me as an accommodation.
This letter shall serve as an irrevocable instruction to you to pay such
advisory fees from my Account until such time as I provide you with written
notice of my election to revoke this instruction.
Sincerely,
E1-1
APPENDIX E2
NOTICE OF REVOCATION
__________________, 20__
Inland Real Estate Investment Corporation
2901 Butterfield Road
Oak Brook, Illinois 60523
RE: Revocation of Instruction
Account No. _________ ("Account")
This letter shall serve as notice to you of my revocation of my instruction to
you to deduct advisory fees from my Account any pay such fees directly to
_________________, my registered investment advisor, pursuant to my letter to
you dated _____________.
I hereby instruct you to cease any and all future deductions from my Account for
the purpose of such advisory fee payments. I understand and acknowledge that
this revocation will be effective within one business day of receipt by you.
Sincerely,
E2-1
APPENDIX F
PRIVACY POLICY NOTICE
INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
PRIVACY POLICY
OUR COMMITMENT TO PROTECTING YOUR PRIVACY. We consider customer privacy to be
fundamental to our relationship with our shareholders. In the course of
servicing your account, we collect personal information about you ("NONPUBLIC
PERSONAL INFORMATION"). We collect this information to know who you are so that
we can provide you with products and services that meet your particular
financial and investing needs, and to meet our obligations under the laws and
regulations that govern us.
Throughout our history we have been, and we remain, committed to maintaining the
confidentiality, integrity and security of our shareholders' personal
information. It is our policy to respect the privacy of our current and former
shareholders and to protect the personal information entrusted to us. This
Privacy Policy (the "POLICY") describes the standards we follow for handling
your personal information, with the dual goals of meeting your financial needs
while respecting your privacy.
This Policy applies to the Inland family of companies, which includes Inland
Western Retail Real Estate Trust, Inc.
1. Information We May Collect
We may collect nonpublic personal information about you from three sources:
- Information on applications, subscription agreements or other
forms. This category may include your name, address, tax
identification number, age, marital status, number of dependents,
assets, debts, income, employment history, beneficiary
information and personal bank account information.
- Information about your transactions with us, our affiliates and
others such as: the types of products you purchase, your account
balances, margin loan history and payment history.
- Information obtained from others, such as from consumer credit
reporting agencies. This may include information about your
creditworthiness, financial circumstances and credit history,
including any bankruptcies and foreclosures.
2. Persons to Whom We May Disclose Information
We may disclose all three types of nonpublic personal information about you to
the unaffiliated third parties and in the circumstances described below, as
permitted by applicable laws and regulations.
- Companies with whom we have contracted to provide account-related
services, such as statement preparation, execution services,
custodial services, and report preparation. (Every contract with
each of these service providers prohibits the service provider
from disclosing or using your nonpublic personal information for
any purpose except to provide the service for which we have
contracted.)
- Our lawyers, accountants, auditors, regulators, advisors, and
quality-control consultants.
- If we suspect fraud.
- To protect the security of our records, Web site and telephone
customer service center.
- Information you have authorized us to disclose.
3. Protecting Your Information
F-1
Our employees are required to follow the procedures we have developed to protect
the integrity of your information. These procedures include:
- Restricting physical and other access to your nonpublic personal
information to persons with a legitimate business need to know
the information in order to service your account.
- Contractually obligating third parties doing business with us to
comply with all applicable privacy and security laws.
- Providing information to you only after we have used reasonable
efforts to assure ourselves of your identity by asking for and
receiving from you information only you should know.
- Maintaining reasonably adequate physical, electronic and
procedural safeguards to protect your information.
4. Former Customers
We treat information concerning our former customers the same way we treat
information about our current customers.
5. Keeping You Informed
We will send you a copy of this Policy annually. We will also send you all
changes to this Policy as they occur. You have the right to "opt out" of this
policy by notifying us in writing.
QUESTIONS? If you have any questions about this Policy, please do not hesitate
to call Roberta Matlin at 630-218-8000.
F-2
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 31. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the expenses (other than selling commissions)
incurred by us while issuing and distributing the securities registered pursuant
to this Registration Statement. All amounts other than the SEC registration fee
and NASD filing fee are estimates.
Securities and Exchange Commission Registration Fee $ 228,621
NASD Filing Fee $ 935
Printing and Mailing Expenses $ 118,443
Blue Sky Fees and Expenses $ 231,400
Legal Fees and Expenses $ 518,328
Accounting Fees and Expenses $ 447,925
Advertising and Sales Literature $ 2,849,107
Due Diligence $ 344,067
Transfer agent fees $ 98,703
Data processing fees $ 21,953
Bank fees and other administrative expenses $ 360,361
---------------------
Total $ 5,219,843 *
* As of June 30, 2004
ITEM 32. SALES TO SPECIAL PARTIES.
Our employees and associates and those of our affiliates are permitted to
purchase shares net of sales commissions and the marketing contribution and due
diligence expense allowance fee or for $8.95 per share.
ITEM 33. RECENT SALES OF UNREGISTERED SECURITIES.
As of September 14, 2004, we have sold the following securities for the
following aggregate offering prices: In March 2003, Inland Western Retail Real
Estate Advisory Services, Inc., the advisor, purchased from us 20,000 shares for
$10 per share, for an aggregate purchase price of $200,000 in connection with
our organization. No sales commissions or other consideration was paid in
connection with such sales The sales were consummated without registration under
the Act in reliance upon Rule 506 of Regulation D and the exemption from
registration in Section 4(2) of the Securities Act as transactions not involving
any public offering.
Options to purchase an aggregate of 15,000 shares at an exercise price of
$8.95 per share have been granted to the Independent Directors pursuant to the
Independent Director Stock Option Plan (options to purchase 3,000 shares as to
each of the five independent directors plus options for 500 shares each on the
date of the first annual meeting). None of such options have been exercised.
Therefore, no shares have been issued in connection with such options.
II-1
ITEM 34. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article XV of our articles of incorporation provides as follows:
SECTION 3. INDEMNIFICATION
(a) Subject to paragraphs (b), (c) and (d) of this Section 3, we shall, to
the fullest extent permitted by Maryland statutory or decisional law, as amended
or interpreted and, without limiting the generality of the foregoing, in
accordance with Section 2-418 of the Maryland General Corporation Law, indemnify
and pay, advance, or reimburse reasonable expenses to any Director, officer,
employee and agent of the Company and the Advisor and its Affiliates (each an
"Indemnified Party").
(b) As long as we qualify as a REIT, it shall not indemnify nor pay, advance
or reimburse expenses to an Indemnified Party unless: (i) Directors have
determined, in good faith, that the course of conduct which caused the loss or
liability was in our best interests; (ii) the Indemnified Party was acting on
behalf of or performing services on the part of the Company; (iii) such
liability or loss was not the result of negligence or misconduct on the part of
the Indemnified Party except that in the event the Indemnified Party is or was
an Independent Director, such liability or loss shall not have been the result
of gross negligence or willful misconduct; and (iv) such indemnification or
agreement to be held harmless is recoverable only out of our Net Assets and not
from the Stockholders.
(c) As long as we qualify as a REIT and notwithstanding anything to the
contrary in Section 3(b) of this Article XV, the Company shall not indemnify a
Director, officer, employee or agent of ours or the Advisor or its Affiliates
for losses, liabilities or expenses arising from or out of an alleged violation
of federal or state securities laws by such party unless one or more of the
following conditions are met: (i) there has been a successful adjudication on
the merits of each count involving alleged securities law violations as to the
particular Indemnified Party; (ii) such claims have been dismissed with
prejudice on the merits by a court of competent jurisdiction as to the
particular Indemnified Party; or (iii) a court of competent jurisdiction
approves a settlement of the claims and finds that indemnification of the
settlement and related costs should be made and the court considering the
request has been advised of the position of the Securities and Exchange
Commission (the "Commission") and the published opinions of any state securities
regulatory authority in which securities of ours were offered or sold as to
indemnification for violations of securities laws.
(d) We may advance amounts to an Indemnified Party for legal and other
expenses and costs incurred as a result of any legal action for which
indemnification is being sought only in accordance with Section 2-418 of the
Maryland General Corporation Law, and, as long as we qualify as a REIT, only if
all of the following conditions are satisfied: (i) the legal action relates to
acts or omissions with respect to the performance of duties or services by the
Indemnified Party for or on our behalf; (ii) the legal action is initiated by a
third party who is not a Stockholder or the legal action is initiated by a
Stockholder acting in his or her capacity as such and a court of competent
jurisdiction specifically approves such advancement; and (iii) the Indemnified
Party receiving such advances undertakes in writing to repay the advanced funds
to us, together with the applicable legal rate of interest thereon, in cases in
which such party is found not to be entitled to indemnification.
(e) We shall have the power to purchase and maintain insurance or provide
similar protection on behalf of an Indemnified Party against any liability
asserted which was incurred in any such capacity with us or arising out of such
status; provided, however, that we shall not incur the costs of any liability
insurance which insures any person against liability for which he, she or it
could not be indemnified under these Articles. Nothing contained herein shall
constitute a waiver by any Indemnified Party of any right which he, she or it
may have against any party under federal or state securities laws. We shall also
have power to enter into any contract for indemnity and advancement of expenses
with an officer, employee or agent who is not a Director to such further extent
consistent with law.
II-2
Our article of incorporation authorize and direct us to indemnify, and pay or
reimburse reasonable expenses to, any director, officer, employee or agent we
employ to the fullest extent provided by Maryland law. The Maryland General
Corporation Law provides that a Maryland corporation may indemnify a director,
officer, employee or agent made a party to any proceeding by reason of service
in that capacity unless it has been established that (1) the act or omission was
material to the matter giving rise to the proceeding and (a) was committed in
bad faith or (b) was the result of active and deliberate dishonesty; or (2) the
individual actually received an improper personal benefit in money, property, or
services; or (3) in the case of a criminal proceeding, the individual had
reasonable cause to believe that the act or omission was unlawful.
The Bylaws provide that neither the amendment, nor the repeal, nor the
adoption of any other provision of the articles of incorporation or the bylaws
will apply to or affect, in any respect, the Indemnitee's right to
indemnification for actions or failures to act which occurred prior to such
amendment, repeal or adoption.
To the extent that the indemnification may apply to liabilities arising under
the Act, we have been advised that, in the opinion of the Securities and
Exchange Commission, such indemnification is contrary to public policy and,
therefore, unenforceable.
We entered into separate indemnification agreements with each of our
directors and some of our executive officers. The indemnification agreements
require, among other things, that we indemnify the directors and officers to the
fullest extent permitted by law, and advance to the directors and officers all
related expenses, subject to reimbursement if it is subsequently determined that
indemnification is not permitted. We must also indemnify and advance all
expenses incurred by directors and officers seeking to enforce their rights
under the indemnification agreements and cover directors and officers under our
Directors' and officers' liability insurance, if any. Although the form of
indemnification agreement offers substantially the same scope of coverage
afforded by provisions in the articles of incorporation and the Bylaws, as a
contract, it cannot be unilaterally modified by the board or by the stockholders
to eliminate the rights it provides.
ITEM 35. TREATMENT OF PROCEEDS FROM STOCK BEING REGISTERED.
Inapplicable.
II-3
ITEM 36. FINANCIAL STATEMENTS AND EXHIBITS.
(a) FINANCIAL STATEMENTS.
The following financial statements were previously filed as part of the
registration statement in the prospectus and are included herein:
1. INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.:
(a) Report of Independent Registered Public Accounting Firm
(b) Balance Sheet at June 30, 2003 (audited)
(c) Notes to Balance Sheet at June 30, 2003 (audited)
2. PEORIA STATION:
(a) Report of Independent Registered Public Accounting Firm
(b) Historical Summary of Gross Income and Direct Operating Expenses for the
year ended December 31, 2002 and six months ended June 30, 2003
(unaudited)
(c) Notes to the Historical Summary of Gross Income and Direct Operating
Expenses for the year ended December 31, 2002 and six months ended June
30, 2003 (unaudited)
The following financial statements are included as part of Post Effective
Amendment No. 2 and are incorporated herein by reference:
1. INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.:
(a) Pro Forma Balance Sheet at September 30, 2003 (unaudited)
(b) Notes to Pro Forma Balance Sheet at September 30, 2003 (unaudited)
(c) Pro Forma Statement of Operations for the nine months ended September
30, 2003 (unaudited)
(d) Notes to Pro Forma Statement of Operations for the nine months ended
September 30, 2003 (unaudited)
(e) Pro Forma Statement of Operations for the year ended December 31, 2003
(unaudited)
(f) Notes to Pro Forma Statement of Operations for the year ended December
31, 2003 (unaudited)
2. SHOPS AT PARK PLACE:
(a) Independent Auditors' Report
(b) Historical Summary of Gross Income and Direct Operating Expenses for the
year ended December 31, 2002 and nine months ended September 30, 2003
(unaudited)
(c) Notes to the Historical Summary of Gross Income and Direct Operating
Expenses for the year ended December 31, 2002 and nine months ended
September 30, 2003 (unaudited)
3. STONY CREEK MARKETPLACE:
(a) Historical Summary of Gross Income and Direct Operating Expenses for the
nine months ended September 30, 2003 (unaudited)
(b) Notes to the Historical Summary of Gross Income and Direct Operating
Expenses for the nine months ended September 30, 2003 (unaudited)
II-4
The following financial statements are included as part of Post Effective
Amendment No. 3:
1. INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.:
(a) Independent Auditors' Report
(b) Consolidated Balance Sheet at December 31, 2003 (audited)
(c) Consolidated Statement of Operations for the period from March 5, 2003
(inception) to December 31, 2003 (audited)
(d) Consolidated Statement of Stockholders' Equity for the period from March
5, 2003 (inception) to December 31, 2003 (audited)
(e) Consolidated Statement of Cash Flows for the period from March 5, 2003
(inception) to December 31, 2003 (audited)
(f) Notes to Consolidated Financial Statements (audited)
(g) Real Estate and Accumulated Depreciation (Schedule III)
(h) Pro Forma Consolidated Balance Sheet (unaudited) at December 31, 2003
(i) Notes to Pro Forma Consolidated Balance Sheet (unaudited) at December
31, 2003
(j) Pro Forma Consolidated Statement of Operations (unaudited) for the year
ended December 31, 2003
(k) Notes to Pro Forma Consolidated Statement of Operations (unaudited) for
the year ended December 31, 2003
The following financial statements are included as part of Post Effective
Amendment No. 3 and are incorporated herein by reference:
2. DARIEN TOWNE CENTER:
(a) Independent Auditors' Report
(b) Historical Summary of Gross Income and Direct Operating Expenses for the
year ended December 31, 2002
(c) Notes to the Historical Summary of Gross Income and Direct Operating
Expenses for the year ended December 31, 2002
(d) Historical Summary of Gross Income and Direct Operating Expenses for the
year ended December 31, 2003 (unaudited)
(e) Notes to the Historical Summary of Gross Income and Direct Operating
Expenses for the year ended December 31, 2003 (unaudited)
3. PROPERTIES ACQUIRED FROM THOMAS ENTERPRISES IN 2003:
(a) Independent Auditors' Report
(b) Historical Summary of Gross Income and Direct Operating Expenses for the
year ended December 31, 2003
(c) Notes to the Historical Summary of Gross Income and Direct Operating
Expenses for the year ended December 31, 2003
4. STONY CREEK MARKETPLACE:
(a) Historical Summary of Gross Income and Direct Operating Expenses for the
year ended December 31, 2003 (unaudited)
(b) Notes to the Historical Summary of Gross Income and Direct Operating
Expenses for the year ended December 31, 2003 (unaudited)
II-5
5. SHOPS AT PARK PLACE:
(a) Historical Summary of Gross Income and Direct Operating Expenses for the
year ended December 31, 2003 (unaudited)
(b) Notes to the Historical Summary of Gross Income and Direct Operating
Expenses for the year ended December 31, 2003 (unaudited)
6. SHAW'S SUPERMARKET (NEW BRITAIN):
(a) Historical Summary of Gross Income and Direct Operating Expenses for the
year ended December 31, 2003 (unaudited)
(b) Notes to the Historical Summary of Gross Income and Direct Operating
Expenses for the year ended December 31, 2003 (unaudited)
7. HICKORY RIDGE:
(a) Independent Auditors' Report
(b) Historical Summary of Gross Income and Direct Operating Expenses for the
year ended December 31, 2003
(c) Notes to the Historical Summary of Gross Income and Direct Operating
Expenses for the year ended December 31, 2003
8. CORWEST PLAZA:
(a) Independent Auditors' Report
(b) Historical Summary of Gross Income and Direct Operating Expenses for the
period from May 29, 2003 through December 31, 2003
(c) Notes to the Historical Summary of Gross Income and Direct Operating
Expenses for the period from May 29, 2003 through December 31, 2003
(d) Historical Summary of Gross Income and Direct Operating Expenses for the
year ended December 31, 2003 (unaudited)
(e) Notes to the Historical Summary of Gross Income and Direct Operating
Expenses for the year ended December 31, 2003 (unaudited)
9. METRO SQUARE CENTER (SUPERVALUE) :
(a) Independent Auditors' Report
(b) Historical Summary of Gross Income and Direct Operating Expenses for the
year ended December 31, 2003
(c) Notes to the Historical Summary of Gross Income and Direct Operating
Expenses for the year ended December 31, 2003
10. LARKSPUR LANDING:
(a) Independent Auditors' Report
(b) Historical Summary of Gross Income and Direct Operating Expenses for the
year ended December 31, 2003
(c) Notes to the Historical Summary of Gross Income and Direct Operating
Expenses for the year ended December 31, 2003
II-6
11. NORTH RANCH PAVILION:
(a) Independent Auditors' Report
(b) Historical Summary of Gross Income and Direct Operating Expenses for the
year ended December 31, 2003
(c) Notes to the Historical Summary of Gross Income and Direct Operating
Expenses for the year ended December 31, 2003
12. LA PLAZA DEL NORTE:
(a) Independent Auditors' Report
(b) Historical Summary of Gross Income and Direct Operating Expenses for the
year ended December 31, 2003
(c) Notes to the Historical Summary of Gross Income and Direct Operating
Expenses for the year ended December 31, 2003
13. MACARTHUR CROSSING:
(a) Independent Auditors' Report
(b) Historical Summary of Gross Income and Direct Operating Expenses for the
year ended December 31, 2003
(c) Notes to the Historical Summary of Gross Income and Direct Operating
Expenses for the year ended December 31, 2003
14. PROMENADE AT RED CLIFF:
(a) Independent Auditors' Report
(b) Historical Summary of Gross Income and Direct Operating Expenses for the
year ended December 31, 2003
(c) Notes to the Historical Summary of Gross Income and Direct Operating
Expenses for the year ended December 31, 2003
15. PEORIA CROSSINGS:
(a) Independent Auditors' Report
(b) Historical Summary of Gross Income and Direct Operating Expenses for the
year ended December 31, 2003
(c) Notes to the Historical Summary of Gross Income and Direct Operating
Expenses for the year ended December 31, 2003
16. DORMAN CENTRE:
(a) Independent Auditors' Report
(b) Historical Summary of Gross Income and Direct Operating Expenses for the
year ended December 31, 2003
(c) Notes to the Historical Summary of Gross Income and Direct Operating
Expenses for the year ended December 31, 2003
II-7
17. HERITAGE TOWNE CROSSING:
(a) Independent Auditors' Report
(b) Historical Summary of Gross Income and Direct Operating Expenses for the
year ended December 31, 2003
(c) Notes to the Historical Summary of Gross Income and Direct Operating
Expenses for the year ended December 31, 2003
The following financial statements are included as part of Post Effective
Amendment No. 4 and are incorporated herein by reference:
1. INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.:
(a) Consolidated Balance Sheets at March 31, 2004 (unaudited) and December
31, 2003 (audited)
(b) Consolidated Statements of Operations for the three months ended March
31, 2004 (unaudited) and for the period from March 5, 2003 (inception)
to March 31, 2003 (unaudited).
