SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For The Fiscal Year Ended December 31, 1999
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission File Number 333-64391
Inland Retail Real Estate Trust, Inc.
(Exact name of registrant as specified in its charter)
Maryland 36-4246655
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
2901 Butterfield Road, Oak Brook, Illinois 60523
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: 630-218-8000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class: Name of each exchange on which registered:
None None
Securities registered pursuant to Section 12(g) of the Act:
Title of each class: Name of each exchange on which registered:
None None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
As of March 23, 2000, the aggregate market value of the shares of common stock
held by non-affiliates of the registrant was approximately $65,793,967 (based on
the price for which each share was sold).
As of March 23, 2000, there were 6,637,978 shares of common stock outstanding.
-1-
INLAND RETAIL REAL ESTATE TRUST, INC.
(A Maryland corporation)
TABLE OF CONTENTS
Part I Page
------ ----
Item 1. Business...................................................... 3
Item 2. Properties.................................................... 8
Item 3. Legal Proceedings............................................. 9
Item 4. Submission of Matters to a Vote of Security Holders........... 9
Part II
-------
Item 5. Market for Registrant's Common Equity
and Related Stockholder Matters.............................. 10
Item 6. Selected Financial Data....................................... 14
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.......................... 17
Item 7(a) Quantitative and Qualitative Disclosures About Market Risk.... 20
Item 8. Consolidated Financial Statements and Supplementary Data...... 21
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.......................... 40
Part III
--------
Item 10. Directors and Executive Officers of the Registrant............ 40
Item 11. Executive Compensation........................................ 44
Item 12. Security Ownership of Certain Beneficial Owners and
Management................................................... 45
Item 13. Certain Relationships and Related Transactions................ 46
Part IV
-------
Item 14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K.................................................. 47
SIGNATURES............................................................. 49
-2-
PART I
Item 1. Business
General
Inland Retail Real Estate Trust, Inc. (the "Company") was formed as a Maryland
corporation on September 3, 1998.
On February 11, 1999, the Company commenced a public offering on a best efforts
basis of up to 50,000,000 shares of common stock (the "Shares") at $10.00 per
Share, subject to discounts in certain cases, and up to 4,000,000 Shares at
$9.50 per Share pursuant to the Company's Distribution Reinvestment Program
("DRP"), pursuant to a Registration Statement on Form S-11 under the Securities
Act of 1933, as amended. As of May 3, 1999, the Company had received and
accepted subscriptions for the minimum offering of 200,000 Shares or
$2,000,000. As of December 31, 1999, the Company had sold 5,370,632 Shares to
the public resulting in gross proceeds of $53,689,324 and an additional 43,207
Shares pursuant to the DRP for $410,465 of additional gross proceeds. In
addition, Inland Retail Real Estate Advisory Services, Inc. (the "Advisor")
purchased 20,000 Shares for $200,000 preceding the commencement of the
offering.
The Registration Statement also includes the Soliciting Dealer Warrants that
the Company will offer to sell to the Dealer Manager of the offering, at the
rate of one Soliciting Dealer Warrant (for a price of $.0008 per Warrant) for
each 25 Shares sold during the offering, up to a maximum of 2,000,000
Soliciting Dealer Warrants. Each Warrant will entitle the holder to purchase
one Share from the Company at a price of $12.00 per Share. As of December 31,
1999, the Dealer Manager had the right to purchase 214,223 Soliciting Dealer
Warrants, however none have been purchased as of December 31, 1999.
Description of Business
General
The Company was organized to acquire and manage a diversified portfolio of real
estate, primarily multi-tenant shopping centers. It is anticipated that the
Company will initially focus on acquiring properties in the southeastern
states, primarily Florida, Georgia, North Carolina and South Carolina. The
Company 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. Inland Retail Real Estate Advisory Services,
Inc. has been retained to manage, for a fee, the Company's day-to-day affairs,
subject to the supervision of the Company's Board of Directors.
As of December 31, 1999, the Company owned a portfolio of nine properties, each
a shopping center, located in Florida and Georgia and containing an aggregate
of approximately 1,440,500 square feet of gross leasable area ("GLA"). As of
December 31, 1999, approximately 98% of GLA in the properties was leased.
The Company is the general partner of Inland Retail Real Estate Limited
Partnership, an Illinois limited partnership (the "Operating Partnership"),
organized for the purpose of acquiring, developing, owning, operating,
improving, leasing, and otherwise managing for investment purposes, income
producing commercial properties on behalf of the Company.
-3-
The Company's headquarters are located at 2901 Butterfield Road, Oak Brook,
Illinois 60523 and its telephone number is (630) 281-8000.
Acquisition Strategies
The Company intends, through entities owned or controlled directly or
indirectly by the Company, to acquire and manage real estate primarily (i)
improved for use as retail establishments, principally multi-tenant shopping
centers, with GLA ranging from 10,000 to 300,000 square feet, but also
including single-user retail facilities; or (ii) improved with other commercial
facilities which provide goods or services (all of the foregoing, collectively
"Retail Centers" or individually a "Retail Center").
The Retail Centers will be located mainly in the states east of the Mississippi
River (the Company's "Primary Geographical Area of Investment"), but initially
will be focused in the southeastern states, primarily Florida, Georgia, North
Carolina and South Carolina. The Company may also, through entities owned or
controlled directly or indirectly by the Company, acquire, among other real
estate, single-user commercial properties located anywhere throughout the
United States if they are leased on a basis pursuant to which a creditworthy
tenant is responsible for the base rent and all costs and expenses in
connection with and related to property taxes, insurance, repairs and
maintenance applicable to the leased space (a "Triple-Net Lease Basis"),
including such properties acquired in sale and leaseback transactions ("Triple-
Net Single User Retail Properties Outside the Primary Geographical Area of
Investment"). The Retail Centers in the Primary Geographical Area of
Investment and the Triple-Net Single-User Retail Properties Outside the Primary
Geographical Area of Investment are collectively referred to as the Company's
"Primary Property Investments."
Each real property and improvements thereon acquired, or considered or proposed
to be acquired, by the Company, directly or indirectly, is referred to as a
"Property" and all of such properties are collectively referred to as the
"Properties."
Key elements of the Company's acquisition strategy include:
* Selectively acquiring diversified types and well-located Properties of
the type described as the Company's Primary Property Investments.
* Acquiring Properties usually on an all-cash basis to provide the
Company with a competitive advantage over potential purchasers who must
secure financing. The Company may, however, acquire Properties subject
to existing indebtedness if it believes this is in its best interest.
* Diversifying geographically within the Primary Geographical Area of
Investment by acquiring Properties primarily located in major
consolidated metropolitan statistical areas in order to minimize the
potential adverse impact of economic downturns in certain markets.
-4-
* Use the Company's UPREIT structure to acquire Properties for cash,
Shares, limited partnership interests ("LP Common Units") of the
Operating Partnership, preferred limited partnership interests of the
Operating Partnership ("LP Preferred Units") (LP Common Units and LP
Preferred Units are collectively referred to as "LP Units"), equity
interests ("Interests") in a Property Partnership (as defined below),
or a combination thereof, thereby deferring some or all of a seller's
potential taxable gain, and enhancing the ability of the Company to
consummate transactions and to structure more competitive acquisitions
than competitors that may lack the Company's ability to acquire
Properties for cash, Shares, LP Units, Interests, or a combination
thereof. A "Property Partnership" (collectively the "Property
Partnerships") may be an entity such as a limited liability company, a
general or limited partnership, or a trust, that owns one or more of
the Properties, and which will be owned or controlled directly or
indirectly by the Operating Partnership.
Operating Strategies
Key elements of the Company's operating strategy include:
* Actively managing costs and minimizing operating expenses by
centralizing all management, leasing, marketing, financing, accounting,
renovation and data processing activities.
* Improving rental income and cash flow by aggressively marketing
rentable space.
* Emphasizing regular maintenance and periodic renovation to meet the
needs of tenants and to maximize long-term returns.
* Maintaining a diversified tenant base at its Retail Centers, consisting
primarily of retail tenants providing consumer goods and services.
* In general, limiting mortgage indebtedness to an aggregate amount not
to exceed 55% of the combined fair market value of all of its
Properties, and aggregate borrowings to 300% of the Company's net
assets (which is defined to mean generally the Company's total assets
(other than intangibles) at cost, before deducting depreciation and
other non-cash reserves, less total liabilities, calculated at least
quarterly). The proceeds from any such borrowings will be used
primarily to allow the Company to acquire additional Properties. See
"-Financing Strategy." The anticipated amount of leverage will be
achieved over time; however, initially the aggregate borrowing on the
Properties will exceed 55% of their combined fair market value.
Investment Objectives
The Company's investment objectives are to: (i) make regular distributions to
its stockholders; (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 the Company to increase distributions
and realize capital appreciation; and (iii) preserve stockholders' capital. It
is the Company's policy to acquire Properties primarily for income as
distinguished from primarily for possible capital gain. There can be no
assurance that these investment objectives will be met.
-5-
Financing Strategy
Generally, the Company intends to acquire Properties free and clear of
permanent mortgage indebtedness by paying the entire purchase price of each
Property in cash or for Shares, LP Units, Interests, or a combination of the
foregoing. However, if it is determined to be in the best interest of the
Company, the Company will, in certain instances, incur indebtedness to acquire
Properties. With respect to Properties purchased on an all-cash basis (or for
Shares, LP Units, Interests, or a combination thereof), the Company may later
incur mortgage indebtedness by obtaining loans secured by selected Properties,
if favorable financing terms are available. The proceeds from such loans would
be used to acquire additional Properties. The Company may also incur
indebtedness to finance improvements to its Properties. The Company anticipates
that, in general, aggregate borrowings secured by all of the Company's
Properties will not exceed 55% of their combined fair market value. The
Company's Articles of Incorporation provide that the aggregate amount of
borrowing in relation to the Company's Net Assets shall, 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 shall be (i) approved by a majority of the Company's Independent
Directors, (ii) disclosed to stockholders in the Company's next quarterly
report to stockholders, along with justification for such excess, and (iii)
subject to approval of the stockholders.
Developments During the 1999 Fiscal Year
During 1999, the Company invested approximately $32,910,600 for the acquisition
of nine shopping centers purchased for an aggregate purchase price of
approximately $127,220,000, containing a total GLA of approximately 1,440,500
square feet. See Item 2 for a more detailed description of these properties.
Tax Status
The Company is qualified and has elected to be taxed as a REIT under Sections
856 through 860 of the Internal Revenue Code (the "Code"). So long as 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 95% of its
REIT taxable income to its shareholders. If the Company fails to qualify as a
REIT in any taxable year, the Company will be subject to Federal income tax
(including any applicable alternative minimum tax) on its taxable income at
regular corporate 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 to Federal income and excise taxes on its undistributed income.
