SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report: May 3, 1999
(Date of earliest event reported)
Inland Retail Real Estate Trust, Inc.
(Exact name of registrant as specified in the charter)
Maryland 333-64391 36-4246655
(State or other jurisdiction (Commission File No.) (IRS Employer
of incorporation) Identification No.)
2901 Butterfield Road
Oak Brook, Illinois 60523
(Address of Principal Executive Offices)
(630) 218-8000
(Registrant's telephone number including area code)
Not Applicable
(Former name or former address, if changed since last report)
-1-
We filed a Form 8-K on May 3, 1999, a Form 8-K on June 4, 1999 and a Form 8-K
on July 1, 1999 without the requisite financial information. Accordingly, we
are filing this Form 8-K/A.
Item 7. Financial Statements and Exhibits
Index to Financial Statements
Page
Pro Forma Consolidated Balance Sheet (unaudited)
at March 31, 1999................................................. F- 1
Notes to Pro Forma Consolidated Balance Sheet (unaudited)
at March 31, 1999................................................. F- 3
Pro Forma Consolidated Statement of Operations (unaudited)
of the Company for the three months ended March 31, 1999.......... F- 6
Notes to Pro Forma Consolidated Statement of Operations (unaudited)
for the three months ended March 31, 1999......................... F- 8
Pro Forma Consolidated Statement of Operations (unaudited)
of the Company for the year ended December 31, 1998............... F-10
Notes to Pro Forma Consolidated Statement of Operations (unaudited)
for the year ended December 31, 1998.............................. F-12
Lake Walden Square:
Independent Auditors' Report........................................ F-15
Historical Summary of Gross Income and Direct Operating Expenses
for the year ended December 31, 1998.............................. F-16
Notes to the Historical Summary of Gross Income and Direct
Operating Expenses for the year ended December 31, 1998........... F-17
Historical Summary of Gross Income and Direct Operating Expenses
(unaudited) for the three months ended March 31, 1999............. F-19
Notes to Historical Summary of Gross Income and Direct Operating
Expenses (unaudited) for the three months ended March 31, 1999.... F-20
Merchants Square Shopping Center:
Independent Auditors' Report........................................ F-21
Historical Summary of Gross Income and Direct Operating Expenses
for the year ended December 31, 1998.............................. F-22
Notes to the Historical Summary of Gross Income and Direct
Operating Expenses for the year ended December 31, 1998........... F-23
-2-
Historical Summary of Gross Income and Direct Operating Expenses
(unaudited) for the three months ended March 31, 1999............. F-25
Notes to the Historical Summary of Gross Income and Direct
Operating Expenses (unaudited) for the three months
ended March 31, 1999.............................................. F-26
Town Center Commons:
Independent Auditors' Report........................................ F-27
Historical Summary of Gross Income and Direct Operating Expenses
for the period from January 1, 1999 through March 31, 1999........ F-28
Notes to the Historical Summary of Gross Income and Direct
Operating Expenses for the period from January 1, 1999 through
March 31, 1999.................................................... F-29
-3-
SIGNATURE
Registrant has duly caused this report to be signed on its behalf by the
undersigned, hereunto duly authorized.
Inland Retail Real Estate Trust, Inc.
(Registrant)
By:/s/ BARRY L. LAZARUS
Barry L. Lazarus
President, Chief Operating Officer,
Treasurer and Chief Financial Officer
Date: July 15, 1999
-4-
Inland Retail Real Estate Trust, Inc.
Pro Forma Consolidated Balance Sheet
March 31, 1999
(unaudited)
The following unaudited Pro Forma Consolidated Balance Sheet is presented as if
the acquisition of the properties indicated in Note B had occurred on March 31,
1999.
This unaudited Pro Forma Consolidated Balance Sheet is not necessarily
indicative of what the actual financial position would have been at March 31,
1999, nor does it purport to represent our future financial position. Unless
otherwise defined, capitalized terms used herein shall have the same meaning as
in the Prospectus.
F-1
Inland Retail Real Estate Trust, Inc.
Pro Forma Consolidated Balance Sheet
March 31, 1999
(unaudited)
Pro Forma
Adjustments
-------------
(A) Property Pro Forma
Historical Acquisitions as adjusted
------------ ------------ ------------
Assets
- ------
Net investment in
properties(B)......... $ - 29,937,407 29,937,407
Cash..................... 206,732 96,462 303,194
Escrowed funds (A)....... 978,514 - 978,514
Deferred Offering costs.. 1,359,424 - 1,359,424
Other assets (E)......... - 334,288 334,288
------------ ------------ ------------
Total assets............. $ 2,544,670 30,368,157 32,912,827
============ ============ ============
Liabilities and Stockholders' Equity
- ------------------------------------
Accrued real estate taxes - 92,620 92,620
Security deposits........ - 65,243 65,243
Mortgages payable (D).... - 22,813,024 22,813,024
Liability for
subscriptions received. 978,514 - 978,514
Accounts payable......... 4,732 - 4,732
Accrued interest payable. - 301,463 301,463
Other liabilities........ - 66,149 66,149
Due to Affiliates........ 1,359,424 - 1,359,424
Minority interest in
partnership (C)........ 2,000 - 2,000
------------ ------------ ------------
Total liabilities........ 2,344,670 23,338,499 25,683,169
------------ ------------ ------------
Common Stock............. 200 8,239 8,439
Additional paid in
capital (net of
Offering costs)........ 199,800 7,021,419 7,221,219
------------ ------------ ------------
Total Stockholders'
equity................. 200,000 7,029,658(F) 7,229,658
------------ ------------ ------------
Total liabilities and
Stockholders' equity... $ 2,544,670 30,368,157 32,912,827
============ ============ ============
See accompanying notes to pro forma consolidated balance sheet.
