<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Quarterly Period Ended March 31, 1996
or
[ ] Transition Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
----------- ----------
Commission File #33-79012
Inland Monthly Income Fund III, Inc.
(Exact name of registrant as specified in its charter)
Maryland #36-3953261
(State or other jurisdiction (I.R.S. Employer Identification Number)
of incorporation or organization)
2901 Butterfield Road, Oak Brook, Illinois 60521
(Address of principal executive office) (Zip code)
Registrant's telephone number, including area code: 708-218-8000
N/A
--------------------------------------------
(Former name, former address and former fiscal
year, if changed since last report)
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
--- ---
As of May 13, 1996, there were 3,453,132 Shares of Common Stock outstanding.
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<PAGE>
PART I - Financial Information
Item 1. Financial Statements
INLAND MONTHLY INCOME FUND III, INC.
(a Maryland corporation)
Balance Sheets
March 31, 1996 and December 31, 1995
(unaudited)
Assets
------
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Investment properties (Notes 1, 4 and 5):
Land............................................ $ 7,240,948 5,437,948
Building and improvements....................... 15,982,166 12,074,484
----------- ----------
23,223,114 17,512,432
Less accumulated depreciation................... 272,985 169,894
----------- ----------
Net investment properties....................... 22,950,129 17,342,538
----------- ----------
Cash and cash equivalents including amounts
held by property manager (Note 1)............... 2,937,473 738,931
Restricted cash (Note 1).......................... - 150,000
Accounts and rents receivable (Note 5)............ 492,081 333,823
Deposits and other assets......................... 22,309 158,123
Deferred organization costs (Note 1).............. 26,089 27,462
----------- ----------
Total assets.................................. $26,428,081 18,750,877
=========== ==========
</TABLE>
See accompanying notes to financial statements.
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<PAGE>
INLAND MONTHLY INCOME FUND III, INC.
(a Maryland corporation)
Balance Sheets
(continued)
March 31, 1996 and December 31, 1995
(unaudited)
Liabilities and Stockholders' Equity
------------------------------------
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Liabilities:
Accounts payable................................ $ 43,544 6,875
Accrued offering costs to Affiliates............ 269,570 222,353
Accrued offering costs to non-affiliates........ 31,000 6,444
Accrued interest payable to Affiliates.......... 4,771 5,242
Accrued real estate taxes....................... 463,751 374,180
Distributions payable (Note 7).................. 183,457 129,532
Security deposits............................... 71,133 54,483
Note payable to Affiliates (Note 6)............. - 360,000
Mortgage payable (Note 6)....................... 748,011 750,727
Unearned income................................. 13,268 39,846
Other liabilities............................... 28,852 178,852
Due to Affiliates (Note 2)...................... 69,508 7,277
----------- ----------
Total liabilities............................. 1,926,865 2,135,811
----------- ----------
Stockholders' Equity (Notes 1 and 2):
Common stock, $.01 par value, 24,000,000 Shares
authorized; 2,909,912 and 2,000,073, issued
and outstanding at March 31, 1996 and
December 31, 1995, respectively............... 29,103 19,996
Additional paid-in capital (net of offering
costs of $4,078,208 at March 31, 1996, of
which $2,896,271 was paid to Affiliates)...... 24,953,635 16,835,183
Accumulated distributions in excess
of net income................................. (481,522) (240,113)
----------- ----------
Total stockholders' equity.................... 24,501,216 16,615,066
----------- ----------
Total liabilities and stockholders' equity........ $26,428,081 18,750,877
=========== ==========
</TABLE>
See accompanying notes to financial statements.
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<PAGE>
INLAND MONTHLY INCOME FUND III, INC.