Competition
In seeking new investment opportunities, the Company competes with other real
estate investors, including pension funds, insurance companies, foreign
investors, real estate partnerships, other real estate investment trusts,
private individuals and other domestic real estate companies, many of which
have greater financial and other resources than the Company. With respect to
Properties presently owned or to be owned by the Company, the Company competes
with other owners of like properties for tenants. There can be no assurance
that the Company will be able to successfully compete with such entities in its
development, acquisition and leasing activities in the future.
-6-
Business Risks
All real property investments are subject to some degree of risk. The Company
is subject to risks existing due to a concentration of any single tenant within
the portfolio. Currently, the largest tenant is Wal-Mart, which has one lease
totaling 204,170 square feet, or approximately 14% of the total GLA owned by
the Company. Annualized base rental income of this lease is projected to be
$1,104,559 for the year ended December 31, 2000, or approximately 9% of the
total annualized base income based on the Company's portfolio of Properties as
of December 31, 1999. The second largest tenant is Winn-Dixie, which has three
leases totaling 139,261 square feet, or approximately 10% of the total GLA
owned by the Company. Annualized base rental income of these three leases is
projected to be $1,072,200 for the year ended December 31, 2000, or
approximately 8% of the total annualized base rental income based on the
Company's portfolio of Properties as of December 31, 1999. The loss of these
tenants or any of the other major tenants of the Company or their inability to
pay rent could have an adverse effect on the Company's business.
Employees
As of December 31, 1999, the Company had one direct employee. The Company's
employees are not covered by a collective bargaining agreement and the Company
considers its employee relations to be satisfactory.
Financial Information About Industry Segments
The Company is in the business of owning, managing, operating, leasing,
acquiring, developing, investing in and disposing of shopping centers and free-
standing properties. The Company internally evaluates all properties as one
industry segment and accordingly will not report segment information.
-7-
Item 2. Properties
As of December 31, 1999, the Company, through separate limited partnerships or
limited liability companies, has acquired fee ownership of nine shopping
centers containing an aggregate of approximately 1,440,500 gross leasable
square feet located in Florida and Georgia.
<TABLE>
<CAPTION>
Amount of No. of
Gross Mortgages Tenants
Leasable Year Payable As of
Area Date Built/ at Dec. 31 Major
Property (Sq Ft) Acq. Renovated 12/31/99 1999 Tenants*
- --------------------------- -------- ------ --------- ----------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Lake Walden Square
Plant City, FL 262,491 05/99 1992 $10,049,869 31 Kash N' Karry Foods
K-Mart
Merchants Square
Zephyrhills, FL 74,849 06/99 1993 3,167,437 13 Kash N' Karry Foods
Fashion Bug
Town Center Commons
Kennesaw, GA 72,108 07/99 1998 7,258,000 11 JC Penney Home Store
Baptist Book Store
Boynton Commons
Boynton Beach, FL 210,552 07/99 1998 22,922,580 16 Sports Authority
Bed, Bath & Beyond
Barnes & Noble
Petsmart
Lake Olympia Square
Ocoee, FL 85,776 09/99 1995 5,902,166 20 Winn-Dixie
Tutor Time Child
Care Systems
Bridgewater Marketplace
Orlando, FL 58,050 09/99 1998 4,780,000 10 Winn-Dixie
Bartow Marketplace
Cartersville, GA 375,067 09/99 1995 18,375,000 17 Wal-Mart
Lowe's Home Center
Countryside Shopping Center
Naples, FL 73,965 10/99 1997 6,720,000 7 Winn-Dixie
Promedco of Southwest
Florida
Casselberry Commons
Casselberry, FL 227,664 12/99 1973/ 13,924,800 36 Ross Stores
1998 Publix
* Major tenants include tenants leasing more than 10% of the gross leasable area of a property.
See Schedule III on page 33 for initial property costs.
The majority of the income from the Properties consists of rent received under long-term leases. Most of the
leases provide for the payment of fixed minimum rent monthly in advance and for the payment by tenants of a
pro rata share of the real estate taxes, special assessments, insurance, utilities, common area maintenance,
management fees and certain building repairs of the shopping center. Certain of the major tenant leases
provide that the landlord is obligated to pay certain of these expenses above or below specific levels. Some
of the leases also provide for the payment of percentage rent calculated as a percentage of a tenant's gross
sales above predetermined thresholds.
</TABLE>
-8-
The following table lists the approximate physical occupancy levels for the
Company's investment properties as of the end of each quarter during 1999. N/A
indicates the property was not owned by the Company at the end of the quarter.
1999
-----------------------
at at at at
03/31 06/30 09/30 12/31
Properties (%) (%) (%) (%)
---------- ----- ----- ----- -----
Lake Walden Square N/A 93 93 94
Plant City, FL
Merchants Square N/A 100 100 100
Zephyrhills, FL
Town Center Commons N/A N/A 100 100
Kennesaw, GA
Boynton Commons N/A N/A 95 95*
Boynton Beach, FL
Lake Olympia Square N/A N/A 96 100
Ocoee, FL
Bridgewater Marketplace N/A N/A 97 92*
Orlando, FL
Bartow Marketplace N/A N/A 100 100
Cartersville, GA
Countryside Shopping Center N/A N/A N/A 98
Naples, FL
Casselberry Commons N/A N/A N/A 97*
Casselberry, FL
* As part of the purchase of some of these Properties, the Company receives
payments under master lease agreements on some of the space which was vacant
at the time of the purchase, which results in economic occupancy ranging from
95% to 100% at December 31, 1999 for each of these shopping centers. The
master lease agreements are for periods ranging from one to two years from
the purchase date or until the spaces are leased. The percentages in the
above table do not include unleased space covered by master lease agreements.
Item 3. Legal Proceedings
The Company is not subject to any material pending legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of security holders during the fourth
quarter of 1999.
-9-
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
Market Information
There is no established public trading market for the Company's shares of
common stock ("Shares").
The Company 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 ("DRP") will, subject to certain Share
ownership restrictions, allow stockholders who purchase Shares pursuant to the
Company's initial public offering (the "Offering") to automatically reinvest
distributions by purchasing additional Shares from the Company. Such purchases
under the DRP will not be subject to selling commissions or the marketing
contribution and due diligence expense allowance and, initially will be made at
a price of $9.50 per Share. That price will continue to be used until the
public offering price per Share in the Offering is increased from $10 per Share
(if it is ever increased) or until the termination of the Offering, whichever
first occurs. Thereafter, participants may acquire Shares under the DRP at a
price equal to 95% of the "market price" of a Share on the date of purchase
until such time (if ever) as the 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 then prevailing market price, and
will be sold to participants at that price.
The Share Repurchase Program ("SRP") may, subject to certain restrictions,
provide eligible stockholders with limited, interim liquidity by enabling them
to sell Shares back to the Company. The prices at which Shares may be sold back
to the Company are as follows:
* During the Offering period (which will end on February 11, 2001) at
$9.05 per Share;
* During the 12 months following the end of the Offering period at $9.25
per Share;
* During the next 12 months at $9.50 per Share;
* During the next 12 months at $9.75 per Share; and
* Thereafter, at the greater of: (i) $10 per Share; or (ii) a price equal
to 10 times the Company's "funds available for distribution" per
weighted average Share outstanding for the prior calendar year.
A stockholder must have beneficially held the Shares for at least one year
prior to offering them for sale to the Company through the SRP.
The Company will make repurchases under the SRP, if requested, at least once
quarterly on a first-come, first-served basis. Subject to funds being
available, the Company will limit the number of Shares repurchased during any
calendar year to one half of one percent (0.5%) of the weighted average number
of Shares outstanding during the prior calendar year. Funding for the SRP will
come exclusively from proceeds 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.
-10-
The Company's Board of Directors, at its sole discretion, may choose to
terminate the SRP after the end of the Offering period, or reduce the number of
Shares purchased under the SRP, 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 of Directors to eliminate or reduce the SRP will
require the unanimous affirmative vote of the Independent Directors.
The Company cannot guarantee that the funds set aside for the SRP will be
sufficient to accommodate all requests made each year. If no funds are
available for the SRP when repurchase is requested, the stockholder may: (i)
withdraw the request; or (ii) ask that the Company honor the request at such
time, if any, when funds are available. Such pending requests will be honored
on a first-come, first-served basis.
There is no requirement that stockholders sell their Shares to the Company.
The SRP 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 a merger with a listed company. No assurance can be given
that any such liquidity event will occur.
Shares purchased by the Company under the SRP will be canceled and will have
the status of authorized but unissued Shares. Shares acquired by the Company
through the SRP will not be reissued unless they are first registered with the
SEC under the Securities Act of 1933, as amended (the "Act") and under
appropriate state securities laws or otherwise issued in compliance with such
laws.
Stockholders
As of March 23, 2000, there were 2,012 stockholders of record of the Company.
Distributions
The Company has been paying monthly distributions since June 1999.
Distributions were initially set at the level of $.70 per Share per annum,
effective May 31, 1999, beginning with the distribution paid on June 7, 1999.
The distribution level was increased to $.73 per Share per annum, effective
July 1, 1999, beginning with the distribution paid on August 7, 1999. The
distribution level was increased to $.75 per Share per annum, effective
November 1, 1999, beginning with the distribution paid on December 7, 1999.
The Company declared distributions to stockholders totaling $.72 per weighted
average number of Shares outstanding during the year ended December 31,1999.
Of this amount, $.16 qualifies as distributions taxable as ordinary income for
1999 and $.56 constitutes a return of capital for federal income tax purposes.
-11-
Recent Sales of Unregistered Securities
In September 1998, Inland Retail Real Estate Advisory Services, Inc. ("the
Advisor") purchased from the Company 20,000 Shares for $10 per Share, for an
aggregate purchase price of $200,000, in connection with the Company's
organization. The Advisor also made a capital contribution to the Operating
Partnership in the amount of $2,000 in exchange for 200 LP Common Units of the
Operating Partnership. The 200 LP Common Units received by the Advisor may be
exchanged, at the option of the Advisor, for 200 Shares, subject to the
Company's option to pay cash in lieu of such Shares. No sales commission or
other consideration was paid in connection with such sales, which were
consummated without registration under the Act in reliance upon the exemption
from registration in Section 4(2) of the Act as transactions not involving any
public offering.
Use of Proceeds from Registered Securities
The Company has registered pursuant to a registration statement under the
Securities Act of 1933 (SEC File Number 333-64391) the offering on a best
efforts basis of 50,000,000 Shares at $10.00 per share, subject to discounts in
certain cases; up to 4,000,000 Shares at $9.50 per Share pursuant to the
Company's DRP; 2,000,000 Soliciting Dealer Warrants at $.0008 per Soliciting
Dealer Warrant; and 2,000,000 Shares issuable upon exercise of the Soliciting
Dealer Warrants at an exercise price of $12.00 per share (the "Offering"). The
Offering commenced on February 11, 1999 and has not terminated. The maximum
aggregate Offering price of the securities registered is $562,001,600. Inland
Securities Corporation, an affiliate of the Advisor, is the Dealer Manager of
the Offering.