F-2
Inland Retail Real Estate Trust, Inc.
Notes to Pro Forma Consolidated Balance Sheet
March 31, 1999
(unaudited)
(A) The historical column represents our Consolidated Balance Sheet as of March
31, 1999. We were formed on September 3, 1998. As of March 31, 1999,
subscriptions for a total of 97,851 Shares had been received from the
public at $10 per Share resulting in $978,514 in Gross Offering Proceeds.
Subscriber funds are currently held in an interest-bearing escrow account
until proceeds equal to the Minimum Offering have been received. As of May
3, 1999, we had sold Shares in excess of the Minimum Offering, accordingly,
proceeds of the Offering which had been in escrow were released to the
Company. In addition, we have received the Advisor's capital contribution
of $200,000 for which it was issued 20,000 Shares. As of March 31, 1999,
the Advisor advanced approximately $1,359,000 to us for costs incurred with
the Offering.
F-3
Inland Retail Real Estate Trust, Inc.
Notes to Pro Forma Consolidated Balance Sheet
March 31, 1999
(unaudited)
(continued)
(B) The pro forma adjustments reflect the acquisition of the following
properties:
Merchant Total
Lake Walden Square Town Center Property
Acquisition Acquisition Acquisition Acquisitions
------------ ------------- ------------ -------------
Assets
- ------
Net investment in
properties............. $14,538,984 5,742,042 9,656,381 29,937,407
Cash..................... - 96,462 - 96,462
Other assets (E)......... 278,396 55,892 - 334,288
------------ ------------- ------------ ------------
Total assets............. $14,817,380 5,894,396 9,656,381 30,368,157
============ ============= ============ ============
Liabilities and Stockholders' Equity
- ------------------------------------
Accrued real
estate taxes........... 43,585 27,035 22,000 92,620
Security deposits........ 38,712 7,088 19,443 65,243
Mortgages payable (D).... 10,933,971 4,279,053 7,600,000 22,813,024
Accrued interest payable. 301,463 - - 301,463
Other liabilities........ - - 66,149 66,149
------------ ------------- ------------ ------------
Total liabilities........ 11,317,731 4,313,176 7,707,592 23,338,499
------------ ------------- ------------ ------------
Common Stock............. 4,134 1,839 2,266 8,239
Additional paid in
capital (net of
Offering costs)........ 3,495,515 1,579,381 1,946,523 7,021,419
------------ ------------- ------------ ------------
Total Stockholders'
equity (F)............. 3,499,649 1,581,220 1,948,789 7,029,658
------------ ------------- ------------ ------------
Total liabilities and
Stockholders' equity... $14,817,380 5,894,396 9,656,381 30,368,157
============ ============= ============ ============
F-4
Inland Retail Real Estate Trust, Inc.
Notes to Pro Forma Consolidated Balance Sheet
March 31, 1999
(unaudited)
(continued)
(C) The Pro Forma Consolidated Balance Sheet includes the accounts of the
Operating Partnership in which the Company has an approximately 99%
controlling general partner interest. The Advisor owns the remaining
approximately 1% limited partnership common units in the Operating
Partnership for which it paid $2,000 and which is reflected as a minority
interest.
(D) Represents the first mortgage loans assumed in conjunction with the
acquisition of properties indicated in Note B. These mortgage loans with an
aggregate principal balance of approximately $22,000,000 are payable to
third parties at interest rates ranging from 7.0% to 7.6% per annum and
maturities ranging from April 2000 to November 2008. This also represents
debt payable to an affiliate with a principal balance of approximately
$800,000 which is payable at an interest rate of 10.9% per annum and
matures April 2000.
(E) Represents real estate tax and insurance escrows held.
(F) Additional offering proceeds of $8,239,000, net of offering costs of
$1,209,342 are reflected as received as of March 31, 1999. Offering costs
consist principally of registration costs, printing and selling costs,
including commissions.
F-5
Inland Retail Real Estate Trust, Inc.
