<PAGE> 1
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 June 30, 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 Real Estate Corporation
(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: 630-218-8000
Inland Monthly Income Fund III, Inc.
(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
--- ---
5,043,535.35 shares of common stock outstanding at August 12, 1996.
-1-
<PAGE> 2
Part 1 - Financial Statements
Item 1. Financial Statements
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Balance Sheets
June 30, 1996 and December 31, 1995
(unaudited)
Assets
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Investment properties (Notes 1, 4 and 5):
Land............................................ $ 9,503,248 5,437,948
Building and improvements....................... 24,975,721 12,074,484
----------- ----------
34,478,969 17,512,432
Less accumulated depreciation................... 447,394 169,894
----------- ----------
Net investment properties....................... 34,031,575 17,342,538
Cash and cash equivalents including amounts
held by property manager (Note 1)............... 9,190,952 738,931
Restricted funds (Note 1)......................... - 150,000
Accounts and rents receivable (Note 5)............ 799,181 333,823
Deposits and other assets......................... 113,473 158,123
Deferred organization costs (net of accumulated
amortization of $2,746 at June 30, 1996)(Note 1) 24,716 27,462
----------- ----------
Total assets.................................. $44,159,897 18,750,877
=========== ==========
</TABLE>
See accompanying notes to financial statements.
-2-
<PAGE> 3
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Balance Sheets
(continued)
June 30, 1996 and December 31, 1995
(unaudited)
Liabilities and Stockholders' Equity
<TABLE>
<CAPTION>
1996 1995
Liabilities: ---- ----
<S> <C> <C>
Accounts payable................................ $ 211,786 6,875
Accrued offering costs to Affiliates............ 357,206 222,353
Accrued offering costs to non-affiliates........ 91,037 6,444
Accrued interest payable to Affiliates.......... 4,754 5,242
Accrued interest payable to non-affiliates...... 26,923 -
Accrued real estate taxes....................... 730,398 374,180
Distributions payable (Note 7).................. 269,137 129,532
Security deposits............................... 108,354 54,483
Note payable (Note 6)........................... - 360,000
Mortgages payable (Note 6)...................... 5,205,586 750,727
Unearned income................................. 63,978 39,846
Other liabilities............................... 32,839 178,852
Due to Affiliates (Note 2)...................... 183,918 7,277
----------- ----------
Total liabilities............................. 7,285,916 2,135,811
----------- ----------
Stockholders' Equity (Notes 1 and 2):
Common stock, $.01 par value, 24,000,000 Shares
authorized; 4,382,954 and 4,376,636 Shares
issued and outstanding at June 30, 1996 and
2,003,073 and 2,000,073 Shares issued and
outstanding at December 31, 1995,
respectively.................................. 43,270 19,996
Additional paid-in capital (net of offering
costs of $6,137,310 at June 30, 1996, of
which $4,554,393 was paid to Affiliates)...... 37,525,808 16,835,183
Accumulated distributions in excess of
net income.................................... (695,097) (240,113)
----------- ----------
Total stockholders' equity.................... 36,873,981 16,615,066
----------- ----------
Total liabilities and stockholders' equity........ $44,159,897 18,750,877
=========== ==========
</TABLE>
See accompanying notes to financial statements.
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<PAGE> 4
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Statement of Operations
For the three and six months ended June 30, 1996 and 1995
(unaudited)
<TABLE>
<CAPTION>
Three months Six months
ended ended
June 30, June 30,
-------- --------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Income:
Rental income (Notes 1 and 5).... $ 845,598 182,680 1,320,636 253,413
Additional rental income......... 147,334 29,169 389,624 37,959
Interest income.................. 80,838 9,982 124,589 31,500
Other income..................... 52,806 - 52,806 -
--------- ------- --------- -------
1,126,576 221,831 1,887,655 322,952
--------- ------- --------- -------
Expenses:
Professional services to
Affiliates..................... 8,654 - 10,654 -
Professional services to
non-affiliates................. 10,160 1,615 36,228 1,615
General and administrative
to Affiliates.................. 43,532 - 51,435 -
General and administrative
expenses to non-affiliates..... 3,797 406 5,994 821
Advisor asset management fee..... 76,992 - 125,532 -
Property operating expenses
to Affiliates.................. 42,960 9,572 72,096 12,454
Property operating expenses
to non-affiliates.............. 165,149 46,054 446,626 54,879
Mortgage interest to Affiliates.. 14,280 25,779 29,323 46,177
Mortgage interest to
non-affiliates................. 77,804 2,841 77,804 17,340
Depreciation..................... 174,409 33,909 277,500 48,353
Amortization..................... 1,373 - 2,746 -
Acquisition costs expensed....... 8,165 153 17,150 315
--------- ------- --------- -------
627,275 120,329 1,153,088 181,954
--------- ------- --------- -------
Net income..................... $ 499,301 101,502 734,567 140,998
========= ======= ========= =======
Net income per weighted average
common stock shares outstanding
(3,558,960 and 697,716 for the
three months ended June 30, 1996 and
1995, respectively and 2,956,008
and 521,428 for the six months
ended June 30, 1996 and 1995,
respectively).................... $ .14 .15 .25 .27
========= ======= ========= =======
</TABLE>
See accompanying notes to financial statements.