As of December 31, 1999, the Company has sold the following securities for the
following aggregate offering prices:
* 5,370,632 Shares on a best efforts basis for $53,689,324;
* 43,207 Shares pursuant to the DRP for $410,465;
* -0- Soliciting Dealer Warrants; and
* -0- Shares pursuant to the exercise of Soliciting Dealer
Warrants,
* for a total of 5,413,839 Shares for $54,099,789 of
gross proceeds as of December 31, 1999.
The above-stated number of Shares sold and the gross offering proceeds received
from such sales do not include the 20,000 Shares purchased by the Advisor for
$200,000 preceding the commencement of the Offering.
-12-
From the February 11, 1999 effective date of the Offering through December 31,
1999 (the "Cumulative Period"), the following expenses have been incurred for
the Company's account in connection with the issuance and distribution of the
registered securities:
E=Estimated
Type of Expense Amount A=Actual
--------------- ------- -----------
Underwriting discounts and
commissions $ 4,786,547 A
Finders' fees -
Expenses paid to or for
underwriters -
Other expenses to affiliates 406,608 A
Other expenses to non-affiliates 2,863,904 A
-------------
Total expenses $ 8,057,059
The underwriting discounts and commissions, and the expenses paid to or for
underwriters, were paid to Inland Securities Corporation. Inland Securities
Corporation reallowed all or a portion of the commissions and expenses to
Soliciting Dealers.
Total expenses of $8,057,059 include $2,863,904 which were unpaid at December
31, 1999. The net offering proceeds to the Company for the Cumulative Period,
after deducting the total cash expenses paid described in the above table, are
$48,906,634.
For the Cumulative Period, the Company used the net offering proceeds as
follows:
Use of Proceeds Amount E=Estimated
--------------- ------ A=Actual
Construction of plant, building -----------
and facilities $ -
Purchases of real estate 32,910,559 A
Acquisition of other businesses -
Repayment of indebtedness 1,209,916 A
Working capital 663,399 E
Temporary investments 14,122,760 E
Other uses -
Of the amount used for purchases of real estate, $10,502,117 was paid to
affiliates of the Advisor in connection with the acquisition of properties
from such affiliates. Pending purchases of real estate, the Company temporarily
invested net offering proceeds in short-term interest bearing accounts.
-13-
Item 6. Selected Financial Data
INLAND RETAIL REAL ESTATE TRUST, INC.
(a Maryland corporation)
For the year ended December 31, 1999
(not covered by the Independent Auditors' Report)
1999
----
Total assets........................ $143,988,136
Mortgages payable................... $ 93,099,852
Total income........................ $ 6,030,093
Net income.......................... $ 167,996
Net income per common share, basic
and diluted (b)................... $ .07
Distributions declared.............. $ 1,396,861
Distributions per common share (b).. $ .72
Funds From Operations (b)(c)........ $ 1,397,319
Funds available for distribution (c) $ 1,449,161
Cash flows provided by operating
activities........................ $ 2,647,680
Cash flows used in investing
activities........................ $(34,426,975)
Cash flows provided by financing
activities........................ $ 46,446,459
Weighted average number of common
shares outstanding, basic and
diluted........................... 2,522,628
-14-
(a) The above selected financial data should be read in conjunction with the
consolidated financial statements and related notes appearing elsewhere
in this annual report.
(b) The net income and distributions per share are based upon the weighted
average number of common shares outstanding. The $.72 per share
distributions for the year ended December 31, 1999, represented 99.97% of
the Company's Funds From Operations ("FFO") and 96.39% of funds available
for distribution for that period. See Footnote (c) below for information
regarding the Company's calculation of FFO. Distributions by the Company
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 distributions
until the sale of the stockholder's shares. For the year ended December
31, 1999, $1,078,377 (or 77.2% of the $1,396,861 distributions declared
for 1999) represented a return of capital. The balance of the
distributions constitute ordinary income. In order to maintain its
qualification as a REIT, the Company must make annual distributions to
stockholders of at least 95% of its REIT taxable income, or approximately
$302,000 for 1999. REIT taxable income does not include net capital
gains. Under certain circumstances, the Company may be required to make
distributions in excess of cash available for distribution in order to
meet the REIT distribution requirements. Distributions are determined by
the Company's Board of Directors and are dependent on a number of
factors, including the amount of funds available for distribution, the
Company's financial condition, any decision by the Board of Directors to
reinvest funds rather than to distribute the funds, the Company's capital
expenditures, the annual distribution required to maintain REIT status
under the Code and other factors the Board of Directors may deem
relevant.
(c) One of the Company's objectives is to provide cash distributions to its
stockholders from cash generated by the Company's operations. Cash
generated from operations is not equivalent to the Company's net
operating income as determined under GAAP. Due to certain unique
operating characteristics of real estate companies, the National
Association of Real Estate Investment Trusts ("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 the Company. 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 property plus depreciation
on real property and amortization and after adjustments for
unconsolidated partnerships and joint ventures in which the REIT holds an
interest. The Company has adopted the NAREIT definition for computing
FFO because management believes that, subject to the following
limitations, FFO provides a basis for comparing the performance and
operations of the Company 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.
-15-
Consequently, the presentation of FFO by the Company 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 the
Company's performance nor to "Cash Flows from Operating Activities" as
determined by GAAP as a measure of the Company's capacity to pay
distributions. FFO and funds available for distribution are calculated as
follows:
1999
----
Net income........................... $ 167,996
Depreciation......................... 1,229,323
------------
Funds from operations (1)............ 1,397,319
Principal amortization of debt....... (109,916)
Deferred rent receivable (2)......... (135,116)
Acquisition cost expenses (3)........ 83,587
Income received under master
lease agreements and other
obligations (4).................... 213,287
------------
Funds available for distribution..... $ 1,449,161
============
(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 the Company's
operating performance or as an alternative to cash flow as a measure
of liquidity.
(2) Certain tenant leases contain provisions providing for stepped rent
increases. GAAP requires the Company to record rental income for
the period of occupancy using the effective monthly rent, which is
the average monthly rent for the entire period of occupancy during
the term of the lease.
(3) Acquisition cost expenses include costs and expenses relating to the
acquisition of properties. These costs were estimated to be up to
.5% of the gross Offering proceeds and were paid from the proceeds
of the Offering.
(4) As part of several purchases, the Company receives payments under
master lease agreements on some of the space which was vacant at the
time of the purchase, for periods ranging from one to two years from
the date of the purchase or until the spaces are leased. In
addition, the Company received payments from other escrow
arrangements. GAAP requires that as these payments are received,
they be recorded as a reduction in the purchase price of the
properties rather than as rental income.
-16-
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Certain statements in this "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and elsewhere in this annual report on
Form 10-K 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 the Company's 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, limitations on the area in which the
Company may acquire properties; risks associated with borrowings secured by the
Company's properties; competition for tenants and customers; federal, state or
local regulations; adverse changes in general economic or local conditions;
competition for property acquisitions with third parties that have greater
financial resources than the Company; inability of lessees to meet financial
obligations; uninsured losses; risks of failing to qualify as a REIT; and
potential conflicts of interest between the Company and its affiliates
including the Advisor.
Liquidity and Capital Resources
Cash and cash equivalents consists of cash and short-term investments. Cash
and cash equivalents, at December 31, 1999 were $14,869,164. The Company
intends to use cash and cash equivalents to pay offering costs, purchase
additional properties, pay distributions, retire debt and meet working capital
requirements.
As of December 31, 1999, the Company had acquired nine properties. The
properties owned by the Company are currently generating sufficient cash flow
to cover operating expenses of the Company plus pay a monthly distribution on
weighted average shares. Beginning November 1, 1999, the Company increased the
distributions paid to stockholders from $.73 per annum to $.75 per annum on
weighted average shares. Distributions declared for the year ended December
31, 1999 were $1,396,861, of which $1,078,377 represents a return of capital
for federal income tax purposes. Distributions are determined by the Company's
Board of Directors and are dependent on a number of factors, including the
amount of funds available for distribution, the Company's financial condition,
any decision by the Board of Directors to reinvest funds rather than to
distribute the funds, the Company's capital expenditures, the annual
distribution required to maintain REIT status under the Code and other factors
the Board of Directors may deem relevant.
Management of the Company monitors the various qualification tests the Company
must meet to maintain its status as a real estate investment trust. Large
ownership of the Company's stock is tested upon purchase to determine that no
more than 50% in value of the outstanding stock is owned directly, or
indirectly, by five or fewer persons or entities at any time. Management of the
Company also determines, on a quarterly basis, that the Gross Income, Asset and
Distribution Tests imposed by the REIT requirements are met. On an ongoing
basis, as due diligence is performed by the Advisor on potential real estate
purchases or temporary investment of uninvested capital, management determines
that the income from the new asset will qualify for REIT purposes.
-17-
Cash Flows From Operating Activities
Net cash provided by operating activities generated $2,647,680 for the year
ended December 31, 1999. This results from operations of the properties
acquired during 1999.
Cash Flows From Investing Activities
Cash flows from investing activities were utilized for the purchase of
investment properties.
Cash Flows From Financing Activities
For the year ended December 31, 1999, the Company generated $46,446,459 of cash
flows from financing activities. This was due primarily to proceeds raised of
$54,099,789 from the sale of Shares for the year ended December 31, 1999. The
Company's cash flow from financing activities was partially offset by the cash
used to pay costs associated with selling Shares. For the year ended December
31, 1999, the Company paid Offering costs totaling $5,193,155. In addition,
for the year ended December 31, 1999, the Company also paid distributions of
$1,065,394 and loan fees of $184,865.
The Advisor has guaranteed payment of all public offering expenses (excluding
selling commissions, the marketing contribution and the due diligence expense
allowance) in excess of 5.5% of the gross Offering proceeds or all organization
and offering expenses (including such selling expenses) which together exceed
15% of the gross Offering proceeds. As of December 31, 1999, organizational
and offering costs totaling $8,057,059 did not exceed these limitations and the
Company anticipates 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 weighted average annual interest rate on the mortgages payable outstanding
at December 31, 1999 was approximately 7.43%. See Note 7 of the Notes to
Consolidated Financial Statements (Item 8 of this annual report) for a
description of the terms of the mortgages payable.
Results of Operations
Through December 31, 1999, the Company had incurred a total of $8,057,059 for
costs incurred with the Offering, of which $2,863,904 remained unpaid.
Rental income, additional rental income, property operating expenses, mortgage
interest and depreciation are all a result of the operations from the nine
properties acquired during the second, third and fourth quarters of 1999.
-18-
Year 2000 Issues
As part of it's year 2000 readiness plan, the Company had identified three
areas for compliance efforts: business computer systems, tenants and suppliers
and non-information technology systems. The Company has not experienced and
does not anticipate experiencing any problems relating to year 2000 issues in
any of these areas. Total costs associated with year 2000 readiness were not
significant.