(c) Consolidated Statement of Stockholders' Equity for the three months
ended March 31, 2004 (unaudited)
(d) Consolidated Statements of Cash Flows for the three months ended March
31, 2004 (unaudited) and for the period from March 5, 2003 (inception)
to March 31, 2003 (unaudited).
(e) Notes to Consolidated Financial Statements (unaudited).
(f) Pro Forma Consolidated Balance Sheet (unaudited) at March 31, 2004
(g) Notes to Pro Forma Consolidated Balance Sheet (unaudited) at March 31,
2004
(h) Pro Forma Consolidated Statement of Operations (unaudited) for the three
months ended March 31, 2004
(i) Notes to Pro Forma Consolidated Statement of Operations (unaudited) for
the three months ended March 31, 2004
(j) Pro Forma Consolidated Statements of Operations (unaudited) for the year
ended December 31, 2003
(k) Notes to Pro Forma Consolidated Statements of Operations (unaudited) for
the year ended December 31, 2003.
2. PARADISE VALLEY MARKETPLACE:
(a) Report of Independent Registered Public Accounting Firm
(b) Historical Summary of Gross Income and Direct Operating Expenses for the
year ended December 31, 2003 and the three months ended March 31, 2004
(unaudited)
(c) Notes to Historical Summary of Gross Income and Direct Operating
Expenses for the year ended December 31, 2003 and the three months ended
March 31, 2004 (unaudited)
3. BEST ON THE BOULEVARD:
(a) Report of Independent Registered Public Accounting Firm
(b) Historical Summary of Gross Income and Direct Operating Expenses for the
year ended December 31, 2003 and the three months ended March 31, 2004
(unaudited)
(c) Notes to Historical Summary of Gross Income and Direct Operating
Expenses for the year ended December 31, 2003 and the three months ended
March 31, 2004 (unaudited)
II-8
4. BLUEBONNET PARC:
(a) Report of Independent Registered Public Accounting Firm
(b) Historical Summary of Gross Income and Direct Operating Expenses for the
year ended December 31, 2003 and the three months ended March 31, 2004
(unaudited)
(c) Notes to Historical Summary of Gross Income and Direct Operating
Expenses for the year ended December 31, 2003 and the three months ended
March 31, 2004 (unaudited)
5. NORTH RIVERS TOWN CENTER:
(a) Report of Independent Registered Public Accounting Firm
(b) Historical Summary of Gross Income and Direct Operating Expenses for the
period of October 1, 2003 (commencement of operations) to December 31,
2003 and the three months ended March 31, 2004 (unaudited)
(c) Notes to Historical Summary of Gross Income and Direct Operating
Expenses for the period of October 1, 2003 (commencement of operations)
to December 31, 2003 and the three months ended March 31, 2004
(unaudited)
6. ARVADA MARKETPLACE AND CONNECTION:
(a) Report of Independent Registered Public Accounting Firm
(b) Historical Summary of Gross Income and Direct Operating Expenses for the
year ended December 31, 2003 and the three months ended March 31, 2004
(unaudited)
(c) Notes to Historical Summary of Gross Income and Direct Operating
Expenses for the year ended December 31, 2003 and the three months ended
March 31, 2004 (unaudited)
7. EASTWOOD TOWNE CENTER:
(a) Report of Independent Registered Public Accounting Firm
(b) Historical Summary of Gross Income and Direct Operating Expenses for the
year ended December 31, 2003 and the three months ended March 31, 2004
(unaudited)
(c) Notes to Historical Summary of Gross Income and Direct Operating
Expenses for the year ended December 31, 2003 and the three months ended
March 31, 2004 (unaudited)
8. WATAUGA PAVILION:
(a) Report of Independent Registered Public Accounting Firm
(b) Historical Summary of Gross Income and Direct Operating Expenses for the
period of August 15, 2003 (commencement of operations) to December 31,
2003 and the three months ended March 31, 2004 (unaudited)
(c) Notes to the Historical Summary of Gross Income and Direct Operating
Expenses for the period of August 15, 2003 (commencement of operations
to December 31, 2003 and the three months ended March 31, 2004
(unaudited)
9. NORTHPOINTE PLAZA:
(a) Report of Independent Registered Public Accounting Firm
(b) Historical Summary of Gross Income and Direct Operating Expenses for the
year ended December 31, 2003 and the three months ended March 31, 2004
(unaudited)
(c) Notes to Historical Summary of Gross Income and Direct Operating
Expenses for the year ended December 31, 2003 and the three months ended
March 31, 2004 (unaudited)
II-9
10. PLAZA SANTA FE II:
(a) Report of Independent Registered Public Accounting Firm
(b) Historical Summary of Gross Income and Direct Operating Expenses for the
year ended December 31, 2003 and the three months ended March 31, 2004
(unaudited)
(c) Notes to the Historical Summary of Gross Income and Direct Operating
Expenses for the year ended December 31, 2003 and the three months ended
March 31, 2004 (unaudited)
11. PINE RIDGE PLAZA:
(a) Report of Independent Registered Public Accounting Firm
(b) Historical Summary of Gross Income and Direct Operating Expenses for the
year ended December 31, 2003
(c) Notes to the Historical Summary of Gross Income and Direct Operating
Expenses for the year ended December 31, 2003
12. HUEBNER OAKS CENTER:
(a) Report of Independent Registered Public Accounting Firm
(b) Historical Summary of Gross Income and Direct Operating Expenses for the
year ended December 31, 2003 and the three months ended March 31, 2004
(unaudited)
(c) Notes to Historical Summary of Gross Income and Direct Operating
Expenses for the year ended December 31, 2003 and the three months ended
March 31, 2004 (unaudited)
13. ALISON'S CORNER:
(a) Historical Summary of Gross Income and Direct Operating Expenses for the
period from September 1, 2003 (commencement of operations) through
December 31, 2003 and the three months ended March 31, 2004 (unaudited)
(b) Notes to the Historical Summary of Gross Income and Direct Operating
Expenses for the period from September 1, 2003 (commencement of
operations) through December 31, 2003 and the three months ended March
31, 2004 (unaudited)
The following financial statements are included as part of Post Effective
Amendment No. 5 and are including herein:
1. INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.:
(a) Consolidated Balance Sheets at June 30, 2004 (unaudited) and December
31, 2003 (audited)
(b) Consolidated Statements of Operations for the three and six months ended
June 30, 2004 (unaudited), for the three months ended June 30, 2003, and
the period from March 5, 2003 (inception) to June 30, 2003 (unaudited).
(c) Consolidated Statement of Stockholders' Equity for the six months period
ended June 30, 2004 (unaudited)
(d) Consolidated Statements of Cash Flows for the three and six months ended
June 30, 2004 (unaudited), three months ended June 30,2003 and for the
period from March 5, 2003 (inception) to June 30, 2003 (unaudited).
(e) Notes to Consolidated Financial Statements (unaudited).
(f) Pro Forma Consolidated Balance Sheet (unaudited) at June 30, 2004
(g) Notes to Pro Forma Consolidated Balance Sheet (unaudited) at June 30,
2004
(h) Pro Forma Consolidated Statement of Operations (unaudited) for the six
months ended June 30, 2004
II-10
(i) Notes to Pro Forma Consolidated Statement of Operations (unaudited) for
the six months ended June 30, 2004
(j) Pro Forma Consolidated Statements of Operations (unaudited) for the year
ended December 31, 2003
(k) Notes to Pro Forma Consolidated Statements of Operations (unaudited) for
the year ended December 31, 2003.
2. JOHN'S CREEK VILLAGE:
(a) Report of Independent Registered Public Accounting Firm
(b) Historical Summary of Gross Income and Direct Operating Expenses for the
period from September 21, 2003 (commencement of operations) to December
31, 2003 and the six months ended June 30, 2004 (unaudited)
(c) Notes to Historical Summary of Gross Income and Direct Operating
Expenses for the period from September 21, 2003 (commencement of
operations) to December 31, 2003 and the six months ended June 30, 2004
(unaudited)
3. LAKEWOOD TOWN CENTER:
(a) Report of Independent Registered Public Accounting Firm
(b) Historical Summary of Gross Income and Direct Operating Expenses for the
year ended December 31, 2003 and the six months ended June 30, 2004
(unaudited)
(c) Notes to Historical Summary of Gross Income and Direct Operating
Expenses for the year ended December 31, 2003 and the six months ended
June 30, 2004 (unaudited)
4. FULLERTON METROCENTER:
(a) Report of Independent Registered Public Accounting Firm
(b) Historical Summary of Gross Income and Direct Operating Expenses for the
year ended December 31, 2003 and the six months ended June 30, 2004
(unaudited)
(c) Notes to Historical Summary of Gross Income and Direct Operating
Expenses for the year ended December 31, 2003 and the six months ended
June 30, 2004 (unaudited)
5. DAVIS TOWNE CROSSING:
(a) Report of Independent Registered Public Accounting Firm
(b) Historical Summary of Gross Income and Direct Operating Expenses for the
period from July 18, 2003 (commencement of operations) to December 31,
2003 and the six months ended June 30, 2004 (unaudited)
(c) Notes to Historical Summary of Gross Income and Direct Operating
Expenses for the period from July 18, 2003 (commencement of operations)
to December 31, 2003 and the six months ended June 30, 2004 (unaudited)
6. NORTHGATE NORTH:
(a) Report of Independent Registered Public Accounting Firm
(b) Historical Summary of Gross Income and Direct Operating Expenses for the
year ended December 31, 2003 and the six months ended June 30, 2004
(unaudited)
(c) Notes to Historical Summary of Gross Income and Direct Operating
Expenses for the year ended December 31, 2003 and the six months ended
June 30, 2004 (unaudited)
II-11
7. CRANBERRY SQUARE:
(a) Report of Independent Registered Public Accounting Firm
(b) Historical Summary of Gross Income and Direct Operating Expenses for the
year ended December 31, 2003 and the six months ended June 30, 2004
(unaudited)
(c) Notes to Historical Summary of Gross Income and Direct Operating
Expenses for the year ended December 31, 2003 and the six months ended
June 30, 2004 (unaudited)
8. GATEWAY PLAZA SHOPPING CENTER:
(a) Report of Independent Registered Public Accounting Firm
(b) Historical Summary of Gross Income and Direct Operating Expenses for the
year ended December 31, 2003 and the six months ended June 30, 2004
(unaudited)
(c) Notes to Historical Summary of Gross Income and Direct Operating
Expenses for the year ended December 31, 2003 and the six months ended
June 30, 2004 (unaudited)
9. SAFEWAY PLAZA AT MARYSVILLE:
(a) Report of Independent Registered Public Accounting Firm
(b) Historical Summary of Gross Income and Direct Operating Expenses for the
year ended December 31, 2003 and the six months ended June 30, 2004
(unaudited)
(c) Notes to Historical Summary of Gross Income and Direct Operating
Expenses for the year ended December 31, 2003 and the six months ended
June 30, 2004 (unaudited)
10. FORKS TOWN CENTER:
(a) Report of Independent Registered Public Accounting Firm
(b) Historical Summary of Gross Income and Direct Operating Expenses for the
year ended December 31, 2003 and the six months ended June 30, 2004
(unaudited)
(c) Notes to Historical Summary of Gross Income and Direct Operating
Expenses for the year ended December 31, 2003 and the six months ended
June 30, 2004 (unaudited)
11. CAPITAL CENTRE, LLC, GATEWAY VILLAGE LIMITED PARTNERSHIP, BEL AIR SQUARE
JOINT VENTUE, TOWSON CIRCLE JOINT VENTURE LLP AND REISTERSTOWN PLAZA
HOLDINGS, LLC:
(a) Report of Independent Registered Public Accounting Firm
(b) Combined Historical Summary of Gross Income and Direct Operating
Expenses for the year ended December 31, 2003 and the six months ended
June 30, 2004 (unaudited)
(c) Notes to the Combined Historical Summary of Gross Income and Direct
Operating Expenses for the year ended December 31, 2003 and the six
months ended June 30, 2004 (unaudited)
12. THE SHOPS AT BOARDWALK:
(a) Report of Independent Registered Public Accounting Firm
(b) Historical Summary of Gross Income and Direct Operating Expenses for the
period from May 30, 2003 (commencement of operations) to December 31,
2003 and the six months ended June 30, 2004 (unaudited)
(c) Notes to the Historical Summary of Gross Income and Direct Operating
Expenses for the period from May 30, 2003 (commencement of operations)
to December 31, 2003 and the six months ended June 30, 2004 (unaudited)
II-12
13. MANCHESTER MEADOWS:
(a) Report of Independent Registered Public Accounting Firm
(b) Historical Summary of Gross Income and Direct Operating Expenses for the
year ended December 31, 2003 and the six months ended June 30, 2004
(unaudited)
(c) Notes to the Historical Summary of Gross Income and Direct Operating
Expenses for the year ended December 31, 2003 and the six months ended
June 30, 2004 (unaudited)
14. GOVERNOR'S MARKETPLACE:
(a) Report of Independent Registered Public Accounting Firm
(b) Combined Historical Summary of Gross Income and Direct Operating
Expenses for the year ended December 31, 2003 and the six months ended
June 30, 2004 (unaudited)
(c) Notes to the Combined Historical Summary of Gross Income and Direct
Operating Expenses for the year ended December 31, 2003 and the six
months ended June 30, 2004 (unaudited)
14. MITCHELL RANCH PLAZA:
(a) Report of Independent Registered Public Accounting Firm
(b) Historical Summary of Gross Income and Direct Operating Expenses for the
period from June 30, 2003 (commencement of operations) to December 31,
2003 and the six months ended June 30, 2004 (unaudited)
(c) Notes to the Historical Summary of Gross Income and Direct Operating
Expenses for the period from June 30, 2003 (commencement of operations)
to December 31, 2003 and the six months ended June 30, 2004 (unaudited)
15. THE COLUMNS:
(a) Report of Independent Registered Public Accounting Firm
(b) Historical Summary of Gross Income and Direct Operating Expenses for the
period from October 8, 2003 (commencement of operations) to December 31,
2003 and the six months ended June 30, 2004 (unaudited)
(c) Notes to the Historical Summary of Gross Income and Direct Operating
Expenses for the period from October 8, 2003 (commencement of
operations) to December 31, 2003 and the six months ended June 30, 2004
(unaudited)
16. SAUCON VALLEY SQUARE:
(a) Report of Independent Registered Public Accounting Firm
(b) Historical Summary of Gross Income and Direct Operating Expenses for the
year ended December 31, 2003 and the six months ended June 30, 2004
(unaudited)
(c) Notes to the Historical Summary of Gross Income and Direct Operating
Expenses for the year ended December 31, 2003 and the six months ended
June 30, 2004 (unaudited)
17. LINCOLN PARK:
(a) Report of Independent Registered Public Accounting Firm
(b) Historical Summary of Gross Income and Direct Operating Expenses for the
year ended December 31, 2003 and the six months ended June 30, 2004
(unaudited)
(c) Notes to the Historical Summary of Gross Income and Direct Operating
Expenses for the year ended December
II-13
31, 2003 and the six months ended June 30, 2004 (unaudited)
18. SHOPPES AT PROMINENCE POINT:
(a) Historical Summary of Gross Income and Direct Operating Expenses for the
period of March 1, 2004 (commencement of operations) through June 30,
2004 (unaudited)
(b) Notes to the Historical Summary of Gross Income and Direct Operating
Expenses for the period of March 1, 2004 (commencement of operations)
through June 30, 2004 (unaudited)
19. LOW COUNTRY VILLAGE:
(a) Historical Summary of Gross Income and Direct Operating Expenses for the
period of February 1, 2004 (commencement of operations) through June 30,
2004 (unaudited)
(b) Notes to the Historical Summary of Gross Income and Direct Operating
Expenses for the period of February 1, 2004 (commencement of operations)
through June 30, 2004 (unaudited)
20. SHOPPES AT DALLAS:
(a) Historical Summary of Gross Income and Direct Operating Expenses for the
period of March 1, 2004 (commencement of operations) through June 30,
2004 (unaudited)
(b) Notes to the Historical Summary of Gross Income and Direct Operating
Expenses for the period of March 1, 2004 (commencement of operations)
through June 30, 2004 (unaudited)
21. DORMAN CENTRE - PHASE II:
(a) Historical Summary of Gross Income and Direct Operating Expenses for the
period of March 15, 2004 (commencement of operations) through June 30,
2004 (unaudited)
(b) Notes to the Historical Summary of Gross Income and Direct Operating
Expenses for the period of March 15, 2004 (commencement of operations)
through June 30, 2004 (unaudited)
22. VILLAGE SHOPPES AT SIMONTON:
(a) Historical Summary of Gross Income and Direct Operating Expenses for the
period of May 1, 2004 (commencement of operations) through June 30, 2004
(unaudited)
(b) Notes to the Historical Summary of Gross Income and Direct Operating
Expenses for the period of May 1, 2004 (commencement of operations)
through June 30, 2004 (unaudited)
23. HARVEST TOWN CENTER:
(a) Historical Summary of Gross Income and Direct Operating Expenses for the
period of March 15, 2004 (commencement of operations) through June 30,
2004 (unaudited)
(b) Notes to the Historical Summary of Gross Income and Direct Operating
Expenses for the period of March 15, 2004 (commencement of operations)
through June 30, 2004 (unaudited)
24. BED, BATH & BEYOND PLAZA:
(a) Historical Summary of Gross Income and Direct Operating Expenses for the
period of March 3, 2004 (commencement of operations) through June 30,
2004 (unaudited)
(b) Notes to the Historical Summary of Gross Income and Direct Operating
Expenses for the period of March 3, 2004 (commencement of operations)
through June 30, 2004 (unaudited)
II-14
(b) EXHIBITS.