-4-
<PAGE> 5
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Statements of Stockholders' Equity
June 30, 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
$3,121,175).............. 19,826 16,662,162 - 16,681,988
Repurchases of Shares....... (30) (26,779) - (26,809)
------- ---------- ---------- ----------
Balance December 31, 1995... 19,996 16,835,183 (240,113) 16,615,066
Net income.................. - - 734,567 734,567
Distributions declared
($.40 per weighted average
common stock shares
outstanding).............. - - (1,189,551) (1,189,551)
Proceeds from Offering (net
of Offering costs of
$3,016,135)............... 23,307 20,726,549 - 20,749,856
Repurchases of Shares....... (33) (35,924) (35,957)
------- ---------- ---------- ----------
Balance June 30, 1996...... $43,270 37,525,808 (695,097) 36,873,981
======= ========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
-5-
<PAGE> 6
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Statement of Cash Flows
For the six months ended June 30, 1996 and 1995
(unaudited)
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income...................................... $ 734,567 140,998
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation.................................. 277,500 48,353
Amortization.................................. 2,746 -
Rental income under master lease.............. 194,508 -
Changes in assets and liabilities:
Accounts and rents receivable............... (465,358) (75,639)
Other assets................................ 44,650 (10,909)
Accounts payable............................ 204,911 17,736
Accrued interest payable.................... 26,435 4,823
Accrued real estate taxes................... 356,218 76,496
Security deposits........................... 53,871 13,853
Unearned income............................. 24,132 -
Other liabilities........................... 3,987 -
Due to Affiliates........................... 176,641 -
----------- -----------
Net cash provided by operating activities......... 1,634,808 215,711
----------- -----------
Cash flows from investing activities:
Additions to investment properties.............. (168,035) -
Purchase of investment properties............... (12,519,834) (218,418)
----------- -----------
Net cash used in investing activities............. (12,687,869) (218,418)
----------- -----------
Cash flows from financing activities:
Repayment of loan from Advisor.................. (360,000) (193,300)
Proceeds from offering.......................... 23,730,034 8,592,477
Payments of offering costs...................... 2,796,689 (1,189,795)
Loan fees....................................... - (100,000)
Distributions paid.............................. (1,049,946) (58,495)
Principal payments of debt...................... (18,317) (5,051,597)
----------- -----------
Net cash provided by financing activities......... 19,505,082 1,999,290
----------- -----------
Net increase in cash and cash equivalents......... 8,452,021 1,996,583
Cash and cash equivalents at beginning of period.. 738,931 10,934
----------- -----------
Cash and cash equivalents at end of period........ $ 9,190,952 2,007,517
=========== ===========
</TABLE>
See accompanying notes to financial statements.
-6-
<PAGE> 7
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Statement of Cash Flows
(continued)
For the six months ended June 30, 1996 and 1995
(unaudited)
Supplemental schedule of noncash investing and financing activities:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Purchase of investment properties.......... $(16,993,010) (6,026,023)
Assumption of debt......................... 4,473,176 4,595,178
Note payable............................... - 1,212,427
------------ ----------
(12,519,934) (218,418)
============ ==========
Distributions payable...................... $ 269,137 130,463
============ ==========
</TABLE>
See accompanying notes to financial statements.
-7-
<PAGE> 8
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Notes to Financial Statements
June 30, 1996
(unaudited)
Readers of this Quarterly Report should refer to the Company'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 Real Estate Corporation (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 for distribution 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. At June 30,
1996, subscriptions for a total of 4,376,636 Shares have been received,
resulting in $43,733,850 in Gross Offering Proceeds. As of June 30, 1996, the
Company has repurchased 6,318 Shares.
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 is not subject to
federal income tax to the extent it distributes 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.