Subsequent Events
As of March 23, 2000, subscriptions for a total of 6,558,294 Shares were
received for total gross Offering proceeds of $65,570,938 and additional 79,684
Shares were issued pursuant to the DRP for $756,998 of additional gross
proceeds. Such 6,637,978 Shares and $66,327,936 of gross Offering proceeds do
not include 20,000 shares purchased by the Advisor for $200,000.
In January 2000, the Company paid a distribution of $331,467 to its
Stockholders. The Company paid a distribution of $361,625 and $370,972 to its
Stockholders in February and March, 2000, respectively.
On February 9, 2000, the Company purchased a shopping center known as Conway
Plaza from an unaffiliated third party for approximately $8,540,400, by paying
the entire purchase price in cash. The property is expected to be financed in
the future. The Company's wholly owned Florida limited liability company,
Inland Southeast Conway, L.L.C., owns the entire fee simple interest in Conway
Plaza. The property is located in Orlando, Florida and contains approximately
119,400 gross leasable square feet. Two tenants, Publix (a supermarket) and
Beall's Outlet Store (a discount department clothing store), each lease more
than 10% of the total gross leasable area of the property.
On behalf of the Company, the Advisor is currently exploring the purchase of
additional shopping centers from unaffiliated third parties.
On February 29, 2000, the Company decided to increase monthly distributions
from a rate of $.75 per share per annum to a rate of $.76 per share per annum.
The increase becomes effective April 1, 2000, and will be paid beginning May 7,
2000.
Impact of Accounting Principles
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities". This statement, effective for all fiscal
quarters of all fiscal years beginning after June 15, 2000, established
accounting and reporting standards requiring that every derivative instrument,
including certain derivative instruments imbedded in other contracts, be
recorded in the balance sheet as either an asset or liability measured at its
fair value. The statement also requires that the changes in the derivative's
fair value be recognized in earnings unless specific hedge accounting criteria
are met. Currently, the pronouncement has no impact on the Company, as the
Company has not utilized derivative instruments or entered into any hedging
activities.
On December 2, 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin ("SAB") 101 "Revenue Recognition in Financial Statements."
The staff 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 that SAB.
-19-
Inflation
For the Company's multi-tenant shopping centers, inflation is likely to
increase rental income from leases to new tenants and lease renewals, subject
to market conditions. The Company's 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 December 31, 1999, the
Company did not own any triple-net leased properties.
Item 7(a). Quantitative and Qualitative Disclosures About Market Risk
The Company is exposed to interest rate changes primarily as a result of its
long-term debt used to maintain liquidity and fund capital expenditures and
expansion of the Company's real estate investment portfolio and operations.
The Company's interest rate risk management objectives are to limit the impact
of interest rate changes on earnings and cash flows and to lower its overall
borrowing costs. To achieve its objectives the Company borrows 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. The Company
may enter into derivative financial instruments such as interest rate swaps,
caps and treasury locks in order to mitigate its interest rate risk on a
related financial instrument. The Company does not enter into derivative or
interest rate transactions for speculative purposes.
The Company's interest rate risk is monitored using a variety of techniques.
The table below presents the principal amounts and weighted average interest
rates by year of expected maturity to evaluate the expected cash flows and
sensitivity to interest rate changes.
2000 2001 2002 2003 2004
----------- ----------- ----------- ---------- -----------
Fixed rate debt..... $ 237,561 257,199 278,462 303,957 353,316
Average interest rate
on maturing debt.. - - - - -
Variable rate debt.. $22,219,880 6,720,000 - - 13,475,000
Average interest rate
on maturing debt.. 7.74% 7.15% - - 6.90%
The fair value of the Company's debt approximates its carrying amount.
Approximately $45,402,380, or 49% of the Company's mortgages payable at
December 31, 1999, have variable interest rates averaging 7.37%. An increase
in the variable interest rate on certain mortgages payable constitutes a market
risk.
-20-
Item 8. Consolidated Financial Statements and Supplementary Data
INLAND RETAIL REAL ESTATE TRUST, INC.
(a Maryland corporation)
Index
-----
Page
Independent Auditors' Report............................................. 22
Financial Statements:
Consolidated Balance Sheet, December 31, 1999.......................... 23
Consolidated Statement of Operations for the year ended
December 31, 1999.................................................... 25
Consolidated Statement of Stockholders' Equity for the year ended
December 31, 1999.................................................... 26
Consolidated Statement of Cash Flows for the year ended
December 31, 1999.................................................... 27
Notes to Consolidated Financial Statements............................. 29
Real Estate and Accumulated Depreciation (Schedule III).................. 38
Schedules not filed:
All schedules other than the one listed in the Index have been omitted as the
required information is inapplicable or the information is presented in the
financial statements or related notes.
-21-
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Inland Retail Real Estate Trust, Inc.:
We have audited the consolidated financial statements of Inland Retail Real
Estate Trust, Inc. (the Company) as listed in the accompanying index. In
connection with the 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 generally accepted auditing
standards. 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 Retail Real
Estate Trust, Inc. as of December 31, 1999 and the results of their operations
and their cash flows for the year ended December 31, 1999, in conformity with
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 15, 2000, except as
to Note 10 which is as of
March 23, 2000
-22-
INLAND RETAIL REAL ESTATE TRUST, INC.
(a Maryland corporation)
Consolidated Balance Sheet
December 31, 1999
Assets
------
Investment Properties (Note 4):
Land............................................ $ 33,260,261
Tenant improvement.............................. 201,418
Building and site improvements.................. 93,765,247
-------------
127,226,926
Less accumulated depreciation................... 1,226,910
-------------
Net investment properties......................... 126,000,016
Cash and cash equivalents......................... 14,869,164
Restricted cash (Note 1).......................... 1,246,889
Accounts and rents receivable (Note 6)............ 1,331,213
Real estate tax and insurance escrows............. 227,123
Furniture and equipment (net of accumulated
depreciation of $2,413)......................... 9,776
Loan fees (net of accumulated amortization of
$20,432)........................................ 164,433
Leasing fees (net of accumulated amortization of
$3,346)......................................... 34,106
Other assets...................................... 105,416
-------------
Total assets...................................... $143,988,136
=============
See accompanying notes to consolidated financial statements.
-23-
INLAND RETAIL REAL ESTATE TRUST, INC.
(a Maryland corporation)
Consolidated Balance Sheet
(continued)
December 31, 1999
Liabilities and Stockholders' Equity
------------------------------------
Liabilities:
Accounts payable................................ $ 74,094
Accrued offering costs due to affiliates (Note 3) 1,309,642
Accrued offering costs due to non-affiliates
(Note 3)....................................... 1,554,262
Accrued interest payable to non-affiliates...... 419,003
Distributions payable (Note 11)................. 331,467
Security Deposits............................... 232,370
Mortgages payable (Note 7)...................... 93,099,852
Unearned income................................. 9,585
Other liabilities............................... 1,359,209
Due to affiliates (Note 3)...................... 582,787
-------------
Total liabilities............................. 98,972,271
-------------
Minority interest in partnership................ 2,000
Stockholders' Equity:
Preferred Stock, $.01 par value, 10,000,000
shares authorized, none outstanding............ -
Common stock, $.01 par value, 100,000,000 Shares
authorized; 5,433,839 issued and outstanding
at December 31, 1999........................... 54,338
Additional paid-in capital (net of costs of
offering of $8,057,059 at December 31, 1999,
of which $5,193,155 was paid to affiliates).... 46,188,392
Accumulated distributions in excess of
net income.................................... (1,228,865)
-------------
Total stockholders' equity.................... 45,013,865
-------------
Commitments and contingencies (Notes 5, 6 and 10)
Total liabilities and stockholders' equity........ $143,988,136
=============
See accompanying notes to consolidated financial statements.
-24-
INLAND RETAIL REAL ESTATE TRUST, INC.
(a Maryland corporation)
Consolidated Statement of Operations
For the year ended December 31, 1999
Income:
Rental income (Notes 1 and 6)..... $ 4,339,614
Additional rental income.......... 1,452,868
Interest income................... 237,261
Other income...................... 350
-------------
6,030,093
-------------
Expenses:
Professional services to
affiliates...................... 22,878
Professional services to
non-affiliates.................. 53,966
General and administrative
expenses to affiliates.......... 144,638
General and administrative
expenses to non-affiliates...... 63,987
Property operating expenses to
affiliates...................... 203,235
Property operating expenses to
non-affiliates.................. 1,668,823
Mortgage interest to
non-affiliates.................. 2,365,854
Mortgage interest to affiliates... 2,028
Depreciation...................... 1,229,323
Amortization...................... 23,778
Acquisition cost expenses to
non-affiliates.................. 27,788
Acquisition cost expenses to
affiliates...................... 55,799
-------------
5,862,097
-------------
Net income.......................... $ 167,996
=============
Net income per common share, basic
and diluted....................... $ .07
=============
Weighted average number of common
shares outstanding, basic and
diluted........................... 2,522,628
=============
See accompanying notes to consolidated financial statements.
-25-
INLAND RETAIL REAL ESTATE TRUST, INC.
(a Maryland corporation)
Consolidated Statement of Stockholders' Equity
For the year ended December 31, 1999
Accumulated
Additional Distributions
Common Paid-in in excess of
Stock Capital net income Total
---------- ------------- ------------- ------------
Balance at January 1, 1999 $ 200 199,800 - 200,000
Net income................ - - 167,996 167,996
Distributions declared
($.72 per weighted
average number of common
shares outstanding)..... - - (1,396,861) (1,396,861)
Proceeds from Offering
including DRP (net of
Offering costs of
$8,057,059)............. 54,138 45,988,592 - 46,042,730
---------- ------------- ------------- ------------
Balance December 31, 1999. $ 54,338 46,188,392 (1,228,865) 45,013,865
========== ============= ============= =============
See accompanying notes to consolidated financial statements.
-26-
INLAND RETAIL REAL ESTATE TRUST, INC.
(a Maryland corporation)
Consolidated Statement of Cash Flows
For the year ended December 31, 1999
1999
Cash flows from operating activities: ----
Net income...................................... $ 167,996
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation.................................. 1,229,323
Amortization.................................. 23,778
Interest escrow............................... 41,178
Rental income under master lease.............. 172,109
Straight line rental income................... (135,116)
Changes in assets and liabilities:
Accounts and rents receivable............... (1,196,097)
Other assets................................ (105,416)
Real estate tax and insurance escrows....... (227,123)
Accrued interest payable to non-affiliates.. 419,003
Accounts payable............................ 74,094
Unearned income............................. 9,585
Other liabilities........................... 1,359,209
Security deposits........................... 232,370
Due to affiliates........................... 582,787
-------------
Net cash provided by operating activities......... 2,647,680
-------------
Cash flows from investing activities:
Restricted cash................................. (1,246,889)
Purchase of investment properties............... (32,910,559)
Furniture and equipment......................... (12,189)
Additions to investment properties.............. (219,886)
Leasing fees.................................... (37,452)
-------------
Net cash used in investing activities............. (34,426,975)
-------------
Cash flows from financing activities:
Proceeds from offering.......................... 54,099,789
Payment of offering costs....................... (5,193,155)
Principal payments of debt...................... (1,209,916)
Loan fees....................................... (184,865)
Distributions paid.............................. (1,065,394)
-------------
Net cash provided by financing activities......... 46,446,459
-------------
Net increase in cash and cash equivalents......... 14,667,164
Cash and cash equivalents at January 1, 1999...... 202,000
-------------
Cash and cash equivalents at end of year.......... $ 14,869,164
=============
See accompanying notes to consolidated financial statements.