(a Maryland corporation)
Statements of Operations
For the three months ended March 31, 1996 and 1995
(unaudited)
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Income:
Rental income (Notes 1 and 5)................... $ 475,038 70,733
Additional rental income........................ 242,290 8,790
Interest income................................. 43,751 21,598
----------- -------
761,079 101,121
----------- -------
Expenses:
Professional services to Affiliates............. 2,000 --
Professional services to non-affiliates......... 26,068 --
General and administrative expenses
to Affiliates................................. 7,903 --
General and administrative expenses
to non-affiliates............................. 2,197 415
Advisor asset management fee.................... 48,540 --
Property operating expenses to Affiliates....... 29,136 2,882
Property operating expenses to non-affiliates... 281,477 8,825
Mortgage interest to Affiliates................. 15,043 20,398
Mortgage interest to non-affiliates............. -- 14,499
Depreciation.................................... 103,091 14,444
Amortization.................................... 1,373 --
Acquisition costs expensed...................... 8,985 162
----------- -------
525,813 61,625
----------- -------
Net income.................................... $ 235,266 39,496
============ =======
Net income per weighted average common stock shares
outstanding (2,394,092 and 343,119 for the
three months ended March 31, 1996 and 1995,
respectively.................................... $ .12 .12
============ =======
</TABLE>
See accompanying notes to financial statements.
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<PAGE>
INLAND MONTHLY INCOME FUND III, INC.
(a Maryland corporation)
Statements of Stockholders' Equity
March 31, 1996 and December 31, 1995
<TABLE>
<CAPTION>
Accumulated
Additional Distributions
Common Paid-in in excess of
Stock Capital net income Total
---------- ----------- ------------- ----------
<S> <C> <C> <C> <C>
Balance January 1, 1995..... $ 200 199,800 -- 200,000
Net income.................. -- -- 496,514 496,514
Distributions declared
($.78 per weighted average
common stock shares
outstanding).............. -- -- (736,627) (736,627)
Proceeds from Offering (net
of Offering costs of
$3,121,175).............. 19,826 16,662,162 -- 16,681,988
Repurchases of Shares....... (30) (26,779) -- (26,809)
---------- ---------- -------- ----------
Balance December 31, 1995... 19,996 16,835,183 (240,113) 16,615,066
Net income.................. -- -- 235,266 235,266
Distributions declared
($.20 per weighted average
common stock shares
outstanding).............. -- -- (476,675) (476,675)
Proceeds from Offering (net
of Offering costs of
$957,033)................. 9,107 8,118,452 -- 8,127,559
---------- ---------- -------- ----------
Balance March 31, 1996...... $ 29,103 24,953,635 (481,522) 24,501,216
========== ========== ======== ==========
</TABLE>
See accompanying notes to financial statements.
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<PAGE>
INLAND MONTHLY INCOME FUND III, INC.
(a Maryland corporation)
Statement of Cash Flows
For the three months ended March 31, 1996 and 1995
(unaudited)
<TABLE>
<CAPTION>
1996 1995
----------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income...................................... $ 235,266 39,496
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation.................................. 103,091 14,444
Amortization.................................. 1,373 --
Rental income under master lease agreements... 109,333 --
Changes in assets and liabilities:
Accounts and rents receivable............... (158,258) (74,855)
Other assets................................ 135,814 1,075
Accrued interest payable.................... (471) 30,052
Accrued real estate taxes................... 89,571 95,225
Accounts payable............................ 36,669 --
Unearned income............................. (26,578) --
Due to Affiliates........................... 53,646 --
Security deposits........................... 16,650 13,853
----------- ----------
Net cash provided by operating activities......... 596,106 119,290
----------- ----------
Cash flows from investing activities:
Additions to investment properties.............. (153,450) --
Purchase of investment properties............... (5,657,980) (218,418)
----------- ----------
Net cash used in investing activities............. (5,811,430) (218,418)
----------- ----------
Cash flows from financing activities:
Repayment of note to Affiliate.................. (360,000) --
Repayment of loan from Advisor.................. -- (193,300)
Proceeds from offering.......................... 9,084,592 4,842,205
Payments of offering costs...................... (885,260) (613,424)
Distributions paid.............................. (422,750) --
Principal payments of debt...................... (2,716) (2,508,857)
----------- ----------
Net cash provided by financing activities......... 7,413,866 1,526,624
----------- ----------
Net increase in cash and cash equivalents......... 2,198,542 1,427,496
Cash and cash equivalents at beginning of period.. 738,931 10,934
----------- ----------
Cash and cash equivalents at end of period........ $ 2,937,473 1,438,430
=========== ==========
Distributions payable............................ $ 183,457 (58,495)
=========== ==========
</TABLE>
See accompanying notes to financial statements.
