<PAGE> 1
As filed with the Securities and Exchange Commission on January 31, 1997
REGISTRATION NO. 333-6459
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------------
POST-EFFECTIVE
AMENDMENT NO. 2
TO
FORM S-11
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-----------------------
INLAND REAL ESTATE CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN GOVERNING INSTRUMENTS)
-----------------------
2901 BUTTERFIELD ROAD
OAK BROOK, ILLINOIS 60521
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
-----------------------
ROBERT H. BAUM, ESQ.
INLAND REAL ESTATE CORPORATION
2901 BUTTERFIELD ROAD
OAK BROOK, ILLINOIS 60521
(NAME AND ADDRESS OF AGENT FOR SERVICE)
-----------------------
WITH A COPY TO:
MICHAEL J. CHOATE, ESQ.
SHEFSKY & FROELICH LTD.
444 NORTH MICHIGAN AVENUE
SUITE 2500
CHICAGO, ILLINOIS 60611
-----------------------
<PAGE> 2
INLAND REAL ESTATE CORPORATION
CROSS REFERENCE SHEET
Pursuant to Item 501(b) of Regulation S-K
Heading in Prospectus as may be updated in
Item Number and Caption Supplement Nos. 1 through 10
----------------------- ------------------------------------------
1. Forepart of Registration Post-Effective Amendment No. 2 to
Statement and Outside Registration Statement Cover Page and
Front Cover Page of Prospectus Cover Page
Prospectus
2. Inside Front and Outside Inside Front Cover Page of Prospectus;
Back Cover Pages of Outside Back Cover Page of Prospectus
Prospectus
3. Summary Information, Risk Prospectus Cover Page; Prospectus Summary;
Factors and Ratio of Compensation Table; Risk Factors; Conflicts
Earnings to Fixed Charges of Interest; Plan of Distribution
4. Determination of Offering Not Applicable
Price
5. Dilution Not Applicable
6. Selling Security Holders Not Applicable
7. Plan of Distribution Cover Page; Prospectus Summary; Plan of
Distribution; Investment, Reinvestment and
Share Repurchase Programs
8. Use of Proceeds Estimated Use of Proceeds of Offering
9. Selected Financial Data Not Applicable
10. Management's Discussion Capitalization; Management's Discussion and
and Analysis of Financial Analysis of the Financial Condition of the
Condition and Results of Company
Operations
11. General Information as to Prospectus Summary; Prior Performance of the
Registrant Company's Affiliates; Management; Summary of
the Organizational Documents; Prior
Performance Tables
12. Policy with Respect to Risk Factors; Conflicts of Interest;
Certain Activities Investment Objectives and Policies; Real
Property Investments; Summary of the
Organizational Documents; Reports to
Stockholders
13. Investment Policies of Risk Factors; Conflicts of Interest;
Registrant Investment Objectives and Policies; Real
Property Investments; Summary of the
Organizational Documents
ii
<PAGE> 3
Heading in Prospectus as may be updated in
Item Number and Caption Supplement Nos. 1 through 10
----------------------- ------------------------------------------
14. Description of Real Estate Investment Objectives and Policies; Real
Property Investments
15. Operating Data Prior Performance of the Company's
Affiliates; Prior Performance Tables
16. Tax Treatment of Risk Factors; Federal Income Tax
Registrant and Its Considerations; ERISA Considerations
Security Holders
17. Market Price of and Risk Factors
Distributions on the
Registrant's Common Equity
and Related Stockholder
Matters
18. Description of Description of Securities
Registrant's Securities
19. Legal Proceedings Not Applicable
20. Security Ownership of Capitalization
Certain Beneficial Owners
and Management
21. Directors and Executive Management
Officers
22. Executive Compensation Compensation Table; Management
23. Certain Relationships and Conflicts of Interest; Management;
Related Transactions Investment Objectives and Policies; Real
Property Investments
24. Selection, Management and Prospectus Summary; Investment Objectives
Custody of Registrant's and Policies; Real Property Investments
Investments
25. Policies with Respect to Conflicts of Interest; Investment
Certain Transactions Objectives and Policies; Summary of the
Organizational Documents
26. Limitations of Liability Fiduciary Responsibility of Directors and
the Advisor; Indemnification
27. Financial Statements and Financial Statements
Information
iii
<PAGE> 4
Heading in Prospectus as may be updated in
Item Number and Caption Supplement Nos. 1 through 10
----------------------- ------------------------------------------
28. Interests of Named Not Applicable
Experts and Counsel
29. Disclosure of Commission Fiduciary Responsibility of Directors and
Position on Indemnification the Advisor; Indemnification; Plan of
for Securities Act Distribution
Liabilities
iv
<PAGE> 5
Inland Real Estate Corporation
Sticker Supplement
Supplement No. 10 to the Company's Prospectus supersedes each of the
previous supplements filed by the Company and discloses information regarding
recently completed and contemplated acquisitions by the Company, updates
certain information in sections of the Prospectus headed "Risk Factors",
"Estimated Use of Proceeds of Offering", "Management", "Investment Objectives
and Policies", "Real Property Investments", "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Plan of
Distribution". In addition, this Supplement No. 10 also supplements the
financial statements included in the Prospectus. Unless otherwise defined,
capitalized terms used herein shall have the same meaning as in the Prospectus.
The Company commenced the "best efforts" offering on July 24, 1996, and as
of January 29, 1997, the Company had accepted subscriptions for 3,712,425
shares ($33,597,450 net of Selling Commissions, the Marketing Contribution
and the Due Diligence Expense Allowance Fee). Inland Securities Corporation,
an Affiliate of the Advisor, serves as dealer-manager of the Offering and is
entitled to receive selling commissions and certain other amounts. As of
January 29, 1997, Inland Securities Corporation was entitled to receive
commissions, the Marketing Contribution and the Due Diligence Expense Allowance
Fee totaling $3,423,969. An Affiliate of the Advisor is also entitled to
receive Property Management Fees for management and leasing services.
<PAGE> 6
SUPPLEMENT NO. 10
DATED JANUARY 31, 1997
TO THE PROSPECTUS DATED JULY 24, 1996
OF INLAND REAL ESTATE CORPORATION
This Supplement No. 10 is provided for the purpose of supplementing the
Prospectus dated July 24, 1996 of Inland Real Estate Corporation (the
"Company"), as previously supplemented by Supplement No. 9 dated January 17,
1997, Supplement No. 8 dated January 7, 1997 (Supplement No. 8 was erroneously
labeled and actually was the seventh supplement to the Prospectus), Supplement
No. 6 dated November 27, 1996 and Supplement No. 5 dated November 1, 1996
(which superseded Supplements No. 1-4). This Supplement No. 10 supersedes each
of these supplements and discloses information regarding recently completed and
contemplated acquisitions by the Company, updates certain information in
sections of the Prospectus headed "Risk Factors", "Estimated Use of Proceeds of
Offering", "Management", "Investment Objectives and Policies", "Real Property
Investments", "Management's Discussion and Analysis of Financial Condition of
the Company" and "Plan of Distribution." This Supplement No. 10 also
supplements the financial statements included in the Prospectus unless
otherwise defined, capitalized terms used herein shall have the same meaning
as in the Prospectus.
RISK FACTORS/ESTIMATED USE OF PROCEEDS OF OFFERING
Investors are advised that the Offering is not conditioned upon the
Company raising a minimum amount of proceeds. Therefore, the Company may not
raise proceeds sufficient to apply to any use other than the payment of
organization and offering expenses associated with the Offering. Up to 12.61%
of the amount invested by any purchaser will be used by the Company to fund
various expenses associated with the Offering and a working capital reserve.
As a result, the Company estimates that only 87.39% of Gross Offering Proceeds
will be used to acquire properties if the Maximum Offering is sold. In
addition, although the Company anticipates that the total Public Offering
Expenses will total approximately 11.11% of the Gross Offering Proceeds,
investors are advised that these expenses may total up to 15% of Public
Offering Expenses.
MANAGEMENT
Effective August 16, 1996, Cynthia M. Hassett resigned as Secretary,
Treasurer and Chief Financial Officer. The Company's board of directors
appointed Kelly Tucek to fill each of the vacancies created by Ms. Hassett's
resignation. Ms. Tucek joined The Inland Group, Inc. in 1989 and is also an
Assistant Vice President of IREIC. Ms. Tucek is responsible for the Investment
Accounting Department, which includes overseeing the accounting for the Company
and all public limited partnership accounting functions along with quarterly
and annual SEC filings. Prior to joining The Inland Group, Inc., Ms. Tucek was
on the audit staff of Coopers & Lybrand since 1984. She received her B.A.
Degree in Accounting and Computer Science from North Central College.
1
<PAGE> 7
INVESTMENT OBJECTIVES AND POLICIES
DISTRIBUTIONS
The Company's Board has approved an increase in Distributions payable to
stockholders, beginning with the first distribution in the fourth quarter 1996,
from the current level of $0.80 per Share to $0.83 per Share on an annualized
basis, equivalent to 8.3% per annum on weighted average Shares.
REAL PROPERTY INVESTMENTS
SALEM SQUARE SHOPPING CENTER, COUNTRYSIDE, ILLINOIS
On August 2, 1996, the Company acquired Salem Square Shopping Center
("Salem Square") from Salem Square Ltd., an Illinois limited partnership and
American National Bank & Trust of Chicago, not individually but as trustee
under Trust No. 57190, an unaffiliated third party, for approximately $6.2
million which was funded entirely out of the Company's cash and cash
equivalents. The purchase price was approximately $55 per square foot, which
the Company concluded was fair and reasonable and within the range of values
indicated in an appraisal received by the Company and presented to the
Company's board. Salem Square was built in two phases in 1961 and 1985 and
consists of a single-story commercial multi-tenant retail facility aggregating
112,310 rentable square feet.
In evaluating Salem Square as a potential acquisition, the Company
considered a variety of factors including location, demographics, tenant mix,
price per square foot, existing rental rates compared to market rates, and the
occupancy of the center. The Company believes that the center is located within
a vibrant economic area. According to a study conducted by Mid-America Real
Estate Corporation, the population within a five mile radius of Salem Square is
240,000, with an average household income in excess of $62,000 per year, higher
than the national average. Further, although 75% of the rentable square feet at
Salem Square is leased to two discount clothing retailers, the Company's
management believes that the current rental rates for these two tenants are
below prevailing market rates, and that if one or both of these tenants vacated
their leased space before the end of the respective lease term, the space could
be released at rates higher than the current rental rates. The Company did not
consider any other factors materially relevant to the decision to acquire the
property. The Company did consider other factors such as traffic patterns in
the area.
The Company anticipates making approximately $140,000 in repairs and
improvements to Salem Square over the next few years, including painting,
parking lot repair, landscaping, and tuckpointing. A substantial portion of
this cost will be paid by the tenants.
The table below sets forth certain information with respect to the
occupancy rate at Salem Square expressed as a percentage of total gross
leasable area for each of the last five calendar years and the average
effective annual base rent per square foot for each of the last five calendar
years.
2
<PAGE> 8
<TABLE>
Year Ending Occupancy Effective Annual Rental
December 31, Rate Per Square Foot
------------ --------- -----------------------
<S> <C> <C>
1991 100% $5.95
1992 100 5.95
1993 100 6.09
1994 100 6.09
1995 100 6.40
</TABLE>
As of January 1, 1997, Salem Square was 97% leased. Tenants leasing more
than 10% of the total square footage are Marshalls, which leases 29,827 square
feet, and T.J. Maxx, which leases 63,535 square feet. Marshalls and T.J. Maxx
both are retailers of clothing for men, women and children, and home
furnishings.
The lease with Marshalls requires Marshalls to pay base rent equal to
$4.75 per square foot per annum payable monthly until January 31, 2002. The
lease also grants Marshalls two options to renew the lease for separate four
year terms. If the first option is exercised, Marshalls will be required to
pay a base rent equal to $5.35 per square foot per annum payable monthly from
February 1, 2002 through January 31, 2006. If the second option is exercised,
Marshalls will be required to pay a base rent equal to $5.85 per square foot
per annum payable monthly from February 1, 2006 through January 31, 2010. The
lease also requires Marshalls to pay percentage rent equal to 1% of gross sales
in excess of the annual fixed minimum rent (currently $141,678) plus Marshalls'
portion of real estate taxes paid on the property aggregating approximately
$71,900 in 1995. In 1995, 1% of gross sales did not exceed the annual fixed
minimum rent; therefore, no percentage rent was payable by Marshalls.
The lease with T.J. Maxx requires T.J. Maxx to pay base rent equal to
$5.75 per square foot per annum payable monthly until November 30, 2004. The
lease also grants three options to renew the lease for separate five year
terms. If T.J. Maxx exercises one or more of these options, the base rent per
square foot per annum will be: $5.82 (for the period from December 1, 2004
through November 30, 2009); $6.30 (for the period from December 1, 2009 through
November 20, 2014); and $6.79 (for the period from December 1, 2014 through
November 30, 2019). The lease also requires the payment of percentage rent
annually based on 1% of adjusted gross sales in excess of the annual fixed
minimum rent (currently $413,526). In 1995, 1% of gross sales did not exceed
the annual fixed minimum rent; therefore, no percentage rent was payable by
T.J. Maxx.
For federal income tax purposes, the Company's depreciable basis in Salem
Square will be approximately $4,500,000. Depreciation expense, for tax
purposes, will be computed using the straight-line method. Buildings and
improvements are depreciated based upon estimated useful lives of 40 years.
Real estate taxes payable in 1996 for the tax year ended 1995 (the most
recent tax year for which information is available) were $275,883. The real
estate taxes payable were calculated by multiplying Salem Square's assessed
value by an equalizer of 2.1243 and a tax rate of 7.391%.
3
<PAGE> 9
At January 1, 1997, a total of 108,568 square feet were leased to five
tenants at Salem Square. The following tables set forth certain information
with respect to the amount of and expiration of leases at this Neighborhood
Retail Center.
<TABLE>
Square Foot Lease Renewal Current Annual Percentage Rent per
Lessee Leased Ends Options Rent Rent Square Foot
-------- ----------- --------- ------- ------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
Trak Auto 6,000 01/31/00 1/5 yr. $ 66,000 None $11.00
Famous Footwear 5,500 08/31/99 None 59,510 None 10.82
Dress Barn 3,706 06/30/98 1/5 yr. 50,031 None 13.50
Marshalls 29,827 01/30/02 2/4 yr. 141,678 None 4.75
T.J. Maxx 63,535 11/30/04 3/5 yr. 413,526 None 5.75
<CAPTION>
Number of Approx. GLA of Annual Base Average Base Rent Per
Year Ending Leases Expiring Leases Rent of Total Annual Base Square Foot Under
December 31, Expiring (square feet) Expiring Leases Rent (1) Expiring Leases
------------ -------- ---------------- --------------- ------------------ ---------------------
<S> <C> <C> <C> <C> <C>
1996 none none none $682,542 none
1997 none none none 682,542 none
1998 1 3,706 $50,028 682,542 $13.50
1999 1 5,500 59,510 632,514 10.82
2000 1 6,000 66,000 573,004 11.00
2001 none none none 507,004 none
2002 1 29,827 141,678 507,004 4.75
2003 none none none 365,326 none
2004 1 63,535 365,326 365,326 5.75
2005 none none none none none
<CAPTION>
Percent of Total Percent of Annual
Building GLA Base Rent
Year Ending Represented by Represented by
December 31, Expiring Leases Expiring Lease
------------ --------------- --------------
<S> <S> <C>
1996 none -
1997 none -
1998 3.33 7.33
1999 4.90 9.41
2000 5.34 11.52
2001 none -
2002 26.56 27.94
2003 none -
2004 56.57 100.00
2005 none -
</TABLE>
(1) No assumptions were made regarding the releasing of expired leases.
It is the opinion of the Company's management that the space will be released
at market rates.
The Company received an appraisal prepared by an independent appraiser who
is a member in good standing of the American Institute of Real Estate
Appraisers which reported a fair market value for the Salem Square property, as
of July 15, 1996, of $6,260,000. Appraisals are estimates of value and should
not, however, be relied on as a measure of true worth or realizable value.
4
<PAGE> 10
HAWTHORN VILLAGE COMMONS, VERNON HILLS, ILLINOIS
On August 15, 1996, the Company acquired Hawthorn Village Commons
("Hawthorn Village") from LaSalle National Trust, N.A., successor to LaSalle
National Bank, as Trustee under Trust Agreement known as Trust 106520 and
Endowment and Foundation Realty, Ltd. - JMB I, an unaffiliated third party, for
approximately $8.4 million. The Company funded the purchase using: (i) the
proceeds of a short-term loan maturing August 23, 1996 in the amount of
approximately $2.9 million from Inland Mortgage Investment Corporation
("IMIC"), an Affiliate of the Company (the "Short-Term Loan"); and (ii) cash
and cash equivalents. The Company did not pay any fees in connection with the
Short-Term Loan, which bears interest at a rate of 8% per annum. A majority of
the Company's board, including a majority of the Independent Directors, has
approved the terms and conditions of the Short-Term Loan. The Company repaid
the Short-Term Loan using the proceeds of a loan (the "Mortgage Loan") in the
amount of $3,955,000 from LaSalle National Bank, an unaffiliated lender. The
Company has paid a 1% origination fee to the lender of the Mortgage Loan. The
Mortgage Loan has a term of five years and, prior to the maturity date,
requires payments of interest only, at an annual rate of 7.85%.
The purchase price for Hawthorn Village was approximately $85 per square
foot, which the Company concluded was fair and reasonable and within the range
of values indicated in an appraisal received by the Company. Hawthorn Village
was built in 1978 and remodeled in 1993 and consists of two single-story
buildings comprising a multi-tenant neighborhood retail facility aggregating
98,686 rentable square feet.
In evaluating Hawthorn Village as a potential acquisition, the Company
considered a variety of factors including location, demographics, tenant mix,
price per square foot, existing rental rates compared to market rates, traffic
patterns and the occupancy of the center. The Company believes that the center
is located within a vibrant economic area. According to a study conducted by
Urban Decision Systems, Inc. and dated November 21, 1995, the population within
a five mile radius of Hawthorn Village is 109,597, with an average household
income in excess of $98,472 per year, higher than the national average.
Walgreens, which occupies in excess of 10% of the rentable square feet at
Hawthorn Village, has the right to cancel its lease with one year's notice on
(i) December 31, 1997 (requiring the payment of a $60,000 fee) and (ii)
December 31, 2000 (requiring no fee). The Company's management believes that
if Walgreens cancels its lease, the space may be re-leased at a rate equal to
or greater than the current rental rate. The Company did not consider any
other factors materially relevant to the decision to acquire the property.
The Company anticipates making approximately $196,000 in repairs and
improvements to Hawthorn Village over the next eighteen months, including
painting, parking lot repair, landscaping, and roof repairs. A substantial
portion of this cost will be paid by the tenants.
5
<PAGE> 11
The table below sets forth certain information with respect to the
occupancy rate at Hawthorn Village expressed as a percentage of total gross
leasable area for each of the last five calendar years and the average
effective annual base rent per square foot for each of the last five calendar
years.
<TABLE>
Year Ending Occupancy Effective Annual Rental
December 31, Rate Per Square Foot
------------ --------- ------------------------
<S> <C> <C>
1991 96% $7.73
1992 98% 7.97
1993 98% 8.49
1994 100% 8.96
1995 100% 9.10
</TABLE>
As of January 1, 1997, Hawthorn Village was 97% leased. Tenants leasing
more than 10% of the total square footage are Dominick's, a grocery store,
which leases 46,984 square feet, and Walgreens, a drug store, which leases
11,974 square feet.
The lease with Dominick's requires Dominick's to pay a base rent equal to
$4.73 per square foot per annum, payable monthly until February 2003. The
lease also grants Dominick's one option to renew the lease for a five year
term. If the option is exercised, Dominick's will be required to pay a base
rent equal to $4.73 per square foot per annum payable monthly from March 20,
2003 through March 19, 2008. The lease also requires Dominick's to pay
percentage rent annually based on 1% of sales in excess of: (i) the annual
minimum fixed rent (currently $222,234); minus (ii) 50% of real estate taxes
and common area maintenance expenses allocated to the leased property. In
1995, net percentage rent was $43,744.
The lease with Walgreens requires Walgreens to pay base rent of $7.02 per
square foot per annum payable monthly until May 31, 1999 and $6.02 per square
foot per annum payable monthly from June 1, 1999 to December 31, 2005. The
lease also requires Walgreens to pay percentage rent annually equal to the sum
of: (i) 3% of gross sales, excluding liquor, up to $2.4 million; plus (ii) 2%
on gross sales, excluding liquor, exceeding $2.4 million; plus (iii) 1.5% on
gross sales of liquor, adjusted by annual minimum rent. In 1995, net
percentage rent was $29,314.
For federal income tax purposes, the Company's depreciable basis in
Hawthorn Village will be approximately $5,830,500. Depreciation expense, for
tax purposes, will be computed using the straight-line method. Buildings and
improvements are depreciated based upon estimated useful lives of 40 years.
Real estate taxes to be paid in 1996 for the tax year ended 1995 (the most
recent tax year for which information is available) were $194,441. The real
estate taxes payable were calculated by multiplying Hawthorn Village's assessed
value at a tax rate of 8.035% .
6
<PAGE> 12
At January 1, 1997, a total of 95,835 square feet was leased to 21 tenants
at Hawthorn Village. The following tables set forth certain information with
respect to the amount of and expiration of leases at this Neighborhood Retail
Center.
<TABLE>
<CAPTION>
Square
Feet Lease Renewal Current Rent per
Lessee Leased Ends Options Annual Rent Square Foot
------ ------ ------ ------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Dominick's 46,984 02/2003 1/5 yr. $228,641 $ 4.87
Formally Yours 1,609 08/1998 None 28,962 18.00
One Hour Photo 668 06/1998 1/5 yr. 12,645 18.93
Baskin Robins 895 04/1997 1/2 yr. 20,585 23.00
Great Frame Up 1,455 07/1999 None 21,825 15.00
Hair Depot 1,950 12/1998 None 31,200 16.00
Mailboxes Etc. 1,486 10/1998 1/3 yr. 26,748 18.00
Annie's Bookstop 1,033 11/1996 1/2 yr. 12,913 12.50
Village Dental Clinic 1,463 12/1998 None 21,945 15.00
Tasty Thai 1,802 01/1999 1/5 yr. 25,228 14.00
Pearle Vision Center 2,957 12/1998 1/5 yr. 65,054 22.00
Petal Peddlers 1,486 06/1998 None 20,804 14.00
Majestic Dry Cleaning 1,757 12/1998 1/5 yr. 25,459 14.49
El Famous Burrito 1,685 11/1998 None 30,364 18.02
Zanie's Comedy 6,046 10/1997 2/5 yr. 66,506 11.00
Walgreens 11,974 12/2005 None 83,938 7.02
Big Apple Bagels 2,000 09/2005 2/5 yr. 33,980 16.99
Caldwell Banker 3,631 05/1998 1/3 yr. 54,465 15.00
Bo-Bo's Gyros 1,410 04/2000 1/5 yr. 21,150 15.00
Daily Herald 1,800 03/1997 None 26,100 14.50
Starbuck's Coffee 1,744 02/2007 None 36,624 21.00
</TABLE>
7
<PAGE> 13
<TABLE>
<CAPTION>
Percent of
Average Total Percent of
Base Rent Building Annual Base
Approx. GLA Annual Per Square GLA Rent
Number of of Expiring Base Rent Foot Under Represented Represented
Year Ending Leases Leases of Expiring Total Annual Expiring by Expiring by Expiring
December 31, Expiring (square feet) Leases Base Rent (1) Leases Leases Leases
- ------------ --------- ------------- ----------- -------------- --------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
1996 2 2,436 $ 27,682 $901,099 $11.36 2.47 3.07
1997 3 8,741 113,191 874,949 12.95 8.86 12.94
1998 10 18,692 316,741 763,145 16.95 18.94 41.50
1999 2 3,257 48,392 448,954 14.86 3.30 10.78
2000 1 1,410 21,150 401,937 15.00 1.43 5.26
2001 none none none 385,638 none none none
2002 none none none 389,272 none none none
2003 1 46,984 222,234 389,272 4.73 47.61 57.09
2004 none none none 167,326 none none none
2005 2 13,974 123,438 168,782 8.83 14.16 73.13
</TABLE>
(1) No assumptions were made regarding the releasing of expired leases. It is
the opinion of the Company's management that the space will be released at
market rates.
The Company received an appraisal prepared by an independent appraiser who
is a member in good standing of the American Institute of Real Estate
Appraisers which reported a fair market value for Hawthorn Village upon
reaching stabilized occupancy as of July 15, 1996, of $8,560,000. Appraisals
are estimates of value and should not, however, be relied on as a measure of
true worth or realizable value.
SIX CORNERS PLAZA, CHICAGO, ILLINOIS
On October 18, 1996, the Company acquired a Neighborhood Retail Center
located at 3920 North Cicero Avenue in Chicago, Illinois known as Six Corners
Plaza ("Six Corners") from MBL Life Assurance Corporation, an unaffiliated
third party, for approximately $6.0 million. The purchase price was funded
using cash and cash equivalents. The purchase price was approximately $74 per
square foot, which the Company concluded was fair and reasonable and within the
range of values indicated in an appraisal received by the Company and presented
to the Company's board of directors.
Six Corners was built in 1966 and consists of a two-story building
aggregating 80,650 rentable square feet. As of January 1, 1997, Six Corners
was 94% leased. Tenants leasing more than 10% of the total square footage are
Bally's Chicago Health & Tennis Club ("Bally's"), which leases 45,803 square
feet, or approximately 57% of the rentable square feet, and Illinois Masonic,
which leases 15,338 square feet, or approximately 19% of the rentable square
feet. Bally's is a fitness and exercise center, and Illinois Masonic is a
medical center.
In evaluating Six Corners as a potential acquisition, the Company
considered a variety of factors including location, demographics, tenant mix,
price per square foot, existing rental rates compared to market rates, and the
occupancy of the center. The Company believes that the center is located
within a vibrant economic area. According to a March 1996 study conducted by
Mid-America Real Estate Corporation which was based on 1990 census updates and
projections, the population within a three-mile radius of Six Corners is
412,159, with an estimated average household income in excess of $45,400 per
year, higher than the
8
<PAGE> 14
national average. Although 76% of the rentable square feet at Six Corners is
leased to two tenants, the Company's management believes the superior
demographics of the area surrounding the center, including high population
density, relatively high income and high vehicular traffic volume near the
center, meet the site evaluation criteria of many retailers. Therefore, the
Company's management believes that retenanting of any space which is vacated in
the future should be accomplished relatively quickly and at rental rates
comparable to those currently paid by the tenants at the facility. The Company
did not consider any other factors materially relevant to the decision to
acquire the property.
The Company does not anticipate making any significant repairs and
improvements to Six Corners over the next few years. A substantial portion of
any such cost would be paid by the tenants. The table below sets forth certain
information regarding occupancy and rental rates for the year ended December
31, 1995. Information for prior years is not available to the Company.
<TABLE>
<CAPTION>
<S> <C> <C>
Occupancy Rate
Year Ending as of December 31 Effective Annual Rental
December 31, of Each Year Per Square Foot
------------ ----------------- -----------------------
1995 96% $12.06
</TABLE>
The lease with Bally's requires Bally's to pay base rent equal to $10.68
per square foot per annum payable monthly until July 31, 2010. The lease also
grants Bally's two options to renew the lease for separate five year terms. If
the first option is exercised, Bally's will be required to pay a base rent of
$12.67 per square foot per annum payable monthly from August 1, 2010.
Thereafter, the price will increase 3% per year throughout both option periods.
For federal income tax purposes, the Company's depreciable basis in Six
Corners will be approximately $4,590,000. Depreciation expense, for tax
purposes, will be computed using the straight-line method. Buildings and
improvements are depreciated based upon estimated useful lives of 40 years.
Real estate taxes payable in 1996 for the tax year ended 1995 (the most
recent tax year for which information is available) were $295,708. The real
estate taxes payable were calculated by multiplying Six Corners' assessed value
by an equalizer of 2.1243 and a tax rate of 9.345%.
9
<PAGE> 15
At January 1, 1997, a total of 75,825 square feet were leased to eight
tenants at Six Corners. The following tables set forth certain information
with respect to the amount of and expiration of leases at this Neighborhood
Retail Center.
<TABLE>
<CAPTION>
Square Foot Renewal Current Percentage Rent per
Leased Lease Ends Options Annual Rent Rent Square Foot
------ ---------- ------- ----------- ---- -----------
<S> <C> <C> <C> <C> <C> <C>
Bally's Chicago
Health Club 45,803 7/2010 2/5year $489,176 None $10.68
Illinois Masonic (1) 13,988 3/1999 None $251,784 None $18.00
Illinois Masonic
Optometry Space (1) 1,350 3/1999 None $ 24,300 None $18.00
One Hour Photo 1,001 2/1997 None $ 17,017 None $17.00
Weight Watchers 2,844 8/1998 1/5year $ 46,926 None $16.50
Payless Shoe Store 2,538 9/2002 None $ 44,451 None $17.55
Video Update 6,975 9/2000 None $ 69,750 None $10.00
Supercuts 1,326 1/2005 None $ 21,852 None $16.48
Vacant 4,825 None None None None None
</TABLE>
(1) Both spaces are leased to Illinois Masonic.
<TABLE>
<CAPTION>
Approx. GLA of
Year Ending Number of Leases Expiring Leases Annual Base Rent of Total Annual Base
December 31, Expiring (square feet) Expiring Leases Rent (1)
------------ -------- ------------- --------------- --------
<S> <C> <C> <C> <C>
1996 none none none $989,496
1997 1 1,001 $17,017 966,416
1998 1 2,844 48,348 984,915
1999 2 15,338 276,084 950,270
2000 1 6,975 69,750 689,172
2001 none none none 632,975
2002 1 2,538 47,080 648,856
2003 none none none 614,465
2004 none none none 629,470
2005 1 1,326 27,619 644,127
<CAPTION>
Average Base Rent Percent of Total Percent of Annual
Per Square Foot Building GLA Base Rent
Year Ending Under Expiring Represented by Represented by
December 31, Leases Expiring Leases Expiring Leases
------------ ------ --------------- ---------------
<S> <S> <C> <C>
1996 none none none
1997 $17.00 1.24 1.72
1998 17.00 3.53 4.90
1999 18.00 19.02 29.05
2000 10.00 8.65 10.12
2001 none none none
2002 18.55 3.15 7.26
2003 none none none
2004 none none none
2005 20.83 1.64 4.29
</TABLE>
(1) No assumptions were made regarding the releasing of expired leases. It is
the opinion of the Company's management that the space will be released at
market rates.
The Company received an appraisal prepared by an independent appraiser who
is a member in good standing of the American Institute of Real Estate
Appraisers which reported a fair market value for Six Corners, as of September
30, 1996, of $6.2 million. Appraisals are estimates of value and should not,
however, be relied on as a measure of true worth or realizable value.
10
<PAGE> 16
SPRING HILL FASHION CORNER, WEST DUNDEE, ILLINOIS
On November 13, 1996, the Company acquired a Neighborhood Retail Center
located at 830-890 West Main Street, West Dundee, Illinois known as Spring Hill
Fashion Corner ("Spring Hill") from JMB/Spring Hill Associates, an unaffiliated
third party, for approximately $9.2 million. The purchase price was funded
using cash and cash equivalents, including the proceeds of monies previously
drawn against the Company's line of credit provided by LaSalle Bank on
September 30, 1996. The purchase price was approximately $73.48 per square
foot, which the Company concluded was fair and reasonable and within the range
of values indicated in an appraisal received by the Company and presented to
the Company's board of directors.
Spring Hill was built in 1985 and consists of a one-story building
aggregating 125,198 rentable square feet. As of January 1, 1997, Spring Hill
was 95% leased. In evaluating Spring Hill as a potential acquisition, the
Company considered a variety of factors including location, demographics,
tenant mix, price per square foot, existing rental rates compared to market
rates, and the occupancy of the center. The Company believes that the center
is located within a vibrant economic area. According to a 1996 study conducted
by Richard Ellis, the population within a five mile radius of Spring Hill is
111,500, with an estimated average household income in excess of $54,500 per
year, higher than the national average. Although 44% of the rentable square
feet at Spring Hill is leased to two tenants, the Company's management believes
that retenanting of any space which is vacated in the future should be
accomplished relatively quickly and at rental rates comparable to those
currently paid by the tenants at the facility. The Company did not consider
any other factors materially relevant to the decision to acquire the property.
The Company does not anticipate making any significant repairs and
improvements to Spring Hill over the next few years. Nevertheless, a
substantial portion of any such cost would be paid by the tenants.
The table below sets forth certain information with respect to the
occupancy rate at Spring Hill expressed as a percentage of total gross leasable
area and the average effective annual base rent per square foot. Information
for prior years is not available to the Company since the property is being
acquired through a foreclosure proceeding.
<TABLE>
<CAPTION>
Occupancy Rate
Year Ending as of December 31 Effective Annual Rental
December 31, of Each Year Per Square Foot
------------ ----------------- -----------------------
<S> <C> <C>
1995 75% $8.92
</TABLE>
Tenants leasing more than 10% of the total square footage are Michael's,
which leases 30,000 square feet, or approximately 24% of the rentable square
feet, and T. J. Maxx, which leases 25,161 square feet, or approximately 20% of
the rentable square feet. Michael's is a national chain of craft stores, and
T. J. Maxx is a discount clothing chain. The lease with Michael's requires
Michael's to pay base rent equal to $7.00 per square foot per annum payable
monthly until January 31, 2001, and $7.50 per square foot per annum payable
monthly from February 1, 2001 until January 31, 2006. The Michael's lease
contains no option to renew. The lease with T. J. Maxx requires T. J. Maxx to
pay base rent equal to $6.50 per square foot per annum payable monthly until
January 31, 2001. The lease with T. J. Maxx also grants T. J. Maxx one option
to renew the lease for a five-year term. If this option is exercised, T .J.
Maxx will be required to pay a base rent of $6.50 per square foot per annum
payable monthly from February 1, 2001 until January 31, 2006.
11
<PAGE> 17
For federal income tax purposes, the Company's depreciable basis in Spring
Hill will be approximately $7,406,000. Depreciation expense, for tax purposes,
will be computed using the straight-line method. Buildings and improvements are
depreciated based upon estimated useful lives of 40 years.
Real estate taxes payable in 1996 for the tax year ended 1995 (the most
recent tax year for which information is available) were $123,314.60. The real
estate taxes payable were calculated by multiplying Spring Hill's assessed value
by an equalizer of 1.00 and a tax rate of 6.2199%.
At January 1, 1997, a total of 119,198 square feet were leased to 18
tenants at Spring Hill. The following tables set forth certain information with
respect to the amount of and expiration of leases at this Neighborhood Retail
Center.
<TABLE>
<CAPTION>
Current
Lessee Square Feet Lease Renewal Annual Rent per
------ Leased Ends Options Rent Square Foot
---------- ----- ------- ------- -----------
<S> <C> <C> <C> <C> <C>
Pier 1 Imports 8,487 03/2002 none $110,331 $13.00
Travel Agents Int'l 2,000 09/1999 none 21,500 10.75
China Palace 5,000 07/2003 1/5 yr. 62,500 12.50
Wild Bird Unltd. 2,000 12/2000 none 26,120 13.06
Let's Learn 4,000 12/2000 none 39,960 9.99
Michael's 30,000 01/2006 none 210,000 7.00
Fantastic Sam's 900 06/2000 none 22,500 25.00
Jenny Craig 3,600 09/1998 1/5 yr. 41,400 11.50
Sizes Unltd. 4,000 01/2001 none 56,000 14.00
Sally Beauty Supply 2,000 03/1998 1/5 yr. 30,000 15.00
Music Go Round 3,000 09/2001 1/5 yr. 37,500 12.50
Once Upon a Child 4,000 02/2001 1/5 yr. 38,000 9.50
T. J. Maxx 25,161 01/2001 1/5 yr. 163,546 6.50
Play It Again Sports 3,500 02/2000 none 36,750 10.50
Funcoland 2,000 05/1997 none 24,000 12.00
Cosmetic Center 6,000 01/2003 2/5 yr. 60,000 10.00
Celebration Center 8,125 10/2004 none 89,700 11.04
Famous Footwear 5,425 09/2000 none 59,675 11.00
Vacant 6,000 none none none none
</TABLE>
12
<PAGE> 18
<TABLE>
<CAPTION>
Percent of
Average Total Percent of
Base Rent Building Annual Base
Number of Approx. GLA Annual Base Per Square GLA Rent
Year Ending Leases of Expiring Rent of Foot Under Represented Represented by
December 31, Expiring Leases Expiring Total Annual Expiring by Expiring Expiring
------------ -------- (square feet) Leases Base Rent (1) Leases Leases Leases
------------- ---------- ------------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
1996 none none none $1,129,786 none none none
1997 1 2,000 $24,000 1,139,920 $12.00 1.60% 2.11%
1998 2 5,600 71,400 1,150,809 12.75 4.47 6.20
1999 1 2,000 21,500 1,093,874 10.75 1.60 1.97
2000 5 15,825 206,988 1,086,035 13.08 12.64 19.06
2001 4 36,161 301,546 899,123 8.34 28.88 33.54
2002 1 8,487 126,244 601,744 14.87 6.78 20.98
2003 2 11,000 153,000 475,500 13.91 8.79 32.18
2004 1 8,125 97,500 322,500 12.00 6.49 30.23
2005 none none none 225,000 none none none
2006 1 30,000 225,000 225,000 7.50 23.96 100.00
</TABLE>
(1) No assumptions were made regarding the releasing of expired leases. It is
the opinion of the Company's management that the space will be released at
market rates.
The Company received a letter appraisal prepared by an independent
appraiser who is a member in good standing of the American Institute of Real
Estate Appraisers which reported a fair market value for the Spring Hill
property, as of November 15, 1996, of not less than $9,380,000 million.
Appraisals are estimates of value and should not, however, be relied on as a
measure of true worth or realizable value.
GRAND & HUNT CLUB OUTLOT CENTER, GURNEE, ILLINOIS
On December 24, 1996, the Company acquired a Neighborhood Retail Center
located at Grand Avenue and Hunt Club Road in Gurnee, Illinois known as Grand &
Hunt Club Outlot Center ("Hunt Club") from Butler Real Estate, Inc., an
unaffiliated third party, for approximately $3.6 million. The purchase price was
funded using cash and cash equivalents. The purchase price was approximately
$169.26 per square foot, which the Company concluded was fair and reasonable and
within the range of values indicated in an appraisal received by the Company and
presented to the Company's board of directors.
Hunt Club was built in 1996 and consists of a one-story building
aggregating 21,222 rentable square feet. As of January 1, 1997, Hunt Club was
100% leased. In evaluating Hunt Club as a potential acquisition, the Company
considered a variety of factors including location, demographics, tenant mix,
price per square foot, existing rental rates compared to market rates, and the
occupancy of the center. The Company believes that the center is located within
a vibrant economic area. Although 100% of the rentable square feet at Hunt Club
is leased to two tenants, the Company's management believes that retenanting of
any space which is vacated in the future should be accomplished relatively
quickly and at rental rates comparable to those currently paid by the tenants at
the facility. The Company did not consider any other factors materially
relevant to the decision to acquire the property.
13
<PAGE> 19
The Company does not anticipate making any significant repairs and
improvements to Hunt Club over the next few years because the facility was
completed in 1996. Nevertheless, a substantial portion of any such cost would
be paid by the tenants.
The table below sets forth certain information with respect to the
occupancy rate at Hunt Club expressed as a percentage of total gross leasable
area and the average effective annual base rent per square foot.
<TABLE>
<CAPTION>
Occupancy Rate Effective Annual Rental
as of Per Square Foot
January 1, 1997 -----------------------
---------------
<S> <C>
100% $18.61
</TABLE>
Tenants leasing more than 10% of the total square footage are Super Crown
Books, which leases 16,722 square feet, or approximately 78.8% of the rentable
square feet, and Helzberg's Diamond Shops d/b/a Jewelry 3 ("Jewelry 3"), which
leases 4,500 square feet, or approximately 21.2% of the rentable square feet.
Super Crown Books is a national chain of discount book stores and Jewelry 3 is a
jewelry store chain. The lease with Super Crown Books requires Super Crown
Books to pay base rent equal to $16.75 per square foot per annum payable monthly
from January 1, 1997 until February 28, 2002 and $17.75 per square foot per
annum payable monthly from March 1, 2002 until February 28, 2007. The Super
Crown Books lease contains no option to renew. The lease with Jewelry 3
requires Jewelry 3 to pay base rent equal to $25.50 per square foot per annum
payable monthly until December 31, 2001 and $29.32 per square foot per annum
payable monthly from January 1, 2002 until December 31, 2006. The Jewelry 3
lease contains no option to renew.
For federal income tax purposes, the Company's depreciable basis in Hunt
Club will be approximately $2,600,000. Depreciation expense, for tax purposes,
will be computed using the straight-line method. Buildings and improvements are
depreciated based upon estimated useful lives of 40 years.
Information regarding real estate taxes payable in 1996 for the tax year
ended 1995 (the most recent tax year for which information is generally
available) is not available since Hunt Club was completed in 1996. Prior to the
completion of Hunt Club in 1996, the property was vacant land. The Company
believes that any tax information relating to the vacant land would not be
useful to investors.
At January 1, 1997, a total of 21,222 square feet were leased to two
tenants at Hunt Club. The following tables set forth certain information with
respect to the amount of and expiration of leases at this Neighborhood Retail
Center.
<TABLE>
<CAPTION>
Current
Square Feet Lease Renewal Annual Rent per
Lessee Leased Ends Option Rent Square Foot
------ ------------ ----- -------- ------- -----------
<S> <C> <C> <C> <C> <C>
Super Crown Books 16,722 02/2007 None $280,094 $16.75
Jewelry 3 4,500 12/2006 None 114,750 25.50
</TABLE>
14
<PAGE> 20
<TABLE>
<CAPTION>
Percent of
Average Total Percent of
Base Rent Building Annual Base
Approx. GLA Annual Base Per Square GLA Rent
Number of of Expiring Rent of Foot Under Represented Represented by
Year Ending Leases Leases Expiring Total Annual Expiring by Expiring Expiring
December 31, Expiring (square feet) Leases Base Rent (1) Leases Leases Leases
------------ --------- ------------- --------- ------------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
1997-2001 none none none $394,844 none none none
2002 none none none 408,779 none none none
2003-2005 none none none 428,756 none none none
2006 1 4,500 $131,940 428,756 $29.32 21.2% 30.77%
</TABLE>
(1) No assumptions were made regarding the releasing of expired leases. It is
the opinion of the Company's management that the space will be released at
market rates.
The Company received an appraisal prepared by an independent appraiser who
is a member in good standing of the American Institute of Real Estate Appraisers
which reported a fair market value for the Hunt Club property, as of December
17, 1996, of $3,610,000 million. Appraisals are estimates of value and should
not be relied on as a measure of true worth or realizable value.
THE QUARRY OUTLOT, HODGKINS, ILLINOIS
On December 24, 1996, the Company acquired a Neighborhood Retail Center
located at La Grange Road and Joliet Road in Hodgkins, Illinois known as The
Quarry Outlot ("The Quarry") from Butler Real Estate, Inc., an unaffiliated
third party, for approximately $1.8 million. The purchase price was funded using
cash and cash equivalents. The purchase price was approximately $186.53 per
square foot, which the Company concluded was fair and reasonable and within the
range of values indicated in an appraisal received by the Company and presented
to the Company's board of directors.
The Quarry was built in 1996 and consists of a one-story building
aggregating 9,650 rentable square feet. As of January 1, 1997, The Quarry was
100% leased. In evaluating The Quarry as a potential acquisition, the Company
considered a variety of factors including location, demographics, tenant mix,
price per square foot, existing rental rates compared to market rates, and the
occupancy of the center. The Company believes that the center is located within
a vibrant economic area. Although 100% of the rentable square feet at The
Quarry is leased to three tenants, the Company's management believes that
retenanting of any space which is vacated in the future should be accomplished
relatively quickly and at rental rates comparable to those currently paid by the
tenants at the facility. The Company did not consider any other factors
materially relevant to the decision to acquire the property.
The Company does not anticipate making any significant repairs and
improvements to The Quarry over the next few years because the facility was
completed in 1996. Nevertheless, a substantial portion of any such cost would
be paid by the tenants.
The table below sets forth certain information with respect to the
occupancy rate at The Quarry expressed as a percentage of total gross leasable
area and the average effective annual base rent per square foot.
<TABLE>
<CAPTION>
Occupancy Rate
as of Effective Annual Rental
January 1, 1997 Per Square Foot
--------------- -----------------------
<S> <C>
100% $20.88
</TABLE>
15
<PAGE> 21
Tenants leasing more than 10% of the total square footage are Helzberg's
Diamond Shops d/b/a Jewelry 3 ("Jewelry 3"), which leases 4,700 square feet, or
approximately 48.7% of the rentable square feet, Casual Male Big and Tall
("Casual Male"), which leases 3,150 square feet, or approximately 32.6% of the
rentable square feet, and Dunkin Donuts/ Baskin Robbins, which leases 1,800
square feet, or approximately 18.7% of the rentable square feet. Jewelry 3 is a
jewelry store chain, Casual Male is a retailer of clothing for men, and Dunkin
Donuts/ Baskin Robbins is a national chain of retail stores selling donuts and
ice cream. The lease with Jewelry 3 requires Jewelry 3 to pay base rent equal
to $24.00 per square foot per annum payable monthly until December 31, 2001 and
$26.35 per square foot per annum payable monthly from January 1, 2002 until
December 31, 2006. The Jewelry 3 lease contains no option to renew. The lease
with Casual Male requires Casual Male to pay base rent equal to $15.00 per
square foot per annum payable monthly until August 31, 1999, $16.00 per square
foot per annum payable monthly from September 1, 1999 until August 31, 2003,
$17.00 per square foot per annum payable monthly from September 1, 2003 until
August 31, 2006 and $18.70 per square foot per annum payable monthly from
September 1, 2006 until December 31, 2006. The Casual Male lease contains no
option to renew. The lease with Dunkin Donuts/ Baskin Robbins requires Dunkin
Donuts/ Baskin Robbins to pay base rent equal to $23.00 per square foot per
annum payable monthly until October 31, 2001 and $25.30 per square foot per
annum payable monthly from November 1, 2001 until October 31, 2006. The Dunkin
Donut/ Baskin Robbins lease contains no option to renew.
For federal income tax purposes, the Company's depreciable basis in The
Quarry will be approximately $1,275,000. Depreciation expense, for tax
purposes, will be computed using the straight-line method. Buildings and
improvements are depreciated based upon estimated useful lives of 40 years.
Information regarding real estate taxes payable in 1996 for the tax year
ended 1995 (the most recent tax year for which information is generally
available) is not available since The Quarry was completed in 1996. Prior to
the completion of The Quarry in 1996, the property was vacant land. The Company
believes that any tax information relating to the vacant land would not be
useful to investors.
At January 1, 1997, a total of 9,650 square feet were leased to three
tenants at The Quarry. The following tables set forth certain information with
respect to the amount of and expiration of leases at this Neighborhood Retail
Center.
<TABLE>
<CAPTION>
Curent
Square Feet Lease Renewal Annual Rent Per
Lessee Leased Ends Options Rent Square Foot
------ ----------- ----- ------- ------- -----------
<S> <C> <C> <C> <C> <C>
Jewelry 3 4,700 12/2006 None $112,800 $24.00
Casual Male 3,150 12/2006 None 47,250 15.00
Dunkin Donuts/
Baskin Robbins 1,800 10/2006 None 41,400 23.00
</TABLE>
16
<PAGE> 22
<TABLE>
<CAPTION>
Percent of
Average Total Percent of
Base Rent Building Annual Base
Approx. GLA Annual Base Per Square GLA Rent
Number of of Expiring Rent of Foot Under Represented Represented by
Year Ending Leases Leases Expiring Total Annual Expiring by Expiring Expiring
December 31, Expiring (square feet) Leases Base Rent (1) Leases Leases Leases
------------ --------- ------------- --------- ------------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
1997 none none none $201,450 none none none
1998 none none none 201,450 none none none
1999 none none none 202,500 none none none
2000 none none none 204,600 none none none
2001 none none none 205,290 none none none
2002 none none none 219,785 none none none
2003 none none none 220,835 none none none
2004 none none none 222,935 none none none
2005 none none none 222,935 none none none
2006 3 9,650 $224,720 224,720 $23.29 100% 100%
</TABLE>
(1) No assumptions were made regarding the releasing of expired leases. It is
the opinion of the Company's management that the space will be released at
market rates.
The Company received an appraisal prepared by an independent appraiser who
is a member in good standing of the American Institute of Real Estate Appraisers
which reported a fair market value for The Quarry property, as of December 9,
1996, of $1,850,000. Appraisals are estimates of value and should not be relied
on as a measure of true worth or realizable value.
CRESTWOOD PLAZA SHOPPING CENTER, CRESTWOOD, ILLINOIS
On December 27, 1996, the Company acquired a Neighborhood Retail Center
located at 13335 South Cicero Avenue in Crestwood, Illinois known as Crestwood
Plaza Shopping Center ("Crestwood Plaza") from Inland Property Sales, Inc., an
affiliated third party, for approximately $1.81 million. The purchase price was
funded using cash and cash equivalents. The purchase price was approximately
$90.24 per square foot, which the Company concluded was fair and reasonable and
within the range of values indicated in an appraisal received by the Company and
presented to the Company's board of directors.
Crestwood Plaza was built in 1992 and consists of a one-story building
aggregating 20,044 rentable square feet. As of December 27, 1996, Crestwood
Plaza was 100% leased. In evaluating Crestwood Plaza as a potential
acquisition, the Company considered a variety of factors including location,
demographics, tenant mix, price per square foot, existing rental rates compared
to market rates, and the occupancy of the center. The Company believes that the
center is located within a vibrant economic area. Although 100% of the rentable
square feet at Crestwood Plaza is leased to two tenants, the Company's
management believes that retenanting of any space which is vacated in the future
should be accomplished relatively quickly and at rental rates comparable to
those currently paid by the tenants at the facility. The Company did not
consider any other factors materially relevant to the decision to acquire the
property.
17
<PAGE> 23
The Company does not anticipate making any significant repairs and
improvements to Crestwood Plaza over the next few years. Nevertheless, a
substantial portion of any such cost would be paid by the tenants.
The table below sets forth certain information with respect to the
occupancy rate at Crestwood Plaza expressed as a percentage of total gross
leasable area and the average effective annual base rent per square foot.
<TABLE>
<CAPTION>
Occupancy Rate
Year Ending as of December 31 Effective Annual Rental
December 31, of Each Year Per Square Foot
------------ ----------------- ----------------------
<S> <C> <C>
1996 100% $10.13
1995 100% $10.13
1994 100% $10.13
1993 100% $10.13
1992 100% $10.13
</TABLE>
Tenants leasing more than 10% of the total square footage are Entenmann's
Inc., which leases 13,644 square feet, or approximately 68% of the rentable
square feet, and Pet Supplies Plus, which leases 6,400 square feet, or
approximately 32% of the rentable square feet. Entenmann's is a national
retailer of baked goods, and Pet Supplies Plus is a national retail pet supply
chain. The lease with Entenmann's requires Entenmann's to pay base rent equal
to $9.25 per square foot per annum payable monthly until October 31, 2002. The
Entenmann's lease contains no option to renew. The lease with Pet Supplies Plus
requires Pet Supplies Plus to pay base rent equal to $12.00 per square foot per
annum payable monthly until January 31, 1998. The lease with Pet Supplies Plus
also grants Pet Supplies Plus one option to renew the lease for a five-year
term. If this option is exercised, Pet Supplies Plus will be required to pay a
base rent of $12.99 per square foot per annum payable monthly from February 1,
1998 until January 31, 2003.
For federal income tax purposes, the Company's depreciable basis in
Crestwood Plaza will be approximately $1,480,000. Depreciation expense, for tax
purposes, will be computed using the straight-line method. Buildings and
improvements are depreciated based upon estimated useful lives of 40 years.
Real estate taxes payable in 1996 for the tax year ended 1995 (the most
recent tax year for which information is available) were $51,494. The real
estate taxes payable were calculated by multiplying Crestwood Plaza's assessed
value by an equalizer of 2.1243 and a tax rate of 9.316%.
At December 27, 1996, a total of 20,044 square feet were leased to two
tenants at Crestwood Plaza. The following tables set forth certain information
with respect to the amount of and expiration of leases at this Neighborhood
Retail Center.
18
<PAGE> 24
<TABLE>
<CAPTION>
Current
Square Feet Lease Renewal Annual Rent per
Lessee Leased Ends Options Rent Square Foot
------ ----------- ----- ------- ------- -----------
<S> <C> <C> <C> <C> <C>
Entenmann's Inc. 13,644 10/2002 None $126,207 $9.25
Pet Supplies Plus 6,400 01/1998 1/5 yr. 76,800 12.00
</TABLE>
<TABLE>
<CAPTION>
Percent of
Average Total Percent of
Base Rent Building Annual Base
Approx. GLA Annual Base Per Square GLA Rent
Number of of Expiring Rent of Foot Under Represented Represented by
Year Ending Leases Leases Expiring Total Annual Expiring by Expiring Expiring
December 31, Expiring (square feet) Leases Base Rent (1) Leases Leases Leases
------------ --------- ------------- --------- ------------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
1997 none none none $203,007 none none none
1998 1 6,400 $76,800 203,007 $12.00 32% 37.83%
1999-2001 none none none 126,207 none none none
2002 1 13,644 126,207 126,207 9.25 68% 100%
</TABLE>
(1) No assumptions were made regarding the releasing of expired leases. It is
the opinion of the Company's management that the space will be released at
market rates.
The Company received a letter appraisal prepared by an independent
appraiser who is a member in good standing of the American Institute of Real
Estate Appraisers which reported a fair market value for the Crestwood Plaza
property, as of December 17, 1996, of not less than $1,850,000. Appraisals are
estimates of value and should not be relied on as a measure of true worth or
realizable value.
PARK ST. CLAIR PLAZA, SCHAUMBURG, ILLINOIS
On December 31, 1996, the Company acquired a Neighborhood Retail Center
located at the corner of Higgins and Meacham Roads in Schaumburg, Illinois known
as Park St. Clair Plaza ("Park St. Clair") from KHF Land Partnership, an
unaffiliated third party, for approximately $1.525 million. The purchase price
was funded using cash and cash equivalents. The purchase price was
approximately $128.59 per square foot, which the Company concluded was fair and
reasonable and within the range of values indicated in an appraisal received by
the Company and presented to the Company's board of directors.
Park St. Clair was built in 1994 and consists of a one-story building
aggregating 11,859 rentable square feet. As of December 31, 1996, Park St.
Clair was 100% leased. In evaluating Park St. Clair as a potential acquisition,
the Company considered a variety of factors including location, demographics,
tenant mix, price per square foot, existing rental rates compared to market
rates, and the occupancy of the center. The Company believes that the center is
located within a vibrant economic area. Although 100% of the rentable square
feet at Park St. Clair is leased to two tenants, the Company's management
believes that retenanting of any space which is vacated in the future should be
accomplished relatively quickly and at rental rates comparable to those
currently paid by the tenants at the facility. The Company did not consider any
other factors materially relevant to the decision to acquire the property.
19
<PAGE> 25
The Company does not anticipate making any significant repairs and
improvements to Park St. Clair over the next few years. Nevertheless, a
substantial portion of any such cost would be paid by the tenants.
The table below sets forth certain information with respect to the
occupancy rate at Park St. Clair expressed as a percentage of total gross
leasable area and the average effective annual base rent per square foot.
<TABLE>
<CAPTION>
Occupancy Rate
Year Ending as of December 31 Effective Annual Rental
December 31, of Each Year Per Square Foot
------------ ------------------ -----------------------
<S> <C> <C>
1996 100% $15.06
1995 35% $ 5.70
1994 35% $ 5.65
</TABLE>
Tenants leasing more than 10% of the total square footage are Hallmark
Cards ("Hallmark"), which leases 7,669 square feet, or approximately 65% of the
rentable square feet, and Ameritech Mobile Comm ("Ameritech"), which leases
4,190 square feet, or approximately 35% of the rentable square feet. Hallmark
is a national retailer of greeting cards, and Ameritech is a mobile
telecommunications provider. The lease with Hallmark requires Hallmark to pay
base rent equal to $14.00 per square foot per annum payable monthly until
November 30, 2001. The lease with Hallmark also grants Hallmark one option to
renew the lease for a five-year term. If this option is exercised, Hallmark
will be required to pay a base rent of $19.00 per square foot per annum payable
monthly from December 1, 2001 until November 30, 2006. The lease with Ameritech
requires Ameritech to pay base rent equal to $17.00 per square foot per annum
payable monthly until September 30, 1997, $17.50 per square foot per annum
payable monthly until September 30, 1998 and $18.00 per square foot per annum
payable monthly until September 30, 1999. The lease with Ameritech also grants
Ameritech one option to renew the lease for a five-year term. If this option is
exercised, Ameritech will be required to pay a base rent of $18.00 per square
foot per annum payable monthly from October 1, 1998 until September 30, 2004.
For federal income tax purposes, the Company's depreciable basis in Park
St. Clair will be approximately $1,220,000. Depreciation expense, for tax
purposes, will be computed using the straight-line method. Buildings and
improvements are depreciated based upon estimated useful lives of 40 years.
Real estate taxes payable in 1996 for the tax year ended 1995 (the most
recent tax year for which information is available) were $38,938. The real
estate taxes payable were calculated by multiplying Park St. Clair's assessed
value by an equalizer of 2.1243 and a tax rate of 8.967%.
At December 31, 1996, a total of 11,859 square feet were leased to two
tenants at Park St. Clair. The following tables set forth certain information
with respect to the amount of and expiration of leases at this Neighborhood
Retail Center.
20
<PAGE> 26
<TABLE>
<CAPTION>
Current
Square Feet Lease Renewal Annual Rent per
Lessee Leased Ends Options Rent Square Foot
------ ----------- ------ -------- -------- -----------
<S> <C> <C> <C> <C> <C>
Hallmark Cards 7,669 11/2001 1/5 yr. $107,366 $14.00
Ameritech Mobile 4,190 09/1999 1/5 yr. 71,230 17.00
Comm
</TABLE>
<TABLE>
<CAPTION>
Percent of
Average Total Percent of
Base Rent Building Annual Base
Approx. GLA Annual Base Per Square GLA Rent
Number of of Expiring Rent of Foot Under Represented Represented by
Year Ending Leases Leases Expiring Total Annual Expiring by Expiring Expiring
December 31, Expiring (square feet) Leases Base Rent (1) Leases Leases Leases
------------ --------- ------------- --------- ------------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
1997 none none none $179,120 none none none
1998 none none none 181,215 none none none
1999 1 4,190 $75,420 195,568 $18.00 35.3% 38.56%
2000 none none none 122,704 none none none
2001 1 7,669 145,711 145,711 19.00 64.7% 100%
</TABLE>
(1) No assumptions were made regarding the releasing of expired leases. It is
the opinion of the Company's management that the space will be released at
market rates.
The Company received a letter appraisal prepared by an independent
appraiser who is a member in good standing of the American Institute of Real
Estate Appraisers which reported a fair market value for the Park St. Clair
property, as of December 31, 1996, of not less than $1.6 million. Appraisals
are estimates of value and should not be relied on as a measure of true worth or
realizable value.
LANSING SQUARE SHOPPING CENTER, LANSING, ILLINOIS
On December 31, 1996, the Company acquired a Neighborhood Retail Center
located at Torrence Avenue and Interstate 80/94 in Lansing, Illinois known as
Lansing Square Shopping Center ("Lansing Square") from Lansing Square RPF II
Limited Partnership, an unaffiliated third party, for approximately $16.3
million. The purchase price was funded using cash and cash equivalents as well
as the proceeds of a series of loans from LaSalle Bank. The proceeds of the
loans from LaSalle Bank (the "LaSalle Loans") totaling $12,850,000, were
received on December 30, 1996. The LaSalle Loans are secured by properties the
Company previously acquired. Of the total of $12,850,000, approximately
$8,000,000 was used in the acquisition of Lansing Square. The LaSalle Loans
require the payment of interest only at a rate of 7.6%, fixed for five years and
then variable for an additional two years. The purchase price for Lansing
Square was approximately $69.80 per square foot, which the Company concluded was
fair and reasonable and within the range of values indicated in an appraisal
received by the Company and presented to the Company's board of directors.
21
<PAGE> 27
Lansing Square was built in 1991 and consists of three one-story buildings
aggregating 233,508 rentable square feet. As of December 31, 1996, Lansing
Square was 90.3% leased. In evaluating Lansing Square as a potential
acquisition, the Company considered a variety of factors including location,
demographics, tenant mix, price per square foot, existing rental rates compared
to market rates, and the occupancy of the center. The Company believes that
the center is located in a vibrant economic area. Although 75.5% of the
rentable square feet at Lansing Square is leased to three tenants, the
Company's management believes that retenanting of any space which is vacated in
the future should be accomplished relatively quickly and at rental rates
comparable to those currently paid by the tenants at the facility. The Company
did not consider any other factors materially relevant to the decision to
acquire the property.
The Company does not anticipate making any significant repairs and
improvements to Lansing Square over the next few years. Nevertheless, a
substantial portion of any such cost would be paid by the tenants.
The table below sets forth certain information with respect to the
occupancy rate at Lansing Square expressed as a percentage of total gross
leasable area and the average effective annual base rent per square foot.
Occupancy Rate
Year Ending as of December 31 Effective Annual Rental
December 31, of Each Year Per Square Foot
------------ ----------------- -----------------------
1995 76.0% $5.81
1994 75.0 7.28
1993 92.0 7.38
1992 90.8 7.26
Tenants leasing more than 10% of the total square footage are Sams Club,
which leases 107,927 square feet, or approximately 46% of the rentable square
feet, Baby Superstore, which leases 43,596 square feet, or approximately 19% of
the rentable square feet, and Office Max, which leases 24,700 square feet, or
approximately 11% of the rentable square feet. Sams Club is a national
warehouse club, Baby Superstore is a national retailer of merchandise for
infants and children and Office Max is a national office supply chain. The
lease with Sams Club requires Sams Club to pay base rent equal to $7.31 per
square foot per annum payable monthly until November 30, 2011. The Sams Club
lease contains no option to renew. The lease with Baby Superstore requires
Baby Superstore to pay base rent equal to $6.50 per square foot per annum
payable monthly until October 31, 2000 and $7.00 per square foot per annum
payable monthly until December 31, 2001. The Baby Superstore lease contains no
option to renew. The lease with Office Max requires Office Max to pay base
rent equal to $7.25 per square foot per annum payable monthly until April 30,
1997, $7.75 per square foot per annum payable monthly until April 30, 2002 and
$8.25 per square foot per annum payable monthly until January 31, 2008. The
Office Max lease contains no option to renew.
For federal income tax purposes, the Company's depreciable basis in
Lansing Square will be approximately $13,000,000. Depreciation expense, for
tax purposes, will be computed using the straight-line method. Buildings and
improvements are depreciated based upon estimated useful lives of 40 years.
Real estate taxes payable in 1996 for the tax year ended 1995 (the most
recent tax year for which information is available) were $1,252,577. The real
estate taxes payable were calculated by multiplying Lansing Square's assessed
value by an equalizer of 2.1243 and a tax rate of 11.494%.
22
<PAGE> 28
At December 31, 1996, a total of 210,810 square feet were leased to
eighteen tenants at Lansing Square. The following tables set forth certain
information with respect to the amount of and expiration of leases at this
Neighborhood Retail Center.
<TABLE>
<CAPTION>
Current
Square Feet Lease Renewal Annual Rent per
Lessee Leased Ends Options Rent Square Foot
------ ----------- -------- ------- --------- -----------
<S> <C> <C> <C> <C> <C>
Sam's Club 107,927 11/2011 None $788,946 $7.31
Office Max 24,700 01/2008 None 179,075 7.25
Baby Superstore 43,596 01/2006 None 283,374 6.50
Furniture Max 8,000 07/2002 None 116,000 14.50
Blockbuster 6,275 12/2001 None 100,400 16.00
Ameritech 3,600 06/2000 None 59,328 16.48
Wolf Camera 1,200 06/2002 1/5 yr. 23,376 19.48
Norwest Financial 1,500 01/1999 1/5 yr. 19,500 13.00
Racers Row 1,500 09/2000 None 23,250 15.50
Cost Cutters 900 11/2001 None 14,751 16.39
Papa Johns 1,200 01/2007 None 16,800 14.00
Great American Bagels 2,400 10/2000 None 34,800 14.50
Sterling Vision 1,200 05/1999 None 18,000 15.00
Pappy's Gyros 1,200 08/1997 1/5 yr. 19,200 16.00
Dunkin Donuts 1,112 04/2002 None 21,128 19.00
Little Minds 1,200 09/2001 None 17,400 14.50
Discus CD's 1,200 06/1999 1/3 yr. 18,000 15.00
Pet Store 2,100 12/2006 None 29,400 14.00
Vacant 22,698 none none none none
</TABLE>
23
<PAGE> 29
<TABLE>
<CAPTION>
Percent of
Average Total Percent of
Approx. Base Rent Building Annual Base
GLA of Annual Base Per Square GLA Rent
Number Expiring Rent of Total Foot Under Represented Represented
Year Ending of Leases Leases Expiring Annual Base Expiring by Expiring by Expiring
December 31, Expiring (square feet) Leases Rent1 Leases Leases Leases
------------ ----------- ------------- ----------- ----------- --------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
1997 1 1,200 $19,200 $1,794,141 $16.00 .51% 1.07%
1998 none none none 1,783,586 none none none
1999 3 3,900 59,250 1,793,960 15.19 1.67 3.30
2000 3 7,500 127,663 1,746,430 17.02 3.21 7.31
2001 3 8,375 151,265 1,654,491 18.06 3.59 9.14
2002 3 10,312 169,720 1,511,946 16.46 4.42 11.23
2003 none none none 1,346,893 none none none
2004 none none none 1,349,043 none none none
2005 none none none 1,349,593 none none none
2006 2 45,696 337,722 1,349,643 7.39 19.57 25.02
</TABLE>
(1) No assumptions were made regarding the releasing of expired leases. It is
the opinion of the Company's management that the space will be released at
market rates.
The Company received a letter appraisal prepared by an independent
appraiser who is a member in good standing of the American Institute of Real
Estate Appraisers which reported a fair market value for the Lansing Square
property, as of January 1, 1997, of $16.3 million. Appraisals are estimates of
value and should not be relied on as a measure of true worth or realizable
value.
THE SUMMIT OF PARK RIDGE, PARK RIDGE, ILLINOIS
On December 31, 1996, the Company acquired a Neighborhood Retail Center
located at 100-150 Euclid Avenue in Park Ridge, Illinois known as The Summit of
Park Ridge ("The Summit") from WHPX-S Real Estate Limited Partnership, an
unaffiliated third party, for approximately $3.2 million. The purchase price
was funded using cash and cash equivalents. The purchase price was
approximately $96.25 per square foot, which the Company concluded was fair and
reasonable and within the range of values indicated in an appraisal received by
the Company and presented to the Company's board of directors.
The Summit was built in 1986 and consists of a one-story building
aggregating 33,248 rentable square feet. As of December 31, 1996, The Summit
was 89% leased. In evaluating The Summit as a potential acquisition, the
Company considered a variety of factors including location, demographics,
tenant mix, price per square foot, existing rental rates compared to market
rates, and the occupancy of the center. The Company believes that the center
is located within a vibrant economic area. The Company's management believes
that retenanting of any space which is vacated in the future should be
accomplished relatively quickly and at rental rates comparable to those
currently paid by the tenants at the facility. The Company did not consider
any other factors materially relevant to the decision to acquire the property.
The Company does not anticipate making any significant repairs and
improvements to The Summit over the next few years. Nevertheless, a
substantial portion of any such cost would be paid by the tenants.
24
<PAGE> 30
Tenants leasing more than 10% of the total square footage are Giappo's
Pizza, which leases 3,683 square feet, or approximately 11% of the rentable
square feet, and Le Peep Restaurant ("Le Peep"), which leases 3,621 square
feet, or approximately 11% of the rentable square feet. The lease with
Giappo's Pizza requires Giappo's Pizza to pay base rent equal to $12.00 per
square foot per annum payable monthly until July 31, 1997, $13.00 per square
foot per annum payable monthly until July 31, 1998, $14.00 per square foot per
annum payable monthly until July 31, 2000, $15.00 per square foot per annum
payable monthly until July 31, 2004 and $16.00 per square foot per month
payable monthly until July 31, 2007. The Giappo's Pizza lease contains no
option to renew. The lease with Le Peep requires Le Peep to pay base rent
equal to $15.50 per square foot per annum payable monthly until December 31,
1998 and $17.00 per square foot per annum payable monthly until December 31,
2002. The lease with Le Peep also grants Le Peep one option to renew the lease
for a seven-year term. If this option is exercised, Le Peep will be required
to pay a base rent of $19.00 per square foot per annum payable monthly from
January 1, 2003 until December 31, 2009.
For federal income tax purposes, the Company's depreciable basis in The
Summit will be approximately $2,500,000. Depreciation expense, for tax
purposes, will be computed using the straight-line method. Buildings and
improvements are depreciated based upon estimated useful lives of 40 years.
Real estate taxes payable in 1996 for the tax year ended 1995 (the most
recent tax year for which information is available) were $171,743. The real
estate taxes payable were calculated by multiplying The Summit's assessed value
by an equalizer of 2.1243 and a tax rate of 9.016%.
At December 31, 1996, a total of 31,800 square feet were leased to
fourteen tenants at The Summit. The following tables set forth certain
information with respect to the amount of and expiration of leases at this
Neighborhood Retail Center.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY BLANK]
25
<PAGE> 31
<TABLE>
<CAPTION>
Square Current Rent
Feet Lease Renewal Annual per Square
Lessee Leased Ends Options Rent Foot
------ ------ ------ ------- ------- ----------
<S> <C> <C> <C> <C> <C>
Le Peep Restaurant 3,621 12/2002 1/7 yr. $56,126 $15.50
Siam Thai Restaurant 2,454 06/2000 1/4 yr. 43,482 17.72
Big Apple Bagels 1,124 10/2003 None 14,612 13.00
Sav-A-Lot 2,414 01/1999 None 25,554 11.00
Giappo's Pizza 3,683 07/2007 None 29,464 8.00
Fashion Media 2,142 08/2004 None 29,988 14.00
Purple Bear 788 02/1997 None 6,682 8.48
Spoke & Ski 2,020 Month to None 20,200 10.00
Month
Success Lab of Park
Ridge 2,142 12/1997 1/5 yr. 28,917 13.50
H&R Block 2,142 04/2001 1/5 yr. 22,063 10.30
Heavenly Pet Center 2,000 09/1997 1/2 yr. 18,000 9.00
Hay Caramba! 2,888 02/2006 1/11 yr. 31,479 10.90
Yahav & Silvers DDS 1,446 10/2000 1/5 yr. 18,798 13.00
Baker's Daughter 788 10/2001 None 7,092 9.00
Vacant 3,596 none none none none
</TABLE>
<TABLE>
<CAPTION>
Percent of
Average Total Percent of
Base Rent Building Annual Base
Approx. GLA Annual Base Per Square GLA Rent
Number of of Expiring Rent of Foot Under Represented Represented by
Year Ending Leases Leases Expiring Total Annual Expiring by Expiring Expiring
December 31, Expiring (square feet) Leases Base Rent (1) Leases Leases Leases
- ------------ --------- ------------- ---------- ------------- ---------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C> <C>
1997 3 4,930 $53,599 $353,457 $10.81 14.83% 15.16%
1998 none none none 305,544 none none none
1999 1 2,414 26,554 316,317 11.00 7.26 8.39
2000 2 3,900 65,175 295,835 16.71 11.73 22.03
2001 2 2,930 33,124 234,614 11.31 8.81 14.11
2002 1 3,621 61,557 203,648 17.00 10.89 30.23
2003 1 1,124 15,736 144,963 14.00 3.38 10.86
2004 1 2,142 34,272 132,206 16.00 6.44 25.92
2005 none none none 100,804 none none none
2006 1 2,338 41,876 100,804 14.50 8.69 41.54
</TABLE>
(1) No assumptions were made regarding the releasing of expired leases. It is
the opinion of the Company's management that the space will be released at
market rates.
The Company received a letter appraisal prepared by an independent
appraiser who is a member in good standing of the American Institute of Real
Estate Appraisers which reported a fair market value for The
26
<PAGE> 32
Summit property, as of December 17, 1996, of not less than $3,250,000.
Appraisals are estimates of value and should not be relied on as a measure of
true worth or realizable value.
MAPLE PARK PLACE SHOPPING CENTER, BOLINGBROOK, ILLINOIS
On January 9, 1997, the Company acquired a Neighborhood Retail Center
located at Naperville and Boughton Roads in Bolingbrook, Illinois known as
Maple Park Place Shopping Center ("Maple Park") from KBS Retail Limited
Partnership, a Delaware limited partnership, an unaffiliated third party, for
approximately $15.3 million. The Company funded the purchase using: (i) the
proceeds of a short-term loan maturing April 7, 1997 in the amount of
approximately $8.0 million from Inland Mortgage Investment Corporation
("IMIC"), an Affiliate of the Company (the "Short-Term Loan"); and (ii) cash
and cash equivalents. The Company did not pay any fees in connection with the
Short-Term Loan, which bears interest at a rate of 9% per annum. The Company
repaid the Short-Term Loan on January 25, 1997 using the proceeds of two loans
(the "Mortgage Loans") totaling $12,840,000 from an unaffiliated lender. The
Company paid a 1.25% fee in connection with these Mortgage Loans. The Mortgage
Loans have a term of seven years and, prior to the maturity date, require
payments of interest only, at a rate of 7.8% per year, fixed for the first five
years with interest for the remaining two years payable at an annual rate equal
to the prime rate plus 0.5%. A majority of the Company's board, including a
majority of the Independent Directors, have approved the terms and conditions
of the Short-Term Loan. The purchase price for Maple Park was approximately
$69.52 per square foot, which the Company concluded was fair and reasonable and
within the range of values indicated in an appraisal received by the Company
and presented to the Company's board of directors.
Maple Park was built in 1992, with expansions made in 1994, and consists
of a one-story building aggregating 220,095 rentable square feet. As of
January 9, 1997, Maple Park was 100% leased. In evaluating Maple Park as a
potential acquisition, the Company considered a variety of factors including
location, demographics, tenant mix, price per square foot, existing rental
rates compared to market rates, and the occupancy of the center. The Company
believes that the center is located in a vibrant economic area. Although 75.3%
of the rentable square feet at Maple Park is leased to two tenants, the
Company's management believes that retenanting of any space which is vacated in
the future should be accomplished relatively quickly and at rental rates
comparable to those currently paid by the tenants at the facility. The Company
did not consider any other factors materially relevant to the decision to
acquire the property.
The Company does not anticipate making any significant repairs and
improvements to Maple Park over the next few years. Nevertheless, a
substantial portion of any such cost would be paid by the tenants.
The table below sets forth certain information with respect to the
occupancy rate at Maple Park expressed as a percentage of total gross leasable
area and the average effective annual base rent per square foot.
<TABLE>
<CAPTION>
Occupancy Rate
Year Ending as of December 31 Effective Annual Rental
December 31, of Each Year Per Square Foot
- ------------ ----------------- -----------------------
<S> <C> <C>
1996 100% $7.58
1995 94 8.15
</TABLE>
Tenants leasing more than 10% of the total square footage are Kmart, which
leases 109,033 square feet, or approximately 49.5% of the rentable square feet
and Eagle Foods, which leases 56,706 square feet, or approximately 25.8% of the
rentable square feet. Kmart is a national discount retailer of household goods
and clothing and Eagle Foods is a national grocery store chain. The lease with
Kmart requires Kmart to pay base rent equal to $5.40 per square foot per annum
payable monthly until January 31, 2020. The Kmart lease contains no option to
renew. The lease with Eagle Foods requires Eagle Foods to pay base rent equal
to $10.16 per square foot per annum payable monthly until October 31, 2002 and
$10.41 per square foot per annum payable monthly until August 31, 2017. The
Eagle Foods lease contains no option to renew.
27
<PAGE> 33
For federal income tax purposes, the Company's depreciable basis in Maple
Park will be approximately $12,205,000. Depreciation expense, for tax
purposes, will be computed using the straight-line method. Buildings and
improvements are depreciated based upon estimated useful lives of 40 years.
Real estate taxes payable in 1996 for the tax year ended 1995 (the most
recent tax year for which information is available) were $358,415. The real
estate taxes payable were calculated by multiplying Maple Park's assessed value
by an equalizer of 1.00 and a tax rate of 8.0013%.
At January 9, 1997, a total of 220,095 square feet were leased to twenty
tenants at Maple Park. The following tables set forth certain information with
respect to the amount of and expiration of leases at this Neighborhood Retail
Center.
<TABLE>
<CAPTION>
Current Rent per
Square Feet Lease Renewal Annual Square
Lessee Leased Ends Options Rent Foot
------ ----------- ------ ------- ------- --------
<S> <C> <C> <C> <C> <C>
Forrestor Vision 1,400 02/1997 1/5 yr. $ 22,400 $16.00
Jamaica Me Crazy 1,400 04/1999 none 19,600 14.00
One Hour Cleaners 1,400 03/1997 1/5 yr. 23,800 17.00
Cellular One 1,610 03/1998 1/5 yr. 20,930 13.00
Fantastic Sams 1,190 02/2002 2/5 yr. 19,040 16.00
Pet Club 2,730 1/1997 none 30,712 11.25
Joann's Hallmark 5,070 10/2000 1/4 yr. 55,770 11.00
Sonia Video 4,124 10/1997 none 43,302 10.50
GNC 1,600 10/1999 1/5 yr. 25,600 16.00
Dentist 1,600 09/2005 2/5 yr. 30,912 19.32
Gold Gym 13,200 04/2006 none 105,600 8.00
Associates Financial 3,200 10/1999 1/5 yr. 41,600 13.00
Inbound Sports 4,012 08/1999 1/5 yr. 60,180 15.00
Mail Boxes 1,200 12/1999 1/5 yr. 19,200 16.00
Prudential Properties 3,600 08/1999 1/5 yr. 46,800 13.00
Once Upon a Child 2,400 03/2000 1/5 yr. 33,600 14.00
Brueggers Bagels 2,295 01/2005 none 36,720 16.00
Prairie Paint, J.C. Licht 2,325 11/1998 1/3 yr. 37,200 16.00
Eagle Foods 56,706 08/2017 none 576,133 10.16
Kmart 109,033 01/2020 none 588,778 5.40
</TABLE>
28
<PAGE> 34
<TABLE>
<CAPTION>
Approx. GLA of
Year Ending Number of Leases Expiring Leases Annual Base Rent of Total Annual Base
December 31, Expiring (square feet) Expiring Leases Rent(1)
------------ -------- ------------- --------------- -------
<S> <C> <C> <C> <C>
1997 4 9,654 $120,214 $1,809,262
1998 2 3,935 58,130 1,728,492
1999 6 15,012 217,386 1,676,871
2000 2 7,470 96,705 1,462,096
2001 none none none 1,363,455
2002 1 1,190 22,015 1,368,279
2003 none none none 1,358,219
2004 none none none 1,359,610
2005 2 3,895 74,923 1,359,610
2006 1 13,200 105,600 1,284,687
<CAPTION>
Average Base Rent Percent of Total Percent of Annual
Per Square Foot Building GLA Base Rent
Year Ending Under Expiring Represented by Represented by
December 31, Leases Expiring Leases Expiring Leases
------------ ------ --------------- ---------------
<S> <C> <C> <C>
1997 $12.45 4.39% 6.53%
1998 14.77 1.80 3.36
1999 14.48 6.82 12.96
2000 12.95 3.39 6.61
2001 none none none
2002 18.50 0.50 1.61
2003 none none none
2004 none none none
2005 19.24 1.77 5.51
2006 8.00 6.00 8.22
</TABLE>
(1) No assumptions were made regarding the releasing of expired leases. It is
the opinion of the Company's management that the space will be released at
market rates.
The Company received a letter appraisal prepared by an independent
appraiser who is a member in good standing of the American Institute of Real
Estate Appraisers which reported a fair market value for the Maple Park
property, as of December 10, 1996, of not less than $15.3 million. Appraisals
are estimates of value and should not be relied on as a measure of true worth
or realizable value.
AURORA COMMONS SHOPPING CENTER, AURORA, ILLINOIS
On January 24, 1997, the Company acquired a Neighborhood Retail Center
located at Route 31 and Indian Trail Road in Aurora, Illinois known as Aurora
Commons Shopping Center ("Aurora Commons") from Aurora Commons Limited
Partnership and Northpoint Two Limited Partnership, unaffiliated third
parties, for approximately $11.5 million. The purchase price was funded using
cash and cash equivalents as well as by issuing a note assuming the existing
first mortgage (the "Mortgage") granted in favor of the John Hancock Life
Insurance Company, which has a remaining principal balance of approximately
$9.58 million. The Mortgage requires the payment of interest only at a rate of
9.0% per annum until the maturity date of October 31, 2001 and is cross
defaulted with a separate mortgage on the Southpoint Shopping Center located in
Arlington Heights, Illinois, which was simultaneously acquired by an Affiliate
of the Advisor. The purchase price for Aurora Commons was approximately $90.19
per square foot, which the Company concluded was fair and reasonable and within
the range of values indicated in an appraisal received by the Company and
presented to the Company's board of directors. The Directors, including all of
the Independent Directors, have approved this acquisition.
Aurora Commons was built in 1988 and consists of a one-story building
aggregating 127,510 rentable square feet. As of January 24, 1997, Aurora
Commons was 100% leased. In evaluating Aurora Commons as a potential
acquisition, the Company considered a variety of factors including location,
demographics, tenant mix, price per square foot, existing rental rates compared
to market rates, and the occupancy of the center. The Company believes that
the center is located in a vibrant economic area. Although 51% of the rentable
square feet at Aurora Commons is leased to one tenant, the Company's management
believes that retenanting of any space which is vacated in the future should be
accomplished relatively quickly and at
29
<PAGE> 35
rental rates comparable to those currently paid by the tenants at the facility.
The Company did not consider any other factors materially relevant to the
decision to acquire the property.
The Company does not anticipate making any significant repairs and
improvements to Aurora Commons over the next few years. Nevertheless, a
substantial portion of any such cost would be paid by the tenants.
The table below sets forth certain information with respect to the
occupancy rate at Aurora Commons expressed as a percentage of total gross
leasable area and the average effective annual base rent per square foot.
<TABLE>
<CAPTION>
Occupancy Rate
Year Ending as of December 31 Effective Annual Rental
December 31, of Each Year Per Square Foot
------------ ------------ ---------------
<S> <C> <C>
1996 98% $ 9.12
1995 98 9.11
1994 96 8.86
1993 97 8.05
1992 99 8.64
</TABLE>
The sole tenant leasing more than 10% of the total square footage is
Jewel/Osco, which leases 64,965 square feet, or approximately 51% of the
rentable square feet. Jewel/Osco is a regional grocery/ pharmacy chain. The
lease with Jewel/Osco requires Jewel/Osco to pay base rent equal to $6.00 per
square foot per annum payable monthly until August 31, 2009. The Jewel/Osco
lease contains no option to renew.
For federal income tax purposes, the Company's depreciable basis in Aurora
Commons will be approximately $10,040,000. Depreciation expense, for tax
purposes, will be computed using the straight-line method. Buildings and
improvements are depreciated based upon estimated useful lives of 40 years.
Real estate taxes payable in 1996 for the tax year ended 1995 (the most
recent tax year for which information is available) were $274,807. The real
estate taxes payable were calculated by multiplying Aurora Commons' equalized
value by a tax rate of 7.9302%.
30
<PAGE> 36
At January 24, 1997, a total of 127,510 square feet were leased to
twenty-four tenants at Aurora Commons. The following tables set forth certain
information with respect to the amount of and expiration of leases at this
Neighborhood Retail Center.
<TABLE>
<CAPTION>
Current Rent per
Square Feet Lease Renewal Annual Square
Lessee Leased Ends Options Rent Foot
- ------- ----------- ----- ------- ------ --------
<S> <C> <C> <C> <C> <C>
Colortyme 2,396 10/1999 none $34,740 14.50
H&R Block 1,954 12/1999 none 31,948 16.35
Thang Ngo Restaurant 1,954 12/2000 none 23,937 12.25
Sally Beauty Supply 1,954 11/1999 1/5 yr. 31,264 16.00
Fashions $10 1,954 10/1998 none 28,333 14.50
Modern Times 1,667 12/1999 none 24,338 14.60
Hair Cuttery 1,498 02/2002 none 28,462 19.00
Interim Personnel 1,005 10/1999 none 15,849 15.77
Hollywood Nails 1,039 05/1997 none 18,183 17.50
Payless Shoes 2,553 05/1997 none 40,695 15.94
Norwest Financial 1,593 10/1999 1/2 yr. 23,497 14.75
Sizes Unlimited 7,051 4/2007 none 70,510 10.00
Dots 3,455 1/1999 1/5 yr. 43,188 12.50
Aurora Travel 666 1/1998 none 16,250 24.40
Trak Auto 5,931 1/2000 1/5 yr. 62,276 10.50
Famous Footwear 6,647 10/2001 1/10 yr. 59,823 9.00
Dollar Bills 3,873 1/2001 none 46,476 12.00
Jewel/Osco 64,965 08/2009 none 389,790 6.00
Cigarettes Cheaper 1,023 02/1999 1/3 yr. 17,391 17.00
One-hour Photo 865 06/1998 none 13,606 15.73
Red Wing Shoes 1,106 12/1999 1/3 yr. 15,484 14.00
Royal Jewelers 1,388 11/1999 1/3 yr. 26,372 19.00
Blockbuster Video 7,890 11/1999 1/5 yr. 108,488 13.75
Boston Market 3,083 05/1997 1/10 yr. 33,790 10.96
</TABLE>
31
<PAGE> 37
<TABLE>
<CAPTION>
Approx. GLA of
Year Ending Number of Leases Expiring Leases Annual Base Rent of Total Annual Base
December 31, Expiring (square feet) Expiring Leases Rent(1)
------------ -------- ------------- --------------- -------
<S> <C> <C> <C> <C>
1997 3 6,675 $94,929 $1,209,099
1998 3 3,485 59,249 1,125,863
1999 11 25,431 358,406 1,075,883
2000 2 7,885 89,241 695,871
2001 2 10,520 114,045 609,858
2002 1 1,498 28,462 495,813
2003 none none none 472,052
2004 none none none 474,402
2005 none none none 474,402
2006 none none none 474,402
<CAPTION>
Average Base Rent Percent of Total Percent of Annual
Per Square Foot Building GLA Base Rent
Year Ending Under Expiring Represented by Represented by
December 31, Leases Expiring Leases Expiring Leases
------------ ------ --------------- ---------------
<S> <C> <C> <C>
1997 $14.22 5.23% 7.85%
1998 17.00 2.73 5.26
1999 14.09 19.94 3.33
2000 11.32 6.18 12.82
2001 10.84 8.25 18.70
2002 19.00 1.17 5.74
2003 none none none
2004 none none none
2005 none none none
2006 none none none
</TABLE>
(1) No assumptions were made regarding the releasing of expired leases. It is
the opinion of the Company's management that the space will be released at
market rates.
The Company received an appraisal prepared by an independent appraiser who
is a member in good standing of the American Institute of Real Estate
Appraisers which reported a fair market value for the Aurora Commons property,
as of January 1, 1997, of $11.6 million. Appraisals are estimates of value and
should not be relied on as a measure of true worth or realizable value.
LINCOLN PARK PLACE SHOPPING CENTER, CHICAGO, ILLINOIS
On January 24, 1997, the Company acquired a Neighborhood Retail Center
located at 666-670 West Diversey Parkway in Chicago, Illinois known as Lincoln
Park Place Shopping Center ("Lincoln Park") from Clark & Diversey Limited
Partnership, an unaffiliated third party, for approximately $2.1 million. The
Company funded the purchase using: (i) the proceeds of a short-term loan
maturing February 3, 1997 in the amount of approximately $2.0 million from
Inland Mortgage Investment Corporation ("IMIC"), an Affiliate of the Company
(the "Short-Term Loan"); and (ii) cash and cash equivalents. The Company did
not pay any fees in connection with the Short-Term Loan, which bears interest
at a rate of 9% per annum. A majority of the Company's board, including a
majority of the Independent Directors, have approved the terms and conditions
of the Short-Term Loan. The Company repaid the Short-Term Loan on January 25,
1997 using the proceeds of two loans (the "Mortgage Loans") totaling
$12,840,000 from an unaffiliated lender. The Company paid a 1.25% fee in
connection with these Mortgage Loans. The Mortgage Loans have a term of seven
years and, prior to the maturity date, require payments of interest only, at a
rate of 7.8% per year, fixed for the first five years with interest for the
remaining two years payable at an annual rate equal to the prime rate plus
0.5%. The purchase price for Lincoln Park was approximately $172.26 per square
foot, which the Company concluded was fair and reasonable and within the range
of values indicated in an appraisal received by the Company and presented to
the Company's board of directors.
Lincoln Park was built in 1990 consists of a one-story building
aggregating 10,678 rentable square feet. As of January 24, 1997, Lincoln Park
was 100% leased. In evaluating Lincoln Park as a potential acquisition, the
Company considered a variety of factors including location, demographics,
tenant mix, price per square foot, existing rental rates compared to market
rates, and the occupancy of the center. The Company believes that the center
is located in a vibrant economic area. Although 100% of the rentable square
feet at Lincoln Park is leased to two tenants, the Company's management
believes that retenanting of any space which is vacated in the future should be
accomplished relatively quickly and at rental rates comparable to those
currently paid by the tenants at the facility. The Company did not consider
any other factors materially relevant to the decision to acquire the property.
32
<PAGE> 38
The Company does not anticipate making any significant repairs and
improvements to Lincoln Park over the next few years. Nevertheless, a
substantial portion of any such cost would be paid by the tenants.
The table below sets forth certain information with respect to the
occupancy rate at Lincoln Park expressed as a percentage of total gross
leasable area and the average effective annual base rent per square foot.
<TABLE>
<CAPTION>
Occupancy Rate
Year Ending as of December 31 Effective Annual Rental
December 31, of Each Year Per Square Foot
------------ ------------ ---------------
<S> <C> <C>
1996 100% $21.37
1995 100% 15.77
1994 69% 17.13
1993 100% 22.38
1992 69% 19.15
</TABLE>
Tenants leasing more than 10% of the total square footage are Lechter's
Housewares ("Lechter's"), which leases 6,375 square feet, or approximately
59.7% of the rentable square feet and Nordic Trak, which leases 4,303 square
feet, or approximately 40.3% of the rentable square feet. Nordic Trak is a
manufacturer and retailer of exercise equipment. The lease with Lechter's
requires Lechter's to pay base rent equal to $22.00 per square foot per annum
payable monthly until March 31, 2001. The lease with Lechter's also grants
Lechter's two options to renew the lease for five-year terms. If the first
option is exercised, Lechter's will be required to pay a base rent of $25.00
per square foot per annum payable monthly from April 1, 2001 until March 31,
2006. If the second option is exercised, Lechter's will be required to pay a
base rent of $29.00 per square foot per annum payable monthly from April 1,
2006 until March 31, 2011. The lease with Nordic Trak requires Nordic Trak to
pay base rent equal to $22.00 per square foot per annum payable monthly until
October 31, 1997 and $23.00 per square foot per annum payable monthly until
October 31, 1999. The Nordic Trak lease contains no option to renew.
For federal income tax purposes, the Company's depreciable basis in
Lincoln Park will be approximately $1,280,000. Depreciation expense, for tax
purposes, will be computed using the straight-line method. Buildings and
improvements are depreciated based upon estimated useful lives of 40 years.
Real estate taxes payable in 1996 for the tax year ended 1995 (the most
recent tax year for which information is available) were $82,674. The real
estate taxes payable were calculated by multiplying Lincoln Park's assessed
value by an equalizer of 2.1243 and a tax rate of 9.755%.
At January 24, 1997, a total of 10,678 square feet were leased to two
tenants at Lincoln Park. The following tables set forth certain information
with respect to the amount of and expiration of leases at this Neighborhood
Retail Center.
<TABLE>
<CAPTION>
Current
Square Feet Lease Renewal Annual Rent per
Lessee Leased Ends Options Rent Square Foot
------ ------ ---- ------- ---- -----------
<S> <C> <C> <C> <C> <C>
Nordic Track 4,303 10/1999 none $94,666 $22.00
Lechter's 6,375 03/2001 2/5 140,250 $22.00
</TABLE>
33
<PAGE> 39
<TABLE>
<CAPTION>
Approx. GLA of
Year Ending Number of Leases Expiring Leases Annual Base Rent of Total Annual Base
December 31, Expiring (square feet) Expiring Leases Rent(1)
------------ -------- ------------- --------------- -------
<S> <C> <C> <C> <C>
1997 none none none $235,633
1998 none none none 239,219
1999 1 4,303 $98,969 239,219
2000 none none none 140,250
2001 1 6,375 140,250 140,250
<CAPTION>
Average Base Rent Percent of Total Percent of Annual
Per Square Foot Building GLA Base Rent
Year Ending Under Expiring Represented by Represented by
December 31, Leases Expiring Leases Expiring Leases
------------ ------ --------------- ---------------
<S> <S> <C> <C>
1997 none none none
1998 none none none
1999 $23.00 40.3% 41.4%
2000 none none none
2001 22.00 59.7% 100.0%
</TABLE>
(1) No assumptions were made regarding the releasing of expired leases. It is
the opinion of the Company's management that the space will be released at
market rates.
The Company received an appraisal prepared by an independent appraiser who
is a member in good standing of the American Institute of Real Estate
Appraisers which reported a fair market value for the Lincoln Park property, as
of January 17, 1997, of $2,120,000. Appraisals are estimates of value and
should not be relied on as a measure of true worth or realizable value.
OAK FOREST COMMONS, OAK FOREST, ILLINOIS
The Company anticipates entering into a letter agreement to purchase a
Neighborhood Retail Center located at the northeast corner of 159th Street and
Central Avenue in Oak Forest, Illinois known as Oak Forest Commons ("Oak
Forest"). Under the anticipated terms of the acquisition, the Company would
purchase Oak Forest from T-L Oak Forest Commons, Inc., an unaffiliated third
party, for approximately $11.84 million. When a definitive agreement is
finalized and executed, the Company anticipates making an initial deposit on
the purchase of approximately 10% of the purchase price using cash and cash
equivalents. The Company anticipates that the remainder of the purchase price
will be payable in stages as the property is redeveloped and the anticipated
main tenant, Dominick's Finer Foods, Inc., begins paying rent under a lease
agreement. The Company anticipates that redevelopment of the property will be
completed, the balance of the purchase price will be paid, and title to the
property will be transferred, within one year after a definitive agreement is
signed. Execution of a definitive agreement is subject to completion of
business and legal due diligence, which the Advisor is undertaking on behalf of
the Company, and receipt of a final environmental report indicating no
environmental concerns on the property. No acquisition fees will be payable in
connection with the acquisition of Oak Forest. There can be no assurance that
the Company will complete the acquisition of Oak Forest.
Oak Forest is anticipated to be completed within one year after a
definitive purchase agreement is signed, and is expected to consist of a
one-story building comprising a multi-tenant community retail facility
aggregating approximately 106,200 rentable square feet. The center is expected
to be anchored by a Dominick's "Fresh Store," which is expected to lease
approximately 70,000 square feet.
DOWNERS GROVE PLAZA, DOWNERS GROVE, ILLINOIS
The Company anticipates entering into a letter agreement to purchase a
Neighborhood Retail Center located at the northwest corner of Ogden Avenue and
Williams Street in Downers Grove, Illinois known as Downers Grove Plaza
("Downers Grove"). Under the anticipated terms of the acquisition, the Company
would purchase Downers Grove from T-L Downers Grove Plaza, Inc., an
unaffiliated third party, for approximately $16.65 million. When a definitive
agreement is finalized and executed, the Company anticipates making an initial
deposit on the purchase of approximately 10% of the purchase price using cash
and cash equivalents. The Company anticipates that the remainder of the
purchase price will be payable in stages as the property is redeveloped and the
anticipated main tenant, Dominick's Finer Foods, Inc., begins paying rent under
a lease agreement. The Company anticipates that redevelopment of the property
will be completed, the balance of the purchase price will be paid, and title to
the property will be transferred, within one year after a definitive agreement
is signed. Execution of a definitive agreement is subject to completion of
business and legal due diligence, which the Advisor is undertaking on behalf of
the Company, and receipt of a final environmental report indicating no
environmental concerns on the property. No acquisition fees will
34
<PAGE> 40
be payable in connection with the acquisition of Downers Grove. There can be
no assurance that the Company will complete the acquisition of Downers Grove.
Downers Grove is anticipated to be completed within one year after a
definitive purchase agreement is signed, and is expected to consist of a
one-story building comprising a multi-tenant community retail facility
aggregating approximately 102,385 rentable square feet. The center is expected
to be anchored by a Dominick's "Fresh Store," which is expected to lease
approximately 72,000 square feet.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
Certain statements in this "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and elsewhere in this Supplement No. 10
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.
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 July 24, 1996, the Company
had received subscriptions for a total of 5,000,000 Shares, resulting in Gross
Offering Proceeds of $50,000,000, thereby completing the initial 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 September 30, 1996, the Company had received subscriptions for a total of
931,147 Shares of the follow-on Offering, resulting in $9,311,472 in Gross
Offering Proceeds. In addition, the Company has received $968,320 in Gross
Offering Proceeds from 106,997 Shares purchased through the DRP. As of
September 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 as a
result of the completion of the initial public offering of Shares, the
commencement of the follow-on Offering 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.
35
<PAGE> 41
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.
As of September 30, 1996, the Company had acquired thirteen properties
utilizing approximately $33,100,000 of cash and cash equivalents. Cash and
cash equivalents consists of cash and short-term investments. Cash and cash
equivalents at September 30, 1996 and December 31, 1995 were $19,250,977 and
$738,931, respectively. This increase was due to the additional sales proceeds
raised and $12,820,000 in loan proceeds from financing the properties.
Partially offsetting the increase in cash and cash equivalents was the purchase
of seven additional properties in 1996 and the payment of Offering costs.
The Company intends to use cash and cash equivalents 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. Commencing with the fourth quarter
of 1996, the Company intends to pay monthly distributions of 8.3% per annum on
weighted average shares. Distributions declared for the nine months ended
September 30, 1996 were $2,232,004, 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.
Cash Flows From Operating Activities
Net cash provided by operating activities increased by approximately $1,862,181
for the nine months ended September 30, 1996 to $2,389,287 from $527,106 for
the same period in 1995. This increase is due primarily to an increase in net
income for the nine months ended September 30, 1996, as compared to the net
income for the nine months ended September 30, 1995. This increase in net
income is due to the purchase of additional properties. As of September 30,
1996, the Company had acquired thirteen properties, as compared to five
properties as of September 30, 1995. This increase is also due to $305,054 of
rental income received under master lease agreements for the nine months ended
September 30, 1996, as compared to no rental income received under master lease
agreements for the nine months ended September 30, 1995.
36
<PAGE> 42
Cash Flows From Investing Activities
During the nine months ended September 30, 1996, the Company utilized
$26,729,537 in investing activities for the purchase of seven properties, as
compared to the $5,286,038 utilized in the nine months ended September 30, 1995
for the purchase of five properties.