-27-
INLAND RETAIL REAL ESTATE TRUST, INC.
(a Maryland corporation)
Consolidated Statement of Cash Flows
(continued)
For the year ended December 31, 1999
Supplemental schedule of noncash investing and financing activities:
Purchase of investment properties................. $127,220,327
Assumption of mortgage debt....................... 94,309,768
-------------
$ 32,910,559
=============
Distributions payable............................. $ 331,467
=============
Cash paid for interest............................ $ 1,948,879
=============
See accompanying notes to consolidated financial statements.
-28-
INLAND RETAIL REAL ESTATE TRUST, INC.
(a Maryland corporation)
Notes to Consolidated Financial Statements
For the year ended December 31, 1999
(1) Organization and Basis of Accounting
Inland Retail Real Estate Trust, Inc. (the "Company") was formed on September
3, 1998 to acquire and manage a diversified portfolio of real estate, primarily
multi-tenant shopping centers. It is anticipated that the Company will
initially focus on acquiring properties in the southeastern states, primarily
Florida, Georgia, North Carolina and South Carolina. The Company 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. Inland Retail Real Estate Advisory Services, Inc. (the
"Advisor"), an affiliate of the Company, is the advisor to the Company. On
February 11, 1999, the Company commenced an initial public offering
("Offering"), on a best efforts basis of 50,000,000 shares of common stock
("Shares") at $10 per Share and 4,000,000 Shares at $9.50 per Share which may
be distributed pursuant to the Company's Distribution Reinvestment Program
("DRP"). As of December 31, 1999, the Company had received subscriptions for a
total of 5,390,632 Shares. In addition the Company has distributed 43,207
Shares pursuant to the Company's DRP.
The Company is qualified and has elected to be taxed as a real estate
investment trust ("REIT") under section 856 through 860 of the Internal Revenue
Code of 1986. 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 95% 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 preparation of consolidated financial statements in conformity with
Generally Accepted Accounting Principle ("GAAP") requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the consolidated financial statements and the reported amounts of revenues and
expenses during the reporting periods. Actual results could differ from those
estimates.
Statement of Financial Accounting Standards No. 121 requires the Company to
record an impairment loss on its property to be held for investment whenever
its carrying value cannot be fully recovered through estimated undiscounted
future cash flows from operations and sale of properties. The amount of the
impairment loss to be recognized would be the difference between the property's
carrying value and the property's estimated fair value. As of December 31,
1999, the Company does not believe any such impairment of its properties
exists.
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.
-29-
INLAND RETAIL REAL ESTATE TRUST, INC.
(a Maryland corporation)
Notes to Consolidated Financial Statements
(continued)
For the year ended December 31, 1999
Depreciation expense is computed using the straight-line method. Buildings and
improvements are depreciated based upon estimated useful lives of 30 years and
15 years for the site improvements. Furniture and equipment is depreciated
over five years. Tenant improvements are amortized on a straight-line basis
over the life of the related leases.
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.
Offering costs are offset against the stockholders' equity accounts and consist
principally of printing, selling and registration costs.
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 sheet.
The Company believes that the interest rates associated with the mortgages
payable approximate the market interest rates for these types of debt
instruments, and as such, the carrying amount of the mortgages payable
approximate their fair value.
The carrying amount of cash and cash equivalents, restricted cash, accounts and
rents receivable, accounts payable and other liabilities, accrued offering
costs to affiliates and non-affiliates, accrued interest payable to non-
affiliates, accrued real estate taxes, distributions payable and due to
affiliates approximate fair value because of the relatively short maturity of
these instruments.
On December 2, 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin 101 "Revenue Recognition in Financial Statements." The
staff 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.
-30-
INLAND RETAIL REAL ESTATE TRUST, INC.
(a Maryland corporation)
Notes to Consolidated Financial Statements
(continued)
For the year ended December 31, 1999
(2) Basis of Presentation
The accompanying Consolidated Balance Sheet includes the accounts of the
Company, as well as the accounts of the operating partnership in which the
Company has an approximately 99% controlling general partner interest and all
wholly owned subsidiaries. The Advisor owns the remaining approximately 1%
limited partner common units in the operating partnership for which it paid
$2,000 and which is reflected as a minority interest in the accompanying
Consolidated Balance Sheet. The effect of all significant intercompany
transactions have been eliminated.
(3) Transactions with Affiliates
As of December 31, 1999, the Company had incurred $8,057,059 of offering costs,
of which $5,193,155 was paid to affiliates. Pursuant to the terms of the
Offering, the Advisor is required to pay organizational and offering expenses
(excluding sales commissions, the marketing contribution and the due diligence
expense allowance) in excess of 5.5% of the gross proceeds of the Offering
("Gross Offering Proceeds") or all organization and offering expenses
(including selling commissions) which together exceed 15% of Gross Offering
Proceeds. As of December 31, 1999, offering costs did not exceed the 5.5% and
15% limitations and the Company anticipates 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, a marketing contribution and a due diligence expense
allowance from the Company in connection with the Offering. Such costs are
offset against the Stockholders' equity accounts. During the year, such costs
totaled $4,786,547, of which $896,544 was unpaid at December 31, 1999.
The Advisor and its affiliates are entitled to reimbursement for salaries and
expenses of employees of the Advisor and its affiliates relating to the
administration of the Company. Such costs are included in professional
services to affiliates and general and administrative expenses to affiliates.
The Company incurred $683,055 of these costs, of which $549,089 remained
unpaid.
The Advisor has contributed $200,000 to the capital of the Company for which it
received 20,000 Shares.
-31-
The Advisor may receive an annual advisor asset management fee of not more than
1% of the Company's average invested assets, paid quarterly. For any year in
which the Company qualifies as a REIT, the Advisor must reimburse the Company:
(i) to the extent that the advisor asset management fee plus other operating
expenses paid during the previous calendar year exceed 2% of the Company's
average invested assets for the calendar year or 25% of the Company's net
income for that calendar year; and (ii) to the extent that stockholders have
not received an annual distribution equal to or greater than the 7% current
return. For the year ended December 31, 1999, the Company has neither paid nor
accrued such fees because the Advisor indicated that it would forego such fees.
The property manager, an entity owned principally by individuals who are
affiliates of the Advisor, is entitled to receive property management fees for
management and leasing services. The Company incurred and paid property
management fees of $225,665 for the year ended December 31, 1999, of which
$203,235 were retained by that property manager. The balance was paid to an
unaffiliated property manager.
(4) Stock Option Plan and Soliciting Dealer Warrants
The Company 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 commencing with the annual meeting in 2000 if the
Independent Director is a member of the board of directors on such date. The
options for the initial 3,000 Shares to be granted shall be 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 $9.05 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, and shall be $9.05 per Share
until the earlier of the termination of the Offering or February 11, 2001. As
of December 31, 1999, no options had been issued.
In addition to sales commissions, the dealer manager of the Offering ("an
affiliate of the Advisor") has the right to purchase one soliciting dealer
warrant for $.0008 for each 25 Shares sold by such soliciting dealer during the
Offering, subject to state and federal securities laws and subject to the
issuance of a maximum of 2,000,000 soliciting dealers warrants to purchase an
equivalent number of Shares. The dealer manager intends to reallow such
warrants to the soliciting dealers who sold such shares. The holder of a
soliciting dealer warrant will be entitled to purchase one Share from the
Company at a price of $12 during the period commencing one year from the date
of the first issuance of any of the soliciting dealer warrants and ending five
years after February 11, 1999. As of December 31, 1999, these warrants had no
value and none had been exercised.
(5) Investment Properties
An affiliate of the Company initially purchased seven of the investment
properties on behalf of the Company. The Company subsequently purchased each
property from this affiliate at their cost upon receipt of proceeds from the
offering.
-32-
INLAND RETAIL REAL ESTATE TRUST, INC.
(a Maryland corporation)
Notes to Consolidated Financial Statements
(continued)
Pro Forma Information (unaudited)
The Company acquired its investment properties at various times. The following
table sets forth certain summary unaudited pro forma operating data as if the
acquisitions had been consummated as of the beginning of the previous
respective period.
For the year
ended
December 31,
1999
----
Rental income......................... $ 11,802,456
Additional rental income.............. 3,396,268
Total revenues........................ 15,198,724
Property operating expenses........... 4,399,898
Total depreciation.................... 3,472,981
Total expenses........................ 16,013,522
Net loss.............................. 814,798
The unaudited pro forma operating data are presented for comparative purposes
only and are not necessarily indicative of what the actual results of
operations would have been for each of the periods presented, nor does such
data purport to represent the results to be achieved in future periods.
-33-
INLAND RETAIL REAL ESTATE TRUST, INC.
(a Maryland corporation)
Notes to Consolidated Financial Statements
(continued)
(6) Leases
Master Lease Agreements
In conjunction with certain acquisitions, the Company receives payments under
master lease agreements on some of the space which was vacant at the time of
the purchase, for periods ranging from one to two years after the date of the
purchase or until the spaces are leased. GAAP requires that as these payments
are received, they be recorded as a reduction in the purchase price of the
properties rather than as rental income. The cumulative amount of such payments
was $172,109 as of December 31, 1999.
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
-------------
2000...................................... $ 12,333,117
2001...................................... 11,594,784
2002...................................... 11,077,930
2003...................................... 10,380,568
2004...................................... 9,162,195
Thereafter................................ 86,706,242
-------------
Total..................................... $141,254,836
=============
Remaining lease terms range from one year to fifty-five 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 property. Such amounts are included in
additional rental income.
Certain tenant leases contain provisions providing for stepped rent increases.
GAAP requires the Company to record rental income for the period of occupancy
using the effective monthly rent, which is the average monthly rent for the
entire period of occupancy during the term of the lease. The accompanying
consolidated financial statements include $135,116 for the period ended
December 31, 1999, of rental income for the period of occupancy for which
stepped rent increases apply and $135,116 in the related accounts and rents
receivable as of December 31, 1999. The Company anticipates collecting these
amounts over the terms of the related leases as scheduled rent payments are
made.
-34-
INLAND RETAIL REAL ESTATE TRUST, INC.