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<PAGE>
INLAND MONTHLY INCOME FUND III, INC.
(a Maryland corporation)
Notes to Financial Statements
March 31, 1996
(unaudited)
Readers of this Quarterly Report should refer to the Partnership's audited
financial statements for the fiscal year ended December 31, 1995, which are
included in the Company's 1995 Annual Report, as certain footnote disclosures
which would substantially duplicate those contained in such audited financial
statements have been omitted from this Report.
(1) Organization and Basis of Accounting
Inland Monthly Income Fund III, Inc. (the "Company") was formed on May 12, 1994
to invest in neighborhood retail centers located within an approximate 150-mile
radius of its headquarters in Oak Brook, Illinois. 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. On October 14, 1994, the Company commenced an initial public offering
(the "Offering") of 5,000,000 shares of common stock (the "Shares") at a price
of $10 per Share and the issuance of 1,000,000 Shares at a price of $9.05 per
Share which may be distributed pursuant to the Company's distribution
reinvestment program (the "DRP"). Inland Real Estate Advisory Services, Inc.
(the "Advisor"), an Affiliate of the Company, is the advisor to the Company.
Subscriber funds were held in an interest-bearing escrow account with the
Company's unaffiliated escrow agent until January 3, 1995. Offering proceeds
were released from escrow on January 3, 1995 when subscriptions were accepted
and Shares issued by the Company. Subscribers received their pro rata share of
interest income earned on their subscriptions while in escrow. As of March 31,
1996, the Company has repurchased 3,000 Shares. At March 31, 1996, subscriptions
for a total of 2,909,912 Shares have been received, resulting in $29,088,408 in
Gross Offering Proceeds.
The Company qualified as a real estate investment trust ("REIT") under the
Internal Revenue Code of 1986, as amended, for federal income tax purposes
commencing with the tax year ending December 31, 1995. Since the Company
qualified for taxation as a REIT, the Company generally will not be subject to
federal income tax to the extent it distributes its REIT taxable income to its
stockholders. If the Company fails to qualify as a REIT in any taxable year, the
Company will be subject to federal income tax on its taxable income at regular
corporate tax rates. Even if the Company qualifies for taxation as a REIT, the
Company may be subject to certain state and local taxes on its income and
property and federal income and excise taxes on its undistributed income.
-7-
<PAGE>
INLAND MONTHLY INCOME FUND III, INC.
(a Maryland corporation)
Notes to Financial Statements
(continued)
March 31, 1996
(unaudited)
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting periods.
Actual results could differ from those estimates.
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 fair value. Included in cash and equivalents is $249,890 held by
the Company's affiliated property manager which is unrestricted and held in the
Company's name.
Deferred organization costs are amortized over a 60-month period.
Offering costs were offset against the Stockholders' equity accounts once the
Shares sold exceeded the Minimum Number of Shares and Gross Offering Proceeds
were released from escrow. Offering costs consist principally of printing,
selling and registration costs.
The investment properties are carried at the lower of aggregate cost or net
realizable value. Periodically, the Company will review its real estate
portfolio and if investment properties suffer an impairment in value which is
deemed to be other than temporary, the investment in properties would be reduced
to the net realizable value of the properties. As of March 31, 1996, there have
been no such impairments. Depreciation expense is computed using the straight-
line method. Buildings and improvements are based upon estimated useful lives of
30 years. Tenant improvements will be depreciated over the related lease period.