EXHIBIT NO. DESCRIPTION
----------- -----------
1.1********** Form of Dealer Manager Agreement by and between Inland Western Retail Real Estate Trust, Inc. and
Inland Securities Corporation.
1.2********** Form of Soliciting Dealers Agreement by and between Inland Securities Corporation and the Soliciting
Dealers.
3.1********** First Amended and Restated Articles of Incorporation of Inland Western Retail Real Estate Trust, Inc.
3.2* Bylaws of Inland Western Retail Real Estate Trust, Inc.
4.1* Specimen Certificate for the Shares.
5********** Opinion of Duane Morris LLP as to the legality of the Shares being registered.
8********** Opinion of Duane Morris LLP as to tax matters.
10.1** Form of Escrow Agreement by and among Inland Western Retail Real Estate Trust, Inc., Inland Securities
Corporation and LaSalle Bank National Association.
10.2** Form of Advisory Agreement by and between Inland Western Retail Real Estate Trust, Inc. and Inland
Western Retail Real Estate Advisory Services, Inc.
10.3** Form of Master Management Agreement, including the form of Management Agreement for each Property by
and between Inland Western Retail Real Estate Trust, Inc. and Inland Western Property Management Corp.
10.4** Property Acquisition Service Agreement by and among Inland Western Retail Real Estate Trust, Inc.,
Inland Western Retail Real Estate Advisory Services, Inc., Inland Real Estate Corporation, Inland Real
Estate Advisory Services, Inc., and Inland Real Estate Acquisitions, Inc.
10.5* Independent Director Stock Option Plan.
10.6* Indemnification Agreement by and between Inland Western Retail Real Estate Trust, Inc. and its
directors and executive officers.
10.7** Purchase and Sale Agreement (Re: Peoria Station) dated January 31, 2003.
10.8*** Assignment of Purchase and Sale Agreement (Re: Peoria Station) dated June 3, 2003.
10.9**** Share Repurchase Plan.
10.10***** Agreement for Purchase and Sale (Re: Stony Creek) dated November 11, 2003.
10.11***** Real Property Purchase Agreement (Re: Plaza 205 and Mall 205) dated December 3, 2003.
10.12***** Amended Real Estate Purchase Contract (Re: Edmond Oklahoma Eckerd Drug Store) dated
November 11, 2003.
10.13***** Amended Real Estate Purchase Contract (Re: Norman Oklahoma Eckerd Drug Store) dated
November 11, 2003.
10.14****** Sale-Purchase Agreement Contract (Re: Shops at Park Place) dated September 5, 2003.
10.15****** Assignment of Contract (Re: Shops at Park Place) dated September 23, 2003.
10.16****** Assignment of Membership Interests (Re: Shops at Park Place) dated October 31, 2003.
10.17****** Promissory Note (Re: Shops at Park Place) dated October 31, 2003.
II-15
10.18****** Loan Agreement (Re: Shops at Park Place) dated October 31, 2003.
10.19****** Post Closing Agreement (Re: Shops at Park Place) dated October 31, 2003.
10.20****** Purchase and Sale Agreement (Re: Darien Towne Center) dated November 12, 2003.
EXHIBIT NO. DESCRIPTION
----------- -----------
10.21****** Purchase and Sale Agreement (Re: Shaws Supermarkets- New Britain) dated November 20, 2003.
10.22****** Agreement Relating to PetsMart Claims (Re: Darien Towne Center) dated December 18, 2003.
10.23****** Agreement Relating to Irv's Lease (Re: Darien Towne Center) dated December 18, 2003.
10.24****** Amended Purchase Agreement (Re: Newnan Crossing) dated December 18, 2003.
10.25****** Mortgage Note $10M (Re: Darien Towne Center) dated December 19, 2003.
10.26****** Mortgage Note $6.5M (Re: Darien Towne Center) dated December 19, 2003.
10.27****** Mortgage, Assignment of Leases, Rents and Contracts, Security Agreement and Fixture Filing (Re: Darien
Towne Center) dated December 19, 2003.
10.28****** Related Agreement (Re: Darien Towne Center) dated December 19, 2003.
10.29****** Assignment (Re: Darien Towne Center) dated December 19, 2003.
10.30****** Partial Assignment and Assumption of Purchase and Sale Agreement (Re: Shaws Supermarket - New Britain)
dated December 30, 2003.
10.31****** Amended Purchase Agreement (Re: Pavilion at Kings Grant) dated December 31, 2003.
10.32****** Post Closing and Indemnity Agreement (Re: Pavilion at Kings Grant) dated December 31, 2003.
10.33****** Mortgage Note (Re: CorWest Plaza) dated January 1, 2004.
10.34****** Mortgage, Assignment of Leases and Rents and Security Agreement (Re: CorWest Plaza) dated January 1,
2004.
10.35****** Guaranty Agreement (Re: CorWest Plaza) dated January 1, 2004.
10.36****** Letter Agreement (Re: Stoney Creek Marketplace) dated January 5, 2004.
10.37****** Mortgage Note (Re: Stoney Creek Marketplace) dated January 5, 2004.
10.38****** Mortgage, Assignment of Leases and Rents and Security Agreement (Re: Stoney Creek Marketplace) dated
January 5, 2004.
10.39****** Amended Contract of Sale (Re: La Plaza Del Norte) dated January 16, 2004.
10.40****** Promissory Note (Re: Hickory Ridge) dated January 23, 2004.
10.41****** Post Closing Agreement (Re: Hickory Ridge) dated January 2004.
10.42****** Loan Agreement (Re: Hickory Ridge) dated January 23, 2004.
10.43****** Amended and Restated Promissory Noted (Re: Shops at Park Place and Shaws Supermarket - New Britain)
dated January 2004.
10.44****** Promissory Note (Re: Shops at Park Place and Shaws Supermarket - New Britain) dated January 2004.
II-16
10.45****** Open-End Mortgage and Security Agreement (Re: Shops at Park Place and Shaws Supermarket - New Britain)
dated January 2004.
10.46****** Loan Agreement (Re: Shops at Park Place and Shaws Supermarket - New Britain) dated January 2004.
10.47****** Guaranty Agreement Regarding Cross-Collateralization (Re: Shops at Park Place) dated January 2004.
EXHIBIT NO. DESCRIPTION
----------- -----------
10.48****** Guaranty Agreement Regarding Cross-Collateralization (Re: Shaws Supermarket - New Britain) dated
January 2004.
10.49****** Notice of Final Agreement (Re: La Plaza Del Norte) dated February 2004.
10.50****** Secured Promissory Note Loan No. 753821 (Re: La Plaza Del Norte) dated February 2004.
10.51****** Deed of Trust, Security Agreement and Assignment of Rents Loan No. 753821 (Re: La Plaza Del Norte)
dated February 2004.
10.52****** Guaranty Loan No, 753821 (Re: La Plaza Del Norte) dated February 2004.
10.53******* Amended Purchase and Sale Agreement (Re: CorWest Plaza) dated October 8, 2003.
10.54******* Assignment and Assumption of Purchase and Sale Agreement (Re: CorWest Plaza) dated January 5, 2004.
10.55******* Amended Purchase and Sale Agreement (Re: Metro Square Center) dated January 16, 2004.
10.56******* Assignment and Assumption of Letter Agreement (Re: Metro Square Center) dated January 20, 2004.
10.57******* Reinstatement of and Amendment to Purchase and Sale Agreement (Re: North Ranch Pavilions) dated
January 14, 2004.
10.58******* Assignment and Assumption of Purchase and Sale Agreement (Re: North Ranch Pavilions) dated January 15,
2004.
10.59******* Letter Agreement (Re: MacArthur Crossing) dated November 20, 2003.
10.60******* Assignment of Contract (Re: MacArthur Crossing) dated February 2004.
10.61******* Secured Promissory Note Loan No. 753820 (Re: Larkspur Landing) dated January 30, 2004.
10.62******* Deed of Trust, Security Agreement and Assignment of Rents (Re: Larkspur Landing) dated January 30,
2004.
10.63******* Guaranty Loan No. 753820 (Re: Larkspur Landing) dated January 30, 2004.
10.64******* Amended Option to Purchase Partnership Interests (Re: Hickory Ridge) dated December 23, 2003.
10.65******* Assignment (Re: La Plaza Del Norte) dated January 21, 2004.
10.66******* Purchase and Sale Agreement (Re: Larkspur Landing) dated December 12, 2003.
10.67******* Assignment (Re: Larkspur Landing) dated January 14, 2004.
10.68******* Amended Letter Agreement Offer to Purchase (Re: The Promenade at Red Cliff) dated February 13, 2004.
10.69******** Agreement of Sale (Re: Peoria Crossing) dated January, 2004
10.70******** Letter Agreement to Purchase (Re: Heritage Towne Crossing) dated January 8, 2004.
II-17
10.71********* Secured Promissory Note Loan No. 753865 (Re: Pavilion at King's Grant) dated April 6, 2004.
10.72********* Deed of Trust, Security Agreement and Assignment of Rents Loan No. 753865 (Re: Pavilion at King's
Grant) dated April 6, 2004.
10.73********* Guaranty Loan No. 753865 (Re: Pavilion at King's Grant) dated April 6, 2004.
EXHIBIT NO. DESCRIPTION
----------- -----------
10.74********* Guaranty - II Loan No. 753865 (Re: Pavilion at King's Grant) dated April 6, 2004.
10.75********* Assignment of Contract (Re: Hickory Ridge) dated January 9, 2004.
10.76********* Promissory Note Loan No. 6518303 (Re: Metro Square Center) dated March 26, 2004.
10.77********* Deed of Trust, Assignment of Leases and Rents, Security Agreement and Fixture Filing Loan No. 6518303
(Re: Metro Square Center) dated March 26, 2004.
10.78********* Non-Recourse Guaranty Agreement Loan No. 6518303 (Re: Metro Square Center) dated March 26, 2004.
10.79********* Payment Guaranty Agreement Loan No. 6518303 (Re: Metro Square Center) dated March 26, 2004.
10.80********* Secured Promissory Note Loan No. 753864 (Re: MacArthur Crossing) dated March 26, 2004.
10.81********* Deed of Trust, Security Agreement and Assignment of Rents Loan No. 753864 (Re: MacArthur Crossing)
dated March 26, 2004.
10.82********* Guaranty Loan No. 753864 (Re: MacArthur Crossing) dated March 26, 2004.
10.83********* Promissory Note Loan No. 57968 (Re: Promenade at Red Cliff) dated April 8, 2004.
10.84********* Exceptions to Non-Recourse Guaranty Agreement Loan No. 57968 (Re: Promenade at Red Cliff) dated April
8, 2004.
10.85********* Loan Agreement No. 57968 (Re: Promenade at Red Cliff) dated April 8, 2004.
10.86********* Post Closing and Indemnity Agreement (Re: Heritage Towne Crossing) dated March 5, 2004.
10.87********* Vacancy Escrow Agreement (Re: Heritage Towne Crossing) dated March 5, 2004.
10.88********* General Assignment (Re: Heritage Towne Crossing) dated March 5, 2004.
10.89********* Assignment of Contract (Re: Heritage Towne Crossing) dated March 5, 2004.
10.90********* Assignment of Contract (Re: Dorman Center) dated December 29, 2003.
10.91********* Amended Purchase Agreement (Re: Dorman Center) dated December 10, 2003.
10.92********* Dorman Center Pier 1 Escrow (Re: Dorman Center) dated March 4, 2004.
10.93********* Dorman Center Escrow (Re: Dorman Center) dated March 4, 2004.
10.94********* Mortgage Note Loan No. 6518291 (Re: Dorman Center) dated April 9, 2004.
10.95********* Mortgage, Assignment of Leases and Rents and Security Agreement (Re: Dorman Center) dated April 9,
2004.
10.96********* Transitional Security (Phase II) Reserve Agreement (Re: Dorman Center) dated April 9, 2004,
10.97********* Guaranty Agreement Loan No. 6518291 (Re: Dorman Center) dated April 9, 2004.
II-18
10.98********* Promissory Note: (Re: Heritage Towne Crossing) dated April 26, 2004.
10.99********* Promissory Note: (Re: Eckerds - Edmond, OK.) dated April 26, 2004.