Cash Flows From Financing Activities
For the nine months ended September 30, 1996, the Company generated $43,020,331
of cash flows from financing activities as compared to $5,413,372 of cash flows
generated from financing activities for the nine months ended September 30,
1995. This increase is due primarily to the increase in proceeds raised from
the Offering of $40,246,259 for the nine months ended September 30, 1996, as
compared to $13,012,136 of Offering proceeds raised for the nine months ended
September 30, 1995. This increase is partially offset by an increase in the
cash used for the payment of Offering costs for the nine months ended September
30, 1996. The increase is also partially offset by an increase in the amount
of distributions paid for the nine months ended September 30, 1996 of
$1,989,199 as compared to the distributions paid for the nine months ended
September 30, 1995 of $188,958. In the third quarter of 1996, the Company
placed financing on seven of the Company's properties and received $12,633,172
in loan proceeds, net of loan costs.
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. As of September 30, 1996, organizational and offering costs
did not exceed this limitation.
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 September
30, 1996, the Company had received $968,320 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 $911,141 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 September 30, 1996, the
Company has repurchased 6,318 Shares.
37
<PAGE> 43
Results of Operations
As of September 30, 1996, subscriptions for a total of 6,038,144 Shares were
received from the public resulting in $60,279,792 in Gross Offering Proceeds,
which includes the Advisor's capital contribution of $200,000. As of September
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 nine months ended
September 30, 1996 and 1995 are calculated as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Net income................................... $ 1,332,939 157,039
Depreciation................................. 561,983 33,909
------------ ------------
Funds from operations(1)................... 1,894,922 190,948
Deferred rent receivable (2)................. (63,007) (3,656)
Rental income received under
Master lease agreements (3)................. 305,054 -
------------ ------------
Funds available for distribution............. $ 2,136,969 187,292
============ ============
</TABLE>
(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 nine months
ended September 30, 1996, the Company has recorded $305,054 of such
payments. Reference is made to Note (5) of the Notes to Financial
Statements of the Company.
38
<PAGE> 44
Total income for the three and nine months ended September 30, 1996 and 1995
was $3,706,605 and $803,508, respectively. This increase was due to the
purchase of additional properties. As of September 30, 1996, the Company had
acquired thirteen properties, as compared to five properties as of September
30, 1995. The purchase of additional properties also resulted in increases in
property operating expenses to Affiliates and non-affiliates and depreciation
expense.
The decrease in mortgage interest expense to Affiliates for the three and nine
months ended September 30, 1996, as compared to the three and nine months ended
September 30, 1995, is due to the payoff of the acquisition financing. The
Company continues to have a mortgage in the principal amount of $741,467, which
bears interest at 7.655%, collateralized by the Walgreens, Decatur property
payable to an Affiliate.
The increase in mortgage interest to non-affiliates for the three and nine
months ended September 30, 1996, as compared to the three and nine months ended
September 30, 1995, is due to the mortgage which was assumed as part of the
purchase of Regency Point. During the third quarter of 1996, the Company
obtained $12,820,000 of financing from an unaffiliated lender, on seven
properties previously acquired.
For the nine months ended September 30, 1995, the Company had not paid an
annual distribution equal to or greater than the 8% Current Return, and
accordingly, no advisor asset management fee was accrued. For the nine months
ended September 30, 1996, the Company has paid an annual distribution equal to
the 8% Current Return and therefore has accrued the advisor asset management
fee.
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 cash and cash equivalents 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 nine months ended September 30, 1996, as compared to the three and
nine months ended September 30, 1995, is due to the Company entering the
operational stage.
39
<PAGE> 45
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> <C> <C>
Walgreens 100% 100% 100% 100% 100% 100% 100%
Decatur, Illinois
Eagle Crest 100% 100% 100% 100% 100% 100% 100%
Naperville, Illinois
Montgomery-Goodyear N/A N/A 100% 100% 100% 100% 100%
Montgomery, Illinois
Hartford/Naperville Plaza N/A N/A 48% 90% 100% 100% 100%
Naperville, Illinois
Nantucket Square N/A N/A 92% 81% 81% 81% 94% *
Schaumburg, Illinois
Antioch Plaza N/A N/A N/A 33% 49% 49% 49% *
Antioch, Illinois
Mundelein Plaza N/A N/A N/A N/A N/A 100% 100%
Mundelein, IL
Regency Point N/A N/A N/A N/A N/A 97% 97%
Lockport, IL
Prospect Heights N/A N/A N/A N/A N/A 78% 100%
Prospect Heights, IL
Montgomery-Sears N/A N/A N/A N/A N/A 85% 85% *
Montgomery, IL
Zany Brainy N/A N/A N/A N/A N/A N/A 100%
Wheaton, IL
Salem Square N/A N/A N/A N/A N/A N/A 97% *
Countryside, IL
Hawthorn Village N/A N/A N/A N/A N/A N/A 99%
Vernon Hills, IL
</TABLE>
* As part of the purchase of these properties the Company receives rent under
master lease agreements on the space which was vacant at the time of the
purchase, resulting in 100% economical occupancy at September 30, 1996 for
Nantucket Square and Antioch Plaza and 98% economic occupancy for Salem
Square. See footnote (5) to the Company's financial statement.
As of September 30, 1996 two leases totaling 3,447 square feet were executed at
Antioch Plaza. Tenants are expected to begin occupancy in the fourth quarter
1996.
40
<PAGE> 46
Subsequent Events
On October 18,1996, the Company acquired the Six Corners Plaza Shopping Center
from an unaffiliated third party for a purchase price of $6,000,000 on an all
cash basis.
On November 13, 1996, the Company acquired the Spring Hill Fashion Corner from
an unaffiliated third party for a purchase price of approximately $9,200,000 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.
PLAN OF DISTRIBUTION
The Company commenced the "best efforts" Offering on July 24, 1996, and as
of January 29, 1997, the Company had accepted subscriptions for 3,712,425
shares ($33,597,450 net of Selling Commissions, the Marketing Contribution and
the Due Diligence Expense Allowance Fee).
Inland Securities Corporation, an Affiliate of the Advisor, serves as
dealer manager of the Offering and is entitled to receive selling commissions
and certain other amounts. As of January 29, 1997, Inland Securities
Corporation was entitled to receive commissions, the Marketing Contribution and
the Due Diligence Expense Allowance Fee totaling $3,423,969. An Affiliate of
the Advisor is also entitled to receive Property Management Fees for management
and leasing services. The Company incurred and paid Property Management Fees
of $229,307 for the year ended December 31, 1996 and $46,791 for the year ended
December 31, 1995. The Advisor may also receive an annual Advisor Asset
Management Fee of not more than 1% of the Average Invested Assets, paid
quarterly. As of December 31, 1996, the Company had incurred and paid $238,108
of such fees. As of December 31, 1995, the Company had not incurred or paid any
such fees.
Investors are advised that for sales made to individuals residing in the
State of Minnesota, warrants will be issued only to Inland Securities
Corporation. No one else may receive warrants as commissions for sales. This
provision does not apply to sales outside of Minnesota.
41
<PAGE> 47
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
INLAND REAL ESTATE CORPORATION
<S> <C>
Balance Sheets at September 30, 1996 and December 31, 1995 (unaudited) ............ F-1
Statements of Operations for the three and nine months ended September 30, 1996
and 1995 (unaudited) .............................................................. F-3
Statements of Stockholders' Equity at September 30, 1996 and December 31, 1995 .... F-4
Statements of Cash Flows for the nine months ended September 30, 1996 and
1995 (unaudited) .................................................................. F-5
Notes to Financial Statements September 30, 1996 (unaudited) ...................... F-7
Pro Forma Balance Sheet at December 31, 1995 (unaudited) .......................... F-18
Notes to Pro Forma Balance Sheet at December 31, 1995 (unaudited) ................. F-20
Pro Forma Statement of Operations for the year ended
December 31, 1995 (unaudited) ..................................................... F-29
Notes to Pro Forma Statement of Operations for the year
ended December 31, 1995 (unaudited) ............................................... F-31
Pro Forma Balance Sheet at September 30, 1996 (unaudited) ......................... F-49
Notes to Pro Forma Balance Sheet at September 30, 1996 (unaudited) ................ F-51
Pro Forma Statement of Operations for the nine months ended
September 30, 1996 (unaudited) .................................................... F-58
Notes to Pro Forma Statement of Operations for the nine months
ended September 30, 1996 (unaudited) .............................................. F-60
SALEM SQUARE SHOPPING CENTER
Independent Auditors' Report ...................................................... F-65
Historical Summary of Gross Income and Direct Operating Expenses
for the year ended December 31, 1995 of Salem Square .............................. F-66
Notes to the Historical Summary of Gross Income and Direct Operating Expenses
for the year ended December 31, 1995 of Salem Square .............................. F-67
</TABLE>
42
<PAGE> 48
<TABLE>
<CAPTION>
<S><C>
HAWTHORNE VILLAGE COMMONS
Independent Auditors' Report ..................................................... F-69
Historical Summary of Gross Income and Direct Operating Expenses
for the year ended December 31, 1995 of Hawthorn Village Commons ................. F-70
Notes to Historical Summary of Gross Income and Direct Operating Expenses
for the year ended December 31, 1995 of Hawthorn Village Commons ................. F-71
SIX CORNERS PLAZA
Independent Auditors' Report ..................................................... F-73
Historical Summary of Gross Income and Direct Operating Expenses for the
year ended June 30, 1996 of Six Corners Plaza .................................... F-74
Notes to Historical Summary of Gross Income and Direct Operating Expenses
for the year ended June 30, 1996 of Six Corners Plaza ............................ F-75
SPRING HILL FASHION CENTER
Independent Auditors' Report ..................................................... F-77
Historical Summary of Gross Income and Direct Operating Expenses
for the year ended December 31, 1995 of Spring Hill Fashion Center ............... F-78
Notes to the Historical Summary of Gross Income and Direct Operating Expenses
for the year ended December 31, 1995 of Spring Hill Fashion Center ............... F-79
CRESTWOOD PLAZA SHOPPING CENTER
Independent Auditors' Report ..................................................... F-81
Historical Summary of Gross Income and Direct Operating Expenses for the
year ended October 31, 1996 of Crestwood Plaza Shopping Center ................... F-82
Notes to Historical Summary of Gross Income and Direct Operating Expenses
for the year ended October 31, 1996 of Crestwood Plaza Shopping Center ........... F-83
PARK ST. CLAIR PLAZA
Independent Auditors' Report ..................................................... F-85
Historical Summary of Gross Income and Direct Operating Expenses for the
year ended December 31, 1995 of Park St. Clair Plaza ............................. F-86
</TABLE>
43
<PAGE> 49
<TABLE>
<S> <C>
Notes to Historical Summary of Gross Income and Direct Operating Expenses
for the year ended December 31, 1995 of Park St. Clair Plaza ................ F-87
LANSING SQUARE SHOPPING CENTER
Independent Auditors' Report ................................................ F-89
Historical Summary of Gross Income and Direct Operating Expenses for the
year ended December 31, 1995 of Lansing Square Shopping Center .............. F-90
Notes to Historical Summary of Gross Income and Direct Operating Expenses
for the year ended December 31, 1995 of Lansing Square Shopping Center ...... F-91
THE SUMMIT OF PARK RIDGE
Independent Auditors' Report ................................................ F-93
Historical Summary of Gross Income and Direct Operating
Expenses for the period February 1, 1996 to November 30, 1996
of The Summit of Park Ridge ................................................. F-94
Notes to Historical Summary of Gross Income and Direct
Operating Expenses for the period February 1, 1996 to
November 30, 1996 of The Summit of Park Ridge ............................... F-95
MAPLE PARK PLACE SHOPPING CENTER
Independent Auditors' Report ................................................ F-97
Historical Summary of Gross Income and Direct Operating Expenses for the
year ended December 31, 1996 of Maple Park Place Shopping Center ............ F-98
Notes to Historical Summary of Gross Income and Direct Operating Expenses
for the year ended December 31, 1996 of Maple Park Place Shopping Center .... F-99
AURORA COMMONS SHOPPING CENTER
Independent Auditors' Report ................................................ F-101
Historical Summary of Gross Income and Direct Operating Expenses for the
year ended December 31, 1996 of Aurora Commons Shopping Center .............. F-102
Notes to Historical Summary of Gross Income and Direct Operating Expenses
for the year ended December 31, 1996 of Aurora Commons Shopping Center ...... F-103
</TABLE>
44
<PAGE> 50
LINCOLN PARK PLACE SHOPPING CENTER
<TABLE>
<CAPTION>
<S> <C>
Independent Auditors' Report ................................................. F-105
Historical Summary of Gross Income and Direct Operating Expenses for the
year ended December 31, 1996 of Lincoln Park Place Shopping Center ........... F-106
Notes to Historical Summary of Gross Income and Direct Operating Expenses
for the year ended December 31, 1996 of Lincoln Park Place Shopping Center ... F-107
</TABLE>
45
<PAGE> 51
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Balance Sheets
September 30, 1996 and December 31, 1995
(unaudited)
Assets
------
1996 1995
---- ----
Investment properties (Notes 1, 4 and 5):
Land............................................ $14,695,748 5,437,948
Building and improvements....................... 36,782,378 12,074,484
------------ ------------
51,478,126 17,512,432
Less accumulated depreciation................... 731,877 169,894
------------ ------------
Net investment properties....................... 50,746,249 17,342,538
Cash and cash equivalents including amounts
held by property manager (Note 1)............... 19,250,977 738,931
Restricted funds.................................. - 150,000
Accounts and rents receivable (Note 5)............ 1,087,810 333,823
Deposits and other assets......................... 236,854 158,123
Deferred organization costs (net of accumulated
amortization of $4,119 at September 30, 1996)
(Note 1)........................................ 23,343 27,462
Loan fees......................................... 186,828 -
------------ ------------
Total assets.................................. $71,532,061 18,750,877
============ ============
See accompanying notes to financial statements.
F-1
<PAGE> 52
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Balance Sheets
(continued)
September 30, 1996 and December 31, 1995
(unaudited)
Liabilities and Stockholders' Equity
------------------------------------
1996 1995
---- ----
Liabilities:
Accounts payable................................ $ 105,062 6,875
Accrued offering costs to Affiliates............ 646,121 222,353
Accrued offering costs to non-affiliates........ 89,235 6,444
Accrued interest payable to Affiliates.......... - 5,242
Accrued real estate taxes....................... 981,687 374,180
Distributions payable (Note 7).................. 372,337 129,532
Security deposits............................... 112,374 54,483
Note payable to Affiliate (Note 6).............. - 360,000
Mortgages payable (Note 6)...................... 18,003,626 750,727
Unearned income................................. 62,650 39,846
Other liabilities............................... 28,852 178,852
Due to Affiliates (Note 2)...................... 244,040 7,277
------------ ------------
Total liabilities............................. 20,645,984 2,135,811
------------ ------------
Stockholders' Equity (Notes 1 and 2):
Common stock, $.01 par value, 24,000,000 Shares
authorized; 6,038,144 and 6,031,826 issued
and outstanding at September 30, 1996, and
2,003,073 and 2,000,073 Shares issued and
outstanding at December 31, 1995,
respectively.................................. 59,824 19,996
Additional paid-in capital (net of offering
costs of $8,197,358 at September 30, 1996, of
which $6,282,497 was paid to Affiliates)...... 51,965,431 16,835,183
Accumulated distributions in excess of
net income.................................... (1,139,178) (240,113)
------------ ------------
Total stockholders' equity.................... 50,886,077 16,615,066
------------ ------------
Total liabilities and stockholders' equity........ $71,532,061 18,750,877
============ ============
See accompanying notes to financial statements.
F-2
<PAGE> 53
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Statements of Operations
For the three and nine months ended September 30, 1996 and 1995
(unaudited)
Three months Nine months
ended ended
September 30, September 30,
------------- -------------
1996 1995 1996 1995
---- ---- ---- ----
Income:
Rental income (Notes 1 and 5).... $1,258,317 216,155 2,578,953 469,568
Additional rental income......... 396,095 222,234 785,719 260,193
Interest income.................. 87,474 42,167 212,063 73,747
Other income..................... 12,064 - 64,870 -
---------- ---------- ---------- ----------
1,753,950 480,556 3,641,605 803,508
---------- ---------- ---------- ----------
Expenses:
Professional services to
Affiliates..................... 5,780 - 16,434 -
Professional services to
non-affiliates................. 4,723 - 40,951 1,615
General and administrative
expenses to Affiliates......... (9,319) - 42,116 -
General and administrative
expenses to non-affiliates..... 15,424 263 21,418 1,084
Advisor asset management fee..... 116,809 - 242,341 -
Property operating expenses
to Affiliates.................. 67,501 9,463 139,597 21,917
Property operating expenses
to non-affiliates.............. 560,438 243,067 1,007,064 297,946
Mortgage interest to Affiliates.. 20,670 36,815 49,993 82,992
Mortgage interest to
non-affiliates................. 82,335 - 160,139 17,340
Depreciation..................... 284,483 33,909 561,983 82,262
Amortization..................... 1,373 - 4,119 -
Acquisition costs expensed....... 5,361 - 22,511 315
---------- ---------- ---------- ----------
1,155,578 323,517 2,308,666 505,471
---------- ---------- ---------- ----------
Net income..................... $ 598,372 157,039 1,332,939 298,037
========== ========== ========== ==========
Net income per weighted average
common stock shares outstanding
(5,166,900 and 1,065,503 for the
three months ended September 30,
1996 and 1995, respectively and
3,688,310 and 707,779 for the
nine months ended September 30,
1996 and 1995, respectively)..... $ .11 .15 .36 .42
========== ========== ========== ==========
See accompanying notes to financial statements.
F-3
<PAGE> 54
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Statements of Stockholders' Equity
September 30, 1996 and December 31, 1995
(unaudited)
Accumulated
Additional Distributions
Common Paid-in in excess of
Stock Capital net income Total
----------- ----------- ----------- ------------
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
$3,121,175).............. 19,826 16,662,162 - 16,681,988
Repurchases of Shares....... (30) (26,779) - (26,809)
----------- ----------- ----------- ------------
Balance December 31, 1995... 19,996 16,835,183 (240,113) 16,615,066
Net income.................. - - 1,332,939 1,332,939
Distributions declared
($.60 per weighted average
common stock shares
outstanding).............. - - (2,232,004) (2,232,004)
Proceeds from Offering (net
of Offering costs of
$5,076,183)............... 39,861 35,166,172 - 35,206,033
Repurchases of Shares....... (33) (35,924) - (35,957)
----------- ----------- ----------- ------------
Balance September 30, 1996.. $ 59,824 51,965,431 (1,139,178) 50,886,077
=========== =========== =========== ============
See accompanying notes to financial statements.
F-4
<PAGE> 55
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Statement of Cash Flows
For the nine months ended September 30, 1996 and 1995
(unaudited)
1996 1995
---- ----
Cash flows from operating activities:
Net income...................................... $ 1,332,939 298,037
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation.................................. 561,983 82,262
Amortization.................................. 4,119 -
Deferred rent receivable...................... (63,007) (3,656)
Rental income under master lease.............. 305,054 66,990
Changes in assets and liabilities:
Accounts and rents receivable............... (690,980) (232,992)
Other assets................................ (78,731) (198,848)
Accounts payable............................ 98,187 69,942
Accrued interest payable.................... (5,242) 27,186
Accrued real estate taxes................... 607,507 368,202
Security deposits........................... 57,891 49,983
Unearned income............................. 22,804 -
Due to Affiliates........................... 236,763 -
------------ -------------
Net cash provided by operating activities......... 2,389,287 527,106
------------ -------------
Cash flows from investing activities:
Additions to investment properties.............. (168,035) -
Purchase of investment properties............... (26,729,537) (5,286,038)
------------ -------------
Net cash used in investing activities............. (26,897,572) (5,286,038)
------------ -------------
Cash flows from financing activities:
Repayment of loan from Advisor.................. - (193,300)
Proceeds from offering.......................... 40,246,259 13,012,136
Payments of offering costs...................... (4,569,624) (1,762,295)
Loan proceeds................................... 12,820,000 -
Loan fees....................................... (186,828) -
Distributions paid.............................. (1,989,199) (188,958)
Repayment of note from Affiliate................ (360,000) -
Principal payments of debt...................... (2,940,277) (5,454,211)
------------ -------------
Net cash provided by financing activities......... 43,020,331 5,413,372
------------ -------------
Net increase in cash and cash equivalents......... 18,512,046 654,440
Cash and cash equivalents at beginning of period.. 738,931 10,934
------------ -------------
Cash and cash equivalents at end of period........ $19,250,977 665,374
============ =============
See accompanying notes to financial statements.
F-5
<PAGE> 56
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Statement of Cash Flows
(continued)
For the nine months ended September 30, 1996 and 1995
(unaudited)
Supplemental schedule of noncash investing and financing activities:
1996 1995
---- ----
Purchase of investment property................... $(34,102,713) (15,843,643)
Assumption of debt................................ 4,473,176 4,595,178
Note payable...................................... 2,900,000 5,962,427
------------- -------------
$(26,729,537) (5,286,038)
============= =============
Distributions payable............................. $ 372,337 214,852
============= =============
Cash paid for interest............................ $ 243,326 107,454
============= =============
See accompanying notes to financial statements.
F-6
<PAGE> 57
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Notes to Financial Statements
September 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. As of
July 24, 1996, the Company had received subscriptions for a total of 5,000,000
Shares, resulting in Gross Offering Proceeds of $50,000,000, thereby completing
[Be initial 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 September 30, 1996, the Company had
received subscriptions for a total of 931,147 Shares of the follow-on Offering,
resulting in $9,311,472 in Gross Offering Proceeds. In addition, the Company
has received $968,320 in Gross Offering Proceeds from 106,997 Shares purchased
through the DRP. As of September 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 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.
F-7
<PAGE> 58
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Notes to Financial Statements
(continued)
September 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 $655,905
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 September 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.
F-8
<PAGE> 59
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Notes to Financial Statements
(continued)
September 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 September 30, 1996, the Company had incurred $8,197,358 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
September 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. Such costs to Affiliates
incurred relating to the Offering were $645,669 and $409,858 as of September
30, 1996 and December 31, 1995, respectively, of which $8,339 and $120,269 were
unpaid as of September 30, 1996 and December 31, 1995, respectively. 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 $5,636,828 and $1,719,406 as of September
30, 1996 and December 31, 1995, respectively, of which $637,782 and $102,084
were unpaid as of September 30, 1996 and December 31, 1995, respectively. As
of September 30, 1996, approximately $4,955,000 of these commissions has been
reallowed to soliciting broker/dealers.
F-9
<PAGE> 60
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Notes to Financial Statements
(continued)
September 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 $1,699 remained unpaid at September 30,
1996.
As of September 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
September 30, 1996, the Company has incurred $242,341 of such fees, all of
which remains unpaid at September 30, 1996. (Defined terms in this paragraph
have the same definitions from the prospectus dated July 24, 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 $139,597 and $21,917 for the nine months ended September 30,
1996 and 1995, respectively, all of which has been paid.
F-10
<PAGE> 61
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Notes to Financial Statements
(continued)
September 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.
F-11
<PAGE> 62
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Notes to Financial Statements
(continued)
September 30, 1996
(unaudited)
(4) Investment Properties
Initial Cost (A)
-------------------------
Net
Buildings Adjustments
Date and to
Acq Land improvements Basis (B)
------- ----------- ------------- -----------
Single-user Retail
- ------------------
Walgreens/Decatur
Decatur, IL............. 01/95 $ 78,330 1,130,723 -
Zany Brainy
Wheaton, IL............. 07/96 838,000 1,625,202 -
Neighborhood Retail Centers
- ---------------------------
Eagle Crest Shopping Center
Naperville, IL.......... 03/95 1,878,618 2,938,352 -
Montgomery-Goodyear
Montgomery, IL.......... 09/95 315,000 834,659 (12,692)
Hartford/Naperville Plaza
Naperville, IL.......... 09/95 990,000 3,427,961 (7,847)
Nantucket Square
Schaumburg, IL.......... 09/95 1,908,000 2,354,583 (47,276)
Antioch Plaza
Antioch, IL............. 12/95 268,000 1,488,122 (110,198)
Mundelein Plaza
Mundelein, IL........... 03/96 1,803,000 3,857,560 (17,682)
Regency Point
Lockport, IL............ 04/96 1,000,000 4,720,800 (16,709)
Prospect Heights
Prospect Heights, IL.... 06/96 494,300 1,683,755 (11,989)
Montgomery-Sears
Montgomery, IL.......... 06/96 768,000 2,666,646 (10,817)
----------- ------------ -----------
Subtotal $10,341,248 26,728,363 (235,210)
F-12
<PAGE> 63
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Notes to Financial Statements
(continued)
September 30, 1996
(unaudited)
(4) Investment Properties (continued)
Gross amount at which carried
at end of period
---------------------------------------
Land Buildings
and and
improvements improvements Total
---------------------------------------
Single-user Retail
- ------------------
Walgreens/Decatur
Decatur, IL............. 78,330 1,130,723 1,209,053
Zany Brainy
Wheaton, IL............. 838,000 1,625,202 2,463,202
Neighborhood Retail Centers
- ---------------------------
Eagle Crest Shopping Center
Naperville, IL.......... 1,878,618 2,938,352 4,816,970
Montgomery-Goodyear
Montgomery, IL.......... 315,000 821,967 1,136,967
Hartford/Naperville Plaza
Naperville, IL.......... 990,000 3,420,114 4,410,114
Nantucket Square
Schaumburg, IL.......... 1,908,000 2,307,307 4,215,307
Antioch Plaza
Antioch, IL............. 268,000 1,377,924 1,645,924
Mundelein Plaza
Mundelein, IL........... 1,803,000 3,839,878 5,642,878
Regency Point
Lockport, IL............ 1,000,000 4,704,091 5,704,091
Prospect Heights
Prospect Heights, IL.... 494,300 1,671,766 2,166,066
Montgomery-Sears
Montgomery, IL.......... 768,000 2,655,829 3,423,829
------------ ------------ ------------
Subtotal 10,341,248 26,493,153 36,834,401
F-13
<PAGE> 64
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Notes to Financial Statements
(continued)
September 30, 1996
(unaudited)
(4) Investment Properties (continued)
Initial Cost (A)
-------------------------
Net
Buildings Adjustments
Date and to
Acq Land improvements Basis (B)
------- ----------- ------------ -----------
Subtotal $10,341,248 26,728,363 (235,210)
Neighborhood Retail Centers
- ---------------------------
Salem Square
Countryside, IL......... 08/96 1,735,000 4,446,874 (1,725)
Hawthorn Village
Vernon Hills, IL........ 08/96 2,619,500 5,844,076 -
----------- ------------ -----------
$14,695,748 37,019,313 (236,935)
=========== ============ ===========
(4) Investment Properties (continued)
Gross amount at which carried
at end of period
---------------------------------------
Land Buildings
and and
improvements improvements Total
------------ ------------ -------------
Subtotal 10,341,248 26,493,153 36,834,401
Neighborhood Retail Centers
- ---------------------------
Salem Square
Countryside, IL......... 1,735,000 4,445,149 6,180,149
Hawthorn Village
Vernon Hills, IL........ 2,619,500 5,844,076 8,463,576
------------ ------------ ------------
14,695,748 36,782,378 51,478,126
============ ============ ============
(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 September 30, 1996, the cumulative amount of such payments
was $438,070. (Note 5)
F-14
<PAGE> 65
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Notes to Financial Statements
(continued)
September 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.
Master Lease
Square Feet Payments
Covered by Received for
Master Master Lease Nine Months
Lease as of Rate per Ended
Property Expires Sept 30,1996 Square Foot Sept 30,1996
- ----------------------- ----------- ------------ ------------ ------------
Montgomery-Goodyear 09/96 3,010 $ 4.03 (A) $ 9,090
Hartford/Naperville 09/96 2,200 15.00 59,043
Nantucket Square 09/96 4,500(B) 15.00 69,518
Antioch Plaza 06/97 11,810 12.00 108,481
Mundelein Plaza 12/97 1,686 14.90 17,682
Regency Point 04/97 3,115 14.00 16,709
Prospect Heights 08/96 - - 11,989
Montgomery-Sears 06/98 3,600 12.00
1,500 10.20 10,817
Salem Square 07/97 3,742 5.53 1,725
-----------
$ 305,054
===========
(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.
F-15
<PAGE> 66
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Notes to Financial Statements
(continued)
September 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 $63,007 and $3,656 for
the nine months ended September 30, 1996 and 1995, respectively, of rental
income for the period of occupancy for which stepped rent increases apply and
$75,420 and $12,413 in related accounts receivable as of September 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) Mortgages Payable and Note Payable to Affiliates
Mortgages payable and note payable to Affiliates consist of the following at
September 30, 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.................. $ 741,467 750,727
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......................... 4,442,159 -
7.85% first mortgage secured by Eagle Crest,
Naperville, IL, monthly interest only payments
of $15,373, with the balance due October 2003... 2,350,000 -
7.85% first mortgage secured by Nantucket Square,
Schaumburg, IL, monthly interest only payments
of $14,392, with the balance due October 2003... 2,200,000 -
7.85% first mortgage secured by Antioch Plaza,
Antioch, IL, monthly interest only payments
of $5,724, with the balance due October 2003.... 875,000 -
7.85% first mortgage secured by Mundelein Plaza,
Mundelein, IL, monthly interest only payments
of $18,382, with the balance due October 2003... 2,810,000 -
F-16
<PAGE> 67
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Notes to Financial Statements
(continued)
September 30, 1996
(unaudited)
1996 1995
---- ----
7.85% first mortgage secured by Montgomery-Goodyear,
Montgomery, IL, monthly interest only payments
of $4,121, with the balance due October 2003.... $ 630,000 -
7.85% first mortgage secured by Montgomery-Sears,
Montgomery, IL, monthly interest only payments
of $10,761, with the balance due August 2003.... 1,645,000 -
7.85% first mortgage secured by Hartford/Naperville
Plaza, Naperville, IL, monthly interest only
payments of $15,111, with the balance due August
2003............................................ 2,310,000 -
------------ ------------
Mortgages payable................................. $18,003,626 750,727
============ ============
9.5% promissory note payable to Inland
Real Estate Investment Corporation, paid
in full on January 9, 1996...................... $ - 360,000
------------ ------------
Note payable to Affiliate......................... $ - 360,000
============ ============
(7) Subsequent Events
During October 1996, the Company paid distributions of $372,337 to the
Stockholders of record at September 30, 1996 on a weighted average basis for
the month.
On October 18, 1996, the Company acquired the Six Corners Plaza Shopping Center
from an unaffiliated third party for a purchase price of $6,000,000 on an all
cash basis.
On November 13, 1996, the Company acquired the Spring Hill Fashion Corner from
an unaffiliated third party for a purchase price of approximately $9,200,000 on
an all cash basis.
F-17
<PAGE> 68
Inland Real Estate Corporation
Pro Forma Balance Sheet
December 31, 1995
(unaudited)
The following unaudited Pro Forma Balance Sheet of the Company is presented to
effect the acquisitions of Mundelein Plaza, the Regency Point Shopping Center,
Prospect Heights Plaza, Montgomery-Sears Shopping Center, the Zany Brainy
store, Salem Square, Hawthorn Village Commons, Six Corners Plaza, Spring Hill
Fashion Corner, Grand and Hunt Club, The Quarry Outlot, Crestwood Plaza
Shopping Center, Park St. Claire, Lansing Square Shopping Center, Summit of
Park Ridge, Maple Park Place Shopping Center, Aurora Commons Shopping Center
and Lincoln Park Place Shopping Center as though these transactions occurred
December 31, 1995. This unaudited Pro Forma Balance Sheet should be read in
conjunction with the December 31, 1995 Financial Statements and the notes
thereto as filed on Form 10-K.
This unaudited Pro Forma Balance Sheet is not necessarily indicative of what
the actual financial position would have been at December 31, 1995, nor does it
purport to represent the future financial position of the Company. Unless
otherwise defined, capitalized terms used herein shall have the same meaning as
in the Prospectus.
F-18
<PAGE> 69
Inland Real Estate Corporation
Pro Forma Balance Sheet
December 31, 1995
(unaudited)
December 31,
December 31, 1995
1995 Pro Forma Pro Forma
Historical(A) Adjustments(B) Balance Sheet
------------- -------------- -------------
Assets
- ------
Net investment in
properties.................. $ 17,342,538 106,308,990 123,651,528
Cash and cash equivalents..... 738,931 - 738,931
Restricted cash............... 150,000 - 150,000
Accounts and rents
receivable.................. 333,823 2,289,458 2,623,281
Other assets.................. 185,585 164,751 350,336
------------- ------------- -------------
Total assets.................. $ 18,750,877 108,763,199 127,514,076
============= ============= =============
Liabilities and Stockholders' Equity
- ------------------------------------
Accounts payable and accrued
expenses.................... $ 288,037 7,500 295,537
Accrued real estate taxes..... 374,180 2,994,923 3,369,103
Distributions payable (C)..... 129,532 - 129,532
Security deposits............. 54,483 240,059 294,542
Mortgage payable.............. 750,727 36,413,089 37,163,816
Notes payable to Affiliate.... 360,000 - 360,000
Other liabilities............. 178,852 - 178,852
------------- ------------- -------------
Total liabilities............. 2,135,811 39,655,571 41,791,382
------------- ------------- -------------
Common Stock.................. 19,996 80,360 100,356
Additional paid in capital
(net of Offering costs)..... 16,835,183 69,027,268 85,862,451
Accumulated distributions in
excess of net income........ (240,113) - (240,113)
------------- ------------- -------------
Total Stockholders' equity.... 16,615,066 69,107,628 85,722,694
------------- ------------- -------------
Total liabilities and
Stockholders' equity........ $ 18,750,877 108,763,199 127,514,076
============= ============= =============
See accompanying notes to pro forma balance sheet.
F-19
<PAGE> 70
Inland Real Estate Corporation
Notes to Pro Forma Balance Sheet
December 31, 1995
(unaudited)
(A) The December 31, 1995 Historical column represents the historical balance
sheet as presented in the December 31, 1995 10-K as filed with the SEC.
(B) The following pro forma adjustment relates to the acquisition of the
subject properties as though they were acquired on December 31, 1995.The
terms are described in the notes that follow.
Pro Forma Adjustments
---------------------------------------------------
Mundelein Regency Prospect Montgomery-
Plaza Point Heights Sears
------------ ------------ ------------ ------------
Assets
- ------
Net investment in
properties........ $ 5,658,230 5,700,000 2,165,000 3,419,000
Accounts and rent
receivable........ 84,375 16,867 38,771 27,842
Other assets........ - - - -
------------ ------------ ------------ ------------
Total assets........ $ 5,742,605 5,716,867 2,203,771 3,446,842
============ ============ ============ ============
Liabilities and Stockholders' Equity
- ------------------------------------
Accounts payable and
accrued expenses.. $ 7,500 - - -
Accrued real estate
taxes............. 89,010 16,867 63,517 32,655
Security deposits... 15,000 28,621 8,600 -
Mortgage payable.... - 4,473,200 - -
------------ ------------ ------------ ------------
Total liabilities... 111,510 4,518,688 72,117 32,655
------------ ------------ ------------ ------------
Common Stock(D)..... 6,548 1,393 2,479 3,970
Additional paid in
capital (net of
Offering costs)(D) 5,624,547 1,196,786 2,129,175 3,410,217
------------ ------------ ------------ ------------
Total Stockholders'
equity............ 5,631,095 1,198,179 2,131,654 3,414,187
------------ ------------ ------------ ------------
Total liabilities
and Stockholders'
equity............ $ 5,742,605 5,716,867 2,203,771 3,446,842
============ ============ ============ ============
F-20
<PAGE> 71
Inland Real Estate Corporation
Notes to Pro Forma Balance Sheet
December 31, 1995
(unaudited)
(B) Continued
Pro Forma Adjustments
---------------------------------------------------
Hawthorn
Zany Salem Village Six
Brainy Square Commons Corners
------------ ------------ ------------ ------------
Assets
- ------
Net investment in
properties........ $ 2,455,000 6,173,850 8,450,000 6,000,000
Accounts and rent
receivable........ - 270,729 194,400 65,293
Other assets........ - - 39,550 -
------------ ------------ ------------ ------------
Total assets........ $ 2,455,000 6,444,579 8,683,950 6,065,293
============ ============ ============ ============
Liabilities and Stockholders' Equity
- ------------------------------------
Accounts payable and
accrued expenses.. $ - - - -
Accrued real estate
taxes............. - 270,729 194,400 217,643
Security deposits... - - - 15,542
Mortgage payable.... - - 2,900,000 -
------------ ------------ ------------ ------------
Total liabilities... - 270,729 3,094,400 233,185
------------ ------------ ------------ ------------
Common Stock(D)..... 2,855 7,179 6,499 6,781
Additional paid in
capital (net of
Offering costs)(D) 2,452,145 6,166,671 5,583,051 5,825,327
------------ ------------ ------------ ------------
Total Stockholders'
equity............ 2,455,000 6,173,850 5,589,550 5,832,108
------------ ------------ ------------ ------------
Total liabilities
and Stockholders'
equity............ $ 2,455,000 6,444,579 8,683,950 6,065,293
============ ============ ============ ============
F-21
<PAGE> 72
Inland Real Estate Corporation
Notes to Pro Forma Balance Sheet
December 31, 1995
(unaudited)
(B) Continued
Pro Forma Adjustments
---------------------------------------------------
Spring Grand and
Hill Hunt Club Quarry Crestwood
------------ ------------ ------------ ------------
Assets
- ------
Net investment in
properties........ $ 9,200,000 3,592,000 1,800,000 1,808,760
Accounts and rent
receivable........ 95,470 - - 51,494
Other assets........ - - - -
------------ ------------ ------------ ------------
Total assets........ $ 9,295,470 3,592,000 1,800,000 1,860,254
============ ============ ============ ============
Liabilities and Stockholders' Equity
- ------------------------------------
Accounts payable and
accrued expenses.. $ - - - -
Accrued real estate
taxes............. 123,315 - - 51,494
Security deposits... 40,155 - - 12,800
Mortgage payable.... - - - 1,303,303
------------ ------------ ------------ ------------
Total liabilities... 163,470 - - 1,367,597
------------ ------------ ------------ ------------
Common Stock(D)..... 10,619 4,177 2,093 573
Additional paid in
capital (net of
Offering costs)(D) 9,121,381 3,587,823 1,797,907 492,084
------------ ------------ ------------ ------------
Total Stockholders'
equity............ 9,132,000 3,592,000 1,800,000 492,657
------------ ------------ ------------ ------------
Total liabilities
and Stockholders'
equity............ $ 9,295,470 3,592,000 1,800,000 1,860,254
============ ============ ============ ============
F-22
<PAGE> 73
Inland Real Estate Corporation
Notes to Pro Forma Balance Sheet
December 31, 1995
(unaudited)
(B) Continued
Pro Forma Adjustments
----------------------------------------------------
Park Lansing Summit of Maple
St. Claire Square Park Ridge Park Place
------------ ------------ ------------ -------------
Assets
- ------
Net investment in
properties........ $ 1,525,000 16,300,000 3,200,000 15,262,150
Accounts and rent
receivable........ 26,391 825,340 162,643 173,777
Other assets........ - 80,000 - 20,000
------------ ------------ ------------ ------------
Total assets........ $ 1,551,391 17,205,340 3,362,643 15,455,927
============ ============ ============ ============
Liabilities and Stockholders' Equity
- ------------------------------------
Accounts payable and
accrued expenses.. $ - - - -
Accrued real estate
taxes............. 38,938 1,252,577 203,304 180,856
Security deposits... - 28,918 34,469 31,624
Mortgage payable.... - 8,000,000 - 8,000,000
------------ ------------ ------------ ------------
Total liabilities... 38,938 9,281,495 237,773 8,212,480
------------ ------------ ------------ ------------
Common Stock(D)..... 1,759 9,214 3,634 8,423
Additional paid in
capital (net of
Offering costs)(D) 1,510,694 7,914,631 3,121,236 7,235,024
------------ ------------ ------------ ------------
Total Stockholders'
equity............ 1,512,453 7,923,845 3,124,870 7,243,447
------------ ------------ ------------ ------------
Total liabilities
and Stockholders'
equity............ $ 1,551,391 17,205,340 3,362,643 15,455,927
============ ============ ============ ============
F-23
<PAGE> 74
Inland Real Estate Corporation
Notes to Pro Forma Balance Sheet
December 31, 1995
(unaudited)
(B) Continued
Pro Forma Adjustments
---------------------------------------
Total
Aurora Lincoln Pro Forma
Commons Park Place Adjustment
------------ ------------ -------------
Assets
- ------
Net investment in
properties........ $11,500,000 2,100,000 106,308,990
Accounts and rent
receivable........ 174,066 82,000 2,289,458
Other assets........ - 25,201 164,751
------------ ------------ -------------
Total assets........ $11,674,066 2,207,201 108,763,199
============ ============ =============
Liabilities and Stockholders' Equity
- ------------------------------------
Accounts payable and
accrued expenses.. $ - - 7,500
Accrued real estate
taxes............. 177,618 82,000 2,994,923
Security deposits... 24,330 - 240,059
Mortgage payable.... 9,720,476 2,016,110 36,413,089
------------ ------------ -------------
Total liabilities... 9,922,424 2,098,110 39,655,571
------------ ------------ ------------
Common Stock(D)..... 2,037 127 80,360
Additional paid in
capital (net of
Offering costs)(D) 1,749,605 108,964 69,027,268
------------ ------------ -------------
Total Stockholders'
equity............ 1,751,642 109,091 69,107,628
------------ ------------ -------------
Total liabilities
and Stockholders'
equity............ $11,674,066 2,207,201 108,763,199
============ ============ =============
F-24
<PAGE> 75
Inland Real Estate Corporation
Notes to Pro Forma Balance Sheet
(continued)
December 31, 1995
(unaudited)
Acquisition of Mundelein Plaza, Mundelein, Illinois
On March 29, 1996, the Company acquired the Mundelein Plaza property
located in Mundelein, Illinois ("Mundelein Plaza") from an unaffiliated
third party for a purchase price of $5,658,230, including closing costs of
$8,230, on an all cash basis, funded from cash and cash equivalents.
Acquisition of Regency Point Shopping Center, Lockport, Illinois
On April 5, 1996, the Company completed the acquisition of the Regency
Point Shopping Center located in Lockport, Illinois ("Regency Point"), from
an unaffiliated third party for a purchase price of $5,700,000. As part of
the acquisition, the Company will assume the existing first mortgage loan
of $4,473,200 along with a related interest rate swap agreement, with the
balance funded with cash and cash equivalents.
The first mortgage loan has a floating interest rate of 180 basis points
over the 30-day LIBOR rate, which rate is adjusted monthly. The interest
rate swap agreement, in conjunction with the first mortgage, provides for
Bank One, Chicago, to receive from or pay to the Company the difference
between 6.11% and the 30-day LIBOR rate, so that the first mortgage loan
has an effective rate of 7.91% per annum. The first mortgage loan matures
in August 2000. The related interest rate swap agreement was terminated on
April 18, 1996 resulting in $48,419 proceeds to the Company. No pro forma
adjustment has been made as a result of this termination.
Acquisition of Prospect Heights Plaza, Prospect Heights, Illinois
On June 17, 1996, the Company acquired this property from an unaffiliated
third party for the purchase price of $2,165,000 on an all cash basis,
funded from cash and cash equivalents.
Acquisition of Montgomery-Sears, Montgomery, Illinois
On June 17, 1996, the Company acquired this property from an unaffiliated
third party for the purchase price of $3,419,000 on an all cash basis,
funded from cash and cash equivalents.
Acquisition of Zany Brainy, Wheaton, Illinois
On July 1, 1996, the Company acquired this property from an unaffiliated
third party for the purchase price of $2,455,000 on an all cash basis,
funded from cash and cash equivalents.
F-25
<PAGE> 76
Inland Real Estate Corporation
Notes to Pro Forma Balance Sheet
(continued)
December 31, 1995
(unaudited)
Acquisition of Salem Square, Countryside, Illinois
On August 2, 1996, the Company acquired this property from an unaffiliated
third party for the purchase price of $6,173,850, on an all cash basis,
funded from cash and cash equivalents.
Acquisition of Hawthorn Village Commons, Vernon Hills, Illinois
On August 15, 1996, the Company acquired this property from an unaffiliated
third party for the purchase price of $8,450,000.
The Company funded the purchase using: (i) the proceeds of a short-term
loan maturing August 23, 1996 in the amount of $2.9 million from Inland
Mortgage Investment Corporation ("IMIC"), an Affiliate of the Company (the
"Short-Term Loan"), and (ii) cash and cash equivalents. The Company did
not pay any fees in connection with the Short-Term Loan, which bears
interest at a rate of eight percent per annum. A majority of the Company's
board, including a majority of the Independent Directors has approved the
terms and conditions of the Short-Term Loan.
Acquisition of Six Corners, Chicago, Illinois
On October 18, 1996, the Company acquired this property from an
unaffiliated third party for the purchase price of approximately
$6,000,000, on an all cash basis, funded from cash and cash equivalents.
Acquisition of Spring Hill Fashion Center, West Dundee, Illinois
On November 13, 1996, the Company acquired this property from an
unaffiliated third party for the purchase price of approximately
$9,200,000, on an all cash basis, funded from cash and cash equivalents.
Acquisition of Grand and Hunt Club Outlot Center, Gurnee, Illinois
On December 24, 1996, the Company acquired this property from an
unaffiliated third party for the purchase price of $3,592,000 on an all
cash basis, funded from cash and cash equivalents.
Acquisition of the Quarry Outlot, Hodgkins, Illinois
On December 24, 1996, the Company acquired this property from an
unaffiliated third party for the purchase price of $1,800,000 on an all
cash basis, funded from cash and cash equivalents.
F-26
<PAGE> 77
Inland Real Estate Corporation
Notes to Pro Forma Balance Sheet
(continued)
December 31, 1995
(unaudited)
Acquisition of Crestwood Plaza Shopping Center, Crestwood, Illinois
On December 27, 1996, the Company acquired this property from an affiliated
party, Inland Property Sales, for the purchase price of $1,808,760. As
part of the acquisition, the Company assumed the existing first mortgage
loan of 1,303,303 with the balance funded with cash and cash equivalents.
Acquisition of Park St. Claire Plaza, Schaumburg, Illinois
On December 31, 1996, the Company acquired this property from an
unaffiliated third party for the purchase price of $1,525,000, on an all
cash basis, funded from cash and cash equivalents.
Acquisition of Lansing Square Shopping Center, Lansing, Illinois
On December 31, 1996, the Company acquired this property from an
unaffiliated third party for the purchase price of $16,300,000.
The Company funded the purchase using: (i) the proceeds of five long-term
loans totaling $12,850,000 from LaSalle Bank of which approximately
$8,000,000 was used to purchase this property and (ii) cash and cash
equivalents. The Company paid a one point fee in connection with these
long-term loans. The loans have a term of seven years and, prior to the
maturity date, require payment of interest only, at 7.6%, fixed for five
years with the remaining two years at prime plus 1/2%.
Acquisition of The Summit of Park Ridge, Park Ridge, Illinois
On December 31, 1996, the Company acquired this property from an
unaffiliated third party for the purchase price of $3,200,000, on an all
cash basis, funded from cash and cash equivalents.
Acquisition of Maple Park Place Shopping Center, Bolingbrook, Illinois
On January 9, 1997, the Company acquired this property from an unaffiliated
third party for the purchase price of $15,262,150.
The Company funded the purchase using (i) the proceeds of a short-term loan
maturing April 7, 1997 in the amount of $8 million from Inland Mortgage
Investment Corporation ("IMIC"), an affiliate of the Company (the "Short-
Term Loan"), and (ii) cash and cash equivalents. The Short-Term Loan bears
interest at a rate of 9.0% per annum and requires a loan fee of 1/4%.
F-27
<PAGE> 78
Inland Real Estate Corporation
Notes to Pro Forma Balance Sheet
(continued)
December 31, 1995
(unaudited)
Acquisition of Aurora Commons Shopping Center, Aurora, Illinois
On January 24, 1997, the Company acquired this property from an
unaffiliated third party for the purchase price of $11,500,000.
As part of the acquisition, the Company assumed the existing mortgage loan
maturing December 31, 2001, with the balance funded with cash and cash
equivalents. The assumed loan bears interest at a rate of 9% per annum
with monthly payments of principal and interest on the first day of each
month.
Acquisition of Lincoln Park Place Shopping Center, Chicago, Illinois
On January 24, 1997, the Company acquired this property from an
unaffiliated third party for the purchase price of $2,100,000.
The Company funded the purchase using the proceeds of a short-term loan
maturing February 3, 1997 in the amount of $2,016,110 from Inland Mortgage
Investment Corporation ("IMIC"), an affiliate of the Company (the "Short-
Term Loan"). The Company did not pay any fees in connection with the
Short-Term Loan, which bears interest at a rate of 9% per annum.
(C) No pro forma assumptions have been made for the additional payment of
distributions resulting from the additional proceeds raised.
(D) Additional Offering Proceeds of $80,360,000, net of additional Offering
costs of $11,252,372 are reflected as received as of December 31, 1995,
prior to the purchase of the properties. Offering costs consist
principally of registration costs, printing and selling costs, including
commissions.
F-28
<PAGE> 79
Inland Real Estate Corporation
Pro Forma Statement of Operations
For the year ended December 31, 1995
(unaudited)
The following unaudited Pro Forma Statement of Operations of the Company is
presented to effect the acquisitions of the Walgreens/Decatur property, Eagle
Crest Shopping Center, Montgomery-Goodyear property, Nantucket Square Shopping
Center, Mundelein Plaza, Regency Point Shopping Center, Prospect Heights Plaza,
Montgomery-Sears Shopping Center, Salem Square, Hawthorn Village Commons, Six
Corners Plaza, Spring Hill Fashion Corner, Crestwood Plaza Shopping Center,
Park St. Claire, Lansing Square Shopping Center, Summit of Park Ridge, Maple
Park Place Shopping Center, Aurora Commons Shopping Center and Lincoln Park
Place Shopping Center as though these transactions occurred on January 1, 1995.
Hartford/Naperville Plaza, Antioch Plaza and the Zany Brainy store were
constructed in 1995 and acquired shortly after construction was completed and
as such, the unaudited Pro Forma Statement of Operations of the Company is
presented to effect these acquisitions as of August 17, 1995, September 1, 1995
and November 22, 1995, respectively, the date occupancy commenced at these
properties. Grand and Hunt Club and the Quarry Outlot were constructed in
1996, as such, no operations are presented on the unaudited Pro Forma Statement
of Operations for 1995. This unaudited Pro Forma Statement of Operations
should be read in conjunction with the December 31, 1995 Financial Statements
and the notes thereto as filed on Form 10-K.
This unaudited Pro Forma Statement of Operations is not necessarily indicative
of what the actual results of operations would have been for the year ended
December 31, 1995, nor does it purport to represent the future results of
operations of the Company. Unless otherwise defined, capitalized terms used
herein shall have the same meaning as in the Prospectus.
F-29
<PAGE> 80
Inland Real Estate Corporation
Pro Forma Statement of Operations
for the year ended December 31, 1995
(unaudited)
Pro Forma Adjustments
-----------------------------------
Acquisitions
1995
Historical 1995 1996 1997 1995
(A) (B) (C) (D) Pro Forma
---------- ----------- ----------- ----------- ------------
Rental
income.......... $ 869,485 585,614 7,163,124 3,217,369 11,835,592
Additional
rental income... 228,024 162,536 2,663,228 918,113 3,971,901
Interest
income (E)...... 82,913 - - - 82,913
---------- ----------- ----------- ----------- ------------
Total income.... 1,180,422 748,150 9,826,352 4,135,482 15,890,406
---------- ----------- ----------- ----------- ------------
Professional
services and
general and
administrative 23,132 - - - 23,132
Property operating
expenses........ 326,721 275,218 4,232,681 1,063,211 5,897,831
Interest expense.. 164,161 429,997 1,191,900 1,784,433 3,570,491
Depreciation (F).. 169,894 111,767 1,779,708 781,738 2,843,107
Amortization (H).. - - 11,429 6,457 17,886
---------- ----------- ----------- ----------- ------------
Total expenses.... 683,908 816,982 7,215,718 3,635,839 12,352,447
---------- ----------- ----------- ----------- ------------
Net income(loss) $ 496,514 (68,832) 2,610,634 499,643 3,537,959
========== =========== =========== =========== ============
Weighted average
common stock shares
outstanding (G). 943,156 8,979,156
========== ============
Net income per weighted
average common stock
outstanding (G). $ .53 .39
========== ============
See accompanying notes to pro forma statement of operations.
F-30
<PAGE> 81
Inland Real Estate Corporation
Notes to Pro Forma Statement of Operations
For the year ended December 31, 1995
(unaudited)
(A) The 1995 Historical column represents the historical statement of
operations of the Company for the year ended December 31, 1995, as filed
with the SEC on Form 10-K.
(B) Total pro forma adjustments for the year ended December 31, 1995 are as
though the acquisitions were acquired the earlier of January 1, 1995 or
date that operations commenced.
Pro Forma Adjustments
---------------------------------------------------
Hartford
Montgomery- Naperville
Walgreens Eagle Crest Goodyear Plaza
----------- ----------- ------------ -----------
Rental
income.......... $ 10,651 95,232 101,359 15,077
Additional
Rental income... - 2,218 19,203 662
----------- ----------- ------------ -----------
Total income.... 10,651 97,450 120,562 15,739
----------- ----------- ------------ -----------
Property operating
expenses........ 533 17,376 47,758 3,436
Interest expense.. 4,840 77,170 46,325 13,625
Depreciation (F).. 3,141 16,324 20,682 8,867
----------- ----------- ------------ -----------
Total expenses.... 8,514 110,870 114,765 25,928
----------- ----------- ------------ -----------
Net income(loss) $ 2,137 (13,420) 5,797 (10,189)
=========== =========== ============ ===========
Total
Nantucket Antioch 1995
Square Plaza Pro Forma
----------- ----------- ------------
Rental
income.......... $ 340,545 22,750 585,614
Additional
Rental income... 140,453 - 162,536
----------- ----------- -----------
Total income.... 480,998 22,750 748,150
----------- ----------- -----------
Property operating
expenses........ 205,903 212 275,218
Interest expense.. 267,137 20,900 429,997
Depreciation (F).. 57,357 5,396 111,767
----------- ----------- -----------
Total expenses.... 530,397 26,508 816,982
----------- ----------- -----------
Net income(loss) $ (49,399) (3,758) (68,832)
=========== =========== ===========
F-31
<PAGE> 82
Inland Real Estate Corporation
Notes to Pro Forma Statement of Operations
(continued)
For the year ended December 31, 1995
(unaudited)
Acquisition of Walgreens/Decatur, Decatur, Illinois
In conjunction with the acquisition, the Company assumed a portion of the
first mortgage loan with a balance of $775,000. This mortgage has an
interest rate of 7.655%, amortizes over a 25-year period and matures May
31, 2004. The Company is responsible for monthly payments of principal
and interest of $5,689. The pro forma adjustment for interest expense for
the period prior to acquisition was estimated using the described loan
terms.
Acquisition of Eagle Crest Shopping Center, Naperville, Illinois
As part of the acquisition, the Company assumed a portion of the first
mortgage loan with a balance of $3,534,000, as well as entering into a
loan agreement with Inland Property Sales, Inc. ("IPS"), an Affiliate of
the Advisor, for the balance of the purchase price for $1,212,427. The
first mortgage bears interest at 9.5% per annum and the loan to IPS bears
interest at 10.5%. The pro forma adjustment for interest expense for the
period prior to acquisition was estimated using the described loan terms.
Acquisition of Montgomery-Goodyear, Montgomery, Illinois
As part of the acquisition, the Company entered into a loan agreement with
Inland Mortgage Investment Corporation ("IMIC"), an affiliate of the
Advisor, for $600,000 which bears interest of 10.9% per annum. The pro
forma adjustment for interest expense for the period prior to acquisition
was estimated using the described loan terms.
Acquisition of Hartford/Naperville Plaza, Naperville, Illinois
In conjunction with the acquisition, the Company entered into a loan
agreement with IMIC for $600,000 which bears interest of 10.9% per annum.
The pro forma adjustment for interest expense was estimated using the
described loan terms.
Acquisition of Nantucket Square Shopping Center, Schaumburg, Illinois
As part of the acquisition, the Company entered into a loan agreement with
IMIC for $3,550,000 which bears interest of 10.5% per annum. The pro
forma adjustment for interest expense for the period prior to acquisition
was estimated using the described loan terms.
F-32
<PAGE> 83
Inland Real Estate Corporation
Notes to Pro Forma Statement of Operations
(continued)
For the year ended December 31, 1995
(unaudited)
Acquisition of Antioch Plaza, Antioch, Illinois
This pro forma adjustment reflects the purchase of the Antioch Plaza
property as if the Company had purchased the property as of September 1,
1995, the date the first tenant occupied this newly constructed property.
The pro forma adjustment for operations for the period September 1, 1995
to December 28, 1995 (date of acquisition) was estimated using applicable
lease information. Blockbuster Video was the only tenant occupying the
property during that period. No pro forma adjustment was made for real
estate tax expense and the related recovery income since the property was
vacant land for most of 1995 and the amount would be difficult to estimate
and have an immaterial effect.
As part of the acquisition, the Company entered into a loan agreement with
Inland Real Estate Investment Corporation, an affiliate of the Advisor,
for $660,000 which bears interest of 9.5% per annum. The pro forma
adjustment for interest expense was estimated using the described loan
terms.
F-33
<PAGE> 84
Inland Real Estate Corporation
Notes to Pro Forma Statement of Operations
(continued)
For the year ended December 31, 1995
(unaudited)
(C) Total pro forma adjustments for 1996 Acquisitions are as though they were
acquired the earlier of January 1, 1995 or date that operations commenced.
Pro Forma Adjustments
-----------------------------------------------------------
Mundelein Regency Prospect Montgomery- Zany
Plaza Point Heights Sears Brainy
----------- ----------- ----------- ----------- -----------
Rental
income.......... $ 639,124 541,085 164,152 327,610 28,643
Additional
Rental income... 66,669 63,294 116,175 76,182 5,030
----------- ----------- ----------- ----------- -----------
Total income.... 705,793 604,379 280,327 403,792 33,673
----------- ----------- ----------- ----------- -----------
Property operating
expenses........ 141,482 71,615 180,819 102,067 5,502
Interest expense.. - 351,900 - - -
Depreciation (F).. 128,233 162,500 46,900 83,200 4,422
----------- ----------- ----------- ----------- -----------
Total expenses.... 269,715 586,015 227,719 185,267 9,924
----------- ----------- ----------- ----------- -----------
Net income...... $ 436,078 18,364 52,608 218,525 23,749
=========== =========== =========== =========== ===========
Hawthorn
Salem Village Six Spring
Square Commons Corners Hill Crestwood
----------- ----------- ----------- ----------- -----------
Rental
income.......... $ 717,522 970,313 685,443 1,117,082 203,007
Additional
Rental income... 387,179 353,145 164,345 290,755 66,739
----------- ----------- ----------- ----------- -----------
Total income.... 1,104,701 1,323,458 849,788 1,407,837 269,746
----------- ----------- ----------- ----------- -----------
Property operating
expenses........ 435,021 407,404 584,070 366,360 73,358
Interest expense.. - 232,000 - - -
Depreciation (F).. 150,000 194,467 153,000 246,866 49,439
----------- ----------- ----------- ----------- -----------
Total expenses.... 585,021 833,871 737,070 613,226 122,797
----------- ----------- ----------- ----------- -----------
Net income...... $ 519,680 489,587 112,718 794,611 146,949
=========== =========== =========== =========== ===========
F-34
<PAGE> 85
Inland Real Estate Corporation
Notes to Pro Forma Statement of Operations
(continued)
For the year ended December 31, 1995
(unaudited)
Pro Forma Adjustments
-----------------------------------------------
Total
Park Lansing Summit of 1995
St. Claire Square Park Ridge Pro Forma
----------- ----------- ----------- -----------
Rental
income.......... $ 70,928 1,406,317 291,898 7,163,124
Additional
Rental income... 28,960 825,340 219,415 2,663,228
----------- ----------- ----------- -----------
Total income.... 99,888 2,231,657 511,313 9,826,352
----------- ----------- ----------- -----------
Property operating
expenses........ 82,601 1,508,113 274,269 4,232,681
Interest expense.. - 608,000 - 1,191,900
Depreciation (F).. 40,681 434,667 85,333 1,779,708
Amortization (H).. - 11,429 - 11,429
----------- ----------- ----------- -----------
Total expenses.... 123,282 2,562,209 359,602 7,215,718
----------- ----------- ----------- -----------
Net income(loss) $ (23,394) (330,552) 151,711 2,610,634
=========== =========== =========== ===========
F-35
<PAGE> 86
Inland Real Estate Corporation
Notes to Pro Forma Statement of Operations
(continued)
For the year ended December 31, 1995
(unaudited)
Acquisition of Mundelein Plaza, Mundelein, Illinois
Reconciliation of Gross Income and Direct Operating Expenses for the year
ended December 31, 1995 prepared in accordance with Rule 3.14 of
Regulation S-X (*) to the Pro Forma Adjustments:
Mundelein Plaza
-------------------------------------
*As Pro Forma
Reported Adjustments Total
----------- ----------- -----------
Rental income.................... $ 639,124 - 639,124
Additional rental income......... 66,669 - 66,669
----------- ----------- -----------
Total income..................... 705,793 - 705,793
----------- ----------- -----------
Property operating expenses...... 141,482 - 141,482
Interest expense................. - - -
Depreciation (F)................. - 128,233 128,233
----------- ----------- -----------
Total expenses................... 141,482 128,233 269,715
----------- ----------- -----------
Net income....................... $ 564,311 (128,233) 436,078
=========== =========== ===========
Acquisition of Regency Point, Lockport, Illinois
As part of the acquisition, the Company will assume the existing first
mortgage loan of $4,473,200, along with a related interest rate swap
agreement.
The first mortgage loan has a floating interest rate of 180 basis points
over the 30-day LIBOR rate, which rate is adjusted monthly. The interest
rate swap agreement, in conjunction with the first mortgage, provides for
Bank One, Chicago, to receive from or pay to the Company the difference
between 6.11% and the 30-day LIBOR rate, so that the first mortgage loan
has an effective rate of 7.91% per annum. The pro forma adjustment for
interest expense for 1995 was estimated using the described loan terms.
The related interest rate swap agreement was terminated on April 18, 1996
resulting in $48,419 proceeds to the Company. The pro forma adjustment
does not give effect to the termination of this agreement.
F-36
<PAGE> 87
Inland Real Estate Corporation
Notes to Pro Forma Statement of Operations
(continued)
For the year ended December 31, 1995
(unaudited)
Reconciliation of Gross Income and Direct Operating Expenses for the year
ended December 31, 1995 prepared in accordance with Rule 3.14 of
Regulation S-X (*) to the Pro Forma Adjustments:
Regency Point
-------------------------------------
*As Pro Forma
Reported Adjustments Total
----------- ----------- -----------
Rental income.................... $ 541,085 - 541,085
Additional rental income......... 63,294 - 63,294
----------- ----------- -----------
Total income..................... 604,379 - 604,379
----------- ----------- -----------
Property operating expenses...... 71,615 - 71,615
Interest expense................. - 351,900 351,900
Depreciation (F)................. - 162,500 162,500
----------- ----------- -----------
Total expenses................... 71,615 514,400 586,015
----------- ----------- -----------
Net income....................... $ 532,764 (514,400) 18,364
=========== =========== ===========
Acquisition of Prospect Heights Plaza, Prospect Heights, Illinois
Reconciliation of Gross Income and Direct Operating Expenses for the year
ended December 31, 1995 prepared in accordance with Rule 3.14 of
Regulation S-X (*) to the Pro Forma Adjustments:
Prospect Heights
-------------------------------------
*As Pro Forma
Reported Adjustments Total
----------- ----------- -----------
Rental income.................... $ 164,152 - 164,152
Additional rental income......... 116,175 - 116,175
----------- ----------- -----------
Total income..................... 280,327 - 280,327
----------- ----------- -----------
Property operating expenses...... 180,819 - 180,819
Interest expense................. - - -
Depreciation (F)................. - 46,900 46,900
----------- ----------- -----------
Total expenses................... 180,819 46,900 227,719
----------- ----------- -----------
Net income....................... $ 99,508 (46,900) 52,608
=========== =========== ===========
F-37
<PAGE> 88
Inland Real Estate Corporation
Notes to Pro Forma Statement of Operations
(continued)
For the year ended December 31, 1995
(unaudited)
Acquisition of Montgomery-Sears, Montgomery, Illinois
Reconciliation of Gross Income and Direct Operating Expenses for the year
ended December 31, 1995 prepared in accordance with Rule 3.14 of
Regulation S-X (*) to the Pro Forma Adjustments:
Montgomery-Sears
-------------------------------------
*As Pro Forma
Reported Adjustments Total
----------- ----------- -----------
Rental income.................... $ 327,610 - 327,610
Additional rental income......... 76,182 - 76,182
----------- ----------- -----------
Total income..................... 403,792 - 403,792
----------- ----------- -----------
Property operating expenses...... 102,067 - 102,067
Interest expense................. - - -
Depreciation (F)................. - 83,200 83,200
----------- ----------- -----------
Total expenses................... 102,067 83,200 185,267
----------- ----------- -----------
Net income....................... $ 301,725 (83,200) 218,525
=========== =========== ===========
Acquisition of Zany Brainy, Wheaton, Illinois
This pro forma adjustment reflects the purchase of Zany Brainy as if the
Company had purchased the property as of January 1, 1995. Operations for
this property for the period from November 22, 1995 (date of occupancy) to
December 31, 1995 were estimated using the lease and operating expense
information supplied by the seller. This property was purchased on an all
cash basis.
F-38
<PAGE> 89
Inland Real Estate Corporation
Notes to Pro Forma Statement of Operations
(continued)
For the year ended December 31, 1995
(unaudited)
Acquisition of Salem Square, Countryside, Illinois
Reconciliation of Gross Income and Direct Operating Expenses for the year
ended December 31, 1995 prepared in accordance with Rule 3.14 of
Regulation S-X (*) to the Pro Forma Adjustments:
Salem Square
-------------------------------------
*As Pro Forma
Reported Adjustments Total
----------- ----------- -----------
Rental income.................... $ 717,522 - 717,522
Additional rental income......... 387,179 - 387,179
----------- ----------- -----------
Total income..................... 1,104,701 - 1,104,701
----------- ----------- -----------
Property operating expenses...... 435,021 - 435,021
Interest expense................. - - -
Depreciation (F)................. - 150,000 150,000
----------- ----------- -----------
Total expenses................... 435,021 150,000 585,021
----------- ----------- -----------
Net income....................... $ 669,680 (150,000) 519,680
=========== =========== ===========
Acquisition of Hawthorn Village Commons, Vernon Hills, Illinois
Reconciliation of Gross Income and Direct Operating Expenses for the year
ended December 31, 1995 prepared in accordance with Rule 3.14 of
Regulation S-X (*) to the Pro Forma Adjustments:
Hawthorn Village Commons
-------------------------------------
*As Pro Forma
Reported Adjustments Total
----------- ----------- -----------
Rental income.................... $ 970,313 - 970,313
Additional rental income......... 353,145 - 353,145
----------- ----------- -----------
Total income..................... 1,323,458 - 1,323,458
----------- ----------- -----------
Property operating expenses...... 407,404 - 407,404
Interest expense................. - 232,000 232,000
Depreciation (F)................. - 194,467 194,467
----------- ----------- -----------
Total expenses................... 407,404 426,467 833,871
----------- ----------- -----------
Net income....................... $ 916,054 (426,467) 489,587
=========== =========== ===========
F-39
<PAGE> 90
Inland Real Estate Corporation
Notes to Pro Forma Statement of Operations
(continued)
For the year ended December 31, 1995
(unaudited)
The Company funded the purchase of Hawthorn Village Commons using: (i) the
proceeds of a short-term loan maturing August 23, 1996 in the amount of
$2.9 million from Inland Mortgage Investment Corporation ("IMIC"), an
Affiliate of the Company (the "Short-Term Loan"), and (ii) cash and cash
equivalents. The Company did not pay any fees in connection with the
Short-Term Loan, which bears interest at a rate of 8% per annum. A
majority of the Company's board, including a majority of the Independent
Directors has approved the terms and conditions of the Short-Term Loan.
Acquisition of Six Corners, Chicago, Illinois
This pro forma adjustment reflects the purchase of Six Corners as if the
Company had acquired the property as of January 1, 1995. The year ended
December 31, 1995 is based on the Historical Summary of Gross Income and
Direct Operating Expenses for the year ended June 30, 1996 prepared in
accordance with Rule 3-14 of Regulation S-X and information provided by
the seller.
Six Corners
-------------------------------------
Year Ended
December 31, Pro Forma
1995 Adjustments Total
----------- ----------- -----------
Rental income.................... $ 685,443 - 685,443
Additional rental income......... 164,345 - 164,345
----------- ----------- -----------
Total income..................... 849,788 - 849,788
----------- ----------- -----------
Property operating expenses...... 584,070 - 584,070
Interest expense................. - - -
Depreciation (F)................. - 153,000 153,000
----------- ----------- -----------
Total expenses................... 584,070 153,000 737,070
----------- ----------- -----------
Net income....................... $ 265,718 (153,000) 112,718
=========== =========== ===========
F-40
<PAGE> 91
Inland Real Estate Corporation
Notes to Pro Forma Statement of Operations
(continued)
For the year ended December 31, 1995
(unaudited)
Acquisition of Spring Hill Fashion Center, West Dundee, Illinois
Reconciliation of Gross Income and Direct Operating Expenses for the year
ended December 31, 1995 prepared in accordance with Rule 3.14 of
Regulation S-X (*) to the Pro Forma Adjustments:
Spring Hill Fashion Center
-------------------------------------
*As Pro Forma
Reported Adjustments Total
----------- ----------- -----------
Rental income.................... $1,117,082 - 1,117,082
Additional rental income......... 290,755 - 290,755
----------- ----------- -----------
Total income..................... 1,407,837 - 1,407,837
----------- ----------- -----------
Property operating expenses...... 366,360 - 366,360
Interest expense................. - - -
Depreciation (F)................. - 246,866 246,866
----------- ----------- -----------
Total expenses................... 366,360 246,866 613,226
----------- ----------- -----------
Net income....................... $1,041,477 (246,866) 794,611
=========== =========== ===========
Acquisition of Crestwood Plaza Shopping Center, Crestwood, Illinois
This pro forma adjustment reflects the purchase of Crestwood Plaza
Shopping Center as if the Company had acquired the property as of January
1, 1995. The year ended December 31, 1995 is based on the Historical
Summary of Gross Income and Direct Operating Expenses for the year ended
October 31, 1996 prepared in accordance with Rule 3-14 of Regulations S-X
and information provided by the seller.
The mortgage loan assumed at the time of purchase was originally funded
January 1996, and accordingly, no pro forma adjustment has been made for
interest expense for the year ended December 31, 1995.
F-41
<PAGE> 92
Inland Real Estate Corporation
Notes to Pro Forma Statement of Operations
(continued)
For the year ended December 31, 1995
(unaudited)
Crestwood
-------------------------------------
Year ended
December 31, Pro Forma
1995 Adjustments Total
----------- ----------- -----------
Rental income.................... $ 203,007 - 203,007
Additional rental income......... 66,739 - 66,739
----------- ----------- -----------
Total income..................... 269,746 - 269,746
----------- ----------- -----------
Property operating expenses...... 73,358 - 73,358
Interest expense................. - - -
Depreciation (F)................. - 49,439 49,439
----------- ----------- -----------
Total expenses................... 73,358 49,439 122,797
----------- ----------- -----------
Net income....................... $ 196,388 (49,439) 146,949
=========== =========== ===========
Acquisition of Park St. Claire Plaza, Schaumburg, Illinois
Reconciliation of Gross Income and Direct Operating Expenses for the year
ended December 31, 1995 prepared in accordance with Rule 3.14 of
Regulation S-X (*) to the Pro Forma Adjustments:
Park St. Claire
-------------------------------------
*As Pro Forma
Reported Adjustments Total
----------- ----------- -----------
Rental income.................... $ 70,928 - 70,928
Additional rental income......... 28,960 - 28,960
----------- ----------- -----------
Total income..................... 99,888 - 99,888
----------- ----------- -----------
Property operating expenses...... 82,601 - 82,601
Interest expense................. - - -
Depreciation (F)................. - 40,681 40,681
----------- ----------- -----------
Total expenses................... 82,601 40,681 123,282
----------- ----------- -----------
Net income....................... $ 17,287 (40,681) (23,394)
=========== =========== ===========
F-42
<PAGE> 93
Inland Real Estate Corporation
Notes to Pro Forma Statement of Operations
(continued)
For the year ended December 31, 1995
(unaudited)
Acquisition of Lansing Square Shopping Plaza, Lansing Illinois
Reconciliation of Gross Income and Direct Operating Expenses for the year
ended December 31, 1995 prepared in accordance with Rule 3.14 of
Regulation S-X (*) to the Pro Forma Adjustments:
Lansing Square
-------------------------------------
*As Pro Forma
Reported Adjustments Total
----------- ----------- -----------
Rental income.................... $ 1,406,317 - 1,406,317
Additional rental income......... 825,340 - 825,340
----------- ----------- -----------
Total income..................... 2,231,657 - 2,231,657
----------- ----------- -----------
Property operating expenses...... 1,508,113 - 1,508,113
Interest expense................. - 608,000 608,000
Depreciation (F)................. - 434,667 434,667
Amortization (H)................. - 11,429 11,429
----------- ----------- -----------
Total expenses................... 1,508,113 1,054,096 2,562,209
----------- ----------- -----------
Net income....................... $ 723,544 (1,054,096) (330,552)
=========== =========== ===========
The Company funded the purchase using: (i) the proceeds of five long-term
loans totaling $12,850,000 from LaSalle Bank of which approximately
$8,000,000 was used to purchase this property and (ii) cash and cash
equivalents. The Company paid a one point fee in connection with these
long-term loans. The loan has a term of seven years and, prior to the
maturity date, requires payments of interest only, at 7.6%, fixed for five
years with the remaining two years at prime plus 1/2%.
F-43
<PAGE> 94
Inland Real Estate Corporation
Notes to Pro Forma Statement of Operations
(continued)
For the year ended December 31, 1995
(unaudited)
Acquisition of Summit of Park Ridge, Park Ridge, Illinois
This pro forma adjustment reflects the purchase of Summit of Park Ridge as
if the Company had acquired the property as of January 1, 1995. The year
ended December 31, 1995 is based on the Historical Summary of Gross Income
and Direct Operating Expenses for the ten months ended November 30, 1996
prepared in accordance with Rule 3-14 of Regulation S-X and information
provided by the Seller.
Summit of Park Ridge
-------------------------------------
Year ended
December 31, Pro Forma
1995 Adjustments Total
----------- ----------- -----------
Rental income.................... $ 291,898 - 291,898
Additional rental income......... 219,415 - 219,415
----------- ----------- -----------
Total income..................... 511,313 - 511,313
----------- ----------- -----------
Property operating expenses...... 274,269 - 274,269
Interest expense................. - - -
Depreciation (F)................. - 85,333 85,333
----------- ----------- -----------
Total expenses................... 274,269 85,333 359,602
----------- ----------- -----------
Net income....................... $ 237,044 (85,333) 151,711
=========== =========== ===========
F-44
<PAGE> 95
Inland Real Estate Corporation
Notes to Pro Forma Statement of Operations
(continued)
For the year ended December 31, 1995
(unaudited)
(D) Total pro forma adjustments for 1997 acquisitions are as though they were
acquired the earlier of January 1, 1995 or date that operations commenced.
Pro Forma Adjustments
-----------------------------------------------
Total
Maple Aurora Lincoln 1995
Park Place Commons Park Place Pro Forma
----------- ----------- ----------- -----------
Rental
income.......... $1,667,944 1,314,509 234,916 3,217,369
Additional
Rental income... 336,441 479,804 101,868 918,113
----------- ----------- ----------- -----------
Total income.... 2,004,385 1,794,313 336,784 4,135,482
----------- ----------- ----------- -----------
Property operating
expenses........ 427,078 523,694 112,439 1,063,211
Interest expense.. 720,000 882,983 181,450 1,784,433
Depreciation (F).. 404,905 334,573 42,260 781,738
Amortization (H).. 2,857 - 3,600 6,457
----------- ----------- ----------- -----------
Total expenses.... 1,554,840 1,741,250 339,749 3,635,839
----------- ----------- ----------- -----------
Net income(loss) $ 449,545 53,063 (2,965) 499,643
=========== =========== =========== ===========
F-45
<PAGE> 96
Inland Real Estate Corporation
Notes to Pro Forma Statement of Operations
(continued)
For the year ended December 31, 1995
(unaudited)
Acquisition of Maple Park Shopping Center, Bolingbrook, Illinois
This pro forma adjustment reflects the purchase of Maple Park Place
Shopping Center as if the Company had acquired the property as of January
1, 1995. The year ended December 31, 1995 is based on information
provided by the Seller.
The Company funded the purchase using (i) the proceeds of a short-term
loan maturing April 7, 1997 in the amount of $8 million from Inland
Mortgage Investment Corporation ("IMIC"), an affiliate of the Company (the
"Short-Term Loan"), and (ii) cash and cash equivalents. The Short-Term
Loan bears interest at a rate of 9.0% per annum and requires a loan fee of
1/4%.
Maple Park Place
-------------------------------------
Year ended
December 31, Pro Forma
1995 Adjustments Total
----------- ----------- -----------
Rental income.................... $1,667,944 - 1,667,944
Additional rental income......... 336,441 - 336,441
----------- ----------- -----------
Total income..................... 2,004,385 - 2,004,385
----------- ----------- -----------
Property operating expenses...... 427,078 - 427,078
Interest expense................. - 720,000 720,000
Depreciation (F)................. - 404,905 404,905
Amortization (H)................. - 2,857 2,857
----------- ----------- -----------
Total expenses................... 427,078 1,127,762 1,554,840
----------- ----------- -----------
Net income....................... $1,577,307 (1,127,762) 449,545
=========== =========== ===========
F-46
<PAGE> 97
Inland Real Estate Corporation
Notes to Pro Forma Statement of Operations
(continued)
For the year ended December 31, 1995
(unaudited)
Acquisition of Aurora Commons Shopping Center, Aurora, Illinois
This pro forma adjustment reflects the purchase of Aurora Commons Shopping
Center as if the Company had acquired the property as of January 1, 1995.
The year ended December 31, 1995 is based on information provided by the
Seller.
As part of the acquisition of Aurora Commons Shopping Center, the Company
assumed the existing mortgage loan, with the balance funded with cash and
cash equivalents. The assumed loan bears interest at a rate of 9% per
annum with monthly payments of principal and interest on the first day of
each month.
Aurora Commons
-------------------------------------
Year Ended
December 31, Pro Forma
1995 Adjustments Total
----------- ----------- -----------
Rental income.................... $1,314,509 - 1,314,509
Additional rental income......... 479,804 - 479,804
----------- ----------- -----------
Total income..................... 1,794,313 - 1,794,313
----------- ----------- -----------
Property operating expenses...... 620,883 (97,189) 523,694
Interest expense................. - 882,983 882,983
Depreciation (F)................. - 334,573 334,573
----------- ----------- -----------
Total expenses................... 620,883 1,120,367 1,741,250
----------- ----------- -----------
Net income....................... $1,173,430 (1,120,367) 53,063
=========== =========== ===========
F-47
<PAGE> 98
Inland Real Estate Corporation
Notes to Pro Forma Statement of Operations
(continued)
For the year ended December 31, 1995
(unaudited)
Acquisition of Lincoln Park Place Shopping Center, Chicago, Illinois
The Company funded the purchase of Lincoln Park Place Shopping Center using
the proceeds of a short-term loan maturing February 7, 1997 in the amount
of $2,016,110 from Inland Mortgage Investment Corporation ("IMIC"), an
affiliate of the Company (the "Short-Term Loan"). the Company did not pay
any fees in connection with the Short-Term Loan, which bears interest at a
rate of 9% per annum.
This pro forma adjustment reflects the purchase of Lincoln Park Place
Shopping Center as if the Company had acquired the property as of January
1, 1995. The year ended December 31, 1995 is based on information provided
by the Seller.
Lincoln Park Place
-------------------------------------
Year ended
December 31, Pro Forma
1995 Adjustments Total
----------- ----------- -----------
Rental income.................... $ 234,916 - 234,916
Additional rental income......... 101,868 - 101,868
----------- ----------- -----------
Total income..................... 336,784 - 336,784
----------- ----------- -----------
Property operating expenses...... 112,439 - 112,439
Interest expense................. - 181,450 181,450
Depreciation (F)................. - 42,260 42,260
Amortization (H).................. - 3,600 3,600
----------- ----------- -----------
Total expenses................... 112,439 227,310 339,749
----------- ----------- -----------
Net income....................... $ 224,345 (227,310) (2,965)
=========== =========== ===========
(E) No pro forma adjustment has been made relating to interest income which
would have been earned on the additional Offering Proceeds raised.
(F) Depreciation expense is computed using the straight-line method, based upon
an estimated useful life of thirty years.
(G) The pro forma weighted average common stock shares for the year ended
December 31, 1995 was calculated by estimating the additional shares sold
to purchase each of the Company's properties on a weighted average basis.
(H) Loan fees are amortized over the term of the related loan.
F-48
<PAGE> 99
Inland Real Estate Corporation
Pro Forma Balance Sheet
September 30, 1996
(unaudited)
The following unaudited Pro Forma Balance Sheet of the Company is presented to
effect the acquisition of the Six Corners Plaza, Spring Hill Fashion Corner,
Grand and Hunt Club, The Quarry Outlot, Crestwood Plaza Shopping Center, Park
St. Claire, Lansing Square Shopping Center, Summit of Park Ridge, Maple Park
Place Shopping Center, Aurora Commons Shopping Center and Lincoln Park Place
Shopping Center as though these transactions occurred September 30, 1996. This
unaudited Pro Forma Balance Sheet should be read in conjunction with the
September 30, 1996 Financial Statements and the notes thereto as filed on Form
10-Q.
This unaudited Pro Forma Balance Sheet is not necessarily indicative of what
the actual financial position would have been at September 30, 1996, nor does
it purport to represent the future financial position of the Company. Unless
otherwise defined, capitalized terms used herein shall have the same meaning as
in the Prospectus.
F-49
<PAGE> 100
Inland Real Estate Corporation
Pro Forma Balance Sheet
September 30, 1996
(unaudited)
September 30,
September 30, 1996
1996 Pro Forma Pro Forma
Historical(A) Adjustments(B) Balance Sheet
------------- ------------- --------------
Assets
- ------
Net investment in
properties.................. $ 50,746,249 72,287,910 123,034,159
Cash and cash equivalents..... 19,250,977 - 19,250,977
Accounts and rents
receivable.................. 1,087,810 1,812,230 2,900,040
Other assets.................. 447,025 125,201 572,226
------------- ------------- -------------
Total assets.................. $ 71,532,061 74,225,341 145,757,402
============= ============= =============
Liabilities and Stockholders' Equity
- ------------------------------------
Accounts payable and accrued
expenses.................... $ 840,418 - 840,418
Accrued real estate taxes..... 981,687 2,019,166 3,000,853
Distributions payable (C)..... 372,337 - 372,337
Security deposits............. 112,374 205,438 317,812
Mortgages payable............. 18,003,626 30,579,050 48,582,676
Unearned income............... 62,650 - 62,650
Other liabilities............. 28,852 - 28,852
Due to Affiliates............. 244,040 - 244,040
------------- ------------- -------------
Total liabilities............. 20,645,984 32,803,654 53,449,638
------------- ------------- -------------
Common Stock.................. 59,824 48,164 107,988
Additional paid in capital
(net of Offering costs)..... 51,965,431 41,373,523 93,338,954
Accumulated distributions in
excess of net income........ (1,139,178) - (1,139,178)
------------- ------------- -------------
Total Stockholders' equity.... 50,886,077 41,421,687 92,307,764
------------- ------------- -------------
Total liabilities and
Stockholders' equity........ $ 71,532,061 74,225,341 145,757,402
============= ============= =============
See accompanying notes to pro forma balance sheet.
F-50
<PAGE> 101
Inland Real Estate Corporation
Notes to Pro Forma Balance Sheet
(continued)
September 30, 1996
(unaudited)
(A) The September 30, 1996 Historical column represents the historical balance
sheet as presented in the September 30, 1996 10-Q as filed with the SEC.
(B) The following pro forma adjustment relates to the acquisition of the
subject properties as though they were acquired on September 30, 1996. The
terms are described in the notes that follow.
Pro Forma Adjustments
--------------------------------------
Six Spring Grand and
Corners Hill Hunt Club
------------ ------------ ------------
Assets
- ------
Net investment in
properties........... $ 6,000,000 9,200,000 3,592,000
Accounts and rents
receivable........... 306,203 91,576 -
------------ ------------ ------------
Total assets........... $ 6,306,203 9,291,576 3,592,000
============ ============ ============
Liabilities and Stockholders' Equity
- ------------------------------------
Accrued real estate
taxes................ $ 336,487 97,421 -
Security deposits...... 15,542 40,155 -
Mortgages payable...... - - -
------------ ------------ ------------
Total liabilities...... 352,029 137,576 -
------------ ------------ ------------
Common Stock (D)....... $ 6,923 10,644 4,177
Additional paid in capital
(net of Offering
Costs)(D)............ 5,947,251 9,143,356 3,587,823
------------ ------------ ------------
Total Stockholders'
equity............... 5,954,174 9,154,000 3,592,000
------------ ------------ ------------
Total liabilities and
Stockholders' equity. $ 6,306,203 9,291,576 3,592,000
============ ============ ============
F-51
<PAGE> 102
Inland Real Estate Corporation
Notes to Pro Forma Balance Sheet
(continued)
September 30, 1996
(unaudited)
(B) Continued
Pro Forma Adjustments
--------------------------------------
Park
Quarry Crestwood St. Claire
------------ ------------ ------------
Assets
- ------
Net investment in
properties........... $ 1,800,000 1,808,760 1,525,000
Accounts and rents
receivable........... - 53,639 23,627
------------ ------------ ------------
Total assets........... $ 1,800,000 1,862,399 1,548,627
============ ============ ============
Liabilities and Stockholders' Equity
- ------------------------------------
Accrued real estate
taxes................ $ - 53,639 47,785
Security deposits...... - 12,800 -
Mortgages payable...... - 1,303,303 -
------------ ------------ ------------
Total liabilities...... - 1,369,742 47,785
------------ ------------ ------------
Common Stock (D)....... $ 2,093 573 1,745
Additional paid in capital
(net of Offering
Costs)(D)............ 1,797,907 492,084 1,499,097
------------ ------------ ------------
Total Stockholders'
equity............... 1,800,000 492,657 1,500,842
------------ ------------ ------------
Total liabilities and
Stockholders' equity. $ 1,800,000 1,862,399 1,548,627
============ ============ ============
F-52
<PAGE> 103
Inland Real Estate Corporation
Notes to Pro Forma Balance Sheet
(continued)
September 30, 1996
(unaudited)
(B) Continued
Pro Forma Adjustments
--------------------------------------
Lansing Summit of Maple Park
Square Park Ridge Place
------------ ------------ ------------
Assets
- ------
Net investment in
properties........... $16,300,000 3,200,000 15,262,150
Accounts and rents
receivable........... 868,035 134,486 142,108
Other assets........... 80,000 - 20,000
------------ ------------ ------------
Total assets........... $17,248,035 3,334,486 15,424,258
============ ============ ============
Liabilities and Stockholders' Equity
- ------------------------------------
Accrued real estate
taxes................ $ 986,404 160,102 142,108
Security deposits...... 28,918 34,469 49,224
Mortgages payable...... 8,000,000 - 8,000,000
------------ ------------ ------------
Total liabilities...... 9,015,322 194,571 8,191,332
------------ ------------ ------------
Common Stock (D)....... $ 9,573 3,651 8,410
Additional paid in capital
(net of Offering
Costs)(D)............ 8,223,140 3,136,264 7,224,516
------------ ------------ ------------
Total Stockholders'
equity............... 8,232,713 3,139,915 7,232,926
------------ ------------ ------------
Total liabilities and
Stockholders' equity. $17,248,035 3,334,486 15,424,258
============ ============ ============
F-53
<PAGE> 104
Inland Real Estate Corporation
Notes to Pro Forma Balance Sheet
(continued)
September 30, 1996
(unaudited)
(B) Continued
Pro Forma Adjustments
--------------------------------------
Total
Aurora Lincoln Pro Forma
Commons Park Place Adjustments
------------ ------------ ------------
Assets
- ------
Net investment in
properties........... $11,500,000 2,100,000 72,287,910
Accounts and rents
receivable........... 130,550 62,006 1,812,230
Other assets........... - 25,201 125,201
------------ ------------ ------------
Total assets........... $11,630,550 2,187,207 74,225,341
============ ============ ============
Liabilities and Stockholders' Equity
- ------------------------------------
Accrued real estate
taxes................ $ 133,214 62,006 2,019,166
Security deposits...... 24,330 - 205,438
Mortgages payable...... 11,259,637 2,016,110 30,579,050
------------ ------------ ------------
Total liabilities...... 11,417,181 2,078,116 32,803,654
------------ ------------ ------------
Common Stock (D)....... $ 248 127 48,164
Additional paid in capital
(net of Offering
Costs)(D)............ 213,121 108,964 41,373,523
------------ ------------ ------------
Total Stockholders'
equity............... 213,369 109,091 41,421,687
------------ ------------ ------------
Total liabilities and
Stockholders' equity. $11,630,550 2,187,207 74,225,341
============ ============ ============
F-54
<PAGE> 105
Inland Real Estate Corporation
Notes to Pro Forma Balance Sheet
(continued)
September 30, 1996
(unaudited)
Acquisition of Six Corners, Chicago, Illinois
On October 18, 1996, the Company acquired this property from an
unaffiliated third party for the purchase price of approximately
$6,000,000, on an all cash basis, funded from cash and cash equivalents.
Acquisition of Spring Hill Fashion Center, West Dundee, Illinois
On November 13, 1996, the Company acquired this property from an
unaffiliated third party for the purchase price of approximately
$9,200,000, on an all cash basis, funded from cash and cash equivalents.
Acquisition of Grand and Hunt Club Outlot Center, Gurnee, Illinois
On December 24, 1996, the Company acquired this property from an
unaffiliated third party for the purchase price of $3,592,000 on an all
cash basis, funded from cash and cash equivalents.
Acquisition of The Quarry Outlot, Hodgkins, Illinois
On December 24, 1996, the Company acquired this property from an
unaffiliated third party for the purchase price of $1,800,000 on an all
cash basis, funded from cash and cash equivalents.
Acquisition of Crestwood Plaza Shopping Center, Crestwood, Illinois
On December 27, 1996, the Company acquired this property from an affiliated
party, Inland Property Sales, for the purchase price of $1,808,760. As
part of the acquisition, the Company assumed the existing first mortgage
loan of $1,303,303 with the balance funded with cash and cash equivalents.
Acquisition of Park St. Claire Plaza, Schaumburg, Illinois
On December 31, 1996, the Company acquired the property from an
unaffiliated third party for the purchase price of $1,525,000, on an all
cash basis, funded from cash and cash equivalents.
Acquisition of Lansing Square Shopping Center, Lansing, Illinois
On December 31, 1996, the Company acquired this property from an
unaffiliated third party for the purchase price of $16,300,000. The
Company funded the purchase using: (i) the proceeds of five long-term loans
totaling $12,850,000 from LaSalle Bank of which approximately $8,000,000
was used to purchase this property and (ii) cash and cash equivalents. The
Company paid a one point fee in connection with these long-term loans. The
loans have a term of seven years and, prior to the maturity date, require
payment of interest only, at 7.6%, fixed for five years with the remaining
two years at prime plus 1/2%.
F-55
<PAGE> 106
Inland Real Estate Corporation
Notes to Pro Forma Balance Sheet
(continued)
September 30, 1996
(unaudited)
Acquisition of The Summit of Park Ridge, Park Ridge, Illinois
On December 31, 1996, the Company acquired this property from an
unaffiliated third party for the purchase price of $3,200,000, on an all
cash basis, funded from cash and cash equivalents.
Acquisition of Maple Park Place Shopping Center, Bolingbrook, Illinois
On January 9, 1997, the Company acquired this property from an unaffiliated
third party for the purchase price of $15,262,150.
The Company funded the purchase using (i) the proceeds of a short-term loan
maturing April 7, 1997 in the amount of $8 million from Inland Mortgage
Investment Corporation ("IMIC"), an affiliate of the company (the "Short-
Term Loan"), and (ii) cash and cash equivalents. The Short-Term Loan bears
interest at a rate of 9.0% per annum and requires a loan fee of 1/4%.
Acquisition of Aurora Commons Shopping Center, Aurora, Illinois
On January 24, 1997, the Company acquired this property from an
unaffiliated third party for the purchase price of $11,500,000.
As part of the acquisition, the Company assumed the existing mortgage loan
maturing December 31, 2001, with the balance funded with cash and cash
equivalents. The assumed loan bears interest at a rate of 9% per annum
with monthly payments of principal and interest on the first day of each
month.
Acquisition of Lincoln Park Place Shopping Center, Chicago, Illinois
On January 24, 1997, the Company acquired this property from an
unaffiliated third party for the purchase price of $2,100,000.
The Company funded the purchase using the proceeds of a short-term loan
maturing February 3, 1997 in the amount of $2,016,110 from Inland Mortgage
Investment Corporation ("IMIC"), an affiliate of the Company (the "Short-
Term Loan"). The Company did not pay any fees in connection with the
Short-Term Loan, which bears interest at a rate of 9% per annum.
F-56
<PAGE> 107
Inland Real Estate Corporation
Notes to Pro Forma Balance Sheet
(continued)
September 30, 1996
(unaudited)
(C) No pro forma assumptions have been made for the additional payment of
distributions resulting from the additional proceeds raised.
(D) Additional Offering Proceeds of $48,164,000, net of additional Offering
costs of $6,742,313 are reflected as received as of September 30, 1996,
prior to the purchase of the properties. Offering costs consist
principally of registration costs, printing and selling costs, including
commissions.
F-57
<PAGE> 108
Inland Real Estate Corporation
Pro Forma Statement of Operations
For the nine months ended September 30, 1996
(unaudited)
The following unaudited Pro Forma Statement of Operations of the Company is
presented to effect the acquisitions of Mundelein Plaza, Regency Point Shopping
Center, Prospect Heights Plaza, Montgomery-Sears Shopping Center, the Zany
Brainy store, Salem Square, Hawthorn Village Commons, Six Corners Plaza, Spring
Hill Fashion Corner, Crestwood Plaza Shopping Center, Park St. Claire, Lansing
Square Shopping Center, Summit of Park Ridge, Maple Park Place Shopping Center,
Aurora Commons Shopping Center and Lincoln Park Place Shopping Center as of
January 1, 1996. Grand and Hunt Club and the Quarry Outlot were constructed in
1996. Operations had not commenced as of September 30, 1996, and as such, no
operations are presented on the unaudited Pro Forma Statement of Operations for
September 30, 1996. This unaudited Pro Forma Statement of Operations should be
read in conjunction with the September 30, 1996 Financial Statements and the
notes thereto as filed on Form 10-Q.
This unaudited Pro Forma Statement of Operations is not necessarily indicative
of what the actual results of operations would have been for the nine months
ended September 30, 1996, nor does it purport to represent the future financial
position of the Company. Unless otherwise defined, capitalized terms used
herein shall have the same meaning as in the Prospectus.
F-58
<PAGE> 109
Inland Real Estate Corporation
Pro Forma Statement of Operations
For the nine months ended September 30, 1996
(unaudited)
1996 Total
Historical Pro Forma 1996
(A) Adjustments(B) Pro Forma
------------- -------------- ------------
Rental income............... $ 2,578,953 7,652,888 10,231,841
Additional rental income.... 785,719 3,366,476 4,152,195
Interest income (C)......... 212,063 - 212,063
Other income................ 64,870 - 64,870
------------- -------------- ------------
Total income.............. 3,641,605 11,019,364 14,660,969
------------- -------------- ------------
Professional services and
general and
administrative fees....... 120,919 - 120,919
Advisor asset management
fee....................... 242,341 699,379 941,720
Property operating expenses. 1,146,661 3,990,379 5,137,040
Interest expense............ 210,132 2,061,594 2,271,726
Depreciation (D)............ 561,983 2,105,490 2,667,473
Amortization................ 4,119 13,415 17,534
Acquisition costs expensed.. 22,511 - 22,511
------------- -------------- ------------
Total expenses.............. 2,308,666 8,870,257 11,178,923
------------- -------------- ------------
Net income................ $ 1,332,939 2,149,107 3,482,046
============= ============== ============
Weighted average
common stock shares
outstanding (E)........... 3,688,310 8,504,710
============= ============
Net income per weighted
average common stock
outstanding (E)........... $ .36 .41
============= ============
See accompanying notes to pro forma statement of operations.
F-59
<PAGE> 110
Inland Real Estate Corporation
Notes to Pro Forma Statement of Operations
For the nine months ended September 30, 1996
(unaudited)
(A) The 1996 Historical column represents the historical statement of
operations of the Company for the nine months ended September 30, 1996, as
filed with the SEC on Form 10-Q.
(B) Total pro forma adjustments for the nine months ended September 30, 1996
are as though the acquisitions of the following properties occurred on
January 1, 1996 on an all cash basis except for the following:
Regency Point
In the purchase of Regency Point the Company assumed the existing first
mortgage loan of $4,473,200, along with a related interest rate swap
agreement. The first mortgage loan has a floating interest rate of 180
basis points over the 30-day LIBOR rate, which rate is adjusted monthly.
The interest rate swap agreement, in conjunction with the first mortgage,
provides for Bank One, Chicago, to receive from or pay to the Company the
difference between 6.11% and the 30-day LIBOR rate, so that the first
mortgage loan has an effective rate of 7.91% per annum. The pro forma
adjustment for interest expense for 1996 was estimated using the described
loan terms. The related interest rate swap agreement was terminated on
April 18, 1996 resulting in $48,419 proceeds to the Company. The pro forma
adjustment does not give effect to the termination of this agreement.
Hawthorn Village Commons
The Company funded the purchase of Hawthorn Village Commons using: (i) the
proceeds of a short-term loan maturing August 23, 1996 in the amount of
$2.9 million from Inland Mortgage Investment Corporation ("IMIC"), an
Affiliate of the Company (the "Short-Term Loan"), and (ii) cash and cash
equivalents. The Company did not pay any fees in connection with the
Short-Term Loan, which bears interest at a rate of eight percent per annum.
A majority of the Company's board, including a majority of the Independent
Directors has approved the terms and conditions of the Short-Term Loan.
Crestwood Plaza Shopping Center
As part of the December 27, 1996 purchase of Crestwood Plaza, the Company
assumed the existing first mortgage loan of $1,330,253.
F-60
<PAGE> 111
Inland Real Estate Corporation
Notes to Pro Forma Statement of Operations
(continued)
For the nine months ended September 30, 1996
(unaudited)
Lansing Square Shopping Center
The Company funded the purchase using: (i) the proceeds of five long-term
loans totaling $12,850,000 from LaSalle Bank of which approximately
$8,000,000 was used to purchase this property and (ii) cash and cash
equivalents. The Company paid a one point fee in connection with these
long-term loans. The loans have a term of seven years and, prior to the
maturity date, require payments of interest only, at 7.6%, fixed for five
years with the remaining two years at prime plus 1/2%.
Maple Park Place Shopping Center
The Company funded the purchase using (i) the proceeds of a short-term loan
maturing April 7, 1997 in the amount of $8 million from Inland Mortgage
Investment Corporation ("IMIC"), an affiliate of the company (the "Short-
Term Loan"), and (ii) cash and cash equivalents. The Short-Term Loan bears
interest at a rate of 9.0% per annum and requires a loan fee of 1/4%.