-8-
<PAGE> 9
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Notes to Financial Statements
(continued)
June 30, 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 cash equivalents is $65,478 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 Offering 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 June 30, 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 mortgages
payable approximates the market interest rates for these types of debt
instruments, and as such, the carrying amount of the mortgages payable
approximates their fair value.
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<PAGE> 10
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Notes to Financial Statements
(continued)
June 30, 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 June 30, 1996, the Company had incurred $6,137,310 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 June 30, 1996,
organizational and offering costs did not exceed the 5.5% and 15% limitations.
The Company anticipates that these costs will not exceed these limitations upon
completion of the Offering, 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 amounts
incurred were $4,001,435 and $1,719,406 as of June 30, 1996 and December 31,
1995, respectively, of which $331,035 and $102,084 were unpaid as of June 30,
1996 and December 31, 1995, respectively. Other costs to Affiliates incurred
relating to the Offering were $552,958 and $409,858 as of June 30, 1996 and
December 31, 1995, respectively, of which $26,171 and $120,269 were unpaid as of
June 30, 1996 and December 31, 1995, respectively.
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<PAGE> 11
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Notes to Financial Statements
(continued)
June 30, 1996
(unaudited)
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, general and administrative expenses to Affiliates and acquisition
costs expensed of which $35,733 remained unpaid at June 30, 1996.
As of June 30, 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 June
30, 1996, the Company has incurred $125,532 of such fees, all of which remains
unpaid at June 30, 1996. (Defined terms in this paragraph have the same
definitions from the prospectus dated May 7, 1996.)
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 $72,096 and $12,454 for the six months ended June 30, 1996
and 1995, respectively.
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<PAGE> 12
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Notes to Financial Statements
(continued)
June 30, 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, certain Soliciting Dealers may receive one
Soliciting Dealer Warrant for each 40 Shares sold by such Soliciting Dealer
during the Offering. 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 an 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.
-12-
<PAGE> 13
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Notes to Financial Statements
(continued)
June 30, 1996
(unaudited)
(4) Investment Properties
<TABLE>
<CAPTION>
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.......... 09/95 315,000 834,659 (9,662) 315,000 824,997 1,139,997
Hartford/Naperville Plaza
Naperville, IL.......... 09/95 990,000 3,427,961 13,832 990,000 3,441,793 4,431,793
Nantucket Square
Schaumburg, IL.......... 09/95 1,908,000 2,354,583 (30,401) 1,908,000 2,324,182 4,232,182
Antioch Plaza
Antioch, IL............. 12/95 268,000 1,488,122 (75,568) 268,000 1,412,554 1,680,554
Mundelein Plaza
Mundelein, IL........... 03/96 1,803,000 3,857,560 (6,279) 1,803,000 3,851,281 5,654,281
Regency Point
Lockport, IL............ 04/96 1,000,000 4,720,800 (10,186) 1,000,000 4,710,614 5,710,614
Prospect Heights
Prospect Heights, IL.... 06/96 494,300 1,683,005 (2,708) 494,300 1,680,297 2,174,597
Montgomery-Sears
Montgomery, IL.......... 06/96 768,000 2,666,345 (5,417) 768,000 2,660,928 3,428,928
----------- ---------- -------- --------- ---------- ----------
$ 9,503,248 25,102,110 (126,389) 9,503,248 24,975,721 34,478,969
=========== ========== ======== ========= ========== ==========
</TABLE>
(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) Adjustments to basis includes additions to investment properties and
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. 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
June 30, 1996, the cumulative amount of such payments was $242,349. (Note 5)
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<PAGE> 14
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Notes to Financial Statements
(continued)
June 30, 1996
(unaudited)
(5) Operating Leases
Master Lease Agreements
As part of the purchases of several of the properties, the Company will receive
rent under master lease agreements on some of the spaces currently vacant for
periods ranging from one to two years or until the spaces are leased and
tenants begin paying rent. 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.
<TABLE>
<CAPTION>
Master lease
Square Feet payments
Covered by received for
Master Master lease six months
lease as of Rate per ended
Property Expires June 30,1996 Square foot June 30,1996
---------------- --------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Montgomery-Goodyear 09/96 3,010 $ 4.03 (A) $ 6,060
Hartford/Naperville 09/96 2,200 15.00 37,364
Nantucket Square 09/96 4,500(B) 15.00 52,643
Antioch Plaza 06/97 11,810 12.00 73,851
Mundelein Plaza 12/97 1,686 14.90 6,279
Regency Point 04/97 3,115 10,186
Prospect Heights 08/96 6,250 12.00 2,708
Montgomery-Sears 06/98 3,600 12.00
1,500 10.20 5,417
----------
$ 194,508
==========
</TABLE>
(A) The seller has master leased this space for $12.00 per square foot, which
was the rental rate required under the prior lease. Rent collected from
the current tenant is credited against the master lease.