10.100******** Promissory Note: (Re: Eckerds - Norman, OK.) dated April 26, 2004.
EXHIBIT NO. DESCRIPTION
----------- -----------
10.101******** Loan Agreement (Re: Heritage Towne Crossing, Eckerds - Edmond, OK. And Eckerds - Norman, OK.) dated
April 26, 2004.
10.102******** Post-Closing Agreement (Re: Heritage Towne Crossing, Eckerds - Edmond, OK. And Eckerds - Norman, OK.)
dated April 26, 2004.
10.103******** Guaranty Agreement Regarding Cross-Collateralization (Re: Heritage Towne Crossing) dated April 26,
2004.
10.104******** Guaranty Agreement Regarding Cross-Collateralization (Re: Eckerds - Edmond, OK.) dated April 26, 2004.
10.105******** Guaranty Agreement Regarding Cross-Collateralization (Re: Eckerds - Norman, OK.) dated April 26, 2004.
10.106******** Assignment of Contract (Re: Promenade at Red Cliff) dated February 13, 2004.
10.107******** Assignment of Contract (Re: Peoria Crossings) dated March 3, 2004.
10.108******** Post Closing Agreement (Re: Peoria Crossings) dated March 3, 2004.
10.109******** Master Lease Escrow Agreement (Re: Peoria Crossings) dated February 4, 2004.
10.110******** Tax Proration Agreement (Re: Peoria Crossings) dated March 3, 2004.
10.111******** Promissory Note Loan No. 10023006 (Re: Peoria Crossings) dated March 5, 2004.
10.112******** Loan Agreement -Loan No. 10023006 (Re: Peoria Crossings) dated March 5, 2004.
10.113******** Assignment of Contract (Re: Paradise Valley Marketplace) dated April 8, 2004.
10.114******** Revised Letter Agreement to Purchase (Re: Paradise Valley Marketplace) dated January 21, 2004.
10.115******** Escrow Agreement (Re: Paradise Valley Marketplace) dated April 8, 2004.
10.116******** Assignment and Assumption of Purchase and Sale Agreement (Re: Best on the Boulevard) dated April 4,
2004.
10.117******** Post-Closing Agreement (Re: Best on the Boulevard) dated April 14, 2004.
10.118******** Amended Purchase and Sale Agreement (Re: Best on the Boulevard) dated March 29, 2004.
10.119******** Assignment and Assumption of Purchase and Sales Agreement (Re: Bluebonnet Parc) dated April 21, 2004.
10.120******** Escrow Agreement (Re: Bluebonnet Parc) dated April 22, 2004.
10.121******** Letter Agreement to Purchase (Re: Bluebonnet Parc) dated February 4, 2004.
10.122******** Loan Agreement (Re: Bluebonnet Parc) dated May 7, 2004.
10.123******** Assignment and Assumption of Agreement for Purchase and Sale (Re: Alison's Corner) dated April 20,
II-19
2004.
10.124******** Post Closing Agreement (Re: Alison's Corner) dated April 28, 2004.
10.125******** Amended Purchase and Sale Agreement (Re: Alison's Corner) dated April 23, 2004.
10.126******** Promissory Note (Re: Alison's Corner) dated May 10, 2004.
EXHIBIT NO. DESCRIPTION
----------- -----------
10.127******** Loan Agreement (Re: Alison's Corner) dated May 10, 2004.
10.128******** Letter Agreement Regarding Escrow (Re: Alison's Corner) dated May 10, 2004.
10.129******** Post-Closing Agreement (Re: Alison's Corner) dated May 10, 2004.
10.130******** Assignment and Assumption of Purchase and Sales Agreement (Re: North Rivers Town Center) dated April
27, 2004.
10.131******** Post-Closing Agreement (Re: North Rivers Town Center) dated April 2004.
10.132******** Amended Agreement for Purchase and Sale (Re: North Rivers Town Center) dated April 26, 2004.
10.133******** Assignment and Assumption of Purchase and Sales Agreement (Re: Eastwood Towne Center) dated May 12,
2004.
10.134******** Revised Letter Agreement (Re: Eastwood Towne Center) dated March 29, 2004.
10.135******** Master Fund Escrow Agreement (Eastwood Towne Center) dated May 13, 2004.
10.136******** Holdback Agreement (Re: Eastwood Towne Center) dated May 13, 2004.
10.137******** Bill of Sale, Assignment and Assumption of Contracts (Re: Eastwood Towne Center) dated May 13, 2004.
10.138******** Assignment and Assumption of Purchase and Sales Agreement (Re: Arvada Connection and Arvada
Marketplace) dated April 28, 2004.
10.139******** Bill of Sale, Assignment and Assumption of Contracts (Re: Arvada Connection and Arvada Marketplace)
dated April 29, 2004.
10.140******** Purchase and Sale Agreement (Re: Arvada Connection and Arvada Marketplace) dated March 31, 2004.
10.141******** Escrow Agreement (Re: Arvada Connection and Arvada Marketplace) dated April 29, 2004.
10.142******** Redevelopment Agreement (Re: Arvada Connection and Arvada Marketplace) dated April 28, 2004.
10.143******** Easements With Covenants and Restrictions Affecting Land (Re: Arvada Marketplace) dated April 29,
2004.
10.144******** Assignment of Contract (Re: Watauga Pavilion) dated May 20, 2004.
10.145******** Amended Purchase and Sale Agreement (Re: Watauga Pavilion) dated May 11, 2004.
10.146******** Post-Closing Escrow and Master Lease Agreement (Re: Watauga Pavilion) dated May 21, 2004.
10.147******** CAM Reconciliation Escrow Agreement (Re: Northpointe Plaza) dated May 2004.
10.148******** Reinstatement of and First Amendment to Agreement of Purchase and Sale (Re: Northpointe Plaza) dated
April 2004.
II-20
10.149******** Vacancy Escrow Agreement (Re: Northpointe Plaza) dated May 2004.
10.150******** Promissory Note - Loan No. 58108 (Re: Paradise Valley Marketplace) dated June 3, 2004.
10.151******** Loan Agreement - Loan No. 58108 (Re: Paradise Valley Marketplace) dated June 3, 2004.
10.152******** Promissory Note (Re: North Rivers Town Center) dated June 3, 2004.
EXHIBIT NO. DESCRIPTION
----------- -----------
10.153******** Mortgage and Security Agreement (Re: North Rivers Town Center) dated June 3, 2004.
10.154******** Post-Closing Agreement (Re: North Rivers Town Center) dated June 3, 2004.
10.155******** Real Estate Purchase and Leaseback Agreement (Re: Eckerds - Kill Devil Hills, NC) dated March 18,
2004.
10.156******** Real Estate Purchase and Leaseback Agreement (Re: Eckerds - Greer, SC) dated April 1, 2004.
10.157******** Real Estate Purchase and Leaseback Agreement (Re: Eckerds - Columbia, SC) dated March 18, 2004.
10.158******** Real Estate Purchase and Leaseback Agreement (Re: Eckerds - Crossville, TN) dated March 18, 2004.
10.159******* Deed of Trust, Assignment of Leases and Rents, Security Agreement and Fixture Filing Loan No. 58108
(Re: Peoria Crossing) dated June 3, 2004.
10.160******* Loan Agreement (Re: North Rivers Town) dated June 3, 2004.
10.161******* Secured Promissory Note Loan No. 753946 (Re: Arvada Marketplace) dated June 17, 2004.
10.162******* Deed of Trust, Security Agreement and Assignment of Rents Loan No. 753946 (Re: Arvada Marketplace)
dated June 17, 2004.
10.163******* Guaranty Loan No. 753946 (Re: Arvada Marketplace) dated June 17, 2004.
10.164******* Mortgage Note Loan No. 6518370 (Re: Eastwood Town Center) dated June 15, 2004.
10.165******* Mortgage - Loan No. 6518370 (Re: Eastwood Town Center) dated June 15, 2004.
10.166******* Guaranty Agreement Loan No. 6518370 (Re: Eastwood Town Center) dated June 15, 2004.
10.167******* Secured Promissory Note Loan No. 753943 (Re: Watauga Pavilion) dated June 7, 2004.
10.168******* Deed of Trust, Security Agreement and Assignment of Rents Loan No. 753943 (Re: Watauga Pavilion) dated
June 7, 2004.
10.169******* Notice of Final Agreement Loan No. 753943 (Re: Watauga Pavilion) dated June 7, 2004.
10.170******* Guaranty Loan No. 753943 (Re: Watauga Pavilion) dated June 7, 2004.
10.171******* General Assignment (Re: Northpointe Plaza) dated May 25, 2004.
10.172******* Post Closing and Indemnity Agreement (Re: Northpointe Plaza) dated May, 2004.
10.173******* Promissory Note (Re: Northpointe Plaza) dated June 4, 2004.
10.174******* Loan Agreement (Re: Northpointe Plaza) dated June 4, 2004.
10.175******* Deed of Trust, Security Agreement and Fixture Filing (Re: Northpointe Plaza) dated June 4, 2004.
10.176******* Revised Letter Agreement to Purchase (Re: Plaza Santa Fe) dated December 4, 2004.
II-21
10.177******* Promissory Note Secured By Leasehold Deed of Trust (Re: Plaza Santa Fe) dated November 22, 2002.
10.178******* Leasehold Deed of Trust and Absolute Assignment of Rents and Leases and Security Agreement and Fixture
Filing Loan No. 31-0900141A (Re: Plaza Santa Fe) dated November, 2002.
10.179******* Assignment of Purchase and Sale Agreement (Re: Pine Ridge Plaza) dated June 4, 2004.
EXHIBIT NO. DESCRIPTION
----------- -----------
10.180******** Assignment and Assumption Agreement Purchase and Sale Agreement (Re: Pine Ridge Plaza) dated May 26,
2004.
10.181******* Amended Purchase and Sale Agreement (Re: Pine Ridge Plaza) dated March 30, 2004.
10.182******* Assignment of Contract (Re: Huebner Oaks Center) dated June 8, 2004.
10.183******* Agreement of Purchase and Sale (Re: Huebner Oaks Center).
10.184******* Secured Promissory Note 1 Loan No. 753971 (Re: Huebner Oaks Center) dated June 22, 2004.
10.185******* Secured Promissory Note 2 Loan No. 753972 (Re: Huebner Oaks Center) dated June 22, 2004.
10.186******* Deed of Trust, Security Agreement and Assignment of Rents Loan Nos. 753971 and 753972 (Re: Huebner
Oaks Center) dated June 22, 2004.
10.187******* Guaranty Loan Nos. 753971 and 753972 (Re: Huebner Oaks Center) dated June 22, 2004.
10.188******* Notice of Final Agreement Loan Nos. 753971 and 753972 (Huebner Oaks Center) dated June 22, 2004.
10.189******* Amended Letter Purchase Agreement (Re: John's Creek Village) dated June 18, 2004.
10.190******* Earn-out Agreement (Re: John's Creek Village) dated June 23, 2004.
10.191******* Assignment of Contract (Re: Lakewood Towne Center) dated June, 2004.
10.192******* Agreement for Purchase and Sale of Real Property and Escrow Instructions (Re: Lakewood Towne Center)
dated May 6, 2004.
10.193******* Escrow and Leasing Agreement (Re: Lakewood Towne Center) dated June, 2004.
10.194******* Commitment Letter Loan Nos. 122498 and 122499 (Re: Lakewood Towne Center) dated June 28, 2004.
10.195******* Deed of Trust Note A Loan No. 122498 (Re: Lakewood Towne Center) dated June 28, 2004.
10.196******* Deed of Trust Note B Loan No. 122499 (Re: Lakewood Towne Center) dated June 28, 2004.
10.197******* Deed of Trust, Assignment of Leases, Rents and Contracts, Security Agreement and Fixture Filing (Re:
Lakewood Towne Center) dated June 28, 2004.
10.198******* First Amendment to Escrow and Leasing Agreement Loan Nos. 122498 and 122499 (Re: Lakewood Towne
Center) dated June 28, 2004.
10.199******* Master Lease Escrow Agreement (Re: Paradise Shoppes at Prominence Point) dated June 30, 2004.
10.200******* Assignment of Purchase and Sale Agreement (Re: Northgate North) dated June 24, 2004.
10.201******* Amended Agreement to Purchase and Sale Agreement (Re: Northgate North) dated June 23, 2004.
10.202******* Escrow Agreement Regarding July Rents (Re: Northgate North) dated June 30, 2004.
II-22
10.203******* Escrow Agreement Regarding Bassett TI Work/Leasing Commission (Re: Northgate North) dated June, 2004.
10.204******* Access Agreement (Re: Northgate North) dated June 30, 2004.
10.205******* Post Closing and Indemnity Agreement (Re: Davis Towne Crossing) dated June 30, 2004.
EXHIBIT NO. DESCRIPTION
----------- -----------
10.206******* Letter Agreement to Purchase (Re: Davis Towne Crossing) dated April 21, 2004.
10.207 ** NOT USED
10.208******* Assignment of Purchase and Sale Agreement (Re: Fullerton Metrocenter) dated June 24, 2004.
10.209******* Post Closing and Indemnity Agreement (Re: Fullerton Metrocenter) dated June, 2004.
10.210******* Amended Purchase and Sale Agreement and Joint Escrow Instructions (Re: Fullerton Metrocenter) dated
June 30, 2004.
10.211******* Assignment and Assumption of Agreement for Purchase and Sale (Re: Low Country Village) datd June 30,
2004.
10.212******* Post Closing Agreement (Re: Low Country Village) dated June 30, 2004.
10.213******* Agreement of Purchase and Sale (Re: Low Country Village) dated May 20, 2004.
10.214******* Installment Note (Re: Pacheco Pass) dated June 30, 2004.
10.215******* Loan Proceeds Holdback Agreement (Re: Pacheco Pass) dated June 30, 2004.
10.216******* Interest Reserve Holdback Agreement (Re: Pacheco Pass) dated June 30, 2004.
10.217******* Loan Guaranty Agreement (Secured Note) (Re: Pacheco Pass) dated June 30, 2004.
10.218******* Escrow Agreement (Re: Shoppes at Boardwalk) dated July 1, 2004.
10.219******* Secured Promissory Note Loan No. 753948 (Re: Shoppes at Boardwalk) dated July 2, 2004.
10.220******* Deed of Trust, Security Agreement and Assignment of Rents (Re: Shoppes at Boardwalk) dated July 2,
2004.
10.221******* Guaranty Loan No. 75348 (Re: Shoppes at Boardwalk) dated July 2, 2004.
10.222******* Property Reserves Agreement Loan No. 753948 (Re: Shoppes at Boardwalk) dated July 2, 2004.
10.223******* Master Lease Escrow Agreement (Re: Paradise Shoppes at Dallas) dated July 1, 2004.