Aurora Commons Shopping Center, Aurora, Illinois
As part of the acquisition of Aurora Commons Shopping Center, the Company
assumed the existing mortgage loan maturing December 31, 2001, with the
balance funded with cash and cash equivalents. The assumed loan bears
interest at a rate of 9% per annum with monthly payments of principal and
interest on the first day of each month.
Lincoln Park Place Shopping Center
The Company funded the purchase of Lincoln Park Place Shopping Center using
the proceeds of a short-term loan maturing February 7, 1997 in the amount
of $2,016,110 from Inland Mortgage Investment Corporation ("IMIC"), an
affiliate of the Company (the "Short-Term Loan"). the Company did not pay
any fees in connection with the Short-Term Loan, which bears interest at a
rate of 9% per annum.
F-61
<PAGE> 112
Inland Real Estate Corporation
Notes to Pro Forma Statement of Operations
(continued)
For the nine months ended September 30, 1996
(unaudited)
Mundelein Regency Prospect Montgomery- Zany
Plaza Point Heights Sears Brainy
----------- ----------- ----------- ----------- -----------
Rental income..... $ 163,381 139,271 89,105 163,700 137,489
Additional rental
income.......... 32,975 16,034 83,593 57,012 24,144
Interest income... - - - - -
----------- ----------- ----------- ----------- -----------
Total income...... 196,356 155,305 172,698 220,712 161,633
----------- ----------- ----------- ----------- -----------
Property operating
expenses........ 53,986 19,046 91,364 66,944 30,331
----------- ----------- ----------- ----------- -----------
Total expenses.... 53,986 19,046 91,364 66,944 30,331
----------- ----------- ----------- ----------- -----------
Net income........ $ 142,370 136,259 81,334 153,768 131,302
=========== =========== =========== =========== ===========
F-62
<PAGE> 113
Inland Real Estate Corporation
Notes to Pro Forma Statement of Operations
(continued)
For the nine months ended September 30, 1996
(unaudited)
Hawthorn
Salem Village Six Spring
Square Commons Corners Hill Crestwood
----------- ----------- ----------- ----------- -----------
Rental income..... $ 422,146 548,667 749,262 808,264 152,255
Additional rental
income.......... 260,832 270,570 490,551 200,033 51,986
----------- ----------- ----------- ----------- -----------
Total income...... 682,978 819,237 1,239,813 1,008,297 204,241
----------- ----------- ----------- ----------- -----------
Property operating
expenses........ 270,756 293,132 607,048 257,627 58,837
----------- ----------- ----------- ----------- -----------
Total expenses.... 270,756 293,132 607,048 257,627 58,837
----------- ----------- ----------- ----------- -----------
Net income........ $ 412,222 526,105 632,765 750,670 145,404
=========== =========== =========== =========== ===========
Park Lansing Park Maple Park Aurora
St. Claire Square Ridge Place Commons
------------ ---------- ----------- ----------- -----------
Rental income..... $ 71,317 1,568,672 259,024 1,315,337 888,811
Additional rental
income.......... 37,148 998,368 179,194 274,903 310,727
------------ ---------- ----------- ----------- -----------
Total income...... 108,465 2,567,040 438,218 1,590,240 1,199,538
------------ ---------- ----------- ----------- -----------
Property operating
expenses........ 77,540 1,132,906 224,982 326,774 392,771
------------ ---------- ----------- ----------- -----------
Total expenses.... 77,540 1,132,906 224,982 326,774 392,771
------------ ---------- ----------- ----------- -----------
Net income........ $ 30,925 1,434,134 213,236 1,263,466 806,767
============ ========== =========== =========== ===========
F-63
<PAGE> 114
Inland Real Estate Corporation
Notes to Pro Forma Statement of Operations
(continued)
For the nine months ended September 30, 1996
(unaudited)
Lincoln Pro Forma
Park Place Adjustments Total
------------ ----------- ------------
Rental income..... $ 176,187 - 7,652,888
Additional rental
income.......... 78,406 - 3,366,476
------------ ----------- ------------
Total income...... 254,593 - 11,019,364
------------ ----------- ------------
Advisor asset
management fee.. - 699,379 699,379
Property operating
expenses........ 86,335 - 3,990,379
Interest expense.. - 2,061,594 2,061,594
Depreciation (D).. - 2,105,490 2,105,490
Amortization (F).. - 13,415 13,415
------------ ----------- ------------
Total expenses.... 86,335 4,879,878 8,870,257
------------ ----------- ------------
Net income........ $ 168,258 (4,879,878) 2,149,107
============ =========== ============
(C) No pro forma adjustment has been made relating to interest income which
would have been earned on the additional Offering Proceeds raised.
(D) Depreciation expense is computed using the straight-line method, based upon
an estimated useful life of thirty years.
(E) The pro forma weighted average common stock shares for the nine months
ended September 30, 1996 was calculated by estimating the additional shares
sold to purchase each of the Company's properties on a weighted average
basis.
(F) Loan fees are amortized over the term of the related loan.
F-64
<PAGE> 115
Independent Auditors' Report
The Board of Directors
Inland Monthly Income Fund III, Inc.:
We have audited the accompanying Historical Summary of Gross Income and Direct
Operating Expenses (Historical Summary) of the Salem Square Shopping Center for
the year ended December 31, 1995. This Historical Summary is the
responsibility of the management of the Company. Our responsibility is to
express an opinion on the Historical Summary based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the Historical Summary is free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the Historical Summary. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall presentation of
the Historical Summary. We believe that our audit provides a reasonable basis
for our opinion.
The accompanying Historical Summary was prepared for the purpose of complying
with the rules and regulations of the Securities and Exchange Commission and
for inclusion in the Registration Statement on Form S-11 of Inland Monthly
Income Fund III, Inc., as described in note 2. It is not intended to be a
complete presentation of the Salem Square Shopping Center's revenues and
expenses.
In our opinion, the Historical Summary referred to above presents fairly, in
all material respects, the gross income and direct operating expenses described
in note 2 for the year ended December 31, 1995, in conformity with generally
accepted accounting principles.
KPMG Peat Marwick LLP
Chicago, Illinois
June 25, 1996
F-65
<PAGE> 116
Salem Square Shopping Center
Historical Summary of Gross Income and Direct Operating Expenses
For the year ended December 31, 1995
Gross income:
Base rental income.............................. $ 717,522
Operating expense and real estate
tax recoveries................................ 387,179
-----------
Total Gross Income.............................. 1,104,701
-----------
Direct operating expenses:
Real estate taxes............................... 280,500
Management fees................................. 48,724
Operating expenses.............................. 74,989
Utilities....................................... 3,843
Insurance....................................... 26,965
-----------
Total direct operating expenses................. 435,021
-----------
Excess of gross over direct operating expenses.... $ 669,680
===========
See accompanying notes to historical summary of gross income and direct
operating expenses.
F-66
<PAGE> 117
Salem Square Shopping Center
Notes to Historical Summary of Gross Income and Direct Operating Expenses
Year ended December 31, 1995
1. Business
Salem Square Shopping Center (Salem Square) is located in Countryside,
Illinois. It consists of approximately 112,310 square feet of gross
leasable area and was 97% occupied at December 31, 1995. Salem Square is
owned by Salem Square, Ltd. who has signed a sale and purchase agreement
for the sale of Salem Square to Inland Monthly Income Fund III, Inc., an
unaffiliated third party.
2. Basis of Presentation
The Historical Summary has been prepared for the purpose of complying with
Rule 3-14 of the Securities and Exchange Commission Regulation S-X and for
inclusion in the Registration Statement on Form S-11 of Inland Monthly
Income Fund III, Inc. and is not intended to be a complete presentation of
Salem Square's revenues and expenses. The Historical Summary has been
prepared on the accrual basis of accounting and requires management to make
estimates and assumptions that affect the reported amounts of the revenues
and expenses during the reporting period.
3. Gross Income
Salem Square leases retail space under various lease agreements with its
tenants. All leases are accounted for as operating leases. Certain of the
leases include provisions under which Salem Square is reimbursed for
certain common area, real estate, and insurance costs. Operating expense
and real estate tax recoveries reflected on the Historical Summary include
amounts due for 1995 expenses for which the tenants have not yet been
billed. In addition, certain leases provide for payment of contingent
rentals based on a percentage applied to the amount by which the tenant's
sales, as defined, exceed predetermined levels. No such contingent rent
was due for the year ended December 31, 1995. Certain leases contain
renewal options for various periods at various rental rates.
Base rentals are reported as income over the lease term as they become
receivable under the provisions of the leases. However, when rentals vary
from a straight-line basis due to short-term rent abatements or escalating
rents during the lease term, the income is recognized based on effective
rental rates. Related adjustments increased base rental income by $3,779
for the year ended December 31, 1995.
F-67
<PAGE> 118
Salem Square Shopping Center
Notes to Historical Summary of Gross Income and Direct Operating Expenses
Year ended December 31, 1995
Minimum rents to be received from tenants under operating leases in effect
at December 31, 1995 are approximately as follows:
Year Amount
---- ------
1996 $ 706.000
1997 683,000
1998 658,000
1999 596,000
2000 507,000
Thereafter 1,554,000
------------
$ 5,410,000
============
4. Direct Operating Expenses
Direct operating expenses include only those costs expected to be
comparable to the proposed future operations of Salem Square. Costs such
as mortgage interest, depreciation, amortization, and professional fees are
excluded from the Historical Summary.
Salem Square is involved in litigation over several matters related to its
operations. Legal fees of approximately $14,800 for the year ended
December 31, 1995 related to such matters have been included in the
Historical Summary.
Salem Square has not received its final real estate tax bill for 1995.
Real estate tax expense is estimated based upon bills for 1994. The
difference between this estimate and the final bill is not expected to
have a material impact on the Historical Summary.
Salem Square is managed by The Cloverleaf Group, Inc., for a fee of 4.25%
of gross revenues, as defined, plus annual administrative fees of $3,000.
Subsequent to the sale of Salem Square (note 1), the current management
agreement will cease. Any new management agreement may cause future
management fees to differ from the amounts reflected in the Historical
Summary.
F-68
<PAGE> 119
Independent Auditors' Report
The Board of Directors
Inland Monthly Income Fund III, Inc.:
We have audited the accompanying Historical Summary of Gross Income and Direct
Operating Expenses (Historical Summary) of the Hawthorn Village Commons for the
year ended December 31, 1995. This Historical Summary is the responsibility of
the management of the Company. Our responsibility is to express an opinion on
the Historical Summary based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the Historical Summary is free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the Historical Summary. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall presentation of
the Historical Summary. We believe that our audit provides a reasonable basis
for our opinion.
The accompanying Historical Summary was prepared for the purpose of complying
with the rules and regulations of the Securities and Exchange Commission and
for inclusion in the Registration Statement on Form S-11 of Inland Monthly
Income Fund III, Inc., as described in note 2. It is not intended to be a
complete presentation of the Hawthorn Village Commons' revenues and expenses.
In our opinion, the Historical Summary referred to above presents fairly, in
all material respects, the gross income and direct operating expenses described
in note 2 for the year ended December 31, 1995, in conformity with generally
accepted accounting principles.
KPMG Peat Marwick LLP
Chicago, Illinois
July 17, 1996
F-69
<PAGE> 120
Hawthorn Village Commons
Historical Summary of Gross Income and Direct Operating Expenses
Year ended December 31, 1995
Gross income:
Base rental income.............................. $ 925,681
Percentage rent 44,632
Operating expense and real estate
tax recoveries................................ 353,145
-----------
Total Gross Income.............................. 1,323,458
-----------
Direct operating expenses:
Real estate taxes............................... 199,441
Management fees................................. 28,031
Operating expenses.............................. 140,088
Utilities....................................... 27,303
Insurance....................................... 12,541
-----------
Total direct operating expenses................. 407,404
-----------
Excess of gross income over direct
operating expenses.............................. $ 916,054
===========
See accompanying notes to historical summary of gross income and direct
operating expenses.
F-70
<PAGE> 121
Hawthorn Village Commons
Notes to Historical Summary of Gross Income and Direct Operating Expenses
Year ended December 31, 1995
1. Business
Hawthorn Village Commons is located in Vernon Hills, Illinois. It consists
of approximately 98,686 square feet of gross leasable area and was 100%
occupied at December 31, 1995. Hawthorn Village Commons is owned by
Endowment and Foundation Realty, Ltd. - JMB I (Seller) who has signed a
sale and purchase agreement for the sale of Hawthorn Village Commons to
Inland Monthly Income Fund III, Inc., an unaffiliated third party.
2. Basis of Presentation
The Historical Summary has been prepared for the purpose of complying with
Rule 3-14 of the Securities and Exchange Commission Regulation S-X and for
inclusion in the Registration Statement on Form S-11 of Inland Monthly
Income Fund III, Inc. and is not intended to be a complete presentation of
Hawthorn Village Commons' revenues and expenses. The Historical Summary
has been prepared on the accrual basis of accounting and requires
management to make estimates and assumptions that affect the reported
amounts of the revenues and expenses during the reporting period.
3. Gross Income
Hawthorn Village Commons leases retail space under various lease agreements
with its tenants. All leases are accounted for as operating leases.
Certain of the leases include provisions under which Hawthorn Village
Commons is reimbursed for certain common area, real estate, and insurance
costs. Operating expenses and real estate tax recoveries reflected on the
Historical Summary include amounts due for 1995 expenses for which the
tenants have not yet been billed. In addition, certain leases provide for
payment of contingent rentals based on a percentage applied to the amount
by which the tenant's sales, as defined, exceed predetermined levels. For
the year ended December 31, 1995, contingent rent of $44,633 was recorded
in the Historical Summary. Certain leases contain renewal options for
various periods at various rental rates.
Base rentals are reported as income over the lease term as they become
receivable under the provisions of the leases. However, when rentals vary
from a straight-line basis due to short-term rent abatements or escalating
rents during the lease term, the income is recognized based on effective
rental rates. Related adjustments increased base rental income by $28,109
for the year ended December 31, 1995.
F-71
<PAGE> 122
Hawthorn Village Commons
Notes to Historical Summary of Gross Income and Direct Operating Expenses
Year ended December 31, 1995
Minimum rents to be received from tenants under operating leases in effect
at December 31, 1995 are approximately as follows:
Year Amount
---- ------
1996 $ 862,474
1997 794,377
1998 664,415
1999 402,675
2000 366,599
Thereafter 1,050,783
------------
$ 4,141,323
============
4. Direct Operating Expenses
Direct operating expenses include only those costs expected to be
comparable to the proposed future operations of Hawthorn Village Commons.
Costs such as mortgage interest, depreciation, amortization, and
professional fees are excluded from the Historical Summary.
Hawthorn Village Commons is managed by Urban Retail Properties Co., for a
fee of 3.0% of gross revenues, as defined. Subsequent to the sale of
Hawthorn Village Commons (note 1), the current management agreement will
cease. Any new management agreement may cause future management fees to
differ from the amounts reflected in the Historical Summary.
F-72
<PAGE> 123
Independent Auditors' Report
The Board of Directors
Inland Real Estate Corporation:
We have audited the accompanying Historical Summary of Gross Income and Direct
Operating Expenses (Historical Summary) of Six Corners Plaza for the year ended
June 30, 1996. This Historical Summary is the responsibility of the management
of the Company. Our responsibility is to express an opinion on the Historical
Summary based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the Historical Summary is free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the Historical Summary. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall presentation of
the Historical Summary. We believe that our audit provides a reasonable basis
for our opinion.
The accompanying Historical Summary was prepared for the purpose of complying
with the rules and regulations of the Securities and Exchange Commission and
for inclusion in the Registration Statement on Form S-11 of Inland Real Estate
Corporation, as described in note 2. It is not intended to be a complete
presentation of the Six Corners Plaza's revenues and expenses.
In our opinion, the Historical Summary referred to above presents fairly, in
all material respects, the gross income and direct operating expenses described
in note 2 for the year ended June 30, 1996, in conformity with generally
accepted accounting principles.
KPMG Peat Marwick LLP
Chicago, Illinois
September 19, 1996
F-73
<PAGE> 124
Six Corners Plaza
Historical Summary of Gross Income and Direct Operating Expenses
For the year ended June 30, 1996
Gross income:
Base rental income.............................. $ 981,164
Operating expense and real estate
tax recoveries................................ 423,143
-----------
Total Gross Income.............................. 1,404,307
-----------
Direct operating expenses:
Real estate taxes............................... 307,977
Management fees................................. 63,159
Operating expenses.............................. 120,536
Utilities....................................... 180,752
Insurance....................................... 27,142
-----------
Total direct operating expenses................. 699,566
-----------
Excess of gross income over direct
operating expenses.............................. $ 704,741
===========
See accompanying notes to historical summary of gross income and direct
operating expenses.
F-74
<PAGE> 125
Six Corners Plaza
Notes to Historical Summary of Gross Income and Direct Operating Expenses
Year ended June 30, 1996
1. Business
Six Corners Plaza is located in the northwest section of Chicago, Illinois.
It consists of approximately 83,605 square feet of gross leasable area and
was 91% occupied at June 30, 1996. Six Corners Plaza is owned by MBL Life
Assurance Corporation (Seller) who has signed a sale and purchase agreement
for the sale of Six Corners Plaza to Inland Real Estate Corporation, an
unaffiliated third party.
2. Basis of Presentation
The Historical Summary has been prepared for the purpose of complying with
Rule 3-14 of the Securities and Exchange Commission Regulation S-X and for
inclusion in the Registration Statement on Form S-11 of Inland Real Estate
Corporation and is not intended to be a complete presentation of Six
Corners Plaza's revenues and expenses. The Historical Summary has been
prepared on the accrual basis of accounting and requires management to make
estimates and assumptions that affect the reported amounts of the revenues
and expenses during the reporting period.
3. Gross Income
Six Corners Plaza leases retail space under various lease agreements with
its tenants. All leases are accounted for as operating leases. Certain of
the leases include provisions under which Six Corners Plaza is reimbursed
for certain common area, real estate, and insurance costs. Operating
expense and real estate tax recoveries reflected in the Historical Summary
include amounts for 1996 expenses for which the tenants have not yet been
billed. Certain leases contain renewal options for various periods at
various rental rates.
Base rentals are reported as income over the lease term as they become
receivable under the provisions of the leases. However, when rentals vary
from a straight-line basis due to short-term rent abatements or escalating
rents during the lease term, the income is recognized based on effective
rental rates. Related adjustments increased base rental income by $91,052
for the year ended June 30, 1996.
F-75
<PAGE> 126
Six Corners Plaza
Notes to Historical Summary of Gross Income and Direct Operating Expenses
Year ended June 30, 1996
Minimum rents to be received from tenants under operating leases in effect
at June 30, 1996 are approximately as follows:
Year Amount
---- ------
1997 $ 960,765
1998 912,028
1999 886,665
2000 757,660
2001 708,399
Thereafter 5,472,167
------------
$ 9,697,684
============
4. Direct Operating Expenses
Direct operating expenses include only those costs expected to be
comparable to the proposed future operations of Six Corners Plaza. Costs
such as mortgage interest, depreciation, amortization, and professional
fees are excluded from the Historical Summary.
Six Corners Plaza is managed by Benj. E. Sherman & Sons, Inc. for a fee of
5.0% of gross revenues, as defined. Subsequent to the sale of Six Corners
Plaza (note 1), the current management agreement will cease. Any new
management agreement may cause future management fees to differ from the
amounts reflected in the Historical Summary.
F-76
<PAGE> 127
Independent Auditors' Report
The Board of Directors
Inland Real Estate Corporation:
We have audited the accompanying Historical Summary of Gross Income and Direct
Operating Expenses (Historical Summary) of the Spring Hill Fashion Corner for
the year ended December 31, 1995. This Historical Summary is the
responsibility of the management of the Company. Our responsibility is to
express an opinion on the Historical Summary based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the Historical Summary is free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the Historical Summary. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall presentation of
the Historical Summary. We believe that our audit provides a reasonable basis
for our opinion.
The accompanying Historical Summary was prepared for the purpose of complying
with the rules and regulations of the Securities and Exchange Commission and
for inclusion in the Registration Statement on Form S-11 of Inland Real Estate
Corporation, as described in note 2. It is not intended to be a complete
presentation of the Spring Hill Fashion Corner's revenues and expenses.
In our opinion, the Historical Summary referred to above presents fairly, in
all material respects, the gross income and direct operating expenses described
in note 2 for the year ended December 31, 1995, in conformity with generally
accepted accounting principles.
KPMG Peat Marwick LLP
Chicago, Illinois
October 31, 1996
F-77
<PAGE> 128
Spring Hill Fashion Corner
Historical Summary of Gross Income and Direct Operating Expenses
Year ended December 31, 1995
Gross income:
Base rental income.............................. $1,117,082
Operating expense and real estate
tax recoveries................................ 290,755
-----------
Total Gross Income.............................. 1,407,837
-----------
Direct operating expenses:
Real estate taxes............................... 133,455
Management fees................................. 51,210
Operating expenses.............................. 125,468
Utilities....................................... 27,974
Insurance....................................... 20,045
Bad debts expense............................... 8,208
-----------
Total direct operating expenses................. 366,360
-----------
Excess of gross income over direct
operating expenses.............................. $1,041,477
===========
See accompanying notes to historical summary of gross income and direct
operating expenses.
F-78
<PAGE> 129
Spring Hill Fashion Corner
Notes to Historical Summary of Gross Income and Direct Operating Expenses
Year ended December 31, 1995
1. Business
Spring Hill Fashion Corner is located in West Dundee, Illinois. It
consists of approximately 125,000 square feet of gross leasable area and
was 75% occupied at December 31, 1995. Spring Hill Fashion Corner is owned
by JMB Mortgage Partners Ltd. I, II and III (Seller) who has signed a sale
and purchase agreement for the sale of Spring Hill Fashion Corner to Inland
Real Estate Corporation, an unaffiliated third party.
2. Basis of Presentation
The Historical Summary has been prepared for the purpose of complying with
Rule 3-14 of the Securities and Exchange Commission Regulation S-X and for
inclusion in the Registration Statement on Form S-11 of Inland Real Estate
Corporation and is not intended to be a complete presentation of Spring
Hill Fashion Corner's revenues and expenses. The Historical Summary has
been prepared on the accrual basis of accounting and requires management to
make estimates and assumptions that affect the reported amounts of the
revenues and expenses during the reporting period.
3. Gross Income
Spring Hill Fashion Corner leases retail space under various lease
agreements with its tenants. All leases are accounted for as operating
leases. Certain of the leases include provisions under which Spring Hill
Fashion Corner is reimbursed for certain common area, real estate, and
insurance costs. Operating expenses and real estate tax recoveries
reflected in the Historical Summary include amounts due for 1995 expenses
for which the tenants have not yet been billed. Certain leases contain
options for various periods at various rental rates.
Base rentals are reported as income over the lease term as they become
receivable under the provisions of the leases. However, when rentals vary
from a straight-line basis due to short-term rent abatements or escalating
rents during the lease term, the income is recognized based on effective
rental rates. Related adjustments increased base rental income by $34,437
for the year ended December 31, 1995.
F-79
<PAGE> 130
Spring Hill Fashion Corner
Notes to Historical Summary of Gross Income and Direct Operating Expenses
Year ended December 31, 1995
Minimum rents to be received from tenants under operating leases are
approximately as follows:
Year Amount
---- ------
1996 $ 1,128,310
1997 1,133,295
1998 1,084,898
1999 1,052,788
2000 925,329
Thereafter 1,901,462
------------
$ 7,226,082
============
5. Subsequent Event
In November 1996, a current tenant of Spring Hill Fashion Corner executed a
lease extension and amendment agreement which extended its lease term for
an additional five years.
4. Direct Operating Expenses
Direct operating expenses include only those costs expected to be
comparable to the proposed future operations of Spring Hill Fashion Corner.
Costs such as mortgage interest, depreciation, amortization, and
professional fees are excluded from the Historical Summary.
Spring Hill Fashion Corner is managed by Urban Retail Properties Co., for a
fee of 4.0% of gross revenues, as defined. Subsequent to the sale of
Spring Hill Fashion Corner (note 1), the current management agreement will
cease. Any new management agreement may cause future management fees to
differ from the amounts reflected in the Historical Summary.
F-80
<PAGE> 131
Independent Auditors' Report
The Board of Directors
Inland Real Estate Corporation:
We have audited the accompanying Historical Summary of Gross Income and Direct
Operating Expenses (Historical Summary) of Crestwood Plaza Shopping Center for
the year ended October 31, 1996. This Historical Summary is the responsibility
of the management of the Company. Our responsibility is to express an opinion
on the Historical Summary based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the Historical Summary is free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the Historical Summary. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall presentation of
the Historical Summary. We believe that our audit provides a reasonable basis
for our opinion.
The accompanying Historical Summary was prepared for the purpose of complying
with the rules and regulations of the Securities and Exchange Commission and
for inclusion in the Registration Statement on Form S-11 of Inland Real Estate
Corporation, as described in note 2. It is not intended to be a complete
presentation of Crestwood Plaza Shopping Center revenues and expenses.
In our opinion, the Historical Summary referred to above presents fairly, in
all material respects, the gross income and direct operating expenses described
in note 2 for the year ended October 31, 1996, in conformity with generally
accepted accounting principles.
KPMG Peat Marwick LLP
Chicago, Illinois
November 21, 1996
F-81
<PAGE> 132
Crestwood Plaza Shopping Center
Historical Summary of Gross Income and Direct Operating Expenses
Year ended October 31, 1996
Gross income:
Base rental income.............................. $ 203,007
Operating expense and real estate
tax recoveries................................ 68,884
-----------
Total Gross Income.............................. 271,891
-----------
Direct operating expenses:
Real estate taxes............................... 53,639
Operating expenses.............................. 12,729
Management fees................................. 9,135
Insurance....................................... 2,516
-----------
Total direct operating expenses................. 78,019
-----------
Excess of gross income over direct
operating expenses.............................. $ 193,872
===========
See accompanying notes to historical summary of gross income and direct
operating expenses.
F-82
<PAGE> 133
Crestwood Plaza Shopping Center
Notes to Historical Summary of Gross Income and Direct Operating Expenses
Year ended October 31, 1996
1. Business
Crestwood Plaza Shopping Center (Crestwood Plaza) is located in Crestwood,
Illinois. It consists of approximately 20,044 square feet of gross
leasable area and was 100% occupied at October 31, 1996. Crestwood Plaza
is owned by Inland Property Sales, Inc. (IPS or Seller) who has signed a
sale and purchase agreement for the sale of Crestwood Plaza to Inland Real
Estate Corporation, an affiliate of the Seller.
Crestwood Plaza was purchased by IPS on September 14, 1995 and as such, the
Historical Summary has been presented for a one year period beginning
November 1, 1995. Financial information for periods prior to the
acquisition of Crestwood Plaza by IPS is not available and, as such, has
not been presented.
2. Basis of Presentation
The Historical Summary has been prepared for the purpose of complying with
Rule 3-14 of the Securities and Exchange Commission Regulation S-X and for
inclusion in the Registration Statement on Form S-11 of Inland Real Estate
Corporation and is not intended to be a complete presentation of Crestwood
Plaza's revenues and expenses. The Historical Summary has been prepared on
the accrual basis of accounting and requires management to make estimates
and assumptions that affect the reported amounts of the revenues and
expenses during the reporting period. Actual results may differ from
those estimates.
3. Gross Income
Crestwood Plaza leases retail space under lease agreements with two
tenants. Both leases include provisions under which Crestwood Plaza is
reimbursed for common area, real estate, and insurance costs. Operating
expenses and real estate tax recoveries reflected in the Historical Summary
include amounts for 1996 expenses for which the tenants have not yet been
billed.
Crestwood Plaza's lease terms do not contain short-term rent abatements or
escalating rents and, as such, rentals are reported as income over the
lease term as they become receivable under the provisions of the leases.
F-83
<PAGE> 134
Crestwood Plaza Shopping Center
Notes to Historical Summary of Gross Income and Direct Operating Expenses
Year ended October 31, 1996
Minimum rents to be received from tenants under operating leases in effect
at October 31, 1996, are as follows:
Year Amount
1997 $ 203,007
1998 145,407
1999 126,207
2000 126,207
2001 126,207
Thereafter 120,948
-----------
$ 847,948
===========
4. Direct Operating Expenses
Direct operating expenses include only those costs expected to be
comparable to the proposed future operations of Crestwood Plaza. Costs
such as mortgage interest, depreciation, amortization, and professional
fees are excluded from the Historical Summary.
Crestwood Plaza has not received its final real estate tax bill for 1996.
Real estate tax expense is estimated based upon bills for 1995. The
difference between this estimate and the final bill is not expected to have
a material impact on the Historical Summary.
Park St. Claire is managed by Inland Commercial Property Management, Inc.,
an affiliate of IPS, for a fee of 4.5% of gross revenues, as defined.
Subsequent to the sale of Crestwood Plaza (note 1), the current management
agreement will cease. Any new management agreement may cause future
management fees to differ from the amounts reflected in the Historical
Summary.
F-84
<PAGE> 135
Independent Auditors' Report
The Board of Directors
Inland Real Estate Corporation:
We have audited the accompanying Historical Summary of Gross Income and Direct
Operating Expenses (Historical Summary) of Park St. Claire Plaza for the year
ended December 31, 1995. This Historical Summary is the responsibility of the
management of Inland Real Estate Corporation. Our responsibility is to express
an opinion on the Historical Summary based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the Historical Summary is free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the Historical Summary. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall presentation of
the Historical Summary. We believe that our audit provides a reasonable basis
for our opinion.
The accompanying Historical Summary was prepared for the purpose of complying
with the rules and regulations of the Securities and Exchange Commission and
for inclusion in the Registration Statement on Form S-11 of Inland Real Estate
Corporation, as described in note 2. It is not intended to be a complete
presentation of Park St. Claire Plaza's revenues and expenses.
In our opinion, the Historical Summary referred to above presents fairly, in
all material respects, the gross income and direct operating expenses described
in note 2 of Park St. Claire Plaza for the year ended December 31, 1995, in
conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Chicago, Illinois
December 20, 1996
F-85
<PAGE> 136
Park St. Claire Plaza
Historical Summary of Gross Income and Direct Operating Expenses
Year ended December 31, 1995
Gross income:
Base rental income.............................. $ 70,928
Operating expense and real estate
tax recoveries................................ 28,960
-----------
Total Gross Income.............................. 99,888
-----------
Direct operating expenses:
Real estate taxes............................... 38,938
Operating expenses.............................. 26,793
Utilities....................................... 8,816
Management fees................................. 7,200
Insurance....................................... 854
-----------
Total direct operating expenses................. 82,601
-----------
Excess of gross income over direct
operating expenses.............................. $ 17,287
===========
See accompanying notes to historical summary of gross income and direct
operating expenses.
F-86
<PAGE> 137
Park St. Claire Plaza
Notes to Historical Summary of Gross Income and Direct Operating Expenses
Year ended December 31, 1995
1. Business
Park St. Claire Plaza (Park St. Claire) is located in Schaumburg, Illinois.
It consists of approximately 11,859 square feet of gross leasable area and
was approximately 35% leased and occupied at December 31, 1995. Inland
Real Estate Corporation has signed a sale and purchase agreement for the
purchase of Park St. Claire from an unaffiliated third party (Seller).
2. Basis of Presentation
The Historical Summary of Gross Income and Direct Operating Expenses
(Historical Summary) has been prepared for the purpose of complying with
Rule 3-14 of the Securities and Exchange Commission Regulation S-X and for
inclusion in the Registration Statement on Form S-11 of Inland Real Estate
Corporation and is not intended to be a complete presentation of Park St.
Claire's revenues and expenses. The Historical Summary has been prepared
on the accrual basis of accounting and requires management of Park St.
Claire to make estimates and assumptions that affect the reported amounts
of the revenues and expenses during the reporting period. Actual results
may differ from those estimates.
3. Gross Income
Park St. Claire leases retail space under a lease agreement with Ameritech
Mobile Communications through October 1999, it current tenant, and accounts
for this lease as an operating lease. The lease includes provisions under
which Park St. Claire is reimbursed for common area, real estate, and
insurance costs.
Base rentals are reported as income over the lease term as they become
receivable under the lease provisions. However, when rentals vary from a
straight-line basis due to short-term rent abatements or escalating rents
during the lease term, the income is recognized based on effective rental
rates. Related adjustments increased base rental income by $5,707 for the
year ended December 31, 1995.
F-87
<PAGE> 138
Park St. Claire Plaza
Notes to Historical Summary of Gross Income and Direct Operating Expenses
Year ended December 31, 1995
Minimum rents to be received from Park St. Claire's tenant is as follows:
Year Amount
1996 $ 69,557
1997 71,652
1998 73,747
1999 60,214
-----------
$ 275,170
===========
4. Direct Operating Expenses
Direct operating expenses include only those costs expected to be
comparable to the proposed future operations of Park St. Claire. Costs
such as mortgage interest, depreciation, amortization, and professional
fees are excluded from the Historical Summary.
Park St. Claire's real estate tax assessment includes assessments for other
land parcels owned by the Seller. Real estate tax expense related to Park
St. Claire has been allocated using the 1995 real estate tax bill and an
estimate of Park St. Claire's assessment determined using Park St. Claire's
square footage relative to the other land parcels.
Park St. Claire is managed pursuant to the terms of a management agreement
and a verbal fee arrangement equal to $7,200 per annum. Subsequent to the
sale of Park St. Claire (note 1), the current management agreement will
cease. Any new management agreement may cause future management fees to
differ from the amounts reflected in the Historical Summary.
F-88
<PAGE> 139
Independent Auditors' Report
The Board of Directors
Inland Real Estate Corporation:
We have audited the accompanying Historical Summary of Gross Income and Direct
Operating Expenses (Historical Summary) of Lansing Square Shopping Center for
the year ended December 31, 1995. This Historical Summary is the
responsibility of the management of Inland Real Estate Corporation. Our
responsibility is to express an opinion on the Historical Summary based on our
audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the Historical Summary is free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the Historical Summary. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall presentation of
the Historical Summary. We believe that our audit provides a reasonable basis
for our opinion.
The accompanying Historical Summary was prepared for the purpose of complying
with the rules and regulations of the Securities and Exchange Commission and
for inclusion in the Registration Statement on Form S-11 of Inland Real Estate
Corporation, as described in note 2. It is not intended to be a complete
presentation of Lansing Square Shopping Center's revenues and expenses.
In our opinion, the Historical Summary referred to above presents fairly, in
all material respects, the gross income and direct operating expenses described
in note 2 of Lansing Square Shopping Center for the year ended December 31,
1995, in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Chicago, Illinois
December 26, 1996
F-89
<PAGE> 140
Lansing Square Shopping Center
Historical Summary of Gross Income and Direct Operating Expenses
Year ended December 31, 1995
Gross income:
Base rental income.............................. $1,406,317
Operating expense and real estate
tax recoveries................................ 825,340
-----------
Total Gross Income.............................. 2,231,657
-----------
Direct operating expenses:
Real estate taxes............................... 1,252,577
Operating expenses.............................. 136,926
Management fees................................. 70,762
Utilities....................................... 32,577
Insurance....................................... 15,271
-----------
Total direct operating expenses................. 1,508,113
-----------
Excess of gross income over direct
operating expenses.............................. $ 723,544
===========
See accompanying notes to historical summary of gross income and direct
operating expenses.
F-90
<PAGE> 141
Lansing Square Shopping Center
Notes to Historical Summary of Gross Income and Direct Operating Expenses
Year ended December 31, 1995
1. Business
Lansing Square Shopping Center (Lansing Square) is located in Lansing,
Illinois. It consists of approximately 225,000 square feet of gross
leasable area and was 89% leased and occupied at December 31, 1996. Inland
Real Estate Corporation has signed a sale and purchase agreement for the
purchase of Lansing Square from an unaffiliated third party (Seller).
2. Basis of Presentation
The Historical Summary of Gross Income and Direct Operating Expenses
(Historical Summary) has been prepared for the purpose of complying with
Rule 3-14 of the Securities and Exchange Commission Regulation S-X and for
inclusion in the Registration Statement on Form S-11 of Inland Real Estate
Corporation and is not intended to be a complete presentation of Lansing
Square's revenues and expenses. The Historical Summary has been prepared
on the accrual basis of accounting and requires management of Lansing
Square to make estimates and assumptions that affect the reported amounts
of the revenues and expenses during the reporting period. Actual results
may differ from those estimates.
3. Gross Income
Lansing Square leases retail space under various lease agreements with its
tenants. All leases are accounted for as operating leases. The leases
include provisions under which Lansing Square is reimbursed for common
area, real estate, and insurance costs. Certain leases contain renewal
options for various periods at various rental rates.
Base rentals are reported as income over the lease term as they become
receivable under the provisions of the leases. However, when rentals vary
from a straight-line basis due to short-term rent abatements or escalating
rents during the lease term, the income is recognized based on effective
rental rates. Related adjustments increased base rental income by $118,381
for the year ended December 31, 1995.
F-91
<PAGE> 142
Lansing Square Shopping Center
Notes to Historical Summary of Gross Income and Direct Operating Expenses
Year ended December 31, 1995
Minimum rents to be received from tenants under operating leases in effect
at December 31, 1995 are as follows:
Year Amount
1996 $ 1,569,439
1997 1,726,992
1998 1,718,316
1999 1,692,791
2000 1,650,292
Thereafter 11,266,674
------------
$19,624,504
============
4. Direct Operating Expenses
Direct operating expenses include only those costs expected to be
comparable to the proposed future operations of Lansing Square. Costs such
as mortgage interest, depreciation, amortization, and professional fees are
excluded from the Historical Summary.
Lansing Square is managed by an affiliate of the Seller for an annual fee
equal to 3.85% of gross receipts plus reimbursement of certain overhead
costs, all as defined. Subsequent to the sale of Lansing Square (note 1),
the current management agreement will cease. Any new management agreement
may cause future management fees to differ from the amounts reflected in
the Historical Summary.
F-92
<PAGE> 143
Independent Auditors' Report
The Board of Directors
Inland Real Estate Corporation:
We have audited the accompanying Historical Summary of Gross Income and Direct
Operating Expenses (Historical Summary) of The Summit of Park Ridge for the
period February 1, 1996 to November 30, 1996. This Historical Summary is the
responsibility of the management of Inland Real Estate Corporation. Our
responsibility is to express an opinion on the Historical Summary based on our
audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the Historical Summary is free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the Historical Summary. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall presentation of
the Historical Summary. We believe that our audit provides a reasonable basis
for our opinion.
The accompanying Historical Summary was prepared for the purpose of complying
with the rules and regulations of the Securities and Exchange Commission and
for inclusion in the Registration Statement on Form S-11 of Inland Real Estate
Corporation, as described in note 2. It is not intended to be a complete
presentation of The Summit of Park Ridge's revenues and expenses.
In our opinion, the Historical Summary referred to above presents fairly, in
all material respects, the gross income and direct operating expenses described
in note 2 of The Summit of Park Ridge for the period February 1, 1996 to
November 30, 1996, in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Chicago, Illinois
December 6, 1996
F-93
<PAGE> 144
The Summit of Park Ridge
Historical Summary of Gross Income and Direct Operating Expenses
Period February 1, 1996 to November 30, 1996
Gross income:
Base rental income.............................. $ 370,283
Operating expense and real estate
tax recoveries................................ 246,342
-----------
Total Gross Income.............................. 616,625
-----------
Direct operating expenses:
Real estate taxes............................... 177,891
Operating expenses.............................. 40,753
Management fees................................. 20,000
Utilities....................................... 13,806
Insurance....................................... 4,578
-----------
Total direct operating expenses................. 257,028
-----------
Excess of gross income over direct
operating expenses.............................. $ 359,597
===========
See accompanying notes to historical summary of gross income and direct
operating expenses.
F-94
<PAGE> 145
The Summit of Park Ridge
Notes to Historical Summary of Gross Income and Direct Operating Expenses
Period February 1, 1996 to November 30, 1996
1. Business
The Summit of Park Ridge (Summit) is located in Park Ridge, Illinois. It
consists of approximately 33,000 square feet of gross leasable area and was
87% occupied at November 30, 1996. Inland Real Estate Corporation has
signed a sale and purchase agreement for the purchase of Summit from an
unaffiliated third party (Seller).
Summit of Park Ridge was purchased by Archon Group L.P. on February 1, 1996
and is expected to be sold to Inland Real Estate Corporation in December
1996. As such, the Historical Summary has been presented for the period
from February 1, 1996 to November 30, 1996. Financial information for
periods prior to the acquisition of Summit by Archon Group L.P. is not
available and, as such, has not been presented.
2. Basis of Presentation
The Historical Summary has been prepared for the purpose of complying with
Rule 3-14 of the Securities and Exchange Commission Regulation S-X and for
inclusion in the Registration Statement on Form S-11 of Inland Real Estate
Corporation and is not intended to be a complete presentation of Summit's
revenues and expenses. The Historical Summary has been prepared on the
accrual basis of accounting and requires management of Summit to make
estimates and assumptions that affect the reported amounts of the revenues
and expenses during the reporting period. Actual results may differ from
those estimates.
3. Gross Income
Summit leases retail space under various lease agreements with its tenants.
All leases are accounted for as operating leases. The leases include
provisions under which Summit is reimbursed for common area, real estate,
and insurance costs. Operating expenses and real estate tax recoveries
reflected in the Historical Summary include amounts for 1996 expenses for
which the tenants have not yet been billed. Certain leases contain renewal
options for various periods at various rental rates.
Base rentals are reported as income over the lease term as they become
receivable under the provisions of the leases. However, when rentals vary
from a straight-line basis due to short-term rent abatements or escalating
rents during the lease term, the income is recognized based on effective
rental rates. Related adjustments increased base rental income by $35,141
for the period February 1, 1996 to November 30, 1996.
During the period from February 1, 1996 to November 30, 1996, $16,500 of
lease termination income has been included as a component of gross income
in the Historical Summary.
F-95
<PAGE> 146
The Summit of Park Ridge
Notes to Historical Summary of Gross Income and Direct Operating Expenses
Period February 1, 1996 to November 30, 1996
Minimum rents to be received from tenants under operating leases for each
year ending November 30, are as follows:
Year Amount
1997 $ 374,979
1998 358,308
1999 336,178
2000 330,135
2001 259,528
Thereafter 228,012
-----------
$1,887,140
============
4. Direct Operating Expenses
Direct operating expenses include only those costs expected to be
comparable to the proposed future operations of Summit. Costs such as
mortgage interest, depreciation, amortization, and professional fees are
excluded from the Historical Summary.
Summit has not received its final real estate tax bill for 1996. Real
estate tax expense is estimated based upon 1995 bills. The difference
between this estimate and the final bill is not expected to have a material
impact on the Historical Summary.
Summit is managed by Draper and Kramer, for an annual fee to the greater of
3.5% of gross revenues, as defined, or $24,000. Subsequent to the sale of
Summit (note 1), the current management agreement will cease. Any new
management agreement may cause future management fees to differ from the
amounts reflected in the Historical Summary.
F-96
<PAGE> 147
Independent Auditors' Report
The Board of Directors
Inland Real Estate Corporation:
We have audited the accompanying Historical Summary of Gross Income and Direct
Operating Expenses (Historical Summary) of Maple Park Place for the year ended
December 31, 1996. This Historical Summary is the responsibility of the
management of the Inland Real Estate Corporation. Our responsibility is to
express an opinion on the Historical Summary based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the Historical Summary is free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the Historical Summary. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall presentation of
the Historical Summary. We believe that our audit provides a reasonable basis
for our opinion.
The accompanying Historical Summary was prepared for the purpose of complying
with the rules and regulations of the Securities and Exchange Commission and
for inclusion in the Registration Statement on Form S-11 of Inland Real Estate
Corporation, as described in note 2. It is not intended to be a complete
presentation of Maple Park Place's revenues and expenses.
In our opinion, the Historical Summary referred to above presents fairly, in
all material respects, the gross income and direct operating expenses described
in note 2 of Maple Park Place for the year ending December 31, 1996, in
conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Chicago, Illinois
January 8, 1997
F-97
<PAGE> 148
Maple Park Place
Historical Summary of Gross Income and Direct Operating Expenses
Year ended December 31, 1996
Gross income:
Base rental income.............................. $1,844,314
Operating expense and real estate
tax recoveries................................ 405,223
Other income.................................... 641
-----------
Total Gross Income.............................. 2,250,178
-----------
Direct operating expenses:
Real estate taxes............................... 189,477
Operating expenses.............................. 104,640
Management fees................................. 77,853
Utilities....................................... 49,355
Insurance....................................... 23,065
-----------
Total direct operating expenses................. 444,390
-----------
Excess of gross income over direct
operating expenses.............................. $1,805,788
===========
See accompanying notes to historical summary of gross income and direct
operating expenses.
F-98
<PAGE> 149
Maple Park Place
Notes to Historical Summary of Gross Income and Direct Operating Expenses
Year ended December 31, 1996
1. Business
Maple Park Place (Maple Park) is located in Bolingbrook, Illinois. It
consists of approximately 220,000 square feet of gross leasable area and
was 100% leased and occupied at December 31, 1996. Inland Real Estate
Corporation has signed a sale and purchase agreement for the purchase of
Maple Park from an unaffiliated third party (Seller).
2. Basis of Presentation
The Historical Summary of Gross Income and Direct Operating Expenses
(Historical Summary) has been prepared for the purpose of complying with
Rule 3-14 of the Securities and Exchange Commission Regulation S-X and for
inclusion in the Registration Statement on Form S-11 of Inland Real Estate
Corporation and is not intended to be a complete presentation of Maple
Park's revenues and expenses. The Historical Summary has been prepared on
the accrual basis of accounting and requires management of Maple Park to
make estimates and assumptions that affect the reported amounts of the
revenues and expenses during the reporting period. Actual results may
differ from those estimates.
3. Gross Income
Maple Park leases retail space under various lease agreements with its
tenants. All leases are accounted for as operating leases. Certain of the
leases include provisions under which Maple Park is reimbursed for common
area, real estate, and insurance costs. In addition, Maple Park collects
common area and insurance costs from a tenant of the parcel located
adjacent to Maple Park. Operating expenses and real estate tax recoveries
reflected in the Historical Summary include amounts for 1996 expenses for
which the tenants have not yet been billed. Certain leases contain renewal
options for various periods at various rental rates.
Base rentals are reported as income over the lease term as they become
receivable under the provisions of the leases. However, when rentals vary
from a straight-line basis due to short-term rent abatements or escalating
rents during the lease term, the income is recognized based on effective
rental rates. Related adjustments increased base rental income by $43,819
for the year ended December 31, 1996.
F-99
<PAGE> 150
Maple Park Place
Notes to Historical Summary of Gross Income and Direct Operating Expenses
Year ended December 31, 1996
Minimum rents to be received from tenants under operating leases in effect
at December 31, 1996 are as follows:
Year Amount
1997 $ 1,773,056
1998 1,741,306
1999 1,682,846
2000 1,500,349
2001 1,434,626
Thereafter 20,758,807
------------
$28,890,990
============
4. Direct Operating Expenses
Direct operating expenses include only those costs expected to be
comparable to the proposed future operations of Maple Park. Costs such as
mortgage interest, depreciation, amortization, and professional fees are
excluded from the Historical Summary.
Maple Park has not received its final real estate tax bill for 1996. Real
estate tax expense is estimated based upon bills for 1995. The difference
between this estimate and the final bill is not expected to have a material
impact on the Historical Summary.
Maple Park is managed pursuant to the terms of a management agreement for
an annual fee of 3.75% of rental income (as defined), less a deduction of
$10,000 for unleased space during the year, plus a fixed amount of $20,000
for the salary of the property manager. Subsequent to the sale of Maple
Park (note 1), the current management agreement will cease. Any new
management agreement may cause future management fees to differ from the
amounts reflected in the Historical Summary.
F-100
<PAGE> 151
Independent Auditors' Report
Board of Directors
Inland Real Estate Corporation
Oak Brook, Illinois
We have audited the accompanying Historical Summary of Gross Income and Direct
Operating Expenses (Historical Summary) of Aurora Commons Partnership (An
Illinois Limited Partnership) D/B/A Aurora Commons Shopping Center as of
December 31, 1996. This Historical Summary is the responsibility of the
management of the partnership. Our responsibility is to express an opinion on
the Historical Summary based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the Historical Summary is free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the Historical Summary. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall presentation of
the Historical Summary. We believe that our audit provides a reasonable basis
for our opinion.
The accompanying Historical Summary was prepared for the purpose of complying
with the rules and regulations of the Securities and Exchange Commission and
for inclusion in the Registration Statement and Form S-11 of Inland Real Estate
Corporation as described in the notes. It is not intended to be a complete
presentation of Aurora Commons Partnership D/B/A Aurora Commons Shopping
Center's revenues and expenses.
In our opinion, the Historical Summary referred to above presents fairly, in
all material respects, the gross income and direct operating expenses described
in note 3 for the year ended December 31, 1996, in conformity with generally
accepted accounting principles.
Warady & Davis LLP
January 22, 1997
F-101
<PAGE> 152
1
Aurora Commons Partnership
D/B/A Aurora Commons Shopping Center
Historical Summary of Gross Income and Direct Operating Expenses
For the year ended December 31, 1996
REVENUES
Minimum Rent.................................. $ 1,145,656
Percentage Rent............................... 195,792
------------
1,341,448
Tenant Reimbursements
Real Estate Taxes............................. 275,310
Common Area................................... 224,494
Other......................................... 34,443
------------
Total Tenant Reimbursements.................. 534,247
------------
Gross Revenues............................. 1,875,695
Costs and Other (Income) Expenses
Common Area Expenses............................ 209,951
General Expenses................................ 49,224
Management Fees................................. 111,480
Real Estate Taxes and Contesting Fees........... 288,550
------------
Total Direct Operating Expenses............... 659,205
------------
Excess of Gross Revenue over
Direct Operating Expenses....................... $ 1,216,490
============
See accompanying notes.
F-102
<PAGE> 153
2
Aurora Commons Partnership
D/B/A Aurora Commons Shopping Center
Notes to Financial Statements
Partnership Activity
The Partnership was established to construct, develop and operate a shopping
center located in Aurora, Illinois. The Center has a total gross leasable area
of approximately 227,000 square feet on 18 acres of which approximately 124,500
square feet was owned by the Partnership and was approximately 98% occupied at
December 31, 1996. On January 24, 1997, the Partnership was sold to Inland
Real Estate Corporation, an unaffiliated third party.
Note 1 - Summary of Significant Accounting Policies
This summary of significant accounting policies is presented to assist in
understanding the Partnership's Historical Summary. The Historical Summary and
notes are representations of management who is responsible for their integrity
and objectivity.
Basis of Preparation
The Historical Summary has been prepared for the purpose of complying with Rule
3-14 of the Securities and Exchange Commission Regulation S-X and for inclusion
in the Registration Statement on Form S-11 of Inland Real Estate Corporation
and is not intended to be a complete presentation of Aurora Commons
Partnership's revenues and expenses. The Historical Summary has been prepared
on the accrual basis of accounting and requires management to make estimates
and assumptions that affect the reported amounts of the revenues and expenses
during the reporting period.
Note 2 - Leasing Arrangements
The Partnership leases shopping center space to tenants under noncancelable
operating leases requiring fixed and contingent rentals based on sales in
excess of stipulated minimum levels. Real estate taxes and tenant share of
various other expenses are included in tenant reimbursements in the
accompanying Historical Summary.
The following is a schedule of future minimum rentals under these leases at
December 31, 1996 not including renewal option increases or any re-leasings:
Year Ending December 31,
1997................................ $ 1,147,010
1998................................ 1,038,804
1999................................ 916,509
2000................................ 664,033
2001................................ 554,041
Subsequent to 2001........................... 3,416,591
------------
Aggregate Future Minimum Rentals............. $ 7,736,988
============
F-103
<PAGE> 154
3
Aurora Commons Partnership
D/B/A Aurora Commons Shopping Center
Notes to Financial Statements
Note 2 - Leasing Arrangements (Continued)
Base rentals are reported as income over the lease term as they become
receivables under the provision of the leases. However, when rentals vary from
a straight-line basis due to short-term rent abatements or escalating rents
during the lease term, the income is recognized based on effective rental
rates. Related adjustments decreased base rental income by $9,606 for the year
ended December 31, 1996.
Note 3 - Direct Operating Expenses
Direct operating expenses include only those costs expected to be comparable to
the proposed future operations of Aurora Commons Partnership. Costs such as
mortgage interest, depreciation, amortization, and professional fees are
excluded from the Historical Summary.
The Partnership has not received its final real estate tax bill for 1996. Real
estate tax expense is based on 1995 tax bills. The difference between this
estimate and the final bill is not expected to have a material impact on the
Historical Summary. Tenant reimbursements for real estate taxes, common area
and other expenses are based on estimated expenses to be recovered. The
difference between this estimate and the final reconciled recoveries is not
expected to have a material impact on the Historical Summary.
Note 4 - Related Party Transactions
A Company under the control of Joseph J. Freed has provided management services
to the Partnership. Management fees of $111,480 for the year ended December
31, 1996 have been included in the Historical Summary.
Subsequent to the sale of Aurora Commons, as noted above, the current
management agreement will cease. Any new management agreement may cause future
management fees to differ from the amounts reflected in the Historical Summary.
F-104
<PAGE> 155
4
Independent Auditors' Report
Board of Directors
Inland Real Estate Corporation
Oak Brook, Illinois
We have audited the accompanying Historical Summary of Gross Income
and Direct Operating Expenses (Historical Summary) of Clark & Diversey
Property Limited Partnership (An Illinois Limited Partnership) D/B/A Lincoln
Park Place as of December 31, 1996. This Historical Summary is the
responsibility of the management of the partnership. Our responsibility is to
express an opinion on the Historical Summary based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the Historical Summary is free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the Historical Summary. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall presentation of
the Historical Summary. We believe that our audit provides a reasonable basis
for our opinion.
The accompanying Historical Summary was prepared for the purpose of
complying with the rules and regulations of the Securities and Exchange
Commission and for inclusion in the Registration Statement and Form S-11 of
Inland Real Estate Corporation as described in the notes. It is not intended
to be a complete presentation of Clark & Diversey Property Limited
Partnership D/B/A Lincoln Park Place's revenues and expenses.
In our opinion, the Historical Summary referred to above presents
fairly, in all material respects, the gross income and direct operating
expenses as described in Note 3 for the year ended December 31, 1996, in
conformity with generally accepted accounting principles.
Warady & Davis LLP
January 24, 1997
F-105
<PAGE> 156
5
Clark & Diversey Property Limited Partnership
D/B/A Lincoln Park Place
Historical Summary of Gross Income and Direct Operating Expenses
For the year ended December 31, 1996
REVENUES
Minimum Rent.................................. $ 228,218
Tenant Reimbursements
Real Estate Taxes............................. 105,000
Common Area................................... 3,475
Other......................................... 3,522
------------
Total Tenant Reimbursements.................. 111,997
------------
Gross Revenues............................. 340,215
Costs and Other (Income) Expenses
Common Area Expenses............................ 3,253
General Expenses................................ 4,746
Management Fees................................. 17,177
Real Estate Taxes and Contesting Fees........... 105,000
------------
Total Direct Operating Expenses............... 130,176
------------
Excess of Gross Revenue over
Direct Operating Expenses....................... $ 210,039
============
See accompanying notes.
F-106
<PAGE> 157
6
Clark & Diversey Property Limited Partnership
D/B/A Lincoln Park Place
Notes to Financial Statements
Partnership Activity
The Partnership operates 10,678 square feet of street front retail space
located in Chicago, Illinois. The center is 100% occupied and draws customers
from the surrounding Chicagoland area. On January 24, 1997 the Partnership was
sold to Inland Real Estate Corporation, an unaffiliated third party.
Note 1 - Summary of Significant Accounting Policies
This summary of significant accounting policies is presented to assist in
understanding the Partnership's Historical Summary. The Historical Summary and
notes are representations of management who is responsible for their integrity
and objectivity.
Basis of Preparation
The Historical Summary has been prepared for the purpose of complying with Rule
3-14 of the Securities and Exchange Commission Regulation S-X and for inclusion
in the Registration Statement on Form S-11 of Inland Real Estate Corporation
and is not intended to be a complete presentation of Clark & Diversey Property
Limited Partnership's revenues and expenses. The Historical Summary has been
prepared on the accrual basis of accounting and requires management to make
estimates and assumptions that affect the reported amounts of the revenues and
expenses during the reporting period.
Note 2 - Leasing Arrangements
The Partnership leases shopping center space to tenants under noncancelable
operating leases requiring fixed and contingent rentals based on sales in
excess of stipulated minimum levels. Real estate taxes and tenant share of
various other expenses are included in tenant reimbursements in the
accompanying Historical Summary.
The following is a schedule of future minimum rentals under these leases at
December 31, 1996 not including renewal option increases or any re-leasings:
Year Ending December 31
1997................................ $ 235,633
1998................................ 239,219
1999................................ 222,724
2000................................ 140,250
2001................................ 35,063
Subsequent to 2001........................... -
------------
Aggregate Future Minimum Rentals............. $ 872,889
============
F-107
<PAGE> 158
7
Clark & Diversey Property Limited Partnership
D/B/A Lincoln Park Place
Notes to Financial Statements
Note 2 - Leasing Arrangements (Continued)
Base rentals are reported as income over the lease term as they become
receivables under the provision of the leases. However, when rentals vary from
a straight-line basis due to short-term rent abatements or escalating rents
during the lease term, the income is recognized based on effective rental
rates. Related adjustments decreased base rental income by $1,956 for the year
ended December 31, 1996.
Note 3 - Direct Operating Expenses
Direct operating expenses include only those costs expected to be comparable to
the proposed future operations of Clark & Diversey Property Limited
Partnership. Costs such as mortgage interest, depreciation, amortization, and
professional fees are excluded from the Historical Summary.
The Partnership has not received its final real estate tax bill for
1996. Real estate tax expense is based on 1996 assessed valuation. The
difference between this estimate and the final bill is not expected to have
a material impact on the Historical Summary. Tenant reimbursements for real
estate taxes, common area and other expenses are based on estimated
amounts to be recovered. The difference between this estimate and the
final reconciled recoveries is not expected to have a material impact on the
Historical Summary.
Note 4 - Related Party Transactions
A Company under the control of Joseph J. Freed has provided management services
to the Partnership. Management fees of $17,177 for the year ended December 31,
1996 have been included in the Historical Summary.
Subsequent to the sale of Clark & Diversey Property Limited Partnership, as
noted above, the current management agreement will cease. Any new management
agreement may cause future management fees to differ from the amounts reflected
in the Historical Summary.
F-108
<PAGE> 159
PROSPECTUS
INLAND REAL ESTATE CORPORATION
$10.00 PER SHARE MINIMUM INITIAL PURCHASE - 300 SHARES
(100 SHARES FOR TAX-EXEMPT ENTITIES)
Inland Real Estate Corporation f/k/a Inland Monthly Income Fund III,
Inc., (the "Company"), a Maryland corporation, is an infinite-life real estate
investment trust (a "REIT"), formed in 1994 to invest in Neighborhood Retail
Centers located primarily within a 150-mile radius of its headquarters in Oak
Brook, Illinois as well as single-user retail properties located throughout the
United States. As of the date of this Prospectus, the Company owns 11
properties, including nine Neighborhood Retail Centers and two single-user
retail properties. The Company intends to use the Net Proceeds of this
Offering (after funding of appropriate working capital reserves) to acquire
additional properties. See "Investment Objectives and Policies" and "Real
Property Investments."
Of the 11,375,000 shares of the Company's common stock, $.01 par value
per share (the "Shares") offered by means of this Prospectus, 10,000,000 Shares
are being offered on a "best efforts" basis (the "Offering"); 1,000,000 Shares
are available only to Stockholders who are participating in the Company's
Distribution Reinvestment Program (the "DRP"); and 375,000 Shares may be issued
upon the exercise of warrants granted to the Dealer Manager. In addition,
375,000 warrants are being offered by means of this Prospectus. See
"Description of Securities - - Soliciting Dealer Warrants." The Company's
day-to-day operations will be managed by Inland Real Estate Advisory Services,
Inc. (the "Advisor"). Capitalized terms used in this Prospectus and not
defined in the text are defined in the "Glossary."
AN INVESTMENT IN THE COMPANY INVOLVES CERTAIN RISKS. SEE "RISK
FACTORS" BEGINNING ON PAGE 16. THESE RISKS INCLUDE:
- There is currently no public trading market for the Shares and
therefore the offering price of the Shares may not be indicative of
the price that the Shares may trade at if they were listed on an
exchange or of the proceeds that a Stockholder may receive if the
Company was liquidated or dissolved. An investment in the Shares is,
therefore, suitable only for those able to make a long-term
investment. (PAGE 16)
- The Offering is not conditioned upon the Company raising a minimum
amount of proceeds. Therefore, the Company may not raise proceeds
sufficient to apply to any use other than payment of organization and
offering expenses associated with the Offering. (PAGE 16)
- As of the date of this Prospectus, the Company owned nine Neighborhood
Retail Centers and two single-user retail properties and had
approximately $11,200,000 available for acquisition of additional
properties. The Company also intends to use the Net proceeds of this
Offering (after funding of appropriate working capital reserves) to
acquire additional properties. Although the Company intends to
purchase properties, whenever possible, on an all cash basis, the
Company utilized financing to acquire seven of its 11 properties. The
Company has not specified any additional properties in which to
invest. (PAGE 16)
- The Company relies on the Advisor and its Affiliates for the daily
operation of the Company and the management of its assets. The
Company will pay the Advisor and its Affiliates substantial fees for
rendering such services. (PAGE 20)
- No person may own more than 9.8% of the Shares. (PAGE 24)
- Affiliates of the Advisor are engaged in similar real estate
activities which subject them to various conflicts of interest in
their management of the operations of the Company. Such conflicts
include competition for the time and services of Affiliates of the
Advisor, receipt by the Advisor and its Affiliates of compensation
from the Company for their various services and the possibility that
the Company may do business with entities that have pre-existing
relationships with the Advisor or its Affiliates which result in a
conflict between the ongoing business relationship of the Advisor or
its Affiliates and the Company's current interests. (PAGE 19)
- The Company has incurred indebtedness secured by certain of its
properties and may incur additional indebtedness on its existing
properties or properties to be acquired in the future. Defaults on
such indebtedness could cause the Company to lose its investment in
such properties. (PAGE 17)
- Stockholders have no preemptive rights, and, therefore, further
issuance(s) of Shares by the Company may dilute the interests of
investors purchasing in this Offering. (PAGE 20)
<TABLE>
<CAPTION>
====================================================================================================================================
Selling Proceeds to
Price to Public Commissions (1) Company (2)(3)
<S> <C> <C> <C>
Per Share $ 10.00 $ .70 $ 9.30
Minimum Purchase 300 Shares $ 3,000 $ 210 $ 2,790
Total Maximum if 11,000,000 Shares Sold(4) $ 109,050,000 $ 7,000,000 $ 102,050,000
====================================================================================================================================
</TABLE>
The date of this Prospectus is July 24, 1996. (cover page continued)
<PAGE> 160
(1) 10,000,000 of the Shares are being offered on a "best efforts" basis.
The Company will pay Inland Securities Corporation, an Affiliate of
the Advisor (the "Dealer Manager") selling commissions equal to up to
seven percent (7%) of the Gross Offering Proceeds and will issue a
warrant to purchase one Share during the Exercise Period at $12.00 per
share for every 40 Shares sold (the "Soliciting Dealer Warrants"), all
or a part of which compensation may be retained or reallowed to the
Soliciting Dealers unless prohibited by either federal or state
securities laws. See "Description of Securities - Soliciting Dealer
Warrants" regarding additional terms of the Soliciting Dealer
Warrants. The Dealer Manager also will receive a marketing
contribution and due diligence expense allowance fee equal to 2.5% of
the Gross Offering Proceeds, some portion of which may be reallowed to
Soliciting Dealers. Certain volume discounts may be given on orders
of 25,000 Shares or more and Soliciting Dealers may, in their
discretion, request that the Company pay them less than the maximum
permitted compensation in respect of the sale of Shares in which event
the amounts not paid as commissions will be retained by the Company.
(2) Before deducting Organization and Offering Expenses which will be
charged to the Company, estimated at $5,771,500 if 11,000,000 Shares
(the "Maximum Offering") are sold. If the aggregate of all
Organization and Offering Expenses, including selling commissions and
the marketing contribution and due diligence expense allowance fee,
exceeds 15% of the Gross Offering Proceeds, the Advisor will pay such
excess expenses.
(3) Participation in the DRP is limited to those investors who purchased
Shares in the Prior Offering or who purchase Shares pursuant to this
Offering. Participants may purchase Shares net of selling commissions
and the marketing contribution and due diligence expense allowance fee
($9.05 per Share). All Shares issued pursuant to the DRP will be
registered.
(4) In addition, assuming all 375,000 warrants are issued to the Dealer
Manager, $300 of additional proceeds will be raised; assuming these
warrants are exercised at the warrant price of $12.00, a total of
$4,500,000 will be raised. No commission will be paid in connection
with the issuance of the warrants or the Shares thereunder.
The Shares included in the Offering will be sold by the Dealer Manager
and other securities dealers (the "Soliciting Dealers") who are members of the
National Association of Securities Dealers, Inc. (the "NASD"). The Offering
will terminate on or before July 23, 1998. Subscription proceeds received from
investors will be held in escrow by the Escrow Agent, pending release to the
Company. As no minimum offering amount has been specified, subscription
proceeds are expected to be released to the Company as subscriptions are
accepted. All subscriptions will be accepted or rejected within ten days (and
generally within 24 hours) after receipt by the Company.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR
ENDORSED THE MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS
UNLAWFUL.
THE COMPANY IS NOT A MUTUAL FUND OR AN INVESTMENT COMPANY WITHIN THE
MEANING OF THE INVESTMENT COMPANY ACT OF 1940, AS AMENDED, AND, THEREFORE,
INVESTORS WILL NOT HAVE THE BENEFIT OF THE PROTECTIONS PROVIDED BY THE
INVESTMENT COMPANY ACT OF 1940, AS AMENDED.
THE USE OF FORECASTS IN THIS OFFERING IS PROHIBITED. ANY
REPRESENTATIONS TO THE CONTRARY AND ANY PREDICTIONS, WRITTEN OR ORAL, AS TO THE
AMOUNT OR CERTAINTY OF ANY PRESENT OR FUTURE CASH BENEFIT OR TAX CONSEQUENCES
WHICH MAY FLOW FROM AN INVESTMENT IN THE COMPANY IS PROHIBITED.
<PAGE> 161
(end of cover page)
ii
<PAGE> 162
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
PROSPECTUS SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ORGANIZATIONAL CHART . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Investment Risks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Company Risks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Risks of Real Estate Ownership . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Tax Risks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
ERISA Risks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
ESTIMATED USE OF PROCEEDS OF OFFERING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
WHO MAY INVEST . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
COMPENSATION TABLE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Nonsubordinated Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Subordinated Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
CONFLICTS OF INTEREST . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Competition for the Time and Service of the Advisor and Affiliates . . . . . . . . . . 37
Process for Resolution of Conflicting Opportunities . . . . . . . . . . . . . . . . . 38
Acquisition from Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
The Company may Purchase Properties from Persons with whom Affiliates of the
Advisor have Prior Business Relationships . . . . . . . . . . . . . . . . . . . 38
Property Management Services are being Rendered by an Affiliate of the Advisor . . . . 39
Receipt of Commissions, Fees and Other Compensation by the Advisor and its
Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Non-Arm's-Length Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Legal Counsel for the Company and the Advisor is the Same Law Firm . . . . . . . . . . 39
Inland Securities Corporation is Participating as Dealer Manager in the Sale of the
Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
The Advisor may have Conflicting Fiduciary Obligations in the Event the Company
Acquires Properties with Affiliates . . . . . . . . . . . . . . . . . . . . . . 40
FIDUCIARY RESPONSIBILITY OF DIRECTORS
AND THE ADVISOR; INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Limitation of Liability and Indemnification . . . . . . . . . . . . . . . . . . . . . 41
Defenses Available . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
PRIOR PERFORMANCE OF THE COMPANY'S AFFILIATES . . . . . . . . . . . . . . . . . . . . . . . . . 42
Prior Investment Programs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
</TABLE>
iii
<PAGE> 163
<TABLE>
<S> <C>
Summary Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Publicly Registered Limited Partnerships . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Private Partnerships . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Private Placement Real Estate Equity Program . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Private Placement Mortgage and Note Programs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Loan Modifications and Work-Outs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Effects of Property Exchanges on Investors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Additional Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Directors and Executive Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
Committees of the Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
Compensation of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
The Advisor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
The Advisory Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
The Management Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Other Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
Independent Director Stock Option Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
SELECTED FINANCIAL DATA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
INVESTMENT OBJECTIVES AND POLICIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
Types of Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
Acquisition Standards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
Description of Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
Property Acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
Borrowing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
Sale or Disposition of Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
Change in Investment Objectives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
Certain Investment Limitations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
Appraisals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
Return of Uninvested Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
Additional Offerings and Exchange Listing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
Joint Ventures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
Other Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
REAL PROPERTY INVESTMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
The Walgreens/Decatur Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
The Eagle Crest Shopping Center . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
Montgomery-Goodyear Shopping Center . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
The Hartford/Naperville Plaza Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
Nantucket Square Shopping Center . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
Antioch Plaza . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86
The Mundelein Plaza Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88
Regency Point Shopping Center . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90
</TABLE>
iv
<PAGE> 164
<TABLE>
<S> <C>
Prospect Heights Plaza . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92
Montgomery-Sears Shopping Center . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94
The Zany Brainy Store . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95
CAPITALIZATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96
PRINCIPAL STOCKHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
THE FINANCIAL CONDITION AND RESULTS OF OPERATIONS . . . . . . . . . . . . . . . . . . . . . . 98
Liquidity and Capital Resources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98
Results of Operations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99
Subsequent Events . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103
Inflation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103
Impact of Recent Accounting Pronouncements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103
FEDERAL INCOME TAX CONSIDERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104
Taxation of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105
Taxation of Stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111
Other Tax Considerations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114
ERISA CONSIDERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114
DESCRIPTION OF SECURITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116
Soliciting Dealer Warrants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117
Issuance of Additional Securities and Debt Instruments . . . . . . . . . . . . . . . . . . . . . . . . 118
Restrictions on Transfer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 118
SUMMARY OF THE ORGANIZATIONAL DOCUMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 119
Certain Article and Bylaw Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 119
Stockholders' Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 119
Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120
Stockholder Voting Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120
Stockholder Lists; Inspection of Books and Records . . . . . . . . . . . . . . . . . . . . . . . . . . 121
Amendment of the Organizational Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121
Dissolution or Termination of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 122
Advance Notice of Director Nominations and New Business . . . . . . . . . . . . . . . . . . . . . . . 122
Restrictions on Certain Conversion Transactions and Roll-Ups . . . . . . . . . . . . . . . . . . . . . 122
Limitation on Total Operating Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 124
Transactions with Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 124
Restrictions on Borrowing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125
Restrictions on Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125
PLAN OF DISTRIBUTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 127
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 127
Escrow Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 128
Advisor Capital Contribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 128
Subscription Process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 128
Determination of Investor Suitability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 129
Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 129
</TABLE>
v
<PAGE> 165
<TABLE>
<S> <C>
Volume Discounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 130
Transfer of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 131
Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 132
HOW TO SUBSCRIBE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 132
SALES LITERATURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 133
DISTRIBUTION REINVESTMENT AND SHARE REPURCHASE PROGRAMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 133
Distribution Reinvestment Program . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 133
Share Repurchase Program . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 135
REPORTS TO STOCKHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 135
LEGAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 137
EXPERTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 137
ADDITIONAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 138
GLOSSARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 139
INDEX TO FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-i
PRIOR PERFORMANCE TABLES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1
DISTRIBUTION REINVESTMENT PROGRAM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-1
SUBSCRIPTION AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-1
</TABLE>
vi
<PAGE> 166
PROSPECTUS SUMMARY
The following is a summary intended solely to supply pertinent facts
and highlights from the material contained in the body of the Prospectus. More
detailed information may be found in the remainder of the Prospectus.
THE COMPANY As of the date of this Prospectus, the
Company owns and operates nine Neighborhood
Retail Centers (as hereinafter defined) and
two single-user retail properties. The
Company intends to acquire additional
existing Neighborhood Retail Centers which
will be located primarily within an
approximate 150-mile radius of its
headquarters in Oak Brook, Illinois, a
Chicago suburb, where the Advisor maintains
its acquisition and property management
headquarters. The Company also may acquire
single-user retail properties located
throughout the United States. Certain of the
single-user retail properties may be acquired
in sale and leaseback transactions in which
creditworthy tenants enter into triple-net
leases with the Company. See "Real Property
Investments." As of the date of this
Prospectus, the Company had approximately
$11,200,000 available for acquisition of
additional properties. See "Real Property
Investments."
The Company's primary business objective is
to enhance the performance and value of its
properties through management strategies
designed to address the needs of an evolving
retail marketplace. Key elements of the
Company's strategy are:
Acquisitions:
- Selectively acquire well-located
Neighborhood Retail Centers, as well
as single-user retail properties,
net leased by creditworthy tenants.
- Whenever possible, acquire
properties on an all-cash basis,
which provides the Company with a
competitive advantage over potential
purchasers who must secure
financing. If it is in the best
interest of the Company, the Company
will, in certain instances, acquire
properties subject to existing
indebtedness. The Company utilized
financing to acquire seven of the 11
properties owned by it as of the
date of this Prospectus. The
financing for five of the properties
was obtained from an Affiliate and
was retired within 90 days of the
date of acquisition. See "Real
Property Investments."
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<PAGE> 167
Operations:
- Actively manage costs and minimize
operating expenses by centralizing
all management, leasing, marketing,
financing, accounting, renovation
and data processing activities.
- Improve rental income and cash flow
by aggressively marketing rentable
space.
- Emphasize regular maintenance and
periodic renovation to meet the
needs of tenants and to maximize
long-term returns.
- For Neighborhood Retail Centers,
maintain a diversified tenant base,
consisting primarily of retail
tenants providing consumer goods and
services.
- Subsequent to the acquisition of the
properties, incur mortgage
indebtedness, when favorable
financing terms are available, to
allow the Company to acquire
additional properties and increase
the Company's cash flow.
The Company is a Maryland corporation which
filed an election with its tax return to be
treated as a real estate investment trust
("REIT") for the year ended December 31,
1995. See, generally "Federal Income Tax
Considerations." The Company is located at
2901 Butterfield Road, Oak Brook, Illinois
60521 (708) 218-8000.
SHARES OUTSTANDING 5,078,509.15 Shares (including 78,509.15
BEFORE OFFERING Shares issued under the Company's Dividend
Reinvestment Program (the "DRP") and 20,000
Shares purchased by the Advisor) as of the
date of this Prospectus. The Company sold
5,000,000 Shares (net of 3,000 Shares
repurchased by the Company as of the date
of this Prospectus pursuant to the Share
Repurchase Program) in a "best efforts"
offering that commenced on October 14, 1994
and was completed on July 22, 1996, at a price
of $10 per Share (the "Prior Offering").
See "Principal Stockholders."
SHARES OUTSTANDING After giving effect to the Offering and
POST OFFERING assuming the sale of the Maximum Offering, the
Company will have 15,078,509.15 Shares
outstanding (not taking into account issuance
of Shares under the Company's DRP or
Shares issuable upon exercise of the Soliciting
Dealer Warrants or upon exercise of options
granted under the Company's Stock Option Plan).
2
<PAGE> 168
TERMS OF THE OFFERING The Company is offering 11,375,000 shares of common
stock, $.01 par value per share (the "Shares"), of which
10,000,000 Shares are being offered on a "best efforts"
basis; 1,000,000 Shares which may be issued to
Stockholders who are participating in the Company's DRP;
and 375,000 Shares which may be issued upon the exercise
of warrants granted to the Dealer Manager. The Company
is offering 10,000,000 Shares for sale on a "best
efforts" basis, which means that the securities dealers
participating in the Offering are under no obligation to
purchase any of these Shares and, therefore, no specified
amount is guaranteed to be raised. Subscribers for Shares
must initially purchase a minimum of 300 Shares ($3,000),
except that, a minimum of 100 Shares ($1,000) may be
purchased by Tax-Exempt Entities (as defined herein).
Minimum investment standards for Tax-Exempt Entities may
be higher in certain states. See "Who May Invest." The
Offering is being made by Inland Securities Corporation
(the "Dealer Manager") and other securities dealers (the
"Soliciting Dealers") who are members of the National
Association of Securities Dealers, Inc. (the "NASD"). The
Offering will terminate no later than July 23, 1998 (the
"Termination Date").
Subscribers' funds will be forwarded to LaSalle National
Bank, N.A., as escrow agent. Subscription proceeds are
expected to be released to the Company as subscriptions
are accepted. All subscriptions will be accepted or
rejected within ten days (and generally within 24 hours)
after receipt by the Company. See "Plan of
Distribution--General" and "--Escrow Conditions."
RISK FACTORS Investment in the Shares involves risks which are
described in detail in the "Risk Factors" section of the
Prospectus, which begins on page 16. The following is a
summary of the risks which the Company believes are most
relevant to an investment in the Shares.
Investment Risks:
- There is currently no public trading market for
the Shares and therefore the offering price of the
Shares may not be indicative of the price that the
Shares may trade at if they were listed on an exchange
or of the proceeds that a Stockholder may receive if
the Company was liquidated or dissolved; therefore,
the Shares constitute an illiquid investment.
3
<PAGE> 169
- As of the date of this Prospectus, the Company owned nine
Neighborhood Retail Centers and two single- user retail
properties, and had approximately $11,200,000 available
for additional acquisitions. The Company has not
specified any additional properties for acquisition.
- The Eagle Crest Shopping Center and the Walgreens/Decatur
property were acquired by the Company from Inland
Property Sales, Inc., an Affiliate. Acquisitions from
Affiliates may be on terms less favorable to the Company
than arm's-length transactions and may result in
concessions as to price or otherwise which will have a
negative effect on the value of the Shares. The Company
will compete for the acquisition of properties with many
other entities engaged in real estate investment
activities, some of which have greater resources than the
Company, which may result in the Company being unable to
acquire certain desirable properties and have an adverse
impact on Share value.
- Acquisition of Neighborhood Retail Centers (but not
single-user retail properties) is primarily limited to
the approximate 150-mile radius surrounding the Advisor's
headquarters in Oak Brook, Illinois. Adverse economic
conditions affecting that area could adversely affect the
Company's ability to acquire, lease and dispose of such
properties, the amount of Distributions paid and the
value of the Shares.
- If the Company defaults on any secured indebtedness, the
lender may foreclose and the Company could lose its
investment in the properties securing such loan and the
value of the Shares would decrease.
- To satisfy certain requirements for qualification as a
REIT for federal income tax purposes, no person may own,
or be deemed to own by virtue of the attribution
provisions of the Code (as defined herein), more than
9.8% of the Shares. Such limitations may have an
anti-takeover effect and may further limit the liquidity
and value of the Shares.
- Although the Company has a working capital reserve of
approximately $590,500 (equal to 1% of the gross offering
proceeds from the Company's Prior Offering) and intends
to supplement its working capital with an additional 1%
of the Gross Offering Proceeds from this Offering, these
amounts may be insufficient to meet the unanticipated
cash needs of the Company and the Company may have to
obtain financing from either affiliated or unaffiliated
sources. Additional financing likely would decrease the
cash available to pay Distributions.
4
<PAGE> 170
- Under certain circumstances, the Company may borrow funds
to maintain operations of one or more of the Company's
properties or enable it to maintain its REIT status.
Borrowing increases the Company's business risks since
debt service increases the expenses of operations and
decreases cash available to pay Distributions.
Company Risks:
- Two of the 11 properties owned by the Company as of the
date of this Prospectus have been acquired from an
Affiliate. Acquisitions from Affiliates may be on terms
less favorable to the Company than properties acquired in
arm's-length transactions and may result in concessions
as to price or otherwise which could have a negative
effect on the value of the Shares.
- Conflicts of interest between the Company and its
Affiliates, such as competition for the time and services
of the Advisor and its Affiliates, receipt by the Advisor
and its Affiliates of compensation from the Company for
their various services and the possibility that the
Company may do business with entities that have
pre-existing relationships with the Advisor or its
Affiliates which results in a conflict between the
ongoing business relationship of the Advisor or its
Affiliates and the Company's current interests. Such
conflicts may have an adverse effect on operations and
thus, on the value of the Shares.
- The success of the Company will depend to a large extent
on the quality of management provided by the Advisor and
its Affiliates. Since January 1, 1985, Affiliates of the
Advisor have sponsored 77 programs. Certain programs
sponsored or managed by Affiliates of the Advisor have
experienced setbacks during the course of business,
including commercial tenant defaults or move-outs,
unfavorable changes in the tax laws and higher than
expected vacancies as apartment markets weakened. These
negative events have had the effect of reducing the
benefits which investors in those programs would have
received. The degree of impact these negative events
have had on the ability of the affected programs to
attain their original investment objectives varies by
program. See "Prior Performance of the Company's
Affiliates" and "Prior Performance Tables."
- The Advisor and its Affiliates will receive substantial
fees and payments for services rendered to the Company
whether or not Stockholders receive Distributions.
- The Directors may authorize the issuance of shares or
other securities in addition to Shares issued pursuant to
this Offering, thereby resulting in dilution of the
equity of the Stockholders.
5
<PAGE> 171
Stockholders have no preemptive rights, and, therefore,
issuances of Shares by the Company may dilute the
interests of investors purchasing in this Offering.
- The Company's Articles, in most cases, require a vote of
only a majority of the Stockholders on those matters on
which Stockholders are required to vote. Therefore, all
Stockholders, including those not voting with the
majority, will be bound by the vote of the Stockholders
owning a majority of the outstanding Shares.
Risks of Real Estate Ownership:
- All equity real estate investments are subject to some
degree of general economic risks, including lease
defaults, which could adversely affect income, cash
available for Distributions and property value.
Stockholders can expect to bear this risk in proportion
to the number of Shares held.
- Adverse trends for the property types to be acquired by
the Company or adverse economic developments in general
or within the Chicago metropolitan area in particular
could have an adverse effect on the Company's operations
and the value of the Shares could decrease.
- Future violation of environmental and other governmental
regulations could result in substantial expenditures by,
or damages to, the Company and decrease the cash
available to pay Distributions.
- Unanticipated renovation or remodeling costs incurred to
re-lease the Company's properties could reduce the cash
available to pay Distributions.
Tax Risks:
The Company's ability to qualify as a REIT involves the
application of technical and highly complex provisions of
the Internal Revenue Code of 1986, as amended (the
"Code") to various factual matters and circumstances
which are often not within the Company's control. The
Company's qualification as a REIT depends upon its
ability to meet, through actual operations, various tests
imposed by the Code, and there can be no assurance that
operating results will allow the Company to satisfy the
Code requirements. In addition, the actions and
transactions the Company will undertake to maintain its
REIT status may not produce the highest economic profit.
For example, the Company
6
<PAGE> 172
does not intend to sell any property as inventory
property even if so structuring sales would produce
higher profit.
- If the Company loses its REIT status, its Distributions
will not be deductible, thereby increasing its tax
liability and substantially reducing the funds available
for distribution to Stockholders. Such federal income
tax liability could force the Company to borrow funds,
liquidate certain of its investments or take other
steps which could adversely affect its operations and
the value of the Shares.
- Shefsky Froelich & Devine Ltd. ("Counsel") has rendered
its opinion that as of July 17, 1996, and, based on
certain representations of the Company as described
throughout the Prospectus regarding the operations of the
Company, the Company has been organized in conformity
with the requirements for qualifications as a REIT
beginning with its taxable year ending December 31, 1995,
and that its prior, current and anticipated methods of
operation has enabled and will enable the Company to
satisfy the REIT Requirements, and that distributions to
certain qualified organizations will not produce
unrelated business taxable income ("UBTI") so long as the
Company is not a "Pension-Held REIT." See "Federal
Income Tax Considerations" and "ERISA Considerations."
The Company's ability to maintain its REIT status will
depend upon its ability (based on its actual operating
results) to meet the REIT Requirements, and Counsel will
not review compliance with the REIT Requirements on a
continuing basis after the initial effectiveness date of
the Registration Statement or issue any opinions in the
future unless expressly requested to do so. The opinion
of Counsel represents its legal judgment based on the law
in effect as of the date of this Prospectus, is not
binding on the Internal Revenue Service (the "Service")
and could be subject to modification or withdrawal based
on future legislative, judicial or administrative changes
to the federal income tax laws (or the interpretation
thereof) which could be applied retroactively.
Stockholders could sustain a decrease in the value of
their Shares if such changes occur.
ERISA Risks:
In deciding whether to purchase Shares, each fiduciary of
an employee benefit plan subject to ERISA, in
consultation with its advisors, should carefully consider
its fiduciary responsibilities under ERISA, the
prohibited transaction rules of ERISA and the Code, the
UBTI consequences and the effect of the "plan asset"
regulations issued by the Department of Labor. See
"ERISA Considerations."
7
<PAGE> 173
Should the Company be unable to effectively manage the
impact of these risks, the Company's ability to meet its
investment objectives will be impaired and, therefore,
the benefits to the Stockholders from their investment in
the Company will be reduced. See "Risk Factors" and
"Prior Performance of the Company's Affiliates."
INVESTMENT OBJECTIVES The Company's investment objectives are to:
AND POLICIES
- Provide regular Distributions to Stockholders in
amounts which may exceed the Company's taxable
income, particularly in the early years of the
Company's operations, given the non-cash nature of
depreciation expense and, to such extent, will
constitute a tax-deferred return of capital. In
order for the Company to maintain its REIT status,
the Company must make Distributions equal to not less
than 95% of the its REIT taxable income. To the
extent Distributions to Stockholders exceed taxable
income, such Distributions would constitute a return
of capital and would be sheltered from current
taxation for taxable Stockholders. This return of
capital, however, will reduce a Stockholder's tax
basis in his Shares, which will result in more
taxable gain upon sale or exchange of Shares than
would have occurred absent a return of capital.
Depreciation deductions, however, will decrease the
Company's tax basis in its properties, thereby
increasing the Company's taxable income when the
properties are sold, thereby increasing the amount of
Distributions needed to maintain compliance with the
REIT Requirements. As long as the Company qualifies
as a REIT, it generally will not be taxed to the
extent of the Distributions it pays to Stockholders;
- Provide a hedge against inflation by entering into
leases which provide for scheduled rent escalations
or participation in the growth of tenant sales
designed to provide increased Distributions and
capital appreciation through increases in the value
of the Company's properties; and
- Preserve Stockholders' capital by selectively
acquiring well-located Neighborhood Retail Centers
and single-user retail properties on an all-cash
basis, whenever possible. If it is in the best
interest of the Company, the Company will, in certain
instances, utilize borrowing to acquire properties.
As of the date of this Prospectus, the Company
utilized financing in connection with acquisition of
seven of its 11 properties. See "Real Property
Investments."
There can be no assurance the aforementioned objectives
will be achieved.
8
<PAGE> 174
To the extent possible, it will be the policy of the
Company to avoid the fluctuations in Distributions which
might result if Distributions were based on actual cash
received during the Distribution period. To implement
this policy, the Company may use income earned during
prior periods, or income earned subsequent to the
Distribution declaration date but prior to the payment
date, in order to distribute annualized Distributions
consistent with the Distribution level established from
time to time by the Board. The Company's ability to
implement this policy will be dependent upon the
availability of Cash Flow and the applicable REIT rules.
It will be the general policy of the Company, subject to
the applicable REIT rules (including the Distribution
requirements), to reinvest that portion of the proceeds
from the sale, financing, refinancing or other
disposition of its properties that represents the initial
investment into additional properties. Through September
30, 1995, the Company paid Distributions to its
Stockholders on a quarterly basis. Commencing in
October, 1995, the Company began, and has continued, to
pay Distributions to the Stockholders on a monthly basis,
with daily record and Distribution declaration dates.
However, the Company reserves a right, at any time, to
revert to paying Distributions on a quarterly basis. 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.
It is the Company's intention, whenever possible, to
acquire properties free and clear of permanent mortgage
indebtedness by paying the entire purchase price of each
property in cash or for shares of the Company's stock.
However, if it is determined to be in the Company's best
interests, the Company will, in certain instances,
utilize borrowing to acquire properties. On properties
purchased on an all-cash basis, 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
primarily to acquire additional properties to increase
Cash Flow. The Company may also incur indebtedness to
finance improvements to the properties it acquires. The
Company anticipates that aggregate borrowings related to
all of the Company's properties will not exceed 50% of
their combined fair market values. Notwithstanding the
foregoing, the maximum amount of borrowings in relation
to Net Assets shall not exceed 300% of Net Assets without
approval of a majority of the Stockholders. The Company
does not anticipate that it will incur debt to fund
Distributions to Stockholders, unless necessary to
maintain its status as a REIT. See "Investment Objectives
and Policies--Borrowing" and "Summary of the
Organizational Documents--Restrictions on Borrowing."
9
<PAGE> 175
Affiliates of the Advisor have extensive experience in
the acquisition and management of properties similar to
the properties contemplated to be acquired by the
Company. However, there is no assurance that the
Company's investment objectives will be achieved because,
among other reasons, the Company has acquired only nine
Neighborhood Retail Centers and two single-user retail
properties as of the date of this Prospectus. The Company
has not specified any additional properties. Due to
competition for suitable properties, the Company may not
be able to acquire other properties meeting its
investment criteria. See "Risk Factors-- Investment
Risks-- Partially Specified Fund," "Risk Factors--Risks
of Real Estate Ownership--Competition with Others for the
Acquisition of Properties," "Prior Performance of the
Company's Affiliates" and "Real Property Investments."
Proceeds of the Offering will be used to buy properties
and to pay expenses of the Offering and Acquisition
Expenses, with the balance (but not less than 1% of Gross
Offering Proceeds) being applied to working capital
reserves. See "Estimated Use of Proceeds of the
Offering."
THE ADVISOR Inland Real Estate Advisory Services, Inc., a wholly
owned subsidiary of Inland Real Estate Investment
Corporation, a Delaware corporation ("IREIC") is the
Advisor. The Advisor is an Illinois corporation with its
principal place of business located at 2901 Butterfield
Road, Oak Brook, Illinois 60521 (708) 218-8000. IREIC,
as of June 30, 1995, had an audited net worth in excess
of $91,600,000, much of which is illiquid. Limited
partnerships for which IREIC is a general partner own in
excess of 10,500,000 square feet of commercial property
in Chicago and nationwide. See "Management."
COMPENSATION TO BE The Advisor and its Affiliates will be paid substantial
PAID TO THE ADVISOR amounts for managing the business of the Company. The
AND ITS AFFILIATES most significant items of compensation are:
Offering Stage: Selling commissions to the Dealer
Manager up to 7% of the Gross Offering Proceeds, which
may be retained or reallowed to Soliciting Dealers; and a
marketing contribution and due diligence expense
allowance fee to the Dealer Manager equal to 2.5% of the
Gross Offering Proceeds (the "Marketing Contribution and
Due Diligence Expense Allowance Fee"), of which such
compensation may be retained or reallowed to Soliciting
Dealers. The selling commissions and the Marketing
Contribution and Due Diligence Expense Allowance Fees for
the year ended December 31, 1995 totalled $1,719,355, of
which $102,084 was unpaid at December 31, 1995.
Approximately $1,551,000 of such amount had been
reallowed to Soliciting Dealers as of December 31, 1995.
Soliciting Dealers also receive one Soliciting Dealer
Warrant for each 40 Shares sold by such Soliciting Dealer
during the Offering. Each Soliciting Dealer Warrant will
entitle the holder to purchase one Share from the Company
at a price of $12 during the Exercise Period.
10
<PAGE> 176
See "Compensation Table" and "Description of
Securities--Soliciting Dealer Warrants."
Acquisition Stage: Reimbursement for actual
out-of-pocket acquisition expenses are anticipated to be
up to 0.5% of Gross Offering Proceeds. See "Compensation
Table."
Operational Stage: An annual Advisor Asset Management
Fee of not more than 1% of the Average Invested Assets is
paid quarterly. An Affiliate of the Advisor will also
receive a Property Management Fee equal to not more than
4.5% of the gross revenues of each of the Company's
properties (90% of the fee typically charged by a third
party), paid monthly. Payment of the Advisor Asset
Management Fee is subordinated to the payment of
Distributions in an amount equal to a non-compounded
return equal to 8% per annum on Invested Capital (the
"Current Return"). For the year ended December 31, 1995,
the Company had not incurred or paid an Advisor Asset
Management Fee. The Company incurred and paid Property
Management Fees of $46,791 for the year ended December
31, 1995. See "Compensation Table" and "Management's
Discussion and Analysis of Financial Condition and
Results of Operations of the Company."
Liquidation Stage: A Property Disposition Fee equal to
the lesser of: (i) 3% of the sale price of a property;
or (ii) 50% of the commission customarily paid to third
parties; and after receipt by the Stockholders of a
cumulative, non-compounded 8% per annum return of
Invested Capital (the "Cumulative Return") and a return
of their Invested Capital, an Incentive Advisory Fee
equal to 15% of the net proceeds from the sale of a
property. In the event the Company's Shares are listed
on a national stock exchange or included for quotation
on a national market system and the Advisor is merged
into the Company, the Advisor will receive Shares and the
Company will no longer be obligated to pay fees to the
Advisor. See "Compensation Table."
There may be a number of other incidental fees for
services or expense reimbursement that the Advisor and
its Affiliates may receive during the operational and
liquidation stages of the Company. See, generally,
"Compensation Table" and "Management--Other Services."
REAL PROPERTY As of the date of this Prospectus, the Company owned nine
INVESTMENTS Neighborhood Retail Centers and two single-user retail
properties. The Company utilized $31,973,000 to acquire
these properties. Two of the properties are encumbered
by outstanding indebtedness of approximately $5,221,000,
as of the date of this Prospectus. The Company has
approximately $11,200,000 available for investment in
additional properties. The Company has not specified any
additional properties.
11
<PAGE> 177
The terms of each of the Company's acquisitions have been
approved by a majority of the Directors (including a
majority of the Independent Directors) as being fair and
reasonable to the Company. The acquisition prices of the
properties did not exceed the appraised values of the
properties at the time of acquisition. Two of the
properties were acquired from an Affiliate. There can be
no assurance that the prices paid to the Affiliate for
these properties did not exceed that which would be paid
by an unaffiliated buyer. See "Risk Factors--Company
Risks--Prices Paid for Properties Acquired from
Affiliates may be More than Prices Paid by
Non-Affiliates" and "Real Property Investments."
The Company may invest in general partnerships or joint
venture arrangements with Affiliates as co-owners of a
property. The Company will be able to increase its equity
participation in such entity as additional proceeds of
the Offering are received by the Company with the result
that the Company can ultimately own 100% of the property,
provided however that the affiliated general or joint
venture partner will not be entitled to any profit or
other benefit on such sale of its equity participation to
the Company. See "Investment Objectives and
Policies--Joint Ventures."
PRIOR OFFERINGS The Inland organization, during the past ten years, has
SUMMARY sponsored seven public and 70 private real estate
programs which have raised in excess in $273,317,000. In
excess of 19,500 investors have invested in these
Inland-sponsored programs.
Two of the Inland-sponsored public programs and a
majority of the private programs have investment
objectives similar to those of the Company. Certain
programs sponsored or managed by Affiliates of the
Advisor have experienced setbacks during the course of
business, including commercial tenant defaults or
move-outs, unfavorable changes in the tax laws and higher
than expected vacancies as apartment markets weakened.
These negative events have had the effect of reducing the
benefits which investors in those programs would have
received. The degree of impact these negative events
have had on the ability of the affected programs to
attain their original investment objectives varies by
program. See "Prior Performance of the Company's
Affiliates" and "Prior Performance Tables."
ARTICLES OF Investors should be particularly aware of the following
AMENDMENT AND provisions contained in the Company's Articles of
RESTATEMENT Incorporation, as amended and restated to date (the
"Articles"):
- Limitation on accumulation of shares: In order for
the Company to qualify as a REIT, no more than 50% of
the outstanding Shares may be owned, directly or
indirectly, by five or fewer individuals at any time
during the last half of the Company's taxable year.
To ensure that the Company will not fail to qualify
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as a REIT under this test, the Articles place
restrictions on the accumulation of Shares by a
single Stockholder. These restrictions may: (i)
discourage a change of control of the Company; (ii)
deter individuals and entities from making tender
offers for Shares, which offers may be attractive to
Stockholders; or (iii) limit the opportunity for
Stockholders to receive a premium for their Shares in
the event an investor is making purchases of Shares
in order to acquire a block of Shares. See
"Description of Securities--Restrictions on
Transfer."
- Voting rights: Each Share is entitled to one vote
and the Articles do not provide for cumulative
voting. Stockholders owning a majority of the
outstanding Shares have the right to: (i) amend the
Articles subject to certain limitations; (ii)
dissolve the Company; (iii) elect or remove the Board
of Directors; and (iv) approve or disapprove the sale
of all or substantially all of the assets of the
Company other than in connection with a dissolution
of the Company. All Stockholders will be bound by the
vote of Stockholders owning a majority of the
outstanding Shares, even if a Stockholder does not
vote with the majority. Stockholders owning in the
aggregate at least 10% of the outstanding Shares may
request the Directors to call a meeting for the
purpose of voting on any of the foregoing.
- Stockholders owning at least two-thirds of the
outstanding Shares must approve certain exchange
offers, mergers, consolidations or similar
transactions commonly known as Roll-Ups, which affect
certain Stockholder rights. Such super-majority
provisions may have the effect of: (i) discouraging
a change in control of the Company; (ii) deterring
individuals and entities from making tender offers
for Shares, which offers may be attractive to
Stockholders; and (iii) limiting the opportunity for
Stockholders to receive a premium for their Shares in
the event an investor is making purchases of Shares
in order to acquire a block of Shares.
- Changes in investment objectives and policies: The
Directors cannot change the investment objectives or
policies of the Company unless an amendment to the
Articles is made, which would require the approval of
Stockholders owning a majority of the outstanding
Shares.
- Distributions: Distributions are payable out of
available cash.
See "Summary of the Organizational Documents" and
"Description of Securities."
DISTRIBUTION The Company provides the following programs to facilitate
REINVESTMENT investment in the Shares and to provide limited liquidity
AND SHARE REPURCHASE for Stockholders until such time as a market for the
PROGRAMS Shares develops:
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- The Distribution Reinvestment Program (the "DRP")
allows Stockholders who purchase Shares pursuant
either to the Prior Offering or to this Offering to
automatically reinvest Distributions by purchasing
additional Shares from the Company, subject to the
limitations on Share ownership imposed by the
Articles. 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. See "Distribution
Reinvestment and Share Repurchase Programs --
Distribution Reinvestment Program."
- The Share Repurchase Program provides, subject to
certain restrictions, existing Stockholders with
limited, interim liquidity by enabling them to sell
Shares back to the Company at a price of $9.05 per
Share (a reduction of $.95 from the $10 Offering
price, reflecting selling commissions and the
Marketing Contribution and Due Diligence Expense
Allowance Fee). Repurchases will be on a first come,
first served basis, and will be limited in the
following ways: (i) not more than $500,000 worth of
the outstanding Shares will be repurchased in any
given year; and (ii) the funds available for
repurchase will be limited to available proceeds
received by the Company from the sale of Shares under
the Distribution Reinvestment Program. Shares
purchased by the Company are not available for
resale. The Share Repurchase Program will be
terminated by the Company upon the development of a
secondary market for the Company's Shares or upon the
listing of the Company's Shares on a national
securities exchange or inclusion for quotation on a
national market system. See "Distribution
Reinvestment and Share Repurchase Programs -- Share
Repurchase Program."