(B) The Company also received a credit at closing for rent abatement
agreements under current leases.
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<PAGE> 15
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Notes to Financial Statements
(continued)
June 30, 1996
(unaudited)
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 $41,051 and $2,959 for
the six months ended June 30, 1996 and 1995, respectively, of rental income for
the period of occupancy for which stepped rent increases apply and $53,464 and
$12,413 in related accounts receivable as of June 30, 1996 and December 31,
1995, respectively. These amounts will be collected over the terms of the
related leases as scheduled rent payments are made.
(6) Mortgage Payable and Note Payable to Affiliates
Mortgages payable and note payable to Affiliates consist of the following at
June 30, 1996 and December 31, 1995:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
7.655% first mortgage secured by Walgreens,
Decatur, Illinois, monthly principal and
interest payments of $5,689, with the
remaining balance due May 2004.................. $ 745,242 750,727
First mortgage secured by Regency Point with a
floating interest rate of 180 basis points over
the 30-day LIBOR rate, which rate adjusts
monthly, amortizing over 25 years with remaining
balance due August 2000......................... 4,460,344 -
---------- -------
Mortgages payable................................. $5,205,586 750,727
========== =======
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
========== =======
</TABLE>
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<PAGE> 16
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Notes to Financial Statements
(continued)
June 30, 1996
(unaudited)
(7) Subsequent Events
During July 1996, the Company paid distributions of $269,137 to the
Stockholders of record at June 30, 1996 on a weighted average basis for the
month.
On July 1, 1996, the Company acquired a single-user retail property in Wheaton,
Illinois (the "Zany Brainy store") from an unaffiliated third party for a
purchase price of $2,455,000 on an all cash basis. Zany Brainy sells
children's books, computer software, toys and related items.
As of July 24, 1996, the Company had received subscriptions for a total of
5,000,000 Shares thereby completing the Offering. On July 24, 1996, the
Company commenced a follow-on Offering of 10,000,000 shares plus an additional
1,000,000 shares available for distribution through the DRP. As of August 1,
1996, the Company has accepted subscriptions for 17,400 shares in the follow-on
Offering.
On August 2, 1996, the Company acquired Salem Square Shopping Center ("Salem
Square") from an unaffiliated third party for a purchase price of $6,173,850 on
an all cash basis.
-16-
<PAGE> 17
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 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 June 30, 1996, subscriptions
for a total of 4,382,954 Shares have been received, resulting in $43,791,029 in
Gross Offering Proceeds, as defined below. As of June 30, 1996, the Company
has repurchased 6,318 Shares from Stockholders for an aggregate price of
$57,179 through the Shares Repurchase Program.
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
initial 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 June 30, 1996, the Company had acquired ten properties utilizing
approximately $29,570,000 of Gross Offering Proceeds and had cash and cash
equivalents of $9,190,952. The Company intends to use these remaining funds to
purchase additional properties, to pay distributions and to pay 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 six months ended June 30,
1996, cash provided by operations amounted to $1,634,808. Distributions
declared for the period were $1,189,551, 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.
-17-
<PAGE> 18
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 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 June 30,
1996, the Company had received $607,752 through the DRP and had repurchased
6,318 Shares from Stockholders for an aggregate price of $57,179, pursuant to
the terms of the Share Repurchase Program. The remaining $550,573 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 June 30, 1996, the Company
has repurchased 6,318 Shares.
Results of Operations
As of June 30, 1996, subscriptions for a total of 4,382,954 Shares were
received from the public resulting in $43,791,029 in Gross Offering Proceeds,
which includes the Advisor's capital contribution of $200,000. As of June 30,
1996, the Company has repurchased 6,318 Shares from Stockholders for an
aggregate price of $57,179 through the Share Repurchase Program.
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 other non-cash
items. FFO and funds available for distribution for the six months ended June
30, 1996 and 1995 are calculated as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Net income................................... $ 734,567 140,998
Depreciation................................. 277,500 48,353
----------- -------
Funds from operations(1)................... 1,012,067 189,351
Deferred rent receivable (2)................. (41,051) (2,959)
Rental income received under
Master lease agreements (3)................. 194,508 -
----------- -------
Funds available for distribution............. $ 1,165,524 186,392
=========== =======
</TABLE>
-18-
<PAGE> 19
(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 purchase of some of the properties, the Company will
receive rent under master lease agreements on some of the spaces
currently vacant for periods ranging from one to two years 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
six months ended June 30, 1996, the Company has recorded $194,508 of such
payments.