10.224********* Assignment of Purchase Agreement (Re: Plaza Santa Fe II) dated May 25, 2004
10.225********* Assignment of Contract (Re: Eckerds - Greer) dated May 2004
10.226********* Assignment of Contract (Re: Eckerds - Kill Devil Hills) dated May 2004
10.227********* Assignment of Contract (Re: Eckerds - Crossville) dated May 2004
10.228********* Assignment of Contract (Re: Eckerds - Colimbia) dated May 2004
10.229********* Promissory Note (Re: Eckerds - Crossville) dated July 21, 2004
II-23
10.230********* Post-Closing Agreement (Re: Eckerds - Crossville) dated July 21, 2004
10.231********* Guaranty Agreement Regarding Cross-Collateralization (Re: Eckerds- Crossville) dated July 21, 2004
10.232********* Promissory Note (Re: Eckerds - Columbia) dated July 21, 2004
10.233********* Guaranty Agreement Regarding Cross-Collateralization (Re: Eckerds- Columbia) dated July 21, 2004
EXHIBIT NO. DESCRIPTION
----------- -----------
10.234********* Promissory Note (Re: Eckerds - Kill Devil Hills) dated July 21, 2004
10.235********* Post-Closing Agreement (Re: Eckerds - Kill Devil Hills) dated July 21, 2004
10.236********* Guaranty Agreement Regarding Cross-Collateralization (Re: Eckerds - Kill Devil Hills) dated July 21,
2004
10.237********* Promissory Note (Re: Eckerds - Greer) dated July 21, 2004
10.238********* Guaranty Agreement Regarding Cross-Collateralization (Re: Eckerds - Greer) dated July 21, 2004
10.239********* Loan Agreement (Re: Eckerds - Crossville, Columbia, Greer and Kill Devil Hills) dated July 21, 2003
10.240********* Promissory Note (Re: Pine Ridge Plaza) dated July 27, 2004
10.241********* Loan Agreement (Re: Pine Ridge Plaza) dated July 27, 2004
10.242********* Earn-Out Agreement (Re: Johns Creek Village) dated June 23, 2004
10.243********* Transitional Security (Phase II) Reserve Agreement (Re: Johns Creek Village) dated June 28, 2004
10.244********* Mortgage Note (Re: Johns Creek Village) dated June 28, 2004
10.245********* Deed to Secure Debt, Assignment of Leases and Rents and Security Agreement (Re: Johns Creek Village)
dated June 28, 2004
10.246********* Guaranty Agreement (Re: Johns Creek Village) dated June 28, 2004
10.247********* Post-Closing Agreement (Re: Fullerton Metrocenter) dated July 9, 2004
10.248********* Promissory Note (Re: Fullerton Metrocenter) dated July 9, 2004
10.249********* Loan Agreement (Re: Fullerton Metrocenter) dated July 9, 2004
10.250********* Deed of Trust Note (Re: Northgate North) dated July 2004
10.251********* Letter Agreement (Re: Northgate North) dated July 14, 2004
10.252********* Closing Certificate (Re: Northgate North) dated July 2004
10.253********* Limited Payment Guaranty (Re: Northgate North) dated July 2004
10.254********* Post-Closing Agreement (Re: Cranberry Square) dated July 2004
10.255********* Loan Agreement (Re: Cranberry Square) dated July 2004
10.256********* Letter Agreement (Re: Tollgate Marketplace) dated July 21, 2004
10.257********* Closing Certificate (Re: Tollgate Marketplace) dated July 21, 2004
10.258********* Mortgage Note (Re: Tollgate Marketplace) dated July 21, 2004
II-24
10.259********* Post Closing Delivery Covenant (Re: Tollgate Marketplace) dated July 21, 2004
10.260********* Indemnity Guaranty (Re: Tollgate Marketplace) dated July 21, 2004
10.261********* Real Estate Purchase Contract (Re: Wal-Mart Supercenter - Blytheville) dated May 28, 2004
10.262********* Letter Agreement (Re: Gateway Village) dated July 21, 2004
EXHIBIT NO. DESCRIPTION
----------- -----------
10.263********* Closing Certificate (Re: Gateway Village) dated July 21, 2004
10.264********* Mortgage Note A (Re: Gateway Village) dated July 21, 2004
10.265********* Mortgage Note B (Re: Gateway Village) dated July 21, 2004
10.266********* Indemnity Guaranty (Re: Gateway Village) dated July 21, 2004
10.267********* Post Closing Delivery Covenant (Re: Gateway Village, Towson Circle, and Tollgate Marketplace) dated
July 21, 2004
10.268********* Letter Agreement (Re: Towson Circle) dated July 21, 2004
10.269********* Closing Certificate (Re: Towson Circle) dated July 21, 2004
10.270********* Mortgage Note A (Re: Towson Circle) dated July 21, 2004
10.271********* Mortgage Note B (Re: Towson Circle) dated July 21, 2004
10.272********* Indemnity Guaranty (Re: Towson Circle) dated July 21, 2004
10.273********* Letter Agreement (Re: Gateway Plaza Shopping Center) dated May 20, 2004
10.274********* Promissory Note (Re: Wrangler Company Western Headquarters and Distribution Facility) dated July 26,
2004
10.275********* Loan Agreement (Re: Wrangler Company Western Headquarters and Distribution Facility) Dated July 26,
2004
10.276********* Promissory Note (Re: Plaza at Marysville) dated July 30, 2004
10.277********* Loan Agreement (Re: Plaza at Marysville) dated July 30, 2004
10.278********* Forks Town Center China Moon Escrow (Re: Forks Town Center) dated July 27, 2004
10.279********* Earn Out Agreement (Re: Forks Town Center) dated July 27, 2004
10.280********* Promissory Note (Re: Academy Sports and Outdoors - Houma) dated August 4, 2004
10.281********* Loan Agreement (Re: Academy Sports and Outdoors - Houma) dated August 4, 2004
10.282********* Promissory Note (Re: Reisterstown Plaza) dated August 4, 2004
10.283********* Letter Agreement (Re: Reisterstown Plaza) dated July 30, 2004
10.284********* Loan Agreement (Re: Reisterstown Plaza) dated August 4, 2004
10.285********* Guaranty Agreement (Re: Reisterstown Plaza) dated August 4, 2004
10.286********* Limited Guaranty Agreement (Re: Reisterstown Plaza) dated August 4, 2004
II-25
10.287********* Post-Closing Agreement (Re: Reisterstown Plaza) dated August 4, 2004
10.288********* Letter Agreement (Re: Wal-Mart Supercenter - Jonesboro) dated June 4, 2004
10.289********* Promissory Note (Re: Wal-Mart Supercenter - Jonesboro) dated August 6, 2004
10.290********* Loan Agreement (Re: Wal-Mart Supercenter - Jonesboro) dated August 6, 2004
EXHIBIT NO. DESCRIPTION
----------- -----------
10.291********** Promissory Note Loan No. 10024997 (Re: Davis Towne Crossing) dated August 9, 2004.
10.292********** Loan Agreement No. 10024997 (Re: Davis Towne Crossing) dated August 9, 2004.
10.293********** Promissory Note Loan No. 10024995 (Re: Shoppes of Prominence Point) dated August 2004.
10.294********** Loan Agreement No. 10024995 (Re: Shoppes of Prominence Point) dated August 2004.
10.295********** Assignment of Contract (Re: Shops at Boardwalk) dated July 1, 2004.
10.296********** Letter Agreement to Purchase (Re: Shops at Boardwalk) dated March 2004.
10.297********** Amended Agreement of Sale (Re: Shops at Boardwalk) dated April 15, 2004.
10.298********** Assignment of Contract (Re: Cranberry Square) dated June 23, 2004.
10.299********** Letter Agreement to Purchase (Re: Cranberry Square) dated April 27, 2004.
10.300********** Construction Agreement (Re: Dorman Center Phase II) dated July 15, 2004.
10.301********** Escrow Agreement (Re: Dorman Center Phase II) dated July 14, 2004.
10.302********** Assignment and Assumption of Purchase and Sale Agreement (Re: Gateway Plaza) dated July 21, 2004.
10.303********** Amended Purchase and Sale Agreement (Re: Gateway Plaza) dated July 15, 2004.
10.304********** Letter Agreement to Purchase (Re: Gateway Plaza) dated May 20, 2004.
10.305********** Assignment of Contract (Re: Plaza at Marysville) dated July 26, 2004.
10.306********** Reinstated and Amended Purchase and Sale Agreement (Re: Plaza at Marysville) dated July 23, 2004.
10.307********** Purchase and Sale Agreement (Re: Plaza at Marysville) dated May 6, 2004.
10.308********** Letter Agreement to Purchase (Re: Forks Town Center) dated August 10, 2004.
10.309********** Mortgage Note Loan No. 122483 (Re: Forks Town Center) dated August 10, 2004.
10.310********** Limited Payment Guarantee Agreement Loan No. 122483 (Re: Forks Town Center) dated August 10, 2004.
10.311********** Post-Closing Agreement (Re: Village Shoppes at Simonton) dated August 9, 2004.
10.312********** Escrow and Guarantee Agreement (Re: Village Shoppes at Simonton) dated August 2004.
10.313********** Assignment and Assumption of Purchase and Sale Agreement (Re: Village Shoppes at Simonton) dated
August 2004.
10.314********** Letter Agreement to Purchase (Re: Village Shoppes at Simonton) dated April 30, 2004.
10.315********** Secured Promissory Note Loan No. 754044 (Re: Manchester Meadows) dated August 24, 2004.
II-26
10.316********** Deed of Trust, Security Agreement and Assignment of Rents (Re: Manchester Meadows) dated August 24,
2004.
10.317********** Guaranty Agreement Loan No. 754044 (Re: Manchester Meadows) dated August 24, 2004.
10.318********** Escrow and Guarantee Agreement (Re: Manchester Meadows) dated August 2004.
EXHIBIT NO. DESCRIPTION
----------- -----------
10.319********** St. Louis Playscapes Escrow and Guarantee Agreement (Re: Manchester Meadows) dated August 2004.
10.320********** Assignment and Assumption of Purchase and Sale Agreement (Re: Manchester Meadows) dated August 2004.
10.321********** Purchase and Sale Agreement (Re: Manchester Meadows) dated July 13, 2004.
10.322********** Amended and Restated Promissory Note Loan No. 10024998 (Re: Governor's Marketplace) dated August 17,
2004.
10.323********** Post-Closing Agreement (Re: Governor's Marketplace) dated August 2004.
10.324********** Loan Agreement No. 10024998 (Re: Governor's Marketplace) dated August 17, 2004.
10.325********** Master Lease Escrow Agreement (Re: Mitchell Ranch Plaza) dated August 23, 2004.
10.326********** Agreement of Purchase and Sale (Re: Mitchell Ranch Plaza) dated July 20, 2004.
10.327********** Master Lease Escrow Agreement (Re: The Columns) dated August 24, 2004.
10.328********** Escrow Agreement (Re: The Columns) dated August 24, 2004.
23.1 Consent of KPMG LLP
23.2********* Consent of Duane Morris LLP (included in Exhibit 5).
23.3********** Consent of Duane Morris LLP (included in Exhibit 8).
24* Power of Attorney (included on signature page to the Registration Statement).
31.1********** Rule 13a-15(e)/15d-15(e) Certification by Chief Executive Officer.
31.2********** Rule 13a-15(e)/15d-15(e) Certification by Principal Financial Officer.
31.3********** Rule 13a-15(e)/15d-15(e) Certification by Principal Accounting Officer.
32.1********** Section 1350 Certification by Chief Executive Officer and Principal Accounting Officer and Principal
Financial Officer.
* Incorporated by reference to the Company's Registration Statement on Form S-11 (File No. 333-103799)
originally filed March 13, 2003.
** Incorporated by reference to Amendment No. 1 to the Company's Registration Statement on Form S-11
(File No. 333-103799) originally filed May 8, 2003.
*** Incorporated by reference to Amendment No. 2 to the Company's Registration Statement on Form S-11
(File No. 333-103799) originally filed June 30, 2003.
**** Incorporated by reference to Amendment No. 3 to the Company's Registration Statement on Form S-11
(File No. 333-103799) originally filed August 20, 2003.
II-27
***** Incorporated by reference to Post-Effective Amendment No. 1 to the Company's Registration Statement on
Form S-11 (File No. 333-103799) originally filed December 15, 2003.
****** Incorporated by reference to the Company's Annual
Report on Form 10-K for the year ended December
31, 2003, originally filed February 27, 2004.
******* Incorporated by reference to Post-Effective Amendment No. 3 to the Company's Registration Statement on
Form S-11 (File No. 333-103799) originally filed March 15, 2004.
******** Incorporated by reference to the Company's
Quarterly Report on Form 10-Q for the quarter
ended June 30, 2004, originally filed July 29,
2004.
********* Incorporated by reference to Post-Effective Amendment No. 4 to the Company's Registration Statement on
Form S-11 (File No. 333-103799) originally filed June 15, 2004.
********** Incorporated by reference to Post-Effective Amendment No. 5 to the Company's Registration Statement on
Form S-11 (File No. 333-103799) originally filed September 15, 2004.
II-28
ITEM 37. UNDERTAKINGS.
1. The undersigned Registrant hereby undertakes:
(a) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i). To include any prospectus required by section 10(a)(3) of the
Act;
(ii). To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or
in the aggregate, represent a fundamental change in the
information set forth in the registration statement; and
(iii). To include any material information with respect to the plan of
distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement.
(b) That, for the purpose of determining any liability under the Act, each
such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering
of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(c) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the
termination of the offering.
2. The Registrant undertakes to send to each Stockholder at least on annual
basis a detailed statement of any transactions with the Advisor or its
Affiliates, and of fees, commissions, compensation and other benefits paid
or accrued to the Advisor or its Affiliates for the fiscal year completed,
showing the amount paid or accrued to each recipient and the services
performed.
3. The Registrant undertakes to provide to the Stockholders the financial
statements required by Form 10-K for the first full fiscal year of
operations of the Company.
4. The Registrant hereby undertakes to send to the Stockholders, within 60 days
after the close of each quarterly fiscal period, the information specified
by Form 10-Q, if such report is required to be filed with the Commission.
5. The Registrant undertakes to file a sticker supplement pursuant to Rule
424(c) under the Act during the distribution period describing each Property
not identified in the Prospectus at such time as there arises a reasonable
probability that such Property will be acquired and to consolidate all such
stickers into a post-effective amendment filed at least once every three
months, with the information contained in such amendment provided
simultaneously to the existing Stockholders. Each sticker supplement should
also disclose all compensation and fees received by the Advisor and its
Affiliates in connection with any such acquisition. The post-effective
amendment shall include audited financial statements meeting the
requirements of Rule 3-14 of Regulation S-X only for Properties acquired
during the distribution period.
The Registrant also undertakes to file, after the end of the distribution
period, a current report on Form 8-K containing the financial statements and
additional information required by Rule 3-14 of Regulation S-X, to reflect
each commitment (i.e., the signing of a binding purchase agreement) made
after the end of the distribution period involving the use of 10% or more
(on a cumulative basis) of the net proceeds of the offering and to provide
the information contained in such report to the Stockholders at least once
each quarter after the distribution period of the offering has ended.
6. Insofar as indemnification for liabilities arising under the Act may be
permitted to Directors, officers and controlling persons of the Registrant,
the Registrant has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of
expenses incurred or paid by a Director, officer or controlling person of
the Registrant in the successful defense of any action, suit or proceeding)
is asserted by such Director, officer or controlling person in connection
with securities being registered, the Registrant will, unless in the opinion
of its counsel the matter has been settled by controlling precedent, submit
to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
II-29
TABLE VI
ACQUISITION OF PROPERTIES BY PROGRAMS (A)
(000's omitted, except for Square Feet or Acres)
Table VI presents information concerning the acquisition of real properties by
programs with similar investment objectives, sponsored by Inland Real Estate
Investment Corporation ("IREIC"), in the three years ended December 31, 2003.
The detail provided with respect to each acquisition includes the property size,
location, purchase price and the amount of mortgage financing. This information
is intended to assist the prospective investor in evaluating the property mix as
well as the terms involved in acquisitions by programs sponsored by IREIC.