WHO MAY INVEST The section of the Prospectus titled "Who May Invest"
describes minimum net worth and income requirements, as well
as a detailed explanation of other suitability requirements
which investors must meet prior to subscription. In
particular, investors must have either: (i) a minimum annual
gross income of $45,000 and a net worth (exclusive of home,
home furnishings and automobiles) of $45,000; or (ii) a net
worth (determined with the foregoing exclusions) of
$150,000. Suitability standards may be higher in certain
states. See "Who May Invest."
ANNUAL VALUATIONS Stockholders that are subject to ERISA will be provided with
an annual statement of value reporting the value of each
Share based upon an estimated amount they would receive if
the Company's assets were sold as of the close of the
Company's fiscal year and if such proceeds (without
reduction for selling expenses) and all the other funds of
the Company were distributed in liquidation of the Company;
provided, however, the Net Asset Value of each Share will be
deemed to be $10 per Share for the first three annual
statements of value following termination of the Offering.
There can be no assurance that: (i) such value could or
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<PAGE> 180
actually be realized by the Company or by Stockholders
upon liquidation (in part because estimates of value do
not necessarily indicate the price at which assets could
be sold, and because no attempt will be made to estimate
the expenses of selling any asset of the Company); (ii)
Stockholders could realize such value if they were to
attempt to sell their Shares; or (iii) such valuation
would comply with the ERISA requirements. Should the
Shares become listed on a national stock exchange or
included for quotation on a national market system, the
Company will no longer provide such valuations. See
"ERISA Considerations."
GLOSSARY OF TERMS For definitions of terms used in this Prospectus that
are not defined in the text, see "Glossary."
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ORGANIZATIONAL CHART
_________ THE INLAND GROUP, INC.____
| |
| |
Inland Commercial Inland Real Estate
Property Management Inc. Investment Corporation
| | |
| |
| Inland Real Estate Inland Securities
Property Management and Advisory Services Inc. Corporation
Related Services | |
|
| |
| Organization, Advisory Securities
and Real Estate Services Sales
| | |
| | |
Inland Real Estate Corporation
|
Directors:
|
Robert D. Parks |
G. Joseph Cosenza
Roland W. Burris - - - - - - - - - - |
Douglas R. Finlayson
Heidi N. Lawton
Solid lines indicate ownership. Broken lines indicate services.
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RISK FACTORS
Purchase of the Shares offered hereby involves various risk factors in
addition to the factors set forth elsewhere herein. Prospective purchasers
should consider, among others, the following factors:
1. INVESTMENT RISKS
Share Price/Limited Liquidity. The offering price of the Shares was
determined by the Board in the exercise of its business judgment but may not be
indicative of the price that the Shares may trade at if they were listed on an
exchange or of the proceeds that a Stockholder may receive if the Company was
liquidated or dissolved. Further, there is currently no public trading market
for the Shares and no assurance exists that one will develop. An investor may
not be able to liquidate his or her investment on favorable terms, or at all.
However, by 1999, the Company anticipates that the Board of Directors will
determine whether it is in the best interests of the Company to: (i) apply to
have the Shares listed for trading on a national stock exchange or included for
quotation on a national market system, provided the Company meets the then
applicable requirements; and/or (ii) commence a subsequent public offering after
completion of this Offering. The Company does not intend to apply for listing
during the term of this Offering. See "Investment Objectives and
Policies--Additional Offerings and Exchange Listing." Subject to available
funds and the Company's continued qualification as a REIT, the Company may
repurchase Shares from Stockholders. See "Distribution Reinvestment and Share
Repurchase Programs--Share Repurchase Program."
No Minimum Offering. The Offering is not conditioned upon the Company
raising a minimum amount of proceeds and the release of subscription proceeds
from the escrow is not conditioned upon the Company's selling a minimum number
of Shares. As a result, the Company may not raise proceeds sufficient to apply
to any use other than payment of the organization and offering expenses
associated with the Offering.
Partially Specified Fund. As of the date of this Prospectus, the
Company owned nine Neighborhood Retail Centers and two single-user retail
properties. Two of the properties, the Eagle Crest Shopping Center in
Naperville, Illinois, and a Walgreens property in Decatur, Illinois were
purchased from Inland Property Sales, Inc. ("IPS") an Affiliate. These
properties were acquired with the approval of the Directors (including all of
the then Independent Directors). Although this Prospectus describes the
parameters the Company will use to acquire additional properties, as of the date
of this Prospectus, no additional properties have been specified. Accordingly,
no information is available as to the identification, location, operating
histories, lease terms or other relevant economic and financial data of the
other properties to be purchased by the Company with the $11,200,000 available
for investment or with the Net Proceeds of this Offering (after funding of
appropriate working capital reserves). Since the Company has not yet specified
additional properties, there may be a delay between the sale of the Shares and
the Company's purchase of such other properties, which could result in a delay
in the benefits to investors, if any, of an investment in the Company.
The Advisor will evaluate potential additional property acquisitions
and will engage in discussions with sellers for the purchase of properties for
the Company. At such time during the Offering as the Advisor believes a
reasonable probability exists that a property will be acquired on specified
terms (i.e., upon completion of due diligence, which includes review of the
title insurance commitment, appraisal and environmental analysis), the Company
will issue a supplement to this Prospectus setting forth certain details
concerning the proposed acquisition. Investors should be aware, however, that
acquisitions at this
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stage require negotiation of final binding agreements and there can be no
assurance that any such properties will be acquired on the same terms as
described in any supplements or other disclosure prepared with respect thereto.
In addition, any properties which are identified by the Company prior to the
termination of the Offering may not be acquired unless sufficient Shares are
sold. In the event any properties which are disclosed to Stockholders as
potential acquisitions are not acquired, or any properties which the Company
acquires prior to the termination of the Offering but are not retained,
subsequently acquired properties may be materially different in a number of
respects. In addition, investors should be aware that audited financial
statements of prior operations of existing properties acquired by the Company,
or of the lessees or of the property or guarantor of the underlying leases,
generally will not be available until after a supplement to this Prospectus
describing such acquisition has been provided to potential investors, and
financial statements for recently constructed properties may not be available
at all.
Limitation on Area in which the Company May Acquire Neighborhood
Retail Centers. Acquisition of Neighborhood Retail Centers (but not single-user
retail properties) is limited primarily to the approximate 150-mile radius
surrounding the Advisor's headquarters in Oak Brook, Illinois. Adverse economic
conditions affecting that area could adversely affect the Company's ability to
acquire, lease and dispose of such properties.
Insufficient Reserves. The Company has established a working capital
reserve of $590,500 (equal to 1% of the gross offering proceeds from the Prior
Offering) and will supplement such working capital reserve with an additional 1%
of the Gross Offering Proceeds from this Offering. However, if such amount is
insufficient to meet the unanticipated cash needs of the Company, the Company
may have to obtain financing from either affiliated or unaffiliated sources to
service such cash needs. There is no assurance that this financing will be
available or if available, will be available on terms acceptable to the
Company.
Mortgage Indebtedness and Other Borrowings May Increase the Company's
Business Risks. It is the Company's intention, whenever possible, to acquire
properties free and clear of permanent mortgage indebtedness by paying the
entire purchase price of each property in cash or for shares of the Company's
stock. However, if it is determined to be in the best interests of the Company,
the Company will, in certain instances, utilize borrowing to acquire properties.
The Company may later incur or increase 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 for the
purpose of increasing Cash Flow and providing further diversity. The Company
anticipates that aggregate borrowings related to all of the Company's properties
will not exceed 50% of their combined fair market values, however, the maximum
amount of borrowings in relation to Net Assets shall, in the absence of the
consent of a majority of the Stockholders, not exceed 300% of Net Assets.
Incurring mortgage indebtedness increases the risk of possible loss. If the
Company defaults on its secured indebtedness, the lender may foreclose and the
Company could lose its investment in the properties securing such loan. Any
such foreclosure would be treated as a sale of the property for a purchase price
equal to the outstanding balance of the debt secured by the mortgage, and if the
outstanding balance of the debt secured by the mortgage exceeds the basis of the
property to the Company, there could be taxable income upon a foreclosure. It
will be the policy of the Company to seek to incur only non-recourse mortgage
indebtedness, if available, meaning that the lender may look only to the
property or properties securing the mortgage indebtedness for satisfaction of
the indebtedness. See "Investment Objectives and Policies--Borrowing" and "Real
Property Investments."
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Under certain circumstances, the Company may borrow for the purpose of
maintaining the operations of the Company. Borrowing may increase the Company's
business risks. Debt service increases the expense of operations since the
Company will be responsible to retire the debt and pay the attendant interest
which may result in decreased cash available for distributions to Stockholders.
Also, lenders to the Company may require restrictions on future borrowings,
distributions and operating policies. The Company may incur indebtedness if
necessary to satisfy the requirement that the Company distribute at least 95% of
its REIT taxable income (as defined in the Code), or otherwise as is necessary
or advisable to assure that the Company maintains its qualification as a REIT
for federal income tax purposes.
Limits on Share Accumulation May Have an Anti-Takeover Effect. In
order for the Company to qualify as a REIT, no more than 50% of the outstanding
Shares may be owned, directly or indirectly, by five or fewer individuals at any
time during the last half of each of the Company's taxable years. To ensure
that the Company will not fail to qualify as a REIT under this test, the
Articles provide that no person may own, or be deemed to own by virtue of the
attribution provisions of the Code, more than 9.8% of the number or value of the
issued and outstanding stock of the Company. These restrictions may: (i)
discourage a change of control of the Company; (ii) deter individuals and
entities from making tender offers for Shares, which offers may be attractive to
Stockholders; or (iii) limit the opportunity for Stockholders to receive a
premium for their Shares in the event an investor is making purchases of Shares
in order to acquire a block of Shares. See "Description of
Securities--Restrictions on Transfer."
Objectives of Joint Venture Partners May Conflict with the Company's
Objectives. Certain of the Company's investments may be owned by joint ventures
between the Company and Affiliates of the Advisor. Investments in joint
ventures which own properties may involve risks not otherwise present,
including, for example, that the Company's co-venturer might become bankrupt,
that such co-venturer may at any time have economic or business interests or
goals which are inconsistent with the interests or goals of the Company or that
such co-venturer may be in a position to take action contrary to the Company's
instructions, requests, policies or objectives. Among other things, actions by
such co-venturer might subject property owned by the joint venture to
liabilities in excess of those contemplated by the terms of the joint venture or
other adverse consequences. See "Investment Objectives and Policies--Joint
Ventures."
Seller Financing by Company May Delay Liquidation or Reinvestment.
The Company intends to use its best efforts to sell its properties for cash.
However, the Company may sell its properties either subject to or upon the
assumption of any then outstanding mortgage debt or, alternatively, may provide
financing to purchasers with terms advantageous to the Company. A purchase
money obligation secured by a mortgage may be taken as part payment and there
are no limitations or restrictions on the Company taking such purchase money
obligations. The terms of payment to the Company will be affected by custom in
the area where the property being sold is located and the then prevailing
economic conditions. To the extent the Company receives promissory notes or
other property in lieu of cash from sales, such proceeds (other than any
interest payable thereon) will not be included in net sale proceeds until and to
the extent the promissory notes or other property are actually paid, sold,
refinanced or otherwise disposed of and, therefore, the distribution of the
proceeds of a sale to the Stockholders may be delayed until such time. In many
cases, the Company will receive initial downpayments (cash and other property)
in the year of sale in an amount less than the selling price and subsequent
payments will be spread over a number of years. See "Investment Objectives and
Policies-- Sale or Disposition of Properties."
Loss on Dissolution and Termination. At the date of dissolution or
termination of the Company, the undistributed proceeds realized from the
liquidation of assets, if any, will be distributed to
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Stockholders, but only after the satisfaction of claims of creditors.
Accordingly, a Stockholder's ability to recover all of his or her investment
under such circumstances will depend on the amount of funds so realized and
claims to be satisfied therefrom.
Limited Experience of Management in Operation of a REIT. IREIC and its
Affiliates have, during the past ten years, sponsored seven public and 70
private real estate programs which have raised in excess of $273,300,000. Two
of the seven public programs, Inland's Monthly Income Fund, L.P. and Inland
Monthly Income Fund II, L.P., had investment objectives which were substantially
similar to those of the Company. However, each of the seven prior public
programs, including Inland's Monthly Income Fund, L.P. and Inland Monthly Income
Fund II, L.P., were structured as limited partnerships and not as real estate
investment trusts. Additionally, the Company, which is the first IREIC-
sponsored REIT, did not commence operations until January 1995. Therefore, there
can be no assurance that the Company will attain its investment objectives since
the Company's management, the Advisor and its Affiliates have limited experience
in the management and operation of a REIT.
2. COMPANY RISKS
Prices Paid for Properties Acquired from Affiliates may be More than
Prices Paid by Non-Affiliates. Two properties owned by the Company, the Eagle
Crest Shopping Center and the Walgreens/Decatur property, were acquired by the
Company from an Affiliate. The Articles provide that the Company may not
purchase any property from an Affiliate unless a majority of the Directors
(including a majority of the Independent Directors) not interested in the
transaction approve the purchase as fair and reasonable to the Company and at a
price to the Company no greater than the cost of the asset to such Affiliate, or
if the price to the Company is in excess of such cost, that substantial
justification for such excess exists and that such excess is reasonable. In no
event may the cost of such asset to the Company exceed its current appraised
value. The Directors (including all of the then Independent Directors) approved
the purchases pursuant to the standards described herein. However, there can be
no assurance that the prices paid to the Affiliate for the Eagle Crest Shopping
Center and the Walgreens/Decatur property or properties which may, in the future
be acquired from Affiliates, did not or would not exceed that which would be
paid by an unaffiliated buyer.
Conflicts of Interest Between the Company and its Affiliates. The
Company is subject to various conflicts of interest arising out of its
relationship with its Affiliates, such as competition for the time and services
of Affiliates of the Advisor and acquisition of properties from Persons with
whom Affiliates of the Advisor have had prior business relationships and the due
diligence investigation of the Company by the Dealer Manager which cannot be
considered to be an independent review of the Company and, therefore, may not be
as meaningful as a review conducted by an unaffiliated broker-dealer.
Additionally, a substantial portion of the proceeds of the Offering will be paid
to an Affiliate for managing the Company. Such proceeds of the Offering will
pay expenses which include sales commissions and due diligence expense
allowances to the Dealer Manager, and reimbursement to an Affiliate for costs
related to organizing and offering the Shares for sale. An Advisor Asset
Management Fee of not more than 1% per annum of the Average Invested Assets will
be paid quarterly to the Advisor. Payment of the Advisor Asset Management Fee
is subordinated to the payment of Distributions in an amount equal to the
Current Return. Additionally, an Affiliate is being paid a Property Management
Fee equal to not more than 4.5% of the gross revenues of each of the Company's
properties on a monthly basis. The Advisor and its Affiliates will receive
substantial fees and payments for services rendered to the Company irrespective
of whether Stockholders receive Distributions.
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If an Affiliate breaches its fiduciary obligations to the Company, or
does not resolve conflicts of interest in the manner described in the section of
this Prospectus titled "Conflicts of Interest--Process for Resolution of
Conflicting Opportunities," the Company may not meet its investment objectives.
The agreement between the Advisor and the Company (the "Advisory Agreement")
grants the Company the first opportunity to buy any Neighborhood Retail Centers
placed under contract by the Advisor or its Affiliates provided the Company is
able to close the purchase of such property within 60 days. The Advisory
Agreement also requires that any single-user retail property net leased by a
creditworthy tenant located anywhere in the United States which is placed under
contract or is about to be placed under contract by the Advisor or its
Affiliates may be purchased by the Company, provided that: (i) the Company has
funds available to make the purchase; (ii) the Board votes to make the purchase
within five days of being offered such property by the Advisor; (iii) the
property meets the Company's acquisition criteria; and (iv) in the event that
more than one real estate investment program sponsored by Affiliates of the
Advisor has funds available to make the purchase, such property will first be
offered to the program which has had funds available for the longest period of
time. The Board, at its discretion, may reject any property presented for
purchase by the Advisor. In exercising this judgment, the Board will consider
the property's location and size and whether the purchase of the property is
consistent with the Company's investment objectives. Any property rejected by
the Board for purchase by the Company may be purchased by the Advisor or its
Affiliates. The Independent Directors, by a majority vote, must approve all
actions by the Advisor or its Affiliates which present potential conflicts of
interest with the Company. See "Compensation Table" and "Management--The
Advisory Agreement."
Dependence on the Directors and Advisor. The Board has supervisory
control over virtually all aspects of the Company's operations. The success of
the Company will depend to a large extent on the Board's ability to oversee, and
the quality of, the management provided by the Advisor, the Management Agent,
their Affiliates and employees for day-to-day operations. Therefore, the Company
will be dependent, in large part, on the ability of the Advisor and its
Affiliates to retain the services of each of its executive officers and key
employees, however, none of such individuals has an employment agreement with
the Advisor or its Affiliates. The loss of any of these individuals could have
a materially adverse effect on the Company. The Company does not currently
maintain key man life insurance policies on any of the individuals employed by
the Advisor or its Affiliates. See "Management."
Dilution. Stockholders have no preemptive rights, and therefore, in
the event the Company: (i) commences a subsequent public offering of its Shares
or of convertible debt or Preferred Shares; or (ii) issues Shares or Preferred
Shares upon exercise of warrants, including the Soliciting Dealer Warrants, or
to sellers of properties acquired by the Company in lieu of or in addition to
cash consideration, investors purchasing Shares in this Offering who do not
participate in any future stock issuance will experience dilution of their
equity investment in the Company. The Soliciting Dealer Warrants issued to the
Dealer Manager in connection with the Prior Offering and to be issued in
connection with this Offering, as well as the Shares issuable upon exercise
thereof, are being registered as part of this Offering. The Soliciting Dealer
Warrants and/or convertible securities, if any, likely would be exercised or
converted at a time when the Company would be able to obtain needed capital
through a new offering of its securities on terms more favorable than those
provided by such securities. As long as such securities remain unexercised or
unconverted, the terms on which the Company could raise additional capital may
be adversely affected.
All Stockholders Bound by Vote of Majority. The Articles, in most
cases, require a vote of only a majority of the Stockholders on those matters on
which Stockholders are required to vote.
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Therefore, a substantial minority of the Stockholders may be bound by the
decision of the majority of the Stockholders with respect to any matters put to
the Stockholders.
Company's and Stockholders' Rights Against the Directors and the
Advisor are Limited. The Directors and the Advisor are held harmless and
indemnified for certain actions taken by them in good faith and without
negligence or misconduct pursuant to the Articles or the Advisory Agreement,
respectively. As a result, the Company and the Stockholders may have more
limited rights against the Directors and the Advisor than they would otherwise
have under common law and, furthermore, may be obligated to fund the defense of
the Directors and the Advisor in certain cases. In particular, such persons
shall not be liable to the Company and the Stockholders unless: (i) it is
proved that the person actually received an improper benefit or profit in money,
property or services; and (ii) to the extent that a judgment or other final
adjudication adverse to the person is entered in a proceeding based on a finding
in the proceeding that the person's action, or failure to act, was the result of
active or deliberate dishonesty and was material to the cause of action
adjudicated in the proceeding. See "Fiduciary Responsibility of Directors and
the Advisor; Indemnification."
3. RISKS OF REAL ESTATE OWNERSHIP
General. All real property investments are subject to some degree of
risk. Equity real estate investments may limit the ability of the Company to
promptly vary its portfolio in response to changing economic, financial and
investment conditions. Such investments will be subject to risks such as
adverse changes in general economic conditions or local conditions which reduce
the demand for the goods or services of tenants. Such investments also will be
subject to other factors affecting real estate values, including: (i) possible
federal, state or local regulations and controls affecting rents, prices of
goods, fuel and energy consumption and prices, water and environmental
restrictions and other factors affecting real property; (ii) increasing labor
and material costs; and (iii) the attractiveness of the property to tenants in
the neighborhood.
The Company is subject to the risk that tenants, as well as lease
guarantors, if any, may be unable to make their lease payments. A default by a
lessee, the failure of a guarantor to fulfill its obligations or other premature
termination of a lease could, depending on the size of the leased premises and
the Advisor's ability to successfully find a substitute tenant, have an adverse
effect on the financial position of the Company. See "Prior Performance of the
Company's Affiliates--Loan Modifications and Work-Outs."
Competition for Tenants and Customers. The Company could be adversely
affected in the event retail centers are built in locations competitive with
properties owned by the Company, causing increased competition for customer
traffic and credit tenants. This could result in decreased cash flow for
tenants and may require the Company to make capital improvements to its
properties which it would not have otherwise made.
Hazardous Waste, Environmental Liens and Other Governmental
Regulations. Federal and state statutes impose, under certain circumstances,
liability on property owners or operators for the clean-up or removal of
hazardous substances found on their properties. Such statutes typically allow
the government to place liens for such liabilities against affected properties,
which liens will be senior in priority to other liens. In addition, there are
various local, state and federal health and safety regulations under which the
Company could, under certain circumstances, have responsibility for compliance
and liability for fines or damages for noncompliance. For example, properties
acquired by the Company likely
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will be subject to the Americans with Disabilities Act (the "ADA"), which
generally requires that public accommodations, including restaurants and retail
stores, be made accessible to disabled persons. See "--Costs Associated with
Compliance with the Americans with Disabilities Act" in this Section. Under
net leases, the tenant typically is responsible for compliance with the ADA and
other laws and regulations or is required to indemnify the Company when the law
or regulation places the burden on the landlord. However, the Company could be
liable for violations of such laws and regulations to the extent the tenant
does not have sufficient resources to provide such indemnification. State and
federal laws in this area are constantly evolving, and the Company intends to
monitor such laws and take commercially reasonable steps to protect itself from
the impact thereof, including obtaining environmental audits of each property
acquired. However, there can be no assurance that the Company will be
protected from the impact of such laws.
Costs Associated with Compliance with the Americans with Disabilities
Act. Under the ADA, all public accommodations are required to meet certain
federal requirements related to access and use by disabled persons. These
requirements became effective in 1992. The ADA has separate compliance
requirements for "public accommodations" and "commercial facilities" but
generally requires that buildings be made accessible to people with
disabilities. The ADA requirements could require removal of access barriers and
could result in the imposition of fines by the federal government or an award of
damages to private litigants. The Company will attempt to structure
acquisitions of its properties so that such properties are in compliance with
the ADA, at the expense of the seller, at the time of acquisition by the
Company. However, there can be no assurance that the acquisitions will be
structured in such a fashion.
Potential Additional Costs in Connection with Acquiring Single-User
Retail Properties. Certain of the properties or portions thereof may be
designed or built primarily for a particular tenant or a specific type of use.
If the Company is holding such a property upon the termination of the lease and
the tenant fails to renew, or such tenant defaults on its lease obligations, the
property may not be readily marketable to a new tenant without substantial
capital improvements or remodeling. Such improvements might require expenditure
of Company funds otherwise available for distribution or require the sale of
such property at a below-market price.
Competition with Others for the Acquisition of Properties. The Company
competes in the acquisition of property with many other entities engaged in real
estate investment activities, some of which have greater resources than the
Company. In addition, the number of entities and the amount of funds available
for investment in properties of a type suitable for investment by the Company
may increase, resulting in increased competition for such investments and
possible increases in the prices paid therefor.
Reliance on Certain Tenants. The Company could be adversely affected
in the event of the bankruptcy or insolvency, or a downturn in the business, of
any tenant generally occupying approximately 30% or more of the gross leasable
area ("GLA") of a Neighborhood Retail Center, or the tenant of any single-user
property ("Anchor Tenant"), or if any Anchor Tenant does not renew its lease
when it expires. In addition, lease termination by one or more Anchor Tenants
could result in lease terminations or reductions in rent by other tenants whose
leases permit cancellation or rent reduction in the event an Anchor Tenant's
lease is terminated. In such event, the Company's ability to re- lease the
vacated space could be adversely affected. Similarly, the leases of certain
Anchor Tenants may permit the Anchor Tenant to transfer its lease to another
retailer. The transfer to a new Anchor Tenant could adversely affect customer
traffic in the Neighborhood Retail Center and thereby reduce the income
generated by that center and could also allow other tenants to make reduced
rental payments or to
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<PAGE> 189
terminate their leases at the center. Each of these developments could
adversely affect the Company's revenues and its ability to make expected
Distributions.
Inability of Lessees to Meet Their Obligations. The Company is
subject to the risk that tenants, as well as lease guarantors, if any, may be
unable to make their lease payments. A default by a lessee and/or the failure
of a guarantor to fulfill its obligations or other premature termination of a
lease could, depending on the size of the property and the Advisor's ability to
successfully find a substitute tenant, have an adverse effect on the financial
position of the Company.
Restrictions on Re-leasing Space. In many cases, tenant leases will
contain provisions giving the tenant the exclusive right to sell certain types
of merchandise or provide certain types of services within a Neighborhood Retail
Center, or will limit the ability of other tenants to sell such merchandise or
provide such services. When re-leasing space after a vacancy occurs, these
"exclusives" may limit the number and types of prospective tenants for the
vacant space.
Uninsured Losses; Unavailability of Insurance. Each lessee shall be
responsible for insuring its goods and premises and lessees may also reimburse
the Company for a share of the cost of acquiring comprehensive insurance for the
property in which it is located, including casualty, liability, fire and
extended coverage customarily obtained for similar properties in amounts which
the Advisor determines are sufficient to cover reasonably foreseeable losses.
Tenants of single-user, net leased properties will provide such insurance for
those properties. However, there are certain types of losses (generally of a
catastrophic nature, such as losses due to wars) which are either uninsurable or
not economically insurable. Should such an event occur to, or cause the
destruction of, a property owned by the Company, the Company could lose both its
invested capital and anticipated profits from such property. See "Investment
Objectives and Policies--Description of Leases."
Risk of Recharacterization of Sale and Leaseback Transactions. In
addition to the purchase of properties subject to net leases, the Company
intends to enter into sale and leaseback transactions, pursuant to which the
Company will purchase a property from an entity and lease such property to such
entity. In the event of the bankruptcy of such a lessee, a transaction
structured as a sale and leaseback may be recharacterized as either a financing
or as a joint venture, which may result in adverse consequences to the Company.
To the extent the sale and leaseback is treated as a financing, the Company
might not be considered the owner of such property and as such would have the
status of a creditor with respect to the property in question.
Potential Additional Costs in Connection with Acquiring Newly
Constructed Properties. The Company intends primarily to acquire existing or
newly constructed property currently in operation. Although the Company will
only acquire newly constructed buildings on a turnkey basis, the builder's
failure to perform may necessitate legal action by the Company to rescind its
purchase of a property, to compel performance or to sue for damages. Any such
legal action may result in increased costs to the Company.
Risks Associated with Investments in Unimproved Real Property. The
Board has the discretion to invest not more than 10% of the assets of the
Company in unimproved real property. Investment in such real property, in
addition to the risks of real estate investment in general, include the expense
and delay which may be associated with re-zoning the land for a higher use or
the development and environmental concerns of governmental entities and/or
community groups.
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<PAGE> 190
4. TAX RISKS
General. There are various federal income tax risks associated with
an investment in the Company. Although the provisions of the Code relevant to
an investment in the Company are generally described in the Section of the
Prospectus titled "Federal Income Tax Considerations," each potential investor
is strongly urged to consult his or her own tax advisor concerning the effects
of federal income tax law on an investment in the Company and on his or her
individual tax situation.
Investors should recognize that many of the advantages and economic
benefits of an investment in the Company depend upon the continued treatment of
the Company as a REIT for federal income tax purposes. If the Company were no
longer taxed as a REIT, the Company would pay a corporate level tax on its
income which would reduce its cash available to pay Distributions and the yield
from an investment in the Company. The continued treatment of the Company as a
REIT is dependent on the law and regulations, which are subject to change, and
on the Company's ability to continue to satisfy a variety of objective tests set
forth in the Code.
Among the various risks associated with the federal income tax aspects
of the Offering of which investors should be aware are:
Risk of Failing to Qualify as a REIT. Qualification as a REIT
involves the application of certain technical and highly complex provisions of
the Code to various factual matters and circumstances based on the actual
operations of the Company, some of which are not within the Company's control.
In particular, timing differences between the recognition of income and the
receipt of cash could cause the Company to have difficulty meeting the REIT
requirement of distributing 95% of taxable income. Although the Company was
organized and intends to operate so as to continue to qualify as a REIT, no
assurance can be given that the Company will in fact be able to so qualify.
Further, the Company's desire to maintain REIT status could cause it not to
acquire certain properties or undertake certain activities.
If the Company fails to qualify as a REIT or loses its REIT status,
its Distributions will not be deductible and its income will be subject to tax,
which will substantially reduce the cash available to pay Distributions. In
addition, such tax liability might cause the Company to borrow funds, liquidate
certain of its investments or take other steps which could affect its operating
results. Moreover, if the Company's REIT status is terminated because of the
failure to meet a technical REIT test or it voluntarily revokes its election,
the Company would be disqualified from electing treatment as a REIT for the four
taxable years following the year in which REIT status is lost.
Limitations on Share Ownership. In order for the Company to qualify
as a REIT, no more than 50% of the outstanding Shares may be owned, directly or
indirectly, by five or fewer individuals at any time during the last half of the
Company's taxable year. To ensure that the Company will not fail to qualify as
a REIT under this test, the Articles provide that no person may own, or be
deemed to own by virtue of the attribution provisions of the Code, more than
9.8% of the number or value of the issued and outstanding stock of the Company.
See "Description of Securities--Restrictions on Transfer."
Tax Liability on Reinvested Distributions. Stockholders that
participate in the DRP will be deemed to have received, and will for income tax
purposes be taxed on, the amount reinvested in Shares. Therefore, Stockholders
(other than Tax-Exempt Entities) will have to use funds from other
24
<PAGE> 191
sources to pay their tax liability on the value of the Shares received. See
"Federal Income Tax Considerations--Other Tax Considerations-- Distribution
Reinvestment Program."
Limitations on Opinion of Counsel. The opinion of Counsel is based
and conditioned on various assumptions and representations made by the Company
as to certain factual matters. As set forth more fully in the Section of the
Prospectus titled "Federal Income Tax Considerations," Counsel has expressed its
opinion based on the facts described in this Prospectus, the Articles and
certain representations by the Company and the Advisor that: (i) the Company
has been organized in conformity with the requirements for qualification as a
REIT, beginning with its taxable year ending December 31, 1995 and that its
prior, current and anticipated methods of operation have enabled and will enable
the Company to satisfy the REIT Requirements; and (ii) distributions to a
Stockholder which is a Tax-Exempt Entity will not constitute UBTI under current
law, unless: (a) such Stockholder has financed the acquisition of its Shares
with "acquisition indebtedness" (within the meaning of the Code); or (b) a
Qualified Trust (as defined herein) owns more than 10% of the Shares and the
Company is a "Pension-Held REIT" (as defined herein). See, however, "Description
of Securities--Restrictions on Transfer."
The Company's qualification as a REIT will depend upon the Company's
ability to meet, through actual operating results, various tests imposed by the
Code. The Company's ability to maintain its REIT status will depend upon its
ability (based on its actual operating results) to meet the REIT Requirements,
and Counsel will not review compliance with the REIT Requirements on a
continuing basis after the initial effectiveness date of the Registration
Statement or issue any opinions in the future unless expressly requested to do
so. Accordingly, no assurance can be given that the Company's actual operating
results will allow the Company to satisfy the REIT requirements. In addition,
this opinion represents Counsel's legal judgment based on the law in effect as
of the initial effective date, and is not binding on the Service and could be
subject to modification or withdrawal due to future changes in the law.
5. ERISA RISKS
Suitability of the Company's Investments for Qualified Pension and
Profit-Sharing Trusts. When considering an investment in the Company with a
portion of the assets of a Qualified Plan, a fiduciary should consider: (i)
whether the investment satisfies the diversification requirements of Section
404(a)(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA") or other applicable restrictions imposed by ERISA; and (ii) whether
the investment is prudent, since there is anticipated to be only a limited
market in which it can sell or otherwise dispose of the Shares. The Company has
not, and will not, evaluate whether an investment in the Company is suitable for
any particular plan, but, subject to the disclosure included therein, will
accept such entities as Stockholders if an entity otherwise meets the
suitability standards. See "ERISA Considerations."
If the Company is considered a Pension-Held REIT, an investment in the
Company may also produce UBTI which may cause a Qualified Plan holding 10% or
more of the Shares to pay a tax on a portion of the income distributed to it by
the Company. Whether the Company will constitute a Pension-Held REIT will
depend on the concentration of ownership by one or more Qualified Plans, a
factor that is not within the control of the Company. See "Federal Income Tax
Considerations" and "Description of Securities--Restrictions on Transfer."
In addition to considering their fiduciary responsibilities under
ERISA and the prohibited transaction rules of ERISA and the Code, advisors to
Qualified Plans should also consider the effect of the "Plan Asset" regulations
issued by the Department of Labor. See "ERISA Considerations."
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<PAGE> 192
Stockholders subject to ERISA will be provided with an annual
statement of value reporting the value of each Share based upon an estimated
amount (as determined by the Company) they would receive if the Company's
properties were sold as of the close of the Company's fiscal year and if such
proceeds (without reduction for selling expenses), together with the other funds
of the Company were distributed in liquidation of the Company; provided,
however, the Net Asset Value of each Share is expected to be at least $10
through the termination of this Offering. This annual valuation may be revised
by the Company from time to time. There can be no assurance that: (i) such
value could actually be realized by the Company or by Stockholders upon
liquidation (in part because estimates of value do not necessarily indicate the
price at which assets could be sold, and because no attempt will be made to
estimate the expenses of selling any asset of the Company); (ii) Stockholders
could realize such value if they were to attempt to sell their Shares; or (iii)
such value would comply with the ERISA requirements. Should the Shares become
listed for trading on a national stock exchange or included for quotation on a
national market system, the Company will no longer provide such valuations.
IN VIEW OF THE COMPLEXITY OF THE TAX ASPECTS OF THE OFFERING,
PARTICULARLY IN LIGHT OF THE FACT THAT CERTAIN OF THE TAX ASPECTS OF THE
OFFERING WILL NOT BE THE SAME FOR ALL INVESTORS, PROSPECTIVE INVESTORS ARE
STRONGLY ADVISED TO CONSULT THEIR TAX ADVISORS WITH SPECIFIC REFERENCE TO THEIR
OWN TAX SITUATION PRIOR TO INVESTMENT IN THE COMPANY.
ESTIMATED USE OF PROCEEDS OF OFFERING
The amounts set forth in the table below represent the Company's current
estimates concerning the use of the Gross Offering Proceeds. All proceeds of
the Offering are held in trust by the Company for the benefit of the
Stockholders, to be used only for the purposes set forth above and will not be
commingled. As of the date of this Prospectus, the Company owned 11 properties
including nine Neighborhood Retail Centers and two single-user retail properties
and had approximately $11,200,000 available for additional investments. The
Company estimates that 87.39% of Gross Offering Proceeds will be used to acquire
properties if the Maximum Offering is sold. If the Maximum Offering is sold,
9.05% of the Gross Offering Proceeds will be utilized to pay selling and due
diligence expenses to unaffiliated third parties and 2.06% of the Gross Offering
Proceeds will be paid to the Advisor and its Affiliates to pay for the costs of
the Offering and the Marketing Contribution and Due Diligence Expense Allowance.
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<PAGE> 193
MAXIMUM OFFERING
(INCLUDING SHARES SOLD UNDER THE DISTRIBUTION
REINVESTMENT PROGRAM)(1)
<TABLE>
<CAPTION>
AMOUNT PERCENT
<S> <C> <C>
Gross Offering Proceeds: $ 109,050,000 100.00%
Less Expenses:
Selling Commissions(2) 7,000,000 6.42%
Marketing Contribution and Due Diligence
Expense Allowance Fee(2) 2,500,000 2.29%
Organization and Offering Expenses(3) 2,621,500 2.40%
Total Public Offering Expenses 12,121,500 11.11%
Gross Amount Available for Investment 96,928,500 88.89%
Acquisition Expenses(4)(5) 545,250 0.50%
Working Capital Reserve(6) 1,090,500 1.00%
------------- -----
Net Cash Payments Relating to the
Purchase of Properties $ 95,292,750 87.39%
------------- -----
</TABLE>
- ---------------------------
(1) The amounts shown in this table represent the Company's current
estimates of the uses of the Gross Offering Proceeds if the Maximum Offering
Amount is sold, and, accordingly, may not accurately reflect the actual
application of such proceeds.
(2) The Company will pay the Dealer Manager selling commissions equal
to up to 7% of a maximum of $100,000,000 of the Gross Offering Proceeds and one
Soliciting Dealer Warrant for every 40 Shares sold, all or part of which
compensation may be retained or reallowed to Soliciting Dealers. The Dealer
Manager will also receive the Marketing Contribution and Due Diligence Expense
Allowance Fee equal up to 2.5% of a maximum of $100,000,000 of the Gross
Offering Proceeds, some portion of which may be reallowed to Soliciting Dealers.
This category of expense will pay all amounts attributable to marketing and bona
fide due diligence expenses. Certain volume discounts may be given on orders of
25,000 Shares or more and Soliciting Dealers may, in their discretion, request
that the Company pay them less than the maximum permitted compensation in
respect of the sale of Shares; however, such discounts will not affect the
amount of proceeds to the Company. No selling commission will be paid on any
Shares purchased by the Advisor, its Affiliates, the Dealer Manager or
Soliciting Dealers. Any Shares purchased by the Advisor or its Affiliates will
be for investment purposes only and not with a view toward resale. A maximum of
1,000,000 Shares purchased under the Distribution Reinvestment Program 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
($9,050,000 if all such Shares are sold). See "Conflicts of Interest,"
"Management's Discussion and Analysis of the Financial Condition and Results of
Operations," "Plan of Distribution" and "Distribution Reinvestment and Share
Repurchase Programs--Distribution Reinvestment Program."
(3) These amounts are the Advisor's best estimates of the legal,
accounting, printing and other offering expenses, including amounts for the
reimbursement of the Advisor for marketing, salaries and direct expenses of its
employees while directly engaged in registering and marketing the Shares and
other
27
<PAGE> 194
marketing and organization expenses. The Advisor has guaranteed payment of all
public offering expenses (excluding selling commissions and the marketing
contribution and due diligence expense allowance fee) 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.
This guaranty is without recourse to or reimbursement by the Company.
(4) The Advisor will be reimbursed for actual out-of-pocket Acquisition
Expenses in an amount estimated to be 0.5% of the Gross Offering Proceeds
($545,250, assuming the Maximum Offering, including Shares sold under the DRP).
In addition, the Advisor will be reimbursed for actual out-of-pocket Acquisition
Expenses equal to 0.5% of any funds borrowed by the Company to acquire
properties. Such expenses with respect to borrowed funds will be payable from
the proceeds of such borrowings ($272,625, assuming the Maximum Offering,
including Shares sold under the DRP, are sold, and the borrowings equal 50% of
the Maximum Offering). Acquisition Expenses include but are not limited to the
costs and expenses incurred by the Advisor in the selection, evaluation and
acquisition of, and investment in, the Company's properties, whether or not
acquired or made, including, but not limited to: surveys, appraisals, title
insurance and escrow fees, non-refundable option payments on properties not
acquired, legal and accounting fees and expenses, computer use related expenses,
architectural and engineering reports, environmental and asbestos audits, travel
and communication expenses and personnel and miscellaneous expenses related to
the selection and acquisition of properties.
(5) The Advisor will not receive a fee for the acquisition of
properties. However, the seller of a property may pay a real estate brokerage
commission to a third party in connection with the Company's purchase of a
property. Since a seller may fix the selling price of a property at an amount
sufficient to cover the cost of a real estate commission, the Company, as
purchaser, may indirectly pay such amount in the purchase price, which amount
may be considered an acquisition fee. The Advisor will endeavor, whenever
possible, to purchase properties directly from sellers, without the involvement
of a real estate broker. When a property has been listed by a seller with a real
estate broker, the Advisor will endeavor, whenever possible, to be allocated a
portion of the real estate brokerage commission paid by the seller. All real
estate brokerage commissions so allocated to the Advisor will then be remitted
in their entirety to the Company by the Advisor.
(6) The Company will add 1% of the Gross Offering Proceeds to its
working capital reserve.
WHO MAY INVEST
An investment in Shares involves certain risks and is suitable only as a
long-term investment for persons of adequate financial means who have no
immediate need for liquidity in their investment. Shares will be sold only to
persons who initially purchase a minimum of 300 Shares ($3,000) or Tax-Exempt
Entities which purchase a minimum of 100 Shares ($1,000), except for Iowa where
the minimum investment for IRAs will be 300 shares ($3,000) and for
Minnesota where the minimum investment for IRAs and qualified plan accounts will
be 200 Shares ($2,000). In addition, the Company has established financial
suitability standards for investors who purchase Shares. These standards require
investors to have either: (i) a minimum annual gross income of $45,000 and a
net worth (exclusive of home, home furnishings and automobiles) of $45,000; or
(ii) a net worth (determined with the foregoing exclusions) of $150,000. In
the case of gifts to minors, the suitability standards must be met by the
custodian account or by the donor and by acceptance of the confirmation of
purchase or delivery of the Shares, an investor represents that he satisfied
any applicable suitability standards.
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<PAGE> 195
In purchasing Shares, custodians or trustees of employee pension benefits
plans or IRAs may be subject to the fiduciary duties employed by ERISA or other
applicable laws and to the prohibited transaction rules prescribed by ERISA and
related provisions of the Code. In addition, prior to purchasing Shares, the
trustee or custodian of an employee pension benefit plan or an IRA should
determine that such an investment would be permissible under the governing
instruments of such plan or account and applicable law. See "Federal Income
Tax Considerations--Taxation of Stockholders--Taxation of Tax-Exempt
Stockholders" and "ERISA Considerations."
Suitability standards may be higher in certain states. Investors must
meet all of the applicable requirements set forth in the Subscription
Agreement. Under the laws of certain states, an investor may transfer his
Shares only to persons who meet similar standards, and the Company may require
certain assurances that these standards are met. Investors should carefully
read the requirements in connection with resales of Shares set forth in the
Subscription Agreement and under "Description of Securities--Restrictions on
Transfer."
The Soliciting Dealers Agreements between the Dealer Manager and each of
the Soliciting Dealers requires such securities dealers to make diligent
inquiries as required by law of all prospective purchasers in order to
ascertain whether a purchase of Shares is suitable and appropriate for such
person based upon information provided by the prospective purchaser regarding
his financial situation and investment objectives and to transmit promptly to
the Company, the fully completed subscription documentation and any other
supporting documentation reasonably required by the Company. By executing the
subscription agreement relating to the Shares (the "Subscription Agreement"),
by tendering payment for Shares and by acceptance of the confirmation of
purchase or delivery of the Shares, an investor represents that he satisfies
any applicable suitability standards.
In addition, each Soliciting Dealer will, by completing the Subscription
Agreement, acknowledge its determination that the Shares are a suitable and
appropriate investment for the investor, and will be required to represent and
warrant his or her compliance with applicable laws requiring the determination
of the suitability and appropriateness of the Shares as an investment for the
subscriber. The Company will, in addition to the foregoing, coordinate the
processes and procedures utilized by the Dealer Manager and Soliciting Dealers
and, where necessary, implement such additional reviews and procedures deemed
necessary to assure the adherence by registered representatives to the
suitability standards set forth herein.
COMPENSATION TABLE
The arrangements as to compensation by the Company of the Advisor and
Affiliates are arrangements by and among entities all of which are affiliated
and, consequently, such arrangements were not determined by arm's-length
negotiations. See "Conflicts of Interest." The following table discloses the
significant compensation which may be received from the Company, directly or
indirectly, by the Advisor and its Affiliates. In those instances in which
there are maximum amounts or ceilings on the compensation which may be received
by the Advisor and its Affiliates for services rendered to the Company, the
Advisor and its Affiliates may not recover any excess amounts for those
services by reclassifying such services under a different compensation or fee
category. See "Conflicts of Interest--Receipt of Commissions, Fees and Other
Compensation by the Advisor and its Affiliates."
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<PAGE> 196
NONSUBORDINATED PAYMENTS
The following aggregate amounts of compensation and fees payable to the
Advisor and its Affiliates by the Company are not subordinated to the Current
Return or Cumulative Return to the Stockholders.
UPON COMPLETION OF
OFFERING:
<TABLE>
<S> <C> <C>
Selling Commissions The Dealer Manager will Actual amount depends
(payable to the Dealer receive $0.70 per Share upon the number of
Manager and Soliciting for each Share sold and Shares sold. Selling
Dealers) a Soliciting Dealer commissions of
Warrant for each 40 $3,500,000 were incurred
Shares sold. The Dealer in the Prior Offering,
Manager will reallow the including $1,369,302
selling commissions and incurred through
Soliciting Dealer December 31, 1995.
Warrants to Soliciting $7,000,000 will be paid
Dealers for each Share if the Maximum Offering
they sell. (1) Shares is sold.
purchased under the
Distribution
Reinvestment Program
will be purchased net of
commissions.
Marketing Contribution An amount equal to up Actual amount depends
and Due Diligence Expense to 2.0% of the Gross upon the number of
Allowance Fee (payable to Offering Proceeds, some Shares sold. Expenses
the Dealer Manager and portion of which may beof $1,000,000 and
Soliciting Dealers) reallowed to Soliciting $250,000 were incurred
Dealers to pay the in the Prior Offering
expenses associated for the Marketing
with the Marketing Contribution and Due
Contribution. An Diligence Expense
additional 0.5% of the Allowance respectively,
Gross Offering Proceeds including $252,298 and
may be paid to the $97,754 incurred
Dealer Manager or through December 31,
reallowed to the 1995. A total of
Soliciting Dealers for $2,500,000 will be paid
the Due Diligence for the Marketing
Expense Allowance Fee. Contribution and Due
Shares purchased under Diligence Expense
the Distribution Allowance if the
Reinvestment Program Maximum Offering is
will be purchased net sold.
of the Marketing
Contribution and Due
Diligence Expense
Allowance Fee.
</TABLE>
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<PAGE> 197
<TABLE>
<S> <C> <C>
TYPE OF COMPENSATION METHOD OF COMPENSATION ESTIMATED
MAXIMUM DOLLAR AMOUNT
Reimbursable Expenses The Advisor or its Reimbursable Expenses
(payable to the Advisor Affiliates may advance of approximately
and its Affiliates) Organization and $1,931,104 were
Offering Expenses for incurred through July
the Company. It will be 22, 1996 in connection
reimbursed for its with the Prior
actual costs incurred Offering, including
in connection with the $1,436,564 incurred
Offering on behalf of through December 31,
the Company, including 1995 (for Organization
legal and accountingand Offering Expenses,
fees, registration and but excluding selling
filing fees, printing commissions and the
costs and selling Marketing Contributions
expenses. However, if and Due Diligence
the aggregate of all Expense Allowance Fee).
Organization and
Offering Expenses,
including selling
commissions and the
Marketing Contribution
and Due Diligence
Expense Allowance Fee,
exceeds 15% of the
Gross Offering
Proceeds, or if the
aggregate of all
Organization and
Offering Expenses,
excluding such selling
expenses, exceeds 5.5%
of the Gross Offering
Proceeds, the Advisor
or its Affiliates will
promptly pay such
excess expenses and the
Company will have no
liability for such
expenses at any time
thereafter.
ACQUISITION STAGE:
Acquisition Expenses for An amount estimated to Acquisition Expenses of
the costs and expenses of be up to 0.5% of the approximately $48,856
the acquisition of Gross Offering Proceeds were incurred through
properties including in connection with the July 22, 1996 in
surveys, appraisals, expenses attendant to a connection with the
title insurance and property acquisition. Prior Offering, all of
escrow fees, legal and (2) which amounts were
accounting fees and incurred after December
expenses, computer use 31, 1995. If the
related expenses, Maximum Offering is
architectural and sold, Acquisition
engineering reports, Expenses
environmental and may not exceed
asbestos audits, travel $545,250;
and com
</TABLE>
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<PAGE> 198
<TABLE>
<S> <C> <C>
ESTIMATED
TYPE OF COMPENSATION METHOD OF COMPENSATION MAXIMUM DOLLAR AMOUNT
munication however, the
expenses and other actual amounts cannot
related expenses (payable be determined at the
to the Advisor and its present time. In no
Affiliates). event will such amount
exceed 6% of the
purchase price of any
single property.
OPERATIONAL STAGE (3):
Property Management Fee A Property Management Actual amounts are
(payable to an Affiliate Fee equal to not more dependent upon results
of the Advisor) than 4.5% of the gross of operations.
revenues from the Property Management
properties will be paid Fees of approximately
monthly to Inland $133,796 were incurred
Commercial Property through July 22, 1996
Management, Inc., an in connection with the
Affiliate of the Prior Offering,
Advisor (the including $46,791
"Management Agent"). incurred through
December 31, 1995.
Compensation for Services In addition to property Actual amounts are
management, the Advisor dependent upon results
and its Affiliates will of operations and,
provide other therefore, cannot be
property-level services determined at the
to the Company, and may present time.
receive compensation
for such services,
including leasing fees,
development fees,
construction management
fees, loan origination
and servicing fees,
property tax reduction
fees and risk
management fees.
However, such
compensation will not
exceed 90% of that
which would be paid to
third parties providing
such services and all
such compensation must
be approved by a
majority of the
Independent Directors.
See "Management--Other
Services."
</TABLE>
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<PAGE> 199
<TABLE>
<CAPTION>
<S> <C> <C>
ESTIMATED
TYPE OF COMPENSATION METHOD OF COMPENSATION MAXIMUM DOLLAR AMOUNT
Reimbursable Expenses Certain expenses of the Actual amounts are
(payable to the Advisor Advisor and its dependent upon results
and its Affiliates) Affiliates will be of operations;
reimbursed by the approximately $56,684
Company. (4) (5) (6) was incurred through
July 22, 1996 in
connection with the
Prior Offering,
including $7,277
incurred through
December 31, 1995.
LIQUIDATION STAGE:
Property Disposition Fee A property disposition Actual amounts to be
(payable to the Advisor fee, payable upon the received depend upon the
and its Affiliates) sale of each of the sale price of Company
Company's properties, inproperties and,
an amount equal to the therefore, cannot be
lesser of: (i) 3% of determined at the
the contracted for sales present time.
price of the property;
or (ii) 50% of the
commission paid to third
parties which is
reasonable, customary
and competitive in light
of the size, type and
location of such
property ("Competitive
Real Estate
Commission"). The
amount paid, when added
to the sums paid to
unaffiliated parties,
shall not exceed the
lesser of the
Competitive Real Estate
Commission or an amount
equal to 6% of the
contracted for sales
price. Payment of such
fees shall be made only
if the Advisor provides
a substantial amount of
services in connection
with the sale of the
property. See
"Management--The
Advisory Agreement."
</TABLE>
SUBORDINATED PAYMENTS
33
<PAGE> 200
<TABLE>
<CAPTION>
ESTIMATED
TYPE OF COMPENSATION METHOD OF COMPENSATION MAXIMUM DOLLAR AMOUNT
The following fee payable to the Advisor and its Affiliates by the Company
will be payable only after specified returns have been paid to the Stockholders
as set forth below:
<S> <C> <C>
OPERATIONAL STAGE (3): An Advisor Asset Actual amounts are
Advisor Asset Management Management Fee of not dependent upon results
Fee (payable to the more than 1% of the of operations. Advisor
Advisor) Average Invested Asset Management Fees
Assets. The fee will of approximately
be payable quarterly in $125,532 were incurred
an amount equal to 1/4 through July 22, 1996
of 1% of the Average in connection with the
Invested Assets of the Prior Offering, all of
Company, as of the last which amounts were
day of the immediately incurred after December
preceding quarter, 31, 1995.
pursuant to the
Advisory Agreement.
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.
LIQUIDATION STAGE (3):
Incentive Advisory Fee After the Stockholders Actual amounts to be
(payable to the Advisor) have first received: received depend upon
(i) their 8% Cumulative the sale price of
Return; and (ii) a Company properties and,
return of their therefore, cannot be
Invested Capital, an determined at the
Incentive Advisory Fee present time.
equal to 15% of
</TABLE>
34
<PAGE> 201
<TABLE>
<CAPTION>
ESTIMATED
TYPE OF COMPENSATION METHOD OF COMPENSATION MAXIMUM DOLLAR AMOUNT
<S> <C> <C>
the net
proceeds from the sale
of a property. At such
time as the Advisory
Agreement is terminated
due to the listing for
trading of the Shares
on a national exchange
or market, the
Incentive Advisory Fee
shall also terminate.
The Advisor and
Management Agent may be
merged into the Company
at the time of listing
and may receive shares
in the Company, in an
amount which may be
determined at that
time, based upon the
value of all fees given
up or waived by the
Advisor and Management
Agent through the
merger. See
"Management--The
Advisory Agreement."
</TABLE>
(1) Each Soliciting Dealer Warrant grants the holder a right to purchase
one Share at a price of $12 per Share during the period beginning from the date
the Soliciting Dealer Warrants are issued and ending on October 13, 2000. No
Soliciting Dealer Warrants will be exercisable until one year from the date of
issuance. See "Plan of Distribution--Compensation."
(2) The total of all Acquisition Expenses paid by the Company in
connection with the purchase of a property by the Company shall in no event
exceed an amount equal to 6% of the Contract Price for the Property (as defined
herein), unless a majority of the Directors (including a majority of the
Independent Directors), not otherwise interested in the transaction, approve
the transaction as being commercially competitive, fair and reasonable to the
Company. Notwithstanding the foregoing, the total of all Acquisition Expenses
paid by the Company in connection with the purchase of a property by the
Company from an Affiliate shall in no event exceed an amount equal to 6% of the
Contract Price for the Property.
(3) The Advisor and its Affiliates will be involved in determining the
types of transactions entered into by the Company. The Advisor benefits from
the Company's retaining ownership of its properties and leveraging its
properties, while Stockholders may be better served by their sale or
disposition or acquisition or hold on an unleveraged basis. Furthermore, the
receipt and retention of certain fees and reimbursements is dependent upon the
Company making investments in properties. Therefore, the interest of the
Advisor in receiving such fees may conflict with the interest of the
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<PAGE> 202
Stockholders to earn income on their investment in Shares and may result in the
Company entering into transactions which may not be in the best interest of the
Stockholders.
(4) (i) The Advisor and its Affiliates will be reimbursed for:
(a) the cost to the Advisor or its Affiliates of goods and services
used for and by the Company and obtained from unaffiliated parties;
and (b) administrative services related thereto. "Administrative
services" include only ministerial services such as typing,
recordkeeping, preparation and dissemination of Company reports,
preparation and maintenance of records regarding Stockholders,
recordkeeping and administration of the Distribution Reinvestment
and Share Repurchase Programs, preparation and dissemination of
responses to Stockholder inquiries and other communications with
Stockholders and any other recordkeeping required for Company
purposes.
(ii) In extraordinary circumstances fully justified to the
official or agency administering the state securities laws, the
Advisor and its Affiliates may provide other goods and services to
the Company if all of the following criteria are met: (a) the
goods or services must be necessary to the prudent operation of the
Company; (b) the compensation, price or fee must be equal to the
lesser of 90% of the compensation, price or fee the Company would
be required to pay to independent parties who are rendering
comparable services or selling or leasing comparable goods on
competitive terms in the same geographic location, or 90% of the
compensation, price or fee charged by the Advisor or its Affiliates
for rendering comparable services or selling or leasing comparable
goods on competitive terms; or (c) if at least 95% of gross
revenues attributable to the business of rendering such services or
selling or leasing such goods are derived from persons other than
Affiliates, the compensation, price or fee charged by an
unaffiliated person who is rendering comparable services or selling
or leasing comparable goods must be on competitive terms in the
same geographic location. In addition, any such payment will be
subject to the further limitation described in paragraph (iii)
below. Extraordinary circumstances shall be presumed only when
there is an emergency situation requiring immediate action by the
Advisor or its Affiliates and the goods or services are not
immediately available from unaffiliated parties. Services which
may be performed in such extraordinary circumstances include
emergency maintenance of Company properties, janitorial and other
related services due to strikes or lock-outs, emergency tenant
evictions and repair services which require immediate action, as
well as operating and re-leasing properties with respect to which
the leases are in default or have been terminated.
(iii) No reimbursement will be permitted to the Advisor or
its Affiliates under clause (i)(b) above for items such as rent,
depreciation, utilities, capital equipment and other administrative
items and the salaries, fringe benefits, travel expenses and other
administrative items of any controlling persons of the Advisor, its
Affiliates or any other supervisory personnel except in those
instances in which the Company believes it to be in the best
interest of the Company that the Advisor or its Affiliates operate
or otherwise deal with, for an interim period, a property with
respect to which the lease is in default. Permitted reimbursements,
except as set forth above, include salaries and related salary
expenses for non-supervisory services which could be performed
directly for the Company by independent parties such as legal,
accounting, transfer agent, data processing and duplication.
Controlling persons include, but are not limited to, any person,
irrespective
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<PAGE> 203
of his or her title, who performs functions for the Advisor
similar to those of: (a) chairman or member of the board of
directors; (b) president or executive vice president; or (c) those
entities or individuals holding 5% or more of the stock of the
Advisor or a person having the power to direct or cause the
direction of the Advisor, whether through ownership of voting
securities, by contract or otherwise. Notwithstanding the
foregoing, and subject to the approval of the Board, the Company may
reimburse the Advisor for expenses related to the activities of
controlling persons undertaken in capacities other than those which
cause them to be controlling persons. The Advisor believes that its
employees and the employees of its Affiliates and controlling
persons who will perform services for the Company for which
reimbursement is allowed pursuant to clause (ii)(c) above, have the
experience and educational background, in their respective fields of
expertise, appropriate for the performance of such services.
(iv) The Total Operating Expenses of the Company shall not
(in the absence of a satisfactory showing to the contrary) in any
fiscal year exceed the greater of: (a) 2% of the Average Invested
Assets; or (b) 25% of its Net Income for such year. The
Independent Directors may, upon a finding of unusual and
non-recurring factors which they deem sufficient, determine that a
higher level of expenses is justified in any given year. There are
certain additional restrictions on expenses that will be borne by
the Company.
(5) The Advisor and its Affiliates shall not be compensated for any
services other than those which have been fully disclosed in this Compensation
Table.
(6) The Company shall not pay, directly or indirectly, a commission or
fee to the Advisor or its Affiliates in connection with the reinvestment of the
proceeds of any resale, exchange, financing or refinancing of a Company
property.
CONFLICTS OF INTEREST
The Company is subject to various conflicts of interest arising out of its
relationship with the Sponsor, the Advisor or its Affiliates. All agreements
and arrangements, including those relating to compensation, between the Company
and the Advisor and its Affiliates are not the result of arm's-length
negotiations. The limitations on the Advisor described below have been adopted
to control when the Company enters into transactions with the Advisor and its
Affiliates. With respect to the conflicts of interest described herein, the
Advisor and its Affiliates will endeavor to balance the interests of the
Company with the interests of the Advisor and its Affiliates in making any
determination.
1. Competition for the Time and Service of the Advisor and Affiliates.
The Company relies on the Advisor and its Affiliates for the daily operation of
the Company and the management of its assets. Affiliates of the Advisor have
conflicts of interest in allocating management time, services and functions
among various existing real estate programs and any future real estate programs
or other entities which they may organize or serve, as well as other business
ventures in which they are involved. The Advisor and its Affiliates believe
they have sufficient staff to be fully capable of discharging their
responsibilities in connection with various real estate programs and other
business ventures.
37
<PAGE> 204
The compensation paid to the Advisor or its Affiliates under the
Advisory Agreement is on terms no less favorable to the Company than those
customary for similar services performed by independent firms in the relevant
geographic area, but in no event more than 2% of the Average Invested Assets
less Other Operating Expenses. See "Compensation Table." The Advisory
Agreement provides that it may be terminated by a majority vote of the
Stockholders upon 60 days prior written notice. See "Management--The Advisory
Agreement."
2. Process for Resolution of Conflicting Opportunities. Affiliates of the
Advisor have sponsored publicly and privately offered entities and may in the
future sponsor publicly and privately offered REITs or other entities which may
have investment objectives very similar to those of the Company. The Advisor
and its Affiliates could, therefore, be subject to conflicts of interest
between the Company and other programs in connection with the acquisition of
properties. To the extent possible, the resolution of conflicting investment
opportunities between the Company and other investment entities advised or
managed by the Advisor and its Affiliates will, as a general rule, be resolved
by giving priority to the entity having uninvested funds for the longest period
of time. Specifically, the Advisory Agreement gives the Company the first
opportunity to buy Neighborhood Retail Centers placed under contract by the
Advisor or its Affiliates provided the Company is able to close the purchase of
such property within 60 days. The Advisory Agreement will also require that
any single-user retail property net leased by a creditworthy tenant located
anywhere in the United States which is placed under contract by the Advisor or
its Affiliates may be purchased by the Company provided that: (i) the Company
has funds available to make the purchase; (ii) the Board votes to make the
purchase within five days of being offered such property by the Advisor; (iii)
the property meets the Company's acquisition criteria; and (iv) in the event
that more than one real estate program sponsored by Affiliates of the Advisor
has funds available to make the purchase, such property will first be offered
to the program which has had funds available for the longest period of time.
Other factors which may be considered in connection with the decisions as to
the suitability of the property for investment include: (i) the effect of the
acquisition on the diversification of each entity's portfolio; (ii) the amount
of funds available for investment; (iii) cash flow; and (iv) the estimated
income tax effects of the purchase and subsequent disposition. The Independent
Directors must, by a majority vote, approve all actions by the Advisor or its
Affiliates which present potential conflicts with the Company. See
"Management--The Advisory Agreement."
It is believed that the aforementioned factors, together with the
obligations of the Advisor and the Affiliates to present to the Company any
investment opportunity which could be suitable for the Company, will help to
lessen the competition or conflicts with respect to the purchase of properties
by other entities and the Company.
3. Acquisition from Affiliates. Two of the properties acquired by the
Company were acquired from an Affiliate. The purchase prices for such
properties were not the subject of arm's-length negotiations. The Articles
provide that the purchase price of any property acquired from an Affiliate may
not exceed its fair market value as determined by a competent independent
appraiser who is a member in good standing of the American Institute of Real
Estate Appraisers, and a majority of the Directors (including a majority of the
Independent Directors) not interested in the transaction must approve the
purchase as fair and reasonable to the Company. The Directors (including all
of the then Independent Directors) approved these acquisitions, however, there
can be no assurance that the prices paid to the Affiliate did not exceed that
which would be paid by an unaffiliated purchaser.
4. The Company may Purchase Properties from Persons with whom Affiliates
of the Advisor have Prior Business Relationships. The Company may purchase
properties from certain sellers from
38
<PAGE> 205
whom the Advisor or its Affiliates have purchased properties in the past and
may purchase properties in the future. In the event the Company purchases
properties from such sellers, the Advisor will experience a conflict between
the current interests of the Company and its interests in preserving any ongoing
business relationship. Nevertheless, the Advisor will not consummate such
purchases in a manner which would cause it to breach its fiduciary obligations
to the Company. See "Management."
5. Property Management Services are being Rendered by an Affiliate of the
Advisor. An Affiliate of the Advisor, Inland Commercial Property Management,
Inc., provides property management services for the Company. The Management
Agent renders the management services to the Company on a competitive basis in
a manner consistent with customary business practices. See "Compensation
Table--Nonsubordinated Payments--Operational Stage." The Advisor and the
Management Agent believe that the Management Agent has sufficient personnel and
other required resources to discharge all responsibilities to the various
properties that it manages and will manage in the future.
6. Receipt of Commissions, Fees and Other Compensation by the Advisor and
its Affiliates. The Advisor and its Affiliates have received and will continue
to receive the compensation as described in the "Compensation Table." Certain
compensation is payable notwithstanding the lack of cash available to make
Distributions to the Stockholders. To that extent, the Advisor benefits from
the Company's retaining ownership of its properties and leveraging its
properties, while Stockholders may be better served by their sale or
disposition or acquisition or hold on an unleveraged basis. Furthermore, the
receipt and retention of certain fees and reimbursements is dependent upon the
Company making investments in properties. Therefore, the interest of the
Advisor in receiving such fees may conflict with the interest of the
Stockholders in earning income on their investment in Shares. The Advisor and
its Affiliates recognize that they have a fiduciary duty to the Company and the
Stockholders, and represent that their actions and decisions will be made in
the manner most favorable to the Company and its Stockholders, so as not to
breach their fiduciary duty. See also "Risk Factors -- Dilution" regarding
issuance of Soliciting Dealer Warrants to the Dealer Manager.
7. Non-Arm's-Length Agreements. The agreements and arrangements,
including those relating to compensation, between the Company and the Advisor
or any of its Affiliates may not be the result of arm's-length negotiations,
but are expected to approximate the terms of arm's-length transactions.
While the Company will make no loans to the Advisor or its Affiliates,
the Company has and may continue to borrow money from the Advisor or its
Affiliates for various purposes including working capital requirements, but only
on terms as to interest rate, security, fees and other charges at least as
favorable to the Company (as determined by a majority of the Directors
(including a majority of the Independent Directors)) as those charged by
unaffiliated lending institutions in the same locality on comparable loans for
the same purpose. See "Real Property Investments."
The Advisor and its Affiliates are not prohibited from providing
services o, and otherwise dealing or doing business with, persons who deal with
the Company, although there are no present arrangements with respect to any such
services. However, no rebates or "give-ups" may be received by the Advisor or
its Affiliates, nor may the Advisor or any such Affiliates participate in any
reciprocal business arrangements which would have the effect of circumventing
any of the provisions of the Advisory Agreement.
8. Legal Counsel for the Company and the Advisor is the Same Law Firm.
Shefsky Froelich & Devine Ltd. is acting as general counsel to the Company and
as special counsel to the Advisor and
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<PAGE> 206
some of its Affiliates upon all legal matters related to the Offering. Shefsky
Froelich & Devine Ltd. is not acting as counsel for the Stockholders or any
potential investor.
There is a possibility that in the future the interests of the various
parties may become adverse, and under the Code of Professional Responsibility
of the legal profession, such counsel may be precluded from representing any
one or all of said parties. If any situation arises in which the interests of
the Company appear to be in conflict with those of the Advisor or its
Affiliates, additional counsel may be retained by one or more of the parties to
assure that their interests are adequately protected. Moreover, should such a
conflict not be readily apparent, counsel may inadvertently act in derogation
of the interest of certain parties which could affect the Company's and,
therefore, the Stockholders' ability to meet their investment objectives.
9. Inland Securities Corporation is Participating as Dealer Manager in the
Sale of the Shares. Inland Securities Corporation, a securities dealer
affiliated with the Advisor, is participating as the Dealer Manager in the
Offering and is entitled to selling commissions and Soliciting Dealer Warrants
which may be retained or reallowed to Soliciting Dealers. See "Risk Factors --
Dilution" and "Plan of Distribution--Compensation" regarding issuance of the
Soliciting Dealer Warrants to the Dealer Manager. Any review of the structure,
formation or operation of the Company performed by the Dealer Manager will be
conducted as if it was an independent review; however, it cannot be considered
to represent such an independent review, and such review may not be as
meaningful as a review conducted by an unaffiliated broker-dealer. Thus, the
Dealer Manager may be subject to a conflict of interest, which may arise out of
its participation in the Offering and its affiliation with the Advisor, in
performing its "due diligence" obligations which arise under the Securities Act
of 1933, as amended (the "Act"). However, the Dealer Manager believes it has
properly performed and will properly perform these "due diligence" activities.
10. The Advisor may have Conflicting Fiduciary Obligations in the Event
the Company Acquires Properties with Affiliates. The Advisor may cause the
Company to acquire an interest in a property through a joint venture with an
Affiliate of the Advisor. In such instance, the Advisor will have a fiduciary
duty to both the Company and the Affiliate participating in the joint venture.
In order to minimize the likelihood of a conflict between these fiduciary
duties, the Advisory Agreement provides guidelines for investments in such
joint ventures in various respects. In addition, the Articles provide that a
majority of the Directors (including a majority of the Independent Directors)
not otherwise interested in the transaction determine that the transaction is
fair and reasonable to the Corporation and is on terms and conditions no less
favorable than from unaffiliated third parties. See "Investment Objectives and
Policies--Joint Ventures."
FIDUCIARY RESPONSIBILITY OF DIRECTORS AND
THE ADVISOR; INDEMNIFICATION
GENERAL
Consistent with the duties and obligations of, and limitations on, the
Directors as set forth in the Articles and under the laws of the State of
Maryland, the Directors are accountable to the Stockholders as fiduciaries and
are required to perform their duties in good faith and in a manner each
Director believes to be in the best interest of the Company and its
Stockholders, with such care, including reasonable inquiry, as a prudent person
in a like position would use under similar circumstances. In addition, the
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<PAGE> 207
Independent Directors must review at least annually the relationship of the
Company with the Advisor and the Advisor's performance of its duties under the
Advisory Agreement, and must determine that the compensation paid to the
Advisor is reasonable in relation to the nature and quality of the services
performed. The Advisor also has a fiduciary duty to the Company and the
Stockholders.
LIMITATION OF LIABILITY AND INDEMNIFICATION
The liability of the Directors and officers of the Company is limited to
the fullest extent permitted by the MGCL; accordingly, the Directors and
officers shall not be liable to the Company or its Stockholders except that
liability shall not be so limited: (a) if it is proved that the person
actually received an improper benefit or profit in money, property or services;
and (b) to the extent that a judgment or other final adjudication adverse to
the person is entered in a proceeding based on a finding in the proceeding that
the person's action, or failure to act, was the result of active and deliberate
dishonesty and was material to the cause of action adjudicated in the
proceeding.
The Company's Articles and Bylaws authorize it, to the fullest extent
permitted by Maryland statutory or decisional law, as amended or interpreted
and, without limiting the generality of the foregoing, in accordance with
Section 2-418 of the MGCL, to indemnify and pay or reimburse reasonable
expenses to: any Director, the Advisor or its Affiliates (each an "Indemnified
Party") provided, that: (i) the Director, Advisor or its Affiliates, have
determined, in good faith, that the course of conduct which caused the loss or
liability was in the best interest of the Company; (ii) the Director, the
Advisor or its Affiliates were acting on behalf of or performing services on
the part of the Company; (iii) such liability or loss was not the result of
negligence or misconduct on the part of the Indemnified Party, except that in
the event the Indemnified Party is or was an Independent Director, such
liability or loss shall not have been the result of gross negligence or willful
misconduct; and (iv) such indemnification or agreement to be held harmless is
recoverable only out of the assets of the Company and not from the
Stockholders. The Company shall not indemnify a Director, the Advisor or its
Affiliates for losses, liabilities or expenses arising from or out of an
alleged violation of federal or state securities laws by such party unless one
or more of the following conditions are met: (i) there has been a successful
adjudication on the merits of each count involving alleged securities law
violations as to the particular indemnitee; (ii) such claims have been
dismissed with prejudice on the merits by a court of competent jurisdiction as
to the particular indemnitee; or (iii) a court of competent jurisdiction
approves a settlement of the claims and finds that indemnification of the
settlement and related costs should be made and the court considering the
request has been advised of the position of the Securities and Exchange
Commission (the "Commission") and the published opinions of the Tennessee
Securities Division and any other state securities regulatory authority in
which securities of the Company were offered and sold as to indemnification for
securities law violations.
The Company may advance amounts to persons entitled to indemnification
hereunder for legal and other expenses and costs incurred as a result of any
legal action for which indemnification is being sought only if all of the
following conditions are satisfied: (i) the legal action relates to acts or
omissions with respect to the performance of duties or services by the
indemnified party for or on behalf of the Company; (ii) the legal action is
initiated by a third party who is not a Stockholder or the legal action is
initiated by a Stockholder acting in his or her capacity as such and a court of
competent jurisdiction specifically approves such advancement; and (iii) the
indemnified party receiving such advances undertakes to repay the advanced
funds to the Company, together with the applicable legal rate of interest
thereon, in cases in which such party is found not to be entitled to
indemnification.
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<PAGE> 208
The Company shall have the power to purchase and maintain insurance on
behalf of an indemnified party against any liability asserted which was
incurred in any such capacity with the Company or arising out of such status;
provided, however, that the Company shall not incur the costs of any liability
insurance which insures any person against liability for which he, she or it
could not be indemnified under the Articles or the Bylaws.
Neither the amendment nor the adoption of any other provision of the
Articles or the Bylaws shall apply to or affect in any respect the
applicability of indemnification with respect to any act or failure to act
which occurred prior to such amendment, repeal or adoption. The parties
expressly agree that all of the terms and provisions hereof shall be construed
under the MGCL as now adopted or as may be hereafter amended and govern all
aspects of the Articles absent contrary terms contained in the Articles.
To the extent that the indemnification may apply to liabilities arising
under the Act, the Company has been advised that, in the opinion of the
Commission, such indemnification is contrary to public policy and, therefore,
unenforceable.
DEFENSES AVAILABLE
There are certain defenses available to the Directors, officers and the
Advisor under Maryland law and pursuant to the Articles in the event of a
Stockholder action against them. One such defense is the "business judgment
rule." A Director, officer or the Advisor can, under the "business judgment
rule," argue that he or she performed the action giving rise to the
Stockholder's action in good faith and in a manner he or she reasonably believed
to be in the best interests of the Company, and with such care as an ordinarily
prudent person in a like position would have used under similar circumstances.
The Directors, officers and the Advisor are also entitled to rely on
information, opinions, reports or records prepared by experts (including
accountants, consultants, counsel, etc.) who were selected with reasonable
care. However, the Directors, officers and the Advisor shall not invoke the
"business judgment rule" to further limit the rights of the Stockholders to
access records. In the event a Stockholder challenges an amendment to the
Articles made by Directors without the Stockholders' approval, the Directors are
permitted to contend that the Articles permit amendments to the Articles absent
Stockholder vote in certain circumstances. As described above, the Directors,
officers and the Advisor are also indemnified by the Company pursuant to the
Articles, subject to certain limitations.
PRIOR PERFORMANCE OF THE COMPANY'S AFFILIATES
PRIOR INVESTMENT PROGRAMS
The Inland organization, during the past ten years, has sponsored seven
public and 70 private real estate programs which have raised in excess in
$273,300,000. In excess of 19,500 investors have invested in these
Inland-sponsored programs. The investment objectives and policies of the
Company are similar to those of several investment programs which have owned
and operated retail properties. However, the vast majority of these investment
programs were dissimilar from the Company in that the partnerships owned
apartment properties or whole or partial interests in mortgage loans.
The information in this Section and in the Prior Performance Tables
included in this Prospectus as Exhibit A shows relevant summary information
concerning real estate programs sponsored by the Advisor and its Affiliates,
the purpose of which is to provide information on the prior performance of
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<PAGE> 209
these programs so that potential investors may evaluate the experience of the
Advisor and its Affiliates in sponsoring such programs. The following
discussion is intended to briefly summarize the objectives and performance of
prior programs and to disclose any material adverse business developments
sustained by them.
SUMMARY INFORMATION
The table below provides certain summarized information concerning prior
programs through the date of this Prospectus and is qualified in its entirety
by reference to the foregoing introductory discussion and the detailed
information appearing in the Prior Performance Tables in this Prospectus.
Investors should not construe inclusion of the succeeding tables, which cover
the period from January 1, 1986 through December 31, 1995, as implying in any
manner that the Company will have results comparable to those reflected in the
tables; the yield and cash available and other factors could be substantially
different for the Company's properties. Investors should note that by
acquiring Shares in the Company, they will not be acquiring any interests in
any prior programs.
<TABLE>
<CAPTION>
Prior Prior
Public Private
Programs Programs
---------------- ---------------
<S> <C> <C>
Number of programs sponsored ...................... 7 70
Aggregate amount raised from investors ............ $181,700,000 $91,617,000
Aggregate number of investors ..................... 16,500 3,000
Number of properties purchased .................... 87 107 (1)
Aggregate cost of properties ...................... $163,913,000 (2) $342,021,000(3)
Percentage of properties (based on cost) that were:
Commercial --
Retail .................................... 2.5% 0.0%
Single-user retail net-lease .............. 8.7% 23.5%
Nursing homes ............................. 8.7% 0.2%
Offices ................................... 0.0% 0.0%
Industrial ................................ 0.0% 1.3%
Health clubs .............................. 4.7% 0.0%
Mini-storage .............................. 0.0% 0.4%
Total commercial .......................... 24.6% 28.4%
Multi-family residential ...................... 19.0% 71.5%
Land .......................................... 56.4% 0.3%
</TABLE>
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<TABLE>
<S> <C> <C>
Percentage of properties (based on cost) that were:
Newly constructed (within a year of
acquisition) .............................. 8.7% 13.9%
Existing ...................................... 91.3% 86.1%
Construction .................................. 0.0% 0.0%
Number of properties sold ......................... 12 14
22.2% (4) 20.0%
Number of properties exchanged .................... 0 34
49.0%
</TABLE>
(1) Includes 37 properties acquired following the disposition of a program's
original real estate asset. See "--Loan Modifications and Work-Outs" in
this Section.
(2) Includes purchase price and acquisition fees and expenses.
(3) Represents the aggregate purchase prices paid by the investment programs.
Includes $104,768,242 in properties acquired following the disposition of
a program's original real estate asset.
(4) Based on costs of property including portions of land parcels sold at
December 31, 1995, and costs capitalized subsequent to acquisition.
During the three years prior to December 31, 1995, publicly registered
investment programs sponsored by IREIC purchased a total of 22 parcels of
land totalling 4,136 acres, all located in northeast Illinois. The land was
purchased on an all-cash basis.
Upon written request of the Company, any potential investor may obtain,
without charge, a copy of Table VI, filed with the Commission in connection
with this Offering, which provides more detailed information concerning these
acquisitions.
PUBLICLY REGISTERED LIMITED PARTNERSHIPS
INLAND'S MONTHLY INCOME FUND, L.P. ("MONTHLY INCOME FUND I") -- The
offering period for Monthly Income Fund I began August 3, 1987 and ended August
3, 1988. The objectives were to invest in improved residential, retail,
industrial and other income-producing properties on an all-cash basis to
provide monthly cash distributions of at least 8% per annum throughout the life
of the partnership and to provide a hedge against inflation through capital
appreciation.
Monthly Income Fund I raised $30,000,000 from over 2,200 investors.
Originally, Monthly Income Fund I purchased seven properties, including five in
Illinois, one in Ohio and one in Oklahoma, for a total investment of $27,511,692
which includes acquisition costs of $25,831,542 plus an additional $1,487,500
expended for the upgrade of the McHenry Plaza, a neighborhood retail center, in
McHenry, Illinois, plus $192,650 for upgrade costs at other properties. The
properties owned by Inland Monthly Income Fund I include, in addition to McHenry
Plaza, two nursing centers, two retail stores leased on a triple-net basis by
Wal-Mart Stores Inc., a health club facility and an apartment complex, which was
sold on an installment basis in 1994 and 1995. Through December 31, 1995, cash
distributions have been maintained at an 8% level and on an accrual basis have
totaled $335.06 per $500 unit or $18,877,468
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including $15,629,880 from operating cash flow, $305,000 of net sales proceeds
from the sale of the apartment complex, $2,095,863 from supplemental capital
contributions from IREIC and $541,725 as a partial return of capital from
partnership reserves. In the opinion of IREIC, the partnership is substantially
meeting its investment objective for cash flow.
Two of Monthly Income Fund I's properties, which represent 26.3% of its
total assets as measured by their original purchase price, are nursing center
facilities which are 100% leased by Elite Care Corporation ("Elite"). Monthly
Income Fund I's lease with Elite became effective in February 1991, following
the termination of a lease with Adventist Living Centers Inc. ("ALC"), the
tenant which was in place when Monthly Income Fund I purchased the properties.
After ALC began experiencing financial difficulties, IREIC sought out Elite as
a replacement nursing home operator/tenant. The net effect to Monthly Income
Fund I was a .5% decrease in the effective rent over the term of the leases for
the two nursing homes, from $67,270 per month when ALC was the tenant to
$66,936 from Elite. Under the terms of the lease agreements for the nursing
care facilities the partnership must approve any sublease transaction. The
current operator of these facilities has negotiated with a new operator to
sublease the facilities. IREIC has reviewed and approved the transaction with
no significant changes to the terms of the leases.
The major tenant at McHenry Plaza is a Walgreens drug store. Other
tenants are Don Robert's Beauty School, Midwest Furniture and Family
Entertainment Center. These tenants took possession of their spaces at the
center from 1990 through 1993, following the July 1989 termination of a lease
with Duckwell-Alco Stores, Inc. ("Alco"), the tenant which leased 94% of the
space in the center at the time Monthly Income Fund I purchased the property.
IREIC embarked on a program to re-lease the center to new tenants, and secured
a $1,700,000 line of credit for property upgrades, remodeling and re-leasing
expenses. Annual principal and interest payments on this debt total $187,943.
Approximately 83% of the property is currently leased. An additional 4,000
square feet of storage area at the rear of the center, representing 7% of the
total space, remains to be leased. Additional expenditures for build-out and
leasing commissions are anticipated as the remaining rentable space is leased.
The 1995 annual net operating income prior to debt service at McHenry Plaza is
$234,000, compared to approximately $213,000 when Alco was the tenant. The
completion of the redevelopment and lease-up of McHenry Plaza will increase the
cash flow available for distribution by Monthly Income Fund I.
The partnership successfully completed the conversion of the apartment
complex to condominiums. Condominium sales began during the first quarter of
1994. As of December 31, 1995, all of the 38 six-unit buildings at the
property had been sold.
The defaults by ALC and Alco, the expense of upgrades and build-out at the
McHenry Plaza and lower than expected net rental income from the apartment
complex have reduced cash available for distribution by Monthly Income Fund I.
Under the terms of a guarantee agreement, IREIC has made supplementary capital
contributions totaling $2,095,863 from the inception of the program through
December 31, 1995 for the purpose of providing 8% annual cash distributions to
investors. These supplementary capital contributions will begin to be repaid
from cash flow in the future, but only if excess cash flow exists after payment
of an 8% annual distribution to investors. The effect on investors is that
cash flow distributions will not exceed 8% per annum for the foreseeable
future. In addition, IREIC may be reimbursed for its supplementary capital
contributions from the sale or financing of properties, but only after
investors have received the return of their capital. The effect on investors
is that profits from the sale of the properties will be reduced by the amounts
contributed by IREIC under the 8% distribution guarantee agreement.
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INLAND MONTHLY INCOME FUND II, L.P. ("MONTHLY INCOME FUND II") -- The
offering period for Monthly Income Fund II began August 4, 1988 and ended
August 4, 1990. The objectives were to invest in improved residential, retail,
industrial and other income-producing properties on an all-cash basis to
provide monthly cash distributions of at least 8% per annum through the first
five years of the partnership and to provide a hedge against inflation through
capital appreciation.
Monthly Income Fund II raised $25,323,569 from more than 2,100 investors
and purchased five properties, a net-leased Wholesale Club retail property in
Indiana, a net-leased health club in Ohio, a net leased nursing center in
Illinois, a net-leased retail store in Arizona and the Water Tower Market Plaza
(formerly Eagle Plaza), a neighborhood retail center in Illinois, for a total
acquisition cost of $21,224,542. Through December 31, 1995, cash distributions
have been maintained at or above an 8% level and on an accrual basis have
totaled $349.65 per $500 unit or $16,279,471, including $11,883,906 from
operations and an additional $4,395,565 which constitutes the net proceeds from
the sale of the Wholesale Club.
One of Monthly Income Fund II's properties, which represents 35.44% of its
total assets, as measured by its original purchase price, is a nursing center
which is 100% leased to Elite. Monthly Income Fund II's lease with Elite
became effective in February 1991, following the termination of a lease with
ALC, the tenant which was in place when Monthly Income Fund II purchased the
property. After ALC began experiencing financial difficulties, IREIC sought
out Elite as a replacement nursing home operator/tenant. The net effect to
Monthly Income Fund II was an 8% decrease in the effective rent from the
nursing center over the term of the lease, from $77,368 per month when ALC was
the tenant to $71,895 from Elite. Under the terms of the lease agreement for
the nursing center the partnership must approve any sublease transaction. The
current operator of this facility has negotiated with a new operator to
sublease the facility. IREIC has reviewed and approved the transaction with no
significant changes to the terms of the lease.
On January 8, 1991, Monthly Income Fund II sold its Wholesale Club
property in Indiana for $4,400,000. Net sales proceeds of $4,395,565 were
distributed to investors on February 1, 1991. The property was purchased by
Monthly Income Fund II in December 1988 for $3,427,278, which included
acquisition fees of $275,013 and acquisition costs of $9,265. The gain on sale
for financial reporting purposes was $847,467, which is net of selling expenses
and commissions.
On January 21, 1994, the anchor tenant at Eagle Plaza neighborhood retail
center, Eagle Foods, closed its store. Under the terms of its lease, Eagle
Foods has guaranteed rent payments until May 1997. On February 4, 1994 and
with the approval of IREIC, Eagle Foods assigned its lease to Certified Grocers
Midwest, Inc. ("Certified"). The shopping center was subsequently renamed
Water Tower Market Plaza. During August 1995, Certified vacated the store.
Under the original lease, as well as the assignment of the lease, Eagle Foods
has guaranteed payments until November 1998. Eagle Foods assigned its lease to
Euro-Fresh Markets which began occupancy in May 1996.
In the opinion of IREIC, the partnership is meeting its investment
objective to provide a minimum 8% cash distribution and has, through an early
and profitable sale of the Wholesale Club, achieved capital appreciation on 16%
of the partnership's investment in properties.
INLAND REAL ESTATE GROWTH FUND, L.P. ("GROWTH FUND I") -- The offering
period for Growth Fund I began December 9, 1985 and ended August 9, 1987. The
objectives were to invest in multi-family residential properties on a
moderately leveraged basis for capital appreciation through increases in
property
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values, tax-sheltered quarterly cash distributions and the build-up of equity
through reduction of mortgage indebtedness.
Growth Fund I raised $9,465,000 from more than 700 investors and purchased
four properties which included one multi-family residential property in Arizona
and a partial interest in another multi-family residential property in
Illinois. The other two properties were repurchased from Growth Fund I by
IREIC. The terms of these repurchase transactions placed Growth Fund I in the
same cash position it would have been in had the properties never been
acquired. Growth Fund I sold the multi-family residential property located in
Illinois as condominium units to individual purchasers for $6,685,950. Of the
total net sales proceeds of $6,455,375, $1,650,000 was used to pay off the
underlying debt on the property, $1,715,198 was distributed to limited partners
during 1994, $1,832,785 was used to pay down the debt on the partnership's
Arizona property and the remainder was used to fund condominium conversion
costs. The property was purchased by Growth Fund I in December 1985 for
$3,836,416, which included acquisition fees of $483,500. The gain on sale for
financial reporting purposes was $2,236,220, which is net of selling expenses
and commissions. Cash distributions to limited partners through December 31,
1995 totaled $509.66 per $1,000 unit or $4,516,868, including $1,281,155 from
operations, $1,724,843 from the sale or refinancing of the partnership's
properties, $943,224 from the repurchase of partnership properties by IREIC
and $567,646 partial return of capital from partnership reserves. The monthly
principal and interest payments on the Arizona property were reduced from
$27,819 to $12,314 as a result of refinancing the Arizona property in March
1994 and the debt reduction described above.
In IREIC's opinion, the Arizona real estate market has been improving over
the last two years, and a sale of the Arizona property will be evaluated on an
ongoing basis with the intent to profitably conclude the partnership. The
decline in the Arizona market from 1989 through 1992 reduced net operating
income from that property and, therefore, the quarterly cash distributions
which might otherwise have been received by limited partners during that
period. Similarly, the decline of the Arizona market has extended the holding
period for that property. If and when the Arizona property can be sold at a
profit, the annual rate of capital appreciation realized by investors will be
less than if the Arizona market had not declined.
INLAND REAL ESTATE GROWTH FUND II, L.P. ("GROWTH FUND II") -- The offering
period for Growth Fund II began September 21, 1987 and ended September 21,
1989. The objectives were to invest in improved residential, retail,
industrial and other income-producing properties on a moderately leveraged
basis for capital appreciation through increases in property values,
tax-sheltered quarterly cash distributions and the build-up of equity through
reduction of mortgage indebtedness.
Growth Fund II raised $4,038,250 from 336 investors and purchased two
properties, a multi-family residential property in Illinois and a health club
in Ohio. These properties were purchased for a total acquisition cost of
$5,615,826. The health club is currently approximately 62% financed with 38%
equity. Cash distributions to limited partners through December 31, 1995
totaled $1,135.44 per $1,000 unit or $4,509,182, including $862,410 from
operations and $3,646,772 return of capital from the sale of the multi-family
property in Illinois as 18 individual six-unit apartment buildings. All 18 of
the six-unit buildings were sold to third-party buyers on an installment basis
for $245,334 to $250,000 per building or a total of $4,261,895 (net of selling
expenses). Growth Fund II's cost basis in the buildings was $4,112,195. The
partnership extended financing to buyers to allow buyers to make monthly
interest payments to Growth Fund II for a period of not more than seven to ten
years, at which time the balance of the purchase price would be due. However,
as of December 31, 1995, 13 of the installment sale loans had been prepaid in
full and five had been substantially pre-paid (the partnership continues to be
owed
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$80,000 on these loans, secured by second mortgages). In the opinion of IREIC,
the sale of the multi-family property as individual six-unit apartment buildings
has resulted in modest capital appreciation within a short holding period.
IREIC is evaluating strategies to sell the partnership's remaining assets and
bring the partnership to a profitable conclusion.
INLAND LAND APPRECIATION FUND, L.P. ("LAND FUND I") -- The offering period
for Land Fund I began October 12, 1988 and ended October 6, 1989. The
objectives were to invest in pre-development land on an all-cash basis and
realize appreciation of such land upon resale.
Land Fund I raised $30,001,000 from 3,425 investors and purchased 25 land
parcels, all in suburban counties surrounding Chicago, Illinois, for an
aggregate purchase price of $25,187,069. As of December 31, 1995, Land Fund I
has completed 51 sales transactions, involving all or portions of 11 parcels,
including three sales of rights-of-way to the Illinois Department of
Transportation plus a land option, which generated $4,774,251 in net sales
proceeds. Land Fund I's cost basis in the land parcels sold was $2,654,277
resulting in a gain, net of selling expenses and commissions, of $2,119,974 for
financial reporting purposes. In the opinion of IREIC, the partnership is
currently meeting its investment objectives and has, through completed sales
transactions, realized significant capital appreciation on the assets sold.
Cash distributions to limited partners through December 31, 1995 totaled
$4,146,395, all from the sale of land parcels.
INLAND LAND APPRECIATION FUND II, L.P. ("LAND FUND II") -- The offering
period for Land Fund II began October 25, 1989 and ended October 24, 1991. The
objectives were to invest in pre-development land on an all-cash basis and
realize appreciation of such land upon resale.
Land Fund II raised $50,476,170 from 5,055 investors and purchased 27 land
parcels and two buildings, all in suburban counties surrounding Chicago,
Illinois, for an aggregate purchase price of $41,314,301. As of December 31,
1995, Land Fund II has had multiple sales transactions involving all or
portions of seven parcels which generated $9,113,875 in net sales proceeds.
Land Fund II's cost basis in the land parcels sold was $5,552,092 resulting in
a gain, net of selling expenses and commissions, of $3,561,783 for financial
reporting purposes. In the opinion of IREIC, the partnership is currently
meeting its investment objectives and has, through completed sales
transactions, realized significant capital appreciation on the assets sold.
Cash distributions to limited partners through December 31, 1995 totaled
$2,836,752, including $2,115,752 from sales and $721,000 from operations.
INLAND CAPITAL FUND, L.P. ("LAND FUND III") -- The offering period for
Land Fund III began December 13, 1991 and ended August 23, 1993. The
objectives were to invest in pre-development land on an all-cash basis and
realize appreciation of such land upon resale.
Land Fund III raised $32,399,282 from 2,683 investors and purchased 18
land parcels, one of which included a house and several outbuildings, for an
aggregate purchase price of $25,945,990. Land Fund III has completed two sales
transactions, involving the house and portions of two parcels which generated
$646,334 in net sales proceeds. Land Fund III's cost basis in the land parcels
sold was $417,551 resulting in a gain, net of selling expenses and commissions,
of $228,783 for financial reporting purposes. In the opinion of IREIC, the
partnership is currently meeting its investment objectives and has, through
completed sales transactions, realized significant capital appreciation on the
assets sold. Cash distributions to limited partners through December 31, 1995
totaled $646,334, all from the sale of land parcels.
PRIVATE PARTNERSHIPS
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Since inception, Affiliates of the Advisor have sponsored 514 private
placement limited partnerships which have raised more than $524,201,000 from
approximately 17,000 investors and invested in properties for an aggregate
price of more than $1 billion in cash and notes. Of the 522 properties
purchased, 93% have been in Illinois. Approximately 90% of the funds were
invested in apartment buildings, 6% in shopping centers, 2% in office buildings
and 2% in other properties. Including sales to Affiliates, 275 partnerships
have sold their original property investments. Officers and employees of IREIC
and its Affiliates invested more than $17,000,000 in these partnerships.
From 1990 and through the end of 1995, investors in Inland's private
partnerships have received total distributions in excess of $82,473,427
consisting of cash flow from partnership operations, sales and refinancing
proceeds and cash received during the course of property exchanges. Following
a proposal by Inland Real Estate Corporation, the former corporate general
partner, investors in 301 private partnerships voted in 1990 to make IREIC the
corporate general partner for those partnerships.
Beginning in December 1993 and continuing into the first quarter of 1994,
investors in 101 private limited partnerships for which IREIC is the general
partner received letters from IREIC informing them of the possible opportunity
to sell the 66 apartment properties owned by those partnerships to a
to-be-formed REIT (the "Apartment REIT") in which Affiliates of IREIC would
receive stock and cash and the limited partners would receive cash. In
connection therewith, the underwriters for the Apartment REIT subsequently
advised IREIC to sell to a third party its management and general partner's
interests in those remaining limited partnerships not selling their apartment
properties to the Apartment REIT (approximately 30% of the Inland-sponsored
limited partnerships owning apartment buildings). The prospective third-party
buyers of IREIC's interests in the remaining partnerships, however, would make
no assurance to support those partnerships financially. As a result, in a
letter from IREIC dated March 30, 1994, investors were informed of IREIC's
decision not to go forward with the formation of the Apartment REIT. Following
this decision, two investors filed a complaint on April 19, 1994 in the Circuit
Court of Cook County, Chancery Division, purportedly on behalf of a class of
other unnamed investors, alleging that IREIC had breached its fiduciary
responsibility to those investors whose partnerships would have sold apartment
properties to the Apartment REIT. The complaint sought an accounting of
information regarding the Apartment REIT matter, an unspecified amount of
damages and the removal of IREIC as general partner of the partnerships that
would have participated in the sale of properties to the Apartment REIT. On
August 1, 1994, Judge Thomas O'Brien granted IREIC's motion to dismiss, finding
that plaintiffs lacked standing to bring this case individually. Plaintiffs
were granted leave to file an amended complaint within 28 days. On August 29,
1994, six investors filed an amended complaint, purportedly on behalf of a class
of other investors, and derivatively on behalf of six limited partnerships of
which IREIC is the general partner. The derivative counts seek damages from
IREIC for alleged breach of fiduciary duty and breach of contract, and assert a
right to an accounting. IREIC filed a motion to dismiss in response to the
amended complaint. The suit was dismissed on March 31, 1995 with prejudice, and
the plaintiffs were given until May 1, 1996 to file an appeal. An appeal was
filed on April 25, 1996 and the parties briefed the issue. It is not expected
that oral arguments will be made until Fall 1996.
PRIVATE PLACEMENT REAL ESTATE EQUITY PROGRAM
WISCONSIN CAPITAL LAND FUND, L.P., an Illinois limited partnership, was
formed in October 1992. The objectives were to invest in pre-development land
in the Madison, Wisconsin area on an all-cash basis and realize appreciation of
such land upon resale. The offering period for units in this privately offered
partnership began October 1992 and ended June 14, 1993 with the maximum amount,
$2,275,000,
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raised. Seven parcels of land in the Madison, Wisconsin, area were purchased
with the proceeds of the offering. Limited partners will receive cash
distributions as land parcels are sold.
PRIVATE PLACEMENT MORTGAGE AND NOTE PROGRAMS
During 1992 and in 1993, IREIC or its Affiliates sponsored nine private
placement securities offerings, including seven mortgage and note programs,
which are described below.
TRIPLE SECURITY FUND, L.P., an Illinois limited partnership, was formed in
May 1992. The principal investment objectives of the partnership were to
invest in participations in third-party mortgage loans owned by an Affiliate of
IREIC and thereby return investors' capital within five years, and to provide a
10% annual return on invested capital during the life of the partnership. The
return of capital and the 10% annual return were guaranteed by IREIC. The
offering period for interests in this privately offered partnership began in
May 1992 and ended in June 1992 with the maximum amount of $3,000,000 raised.
All of the offering proceeds were used to invest in participations in 14
wraparound mortgage loans and first mortgage loans, secured by condominium,
multi-family residential and commercial properties located in the Chicago
metropolitan area. Limited partners received their first monthly cash
distribution on July 17, 1992. Cash distributions to limited partners through
December 31, 1995 totaled $1,044,218, including $986,185 from operations and
$58,033 from a loan from IREIC, pursuant to the guarantee for that program.
10% INCOME FUND, L.P., an Illinois limited partnership offering
investments in promissory notes, was formed in May 1992. The offering period
for the purchase of notes began in May 1992 and ended June 1992 with the
maximum amount of $2,000,000 raised. Notes with a term of five years and
providing a 10% annual return for the first four years and 10.5% in the fifth
year were issued by the partnership. The return of capital to noteholders and
the specified annual returns are guaranteed by IREIC. 10% Income Fund, L.P.
invested in loans made to an Affiliate of IREIC, which were secured by
collateral assignments of third-party mortgage loans owned by the Affiliate.
Noteholders received their first monthly interest distribution on July 17,
1992. Cash distributions to noteholders through December 31, 1995 totaled
$681,223 including $663,939 from interest earnings and $17,284 from working
capital reserves.
9% INCOME JUNIOR MORTGAGE FUND, L.P., an Illinois limited partnership, was
formed in July 1992. The principal investment objectives of the partnership
were to invest in third-party junior mortgage loans owned by an Affiliate of
the Advisor and thereby return investors' capital within six years, and to
provide a 9% annual return on invested capital during the life of the
partnership. The return of capital and the 9% annual return were guaranteed by
IREIC. The offering period for interests in this privately offered partnership
began in July 1992 and ended September 1992 with the maximum amount of
$1,000,000 raised. All of the offering proceeds were used to invest in
third-party junior mortgage loans owned by the Affiliate, secured by
condominium, multi-family residential and commercial properties located in the
Chicago metropolitan area. Limited partners received their first monthly cash
distribution on September 17, 1992. Cash distributions through December 31,
1995 totaled $357,116, of which $276,364 was interest earnings, $73,463 was a
return of capital resulting from the amortization of mortgage loans and $7,339
was a loan from IREIC, pursuant to the distribution guarantee for that program.
INLAND EMPLOYEE APPRECIATION FUND, L.P., an Illinois limited partnership
offering investments in promissory notes, was formed in December 1992. The
offering period for the purchase of Notes began in December 1992 and ended in
February 1993 with the maximum amount of $400,000 raised. Notes were offered
only to Illinois residents who are employees of IREIC and its Affiliates.
Notes with a term
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of four years and providing 10% annual interest were issued by the partnership.