Pro Forma Statement of Operations
For the three months ended March 31, 1999
(unaudited)
The following unaudited Pro Forma Statement of Operations is presented to
effect the acquisition of the properties indicated in Note B of the Notes to
the Pro Forma Statement of Operations as though they occurred on January 1,
1998.
This unaudited Pro Forma Statement of Operations is not necessarily indicative
of what the actual results of operations would have been for the three months
ended March 31, 1999, nor does it purport to represent our future financial
position. Unless otherwise defined, capitalized terms used herein shall have
the same meaning as in the Prospectus.
F-6
Inland Retail Real Estate Trust, Inc.
Pro Forma Statement of Operations
For the three months ended March 31, 1999
(unaudited)
Historical
------------ Pro Forma
Company Adjustment
(A) (B) Pro Forma
------------ ------------ -----------
Rental income.................. $ - 776,740 776,740
Operating expense and real
estate tax recoveries........ - 189,228 189,228
------------ ------------ -----------
Total income................... - 965,968 965,968
------------ ------------ -----------
Advisor asset management fee (C) - 74,868 74,868
Property operating expenses.... - 232,842 232,842
Management fee (G)............. - 43,985 43,985
Interest expense (H)........... - 428,092 428,092
Depreciation (D)............... - 220,914 220,914
------------ ------------ -----------
Total expenses................. - 1,000,701 1,000,701
-----------
Net loss applicable to
common shareholders (F)...... $ (34,733)
===========
Weighted average number of
shares of common stock
outstanding (E).............. 843,900
===========
Basic and diluted net loss
per weighted average
shares of common stock
outstanding (E).............. $ (.04)
===========
See accompanying notes to pro forma statement of operations.
F-7
Inland Retail Real Estate Trust, Inc.
Notes to Pro Forma Statement of Operations
For the three months ended March 31, 1999
(unaudited)
(A) Historical information is not applicable as we had no operations through
March 31, 1999.
(B) Total pro forma adjustments for acquisitions are as though they were
acquired January 1, 1998.
Lake Merchants Town Total
Walden Square Center Pro Forma
----------- ----------- ----------- -----------
Rental income........ $ 445,882 145,500 185,358 776,740
Additional rental
income............. 113,183 52,274 23,771 189,228
----------- ----------- ----------- -----------
Total income......... 559,065 197,774 209,129 965,968
----------- ----------- ----------- -----------
Advisor asset
management fee (C). 36,373 14,355 24,140 74,868
Property operating
expenses........... 139,665 51,797 41,380 232,842
Management fee (G)... 25,803 10,803 7,379 43,985
Interest expense (H). 214,458 80,232 133,402 428,092
Depreciation (D)..... 111,969 48,102 60,843 220,914
----------- ----------- ----------- -----------
Total expenses....... 528,268 205,289 267,144 1,000,701
----------- ----------- ----------- -----------
Net income (loss).... 30,797 (7,515) (58,015) (34,733)
=========== =========== =========== ===========
(C) The Advisor asset management fee has been calculated as 1% of the cost of
acquisition of the properties, prorated for the 3 months.
(D) Depreciation expense is computed using the straight-line method, based upon
an estimated useful life of thirty years for buildings and fifteen years
for improvements. The allocation of land, buildings and improvements was
based upon values stated in the related appraisal.
(E) The pro forma weighted average shares of common stock outstanding for the
three months ended March 31, 1999 was calculated by estimating 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) The net income (loss) allocable to the minority interest is immaterial, and
therefore, has been not included.
(G) Management fees are calculated as 4.5% of gross revenues.
F-8
Inland Retail Real Estate Trust, Inc.
Notes to Pro Forma Statement of Operations
For the three months ended March 31, 1999
(unaudited)
(H) As part of the acquisition of these properties, the Company assumed
existing debt. The pro forma adjustments relating to interest expense were
based on the following terms:
Lake Walden
Inland Retail Real Estate Trust, Inc. assumed the outstanding mortgage debt
related to Lake Walden Square of approximately $10,100,000 in connection
with the acquisition. The assumed debt, which originated October 30, 1997,
has an annual interest rate of 7.63% and requires monthly principal and
interest payments.
In addition, as part of the acquisition, the Company assumed a second
mortgage debt of approximately $800,000 with an interest rate of 10.9%.
Merchants Square
Inland Retail Real Estate Trust, Inc. assumed the outstanding mortgage debt
related to Merchants Square Shopping Center of approximately $4,300,000 in
connection with the acquisition. The assumed debt, which originated
October 9, 1998, has an annual interest rate of 7.5% and requires monthly
principal and interest payments.
Town Center
Inland Retail Real Estate Trust, Inc. assumed the outstanding mortgage
debts related to Town Center totaling approximately $7,600,000 in
connection with the acquisition. The assumed debts, which originated April
13, 1999, have annual interest rates ranging from 175 points over LIBOR
(currently 6.7%) to 7%.
F-9
Inland Retail Real Estate Trust, Inc.