The increases in rental income, additional rental income, property operating
expenses to Affiliates and non-affiliates and depreciation for the three and
six months ended June 30, 1996, as compared to the three and six months ended
June 30, 1995, is due to the acquisition of properties during 1995 and 1996.
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 and six months ended June 30, 1996, as compared to the three and six
months ended June 30, 1995, is due to the payoff of the acquisition financing.
The Company continues to have a mortgage in principal amount of $745,242 which
bears interest at 7.655% collateralized by the Walgreens, Decatur property
payable to an Affiliate.
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%.
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 and six months ended June 30, 1996, as compared to the three and six
months ended June 30, 1995, is due to the Company entering the operational
stage.
-19-
<PAGE> 20
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.
<TABLE>
<CAPTION>
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
---------- ----- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Walgreens 100% 100% 100% 100% 100% 100%
Decatur, Illinois
Eagle Crest 100% 100% 100% 100% 100% 100%
Naperville, Illinois
Montgomery-Goodyear N/A N/A 100% 100% 100% 100%
Montgomery, Illinois
Hartford/Naperville Plaza N/A N/A 48% 90% 95% 95%
Naperville, Illinois
Nantucket Square N/A N/A 92% 81% 81% 81%
Schaumburg, Illinois
Antioch Plaza N/A N/A N/A 33% 49% 49%
Antioch, Illinois
Mundelein Plaza N/A N/A N/A N/A N/A 100%
Mundelein, IL
Regency Point N/A N/A N/A N/A N/A 97%
Lockport, IL
Prospect Heights N/A N/A N/A N/A N/A 78%
Prospect Heights, IL
Montgomery-Sears N/A N/A N/A N/A N/A 100%
Montgomery, IL
</TABLE>
Subsequent Events
On July 1, 1996, the Company acquired a single-user retail property in Wheaton,
Illinois (the "Zany Brainy store") from an unaffiliated third party for a
purchase price of $2,455,000 on an all cash basis. Zany Brainy sells children's
books, computer software, toys and related items.
On August 2, 1996, the Company acquired Salem Square Shopping Center ("Salem
Square") from an unaffiliated third party for a purchase price of $6,173,850 on
an all cash basis.
On the behalf of the Company, the Advisor is currently exploring the purchase of
additional shopping centers from unaffiliated third parties.
-20-
<PAGE> 21
As of July 24, 1996, the Company had received subscriptions for a total of
5,000,000 Shares thereby completing the Offering. On July 24, 1996, the Company
commenced a follow-on Offering of 10,000,000 shares plus an additional 1,000,000
shares available for distribution through the DRP. As of August 1, 1996, the
Company has accepted subscriptions for 17,400 shares in the follow-on Offering.
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: Required by the Securities and Exchange Commission
Regulations S-K. Item 601. The following documents are incorporated
by reference:
Registration Statement on Form S-11 and related exhibits, as amended,
File No. 33-79012, filed under the Securities Act of 1933.
(b) Report on Form 8-K dated June 3, 1996
Item 5. Other Events
Item 7. Financial Statements and Exhibits
Report on Form 8-K dated June 17, 1996
Item 2. Acquisition or Disposition of Assets
-21-
<PAGE> 22
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 REAL ESTATE CORPORATION
/s/ ROBERT D. PARKS
By: Robert D. Parks
Chief Executive Officer
Date: August 12, 1996
/s/ CYNTHIA M. HASSETT
By: Cynthia M. Hassett
Chief Financial and Accounting Officer
Date: August 12, 1996
-22-
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 9,190,952
<SECURITIES> 0
<RECEIVABLES> 799,181
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 10,128,322
<PP&E> 34,031,575
<DEPRECIATION> 447,394
<TOTAL-ASSETS> 44,159,897
<CURRENT-LIABILITIES> 2,080,330
<BONDS> 0
<COMMON> 43,270
0
0
<OTHER-SE> 37,525,808
<TOTAL-LIABILITY-AND-EQUITY> 44,159,897
<SALES> 0
<TOTAL-REVENUES> 1,887,655
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,045,961
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 107,127
<INCOME-PRETAX> 734,567
<INCOME-TAX> 0
<INCOME-CONTINUING> 734,567
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 734,567
<EPS-PRIMARY> .25
<EPS-DILUTED> .25
</TABLE>