The return of capital to noteholders and the specified annual return are
guaranteed by IREIC. Inland Employee Appreciation Fund, L.P. invested in a loan
made to an Affiliate of IREIC, which was secured by collateral assignments of
third-party investor loans owned by the Affiliate. Noteholders received their
first monthly interest distribution on March 17, 1993. Cash distributions
through December 31, 1995 totalled $342,060, of which $339,631 was interest
earnings and $2,429 was subsidy income from IREIC, pursuant to the guarantee for
that program. On May 31, 1996, the promissory notes were paid in full. This
partnership will be liquidated in 1996.
In February 1993, IREIC sponsored 9% MONTHLY CASH FUND, L.P., an Illinois
limited partnership offering investments in promissory notes to accredited
investors. The offering period for this program began February 1, 1993 and
ended on May 17, 1993 when the maximum amount of $4,000,000 raised. Notes
maturing August 1, 1999 and providing a 9% annual return were issued by the
partnership. 9% Monthly Cash Fund, L.P. invested in loans made to an Affiliate
of IREIC secured by collateral assignments of third party mortgage loans owned
by the Affiliate. The return of capital to noteholders and the 9% annual return
are guaranteed by IREIC. Cash distributions through December 31, 1995 totaled
$929,094, of which $924,784 was interest earnings and $4,310 from working
capital reserves.
In April 1993, IREIC sponsored 9% MONTHLY CASH FUND II, L.P., an Illinois
limited partnership offering investments in promissory notes to accredited
investors, with investment objectives identical to those of 9% Monthly Cash
Fund, L.P. The offering period for this program began April 5, 1993 and ended
July 23, 1993, with the maximum amount of $4,000,000 raised. Notes maturing
February 1, 2000 and providing a 9% annual return were issued by the
partnership. 9% Monthly Cash Fund II, L.P. has invested in a loan made to an
Affiliate of IREIC, secured by collateral assignments of third-party mortgage
loans owned by the Affiliate. The return of capital to noteholders and the 9%
annual return are guaranteed by IREIC. Cash distributions through December 31,
1995 totaled $867,945, of which $864,752 was interest earnings and $3,193 from
working capital reserves.
In July 1993, Inland Mortgage Corporation, an Illinois corporation and an
Affiliate of IREIC ("IMC"), sponsored IMC NOTE ISSUE #2 1993, offering
investments in promissory notes. The offering period for this program began
August 25, 1993 and closed on June 13, 1994 after raising $6,800,000. Notes
maturing December 31, 2003 with 8% per annum interest and 100% return of
principal guaranteed by IREIC were issued by IMC. Proceeds of the offering
have been used to invest in a mortgage loan secured by an apartment property in
Manchester, New Hampshire, owned by an Affiliate of IREIC. Investors may also
receive additional interest, dependent on the future sale of the property. An
initial distribution to investors of escrow interest, totaling $13,685, was
made November 17, 1993. Cash distributions through December 31, 1995 totaled
$1,068,666 of which $671,865 was interest earnings and $19,456 was subsidy
income from IREIC pursuant to the guarantee for that program.
In December 1993, IREIC sponsored INLAND CONDOMINIUM FINANCING FUND, L.P.,
an Illinois limited partnership offering investment in promissory notes. The
offering period for this program began December 15, 1993 and closed on June 30,
1994. This partnership offered notes in a maximum principal amount of
$2,000,000 maturing July 1, 2001 with 10% per annum interest and 100% return of
principal guaranteed by IREIC. The proceeds of the offering have been used to
make unsecured loans to limited partnerships which are Affiliates of IREIC, for
the purposes of paying expenses relating to the conversion of apartment
properties owned by those partnerships to condominiums, and conducting
condominium unit sales and other partnership expenses. Cash distributions began
on March 17, 1994. Distributions through March 31, 1995 totaled $177,893 all of
which were interest earnings.
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An August 1988 private placement securities offering sponsored by an
Affiliate of IREIC was INLAND JUNIOR MORTGAGE FUND, L.P., an Illinois limited
partnership. The offering period for this program ended May 1989 with $410,000
raised. All of the proceeds available for investment were used to purchase 82
second mortgages owned by Inland Mortgage Investment Corporation ("IMIC"),
secured predominantly by condominium units located in the Chicago metropolitan
area. Cash distributions through December 31, 1995 have totaled $404,175,
including $124,794 from interest earnings and $279,381 return of capital from
loan repayments. In February 1996, 20 limited partners exercised their put
option and IMIC bought their interests. As a result, IMIC currently owns 88%
of the limited partner units.
LOAN MODIFICATIONS AND WORK-OUTS
Between 1990 and December 31, 1995, 38 Inland-sponsored partnerships
owning 25 properties ceased making debt service payments to unaffiliated
lenders which held the underlying financing on the properties. These actions
were taken with the objective of reducing or restructuring the debt to levels
commensurate with the levels of performance of the operating properties. In
the case of six of these partnerships, namely 14 W. Elm Limited Partnership,
1445 North State Parkway Limited Partnership, 5600 Sheridan Limited
Partnership, 5630 Sheridan Limited Partnership, 6030 Sheridan Limited
Partnership and Oak Brook Commons Limited Partnership, the original asset of
each of these partnerships was transferred to a new partnership which was 100%
owned by the old partnership. IREIC believed that the new partnerships were
better positioned to accomplish a work-out with the lender. In connection with
the transfers of three of these properties to the new partnerships discussed
above, the lender holding the first mortgages on these properties filed a
separate proceeding against the general partner and its Affiliates, claiming
contractual interference and other allegations. This complaint was withdrawn
as part of a final settlement reached with the lender in February 1993.
Each of these new partnerships filed for financial reorganization in
federal court. In addition, 1036 N. Dearborn Limited Partnership also filed
for financial reorganization in federal court. All of these filings for
reorganization were an extension of negotiations with the lenders, with the
objective of reducing or restructuring the debt on the properties owned by the
partnerships. In the case of the filing for reorganization by each of the new
partnerships owned by 1445 North State Parkway Limited Partnership, 5600
Sheridan Limited Partnership and 5630 Sheridan Limited Partnership, the
reorganization proceedings were dismissed after each lender approved a
tax-deferred exchange transaction between the new partnership and an
unaffiliated third party. The general partner of the 1036 North Dearborn
Limited Partnership was able to purchase the debt encumbering that property at
a discount from the lender and the filing for reorganization of that
partnership was dismissed. The 1036 North Dearborn property was subsequently
refinanced with a third-party lender and then sold to a third party. The new
partnerships owned by the 14 W. Elm, 6030 Sheridan and Oak Brook Commons
Limited Partnerships participated with the general partner and its affiliates
and with 16 other affiliated limited partnerships, all of whose properties were
subject to first-mortgage loans from the same third-party lender, in a
settlement agreement with that lender. Under the terms of the settlement
agreement, the 16 other affiliated limited partnerships--none of which were in
default on their mortgage loans--provided additional security to the lender
with respect to each of their loans by transferring administration of property
tax escrow accounts to the lender. The transfer of the escrow accounts had no
financial impact on the 16 partnerships. Five of the 16 other partnerships
also obtained favorable loan modifications from the lender. In the case of the
new partnership owned by the 14 W. Elm Limited Partnership, the lender
cooperated in a tax-deferred exchange of the partnership's real estate asset.
The partnership assigned its interest in its property, subject to the existing
indebtedness, to an unaffiliated third party in exchange for an assignment of
the unaffiliated third party's interest in another property, subject to
indebtedness in a principal amount similar to that on the 14 W. Elm
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property. This transaction was accomplished with the objective of avoiding the
creation of any current income tax liability to the partnership or its limited
partners. As a result of this tax-deferred exchange, the 14 W. Elm Limited
Partnership owns a net-lease commercial property secured by a long-term lease
with a creditworthy tenant. The debt service on the indebtedness used to
acquire the exchange property is in the form of fully amortizing payments
over the term of the store lease, with the net-lease payments received from the
tenant equal to the required debt service payments. The possibility of cash
flow distributions to the limited partners is, therefore, precluded. However,
the expectation exists for equity accumulation through the amortization of the
loan and, therefore, a distribution to the limited partners upon the disposition
of the exchange property. IREIC believes that the limited partners of the 14 W.
Elm Limited Partnership are in a better position to realize a return of their
capital investment through the ultimate disposition of the exchange property.
In the case of the new partnership owned by the Oak Brook Commons Limited
Partnership, the lender acquired the property through foreclosure and the
general partner has supplied the Oak Brook Commons Limited Partnership with a
new property, an ownership interest in a retail store in Marshall, Minnesota,
leased on a triple-net basis by Wal-Mart Stores, Inc. In the case of the new
partnership owned by the 6030 Sheridan Limited Partnership, the lender agreed
to permit a tax-deferred exchange of the partnership's property, similar to
that completed by the 14 W. Elm Limited Partnership and subsequently the lender
sold its mortgage to an unaffiliated party who then acquired the property. The
new partnership acquired a replacement property similar to that acquired by the
14 W. Elm Limited Partnership, which property was then conveyed to the 6030
Sheridan Limited Partnership.
Of the original partnerships discussed above, Mr. Daniel L. Goodwin, a
Director of IREIC, served as individual general partner of all but the Oak
Brook Commons Limited Partnership, in which Mr. G. Joseph Cosenza, a Director
of IREIC and the Company, served as individual general partner. Prior to the
filing for reorganization, and as part of the strategy thereof, Mr. Cosenza
relinquished his position as individual general partner of the Oak Brook
Commons Limited Partnership and Mr. Goodwin did the same for all except the
1036 N. Dearborn Limited Partnership, for which he continues to serve as
individual general partner. These actions were taken upon the advice of
counsel to reduce the chances of delay in the reorganization efforts. The
corporate general partner of each partnership has elected to continue the
business of each of the partnerships in which the individual general partner
relinquished his position.
Four of the 38 Inland-sponsored partnerships described in the first
paragraph of this section owned four adjacent office buildings in Park Ridge,
Illinois. These four operating partnerships were, in turn, owned by 21 other
Inland-sponsored partnerships which had sold their original real estate assets
and reinvested a portion of the proceeds from those sales in ownership units in
the four operating partnerships. During 1991, the lenders which held the first
mortgages encumbering the four office buildings acquired the deeds to the
properties in lieu of foreclosure. The four operating partnerships were
subsequently liquidated. The general partner of the 21 partnerships which had
owned the four operating partnerships arranged for the transfer to each of the
21 partnerships of certain ownership interests in five net-lease commercial
properties having long-term leases with creditworthy tenants. The debt service
on the indebtedness used to acquire the commercial properties consists of
principal and interest payments which fully amortize the indebtedness over the
term of the store leases, with the net-lease payments received from the tenants
equal to the required debt service payments. The possibility of cash flow
distributions to the limited partners in the 21 partnerships is, therefore,
precluded. However, the expectation exists for equity accumulation through the
amortization of the loan and, therefore, a future distribution to the limited
partners upon the disposition of the commercial properties. The 21
partnerships experienced minimal adverse tax consequences from the liquidation
of the four operating partnerships and their receipt of the ownership interests
in the commercial properties. IREIC believes that the limited partners of the
21
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partnerships are now positioned to realize a return of their capital investment
through the ultimate disposition of the commercial properties.
In the case of the 900 DeWitt and the Hoffman Ridge Limited Partnerships,
two of the 38 limited partnerships mentioned in the first paragraph of this
section, tax-deferred exchanges of the partnerships' properties were
accomplished, in the same manner as described above. The partnerships acquired
net-lease commercial properties. Subsequent to the exchanges, the 900 DeWitt
and Hoffman Ridge properties were acquired by the first-mortgage lenders whose
loans were secured by those properties.
In the case of the Park Colony Limited Partnership, one of the 38 limited
partnerships mentioned in the first paragraph of this section, the partnership
defaulted on a loan secured by a second mortgage against the Park Colony
property. The lender which owned the second-mortgage loan purchased the
position of the lender which had funded the first mortgage loan secured by the
property. The lender then sold the debt, at a substantial discount, to an
Affiliate of the general partner of Park Colony Limited Partnership, and all
legal actions associated with the loan default were dismissed. The partnership
then refinanced the debt at the lower principal amount, retiring the debt owned
by the Affiliate. In December 1993, a new general partner replaced IREIC.
IREIC believes that this debt reduction is of significant benefit to the
partnership, which is now better positioned to realize its investment
objectives.
In 1990, the New England Limited Partnership, acting as nominee for 14
Florida limited partnerships which own the Sunset Ridge Apartments in
Manchester, New Hampshire, ceased making payments on the bond financing for
that property, which bonds were issued by the New Hampshire Housing Finance
Authority. In August 1993, an Affiliate of the general partner for those
partnerships purchased the bonds and the interests of two savings and loan
associations which had acted as bond credit-enhancers, at a substantial
discount. The partnerships which own the property are obtaining refinancing
funds to pay off the bonds and the amounts due to the Affiliate under the
credit-enhancement instruments for approximately the discounted price paid by
the Affiliate.
In April 1993, the West Haven Limited Partnership ceased making payments
on the first mortgage loan for that partnership's property. The general
partner attempted to negotiate with the lender to modify the terms of the loan
to a level commensurate with the operating performance of the West Haven
property, but no agreement was reached. A tax-deferred exchange was
accomplished and the partnership acquired an interest in a net-lease commercial
property. The West Haven property will be acquired by the lender whose loan
was secured by a first mortgage against the property.
In the case of the other partnerships referred to in the first paragraph
of this section, subsequent to the acquisition of net-leased commercial
properties via tax-deferred exchanges, the Townsgate, Riverdale, Northwoods and
Bridgeview properties were acquired by the first-mortgage lenders whose loans
were secured by the properties. The Covington Associates and Westbrooke
Limited Partnerships' tax-deferred exchange property, Townsgate II, was
acquired by the first mortgage lender and the two partnerships acquired
net-lease commercial properties via second tax-deferred exchanges. In the case
of the Bensenville Industrial Limited Partnership, subsequent to the
acquisition of a replacement net-lease commercial property, the Bensenville
property was acquired by the first-mortgage lender whose loan was secured by
the property.
In addition to the above-described developments, the corporate general
partner of the Walton Place Limited Partnership and the Barrington Lakes
Limited Partnership settled litigation with the lenders for the properties
which resulted in the transfer of the properties and an agreement to make cash
settlements
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by the partnerships to the lenders. In each case, the litigation resulted after
the partnership ceased making debt service payments in an effort to bring about
a renegotiation of the terms of the financing. The lenders agreed to permit a
tax-deferred exchange of the partnerships' respective properties.
In January 1995, the Timberlake Limited Partnership ceased making payments
on the first mortgage loan for that partnership's property. IREIC is
attempting to negotiate with the lender to modify the terms of the loan to a
level commensurate with the operating performance of the Timberlake property,
but to date, no agreement has been reached. It is IREIC's intent to initiate a
tax-deferred exchange whereby the partnership will acquire an interest in a
net-lease commercial property prior to the Timberlake property being acquired by
the lender whose loan is secured by a first mortgage against the property.
EFFECTS OF PROPERTY EXCHANGES ON INVESTORS
The Inland organization has used a strategy of tax-deferred property
exchanges to mitigate the adverse effects of 1986 tax law changes and the
weakening of apartment markets in the late 1980s on Inland's tax-shelter
private partnerships and investors in those partnerships. The loss of
deficit-producing properties to foreclosure would otherwise have resulted in
the loss of investors' capital, as well as substantial income tax liability for
those investors. Through the exchange program, deficit-producing apartment
properties have been disposed of, net-leased retail properties have been
acquired, and most tax liability continues to be deferred. Gradually, through
the amortization of debt secured by the new, net-leased properties owned by
these partnerships, the partnerships and their investors are rebuilding equity
which may be realized upon the future sale or refinancing of these properties.
One of the primary investment objectives of these tax-shelter partnerships--the
deferral of tax liability, continues to be met to a significant degree.
However, no cash flow is being received by the investors in these partnerships.
In addition, the tax-deferred exchanges have extended the expected term of
these tax-shelter partnerships. If and when the net-leased properties are sold
or refinanced, there is no assurance that investors will realize any profit or
a complete return of capital. Because the duration of these partnerships has
been extended, when the net-leased properties are sold or refinanced, the
annual rate of appreciation realized by investors, if any, will be less than if
the tax law had not been changed and apartment markets had not declined in the
late 1980s.
ADDITIONAL INFORMATION
Through December 31, 1995, 18 private partnerships sponsored by Affiliates
of the Advisor which sold properties on an installment basis re-acquired their
properties as a result of defaults by the purchasers. Thirteen of the
properties that were re-acquired were subsequently sold. One property was
returned to the lender and the remaining properties are being operated by the
partnerships.
Through December 31, 1995, seven private partnerships sponsored by
Affiliates of the Advisor have agreed to modifications of the original terms of
the installment receivables. The impact of these modifications on the
installment receivables includes reductions in net interest income during the
first year or two following a modification (and corresponding decreases in
distributions to limited partners during that period) and increases in interest
income thereafter (and corresponding increases in distributions), as well as
the deferral of some interest until maturity and, in the case of two
partnerships, the extension of a maturity date. The decreases in distributions
to limited partners range from 25% to 50% of the originally scheduled
distributions for the initial one- or two-year period of the modifications
followed by similar increases over the originally scheduled distributions for
the year or two following the modifications. Any interest deferred until
maturity would result in a lower-than-originally-scheduled
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distribution until the maturity date, when such deferred amounts would be
received from the borrowers. The distribution to investors of the principal
proceeds due upon maturity would also be received at a later date, i.e.,
one to two years later, due to a negotiated extension of the original maturity
date.
During 1988, one private partnership sponsored by an Affiliate of IREIC
transferred its property to the municipality in which it was located pursuant
to an involuntary conversion proceeding. On March 1, 1989, the proceeds of the
conversion were reinvested in a new property, a transaction intended to qualify
as tax-deferred under the Code.
Except for re-acquisitions of previously owned properties upon default by
the purchaser, the transfer of a defaulted loan, the tax-deferred property
exchanges and the disputes with lenders described herein, there have been no
further major adverse business developments or conditions experienced by these
prior partnerships which would be material to investors in the Company.
Upon written request to the Company, any potential investor may obtain,
without charge, the most recent Annual Report on Form 10-K filed with the
Commission by any public program sponsored by Affiliates which has reported to
the Commission within the last 24 months. Copies of any exhibits to such
Annual Reports shall be provided, upon request, for a reasonable fee.
MANAGEMENT
GENERAL
The Company operates under the direction of the Board of Directors that is
responsible for the overall management and control of the affairs of the
Company. However, the Board of Directors has retained the Advisor to manage
the Company's day-to-day affairs, subject to the Board's supervision.
Investment policies of the Company, as well as fees and expenses of the
Company, have been established by the Directors and will be reviewed and
approved by the Directors (including a majority of the Independent Directors)
not less often than annually and with sufficient frequency to determine that
the policies being followed are in the best interest of the Stockholders. All
Directors are responsible, as a result of their fiduciary duties, for
determining the reasonableness of the total fees and expenses of the Company in
light of the investment experience of the Company and the fees and expenses of
comparable advisor companies in supervising the relationship of the Company
with the Advisor and its Affiliates. Each such determination and the basis
therefor shall be set forth in the minutes of the Directors.
The Independent Directors shall determine from time to time, but not less
often than annually, that the compensation which the Company contracts to pay
to the Advisor is reasonable in relation to the nature and quality of the
services performed and that such compensation is within the limits prescribed
by applicable state regulatory authorities. The Independent Directors shall
also supervise the performance of the Advisor and the compensation paid to it
by the Company to determine that the provisions of the Advisory Agreement are
being carried out. Each such determination shall be based on the factors set
forth below and all other factors that the Independent Directors may deem
relevant and the findings of the Independent Directors on each such factor
shall be recorded in the minutes of the Board. Such factors include: (i) the
size of the Advisory Fee in relation to the size, composition and
profitability of the portfolio of the Company; (ii) the success of the Advisor
in generating opportunities that meet the investment objectives of the Company;
(iii) the rates charged to other REITs and to investors other than
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REITs by advisors performing similar services; (iv) additional revenues realized
by the Advisor and any Affiliate through their relationship with the Company,
including loan administration, underwriting or brokerage commissions, servicing,
engineering, inspection and other fees, whether paid by the Company or by
others with whom the Company does business; (v) the quality and extent of
service and advice furnished by the Advisor; (vi) the performance of the
investment portfolio of the Company, including income, conservation or
appreciation of capital, frequency of problem investments and competence in
dealing with distress situations; and (vii) the quality of the portfolio of the
Company in relationship to the investments generated by the Advisor for its own
account. See "Fiduciary Responsibility of Directors and the Advisors;
Indemnification" and "--The Advisory Agreement" in this Section.
The Board is currently comprised of five individuals, a majority of whom
are independent (the "Independent Directors"). Each of the Directors serves
for a one-year term and will be elected annually. See "Summary of
Organizational Documents."
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information with respect to the
Directors and the Company's executive officers:
<TABLE>
<CAPTION>
Name Age Position and Office with the Company
- -------------------------- --- -----------------------------------------------
<S> <C> <C>
Robert D. Parks 52 President, Chief Executive Officer, Chief
Operating Officer and Affiliated Director
G. Joseph Cosenza 52 Affiliated Director
Roland W. Burris 58 Independent Director
Douglas R. Finlayson, M.D. 56 Independent Director
Heidi N. Lawton 33 Independent Director
Roberta S. Matlin 51 Vice President -- Administration
Cynthia M. Hassett 37 Secretary, Treasurer and Chief Financial
Officer
Patricia A. Challenger 42 Assistant Secretary
</TABLE>
ROBERT D. PARKS. President, Chief Executive Officer, Chief Operating
Officer and Affiliated Director of the Company since its formation in 1994.
Mr. Parks joined The Inland Group, Inc. and its Affiliates ("TIGI") in 1968.
He is Director of TIGI and is President, Chairman and Chief Executive Officer
of Inland Real Estate Investment Corporation ("IREIC") and is a Director of
Inland Securities Corporation. Mr. Parks is responsible for the ongoing
administration of existing partnerships, corporate budgeting and administration
for IREIC. He oversees and coordinates the marketing of all limited
partnership interests nationwide and has overall responsibility for the
portfolio management of all partnership investments and investor relations.
Mr. Parks received his B.A. Degree from Northeastern Illinois University and
M.A. from the University of Chicago. He is a registered Direct Participation
Program Principal with the National Association of Securities Dealers, Inc. and
a licensed real estate broker. He is a member of the Real Estate Investment
Association and the National Association of Real Estate Investment Trusts.
G. JOSEPH COSENZA. Affiliated Director of the Company since its formation
in 1994. Mr. Cosenza joined TIGI in 1968. Mr. Cosenza is a Director and Vice
Chairman of TIGI. Mr. Cosenza oversees, coordinates and directs Inland's many
enterprises and, in addition, immediately supervises a staff of three persons
who engage in property acquisition. Mr. Cosenza has been
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a consultant to other real estate entities and lending institutions on
property appraisal methods. Mr. Cosenza received his B.A. Degree from
Northeastern Illinois University and his M.S. Degree from Northern Illinois
University. From 1967 to 1968, Mr. Cosenza taught at the LaGrange School
District in Hodgkins, and from 1968 to 1972, he served as Assistant Principal
and teacher in the Wheeling School District. He has been a licensed real
estate broker since 1968 and an active member of various national and local
real estate associations, including the National Association of Realtors and
the Urban Land Institute. Mr. Cosenza has also been Chairman of the Board of
American National Bank of DuPage and part owner of American National Bank of
DuPage and Burbank State Bank, and has served on the Board of Directors of
Continental Bank of Oakbrook Terrace. Mr. Cosenza was the individual general
partner of a limited partnership which ceased making debt service payments to
an unaffiliated lender with the objective of reducing or restructuring the debt
to a level which was commensurate with the level of performance of the property
owned by such partnership. The lender acquired the property owned by such
partnership through foreclosure and an affiliate of Mr. Cosenza supplied the
partnership with the new property, an ownership interest in a retail store in
Marshall, Minnesota, leased on a triple-net basis by Wal-Mart Stores, Inc. See
"Prior Performance of the Company's Affiliates--Loan Modifications and
Work-Outs."
ROLAND W. BURRIS. Independent Director since January 1996. Mr. Burris
has been the Managing Partner of Jones, Ware & Grenard, a Chicago law firm
since June 1995, where he practices primarily in the areas of environmental,
banking and consumer protection. After obtaining his law degree from Howard
University Law School in 1963, Mr. Burris began a career in the banking
industry initially as a federal bank examiner and then at Continental Illinois
National Bank where he rose to the position of vice president. From 1973 to
1995, Mr. Burris was involved in State of Illinois government including holding
the positions of State Comptroller and Attorney General of the State of
Illinois. Mr. Burris completed his undergraduate studies at Southern Illinois
University and studied international law as an exchange student at the
University of Hamburg in Germany. Mr. Burris serves on many boards, including
the Illinois Criminal Justice Authority, the Financial Accounting Foundation,
the Law Enforcement Foundation of Illinois, the African American Citizens
Coalition on Regional Development and the Boy Scouts of America. He currently
serves as chair of the Illinois State Justice Commission. He is also serving
as an adjunct professor in the Master of Public Administration Program at
Southern Illinois University.
DOUGLAS R. FINLAYSON, M.D. Independent Director of the Company since
October 1994. Dr. Finlayson is a full-time family practice and nutritional
medicine physician with Partners in Primary Care in Rolling Meadows, Illinois
and Westlake Clinic in Ingleside, Illinois. He joined the Clinic in 1992.
From 1968 to 1971, Dr. Finlayson was a battalion surgeon in the United States
Army. Dr. Finlayson began private practice in 1971 joining the staff of
Northwest Community Hospital, and from 1982 until 1988, Dr. Finlayson served as
Medical Director of the Rolling Meadows Alcohol and Drug Dependence Program of
Lutheran Welfare Services. From 1988 until joining Westlake Clinic in 1992,
Dr. Finlayson practiced medicine on a part-time basis primarily in the area of
nutritional medicine. Since 1975, Dr. Finlayson has been involved with buying
and selling real estate assets, including vacant land, speculative housing and
rental properties, for his own account. In 1978, Dr. Finlayson acquired and
developed 100 acres in South Barrington, Illinois, and as a member of the
Church Building Committee, led the development of the Willow Creek Community
Church Campus. Since 1983, Dr. Finlayson has been designing computer software
systems for medical application including projects for the Illinois Hospital
Association. Dr. Finlayson holds a B.S. Degree in Chemistry from the
University of Illinois and a M.D. Degree from the University of Heidelberg,
Germany.
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HEIDI N. LAWTON. Independent Director of the Company since October 1994.
Ms. Lawton is managing broker, owner and president of Lawton Realty Group, an
Oak Brook, Illinois real estate brokerage firm which she founded in 1989.
Lawton Realty Group employs four full-time associates and generates sales
volume of approximately $20,000,000 annually. The firm specializes in
commercial, industrial and investment real estate brokerage. Ms. Lawton is
responsible for all aspects of the operations of the company. She also
structures real estate investments for clients -- procuring partner/investors,
acquiring land and properties and obtaining financing for development and/or
acquisition. Prior to founding Lawton Realty Group and while she was earning
her B.S. Degree in business management from the National College of Education,
she was managing broker for VCR Realty in Addison, Illinois. While there, she
was engaged primarily in brokerage of industrial and commercial property. She
also provided property management services, including leasing, for a portfolio
of more than 100 properties, including condominium complexes, industrial,
apartment and small retail shopping centers. At the beginning of her career in
real estate, she acted as a general contractor building and selling
single-family homes as well as a retail center in Lombard, Illinois. As a
licensed real estate professional since 1982, she has served as a member of the
Certified Commercial Investment Members, secretary of the Northern Illinois
Association of Commercial Realtors, and is a past board member and commercial
director of the DuPage Association of Realtors.
ROBERTA S. MATLIN. Vice President - Administration of the Company since
March 1995. Ms. Matlin joined Inland in 1984 as Director of Investor
Administration and currently serves as Senior Vice President - Investments of
IREIC directing the day-to-day internal operations. She is also the President
and a Director of Inland Securities Corporation. Prior to joining Inland, Ms.
Matlin 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.
CYNTHIA M. HASSETT. Secretary, Treasurer and Chief Financial Officer of
the Company since January 1995. Ms. Hassett has been Secretary and Treasurer
of the Advisor since its formation in 1994. Ms. Hassett joined Inland in 1983
and is a Vice President of IREIC. Ms. Hassett is responsible for the
Investment Accounting Department which includes the accounting for the Company
and all public limited partnership accounting functions along with quarterly
and annual SEC filings. Prior to joining Inland, Ms. Hassett was on the audit
staff of Altschuler, Melvoin and Glasser since 1980. She received her B.S.
Degree in Accounting from Illinois State University. Ms. Hassett is a
Certified Public Accountant and is a member of the American Institute of
Certified Public Accountants.
PATRICIA A. CHALLENGER. Assistant Secretary of the Company since March
1995. Ms. Challenger joined Inland in 1985. She is currently a Senior Vice
President of IREIC in the area of asset management. As head of the Asset
Management Department, she develops operating and disposition strategies for
all investment-owned properties. Ms. Challenger received her B.S. Degree from
George Washington University and her Master's Degree from Virginia Tech
University. Ms. Challenger was selected and served from 1980 to 1984 as
Presidential Management Intern, where she was part of a special government-wide
task force to eliminate waste, fraud and abuse in government contracting and
also served as Senior Contract Specialist responsible for capital improvements
in 109 government properties. Ms. Challenger is a licensed real estate
salesperson, NASD registered securities sales representative and is a member of
the Urban Land Institute.
COMMITTEES OF THE BOARD OF DIRECTORS
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Audit Committee. The Board has established an Audit Committee consisting
of two Independent Directors, Ms. Lawton and Mr. Burris. The Audit Committee
makes recommendations concerning the engagement of independent public
accountants, reviews the plans and results of the audit engagement with the
independent public accountants, approves professional services provided by, and
the independence of, the independent public accountants, considers the range of
audit and non-audit fees and consults with the independent public accountants
regarding the adequacy of the Company's internal accounting controls.
Executive Committee. The Board may establish an Executive Committee
consisting of three Directors, including two Independent Directors. The
Executive Committee would likely exercise all powers of the Directors except
for those which require actions by all of the Directors or the Independent
Directors under the Articles or Bylaws or under applicable law.
Executive Compensation Committee. The Board may establish an Executive
Compensation Committee consisting of three Directors, including two Independent
Directors, to establish compensation policies and programs for the Company's
executive officers. The Executive Compensation Committee will exercise all
powers of the Board in connection with establishing and implementing
compensation matters, including incentive compensation and benefit plans.
COMPENSATION OF DIRECTORS
The Company pays its Independent Directors an annual fee of $1,000. In
addition, Independent Directors receive $250 for attendance (in person or by
telephone) at each meeting of the Board or committee thereof. Officers of the
Company who are Directors are not paid any directors' fees. Each Independent
Director received options to purchase 3,000 Shares at a price of $9.05 per
Share under the Company's Independent Director Stock Option Plan. On the date
of the annual meeting of the Company's Stockholders, each Independent Director
then in office will receive an annual grant of options to purchase 500 Shares.
See "--Independent Director Stock Option Plan" in this Section.
THE ADVISOR
The Advisor is a wholly owned subsidiary of IREIC. The Advisor is an
Illinois corporation and the following table sets forth information with
respect to the executive officers and directors of the Advisor. The
biographies of Robert D. Parks, G. Joseph Cosenza, Roberta S. Matlin, Patricia
A. Challenger and Cynthia M. Hassett are set forth above.
Name Position and Office with the Advisor
--------------- ------------------------------------
Robert D. Parks Chairman of the Board and President
G. Joseph Cosenza Director
Norbert J. Treonis Director
Roberta S. Matlin Director and Secretary
Patricia A. Challenger Vice President -- Asset Management
Cynthia M. Hassett Treasurer
NORBERT J. TREONIS (age 45) has been a director of the Advisor since its
formation in 1994. Mr. Treonis joined TIGI and its Affiliates in 1975 and he
is currently Chairman and Chief Executive Officer of Inland Property Management
Group, Inc., Chairman of the Board of Directors of Inland Commercial Property
Management, Inc. and a Director of TIGI. He serves on the Board of Directors
of all Inland
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<PAGE> 227
subsidiaries involved in the property management, acquisitions and maintenance
of real estate, including Mid-America Management Corp. and American Building
Services, Inc. Mr. Treonis is charged with the responsibility of the overall
management and leasing of all apartment units, retail, industrial and
commercial properties nationwide. Mr. Treonis is a licensed real estate
broker. He is a past member of the Board of Directors of American National
Bank of DuPage, the Apartment Builders and Managers Association of Illinois,
the National Apartment Association and the Chicago Apartment Association.
The Advisor is a member of a group of affiliated corporations, The Inland
Group, Inc. ("TIGI"), which is engaged in businesses related to many aspects of
real estate and mortgage financing. The relevant skills and experience of each
of these companies, developed over the course of 30 years in business,
primarily in the Chicago metropolitan area, is available to the Company in the
conduct of its business.
The first of the TIGI-affiliated businesses was started by a group of
Chicago school teachers in 1967, and incorporated the following year. The
founders of TIGI all remain actively involved in overseeing these companies.
The businesses of these TIGI-affiliated companies are still centered in the
Chicago metropolitan area, since the founders of TIGI believe that sound real
estate operations require detailed knowledge of local conditions. Over the
past 30 years, TIGI-affiliated companies have experienced significant growth.
TIGI-affiliated companies, in the aggregate, in April 1996 were ranked by
Crain's Chicago Business as the 32nd largest privately held business group
headquartered in the Chicago area. Limited partnerships for which IREIC is the
general partner own in excess of 9,800 acres of pre-development land in the
Chicago area, as well as 10,500,000 square feet of commercial property in
Chicago and nationwide.
As TIGI-affiliated companies bought and sold properties over the years,
necessary expertise in real estate financing was developed. This function was
formally recognized in 1977, with the incorporation of IMC. IMC, during its
history, has originated more than $1 billion in financing, including loans to
third parties and affiliated entities.
Further delineation of functions and duties associated with financing
occurred in 1990, with the separate incorporation of Inland Mortgage Investment
Corporation ("IMIC") and Inland Mortgage Servicing Corporation ("IMSC"). IMIC,
as of March 1, 1996, owned a $57,000,000 loan portfolio, and IMSC serviced a
loan portfolio of 455 loans exceeding $460,000,000.
THE ADVISORY AGREEMENT
Under the terms of the Advisory Agreement, the Advisor generally has
responsibility for the day-to-day operations of the Company, administers the
Company's bookkeeping and accounting functions, serves as the Company's
consultant in connection with policy decisions to be made by the Directors,
manages or causes to be managed the Company's properties and renders other
services as the Directors deem appropriate. The Advisor is subject to the
supervision of the Directors and has only such functions as are delegated to
it.
The Advisor bears the expenses incurred by it in connection with
performance of its duties under the Advisory Agreement, including employment
expenses of its personnel, certain travel and other expenses of the directors,
officers and employees of the Advisor, rent, telephone, and equipment expenses
to the extent such expenses relate to the office maintained by both the Company
and the Advisor and miscellaneous administrative expenses incurred in
supervising, monitoring and inspecting real property or
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<PAGE> 228
other investments of the Company or relating to its performance under the
Advisory Agreement. The Advisor receives reimbursement for certain expenses it
incurs. The Company bears its own expenses for functions not required to be
performed by the Advisor under the Advisory Agreement, which generally include
capital raising and financing activities, corporate governance matters and
other activities not directly related to the Company's properties.
The Advisory Agreement, which was entered into by the Company, with the
unanimous approval of the Directors, including the Independent Directors, is
for a one-year term subject to successive one-year renewals upon the mutual
consent of the parties. It may be terminated by either party, or by mutual
consent of the parties or by a majority of the Independent Directors of the
Company or the Advisor, as the case may be, upon 60 days written notice without
cause or penalty. In the event of the termination of the Advisory Agreement,
the Advisor will cooperate with the Company and take all reasonable steps
requested to assist the Directors in making an orderly transition of the
advisory function.
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 (ii) 25%
of the Company's Net Income for that calendar year.
The Advisory Agreement gives the Company the first opportunity to buy any
Neighborhood Retail Centers placed under contract by the Advisor or its
Affiliates provided the Company is able to close the purchase within 60 days.
The Advisory Agreement also provides the Company with the first opportunity to
purchase any single-user retail property net leased by a creditworthy tenant
located anywhere in the United States which is placed under contract or about
to be placed under contract by the Advisor or its Affiliates, provided that:
(i) the Company has funds available to make the purchase; (ii) the Board votes
to make the purchase within five days of being offered such property by the
Advisor; (iii) the property meets the Company's acquisition criteria; and (iv)
in the event that more than one real estate investment program sponsored by the
Advisor or its Affiliates has funds available to make the purchase, such
property will first be offered to the program which has had funds available for
the longest period of time.
If the Advisor or its Affiliates perform services that are outside of the
scope of the Advisory Agreement, compensation is at such rates and in such
amounts as are agreed by the Advisor and the Independent Directors. The
Directors (including a majority of its Independent Directors) approved the
payment to the Advisor of an Acquisition Expense reimbursement equal to
approximately 0.5% of Gross Offering Proceeds to cover costs incurred in the
Advisor's site selection and acquisition activities (including travel and
related items) on behalf of the Company. See "Compensation Table."
Many REITs which are listed on national stock exchange or included for
quotation on a national market system are considered "self-administered," since
the employees of the REIT perform all significant management functions. In
contrast, REITs that are not self-administered, like the Company, typically
engage a third-party to perform management functions on its behalf, such as an
advisor. Accordingly, should the Company commence a subsequent public offering
after completion of this Offering and apply to have the Shares listed for
trading on a national stock exchange or included for quotation on a national
market system, it may be in the Company's best interest to become
self-administered. In this event, if the Independent Directors determine that
the Company should become self-administered, the Advisory Agreement permits the
Advisor to merge into the Company and for the Company to allow such merger,
with the consideration determined through appropriate means agreed to by the
Company and the Advisor.
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<PAGE> 229
In the event the Advisor is merged into the Company, certain key employees of
the Advisor will become employees of the Company.
In the event the Advisory Agreement is terminated because Shares are
listed for trading on a national stock exchange or market system, provision for
payment of fees to the Advisor will be terminated. The Advisor and the
Management Agent may be merged into the Company at the time of listing and may
receive Shares in the Company in an amount which would be determined at that
time, based upon the value of all fees given up or waived by the Advisor and
the Management Agent through the merger. In the event the Advisory Agreement
is terminated for any reason other than the merger of the Advisor into the
Company, all obligations of the Advisor and its Affiliates to offer properties
to the Company for purchase shall also terminate.
The Company has agreed to indemnify the Advisor and pay or reimburse
reasonable expenses in advance of final disposition of a proceeding to the
Advisor with respect to acts or omissions of the Advisor, provided that: (i)
the Advisor determined, in good faith, that the course of conduct which caused
a loss or liability was in the best interest of the Company; (ii) the Advisor
was acting on behalf of or performing services for the Company; (iii) such
liability or loss was not the result of misconduct on the part of the Advisor;
and (iv) such indemnification or agreement to hold harmless is recoverable only
out of the Company's net assets and not from the Stockholders.
THE MANAGEMENT AGENT
Inland Commercial Property Management, Inc. ("ICPM" or the "Management
Agent"), an Affiliate of the Advisor, provides property management services to
the Company. ICPM, an Illinois corporation, is a wholly owned subsidiary of
Mid-America Management Corp. ("Mid- America"), which manages approximately
14,600 multi-family units, including approximately 13,600 in the Chicago
metropolitan area more than any other firm in that market. ICPM was
incorporated in 1994 to segregate responsibility for Mid-America's growing
management portfolio of commercial properties. In August 1988, Mid-America and
its Affiliates owned or managed 1.3 million square feet of retail property.
This figure had grown to 5.8 million square feet by August 1991 and to 9.6
million square feet in April 1996.
ICPM is responsible for collections, leasing and maintenance of the
commercial properties which it manages. A substantial portion of the
portfolio, approximately 7.6 million square feet, consists of properties
triple-net leased to creditworthy tenants, whereby the tenant operates and
maintains the property and rent is net of property taxes, insurance and
operating expenses.
The following table sets forth information with respect to the
executive officers and directors of ICPM. The biography of Mr. Norbert J.
Treonis is set forth above.
<TABLE>
<CAPTION>
Name Age Position and Office with ICPM
---- --- -----------------------------
<S> <C> <C>
Norbert J. Treonis 45 Chairman of the Board of Directors
Robert H. Baum 52 Director
Daniel L. Goodwin 52 Director
D. Scott Carr 30 President
Kristi Wells 30 Vice President
Robert M. Barg 42 Secretary/Treasurer
</TABLE>
63
<PAGE> 230
ROBERT H. BAUM has been a Director of ICPM since its formation. Mr.
Baum has been with TIGI and its Affiliates since 1967 and is one of the four
original principals. Mr. Baum is Executive Vice President-General Counsel and
a Director of TIGI. In his capacity as General Counsel, Mr. Baum is
responsible for the supervision of the legal activities of TIGI and its
Affiliates. This responsibility includes the supervision of the Inland Law
Department and serving as liaison with all outside counsel. Mr. Baum is a
member of the North American Securities Administrators Association Real Estate
Advisory Committee and is a member of the Securities Advisory Committee to the
Secretary of State of Illinois. He is also a member of the American
Corporation Counsel Association, as well as a member of several bar
associations. Mr. Baum has been admitted to practice before the Supreme
Courts of the United States and the State of Illinois, as well as the bars of
several federal courts of appeals and federal district courts. He received his
B.S. Degree from the University of Wisconsin and his J.D. Degree from
Northwestern University School of Law.
DANIEL L. GOODWIN has been a Director of ICPM since its formation.
Mr. Goodwin is Chairman of the Board of Directors of TIGI, a billion-dollar
real estate and financial organization located in Oak Brook, Illinois. Mr.
Goodwin has been with TIGI and its Affiliates since 1967. Among TIGI's
subsidiaries is the largest property management firm in Illinois and one of the
largest commercial real estate and mortgage banking firms in the Midwest. Mr.
Goodwin has served as Director of the Avenue Bank of Oak Park and as a Director
of the Continental Bank of Oakbrook Terrace. He was also Chairman of the Bank
Holding Company of American National Bank of DuPage. Currently, he is the
Chairman of the Board of Inland Mortgage Investment Corporation.
Mr. Goodwin has served on the Board of the Illinois State Affordable
Housing Trust Fund for the past six years. He is an advisor for the Office of
Housing Coordination Services of the State of Illinois, and a member of the
Seniors Housing Committee of the National Multi- Housing Council. Illinois
Governor James Edgar appointed him Chairman of the Housing Production Committee
for the Illinois State Affordable Housing Conference. He has also served as a
member of the Cook County Commissioner's Economic Housing Development
Committee, and he was the Chairman of the DuPage County Affordable Housing Task
Force. The 1992 Catholic Charities Award was presented to Mr. Goodwin for his
work in addressing affordable housing needs. The City of Hope designated him
as the 1980's Man of the Year for the Illinois construction industry. In 1989,
the Chicago Metropolitan Coalition on Aging presented Mr. Goodwin with an award
in recognition of his efforts in making housing more affordable to Chicago's
senior citizens. On May 4, 1995, PADS, Inc. (Public Action to Deliver Shelter)
presented Mr. Goodwin with an award, recognizing TIGI as the leading corporate
provider of transitional housing for the homeless people of DuPage County.
Mr. Goodwin is a product of Chicago-area schools, and obtained his
Bachelor's and Master's Degrees from Illinois universities. Following
graduation, he taught for five years in the Chicago public schools. In 1990,
he received the Northeastern Illinois University President's Meritorious
Service Award. Mr. Goodwin holds a Master's Degree in Education from Northern
Illinois University and, in 1986, he was awarded an honorary doctorate from
Northeastern Illinois University College of Education. He is currently a
trustee of Illinois Benedictine College, and a member of the Board of Governors
of Illinois State Colleges and Universities. He was elected chairman of the
Northeastern Illinois University Board of Trustees in January 1996. Mr.
Goodwin served as a member of Governor Edgar's Transition Team. He also
served as a member of the Illinois House of Representatives Speaker's Advisory
Council.
Mr. Goodwin was the individual general partner of 14 W. Elm Limited
Partnership, 1445 North State Limited Partnership, 5600 Sheridan Limited
Partnership, 5630 Sheridan Limited Partnership and
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<PAGE> 231
6030 Sheridan Limited Partnership, each of which ceased making debt service
payments to unaffiliated lenders with the objective of reducing or
restructuring the debt to a level which was commensurate with the level of
performance of the property owned by such partnerships. See "Prior Performance
of the Company's Affiliates--Loan Modifications and Work-Outs."
D. SCOTT CARR has been an officer of ICPM since its formation. Mr.
Carr was appointed Vice President and Secretary of ICPM in July 1994 and was
appointed President in July 1995. Mr. Carr joined TIGI and its Affiliates in
1987. Mr. Carr has responsibility for all the portfolio of commercial
properties managed by ICPM, including management and leasing. Mr. Carr is a
licensed real estate broker. He is a Certified Property Manager candidate with
the Institute of Real Estate Management and a member of the International
Council of Shopping Centers.
KRISTI A. WELLS has been an employee of ICPM since its formation. Ms.
Wells was appointed Assistant Vice President in July 1994 and in July 1995 was
appointed Vice President. Ms. Wells joined TIGI in 1990. Ms. Wells is a
licensed real estate broker and is a member of the International Counsel of
Shopping Centers.
ROBERT M. BARG has been the Secretary and Treasurer of ICPM since
January 1995. Mr. Barg joined the Inland Property Management Group in January
1986 and is Vice President and Controller of Mid-America. Prior to joining
TIGI, Mr. Barg was an Accounting Manager for the Charles H. Shaw Co. He
received his B.S. Degree in Business Administration from the University of
Illinois - Chicago and a Master's Degree from Western Illinois University. Mr.
Barg is a Certified Public Accountant and is a member of the Illinois CPA
Society. He holds a real estate sales license and is registered with the NASD
as a securities sales representative.
OTHER SERVICES
In addition to the services described above provided by the Advisor
and its Affiliates, Affiliates of the Advisor may provide other property-level
services to the Company and may receive compensation for such services,
including leasing, development, construction management, loan origination and
servicing, property tax reduction and risk managing fees. However, under no
circumstances will such compensation exceed 90% of that which will be paid to
third parties providing such services and all such compensation must have the
prior approval of a majority of the Directors, including a majority of the
Independent Directors.
INDEPENDENT DIRECTOR STOCK OPTION PLAN
The Company adopted the Independent Director Stock Option Plan (the
"Independent Director Stock Option Plan") concurrently with the commencement of
the Prior Offering. Only non-employee Directors who are "disinterested
persons" as defined under Rule 16b-3 of the Exchange Act are eligible to
participate in the Independent Director Stock Option Plan.
A total of 50,000 shares of Common Stock have been authorized and
reserved for issuance under the Independent Director Stock Option Plan. If the
outstanding shares of Common Stock are increased, decreased or changed into, or
exchanged for, a different number or kind of shares or securities of the
Company through a reorganization or merger in which the Company is the
surviving entity, or through a combination, recapitalization, reclassification,
stock split, stock dividend, stock consolidation or otherwise, an appropriate
adjustment shall be made in the number and kind of shares that may be issued
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pursuant to options. A corresponding adjustment to the consideration payable
with respect to options granted prior to any such change shall also be made.
Any such adjustment, however, shall be made without change in the total
payment, if any, applicable to the portion of the options not exercised but
with a corresponding adjustment in the price for each share.
The Independent Director Stock Option Plan provides for the grant of
non-qualified stock options to purchase 3,000 Shares to each Independent
Director as of the date such individuals become Directors (the "Initial
Options"), and subsequent grants of options to purchase 500 Shares on the date
of each annual stockholders' meeting to each Independent Director then in
office (the "Subsequent Options", collectively with the "Initial Options"
referred to herein as an "Option" or "Options"). As of the date of this
Prospectus, Options to purchase 11,500 Shares at $9.05 per Share had been
granted.
The purchase price of Common Stock (the "Option Price") under each
Initial Option granted to Independent Directors who became Directors on or
before the date of the Offering is the fair market value of the Common Stock at
the date of the commencement of the Offering. The Option Price under each
Initial Option granted to Directors who become Directors after the commencement
of the Offering will be the fair market value of the Common Stock as of the
date of grant. The Option Price under each Subsequent Option granted to
Directors shall be the fair market value of the Common Stock on the last
business day preceding the annual meeting. The Option Price under Options
granted during the period of the Offering is fixed in the Independent Director
Stock Option Plan at $9.05 per share.
The Initial Options are exercisable as follows: 1,000 Shares on the
date of grant and 1,000 Shares on each of the first and second anniversaries of
the date of grant. The Subsequent Options are exercisable on the second
anniversary of the date of grant. Options granted under the Independent
Director Stock Option Plan continue to be exercisable until the first to occur
of the tenth anniversary of the date of grant or three months following the
date the Independent Director ceases to be a Director and may be exercised by
payment of cash or through the delivery of Common Stock. Notwithstanding any
other provisions of the Independent Director Stock Option Plan to the contrary,
no Option issued pursuant thereto may be exercised if such exercise would
jeopardize the Company's status as a REIT under the Code.
No Option may be sold, pledged, assigned or transferred by an
Independent Director in any manner otherwise than by will or the laws of
descent or distribution. Options granted under the Independent Director Stock
Option Plan are generally exercisable in the case of death or disability for a
period of one year after death or the disabling event or three months after the
Independent Director ceases to be a member of the Board for any reason except
death or disability.
Upon the dissolution or liquidation of the Company, or upon a
reorganization, merger or consolidation of the Company with one or more
corporations as a result of which the Company is not the surviving corporation
or upon sale of all or substantially all of the Company's property, the
Independent Director Stock Option Plan shall terminate, and any outstanding
options shall terminate and be forfeited. Notwithstanding the foregoing, the
Board may provide in writing in connection with, or in contemplation of, any
such transaction for any or all of the following alternatives (separately or in
combinations): (i) for the assumption by the successor corporation of the
options theretofore granted or the substitution by such corporation for such
options of options covering the stock of the successor corporation, or a parent
or subsidiary thereof, with appropriate adjustments as to the number and kind
of shares and prices; (ii) for the continuance of the Independent Director
Stock Option Plan by such successor corporation in which event the Independent
Director Stock Option Plan and the options shall continue in the manner and
under
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the terms so provided; or (iii) for the payment in cash or Shares in lieu of
and in complete satisfaction of such options.
SELECTED FINANCIAL DATA
The following table sets forth selected financial information derived
from the financial statements of the Company. Balance sheet data at March 31,
1996 and December 31, 1995 and 1994 and income statement data for the three
months ended March 31, 1996 and for the years ended December 31, 1995 and 1994
have been derived from the audited financial statements of the Company. In
addition, the data should be read in conjunction with "Management's Discussion
and Analysis of Financial Condition and Results of Operations," and the
financial statements of the Company and related notes thereto included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
(Unaudited)
Three
Months
Ended
March 31, Year Ended December 31,
---------- -----------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Total assets . . . . . . . . . . . . . . . . . . . . . . $26,428,081 18,750,877 2,402,373
Mortgage payable . . . . . . . . . . . . . . . . . . . . 748,011 750,727 --
Total income . . . . . . . . . . . . . . . . . . . . . . 761,079 1,180,422 --
Net income . . . . . . . . . . . . . . . . . . . . . . . 235,266 496,514 --
Net income per share (a) . . . . . . . . . . . . . . . . .12 .53 --
Distributions declared . . . . . . . . . . . . . . . . . 476,675 736,627 --
Distributions per share (a) . . . . . . . . . . . . . . . .20 .78 --
Funds from Operations (a) (b) . . . . . . . . . . . . . . 338,357 666,408 --
Funds available for distributions (b) . . . . . . . . . . 440,406 787,011 --
Cash flows from operating activities . . . . . . . . . . 596,106 978,350 --
Cash flows used in investing activities . . . . . . . . . (5,811,430) (6,577,843) (1,703,498)
Cash flows from financing activities . . . . . . . . . . 7,413,866 6,327,490 1,714,432
Weighted average number of common shares
</TABLE>
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<TABLE>
<S> <C> <C> <C>
outstanding . . . . . . . . . . . . . . . . . . . . 2,394,092 943,156 20,000
</TABLE>
(a) The net income and distributions per share are based upon the weighted
average number of common shares outstanding. The $.20 per share
Distribution for the three months ended March 31, 1996 and the $.78
per share Distribution for the fiscal year ended December 31, 1995,
represented 141% and 110.5% of the Company's Funds From Operations
("FFO") and 108% and 93.6% of funds available for distribution for
those periods. See Footnote (b) below for information regarding the
Company's calculation of FFO. Distributions by the Company to the
extent of its current and accumulated earnings and profits for federal
income tax purposes will be taxable to Stockholders as ordinary
dividend income. Distributions in excess of earnings and profits
generally will be 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
will have the effect of deferring taxation of the amount of the
Distribution until the sale of the Stockholder's Shares. The Company
cannot calculate the portion of the Distribution for the three months
ended March 31, 1996 that represented a return of capital. For 1995,
$42,414 (or 5.76%) of the $736,627 Distribution paid for 1995
represented a return of capital. In order to maintain its
qualification as a REIT, the Company must make annual distributions to
Stockholders of at least 95% of its taxable income (which does not
include net capital gains) which was approximately $659,500 (or 89.5%)
of the Distribution paid in 1995. 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
expenditure, the annual distribution required to maintain REIT status
under the Code and other factors the Board of Directors may deem
relevant.
(b) "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 after
adjustments for unconsolidated partnerships and joint ventures. The
Company presently has no interests in unconsolidated partnerships or
joint ventures. FFO and funds available for distribution are
calculated as follows:
<TABLE>
<CAPTION>
3/31/96 1995 1994
------- ---- ----
<S> <C> <C> <C>
Net income . . . . . . . . . . . . . . . . . . . . . $ 235,266 496,514 --
Depreciation . . . . . . . . . . . . . . . . . . . . 103,091 169,894 --
------- ------- --------
Funds from operations (1) . . . . . . . . . . . 338,357 666,408 --
Deferred rent receivable . . . . . . . . . . . . . (7,284) (12,413)(2) --
Rental income received under master
lease agreements (3) . . . . . . . . . . . . . 109,333 133,016 --
------- ------- ---------
Funds available for distribution . . . . . . . $440,406 787,011 --
======== ========== ==========
</TABLE>
(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
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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 18
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
December 31, 1995, the Company had recorded $133,016 of such
payments and for the three months ended March 31, 1996, the
Company recorded $109,333 of such payments.
INVESTMENT OBJECTIVES AND POLICIES
1. General. The Company's investment objectives are to: (i)
make regular Distributions to the Stockholders in amounts which may exceed the
Company's taxable income due to the non-cash nature of depreciation expense
and, to such extent, will constitute a tax-deferred return of capital, but in
no event less than 95% of the Company's taxable income pursuant to the REIT
qualification requirements; (ii) provide a hedge against inflation by entering
into leases which contain clauses for scheduled rent escalations or
participation in the growth of tenant sales, permitting the Company to increase
Distributions and provide capital appreciation; and (iii) preserve
Stockholders' capital.
2. Distributions. The Company currently pays regular monthly
Distributions to its Stockholders. However, the Company reserves the right,
prior to the completion of the acquisition process, to pay Distributions on a
quarterly basis out of Cash Flow, in an amount determined by the Board. 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. The continuation of Distributions and
the size of the Distributions depend upon a variety of factors. There can be
no assurance that Distributions will be made. Distributions for the year ended
December 31, 1995, totaled $736,627, of which $42,414 was a return of capital
for federal income tax purposes. In addition, Distributions for the three
months ended March 31, 1996 totalled $476,675, a portion of which may be a
return of capital.
To the extent possible, it will be the policy of the Company
to avoid the fluctuations in Distributions which might result if Distributions
were based on actual cash received during the Distribution period. To
implement this policy, the Company may use cash received during prior periods,
or cash received subsequent to the Distribution period and prior to the payment
date for such Distribution, in order to pay annualized Distributions consistent
with the Distribution level established from time to time by the Board. The
Company's ability to maintain this policy will be dependent upon the
availability of Cash Flow and applicable REIT rules. Therefore, there can be
no assurance that there will be Cash Flow available to pay Distributions, or
that Distributions will not fluctuate. Monthly Distributions will be
calculated with daily record and Distribution declaration dates. However, the
Board could, at any time, elect to pay Distributions quarterly, to reduce
administrative costs. It will be the general policy of the
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Company, subject to applicable REIT rules, to reinvest proceeds from the sale,
financing, refinancing or other disposition of its properties through the
purchase of additional properties. See "--Sale or Disposition of Properties"
in this Section.
3. Types of Investments. The Company was formed to acquire
existing Neighborhood Retail Centers located primarily within an approximate
150-mile radius of its headquarters in Oak Brook, Illinois, a Chicago suburb,
where the Advisor maintains its acquisition and property management
headquarters, as well as single-user properties net leased by creditworthy
tenants, located throughout the United States. The Company may enter into sale
and leaseback transactions, pursuant to which the Company will purchase a
property from an entity and lease the property to such entity. It is the
Company's intention, whenever possible, to acquire properties free and clear of
permanent mortgage indebtedness by paying the entire purchase price of each
property in cash or for shares of the Company's stock. However, if it is
determined to be in the best interests of the Company, the Company will, in
certain instances, utilize borrowing to acquire properties. On properties
purchased on an all-cash basis, 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 and increase Cash Flow. Certain of these
properties will be subject to "net" leases. "Net" leases typically require
that tenants pay all or a majority of the operating expenses including real
estate taxes, special assessments and sales and use taxes, utilities, insurance
and building repairs related to the property, as well as lease payments. The
leases will be long-term (typically 15 to 25 years, but generally not less than
ten years) and may provide for a base minimum annual rent with periodic
increases. For purposes hereof, a creditworthy tenant shall be defined as a
tenant with a minimum net worth equal to ten times one year's rental payments
required under the terms of the lease or, alternatively, a tenant for whom
payments under the lease are guaranteed by an affiliate having a minimum net
worth of $10 million.
The Company will elect to purchase properties based on an
examination and evaluation by the Advisor of the potential value of the site,
the financial condition and business history of the property, the demographics
of the area in which the property is located or to be located, the proposed
purchase price, geographic and market diversification and potential sales. In
acquiring a property, the Advisor requires a Phase I environmental report and,
if necessary, a Phase II environmental report. In a sale-leaseback situation,
the seller of the property generally is assuming the operating risk which may
increase the price paid for the property. All acquisitions from Affiliates are
subject to approval by a majority of the Directors, including a majority of the
Independent Directors.
The Advisor and its Affiliates may purchase properties in
their own name, assume loans in connection therewith and temporarily hold title
thereto for the purpose of facilitating the acquisition of such property,
borrowing money or obtaining financing for the Company, the completion of
construction of the property or any other purpose related to the business of
the Company. In no event, however, may the Advisor or its Affiliates transfer
any property to the Company which it has held in excess of 12 months prior to
commencement of the Offering, except those specified in this Prospectus.
4. Acquisition Standards. Through its experience with the
acquisition of approximately 750 properties by Affiliates, the Advisor believes
the Company has the ability to identify quality properties capable of meeting
the investment objectives of the Offering. In evaluating potential
acquisitions, the Company considers a number of factors, including a
property's: (a) geographic location and type; (b) construction quality and
condition; (c) current and projected cash flow; (d) potential for capital
appreciation; (e) lease rent roll, including the potential for rent increases;
(f) potential for economic growth in the tax and regulatory environment of the
community in which the property is located; (g) potential for
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expanding the physical layout of the property and/or the number of sites; (h)
occupancy and demand by tenants for properties of a similar type in the same
geographic vicinity; (i) prospects for liquidity through sale, financing or
refinancing of the property; (j) competition from existing properties and the
potential for the construction of new properties in the area; and (k) treatment
under applicable federal, state and local tax and other laws and regulations.
Statistics in this section are excerpted from Woods & Poole
Economics, Inc., 1996 MSA Profile, Metropolitan Area Forecasts to 2020. Woods
& Poole Economics, Inc. is a Washington, D.C.-based independent research firm
that specializes in long-term county economic and demographic forecasts.
Chicago statistics are for the Chicago Metropolitan Statistical Area/Primary
Metropolitan Statistical Area, as defined by the Office of Management and
Budget. All earnings, personal income and retail sales data are presented in
inflation-adjusted 1987 "constant" dollars.
In 1993, Chicago had the third largest population among 313
metropolitan areas in the nation with more than 7.6 million people. Chicago
today is one of the nation's largest metropolitan areas and retail markets.
While the rate of growth of this large market from 1993 through 2020 is
forecast to trail that of the nation as a whole, in absolute numbers Chicago
will be a leader in increases in population, jobs, per capita income and retail
sales. Population is forecast to increase 0.33% per year in the Chicago
metropolitan area, compared to 0.83% for the nation as a whole; for jobs, the
forecasted annual increase is 0.87% for Chicago, compared to 1.02% for the
nation; for retail sales, the total forecasted increase from 1993 to 2020 is
43% for Chicago and 64% for the nation.
Woods & Poole Economics, Inc. projects that from 1993 through
2020, the Chicago metropolitan area will add 714,840 persons, the 21st largest
increase among the nation's 313 metropolitan areas, with Chicago retaining its
current place as third largest metropolitan area in the nation.
For the same period it is forecast that the Chicago area will:
(i) see a 50% rise in per capita income, improving the area's ranking from 23rd
to 18th among the nation's 313 metropolitan areas; (ii) lead the nation in the
number of new jobs, with 1,153,500; and (iii) see a rise in annual retail sales
from $49.8 billion to $71.1 billion, the largest increase among any
metropolitan area in the nation.
5. Description of Leases. The Company anticipates that with
regard to its properties, lessees will generally be required to pay a share,
either pro rata or fixed, of the real estate taxes, insurance, utilities and
common area maintenance of the properties. It is the Company's intent that a
substantial number of these leases will also contain provisions which increase
the amount of base rent payable at certain points during the lease term and/or
provide for the payment of additional rent calculated as a percentage of a
tenant's gross sales above predetermined thresholds. The terms of the leases
with Anchor Tenants will generally have initial terms of ten to 25 years, with
one or more options available to the lessee upon expiration of the initial
term. By contrast, smaller tenant leases typically have three to five year
terms.
During the initial term of a "net" lease, anticipated to be
not less than ten years, but typically 15 to 25 years, the tenant will pay the
Company, as lessor, a predetermined minimum annual rent generally based upon
the Company's cost of purchasing the land and building.
Each "net" lease tenant will be required to pay its share of
the cost of the liability insurance covering the properties owned by the
Company. The third party liability coverage will insure, among others, the
Company and the Advisor. Each tenant will be required to obtain, at its own
expense,
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property insurance naming the Company as the insured party for fire and other
casualty losses in an amount equal to the full value of such property. All
such insurance must be approved by the Advisor. In general, the "net" lease
may be assigned or subleased with the Company's prior written consent, but the
original tenant will remain fully liable under the lease unless the assignee
meets certain income and net worth tests.
6. Property Acquisition. The Company's acquisitions are
anticipated to be acquisitions of fee interests in real property, although
other methods of acquiring a property may be utilized if it is deemed to be
advantageous to the Company. For example, the Company may acquire properties
through a joint venture or the acquisition of substantially all of the
interests of an entity which in turn owns the real property. The Company may
also use wholly owned subsidiaries to acquire a property. Such wholly owned
subsidiaries will be formed solely for the purpose of acquiring a property or
properties. See "--Joint Ventures" in this Section.
As of the date of this Prospectus, the Company had acquired
nine Neighborhood Retail Centers and two single-user retail properties. Two of
the properties acquired to date, the Eagle Crest Shopping Center and the
Walgreen/Decatur property, were acquired from an Affiliate. The purchase
prices for those properties were not the subject of arm's-length negotiations.
The Articles provide that the Company shall not purchase a property from an
Affiliate unless a majority of the Directors (including a majority of the
Independent Directors) not interested in the transaction approve the purchase
as fair and reasonable to the Company and at a price to the Company no greater
than the cost of the asset to such Affiliate, or if the price to the Company is
in excess of such cost, that substantial justification for such excess exists
and that such excess is reasonable. In no event shall the cost of such asset
to the Company exceed its current appraised value. A majority of the Directors
(including a majority of the then Independent Directors) approved the purchases
of the Eagle Crest Shopping Center and the Walgreen/Decatur property as being
fair and reasonable to the Company and at a price to the Company no greater
than the cost of the assets to such Affiliate. There can be no assurance,
however, that the prices paid to the Affiliate for the Eagle Crest Shopping
Center and the Walgreens/Decatur property or for future acquisitions of
properties from Affiliates, if any, did not or would not exceed that which
would be paid by an unaffiliated buyer. See "Real Property Investments."
In some cases, the Company may commit to purchase properties
subject to completion of construction in accordance with terms and conditions
specified by the Company. In such cases, the Company will be obligated to
purchase the property at the completion of construction, provided the
construction conforms to definitive plans, specifications and costs approved by
the Company and embodied in the construction contract, as well as, in most
instances, satisfaction that agreed upon percentages of the property are
leased. The Company will receive a certificate of an architect, engineer or
other appropriate party, stating that the property complies with all plans and
specifications. The Company will not be permitted to construct or develop
properties, or render any services in connection with such development or
construction.
If remodeling is required prior to the purchase of a property,
the Company will pay a negotiated maximum amount either upon completion or in
installments commencing prior to completion. Such amount will be based on the
estimated cost of such remodeling. In such instances, the Company will also
have the right to review the lessee's books during and following completion of
the remodeling to verify actual costs. In the event of substantial disparity
between estimated and actual costs, an adjustment in purchase price may be
negotiated. If remodeling is required after the purchase of a property,
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<PAGE> 239
an Affiliate of the Advisor may serve as construction manager for a fee no
greater than 90% of the fee a third party would charge for such services.
The Advisor and its Affiliates may purchase properties in
their own name, and assume loans in connection therewith and temporarily hold
title thereto for the purpose of facilitating the acquisition of such property,
obtaining financing for the Company, the completion of construction of the
property or any other purpose related to the business of the Company, in
accordance with the terms set forth in the Bylaws.
7. Borrowing. It is the Company's intention, whenever possible,
to acquire properties free and clear of permanent mortgage indebtedness by
paying the entire purchase price of each property in cash or for shares of the
Company's stock. However, if it is determined to be in the best interest of
the Company, the Company will, in certain instances, utilize borrowing to
acquire properties. On properties purchased on an all cash basis, 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 and increase Cash Flow.
The Company may also incur indebtedness to finance improvements to the
properties it acquires. The Company anticipates that aggregate borrowings
related to all of the Company's properties will not exceed 50% of their
combined fair market values, however, the maximum amount of borrowings in
relation to Net Assets shall, in the absence of the consent of a majority of
the Stockholders, not exceed 300% of Net Assets.
If the Company does borrow funds secured by its properties, it
intends to incur only non-recourse indebtedness, if available, in connection
with such borrowings, meaning that the lenders' rights on default will
generally be limited to foreclosure on the property which secured the
obligation. The Company will not borrow funds from a program sponsored by the
Advisor or its Affiliates which makes or invests in mortgage loans. If the
Company incurs mortgage indebtedness, it would endeavor to obtain level payment
financing, meaning that the amount of debt service payable would be
substantially the same each year, although some mortgages might provide for a
so-called "balloon" payment. Any mortgages secured by Company property will
comply with the restrictions set forth by the Commissioner of Corporations of
the State of California. See "Summary of the Organizational
Documents--Restrictions on Borrowing."
8. Sale or Disposition of Properties. The determination of
whether a particular property should be sold or otherwise disposed of will be
made after consideration of relevant factors, including performance or
projected performance of the property and market conditions, with a view toward
achieving the principal investment objectives of the Company.
In general, it will be the Company's policy to hold its
properties, prior to sale, for a minimum of four years. See "Federal Income
Tax Considerations--Taxation of the Company--Prohibited Transactions."
Furthermore, the general policy of the Company will be to reinvest proceeds
from the sale, financing, refinancing or other disposition of its properties
that represents the initial investment into additional properties or,
secondarily, to use such proceeds for the maintenance or repair of existing
properties or to increase reserves for such purposes. The objective of
reinvesting such portion of the sale, financing and refinancing proceeds is to
increase the real estate assets owned by the Company, and the Cash Flow derived
from such assets, prior to listing the Company's Shares on a national
securities exchange or market, with the further objective of maximizing Share
prices at the time of listing. Notwithstanding this policy, the Board, in its
discretion, may distribute to Stockholders all of the proceeds from the sale,
financing, refinancing or other disposition of the Company's properties. In
determining
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whether all of such proceeds should be distributed to Stockholders, the Board
will consider, among other factors, the desirability of properties available
for purchase, real estate market conditions, the likelihood of the listing of
the Company's shares on a national stock exchange or included for quotation on
a national market system and compliance with REIT regulations. Because the
Company may reinvest such portion of the proceeds from the sale, financing or
refinancing of its properties, the Company could hold Stockholders' capital
indefinitely. However, the affirmative vote of the Stockholders controlling a
majority of the Shares will force the Company to liquidate its assets and
dissolve. See "Summary of the Organizational Documents--Dissolution or
Termination of the Company."
In connection with a sale of a property owned by the Company,
the Company's general policy will be to obtain an all-cash sale price.
However, a purchase money obligation secured by a mortgage on the property sold
may be taken as partial payment; there are no limitations or restrictions on
the Company taking such purchase money obligations. The terms of payment to
the Company will be affected by custom in the area in which the property being
sold is located and the then prevailing economic conditions. To the extent the
Company receives notes and other property instead of cash from sales, such
proceeds (other than any interest payable thereon) will not be included in net
sale proceeds until and to the extent the notes or other property are actually
paid, sold, refinanced or otherwise disposed of and, therefore, the
distribution of the proceeds of a sale to the Stockholders may be delayed until
such time. In such cases, the Company will receive payments (cash and other
property) in the year of sale in an amount less than the selling price and
subsequent payments will be spread over a number of years.
9. Change in Investment Objectives. The Stockholders have no
voting rights with respect to implementing the investment objectives and
policies of the Company, all of which are the responsibility of the Board. The
Board will not, however, make any material change in the principal investment
objectives described herein under the caption "Investment Objectives and
Policies" without first obtaining the written consent or approval of the
Stockholders controlling a majority of the Shares.
10. Certain Investment Limitations. The Company will not: (i)
invest more than 10% of its total assets in unimproved real property; (ii)
invest in commodities or commodity future contracts; (iii) issue redeemable
equity securities; (iv) issue shares on a deferred payment basis or other
similar arrangement; and (v) operate in such a manner as to be classified as an
"investment company" for purposes of the Investment Company Act of 1940, as
amended. See "Summary of the Organizational Documents--Restrictions on
Investments."
11. Appraisals. All real property acquisitions made and to be
made by the Company have been or will be supported by an appraisal prepared by
a competent, independent appraiser who is a member-in-good standing of the
American Institute of Real Estate Appraisers prior to the purchase of the
property. The purchase price of each property will not exceed its appraised
value. It should be noted, however, that appraisals are estimates of value and
should not be relied on as measures of true worth or realizable value. The
appraisal will be maintained in the Company's records for at least five years
and copies of such appraisals will be available for review by Stockholders upon
their request.
12. Return of Uninvested Proceeds. Any of the proceeds of this
Offering allocable to investments in real property which have not been invested
in real property or committed for such purpose within the later of: (i) 24
months from the original effective date of this Prospectus; or (ii) 12 months
from the termination of the Offering, will be returned by the Company to the
Stockholders. All funds received by the Company out of the escrow account will
be available for the general use of the Company from the time of such receipt
until the expiration of the period discussed above and may be expended to
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operate the properties which have been acquired and to reimburse the Advisor
for certain expenses of the Company, to the extent allowable under the Advisory
Agreement. Funds will not be segregated or held separate from other funds of
the Company pending investment, and interest will be payable to the
Stockholders if uninvested funds are returned to them.
13. Additional Offerings and Exchange Listing. The Company
anticipates that, by 1999, the Board of Directors will determine whether it is
in the best interests of the Company to: (i) apply to have the Shares listed
for trading on a national stock exchange or included for quotation on a
national market system, provided the Company meets the then applicable listing
requirements; and/or (ii) commence a subsequent public offering after
completion of this Offering. The Company believes that the completion of a
subsequent public offering and/or exchange listing will allow the Company to
increase its size, portfolio diversity, stockholder liquidity, access to
capital and stability, and decrease its operating costs through economies of
scale. If listing of the Shares is not feasible by 1999, the Board may decide
to: (i) sell the Company's assets individually; or (ii) list the Shares at a
future date to provide liquidity for Stockholders.
14. Joint Ventures. The Company shall be permitted to invest in
joint venture arrangements with other public real estate programs formed by the
Advisor or any of its Affiliates if a majority of Directors (including a
majority of Independent Directors) not otherwise interested in the transaction
approve the transaction as being fair and reasonable to the Company and the
investment by each such joint venture partner is substantially on the same
terms and conditions as those received by other joint venturers.
The Company shall be permitted to invest in general
partnerships or joint venture arrangements with Affiliates other than publicly
registered Affiliates only under the following conditions: (i) the investment
is necessary to relieve the Company from any commitment to purchase a property
entered into prior to the closing of the Offering; (ii) there are no duplicate
property management or other fees; (iii) the investment of each entity is on
substantially the same terms and conditions; and (iv) the Company must have a
right of first refusal if the Advisor or its Affiliates wish to sell the
property held in such joint venture. In addition, the Company shall be
permitted to invest in general partnerships or joint venture arrangements with
Affiliates as co-owners of a property. The Company will be able to increase
its equity participation in such entity as additional proceeds of the Offering
are received by the Company with the result that the Company will end up with
up to a 100% equity ownership of the property, provided, however that the
affiliated general or joint venture partner will not be entitled to any profit
or other benefit on such sale of its equity participation to the Company.
It should be noted that there is a potential risk of an
impasse on joint venture decisions (i.e., that the Company and its joint
venture partner will be unable to agree on a matter material to the joint
venture). Furthermore, there can be no assurance that the Company will have
sufficient financial resources to exercise its right of first refusal. The
Company will not enter into joint venture arrangements with entities
unaffiliated with the Advisor and its Affiliates. See "Risk
Factors--Investment Risks--Objectives of Joint Venture Partners May Conflict
with the Company's Objectives."
15. Other Policies. In determining whether to purchase a
particular property, the Company may first obtain an option to purchase such
property. The amount paid for the option, if any, usually would be surrendered
if the property was not purchased and normally would be credited against the
purchase price if the property was purchased.
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The Company will not invest in any multi-family residential
properties, leisure home sites, farms, ranches, timberlands, unimproved or
mining properties. Assuming the Maximum Offering is sold, the Company does not
intend to invest more than approximately 20% of the anticipated proceeds in any
one property.
The Company holds all funds, pending investment in properties,
in assets which will allow the Company to continue to qualify as a REIT. Such
investments are highly liquid and provide for appropriate safety of principal
and may include, but are not limited to, investments such as GNMA bonds and
real estate mortgage investment conduits ("REMICs"). See "Federal Income Tax
Considerations--Taxation of the Company--REIT Qualification Tests."
The Company will not make distributions-in-kind, except for:
(i) distributions of readily marketable securities; (ii) distributions of
beneficial interest in a liquidating trust established for the dissolution of
the Company and the liquidation of its assets in accordance with the terms of
the Articles; or (iii) distributions of in-kind property which meet all of the
following conditions: (a) the Directors advise each Stockholder of the risks
associated with direct ownership of the property; (b) the Directors offer each
Stockholder the election of receiving in-kind property distributions; and (c)
the Directors distribute in-kind property only to those Stockholders who accept
the Directors' offer.
REAL PROPERTY INVESTMENTS
The Company currently owns nine Neighborhood Retail Centers and two
single-user retail properties. The terms of the Company's leases vary
depending upon tenant size, but in many cases contain contractual provisions
which automatically increase the amount of base rent payable at certain points
during the term of the lease. Such leases may also contain provisions which
provide for the payment of additional rent calculated as a percentage of a
tenant's gross sales above pre-determined thresholds.
THE WALGREENS/DECATUR PROPERTY
On January 31, 1995, the Company acquired the Walgreens/Decatur
property from Inland Property Sales, Inc. ("IPS"), an Affiliate of the Advisor,
for the purchase price of $1,209,053, including acquisition costs of $482.
Although it was originally anticipated that this property would be acquired on
an all cash basis, management of the Company made the determination, based on
the recommendations of the Advisor, that the investment objectives of the
Company would be better met by assuming a portion of the first mortgage loan
secured by such property, since: (i) the terms of the current first mortgage
loan are more favorable for the Company than mortgage rates currently available
from unaffiliated third parties; and (ii) the Company was able to apply its
available cash towards the acquisition of an additional property.
The Walgreen Company ("Walgreens"), which is the largest drug store
chain in the United States based on sales volume and is considered to be
creditworthy by the Company, leases 100% of the free-standing building, which
has 13,500 square-feet of GLA and was constructed in 1988. IPS purchased the
Walgreens/Decatur property in 1990 for a purchase price of $1,152,500,
including a cash downpayment of $112,500 and first- mortgage debt of
$1,040,000. On June 9, 1994, IPS refinanced the Walgreens/Decatur property.
The existing first-mortgage loan was retired in the amount of $1,025,498,
including nine days of interest at $2,462. A new first mortgage loan was
funded in the principal amount of $1,075,000.
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The following table describes the formulation of the purchase price
paid by the Company:
<TABLE>
<S> <C>
IPS 1990 cash downpayments for purchase . . . . . . . . . . . . . . . . . $ 112,500
1994 excess refinancing proceeds received by IPS . . . . . . . . . . . . . (24,044)
Costs of June 9, 1994 refinancing
Closing costs paid by IPS to third parties . . . . . . . . . . . . 34,364
Closing costs paid by IPS to Affiliate . . . . . . . . . . . . . . 10,751
Initial paydown of first mortgage loan . . . . . . . . . . . . . . . . . . 300,000
Acquisition costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . 482
Assumption of first mortgage loan . . . . . . . . . . . . . . . . . . . . 775,000
---------
TOTAL PURCHASE PRICE . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,209,053
=========
</TABLE>
As of June 30, 1996, the balance of the assumed mortgage was
approximately $745,242. This mortgage has an interest rate of 7.655%,
amortizes over a 25-year period and matures May 31, 2004. The Company is
responsible for monthly payments of principal and interest of $5,689. For
federal income tax purposes, the Company's basis in the Walgreens/Decatur
property is $1,130,723. Real estate taxes and insurance for the
Walgreens/Decatur property paid in 1995 were $24,600 and $1,701, respectively.
Walgreens' lease requires it to pay $127,820 in annual base rent
($9.47 per square foot). The rent does not include any allowances for tenant
improvements, leasing commissions or similar amounts. The lease provides for
payment of percentage rent equal to the amount by which 2.5% of general sales
and 1% of liquor sales exceed the base rent. 2.5% of general merchandise sales
and 1% of liquor sales currently equal approximately $80,000; therefore, no
percentage rent is currently payable. Walgreens has the option to cancel the
lease on September 1, 2008 or it can exercise up to five, five-year extensions.
The lease is on a double-net basis. Walgreens guarantees payment of rent,
reimbursement of property taxes and payment of all other property expenses,
exclusive of the roof and structural elements of the building.
The table below sets forth certain information with respect to the
occupancy rate of the Walgreens/Decatur property as a percentage for the time
IPS owned the property and the annual rent per square foot received for that
period, as well as since the Company owned the property. The information
provided by IPS is unaudited.
<TABLE>
<CAPTION>
Annual Rents
Year Ending Occupancy Received
December 31, Rate Per Sq. Ft.
------------ ---- -----------
<S> <C> <C>
1995 100% $9.47
1994 100 9.47
1993 100 9.47
1992 100 9.47
1991 100 9.47
</TABLE>
The Company received an appraisal prepared by an independent appraiser
who is a member in good standing of the American Institute of Real Estate
Appraisers reflecting a fair market value of the Walgreens/Decatur property as
of May 9, 1994 of $1,550,000. It should be noted, however, that appraisals are
estimates of value and should not be relied on as measures of true worth or
realizable value.
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THE EAGLE CREST SHOPPING CENTER
On March 1, 1995, the Company acquired the Eagle Crest Shopping Center
("Eagle Crest"), a Neighborhood Retail Center located in Naperville, Illinois,
from IPS for a purchase price of $4,816,970, including acquisition costs of
$11,059. Although it was originally anticipated that Eagle Crest would be
acquired on an all-cash basis, management of the Company made the
determination, based on the recommendation of the Advisor, that the investment
objectives of the Company would be better met by assuming a portion of the
first mortgage loan held by IPS secured by such property, as well as entering
into a loan agreement with IPS for the balance of the purchase price. By
utilizing seller financing to purchase Eagle Crest, the Company was able to
begin receiving the net income, after debt service payments, from Eagle Crest
on an expedited basis, thus increasing the Company's earnings to be distributed
to the Stockholders.
Eagle Crest aggregates 67,650 square feet of GLA and is 100% leased.
Its major tenant is Eagle Foods, Inc. ("Eagle"). Eagle, which leases 46,096
square feet (approximately 68%) of Eagle Crest's GLA, is the only tenant at
Eagle Crest which leases more than 10% of Eagle Crest's GLA and is considered
creditworthy by the Company. IPS purchased Eagle Crest in April 1991 for
$3,200,000, including a cash down payment of $457,893, first- and
second-mortgage debt of $2,244,139 and a note owed to the seller in the amount
of $493,192. In 1992, IPS refinanced the first-mortgage debt in the principal
amount of $2,450,000, realizing $76,792 in net refinancing proceeds. Since
purchasing Eagle Crest, IPS expended $142,441 for capital improvements at the
property. In 1993, Eagle completed extensive improvements to its store at
Eagle Crest, converting the store to a "country market" format. On March 1,
1994, IPS again refinanced Eagle Crest, increasing the principal amount of the
first mortgage loan from $2,450,000 to $3,600,000, using the additional
$1,150,000 in loan proceeds, plus $50,000 of IPS's funds, to reimburse
$1,200,000 to Eagle for the improvements made by Eagle to its store. In return
for the reimbursement Eagle began paying an additional $157,500 per annum in
rent under its lease. Eagle's lease requires it to pay base rent equal to
$6.61 per square foot per annum through 1995 and increasing to $6.68 per square
foot per annum through February 2014. The lease contains five five-year
renewal options at a base rent equal to $6.68 per square foot. Eagle leases
its store on a double-net basis and is responsible for paying its pro rata
share of property taxes and a fixed amount of the common area maintenance
("CAM") at Eagle Crest, which payments were $48,674 and $19,207, respectively,
for 1995.
The following table describes the formulation of the purchase price
paid by the Company:
<TABLE>
<S> <C>
IPS 1991 cash downpayment for purchase . . . . . . . . . . . . . . . . . . . . . . $ 457,813
Cumulative IPS capital improvements to Eagle Crest . . . . . . . . . . . . . . . . 142,441
1992 excess refinancing proceeds received by IPS . . . . . . . . . . . . . . . . . (76,792)
1994 Refinancing:
Closing costs paid by IPS to third parties . . . . . . . . . . . . . . . . 59,995
Closing costs paid by IPS to Affiliate . . . . . . . . . . . . . . . . . . 36,000
Loan guarantee fee paid by IPS to Affiliate . . . . . . . . . . . . . . . . . . . 12,500
Assumption of first mortgage loan . . . . . . . . . . . . . . . . . . . . . . . . 3,600,000
1994 pay-off of note by IPS to original seller . . . . . . . . . . . . . . . . . . 220,000
Pay-off of unpaid notes owed to original seller . . . . . . . . . . . . . . . . . 353,954*
Acquisition costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,059
-----------
TOTAL PURCHASE PRICE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,816,970
=========
</TABLE>
78
<PAGE> 245
* Amount of principal and accrued interest due as of July 1, 1994.
Interest is accruing at the rate of $1,970 per month and this amount
will be adjusted at the time of purchase by the Company.
The balance of the assumed mortgage was paid in full in April 1995
with interest at 9.5% per annum. The total amount paid was $3,551,100, of
which $3,533,760 was principal paid from Gross Offering Proceeds and $17,340
was interest paid from Company operations. The deferred portion of the
purchase price, totaling $1,212,427, was paid to IPS in full from Gross
Offering Proceeds, including accrued interest of $22,009, in May 1995. The
interest was paid from Company operations. At December 31, 1995, for federal
income tax purposes, the Company's basis in Eagle Crest was $2,938,352.
None of the rents received from any of the Eagle Crest tenants include
allowances for tenant improvements, leasing commissions or similar amounts.
Property taxes payable in 1995 for the tax year ended 1994 (the most recent tax
year for which information is available) totalled $72,854.
The table below sets forth certain information with respect to the
occupancy rate for the time IPS has owned the property and the annual rent per
square foot received for that period, as well as since the Company owned the
property. The information supplied by IPS is unaudited. Information for prior
years, when Eagle Crest was owned by the third party which sold it to IPS, is
unavailable.
<TABLE>
<CAPTION>
Annual
Year Ending Rents
December Occupancy Received
31, Rate Per Sq. Ft.
------------- -------------- -----------
<S> <C> <C>
1995 100% $ 8.70
1994 100 8.16
1993 100 6.06
1992 100 6.11
1991 100 6.00
(nine months
annualized)
</TABLE>
At March 31, 1996, Eagle Crest had a total of 13 tenants. The
following tables set forth certain information with respect to the amount of
and expiration of leases at this Neighborhood Retail Center:
79
<PAGE> 246
<TABLE>
<CAPTION>
Approx.
Gross Average Percent of Percent of
Leasable Area Base Rent Total Annual
("GLA") of Annual Total Per Square Building GLA Base Rent
Number of Expiring Base Rent Annual Foot Under Represented Represented
Year Ending Leases Leases of Expiring Base Expiring By Expiring By Expiring
December 31, Expiring (square feet) Leases Rent(1) Leases Leases Leases
------------ --------------------------- ---------- ------- ------------ ----------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1996 1 1,505 $ 15,260 $ 573,357 $10.14 2.22% 2.66%
1997 4 5,590 86,670 564,540 15.50 8.26 15.35
1998 4 9,525 130,745 481,127 13.73 14.08 27.17
1999 1 4,028 42,294 350,382 10.50 5.95 12.07
2000-2005 -- -- -- 308,088 -- -- --
</TABLE>
(1) No assumptions were made regarding the releasing of expired
leases. It is management of the Company's current opinion
that the space will be released at market prices.
<TABLE>
<CAPTION>
Square Feet Renewal Current Annual Rent Per
Lessee Leased Lease Ends Options Base Rent Square Foot
------ ------------ ---------- ----------- --------------- -----------
<S> <C> <C> <C> <C> <C>
Eagle Foods 46,096 2/2014 5/5 years $ 308,088 $ 6.68
Blue Angel Travel 910 6/1997 None 16,800 18.46
State Farm Insurance 888 7/2000 None 17,746 19.98
Dental Office 900 7/1997 None 17,158 19.06
Pot Pourri Gifts 4,028 1/1999 1/5 years 40,280 10.00
La Cantina Lounge 2,000 12/1998 1/5 years 30,980 15.49
Pepe's Restaurant 2,000 12/1998 1/5 years 30,980 15.49
Prudential Real Estate 4,250 2/1998 None 42,500 10.00
The Grill 1,275 11/1998 1/5 years 17,850 14.00
Clothes Clean Center 1,700 6/1997 None 23,800 14.00
Hair Inc. 1,505 4/1999 3/3 years 15,260 10.14
The Sewing Room 2,080 10/1997 None 27,560 13.25
Coffee Grinder (outlet) 18 6/1996 None 6,000 333.33
</TABLE>
The Company received an appraisal prepared by an independent appraiser
who is a member in good standing of the American Institute of Real Estate
Appraisers reflecting a fair market value of Eagle Crest as of August 1, 1994
of $4,850,000. It should be noted, however, that appraisals are estimates of
value and should not be relied on as measures of true worth or realizable
value.
80
<PAGE> 247
MONTGOMERY-GOODYEAR SHOPPING CENTER
On September 14, 1995, the Company acquired the Montgomery-Goodyear
Shopping Center ("Montgomery-Goodyear"), a Neighborhood Retail Center located
in Montgomery, Illinois, from an unaffiliated third party for a purchase price
of $1,145,992, including acquisition costs of $5,992. A portion of the
purchase price was evidenced by a promissory note payable to Inland Mortgage
Investment Corporation, an affiliate of the Advisor ("IMIC"), in the gross
amount of $600,000, bearing interest at a rate of 10.9% per annum and maturing
on October 14, 1995. The remainder of the purchase price, net of prorations,
of approximately $535,000 was funded with proceeds of the Prior Offering. The
promissory note was paid in full in October 1995. The total amount paid was
$604,260, of which $600,000 was principal paid from Gross Offering Proceeds and
$4,260 was interest paid from Company operations. At December 31, 1995, for
federal income tax purposes, the Company's basis in the Montgomery-Goodyear
building was $827,390. Real estate taxes and insurance for the
Montgomery-Goodyear property paid in 1995 were $25,450 and $3,012,
respectively.
Montgomery-Goodyear, built in 1991, aggregates 12,863 square feet of
gross leasable area ("GLA") and is 100% occupied. Its major tenant is Goodyear
Tire & Rubber Co. which leases 6,293 square feet and is considered creditworthy
by the Company. The other tenants are Merlin Corporation, which leases
approximately 28% of GLA, and National Carpet Outlet, Inc., which leases the
remaining 23% of GLA.
The table below sets forth certain information with respect to the
occupancy rate at the Montgomery-Goodyear property for the time an unaffiliated
third party had owned the property and the annual rent per square foot received
for the period, as well as since the Company owned the property. The
information was supplied by the seller of Montgomery-Goodyear to the Company.
Construction of the Montgomery-Goodyear property was completed in late 1991.
<TABLE>
<CAPTION>
Annual Rents
Year Ending Occupancy Received
December 31, Rate Per Square Foot
------------ ---------------- ---------------
<S> <C> <C>
1995 100% $ 11.39
1994 100 11.39
1993 100 11.39
1992 100 11.39
</TABLE>
At March 31, 1996, Montgomery-Goodyear had a total of three tenants.
The following tables set forth certain information with respect to the amount
of and expiration of leases at this Neighborhood Retail Center:
81
<PAGE> 248
<TABLE>
<CAPTION>
Average Percent of Percent of
Approx. Base Rent Total Annual
GLA of Annual Total Per Square Building GLA Base Rent
Number of Expiring Base Rent Annual Foot Under Represented Represented
Year Ending Leases Leases of Expiring Base Expiring By Expiring By Expiring
December 31, Expiring (square feet) Leases Rent(1) Leases Leases Leases
------------ --------------------------- ---------- ----------- ------------ ----------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1996 1 3,010 $ 36,120 $ 146,520 $12.00 23.40% 24.65%
1997-2000 -- -- -- 115,080 -- -- --
2001 -- -- -- 116,467 -- -- --
2002-2005 -- -- -- 121,428 -- -- --
</TABLE>
(1) No assumptions were made regarding the releasing of expired
leases. It is management of the Company's current opinion
that the space will be released at market rates.
<TABLE>
<CAPTION>
Current
Square Feet Lease Renewal Annual Rent Per
Lessee Leased Ends Options Base Rent Square Foot
- ------ -------------- -------- ------- --------- ------------
<S> <C> <C> <C> <C> <C>
Goodyear Tire & Rubber Co. 6,293 11/2006 5/5 years $63,600 $10.10
Merlin Corporation 3,560 10/2006 3/5 years 46,800 13.15
National Carpet Outlet, Inc. 3,010 9/1996 1/1 year 36,120 12.00
</TABLE>
The Company received an appraisal prepared by an independent appraiser who
is a member in good standing of the American Institute of Real Estate
Appraisers reflecting a fair market value of Montgomery-Goodyear as of May 10,
1995 of $1,260,000. It should be noted, however, that appraisals are estimates
of value and should not be relied on as measures of true worth or realizable
value.
THE HARTFORD/NAPERVILLE PLAZA PROPERTY
On September 14, 1995, the Company acquired Hartford/Naperville Plaza
("Hartford/Naperville") located in Naperville, Illinois from an unaffiliated
third party for a purchase price of $4,414,015, including acquisition costs of
$14,015. A portion of the purchase price was evidenced by a promissory note
payable to IMIC, in the gross amount of $600,000, bearing interest at a rate of
10.9% per annum and maturing on October 14, 1995. In addition, the Company
paid closing costs of $13,915 and deposited $150,000 in an escrow account for
leasehold improvements to the Blockbuster, Inc. space. The remainder of the
purchase price was funded with proceeds of the Prior Offering. The promissory
note was paid in full in October 1995. The total amount paid was $605,102, of
which $600,000 was principal paid from Gross Offering Proceeds and $5,102 was
interest paid from Company operations. At December 31, 1995, for federal
income tax purposes, the Company's basis in Hartford/Naperville was $3,325,211.
Real estate taxes for Hartford/Naperville paid in 1995 for the tax year ended
1994 were $25,450.
Hartford/Naperville aggregates 43,862 square feet of GLA and construction
was completed in July 1995. Its anchor tenants include nationally recognized
tenants such as Sears Hardware with 21,000 square feet and Blockbuster Video
with 6,500 square feet, as well as Keller/Williams Realty with 6,160 square
feet, and each is considered creditworthy by the Company.
82
<PAGE> 249
Hartford/Naperville is currently 100% leased and is anchored by Sears
Hardware, Blockbuster Video and Keller/Williams Realty, each of which leases
more than 10% of the building's square footage. The lease with Sears Hardware
requires a base rent of $9.35 per square foot per annum until August 2005 and
contains three renewal options of five years each. Sears Hardware sells
hardware supplies and tools. The lease with Blockbuster Video requires a base
rent of $15 per square foot per annum until September 30, 2000 and $17.25 per
square foot per annum from October 1, 2000 until October 31, 2005, and contains
four renewal options of five years each. Blockbuster Video sells and rents
prerecorded audio and video products. The lease with Keller/Williams Realty
requires a base rent of $15 per square foot per annum until December 2000 and
such lease has no renewal options. Keller/Williams Realty is a local real
estate brokerage firm.
At March 31, 1996, Hartford/Naperville had a total of eight tenants. The
following tables set forth certain information with respect to the amount of
and expiration of leases at this Neighborhood Retail Center:
<TABLE>
<CAPTION>
Average Percent of Percent of
Approx. Base Rent Total Annual
GLA of Annual Total Per Square Building GLA Base Rent
Number of Expiring Base Rent Annual Foot Under Represented Represented
Year Ending Leases Leases of Expiring Base Expiring By Expiring By Expiring
December 31, Expiring (square feet) Leases Rent(1) Leases Leases Leases
------------ --------------------------- ---------- ----------- ------------ ----------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1996-1999 -- -- -- $ 548,170 -- -- --
2000 4 11,610 $178,728 551,186 $15.39 26.47% 32.43%
2001 1 2,992 40,392 384,067 13.50 6.82 10.52%
2002-2004 -- -- -- 343,675 -- -- --
2005 3 29,260 343,675 343,675 11.75 66.71 100.00%
</TABLE>
(1) No assumptions were made regarding the releasing of expired
leases. It is management of the Company's current opinion
that the space will be released at market rates.
<TABLE>
<CAPTION>
Current
Square Feet Lease Renewal Annual Rent Per
Lessee Leased Ends Options Base Rent Square Foot
- ------ ------------ -------- ------- --------- -----------
<S> <C> <C> <C> <C> <C>
Sears Hardware 21,000 8/2005 3/5 years $196,350 $ 9.35
Blockbuster Video 6,500 10/2005 4/5 years 97,500 15.00
Keller/Williams Realty 6,160 12/2000 None 92,400 15.00
Hair Cuttery 1,320 3/2000 1/5 years 21,780 16.50
Signature Cleaners 1,760 12/2005 1/5 years 35,200 20.00
Aspen Bakery 2,600 11/2000 1/5 years 41,600 16.00
Sound Deluxe 2,992 2/2001 1/5 years 40,390 13.50
Nancy's Pizza 1,530 12/2000 3/5 years 22,950 15.00
</TABLE>
The Company received an appraisal prepared by an independent appraiser
who is a member in good standing of the American Institute of Real Estate
Appraisers reflecting a prospective value of Hartford/Naperville of the leased
fee interest upon reaching stabilized occupancy as of October 1, 1995
83
<PAGE> 250
of $4,680,000. It should be noted, however, that appraisals are estimates of
value and should not be relied on as true worth or realizable value.
NANTUCKET SQUARE SHOPPING CENTER
On September 20, 1995, the Company acquired Nantucket Square Shopping
Center ("Nantucket Square"), a Neighborhood Retail Center located in
Schaumburg, Illinois from an unaffiliated third party for a purchase price of
$4,257,918, including acquisition costs of $4,913. A portion of the purchase
price was evidenced by a promissory note payable to IMIC in the gross amount of
$3,550,000, bearing interest at a rate of 10.5% per annum and maturing on
November 19, 1995. The remainder of the purchase price was funded with
proceeds of the Prior Offering. The promissory note was paid in full in
December 1995. The total amount paid was $3,612,011, of which $3,550,000 was
principal paid from Gross Offering Proceeds and $62,011 was interest paid from
Company operations. There are two buildings on the property, one of which is a
one-story, multi-tenant shopping mall located on approximately 7.75 acres of
land containing 53,720 square feet. The other building is a one-story, free-
standing building which houses a Burger King restaurant containing
approximately 3,260 square feet. Real estate taxes for the shopping mall and
the Burger King restaurant outlot were $152,122 and $39,733, respectively, for
1993. Subsequent to the purchase of the property, the Company paid $51,135 for
tenant improvements, from Gross Offering Proceeds, for two tenants expanding
their space, which sum was added to the cost of the property. At December 31,
1995, for federal income tax purposes, the Company's basis in the Nantucket
Square building was $2,372,160
Nantucket Square is currently 89% leased (100% leased when including
the master lease) and has four tenants which lease more than 10% of the
building's square footage. The lease with Play It Again Sports requires a
current base rent of $10 per square foot per annum until September 30, 1998,
$10.50 per square foot per annum from October 1, 1998 to September 30, 1999 and
$11 per square foot per annum from October 1, 1999 to September 30, 2000 with
no renewal provisions. Play It Again Sports sells sports equipment and related
accessories. The lease with Kathy's Hallmark requires a current base rent of
$10.50 per square foot per annum until February 28, 1999 and $11.50 per square
foot per annum from March 1, 1999 until May 31, 2000, and contains one renewal
option of five years. Kathy's Hallmark sells greeting cards and gift items.
The lease with Super Trak Corp. requires a current base rent of $7 per square
foot per annum until November 30, 1998 and $7.50 per square foot per annum from
December 1, 1998 until November 30, 2003, and contains three renewal options of
five years each. Super Trak sells auto parts and accessories. The lease with
Fashionation requires a base rent of $8.76 per square foot per annum until
January 31, 1998 and such lease has one renewal option of five years.
Fashionation is a clothing retailer. In October 1995, the Company received
notice from one of its tenants at Nantucket Square of its intent to close its
store. The tenant, which occupies 6,228 square feet of space, vacated the
premises on December 10, 1995. The lease for the space currently expires on
January 31, 1998. The tenant is continuing to pay its monthly rent, however,
the Company is pursuing a replacement tenant. A second tenant at Nantucket
Square, occupying 3,300 square feet of space, filed for financial and
reorganization protection under the federal bankruptcy laws. This tenant
continues to occupy its space and pay its monthly rent. The bankruptcy
petition filed with the bankruptcy court stated this tenant planned on closing
a number of its other stores but did not anticipate closing its store at
Nantucket Square.