(a Maryland corporation)
Notes to Consolidated Financial Statements
(continued)
(7) Mortgages Payable
Mortgages payable consist of the following at December 31, 1999:
Balance at
Property as Interest Maturity Monthly December 31,
Collateral Rate Date Payment 1999
- ------------- ---------- --------- -------------- -----------
Mortgages payable to non-affiliates:
Lake Walden Square 7.63% 11/2007 $ 72,584 (a) $ 10,049,869
Merchants Square 7.25% 11/2008 (b) 3,167,437
Town Center Commons 7.15% 04/2000 (c) 2,508,000
7.00% 04/2006 (b) 4,750,000
Boynton Commons* 8.23% 03/2000 (c) 7,797,580
7.21% 03/2006 (b) 15,125,000
Lake Olympia Square 8.25% 04/2007 50,978 (a) 5,902,166
Bridgewater Marketplace 7.15% 09/2000 (c) 1,792,500
7.15% 09/2006 (c) 2,987,500
Bartow Marketplace 6.90% 09/2000 (c) 4,900,000
6.90% 09/2004 (c) 13,475,000
Countryside Shopping
Center 7.15% 03/2001 (c) 6,720,000
Casselberry Commons* 8.30% 04/2000 (c) 5,221,800
7.64% 04/2006 (b) 8,703,000
-------------
$ 93,099,852
=============
(a) Payments include principal and interest.
(b) Payments include interest only at a fixed rate.
(c) Payments include interest only. Payments on these mortgages adjust monthly
and are calculated based on a floating rate over LIBOR.
* Certain of the mortgage payables are subject to guarantees, in which an
Affiliate of the Advisor has guaranteed payment on these notes to the
lender.
These mortgages are serviced by an Affiliate of the Advisor on behalf of
the Company. The Affiliate receives servicing fees at a market rate for
such services.
As of December 31, 1999, the required future principal payments on the
Company's mortgages payable over the next five years are as follows:
2000.................................... $ 22,457,441
2001.................................... 6,977,199
2002.................................... 278,462
2003.................................... 303,957
2004.................................... 13,828,316
-35-
INLAND RETAIL REAL ESTATE TRUST, INC.
(a Maryland corporation)
Notes to Consolidated Financial Statements
(continued)
The Company intends to retire its debt as it becomes due, however, in certain
individual cases some debt obligations may be restructured or partially
retired. These restructured or partial paydowns may occur if the Company's
lenders provide favorable terms.
(8) Segment Reporting
The Company owns and seeks to acquire multi-tenant shopping centers in the
Southeastern states, primarily Florida, Georgia, North Carolina, and South
Carolina. All of the Company's shopping centers are currently located within
Florida and Georgia. The Company's shopping centers are typically anchored by
grocery and drug stores 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.
The property revenues and net property operations are summarized in the
following tables as of and for the year ended December 31, 1999, along with a
reconciliation to net income.
1999
----
Total property revenues......... $ 5,792,482
Total property operating
expenses...................... 1,872,058
Mortgage interest................ 2,367,882
-------------
Net property operations.......... 1,552,542
-------------
Interest income.................. 237,261
Other income..................... 350
Less non property expenses:
Professional services.......... 76,844
General and administrative..... 292,212
Depreciation and amortization.. 1,253,101
-------------
Net income....................... $ 167,996
=============
Total Assets:
Shopping Centers............... $129,618,034
Non-segment assets............. 14,370,102
-------------
$143,988,136
=============
-36-
INLAND RETAIL REAL ESTATE TRUST, INC.
(a Maryland corporation)
Notes to Consolidated Financial Statements
(continued)
(9) Earnings per Share
Basic earnings per share ("EPS") is computed by dividing income available to
common stockholders by the weighted average number of common shares outstanding
for the period. Diluted EPS is computed by reflecting the potential dilution
that could occur if securities or other contracts to issue common stock were
exercised or converted into common stock or resulted in the issuance of common
stock that then shared in the earnings of the Company.
As of December 31, 1999, warrants to purchase 214,223 shares of common stock at
a price of $12.00 per share were outstanding, but were not included in the
computation of diluted EPS because the warrants exercise price was greater than
the average market prices of common shares.
The weighted average number of common shares outstanding were 2,522,628 for the
year ended December 31, 1999.
(10) Commitments & Contingencies
The Company is not subject to any material pending legal proceedings.
(11) Subsequent Events
As of March 23, 2000, subscriptions for a total of 6,558,294 Shares were
received for total gross Offering proceeds of $65,570,938 and additional 79,684
Shares were issued pursuant to the DRP for $756,998 of additional gross
proceeds. Such 6,637,978 Shares and $66,327,936 of gross Offering proceeds do
not include 20,000 shares purchased by the Advisor for $200,000.
In January 2000, the Company paid a distribution of $331,467 to its
Stockholders. The Company paid a distribution of $361,625 and $370,972 to its
Stockholders in February and March, 2000, respectively.
On February 9, 2000, the Company purchased a shopping center known as Conway
Plaza from an unaffiliated third party for $8,540,363, by paying the entire
purchase price in cash. The property is expected to be financed in the future.
The Company's wholly owned Florida limited liability company, Inland Southeast
Conway, L.L.C., owns the entire fee simple interest in Conway Plaza. The
property is located in Orlando, Florida. Two tenants, Publix (a supermarket)
and Beall's Outlet Store (a discount department clothing store), each lease
more than 10% of the total gross leasable area of the property.
On February 29, 2000, the Company decided to increase monthly distributions
from a rate of $.75 per share per annum to a rate of $.76 per share per annum.
The increase becomes effective April 1, 2000, and will be paid beginning May 7,
2000.
-37-
<TABLE> INLAND RETAIL REAL ESTATE TRUST, INC.
(a Maryland corporation)
Schedule III
Real Estate and Accumulated Depreciation
December 31, 1999
<CAPTION> Initial Cost Gross amount at which carried
(A) at end of period (B)
------------------------ --------------------------------------------------
Buildings Adjustments Buildings Accumulated
and to and Total Depreciation
Encumbrance Land Improvements Basis (C) Land Improvements (D) (E)
Multi-tenant Retail ------------ ----------- ------------ ------------ ----------- ------------ ----------- -------------
- -------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Lake Walden Square
Plant City, FL....... 10,049,869 3,006,662 11,549,586 26,378 3,006,662 11,575,964 14,582,626 303,471
Merchants Square
Zephyrhills, FL...... 3,167,437 992,225 4,749,818 12,619 992,225 4,762,437 5,754,662 110,827
Town Center Commons
Kennesaw, GA......... 7,258,000 3,293,792 6,350,835 24,718 3,293,792 6,375,553 9,669,345 122,074
Boynton Commons
Boynton Beach, FL.... 22,922,580 8,698,355 21,803,370 (44,855) 8,698,355 21,758,515 30,456,870 328,364
Lake Olympia Square (C)
Ocoee, FL............ 5,902,166 2,567,471 7,306,483 (35,992) 2,567,471 7,270,491 9,837,962 90,823
Bridgewater Marketplace
Orlando, FL.......... 4,780,000 783,492 5,221,618 (566) 783,492 5,221,052 6,004,544 61,300
Bartow Marketplace
Cartersville, GA..... 18,375,000 6,098,178 18,308,271 236 6,098,178 18,308,507 24,406,685 162,734
Countryside
Naples, FL........... 6,720,000 1,117,428 7,478,173 6,893 1,117,428 7,485,066 8,602,494 47,317
Casselberry Commons
Casselberry, FL...... 13,924,800 6,702,658 11,191,912 17,168 6,702,658 11,209,080 17,911,738 -
------------ ----------- ------------ ------------ ----------- ------------ ----------- -------------
Totals................. 93,099,852 33,260,261 93,960,066 6,599 33,260,261 93,966,665 127,226,926 1,226,910
============ =========== ============ ============ =========== ============ =========== =============
<CAPTION> Date
Con-
stru- Date
cted Acq
Multi-tenant Retail ---- -----
- -------------------
<S> <C> <C>
Lake Walden Square
Plant City, FL....... 1992 05/99
Merchants Square
Zephyrhills, FL...... 1993 06/99
Town Center Commons
Kennesaw, GA......... 1998 07/99
Boynton Commons
Boynton Beach, FL.... 1998 07/99
Lake Olympia Square (C)
Ocoee, FL............ 1995 09/99
Bridgewater Marketplace
Orlando, FL.......... 1998 09/99
Bartow Marketplace
Cartersville, GA..... 1995 09/99
Countryside
Naples, FL........... 1997 10/99
Casselberry Commons
Casselberry, FL...... 1973/ 12/99
1998
</TABLE>
-38-
-38-
INLAND RETAIL REAL ESTATE TRUST, INC.
(a Maryland corporation)
Schedule III (continued)
Real Estate and Accumulated Depreciation
December 31, 1999
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, 1999 for federal
income tax purposes was approximately $127,253,000 (unaudited).
(C) Adjustments to basis include additions to investment properties net of
payments received under master lease agreements. As part of several
purchases, the Company will receive rent under master lease agreements
on the spaces currently vacant for periods ranging from one to two years
or until the spaces are leased. GAAP requires that as these payments
are received, they be recorded as a reduction in the purchase price of
the properties rather than as rental income.
(D) Reconciliation of real estate owned:
1999
-------------
Balance at beginning of year $ -
Purchases of property....... 127,220,327
Additions................... 219,886
Payments received under
master leases and other
obligations............... (213,287)
-------------
Balance at end of year...... $127,226,926
=============
(E) Reconciliation of accumulated depreciation:
Balance at beginning of year $ -
Depreciation expense........ 1,226,910
-------------
Balance at end of year...... $ 1,226,910
=============
-39-
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
There were no disagreements with the Company's accountants or other reportable
events during 1999.
PART III
Item 10. Directors and Executive Officers of the Registrant
Officers and Directors
The Company's current officers and directors and their positions and offices
with the Company are as follows:
Robert D. Parks......... Chairman, Chief Executive Officer and Affiliated
Director
Barry L. Lazarus........ President, Chief Operating Officer, Treasurer,
Chief Financial Officer and Affiliated Director
Daniel K. Deighan....... Independent Director
Michael S. Rosenthal.... Independent Director
Kenneth E. Masick....... Independent Director
Roberta S. Matlin....... Vice President - Administration
Steven D. Sanders....... Vice President - Acquisitions
Samuel A. Orticelli..... Secretary
The Inland Group, Inc. ("Inland"), a Delaware corporation, together with its
subsidiaries and its and their affiliates (collectively, the "Inland Affiliated
Companies" or the "Inland Organization"), is a fully integrated real estate
company providing property management, leasing, marketing, acquisition,
disposition, development, redevelopment, syndication, renovation, construction,
finance and other related services. Inland Real Estate Investment Corporation,
a Delaware corporation ("IREIC"), a subsidiary of Inland, and one of the Inland
Affiliated Companies, is the sponsor and organizer of the Company. Inland
Retail Real Estate Advisory Services, Inc., an Illinois corporation (the
"Advisor" to the Company), is a wholly owned subsidiary of IREIC. Inland
Securities Corporation ("ISC"), another of the Inland Affiliated Companies, is
the Dealer Manager of the Company's Offering. ISC was formed in 1984 and is
qualified to do business as a securities broker-dealer throughout the United
States. Since its formation, ISC has provided the marketing function for
distribution of the investment products sponsored by IREIC. ISC does not
render such services to anyone other than the Inland Affiliated Companies. The
senior management of the Company includes executives of the Inland Affiliated
Companies named above.