Rental income is recognized on a straight-line basis over the term of each
lease. The difference between rental income earned and the cash rent due under
the provisions of the lease agreements is recorded as deferred rent receivable.
The Company believes that the interest rate associated with the mortgage payable
approximates the market interest rates for this type of debt instrument, and as
such, the carrying amount of the mortgage payable approximates its fair value.
-8-
<PAGE>
INLAND MONTHLY INCOME FUND III, INC.
(a Maryland corporation)
Notes to Financial Statements
(continued)
March 31, 1996
(unaudited)
The carrying amount of cash and cash equivalents, restricted cash, accounts and
rents receivable, accounts payable and other liabilities, accrued offering
costs to Affiliates, accrued offering costs to non-Affiliates, accrued interest
payable to Affiliates, accrued real estate taxes, and distributions payable
approximate fair value because of the relative short maturity of these
instruments.
In the opinion of management, the financial statements contain all the
adjustments necessary, which are of a normal recurring nature, to present
fairly the financial position and results of operations for the periods
presented herein. Results of interim periods are not necessarily indicative of
the results to be expected for the year.
(2) Transactions with Affiliates
As of March 31, 1996, the Company had incurred $4,105,670 of organization and
offering costs. Pursuant to the terms of the Offering, the Advisor is required
to pay organization and offering expenses (excluding sales commissions, the
marketing contribution and the due diligence expense allowance fee) in excess
of 5.5% of the gross proceeds of the Offering (the "Gross Offering Proceeds")
or all organization and offering expenses (including such selling expenses)
which together exceed 15% of Gross Offering Proceeds. As of March 31, 1996,
organizational and offering costs did exceed the 5.5% and 15% limitations. The
Company anticipates that these costs will not exceed these limitations upon
completion of the Offering, however, any excess amounts 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 and to the administration of the Company. In addition, an Affiliate of
the Advisor serves as dealer manager of the Offering and is entitled to receive
selling commissions, a marketing contribution and a due diligence expense
allowance fee from the Company in connection with the Offering. Such
commissions incurred were $2,526,845 and $1,719,406 as of March 31, 1996 and
December 31, 1995, respectively, of which $192,632 and $102,084 were unpaid as
of March 31, 1996 and December 31, 1995, respectively. Other costs to
Affiliates incurred relating to the Offering were $369,426 and $409,858 as of
March 31, 1996 and December 31, 1995, respectively, of which $76,938 and
$120,269 were unpaid as of March 31, 1996 and December 31, 1995, respectively.
-9-
<PAGE>
INLAND MONTHLY INCOME FUND III, INC.
(a Maryland corporation)
Notes to Financial Statements
(continued)
March 31, 1996
(unaudited)
As of March 31, 1996, the Advisor has contributed $200,000 to the capital of
the Company for which it received 20,000 Shares.
During 1994, the Advisor advanced $193,300 to the Company for costs incurred
with the Offering. These advances were repaid with a market rate of interest to
the Advisor in January 1995 with interest ranging from 7.75% to 9.50%. The
principal of $193,300 and interest totaling $3,162 were paid from Gross
Offering Proceeds.
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 that 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 8% Current Return. As of March
31, 1996, the Company has incurred $48,540 of such fees, all of which remains
unpaid at March 31, 1996. (Defined terms in this paragraph have the same
definitions from the prospectus.)
An Affiliate of the Advisor is entitled to receive Property Management Fees for
management and leasing services. The Company incurred and paid property
management fees of $29,136 and $2,882 for the three months ended March 31, 1996
and 1995, respectively.
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<PAGE>
INLAND MONTHLY INCOME FUND III, INC.
(a Maryland corporation)
Notes to Financial Statements
(continued)
March 31, 1996
(unaudited)
(3) Commitments and Contingencies
The Company adopted an Independent Director Stock Option Plan which granted
each Independent Director an option to acquire 3,000 Shares as of October 14,
1994 and an additional 500 Shares on the date of each annual stockholders'
meeting commencing with the annual meeting in 1995 if the Independent Director
is a member of the Board on such date. The options for the initial 3,000 Share
grant are exercisable as follows: 1,000 Shares on the date of grant and 1,000
Shares on each of the first and second anniversaries of the date of grant. The
succeeding options are exercisable on the second anniversary of the date of
grant. No options have been exercised.