The table below sets forth certain information with respect to the
occupancy rate at the Nantucket Square property for the time an unaffiliated
third party had owned the property and the annual rent per square foot received
for the period, as well as since the Company owned the property. The
information,
84
<PAGE> 251
supplied by the seller of Nantucket Square to the Company, is unaudited.
Information for prior years is not available to the Company.
<TABLE>
<CAPTION>
Annual Rents
Year Ending Occupancy Received Per
December 31, Rate Square Foot
------------ ---------------- ---------------
<S> <C> <C>
1995 81% $ 8.54
1994 83 8.44
</TABLE>
At March 31, 1996, Nantucket Square had a total of 17 tenants. The
following tables set forth certain information with respect to the amount of
and expiration of leases at this Neighborhood Retail Center:
<TABLE>
<CAPTION>
Average Percent of Percent of
Approx. Base Rent Total Annual
GLA of Annual Total Per Square Building GLA Base Rent
Number of Expiring Base Rent Annual Foot Under Represented Represented
Year Ending Leases Leases of Expiring Base Expiring By Expiring By Expiring
December 31, Expiring (square feet) Leases Rent(1) Leases Leases Leases
------------ --------------------------- ---------- ----------- ------------ ----------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1996 2 4,500 $ 42,750 $ 589,081 $ 9.50 7.90% 7.26%
1997 -- -- -- 554,563 -- -- --
1998 5 11,106 109,772 559,980 9.88 19.49 19.60
1999 1 1,050 12,477 467,558 11.88 1.84 2.67
2000 5 17,218 204,368 459,340 11.87 30.22 44.49
2001 1 2,403 27,000 255,562 11.24 4.22 10.56
2002 3 5,661 103,540 229,162 18.29 9.93 45.18
2003 1 11,743 88,072 126,022 7.50 20.61 69.89
2004 1 3,300 37,950 37,950 11.50 5.79 100.00
2005 -- -- -- -- -- -- --
</TABLE>
(1) No assumptions were made regarding the releasing of expired
leases. It is management's current opinion that the space
will be released at market rates.
85
<PAGE> 252
<TABLE>
<CAPTION>
Current
Square Feet Lease Renewal Annual Rent Per
Lessee Leased Ends Options Base Rent Square Foot
- ------ ------------ -------- ------- --------- -----------
<S> <C> <C> <C> <C> <C>
Currency Exchange 1,246 12/2000 1/5 years $ 18,067 $ 14.50
Baskin-Robbins Ice Cream 900 11/2000 None 14,769 16.41
Express Services 1,050 2/1998 1/3 years 11,025 10.50
Travel Agency 1,050 7/1999 None 11,550 11.00
Vacant* 2,400 22,800 9.50
Mail Works Plus 1,200 12/1997 1/5 years 13,500 11.25
Imperial Cleaners 1,200 12/2002 1/10 years 16,800 14.00
Proof Positive Photo 1,200 4/1998 1/3 years 15,022 12.52
Nancy's Pizza 1,200 8/1998 2/5 years 12,000 10.00
Vacant* 2,100 19,950 9.50
Fashionation 6,228 1/1998 1/5 years 54,557 8.76
Super Trak 11,743 11/2003 3/5 years 82,201 7.00
Kathy's Hallmark 7,156 5/2000 1/5 years 75,138 10.50
Clothes Time 3,300 4/2004 2/5 years 34,650 10.50
Great Clips 1,428 9/1998 1/5 years 14,994 10.50
Radio Shack 2,403 2/2001 None 24,600 10.24
Once Upon A Child 2,703 7/2000 1/5 years 25,678 9.50
Play It Again Sports 5,213 9/2000 None 52,130 10.00
Burger King 3,261 7/2002 1/5 years 67,900 20.82
</TABLE>
- ---------------
* The vacancies currently total 4,500 square feet, however, the vacant
space is being master leased by the seller at $15.00 per square foot
for one year, on a gross basis. For purposes of the charts appearing
on this and the prior page, the Company presented the vacant space as
being master leased at a rate of $9.50 per square foot, on a net
basis.
The Company received an appraisal prepared by an independent appraiser
who is a member in good standing of the American Institute of Real Estate
Appraisers reflecting a fair market value of Nantucket Square as of September
14, 1995 in the range of $4,400,000 to $4,600,000. It should be noted,
however, that appraisals are estimates of value and should not be relied on as
true worth or realizable value.
ANTIOCH PLAZA
On December 28, 1995, the Company purchased the Antioch Plaza property
("Antioch Plaza"), a Neighborhood Retail Center located in Antioch, Illinois
from an unaffiliated third party for a purchase price of $1,750,365, including
acquisition costs of $365. A portion of the purchase price was evidenced by a
promissory note payable to Inland Real Estate Investment Corporation, an
affiliate of the Advisor ("IREIC"), in the gross amount of $660,000, which bore
interest at a rate of 9.5% per annum. The remainder of the purchase price, net
of prorations of approximately $1,100,000 was funded with proceeds of the Prior
Offering. The loan to IREIC was repaid in full on January 9, 1996 and the
total amount paid was $661,163, of which $660,000 was principal paid from Gross
Offering Proceeds and $1,163 was interest paid from Company operations.
Antioch Plaza, built in 1995, consists of a two-building, free-standing,
masonry-constructed strip center aggregating 19,810 square feet of gross
leasable area. Its major tenant is Blockbuster Video which leases 6,500 square
feet of GLA and is considered creditworthy by the Company. At the time of
acquisition, a second lease had been signed by a dry-cleaning establishment and
a third lease was under negotiation. At December 31, 1995, for federal income
tax purposes, the Company's basis in Antioch Plaza was $1,480,648.
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<PAGE> 253
Antioch Plaza is currently 49% leased (100% leased when including the
master lease) and is anchored by Blockbuster Video. Currently 10,160 square
feet of the vacant space at Antioch Plaza is being master leased by the seller
until June 1997 at $12 per square foot, on a net basis. Blockbuster Video
leases more than 10% of the building's square footage. The lease with
Blockbuster Video requires a base rent of $10 per square foot per annum until
August 31, 2000 and $11 per square foot per annum from September 1, 2000 until
August 31, 2005, and contains four renewal options of five years each.
Blockbuster Video sells and rents prerecorded audio and video products.
At March 31, 1996, Antioch Plaza had a total of three tenants. The
following tables set forth certain information with respect to the amount of
and expiration of leases at this Neighborhood Retail Center:
<TABLE>
<CAPTION>
Average Percent of Percent of
Approx. Base Rent Total Annual
GLA of Annual Total Per Square Building GLA Base Rent
Number of Expiring Base Rent Annual Foot Under Represented Represented
Year Ending Leases Leases of Expiring Base Expiring By Expiring By Expiring
December 31, Expiring (square feet) Leases Rent(1) Leases Leases Leases
------------ ----------- ------------- ---------- ----------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
1996 -- -- -- $ 224,720 -- -- --
1997 1 10,160 $121,920 224,720 $12.00 51.29% 54.25%
1998 -- -- -- 102,800 -- -- --
1999 2 3,150 37,800 102,800 12.00 15.99 36.77
2000 -- -- -- 67,167 -- -- --
2001-2004 -- -- -- 71,500 -- -- --
2005 1 6,500 71,500 71,500 11.00 32.99 100.00
</TABLE>
(1) No assumptions were made regarding the releasing of expired
leases. It is management of the Company's current opinion
that the space will be released at market rates.
<TABLE>
<CAPTION>
Current
Square Feet Lease Renewal Annual Rent Per
Lessee Leased Ends Options Base Rent Square Foot
------ ------------ -------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C>
Blockbuster Video 6,500 8/2005 4/5 years $ 65,000 $ 10.00
Antioch Floral 1,650 12/1999 1/3 years 19,800 12.00
One Hour Cleaners 1,500 12/1999 1/3 years 18,000 12.00
Vacant* 10,160 6/1997 None 121,920 12.00
</TABLE>
- ---------------
* The vacancies currently total 10,160 square feet, however, the vacant
space is being master leased by the seller until June 1997 at $12.00
per square foot, on a net basis.
The Company received an appraisal prepared by an independent appraiser
who is a member in good standing of the American Institute of Real Estate
Appraisers reflecting a fair market value of Antioch Plaza as of December 18,
1995 of $1,850,000. It should be noted, however, that appraisals are estimates
of value and should not be relied on as measures of true worth or realizable
value.
87
<PAGE> 254
THE MUNDELEIN PLAZA PROPERTY
On March 29, 1996, the Company purchased the Mundelein Plaza property
("Mundelein Plaza"), a Neighborhood Retail Center located in Mundelein,
Illinois from an unaffiliated third party for a purchase price of $5,658,230,
including acquisition costs of $8,230, on an all cash basis. Mundelein Plaza,
built in 1990, consists of two one-story, multi-tenant brick and block strip
centers located on approximately 4.3 acres of land. Mundelein Plaza aggregates
67,896 square feet of GLA and was constructed in 1990. Its anchor tenant is
Sears Home Life with 47,000 square feet. Sears Home Life is a nationally
recognized home furnishings chain and is considered creditworthy by the
Company.
Mundelein Plaza is currently 100% leased. Sears Home Life is the only
tenant occupying 10% or more of the rentable square feet. The lease with Sears
Home Life requires a base rent of $8.47 per square foot per annum until October
23, 1996, $8.72 per square foot per annum from October 24, 1996 to October 23,
1997, $9.29 per square foot per annum from October 24, 1997 to October 23,
1998, $9.53 per square foot per annum from October 24, 1998 to October 23,
1999, $9.81 per square foot per annum from October 24, 1999 to October 23, 2000
and contains two renewal options of five years each. Although there currently
is no vacant space at Mundelein Plaza, the seller is providing a lease guaranty
for 6,181 square feet of space, on a net basis, through December 1997. 4,088
square feet of the space which is subject to the lease guaranty is currently
leased by Color Tile, Inc., which recently filed for financial and
reorganization protection under the federal bankruptcy laws. This tenant
continues to occupy its space and is anticipated to pay its monthly rent. The
bankruptcy petition filed with the Bankruptcy Court stated that this tenant
planned on closing a number of its other stores. The Company has been advised
that Color Tile, Inc. considers the store at Mundelein Plaza to be one of its
best performing stores and the Company does not anticipate the closing of the
Color Tile store at Mundelein Plaza. The other space, 2,093 square feet, is
leased to Tile World, Ltd., on a month-to-month lease. For federal income tax
purposes, the Company's basis in Mundelein Plaza will be approximately
$3,847,000. Depreciation expense, for tax purposes, will be computed using the
straight-line method. Buildings and improvements are based upon estimated
useful lives of 40 years. Property taxes paid in 1995 for the tax year ended
1994 (the most recent tax year for which information is available) were
$84,768.
The table below sets forth certain information with respect to the
occupancy rate at Mundelein Plaza expressed as a percentage of total gross
leasable area for each of the last five years and the average effective annual
base rent per square foot for each of the last five years.
<TABLE>
<CAPTION>
Average Effective
Year Ending Occupancy Annual Rent Per
December 31, Rate Square Foot
------------- --------------- -----------------
<S> <C> <C>
1995 100% $ 9.41
1994 97 9.22
1993 97 9.03
1992 97 8.93
1991 97 8.90
</TABLE>
At March 31, 1996, Mundelein Plaza had a total of eight tenants. The
following tables set forth certain information with respect to the amounts of
and expiration of leases at this Neighborhood Retail Center:
88
<PAGE> 255
<TABLE>
<CAPTION>
Approx.
Gross Average Percent of Percent of
Leasable Area Base Rent Total Annual
("GLA") of Annual Total Per Square Building GLA Base Rent
Number of Expiring Base Rent Annual Foot Under Represented Represented
Year Ending Leases Leases Expiring Base Expiring By Expiring By Expiring
December 31, Expiring (square feet) Leases Rent Leases(1) Leases Leases
------------ ----------- -------------- ---------- -------- ------------- ----------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1996 1 3,100 $ 46,800 $ 685,209 $15.10 4.57% 6.83%
1997 2 7,628 97,506 654,902 12.78 11.23 14.89
1998 1 1,620 28,172 583,236 17.39 2.39 4.83
1999 -- -- -- 567,888 -- -- --
2000 3 51,460 524,605 582,389 10.19 75.79 90.08
2001-2004 -- -- -- 59,280 -- -- --
2005 -- -- -- 61,871 -- -- --
</TABLE>
(1) No assumptions were made regarding the releasing of expired leases.
It is management of the Company's current opinion that the space will
be released at market rates.
<TABLE>
<CAPTION>
Square Current Annual Base Rent
Feet Term Renewal Base Per Square
Lessee Leased Ends Options Rent Foot
------- ------ ------------ --------- -------- -------------
<S> <C> <C> <C> <C> <C>
Color Tile, Inc. (1) 4,088 12/2009 None $55,188 $13.50
R R B Cycles, Ltd. 2,460 12/2000 None 37,259 15.15
Cartel, Inc. 1,620 12/1998 None 26,555 16.51
C M C Music, Inc. 5,535 06/1997 1/5 years 66,420 12.00
Esterquest (Pet store) 3,100 12/1996 None 46,800 15.10
Sears Roebuck & Co.
(Sears Home Life) 47,000 10/2000 2/5 years 400,301 8.52
Tile World, Ltd. (1) (2) 2,093 Month to None 31,086 14.85
Month
Minnesota Fats 2,000 08/2000 3/5 years 21,600 10.80
</TABLE>
(1) Although currently leased, these spaces are subject to a lease
guaranty from the seller through December 1997.
(2) This space is currently leased on a month-to-month basis.
The Company received a letter appraisal prepared by an independent
appraiser who is a member in good standing of the American Institute of Real
Estate Appraisers reflecting a fair market value of Mundelein Plaza as of March
28, 1996 of not less than $5,650,000. It should be noted, however, that
appraisals are estimates of value and should not be relied on as measures of
true worth of realizable value.
89
<PAGE> 256
REGENCY POINT SHOPPING CENTER
On April 5, 1996, the Company acquired Regency Point Shopping Center
located in Lockport, Illinois ("Regency Point") from an unaffiliated third
party for a purchase price of $5,700,000. As part of the acquisition, the
Company assumed the existing first mortgage loan of approximately $4,473,200,
along with a related interest rate swap agreement. The remainder of the
purchase price of approximately $1,226,800 was funded, after prorations, with
proceeds of the Prior Offering. For federal income tax purposes, the Company's
basis in the Regency Point building will be approximately $4,700,000. Property
taxes paid in 1995 for the tax year ended 1994 (the most recent tax year for
which information is available) were $16,867. Regency Point is located in the
Des Plaines River Valley Enterprise Zone, therefore, the assessed value of the
property will remain fixed until the year 2003.
The first mortgage loan has a floating interest rate of 180 basis points
over the 30-day LIBOR rate, which rate is adjusted monthly and amortizes over
25 years. The interest rate swap agreement, in conjunction with the first
mortgage, provides for Bank One, Chicago, to receive from or pay to the Company
the difference between 6.11% and the 30-day LIBOR rate, so that the first
mortgage loan has an effective rate of 7.91% per annum. The first mortgage
loan matures in August 2000. The interest rate swap agreement expires
concurrently therewith.
Regency Point, built in 1993 and 1994, consists of a one-story,
multi-tenant brick and block strip center aggregating 54,875 of rentable square
feet. Its anchor tenants include nationally recognized tenants such as
Walgreens with 13,000 square feet, Ace Hardware with 15,505 square feet and the
United States Postal Service with 2,503 square feet and are considered
creditworthy by the Company.
Regency Point is currently 95% leased and is anchored by Walgreens and Ace
Hardware. The vacant space at Regency Point is being master leased by the
seller for a one-year period at $14 per square foot for 1,600 square feet, on a
net basis, and $10 per square foot for 1,450 square feet, on a gross basis.
Regency Point was 88% occupied at December 31, 1995, 100% occupied at December
31, 1994 and 36% occupied at December 31, 1993. Walgreens and Ace Hardware
both lease more than 10% of the building's square footage. The lease with
Walgreens requires Walgreens to pay base rent equal to $10.98 per square foot
per annum until December 31, 2013 and contains six renewal options of five
years. Walgreens is a national pharmacy chain providing prescriptive and
over-the-counter medications, sundries and household items. The lease with Ace
Hardware requires Ace Hardware to pay base rent equal to $7.49 per square foot
per annum until October 31, 2008 and contains one renewal option for five
years. Ace Hardware is a national retail hardware chain.
The table below sets forth certain information with respect to the
occupancy rate at Regency Point expressed as a percentage of total gross
leasable area for each of the last three years (since the opening of Regency
Point) and the average effective annual base rent per square foot for each of
the last three years.
<TABLE>
<CAPTION>
Average
Effective
Annual Rent
Year Ending Occupancy Per Square
December 31, Rate Foot
------------ --------- -----------
<S> <C> <C>
1995(1) 93% $ 9.83
1994 100 10.09
1993(2) 36 3.57
</TABLE>
90
<PAGE> 257
(1) During 1995, an additional 5,000 square feet of space was added to
Regency Point, of which 1,950 square feet is leased with rent beginning in
February 1996.
(2) Regency Point was built in 1993 and 1994. The occupancy rate and average
effective annual rent per square foot represent the initial rent-up phase
of this property.
At March 31, 1996, Regency Point had a total of 17 tenants. The following
table sets forth information with respect to the amount of and expiration of
leases at this Neighborhood Retail Center:
<TABLE>
<CAPTION>
Average Percent of Percent of
Approx. Base Rent Total Annual
GLA of Annual Total Per Square Building GLA Base Rent
Number of Expiring Base Rent Annual Foot Under Represented Represented
Year Ending Leases Leases Expiring Base Expiring By Expiring By Expiring
December 31, Expiring (square feet) Leases Rent Leases Leases Leases
- ------------ --------- ------------- --------- ------------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
1996 -- -- -- $613,655 -- -- --
1997 3 5,690 $ 74,882 620,670 $13.16 10.37% 12.06%
1998 5 9,945 142,378 553,623 14.32 18.12 25.72
1999 3 3,900 53,560 415,775 13.73 7.11 12.88
2000 1 985 15,240 362,821 15.47 1.79 4.20
2001 -- -- -- 348,670 -- -- --
2002 -- -- -- 349,869 -- -- --
2003 1 1,398 19,572 350,615 14.00 2.55 5.58
2004 1 2,503 31,913 339,432 12.75 4.56 9.40
2005 -- -- -- 307,728 -- -- --
</TABLE>
(1) No assumptions were made regarding the releasing of expired leases. It is
management of the Company's current opinion that the space will be released
at market rates.
<TABLE>
<CAPTION>
Square Current Rent
Feet Lease Renewal Annual Per Square
Lessee Leased Ends Options Base Rent Foot
----------------- ------ ------- ---------------- --------- ----------
<S> <C> <C> <C> <C> <C>
Walgreens 13,000 12/2013 6/5yr. $142,740 $10.98
Cellular Center 1,820 8/99 1/5yr. 24,570 13.50
Body Basters 1,600 4/97 1/3yr. 23,138 14.46
Personal Finance 985 1/2000 1/5yr. 13,950 14.16
J.C. Flick 5,265 11/98 1/3 yr & 1/2yr. 64,556 12.26
Ace Hardware 15,505 10/2008 1/5yr. 116,280 7.49
Vet 1,300 10/98 1/5yr. 18,937 14.56
Subway 1,105 12/98 1/5yr. 16,515 14.94
Cost Cutters 975 12/98 1/5yr. 13,481 13.82
Little Ceasars 1,040 1/99 2/5yr. 13,520 13.00
Just $1 1,040 1/99 1/5yr. 13,520 13.00
Optometrist 1,040 4/97 1/5yr. 14,548 13.98
Brown's Chicken 1,398 12/2003 1/5yr. 18,174 13.00
Cleaners 1,300 12/98 1/5yr. 19,751 15.19
U.S. Post Office 2,503 3/2004 2/5yr. 30,036 12.00
Currency Exchange 550 1/2006 1/10yr. 12,000 21.81
Vacant* 1,600 4/1997 None 22,400 14.00
1,450 4/1997 None 14,500 10.00
Dunkin Donuts 1,400 1/2006 2/5yr. 21,700 15.49
</TABLE>
91
<PAGE> 258
* The vacancies currently total 3,050 square feet, however, the vacant
space will be master leased by the seller at $14.00 per square foot, on a
net basis, for 1,600 square feet and $10.00 per square foot, on a gross
basis, for 1,450 square feet, for a one-year period.
The Company received an appraisal prepared by an independent appraiser who
is a member in good standing of the American Institute of Real Estate
Appraisers reflecting a fair market value of Regency Point as of March 7, 1996
of $5,710,000. It should be noted, however, that appraisals are estimates of
value and should not be relied on as a measure of true worth or realizable
value.
PROSPECT HEIGHTS PLAZA
On June 17, 1996, the Company acquired Prospect Heights Plaza ("Prospect
Heights"), a Neighborhood Retail Center located in Prospect Heights, Illinois
from an unaffiliated third party for a purchase price of $2,165,000 on an all
cash basis.
Prospect Heights, built in 1985, consists of two one-story, multi-tenant
brick buildings aggregating 28,080 rentable square feet.
The table below sets forth certain information with respect to the
occupancy rate at Prospect Heights expressed as a percentage of total gross
leasable area for each of the last five years and the average effective annual
base rent per square foot for each of the last five years.
<TABLE>
Year Ending Occupancy Annual Rents Received
December 31, Rate Per Square Foot
------------ --------- ---------------------
<S> <C> <C>
1991 100% $7.53
1992 100 7.53
1993 100 7.53
1994 100 7.53
1995 78 5.85
</TABLE>
As of June 17, 1996, Prospect Heights was 100% leased and 78% occupied.
Tenants leasing more than 10% of the total square footage currently include
Walgreens with 12,600 square feet, United Farm Stands Corp. with 4,680 square
feet and Blockbuster Video with 6,250 square feet.
The lease with Walgreens requires a base rent of $5.50 per square foot per
annum until July 31, 2005, $6.00 per square foot per annum from August 1, 2005
to July 31, 2015 and $6.50 per square foot per annum from August 1, 2015 to July
31, 2025. The lease also requires the payment of percentage rent annually based
on 1% of food item sales, 1.5% of liquor sales and 2% of other sales in excess
of monthly rent paid including their portion of CAM, real estate taxes and
insurance. In 1995, net percentage rent was $23,000. Walgreens has the option to
terminate the lease in 2005, 2010, 2015, and 2020 with a one year notice.
The lease with United Farm Stands Corp. requires a base rent of $12.00 per
square foot per annum until January 31, 1998 and contains three renewal options
of two years each. United Farm Stands Corp. sells fruits and vegetables.
92
<PAGE> 259
The lease with Blockbuster Video requires a base rent of $12.00 per square
foot per annum for three years and contains four renewal options of five years
each. Blockbuster Video sells and rents prerecorded audio and video products.
Blockbuster Video will begin paying rent three months after occupancy which is
anticipated to be in July 1996. The seller will master lease this space at
$12.00 per square foot per annum until Blockbuster Video begins paying rent.
For federal income tax purposes, the Company's depreciable basis in the
Prospect Heights buildings will be approximately $1,407,000. Depreciation
expense, for tax purposes, will be computed using the straight-line method.
Buildings and improvements are based upon estimated useful lives of 40 years.
Real estate taxes paid in 1995 for the tax year ended 1994 (the most
recent tax year for which information is available) were $127,033.
At June 1, 1996, Prospect Heights had five tenants. The following tables
set forth certain information with respect to the amount of and expiration of
leases at this Neighborhood Retail Center.
<TABLE>
<CAPTION>
Square Current
Foot Lease Renewal Annual Rent Per
Lessee Leased Ends Options Rent Square Foot
- ------------ ----------- ------- ---------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Walgreens 12,600 07/2025 None $72,450 $ 5.75
Blockbuster 6,250 07/1999 4/5 75,000 12.00
Power Motion 2,550 07/1998 1/3 27,600 10.82
Dr. W. Beck 2,000 12/1997 1/5 22,000 11.00
United Farm Stands 4,680 01/1998 3/2 56,160 12.00
</TABLE>
<TABLE>
<CAPTION>
Average Percent of Percent of
Approx. Base Rent Total Annual
GLA of Annual Total Per Square Building GLA Base Rent
Number of Expiring Base Rent Annual Foot Under Represented Represented
Year Ending Leases Leases of Expiring Base Expiring By Expiring By Expiring
December 31, Expiring (square feet) Leases Rent(1) Leases Leases Leases
- ------------ --------- ------------- ----------- ------- ---------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
1996 -- -- -- $253,710 -- -- --
1997 1 2,000 $22,000 254,910 $11.00 7.12% 8.63%
1998 2 7,230 86,160 233,610 11.92 25.75 36.88
1999 1 6,250 75,000 147,450 12.00 22.26 50.86
2000-2004 -- -- -- 72,450 -- -- --
2005 -- -- -- 73,763 -- -- --
</TABLE>
(1) No assumptions were made regarding the releasing of expired leases. It is
management of the Company's current opinion that the space will be
released at market rates.
The Company received an appraisal prepared by an independent appraiser who
is a member in good standing of the American Institute of Real Estate
Appraisers reflecting a market value of Prospect Heights as of June 17, 1996,
of $2,190,000. It should be noted, however, that appraisals are estimates of
value and should not be relied on as a measure of true worth or realizable
value.
93
<PAGE> 260
MONTGOMERY-SEARS SHOPPING CENTER
On June 17, 1996, the Company acquired the Montgomery-Sears Shopping
Center ("Montgomery-Sears"), a Neighborhood Retail Center located in
Montgomery, Illinois, from an unaffiliated third party for a purchase price of
$3,419,000 on an all cash basis.
Montgomery-Sears, built in 1990, is a one-story, multi tenant concrete
masonry building aggregating 34,600 rentable square feet.
The table below sets forth certain information with respect to the
occupancy rate at Montgomery-Sears expressed as a percentage of total gross
leasable area for each of the last five years and the average effective annual
base rent per square foot for each of the last five years.
<TABLE>
<CAPTION>
Year Ending Occupancy Annual Rents Received
December 31, Rate Per Square Foot
------------ --------- ---------------------
<S> <C> <C>
1991 95% $ 8.88
1992 95 9.50
1993 95 9.84
1994 95 10.48
1995 95 9.47
</TABLE>
As of June 14, 1996, Montgomery-Sears was 85% leased. Tenants leasing more
than 10% of the building's square footage include Sears Hardware with 20,000
square feet and Blockbuster Video with 7,000 square feet.
The lease with Sears requires a base rent of $10.50 per square foot per
annum until September 1, 1996, $11.44 per square foot per annum from October 1,
1996 to September 30, 1999 and $12.47 per square foot per annum from October 1,
1999 to July 30, 2000 and contains two renewal options of five years each.
Sears has the right to terminate the lease at any time after July 15, 1997 with
180 days notice and payment of one year's rent. Sears Hardware sells hardware
supplies and tools. The lease with Blockbuster requires a base rent of $13.20
per square foot per annum until August 31, 2000 and contains a renewal option
for an additional five years. Blockbuster Video sells and rents prerecorded
audio and video products.
The vacant space, totaling 5,100 square feet, at Montgomery-Sears will be
master leased by the seller for a period of 24 months or until such time as a
tenant begins paying rent at $12.00 per square foot per annum, on a net basis,
for 3600 square feet and $10.20 per square foot, on a net basis, for 1500
square feet.
For federal income tax purposes, the Company's depreciable basis in the
Montgomery-Sears building will be approximately $2,675,000. Depreciation
expense, for tax purposes, will be computed using the straight-line method.
Buildings and improvements are based upon estimated useful lives of 40 years.
Real estate taxes to be paid in 1996 for the tax year ended 1995 (the most
recent tax year for which information is available) are $65,310.
94
<PAGE> 261
At June 1, 1996, Montgomery-Sears had three tenants. The following tables
set forth certain information with respect to the amount of and expiration of
leases at this Neighborhood Retail Center.
<TABLE>
<CAPTION>
Square Current
Foot Lease Renewal Annual Rent Per
Lessee Leased Ends Options Rent Square Foot
-------------- ------ ------- ------- -------- -----------
<S> <C> <C> <C> <C> <C>
Sears Hardware 20,000 07/2000 2/5 $210,000 $10.50
Blockbuster 7,000 08/2000 1/5 92,400 13.20
Radio Shack 2,500 09/2000 1/5 25,000 10.00
Vacant* 3,600 06/1998 -- 43,200 12.00
Vacant* 1,500 06/1998 -- 15,300 10.20
</TABLE>
* The vacancies currently total 5,100 square feet, however, the vacant
space will be master leased by the seller for a two-year period at $12.00
per square foot, on a net basis, for 3,600 square feet and $10.20 per
square foot, on a net basis, for 1,500 square feet.
<TABLE>
<CAPTION>
Average Percent of Percent of
Approx. Base Rent Total Annual
GLA of Annual Total Per Square Building GLA Base Rent
Number of Expiring Base Rent Annual Foot Under Represented Represented
Year Ending Leases Leases of Expiring Base Expiring By Expiring By Expiring
December 31, Expiring (square feet) Leases Rent(1) Leases Leases Leases
- ------------ --------- ------------- ----------- -------- ---------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
1996 -- -- -- $396,380 -- -- --
1997 -- -- -- 416,640 -- -- --
1998 1 5,100 $ 61,200 416,640 $12.00 14.74% 14.69%
1999 -- -- -- 362,178 -- -- --
2000 3 29,500 379,004 379,004 12.85 85.26 100.00
2001-2005 -- -- -- -- -- -- --
</TABLE>
(1) No assumptions were made regarding the releasing of expired leases. It is
management of the Company's current opinion that the space will be
released at market rates.
The Company received an appraisal prepared by an independent appraiser who
is a member in good standing of the American Institute of Real Estate
Appraisers reflecting a market value of Montgomery-Sears as of June 17, 1996 of
$3,450,000. It should be noted, however, that appraisals are estimates of
value and should not be relied on as a measure of true worth or realizable
value.
THE ZANY BRAINY STORE
On July 1, 1996, the Company acquired fee simple title to a single-user
retail property in Wheaton, Illinois from an unaffiliated third party for a
purchase price of $2,455,000 on an all cash basis (the "Zany Brainy Store").
This facility has been leased 100% to Children's Concepts, Inc. which does
business as Zany Brainy ("Zany Brainy") and sells children's books, computer
software, toys, and related items.
The Zany Brainy Store, built in 1995, is a single tenant retail facility
aggregating 12,499 rentable square feet.
The lease with Zany Brainy requires a base rent of $22.00 per square foot
per annum until November 2000, which increases for the period December 2000 to
November 2006 to the lesser of $24
95
<PAGE> 262
per square foot per annum or a calculated amount using the consumer price index.
The lease with Zany Brainy contains two renewal options of five years each.
For federal income tax purposes, the Company's depreciable basis in the
Zany Brainy Store will be approximately $1,617,000. Depreciation expense, for
tax purposes, will be computed using the straight-line method. Buildings and
improvements are based upon estimated useful lives of 40 years.
Real estate taxes to be paid in 1996 for the tax year ended 1995 (the most
recent tax year for which information is available) are $1,292 for vacant land.
Real estate taxes to be paid in 1997 for the tax year ended 1996 are expected
to be $35,000 for improved land.
The following tables set forth certain information with respect to the
amount of and expiration of the Zany Brainy lease.
<TABLE>
<CAPTION>
Square Current
Foot Lease Renewal Annual Rent Per
Lessee Leased Ends Options Rent Square Foot
- ------------ -------- ------- ---------- ------- ------------
<S> <C> <C> <C> <C> <C>
Zany Brainy 12,499 11/2005 2/5 $274,978 $22.00
</TABLE>
<TABLE>
<CAPTION>
Average Percent of Percent of
Approx. Base Rent Total Annual
GLA of Annual Total Per Square Building GLA Base Rent
Number of Expiring Base Rent Annual Foot Under Represented Represented
Year Ending Leases Leases of Expiring Base Expiring By Expiring By Expiring
December 31, Expiring (square feet) Leases Rent(1) Leases Leases Leases
- ------------ --------- ------------- ------------- ---------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
1996-1999 -- -- -- $274,978 -- -- --
2000 -- -- -- 289,560(2) -- -- --
2001-2004 -- -- -- 299,976 -- -- --
2005 1 12,499 $299,976 299,976 $ 24.00 100% 100%
</TABLE>
(1) No assumptions were made regarding the releasing of expired leases. It is
management of the Company's current opinion that the space will be
released at market rates.
(2) The base rent will increase in December 2000 to the lesser of $24.00 per
square foot per annum or $274,978* (1.0 plus the sum of CPI for the first
five years plus .025). For presentation purposes, $24.00 per square foot
per annum was used.
The Directors, including the Independent Directors, approved each of these
acquisitions as being fair and reasonable to the Company.
CAPITALIZATION
The following table sets forth the historical capitalization of the
Company as of March 31, 1996 and the pro forma capitalization of the Company as
of that date as adjusted to give effect to the sale of all Shares in the Prior
Offering and in this Offering (as if all 11,000,000 Shares including 1,000,000
Shares to be sold pursuant to the DRP are sold excluding those sold by the
Advisor), and the application of the estimated Net Proceeds as described in
"Estimated Use of Proceeds." The information set forth in the following table
should be read in conjunction with the historical financial statements of the
Company
96
<PAGE> 263
included elsewhere in this Prospectus and the discussion set forth in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
<TABLE>
<CAPTION>
MARCH 31, 1996
-------------------------------
HISTORICAL PRO FORMA
---------- ---------
(IN THOUSANDS)
<S> <C> <C>
DEBT:
Mortgage notes payable ..................................... $ 748 $ 5,221
STOCKHOLDER'S EQUITY:
Preferred Stock, $.01 par value, 6,000,000 authorized,
none outstanding ........................................ -- --
Common Stock, $.01 par value, 24,000,000 authorized,
2,909,912 shares issued and outstanding historical;
17,000,000 shares issued and outstanding pro forma (1) .. 29 170
Paid-in capital ............................................ 29,954 148,637
Accumulated Distributions in Excess of Net Income .......... (482) (482)
Total stockholders' equity .............................. 24,501 148,325
Total capitalization .................................... 25,249 153,546
</TABLE>
- ----------------------
(1) Does not include Shares issuable upon the exercise of outstanding
options granted under the Company's Stock Option Plan for Independent
Directors.
(2) The Company was originally capitalized in 1994 through the cash
contribution of $200,000 by the Advisor, for which the Advisor received 20,000
shares of Common Stock.
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of shares of Common Stock as of the date of this Prospectus: (i) each
stockholder known by the Company to own beneficially in excess of 5% of the
outstanding shares of Common Stock; (ii) each Director; (iii) each executive
officer; and (iv) all Directors and executive officers as a group. Except as
otherwise indicated in the footnotes to the table, the persons named below have
sole voting and investment power with respect to the shares of Common Stock
beneficially owned by such person.
<TABLE>
<CAPTION>
SHARES TO BE
BENEFICIALLY OWNED
AFTER COMPLETION
OF THE OFFERING
SHARES BENEFICIALLY (ASSUMING THE
OWNED AS OF THE DATE OF MAXIMUM OFFERING
THIS PROSPECTUS IS SOLD)
----------------------------- ---------------------------
NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER PERCENT NUMBER PERCENT
- ------------------------------------ ----------------------------- ---------------------------
<S> <C> <C> <C> <C>
Robert D. Parks (a)(b) 8,945.6107 * 8,945.6107 *
G. Joseph Cosenza (a)(b) 22,500 * 22,500 *
Roland W. Burris (c)(f) -- * -- *
Douglas R. Finlayson, M.D. (d)(f) -- * -- *
Heidi N. Lawton (e)(f) -- * -- *
Cynthia M. Hassett (a) -- * -- *
Roberta S. Matlin (a) 116.8974 * 116.8974 *
Directors and Executive Officers
as a Group (seven persons)
</TABLE>
97
<PAGE> 264
- ---------------
(a) The business address of each of Messrs. Parks and Cosenza, Ms. Hassett
and Ms. Matlin is c/o The Inland Group, Inc., 2901 Butterfield Road, Oak
Brook, Illinois 60521.
(b) Includes 20,000 Shares owned by the Advisor, of which Messrs. Parks and
Cosenza disclaim beneficial ownership. The Advisor is a wholly-owned
subsidiary of IREIC, which is an affiliate of TIGI. Messrs. Parks and
Cosenza are control persons with respect to TIGI. See, generally,
"Management -- the Advisor."
(c) The business address of Mr. Burris is c/o Jones, Ware & Grenard, 180
North LaSalle Street, Suite 3800, Chicago, Illinois 60601.
(d) The business address of Dr. Finlayson is c/o Westlake Clinic, 214
Washington Street, Ingleside, Illinois 60041.
(e) The business address of Ms. Lawton is c/o Lawton Realty Group, 2100
Clearwater Drive, Suite 106, Oak Brook, Illinois 60521.
(f) Does not include 3,500, 4,000 and 4,000 Shares issuable upon exercise of
options granted to Mr. Burris, Dr. Finlayson and Ms. Lawton, respectively,
pursuant to the Company's Independent Director Stock Option Plan.
* Less than 1% of the Company's outstanding shares of Common Stock, as of the
date of this Prospectus.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
THE FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1995 and March 31, 1996, the Company had a total of
2,000,073 Shares ($19,976,354) and 2,909,912 Shares ($29,060,946) outstanding,
in each case including 20,000 Shares held by the Advisor. At December 31,
1994, only the 20,000 Shares held by the Advisor were outstanding; however,
subscriptions for 189,938.145 Shares had been received as of that date.
Subscriber funds were held in an interest-bearing escrow account with the
Company's unaffiliated escrow agent until January 3, 1995 when subscriptions
for those Shares were accepted and the Shares were issued by the Company. The
Stockholders 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
through completion of this Offering as additional Shares are sold in this
Offering and additional properties are acquired. 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 and had cash and cash equivalents of $2,937,473
compared to two properties, utilizing approximately $6,026,023 and cash and
cash equivalents of $338,430 at March 31, 1995. The Company intends to use
these funds and funds from sales of additional Shares to purchase additional
properties, to make distributions and to pay offering costs. See "Subsequent
Events," below. 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
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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 can be determined only at
year end.
Management 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.
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
March 31, 1996, the Company had received $371,596 from the sale of
approximately 41,060 Shares through the DRP.
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 from Stockholders for an
aggregate price of $26,838, pursuant to the terms of the Share Repurchase
Program. The remaining $344,758 of DRP proceeds 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.
RESULTS OF OPERATIONS
As of March 31, 1996, subscriptions for a total of 2,909,912 shares were
outstanding, including 20,000 Shares held by the Advisor. At March 31, 1996,
the Company owned six Neighborhood Retail Centers and one single user-retail
property. See also "-Subsequent Events," below.
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PURCHASE OF WALGREENS/DECATUR, DECATUR, ILLINOIS
On January 31, 1995, the Company acquired this single-user retail property
from Inland Property Sales, Inc. ("IPS"), an Affiliate of the Advisor, for the
purchase price of $1,209,053, including acquisition costs of $482. Although it
was originally anticipated that this property would be acquired on an all-cash
basis, management of the Company made the determination, based on the
recommendation of the Advisor, that the investment objectives of the Company
would be better met by assuming a portion of the mortgage loan secured by such
property, since: (i) the terms of the current first mortgage loan were more
favorable for the Company than mortgage rates then currently available from
unaffiliated third parties; and (ii) the Company was able to apply its
available cash towards the acquisition of a second property. The balance of
the assumed mortgage at December 31, 1995 was $750,727, and was $748,011 at
March 31, 1996. This mortgage has an interest rate of 7.655% and amortizes
over a 25-year period. The Company is responsible for monthly payments of
principal and interest of $5,689.
PURCHASE OF THE EAGLE CREST SHOPPING CENTER, NAPERVILLE, ILLINOIS
On March 1, 1995, the Company acquired this Neighborhood Retail Center
("Eagle Crest") from IPS for the purchase price of $4,816,970, including
acquisition costs of $11,059. Although it was originally anticipated that Eagle
Crest would be acquired on an all-cash basis, management of the Company made the
determination, based on the recommendation of the Advisor, that the investment
objectives of the Company would be better met by assuming a portion of the first
mortgage loan secured by such property, as well as entering into a loan
agreement with IPS for the balance of the purchase price. By utilizing seller
financing to purchase Eagle Crest, the Company was able to begin receiving the
net income, after debt service payments, from Eagle Crest on an expedited basis,
thus increasing the Company's earnings to be distributed to the Stockholders.
The balance of the assumed mortgage was paid in full in April 1995 with interest
at 9.5% per annum. In May 1995, the deferred portion of the purchase price,
totaling $1,212,427, was paid to IPS in full from gross offering proceeds from
the Prior Offering. In addition, accrued interest of $22,009 was paid from
Company operations.
PURCHASE OF THE MONTGOMERY-GOODYEAR SHOPPING CENTER, MONTGOMERY, ILLINOIS
On September 14, 1995, the Company acquired this Neighborhood Retail
Center from an unaffiliated third party for a purchase price of $1,145,992,
including acquisition costs of $5,992, a portion of which was evidenced by a
promissory note payable to Inland Mortgage Investment Corporation ("IMIC"), an
affiliate of the Advisor, in the gross amount of $600,000. The remainder of
the purchase price was funded with proceeds of the Prior Offering. The
promissory note was paid in full October 1995, with interest at a rate of 10.9%
per annum. The principal amount paid was $600,000 from gross offering proceeds
from the Prior Offering and interest of $4,260 was paid from Company
operations.
PURCHASE OF THE HARTFORD/NAPERVILLE PLAZA, NAPERVILLE, ILLINOIS
On September 14, 1995, the Company acquired this newly constructed
Neighborhood Retail Center from an unaffiliated third party for a purchase
price of $4,414,015, including acquisition costs of $14,015 and deposited
$150,000 in an escrow account to be paid to Blockbuster, Inc. to cover the cost
of its leasehold improvements. A portion of the purchase price was evidenced
by a promissory note payable to IMIC, in the gross amount of $600,000. The
remainder of the purchase price was funded with proceeds of the Prior Offering.
The promissory note was paid in full in October 1995, with interest at a rate
of
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10.9% per annum. The principal amount paid was $600,000 from gross offering
proceeds from the Prior Offering and interest of $5,102 was paid from Company
operations.
PURCHASE OF NANTUCKET SQUARE SHOPPING CENTER, SCHAUMBURG, ILLINOIS
On September 20, 1995, the Company acquired this Neighborhood Retail Center
from an unaffiliated third party for a purchase price of $4,257,918, including
acquisition costs of $4,913, a portion of which was evidenced by a promissory
note payable to IMIC, in the gross amount of $3,550,000. The remainder of the
purchase price was funded with proceeds of the Prior Offering. The promissory
note was paid in full in December 1995, with interest at a rate of 10.5% per
annum. In addition, as part of the purchase, the Company agreed to and has paid
$51,135 for tenant improvements for two tenants expanding their space, which was
added to the cost of the property.
In October 1995, the Company received notice from one of its tenants at
Nantucket Square of its intent to close its store, which it did on December 10,
1995. The lease for the 6,228 square feet of space currently expires January
31, 1998. The Company is pursuing a replacement tenant, however, in the
interim, the tenant continues to pay its monthly rent. A second tenant at
Nantucket Square, occupying 3,300 square feet, filed for financial and
reorganization protection under the federal bankruptcy laws. The tenant
continues to occupy the space and pay its monthly rent. The petition filed
with the bankruptcy court by the tenant stated that it is planning on closing a
number of its other stores but did not anticipate closing its store at
Nantucket Square.
PURCHASE OF ANTIOCH PLAZA, ANTIOCH, ILLINOIS
On December 28, 1995, the Company acquired this Neighborhood Retail Center
from an unaffiliated third party for a purchase price of $1,750,365, including
acquisition costs of $365, a portion of which was evidenced by a promissory
note payable to IREC, an affiliate of the Advisor, in the gross amount of
$660,000. The remainder of the purchase price, net of prorations, of
approximately $1,100,000 was funded with proceeds of the Prior Offering. As of
December 31, 1995, the unpaid balance of this note was $360,000. The note
which bore interest at a rate of 9.5% per annum was repaid in full on January
9, 1996. The total amount repaid was $661,163, of which $660,000 was principal
paid from gross offering proceeds from the Prior Offering and $1,163 was
interest paid from Company operations.
PURCHASE OF THE MUNDELEIN PLAZA, MUNDELEIN, ILLINOIS
On March 29, 1996, the Company acquired this Neighborhood Retail Center
from an unaffiliated third party for a purchase price of $5,658,230, including
acquisition costs of $8,230 on an all cash basis.
The following is a list of approximate physical occupancy levels for the
Company's properties held as of the end of each quarter during 1995 and the
first quarter of 1996 (N/A indicates the property was not owned by the Company
at the end of the quarter):
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<TABLE>
<CAPTION>
1995 1996
-------------------------------------------------
at at at at at
Properties 03/31 06/30 09/30 12/31 03/31
- ----------------------------------- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
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
Mundelein Plaza N/A N/A N/A N/A 100%
Mundelein, Illinois
Regency Point(1)
Lockport, Illinois N/A N/A N/A N/A N/A
Prospect Heights Plaza(1)
Prospect Heights, Illinois N/A N/A N/A N/A N/A
Montgomery-Sears(1)
Montgomery, Illinois N/A N/A N/A N/A N/A
Zany Brainy(1)
Wheaton, Illinois N/A N/A N/A N/A N/A
</TABLE>
- --------------------------------------
(1) These properties were purchased after March 31, 1996. See "-- Subsequent
Events," below.
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. Rental
income is 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 mortgage
indebtedness of $747,094 collateralized by the Walgreens/Decatur Property. See
also "-Subsequent Events" regarding mortgage indebtedness secured by Regency
Point.
During 1994, the Advisor advanced $193,300 to the Company for costs
incurred with the Prior Offering. These advances were repaid with a market
rate of interest to the Advisor in January 1995.
Interest income is the result of working capital being invested in
short-term investments until properties are purchased.
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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, is due to the Company entering the operational stage.
SUBSEQUENT EVENTS
On April 5, 1996, the Company acquired the Regency Point Shopping Center
located in Lockport, Illinois from an unaffiliated third party for a purchase
price of $5,700,000. As part of the acquisition, the Company assumed an
existing first mortgage loan of approximately $4,473,200 along with a related
interest rate swap agreement. The remainder of the purchase price of
approximately $1,226,800 was funded, after prorations, with proceeds of the
Prior Offering. On June 17, 1996, the Company acquired Prospect Heights Plaza
located in Prospect Heights, Illinois for $2,165,000 on an all cash basis. The
Company also purchased, on June 17, 1996, the Montgomery-Sears Shopping Center
located in Montgomery, Illinois for $3,419,000 on an all cash basis. On July 1,
1996, the Company acquired the Zany Brainy Store located in Wheaton, Illinois
for $2,455,000 on an all cash basis. See "Real Property Investments."
The Advisor is continuing to explore the purchase of additional properties
from unaffiliated third parties for the Company.
INFLATION
For the Company's Neighborhood Retail Centers, inflation is likely to
increase rental income from leases to new tenants and lease renewals, subject
to market conditions. Continued inflation may cause capital appreciation of
these properties over time as rental rates and the replacement cost of the
properties rise.
The Company's rental income and operating expenses for those properties
owned or to be owned and operated under triple-net leases, like the
Walgreens/Decatur property, are not likely to be directly affected by future
inflation, since 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.
IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS
The Company has adopted the Statement of Financial Accounting Standards
No. 121, "Accounting for the Impairment of Long-Lived Assets to be Disposed Of"
which was issued in March 1995 and is effective for fiscal years beginning
after December 15, 1995.
The Company has adopted the Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-Based Compensation Plans" which was issued in
October 1995. The Statement is effective for fiscal years beginning after
December 15, 1995. As allowed by the new Statement, the Company plans to
continue to use Accounting Principles Board Option No. 25, "Accounting for
Stock Issued to Employees" in accounting for its stock options.
Neither of these accounting pronouncements are expected to have a material
effect on the financial position or results of operations of the Company.
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FEDERAL INCOME TAX CONSIDERATIONS
The Company has been organized and intends to operate in a manner that
will permit it to continue to qualify as a REIT under the applicable provisions
of the Code and Regulations (the "REIT Requirements") and receive the
beneficial tax treatment described below. However, no assurance can be given
that the activities and operations of the Company will allow it to continue to
meet the REIT Requirements, which are highly technical and complex. The
following discusses the rules the Company must comply with to receive REIT
treatment, the federal income tax consequences to the Company and its
Stockholders from the Company maintaining REIT status and all material federal
income tax consequences to an investor in the Offering. The discussion is
qualified in its entirety by the applicable REIT qualification provisions
contained in the Code, the rules and regulations promulgated thereunder, and
administrative and judicial interpretations thereof. Shefsky Froelich & Devine
Ltd. has acted and will act as tax counsel to the Company in connection with
the organization of the Company and its election to be taxed as a REIT for
federal income tax purposes and has rendered the opinion set forth below. The
tax implications of an investment in the Company's Shares is set forth in
"--Taxation of Stockholders" in this Section. Each prospective purchaser of
Shares, however, is urged to consult his tax advisor with respect to the
federal, state, local, foreign and other tax consequences of the purchase,
ownership and disposition of Shares which may be particular to his tax
situation.
In brief, a corporation that invests primarily in real estate can, if it
complies with the detailed REIT provisions in Code Sections 856-860, qualify as
a REIT and therefore claim tax deductions for the dividends it pays to its
stockholders. Such a corporation is, therefore, generally not taxed on its
"REIT taxable income" to the extent such income is currently distributed to
stockholders, thereby substantially eliminating the "double taxation" that a
corporation generally bears. However, as discussed in greater detail below,
such an entity could be subject to tax in certain circumstances even if it
qualifies as a REIT and would likely suffer adverse consequences, including
reduced cash available for distribution to its stockholders, if it failed to
qualify as a REIT. See "--Taxation of the Company--Failure to Qualify" in this
Section. The Company represents that it filed the election to be recognized as
a real estate investment trust with its tax return for the year ending December
31, 1995, which tax return was filed on a timely basis. The Company intends to
continue operating in a manner that permitted it to elect REIT status beginning
with its taxable year ending December 31, 1995 and to continue to maintain this
status in each taxable year thereafter, so long as REIT status remains
advantageous to the Company and the Stockholders.
Shefsky Froelich & Devine, Ltd. is of the opinion that as of July 17, 1996,
and based on the assumptions and representations described in this Section and
throughout the Prospectus, that the Company has been organized in conformity
with the requirements for qualification as a REIT, beginning with its taxable
year ending December 31, 1995 and that its prior, current and anticipated
methods of operation (as described in this Prospectus and represented by the
Company and its management) has enabled and will enable it to continue to
satisfy the REIT Requirements. This opinion has been filed as an exhibit to the
Registration Statement of which this Prospectus is a part, and is based in
condition on various assumptions and certain representations made to Shefsky
Froelich & Devine, Ltd. by the Company and the Advisor as to certain factual
matters. The Company's qualification and taxation as a REIT will depend upon
the Company's ability to meet, through the operation of its current properties
and those properties it acquires in the future. Shefsky Froelich & Devine, Ltd.
will not review compliance with these tests on a continuing basis after the
initial effectiveness date of the Registration Statement or issue additional
opinions unless expressly requested to do so. Accordingly, no assurance can be
given that the actual
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operating results of the Company will allow the Company to satisfy the REIT
Requirements in each tax year. In addition, this opinion represents counsel's
legal judgment and is not binding on the Service.
Management of the Company and the Advisor currently expects that the
Company has operated and will continue to operate in a manner that permits the
Company to elect, and that it has elected, REIT status for its taxable year
ending December 31, 1995, and each taxable year thereafter. There can be no
assurance, however, that this expectation will be fulfilled, since
qualification as a REIT depends on the Company's ability to continue to satisfy
numerous asset, income and distribution tests described below, which in turn
will be dependant on part on the Company's operating results.
TAXATION OF THE COMPANY
General. In any year in which the Company qualifies as a REIT and has a
valid election in place, it will claim deductions for the dividends it pays to
the Stockholders, and therefore will not be subject to federal income tax on
that portion of its "REIT taxable income" or capital gain which is, in effect,
distributed to the Stockholders. The Company will, however, be subject to tax
at normal corporate rates on any taxable income or capital gain not
distributed.
Although the Company, if it maintains REIT status, can eliminate (or
substantially reduce) its federal income tax liability by maintaining its REIT
status and paying sufficient dividends, the Company could be subject to tax on
certain items of income. If the Company fails to satisfy either the 95% Test or
the 75% Test (as defined below), yet maintains its REIT status by meeting other
requirements, it will be subject to a 100% tax on the greater of the amount by
which the Company fails either test. The Company will also be subject to a 100%
tax on the net income from any "prohibited transaction," as described below. In
addition, if the Company fails to annually distribute at least the sum of: (i)
85% of its REIT ordinary income for such year; (ii) 95% of its REIT capital gain
net income for such year; and (iii) any undistributed taxable income from prior
years, it would be subject to an excise tax equal to 4% of the difference
between the amount required to be distributed under such formula and the amount
actually distributed. The Company may also be subject to the corporate
alternative minimum tax. Additionally, the Company will be subject to tax at
the highest corporate rate on any non-qualifying income from "foreclosure
property," although the Company will not own any "foreclosure property" unless
it makes loans secured by interests in real property and forecloses on the
property following a default on the loan.
If the Company acquires any asset from a C corporation (generally, a
corporation subject to full corporate-level tax) in a transaction in which the
basis of the assets in the Company's hands are determined by reference to the
basis of the assets (or any other property) in the hands of the transferor
corporation (or if a REIT such as the Company holds such an asset beginning on
the first day of the first taxable year for which the Company qualifies as a
REIT), and the Company recognizes gain on the disposition of such an asset
during the 10-year period beginning on the date on which such asset was
acquired by the Company (or the date that the Company first qualified as a
REIT) (the "Recognition Period"), then, pursuant to guidelines to be issued by
the Service, the excess of the fair market value as of the beginning of the
applicable Recognition Period over the Company's adjusted basis in such asset
at the beginning of such Recognition Period will be subject to tax at the
highest regular corporate tax rates.
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REIT Qualification Tests. The Code defines a REIT as a corporation, trust
or association:
(i) that is managed by one or more trustees or directors;
(ii) the beneficial ownership of which is evidenced by transferable
shares or by transferable certificates of beneficial interest;
(iii) that would be taxable as a domestic corporation but for its status
as a REIT;
(iv) that is neither a financial institution nor an insurance company;
(v) the beneficial ownership of which is held by 100 or more persons
on at least 335 days in each full taxable year, proportionately adjusted
for a partial taxable year;
(vi) at all times during the second half of each taxable year, no more
than 50% in value of the outstanding stock is owned, directly, or
indirectly, by five or fewer persons or entities; and
(vii) the Gross Income, Asset and Distribution Tests, described in
greater detail below, are met.
Conditions (i) through (iv) and (vii) must be met during each taxable year
for which REIT status is sought while conditions (v) and (vi) do not have to be
met until after the first taxable year for which a REIT election is made.
Although the Voting Test (as defined below) generally prevents a REIT from
owning more than 10% of the voting stock of an entity, the Code provides an
exception for ownership of voting stock in a qualified REIT subsidiary (a
"QRS"), a corporation that is wholly-owned by a REIT throughout the
subsidiary's existence. For purposes of the Asset and Gross Income Tests
described below, all assets, liabilities and tax attributes of a QRS are
treated as belonging to the REIT. A QRS is not subject to federal income tax,
but may be subject to state or local tax. The Company may in the future hold
direct or indirect interests in one or more partnerships or joint ventures. In
general, a partnership is not subject to federal income tax and instead,
allocates its tax attributes to its partners. The partners are subject to tax
on their allocable share of the income and gain, without regard to whether they
receive distributions from the partnership. Each partner's share of a
partnership's tax attributes is determined in accordance with the partnership
agreement. In addition, for purposes of the Asset and Income Tests, the
Company will be deemed to own and earn (based on its capital interest) an
undivided interest in each asset and a share of each item of gross income.
The Company, in satisfying the general tests described above, must meet,
among others, the following requirements:
A. Share Ownership Tests. The Shares and any other capital stock the
Company issues (with the Shares, "Capital Stock") must be held by a minimum of
100 persons (determined without attribution to the owners of any entity owning
Capital Stock) for at least 335 days in each full taxable year, proportionately
adjusted for partial taxable years. In addition, at all times during the
second half of each taxable year, no more than 50% in value of the Capital
Stock may be owned, directly or indirectly, by five or fewer individuals
(determined with attribution to the owners of any entity owning Capital Stock).
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However, these two requirements do not apply until after the first taxable year
an entity seeks REIT status. The Company represents that is has issued
sufficient Capital Stock pursuant to the Offering to allow the Company to
satisfy these requirements, did not admit investors as Stockholders until the
admission allowed there to be sufficient Stockholders to meet these requirements
and has thereafter admitted only those Stockholders that allow the Company to
continue to meet these requirements. In addition, the Company's Articles
contain provisions restricting the transfer of Capital Stock, which provisions
are intended to assist the Company in satisfying these requirements and the
Company utilizes computerized systems designed to prevent violations of these
requirements. Furthermore, the Distribution Reinvestment Program contains
provisions that prevent its operations from causing a violation of these tests
as do the terms of the options granted to the Independent Directors and the
terms of the Soliciting Dealer Warrants. Moreover, the Company maintains
records which disclose the actual ownership of the outstanding Capital Stock,
and the Company has demanded and will demand written statements each year from
the record holders of 5% or more of the Capital Stock disclosing the beneficial
owners thereof. Those Stockholders failing or refusing to comply with the
Company's written demand are required by the Code and the Articles to submit,
with their tax returns, a similar statement disclosing the actual ownership of
Capital Stock and certain other information. See "Description of
Securities--Restrictions on Transfer."
B. Asset Tests. The Company must satisfy, on the last day of each
calendar quarter, two tests based on the composition of its assets. After
initially meeting the Asset Tests at the close of any quarter, the Company will
not lose its status as a REIT for failure to satisfy the Asset Tests at the end
of a later quarter solely due to changes in value. In addition, if the failure
to satisfy the Asset Tests results from an acquisition during a quarter, the
failure can be cured by disposing of non-qualifying assets within 30 days after
the close of that quarter. The Company intends to maintain adequate records of
the value of its assets to insure compliance with the Asset Tests, and will
take such other actions within 30 days after the close of any quarter as may be
required to cure any non-compliance.
1. 75% Asset Test. At least 75% of the value of the Company's total
assets must be represented by "real estate assets," cash, cash items (including
receivables from the operations of the Company) and government securities (the
"75% Asset Test"). Real estate assets include interests in real property
(including undivided interests in real property, leaseholds of land and options
to acquire land), interests in mortgages on real property, shares in other
qualifying REITs and property attributable to certain temporary investments of
new capital for a one year period beginning on the date the REIT received the
new capital. Property will qualify as attributable to the temporary investment
of new capital if the property is stock or a debt instrument and the money used
to purchase such stock or debt instrument is received by the REIT in exchange
for stock in the REIT (other than amounts received pursuant to a dividend
reinvestment plan) or in a public offering of debt obligations which have a
maturity of at least five years. The Company owns the properties, and the
Company represents that the purchase contracts apportion no more than 5% of the
purchase price of any property to property other than "real property," as
defined in the Code. In addition, the Company represents that it does not and
will not rent personal property to any tenant at any property, and has
maintained and will maintain depreciation schedules which corroborate this
representation. In addition, the Company has and will invest funds not used to
acquire properties in cash sources, GNMA certificates, REMIC interests, "new
capital" investments or other liquid investments which will allow it to qualify
under the 75% Asset Test. Therefore, the Company's investment in the properties
will constitute "real estate assets" and should allow the Company to meet the
75% Asset Test.
2. Limitation Tests. The remaining 25% of the Company's assets
generally may be invested without restriction, although if invested in
securities, such securities may not exceed either: (i)
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5% of the value of the Company's total assets as to any one non-government
issuer; or (ii) 10% of the outstanding voting securities of any one issuer. A
partnership interest held by a REIT is not considered a "security" for purposes
of these tests. The Company represents that as of the date hereof, it does not
own any stock or securities of any other company, and will not acquire
securities which could cause the Company to violate these limitation tests.
C. Gross Income Tests. The Company must satisfy for each calendar year
three separate tests based on the composition of its gross income, as determined
under its method of accounting. For purposes of these tests, if the Company
invests in a partnership, it will be treated as receiving its share of the
income and loss of the partnership, and the gross income of the partnership will
retain the same character in the hands of the Company as it has in the hands of
the partnership.
1. The 75% Gross Income Test (the "75% Test"). At least 75% of the
Company's gross income for the taxable year must result from "rents from real
property" (as defined below), interest on obligations secured by real property
mortgages, gains from the sale of interests in real property and real estate
mortgages (other than gain from property held primarily for sale to customers in
the ordinary course of the Company's trade or business), dividends from other
qualifying REITs, certain other investments relating to real property or
mortgages thereon, and, for a limited time, income from the investment of new
capital. Income will qualify as attributable to the temporary investment of
"new capital" if the income is attributable to the ownership of a stock or debt
instrument, but only during the one year period beginning on the date the REIT
receives such "new capital." New capital is defined as amounts received in
exchange for the issuance of stock (other than amounts received pursuant to a
dividend reinvestment plan) or a public offering of debt obligations which have
a maturity of at least five years. The Company will invest funds not otherwise
invested in properties in cash sources, GNMA certificates, REMIC interests, "new
capital" investments or other liquid investments which will allow the Company to
qualify under the 75% Test.
Income attributable to a lease of real property will generally qualify as
"rent from real property" under the 75% Test (and the 95% Test described below)
subject to the rules discussed below:
(i) Rent from a particular tenant will not qualify if the
Company, or an owner of 10% or more of the stock of the Company,
directly or indirectly owns 10% or more of the stock, assets or net
profits of the tenant.
(ii) The portion of rent attributable to personal property rented
with real property will not qualify unless the portion attributable to
personal property is 15% or less of the total rent received under the
lease.
(iii) Rent will not qualify if it is based in whole, or in part,
on the income or profits of any person. However, rent will not fail
to qualify if it is based on a fixed percentage (or designated varying
percentages) of receipts or sales, including amounts above a base
amount so long as the base amount is fixed at the time the lease is
entered into, the provisions are in accordance with normal business
practice and the arrangement is not an indirect method for basing rent
on income or profits.
(iv) Rental income will not qualify if the Company furnishes or
renders services to tenants, other than through an "independent
contractor" from whom the Company derives no revenue. The
"independent contractor" requirement, however, does not apply to the
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extent that the services provided by the Company are "usually or
customarily rendered" in connection with the rental of space, and are not
otherwise considered "rendered to the occupant."
The Company represents that:
(i) The leases provided to Counsel represent the only arrangements
between the Company and tenants with regard to the rental of the properties
or any portion thereof;
(ii) It has not and will not directly or indirectly own 10% or more of
any tenant that leases space in the properties;
(iii) The portion of any payments received under each lease which are
attributable to personal property constitutes less than 15% of the total
rent received under such lease, and the depreciation schedules maintained
for each property corroborate this representation;
(iv) Has not and will not charge rent that is based on the income or
profits of any person in certain properties and that the percentage rent
clauses, if any, in its current leases are not intended to provide the
Company with a prohibited share of income or profits; and
(v) Services received by tenants in connection with their leases to
the properties are usually or customarily rendered in connection with the
rental of space, and therefore the provision of these services will not
cause the rents received with respect to the properties to fail to qualify
as rents from real property for purposes of the 75% and 95% Tests. The
Company intends to hire "independent contractors" to render services which
it believes are not "usually or customarily rendered" in connection with
the rental of space, including physical development or redevelopment
activities.
2. The 95% Gross Income Test (the "95% Test"). In addition to
deriving 75% of its gross income from the sources listed above, at least 95% of
the Company's gross income for the taxable year must be derived from the
above-described qualifying income, or from dividends, interest or gains from the
sale or disposition of stock or other securities that are not Dealer Property
(as defined below). Dividends and interest on obligations not collateralized by
an interest in real property qualify under the 95% Test, but not under the 75%
Test. The Company will invest funds not otherwise invested in properties in
cash sources, GNMA certificates, REMIC interests, "new capital" investments or
other liquid investments which will allow the Company to qualify under the 95%
Test. For purposes of determining whether the Company complies with the 75% and
95% Tests, gross income does not include income from prohibited transactions.
The Company's share of income from the properties will primarily give rise
to rental income qualifying under the 75% and 95% Tests, and gains on sales of
the properties, substantially all of which will generally qualify under the 75%
and 95% Tests. The Company's anticipated operating results indicate that it is
unlikely that the Company will have sufficient, if any, non-qualifying income to
cause adverse consequences. The Company represents that the only income it has
received has been from the leases entered into with tenants at the properties,
and interest income from the investment of amounts not otherwise invested in
properties.
If the Company fails to satisfy either the 75% or 95% Tests for any taxable
year, it may retain its status as a REIT for such year if the failure was due to
reasonable cause and not due to willful neglect,
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the Company attached to its return a schedule of the sources of its income, and
any incorrect information on the schedules was not due to fraud. If this relief
provision was available, the Company would remain subject to tax with respect to
the excess net income.
3. The 30% Test. The Company must derive less than 30% of its gross
income for each taxable year from the sale or other disposition of: (i) real
property held for less than four years (other than foreclosure property and
involuntary conversions); (ii) stock or securities held for less than one year;
and (iii) property in a prohibited transaction. The Company currently intends
to hold the properties for more than four years and not to own any property that
will cause a prohibited transaction and will structure its activities to comply
with this test. In addition, the Company will invest amounts not invested in
properties in investments that will allow it to comply with this test, and
therefore may maintain increased cash reserves or make relatively low earning
liquid investments in order to prevent violations of this test.
D. Annual Distribution Requirements (the "Distribution Test"). In addition
to the other tests described above, the Company is required to distribute
dividends (other than capital gain dividends) to the Stockholders each year in
an amount at least equal to the difference between: (i) the sum of: (a) 95% of
the Company's REIT taxable income (computed without regard to the dividends paid
deduction and the REIT's net capital gain); and (b) 95% of the net income (after
tax), if any, from foreclosure property; and (ii) the sum of certain items of
non-cash income. Whether sufficient amounts have been distributed is based on
amounts paid in the taxable year to which they relate, or in the following
taxable year if the Company files an election before it timely files its tax
return for such year and if paid on or before the first regular Distribution
payment after such declaration. If the Company fails to meet the Distribution
Test as a result of an adjustment to the Company's tax return by the Service,
the Company may cure the failure by paying a "deficiency dividend" (plus
penalties and interest to the Service) within a specified period. To the extent
that the Company does not distribute all of its net capital gain or distributes
at least 95%, but less than 100% of its REIT taxable income, as adjusted, it
will be subject to tax on the undistributed portion.
The Company intends to pay sufficient dividends each year to satisfy the
Distribution Test. See "Investment Objectives and Policies--Distributions." It
is possible that the Company may not have sufficient cash or other liquid assets
to meet the Distribution Test due to tax accounting rules and other timing
differences. The Company will closely monitor the relationship between its REIT
taxable income and cash flow and, if necessary to comply with the Distribution
Test, will borrow funds to provide cash flow needed to satisfy the distribution
requirement. The Company represents that to date, it has distributed dividends
in excess of its real estate investment trust taxable income, which thereby has
allowed it to meet the Distribution Test.
Failure to Qualify. If the Company fails to qualify for taxation as a REIT
in any taxable year and the relief provisions are not available or cannot be
met, the Company will not be able to deduct its dividends and will be subject to
tax (including any applicable alternative minimum tax) on its taxable income at
regular corporate rates, thereby reducing cash available for Distributions. In
such event, all Distributions to Stockholders (to the extent of current and
accumulated earnings and profits), will be taxable as ordinary income. Unless
entitled to relief under specific statutory provisions, the Company will not be
eligible to elect REIT status for the four taxable years following the year
during which qualification was lost.
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Prohibited Transactions. As discussed above, the Company will be subject
to a 100% tax on any net income from "prohibited transactions". Net income
from a prohibited transaction arises from the sale or exchange of property held
for sale to customers in the ordinary course of its trade or business ("Dealer
Property") unless such property is foreclosure property. In addition, there is
an exception for certain sales of Dealer Property so long as the property sold:
(i) is a real estate asset under the 75% Asset Test; (ii) has been held for at
least four years; (iii) has capitalized expenditures not in excess of 30% of
the net sales price; (iv) was held for production of rental income for at least
four years; and (v) when combined with other sales in the year, does not cause
the REIT to have made more than seven sales of Dealer Property during the
taxable year. Although the Company will eventually sell each of the
properties, its primary intention in acquiring and operating the properties is
the production of rental income and it does not expect to hold any property for
sale to customers in the ordinary course of its trade or business.
TAXATION OF STOCKHOLDERS
Taxation of Taxable Domestic Stockholders. As long as the Company
qualifies as a REIT, Distributions paid to the Company's taxable domestic
Stockholders out of current or accumulated earnings and profits (and not
designated as capital gain dividends) will be ordinary dividend income.
Dividend income is characterized as "portfolio" income under the passive loss
rules and cannot be offset by a Stockholder's current or suspended passive
losses. Corporate Stockholders cannot claim the dividends received deduction
for such dividends unless the Company loses its REIT status. Distributions
that are designated as capital gain dividends will be taxed as long-term
capital gains (to the extent they do not exceed the Company's actual net
capital gain for the taxable year). However, corporate Stockholders may be
required to treat up to 20% of certain capital gain dividends as ordinary
income. Distributions in excess of current and accumulated earnings and
profits are treated first as a tax-deferred return of capital to the
Stockholder, reducing the Stockholder's tax basis in its Shares by the amount
of such distribution. Because earnings and profits are reduced for
depreciation and other non-cash items, it is possible that a portion of each
Distribution will constitute a tax-deferred return of capital. Distributions
in excess of the Stockholder's tax basis are taxable as capital gains.
Although Stockholders generally recognize taxable income in the year that a
Distribution is received, any Distribution declared by the Company in October,
November or December of any year and payable to a Stockholder of record on a
specific date in any such month shall be treated as both paid by the Company
and received by the Stockholder on December 31 of the year it was declared even
if paid by the Company during January of the following calendar year. Because
the Company is not a pass-through entity for tax purposes, Stockholders may not
use any operating or capital losses of the Company to reduce their tax
liabilities.
In general, the sale of Shares held for more than 12 months will produce
long-term capital gain or loss, while all other sales will produce short-term
gain or loss, in each case with the gain or loss equal to the difference
between the amount of cash received form the sale and the Stockholder's basis
in the Shares sold. However, any loss from a sale or exchange of Shares by a
Stockholder who has held such stock for six months or less (after applying
certain holding period rules) will be treated as a long-term capital loss, to
the extent of distributions from the Company that the Stockholder treated as
long-term capital gains. In addition, please note that Distributions in excess
of earnings and profits that reduce a Stockholder's basis will tend to increase
the gain or sale.
Backup Withholding. The Company will report to its domestic Stockholders
and to the Service the amount of dividends paid during each calendar year, and
the amount (if any) of tax it withheld. A Stockholder may be subject to backup
withholding at the rate of 31% with respect to dividends paid unless such
Stockholder: (a) is a corporation or comes within other exempt categories; or
(b) provides a taxpayer
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identification number, certifies as to no loss of exemption, and otherwise
complies with applicable requirements. A Stockholder that does not provide
the Company with its correct taxpayer identification number may also be subject
to penalties imposed by the Service. Any amount paid as backup withholding can
be credited against the Stockholder's income tax liability. In addition, the
Company may be required to withhold a portion of capital gain distributions
made to any Stockholders who fail to certify their non-foreign status to the
Company. See "--Taxation of Foreign Stockholders" in this Section.
Taxation of Tax-Exempt Stockholders. Distributions by the Company to a
Stockholder that is a tax-exempt entity should not constitute UBTI unless the
tax-exempt entity borrows funds to acquire its Shares (or otherwise incurs
acquisition indebtedness within the meaning of the Code with respect to its
acquisition of the Shares), or the Shares are otherwise used in an unrelated
trade or business of the tax-exempt entity.
Notwithstanding the foregoing, if the Company constitutes a "Pension-Held
REIT", certain Qualified Plans that are Stockholders could recognize UBTI even
without incurring debt to acquire their Shares. The Company will constitute a
Pension-Held REIT if either: (i) at least one Qualified Plan holds more than
25% (by value) of the Shares; or (ii) one or more Qualified Plans (each of
which owns more than 10% by value of the Shares) hold an aggregate of more than
50% (by value) of the Shares. If the Company constitutes a Pension-Held REIT,
then a portion of the dividends received by any Qualified Plan that holds 10%
or more of the Shares will constitute UBTI based on the ratio of the Company's
gross income (less allowable deductions) which is considered UBTI itself, bears
to the Company's total gross income (less allowable deductions).
Notwithstanding the foregoing, the Ownership Limit contained in the Articles
should prevent the Company from unintentionally constituting a Pension-Held
REIT because no Stockholder, whether a Qualified Plan or otherwise, is
permitted to own more than 9.8% (by value) of the Shares without requesting and
obtaining prior Board approval.
Taxation of Foreign Stockholders. The following discussion is intended
only as a summary of the rules governing income taxation of non-resident alien
individuals, foreign corporations, foreign partnerships, and foreign trusts and
estates (collectively, "Foreign Stockholders"). Prospective Foreign
Stockholders should consult with their own tax advisors to determine the impact
of federal, state, and local income tax laws on an investment in the Company,
including any reporting requirements.
In general, Foreign Stockholders will be subject to regular U.S. income
tax with respect to their investment in the Company if the investment is
"effectively connected" with the conduct of a trade or business in the U.S. A
corporate Foreign Stockholder that receives income that is treated as
effectively connected with a U.S. trade or business may also be subject to the
"branch profits tax" under Code Section 884. The following discussion applies
to Foreign Stockholders whose investment in the Company is not considered
"effectively connected."
Generally, any dividend that constitutes ordinary income for tax purposes
will be subject to a U.S. tax equal to the lesser of 30% of the dividend or the
rate in an applicable tax treaty. A Distribution in excess of the Company's
earnings and profits is treated first as a return of capital that will reduce a
Foreign Stockholder's basis in its Shares (but not below zero) and then as gain
from the disposition of such Shares, subject to the rules discussed below for
dispositions.
Distributions by the Company that are attributable to gain from the sale
or exchange of a U.S. real property interest are taxed to a Foreign Stockholder
as if the Distributions were gains "effectively connected" with a United States
trade or business. Accordingly, a Foreign Stockholder will be taxed at
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the capital gain rates applicable to a U.S. stockholder (subject to any
applicable alternative minimum tax and a special alternative minimum tax in the
case of non-resident alien individuals). In addition, such dividends may also
be subject to a 30% branch profits tax when made to a corporate Foreign
Stockholder that is not entitled to treaty exemptions.
Although tax treaties may reduce the Company's withholding obligations,
the Company will generally be required to withhold from dividends to Foreign
Stockholders, and remit to the Service, 34% of designated capital gain
dividends and 30% of ordinary dividends paid out of earnings and profits. In
addition, if the Company designates prior dividends as capital gain dividends,
subsequent dividends, up to the amount of such prior dividends, will be treated
as capital gain dividends for purposes of withholding. If the amount of tax
withheld by the Company with respect to a distribution to a Foreign Stockholder
exceeds its U.S. tax liability with respect to such distribution, the Foreign
Stockholder may file for a refund of such excess from the Service. The 34%
withholding tax rate on capital gain dividends currently corresponds to the
maximum income tax rate applicable to corporations, but is higher than the 28%
maximum rate on capital gains of individuals.
Unless the Shares constitute a U.S. real property interest under Code
Section 897, a sale of Shares by a Foreign Stockholder generally will not be
subject to U.S. income taxation. The Shares will not constitute a U.S. real
property interest if the Company is a "domestically controlled REIT." A
domestically controlled REIT is a REIT in which at all times during a specified
testing period less than 50% in value of its shares is held directly or
indirectly by Foreign Stockholders. It is currently anticipated that the
Company will be a domestically controlled REIT, and therefore that the sale of
Shares will not be subject to such taxation. However, because the Shares may be
publicly traded, no assurance can be given that the Company will continue to be
a domestically controlled REIT. Notwithstanding the foregoing, capital gain not
subject to such rules will be taxable to a Foreign Stockholder if the Foreign
Stockholder is a non-resident alien individual who is present in the U.S. for
183 days or more during the taxable year and certain other conditions apply, in
which case the non-resident alien individual will be subject to a 30% tax on his
or her U.S. source capital gains. If the Company did not constitute a
domestically-controlled REIT, whether a Foreign Stockholder's sale of stock
would be subject to tax as a sale of a U.S. real property interest would depend
on whether the Shares were "regularly traded" on an established securities
market and on the size of the selling Stockholder's interest in the Company. If
the gain on the sale of Shares was subject to taxation under these rules, the
Foreign Stockholder would be subject to the same treatment as a U.S. Stockholder
with respect to the gain (subject to applicable alternative minimum tax and a
special alternative minimum tax in the case of non-resident alien individuals).
In addition, Distributions that are treated as gain from the disposition of
stock and are subject to tax under Code Section 897 may also be subject to a 30%
branch profits tax when made to a foreign corporate stockholder that is not
entitled to treaty exemptions. In any event, a purchaser of Shares from a
Foreign Stockholder will not be required to withhold on the purchase price if
the purchased shares are "regularly traded" on an established securities market
or if the Company is a domestically-controlled REIT. Otherwise, the purchaser
of stock may be required to withhold 10% of the purchase price and remit this
amount to the Service.
If the proceeds of a disposition of Shares are paid by or through a U.S.
office of a broker-dealer, the payment is subject to information reporting and
to backup withholding unless the disposing Foreign Stockholder certifies as to
his name, address and non-U.S. status or otherwise establishes an exemption.
Generally, U.S. information reporting and backup withholding will not apply to
a payment of disposition proceeds if the payment is made outside the U.S.
through a non-U.S. office of a non-U.S. broker-dealer. U.S. information
reporting requirements (but not backup withholding) will apply, however, to a
payment
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of disposition proceeds outside the U.S. if (i) the payment is made through an
office outside the U.S. of a broker-dealer that is either (a) a U.S. person, (b)
a foreign person that derives 50% or more of its gross income for certain
periods from the conduct of a trade or business in the U.S. or (c) a "controlled
foreign corporation" for U.S. federal income tax purposes, and (ii) the
broker-dealer fails to initiate documentary evidence that the Stockholder is a
Foreign Stockholder and that certain conditions are met or that the Foreign
Stockholder otherwise is entitled to an exemption.
OTHER TAX CONSIDERATIONS
Distribution Reinvestment Program. Stockholders who purchased Shares
pursuant to the Company's Prior Offering as well as Stockholders who purchase
shares in the Offering and participate in the Distribution Reinvestment Program
will recognize taxable dividend income in the amount they would have received
had they not elected to participate, even though they receive no cash. These
deemed dividends will be treated as actual dividends from the Company to the
participating Stockholders and will retain the character and tax effects
applicable to all dividends. See "--Taxation of Stockholders" in this Section.
Capital Stock received under the program will have a holding period beginning
with the day after purchase, and a tax basis equal to their cost, which is the
gross amount of the deemed Distribution.
State and Local Taxes. The Company and its Stockholders may be subject to
state or local taxation in various jurisdictions, including those in which it
or they transact business or reside. The state and local tax treatment of the
Company and its Stockholders may not conform to the federal income tax
consequences discussed above. Consequently, prospective Stockholders should
consult their own tax advisors regarding the effect of state and local tax laws
on a investment in the Shares of the Company.
ERISA CONSIDERATIONS
The following is a summary of material considerations arising under ERISA
and the prohibited transaction provisions of Code Section 4975 that may be
relevant to a prospective purchaser. This discussion does not deal with all
aspects of ERISA or Code Section 4975 or, to the extent not preempted, state
law that may be relevant to particular employee benefit plan Stockholders
(including plans subject to Title I of ERISA, other employee benefit plans and
IRAs subject to the prohibited transaction provisions of Code Section 4975, and
governmental plans and church plans that are exempt from ERISA and Code Section
4975 but that may be subject to state law requirements) in light of their
particular circumstances.
In considering whether to invest a portion of the assets of a pension,
profit-sharing, retirement or other employee benefit plan ("Plan"), fiduciaries
of the Plan should consider, among other things whether the investment: (i)
will be in accordance with the documents and instruments covering the
investments by such Plan; (ii) will allow the Plan to satisfy the
diversification requirements of ERISA, if applicable; (iii) will result in UBTI
to the Plan (see "Federal Income Tax Considerations--Taxation of
Stockholders--Taxation of Tax-Exempt Stockholders"); (iv) will provide
sufficient liquidity; and (v) is prudent under the general ERISA standards. In
addition to imposing general fiduciary standards of investment prudence and
diversification, ERISA and the corresponding provisions of the Code prohibit a
wide range of transactions involving the assets of the Plan and persons who
have certain specified relationships to the Plan ("parties in interest" within
the meaning of ERISA, "disqualified persons" within the meaning of the Code).
Thus, a designated Plan fiduciary considering an investment in the Shares
should also consider whether the acquisition or the continued holding of the
Shares might constitute or give rise to a direct or indirect prohibited
transaction.
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The fiduciary of an IRA or of an employee benefit plan not subject to Title
I of ERISA because it is a governmental or church plan or because it does not
cover common law employees (a "Non-ERISA Plan") should consider that such an IRA
or Non-ERISA Plan may only make investments that are authorized by the
appropriate governing documents, not prohibited under Code Section 4975 and
permitted under applicable state law.
The Department of Labor (the "DOL") has issued final regulations (the "DOL
Regulations") which provide guidance on the definition of Plan assets under
ERISA. Under the DOL Regulations, if a Plan acquires an equity interest in an
entity, which is neither a "publicly-offered security" nor a security issued by
an investment company registered under the Investment Company Act of 1940, as
amended, the Plan's assets would include, for ERISA purposes, both the equity
interest and an undivided interest in each of the entity's underlying assets
unless certain specified exceptions apply. The DOL Regulations define a
publicly-offered security as a security that is "widely-held",
"freely-transferable," and either part of a class of securities registered under
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or sold
pursuant to an effective registration statement under the Act (provided the
securities are registered under the Exchange Act within 190 days after the end
of the fiscal year of the issuer during which the offering occurred). The
Shares are being sold in an offering registered under the Act and will be
registered under the Exchange Act.
The DOL Regulations provide that a security is "widely-held" only if it is
part of a class of securities that is owned by 100 or more investors
independent of the issuer and of one another. A security will not fail to be
"widely-held" because the number of independent investors falls below 100
subsequent to the initial offering as a result of events beyond the issuer's
control. The Company represents that the Shares are held by over 100
independent investors and therefore are currently considered "widely-held."
The DOL Regulations provide that whether a security is
"freely-transferable" is a factual question to be determined on the basis of
all relevant facts and circumstances. The DOL Regulations further provide that
when a security is part of an offering in which the minimum investment is
$10,000 or less, as is the case with this Offering, certain restrictions
ordinarily will not, alone or in combination, affect the finding that such
securities are freely-transferable. One type of restriction that will not
affect a finding that securities are freely transferable is a restriction or
prohibition against a transfer or assignment which would result in a
termination or reclassification of an entity for federal or state income tax
purposes. The Company believes that the Ownership Limit imposed under the
Articles on the transfer of the Shares are designed to prevent violations of
the five-or-fewer rule (which would cause a termination of REIT status for tax
purposes) or which are otherwise permitted under the DOL Regulations and,
therefore, will not cause the Shares to not be "freely-transferable." The DOL
Regulations are interpretive in nature and, therefore, no assurance can be
given that the DOL and the United States Department of the Treasury will not
conclude that the Shares are not freely-transferable.
Assuming that the Shares are "widely-held," the Company believes that the
Shares will be "publicly offered securities" for purposes of the Regulations and
that the assets of the Company will not be deemed to be "plan assets" of any
Plan that invests in the Shares.
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DESCRIPTION OF SECURITIES
GENERAL
The total number of Shares of stock which the Company has authorized is
30,000,000 of which 24,000,000 shares are common stock, $.01 par value per
share (the "Common Stock"), and 6,000,000 shares are preferred stock, $.01 par
value per share (the "Preferred Stock"). The Shares of Common Stock offered
hereby will be duly authorized, fully paid and nonassessable.
Stockholders have no preemptive rights to purchase or subscribe for
securities of the Company, and the Common Stock is not convertible or subject
to redemption at the option of the Company. The Common Stock is entitled to
one vote per share and Shares do not have cumulative voting rights. Subject to
the rights of the holders of any class of capital stock of the Company having
any preference or priority over the Common Stock, the Stockholders are entitled
to Distributions in such amounts as may be declared by the Board from time to
time out of funds legally available for such payments and, in the event of
liquidation, to share ratably in any assets of the Company remaining after
payment in full of all creditors and provisions for any liquidation preferences
on any outstanding Preferred Stock.
The Company may, at the discretion of the Board, authorize the listing,
issuance and sale of Shares on a national securities exchange or market. It is
not the present intention of the Company to list the Shares prior to the
termination of this Offering. However, the Company anticipates that by 1999 it
will apply to have the Shares listed, provided the Company meets the applicable
listing requirements and the Board determines such action to be in the best
interests of the Company.
Generally, the Directors, without further action by the Stockholders, are
authorized to issue up to 6,000,000 shares of Preferred Stock in one or more
series and to determine and fix, as to any series, all the relative rights and
preferences of shares including, without limitation, preferences, limitations
or relative rights with respect to redemption rights, conversion rights, if
any, voting rights, if any, dividend rights and preferences on liquidation.
It is the current intention of the Company to issue only the Shares and
Soliciting Dealer Warrants as described below, although it may from time to
time issue other securities through public offerings or private placements.
The Company may also issue shares of either Common Stock or Preferred Stock in
whole or partial payment for a property if, in the judgment of the Board, such
a transaction would be advantageous to the Company.
All Shares are fully transferable, subject only to restrictions which
would cause loss of REIT status. See "--Restrictions on Transfer" in this
Section. However, each person acquiring Shares must notify the Company of any
such transfer and provide his name, address, taxpayer identification number,
number of Shares acquired, Service Form W-9 and the name of the transferor
Stockholder prior to any Share transfer being recorded on the books and records
of the Company. Additionally, the transferee Stockholder must present the
stock certificate representing such Shares or an affidavit of lost certificate.
Such properly executed documentation must be presented one calendar month
prior to the last date of the current quarter to be effective as of the first
day of the next quarter. Failure to provide such information could result in a
transfer not being recognized by the Company on a timely basis.
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SOLICITING DEALER WARRANTS
The Company has agreed to issue and sell, and the Dealer Manager has
agreed to purchase, for the price of $.0008 per warrant, warrants (the
"Soliciting Dealer Warrants") to purchase one Share per Soliciting Dealer
Warrant in the Company equal to 2.5% of the total number of Shares sold by the
Dealer Manager (and/or the Soliciting Dealers) up to a maximum of 250,000
Soliciting Dealer Warrants. The Soliciting Dealer Warrants will be issued on a
quarterly basis commencing 60 days after the date on which the Shares are first
sold pursuant to this Offering. The Dealer Manager may retain or reallow all
Soliciting Dealer Warrants to the Soliciting Dealers, unless such issuance of
the Soliciting Dealer Warrants is prohibited by either federal or state
securities laws. The Soliciting Dealer Warrants which were to be but have not
been issued to the Dealer Manager in connection with the Prior Offering and the
Soliciting Dealer Warrants to be issued in connection with this Offering, as
well as the Shares issuable upon exercise of the Soliciting Dealer Warrants,
are being registered as part of this Offering.
Each Soliciting Dealer will receive from the Dealer Manager one Soliciting
Dealer Warrant for each 40 Shares sold by such Soliciting Dealer during this
Offering. All Shares sold by the Company other than through the Distribution
Reinvestment Program will be included in the computation of the number of Shares
sold to determine the number of Soliciting Dealer Warrants to be issued. The
holder of a Soliciting Dealer Warrant will be entitled to purchase one Share
from the Company at a price of $12 (120% of the public offering price per Share)
during the time period beginning from the date the Soliciting Dealer Warrants
are issued and ending upon October 13, 2000 (the "Exercise Period"). A
Soliciting Dealer Warrant may not be exercised unless the Shares to be issued
upon the exercise of the Soliciting Dealer Warrant have been registered or are
exempt from registration in the state of residence of the holder of the
Soliciting Dealer Warrant or if a prospectus required under the laws of such
state cannot be delivered to the buyer on behalf of the Company. Notwithstanding
the foregoing, no Soliciting Dealer Warrants will be exercisable until one year
from the date of issuance. In addition, holders of Soliciting Dealer Warrants
may not exercise the Soliciting Dealer Warrants to the extent such exercise
would jeopardize the Company's status as a REIT under the Code.
The terms of the Soliciting Dealer Warrants, including the exercise price
and the number and type of securities issuable upon exercise of a Soliciting
Dealer Warrant and the number of such Warrants may be adjusted in the event of
stock dividends, certain subdivisions, combinations and reclassification of
Shares or the issuance to Stockholders of rights, options or warrants entitling
them to purchase Shares or securities convertible into Shares. The terms of the
Soliciting Dealer Warrants also may be adjusted if the Company engages in
certain merger or consolidation transactions or if all or substantially all of
the Company's assets are sold. Soliciting Dealer Warrants are not transferable
or assignable except by the Dealer Manager, the Soliciting Dealers, their
successors in interest, or to individuals who are both officers and directors of
such a person. Exercise of these Soliciting Dealer Warrants will be under the
terms and conditions detailed in this Prospectus and in the Warrant Purchase
Agreement, which is an exhibit to the Registration Statement.
As holders of Soliciting Dealer Warrants, persons do not have the rights
of Stockholders, may not vote on Company matters and are not entitled to
receive Distributions.
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ISSUANCE OF ADDITIONAL SECURITIES AND DEBT INSTRUMENTS
The Directors are authorized to issue additional shares or convertible
securities for cash, property or other consideration on such terms as they may
deem advisable and to classify or reclassify any unissued shares of capital
stock of the Company without approval of the holders of such outstanding
securities. The Directors may cause the Company to issue debt obligations with
conversion privileges on more than one class of capital stock. The Directors
may issue debt obligations with conversion privileges on such terms and
conditions as the Directors may determine whereby the holders thereof may
acquire Shares. Subject to certain restrictions, the Directors may also cause
the Company to issue warrants, options and rights to buy Shares on such terms
as they deem advisable (notwithstanding the possible dilution in the value of
the outstanding Shares which may result from the exercise of such warrants,
options or rights to buy Shares) as part of a ratable issue to Stockholders, as
part of a public or private offering or as part of a financial arrangement with
parties other than the Advisor or Directors, officers or employees of the
Company or the Advisor.
RESTRICTIONS ON TRANSFER
For the Company to qualify as a REIT under the Code, Shares must be
beneficially owned by 100 or more persons during at least 335 days of a taxable
year of 12 months (other than the first year) or during a proportionate part of
a shorter taxable year. Further, not more than 50% of the value of the issued
and outstanding shares of capital stock may be owned, directly or indirectly,
by five or fewer individuals during the last half of a taxable year (other than
the first year) or during a proportionate part of a shorter taxable year.
Since the Board believes it is essential for the Company to continue to
qualify as a REIT, the Articles provide that no person may own, or be deemed
to own by virtue of the attribution provisions of the Code, more than
9.8% (the "Ownership Limit") of the number or value of any class of the issued
and outstanding stock of the Company. The Directors, upon receipt of a ruling
from the Service, an opinion of counsel or other evidence satisfactory to the
Directors and upon other conditions as the Directors may direct, may also
exempt a proposed transferee from the Ownership Limit. As a condition of this
exemption, the intended transferee must give written notice to the Company of
the proposed transfer no later than 15 days prior to any transfer which, if
effected, would result in the intended transferee owning shares in excess of
the Ownership Limit. The Directors may require opinions of counsel,
affidavits, undertakings or agreements as it may deem necessary or advisable in
order to determine or ensure the Company's status as a REIT. Any transfer of
Shares that would: (i) create a direct or indirect ownership of Shares in
excess of the Ownership Limit; (ii) result in the Shares being owned by fewer
than 100 persons; or (iii) result in the Company being "closely-held" within
the meaning of Code Section 856(b), shall be null and void, and the intended
transferee will acquire no right to the Shares. The foregoing restrictions on
transferability and ownership will not apply if the Directors determine that it
is no longer in the best interests of the Company to attempt to qualify, or to
continue to qualify, as a REIT.
Any purported transfer of Shares that would result in a person owning
Shares in excess of the Ownership Limit or cause the Company to become
"closely-held" under Code Section 856(b) that is not otherwise permitted as
provided above will constitute excess shares ("Excess Shares"). Upon the
Company determining the existence of Excess Shares, it shall make a demand upon
such Stockholders to sell such Excess Shares. Within 30 days after the Company
requests such holder to sell such Excess Shares, the Excess Shares shall be
deemed to have been offered for sale to the Company, or its designee, at a
price per Share equal to the lesser of: (a) the price per Share in the
transaction that created such Excess Shares
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(or, in the case of a devise or gift, the market price at the time of
such devise or gift); and (b) the market price of the equity shares to which
such Excess Shares relates on the date the Company, or its designee, accepts
such offer. The Company shall have the right to accept such offer for a period
of 30 days after the later of: (i) the date of Transfer which resulted in such
Excess Shares; and (ii) the date the Board determines in good faith that a
Transfer resulting in Excess Shares has occurred, if the Company does not
receive a notice of such Transfer pursuant to the terms of the Articles but in
no event later than a permitted Transfer pursuant to and in compliance with the
terms of the Articles. If the Company accepts such offer, it shall be required
to pay the full purchase price for such Shares within such 30 day period.
All persons who own, directly or by virtue of the attribution provisions
of the Code, more than 9.8% (or such other percentage between 1/2 of 1% and 5%,
as provided in the rules and regulations promulgated under the Code) of the
number or value of the outstanding Shares must give the Company written notice
by January 31st of each year. In addition, each Stockholder shall, upon
demand, be required to disclose to the Company in writing all information
regarding the direct, indirect and constructive ownership of Shares as the
Directors deem reasonably necessary to comply with the provisions of the Code
applicable to a REIT, to comply with the requirements of any taxing authority
or governmental agency or to determine any such compliance.
These ownership limitations could have the effect of discouraging a
takeover or other transaction in which holders of some, or a majority, of the
Shares might receive a premium for their Shares over the then prevailing market
price or a price which such holders might believe to be otherwise in their best
interest.
SUMMARY OF THE ORGANIZATIONAL DOCUMENTS
Each Stockholder shall be bound by and deemed to have agreed to the terms
of the Organizational Documents by his, her or its election to become a
Stockholder. The Organizational Documents, consisting of the Articles and
Bylaws, were reviewed and ratified by a majority of the Directors (including a
majority of the Independent Directors) at the first meeting of such Directors.
The following is a summary of certain provisions of the Organizational
Documents and does not purport to be complete. This summary is qualified in
its entirety by specific reference to the Organizational Documents filed as
Exhibits to the Company's Registration Statement.
CERTAIN ARTICLE AND BYLAW PROVISIONS
Stockholders' rights and related matters are governed by the Maryland
General Corporation Law ("MGCL"), the Articles and Bylaws. Certain provisions
of the Articles and Bylaws, which are summarized below, may make it more
difficult to change the composition of the Board and may discourage or make
more difficult any attempt by a person or group to obtain control of the
Company.
STOCKHOLDERS' MEETINGS
An annual meeting of the Stockholders will be held not less than 30 days
after the delivery of the Company's annual report, but within six months after
the end of each fiscal year, for the purpose of electing Directors and for the
transaction of such other business as may become before the meeting. A special
meeting of the Stockholders may be called by the chief executive officer, a
majority of the Directors or a majority of the Independent Directors, and shall
be called by an officer of the Company
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upon written request of the Stockholders holding in the aggregate not
less than 10% of the outstanding Shares. Upon receipt of a written request,
either in person or by mail, stating the purpose(s) of the meeting, the Company
shall provide all Stockholders, within ten days after receipt of said request,
written notice, either in person or by mail, of a meeting and the purpose of
such meeting to be held on a date not less than 15 nor more than 60 days after
the distribution of such notice, at a time and place specified in the request,
or if none is specified, at a time and place convenient to the Stockholders.
At any meeting of the Stockholders, each Stockholder is entitled to one vote
for each Share owned of record on the applicable record date. In general, the
presence in person or by proxy of a majority of the outstanding Shares shall
constitute a quorum, and the majority vote of the Stockholders will be binding
on all Stockholders of the Company.
BOARD OF DIRECTORS
The Articles and Bylaws provide that the number of directors of the
Company may not be fewer than three nor more than nine, a majority of which
will be independent. This provision may only be amended by a vote of a
majority of the Board. A vacancy in the Board caused by the death, resignation
or incapacity of a Director or by an increase in the number of Directors
(within the limits described above) may be filled by the vote of a majority of
the remaining Directors. With respect to a vacancy created by the death,
resignation or incapacity of an Independent Director, the remaining Independent
Directors shall nominate a replacement. Vacancies occurring as a result of the
removal of a Director by Stockholders shall be filled by a majority vote of the
Stockholders. Any Director may resign at any time and may be removed with or
without cause by the Stockholders owning at least a majority of the outstanding
Shares.
A Director shall have had at least three years of relevant experience
demonstrating the knowledge and experience required to successfully acquire and
manage the type of assets being acquired by the Company. At least one of the
Independent Directors shall have three years of relevant real estate
experience.
STOCKHOLDER VOTING RIGHTS
Except as otherwise provided, all Shares shall have equal voting rights.
Stockholders are entitled to vote by written consent and do not have cumulative
voting rights. The voting rights per share of equity securities of the Company
(other than the Shares) sold in a private offering shall not exceed voting
rights which bear the same relationship to the voting rights of the Shares of
the Company as the consideration paid to the Company for each privately offered
Company share bears to the book value of each Share.
All elections for Directors shall be decided by the affirmative vote of a
majority of votes cast at a meeting or without a meeting, provided that a
quorum is present (defined as a majority of the aggregate number of votes
entitled to be cast thereon). Any or all Directors may be removed, with or
without cause, by the affirmative vote of the holders of at least a majority of
the outstanding Shares entitled to vote at an annual or special meeting. All
other questions shall be decided by a majority of the votes cast at a meeting.
If no meeting is held, 100% of the Stockholders must consent in writing.
Without concurrence of a majority of the outstanding Shares, the Directors
may not: (a) amend the Articles, except for amendments which do not adversely
affect the rights, preferences and privileges of the Stockholders, including
amendments to provisions relating to Director qualifications, fiduciary duty,
liability and indemnification, conflicts of interest, investment policies or
investment restrictions; (b) sell all or substantially all of the Company's
assets other than in the ordinary course of the Company's business
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or in connection with liquidation and dissolution; (c) cause a merger or
other reorganization of the Company; or (d) dissolve or liquidate the Company,
other than before the initial investment in a property by the Company. For
purposes of the above provision, a sale of all or substantially all of the
Company's assets shall mean the sale of two-thirds or more of the Company's
assets based on the total number of properties or the current fair market value
of these assets.
With respect to Shares owned by the Advisor, the Sponsor, the Directors or
any Affiliate, neither the Advisor, the Sponsor, the Directors, nor any
Affiliate may vote or consent on matters submitted to the Stockholders
regarding the removal of the Advisor, the Sponsor, the Directors or any
Affiliate or any transaction between the Company and any of them. In
determining the requisite percentage and interest of Shares necessary to
approve a matter on which the Advisor, the Sponsor, the Directors and any
Affiliate may not vote or consent, any Shares owned by them shall not be
included.