II-30
TABLE VL- (CONTINUED)
ACQUISITIONS OF PROPERTIES BY PROGRAMS (A)
(000'S OMITTED, EXCEPT FOR NUMBER OF SQUARE FEET)
PURCHASE PRICE MORTGAGE
NUMBER OF DATE OF PLUS ACQUISITION FINANCING AT DATE CASH DOWN
PROPERTY SQUARE FEET PURCHASE FEE OF PURCHASE PAYMENT
----------------------------------------------------------------------------------------------------------------------------------
INLAND REAL ESTATE CORPORATION:
PETsMART, Gurnee, IL 25,692 04/01 3,304 - 3,304
Eckerd Drug Store, Chattanooga, TN 10,908 05/02 2,367 - 2,367
Michael's, Coon Rapids, MN 24,317 07/02 2,808 - 2,808
Deer Trace, Kohler, WI 149,881 07/02 13,281 - 13,281
Disney, Celebration, FL 166,131 07/02 27,281 13,600 13,681
Townes Crossing, Oswego, IL 105,989 08/02 12,043 - 12,043
Park Square, Brooklyn Park, MN 137,116 08/02 9,873 5,850 4,023
Forest Lake Marketplace, Forest Lake, MN 93,853 09/02 11,856 - 11,856
Naper West Ph II, Naperville, IL 50,000 10/02 3,116 - 3,116
Walgreens, Jennings, MO 15,120 10/02 2,706 - 2,706
Four Flaggs Annex, Niles, IL 21,790 11/02 3,289 - 3,289
Four Flaggs, Niles, IL 306,479 11/02 21,298 12,510 8,788
Brunswick Market Center, Brunswick, OH 119,540 12/02 13,458 - 13,458
Medina Marketplace, Medina, OH 72,781 12/02 9,511 - 9,511
Shakopee Valley, Shakopee, MN 146,436 12/02 14,700 - 14,700
Shops at Orchard Place, Skokie, IL 164,542 12/02 42,752 - 42,752
Cub Foods, Hutchinson, MN 60,208 01/03 5,388 - 5,388
Mankato Heights, Mankato, MN 129,410 04/03 15,102 - 15,102
Caton Crossing, Plainfield, IL 83,792 06/03 11,165 - 11,165
Village Ten, Coon Rapids, MN 211,568 08/03 15,104 - 15,104
Rochester Marketplace, Rochester, MN 69,914 09/03 9,371 - 9,371
University Crossing, Mishawaka, IN 136,422 10/03 14,913 - 14,913
Total for Inland Real Estate Corporation 2,301,889 $ 264,686 $ 31,960 $ 232,726
========= ========== ========= =========
OTHER CASH
EXPENDITURES TOTAL ACQUISITION
PROPERTY CAPITALIZED (A) COST(B)
-------------------------------------------------------------------------------------------
INLAND REAL ESTATE CORPORATION:
PETsMART, Gurnee, IL 0 3,304
Eckerd Drug Store, Chattanooga, TN 2 2,369
Michael's, Coon Rapids, MN 0 2,808
Deer Trace, Kohler, WI 0 13,281
Disney, Celebration, FL 0 27,281
Townes Crossing, Oswego, IL 319 12,362
Park Square, Brooklyn Park, MN 160 10,033
Forest Lake Marketplace, Forest Lake, MN (41) 11,815
Naper West Ph II, Naperville, IL 1,298 4,414
Walgreens, Jennings, MO 6 2,712
Four Flaggs Annex, Niles, IL 6 3,295
Four Flaggs, Niles, IL 2,645 23,943
Brunswick Market Center, Brunswick, OH 247 13,705
Medina Marketplace, Medina, OH 4 9,515
Shakopee Valley, Shakopee, MN 12 14,712
Shops at Orchard Place, Skokie, IL (129) 42,623
Cub Foods, Hutchinson, MN 7 5,395
Mankato Heights, Mankato, MN (12) 15,090
Caton Crossing, Plainfield, IL 7 11,172
Village Ten, Coon Rapids, MN 0 15,104
Rochester Marketplace, Rochester, MN (7) 9,364
University Crossing, Mishawaka, IN 20 14,933
Total for Inland Real Estate Corporation $ 4,544 $ 269,230
======== ==========
II-31
PURCHASE PRICE MORTGAGE
NUMBER OF DATE OF PLUS ACQUISITION FINANCING AT DATE CASH DOWN
PROPERTY SQUARE FEET PURCHASE FEE OF PURCHASE PAYMENT
----------------------------------------------------------------------------------------------------------------------------------
INLAND RETAIL REAL ESTATE TRUST, INC.:
Columbia Promenade, Kissimmee, FL 65,870 01/01 7,440 - 7,440
K-Mart, Macon, GA 102,098 02/01 9,031 - 9,031
Lowe's Home Improvement Center, Warner Robbins, GA 131,575 02/01 9,431 - 9,431
West Oaks, Ocoee, FL 66,539 03/01 11,221 - 11,221
PETsMART - Chattanooga, Chattanooga, TN 26,040 04/01 3,103 - 3,103
PETsMART - Daytona Beach, Daytona Beach, FL 26,194 04/01 3,238 - 3,238
PETsMART - Fredricksburg, Fredricksburg, VA 26,067 04/01 3,410 - 3,410
Sand Lake Corners, Orlando, FL 189,741 05/01 22,256 - 22,256
Jo-Ann Fabrics, Alpharetta, GA 44,418 06/01 4,911 - 4,911
Woodstock Square, Atlanta, GA 218,819 06/01 27,596 - 27,596
Chickasaw Trails Shopping Center, Orlando, FL 75,492 08/01 8,631 - 8,631
Just for Feet - Daytona, Daytona Beach, FL 22,255 08/01 3,901 - 3,901
Skyview Plaza, Orlando, FL 281,247 09/01 21,332 - 21,332
Aberdeen Square, Boynton Beach, FL 70,555 10/01 6,717 - 6,717
Anderson Central, Anderson, SC 223,211 11/01 15,863 11,000 4,863
Brandon Blvd. Shoppes, Brandon, FL 85,377 11/01 9,482 - 9,482
Creekwood Crossing, Bradenton, FL 227,052 11/01 23,616 - 23,616
Eckerd Drug Store - Greenville, Greenville, SC 10,908 11/01 2,828 - 2,828
Abernathy Square, Atlanta, GA 131,649 12/01 24,131 - 24,131
Citrus Hills, Citrus Hills, FL 68,927 12/01 6,027 - 6,027
Douglasville Pavilion, Douglasville, GA 267,764 12/01 27,377 20,000 7,377
Eckerd Drug Store - Spartanburg, Spartanburg, SC 10,908 12/01 2,807 - 2,807
Fayetteville Pavilion, Fayetteville, NC 272,385 12/01 26,898 20,133 6,765
Southlake Pavilion, Morrow, GA 525,162 12/01 56,377 39,740 16,637
Steeplechase Plaza, Ocala, FL 87,380 12/01 8,647 - 8,647
Venture Pointev, Duluth, GA 334,620 12/01 26,533 13,334 13,199
Sarasota Pavilion, Sarasota, FL 324,140 01/02 42,100 - 42,100
OTHER CASH
EXPENDITURES TOTAL ACQUISITION
PROPERTY CAPITALIZED (A) COST(B)
-------------------------------------------------------------------------------------------
INLAND RETAIL REAL ESTATE TRUST, INC.:
Columbia Promenade, Kissimmee, FL (6) 7,434
K-Mart, Macon, GA - 9,031
Lowe's Home Improvement Center, Warner Robbins, GA - 9,431
West Oaks, Ocoee, FL 27 11,248
PETsMART - Chattanooga, Chattanooga, TN - 3,103
PETsMART - Daytona Beach, Daytona Beach, FL - 3,238
PETsMART - Fredricksburg, Fredricksburg, VA - 3,410
Sand Lake Corners, Orlando, FL (90) 22,166
Jo-Ann Fabrics, Alpharetta, GA - 4,911
Woodstock Square, Atlanta, GA (56) 27,540
Chickasaw Trails Shopping Center, Orlando, FL 14 8,645
Just for Feet - Daytona, Daytona Beach, FL 4 3,905
Skyview Plaza, Orlando, FL 624 21,956
Aberdeen Square, Boynton Beach, FL (30) 6,687
Anderson Central, Anderson, SC (111) 15,752
Brandon Blvd. Shoppes, Brandon, FL 5 9,487
Creekwood Crossing, Bradenton, FL 96 23,712
Eckerd Drug Store - Greenville, Greenville, SC (17) 2,811
Abernathy Square, Atlanta, GA 280 24,411
Citrus Hills, Citrus Hills, FL 191 6,218
Douglasville Pavilion, Douglasville, GA (156) 27,221
Eckerd Drug Store - Spartanburg, Spartanburg, SC 11 2,818
Fayetteville Pavilion, Fayetteville, NC 1,285 28,183
Southlake Pavilion, Morrow, GA 7,413 63,790
Steeplechase Plaza, Ocala, FL 457 9,104
Venture Pointev, Duluth, GA (149) 26,384
Sarasota Pavilion, Sarasota, FL 182 42,282
II-32
PURCHASE PRICE MORTGAGE
NUMBER OF DATE OF PLUS ACQUISITION FINANCING AT DATE CASH DOWN
PROPERTY SQUARE FEET PURCHASE FEE OF PURCHASE PAYMENT
----------------------------------------------------------------------------------------------------------------------------------
Turkey Creek Phase I, Knoxville, TN 284,224 01/02 21,762 - 21,762
Universal Plaza, Lauderhill, FL 49,816 01/02 9,872 - 9,872
Hairston Crossing, Decatur, GA 57,884 02/02 6,630 - 6,630
Just for Feet - Augusta, Augusta, GA 22,115 02/02 3,054 - 3,054
Just For Feet - Covington, Covington, LA 20,116 02/02 3,447 - 3,447
Logger Head Junction, Sarasota, FL 4,711 02/02 665 - 665
Shoppes of Golden Acres, Newport Richey, FL 76,371 02/02 10,831 - 10,831
Newnan Pavilion, Newnan, GA 481,004 03/02 33,114 - 33,114
Eisenhower Crossing I & II, Macon, GA 403,013 11/01,03/02 43,292 - 43,292
Acworth Avenue Retail Shopping Center, Acworth, GA 16,130 12/00,3/02 2,834 - 2,834
Crystal Springs Shopping Center, Crystal Springs, FL 67,021 04/02 7,478 - 7,478
Eckerd Drug Store - Concord, Concord, NC 10,908 04/02 2,039 - 2,039
Eckerd Drug Store - Tega Cay, Tega Cay, SC 13,824 04/02 2,544 - 2,544
Melbourne Shopping Center, Melbourne, FL 209,217 04/02 9,842 5,949 3,893
Riverstone Plaza, Canton, GA 302,024 04/02 31,943 - 31,943
Target Center, Columbia, SC 79,253 04/02 7,673 - 7,673
Hampton Point, Taylors, SC 58,316 05/02 4,526 - 4,526
Northpoint Marketplace, Spartanburg, SC 101,982 05/02 8,269 - 8,269
Oleander Shopping Center, Wilmington, NC 51,888 05/02 5,221 3,000 2,221
Sharon Greens, Cumming, GA 98,317 05/02 13,062 - 13,062
Bass Pro Outdoor World, Dania Beach, FL 165,000 06/02 18,220 - 18,220
Chesterfield Crossings, Richmond, VA, 68,898 06/02 10,982 - 10,982
Circuit City-Rome, Rome, GA 33,056 06/02 4,476 - 4,476
Circuit City-Vero Beach, Vero Beach, FL 33,243 06/02 5,648 - 5,648
Hillsboro Square, Deerfield Beach, FL 145,647 06/02 18,985 - 18,985
Stonebridge Square, Roswell, GA 160,104 06/02 19,529 - 19,529
Ward's Crossing, Lynchburg, VA 80,918 06/02 11,100 - 11,100
Circuit City Plaza, Orlando, FL 78,625 07/02 11,518 - 11,518
Eckerd Drug Store - Woodruff, Woodruff, SC 13,824 07/02 2,475 - 2,475
McFarland Plaza, Tuscaloosa, AL 221,807 07/02 15,259 - 15,259
OTHER CASH
EXPENDITURES TOTAL ACQUISITION
PROPERTY CAPITALIZED (A) COST(B)
-------------------------------------------------------------------------------------------
Turkey Creek Phase I, Knoxville, TN 10,181 31,943
Universal Plaza, Lauderhill, FL 2 9,874
Hairston Crossing, Decatur, GA 34 6,664
Just for Feet - Augusta, Augusta, GA 3 3,057
Just For Feet - Covington, Covington, LA - 3,447
Logger Head Junction, Sarasota, FL - 665
Shoppes of Golden Acres, Newport Richey, FL 101 10,932
Newnan Pavilion, Newnan, GA 2,623 35,737
Eisenhower Crossing I & II, Macon, GA (286) 43,006
Acworth Avenue Retail Shopping Center, Acworth, GA 16 2,850
Crystal Springs Shopping Center, Crystal Springs, FL (2) 7,476
Eckerd Drug Store - Concord, Concord, NC 156 2,195
Eckerd Drug Store - Tega Cay, Tega Cay, SC 544 3,088
Melbourne Shopping Center, Melbourne, FL 935 10,777
Riverstone Plaza, Canton, GA 243 32,186
Target Center, Columbia, SC 20 7,693
Hampton Point, Taylors, SC 55 4,581
Northpoint Marketplace, Spartanburg, SC (128) 8,141
Oleander Shopping Center, Wilmington, NC 12 5,233
Sharon Greens, Cumming, GA 79 13,141
Bass Pro Outdoor World, Dania Beach, FL 16 18,236
Chesterfield Crossings, Richmond, VA, 723 11,705
Circuit City-Rome, Rome, GA 6 4,482
Circuit City-Vero Beach, Vero Beach, FL 9 5,657
Hillsboro Square, Deerfield Beach, FL 2,565 21,550
Stonebridge Square, Roswell, GA 1,653 21,182
Ward's Crossing, Lynchburg, VA (76) 11,024
Circuit City Plaza, Orlando, FL - 11,518
Eckerd Drug Store - Woodruff, Woodruff, SC 374 2,849
McFarland Plaza, Tuscaloosa, AL 21 15,280
II-33
PURCHASE PRICE MORTGAGE
NUMBER OF DATE OF PLUS ACQUISITION FINANCING AT DATE CASH DOWN
PROPERTY SQUARE FEET PURCHASE FEE OF PURCHASE PAYMENT
----------------------------------------------------------------------------------------------------------------------------------
Sycamore Commons, Matthews, NC 256,523 07/02 38,184 - 38,184
Walk at Highwoods I, Tampa, FL 133,940 07/02 23,999 - 23,999
Eckerd Drug Store - Blackstock, Spartanburg, SC 10,908 08/02 2,723 - 2,723
Forestdale Plaza, Jamestown, NC 53,239 08/02 6,670 - 6,670
Sexton Commons, Fuquay Varina, NC 49,097 08/02 8,023 - 8,023
Shoppes at Lake Mary, Lake Mary, FL 69,843 08/02 11,140 - 11,140
Wakefield Crossing, Raleigh, NC 75,929 08/02 10,794 - 10,794
Circuit City-Cary, Cary, NC 27,891 09/02 5,650 - 5,650
Cox Creek, Florence, AL 173,934 09/02 19,231 15,287 3,944
Forest Hills Centre, Wilson, NC 73,280 09/02 6,675 - 6,675
Golden Gate, Greensboro, NC 153,114 10/02 10,545 - 10,545
Goldenrod Groves, Orlando, FL 108,944 10/02 9,177 - 9,177
City Crossing, Warner Robins, GA 187,099 11/02 14,644 - 14,644
Clayton Corners, Clayton, NC 125,656 11/02 14,994 9,740 5,254
CompUSA Retail Center, Newport News, VA 47,134 11/02 7,324 - 7,324
Duvall Village, Bowie, MD 82,522 11/02 13,046 - 13,046
Gateway Plaza - Jacksonville, Jacksonville, NC 101,682 11/02 11,865 - 11,865
Harundale Plaza, Glen Burnie, MD 274,160 11/02 24,752 - 24,752
Jones Bridge Plaza, Norcross, GA 83,363 11/02 7,525 - 7,525
Lakewood Ranch, Bradenton, FL 69,472 11/02 9,494 4,400 5,094
North Aiken Bi-Lo Center, Aiken, SC 59,204 11/02 5,816 - 5,816
Plant City Crossing, Plant City, FL 85,252 11/02 10,879 - 10,879
Presidential Commons, Snellville, GA 372,149 11/02 45,032 26,113 18,919
Rainbow Foods - Garland, Garland, TX 70,576 11/02 5,098 - 5,098
Rainbow Foods - Rowlett, Rowlett, TX 63,117 11/02 4,604 - 4,604
River Ridge, Birmingham, AL 158,755 11/02 26,492 - 26,492
Rosedale Shopping Center, Huntersville, NC 94,248 11/02 19,544 13,300 6,244
Shoppes on the Circle, Dothan, AL 149,085 11/02 15,013 12,210 2,803
Southlake Shopping Center, Cornelius, NC 131,247 11/02 13,633 7,962 5,671
Village Square at Golf, Boynton Beach, FL 134,894 11/02 18,537 - 18,537
OTHER CASH
EXPENDITURES TOTAL ACQUISITION
PROPERTY CAPITALIZED (A) COST(B)
-------------------------------------------------------------------------------------------
Sycamore Commons, Matthews, NC 3,077 41,261
Walk at Highwoods I, Tampa, FL 72 24,071
Eckerd Drug Store - Blackstock, Spartanburg, SC - 2,723
Forestdale Plaza, Jamestown, NC (114) 6,556
Sexton Commons, Fuquay Varina, NC (129) 7,894
Shoppes at Lake Mary, Lake Mary, FL 59 11,199
Wakefield Crossing, Raleigh, NC (182) 10,612
Circuit City-Cary, Cary, NC 4 5,654
Cox Creek, Florence, AL 31 19,262
Forest Hills Centre, Wilson, NC 11 6,686
Golden Gate, Greensboro, NC 23 10,568
Goldenrod Groves, Orlando, FL 741 9,918