In addition to sales commissions, Soliciting Dealers will also receive one
Soliciting Dealer Warrant for each 40 Shares sold by such Soliciting Dealer
during the Offering, subject to state and federal securities laws. 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 with the first date upon
which the Soliciting Dealer Warrants are issued and ending upon the first to
occur of: (i) October 14, 1999; or (ii) the closing date of a secondary
offering of the Shares by the Company. Notwithstanding the foregoing, no
Soliciting Dealer Warrant will be exercisable until one year from the date of
issuance.
On the behalf of the Company, the Advisor is currently exploring the purchase
of additional shopping centers from unaffiliated third parties.
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<PAGE>
<TABLE>
<CAPTION>
INLAND MONTHLY INCOME FUND III, INC.
(a Maryland corporation)
Notes to Financial Statements
(continued)
March 31, 1996
(unaudited)
(4) Investment Properties
Gross amount at which carried
Initial Cost (A) at end of period
----------------------- ---------------------------------------
Buildings Adjustments Land Buildings
Date and to and and
Acq Land improvements Basis (B) improvements improvements Total
------ ---------- ----------- ---------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Single-user Retail
------------------
Walgreens/Decatur
Decatur, IL............. 01/95 $ 78,330 1,130,723 - 78,330 1,130,723 1,209,053
Neighborhood Retail Centers
- - ----------------------------
Eagle Crest Shopping Center
Naperville, IL.......... 03/95 1,878,618 2,938,352 - 1,878,618 2,938,352 4,816,970
Montgomery-Goodyear
Montgomery, IL.......... 09/95 315,000 832,909 (6,632) 315,000 826,277 1,141,277
Hartford/Naperville Plaza
Naperville, IL.......... 09/95 990,000 3,426,211 22,082 990,000 3,448,293 4,438,293
Nantucket Square
Schaumburg, IL.......... 09/95 1,908,000 2,352,833 (15,026) 1,908,000 2,337,807 4,245,807
Antioch Plaza
Antioch, IL............. 12/95 268,000 1,487,372 (41,638) 268,000 1,445,734 1,713,734
Mundelein Plaza
Mundelein, IL........... 03/96 1,803,000 3,854,980 - 1,803,000 3,854,980 5,657,980
---------- ----------- ---------- ----------- ----------- -----------
$7,240,948 16,023,380 (41,214) 7,240,948 15,982,166 23,223,114
========== =========== ========== =========== =========== ===========
(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) Adjustements to basis includes additions to investment properties and payments received under master lease agreements.
As part of the Montgomery-Goodyear, Hartford/Naperville Plaza, Nantucket Square and Antioch Plaza purchases, the
Company will receive rent under master lease agreements on the spaces currently vacant for periods ranging from one
year to eighteen months or until the spaces are leased. Generally accepted accounting principles require that as
these payments are received, they be recorded as a reduction in the purchase price of the properties rather than as
rental income. As of March 31, 1996, the Company has recorded $242,349 of such payments.
</TABLE>
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<PAGE>
INLAND MONTHLY INCOME FUND III, INC.
(a Maryland corporation)
Notes to Financial Statements
(continued)
March 31, 1996
(unaudited)
(5) Operating Leases
Master Lease Agreements
As part of the Montgomery-Goodyear, Hartford/Naperville Plaza, Nantucket Square
and Antioch Plaza purchases, the Company will receive rent under master lease
agreements on the spaces currently vacant for periods ranging from one year to
eighteen months or until the spaces are leased. Generally Accepted Accounting
Principles require that as these payments are received, they be recorded as a
reduction in the purchase price of the properties rather than as rental income.
Hartford/Naperville Plaza is fully leased and tenant improvements are
substantially completed. Master lease payments amounted to $29,114 for the
three months ended March 31, 1996.