Each Stockholder entitled to vote may do so: (i) at a meeting in person,
by written proxy or by a signed writing or consent directing the manner in
which he or she desires that his or her vote be cast (which must be received by
the Directors prior to such meeting); or (ii) without a meeting by a signed
writing or consent directing the manner in which he or she desires that his or
her vote be cast (which must be received by the Directors prior to the date the
votes of the Stockholders are to be counted).
STOCKHOLDER LISTS; INSPECTION OF BOOKS AND RECORDS
An alphabetical list of names, record addresses and business telephone
numbers (if any) of all Stockholders with the number of Shares held by each,
shall be maintained as part of the books and records of the Company at the
Company's principal office. Such list shall be updated at least quarterly and
shall be open for inspection by a Stockholder or his designated agent upon such
Stockholder's request. Such list shall also be mailed to any Stockholder
requesting the list within ten days of receipt of a request. The Company may
impose a reasonable charge for expenses incurred in reproducing such list and
may require the Stockholder requesting such Stockholder's list to represent
that the list is requested with respect to matters relating to Stockholders'
voting rights under the Articles and the exercise of Stockholders' rights under
federal proxy laws.
Any Stockholder and any designated representative thereof shall be
permitted access to all records of the Company at all reasonable times and may
inspect and copy any of them. In addition, the books and records of the
Company shall be open for inspection by state securities administrators upon
reasonable notice and during normal business hours at the principal place of
business of the Company.
AMENDMENT OF THE ORGANIZATIONAL DOCUMENTS
The Articles may be amended by the affirmative vote of a majority of
the then outstanding Shares, without the necessity for concurrence by the
Directors. Unless otherwise stated in the Articles, the Bylaws may be amended
in a manner not inconsistent with the Articles by a majority vote of the
Directors, except that an amendment of any matter which requires greater than a
majority vote of the Directors must be amended by the requisite vote and no
Bylaw adopted by the Stockholders may be amended by the Directors if the
provision of such Bylaw provides that it may not be amended without a
Stockholder vote.
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DISSOLUTION OR TERMINATION OF THE COMPANY
The Company is an infinite-life REIT which may be dissolved pursuant to
the procedures set forth in the MGCL at any time by the affirmative vote of a
majority of the Stockholders. However, the Company anticipates that, by 1999,
the Board of Directors will determine whether it is in the best interests of
the Company to: (i) apply to have the Shares listed for trading on a national
stock exchange or included for quotation on a national market system, provided
the Company meets the then applicable listing requirements; and/or
(ii) commence a subsequent public offering after completion of this Offering.
If listing of the Shares is not feasible by 1999, the Board may decide to:
(i) sell the Company's assets individually; (ii) list the Shares at a future
date to provide liquidity for Stockholders; or (iii) liquidate the Company
within ten years of the date thereof.
ADVANCE NOTICE OF DIRECTOR NOMINATIONS AND NEW BUSINESS
The Bylaws provide that: (a) with respect to an annual meeting of
Stockholders, nominations of persons for election to the Board and the proposal
of business to be considered by Stockholders may be made only: (i) pursuant to
the Company's notice of the meeting; (ii) by the Board; or (iii) by a
Stockholder who is entitled to vote at the meeting and has complied with the
advance notice procedures set forth in the Bylaws; and (b) with respect to
special meetings of Stockholders, only the business specified in the Company's
notice of meeting may be brought before the meeting of Stockholders, and
nominations of persons for election to the Board may be made only: (i)
pursuant to the Company's notice of the meeting; (ii) by the Board; or (iii)
provided that the Board has determined that directors shall be elected at such
meeting, by a Stockholder who is entitled to vote at the meeting and has
complied with the advance notice provisions set forth in the Bylaws.
RESTRICTIONS ON CERTAIN CONVERSION TRANSACTIONS AND ROLL-UPS
The Articles require that 66 2/3% in interest of the Stockholders and all
the Independent Directors approve certain exchange offers, mergers,
consolidations or similar transactions involving the Company in which the
Stockholders receive securities in a surviving entity having a substantially
longer duration or materially different investment objectives and policies, or
that provides significantly greater compensation to management from that which
is described in this Prospectus, except for any such transaction effected
because of changes in applicable law, or to preserve tax advantages for a
majority in interest of the Stockholders. In should be noted that standards
such as "substantially longer life," "materially different investment objectives
and policies" or "provides significantly greater compensation to management" are
not defined and are by their nature potentially ambiguous. Any ambiguities will
be resolved by the Directors.
In connection with a proposed Roll-Up, as defined below, an appraisal of
all of the Company's assets shall be obtained from a person with no current or
prior business or personal relationship with the Advisor or the Directors and
who is engaged, to a substantial extent, in the business of rendering opinions
regarding the value of assets of the type held by the Company (an "Independent
Expert"). The appraisal will be included in a prospectus used to offer the
securities of a Roll-Up Entity, as defined below, and shall be filed with the
Commission and the state regulatory commissions as an exhibit to the
registration statement for the offering. Accordingly, an issuer using the
appraisal shall be subject to liability for violation of Section 11 of the Act
and comparable provisions under state laws for any material misrepresentations
or material omissions in the appraisal. The Company's assets shall be
appraised in a consistent manner. The appraisal shall be based on an
evaluation of all relevant information, and shall
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indicate the value of the Company's assets as of a date immediately prior to the
announcement of the proposed Roll-Up transaction. The appraisal shall assume an
orderly liquidation of the Company's assets over a 12-month period. The terms
of the engagement of the Independent Expert shall clearly state that the
engagement is for the benefit of the Company and its Stockholders. A summary of
the independent appraisal, indicating all material assumptions underlying the
appraisal, shall be included in a report to the Stockholders in connection with
a proposed Roll-Up. A Roll-Up is a transaction involving the acquisition,
merger, conversion or consolidation, either directly or indirectly, of the
Company and the issuance of securities of a Roll-Up Entity, as defined below. A
Roll-Up does not include: (i) a transaction involving securities of the Company
that have been for at least 12 months listed on a national securities exchange
or traded through the Nasdaq National Market; or (ii) a transaction involving
the conversion to corporate, trust or association form of only the Company if,
as a consequence of the transaction, there will be no significant adverse change
in any of the following: (a) Stockholders' voting rights; (b) the term and
existence of the Company; (c) Sponsor or Advisor compensation; or (d) the
Company's investment objectives. A Roll-Up Entity is a partnership, real estate
investment trust, corporation, trust or other entity that would be created or
would survive after the successful completion of a proposed Roll-Up.
Notwithstanding the foregoing, the Company may not participate in any
proposed Roll-Up which would:
(i) result in the Stockholders having rights to meetings less
frequently or which are more restrictive to Stockholders than those
provided in the Articles;
(ii) result in the Stockholders having voting rights that are less
than those provided in the Articles;
(iii) result in the Stockholders having greater liability than as
provided in the Articles;
(iv) result in the Stockholders having rights to receive reports
that are less than those provided in the Articles;
(v) result in the Stockholders having access to records that are
more limited than those provided in the Articles;
(vi) include provisions which would operate to materially impede
or frustrate the accumulation of Shares by any purchaser of the
securities of the Roll-Up Entity (except to the minimum extent
necessary to preserve the tax status of the Roll-Up Entity);
(vii) limit the ability of an investor to exercise the voting rights of
its securities in the Roll-Up Entity on the basis of the number of
the Shares held by that investor;
(viii) result in investors in the Roll-Up Entity having rights of access
to the records of the Roll-Up Entity that are less than those
provided in the Articles; or
(ix) place any of the costs of the transaction on the Company if
the Roll-Up is not approved by the Stockholders;
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provided, however, that nothing herein shall be construed to prevent
participation in any proposed Roll-Up which would result in Stockholders having
rights and restrictions comparable to those contained in the Articles, with the
prior approval of a majority of the Stockholders.
Stockholders who vote "no" on the proposed Roll-Up shall have the choice
of:
(i) accepting the securities of the Roll-Up Entity offered in
the proposed Roll-Up; or
(ii) one of either:
(a) remaining as Stockholders of the Company and preserving their
interests therein on the same terms and conditions as
previously existed; or
(b) receiving cash in an amount equal to the Stockholders' pro rata
share of the appraised value of the net assets of the Company.
The foregoing provisions in the Articles, Bylaws and the MGCL could have
the effect of discouraging a takeover or other transaction in which holders of
some, or a majority, of the Shares might receive a premium for their Shares over
the then prevailing market price or which these holders might believe to be
otherwise in their best interests.
LIMITATION ON TOTAL OPERATING EXPENSES
The Articles provide that, subject to the conditions described in the
following paragraph, the annual Total Operating Expenses of the Company shall
not exceed in any fiscal year the greater of 2% of the Average Invested Assets
of the Company or 25% of the Company's Net Income. The Independent Directors
have a fiduciary responsibility to limit the Company's annual Total Operating
Expenses to amounts that do not exceed the foregoing limitations. The
Independent Directors may, however, determine that a higher level of Total
Operating Expenses is justified for such period because of unusual and
non-recurring expenses. Any such finding by the Independent Directors and the
reasons in support thereof shall be recorded in the minutes of the meeting of
Directors. Within 60 days after the end of any fiscal quarter of the Company
for which Total Operating Expenses (for the 12 months then ended) exceed 2% of
Average Invested Assets or 25% of Net Income, whichever is greater, there shall
be sent to the Stockholders a written report of such fact, together with an
explanation of the facts the Independent Directors considered in arriving at
the conclusion that such higher operating expenses were justified. In the
event the Total Operating Expenses exceed the limitations described above and
if the Directors are unable to conclude that such excess was justified then,
within 60 days after the end of the Company's fiscal year, the Advisor shall
reimburse the Company in the amount by which the aggregate annual Total
Operating Expenses paid or incurred by the Company exceed the limitation.
TRANSACTIONS WITH AFFILIATES
The Articles impose certain restrictions upon dealings between the Company
and the Advisor, the Sponsor, any Director or Affiliates thereof. In
particular, the Company may not:
(i) borrow money from the Advisor, the Sponsor, any Director or
Affiliates thereof, unless a majority of the Directors (including a
majority of the Independent Directors) not otherwise interested in
such transaction determines that such transaction is fair and
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reasonable and no less favorable to the Company than from
unaffiliated parties under the same or similar circumstances;
(ii) invest in joint ventures with an Affiliated program except in
compliance with the requirements set forth in the Articles.
See "Investment Objectives and Policies--Joint Ventures";
(iii) enter into any other transaction with the Advisor, the Sponsor,
any Director or Affiliates thereof, unless a majority of the
Directors (including a majority of the Independent Directors)
not otherwise interested in such transaction determines that
the transaction is fair and reasonable to the Company and is on
terms and conditions no less favorable than from unaffiliated
third parties, except for advisory arrangements with the
Advisor. Notwithstanding the above, the Company was allowed to
acquire the Eagle Crest Shopping Center and the
Walgreens/Decatur property from IPS. See "Conflicts of
Interest--Acquisitions from Affiliates" and "--Non-Arm's-Length
Agreements" and "Real Property Investments"; or
(iv) sell property to or loan money to the Advisor, the Sponsor, any
Director or Affiliates thereof (except as provided in the
Articles).
RESTRICTIONS ON BORROWING
The Company may not incur indebtedness to enable it to make Distributions
except as necessary to satisfy the requirement that the Company distribute at
least 95% of its REIT Taxable Income, or otherwise as necessary or advisable to
assure that the Company maintains its qualification as a REIT for federal
income tax purposes. The aggregate borrowing of the Company, secured and
unsecured, shall be reasonable in relation to the Net Assets of the Company and
shall be reviewed by the Board at least quarterly. The Company anticipates
that aggregate borrowings related to all of the Company's properties will not
exceed 50% of their combined fair market values, however, the maximum amount of
borrowings in relation to 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 borrowings in excess of such 300% level shall only occur with the
consent of a majority of the Stockholders. See "Investment Objectives and
Policies--Borrowing." The Company shall not borrow funds from the Advisor, the
Sponsor, any Director or Affiliates thereof, unless a majority of the Directors
(including a majority of the Independent Directors), not otherwise interested
in such transaction, determines that such transaction is fair and reasonable
and no less favorable to the Company than from unaffiliated parties under the
same or similar circumstances.
RESTRICTIONS ON INVESTMENTS
The investment policies set forth in the Articles shall be approved by a
majority of Independent Directors. The Articles prohibit investments in: (i)
any foreign currency or bullion; (ii) short sales; and (iii) any security in
any entity holding investments or engaging in activities prohibited by the
Articles.
In addition to other investment restrictions imposed by the Directors from
time to time consistent with the Company's objective to qualify as a REIT, the
Company will observe the following restrictions on its investments set forth in
its Articles:
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(i) not more than 10% of the Company's total assets will be
invested in unimproved real property or mortgage loans on
unimproved real property. For purposes of this paragraph,
"unimproved real properties" does not include properties under
construction, under contract for development or plan for
development within one year;
(ii) the Company may not invest in commodities or commodity future
contracts. Such limitation is not intended to apply to
interest rate futures, when used solely for hedging purposes;
(iii) the Company shall not invest in or make mortgage loans unless
an appraisal is obtained concerning the underlying property.
Mortgage indebtedness on any property shall not exceed such
property's appraised value. In cases in which the majority of
Independent Directors so determine, and in all cases in which
the mortgage loan involves the Advisor, the Sponsor, the
Directors or any Affiliates, such appraisal must be obtained
from an Independent Expert concerning the underlying property.
The appraisal shall be maintained in the Company's records for
at least five years, and shall be available for inspection and
duplication by any Stockholder. In addition to the appraisal,
a mortgagee's or owner's title insurance policy or commitment
as to the priority of the mortgage or condition of the title
must be obtained. The Company may not invest in real estate
contracts of sale otherwise known as land sale contracts;
(iv) the Company may not make or invest in mortgage loans, including
construction loans, on any one property if the aggregate amount
of all mortgage loans outstanding on the property, including
the loans of the Company, would exceed an amount equal to 85%
of the appraised value of the property as determined by
appraisal unless substantial justification exists because of
the presence of other underwriting criteria provided that such
loans would in no event exceed the appraised value of the
property at the date of the loans;
(v) the Company may not make or invest in any mortgage loans that
are subordinate to any mortgage or equity interest of the
Advisor, the Sponsor, any Director or Affiliates thereof;
(vi) the Company shall not invest in equity securities unless a
majority of the Directors (including a majority of the
Independent Directors) not otherwise interested in such
transaction approves the transaction as being fair, competitive
and commercially reasonable. Investments in entities affiliated
with the Advisor, the Sponsor, any Director or Affiliates
thereof are subject to the restrictions on joint venture
investments. Notwithstanding these restrictions, the Company
may purchase its own securities, when traded on a secondary
market or on a national securities exchange or market, if a
majority of the Directors (including a majority of the
Independent Directors) determine such purchase to be in the
best interests of the Company;
(vii) the Company shall not issue: (a) redeemable equity securities;
(b) debt securities unless the historical debt service coverage
(in the most recently completed fiscal year) as adjusted for
known charges is sufficient to properly service the higher
level of debt; (c) options or warrants to purchase Shares to
the Advisor, the Sponsor, any Director or Affiliates thereof
except on the same terms as sold to the general public,
provided that the Company may issue options or warrants to
persons not affiliated with the Company at
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exercise prices not less than the fair market value of such
securities on the date of grant and for consideration (which
may include securities) that in the judgment of the Independent
Directors have a market value not less than the value of such
option on the date of grant); options or warrants issuable to
the Advisor, the Sponsor, any Director or Affiliates thereof
shall not exceed an amount equal to ten percent (10%) of the
outstanding Shares on the date of grant of any options or
warrants; or (d) issue Shares on a deferred payment basis or
similar arrangement;
(viii) to the extent the Company invests in real property acquired
from an Affiliate, a majority of the Directors (including a
majority of the Independent Directors) shall determine the
consideration paid for such real property, based on the fair
market value of the property; in such event, an appraisal by a
qualified independent real estate appraiser selected by the
Independent Directors shall be obtained;
(ix) the Company may not invest in indebtedness (herein called
"Junior Debt") secured by a mortgage on real property which is
subordinate to the lien of other indebtedness (herein called
"Senior Debt"), except where the amount of such Junior Debt,
plus the outstanding amount of the Senior Debt, does not exceed
90% of the appraised value of such property, if after giving
effect thereto, the value of all such investments of the
Company (as shown on the books of the Company in accordance
with generally accepted accounting principles, after all
reasonable reserves but before provision for depreciation)
would not then exceed 25% of the Company's tangible assets.
The value of all investments in Junior Debt of the Company
which does not meet the aforementioned requirements would be
limited to 10% of the Company's tangible assets (which would be
included within the 25% limitation);
(x) engage in trading, as compared with investment activities; and
(xi) engage in underwriting or the agency distribution of securities
issued by others.
Subject to the above restrictions, a majority of the Independent Directors may
alter the investment policies if they determine that such change is in the best
interests of the Company.
PLAN OF DISTRIBUTION
GENERAL
Of the 11,375,000 Shares offered by this Prospectus, the Company is
offering 10,000,000 Shares on a "best efforts" basis at a purchase price of
$10.00 per Share with a minimum initial investment of $3,000 ($1,000 in the
case of Tax-Exempt Entities, except for Iowa where the minimum investment for
IRAs will be $3,000 and for Minnesota where the minimum investment for IRAs and
qualified plan accounts will be $2,000); 1,000,000 Shares at a purchase price
of $9.05 per Share are being offered through the Distribution Reinvestment
Program; and 375,000 Shares which may be issued upon the exercise of warrants
granted to the Dealer Manager. The warrants are also offered by means of this
Prospectus. See "Description of Securities - - Soliciting Dealer Warrants."
"Best efforts" means that no one is guaranteeing that any specified amount of
capital will be raised. The Offering will
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commence as of the date of this Prospectus and will terminate not later than
July 23, 1998. The Company reserves the right to terminate the Offering at any
time.
ESCROW CONDITIONS
Subscription proceeds for qualified subscriptions will be deposited in a
segregated escrow account with the LaSalle National Bank, N.A., 120 South
LaSalle Street, Chicago, Illinois, and will be held in trust for the benefit of
the subscribers pending release to the Company, and will not be commingled.
Subscription proceeds are expected to be released to the Company as
subscriptions are accepted. All subscriptions will be accepted or rejected
within ten days (and generally within 24 hours) after receipt by the Company.
ADVISOR CAPITAL CONTRIBUTION
The Advisor made a capital contribution to the Company in the amount of
$200,000 prior to the commencement of the Prior Offering, for which the Advisor
received 20,000 Shares. The Advisor may not sell this initial investment while
it remains the Advisor but may transfer the Shares to an Affiliate. The
Advisor and its Affiliates may purchase additional Shares for their own
accounts. However, at no time will the Advisor own 9.8% or more of the total
number of the Company's Shares outstanding. Any purchases of Shares by the
Advisor during the Offering will be for investment purposes only and not with a
view toward immediate resale.
SUBSCRIPTION PROCESS
The Shares are being offered to the public through the Dealer Manager and
the Soliciting Dealers. The form of Soliciting Dealers Agreement between the
Dealer Manager and the Soliciting Dealers requires the broker-dealers to make
diligent inquiries, as required by law, of all prospective purchasers in order
to ascertain whether a purchase of Shares is suitable for such person and
transmit promptly to the Company the completed subscription documentation and
any supporting documentation reasonably required by the Company.
The Shares are being sold when, as and if subscriptions therefor are
received and accepted by the Company, subject to the satisfaction by the
Company of certain other conditions and approval by counsel of certain legal
matters. The Company has the unconditional right to accept or reject any
subscription. Subscriptions will be accepted or rejected within ten days (and
generally within 24 hours) after its receipt of a copy of the Subscription
Agreement, fully completed, and payment in good funds for the number of
subscribed Shares. If the subscription is accepted, a confirmation will be
mailed not more than five days after acceptance of the investor as a
Stockholder. A sale of the Shares may not be completed until at least five
business days after the date the subscriber receives a Prospectus and, as may
be required by certain state regulatory authorities, a copy of the
Organizational Documents. If for any reason the subscription is rejected, the
check and subscription agreement will be returned to the subscriber, without
interest or deduction, within ten days after receipt.
Shares will only be sold to persons who initially purchase a minimum of
300 Shares ($3,000) or Tax-Exempt Entities which purchase a minimum of 100
Shares ($1,000), except for Iowa where the minimum investment for IRAs will be
300 Shares ($3,000) and for Minnesota where the minimum investment for IRAs and
qualified plan accounts will be 200 Shares ($2,000). Subscriptions will be
accepted for fractional Shares only in the discretion of the Company.
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DETERMINATION OF INVESTOR SUITABILITY
The Company, the Dealer Manager and each Soliciting Dealer shall make every
reasonable effort to determine that those persons being offered or sold the
Shares are appropriate in light of the suitability standards set forth herein
and are appropriate to such investor's investment objectives and financial
situation. The Soliciting Dealers shall ascertain that the investors can
reasonably benefit from the Company, and the following shall be relevant to such
determination: (i) the investor has the capability of understanding the
fundamental aspects of the Company, which capacity may be evidenced by the
following: (a) the nature of employment experience; (b) educational level
achieved; (c) access to advice from qualified sources, such as attorneys,
accountants, tax advisors, etc.; and (d) prior experience with investments of a
similar nature; (ii) the investor has apparent understanding of: (a) the
fundamental risks and possible financial hazards of this type of investment; (b)
the lack of liquidity of this investment; (c) the Advisor's role in directing or
managing the investment; and (d) the tax consequences of the investment; and
(iii) the investor has the financial capability to invest in the Company.
By executing the subscription agreement, each Soliciting Dealer
acknowledges his determination that the Shares are a suitable investment for
the investor, and will be required to represent and warrant his compliance with
the applicable laws requiring the determination of the suitability of the
Shares as an investment for the subscriber. The Company and its Affiliates
will, in addition to the foregoing, coordinate the processes and procedures
utilized by the Dealer Manager and Soliciting Dealers and, where necessary,
implement such additional reviews and procedures deemed necessary to determine
that investors meet the suitability standards set forth herein. The Dealer
Manager and/or the Soliciting Dealers shall maintain for at least six years a
record of the information obtained to determine that an investor meets the
suitability standards imposed on the offer and sale of Shares and a
representation of the investor that the investor is investing for the
investor's own account or, in lieu of such representation, information
indicating that the investor for whose account the investment was made met the
suitability standards.
COMPENSATION
The Company will pay the Dealer Manager selling commissions equal to up to
seven percent (7%) on all Shares sold for serving as a dealer manager of the
Offering and for the sale of Shares through its efforts, of which such
compensation may be retained or reallowed to Soliciting Dealers, as
compensation for their services in soliciting and obtaining subscribers for the
purchase of Shares, further described below. Up to an additional 2.0% of the
Gross Offering Proceeds, a portion of which may be reallowed to Soliciting
Dealers, may be paid as a Marketing Contribution for marketing fees,
wholesaling fees, expense reimbursements, bonuses and incentive compensation
and volume discounts. In addition, the Dealer Manager and the Soliciting
Dealers may be reimbursed for bona fide due diligence expenses not to exceed a
maximum of 0.5% of the Gross Offering Proceeds. The Dealer Manager may award
sales incentive items to Soliciting Dealers in connection with their sales
activities. The value of each item will be less than $50 per annum per
participating salesperson. The Dealer Manager may pay incentive compensation
to its regional marketing representatives for their activities as wholesalers
in connection with the distribution of the Shares, subject to the overall
restrictions on commissions described herein. The Dealer Manager will reallow
commissions to Soliciting Dealers who sell 100,000 or more Shares during the
Offering, as an incentive. This incentive commission, equal to 1% of the price
of the Shares initially will be paid following the sale of 100,000 Shares by a
Soliciting Dealer and, thereafter, will be paid quarterly in the event
additional Shares are sold. The incentive compensation will be reduced by the
amount of any
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marketing costs paid by the Dealer Manager on behalf of, or to, the Soliciting
Dealers. Soliciting Dealers will also receive one Soliciting Dealer Warrant for
each 40 Shares sold by such Soliciting Dealer during the Offering, subject to
federal and state 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 on October 13, 2000 (the "Exercise Period").
Subject to certain limitations, the Soliciting Dealer Warrants may not be
transferred, assigned, pledged or hypothecated for a period of one year
following issuance thereof. In addition, no Soliciting Dealer Warrants will be
exercisable until one year from the date of issuance. The Soliciting Dealer
Warrants which were to be but have not been issued to the Dealer Manager in
connection with the Prior Offering and the Soliciting Dealer Warrants to be
issued in connection with the Offering, as well as the Shares issuable upon
exercise of the Soliciting Dealer Warrants, are being registered as part of this
Offering. For the life of the Soliciting Dealer Warrants, the holders are
given, at nominal cost, the opportunity to profit from a rise in the market
price for the Common Stock without assuming the risk of ownership, with a
resulting dilution in the interest of other security holders. Moreover, the
holders of the Soliciting Dealer Warrants might be expected to exercise them at
a time when the Company would, in all likelihood, be able to obtain needed
capital by a new offering of its securities on terms more favorable than those
provided by the Soliciting Dealer Warrants. See "Description of
Securities--Soliciting Dealer Warrants." The maximum compensation to be paid in
connection with the Offering will not exceed: (i) a total of 7% of the Gross
Offering Proceeds for selling commissions; and (ii) a total of 2% of the Gross
Offering Proceeds for marketing fees, wholesaling fees, expense reimbursements,
bonuses and incentive compensation and volume discounts. The aggregate of these
commissions and expenses plus the value attributable to the warrants that may be
issued to the Dealer Manager and the Soliciting Dealers will not exceed 10% of
the Gross Offering Proceeds. In addition, the Dealer Manager and the Soliciting
Dealers may be reimbursed for bona fide due diligence expenses not to exceed a
maximum of 0.5% of the Gross Offering Proceeds.
The Company shall not pay or award, directly or indirectly, any
commissions or other compensation to any person engaged by a potential investor
for investment advice as an inducement to such advisor to advise the investor
to purchase Shares, provided, however, that this provision shall not prohibit
the normal sales commission payable to a registered broker-dealer or other
properly licensed person for selling the Shares.
VOLUME DISCOUNTS
Commissions will be reduced below 7% for obtaining subscriptions from
Stockholders in accordance with the following:
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<TABLE>
<CAPTION>
Amount of
Purchaser's Investment Maximum Commission
From To per Share
----------- ----------- ------------------
<S> <C> <C>
$ 250,000 499,999 5.5%
500,000 999,999 4.0%
1,000,000 and over 2.5%
</TABLE>
Any reduction from the up to 7% commission otherwise payable to the Dealer
Manager, some or all of which may be reallowable to a Soliciting Dealer in
respect of a purchaser's subscription will be credited to such purchaser in the
form of additional whole Shares or fractional Shares purchased net of
commissions.
Subscriptions may be combined for the purpose of crediting a purchaser
with additional Shares and determining commissions payable to the Dealer
Manager and reallowable to Soliciting Dealers so long as all such purchases are
made through the same Soliciting Dealer. Tax-Exempt Entities may be combined
in computing amounts invested if they each have the same person who exercises
investment discretion. If the Subscription Agreement/Signature Page fails to
indicate by marking the "Additional Purchase" space that subscriptions are to
be combined, the Company cannot be held responsible for failing to properly
combine subscriptions.
Employees and associates of the Company and its Affiliates will be
permitted to purchase Shares net of sales commissions and the Marketing
Contribution and Due Diligence Expense Allowance Fee ($9.05 per Share).
TRANSFER OF SHARES
A Stockholder may assign all or some of his Shares, subject to the
Ownership Limit contained in the Articles. This assignment shall confer upon
the assignee the right to become a Stockholder in the following manner and
subject to certain conditions, including the following: (i) an instrument of
assignment executed by both the assignor and assignee of the Shares
satisfactory in form to the Company shall be delivered to the Company; (ii)
reimbursement of the Company for reasonable expenses and filing costs incurred
in connection with such transfer, which amount shall not exceed $100; (iii) no
assignment shall be effective until the first day of the month following the
month in which the Company actually receives the instrument of assignment which
complies with the requirements of (i) and (ii) above; (iv) no assignment shall
be effective if such assignment would, in the opinion of counsel to the
Company, result in the termination of the Company's status as a REIT under the
Code; (v) an assignment may be rejected if such assignment would cause 25% or
more of the issued and outstanding Shares to be held by Tax-Exempt Entities
that are considered "benefit plan investors" under ERISA or otherwise cause the
assets of the Company to be Plan assets; and (vi) no assignment shall be
effected if the assignment would, to the knowledge of the Company, violate the
provisions of any applicable federal or state securities laws.
The Shares will not initially be listed on a national stock exchange or
included for quotation on a national market system. The Company anticipates
that by 1999 the Board will determine whether it is in the best interests of the
Company to: (i) apply to have the Shares listed for trading on a national stock
exchange or included for quotation on a national market system, provided the
Company meets the then applicable listing requirements; and/or (ii) commence a
subsequent public offering.
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INDEMNIFICATION
The Company will indemnify the Dealer Manager and the Soliciting Dealers
against certain liabilities, including liabilities under the Act; provided,
however, that the Company shall not indemnify the Dealer Manager or any
Soliciting Dealer from any losses, liabilities or expenses arising from or out
of an alleged violation of federal or state securities laws unless one or more
of the following conditions are met: (i) there has been a successful
adjudication on the merits of each count involving alleged securities law
violations as to the particular indemnitee and a court of competent
jurisdiction has approved indemnification of the litigation costs; or (ii) such
claims have been dismissed with prejudice on the merits by a court of competent
jurisdiction as to the particular indemnitee and the court has approved
indemnification of the litigation costs; or (iii) a court of competent
jurisdiction approves a settlement of the claims against a particular
indemnitee and the court has approved indemnification of the settlement and
related costs and the court considering the request has been advised of the
position of the Commission and the published opinions of any state securities
regulatory authority in which securities of the Company were offered and sold
as to indemnification for securities law violations. The Soliciting Dealer
will be required to indemnify the Company and the Advisor against certain such
liabilities. In the opinion of the Commission, indemnification for liabilities
arising under the Act is against public policy and, therefore, unenforceable.
The Dealer Manager and each of the Soliciting Dealers may be deemed to be an
"underwriter" as that term is defined in the Act. See "Distribution
Reinvestment and Share Repurchase Programs."
HOW TO SUBSCRIBE
Shares may be purchased by an investor who meets the suitability standards
described above under "Plan of Distribution--Suitability of the Investment" by
proceeding as follows:
1. Read the entire Prospectus and the current supplement(s), if any,
accompanying the Prospectus.
2. Complete the execution copy of the Subscription Agreement. A specimen
copy of the Subscription Agreement, including instructions for completing the
Subscription Agreement, is included in the Prospectus as Exhibit I.
3. Deliver a check for the full purchase price of the Shares being
subscribed for, payable to "LNB/Escrow Agent for IREC," along with the
completed Subscription Agreement to the Soliciting Dealer whose name appears on
the Subscription Agreement.
4. By executing the Subscription Agreement and by paying the full purchase
price for the Shares subscribed for, each investor attests that he meets the
suitability standards as stated in the Subscription Agreement and will be bound
by all of the terms of the Subscription Agreement.
Within ten days (and generally within 24 hours) of the Company's receipt
of each completed Subscription Agreement, the Company will accept or reject the
subscription. If the subscription is accepted, a confirmation will be mailed
within five days. If for any reason the subscription is rejected, the check
and Subscription Agreement will be promptly returned to the subscriber, without
interest or deduction, within ten days after receipt.
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Subscriptions on behalf of IRAs, Keogh plans and 401(k) plans must be
processed through and forwarded to the Company by an approved trustee. In the
case of IRA, Keogh plans and 401(k) plan Stockholders, the confirmation will be
sent to the trustee.
SALES LITERATURE
In addition to and apart from this Prospectus, the Company may use certain
supplemental sales material in connection with the Offering. This material,
prepared by the Advisor may consist of a brochure describing the Advisor and
its Affiliates and the objectives of the Company. It would contain pictures and
summary descriptions of properties similar to those to be acquired by the
Company that Affiliates of the Company have previously acquired. This material
may also include pictures and summary descriptions of properties similar to
those to be acquired by the Company as well as a brochure, audiovisual
materials and taped presentations highlighting and explaining various features
of the Offering, properties of prior real estate programs and real estate
investments in general; and articles and publications concerning real estate.
Business reply cards, introductory letters and seminar invitation forms may be
sent to Soliciting Dealers and prospective investors. No person has been
authorized to prepare for, or furnish to, a prospective investor any sales
literature other than: (i) that described herein; and (ii) newspaper
advertisements or solicitations of interest limited to identifying the Offering
and the location of sources of further information.
The use of any sales materials is conditioned upon filing with and, if
required, clearance by appropriate regulatory agencies. Such clearance (if
provided), however, does not indicate that the regulatory agency allowing the
use of the materials has passed on the merits of the Offering or the adequacy
or accuracy of the materials.
This Offering is made only by means of this Prospectus. Except as described
herein, the Company has not authorized the use of other supplemental literature
or sales material in connection with this Offering. Although it is believed that
the information contained in such literature does not conflict with any of the
information set forth in this Prospectus, such material does not purport to be
complete, and should not be considered as a part of this Prospectus, or as
incorporated in this Prospectus by reference, or as forming the basis of the
Offering described herein.
DISTRIBUTION REINVESTMENT AND SHARE REPURCHASE PROGRAMS
DISTRIBUTION REINVESTMENT PROGRAM
The Distribution Reinvestment Program (the "DRP") allows Stockholders who
purchased Shares pursuant either to the Prior Offering or to this Offering
("Participants") to automatically reinvest Distributions in the Company by
permitting purchase of additional Shares. Stockholders who purchased Shares
pursuant to the Prior Offering or who purchase Shares pursuant to this Offering
and elect to take part in the DRP will authorize the Company to use
Distributions payable to them to purchase additional Shares. However, a
Participant will not be able to acquire Shares under the DRP to the extent such
purchase would cause it to exceed the Ownership Limit.
Purchases under the DRP will not be subject to selling commissions or the
Marketing Contribution and Due Diligence Expense Allowance Fee. Participants
in the DRP may also purchase fractional Shares,
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so that 100% of Distributions will be used to acquire Shares. Shares will be
purchased under the DRP on the record date for the Distribution used to purchase
the Shares. Distributions for Shares acquired under the DRP are currently paid
monthly and are calculated with a daily record and Distribution declaration
date. Each Participant agrees that if, at any time prior to listing of the
Shares on a national stock exchange or inclusion of the Shares for quotation on
a national market system, he fails to meet the suitability requirements for
making an investment in the Company or cannot make the other representations or
warranties set forth in the Subscription Agreement, he will promptly so notify
the Company in writing.
Commencing with the first Distribution paid after the effective date of the
Offering of Shares pursuant to the Prospectus and continuing until the
termination of the Offering, Participants will acquire Shares from the Company
at a fixed price of $9.05 per Share. It is possible that a secondary market
will develop for the Shares, and that Shares may be bought and sold on the
secondary market at prices lower or higher than the $9.05 per Share price which
will be paid under the DRP. Neither the Company nor its Affiliates will receive
a fee for selling Shares under the DRP. The Company does not warrant or
guarantee that Participants will be acquiring Shares at the lowest possible
price. A Participant may terminate participation in the DRP at any time without
penalty, by delivering written notice to the Company. Prior to listing of the
Shares on a national stock exchange or including the Shares for quotation on a
national market system, any transfer of Shares by a Participant to a
non-Participant will terminate participation in the DRP with respect to the
transferred Shares. Upon termination, Distributions will be distributed to the
Stockholder instead of being used to purchase Shares under the DRP. Within 90
days after the end of the Company's fiscal year, the Company will: (i) issue
certificates evidencing ownership of Shares purchased through the DRP during the
prior fiscal year (ownership of said Shares will be in book-entry form prior to
the issuance of certificates); and (ii) provide each Participant with an
individualized report on his or her investment, including the purchase date(s),
purchase price and number of Shares owned, as well as the dates of distribution
and amounts of Distributions received during the prior fiscal year. The
individualized statement to Participants will include receipts and purchases
relating to each Participant's participation in the DRP including the tax
consequences relative thereto. The Directors by majority vote (including a
majority of Independent Directors) may amend or terminate the DRP upon 30 days'
notice to Participants. It is anticipated that the Directors will amend or
terminate the DRP upon completion of this Offering.
Stockholders who participate in the Distribution Reinvestment Program will
recognize taxable dividend income in the amount they would have received had
they not elected to participate, even though they receive no cash. These
deemed dividends will be treated as actual dividends from the Company to the
participating Stockholders and will retain the character and tax effects
applicable to all dividends. Shares received under the program will have a
holding period beginning with the day after purchase, and a tax basis equal to
their cost, which is the gross amount of the deemed Distribution. See "Federal
Income Tax Considerations--Taxation of Stockholders--Taxation of Taxable
Domestic Stockholders" for a full discussion of the tax effects of dividend
distributions.
If the Company's Shares are listed on a national stock exchange or
included for quotation on a national market system, Shares purchased by the
Company for the DRP will be purchased on such exchange or market, at the
prevailing market price, and will be sold to Stockholders at such price. The
reservation of any Shares from this Offering remaining for issuance under the
DRP will be cancelled. The Shares will continue to have the status of
authorized but unissued Shares. These Shares will not be issued
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unless they are first registered with the Commission under the Act and under
appropriate state securities laws or are otherwise issued in compliance with
such laws.
SHARE REPURCHASE PROGRAM
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 at a price of $9.05 per Share (a reduction
of $.95 from the $10 Offering price, reflecting selling commissions and the
Marketing Contribution and Due Diligence Expense Allowance Fee).
Repurchases under the SRP will be made quarterly by the Company on a
first-come, first-served basis, and will be limited in the following ways: (i)
not more than $500,000 worth of the outstanding Shares will be repurchased in
any given year; and (ii) the funds available for repurchase will be limited to
available proceeds received by the Company from the sale of Shares under the
DRP. The determination of available funds from sales under the DRP will be at
the sole discretion of the Board. In making this determination, the Board will
consider the need to use proceeds from the Share sales under the DRP for
investment in additional properties, or for maintenance or repair of existing
properties. Such property-related uses will have priority over the need to
allocate funds to the SRP. To be eligible to offer Shares for purchase to the
SRP, the Stockholder must have beneficially held the Shares for at least one
year.
The Company cannot guarantee that funds will be available for repurchase.
If no funds are available for the SRP at the time when repurchase is requested,
the Stockholder could: (i) withdraw his request for repurchase; 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 secondary market develops for the Shares. No such market
presently exists and no assurance can be given that one will develop. The SRP
will exist during the Offering period and will be terminated following the
close of the Offering period upon: (i) the development of a secondary market
for the Shares (i.e., at such time as a secondary market-maker quotes a bid and
ask price for at least 30 continuous trading days); or (ii) the listing of the
Shares on a national securities exchange or inclusion for quotation on a
national market system.
Shares purchased by the Company under the SRP will be cancelled, 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 Commission under the Act and under appropriate state securities laws
or otherwise issued in compliance with such laws.
In the event that the Company begins selling its properties, the purchase
price paid by the SRP for Shares will be adjusted accordingly. Because the
availability of purchase funds for the SRP cannot be predetermined, and because
the demand for repurchase by Stockholders cannot be predetermined, there can be
no assurance that the Company will be able to establish and maintain the SRP.
REPORTS TO STOCKHOLDERS
The Advisor will keep, or cause to be kept, full and true books of account
on an accrual basis of accounting, in accordance with generally accepted
accounting principles ("GAAP"). All of such books of account, together with a
copy of the Articles and any amendments thereto, will at all times be
maintained
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at the principal office of the Company, and will be open to
inspection, examination and duplication at reasonable times by the Stockholders
or their agents.
The Advisor will submit to each Stockholder audited annual reports of the
Company within 120 days following the close of each fiscal year. The annual
reports will contain the following: (i) audited financial statements; (ii) the
ratio of the costs of raising capital during the period to the capital raised;
(iii) the aggregate amount of advisory fees and the aggregate amount of fees
paid to the Advisor and any Affiliate of the Advisor by the Company and
including fees or charges paid to the Advisor and any Affiliate of the Advisor
by third parties doing business with the Company; (iv) the Total Operating
Expenses of the Company, stated as a percentage of the Average Invested Assets
and as a percentage of Net Income; (v) a report from the Independent Directors
that the policies being followed by the Company are in the best interests of
its Stockholders and the basis for such determination; and (vi) separately
stated, full disclosure of all material terms, factors and circumstances
surrounding any and all transactions involving the Company, the Directors, the
Advisor and any Affiliate thereof occurring in the year for which the Annual
Report is made. Independent Directors shall be specifically charged with the
duty to examine and comment in the report on the fairness of such transactions.
In addition, unaudited quarterly reports containing the information
required by Form 10-Q will be submitted to each Stockholder within 60 days
after the end of the first three fiscal quarters of each fiscal year.
Concurrently with any Distribution, the Company shall provide Stockholders
with a statement disclosing the source of the funds distributed. If such
information is not available concurrently with the making of a Distribution, a
statement setting forth the reasons why such information is not available shall
be provided concurrently. In no event shall such information be provided to
Stockholders more than 60 days of making such Distribution.
Within 60 days following the end of any calendar quarter during the period
of the Offering in which the Company has closed an acquisition of a property, a
report will be submitted to each Stockholder containing: (i) the location and
a description of the general character of the property acquired during the
quarter; (ii) the present or proposed use of such property and its suitability
and adequacy for such use; (iii) the terms of any material lease affecting the
property; (iv) the proposed method of financing, if any, including estimated
down payment, leverage ratio, prepaid interest, balloon payment(s), prepayment
penalties, "due-on-sale" or encumbrance clauses and possible adverse effects
thereof and similar details of the proposed financing plan; and (v) a statement
that title insurance has been or will be obtained on the property acquired. In
addition, a report will be sent to each Stockholder and submitted to
prospective investors at such time as the Advisor believes a reasonable
probability exists that a property will be acquired: (i) on specified terms
(i.e., upon completion of due diligence which includes review of the title
insurance commitment, appraisal and environmental analysis); and (ii) involving
the use of 10% or more, on a cumulative basis, of the net proceeds of this
Offering.
After the completion of the last acquisition, the Advisor shall, upon
request, send to the Commissioner of Corporations of the State of California a
schedule, verified under the penalty of perjury, reflecting: (i) each
acquisition made; (ii) the purchase price paid; (iii) the aggregate of all
Acquisition Fees paid on each transaction; and (iv) a computation showing
compliance with the Articles. The Company shall, upon request, submit to the
Commissioner of Corporations of the State of California or to any of the
various state securities administrators any report or statement required to be
distributed to Stockholders pursuant to the Articles or any applicable law or
regulation.
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The Company's federal tax return (and any applicable state income tax
returns) will be prepared by the accountants regularly retained by the Company.
Appropriate tax information will be submitted to the Stockholders within 30
days following the end of each fiscal year of the Company. A specific
reconciliation between GAAP and income tax information will not be provided to
the Stockholders; however, such reconciling information will be available in
the office of the Company for inspection and review by any interested
Stockholder. Concurrent with the dissemination of appropriate tax information
to Stockholders, the Company will annually provide each Stockholder with an
individualized report on his or her investment, including the purchase date(s),
purchase price and number of Shares owned, as well as the dates of distribution
and amounts of Distributions received during the prior fiscal year. The
individualized statement to Stockholders will include any purchases of Shares
under the DRP. Stockholders requiring individualized reports on a more frequent
basis may request such reports. The Company will make every reasonable effort
to supply more frequent reports, as requested, but the Company, at its sole
discretion, may require payment of an administrative charge which will be paid:
(i) directly by the Stockholder; or (ii) through pre-authorized deductions
from Distributions payable to the Stockholder making the request.
LEGAL MATTERS
The legality of the Shares offered hereby will be passed upon for the
Company by Shapiro and Olander, Baltimore, Maryland. Legal matters in
connection with the Company's status as REIT for federal income tax purposes
have been passed upon, on behalf of the Company, by Shefsky Froelich & Devine
Ltd. (counsel to the Company). Shefsky Froelich & Devine Ltd. does not purport
to represent Stockholders or potential investors who should consult their own
counsel. See "Conflicts of Interest--Legal Counsel for the Company and the
Advisor is the Same Law Firm."
The statements in the section in the Prospectus titled "Federal Income Tax
Considerations" and elsewhere as they relate to federal income tax matters and
the statements in the section in the Prospectus titled "ERISA Considerations"
have been reviewed by Shefsky Froelich & Devine Ltd.
EXPERTS
The financial statements of the Company as of DecemberE31, 1995, and 1994,
and for the year ended December 31, 1995 and for the period from May 12, 1994
(formation date) to December 31, 1994, the historical summaries of gross income
and direct operating expenses of the Walgreens/Decatur Property for each of the
years in the three-year period ended June 30, 1994, the historical summaries of
gross income and direct operating expenses of Eagle Crest/Naperville for each
of the years in the three-year period ended June 30, 1994 and the historical
summary of gross income and direct operating expenses of the Regency Point
Shopping Center for the year ended December 31, 1995, have been included herein
in reliance upon the reports of KPMG Peat Marwick LLP, independent certified
public accountants, appearing elsewhere herein, and upon the authority of said
firm as experts in accounting and auditing.
The statement of gross income and direct operating expenses for the year
ended December 31, 1994 for Nantucket Square Shopping Center included in this
Prospectus has been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their report with respect thereto and is included
herein in reliance upon the authority of said firm as experts in giving said
report.
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The statement of gross income and direct operating expenses for the year
ended December 31, 1995 for Mundelein Plaza, Prospect Heights Plaza and
Montgomery-Sears Shopping Center have been included herein in reliance upon the
report of Bruce Gorlick, C.P.A., Ltd., independent certified public
accountants, appearing elsewhere herein, and upon the authority of said firm as
experts in accounting and auditing.
ADDITIONAL INFORMATION
This Prospectus does not contain all of the information set forth in the
Registration Statement and the exhibits thereto with respect to the offer and
sale of Shares which the Company has filed with the Commission and which may be
inspected and copied at the Public Reference Room at 450 Fifth Street, N.W.,
Washington, D.C. 20549, http://www.sec.gov, and at the Regional Offices of the
Commission at 500 West Madison Street, Fourteenth Floor, Chicago, Illinois
60661 and 75 Park Place, Suite 1400, New York, New York 10007. This material,
as well as copies of all other documents filed with the Commission, may be
obtained from the Public Reference Section of the Commission, Washington, D.C.
20549 upon payment of the fee prescribed by the Commission.
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GLOSSARY
The definitions used in the Prospectus are set forth below:
"ACQUISITION EXPENSES" means expenses related to the Company's selection,
evaluation and acquisition of, and investment in, properties, whether or not
acquired or made, including but not limited to legal fees and expenses, travel
and communications expenses, cost of appraisals and surveys, non-refundable
option payments on property not acquired, accounting fees and expenses,
computer use related expenses, architectural and engineering reports,
environmental and asbestos audits, title insurance and escrow fees, and
personnel and miscellaneous expenses related to the selection and acquisition
of properties.
"ADA" means the Americans with Disabilities Act of 1990.
"ADVISOR" means the person(s) or entity responsible for directing or performing
the day-to-day business affairs of the Company, including a person or entity to
which an Advisor subcontracts substantially all such functions. The Advisor is
Inland Real Estate Advisory Services, Inc. or anyone which succeeds it in such
capacity.
"ADVISOR ASSET MANAGEMENT FEE" means an amount equal to 1% of the Average
Invested Assets.
"ADVISORY AGREEMENT" means the agreement between the Company and the Advisor
pursuant to which the Advisor will act as the Sponsor of the Company.
"AFFILIATE" means: (i) any Person directly or indirectly owning, controlling
or holding, with the power to vote 10% or more of the outstanding voting
securities of such other Person; (ii) any Person 10% or more of whose
outstanding voting securities are directly or indirectly owned, controlled or
held, with the power to vote, by such other Person; (iii) any Person directly
or indirectly controlling, controlled by or under common control with such
other Person; (iv) any executive officer, director, trustee or general partner
of such other Person; and (v) any legal entity for which such Person acts as an
executive officer, director, trustee or general partner.
"AFFILIATED DIRECTORS" means those Directors affiliated with the Company or its
Affiliates.
"ANCHOR TENANT" means tenants generally occupying approximately 30% or more of
the GLA of a Neighborhood Retail Center, or the tenant of any single-user
property.
"ARTICLES" means the Company's Articles of Incorporation, as amended and
restated to date.
"AVERAGE INVESTED ASSETS" shall mean, for any period, the average of the
aggregate book value of the assets of the Company invested, directly or
indirectly, in equity interests and in loans secured by real estate, before
reserves for depreciation or bad debts or other similar non-cash reserves,
computed by taking the average of such values at the end of each month during
such period.
"BOARD" means the Board of Directors of the Company.
"BYLAWS" means the Amended and Restated Bylaws of the Company.
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"CASH FLOW" means, with respect to any period: (i) all cash receipts derived
from investments made by the Company; plus (ii) cash receipts from operations
(including any interest from temporary investments of the Company) without
deduction for depreciation or amortization; less (iii) cash receipts used to
pay operating expenses (including the Advisor Asset Management Fee).
"CODE" means the Internal Revenue Code of 1986, as amended, or corresponding
provisions of subsequent revenue laws.
"COMMISSION" means the Securities and Exchange Commission.
"COMPANY" means Inland Real Estate Corporation f/k/a Inland Monthly Income Fund
III, Inc., a Maryland corporation.
"COMPETITIVE REAL ESTATE COMMISSION" means the real estate or brokerage
commission paid for the purchase or sale of a property which is reasonable,
customary and competitive in light of the size, type and location of such
property.
"COMPANY FIXED ASSETS" means the real estate, together with the buildings,
leasehold interests, improvements, equipment, furniture, fixtures and personal
property associated therewith, used by the Company in the conduct of its
business.
"CONTRACT PRICE FOR THE PROPERTY" means the amount actually paid or allocated
to the purchase, development, construction or improvement of a property
exclusive of Acquisition Expenses.
"CONTROL SHARES" means voting shares of stock which, if aggregated with all
other such shares of stock previously acquired by the acquirer, or in respect
of which the acquirer is able to exercise or direct the exercise of voting
power except solely by virtue of irrevocable proxy, would entitle the acquirer
to exercise voting power in electing directors within one of the following
ranges of voting power: (i) 1/5 or more but less than 1/3; (ii) 1/3 or more but
less than a majority; or (iii) a majority of all voting power.
"CONTROL SHARE ACQUISITION" means the acquisition of Control Shares subject to
certain exceptions.
"COUNSEL" means Shefsky Froelich & Devine Ltd.
"CUMULATIVE RETURN" means a cumulative, non-compounded return, equal to 8% per
annum on Invested Capital commencing upon acceptance of the investor's
subscription.
"CURRENT RETURN" means a non-cumulative, non-compounded return, equal to 8% per
annum on Invested Capital.
"DEALER MANAGER" means Inland Securities Corporation.
"DEVELOPMENT FEE" means a fee for the packaging of a property of the Company,
including negotiating and approving plans, and undertaking to assist in
obtaining zoning and necessary variances and necessary financing for the
specific property, either initially or at a later date.
"DIRECTORS" means the members of the Board of Directors of the Company
(including the Independent Directors).
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"DISTRIBUTIONS" means any cash distributed to Stockholders arising from their
interest in the Company.
"DUE DILIGENCE EXPENSE ALLOWANCE FEE" means an amount up to 0.5% of the Gross
Offering Proceeds paid to the Dealer Manager, a portion of which may be
reallowed to Soliciting Dealers, to reimburse the Dealer Manager or Soliciting
Dealers for bona fide due diligence expenses.
"EQUITY STOCK" shall mean stock that is either Common Stock and/or Preferred
Stock.
"ERISA" means the Employee Retirement Income Security Act of 1974, as amended.
"EXCESS SHARES" means shares held by a Stockholder in excess of 9.8% of the
outstanding Shares entitled to vote.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"EXERCISE PERIOD" means the period commencing upon the issuance of the
Soliciting Dealer Warrants and ending upon October 13, 2000.
"FIRPTA" means the Foreign Investment in Real Property Tax Act of 1980.
"FUNDS FROM OPERATIONS OR 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 after adjustments for unconsolidated partnerships and joint ventures.
Adjustments for unconsolidated partnerships and joint ventures will be
calculated to reflect funds from operations on the same basis.
"GAAP" means generally accepted accounting principles.
"GLA" means gross leasable area.
"GROSS DOLLARS INVESTED IN PROPERTIES" means the amount actually paid or
allocated to the purchase, development, construction or improvement of
properties acquired by the Company.
"GROSS OFFERING PROCEEDS" means the total proceeds from the sale of Shares
during the initial public offering period (and from sales under the
Distribution Reinvestment Program during such period) before deductions for
Organization and Offering Expenses. For purposes of calculating Gross Offering
Proceeds, the purchase price for all Shares, including those for which volume
discounts apply, shall be deemed to be $10 per Share, except for Shares
purchased under the Distribution Reinvestment Program in which case the
purchase price for such Shares shall be $9.05 per Share.
"GROSS REVENUES FROM PROPERTIES" means all cash receipts derived from the
operation of Company Fixed Assets.
"INCENTIVE ADVISORY FEE" means an amount equal to 15% of the net proceeds from
the sale of a property after the Stockholders have first received: (i) their
Cumulative Return; and (ii) a return of their Invested Capital.
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"INDEPENDENT DIRECTORS" means the Directors who: (i) are not affiliated,
directly or indirectly, with the Company or the Advisor, whether by ownership
of, ownership interest in, employment by, any material business or professional
relationship with, or as an officer or director of the Company, the Advisor or
its Affiliates; (ii) do not serve as a director for more than two other REITs
organized by the Company or the Advisor; and (iii) perform no other services
for the Company, except as Directors. For this purpose, an indirect
relationship shall include circumstances in which a member of the immediate
family of a Director has one of the foregoing relationships with the Company or
the Advisor. For purposes of determining whether or not the business or
professional relationship is material, the gross revenue derived by the
prospective Independent Director from the Sponsor and Advisor and Affiliates
shall be deemed material per se if it exceeds five percent of the prospective
Independent Directors: (i) annual gross revenue, derived from all sources,
during either of the last two years; or (ii) net worth, on a fair market value
basis.
"INDEPENDENT EXPERT" shall mean a person with no current or prior business or
personal relationship with the Advisor or the Directors and who is engaged, to
a substantial extent, in the business of rendering opinions regarding the value
of assets of the type held by the Company.
"INTERESTED STOCKHOLDER" means for purposes of the MGCL, any person who owns
10% or more of the voting power of the then outstanding voting stock of the
Company.
"INVESTED CAPITAL" means the original issue price of the Shares reduced by
prior distributions from the sale or financing of Company fixed assets.
"IRA" means an individual retirement account established pursuant to Code
Section 408.
"LEVERAGE" shall mean the aggregate amount of indebtedness of the Company for
money borrowed (including purchase money mortgage loans) outstanding at any
time, both secured and unsecured.
"MANAGEMENT AGENT" means an entity which provides property management services
to the Company. The Management Agent is Inland Commercial Property Management,
Inc., an Affiliate of the Advisor, or anyone which succeeds it in such
capacity.
"MARKETING CONTRIBUTION" means an amount up to 2.0% of the Gross Offering
Proceeds paid to the Dealer Manager, a portion of which may be reallowed to
Soliciting Dealers to pay expenses associated with marketing fees, wholesaling
fees, expense reimbursements, bonuses and incentive compensation and volume
discounts.
"MINIMUM INITIAL PURCHASE" means the minimum amount which must be purchased by
a person who is not a Stockholder at the time of purchase.
"MAXIMUM OFFERING" means 11,375,000 Shares (which includes 1,000,000 Shares
available under the Distribution Reinvestment Program and 375,000 Shares which
may be issued upon the exercise of warrants granted to the Dealer Manager).
"MGCL" means the Maryland General Corporation Law, as amended from time to
time.
"NASD" shall mean the National Association of Securities Dealers, Inc.
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"NEIGHBORHOOD RETAIL CENTER" shall mean any property located primarily within
an approximate 150-mile radius of the Oak Brook, Illinois headquarters of the
Advisor leased primarily to one or more retail tenants providing for the sale
of household goods (food, drugs, apparel, etc.) and personal services (laundry,
dry cleaning, etc.) for the day-to-day living needs of the immediate
neighborhood with GLA ranging from approximately 5,000 to 150,000 square feet.
"NET ASSETS" or "NET ASSET VALUE" means the total assets of the Company (other
than intangibles) at cost before deducting depreciation or other non-cash
reserves less total liabilities of the Company, calculated at least quarterly
on a basis consistently applied.
"NET INCOME" means, for any period, total revenues applicable to such period,
less the expenses applicable to such period other than additions to or
allowances for reserves for depreciation, amortization or bad debts or other
similar non-cash reserves; provided, however, that Net Income shall not include
the gain from the sale of the Company's assets.
"NET PROCEEDS" means the proceeds received by the Company with respect to the
sale of Shares less Organization and Offering Expenses.
"NON-U.S. STOCKHOLDER" means a Stockholder which is a foreign corporation or a
nonresident alien of the United States.
"OFFERING" means the offering of 10,000,000 Shares of the Company pursuant to
this Prospectus.
"ORGANIZATION AND OFFERING EXPENSES" means those expenses incurred by and to be
paid from the assets of the Company in connection with and in preparing the
Company for registration and subsequently offering and distributing Shares to
the public, including, but not limited to, total underwriting and brokerage
discounts and commissions (including fees of the underwriters' attorneys),
expenses for printing, engraving, mailing, salaries of employees while engaged
in sales activity, charges of transfer agents, registrars, trustees, escrow
holders, depositaries, experts, expenses of qualification of the sale of the
securities under federal and state laws, including taxes and fees, and
accountants' and attorneys' fees.
"OTHER OPERATING EXPENSES" means Total Operating Expenses less the Advisor
Asset Management Fee.
"OWNERSHIP LIMIT" means the beneficial ownership of no more than 9.8% of the
outstanding Shares of the Company.
"PARTICIPANT" means a Stockholder who purchased Shares pursuant to the Prior
Offering or purchases Shares pursuant to this Offering and elects to
participate in the DRP.
"PERSON" means any natural person, partnership, corporation, association,
trust, limited liability company or other legal entity.
"PRIOR OFFERING" means the Company's public offering of 6,000,000 Shares (which
includes 1,000,000 Shares available under the Company's distribution
reinvestment program) which commenced October 14, 1994 and was completed July
22, 1996.
"PROPERTY DISPOSITION FEE" means a real estate disposition fee, payable (under
certain conditions) to the Advisor and its Affiliates upon the sale of the
Company's property in an amount equal to the lesser of:
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(i) 3% of the contracted for sales price of the property; or (ii) 50%
of the commission paid to third parties which is reasonable, customary and
competitive in light of the size, type and location of such property.
"PROPERTY MANAGEMENT FEE" shall mean any fee paid to an Affiliate or third
party as compensation for management of the Company's properties. The Property
Management Fee shall be a percentage of the aggregate gross revenues from the
properties, not to exceed 5.0% if paid to a third party or 4.5% if paid to an
Affiliate of the Advisor.
"PROSPECTUS" means the final prospectus of the Company as may be supplemented
in connection with the initial registration of Shares filed with the
Commission on Form S-11, as amended.
"QUALIFIED PLAN" means any qualified pension, profit-sharing or other
retirement plan (including a Keogh plan) and any trust, bank commingled trust
fund for such a plan.
"REGISTRATION STATEMENT" means the initial registration of Shares on Form S-11
and related exhibits, as amended, filed by the Company with the Commission.
"REIMBURSABLE EXPENSES" means those certain expenses of the Advisor and its
Affiliates which will be reimbursed by the Company.
"REIT" means a corporation, trust, association or other legal entity (other
than a real estate syndication) which is engaged primarily in investing in
equity interests in real estate (including fee ownership and leasehold
interests) or in loans secured by real estate or both.
"REIT PROVISIONS" means Code Sections 856 through 860.
"REIT TAXABLE INCOME" means the taxable income as computed for a corporation
which is not a REIT: (i) without the deductions allowed by Code Sections 241
through 247, 249 and 250 (relating generally to the deduction for dividends
received); (ii) excluding amounts equal to: (a) the net income from
foreclosure property; and (b) the net income derived from prohibited
transactions; (iii) deducting amounts equal to: (x) any net loss derived from
prohibited transactions; and (y) the tax imposed by Code Section 857(b)(5) upon
a failure to meet the 95% and/or the 75% gross income tests; and (iv)
disregarding the dividends paid, computed without regard to the amount of the
net income from foreclosure property which is excluded from REIT Taxable
Income.
"REMICS" means real estate mortgage investment conduits.
"ROLL-UP" means a transaction involving the acquisition, merger, conversion or
consolidation either directly or indirectly of the Company and the issuance of
securities of a Roll-Up Entity. Such term does not include:
(i) a transaction involving securities of the Company that have
been for at least 12 months listed on a national securities exchange
or traded through The Nasdaq Stock Market - Nasdaq National Market;
or
(ii) a transaction involving the conversion to corporate, trust or
association form of only the Company if, as a consequence of the
transaction, there will be no significant adverse change in any of
the following:
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(a) Stockholders' voting rights;
(b) the term and existence of the Company;
(c) Sponsor or Advisor compensation; or
(d) the Company's investment objectives.
"ROLL-UP ENTITY" means a partnership, real estate investment trust,
corporation, trust or other entity that would be created or would survive after
the successful completion of a proposed Roll-Up transaction.
"SELLING COMMISSION" means an amount equal to up to 7% of the Gross Offering
Proceeds payable to the Dealer Manager which may be retained, or reallowed to
Soliciting Dealers for each Share sold.
"SERVICE" means the Internal Revenue Service of the United States of America.
"SHARES" means the common stock, par value $.01 per share, of the Company.
"SOLICITING DEALERS" means the dealer members of the National Association of
Securities Dealers, Inc. designated by the Dealer Manager.
"SPONSOR" means any Person directly or indirectly instrumental in organizing,
wholly or in part, the Company or any Person who will control, manage or
participate in the management of the Company, and any Affiliate of such Person.
Not included is any Person whose only relationship with the Company is as that
of an independent property manager of the Company's assets, and whose only
compensation is as such. Sponsor does not include wholly independent third
parties such as attorneys, accountants and underwriters whose only compensation
is for professional services. A Person may also be deemed a Sponsor of the
Company by:
i. taking the initiative, directly or indirectly, in founding or
organizing the business or enterprise of the Company, either alone
or in conjunction with one or more other Persons;
ii. receiving a material participation in the Company in connection with
the founding or organizing of the business of the Company, in
consideration of services or property, or both services and
property;
iii. having a substantial number of relationships and contacts with the
Company;
iv. possessing significant rights to control Company properties;
v. receiving fees for providing services to the Company which are
paid on a basis that is not customary in the industry; or
vi. providing goods or services to the Company on a basis which was
not negotiated at arm's-length with the Company.
"STOCKHOLDERS" means holders of shares of Common Stock.
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"TAX-EXEMPT ENTITIES" means any investor that is exempt from federal income
taxation, including without limitation a Qualified Plan, an endowment fund or a
charitable, religious, scientific or education organization.
"TERMINATION DATE" means July 23, 1998.
"TOTAL OPERATING EXPENSES" means the aggregate expenses of every character paid
or incurred by the Company as determined under generally accepted accounting
principles, including Advisor Asset Management Fees, but excluding:
a. the expenses of raising capital such as Organization and
Offering Expenses, legal, audit, accounting, underwriting,
brokerage, listing, registration and other fees, printing and other
such expenses, and taxes incurred in connection with the issuance,
distribution, transfer, registration and stock exchange listing of
the Shares;
b. interest payments;
c. taxes;
d. non-cash expenditures such as depreciation, amortization and
bad debt reserves;
e. incentive fees payable to the Advisor; and
f. Acquisition Expenses, real estate commissions on resale of
property and other expenses connected with the acquisition,
disposition and ownership of real estate interests, mortgage loans
or other property (such as the costs of foreclosure, insurance
premiums, legal services, maintenance, repair and improvement of
property).
"UBTI" means unrelated business taxable income as described in the Code.
"USRPI" means a United States real property interest described in Code Section
897. Generally, such an interest would be a direct interest in real property
located in the United States or an interest in a domestic corporation which
owns other USRPI's with a fair market value equal to at least 50% of the sum of
the fair market value of its USRPI's, foreign real property and assets used in
a trade or business.
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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.
F-1
<PAGE> 314
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.
F-2
<PAGE> 315
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.
F-3
<PAGE> 316
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.
F-4
<PAGE> 317
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.
F-5
<PAGE> 318
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 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 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.
F-6
<PAGE> 319
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.
F-7
<PAGE> 320
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.
F-8
<PAGE> 321
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.
F-9
<PAGE> 322
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.
F-10
<PAGE> 323
INLAND MONTHLY INCOME FUND III, INC.
(a Maryland corporation)
Notes to Financial Statements
(continued)
March 31, 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.......... 09/95 315,000 832,909 (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
=========== =========== =========== =========== =========== ===========
</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 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.
F-11
<PAGE> 324
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.
F-12
<PAGE> 325
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:
<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............ $ 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
=========== ===========
</TABLE>
(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.
F-13
<PAGE> 326
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Inland Monthly Income Fund III, Inc.:
We have audited the financial statements of Inland Monthly Income Fund III,
Inc. (the Company) as listed in the accompanying index. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the 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 audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Inland Monthly Income Fund
III, Inc. as of December 31, 1995 and 1994, and the results of its operations
and its cash flows for the year ended December 31, 1995 and for the period from
May 12, 1994 (formation date) to December 31, 1994 in conformity with generally
accepted accounting principles.
KPMG Peat Marwick LLP
Chicago, Illinois
January 19, 1996
F-14
<PAGE> 327
INLAND MONTHLY INCOME FUND III, INC.
(a Maryland corporation)
Balance Sheets
December 31, 1995 and 1994
Assets
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Investment properties (Notes 1 and 4):
Land............................................ $ 5,437,948 -
Building and improvements....................... 12,074,484 -
----------- ---------
17,512,432 -
Less accumulated depreciation................... 169,894 -
----------- ---------
Net investment properties....................... 17,342,538 -
----------- ---------
Cash and cash equivalents including amounts
held by property manager (Note 1)............... 738,931 10,934
Restricted cash (Note 1).......................... 150,000 -
Escrowed funds (Note 1)........................... - 1,699,381
Accounts and rents receivable (Note 5)............ 333,823 -
Deposits and other assets (Note 4)................ 158,123 4,117
Offering costs (Note 1)........................... - 687,941
Deferred organization costs (Note 1).............. 27,462 -
----------- ---------
Total assets.................................. $18,750,877 2,402,373
=========== =========
</TABLE>
See accompanying notes to financial statements.
F-15
<PAGE> 328
INLAND MONTHLY INCOME FUND III, INC.
(a Maryland corporation)
Balance Sheets
(continued)
December 31, 1995 and 1994
Liabilities and Stockholders' Equity
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Liabilities:
Liability for subscriptions received (Note 1)... $ - 1,699,381
Accounts payable................................ 6,875 -
Accrued offering costs to Affiliates (Note 2)... 222,353 54,981
Accrued offering costs to non-affiliates........ 6,444 254,711
Accrued interest payable to Affiliates.......... 5,242 -
Accrued real estate taxes....................... 374,180 -
Distributions payable (Note 7).................. 129,532 -
Security deposits............................... 54,483 -
Notes payable to Affiliates (Notes 4 and 7)..... 360,000 -
Mortgage payable (Notes 4 and 6)................ 750,727 -
Unearned income................................. 39,846 -
Other liabilities............................... 178,852 -
Due to Affiliates (Note 2)...................... 7,277 193,300
----------- ---------
Total liabilities............................. 2,135,811 2,202,373
----------- ---------
Stockholders' Equity (Notes 1 and 2):
Common stock, $.01 par value, 24,000,000 Shares
authorized; 2,000,073 and 20,000 issued and
outstanding at December 31, 1994 and
December 31, 1995, respectively.............. 19,996 200
Additional paid-in capital (net of offering
costs of $3,121,175 at December 31, 1995, of
which $2,129,264 was paid to Affiliates)...... 16,835,183 199,800
Accumulated distributions in excess
of net income................................. (240,113) -
----------- ---------
Total stockholders' equity.................... 16,615,066 200,000
----------- ---------
Commitments and contingencies (Notes 3, 5 and 7)..
----------- ---------
Total liabilities and stockholders' equity........ $18,750,877 2,402,373
=========== =========
</TABLE>
See accompanying notes to financial statements.
F-16
<PAGE> 329
INLAND MONTHLY INCOME FUND III, INC.
(a Maryland corporation)
Statement of Operations
For the year ended December 31, 1995
<TABLE>
<S> <C>
Income:
Rental income (Notes 1 and 5).................... $ 869,485
Additional rental income......................... 228,024
Interest income.................................. 82,913
-----------
1,180,422
-----------
Expenses:
Professional services to Affiliates.............. 7,277
Professional services to non-affiliates.......... 1,615
General and administrative expenses
to non-affiliates.............................. 13,880
Property operating expenses to Affiliates........ 46,791
Property operating expenses to non-affiliates.... 279,930
Mortgage interest to Affiliates.................. 146,821
Mortgage interest to non-affiliates.............. 17,340
Depreciation..................................... 169,894
Acquisition costs expensed....................... 360
-----------
683,908
-----------
Net income..................................... $ 496,514
===========
Net income per weighted average
common stock shares outstanding
(943,156 for the year ended
December 31, 1995)............................... $ .53
============
</TABLE>
See accompanying notes to financial statements.
F-17
<PAGE> 330
INLAND MONTHLY INCOME FUND III, INC.
(a Maryland corporation)
Statement of Stockholders' Equity
For the year ended December 31, 1995 and
for the period from May 12, 1994 (formation of the Company)
to December 31, 1994
<TABLE>
<CAPTION>
Accumulated
Additional Distributions
Common Paid-in in excess of
Stock Capital net income Total
---------- ---------- ------------- --------
<S> <C> <C> <C> <C>
Proceeds from initial
offering.................. $ 200 199,800 - 200,000
---------- ---------- -------- ----------
Balance December 31, 1994... 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
========== ========== ======== ==========
</TABLE>
See accompanying notes to financial statements.
F-18
<PAGE> 331
INLAND MONTHLY INCOME FUND III, INC.
(a Maryland corporation)
Statement of Cash Flows
For the year ended December 31, 1995
and for the period from May 12, 1994 (formation of the Company)
to December 31, 1994
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income...................................... $ 496,514
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation.................................. 169,894 -
Rental income under master lease agreements... 133,016 -
Changes in assets and liabilities:
Accounts and rents receivable............... (333,823) -
Deposits and other assets................... (4,006) -
Accounts payable............................ 6,875 -
Accrued interest payable.................... 5,242 -
Accrued real estate taxes................... 374,180 -
Security deposits........................... 54,483 -
Other liabilities........................... 28,852 -
Due to Affiliates........................... 7,277 -
Unearned income............................. 39,846 -
------------ ---------
Net cash provided by operating activities......... 978,350 -
------------ ---------
Cash flows from investing activities:
Escrowed funds.................................. - (1,699,381)
Payments for acquisition expenses............... - (4,117)
Purchase of investment properties............... (6,376,708) -
Tenant improvements............................. (51,135) -
Deposit for tenant improvements................. (150,000) -
------------ ---------
Net cash used in investing activities............. (6,577,843) (1,703,498)
------------ ---------
Cash flows from financing activities:
Repayment of loan from Advisor.................. (193,300) 193,300
Proceeds from offering.......................... 19,803,163 200,000
Repurchase of Shares............................ (26,809) -
Subscriptions received.......................... - 1,699,381
Payments of offering costs...................... (2,514,129) (378,249)
Distributions paid.............................. (607,095) -
Principal payments of debt...................... (10,106,878) -
Payment of deferred organization costs.......... (27,462) -
------------ ---------
Net cash provided by financing activities......... 6,327,490 1,714,432
------------ ---------
Net increase in cash and cash equivalents......... 727,997 10,934
Cash and cash equivalents at beginning of period.. 10,934 -
------------ ---------
Cash and cash equivalents at end of period........ $ 738,931 10,934
============ =========
</TABLE>
See accompanying notes to financial statements.
F-19
<PAGE> 332
INLAND MONTHLY INCOME FUND III, INC.
(a Maryland corporation)
Statement of Cash Flows
(continued)
For the year ended December 31, 1995
Supplemental schedule of noncash investing and financing activities:
<TABLE>
<S> <C>
Purchase of Walgreens, Decatur, Illinois:
Purchase price of investment property......................... $ (1,209,053)
Assumption of debt (Note 4)................................... 1,061,409
------------
(147,644)
------------
Purchase of the Eagle Crest Shopping Center, Naperville, Illinois:
Purchase price of investment property......................... (4,816,970)
Assumption of debt............................................ 3,533,769
Note payable (Note 4)......................................... 1,212,427
------------
(70,774)
------------
Purchase of Montgomery-Goodyear, Montgomery, Illinois:
Purchase price of investment property......................... (1,145,992)
Note payable (Note 4)......................................... 600,000
------------
(545,992)
------------
Purchase of Hartford/Naperville Plaza, Naperville, Illinois:
Purchase price of investment property......................... (4,414,015)
Note payable (Note 4)......................................... 600,000
------------
(3,814,015)
------------
Purchase of Nantucket Square, Schaumburg, Illinois:
Purchase price of investment property......................... (4,257,918)
Note payable (Note 4)......................................... 3,550,000
------------
(707,918)
------------
Purchase of Antioch Plaza, Antioch, Illinois:
Purchase price of investment property......................... (1,750,365)
Note payable (Note 4)......................................... 660,000
------------
(1,090,365)
------------
Purchase of investment properties............................... $ (6,376,708)
============
Distributions payable........................................... $ 129,532
============
Cash paid for interest.......................................... $ 158,919
============
</TABLE>
See accompanying notes to financial statements.
F-20
<PAGE> 333
INLAND MONTHLY INCOME FUND III, INC.
(a Maryland corporation)
Notes to Financial Statements
For the year ended December 31, 1995 and
for the period from May 12, 1994 (formation of the Company)
to December 31, 1994
(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 ("Offering") of 5,000,000 shares of common stock ("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.
At 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. At December 31,
1994, escrowed funds of $1,699,381 were reflected as escrowed deposits, along
with the corresponding liability for subscriptions received, in the
accompanying financial statements. 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 December 31, 1995, subscriptions
for a total of 2,000,073 Shares have been received, resulting in $19,976,354 in
Gross Offering Proceeds. As of December 31, 1995, the Company has repurchased
30 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 will not be subject to
federal income tax to the extent it distributes its REIT taxable income to its
stockholders. If the Company fails to qualify as a REIT in any taxable year,
the Company will be subject to federal income tax on its taxable income at
regular corporate tax rates. Even if the Company qualifies for taxation as a
REIT, the Company may be subject to certain state and local taxes on its income
and property and federal income and excise taxes on its undistributed income.
The 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.
F-21
<PAGE> 334
INLAND MONTHLY INCOME FUND III, INC.
(a Maryland corporation)
Notes to Financial Statements
(continued)
The Company considers all highly liquid investments purchased with a maturity
of three months of less to be cash equivalents and are carried at cost, which
approximates fair value. Included in cash and equivalents is $142,720 held by
the Company's affiliated property manager which is unrestricted and held in the
Company's name.
Restricted cash represents amounts held in escrow for tenant improvements at
Naperville/Hartford Plaza. The Company has recorded a corresponding payable as
a component of other liabilities.
Deferred organization costs will be 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 December 31,
1995, 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 rates associated with the mortgage
payable and notes payable to Affiliates approximate the market interest rates
for these types of debt instruments, and as such, the carrying amount of the
mortgage payable and notes payable to Affiliates 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, 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.
Certain amounts in the 1994 financial statements have been reclassified to
conform with the 1995 presentation. Such reclassifications did not change the
1994 reported results.
F-22
<PAGE> 335
INLAND MONTHLY INCOME FUND III, INC.
(a Maryland corporation)
Notes to Financial Statements
(continued)
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets to be Disposed Of" was issued in March 1995 and
is effective for fiscal years beginning after December 15, 1995.
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-
Based Compensation Plans" was issued in October 1995. The Statement is
effective for fiscal years beginning after December 15, 1995. As allowed by
the new Statement, the Company plans to continue to use Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees" in accounting
for its stock options.
Neither of these accounting pronouncements are expected to have a material
effect on the financial position or results of operations of the Company.
Inflation
(2) Transactions with 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 fee) in excess
of 5.5% of the gross proceeds of the Offering (the "Gross Offering Proceeds")
or all organization and offering expenses (including selling commissions) which
together exceed 15% of Gross Offering Proceeds. As of December 31, 1995,
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 $1,719,406 for the year ended December 31, 1995, of
which $102,084 was unpaid as of December 31, 1995. Other costs to Affiliates
incurred relating to the Offering were $409,858 for the year ended December 31,
1995, of which $120,269 was unpaid as of December 31, 1995. Other costs to
Affiliates incurred relating to the administration of the Company were $7,277,
all of which was unpaid at December 31, 1995.
As of December 31, 1995, 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 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.
F-23
<PAGE> 336
INLAND MONTHLY INCOME FUND III, INC.
(a Maryland corporation)
Notes to Financial Statements
(continued)
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 8% Current Return. As of
December 31, 1995, the Company has not incurred or paid any of such fees.
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 $46,791 for the year ended December 31, 1995.
(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 19,
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
Shares 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 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 behalf of the Company, the Advisor is currently exploring the purchase of
additional Neighborhood Retail Centers and single-user retail properties from
unaffiliated third parties.
F-24
<PAGE> 337
INLAND MONTHLY INCOME FUND III, INC.
(a Maryland corporation)
Notes to Financial Statements
(continued)
(4) Investment Properties
Purchase of Walgreens, Decatur, Illinois
On January 31, 1995, the Company acquired this property from Inland Property
Sales, Inc. ("IPS"), an Affiliate of the Advisor, for the total purchase price
of $1,209,053, including acquisition costs of $482, and the assumption of the
first mortgage loan with a balance of $750,727 at December 31, 1995, which is
secured by the property. This mortgage has an interest rate of 7.655% and
amortizes over a 25-year period and matures May 31, 2004. The Company is
responsible for monthly payments of principal and interest of $5,689.
Purchase of Eagle Crest Shopping Center, Naperville, Illinois
On March 1, 1995, the Company acquired this property from IPS for the purchase
price of $4,816,970, including acquisition costs of $11,059, and the assumption
of the first mortgage loan which was secured by the property. The Company made
monthly principal payments of $500,000 on the first mortgage loan. The balance
of the purchase price as funded through a loan from IPS, totaling $1,212,427,
with interest accruing at 10.5%. On April 20, 1995, the Company paid off the
first mortgage totaling approximately $1,328,000 secured by this property. The
deferred portion of the purchase price, totaling $1,212,427, was paid to IPS in
May 1995 from Gross Offering Proceeds. In addition, accrued interest of
$22,009 was paid from Company operations.
Purchase of Montgomery-Goodyear Shopping Center, Montgomery, Illinois
On September 14, 1995, the Company acquired this property from an unaffiliated
third party for a purchase price of $1,145,992, including closing costs of
$5,992, a portion of which was evidenced by a promissory note payable to Inland
Mortgage Investment Corporation ("IMIC"), an affiliate of the Advisor, in the
gross amount of $600,000. The remainder of the purchase price was funded with
proceeds of the Offering. The promissory note was paid in full in October
1995, with interest at a rate of 10.9% per annum. The principal amount paid
was $600,000 from Gross Offering Proceeds and interest of $4,260 was paid from
Company operations.
Purchase of Hartford Plaza, Naperville, Illinois
On September 14, 1995, the Company acquired this newly constructed property
from an unaffiliated third party for a purchase price of $4,414,015 including
closing costs of $14,015, and deposited $150,000 in an escrow account for
future tenant buildout. A portion of the purchase price was evidenced by a
promissory note payable to IMIC, in the gross amount of $600,000. The
remainder of the purchase price was funded with proceeds of the Offering. The
promissory note was paid in full in October 1995, with interest at a rate of
10.9% per annum. The principal amount paid was $600,000 from Gross Offering
Proceeds and interest of $5,102 was paid from Company operations.
F-25
<PAGE> 338
INLAND MONTHLY INCOME FUND III, INC.
(a Maryland corporation)
Notes to Financial Statements
(continued)
Purchase of Nantucket Square Shopping Center, Schaumburg, Illinois
On September 20, 1995, the Company acquired this property from an unaffiliated
third party for a purchase price of $4,257,918, including closing costs of
$4,913, a portion of which was evidenced by a promissory note payable to IMIC,
in the gross amount of $3,550,000. The remainder of the purchase price was
funded with proceeds of the Offering. In addition, as part of the purchase,
the Company agreed to and has paid $51,135 for tenant improvements for two
tenants expanding their space, which was added to the cost of the property.
The promissory note was paid in full in December 1995, with interest at a rate
of 10.5% per annum. The principal amount paid was $3,550,000 from Gross
Offering Proceeds and interest of $62,011 was paid from Company operations.
Purchase of Antioch Plaza, Antioch, Illinois
On December 28, 1995, the Company acquired Antioch Plaza from an unaffiliated
third party for a purchase price of $1,750,365, including closing costs of
$365, a portion of which was evidenced by a promissory note payable to Inland
Real Estate Investment Corporation, an affiliate of the Advisor ("IREIC"), in
the gross amount of $660,000. As of December 31, 1995, the unpaid balance of
this note was $360,000. The note which bore interest at a rate of 9.5% per
annum was repaid in full on January 9, 1996 and the total amount paid was
$661,163, of which $660,000 was principal paid from Gross Offering Proceeds and
$1,163 was interest paid from Company operations. The remainder of the
purchase price, net of prorations of approximately $1,100,000 was funded with
proceeds of the Offering. Its major tenant is Blockbuster Video which leases
6,500 square feet of gross leasable area and is considered creditworthy by the
Company.
Cost and accumulated depreciation of the above properties are summarized as
follows:
<TABLE>
<CAPTION>
1995
<S> <C>
Single-user retail:
Cost................................ $ 1,209,053
Less accumulated depreciation....... 34,550
-------------
1,174,503
Neighborhood Shopping Centers:
Cost................................ 16,303,379
Less accumulated depreciation....... 135,344
-------------
16,168,635
Total................................. $ 17,342,538
=============
</TABLE>
F-26
<PAGE> 339
INLAND MONTHLY INCOME FUND III, INC.
(a Maryland corporation)
Notes to Financial Statements
(continued)
(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 $98,804 and were
received through December 31, 1995, at which time the majority of tenants began
paying rent.
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 of
approximately $48,000 for rent abatement agreements under current leases,
$28,893 of which is included as a component of master lease payments recorded
at December 31, 1995 and the balance is recorded as prepaid rent.
At December 31, 1995, Antioch Plaza was 33% leased and tenant improvements are
being completed. Certain tenants have begun paying rent. The master lease
payments amounted to $1,717 through December 31, 1995. The master lease
agreement on this property expires June 1997.
Minimum lease payments to be received, excluding master lease payments, in the
future from the operating leases are as follows:
<TABLE>
<CAPTION>
1995
----
<S> <C>
1996.................................. $ 2,024,010
1997.................................. 2,002,852
1998.................................. 1,851,929
1999.................................. 1,692,580
2000.................................. 1,546,352
Thereafter............................ 10,837,583
-----------
Total................................. $19,955,306
===========
</TABLE>
Remaining lease terms range from one year to thirty-three years. Pursuant to
the lease agreements, tenants of the properties are required to reimburse the
Company for some or all of their pro rata share of the real estate taxes and
operating expenses of the property. Such amounts are included in additional
rent income.
F-27
<PAGE> 340
INLAND MONTHLY INCOME FUND III, INC.
(a Maryland corporation)
Notes to Financial Statements
(continued)
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 an increase of $12,413 of
rental income for the period of occupancy for which stepped rent increases
apply and $12,413 in related accounts receivable as of December 31, 1995.
These amounts will be collected over the terms of the related leases as
scheduled rent payments are made.
(6) Mortgage Payable
As of December 31, 1995, the required principal payments on the Company's
mortgage payable over the next five years are as follows:
<TABLE>
<CAPTION>
1995
----
<S> <C>
1996.................................. $ 11,185
1997.................................. 12,072
1998.................................. 13,029
1999.................................. 14,062
2000.................................. 15,177
Thereafter............................ 685,202
</TABLE>
(7) Subsequent Events
As of March 28, 1996, subscriptions for a total of 2,869,084 Shares were
received, bringing total Gross Offering Proceeds to $28,679,020.
The Company, through the Advisor, is currently completing its due diligence on
Regency Point and anticipates purchasing the property in March 1996 from a
third party unaffiliated with the Company for a purchase price of $5,700,000.
As part of the acquisition, it is anticipated the Company will assume the
existing first mortgage loan of approximately $4,473,200, along with a related
interest rate swap agreement. The remainder of the purchase price of
approximately $1,226,800 will be funded, after prorations, with proceeds of the
Offering.
The first mortgage loan has a floating interest rate of 180 basis points over
the 30-day LIBOR rate, which rate is adjusted monthly and amortizes over 25
years. The interest rate swap agreement, in conjunction with the first
mortgage, provides for Bank One, Chicago, to receive from or pay to the Company
the difference between 6.11% and the 30-day LIBOR rate, so that the first
mortgage loan has an effective fixed rate of 7.91% per annum. The first
mortgage loan matures in August 2000. The interest rate swap agreement expires
concurrently therewith.
F-28
<PAGE> 341
INLAND MONTHLY INCOME FUND III, INC.
(a Maryland corporation)
Notes to Financial Statements
(continued)
In January 1996, the Company paid a distribution of $129,532 to the
Stockholders of which approximately $7,460 was a return of capital.
In January 1996, the balance of $360,000 on the note payable to Affiliates of
relating to the purchase of Antioch Plaza, was paid in full along with interest
of $1,163.
Regency Point, built in 1993 and 1994, consists of a one-story, multi-tenant
brick and block strip center aggregating 54,875 of rentable square feet. Its
anchor tenants include nationally recognized tenants such as Walgreens with
13,000 square feet, Ace Hardware with 15,505 square feet and the United States
Postal Service with 2,503 square feet and are considered creditworthy by the
Company.
The Company, through the Advisor, is currently completing its due diligence on
Mundelein Plaza, located in Mundelein, Illinois and anticipates purchasing the
property in March 1996 from a third party unaffiliated with the Company for a
purchase price of $5,650,000, on an all cash basis. Mundelein Plaza, built in
1990, consists of two one-story, multi-tenant brick and block strip centers
aggregating approximately 68,000 rentable square feet. Mundelein Plaza is
currently 100% leased and is anchored by Sears Home Life with 47,000 square
feet and is considered creditworthy by the Company.
The Directors, including the Independent Directors approved the acquisitions of
Regency Point and Mundelein Plaza on February 8, 1996 and March 28, 1996,
respectively, as being fair and reasonable to the Company, subject to the
satisfactory completion of the due diligence process.
F-29
<PAGE> 342
Walgreens/Decatur Property
Historical Summary of Gross Income and Direct Operating Expenses
Six Month Period Ended December 31, 1994
Unaudited
<TABLE>
<S> <C>
Gross Income:
Base Rental Income............................... $ 63,910
Real Estate Tax Recovery......................... 12,080
---------
75,990
---------
Direct Operating Expenses:
Real Estate Taxes................................ 12,080
Management Fees.................................. 1,917
Operating Expenses............................... 295
Insurance Expense................................ 810
---------
15,102
---------
Excess of Gross Income over
Direct Operating Expenses........................ $ 60,888
=========
</TABLE>
F-30
<PAGE> 343
Independent Auditor's Report
The Board of Directors
Inland Property Sales, Inc.:
We have audited the accompanying Historical Summaries of Gross Income and
Direct Operating Expenses (Historical Summaries) of the Walgreens/Decatur
Property for each of the years in the three-year period ended June 30, 1994.
These Historical Summaries are the responsibility of the management of the
Company. Our responsibility is to express an opinion on the Historical
Summaries based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the Historical Summaries are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the Historical Summaries. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall presentation of
the Historical Summaries. We believe that our audits provide a reasonable
basis for our opinion.
The accompanying Historical Summaries were prepared for the purpose of
complying with the rules and regulations of the Securities and Exchange
Commission and for inclusion in the Registration Statement of Form S-11 of
Inland Monthly Income Fund III, Inc. as described in Note 2. The presentation
is not intended to be a complete presentation of the Walgreens/Decatur Property
revenues and expenses.
In our opinion, the Historical Summaries referred to above present fairly, in
all material respects, the gross income and direct operating expenses described
in Note 2 for each of the years in the three-year period ended June 30, 1994 in
conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Chicago, Illinois
July 29, 1994
F-31
<PAGE> 344
Walgreens/Decatur Property
Historical Summaries of Gross Income and Direct Operating Expense
Years ended June 30, 1994, 1993 and 1992
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Gross Income:
Base rental income.................. $ 127,820 127,820 127,820
Real estate tax recovery............ 24,733 23,732 23,479
---------- ------- -------
152,533 151,552 151,299
---------- ------- -------
Direct Operating Expenses:
Real estate taxes................... 24,733 23,732 23,479
Management fees..................... 3,811 3,820 3,809
Operating expenses.................. 933 338 496
Insurance expense................... 1,537 1,636 1,577
---------- ------- -------
31,014 29,526 29,361
---------- ------- -------
Excess of gross income over direct
operating expenses $ 121,539 122,026 121,938
========== ======= =======
</TABLE>
See accompanying notes to Historical Summaries
F-32
<PAGE> 345
Walgreens/Decatur Property
Notes to Historical Summaries of Gross Income and Direct Operating Expenses
Years ended June 30, 1994, 1993 and 1992
1. Business
The Walgreens/Decatur Property (the Property) is a free-standing, single-
tenant retail property located in Decatur, Illinois. The Property consists
of 13,500 square feet of gross leasable area, and is leased to the
Walgreens Company (Walgreens). The Property is owned by Inland Property
Sales, Inc. (IPS).
2. Basis of Presentation
The Historical Summaries have been prepared for the purpose of complying
with Rule 3-14 of the Securities and Exchange Commission Regulations S-X
and for inclusion in the Registration Statement on Form S-11 of Inland
Monthly Income Fund III, Inc. and are not intended to be a complete
presentation of the Walgreens/Decatur Property revenues and expenses. The
Historical Summaries have been prepared on the accrual basis of accounting.
3. Gross Income
Walgreens leases the property under an operating lease agreement whereby
Walgreens is responsible for all operating expenses of the property except
for expenses related to the exterior and structural portions of the
building, roof and entryways. In addition, Walgreens reimburses the
Property for real estate taxes and is responsible for insurance on the
Property. The lease provides for payment of contingent rent based on a
percentage applied to the amount by which Walgreens' sales, as defined,
exceed predetermined levels. No such contingent rent was due for the years
ended June 30, 1994, 1993 and 1992. The lease expires on April 30, 2028,
and Walgreens has the option to exercise up to five, five-year extensions.
Minimum rents to be received from Walgreens under the operating lease in
effect at June 30, 1994 are approximately as follows:
<TABLE>
<CAPTION>
Year Amount
<S> <C>
1995 $ 128,000
1996 128,000
1997 128,000
1998 128,000
1999 128,000
Thereafter 3,691,000
----------
$4,331,000
==========
</TABLE>
F-33
<PAGE> 346
Walgreens/Decatur Property
Notes to Historical Summaries of Gross Income and Direct Operating Expenses
Years ended June 30, 1994, 1993 and 1992
4. Direct Operating Expenses
Direct operating expenses include only those costs expected to be
comparable to the proposed future operations of the Property. Costs such
as mortgage interest, depreciation, amortization, and professional fees are
excluded from the Historical Summaries.
The Property was managed by Mid-America Corp., an affiliate of Inland
Monthly Income Fund III, Inc., under an agreement in principle through
December 31, 1993, for a fee of 2.5% of gross revenues, as defined.
Effective January 1, 1994, Mid-America Corp. assigned the agreement to
Inland Commercial Property Management, Inc., also an affiliate of Inland
Monthly Income Fund III, Inc.
5. Commitments and Contingencies
It is anticipated that Inland Monthly Income Fund III, Inc. will purchase
the Property from IPS at a price expected to be no greater than its
historical cost. In no event will the purchase price exceed the current
appraised value of the Property. There can be no assurance that the
purchase price will not exceed that which would be paid by an unaffiliated
buyer.
F-34
<PAGE> 347
Eagle Crest Shopping Center
Historical Summary of Gross Income and Direct Operating Expenses
Six Month Period Ended December 31, 1994
Unaudited
<TABLE>
<S> <C>
Gross Income:
Base Rental Income............................... $283,338
Real Estate Tax Recovery......................... 50,870
Other tenant income.............................. 1,785
--------
335,993
--------
Direct Operating Expenses:
Real Estate Taxes................................ 37,343
Management Fees.................................. 15,792
Operating Expenses............................... 26,024
Utilities........................................ 6,717
Insurance Expense................................ 2,109
--------
87,985
--------
Excess of Gross Income over
Direct Operating Expenses........................ $248,008
========
</TABLE>
F-35
<PAGE> 348
Independent Auditor's Report
The Board of Directors
Inland Property Sales, Inc.
We have audited the accompanying Historical Summaries of Gross Income and
Direct Operating Expenses (Historical Summaries) of the Eaglecrest/Naperville
Property for each of the years in the three-year period ended June 30, 1994.
These Historical Summaries are the responsibility of the management of the
Company. Our responsibility is to express an opinion on the Historical
Summaries based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the Historical Summaries are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the Historical Summaries. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall presentation of
the Historical Summaries. We believe that our audits provide a reasonable
basis for our opinion.
The accompanying Historical Summaries were prepared for the purpose of
complying with the rules and regulations of the Securities and Exchange
Commission and for inclusion in the Registration Statement on Form S-11 of
Inland Monthly Income Fund III, Inc. as described in Note 2. The presentation
is not intended to be a complete presentation of the Eaglecrest/Naperville
Property revenues and expenses.
In our opinion, the Historical Summaries referred to above present fairly, in
all material respects, the gross income and direct operating expenses described
in Note 2 for each of the years in the three-year period ended June 30, 1994 in
conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Chicago, Illinois
July 29, 1994
F-36
<PAGE> 349
Eagle Crest Shopping Center
Historical Summaries of Gross Income and Direct Operating Expenses
Years ended June 30, 1994, 1993 and 1992
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Gross income:
Base rental income.................. $ 442,077 367,367 373,609
Operating expense and real estate
tax recoveries.................... 112,031 106,865 100,683
Other tenant income................. 15,881 1,361 839
---------- ------- -------
569,989 475,593 475,131
---------- ------- -------
Direct operating expenses:
Real estate taxes................... 72,908 71,119 71,640
Management fees..................... 25,226 21,769 21,976
Operating expenses.................. 90,263 79,843 50,532
Utilities........................... 15,586 15,235 13,554
Insurance expense................... 3,220 3,283 6,944
---------- ------- -------
207,203 191,249 164,646
---------- ------- -------
Excess of gross income over direct
operating expenses.................. $ 362,786 284,344 310,485
========== ======= =======
</TABLE>
See accompanying notes to Historical Summaries
F-37
<PAGE> 350
Eagle Crest Shopping Center
Notes to Historical Summaries of Gross Income and Direct Operating Expenses
Years ended June 30, 1994, 1993 and 1992
1. Business
Eagle Crest Shopping Center (Eagle Crest) is a shopping center located in
Naperville, Illinois. It consists of approximately 68,000 square feet of
gross leasable area and was 100% occupied at June 30, 1994. Its major
tenant is Eagle Foods, Inc. (Eagle) which leases 46,096 square feet of the
shopping center. Eagle Crest is owned by Inland Property Sales, Inc.
(IPS).
2. Basis of Presentation
The Historical Summaries have been prepared for the purpose of complying
with Rule 3-14 of the Securities and Exchange Commission Regulation S-X and
for inclusion in the Registration Statement on Form S-11 of Inland Monthly
Income Fund III, Inc. and are not intended to be a complete presentation of
Eagle Crest's revenues and expenses. The Historical Summaries have been
prepared on the accrual basis of accounting.
3. Gross Income
Eagle Crest leases retail space under various lease agreements with its
tenants. All leases are accounted for as operating leases. Certain of the
leases include provisions under which Eagle Crest is reimbursed for certain
common area, real estate tax, and insurance costs. In addition, certain
leases provides for payment of contingent rentals based on a percentage
applied to the amount by which the tenant's sales, as defined, exceed
predetermined levels. No such contingent rent was due for the years ended
June 30, 1994, 1993 and 1992. Certain leases contain renewal options for
various periods at various rental rates.
Base rentals are reported as income over the lease term as they become
receivable under the provision of the leases. However, when rental vary
from a straight-line basis due to short-term rent abatements or escalating
rents during the lease term, the income is recognized based on effective
rental rates. Related adjustments increased base rental income by $123,394
and $67,079 for the years ended June 30, 1994 and 1992, respectively, and
decreased base rental income by $5,100 for the year ended June 30, 1993.
Minimum rents to be received from tenants under operating leases in effect
at June 30, 1994 are approximately as follows:
<TABLE>
<CAPTION>
Year Amount
---- ------
<S> <C>
1995 $ 582,000
1996 568,000
1997 560,000
1998 476,000
1999 374,000
Thereafter 4,518,000
-----------
$ 7,078,000
===========
</TABLE>
F-38
<PAGE> 351
Eagle Crest Shopping Center
Notes to Historical Summaries of Gross Income and Direct Operating Expenses
Years ended June 30, 1994, 1993 and 1992
4. Direct Operating Expenses
Direct operating expenses include only those costs expected to be
comparable to the proposed future operations of Eagle Crest. Costs such as
mortgage interest, depreciation, amortization, and professional fees are
excluded from the Historical Summaries.
Eagle Crest was managed by Mid-America Corp., an affiliate of Inland
Monthly Income Fund III, Inc., through December 31, 1993 for a fee of 4.5%
of gross revenues,, as defined. The management agreement, which expires on
March 31, 1995, is renewable annually. Effective January 1, 1994, Mid-
America Corp. assigned the management contract to Inland Commercial
Property Management, Inc., also an affiliate of Inland Monthly Income Fund
III, Inc.
5. Commitments and Contingencies
It is anticipated that Inland Monthly Income Fund III, Inc. will purchase
Eagle Crest from IPS at a price expected to be no greater than its
historical cost. In no event will the purchase price exceed the current
appraised value of the Property. There can be no assurance that the
purchase price will not exceed that which would be paid by an unaffiliated
buyer.
F-39
<PAGE> 352
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO THE GENERAL PARTNERS OF
SCHAUMBEACH ASSOCIATES, INC.
We have audited the accompanying Statement of Gross Income and Direct Operating
Expenses of the NANTUCKET SQUARE SHOPPING CENTER for the year ended December
31, 1994. This Statement is the responsibility of the management of the
Company. Our responsibility is to express an opinion on this Statement 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 Statement is free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the Statement. 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.
The accompanying Statement was prepared for the purpose of complying with the
rules and regulations of the Securities and Exchange Commission and for
inclusion in the Registration Statement on Form S-11 of Inland Monthly Income
Fund III, Inc. as described in Note 2. The presentation is not intended to be
a complete presentation of the Nantucket Square Shopping Center revenues and
expenses.