-40-
ROBERT D. PARKS (age 56) has been Chairman, Chief Executive Officer and
Affiliated Director of the Company since its formation in 1998. Mr. Parks has
been with Inland and its affiliates since 1968 and is one of the four original
principals of Inland. He is a Director of Inland; Chairman of IREIC; Chairman
of the Board and President of the Advisor; a Director of ISC and President,
Chief Executive Officer, Chief Operating Officer, and a director of Inland Real
Estate Corporation ("IREC"), a REIT which is also sponsored by IREIC. Mr.
Parks is responsible for the ongoing administration of existing investment
programs, corporate budgeting and administration for IREIC. He oversees and
coordinates the marketing of all investments nationwide for IREIC and has
overall responsibility for investor relations. Mr. Parks received his B.A.
Degree from Northeastern Illinois University and an M.A. from the University of
Chicago. He is a registered direct participation program limited principal with
the National Association of Securities Dealers, Inc. ("NASD"). He is a member
of the Real Estate Investment Association and the National Association of Real
Estate Investment Trusts.
BARRY L. LAZARUS (age 53) has been President, Chief Operating Officer and an
Affiliated Director of the Company since its formation in 1998, and has been
Treasurer and Chief Financial Officer of the Company since June, 1999. After a
brief career in public accounting, Mr. Lazarus joined Inland in 1973 as its
original controller and was later promoted to Treasurer. From 1973 to 1979 he
supervised all corporate and partnership accounting and tax matters, and
managed corporate financial affairs. In 1979 Mr. Lazarus relocated to Phoenix,
Arizona and formed The Butterfield Company, a development and contracting firm,
while also serving as a consultant to investors in several commercial ventures.
Between 1979 and 1987 the Butterfield Company successfully completed several
projects in conjunction with national real estate firms, including Inland. From
1988 until October 1990 Mr. Lazarus was Vice President of Finance for UDC
Homes, Inc., then a New York Stock Exchange Company and the largest home
builder in the state of Arizona. His duties included obtaining financing for
numerous development and construction projects in the Southeastern and
Southwestern United States, as well as maintaining investor relations.
Mr. Lazarus rejoined Inland in October 1990 and became President of Intervest
Midwest Real Estate Corporation ("Intervest"), then one of the Inland
Affiliated Companies. Intervest, which has its principal office in Atlanta,
Georgia, has been active in land acquisition, development, financing and
disposition of real estate assets in the Midwest and Southeast, for its own
account and for others. Mr. Lazarus solely owns Wisconsin and Southern Land
Company, Inc., of which he has been President and Director since December 1993.
Wisconsin and Southern Land Company, Inc., which has its office in Atlanta,
Georgia, is a holding company that acquired Intervest from the Inland
Organization in 1994. Intervest, pursuant to a service agreement, currently
provides property zoning, development and disposition services to Wisconsin
Capital Land Fund, L.P. ("Wisconsin Land Fund"), a private placement real
estate equity program sponsored by IREIC. Intervest earned approximately
$80,000 of deferred compensation for 1997, earned approximately $165,000 in
1998, and did not earn any fees during 1999, for its services rendered and to
be rendered to Wisconsin Land Fund. Mr. Lazarus continues to serve as
President of Intervest. He received his B.B.A. Degree from the University of
Wisconsin, is a certified public accountant and holds real estate broker
licenses in the states of Wisconsin and Georgia.
-41-
DANIEL K. DEIGHAN (age 59) has been an Independent Director of the Company
since September 1998. He is an appraiser, who holds the MAI designation from
the American Institute of Real Estate Appraisers (the predecessor to the
Appraisal Institute), and has over 25 years of appraisal experience. He has
testified as an expert witness in numerous counties throughout Florida, and in
some courts in New York in eminent domain and other appraisal matters. Mr.
Deighan is President of Florida Property Consultants Group, which has its
office in Port St. Lucie, Florida. That firm is successor to Deighan Appraisal
Associates, Inc. and its predecessors, which Mr. Deighan formed in 1971. Its
business is the providing of expert appraisal, consulting and eminent domain
services throughout Florida.
Mr. Deighan has also been President of Southern Real Estate Group, Inc. since
August 1998, a commercial real estate brokerage firm. In addition, since
February 1996, he has been Vice-President of Southern Property Consultants,
Inc., a firm which specializes in real estate tax appeals, and a principal of
Florida Residential Consultants, Inc., which provides appraisal services. All
of the companies mentioned in this paragraph have their offices in Port St.
Lucie, Florida.
Deighan Appraisal Associates, Inc. was honored as the "Business of the Year"
in 1990 by the Port St. Lucie Chamber of Commerce. Mr. Deighan is Vice Chairman
of the Martin County Industrial Development Agency and a past President of the
Tri-County Tec Foundation and the Economic Council of Martin County, Florida.
He received his B.A. Degree from Sienna College, Albany, New York.
MICHAEL S. ROSENTHAL (age 42) has been an Independent Director of the Company
since October 1998. He is an attorney who has been in private practice since
1984. He has been a shareholder of the Atlanta, Georgia law firm of Wagner,
Johnston & Rosenthal, P.C. since September 1996. From January 1991 through
August 1996, Mr. Rosenthal was President and a shareholder of the Atlanta,
Georgia law firm of Weinstein, Rosenthal & Tobin, P.C. That law firm's
predecessor conducted business as a partnership under the name of Weinstein,
Rosenthal & Tobin from 1986 through December 1990, and Mr. Rosenthal served as
its managing partner. He represents primarily service industry clients,
providing day-to-day business counseling and advice, and services in the areas
of mergers and acquisitions, real estate acquisitions and financings, as well
as litigation when necessary. Mr. Rosenthal received both his B.A. Degree and
his law degree from the University of Florida.
KENNETH E. MASICK (age 54) has been an Independent Director of the Company
since December 1998. He has been a partner of Wolf & Company LLP, certified
public accountants, since its formation in 1978. That firm, one of the largest
in the Chicagoland area, specializes in audit, tax and consulting services to
privately owned businesses. Mr. Masick currently is partner-in-charge of the
firm's audit and accounting department and is responsible for the firm's
quality control. His accounting experience also includes forecasts and
projections, feasibility studies and due diligence activities on acquisitions.
Mr. Masick has been in public accounting since his graduation from Southern
Illinois University in 1967. He is also licensed as a General Securities
Representative. Mr. Masick is a member of the American Institute of Certified
Public Accountants and the Illinois CPA Society.
He also serves as president and director of Wolf Capital Corporation, a firm
specializing in mergers and acquisitions, business valuations and financial
consulting, and as a director of Oak Brook Investor Advisory Services, Inc., a
securities broker dealer firm. All of the mentioned entities with which Mr.
Masick is affiliated have their offices in Oak Brook, Illinois.
-42-
ROBERTA S. MATLIN (age 55) has been Vice President--Administration of the
Company since its formation in 1998. Ms. Matlin joined Inland in 1984 as
Director of Investor Administration and currently serves as Senior Vice
President--Investments of IREIC, directing IREIC's day-to-day internal
operations. She has also been Vice President-Administration of IREC since March
1995. Ms. Matlin is a Director of IREIC, ISC and Inland Real Estate Advisory
Services, Inc. the Advisor to IREC. Prior to joining Inland, she spent 11 years
with the Chicago Region of the Social Security Administration of the United
States Department of Health and Human Services. Ms. Matlin received her B.A.
Degree from the University of Illinois. She is registered with the NASD as a
general securities principal and investment advisor.
STEVEN D. SANDERS (age 51) has been involved in the real estate industry,
continuously since 1970. His real estate career began with Carlsberg Financial
Corporation in Los Angeles, California, a sponsor of national real estate
limited partnerships that acquired office, industrial, multi-family,
manufactured home parks and retail properties throughout the United States. As
Regional Director of Acquisitions, Mr. Sanders' responsibilities included
identification, analysis, negotiations and closings of properties in the
eastern United States, on behalf of Carlsberg Financial Corporation sponsored
partnerships.
In 1979 and 1980, Mr. Sanders worked for R&B Development, Los Angeles,
California, as Director of Acquisitions for multi-family properties acquired
for ultimate conversions to condominiums. In 1981, he formed Irvine Properties,
Inc. which offered real estate consultation, brokerage and management services
to local and national investors. In 1984, Mr. Sanders joined Univest Real
Estate Corporation, Tampa, Florida, an affiliate of Inland, and spearheaded the
acquisition of multi-family properties throughout the state of Florida.
In 1988, he formed Florida Country Clubs, Inc., which acquired and operated
three golf and country clubs located in Orlando, Florida. In 1991, Mr. Sanders
acquired interests in additional golf and country clubs on the east and west
coasts of Florida. In 1993 he rejoined Inland at its Oak Brook, Illinois
headquarters with the primary responsibility of acquiring shopping centers for
IREC. Mr. Sanders is also President of Inland Southeast Property Management
Corp., the real estate management agent for the Company's properties.
He has been Vice President--Acquisitions of the Company since its formation
in 1998.
SAMUEL A. ORTICELLI (age 46) has been Secretary of the Company since its
formation in 1998. Mr. Orticelli joined the Inland Affiliated Companies in
1984. He is a Vice President of Inland, Senior Counsel with The Inland Real
Estate Group, Inc. Law Department and serves as legal counsel for IREIC, with
responsibilities relating to securities law and real estate transactions. Mr.
Orticelli has been Assistant Secretary of Inland Real Estate Corporation, a
REIT, since its formation in 1994. He received his B.S. Degree in accounting
from Marquette University and his law degree from DePaul University. Prior to
joining Inland, Mr. Orticelli worked for the Chicago law firm of Katz, Randall
& Weinberg, specializing in real estate transactions. He is a member of the
Illinois State Bar Association and served on the Corporate Law Departments
Section Council (1995-1998) and the Real Estate Law Section Council (1989-
1994). He is a past president of the Justinian Society of Lawyers (DuPage
Chapter).
-43-
The election of members of the Board of Directors is conducted on an annual
basis. Each individual elected to the Board serves a one-year term or until his
or her successor is elected and qualified. Accordingly, the term of office of
each director of the Company will expire at the annual meeting of stockholders
to be held later this year. It is anticipated that at such meeting each current
director will be nominated to stand for reelection as a director to hold office
until the Company's annual meeting of stockholders to held in 2001 and until
his successor is elected and qualified. The Company has no reason to believe
that any of the anticipated nominees will be unable of unwilling to serve if
elected.
Item 11. Executive Compensation
With the exception of Barry L. Lazarus, the Company's executive officers are
all employees of Inland Real Estate Investment Corporation, the owner of Inland
Retail Real Estate Advisory Services, Inc., the Company's Advisor, and/or its
affiliates. The Company does not pay any of these individuals for serving in
their respective positions. For a discussion of fees paid to the Advisor and
other Inland Affiliated Companies, see "Certain Relationships and Related
Transactions" below.