Pro Forma Statement of Operations
For the year ended December 31, 1998
(unaudited)
The following unaudited Pro Forma Statement of Operations is presented to
effect the acquisition of the properties indicated in Note B of the Notes to
the Pro Forma Statement of Operations as though they occurred on January 1,
1998 except for Town Center which was completed late in the fourth quarter of
1998 and significant operations had not yet begun.
This unaudited Pro Forma Statement of Operations is not necessarily indicative
of what the actual results of operations would have been for the year ended
December 31, 1998, nor does it purport to represent our future financial
position. Unless otherwise defined, capitalized terms used herein shall have
the same meaning as in the Prospectus.
F-10
Inland Retail Real Estate Trust, Inc.
Pro Forma Statement of Operations
For the year ended December 31, 1998
(unaudited)
Historical
-------------
Pro Forma
Company Adjustment
(A) (B) Pro Forma
------------- ----------- ------------
Rental income................... $ - 2,218,261 2,218,261
Operating expense and real
estate tax recoveries......... - 480,267 480,267
------------- ----------- ------------
Total income.................... - 2,698,528 2,698,528
------------- ----------- ------------
Advisor asset management fee (E) - 202,915 202,915
Property operating expenses..... - 550,759 550,759
Management fee (G).............. - 123,156 123,156
Interest expense (H)............ - 1,191,775 1,191,775
Depreciation (C)................ - 640,298 640,298
------------- ----------- ------------
Total expenses.................. - 2,708,903 2,708,903
------------
Net loss applicable to
common shareholders (F)....... $ (10,375)
============
Weighted average number of
shares of common stock
outstanding (D)........ 843,900
============
Basic and diluted net loss
per weighted average
shares of common stock
outstanding (D)......... $ (.01)
============
See accompanying notes to pro forma statement of operations.
F-11
Inland Retail Real Estate Trust, Inc.
Notes to Pro Forma Statement of Operations
For the year ended December 31, 1998
(unaudited)
(A) Historical information is not applicable as we had no operations through
December 31, 1998.
(B) Total pro forma adjustments for acquisitions are as though they were
acquired January 1, 1998.
Lake Merchants Total
Walden Square Pro Forma
----------- ----------- -----------
Rental income............. $1,636,260 582,001 2,218,261
Additional rental income.. 307,229 173,038 480,267
----------- ----------- -----------
Total income.............. 1,943,489 755,039 2,698,528
----------- ----------- -----------
Advisor asset
management fee (E)...... 145,495 57,420 202,915
Property operating
expenses................ 381,443 169,316 550,759
Management fees (G)....... 87,975 35,181 123,156
Interest expense (H)...... 869,275 322,500 1,191,775
Depreciation (C).......... 447,882 192,416 640,298
----------- ----------- -----------
Total expenses............ 1,932,070 776,833 2,708,903
----------- ----------- -----------
Net income (loss)......... 11,419 (21,794) (10,375)
=========== =========== ===========
Acquisition of Lake Walden Square, Plant City, Florida
Reconciliation of Gross Income and Direct Operating Expenses for the year
ended December 31, 1998 prepared in accordance with Rule 3.14 of Regulation
S-X (*) to the Pro Forma Adjustments:
Lake Walden Square
------------------------------------
*As Pro Forma
Reported Adjustments Total
------------ ----------- -----------
Rental income............. $ 1,636,260 - 1,636,260
Additional rental income.. 307,229 - 307,229
------------ ----------- -----------
Total income.............. 1,943,489 - 1,943,489
------------ ----------- -----------
Advisor asset
management fee (E)...... - 145,495 145,495
Property operating
expenses................ 381,443 - 381,443
Management fees (G)....... 87,975 - 87,975
Interest expense (H)...... 782,075 87,200 869,275
Depreciation (C).......... - 447,882 447,882
------------ ----------- -----------
Total expenses............ 1,251,493 680,577 1,932,070
------------ ----------- -----------
Net income (loss)......... $ 691,996 (680,577) 11,419
============ =========== ===========
F-12
Inland Retail Real Estate Trust, Inc.
Notes to Pro Forma Statement of Operations
For the year ended December 31, 1998
(unaudited)
Acquisition of Merchants Square, Zephyrhills, Florida
Reconciliation of Gross Income and Direct Operating Expenses for the year
ended December 31, 1998 prepared in accordance with Rule 3.14 of Regulation
S-X (*) to the Pro Forma Adjustments:
Merchants Square
------------------------------------
*As Pro Forma
Reported Adjustments Total
------------ ----------- -----------
Rental income............. $ 582,001 - 582,001
Additional rental income.. 173,038 - 173,038
------------ ----------- -----------
Total income.............. 755,039 - 755,039
------------ ----------- -----------
Advisor asset
management fee (E)...... - 57,420 57,420
Property operating
expenses................ 169,316 - 169,316
Management fees (G)....... 35,181 - 35,181
Interest expense (H)...... 72,305 250,195 322,500
Depreciation (C).......... - 192,416 192,416
------------ ----------- -----------
Total expenses............ 276,802 500,031 776,833
------------ ----------- -----------
Net income (loss)......... $ 478,237 (500,031) (21,794)
============ =========== ===========
(C) Depreciation expense is computed using the straight-line method, based upon
an estimated useful life of thirty years for buildings and fifteen years
for improvements. The allocation of land, buildings and improvements is
based upon values stated in the related appraisal.