The seller of Nantucket Square entered into a master lease agreement with the
Company for 4,500 square feet at $15 per square foot for 12 months or until the
space is leased. In addition, the Company received a credit at closing for
rent abatement agreements under current leases. Master lease payments amounted
to $37,268 for the three months ended March 31, 1996.
At March 31, 1996, Antioch Plaza was 49% leased and tenant improvements are
being completed. Certain tenants have begun paying rent. The master lease
payments amounted to $39,921 for the three months ended March 31, 1996. The
master lease agreement on this property expires June 1997.
Master lease payments at Montgomery-Goodyear amounted to $3,030 for the three
months ended March 31, 1996.
Certain tenant leases contain provisions providing for stepped rent increases.
Generally accepted accounting principles require that rental income be recorded
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 financial statements include $7,284 and $740 for the
three months ended March 31, 1996 and 1995, respectively, of rental income for
the period of occupancy for which stepped rent increases apply and $19,697 and
$740 in related accounts receivable as of March 31, 1996 and December 31, 1995,
respectively. These amounts will be collected over the terms of the related
leases as scheduled rent payments are made.
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<PAGE>
INLAND MONTHLY INCOME FUND III, INC.
(a Maryland corporation)
Notes to Financial Statements
(continued)
March 31, 1996
(unaudited)
(6) Mortgage Payable and Note Payable to Affiliates
Mortgage payable and note payable to Affiliates consist of the following at
March 31, 1996 and December 31, 1995:
1996 1995
---- ----
7.655% first mortgage secured by Walgreens,
Decatur, Illinois, monthly principal and
interest payments of $5,689, with the
remaining balance due May 2004............ $ 748,011 750,727
Mortgage payable............................ $ 748,011 750,727
============ ============
9.5% promissory note payable to Inland
Real Estate Investment Corporation, paid
in full on January 9, 1996................ - 360,000
Note payable to Affiliates.................. $ - 360,000
============ ============
(7) Subsequent Events
During April 1996, the Company paid distributions of $183,457 to the
Stockholders of record at March 31, 1996 on a weighted average basis for the
month.
On April 5, 1996, the Company completed the acquisition of the Regency Point
Shopping Center located in Lockport, Illinois ("Regency Point"), from a third
party unaffiliated with the Company, for a purchase price of $5,700,000. In
connection with the acquisition of Regency Point, the Company assumed the
existing first mortgage loan of approximately $4,473,200, along with a related
interest rate swap agreement which has the effect of fixing the interest rate
on the mortgage loan at 7.91% per annum. The remainder of the purchase price
was funded, after prorations, with proceeds of the Offering. The related
interest rate swap agreement was terminated on April 18, 1996 resulting in
$48,419 proceeds to the Company. As a result, the first mortgage loan has a
floating interest rate of 180 basis points over the 30-day LIBOR rate, which
rate is adjusted monthly (currently 7.2375%), amortizes over 25 years and
matures August 2000.
-14-
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Liquidity and Capital Resources
As of December 31, 1994, subscriptions for a total of 189,938.145 Shares had
been received from the public resulting in $1,899,381 in gross offering
proceeds, which includes $200,000 received from the Advisor for 20,000 Shares.
Subscriber funds were held in an interest-bearing escrow account with the
Company's unaffiliated escrow agent until January 3, 1995 when the
subscriptions were accepted and Shares issued by the Company. As of March 31,
1996, subscriptions for a total of 2,909,912 Shares have been received,
resulting in $29,088,408 in Gross Offering Proceeds, as defined below. The
Stockholders will share in their portion of benefits of ownership of the
Company's real property investments according to the number of Shares held.
The Company's capital needs and resources are expected to undergo changes
during its first two years of operations as a result of the completion of the
public offering of Shares and the acquisition of properties. Operating cash
flow is expected to increase as these additional properties are added to the
portfolio. Distributions to Stockholders 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, capital
expenditures, and the annual distribution required to maintain REIT status
under the Code.