City Crossing, Warner Robins, GA 3,204 17,848
Clayton Corners, Clayton, NC (5) 14,989
CompUSA Retail Center, Newport News, VA 5 7,329
Duvall Village, Bowie, MD 369 13,415
Gateway Plaza - Jacksonville, Jacksonville, NC (24) 11,841
Harundale Plaza, Glen Burnie, MD (40) 24,712
Jones Bridge Plaza, Norcross, GA 401 7,926
Lakewood Ranch, Bradenton, FL 39 9,533
North Aiken Bi-Lo Center, Aiken, SC 13 5,829
Plant City Crossing, Plant City, FL (16) 10,863
Presidential Commons, Snellville, GA 6 45,038
Rainbow Foods - Garland, Garland, TX 5 5,103
Rainbow Foods - Rowlett, Rowlett, TX 2 4,606
River Ridge, Birmingham, AL 79 26,571
Rosedale Shopping Center, Huntersville, NC (122) 19,422
Shoppes on the Circle, Dothan, AL 19 15,032
Southlake Shopping Center, Cornelius, NC (15) 13,618
Village Square at Golf, Boynton Beach, FL (263) 18,274
II-34
PURCHASE PRICE MORTGAGE
NUMBER OF DATE OF PLUS ACQUISITION FINANCING AT DATE CASH DOWN
PROPERTY SQUARE FEET PURCHASE FEE OF PURCHASE PAYMENT
----------------------------------------------------------------------------------------------------------------------------------
Chatham Crossing, Siler City, NC 32,000 12/02 3,964 - 3,964
Columbiana Station, Columbia, SC 270,649 12/02 46,615 - 46,615
Gateway Plaza - Conway, Conway, SC 62,428 12/02 6,295 - 6,295
Lakeview Plaza, Kissimmee, FL 54,788 12/02 6,187 3,613 2,574
Meadowmont Village Center, Chapel Hill, NC 133,471 12/02 26,808 - 26,808
Shoppes at Citiside, Charlotte, NC 75,478 12/02 9,706 - 9,706
Shoppes at New Tampa, Wesley Chapel, FL 158,342 12/02 19,196 - 19,196
Camp Hill Center, Harrisburg, PA 63,350 01/03 7,786 - 7,786
Eckerd Drug Store - #5018, Amherst, NY 10,908 01/03 2,805 1,582 1,223
Eckerd Drug Store - #5661, Buffalo, NY 12,732 01/03 3,145 1,777 1,368
Eckerd Drug Store - #5786, Dunkirk, NY 10,908 01/03 1,720 905 815
Eckerd Drug Store - #5797, Cheektowaga, NY 10,908 01/03 3,756 1,636 2,120
Eckerd Drug Store - #6007, Connelsville, PA 10,908 01/03 3,503 1,636 1,867
Eckerd Drug Store - #6036, Pittsburgh, PA 10,908 01/03 3,840 1,636 2,204
Eckerd Drug Store - #6040, Monroeville,PA 12,738 01/03 5,430 1,911 3,519
Eckerd Drug Store - #6043, Monroeville,PA 10,908 01/03 3,315 1,637 1,678
Eckerd Drug Store - #6062, Harborcreek, PA 10,908 01/03 2,527 1,418 1,109
Eckerd Drug Store - #6089, Weirton, WV 10,908 01/03 2,472 1,374 1,098
Eckerd Drug Store - #6095, Cheswick, PA 10,908 01/03 2,791 1,571 1,220
Eckerd Drug Store - #6172, New Castle,PA 10,908 01/03 2,877 1,636 1,241
Eckerd Drug Store - #6193, Erie, PA 10,908 01/03 2,919 1,636 1,283
Eckerd Drug Store - #6199, Millcreek, PA 10,908 01/03 3,729 1,637 2,092
Eckerd Drug Store - #6257, Millcreek, PA 10,908 01/03 1,444 640 804
Eckerd Drug Store - #6286, Erie, PA 10,908 01/03 4,193 1,601 2,592
Eckerd Drug Store - #6334, Erie, PA 10,908 01/03 2,997 1,636 1,361
Eckerd Drug Store - #6392, Penn, PA 10,908 01/03 2,949 1,636 1,313
Eckerd Drug Store - #6695, Plum Borough, PA 10,908 01/03 3,669 1,637 2,032
Eckerd Drug Store - Piedmont, Piedmont, SC 10,908 01/03 1,968 - 1,968
Market Square, Douglasville, GA 121,774 01/03 12,905 8,390 4,515
Springfield Park, Lawrenceville, GA 105,321 01/03 10,924 - 10,924
OTHER CASH
EXPENDITURES TOTAL ACQUISITION
PROPERTY CAPITALIZED (A) COST(B)
-------------------------------------------------------------------------------------------
Chatham Crossing, Siler City, NC 16 3,980
Columbiana Station, Columbia, SC 193 46,808
Gateway Plaza - Conway, Conway, SC - 6,295
Lakeview Plaza, Kissimmee, FL 19 6,206
Meadowmont Village Center, Chapel Hill, NC (581) 26,227
Shoppes at Citiside, Charlotte, NC 326 10,032
Shoppes at New Tampa, Wesley Chapel, FL (266) 18,930
Camp Hill Center, Harrisburg, PA 5 7,791
Eckerd Drug Store - #5018, Amherst, NY - 2,805
Eckerd Drug Store - #5661, Buffalo, NY - 3,145
Eckerd Drug Store - #5786, Dunkirk, NY - 1,720
Eckerd Drug Store - #5797, Cheektowaga, NY (1) 3,755
Eckerd Drug Store - #6007, Connelsville, PA - 3,503
Eckerd Drug Store - #6036, Pittsburgh, PA (1) 3,839
Eckerd Drug Store - #6040, Monroeville,PA (2) 5,428
Eckerd Drug Store - #6043, Monroeville,PA - 3,315
Eckerd Drug Store - #6062, Harborcreek, PA - 2,527
Eckerd Drug Store - #6089, Weirton, WV - 2,472
Eckerd Drug Store - #6095, Cheswick, PA - 2,791
Eckerd Drug Store - #6172, New Castle,PA - 2,877
Eckerd Drug Store - #6193, Erie, PA - 2,919
Eckerd Drug Store - #6199, Millcreek, PA (1) 3,728
Eckerd Drug Store - #6257, Millcreek, PA - 1,444
Eckerd Drug Store - #6286, Erie, PA (1) 4,192
Eckerd Drug Store - #6334, Erie, PA - 2,997
Eckerd Drug Store - #6392, Penn, PA - 2,949
Eckerd Drug Store - #6695, Plum Borough, PA - 3,669
Eckerd Drug Store - Piedmont, Piedmont, SC 5 1,973
Market Square, Douglasville, GA 787 13,692
Springfield Park, Lawrenceville, GA 5 10,929
II-35
PURCHASE PRICE MORTGAGE
NUMBER OF DATE OF PLUS ACQUISITION FINANCING AT DATE CASH DOWN
PROPERTY SQUARE FEET PURCHASE FEE OF PURCHASE PAYMENT
----------------------------------------------------------------------------------------------------------------------------------
Tequesta Shoppes Plaza, Tequesta, FL 109,937 01/03 11,439 - 11,439
Capital Crossing, Raleigh, NC 92,248 02/03 9,984 - 9,984
Colonial Promenade Bardmore Center, Largo, FL 152,667 02/03 17,151 - 17,151
Commonwealth Center II, Richmond, VA 165,382 02/03 22,278 - 22,278
Concord Crossing, Concord, NC 55,930 02/03 5,331 - 5,331
Fountains, Plantation, FL 408,807 02/03 44,412 - 44,412
Marketplace at Mill Creek, Buford, GA 398,407 02/03 50,118 - 50,118
Monroe Shopping Center, Monroe, NC 45,080 02/03 3,548 - 3,548
Oakley Plaza, Asheville, NC 118,727 02/03 9,469 - 9,469
Overlook at King of Prussia, King of Prussia, PA 186,980 02/03 57,045 30,000 27,045
Paraiso Plaza, Hialeah, FL 61,012 02/03 9,481 - 9,481
Publix Brooker Creek, Palm Harbor, FL 77,596 02/03 8,719 4,468 4,251
Sheridan Square, Dania, FL 67,425 02/03 7,586 - 7,586
Stonecrest Marketplace, Lithonia, GA 264,447 02/03 34,742 - 34,742
Suwanee Crossroads, Suwanee, GA 69,500 02/03 12,068 - 12,068
Windsor Court Shopping Center, Windsor Court, CT 78,480 02/03 14,639 - 14,639
Downtown Short Pump, Richmond, VA 125,553 03/03 33,515 - 33,515
Valley Park Commons, Hagerstown, MD 89,579 03/03 11,317 - 11,317
Eckerd - Perry Creek, Perry Creek, NC 10,908 09/02 2,795 - 2,795
Village Center, Mt. Pleasant, WI 217,103 03/03 23,987 - 23,987
Watercolor Crossing, Tallahassee, FL 43,200 03/03 5,485 - 5,485
Bi-Lo - Southern Pines, Southern Pines, NC 57,404 04/03 8,127 - 8,127
Creeks at Virginia Center, Richmond, VA 266,266 04/03 39,458 27,804 11,654
Flamingo Falls, Pembroke Pines, FL 108,565 04/03 23,946 - 23,946
Glenmark Shopping Center, Morgantown, WV 122,167 04/03 12,982 - 12,982
River Run, Miramar, FL 93,643 04/03 11,638 - 11,638
Westside Centre Shopping Center, Huntsville, AL 490,784 04/03 46,015 39,350 6,665
440 Commons, Jersey City, NJ 162,533 05/03 18,046 - 18,046
Barrett Pavilion, Kennesaw, GA 460,755 05/03 80,183 - 80,183
Bi-Lo - Asheville, Asheville, NC 54,319 05/03 7,727 - 7,727
OTHER CASH
EXPENDITURES TOTAL ACQUISITION
PROPERTY CAPITALIZED (A) COST(B)
-------------------------------------------------------------------------------------------
Tequesta Shoppes Plaza, Tequesta, FL (248) 11,191
Capital Crossing, Raleigh, NC 14 9,998
Colonial Promenade Bardmore Center, Largo, FL 45 17,196
Commonwealth Center II, Richmond, VA (133) 22,145
Concord Crossing, Concord, NC 5 5,336
Fountains, Plantation, FL - 44,412
Marketplace at Mill Creek, Buford, GA 50 50,168
Monroe Shopping Center, Monroe, NC 5 3,553
Oakley Plaza, Asheville, NC 4 9,473
Overlook at King of Prussia, King of Prussia, PA 15 57,060
Paraiso Plaza, Hialeah, FL 26 9,507
Publix Brooker Creek, Palm Harbor, FL 146 8,865
Sheridan Square, Dania, FL 23 7,609
Stonecrest Marketplace, Lithonia, GA (115) 34,627
Suwanee Crossroads, Suwanee, GA (69) 11,999
Windsor Court Shopping Center, Windsor Court, CT 10 14,649
Downtown Short Pump, Richmond, VA (147) 33,368
Valley Park Commons, Hagerstown, MD 12 11,329
Eckerd - Perry Creek, Perry Creek, NC (66) 2,729
Village Center, Mt. Pleasant, WI (33) 23,954
Watercolor Crossing, Tallahassee, FL - 5,485
Bi-Lo - Southern Pines, Southern Pines, NC (62) 8,065
Creeks at Virginia Center, Richmond, VA 1,608 41,066
Flamingo Falls, Pembroke Pines, FL - 23,946
Glenmark Shopping Center, Morgantown, WV 335 13,317
River Run, Miramar, FL (5) 11,633
Westside Centre Shopping Center, Huntsville, AL 2,035 48,050
440 Commons, Jersey City, NJ 9 18,055
Barrett Pavilion, Kennesaw, GA (51) 80,132
Bi-Lo - Asheville, Asheville, NC (1) 7,726
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PURCHASE PRICE MORTGAGE
NUMBER OF DATE OF PLUS ACQUISITION FINANCING AT DATE CASH DOWN
PROPERTY SQUARE FEET PURCHASE FEE OF PURCHASE PAYMENT
----------------------------------------------------------------------------------------------------------------------------------
Bi-Lo - Shelmore, Mt. Pleasant, SC 61,705 05/03 11,836 - 11,836
Bi-Lo - Sylvania, Sylvania, GA 36,000 05/03 4,407 - 4,407
Birkdale Village, Charlotte, NC 653,983 05/03 96,410 - 96,410
BJ'S Wholesale Club, Charlotte, NC 99,792 05/03 13,025 - 13,025
Brick Center Plaza, Brick, NJ 114,028 05/03 19,451 - 19,451
East Hanover Plaza, East Hanover, NJ 122,028 05/03 17,312 - 17,312
Eckerd Drug Store - #0234, Marietta, GA 10,880 05/03 2,044 1,161 883
Eckerd Drug Store - #0444, Gainesville, GA 10,594 05/03 1,986 1,129 857
Eckerd Drug Store - #0818, Ft. Worth, TX 10,908 05/03 2,691 1,540 1,151
Eckerd Drug Store - #0862, Wichita Falls, TX 9,504 05/03 2,087 1,203 884
Eckerd Drug Store - #0943, Richardson, TX 10,560 05/03 2,354 1,338 1,016
Eckerd Drug Store - #0963, Richardson, TX 10,560 05/03 2,313 1,316 997
Eckerd Drug Store - #0968, Wichita Falls, TX 9,504 05/03 1,837 1,036 801
Eckerd Drug Store - #0980, Dallas, TX 9,504 05/03 1,917 1,097 820
Eckerd Drug Store - #2320, Snellville, GA 10,594 05/03 2,230 1,271 959
Eckerd Drug Store - #2506, Dallas, TX 9,504 05/03 2,073 1,177 896
Eckerd Drug Store - #3072, Richland Hills, TX 10,908 05/03 2,663 1,521 1,142
Eckerd Drug Store - #3152, Lake Worth, TX 9,504 05/03 1,805 1,021 784
Eckerd Drug Store - #3169, River Oaks, TX 10,908 05/03 2,705 1,546 1,159
Eckerd Drug Store - #3192, Tyler, TX 9,504 05/03 1,495 845 650
Eckerd Drug Store - #3338, Kissimmee, FL 10,880 05/03 2,479 1,407 1,072
Eckerd Drug Store - #3350, Oklahoma City, OK 9,504 05/03 1,776 1,005 771
Eckerd Drug Store - #3363, Ft. Worth, TX 9,504 05/03 1,661 941 720
Eckerd Drug Store - #3449, Lawrenceville, GA 9,504 05/03 2,061 - 2,061
Eckerd Drug Store - #3528, Plano, TX 10,908 05/03 2,535 1,445 1,090
Edgewater Town Center, Edgewater, NJ 77,446 05/03 27,030 - 27,030
Goody's Shopping Center, Augusta, GA 22,560 05/03 2,051 - 2,051
Heritage Pavilion, Smyrna, GA 262,961 05/03 40,013 - 40,013
Hiram Pavilion, Hiram, GA 363,618 05/03 36,787 - 36,787
Killearn Shopping Center, Tallahassee, FL 94,547 05/03 10,945 4,041 6,904
OTHER CASH
EXPENDITURES TOTAL ACQUISITION
PROPERTY CAPITALIZED (A) COST(B)
-------------------------------------------------------------------------------------------
Bi-Lo - Shelmore, Mt. Pleasant, SC 10 11,846
Bi-Lo - Sylvania, Sylvania, GA 2 4,409
Birkdale Village, Charlotte, NC (897) 95,513
BJ'S Wholesale Club, Charlotte, NC 1 13,026
Brick Center Plaza, Brick, NJ 13 19,464
East Hanover Plaza, East Hanover, NJ 5 17,317
Eckerd Drug Store - #0234, Marietta, GA 4 2,048
Eckerd Drug Store - #0444, Gainesville, GA 4 1,990
Eckerd Drug Store - #0818, Ft. Worth, TX 4 2,695
Eckerd Drug Store - #0862, Wichita Falls, TX 4 2,091
Eckerd Drug Store - #0943, Richardson, TX 4 2,358
Eckerd Drug Store - #0963, Richardson, TX 4 2,317
Eckerd Drug Store - #0968, Wichita Falls, TX 4 1,841
Eckerd Drug Store - #0980, Dallas, TX 4 1,921
Eckerd Drug Store - #2320, Snellville, GA 4 2,234
Eckerd Drug Store - #2506, Dallas, TX 4 2,077
Eckerd Drug Store - #3072, Richland Hills, TX 4 2,667
Eckerd Drug Store - #3152, Lake Worth, TX 4 1,809
Eckerd Drug Store - #3169, River Oaks, TX 4 2,709
Eckerd Drug Store - #3192, Tyler, TX 4 1,499
Eckerd Drug Store - #3338, Kissimmee, FL 4 2,483
Eckerd Drug Store - #3350, Oklahoma City, OK 4 1,780
Eckerd Drug Store - #3363, Ft. Worth, TX 4 1,665
Eckerd Drug Store - #3449, Lawrenceville, GA 4 2,065
Eckerd Drug Store - #3528, Plano, TX 4 2,539
Edgewater Town Center, Edgewater, NJ 11 27,041
Goody's Shopping Center, Augusta, GA - 2,051
Heritage Pavilion, Smyrna, GA 4 40,017
Hiram Pavilion, Hiram, GA 1,559 38,346
Killearn Shopping Center, Tallahassee, FL 80 11,025
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PURCHASE PRICE MORTGAGE
NUMBER OF DATE OF PLUS ACQUISITION FINANCING AT DATE CASH DOWN
PROPERTY SQUARE FEET PURCHASE FEE OF PURCHASE PAYMENT
----------------------------------------------------------------------------------------------------------------------------------
Midway Plaza, Tamarac, FL 227,209 05/03 26,858 - 26,858
North Hill Commons, Anderson, SC 42,942 05/03 4,541 - 4,541
Sandy Plains Village, Roswell, GA 175,035 05/03 18,055 - 18,055
Shoppes at Paradise Pointe, Ft Walton Beach, FL 84,070 05/03 11,591 - 11,591
Sony Theatre Complex, East Hanover, NJ 70,549 05/03 12,068 - 12,068