(D) The pro forma weighted average number of shares of common stock for the
year ended December 31, 1998 was calculated by estimating 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.
(E) The Advisor asset management fee has been calculated as 1% of the cost of
acquisition of the properties
(F) The net income (loss) allocable to the minority interest is immaterial, and
therefore, has been not included.
(G) Management fees were calculated at 4.5% of gross revenues.
F-13
Inland Retail Real Estate Trust, Inc.
Notes to Pro Forma Statement of Operations
For the year ended December 31, 1998
(unaudited)
(H) As part of the acquisition of these properties, the Company assumed
existing debt. The pro forma adjustments relating to interest expense were
based on the following terms:
Lake Walden
As part of the acquisition, the Company assumed a second mortgage debt of
approximately $800,000 with an interest rate of 10.9%.
Merchants Square
Inland Retail Real Estate Trust, Inc. assumed the outstanding mortgage debt
related to Merchants Square Shopping Center of approximately $4,300,000 in
connection with the acquisition. The assumed debt, which originated
October 9, 1998, has an annual interest rate of 7.5% and requires monthly
principal and interest payments.
F-14
Independent Auditors' Report
The Board of Directors
Inland Retail Real Estate Trust, Inc.:
We have audited the accompanying Historical Summary of Gross Income and Direct
Operating Expenses (Historical Summary) of Lake Walden Square for the year
ended December 31, 1998. This Historical Summary is the responsibility of the
management of Inland 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 generally accepted auditing
standards. 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 Current Report on Form 8-K/A of Inland Retail Real Estate
Trust, Inc., as described in note 2. The presentation is not intended to be a
complete presentation of Lake Walden Square'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 Lake Walden Square for the year ended December 31, 1998, in
conformity with generally accepted accounting principles.
KPMG LLP
Chicago, Illinois
July 2, 1999
F-15
Lake Walden Square
Historical Summary of Gross Income and Direct Operating Expenses
Year ended December 31, 1998
Gross income:
Base rental income.............................. $1,636,260
Operating expense and real estate
tax recoveries................................ 294,334
Percentage rent................................. 425
Other income.................................... 12,470
-----------
Total Gross Income.............................. 1,943,489
-----------
Direct operating expenses:
Operating expenses.............................. 173,592
Real estate taxes............................... 166,039
Utilities....................................... 30,914
Insurance....................................... 10,898
Management fees................................. 87,975
Interest expense................................ 782,075
-----------
Total direct operating expenses................. 1,251,493
-----------
Excess of gross income over
direct operating expenses..................... $ 691,996
===========
See accompanying notes to historical summary of gross income and direct
operating expenses.
F-16
Lake Walden Square
Notes to Historical Summary of Gross Income and Direct Operating Expenses
Year ended December 31, 1998
1. Business
Lake Walden Square (Lake Walden) is located in Plant City, Florida. It
consists of approximately 263,000 square feet of gross leasable area and
was 92% leased and occupied at December 31, 1998. Approximately 62% of
Lake Walden is leased to three tenants representing approximately 55% of
base rental income. An Affiliate of Inland Retail Real Estate Trust, Inc.
purchased Lake Walden from an unaffiliated third party (Seller) on behalf
of Inland Retail Real Estate Trust, Inc. on May 6, 1998. Inland Retail
Real Estate Trust, Inc. will acquire Lake Walden from this affiliate at
their cost upon receipt of proceeds from an equity offering.
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 Current Report on Form 8-K/A of Inland Retail Real Estate
Trust, Inc. and is not intended to be a complete presentation of Lake
Walden Square's revenues and expenses. The Historical Summary has been
prepared on the accrual basis of accounting and requires management of Lake
Walden Square 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.
3. Gross Income
Lake Walden leases retail space under various lease agreements with its
tenants. All leases are accounted for as operating leases. The leases
include provisions under which Lake Walden Square is reimbursed for common
area, real estate, insurance costs and management fees.
Base rentals are reported as income over the lease term as they become
receivable under the lease provisions. However, when rentals vary from a
straight-line basis due to short-term rent abatements or escalating rents
during the lease term, the income is recognized based on effective rental
rates. Related adjustments increased base rental income by $7,627 for the
year ended December 31, 1998.