As of March 31, 1996, the Company had acquired seven properties utilizing
approximately $22,700,000 of Gross Offering Proceeds and had cash and cash
equivalents of $2,937,473. The Company intends to use these funds for the
purchase of additional properties, to pay distributions and for offering costs.
To the extent that these sources are insufficient to meet the Company's short
and long-term liquidity requirements the Company may rely on financing of one
or more of the 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
of 8% per annum on weighted average shares. For the three months ended March
31, 1996, cash provided by operations amounted to $596,106. Distributions
declared for the period were $476,675, a portion of which represents a return
of capital for federal income tax purposes. The return of capital portion of
the distributions cannot be determined at this time and will
be calculated at year end.
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 as described in the section of the Prospectus entitled
"Federal Income Tax Considerations--Taxation of the Company--REIT Qualification
Tests" are met. On an ongoing basis, as due diligence is performed by
management of both the Company and the Advisor on potential real estate
purchases or temporary investment of uninvested capital, management of both
entities determines that the income from the new asset will qualify for REIT
purposes. For the year ended December 31, 1995, the Company qualified as a
REIT.
-15-
<PAGE>
The Advisor has guaranteed payment of all public offering expenses (excluding
selling commissions, the marketing contribution and the due diligence expense
allowance fee) in excess of 5.5% of the Gross Offering Proceeds of the Offering
(the "Gross Offering Proceeds") or all organization and offering expenses
(including such selling expenses) which together exceed 15% of the Gross
Offering Proceeds.
The Company provides 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 Automatic Purchase Investment Program allows existing Stockholders, during
the Offering, to automatically make periodic purchases of the Company's Shares
through the pre-authorized transfer of funds from investor accounts to the
Company.
The Distribution Reinvestment Program allows Stockholders who purchase Shares
pursuant to the Offering to automatically reinvest distributions by purchasing
additional Shares from the Company. Such purchases will not be subject to
selling commissions or the Marketing Contribution and Due Diligence Expense
Allowance Fee and will be sold at a price of $9.05 per Share. As of March 31,
1996, the Company had received $371,596 through the DRP and had repurchased
3,000 Shares from Stockholders for an aggregate price of $26,838, pursuant to
the terms of the Share Repurchase Program. The remaining $344,758 is available
to the Company for investment in additional properties, maintenance of existing
properties or the repurchase of additional Shares pursuant to the terms of the
Share Repurchase Program.
The Share Repurchase Program will, subject to certain restrictions, provide
existing Stockholders with limited, interim liquidity by enabling them to sell
Shares back to the Company at a price of $9.05 per Share. Shares purchased by
the Company will not be available for resale. As of March 31, 1996, the
Company has repurchased 3,000 Shares.
Results of Operations
As of March 31, 1996, subscriptions for a total of 2,909,912 Shares were
received from the public resulting in $29,088,408 in Gross Offering Proceeds,
which includes the Advisor's capital contribution of $200,000.
Funds from operations ("FFO") means net income (computed in accordance with
generally accepted accounting principles), excluding gains (or losses) from
debt restructuring and sales of property, plus depreciation and amortization
and other non-cash items. FFO and funds available for distribution for the
three months ended March 31, 1996 and 1995 are calculated as follows:
1996 1995
---- ----
Net income........................... $ 235,266 39,496
Depreciation......................... 103,091 14,444
Amortization.......................... 1,373 -
Funds from operations(1)........... $ 339,730 53,940
============ ============
-16-
<PAGE>
Funds from operations................ $ 339,730 53,940
Deferred rent receivable (2)......... (7,284) (740)
Rental income received under
master lease agreements (3)........ 109,333 -
Funds available for distribution... $ 441,779 53,200
============ ============
(1) FFO does not represent cash generated from operating activities in
accordance with generally accepted accounting principles and is not
necessarily indicative of cash available to fund cash needs. 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. FFO as reported by the Company may not be
comparable to other similarly titled measures of other real estate
companies.