Town & Country, Knoxville, TN 639,135 05/03 49,812 - 49,812
Village Crossing, Skokie, IL 427,722 05/03 69,443 - 69,443
West Falls Plaza, West Paterson, NJ 88,913 05/03 20,980 - 20,980
CostCo Plaza, White Marsh, MD 209,841 06/03 16,857 - 16,857
Denbigh Village Shopping Center, Newport News, VA 311,583 06/03 20,855 - 20,855
Shoppes at Lake Dow, McDonough, GA 73,271 06/03 11,014 - 11,014
Willoughby Hills Shopping Center, Willoughby Hills, OH 359,414 06/03 37,705 14,480 23,225
Cascades Marketplace, Sterling, VA 98,532 07/03 16,840 - 16,840
Fayette Pavilion III, Fayetteville, GA 619,856 07/03 46,308 - 46,308
Northlake Commons, Palm Beach Gardens, FL 143,955 07/03 21,643 - 21,643
Route 22 Retail Shopping Center, Union, NJ 110,453 07/03 19,054 11,355 7,699
Vision Works, Plantation, FL 6,891 07/03 1,732 - 1,732
Bellevue Place Shopping Center, Nashville, TN 77,249 08/03 10,884 - 10,884
Camfield Corners, Charlotte, NC 69,887 08/03 9,339 - 9,339
Kensington Place, Murfreesboro, TN 70,624 08/03 7,167 - 7,167
Largo Town Center, Upper Marlboro, MD 270,310 08/03 30,947 - 30,947
Naugatuck Valley Shopping Center, Waterbury, CT 383,332 08/03 50,452 - 50,452
Riverdale Shops, West Springfield, MA 273,928 08/03 42,055 - 42,055
Spring Mall Center, Springfield, VA 56,511 08/03 10,481 - 10,481
Walgreen's, Port Huron, MI 14,998 08/03 4,368 - 4,368
Bank First, Winter Park, FL 3,348 09/03 723 - 723
Carlisle Commons, Carlisle, PA 393,023 09/03 39,635 - 39,635
Circuit City - Culver City, Culver City, CA 32,873 09/03 8,781 - 8,781
Circuit City - Highland Ranch, Highland Ranch, CO 43,480 09/03 5,628 - 5,628
Circuit City - Olympia, Olympia, WA 35,776 09/03 5,632 - 5,632
OTHER CASH
EXPENDITURES TOTAL ACQUISITION
PROPERTY CAPITALIZED (A) COST(B)
-------------------------------------------------------------------------------------------
Midway Plaza, Tamarac, FL 265 27,123
North Hill Commons, Anderson, SC 1 4,542
Sandy Plains Village, Roswell, GA 84 18,139
Shoppes at Paradise Pointe, Ft Walton Beach, FL (94) 11,497
Sony Theatre Complex, East Hanover, NJ 5 12,073
Town & Country, Knoxville, TN 1,397 51,209
Village Crossing, Skokie, IL 6,001 75,444
West Falls Plaza, West Paterson, NJ 5 20,985
CostCo Plaza, White Marsh, MD 5 16,862
Denbigh Village Shopping Center, Newport News, VA (106) 20,749
Shoppes at Lake Dow, McDonough, GA (68) 10,946
Willoughby Hills Shopping Center, Willoughby Hills, OH 22 37,727
Cascades Marketplace, Sterling, VA 5 16,845
Fayette Pavilion III, Fayetteville, GA 2,540 48,848
Northlake Commons, Palm Beach Gardens, FL 523 22,166
Route 22 Retail Shopping Center, Union, NJ - 19,054
Vision Works, Plantation, FL 6 1,738
Bellevue Place Shopping Center, Nashville, TN 5 10,889
Camfield Corners, Charlotte, NC 2 9,341
Kensington Place, Murfreesboro, TN - 7,167
Largo Town Center, Upper Marlboro, MD 7 30,954
Naugatuck Valley Shopping Center, Waterbury, CT 8 50,460
Riverdale Shops, West Springfield, MA 34 42,089
Spring Mall Center, Springfield, VA 2 10,483
Walgreen's, Port Huron, MI 9 4,377
Bank First, Winter Park, FL 8 731
Carlisle Commons, Carlisle, PA 10 39,645
Circuit City - Culver City, Culver City, CA 4 8,785
Circuit City - Highland Ranch, Highland Ranch, CO 3 5,631
Circuit City - Olympia, Olympia, WA 3 5,635
II-38
PURCHASE PRICE MORTGAGE
NUMBER OF DATE OF PLUS ACQUISITION FINANCING AT DATE CASH DOWN
PROPERTY SQUARE FEET PURCHASE FEE OF PURCHASE PAYMENT
----------------------------------------------------------------------------------------------------------------------------------
Fayette Pavilion I & II, Fayetteville, GA 791,373 09/03 88,521 - 88,521
Kroger - Cincinnati, Cincinnati, OH 56,634 09/03 7,431 - 7,431
Kroger - Grand Prairie, Grand Prairie, TX 64,522 09/03 5,793 - 5,793
Kroger - Westchester, Westchester, OH 56,083 09/03 4,670 - 4,670
Lowe's Home Improvement - Baytown, Baytown, TX 125,357 09/03 11,478 - 11,478
Lowe's Home Improvement - Cullman, Cullman, AL 101,287 09/03 8,960 - 8,960
Lowe's Home Improvement - Houston, Houston, TX 131,644 09/03 12,050 - 12,050
Lowe's Home Improvement - Steubenville, Steubenville, OH 130,497 09/03 11,442 - 11,442
Southwood Plantation, Tallahassee, FL 62,700 10/02 7,738 - 7,738
Super Wal-Mart - Alliance, Alliance, OH 200,084 09/03 15,879 - 15,879
Super Wal-Mart - Greenville, Greenville, SC 200,084 09/03 16,971 - 16,971
Super Wal-Mart - Winston-Salem, Winston-Salem, NC 204,931 09/03 18,721 - 18,721
Eckerd - Gaffney, Gaffney, SC 13,813 12/02 2,374 - 2,374
Wal-Mart/Sam's Club, Worcester, MA 107,929 09/03 11,194 - 11,194
Bi-Lo at Northside Plaza, Greenwood, SC 41,581 10/03 4,069 - 4,069
Cedar Springs Crossing, Spartanburg, SC 86,581 10/03 10,191 - 10,191
Clearwater Crossing, Flowery Branch, GA 90,566 10/03 13,303 - 13,303
Cortez Plaza, Bradenton, FL 286,610 10/03 26,819 16,828 9,991
Houston Square, Warner Robins, GA 60,799 10/03 5,214 - 5,214
Lexington Place, Lexington, SC 83,167 10/03 8,481 - 8,481
Manchester Broad Street, Manchester, CT 68,509 10/03 13,119 - 13,119
Plaza Del Paraiso, Miami, FL 82,442 10/03 15,417 - 15,417
Seekonk Town Center, Seekonk, MA 80,713 10/03 11,068 - 11,068
Shoppes of Ellenwood, Ellenwood, GA 67,721 10/03 10,703 - 10,703
Shoppes of Lithia, Brandon, FL 71,430 10/03 12,926 - 12,926
Crossroads Plaza, Lumberton, NJ 89,627 11/03 18,232 - 18,232
Hilliard Rome, Columbus, OH 110,772 11/03 17,171 11,883 5,288
Loisdale Center, Springfield, VA 120,742 11/03 29,051 - 29,051
Middletown Village, Middletown, RI 98,161 11/03 17,871 - 17,871
Shoppes at Oliver's Crossing, Winston-Salem, NC 76,512 11/03 10,386 - 10,386
OTHER CASH
EXPENDITURES TOTAL ACQUISITION
PROPERTY CAPITALIZED (A) COST(B)
-------------------------------------------------------------------------------------------
Fayette Pavilion I & II, Fayetteville, GA (357) 88,164
Kroger - Cincinnati, Cincinnati, OH 3 7,434
Kroger - Grand Prairie, Grand Prairie, TX 7 5,800
Kroger - Westchester, Westchester, OH 3 4,673
Lowe's Home Improvement - Baytown, Baytown, TX 7 11,485
Lowe's Home Improvement - Cullman, Cullman, AL 3 8,963
Lowe's Home Improvement - Houston, Houston, TX 7 12,057
Lowe's Home Improvement - Steubenville, Steubenville, OH 3 11,445
Southwood Plantation, Tallahassee, FL 4 7,742
Super Wal-Mart - Alliance, Alliance, OH 3 15,882
Super Wal-Mart - Greenville, Greenville, SC 3 16,974
Super Wal-Mart - Winston-Salem, Winston-Salem, NC 3 18,724
Eckerd - Gaffney, Gaffney, SC 502 2,876
Wal-Mart/Sam's Club, Worcester, MA 3 11,197
Bi-Lo at Northside Plaza, Greenwood, SC - 4,069
Cedar Springs Crossing, Spartanburg, SC - 10,191
Clearwater Crossing, Flowery Branch, GA - 13,303
Cortez Plaza, Bradenton, FL 1,854 28,673
Houston Square, Warner Robins, GA - 5,214
Lexington Place, Lexington, SC - 8,481
Manchester Broad Street, Manchester, CT - 13,119
Plaza Del Paraiso, Miami, FL - 15,417
Seekonk Town Center, Seekonk, MA - 11,068
Shoppes of Ellenwood, Ellenwood, GA - 10,703
Shoppes of Lithia, Brandon, FL - 12,926
Crossroads Plaza, Lumberton, NJ - 18,232
Hilliard Rome, Columbus, OH 231 17,402
Loisdale Center, Springfield, VA - 29,051
Middletown Village, Middletown, RI - 17,871
Shoppes at Oliver's Crossing, Winston-Salem, NC - 10,386
II-39
PURCHASE PRICE MORTGAGE
NUMBER OF DATE OF PLUS ACQUISITION FINANCING AT DATE CASH DOWN
PROPERTY SQUARE FEET PURCHASE FEE OF PURCHASE PAYMENT
----------------------------------------------------------------------------------------------------------------------------------
Squirewood Village, Dandridge, TN 46,150 11/03 3,442 - 3,442
Waterfront Marketplace/Town Center, Homestead, PA 755,407 11/03 113,024 72,035 40,989
Winslow Bay Commons, Mooresville, NC 255,598 11/03 42,132 - 42,132
Albertson's at Bloomingdale Hills, Brandon, FL 78,686 12/03 5,856 - 5,856
Oak Summit, Winston-Salem, NC 142,739 12/03 13,666 - 13,666
Paradise Place, West Palm Beach, FL 69,620 12/03 11,688 - 11,688
Pointe at Tampa Plams, Tampa, FL 20,258 12/03 5,282 - 5,282
Southhampton Village, Tyrone, GA 77,900 11/02 10,610 - 10,610
Shoppes on the Ridge 91,165 12/02 11,422 - 11,422
-------------------------------------------------------------------------
Total for 2001 through 2003 acquisitions 29,573,733 3,653,755 497,556 3,156,199
=========================================================================
DEVELOPMENT PROJECTS
Fayette Pavilion III, Fayetteville, GA N/A 07/03 203 - 203
Fountains, Plantation, FL N/A 02/03 2,664 - 2,664
Hiram Pavilion, Hiram, GA N/A 05/03 695 - 695
Northlake Commons, Palm Beach Gardens, FL N/A 07/03 640 - 640
Redbud Commons Gastonia, NC N/A 06/03 5,101 - 5,101
Shoppes of Golden Acres II, Newport Richey, FL N/A 02/02 189 - 189
Southhampton Village, Tyrone, GA N/A 11/02 62 - 62
Southlake Pavilion, Morrow, GA N/A 12/01 702 - 702
Turkey Creek II, Knoxville, TN N/A 01/02 1,317 - 1,317
Watercolor Crossing, Tallahassee, FL N/A 03/03 1,028 - 1,028
Westside Center, Huntsville, AL N/A 04/03 4,888 - 4,888
-------------------------------------------------------------------------
Total for Development projects at 12/31/03 - 17,489 - 17,489
=========================================================================
-------------------------------------------------------------------------
GRAND TOTAL 31,875,622 3,935,930 529,516 3,406,414
=========================================================================
OTHER CASH
EXPENDITURES TOTAL ACQUISITION
PROPERTY CAPITALIZED (A) COST(B)
-------------------------------------------------------------------------------------------
Squirewood Village, Dandridge, TN - 3,442
Waterfront Marketplace/Town Center, Homestead, PA 4,694 117,718
Winslow Bay Commons, Mooresville, NC - 42,132
Albertson's at Bloomingdale Hills, Brandon, FL - 5,856
Oak Summit, Winston-Salem, NC - 13,666
Paradise Place, West Palm Beach, FL - 11,688
Pointe at Tampa Plams, Tampa, FL - 5,282
Southhampton Village, Tyrone, GA - 10,610
Shoppes on the Ridge - 11,422
----------------------------------
Total for 2001 through 2003 acquisitions 59,541 3,713,296
==================================
DEVELOPMENT PROJECTS
Fayette Pavilion III, Fayetteville, GA - 203
Fountains, Plantation, FL - 2,664
Hiram Pavilion, Hiram, GA - 695
Northlake Commons, Palm Beach Gardens, FL - 640
Redbud Commons Gastonia, NC - 5,101
Shoppes of Golden Acres II, Newport Richey, FL - 189
Southhampton Village, Tyrone, GA - 62
Southlake Pavilion, Morrow, GA - 702
Turkey Creek II, Knoxville, TN - 1,317
Watercolor Crossing, Tallahassee, FL - 1,028
Westside Center, Huntsville, AL - 4,888
----------------------------------
Total for Development projects at 12/31/03 - 17,489
==================================
----------------------------------
GRAND TOTAL 64,085 4,000,015
==================================
II-40
TABLE VL- (CONTINUED)
ACQUISITION OF PROPERTIES BY PROGRAMS
NOTES TO TABLE VI
(A) "Other Cash Expenditures Capitalized" consists of improvements to the
property and acquisition expenses which are capitalized and paid or to be paid
from the proceeds of the offering. As part of several purchases, rent is
received under master lease agreements on the spaces currently vacant for
periods ranging from one to two years or until the spaces are leased. As these
payments are received, they are recorded as a reduction in the purchase price of
the properties and have been netted against other cash expenditures capitalized.
(B) "Total Acquisition Cost" is the sum of columns captioned "Purchase Price
Plus Acquisition Fee" and "Other Cash Expenditures Capitalized.
II-41
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-11 and has duly caused this
Post-Effective Amendment No. 6 to its Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Oak Brook,
State of Illinois, on the 13th day of October, 2004.
INLAND WESTERN RETAIL REAL ESTATE TRUST, INC.
By:/s/ Robert D. Parks
-------------------------------------------
Robert D. Parks
President, Chief Executive Officer and
Chief Operating Officer
II-42
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Post-Effective Amendment No. 6 to the Registration Statement has been
signed by the following persons in the capacities and on the dates indicated.
NAME CAPACITY DATE
---- -------- ----
/s/ Robert D. Parks Chairman and Director October 13, 2004
---------------------------------------
Robert D. Parks
/s/ Steven P. Grimes Treasurer and Principal financial officer October 13, 2004
----------------------------------------
Steven P. Grimes
/s/ Lori J. Foust Principal accounting officer October 13, 2004
---------------------------------------
Lori J. Foust
/s/ Brenda G. Gujral Director October 13, 2004
----------------------------------------
Brenda G. Gujral
Independent Director October 13, 2004
------------------------------
Frank Catalano
Independent Director October 13, 2004
------------------------------
Ken Beard
Independent Director October 13, 2004
------------------------------
Paul R. Gauvreau
Independent Director October 13, 2004
------------------------------
Gerald M. Gorski
Independent Director October 13, 2004
------------------------------
Barbara A. Murphy
/s/ Roberta S. Matlin
---------------------------------------
* Signed on behalf of the named individuals by Roberta S. Matlin, under power of
attorney.
II-43