F-17
Lake Walden Square
Notes to Historical Summary of Gross Income and Direct Operating Expenses
Year ended December 31, 1998
Minimum rents to be received from tenants under operating leases in effect
at December 31, 1998 are as follows:
Year Amount
---- ------
1999 $ 1,674,258
2000 1,623,155
2001 1,497,366
2002 1,314,614
2003 1,131,801
Thereafter 9,418,719
-----------
$16,659,913
===========
4. Direct Operating Expenses
Direct operating expenses include only those costs expected to be
comparable to the proposed future operations of Lake Walden. Costs such as
depreciation, amortization, professional fees and loan assumption fees are
excluded from the Historical Summary.
The seller provided management services for Lake Walden for an annual fee
of 4% of gross revenues (as defined) through May 6, 1998. Subsequent to
the sale of Lake Walden to the affiliate (note 1), a new management
agreement was executed with an annual management fee of 4.5% of gross
revenues (as defined).
Inland Retail Real Estate Trust, Inc. will assume the outstanding first
mortgage debt related to Lake Walden Square of approximately $10,100,000 in
connection with the acquisition. The assumed debt, which originated
October 30, 1997 and matures on November 1, 2007, has an annual interest
rate of 7.63% and requires monthly principal and interest payments.
In addition, Inland Retail Real Estate Trust, Inc. will assume a second
mortgage debt of approximately $800,000 in connection with the acquisition.
Within a short time thereafter, the debt will subsequently be paid off by
Inland Retail Real Estate Trust, Inc. and accordingly, the related interest
expense is excluded from the Historical Summary.
F-18
Lake Walden Square
Historical Summary of Gross Income and Direct Operating Expenses
Three months ended March 31, 1999
(unaudited)
Gross income:
Base rental income.............................. $ 445,882
Operating expense and real estate
tax and insurance recoveries.................. 113,183
-----------
Total Gross Income.............................. 559,065
-----------
Direct operating expenses:
Operating expenses.............................. 93,683
Management fees................................. 25,803
Real estate taxes............................... 43,585
Insurance....................................... 2,397
Interest expense................................ 214,458
-----------
Total direct operating expenses................. 379,926
-----------
Excess of gross income over
direct operating expenses..................... $ 179,139
===========
See accompanying notes to historical summary of gross income and direct
operating expenses.
F-19
Lake Walden Square
Notes to Historical Summary of Gross Income and Direct Operating Expenses
Three months ended March 31, 1999
(unaudited)
1. Basis of Presentation
The Historical Summary of Gross Income and Direct Operating Expenses for
the three months ended March 31, 1999 has been prepared from operating
statements provided by the owners of the property during that period and
requires management of Lake Walden Square to make estimates and assumptions
that affect the amounts of the revenues and expenses during that period.
Actual results may differ from those estimates.
In the opinion of management, all normal recurring adjustments necessary
for a fair presentation of results for the unaudited interim period
presented have been reflected. Certain information in footnote disclosures
included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted.
2. Inland Retail Real Estate Trust, Inc. will assume the outstanding mortgage
debt related to Lake Walden Square of approximately $10,100,000 in
connection with the acquisition. The assumed debt, which originated
October 30, 1997 and matures November 1, 2007, has an annual interest rate
of 7.63% and requires monthly principal and interest payments.
In addition, as part of the acquisition, the Company will assume a second
mortgage debt of approximately $800,000 with an interest rate of 10.9%.
F-20
Independent Auditors' Report
The Board of Directors
Inland Retail Real Estate Trust, Inc.:
We have audited the accompanying Historical Summary of Gross Income and Direct
Operating Expenses (Historical Summary) of Merchants Square Shopping Center for
the year ended December 31, 1998. This Historical Summary is the
responsibility of the management of Inland 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 generally accepted auditing
standards. 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 Current Report on Form 8-K/A of Inland Retail Real Estate
Trust, Inc., as described in note 2. The presentation is not intended to be a
complete presentation of Merchants Square Shopping Center'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 Merchants Square Shopping Center for the year ended December 31,
1998, in conformity with generally accepted accounting principles.
KPMG LLP
Chicago, Illinois
July 2, 1999
F-21
Merchants Square Shopping Center
Historical Summary of Gross Income and Direct Operating Expenses
Year ended December 31, 1998
Gross income:
Base rental income.............................. $ 582,001
Operating expense and real estate
tax recoveries................................ 171,468
Percentage rent................................. 576
Other income.................................... 994
-----------
Total Gross Income.............................. 755,039
-----------
Direct operating expenses:
Operating expenses.............................. 68,924
Real estate taxes............................... 90,572
Insurance....................................... 9,820
Management fees................................. 35,181
Interest expense................................ 72,305
-----------
Total direct operating expenses................. 276,802
-----------
Excess of gross income over
direct operating expenses..................... $ 478,237
===========
See accompanying notes to historical summary of gross income and direct
operating expenses.
F-22
Merchants Square Shopping Center
Notes to Historical Summary of Gross Income and Direct Operating Expenses
Year ended December 31, 1998
1. Business
Merchants Square Shopping Center (Merchants Square) is located in
Zephyrhills, Florida. It consists of approximately 74,850 square feet of
gross leasable area and was 100% leased and occupied at December 31, 1998.