(2) Reference is made to Note (5) of the Notes to Financial Statements of the
Company.
(3) As part of the Montgomery-Goodyear, Hartford/Naperville Plaza, Nantucket
Square and Antioch Plaza purchases, the Company will receive rent under
master lease agreements on the spaces currently vacant for periods
ranging from one year to eighteen months or until the spaces are leased.
Generally accepted accounting principles require that as these payments
are received, they be recorded as a reduction in the purchase price of
the properties rather than as rental income. For the three months ended
March 31, 1996, the Company has recorded $109,333 of such payments.
The increases in rental income, additional rental income, property operating
expenses to Affiliates and non-affiliates and depreciation for the three months
ended March 31, 1996, as compared to the three months ended March 31, 1995, is
due to the acquisition of properties during 1995. Operations are expected to
increase as additional properties are added to the portfolio.
The decrease in mortgage interest expense to Affiliates and non-affiliates for
the three months ended March 31, 1996, as compared to the three months ended
March 31, 1995, is due to the payoff of the financing relating to the
acquisitions of the properties. The Company continues to have a mortgage
collateralized by the Walgreens, Decatur property.
During 1994, the Advisor advanced $193,300 to the Company for costs incurred
with the Offering. These advances were repaid with a market rate of interest
to the Advisor in January 1995.
Interest income is the result of Offering Proceeds being invested in short-term
investments until a property is purchased.
The increases in professional services to Affiliates and non-affiliates and
general and administrative expenses to Affiliates and non-affiliates for the
three months ended March 31, 1996, as compared to the three months ended March
31, 1995, due to the Company entering the operational stage.
-17-
<PAGE>
On the behalf of the Company, the Advisor is currently exploring the purchase
of additional shopping centers from unaffiliated third parties.
The following is a list of approximate physical occupancy levels for the
Company's investment properties as of the end of each quarter during 1995 and
1996: N/A indicates the property was not owned by the Company at the end of
the quarter.
1995 1996
----------------------- -----------------------
at at at at at at at at
Properties 03/31 06/30 09/30 12/31 03/31 06/30 09/30 12/31
----- ----- ----- ----- ----- ----- ----- -----
Walgreens 100% 100% 100% 100% 100%
Decatur, Illinois
Eagle Crest 100% 100% 100% 100% 100%
Naperville, Illinois
Montgomery-Goodyear N/A N/A 100% 100% 100%
Montgomery, Illinois
Hartford/Naperville Plaza N/A N/A 48% 90% 100%
Naperville, Illinois
Nantucket Square N/A N/A 92% 81% 81%
Schaumburg, Illinois
Antioch Plaza N/A N/A N/A 33% 49%
Antioch, Illinois
PART II - Other Information
Items 1 through 5 are omitted because of the absence of conditions under
which they are required.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits: none
(b) Report on Form 8-K dated December 28, 1995
Item 2. Acquisition or Disposition of Assets
Item 7. Financial Statements and Exhibits
-18-
<PAGE>
SIGNATURES
Pursuant to the requirements 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 MONTHLY INCOME FUND III, Inc.
/s/ ROBERT D. PARKS
By: Robert D. Parks
Chief Executive Officer
Date: May 13, 1996
/s/ CYNTHIA M. HASSETT
By: Cynthia M. Hassett
Chief Financial and Accounting Officer
Date: May 13, 1996
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<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 2937473
<SECURITIES> 0
<RECEIVABLES> 492081
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 48398
<PP&E> 23223114
<DEPRECIATION> 272985
<TOTAL-ASSETS> 26428081
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<BONDS> 0
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0
0
<OTHER-SE> 24472113
<TOTAL-LIABILITY-AND-EQUITY> 26428081
<SALES> 0
<TOTAL-REVENUES> 761079
<CGS> 0
<TOTAL-COSTS> 310613
<OTHER-EXPENSES> 200157
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 15043
<INCOME-PRETAX> 235266
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