Mr. Lazarus will receive an annual salary of $35,000 from the Company, and
reimbursement for his out-of-pocket expenses incurred on behalf of the Company.
His "at will" employment is based on an oral agreement. Mr. Lazarus will
devote most of his time to the Company's business; however, he will continue to
devote some time to Intervest Midwest Real Estate Corporation, of which he is
President. Mr. Lazarus was paid $26,250 in 1999 for his services as President,
Chief Operating Officer, Treasurer and Chief Financial Officer of the Company.
The Company pays its Independent Directors an annual fee of $1,000. Messrs.
Deighan, Rosenthal and Masick were each paid fees of $3,000 in 1999 for their
services as Independent Directors. In addition, each Independent Director
receives $250 for attending (in person or by telephone) each meeting of the
Board of Directors or a committee thereof. Officers of the Company who are
Directors (Messrs. Parks and Lazarus) are not paid fees for serving as
directors.
Under the Company's Independent Director Stock Option Plan, each Independent
Director is entitled to be granted an option to acquire 3,000 shares as of the
date they become a Director and an additional 500 shares on the date of each
annual stockholders' meeting commencing with the annual meeting in 2000 so long
as the Independent Director remains a member of the Board on such date. The
options for the initial 3,000 Shares will be 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 options to be granted as of each annual
stockholders meeting will become fully exercisable on the second anniversary of
the date of grant. Options granted during the pendency of the current initial
public offering will be exercisable at $9.05 per share.
-44-
Item 12. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth information as of March 23, 2000 regarding the
number and percentage of Shares beneficially owned by: (i) each director; (ii)
each executive officer; (iii) all directors and executive officers as a group;
and (iv) as of March 23, 2000, any person known to us to be the beneficial
owner of more than 5% of the Shares.
Number of Shares
Beneficially Percent
Owned (1) of Class
---------------- --------------
Name of Beneficial Owner
------------------------
Robert D. Parks 27,180 (2) *
Barry L. Lazarus 11,049 *
Daniel K. Deighan 1,000 (3) *
Michael S. Rosenthal 1,000 (3) *
Kenneth E. Masick 1,000 (3) *
Roberta S. Matlin - -
Steven D. Sanders - -
Samuel A. Orticelli - -
All Directors and
Executive Officers as
a group (8 persons) 41,229 (2) *
Macomb County Retirement
System (4) 789,473 14.53%
* Less than 1%
(1) Beneficial ownership includes outstanding Shares and Shares that any
person has the right to acquire within 60 days after the date of this
table. Except as indicated in the footnotes to this table and pursuant
to applicable community property laws, the persons named in the table
have sole voting and investment power with respect to all Shares
beneficially owned by them.
(2) Includes 20,000 Shares owned by the Advisor. The Advisor is a wholly
owned subsidiary of IREIC, which is an affiliate of Inland. Mr. Parks is
a control person of Inland and disclaims beneficial ownership of Shares
owned by the Advisor.
(3) Consists of Shares issuable upon exercise of options to which each
Independent Director is entitled but which have not yet been issued,
which options are anticipated to be issued soon so that they will become
exercisable within 60 days after the date of this table.
(4) The address of Macomb County Retirement System is 10 N. Main, 12th Floor,
County Building, Mt. Clemens, MI 48043.
-45-
Item 13. Certain Relationships and Related Transactions
For the year ended December 31, 1999, the Company incurred a total of
$8,057,059 of organizational and offering costs, of which $5,193,155 was paid
to affiliates.
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 and the administration of the Company. During the year ended December
31, 1999, the Company incurred $683,055 of these costs, of which $549,089
remained unpaid. In addition, an affiliate of the Advisor served as dealer
manager of an offering of securities by the Company and earned fees of
$4,786,547, of which $896,544 was unpaid as of December 31, 1999.
Approximately all of these commissions have been passed through from the
Affiliate to unaffiliated soliciting broker/dealers.
The Advisor may receive an annual Advisor asset management fee of not more than
1% of the average invested assets, paid quarterly. For any year in which the
Company qualifies as a REIT, the Advisor must reimburse the Company: (i) to
the extent that the Advisor asset management fee plus other operating expenses
paid during the previous calendar year exceed 2% of the Company's average
invested assets for the calendar year or 25% of the Company's net income for
that calendar year; and (ii) to the extent that stockholders have not received
an annual distribution equal to or greater than the 7.5% current return. For
the year ended December 31, 1999, the Company has not paid or incurred any such
fees.
An Affiliate of the Advisor, Inland Southeast Property Management Corp.
("ISPM"), is entitled to receive property management fees for management and
leasing services. Such fees may not exceed 4.5% of the gross income earned by
the Company on properties managed. The Company incurred and paid property
management fees of $225,665, of which $203,235 were retained by ISPM, for the
year ended December 31, 1999, all of which have been paid.
The Advisor and its affiliates are entitled to reimbursement for salaries and
expenses of employees of the Advisor and its affiliates relating to selecting,
evaluating and acquiring of properties. Such amounts are included in building
and improvements for those costs relating to properties purchased. Such
amounts are included in acquisition cost expenses to Affiliates for costs
relating to properties not acquired.
Loan servicing fees in the amount of $14,281 were paid to Inland Mortgage
Servicing Corporation, an affiliate of the Advisor.
-46-
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) List of documents filed:
(1) The consolidated financial statements of the Company included in this
report are set forth in Item 8.
(2) Financial Statement Schedules:
The following financial statement schedule for the year ended December
31, 1999 is submitted herewith:
Page
----
Real Estate and Accumulated Depreciation (Schedule III)...... 38
Schedules not filed:
All schedules other than the one listed above have been omitted as the
required information is inapplicable or the information is presented in
the consolidated financial statements or related notes.
(3) Exhibits. The following exhibits are filed as part of this document:
Item No. Description
--------- -----------
3.1 Second Articles of Amendment and Restated Charter of Inland Retail
Real Estate Trust, Inc. (Included as Exhibit 3.1 to Amendment No. 3 to
the Company's Registration Statement on Form S-11 filed on February 9,
1999 (File No. 333-64391) and incorporated herein by reference.)
3.2 Amended and Restated Bylaws of Inland Retail Real Estate Trust, Inc.
(Included as Exhibit 3.2 to Amendment No. 2 to the Company's
Registration Statement on Form S-11 filed on January 28, 1999 (File
No. 333-64391) and incorporated herein by reference.)
4.1 Form of Agreement of Limited Partnership of Inland Retail Real Limited
Partnership. (Included as Exhibit 4.1 to Amendment No. 1 to the
Company's Registration Statement on Form S-11 filed on January 7, 1999
(File No. 333-64391) and incorporated herein by reference.)
4.2 Specimen Certificate for the Shares. (Included as Exhibit 4.2 to the
Company's Registration Statement on Form S-11 filed on September 28,
1998 (File 333-64391) and incorporated herein by reference.)
10.1 Form of Escrow Agreement by and among Inland Retail Real Estate Trust,
Inc., Inland Securities Corporation and LaSalle National Bank, N.A.
(Included as Exhibit 10.1 to Amendment No. 3 to the Company's
Registration Statement on Form S-11 filed on February 9, 1999 (File
No. 333-64391) and incorporated herein by reference.)
10.2 Form of Advisory Agreement by and between Inland Retail Real Estate
Trust, Inc., and Inland Retail Real Estate Advisory Services, Inc.
(Included as Exhibit 10.2 to the Company's Registration Statement on
Form S-11 filed on September 28, 1998 (File No. 333-64391) and
incorporated herein by reference.)
-47-
10.3 Form of Master Management Agreement, including the form of Management
Agreement for each Property by and between Inland Retail Real Estate
Trust, Inc. and Inland Southeast Property Management Corp. (Included
as Exhibit 10.3 to the Company's Registration Statement on Form S-11
filed on September 28, 1998 (File No. 333-64391) and incorporated
herein by reference.)
10.4 Form of Property Acquisition Service Agreement by and among Inland
Retail Real Estate Trust, Inc., Inland Retail Real Estate Advisory
Services, Inc., Inland Real Estate Corporation, Inland Real Estate
Advisory Services, Inc., and Inland Real Estate Acquisitions, Inc.
(Included as Exhibit 10.4 to the Company's Registration Statement on
Form S-11 filed on September 28, 1998 (File No. 333-64391) and
incorporated herein by reference.)
10.5 Form of the Company's Independent Director Stock Option Plan.
(Included as Exhibit 10.5 to Amendment No. 1 to the Company's
Registration Statement on Form S-11 filed on January 7, 1999 (File No.
333-64391) and incorporated herein by reference.)
10.6 Form of Indemnification Agreement by and between Inland Retail Real
Estate Trust, Inc., and its directors and executive officers.
(Included as Exhibit 10.6 to Amendment No. 3 to the Company's
Registration Statement on Form S-11 filed February 9, 1999 (File No.
333-64391) and incorporated herein by reference.)
10.7 Form of Agreement dated March,1999 between Inland Retail Real Estate
Trust, Inc. and Inland Real Estate Investment Corporation relating to
payment of the reasonably estimated cost to prepare and mail a notice
to stockholders of any special meeting of stockholders requested by
the stockholders. (Included as Exhibit 10.7 to Amendment No. 4 to the
Company's Registration Statement on Form S-11 filed on February 10,
1999 (File No. 333-64391) and incorporated herein by reference.)
27.1 Financial Data Schedule
(b) Reports on Form 8-K:
The following reports on Form 8-K were filed during the last quarter of the
period covered by this annual report.
Report on Form 8-K dated September 30, 1999
Item 2. Acquisition or Disposition of Assets
Report on Form 8-K dated October 26, 1999
Item 2. Acquisition or Disposition of Assets
Report on Form 8-K/A dated September 1, 1999
Item 7. Financial Statements and Exhibits (for the Company and for
Lake Olympia Square, Bridgewater Marketplace, Bartow Marketplace and
Countryside Shopping Center).
(c) See exhibit index included above.
(d) None
-48-
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
INLAND RETAIL REAL ESTATE TRUST, INC.
/s/ Robert D. Parks
By: Robert D. Parks
Chairman and Chief Executive Officer
and Affiliated Director
Date: March 30, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated:
/s/ Robert D. Parks
By: Robert D. Parks
Chairman and Chief Executive Officer
and Affiliated Director
Date: March 30, 2000
/s/ Barry L. Lazarus
By: Barry L. Lazarus
President, Chief Operating Officer, Treasurer,
Chief Financial Officer and Affiliated Director
Date: March 30, 2000
/s/ Daniel K. Deighan
By: Daniel K. Deighan
Independent Director
Date: March 30, 2000
/s/ Kenneth E. Masick
By: Kenneth E. Masick
Independent Director
Date: March 30, 2000
/s/ Michael S. Rosenthal
By: Michael S. Rosenthal
Independent Director
Date: March 30, 2000
-49-
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