Approximately 64% of Merchants Square is leased by one major tenant, Kash
N' Karry, representing approximately 55% of base rental income. An
Affiliate of Inland Retail Real Estate Trust, Inc. purchased Merchants
Square from an unaffiliated third party (Seller) on behalf of Inland Retail
Real Estate Trust, Inc. on October 9, 1998. Inland Retail Real Estate
Trust, Inc. will acquire Merchants Square from this affiliate at their cost
upon receipt of proceeds from equity offering.
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 Current Report on Form 8-K/A of Inland Retail Real Estate
Trust, Inc. and is not intended to be a complete presentation of Merchants
Square's revenues and expenses. The Historical Summary has been prepared
on the accrual basis of accounting and requires management of Merchants
Square 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.
3. Gross Income
Merchants Square leases retail space under various lease agreements with
its tenants. All leases are accounted for as operating leases. The leases
include provisions under which Merchants Square is reimbursed for common
area, real estate taxes, insurance costs and management fees. Certain of
the leases contain renewal options for various periods at various rental
rates.
Base rentals are reported as income over the lease term as they become
receivable under the lease provisions. However, when rentals vary from a
straight-line basis due to short-term rent abatements or escalating rents
during the lease term, the income is recognized based on effective rental
rates. Related adjustments decreased base rental income by $1,782 for the
year ended December 31, 1998.
F-23
Merchants Square Shopping Center
Notes to Historical Summary of Gross Income and Direct Operating Expenses
Year ended December 31, 1998
Minimum rents to be received from tenants under operating leases in effect
at December 31, 1998 are as follows:
Year Amount
---- ------
1999 $ 564,443
2000 536,668
2001 500,796
2002 481,711
2003 418,129
Thereafter 3,004,744
-----------
$ 5,506,491
===========
4. Direct Operating Expenses
Direct operating expenses include only those costs expected to be
comparable to the proposed future operations of Merchants Square. Costs
such as depreciation, amortization and professional fees are excluded from
the Historical Summary.
The Seller provided management services for Merchants Square for an annual
fee ranging from 4% to 6% of gross revenues (as defined) through October 9,
1998. Subsequent to the sale of Merchants Square to the affiliate (note
1), a new management agreement was executed with an annual management fee
of 4.5% of gross revenues (as defined).
Inland Retail Real Estate Trust, Inc. will assume the outstanding mortgage
debt related to Merchant Square of approximately $4,300,000 in connection
with the acquisition. The assumed debt which originated October 9, 1998
and matures November 1, 2008, has an annual interest rate of 7.5% payable
monthly for the first 12 months which can be adjusted to an annual interest
rate of 7.25% subsequently upon payment of scheduled principal payments.
5. Pro Forma Adjustment (unaudited)
The interest expense associated with the assumed debt discussed in note 4,
would have been approximately $322,500 if the related debt had been in
existence since January 1, 1998.
F-24
Merchants Square Shopping Center
Historical Summary of Gross Income and Direct Operating Expenses
Three months ended March 31, 1999
(unaudited)
Gross income:
Base rental income.............................. $ 145,500
Operating expense and real estate
tax and insurance recoveries.................. 52,274
-----------
Total Gross Income.............................. 197,774
-----------
Direct operating expenses:
Operating expenses.............................. 22,734
Management Fees................................. 10,803
Real estate taxes............................... 27,035
Insurance....................................... 2,028
Interest expense................................ 80,232
-----------
Total direct operating expenses................. 142,832
-----------
Excess of gross income over
direct operating expenses..................... $ 54,942
===========
See accompanying notes to historical summary of gross income and direct
operating expenses.
F-25
Merchants Square Shopping Center
Notes to Historical Summary of Gross Income and Direct Operating Expenses
Three months ended March 31, 1999
(unaudited)
1. Basis of Presentation
The Historical Summary of Gross Income and Direct Operating Expenses for the
three months ended March 31, 1999 has been prepared from operating
statements provided by the owners of the property during that period and
requires management of Merchants Square Shopping Center to make estimates
and assumptions that affect the amounts of the revenues and expenses during
that period. Actual results may differ from those estimates.
In the opinion of management, all normal recurring adjustments necessary for
a fair presentation of results for the unaudited interim period presented
have been reflected. Certain information in footnote disclosures included
in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted.
2. Inland Retail Real Estate Trust, Inc. will assume the outstanding mortgage
debt related to Merchant Square of approximately $4,300,000 in connection
with the acquisition. The assumed debt which originated October 9, 1998 and
matures November 1, 2008, has an annual interest rate of 7.5% payable
monthly for the first 12 months which can be adjusted to an annual interest
rate of 7.25% subsequently upon payment of scheduled principal payments.
F-26
Independent Auditors' Report
The Board of Directors
Inland Retail Real Estate Trust, Inc.:
We have audited the accompanying Historical Summary of Gross Income and Direct
Operating Expenses (Historical Summary) of Town Center Commons for the period
from January 1, 1999 through March 31, 1999. This Historical Summary is the
responsibility of the management of Inland 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 generally accepted auditing
standards. 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 Current Report on Form 8-K/A of Inland Retail Real Estate
Trust, Inc., as described in note 2. The presentation is not intended to be a
complete presentation of Town Center Commons' 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 Town Center Commons for the period from January 1, 1999 through
March 31, 1999, in conformity with generally accepted accounting principles.
KPMG LLP
Chicago, Illinois
July 2, 1999
F-27
Town Center Commons
Historical Summary of Gross Income and Direct Operating Expenses
For the period from January 1, 1999 through March 31, 1999
Gross income:
Base rental income.............................. $ 185,358
Operating expense and real estate
tax recoveries................................ 23,771
-----------
Total Gross Income.............................. 209,129
-----------
Direct operating expenses:
Operating expenses.............................. 15,522
Real estate taxes............................... 22,000
Utilities....................................... 1,053
Insurance....................................... 2,805
Management fees................................. 7,379
-----------
Total direct operating expenses................. 48,759
-----------
Excess of gross income over
direct operating expenses..................... $ 160,370
===========
See accompanying notes to historical summary of gross income and direct
operating expenses.
F-28
Town Center Commons
Notes to Historical Summary of Gross Income and Direct Operating Expenses
For the period from January 1, 1999 through March 31, 1999
1. Business
Town Center Commons (Town Center) is located in Kennesaw, Georgia. It
consists of approximately 72,100 square feet of gross leasable area and was
96% leased and occupied at March 31, 1999. Approximately 59% of Town
Center is leased to one tenant, J.C. Penney Home Store, representing
approximately 63% of base rental income. In addition, Town Center is also
anchored by an 80,000 square foot Gaylans which owns the land and building.
An affiliate of Inland Retail Real Estate Trust, Inc. purchased Town Center
from an unaffiliated third party (Seller) on behalf of Inland Retail Real
Estate Trust, Inc. on April 13, 1999. Inland Retail Real Estate Trust,
Inc. will acquire Town Center from this affiliate at their cost upon
receipt of proceeds from an equity offering.
Town Center was under development throughout the majority of 1998 with
significant property operations commencing January 1, 1999. As such, the
period from January 1, 1999 through March 31, 1999 represent the operating
results of the property subsequent to development and are expected to
approximate future anticipated operations.
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 Current Report on Form 8-K/A of Inland Retail Real Estate
Trust, Inc. and is not intended to be a complete presentation of Town
Center's revenues and expenses. The Historical Summary has been prepared
on the accrual basis of accounting and requires management of Town Center
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.
3. Gross Income
Town Center leases retail space under various lease agreements with its
tenants. All leases are accounted for as operating leases. The leases
include provisions under which Town Center is reimbursed for common area
costs, real estate taxes, insurance costs and management fees. Certain of
the leases contain renewal options for various periods at various rental
rates.
Base rentals are reported as income over the lease term as they become
receivable under the lease provisions. However, when rentals vary from a
straight-line basis due to short-term rent abatements or escalating rents
during the lease term, the income is recognized based on effective rental
rates. Related adjustments increased base rental income by $8,863 for the
three months ended March 31, 1999.
F-29
Town Center Commons
Notes to Historical Summary of Gross Income and Direct Operating Expenses
For the period from January 1, 1999 through March 31, 1999
Minimum rents to be received from tenants under operating leases in effect
at March 31, 1999 are as follows:
Year Amount
---- ------
1999 $ 719,058
2000 960,831
2001 960,831
2002 960,831
2003 945,498
Thereafter 2,955,083
-----------
$ 7,502,132
===========
4. Direct Operating Expenses
Direct operating expenses include only those costs expected to be
comparable to the proposed future operations of Town Center. Costs such as
interest expense, depreciation, amortization and professional fees are
excluded from the Historical Summary.
Town Center is managed pursuant to the terms of a management agreement for
an annual fee of 4% to 6% of gross revenues (as defined). Subsequent to
the sale of Town Center (note 1), the current management agreement will
cease. Any new management agreement may cause future management fees to
differ from the amounts reflected in the Historical Summary.
As Town Center was under development during 1998, the property is subject
to reassessment for real estate taxes. The amount included in the
financial statements represents management's best estimate of the 1999 real
estate tax liability.
5. Pro Forma Adjustment (unaudited)
Inland Retail Real Estate Trust, Inc. will assume the outstanding mortgage
debts related to Town Center of approximately $7,600,000 in connection with
the acquisition. The assumed debts which originated April 13, 1999 and
mature April 13, 2000, have annual interest rates ranging from 175 points
over LIBOR (currently 6.7%) to 7%.
The interest expense associated with the assumed debt would have been
approximately $33,000 if the related debt had been in existence since
January 1, 1999.
F-30