In our opinion, the Statement referred to above presents fairly, in all
material respects, the gross income and direct operating expenses of Nantucket
Square Shopping Center as described in Note 2 for the year ended December 31,
1994, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Chicago, Illinois
September 7, 1995
F-40
<PAGE> 353
NANTUCKET SQUARE SHOPPING CENTER
STATEMENT OF GROSS INCOME AND DIRECT OPERATING EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1994
<TABLE>
<S> <C>
Gross Income:
Base Rental Income...................................... $ 480,770
Operating Expense and Real Estate Tax Recoveries........ 193,753
Other Tenant Income..................................... 4,533
---------
Total Gross Income................................... $ 679,056
---------
Direct Operating Expenses:
Real Estate Taxes....................................... 156,122
Management Fees......................................... 35,002
Operating Expenses...................................... 74,954
Utilities............................................... 10,355
Insurance............................................... 14,254
---------
Total Direct Operating Expenses...................... $ 290,687
---------
Excess of Gross Income over Direct Operating Expenses..... $ 388,369
=========
</TABLE>
F-41
<PAGE> 354
Nantucket Square Shopping Center
Notes to the Statement of Gross Income and Direct Operating Expenses
December 31, 1994
1. Business
Nantucket Square Shopping Center (Nantucket Square) is located in
Schaumburg, Illinois. It consists of approximately 57,263 square feet of
gross leasable area and was 82.9 percent occupied at December 31, 1994.
Nantucket Square is owned by Schaumbeach Associates, LTD. Schaumbeach
Associates, LTD. has signed a sale and purchase agreement for the sale of
Nantucket Square to Inland Monthly Income Fund III, Inc.
2. Basis of Presentation
The Statement has been prepared for the purpose of complying with Rule 3-14
of the Securities and Exchange Commission Regulation S-X and for inclusion
in the Registration Statement on Form S-11 of Inland Monthly Income Fund
III, Inc. and is not intended to be a complete presentation of Nantucket
Square's revenues and expenses. The statement has been prepared on the
accrual basis of accounting.
3. Gross Income
Nantucket Square leases retail space under various lease agreements with
its tenants. All leases are accounted for as operating leases. Certain of
the leases include provisions under which Nantucket Square is reimbursed
for certain common area, real estate and insurance costs. Operating
Expense and Real Estate Tax Recoveries reflected on the Statement of Gross
Income and Direct Operating Expenses includes amounts due for 1994 expenses
for which the tenants have not yet been billed. In addition, certain
leases provide for payment of contingent rentals based on a percentage
applied to the amount by which the tenant's sales, as defined, exceeds
predetermined levels. Contingent rent for the year ended December 31, 1994
was not material to base rental income. Certain leases contain renewal
options for various periods at various rental rates.
Base rentals are reported as income over the lease term as they become
receivable under the provision of the leases. However, rentals from
tenants with rent abatements or escalating rents during the lease term
should be recognized as revenue on a straight-line basis over the
respective lease term. An adjustment to recognize rents on a straight-line
basis increased base rental income by $22,337 for the year ended December
31, 1994.
F-42
<PAGE> 355
Nantucket Square Shopping Center
Notes to the Statement of Gross Income and Direct Operating Expenses
December 31, 1994
3. Gross Income (continued)
Minimum rents to be received from tenants under operating leases in effect
at December 31, 1994, are approximately as follows:
<TABLE>
<CAPTION>
Year Amount
---- ------
<S> <C>
1995 $ 495,242
1996 487,846
1997 493,751
1998 405,826
1999 383,787
Thereafter 909,056
-----------
$ 3,175,508
===========
</TABLE>
4. Direct Operating Expenses
Direct operating expenses include only those costs expected to be
comparable to the proposed future operations of Nantucket Square. Costs
such as mortgage interest, depreciation, amortization and professional fees
are excluded from the statement.
Nantucket Square has not received its final real estate tax bill for 1994.
Real Estate tax expense is estimated upon bills for 1993. The difference
between this estimate and the final bill is not expected to have a material
impact on the Statement of Gross Income and Direct Operating Expenses.
Subsequent to the sale of Nantucket Square (see Note 1), property value may
be reassessed. Such reassessment may cause future real estate tax expense
to be incomparable to that reflected in 1994.
Nantucket Square is managed by Mid-America Asset Management Company.
Subsequent to the sale of Nantucket Square (see Note 1), the current
management agreement ceases. Any new management agreement may cause future
management fees to be incomparable to that reflected in 1994.
F-43
<PAGE> 356
The following unaudited Statement of Gross Income and Direct Operating Expenses
for Nantucket Square is for the seven months ended July 31, 1995 and is
included as additional information subsequent to the audited financial
statements for the period ended December 31, 1994.
Nantucket Square Shopping Center
Statement of Gross Income and Direct Operating Expenses
For the Seven Month Period Ended July 31, 1995
(unaudited)
<TABLE>
<S> <C>
Gross Income:
Base Rental Income................................ $ 274,572
Operating Expense and
Real Estate Tax Recoveries...................... 121,123
Other Tenant Income............................... 4,878
---------
Total Gross Income.............................. 400,573
---------
Direct Operating Expenses:
Real Estate Taxes................................. 100,061
Management Fees................................... 20,417
Operating Expenses................................ 34,456
Utilities......................................... 4,927
Insurance......................................... 11,910
---------
Total Direct Operating Expenses................. 171,771
---------
Excess of Gross Income over
Direct Operating Expenses......................... $ 228,802
=========
</TABLE>
F-44
<PAGE> 357
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO THE BOARD OF DIRECTORS OF
NATIONAL SHOPPING PLAZAS, INC.
We have audited the accompanying Statement of Gross Income and Direct Operating
Expenses of the Mundelein Plaza for the year ended December 31, 1995. This
Statement is the responsibility of the management of the Company. Our
responsibility is to express an opinion on this Statement 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 Statement is free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the Statement. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall presentation of the
Statement. We believe that our audit provides a reasonable basis for our
opinion.
The accompanying Statement was prepared for the purpose of complying with the
rules and regulations of the Securities and Exchange Commission and for
inclusion in the Registration Statement on Form S-11 of Inland Monthly Income
Fund III, Inc. as described in Note 2. The presentation is not intended to be
a complete presentation of the Mundelein Plaza revenues and expenses.
In our opinion, the Statement referred to above presents fairly, in all
material respects, the gross income and direct operating expenses of Mundelein
Plaza as described in Note 2 for the year ended December 31, 1995, in
conformity with generally accepted accounting principles.
BRUCE GORLICK, C.P.A., LTD.
A PROFESSIONAL CORPORATION
BUFFALO GROVE, ILLINOIS
MARCH 14, 1996
F-45
<PAGE> 358
Mundelein Plaza
Statement of Gross Income and Direct Operating Expenses
For the year ended December 31, 1995
<TABLE>
<S> <C>
Gross income:
Base rental income.............................. $ 639,124
Operating expense and real estate
tax recoveries................................ 66,518
Other tenant income............................. 151
----------
Total Gross Income.............................. 705,793
----------
Direct operating expenses:
Real estate taxes............................... 84,768
Management fees................................. 26,300
Operating expenses.............................. 15,277
Utilities....................................... 4,966
Insurance expense............................... 10,171
----------
Total Direct Operating Expenses................. 141,482
----------
Excess of Gross over Direct Operating............. $ 564,311
==========
</TABLE>
F-46
<PAGE> 359
Mundelein Plaza
Notes to the Statement of Income and Direct Operating Expenses
December 31, 1995
1. Business
Mundelein Plaza is located in Mundelein, Illinois. It consists of
approximately 67,896 square feet of gross leasable area and was 100%
occupied at December 31, 1995. Mundelein Plaza is owned by Amalgamated
Bank of Chicago, Trust No. 5457. Amalgamated Bank of Chicago, Trust No.
5457 has signed a sale and purchase agreement for the sale of Mundelein
Plaza to Inland Monthly Income Fund III, Inc.
2. Basis of Presentation
The Statement has been prepared for the purpose of complying with Rule 3-14
of the Securities and Exchange Commission Regulation S-X and for inclusion
in the Registration Statement on Form S-11 of Inland Monthly Income Fund
III, Inc. and is not intended to be a complete presentation of revenues and
expenses. The Statement has been prepared on the accrual basis of
accounting.
3. Gross Income
National Shopping Plazas, Inc. leases retail space under various lease
agreements with its tenants. All leases are accounted for as operating
leases. Certain of the leases include provisions under which Mundelein
Plaza is reimbursed for certain common area, real estate, and insurance
costs. Operating Expense and Real Estate Tax Recoveries reflected on the
Statement of Gross Income and Direct Operating Expenses includes amounts
due for 1995 expenses for which the tenants have not yet been billed.
Certain leases have rent due for the year ended December 31, 1995. Certain
leases contain renewal options for various periods at various rental rates.
Base rentals are reported as income over the lease term as they become
receivable under the provisions of the leases. However, when rentals vary
from a straight-line basis due to short-term rent abatements or escalating
rents during the lease term, the income is recognized based on effective
rental rates. The adjusted increase in base rental income is $1,944 for
the year ended December 31, 1995, which we consider immaterial.
Minimum rents to be received from tenants under operating leases in effect
at December 31, 1995 are approximately as follows:
<TABLE>
<CAPTION>
Year Amount
---- ------
<S> <C>
1996 $ 684,649
1997 570,844
1998 552,623
1999 565,086
2000 554,840
Thereafter 937,770
-----------
$ 3,865,812
===========
</TABLE>
F-47
<PAGE> 360
Mundelein Plaza
Notes to the Statement of Gross Income and Direct Operating Expenses
December 31, 1995
4. Direct Operating Expenses
Direct operating expenses include only those costs expected to be
comparable to the proposed future operations of Mundelein Plaza. Costs
such as mortgage interest, depreciation, amortization, and professional
fees are excluded from the Statement.
Mundelein Plaza has not received its final real estate bill for 1995. The
difference between this estimate and the final bill is not expected to
have a material impact on the Statement of Gross Income and Direct
Operating Expenses.
Mundelein Plaza is managed by National Shopping Plazas, Inc. For the year
ended December 31, 1995, Mundelein Plaza paid approximately $26,000 for
management fees, as per the management agreement.
F-48
<PAGE> 361
[KMPG PEAT MARWICK LLP LOGO]
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Inland Monthly Income Fund III, Inc.:
We have audited the accompanying Historical Summary of Gross Income and
Direct Operating Expenses (Historical Summary) of the Regency Point
Shopping Center for the year ended December 31, 1995. This Historical
Summary is the responsibility of the management of the Company. Our
responsibility is to express an opinion on the Historical Summary based
on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the Historical Summary is
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the
Historical Summary. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well
as evaluating the overall presentation of the Historical Summary. We
believe that our audit provides a reasonable basis for our opinion.
The accompanying Historical Summary was prepared for the purpose
of complying with the rules and regulations of the Securities and
Exchange Commission and for inclusion in the Registration Statement on
Form S-11 of Inland Monthly Income Fund III, Inc., as described in note
2. It is not intended to be a complete presentation of the Regency
Point Shopping Center's revenues and expenses.
In our opinion, the Historical Summary referred to above presents
fairly, in all material respects, the gross income and direct operating
expenses described in note 2 for the year ended December 31, 1995, in
conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Chicago, Illinois
March 8, 1996
F-49
<PAGE> 362
REGENCY POINT SHOPPING CENTER
Historical Summary of Gross Income and Direct Operating Expenses
Year ended December 31, 1995
<TABLE>
<S> <C>
- -----------------------------------------------------------------------
Gross income:
Base rental income $541,085
Operating expense and real estate tax recoveries 63,294
- -----------------------------------------------------------------------
Total gross income $604,379
- -----------------------------------------------------------------------
Direct operating expenses:
Real estate taxes 16,867
Management fees 23,660
Operating expenses 17,645
Utilities 4,013
Insurance 9,430
- -----------------------------------------------------------------------
Total direct operating expenses $71,615
- -----------------------------------------------------------------------
Excess of gross income over direct operating expenses $532,764
- -----------------------------------------------------------------------
</TABLE>
See accompanying notes to historical summary of gross income and direct
operating expenses.
F-50
<PAGE> 363
REGENCY POINT SHOPPING CENTER
Historical Summary of Gross Income and Direct Operating Expenses
Year ended December 31, 1995
- --------------------------------------------------------------------------------
(1) BUSINESS
Regency Point Shopping Center (Regency Point) is located in Lockport,
Illinois. It consists of approximately 53,480 square feet of gross
leasable area and was 93 percent occupied at December 31, 1995. Regency
Point is owned by Metropolitan Real Estate Co. (Metropolitan).
Metropolitan has signed a sale and purchase agreement for the sale of
Regency Point to Inland Monthly Income Fund III, Inc., an unaffiliated
third party.
(2) BASIS OF PRESENTATION
The Historical Summary has been prepared for the purpose of complying with
Rule 3-14 of the Securities and Exchange Commission Regulation S-X and for
inclusion in the Registration Statement on Form S-11 of Inland Monthly
Income Fund III, Inc. and is not intended to be a complete presentation of
Regency Point's revenues and expenses. The Historical Summary has been
prepared on the accrual basis of accounting.
(3) GROSS INCOME
Regency Point leases retail space under various lease agreements with its
tenants. All leases are accounted for as operating leases. Certain of the
leases include provisions under which Regency Point is reimbursed for
certain common area, real estate, and insurance costs. Operating expense
and real estate tax recoveries reflected on the Historical Summary include
amounts due for 1995 expenses for which the tenants have not yet been
billed. In addition, certain leases provide for payment of contingent
rentals based on a percentage applied to the amount by which the tenant's
sales, as defined, exceed predetermined levels. No such contingent rent
was due for the year ended December 31, 1995. Certain leases contain
renewal options for various periods at various rental rates.
Base rentals are reported as income over the lease term as they become
receivable under the provisions of the leases. However, when rentals vary
from a straight-line basis due to short-term rent abatements or escalating
rents during the lease term, the income is recognized based on effective
rental rates. Related adjustments increased base rental income by $15,289
for the year ended December 31, 1995.
F-51
<PAGE> 364
REGENCY POINT SHOPPING CENTER
Historical Summary of Gross Income and Direct Operating Expenses
- --------------------------------------------------------------------------------
Minimum rents to be received from tenants under operating leases in effect
at December 31, 1995, are approximately as follows:
<TABLE>
<CAPTION>
Year Amount
- ---------------------------------------------------
<S> <C>
1996 $584,000
1997 568,000
1998 552,000
1999 399,000
2000 352,000
Thereafter 3,203,000
- ---------------------------------------------------
$5,658,000
- ---------------------------------------------------
</TABLE>
(4) DIRECT OPERATING EXPENSES
Direct operating expenses include only those costs expected to be
comparable to the proposed future operations of Regency Point. Costs such
as mortgage interest, depreciation, amortization and professional fees are
excluded from the Historical Summary.
Regency Point has not received its final real estate tax bill for 1995.
Real estate tax expense is estimated based upon bills for 1994. The
difference between this estimate and the final bill is not expected to have
a material impact on the Historical Summary. Regency Point is located in a
tax enterprise zone and, as such, the assessed value of the property is
anticipated to remain constant through 2003.
Regency Point is managed by Philip's Management, Inc., for a fee of 4.5% of
gross revenues, as defined. Subsequent to the sale of Regency Point (note
1), the current management agreement ceases. Any new management agreement
may cause future management fees to differ from the amounts reflected in
1995.
F-52
<PAGE> 365
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO THE BOARD OF DIRECTORS OF
NATIONAL SHOPPING PLAZAS, INC.
We have audited the accompanying Statement of Gross Income and Direct Operating
Expenses of the Prospect Heights Plaza for the year ended December 31, 1995.
This Statement is the responsibility of the management of the Company. Our
responsibility is to express an opinion on this Statement 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 Statement is free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the Statement. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall presentation of the
Statement. We believe that our audit provides a reasonable basis for our
opinion.
The accompanying Statement was prepared for the purpose of complying with the
rules and regulations of the Securities and Exchange Commission and for
inclusion in the Registration Statement on Form S-11 of Inland Monthly Income
Fund III, Inc. as described in Note 2. The presentation is not intended to be
a complete presentation of the Prospect Heights Plaza revenues and expenses.
In our opinion, the Statement referred to above presents fairly, in all
material respects, the gross income and direct operating expenses of Prospect
Heights Plaza as described in Note 2 for the year ended December 31, 1995, in
conformity with generally accepted accounting principles.
BRUCE GORLICK, C.P.A., LTD.
A PROFESSIONAL CORPORATION
BUFFALO GROVE, ILLINOIS
MAY 24, 1996
F-53
<PAGE> 366
Prospect Heights Plaza
Statement of Gross Income and Direct Operating Expenses
For the year ended December 31, 1995
<TABLE>
<S> <C>
Gross income:
Base rental income.............................. $ 164,152
Operating expense and real estate
tax recoveries................................ 116,075
Other tenant income............................. 100
----------
Total Gross Income.............................. 280,327
----------
Direct operating expenses:
Real estate taxes............................... 127,033
Management fees................................. 16,600
Operating expenses.............................. 29,678
Utilities....................................... 3,339
Insurance expense............................... 4,169
----------
Total Direct Operating Expenses................. 180,819
----------
Excess of Gross over Direct Operating............. $ 99,508
==========
</TABLE>
F-54
<PAGE> 367
Prospect Heights Plaza
Notes to the Statement of Income and Direct Operating Expenses
December 31, 1995
1. Business
Prospect Heights Plaza is located in Prospect Heights, Illinois. It
consists of approximately 27,830 square feet of gross leasable area and was
78% occupied at December 31, 1995. Prospect Heights Plaza is owned by
Amalgamated Bank of Chicago, Trust No. 5073. Amalgamated Bank of Chicago,
Trust No. 5073 has signed a sale and purchase agreement for the sale of
Prospect Heights Plaza to Inland Monthly Income Fund III, Inc.
2. Basis of Presentation
The Statement has been prepared for the purpose of complying with Rule 3-14
of the Securities and Exchange Commission Regulation S-X and for inclusion
in the Registration Statement on Form S-11 of Inland Monthly Income Fund
III, Inc. and is not intended to be a complete presentation of revenues and
expenses. The Statement has been prepared on the accrual basis of
accounting.
3. Gross Income
National Shopping Plazas, Inc. leases retail space under various lease
agreements with its tenants. All leases are accounted for as operating
leases. Certain of the leases include provisions under which Prospect
Heights Plaza is reimbursed for certain common area, real estate, and
insurance costs. Operating Expense and Real Estate Tax Recoveries
reflected on the Statement of Gross Income and Direct Operating Expenses
includes amounts due for 1995 expenses for which the tenants have not yet
been billed. Certain leases have rent due for the year ended December 31,
1995. Certain leases contain renewal options for various periods at
various rental rates.
Base rentals are reported as income over the lease term as they become
receivable under the provisions of the leases. However, when rentals vary
from a straight-line basis due to short-term rent abatements or escalating
rents during the lease term, the income is recognized based on effective
rental rates. The adjusted increase in base rental income is $11 for the
year ended December 31, 1995, which we consider immaterial.
Minimum rents to be received from tenants under operating leases in effect
at December 31, 1995 are approximately as follows:
<TABLE>
<CAPTION>
Year Amount
---- ------
<S> <C>
1996 $178,710
1997 179,910
1998 116,630
1999 94,450
2000 94,450
Thereafter 332,062
--------
$996,212
========
</TABLE>
F-55
<PAGE> 368
Prospect Heights Plaza
Notes to the Statement of Gross Income and Direct Operating Expenses
December 31, 1995
4. Direct Operating Expenses
Direct operating expenses include only those costs expected to be
comparable to the proposed future operations of Prospect Heights Plaza.
Costs such as mortgage interest, depreciation, amortization, and
professional fees are excluded from the Statement.
Prospect Heights Plaza has not received its final real estate bill for
1995. The difference between this estimate and the final bill is not
expected to have a material impact on the Statement of Gross Income and
Direct Operating Expenses.
Prospect Heights Plaza is managed by National Shopping Plazas, Inc. For
the year ended December 31, 1995, Prospect Heights Plaza paid approximately
$17,000 for management fees, as per the management agreement.
F-56
<PAGE> 369
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO THE BOARD OF DIRECTORS OF
NATIONAL SHOPPING PLAZAS, INC.
We have audited the accompanying Statement of Gross Income and Direct Operating
Expenses of the Montgomery-Sears Shopping Center ("Montgomery-Sears") for the
year ended December 31, 1995. This Statement is the responsibility of the
management of the Company. Our responsibility is to express an opinion on this
Statement 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 Statement is free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the Statement. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall presentation of the
Statement. We believe that our audit provides a reasonable basis for our
opinion.
The accompanying Statement was prepared for the purpose of complying with the
rules and regulations of the Securities and Exchange Commission and for
inclusion in the Registration Statement on Form S-11 of Inland Monthly Income
Fund III, Inc. as described in Note 2. The presentation is not intended to be
a complete presentation of the Montgomery-Sears revenues and expenses.
In our opinion, the Statement referred to above presents fairly, in all
material respects, the gross income and direct operating expenses of
Montgomery-Sears as described in Note 2 for the year ended December 31, 1995,
in conformity with generally accepted accounting principles.
BRUCE GORLICK, C.P.A., LTD.
A PROFESSIONAL CORPORATION
BUFFALO GROVE, ILLINOIS
MAY 29, 1996
F-57
<PAGE> 370
Montgomery-Sears Shopping Center
Statement of Gross Income and Direct Operating Expenses
For the year ended December 31, 1995
<TABLE>
<S> <C>
Gross income:
Base rental income.............................. $ 327,610
Operating expense and real estate
tax recoveries................................ 75,642
----------
Other tenant income............................. 540
----------
Total Gross Income.............................. 403,792
----------
Direct operating expenses:
Real estate taxes............................... 60,996
Management fees................................. 14,800
Operating expenses.............................. 12,596
Utilities....................................... 5,311
Insurance expense............................... 8,364
----------
Total Direct Operating Expenses................. 102,067
----------
Excess of Gross over Direct Operating............. $ 301,725
==========
</TABLE>
F-58
<PAGE> 371
]
Montgomery-Sears Shopping Center
Notes to the Statement of Income and Direct Operating Expenses
December 31, 1995
1. Business
Montgomery-Sears is located in Montgomery, Illinois. It consists of
approximately 34,600 square feet of gross leasable area and was 85%
occupied at December 31, 1995. Montgomery-Sears is owned by Amalgamated
Bank of Chicago, Trust No. 5435. Amalgamated Bank of Chicago, Trust No.
5435 has signed a sale and purchase agreement for the sale of Montgomery-
Sears to Inland Monthly Income Fund III, Inc.
2. Basis of Presentation
The Statement has been prepared for the purpose of complying with Rule 3-14
of the Securities and Exchange Commission Regulation S-X and for inclusion
in the Registration Statement on Form S-11 of Inland Monthly Income Fund
III, Inc. and is not intended to be a complete presentation of revenues and
expenses. The Statement has been prepared on the accrual basis of
accounting.
3. Gross Income
National Shopping Plazas, Inc. leases retail space under various lease
agreements with its tenants. All leases are accounted for as operating
leases. Certain of the leases include provisions under which Montgomery-
Sears is reimbursed for certain common area, real estate, and insurance
costs. Operating Expense and Real Estate Tax Recoveries reflected on the
Statement of Gross Income and Direct Operating Expenses includes amounts
due for 1995 expenses for which the tenants have not yet been billed.
Certain leases contain renewal options for various periods at various
rental rates.
Base rentals are reported as income over the lease term as they become
receivable under the provisions of the leases. However, when rentals vary
from a straight-line basis due to short-term rent abatements or escalating
rents during the lease term, the income is recognized based on effective
rental rates. The adjusted increase in base rental income is $56 for the
year ended December 31, 1995, which we consider immaterial.
Minimum rents to be received from tenants under operating leases in effect
at December 31, 1995 are approximately as follows:
<TABLE>
<CAPTION>
Year Amount
---- ------
<S> <C>
1996 $ 335,180
1997 355,440
1998 321,560
1999 258,950
2000 205,800
Thereafter -
-----------
$ 1,476,930
===========
</TABLE>
F-59
<PAGE> 372
Montgomery-Sears Shopping Center
Notes to the Statement of Gross Income and Direct Operating Expenses
December 31, 1995
4. Direct Operating Expenses
Direct operating expenses include only those costs expected to be
comparable to the proposed future operations of Montgomery-Sears. Costs
such as mortgage interest, depreciation, amortization, and professional
fees are excluded from the Statement.
Montgomery-Sears has not received its final real estate bill for 1995. The
difference between this estimate and the final bill is not expected to
have a material impact on the Statement of Gross Income and Direct
Operating Expenses.
Montgomery-Sears is managed by National Shopping Plazas, Inc. For the year
ended December 31, 1995, Montgomery-Sears paid approximately $15,000 for
management fees, as per the management agreement.
F-60
<PAGE> 373
Inland Monthly Income Fund III, Inc.
Pro Forma Balance Sheet
December 31, 1995
(unaudited)
The following unaudited Pro Forma Balance Sheet of the Company is presented to
effect (1) the acquisitions of Mundelein Plaza, the Regency Point Shopping
Center, Prospect Heights Plaza, Montgomery-Sears Shopping Center and the Zany
Brainy store and (2) the completion of the Company's Offering of 6,000,000
Shares that commenced on October 14, 1994 and the completion of the Company's
Offering of an additional 11,000,000 Shares, as though these transactions
occurred on December 31,1995. This unaudited Pro Forma Balance Sheet should be
read in conjunction with the December 31, 1995 Financial Statements and the
notes thereto as filed on Form 10-K.
This unaudited Pro Forma Balance Sheet is not necessarily indicative of what
the actual financial position would have been at December 31, 1995, nor does it
purport to represent the future financial position of the Company. Unless
otherwise defined, capitalized terms used herein shall have the same meaning as
in the Prospectus.
F-61
<PAGE> 374
Inland Monthly Income Fund III, Inc.
Pro Forma Balance Sheet
December 31, 1995
(unaudited)
<TABLE>
<CAPTION>
December 31,
December 31, Pro Forma Pro Forma 1995
1995 Adjustments Adjustments Pro Forma
Historical(A) (B) (C) Balance Sheet
------------ ----------- ----------- -------------
<S> <C> <C> <C> <C>
Assets
Net investment in
properties.................. $ 17,342,538 19,397,230 - 36,739,768
Cash and cash equivalents..... 738,931 - 117,121,706 117,860,637
Restricted cash............... 150,000 - - 150,000
Accounts and rents
receivable.................. 333,823 167,855 - 501,678
Other assets.................. 185,585 - - 185,585
------------- ---------- ----------- -----------
Total assets.................. $ 18,750,877 19,565,085 117,121,706 155,437,668
============ ========== =========== ===========
Liabilities and Stockholders' Equity
Accounts payable and accrued
expenses.................... $ 288,037 7,500 - 295,537
Accrued real estate taxes..... 374,180 202,049 - 576,229
Distributions payable (D)..... 129,532 - - 129,532
Security deposits............. 54,483 52,221 - 106,704
Mortgage payable.............. 750,727 4,473,200 - 5,223,927
Notes payable to Affiliate.... 360,000 - - 360,000
Other liabilities............. 178,852 - - 178,852
------------- ---------- ----------- -----------
Total liabilities............. 2,135,811 4,734,970 - 6,870,781
------------- ---------- ----------- -----------
Common Stock.................. 19,996 17,245 132,759 170,000
Additional paid in capital
(net of Offering costs)..... 16,835,183 14,812,870 116,988,947 148,637,000
Accumulated distributions in
excess of net income........ (240,113) - - (240,113)
------------- ---------- ----------- -----------
Total Stockholders' equity.... 16,615,066 14,830,115 117,121,706 148,566,887
------------- ---------- ----------- -----------
Total liabilities and
Stockholders' equity........ $ 18,750,877 19,565,085 117,121,706 155,437,668
============ ========== =========== ===========
</TABLE>
See accompanying notes to pro forma balance sheet.
F-62
<PAGE> 375
Inland Monthly Income Fund III, Inc.
Notes to Pro Forma Balance Sheet
December 31, 1995
(unaudited)
(A) The December 31, 1995 Historical column represents the historical balance
sheet as presented in the December 31, 1995 10-K as filed with the SEC and
includes the following properties acquired by the Company as of December
31, 1995.
Walgreens, Decatur, Illinois
On January 31, 1995, the Company acquired this property from Inland
Property Sales, Inc. ("IPS"), an Affiliate of the Advisor, for the total
purchase price of $1,209,053, including acquisition costs of $482, and the
assumption of the first mortgage loan with a balance of $750,727 at
December 31, 1995, which is secured by the property. This mortgage has an
interest rate of 7.655% and amortizes over a 25-year period. The Company
is responsible for monthly payments of principal and interest of $5,689.
Eagle Crest Shopping Center, Naperville, Illinois
On March 1, 1995, the Company acquired this property from IPS for the
purchase price of $4,816,970, including acquisition costs of $11,059, and
the assumption of the first mortgage loan of approximately $3,534,000,
which was secured by the property. The balance of the purchase price was
funded through a loan from IPS, totaling $1,212,427, with interest accruing
at 10.5%. On April 20, 1995, the Company paid off the first mortgage
secured by this property. The deferred portion of the purchase price,
totaling $1,212,427, was paid to IPS in May 1995 from Gross Offering
Proceeds. In addition, accrued interest of $22,009 was paid from Company
operations.
Montgomery-Goodyear Shopping Center, Montgomery, Illinois
On September 14, 1995, the Company acquired this property from an
unaffiliated third party for a purchase price of $1,145,992, including
closing costs of $5,992, a portion of which was evidenced by a promissory
note payable to Inland Mortgage Investment Corporation ("IMIC"), an
Affiliate of the Advisor, in the gross amount of $600,000. The remainder
of the purchase price net of prorations, of approximately $535,000 was
funded with proceeds of the Offering. The promissory note was paid in full
in October 1995, with interest at a rate of 10.9% per annum. The total
amount paid was $604,260, of which $600,000 was principal paid from Gross
Offering Proceeds and $4,260 was interest paid from Company operations.
F-63
<PAGE> 376
Inland Monthly Income Fund III, Inc.
Notes to Pro Forma Balance Sheet
(continued)
December 31, 1995
(unaudited)
Hartford Plaza, Naperville, Illinois
On September 14, 1995, the Company acquired this newly constructed property
from an unaffiliated third party for a purchase price of $4,414,015
including closing costs of $14,015, and deposited $150,000 in an escrow
account for leasehold improvements to the Blockbuster, Inc. space. A
portion of the purchase price was evidenced by a promissory note payable to
IMIC, in the gross amount of $600,000. The remainder of the purchase price
was funded with proceeds of the Offering. The promissory note was paid in
full in October 1995 with interest at a rate of 10.9% per annum. The total
amount paid was $605,102, of which $600,000 was principal paid from Gross
Offering Proceeds and $5,102 was interest paid from Company operations.
Nantucket Square Shopping Center, Schaumburg, Illinois
On September 20, 1995, the Company acquired this property from an
unaffiliated third party for a purchase price of $4,257,918, including
closing costs of $4,913, a portion of which was evidenced by a promissory
note payable to IMIC, in the gross amount of $3,550,000. The remainder of
the purchase price was funded with proceeds of the Offering. In addition,
as part of the purchase, the Company agreed to pay $51,135 for tenant
improvements for two tenants expanding their space, which was added to the
cost of the property. The promissory note was paid in full in December
1995 with interest at a rate of 10.5% per annum. The principal amount paid
was $3,550,000 from Gross Offering Proceeds and interest of $62,011 was
paid from Company operations.
Antioch Plaza, Antioch, Illinois
On December 28, 1995, the Company acquired Antioch Plaza from an
unaffiliated third party for a purchase price of $1,750,365, including
closing costs of $365, a portion of which was evidenced by a promissory
note payable to Inland Real Estate Investment Corporation, an affiliate of
the Advisor ("IREIC"), in the gross amount of $660,000. As of December 31,
1995, the unpaid balance of this note was $360,000. The note which bore
interest at a rate of 9.5% per annum was repaid in full on January 9, 1996
and the total amount paid was $661,163, of which $660,000 was principal
paid from Gross Offering Proceeds and $1,163 was interest paid from Company
operations. The remainder of the purchase price, net of prorations of
approximately $1,100,000 was funded with proceeds of the Offering.
F-64
<PAGE> 377
Inland Monthly Income Fund III, Inc.
Pro Forma Balance Sheet
December 31, 1995
(unaudited)
(B) The following pro forma adjustment relates to the acquisition or probable
acquisition of the subject properties as though they were acquired on
December 31, 1995. The terms are described in the notes that follow.
<TABLE>
<CAPTION>
Pro Forma Adjustments
------------------------------------------------------------------- Total
Mundelein Regency Prospect Montgomery- Zany Pro Forma
Plaza Point Heights Sears Brainy Adjustment
----------- --------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Assets
Net investment in
properties.................. $ 5,658,230 5,700,000 2,165,000 3,419,000 2,455,000 19,397,230
Cash and cash equivalents..... - - - - - -
Restricted cash............... - - - - - -
Accounts and rent
receivable.................. 84,375 16,867 38,771 27,842 - 167,855
Other assets.................. - - - - - -
----------- --------- --------- --------- --------- ----------
Total assets.................. $ 5,742,605 5,716,867 2,203,771 3,446,842 2,455,000 19,565,085
=========== ========= ========= ========= ========= ==========
<CAPTION>
Liabilities and Stockholders' Equity
<S> <C> <C> <C> <C> <C> <C>
Accounts payable and accrued
expenses.................... $ 7,500 - - - - 7,500
Accrued real estate taxes..... 89,010 16,867 63,517 32,655 - 202,049
Distributions payable (D)..... - - - - - -
Security deposits............. 15,000 28,621 8,600 - - 52,221
Mortgage payable.............. - 4,473,200 - - - 4,473,200
Notes payable to Affiliate.... - - - - - -
Other liabilities............. - - - - - -
----------- --------- --------- --------- --------- ----------
Total liabilities............. 111,510 4,518,688 72,117 32,655 - 4,734,970
----------- --------- --------- --------- --------- ----------
Common Stock.................. 6,548 1,393 2,479 3,970 2,855 17,245
Additional paid in capital
(net of Offering costs)..... 5,624,547 1,196,786 2,129,175 3,410,217 2,452,145 14,812,870
Accumulated distributions in
excess of net income........ - - - - - -
----------- --------- --------- --------- --------- ----------
Total Stockholders' equity.... 5,631,095 1,198,179 2,131,654 3,414,187 2,455,000 14,830,115
----------- --------- --------- --------- --------- ----------
Total liabilities and
Stockholders' equity........ $ 5,742,605 5,716,867 2,203,771 3,446,842 2,455,000 19,565,085
=========== ========= ========= ========= ========= ==========
</TABLE>
F-65
<PAGE> 378
Inland Monthly Income Fund III, Inc.
Notes to Pro Forma Balance Sheet
(continued)
December 31, 1995
(unaudited)
Acquisition of Mundelein Plaza, Mundelein, Illinois
On March 29, 1996, the Company acquired the Mundelein Plaza property
located in Mundelein, Illinois ("Mundelein Plaza") from an unaffiliated
third party for a purchase price of $5,658,230, including closing costs of
$8,230, on an all cash basis, funded from offering proceeds.
Acquisition of Regency Point Shopping Center, Lockport, Illinois
On April 5, 1996, the Company completed the acquisition of the Regency
Point Shopping Center located in Lockport, Illinois ("Regency Point"), from
an unaffiliated third party for a purchase price of $5,700,000. As part of
the acquisition, the Company will assume the existing first mortgage loan
of $4,473,200 along with a related interest rate swap agreement, with the
balance funded with Offering proceeds.
The first mortgage loan has a floating interest rate of 180 basis points
over the 30-day LIBOR rate, which rate is adjusted monthly. The interest
rate swap agreement, in conjunction with the first mortgage, provides for
Bank One, Chicago, to receive from or pay to the Company the difference
between 6.11% and the 30-day LIBOR rate, so that the first mortgage loan
has an effective rate of 7.91% per annum. The first mortgage loan matures
in August 2000. The related interest rate swap agreement was terminated on
April 18, 1996 resulting in $48,419 proceeds to the Company. No pro forma
adjustment has been made as a result of this termination.
Acquisition of Prospect Heights Plaza, Prospect Heights, Illinois
On June 17, 1996, the Company acquired Prospect Heights Plaza located in
Prospect Heights, Illinois ("Prospect Heights") from an unaffiliated third
party for the purchase price of $2,165,000 on an all cash basis, funded from
Offering proceeds.
Acquisition of Montgomery-Sears, Montgomery, Illinois
On June 17, 1996, the Company, through the Advisor, acquired
Montgomery-Sears Shopping Center located in Montgomery, Illinois
("Montgomery-Sears") from an unaffiliated third party for the purchase price
of $3,419,000 on an all cash basis, funded from Offering proceeds.
Acquisition of Zany Brainy, Wheaton, Illinois
On July 1, 1996, the Company acquired this property from an unaffiliated
third party for the purchase price of $2,455,000 on an all cash basis,
funded from Offering proceeds.
F-66
<PAGE> 379
Inland Monthly Income Fund III, Inc.
Notes to Pro Forma Balance Sheet
(continued)
December 31, 1995
(unaudited)
Additional Offering Proceeds
Additional Offering Proceeds of $17,244,320, net of additional Offering
costs of $2,414,205, are reflected as received as of December 31, 1995,
prior to the purchase of the properties. Offering costs consist
principally of registration costs, printing and selling costs, including
commissions.
(C) This pro forma adjustment reflects the completion of the Company's Offering
of 6,000,000 Shares that commenced on October 14, 1994, net of additional
Offering costs of $986,120, as though this occurred on December 31, 1995.
In addition, this pro forma adjustment reflects the completion of the
Company's Offering of an additional 11,000,000 Shares, net of Offering
costs of $12,771,500, as though this also occurred on December 31, 1995.
(D) No pro forma assumptions have been made for the additional payment of
distributions resulting from the additional proceeds raised.
F-67
<PAGE> 380
Inland Monthly Income Fund III, Inc.
Pro Forma Statement of Operations
For the year ended December 31, 1995
(unaudited)
The following unaudited Pro Forma Statement of Operations of the Company is
presented to effect the acquisitions of the Walgreens/Decatur property, Eagle
Crest Shopping Center, Montgomery-Goodyear property, Nantucket Square Shopping
Center, Mundelein Plaza, Regency Point Shopping Center, Prospect Heights Plaza
and Montgomery-Sears Shopping Center as of January 1, 1995. The remaining
three properties acquired or proposed to be acquired by the Company were
constructed in 1995 and acquired shortly after construction was completed.
Therefore, the unaudited Pro Forma Statement of Operations of the Company is
presented to effect the acquisition of Hartford/Naperville Plaza, Antioch Plaza
and the Zany Brainy store, as of August 17, 1995, September 1, 1995 and
November 22, 1995, respectively, the date occupancy commenced at these
properties. This unaudited Pro Forma Statement of Operations should be read in
conjunction with the December 31, 1995 Financial Statements and the notes
thereto as filed on Form 10-K.
This unaudited Pro Forma Statement of Operations is not necessarily indicative
of what the actual results of operations would have been for the year ended
December 31, 1995, nor does it purport to represent the future results of
operations of the Company. Unless otherwise defined, capitalized terms used
herein shall have the same meaning as in the Prospectus.
F-68
<PAGE> 381
Inland Monthly Income Fund III, Inc.
Pro Forma Statement of Operations
for the year ended December 31, 1995
(unaudited)
<TABLE>
<CAPTION>
Pro Forma Adjustments
1995 1995 1996
Historical Acquisitions Acquisitions 1995
(A) (B) (C) Pro Forma
---------- ------- --------- ---------
<S> <C> <C> <C> <C>
Rental
income.......... $ 869,485 585,614 1,700,614 3,155,713
Additional
Rental income... 228,024 162,536 327,350 717,910
Interest
income (D)...... 82,913 - - 82,913
---------- ------- --------- ---------
Total income.... 1,180,422 748,150 2,027,964 3,956,536
---------- ------- --------- ---------
Professional
services and
general and
administrative 23,132 - - 23,132
Property operating
expenses........ 326,721 275,218 501,485 1,103,424
Interest expense.. 164,161 429,997 351,900 946,058
Depreciation (E).. 169,894 111,767 425,255 706,916
---------- ------- --------- ---------
Total expenses.... 683,908 816,982 1,278,640 2,779,530
---------- ------- --------- ---------
Net income(loss) $ 496,514 (68,832) 749,324 1,177,006
========== ======= ========= =========
Weighted average
common stock shares
outstanding (F). 943,156 15,755,521
========== ==========
Net income per weighted
average common stock
outstanding (F). $ .53 .07
========== ==========
</TABLE>
See accompanying notes to pro forma statement of operations.
F-69
<PAGE> 382
Inland Monthly Income Fund III, Inc.
Notes to Pro Forma Statement of Operations
For the year ended December 31, 1995
(unaudited)
(A) The December 31, 1995 Historical column represents the historical statement
of operations of the Company for the year ended December 31, 1995, as filed
with the SEC on Form 10-K.
(B) Total pro forma adjustments for 1995 acquisitions as though they were
acquired the earlier of January 1, 1995 or date that operations commenced.
<TABLE>
<CAPTION>
Pro Forma Adjustments
----------------------------------------------------------------------------
Hartford Total
Montgomery- Naperville Nantucket Antioch 1995
Walgreens Eagle Crest Goodyear Plaza Square Plaza Pro Forma
--------- ----------- ---------- ---------- --------- ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Rental
income.......... 10,651 95,232 101,359 15,077 340,545 22,750 585,614
Additional
Rental income... - 2,218 19,203 662 140,453 - 162,536
Interest
income (D)...... - - - - - - -
------ ------- ------- ------ ------- ------ -------
Total income.... 10,651 97,450 120,562 15,739 480,998 22,750 748,150
------ ------- ------- ------ ------- ------ -------
Professional
services and
general and
administrative - - - - - - -
Property operating
expenses........ 533 17,376 47,758 3,436 205,903 212 275,218
Interest expense.. 4,840 77,170 46,325 13,625 267,137 20,900 429,997
Depreciation (E).. 3,141 16,324 20,682 8,867 57,357 5,396 111,767
------ ------- ------- ------ ------- ------ -------
Total expenses.... 8,514 110,870 114,765 25,928 530,397 26,508 816,982
------ ------- ------- ------ ------- ------ -------
Net income(loss) 2,137 (13,420) 5,797 (10,189) (49,399) (3,758) (68,832)
====== ======= ======= ====== ======= ====== =======
</TABLE>
F-70
<PAGE> 383
Inland Monthly Income Fund III, Inc.
Notes to Pro Forma Statement of Operations
(continued)
For the year ended December 31, 1995
(unaudited)
Acquisition of Walgreens/Decatur, Decatur, Illinois
In conjunction with the acquisition, the Company assumed a portion of the
first mortgage loan with a balance of $775,000. This mortgage has an
interest rate of 7.655%, amortizes over a 25-year period and matures May
31, 2004. The Company is responsible for monthly payments of principal
and interest of $5,689. The pro forma adjustment for interest expense for
the period prior to acquisition was estimated using the described loan
terms.
Acquisition of Eagle Crest Shopping Center, Naperville, Illinois
As part of the acquisition, the Company assumed a portion of the first
mortgage loan with a balance of $3,534,000, as well as entering into a
loan agreement with Inland Property Sales, Inc. ("IPS"), an Affiliate of
the Advisor, for the balance of the purchase price for $1,212,427. The
first mortgage bears interest at 9.5% per annum and the loan to IPS bears
interest at 10.5%. The pro forma adjustment for interest expense for the
period prior to acquisition was estimated using the described loan terms.
Acquisition of Montgomery-Goodyear, Montgomery, Illinois
As part of the acquisition, the Company entered into a loan agreement with
Inland Mortgage Investment Corporation ("IMIC"), an affiliate of the
Advisor, for $600,000 which bears interest of 10.9% per annum. The pro
forma adjustment for interest expense for the period prior to acquisition
was estimated using the described loan terms.
Acquisition of Hartford/Naperville Plaza, Naperville, Illinois
In conjunction with the acquisition, the Company entered into a loan
agreement with IMIC for $600,000 which bears interest of 10.9% per annum.
The pro forma adjustment for interest expense was estimated using the
described loan terms.
Acquisition of Nantucket Square Shopping Center, Schaumburg, Illinois
As part of the acquisition, the Company entered into a loan agreement with
IMIC for $3,550,000 which bears interest of 10.5% per annum. The pro
forma adjustment for interest expense for the period prior to acquisition
was estimated using the described loan terms.
F-71
<PAGE> 384
Inland Monthly Income Fund III, Inc.
Notes to Pro Forma Statement of Operations
(continued)
For the year ended December 31, 1995
(unaudited)
Acquisition of Antioch Plaza, Antioch, Illinois
This pro forma adjustment reflects the purchase of the Antioch Plaza
property as if the Company had purchased the property as of September 1,
1995, the date the first tenant occupied this newly constructed property.
The pro forma adjustment for operations for the period September 1, 1995
to December 28, 1995 (date of acquisition) was estimated using applicable
lease information. Blockbuster Video was the only tenant occupying the
property during that period. No pro forma adjustment was made for real
estate tax expense and the related recovery income since the property was
vacant land for most of 1995 and the amount would be difficult to estimate
and have an immaterial effect.
As part of the acquisition, the Company entered into a loan agreement with
Inland Real Estate Investment Corporation, an affiliate of the Advisor,
for $660,000 which bears interest of 9.5% per annum. The pro forma
adjustment for interest expense was estimated using the described loan
terms.
F-72
<PAGE> 385
Inland Monthly Income Fund III, Inc.
Notes to Pro Forma Statement of Operations
(continued)
for the year ended December 31, 1995
(unaudited)
(C) Total pro forma adjustments for 1996 Acquisitions as though they were
acquired the earlier of January 1, 1995 or date that operations commenced.
<TABLE>
<CAPTION>
Pro Forma Adjustments
------------------------------------------------------------
Total
Mundelein Regency Prospect Montgomery- Zany 1995
Plaza Point Heights Sears Brainy Pro Forma
--------- ------- ------- ------- ------ ---------
<S> <C> <C> <C> <C> <C> <C>
Rental
income.......... 639,124 541,085 164,152 327,610 28,643 1,700,614
Additional
Rental income... 66,669 63,294 116,175 76,182 5,030 327,350
Interest
income (D)...... - - - - - -
------- ------- ------- ------- ------ ---------
Total income.... 705,793 604,379 280,327 403,792 33,673 2,027,964
------- ------- ------- ------- ------ ---------
Professional
services and
general and
administrative - - - - - -
Property operating
expenses........ 141,482 71,615 180,819 102,067 5,502 501,485
Interest expense.. - 351,900 - - - 351,900
Depreciation (E).. 128,233 162,500 46,900 83,200 4,422 425,255
------- ------- ------- ------- ------ ---------
Total expenses.... 269,715 586,015 227,719 185,267 9,924 1,278,640
------- ------- ------- ------- ------ ---------
Net income...... 436,078 18,364 52,608 218,525 23,749 749,324
======= ======= ======= ======= ====== =========
</TABLE>
F-73
<PAGE> 386
Inland Monthly Income Fund III, Inc.
Notes to Pro Forma Statement of Operations
(continued)
For the year ended December 31, 1995
(unaudited)
Acquisition of Mundelein Plaza, Mundelein, Illinois
Reconciliation of Gross Income and Direct Operating Expenses for the year
ended December 31, 1995 prepared in accordance with Rule 3.14 of
Regulation S-X (*) to the Pro Forma Adjustments:
<TABLE>
<CAPTION>
Mundelein Plaza
----------------------------------
*As Pro Forma
Reported Adjustments Total
---------- ----------- -------
<S> <C> <C> <C>
Rental income....... $ 639,124 - 639,124
Additional rental
income............ 66,669 - 66,669
Interest income..... - - -
---------- ------- -------
Total income........ 705,793 - 705,793
---------- ------- -------
Professional services
and general and
administrative.... - - -
Property operating
expenses.......... 141,482 - 141,482
Interest expense.... - - -
Depreciation (E).... - 128,233 128,233
---------- ------- -------
Total expenses...... 141,482 128,233 269,715
---------- ------- -------
Net income.......... $ 564,311 (128,233) 436,078
========== ======= =======
</TABLE>
F-74
<PAGE> 387
Inland Monthly Income Fund III, Inc.
Notes to Pro Forma Statement of Operations
(continued)
For the year ended December 31, 1995
(unaudited)
Acquisition of Regency Point, Lockport, Illinois
As part of the acquisition, the Company will assume the existing first
mortgage loan of $4,473,200, along with a related interest rate swap
agreement.
The first mortgage loan has a floating interest rate of 180 basis points
over the 30-day LIBOR rate, which rate is adjusted monthly. The interest
rate swap agreement, in conjunction with the first mortgage, provides for
Bank One, Chicago, to receive from or pay to the Company the difference
between 6.11% and the 30-day LIBOR rate, so that the first mortgage loan
has an effective rate of 7.91% per annum. The pro forma adjustment for
interest expense for 1995 was estimated using the described loan terms.
The related interest rate swap agreement was terminated on April 18, 1996
resulting in $48,419 proceeds to the Company. The pro forma adjustment
does not give effect to the termination of this agreement.
Reconciliation of Gross Income and Direct Operating Expenses for the year
ended December 31, 1995 prepared in accordance with Rule 3.14 of
Regulation S-X (*) to the Pro Forma Adjustments:
<TABLE>
<CAPTION>
Regency Point
----------------------------------
*As Pro Forma
Reported Adjustments Total
---------- ------- -------
<S> <C> <C> <C>
Rental income....... $ 541,085 - 541,085
Additional rental
income............ 63,294 - 63,294
Interest income..... - - -
---------- ------- -------
Total income........ 604,379 - 604,379
---------- ------- -------
Professional services
and general and
administrative.... - - -
Property operating
expenses.......... 71,615 - 71,615
Interest expense.... - 351,900 351,900
Depreciation (E).... - 162,500 162,500
---------- ------- -------
Total expenses...... 71,615 514,400 586,015
---------- ------- -------
Net income.......... $ 532,764 (514,400) 18,364
========== ======= =======
</TABLE>
F-75
<PAGE> 388
Inland Monthly Income Fund III, Inc.
Notes to Pro Forma Statement of Operations
(continued)
For the year ended December 31, 1995
(unaudited)
Acquisition of Prospect Heights Plaza, Prospect Heights, Illinois
Reconciliation of Gross Income and Direct Operating Expenses for the year
ended December 31, 1995 prepared in accordance with Rule 3.14 of
Regulation S-X (*) to the Pro Forma Adjustments:
<TABLE>
<CAPTION>
Prospect Heights
--------------------------------
*As Pro Forma
Reported Adjustments Total
-------- ----------- -------
<S> <C> <C> <C>
Rental income....... $ 164,152 - 164,152
Additional rental
income............ 116,175 - 116,175
Interest income..... - - -
---------- ------ -------
Total income........ 280,327 - 280,327
---------- ------ -------
Professional services
and general and
administrative.... - - -
Property operating
expenses.......... 180,819 - 180,819
Interest expense.... - - -
Depreciation (E).... - 46,900 46,900
---------- ------ -------
Total expenses...... 180,819 46,900 227,719
---------- ------ -------
Net income.......... $ 99,508 (46,900) 52,608
========== ====== ========
</TABLE>
F-76
<PAGE> 389
Inland Monthly Income Fund III, Inc.
Notes to Pro Forma Statement of Operations
(continued)
For the year ended December 31, 1995
(unaudited)
Acquisition of Montgomery-Sears, Montgomery, Illinois
Reconciliation of Gross Income and Direct Operating Expenses for the year
ended December 31, 1995 prepared in accordance with Rule 3.14 of
Regulation S-X (*) to the Pro Forma Adjustments:
<TABLE>
<CAPTION>
Montgomery-Sears
----------------------------------
*As Pro Forma
Reported Adjustments Total
---------- ----------- -------
<S> <C> <C> <C>
Rental income....... $ 327,610 - 327,610
Additional rental
income............ 76,182 - 76,182
Interest income..... - - -
---------- ------ -------
Total income........ 403,792 - 403,792
---------- ------ -------
Professional services
and general and
administrative.... - - -
Property operating
expenses.......... 102,067 - 102,067
Interest expense.... - - -
Depreciation (E).... - 83,200 83,200
---------- ------ -------
Total expenses...... 102,067 83,200 185,267
---------- ------ -------
Net income.......... $ 301,725 (83,200) 218,525
========== ====== =======
</TABLE>
Acquisition of Zany Brainy, Wheaton, Illinois
This pro forma adjustment reflects the purchase of Zany Brainy as if the
Company had purchased the property as of January 1, 1995. Operations for
this property for the period from November 22, 1995 (date of occupancy) to
December 31, 1995 were estimated using the lease and operating expense
information supplied by the seller. This property was purchased on an
all cash basis.
(D) No pro forma adjustment has been made relating to interest income which
would have been earned on the additional Offering Proceeds raised.
(E) Depreciation expense is computed using the straight-line method, based
upon an estimated useful life of thirty years.
(F) The pro forma weighted average common stock shares for the year ended
December 31, 1995 was calculated by adding to the historical weighted
average number of shares at December 31, 1995, the number of shares to
complete the Company's Offerings of 17,000,000 Shares.
F-77
<PAGE> 390
Inland Monthly Income Fund III, Inc.
Pro Forma Balance Sheet
March 31, 1996
(unaudited)
The following unaudited Pro Forma Balance Sheet of the Company is presented to
effect (1) the acquisition of the Regency Point Shopping Center, Prospect
Heights Plaza, Montgomery-Sears Shopping Center and the Zany Brainy store and
(2) the completion of the Company's Offering of 6,000,000 shares that commenced
on October 14, 1994 and the completion of the Company's Offering of an
additional 11,000,000 Shares, as though these transactions occurred on March
31, 1996. This unaudited Pro Forma Balance Sheet should be read in conjunction
with the March 31, 1996 Financial Statements and the notes thereto as filed on
Form 10-Q.
This unaudited Pro Forma Balance Sheet is not necessarily indicative of what
the actual financial position would have been at March 31, 1996, nor does it
purport to represent the future financial position of the Company. Unless
otherwise defined, capitalized terms used herein shall have the same meaning as
in the Prospectus.
F-78
<PAGE> 391
Inland Monthly Income Fund III, Inc.
Pro Forma Balance Sheet
March 31, 1996
(unaudited)
<TABLE>
<CAPTION>
March 31,
March 31, Pro Forma Pro Forma 1996
1996 Adjustments Adjustments Pro Forma
Historical(A) (B) (C) Balance Sheet
------------ ---------- ----------- --------------
<S> <C> <C> <C> <C>
Assets
Net investment in
properties.................. $ 22,950,129 13,739,000 - 36,689,129
Cash and cash equivalents..... 2,937,473 - 114,647,690 117,585,163
Accounts and rents
receivable.................. 492,081 155,731 - 647,812
Other assets.................. 48,398 - - 48,398
------------ ---------- ----------- -----------
Total assets.................. $ 26,428,081 13,894,731 114,647,690 154,970,502
============ ========== =========== ===========
Liabilities and Stockholders' Equity
Accounts payable and accrued
expenses.................... $ 418,393 - - 418,393
Accrued real estate taxes..... 463,751 207,738 - 671,489
Distributions payable (D).... 183,457 - - 183,457
Security deposits............. 71,133 37,221 - 108,354
Mortgage payable.............. 748,011 4,473,200 - 5,221,211
Other liabilities............. 42,120 - - 42,120
------------ ---------- ----------- -----------
Total liabilities............. 1,926,865 4,718,159 - 6,645,024
------------ ---------- ----------- -----------
Common Stock ................. 29,103 10,671 130,226 170,000
Additional paid in capital
(net of Offering costs)..... 24,953,635 9,165,901 114,517,464 148,637,000
Accumulated distributions in
excess of net income........ (481,522) - - (481,522)
------------ ---------- ----------- -----------
Total Stockholders' equity.... 24,501,216 9,176,572 114,647,690 148,325,478
------------ ---------- ----------- -----------
Total liabilities and
Stockholders' equity........ $ 26,428,081 13,894,731 114,647,690 154,970,502
============ ========== =========== ===========
</TABLE>
See accompanying notes to pro forma balance sheet.
F-79
<PAGE> 392
Inland Monthly Income Fund III, Inc.
Notes to Pro Forma Balance Sheet
March 31, 1996
(unaudited)
(A) The March 31, 1996 Historical column represents the historical balance
sheet as presented in the March 31, 1996 10-Q as filed with the SEC and
includes the following properties acquired by the Company as of March 31,
1996.
Walgreens, Decatur, Illinois
On January 31, 1995, the Company acquired this property from Inland
Property Sales, Inc. ("IPS"), an Affiliate of the Advisor, for the total
purchase price of $1,209,053, including acquisition costs of $482, and the
assumption of the first mortgage loan with a balance of $748,011 at March
31, 1996, which is secured by the property. This mortgage has an interest
rate of 7.655% and amortizes over a 25-year period. The Company is
responsible for monthly payments of principal and interest of $5,689.
Eagle Crest Shopping Center, Naperville, Illinois
On March 1, 1995, the Company acquired this property from IPS for the
purchase price of $4,816,970, including acquisition costs of $11,059, and
the assumption of the first mortgage loan of approximately $3,534,000,
which was secured by the property. The balance of the purchase price was
funded through a loan from IPS, totaling $1,212,427, with interest accruing
at 10.5%. On April 20, 1995, the Company paid off the first mortgage
secured by this property. The deferred portion of the purchase price,
totaling $1,212,427, was paid to IPS in May 1995 from Gross Offering
Proceeds. In addition, accrued interest of $22,009 was paid from Company
operations.
Montgomery-Goodyear Shopping Center, Montgomery, Illinois
On September 14, 1995, the Company acquired this property from an
unaffiliated third party for a purchase price of $1,145,992, including
closing costs of $5,992, a portion of which was evidenced by a promissory
note payable to Inland Mortgage Investment Corporation ("IMIC"), an
Affiliate of the Advisor, in the gross amount of $600,000. The remainder
of the purchase price net of prorations, of approximately $535,000 was
funded with proceeds of the Offering. The promissory note was paid in full
in October 1995, with interest at a rate of 10.9% per annum. The total
amount paid was $604,260, of which $600,000 was principal paid from Gross
Offering Proceeds and $4,260 was interest paid from Company operations.
F-80
<PAGE> 393
Inland Monthly Income Fund III, Inc.
Notes to Pro Forma Balance Sheet
(continued)
March 31, 1996
(unaudited)
Hartford Plaza, Naperville, Illinois
On September 14, 1995, the Company acquired this newly constructed property
from an unaffiliated third party for a purchase price of $4,414,015
including closing costs of $14,015, and deposited $150,000 in an escrow
account for leasehold improvements to the Blockbuster, Inc. space. The
leasehold improvements were completed in January, 1996 and were added to
the cost of the property. A portion of the purchase price was evidenced by
a promissory note payable to IMIC, in the gross amount of $600,000. The
remainder of the purchase price was funded with proceeds of the Offering.
The promissory note was paid in full in October 1995 with interest at a
rate of 10.9% per annum. The total amount paid was $605,102, of which
$600,000 was principal paid from Gross Offering Proceeds and $5,102 was
interest paid from Company operations.
Nantucket Square Shopping Center, Schaumburg, Illinois
On September 20, 1995, the Company acquired this property from an
unaffiliated third party for a purchase price of $4,257,918, including
closing costs of $4,913, a portion of which was evidenced by a promissory
note payable to IMIC, in the gross amount of $3,550,000. The remainder of
the purchase price was funded with proceeds of the Offering. In addition,
as part of the purchase, the Company agreed to pay $51,135 for tenant
improvements for two tenants expanding their space, which was added to the
cost of the property. The promissory note was paid in full in December
1995 with interest at a rate of 10.5% per annum. The principal amount paid
was $3,550,000 from Gross Offering Proceeds and interest of $62,011 was
paid from Company operations.
Antioch Plaza, Antioch, Illinois
On December 28, 1995, the Company acquired Antioch Plaza from an
unaffiliated third party for a purchase price of $1,750,365, including
closing costs of $365, a portion of which was evidenced by a promissory
note payable to Inland Real Estate Investment Corporation, an affiliate of
the Advisor ("IREIC"), in the gross amount of $660,000. The note which
bore interest at a rate of 9.5% per annum was repaid in full on January 9,
1996 and the total amount paid was $661,163, of which $660,000 was
principal paid from Gross Offering Proceeds and $1,163 was interest paid
from Company operations. The remainder of the purchase price, net of
prorations of approximately $1,100,000 was funded with proceeds of the
Offering.
Mundelein Plaza, Mundelein, Illinois
On March 29, 1996, the Company acquired the Mundelein Plaza property
("Mundelein Plaza") from an unaffiliated third party for a purchase price
of $5,658,230, including closing costs of $8,230, on an all cash basis,
funded from offering proceeds.
F-81
<PAGE> 394
Inland Monthly Income Fund III, Inc.
Notes to Pro Forma Balance Sheet
(continued)
March 31, 1996
(unaudited)
(B) The following pro forma adjustment relates to the acquisition or probable
acquisition of the subject properties as though they were acquired on March
31, 1996. The terms are described in the notes that follow.
<TABLE>
<CAPTION>
Pro Forma Adjustments
---------------------------------------------- Total
Regency Prospect Montgomery- Zany Pro Forma
Point Heights Sears Brainy Adjustments
---------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C>
Assets
Net investment in
properties...... $5,700,000 2,165,000 3,419,000 2,455,000 13,739,000
Cash and cash
equivalents..... - - - - -
Accounts and rents
receivable...... 21,072 80,632 54,027 - 155,731
Other assets...... - - - - -
---------- --------- --------- --------- ----------
Total assets...... $5,721,072 2,245,632 3,473,027 2,455,000 13,894,731
========== ========= ========= ========= ==========
<Captio>
Liabilities and Stockholders' Equity
<S> <C> <C> <C> <C> <C>
Accounts payable
and accrued
expenses........ $ - - - - -
Accrued real estate
taxes........... 21,072 123,284 63,382 - 207,738
Distributions
payable(D)...... - - - - -
Security Deposits. 28,621 8,600 - - 37,221
Mortgage payable.. 4,473,200 4,473,200
Other liabilities. - - - - -
---------- --------- --------- --------- ----------
Total liabilities. 4,522,893 131,884 63,382 - 4,718,159
---------- --------- --------- --------- ----------
Common Stock...... $ 1,393 2,458 3,965 2,855 10,671
Additional paid in
capital (net of
Offering
Costs).......... 1,196,786 2,111,290 3,405,680 2,452,145 9,165,901
Accumulated
distributions in
excess of net
income.......... - - - - -
---------- --------- --------- --------- ----------
Total Stockholders'
equity.......... 1,198,179 2,113,748 3,409,645 2,455,000 9,176,572
---------- --------- --------- --------- ----------
Total liabilities
and Stockholders'
equity.......... $5,721,072 2,245,632 3,473,027 2,455,000 13,894,731
========== ========= ========= ========= ==========
</TABLE>
F-82
<PAGE> 395
Inland Monthly Income Fund III, Inc.
Notes to Pro Forma Balance Sheet
(continued)
March 31, 1996
(unaudited)
Acquisition of Regency Point, Lockport, Illinois
On April 5, 1996, the Company completed the acquisition of the Regency
Point from an unaffiliated third party for a purchase price of $5,700,000.
As part of the acquisition, the Company assumed the existing first mortgage
loan of $4,473,200 along with a related interest rate swap agreement, with
the balance funded with Offering Proceeds.
The first mortgage loan has a floating interest rate of 180 basis points
over the 30-day LIBOR rate, which rate is adjusted monthly. The interest
rate swap agreement, in conjunction with the first mortgage, provides for
Bank One, Chicago, to receive from or pay to the Company the difference
between 6.11% and the 30-day LIBOR rate, so that the first mortgage loan
has an effective rate of 7.91% per annum. The first mortgage loan matures
in August 2000. The interest rate swap agreement was terminated on April
18, 1996 resulting in $48,419 proceeds to the Company. No pro forma
adjustment has been made as a result of this termination.
Acquisition of Prospect Heights Plaza, Prospect Heights, Illinois
On June 17, 1996, the Company acquired Prospect Heights located in Prospect
Heights, Illinois ("Prospect Heights") from an unaffiliated third party for
the purchase price of $2,165,000 on an all cash basis, funded from Offering
proceeds.
Acquisition of Montgomery-Sears, Montgomery, Illinois
On June 17, 1996, the Company acquired Montgomery-Sears Shopping Center
located in Montgomery, Illinois ("Montgomery-Sears") from an unaffiliated
third party for the purchase price of $3,419,000 on an all cash basis,
funded from Offering proceeds.
Acquisition of the Zany Brainy Store, Wheaton, Illinois
On July 1, 1996, the Company acquired this property from an unaffiliated
third party for the purchase price of $2,455,000 on an all cash basis, from
Offering proceeds.
Additional Offering Proceeds
Additional Offering Proceeds of $10,670,432, net of additional Offering
costs of $1,493,860 are reflected as received as of March 31, 1996, prior
to the purchase of the properties. Offering costs consist principally of
registration costs, printing and selling costs, including commissions.
(C) This pro forma adjustment reflects the completion of the Company's Offering
of 6,000,000 Shares that commenced on October 14, 1994, net of additional
Offering costs of $949,432, as though this occurred on of March 31, 1996.
In addition, this pro forma adjustment reflects the completion of the
Company's Offering and sale of an additional 11,000,000 Shares, net of
Offering costs of $12,771,500, as though this also occurred on March 31,
1996.
(D) No pro forma assumptions have been made for the additional payment of
distributions resulting from the additional proceeds raised.
F-83
<PAGE> 396
Inland Monthly Income Fund III, Inc.
Pro Forma Statement of Operations
For the three months ended March 31, 1996
(unaudited)
The following unaudited Pro Forma Statement of Operations of the Company is
presented to effect the acquisitions of Mundelein Plaza, Regency Point Shopping
Center, Prospect Heights Plaza, Montgomery-Sears Shopping Center and the Zany
Brainy store as of January 1, 1996. This unaudited Pro Forma Statement of
Operations should be read in conjunction with the March 31, 1996 Financial
Statements and the notes thereto as filed on Form 10-Q.
This unaudited Pro Forma Statement of Operations is not necessarily indicative
of what the actual results of operations would have been for the three months
ended March 31, 1996, nor does it purport to represent the future financial
position of the Company. Unless otherwise defined, capitalized terms used
herein shall have the same meaning as in the Prospectus.
F-84
<PAGE> 397
Inland Monthly Income Fund III, Inc.
Pro Forma Statement of Operations
for the three months ended March 31, 1996
(unaudited)
<TABLE>
<CAPTION>
1996 Total
Historical Pro Forma 1996
(A) Adjustments(B) Pro Forma
---------- ------------- ---------
<S> <C> <C> <C>
Rental income............... $ 475,038 505,299 980,337
Additional rental income.... 242,290 120,227 362,517
Interest income (C)......... 43,751 - 43,751
---------- ------- -------
Total income.............. 761,079 625,526 1,386,605
---------- ------- -------
Professional services and
general and
administrative fees....... 38,168 - 38,168
Advisor asset management
fee....................... 48,540 34,348 82,888
Property operating expenses. 310,613 166,660 477,273
Interest expense............ 15,043 88,455 103,498
Depreciation (D)............ 103,091 117,108 220,199
Amortization................ 1,373 - 1,373
Acquisition costs expensed.. 8,985 - 8,985
---------- ------- -------
Total expenses.............. 525,813 406,571 932,384
---------- ------- -------
Net income................ $ 235,266 218,955 454,221
========== ======= =======
Weighted average
common stock shares
outstanding (E)........... 2,394,092 16,297,997
========== ==========
Net income per weighted
average common stock
outstanding (E)........... $ .12 .03
========== ==========
</TABLE>
See accompanying notes to pro forma statement of operations.
F-85
<PAGE> 398
Inland Monthly Income Fund III, Inc.
Notes to Pro Forma Statement of Operations
For the three months ended March 31, 1996
(unaudited)
(A) The March 31, 1996 Historical column represents the historical statement of
operations of the Company for the three months ended March 31, 1996, as
filed with the SEC on Form 10-Q.
(B) Total pro forma adjustments as though the acquisitions of the following
properties occurred on January 1, 1996 on an all cash basis except for
Regency Point where the Company assumed the existing first mortgage loan of
$4,473,200, along with a related interest rate swap agreement.
The first mortgage loan has a floating interest rate of 180 basis points
over the 30-day LIBOR rate, which rate is adjusted monthly. The interest
rate swap agreement, in conjunction with the first mortgage, provides for
Bank One, Chicago, to receive from or pay to the Company the difference
between 6.11% and the 30-day LIBOR rate, so that the first mortgage loan
has an effective rate of 7.91% per annum. The pro forma adjustment for
interest expense for 1996 was estimated using the described loan terms.
The related interest rate swap agreement was terminated on April 18, 1996
resulting in $48,419 proceeds to the Company. The pro forma adjustment
does not give effect to the termination of this agreement.
<TABLE>
<CAPTION>
Mundelein Regency Prospect Montgomery- Zany Pro Forma
Plaza Point Heights Sears Brainy Adjustments Total
---------- ------- ------- ------- ------ ----------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Rental income..... $ 163,381 139,271 44,552 89,350 68,745 - 505,299
Additional rental
income.......... 32,975 16,034 33,410 25,736 12,072 - 120,227
Interest income... - - - - - - -
---------- ------- ------ ------- ------ ------- -------
Total income...... 196,356 155,305 77,962 115,086 80,817 - 625,526
---------- ------- ------ ------- ------ ------- -------
Professional services
and general and
administrative.. - - - - - - -
Advisor asset
management fee.. - - - - - 34,348 34,348
Property operating
expenses........ 53,986 19,046 44,325 33,348 15,955 - 166,660
Interest expense.. - - - - - 88,455 88,455
Depreciation (D).. - - - - - 117,108 117,108
---------- ------- ------ ------- ------ ------- -------
Total expenses.... 53,986 19,046 44,325 33,348 15,955 239,911 406,571
---------- ------- ------ ------- ------ ------- -------
Net income........ $ 142,370 136,259 33,637 81,738 64,862 (239,911) 218,955
========== ======= ====== ====== ====== ======= =======
</TABLE>
F-86
<PAGE> 399
Inland Monthly Income Fund III, Inc.
Notes to Pro Forma Statement of Operations
For the three months ended March 31, 1996
(unaudited)
(C) No pro forma adjustment has been made relating to interest income which
would have been earned on the additional Offering Proceeds raised.
(D) Depreciation expense is computed using the straight-line method, based upon
an estimated useful life of thirty years.
(E) The pro forma weighted average common stock shares for the three months
ended March 31, 1996 was calculated by adding to the historical weighted
average number of shares at March 31, 1996, the number of shares to
complete the Company's Offerings of 17,000,000 Shares.
F-87
<PAGE> 400
EXHIBIT A
PRIOR PERFORMANCE TABLES
The prior performance tables contain information concerning public real
estate limited partnerships sponsored by Affiliates of the Advisor. This
information has been summarized, in part, in narrative form under "Prior
Performance of the Company's Affiliates." The purpose of the tables is to
provide information on the performance of those partnerships in evaluating the
experience of the Affiliates of the Advisor as sponsors of such programs.
However, the inclusion of these tables does not imply that the Company will
make investments comparable to those reflected in the tables or that investors
in the Company will experience returns comparable to those experienced in the
programs referred to in these tables. Persons who purchase Shares in the
Company will not thereby acquire any ownership in any of the partnerships to
which these tables relate. The tables consist of:
Table I Experience in Raising and Investing Funds
Table II Compensation to IREIC and Affiliates
Table III Operating Results of Prior Programs
Table IV Results of Completed Programs
Table V Sales or Disposals of Properties
Table VI Acquisition of Properties by Programs*
* Prospective investors in the Company may obtain copies of Table VI by
contacting the Advisor.
Except with respect to Inland Land Appreciation Fund, L.P., Inland Land
Appreciation Fund II, L.P., and Inland Capital Fund, L.P. the partnerships
presented in the tables are public real estate limited partnerships formed
primarily to acquire, operate and sell existing residential and commercial real
properties. Generally, the investment objectives of those partnerships were as
follows:
(1) Capital appreciation; and
(2) Cash distributions for limited partners.
In addition, with respect to private limited partnerships, an objective
was the generation of tax loss deductions which generally will be used to
offset taxable income from other sources.
The Company's investment objectives are to: (i) provide regular
Distributions to Stockholders in amounts which may exceed the Company's taxable
income due to the non-cash nature of depreciation expense and, to such extent,
will constitute a tax-deferred return of capital, but in no event less than 95%
of the Company's taxable income, pursuant to the REIT qualification
requirements; (ii) provide a hedge against inflation by entering into leases
which contain clauses for scheduled rent escalations or participation in the
growth of tenant sales, permitting the Company to increase Distributions and
provide capital appreciation; and (iii) preserve Stockholders' capital.
A-1
<PAGE> 401
TABLE I
EXPERIENCE IN RAISING AND INVESTING FUNDS
Table I presents information on a dollar and percentage basis showing the
experience of Inland Real Estate Investment Corporation (IREIC), of which the
Advisor is a wholly owned subsidiary, in raising and investing funds in prior
partnerships where the offering closed in the three years prior to December 31,
1995. The Table particularly focuses upon the dollar amount available for
investment in properties expressed as a percentage of total dollars raised.
Since 1986, Inland Real Estate Investment Corporation has organized and
completed the offerings of four public partnerships which have primarily
invested in existing residential real property and three public partnerships
which have invested in undeveloped land.
A-2
<PAGE> 402
TABLE I(CONTINUED)
EXPERIENCE IN RAISING AND INVESTING FUNDS (A)
(000'S OMITTED)
<TABLE>
<CAPTION>
Inland Capital
Fund, L.P.
-------------------
<S> <C> <C>
Dollar amount offered .................................... $60,000
Dollar amount raised ..................................... 32,399 100.00%
Less offering expenses:
Selling Commissions:
Affiliated parties ...................................... 3,239 10.00
Unaffiliated parties .................................... 0 0.00
Organizational expenses .................................. 15 0.05
Other offering expenses (B) .............................. 1,227 3.79
Reserves (C) ............................................. 1,972 6.08
------- --------
Available for investment ................................. $25,946 80.08%
------- --------
Acquisition costs:
Cash down payments (D) ................................... $24,286 74.96%
Acquisition fees ......................................... 1,444 4.46
Other cash expenditures capitalized (E) .................. 821 2.53
------- --------
Acquisition costs related to the purchase of properties .. $26,551 81.95%
------- --------
Percent leverage ......................................... 0.00%
Date offering began ...................................... 12-13-91
Length of offering (in months) ........................... 20
Months to invest 90% of amount available for
investment (measured from beginning of offering) ......... 36
</TABLE>
A-3
<PAGE> 403
TABLE I-(CONTINUED)
EXPERIENCE IN RAISING AND INVESTING FUNDS
(000'S OMITTED)
NOTES TO TABLE I
(A) The figures in this table are cumulative and are as of December 31,
1995. The dollar amount raised represents the cash proceeds collected by the
partnerships. The Table reflects payments made from investor capital
contributions upon receipt.
(B) Consists of legal, accounting, printing and other offering expenses,
including amounts to be paid to Inland Securities Corporation to be used as
incentive compensation to its regional marketing representatives and amounts
for reimbursement of the IREIC for marketing, salaries and direct expenses of
its employees while directly engaged in registering and marketing the Units and
other marketing and organization expenses.
(C) Includes 1% of the offering proceeds committed to the Unit Repurchase
Program of each partnership. Partnership expenses, including operating expenses
during the offering period or thereafter not related to the offering, may be
paid from these reserves.
(D) Cash down payments include amounts paid and mortgage financing at
closing.
(E) Consists of acquisition expenses and improvements to the property
subsequent to acquisition which are capitalized and paid or to be paid from the
proceeds of the offering.
A-4
<PAGE> 404
TABLE II
COMPENSATION TO IREIC AND AFFILIATES(A)
Table II summarizes the amount and type of compensation paid to IREIC in
connection with prior partnerships.
Some partnerships acquired their properties from Affiliates of the Advisor
which had purchased such properties from unaffiliated third parties.
A-5
<PAGE> 405
TABLE II
COMPENSATION TO IREIC AND AFFILIATES(A)
(000'S OMITTED)
<TABLE>
<CAPTION>
Other
Public
Inland Programs
Capital ----------
Fund, L.P. 6 Programs
---------- ----------
<S> <C> <C>
Date offering commenced ....................................... 12-13-91 -
Dollar amount raised .......................................... $32,399 $149,306
======= ========
Amounts paid or payable to general partner or affiliates
from proceeds of offerings:
Selling commissions and underwriting fees (B) ................ $ 3,239 $ 2,819
Other offering expenses (C) .................................. 249 2,225
Acquisition cost and expense (D) ............................. 1,444 9,591
Dollar amount of cash available (deficiency) from operations
before deducting (adding) payments to (from) general partner
or affiliates (E) ............................................. $ 1,559 $ 13,615
======= ========
Amounts paid to (received from) general partner or affiliates
related to operations:
Property management fees (F) ................................. $ 94 $ 952
Partnership subsidies received (G) ........................... 0 (582)
Accounting services .......................................... 60 285
Data processing service ...................................... 39 228
Legal services ............................................... 48 121
Other administrative services ................................ 96 652
Property upgrades ............................................ 19 186
Property operating expenses .................................. 1 6
Dollar amount of property sales and refinancings before
payments to general partner and affiliates (H):
Cash ......................................................... $ 647 $ 19,534
Equity in notes and undistributed sales proceeds ............. 0 9,686
Dollar amounts paid or payable to general partner or affiliates
from sales and refinancings (I):
Sales commissions ............................................ $ 0 $ 467
Property upgrade ............................................. 0 172
Mortgage brokerage fee ....................................... 0 15
Participation in cash distributions .......................... 0 93
</TABLE>
A-6
<PAGE> 406
TABLE II(CONTINUED)
COMPENSATION TO IREIC AND AFFILIATES
(000'S OMITTED)
NOTES TO TABLE II
(A) The figures in this Table II relating to proceeds of the offerings are
cumulative and are as of December 31, 1995 and the figures relating to cash
available from operations are for the three years ending December 31, 1995. The
dollar amount raised represents the cash proceeds collected by the
partnerships. Amounts paid or payable to IREIC or affiliates from proceeds of
the offerings represent payments made or to be made to IREIC and affiliates
from investor capital contributions.
(B) Inland Capital Fund paid all commissions to an affiliate of the
general partner, who in turn paid $2,711,791 to third party soliciting dealers.
(C) Consists of legal, accounting, printing and other offering expenses,
including amounts to be paid to Inland Securities Corporation to be used as
incentive compensation to its regional marketing representatives and amounts
for reimbursement of the general partner for marketing, salaries and direct
expenses of its employees while directly engaged in registering and marketing
the Units and other marketing and organization expenses.
(D) Represents initial cash down payments and future principal payments
and prepaid items and fees paid to IREIC and its affiliates in connection with
the acquisition of properties less amounts paid to unaffiliated third parties
to acquire such properties. Cash down payments include amounts received at
closing.
<TABLE>
<CAPTION>
Inland Public
Capital Programs
Fund, L.P. 6 Programs
---------- ----------
<S> <C> <C>
Acquisition fees ....................... $ 1,444 $ 9,478
Reimbursement (at cost) for upgrades and
acquisition due diligence .............. 0 113
Partnership down payments .............. 0 44,585
Inland down payments ................... 0 (44,585)
-------- --------
Acquisition cost and expense ........... $ 1,444 $ 9,591
</TABLE> ======== ========
(E) See Note (G) to Table III.
(F) An Affiliate of the Advisor provides property management services for
all properties acquired by the partnerships. Management fees have not exceeded
6% of the gross receipts from the properties managed. With respect to Inland
Capital Fund, L.P., Inland Land Appreciation Fund II, L.P. and Inland Land
Appreciation Fund, L.P. (included in "Other Public Programs"), IREIC receives
an asset management fee equal to 1/4% of total partnership capital limited to a
cumulative total over the life of the partnership of 2% of the land's original
cost to the partnership.
(G) The amounts shown in the table for Other Public Programs represent
supplemental capital contributions from IREIC in accordance with the terms of
the partnership agreements.
(H) See Table V and Notes thereto regarding sales and disposals of
properties.
(I) Real estate sales commissions and participations in cash distributions
are paid or payable to IREIC and/or its affiliates in connection with the sales
of properties. Payments of all amounts shown are subordinated to the receipt by
the limited partners of their original capital investment. See Table V and
Notes thereto.
A-7
<PAGE> 407
TABLE III
OPERATING RESULTS OF PRIOR PROGRAMS
Table III presents operating results for limited partnerships the
offerings of which closed during each of the five years ended prior to December
31, 1995. The operating results consist of:
-The components of taxable income (loss);
-Taxable income or loss from operations and property sales;
-Cash available and source, before and after cash distributions to
investors; and
-Tax and distribution data per $1,000 invested.
A-8
<PAGE> 408
TABLE III- (CONTINUED)
OPERATING RESULTS OF PRIOR PROGRAMS
(000'S OMITTED, EXCEPT FOR AMOUNTS PRESENTED PER $1,000 INVESTED)
<TABLE>
<CAPTION>
Inland Capital
Fund, L.P.
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Gross revenues ........................................... $457 $744 $564 $104 $0
Profit on sale of properties ............................. 229 0 0 0 0
Less:
Operating expenses ....................................... 146 64 4 1 0
Interest expense ......................................... 0 0 0 0 0
Partnership expenses ..................................... 167 175 86 1 0
Depreciation and amortization ............................ 5 4 3 3 1
---- ----- ----- ----- ----
Net income (loss)-GAAP basis ............................. $368 $501 $471 $99 $ (1)
Taxable income (loss) (A):
Allocated to investors from operations ................... 137 495 466 100 (1)
Allocated to general partner from operations ............. 1 5 5 1 0
---- ----- ----- ----- ----
Total from operations .................................... 138 500 471 101 (1)
From gain on sale:
Capital (allocated to investors) ........................ 231 0 0 0 0
Capital (allocated to general partner) .................. 0 0 0 0 0
Ordinary (recapture) .................................... 0 0 0 0 0
---- ----- ----- ----- ----
$369 $500 $471 $101 $ (1)
Cash available (deficiency) from operations (G) .......... 172 633 397 94 0
Cash available from sales (B) ............................ 646 0 0 0 0
Cash (deficiency) from refinancings ...................... 0 0 0 0 0
---- ----- ----- ----- ----
Total cash available (deficiency) before
distributions and special items .......................... 818 633 397 94 0
Less distributions to investors:
From operations .......................................... 0 0 0 0 0
From sales and refinancings .............................. 645 0 0 0 0
From return of capital ................................... 0 0 0 0 0
From supplemental capital
contribution (return on capital) (E) (H) ................. 0 0 0 0 0
Less distributions to general partner:
From operations .......................................... 0 0 0 0 0
From sales and refinancings .............................. 0 0 0 0 0
---- ----- ----- ----- ----
Cash available after distributions before special items .. 173 633 397 94 0
Inland Land
Appreciation Fund II, L.P.
1995 1994 1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C> <C> <C>
Gross revenues ........................................... $508 $494 $545 $841 $1,386 $896 $0
Profit on sale of properties ............................. 2,858 219 485 0 0 0 0
Less:
Operating expenses ....................................... 248 263 266 132 67 13 0
Interest expense ......................................... 0 0 0 0 0 0 0
Partnership expenses ..................................... 230 191 180 254 181 80 0
Depreciation and amortization ............................ 3 4 5 2 2 2 1
------ ---- --------- --------- --------- ---- ----
Net income (loss)-GAAP basis ............................. $2,885 $255 $579 $453 $1,136 $801 $ (1)
Taxable income (loss) (A):
Allocated to investors from operations ................... 315 227 144 477 1,141 800 (1)
Allocated to general partner from operations ............. 3 2 1 5 12 8 0
------ ---- --------- --------- --------- ---- ----
Total from operations .................................... 318 229 145 482 1,153 808 (1)
From gain on sale:
Capital (allocated to investors) ........................ 2,333 219 351 0 0 0 0
Capital (allocated to general partner) .................. 329 0 93 0 0 0 0
Ordinary (recapture) .................................... 0 0 0 0 0 0 0
------ ---- --------- --------- --------- ---- ----
$2,980 $448 $589 $482 $1,153 $808 $ (1)
Cash available (deficiency) from operations (G) .......... 5 9 164 511 1,253 694 0
Cash available from sales (B) ............................ 7,488 450 1,176 0 0 0 0
Cash (deficiency) from refinancings ...................... 0 0 0 0 0 0 0
------ ---- --------- --------- --------- ---- ----
Total cash available (deficiency) before
distributions and special items .......................... 7,493 459 1,340 511 1,253 694 0
Less distributions to investors:
From operations .......................................... 0 0 0 454 267 0 0
From sales and refinancings .............................. 1,000 0 1,116 0 0 0 0
From return of capital ................................... 0 0 0 00 0 0 0
From supplemental capital
contribution (return on capital) (E) (H) ................. 0 0 0 0 0 0 0
Less distributions to general partner:
From operations .......................................... 0 0 0 0 0 0 0
From sales and refinancings .............................. 0 0 0 0 93 0 0
------ ---- --------- --------- --------- ---- ----
Cash available after distributions before special items .. 6,493 459 131 57 986 694 0
</TABLE>
A-9
<PAGE> 409
TABLE III(CONTINUED)
OPERATING RESULTS OF PRIOR PROGRAMS
(000'S OMITTED, EXCEPT FOR AMOUNTS PRESENTED PER $1,000 INVESTED)
<TABLE>
<CAPTION>
Inland Capital
Fund, L.P.
------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Special items:
Fixed asset additions (C) ......................... $ 0 $ 0 $ 0 $ 0 $ 0
Advances (repayments) from (to)
general partner or affiliates ..................... 23 2 1 (85) 85
Repurchase of units (I) ........................... 0 (2) 0 0 0
Use of partnership reserves ....................... 0 2 0 0 0
Use of cash available for offering purposes ....... 0 0 0 0 0
---- ---- ---- ---- ----
Cash available (deficiency) after distributions and
special items (J) ................................. $196 $635 $398 $ 9 $ 85
==== ==== ==== ==== ====
Tax and distribution data per $1,000 invested (D):
Federal income tax results:
Ordinary income (loss):
From operations (E) ............................... $ 4 $ 15 $ 14 $ 3 $ 0
==== ==== ==== ==== ====
From recapture .................................... 0 0 0 0 0
Capital gain ...................................... 7 0 0 0 0
Cash distributions to investors:
Source (on GAAP basis):
Investment income ................................. 0 0 0 0 0
Return of capital ................................. 20 0 0 0 0
Supplemental capital contributions (return on
capital) (E) (H) .................................. 0 0 0 0 0
Source (on cash basis):
Sales ............................................. 20 0 0 0 0
Refinancings ...................................... 0 0 0 0 0
Operations ........................................ 0 0 0 0 0
Return of capital ................................. 0 0 0 0 0
Supplemental capital contributions (return on
capital) (E) (H) .................................. 0 0 0 0 0
Percent of properties remaining unsold (F) ........ 98.43%
=======
<CAPTION>
Inland Land
Appreciation Fund II, L.P.
------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Special items:
Fixed asset additions (C) ......................... $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Advances (repayments) from (to)
general partner or affiliates ..................... 31 (19) 10 (5) (272) 287
Repurchase of units (I) ........................... (36) (52) (143) (47) 0 0 0
Use of partnership reserves ....................... 36 52 143 47 0 0 0
Use of cash available for offering purposes ....... 0 0 0 (50) 0 0 0
---- ---- ---- ---- ---- ---- ----
Cash available (deficiency) after distributions and
special items (J) ................................. $6,496 $460 $112 $ 17 $981 $422 $287
======= ==== ==== ==== ==== ==== ====
Tax and distribution data per $1,000 invested (D):
Federal income tax results:
Ordinary income (loss):
From operations (E) ............................... $ 6 $ 5 $ 3 $ 9 $ 23 $ 16 $ 0
From recapture .................................... 0 0 0 0 0 0 0
Capital gain ...................................... 46 4 7 0 0 0 0
Cash distributions to investors:
Source (on GAAP basis):
Investment income ................................. 0 0 0 9 5 0 0
Return of capital ................................. 20 0 22 0 0 0 0
Supplemental capital contributions (return on
capital) (E) (H) .................................. 0 0 0 0 0 0 0
Source (on cash basis):
Sales ............................................. 20 0 22 0 0 0 0
Refinancings ...................................... 0 0 0 0 0 0 0
Operations ........................................ 0 0 0 9 5 0 0
Return of capital ................................. 0 0 0 0 0 0 0
Supplemental capital contributions (return on
capital) (E) (H) .................................. 0 0 0 0 0 0 0
Percent of properties remaining unsold (F) ........ 89.13%
======
</TABLE>
A-10
<PAGE> 410
TABLE III(CONTINUED)
OPERATING RESULTS OF PRIOR PROGRAMS
(000'S INCLUDED)
NOTES TO TABLE III
(A) "Taxable income (loss)" represents the aggregate amounts shown on the
partnerships' tax returns for such years. One of the principal differences
between the tax basis of reporting and generally accepted accounting principles
(GAAP) is that depreciation is based upon the rates established by the
Accelerated Cost Recovery System (ACRS) for property placed in service after
January 1, 1981. Use of ACRS usually results in a higher charge against
operations than would be the result if the depreciation rate was based upon the
economic useful life as required by GAAP. Further, under GAAP, to the extent
that interest rates on notes received in connection with the sale of a property
are deemed to be below market interest rates at the date of sale, such notes
would be required to be discounted based upon market interest rates.
(B) See Table V and Notes thereto regarding sales and disposals of
properties.
(C) Fixed asset additions represent betterments and improvements to
properties which have been paid for from the operations of the respective
properties.
(D) Tax data per $1,000 is based on the income (loss) allocated to
investors for federal income tax purposes. Tax and distribution data per $1,000
invested is based on total capital raised.
(E) Taxable ordinary income from operations relating to Inland Monthly
Income Fund II, L.P. include taxable income at the limited partner level due to
taxable guaranteed payments relating to the IREIC's supplemental capital
contributions. A limited partner's basis in his partnership interest will be
increased by the amount of supplemental capital contributions allocated to him
and reduced by distributions from supplemental capital contributions. The
amount of supplemental capital contributions per $1,000 invested are $0 for
1989 through 1995 and $1 for 1988 for Inland Monthly Income Fund, II, L.P.
(F) Percent of properties remaining unsold represents original total
acquisition cost of properties retained divided by original total acquisition
cost of all properties in the program, plus the total of uninvested offering
proceeds (if any).
A-11
<PAGE> 411
TABLE III(CONTINUED)
OPERATING RESULTS OF PRIOR PROGRAMS
(000'S INCLUDED)
NOTES TO TABLE III
(G) "Cash Available (Deficiency) from Operations," represents all cash
revenues and funds received by the partnerships, including but not limited to
operating income less operating expenses, and interest income. These amounts do
not include payments made by the partnerships from offering proceeds nor do
they include proceeds from sales or refinancings. These amounts also exclude
advances from or repayments to IREIC and affiliates which are disclosed
elsewhere in the table and include principal payments on long-term debt. For
example:
<TABLE>
<CAPTION>
Inland Capital
Fund, L.P.
--------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net cash provided by operating activities
per the Form 10-K annual report or 10-Q
quarterly report ........................ 195 635 398 9 85
Payments to (from) general partner and
affiliates .............................. (23) (2) (1) 85 (85)
Principal payments on long-term debt .... 0 0 0 0 0
Payments for deferred loan fees 0 0 0 0 0
--- --- --- -- ---
172 633 397 94 0
=== === === == ===
<CAPTION>
Inland Land
Appreciation
Fund II, L.P.
-------------------------------------------
1995 1994 1993 1992 1991 1990
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Net cash provided by operating activities
per the Form 10-K annual report or 10-Q
quarterly report ........................ 8 10 145 521 1,248 422
Payments to (from) general partner and
affiliates .............................. (3) (1) 19 (10) 5 272
Principal payments on long-term debt .... 0 0 0 0 0 0
Payments for deferred loan fees 0 0 0 0 0 0
--- --- --- --- ----- ---
5 9 164 511 1,253 694
=== === === === ===== ===
</TABLE>
(H) IREIC was required to make supplemental capital contributions if
necessary, in sufficient amounts to allow the partnerships to make
distributions to limited partners equal to an 8% per annum non-compounded
return on their invested capital through August 4, 1993. The cumulative amounts
of such supplemental capital contributions for Monthly Income Fund II was
$30,155, which was repaid in 1993.
(I) Each entity established a unit repurchase program which provides
limited liquidity to eligible investors who have suffered severe adverse
financial conditions or who have died or become legally incapacitated. These
funds were utilized by the partnerships to repurchase units, on a limited
basis, for pre-determined amounts pursuant to the terms of the prospectus.
(J) Cash deficiencies for certain years are the result of (1) current year
distributions from operations that include a portion of accumulated cash flows
from operations of prior years or; (2) current year distributions from sales
which include proceeds relating to prior year property sales.
A-12
<PAGE> 412
TABLE IV
RESULTS OF COMPLETED PROGRAMS
Table IV is a summary of operating and disposition results of prior public
partnerships sponsored by Affiliates of the Advisor, which during the five
years ended prior to December 31, 1995 have sold their properties and either
hold notes with respect to such sales or have liquidated. No public partnership
has disposed of all its properties.
A-13
<PAGE> 413
TABLE V
SALES OR DISPOSALS OF PROPERTIES
Table V presents information on the results of the sale or disposals of
public partnership properties during the three years ended prior to December
31, 1995. Since 1993, partnerships sponsored by Affiliates of the Advisor have
sold 14 properties in whole or in part. The table provides certain information
to evaluate property performance over the holding period such as:
- Sale proceeds received by the partnerships in the form of cash down
payments at the time of sale after expenses of sale and secured notes
received at sale;
-Cash invested in properties;
-Cash flow (deficiency) generated by the property;
-Taxable gain (ordinary and total); and
-Terms of notes received at sale.
A-14
<PAGE> 414
TABLE V(CONTINUED)
SALES OR DISPOSALS OF PROPERTIES(A)
(000'S OMITTED)
<TABLE>
<CAPTION>
Selling Price, net of closing costs
-----------------------------------------------------------------
Cash Selling
Received, commissions Secured
net of paid or Notes Net
Date Date of Closing payable to Mortgage at Received at Selling
Property Acquired Sale Costs(B) Inland Time of Sale Sale(C) Price
- ------------------------------------------ -------- ------- ------- ---------- ------------ ----------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
LAND I .52 ACRE OF PARCEL #18 ............. 1/29/90 3/11/93 33 0 0 0 33
LAND I 4.41 ACRES OF PARCEL #23 ........... 5/8/90 Var 93 170 0 0 0 170
LAND II PARCEL #23A ....................... 10/30/92 3/16/93 183 0 0 0 183
LAND II PARCELS #11 & #13 ................. 8/20/91 5/3/93 70 0 0 828(F) 898
&
9/23/92
LAND II 5 ACRES OF PARCEL #15 ............. 9/4/91 9/1/93 95 0 0 0 95
GROWTH FUND I - COUNTRY CLUB, 55 UNITS .... 12/30/85 Var 93 5,673 0 1,650 0 4,023
LAND II 10 ACRES OF PARCEL #22 ............ 10/30/92 1/6/94 166 0 0 0 166
LAND II .258 ACRES OF PARCEL #6 ........... 4/16/91 10/1/94 10 0 0 0 10
LAND II 11 ACRES OF PARCEL #15 ............ 9/4/91 12/1/94 274 0 0 0 274
GROWTH FUND I - COUNTRY CLUB, 31 UNITS .... 12/30/85 Var 94 2,432 0 0 0 2,432
LAND I 35.88 ACRES OF PARCEL #23 .......... 5/8/90 Var 94 1,149 0 0 156 1,305
MONTHLY INCOME FUND I -
SCHAUMBURG TERRACE, 22 BUILDINGS ......... 6/24/88 Var 94 701 0 0 4,912(G) 5,613
LAND I 3.44 ACRES OF PARCEL #23 ........... 5/8/90 Var 95 139 0 0 0 139
MONTHLY INCOME FUND I -
SCHAUMBURG TERRACE, 16 BUILDINGS ......... 6/24/88 Var 95 409 0 0 3,790(G) 4,199
LAND II 60 ACRES OF PARCEL #23 ............ 10/30/92 Var 95 4,196 0 0 0 4,196
LAND II PARCEL #25 ........................ 1/28/93 10/31/95 3,292 0 0 0 3,292
CAPITAL FUND PARCEL #10A .................. 9/16/94 4/21/95 286 0 0 0 286
CAPITAL FUND 17.742 ACRES OF PARCEL #2 .... 11/9/93 8/2/95 361 0 0 0 361
LAND I 27.575 ACRES OF PARCEL #4 .......... 4/18/89 8/25/95 542 0 0 0 542
<CAPTION>
Cost of Properties including closing
costs and other cash expenditures
-------------------------------------
Original Partnership
Mortgage Capital
Property Financing Invested(D) Total
- ------------------------------------------ --------- ----------- -----
<S> <C> <C> <C>
LAND I .52 ACRE OF PARCEL #18 ............. 0 4 4
LAND I 4.41 ACRES OF PARCEL #23 ........... 0 128 128
LAND II PARCEL #23A ....................... 0 183 183
LAND II PARCELS #11 & #13 ................. 0 453 453
LAND II 5 ACRES OF PARCEL #15 ............. 0 55 55
GROWTH FUND I - COUNTRY CLUB, 55 UNITS .... 1,168 1,495 2,663
LAND II 10 ACRES OF PARCEL #22 ............ 0 105 105
LAND II .258 ACRES OF PARCEL #6 ........... 0 4 4
LAND II 11 ACRES OF PARCEL #15 ............ 0 122 122
GROWTH FUND I - COUNTRY CLUB, 31 UNITS .... 658 843 1,501
LAND I 35.88 ACRES OF PARCEL #23 .......... 0 971 971
MONTHLY INCOME FUND I -
SCHAUMBURG TERRACE, 22 BUILDINGS ......... 0 5,019 5,019
LAND I 3.44 ACRES OF PARCEL #23 ........... 0 98 98
MONTHLY INCOME FUND I -
SCHAUMBURG TERRACE, 16 BUILDINGS ......... 0 3,683 3,683
LAND II 60 ACRES OF PARCEL #23 ............ 0 2,900 2,900
LAND II PARCEL #25 ........................ 0 1,730 1,730
CAPITAL FUND PARCEL #10A .................. 0 221 221
CAPITAL FUND 17.742 ACRES OF PARCEL #2 .... 0 196 196
LAND I 27.575 ACRES OF PARCEL #4 .......... 0 231 231
</TABLE>
A-15
<PAGE> 415
TABLE V(CONTINUED)
SALES OR DISPOSALS OF PROPERTIES(A)
(000'S OMITTED)
<TABLE>
<CAPTION>
Excess
(deficiency)
of property Amount of
operating subsidies Total
cash receipts included in Taxable Ordinary
over cash operating Gain Income Capital
Property expenditures(E) cash receipts from Sale from Sale Gain
<S> <C> <C> <C> <C> <C>
LAND I .52 ACRE OF PARCEL #18 ............ 0 0 29 0 29
LAND I 4.41 ACRES OF PARCEL #23 .......... 0 0 42 0 42
LAND II PARCEL #23A ...................... (6) 0 0 0 0
LAND II PARCELS #11 & #13 ................ 9 0 445 0 445
LAND II 5 ACRES OF PARCEL #15 ............ 1 0 40 0 40
GROWTH FUND I - COUNTRY CLUB, 55 UNITS ... 1,375 0 1,592 0 1,592
LAND II 10 ACRES OF PARCEL #22 ........... 0 0 61 0 61
LAND II .258 ACRES OF PARCEL #6 .......... 0 0 6 0 6
LAND II 11 ACRES OF PARCEL #15 ........... 1 0 152 0 152
GROWTH FUND I - COUNTRY CLUB, 31 UNITS ... 775 0 1,223 0 1,223
LAND I 35.88 ACRES OF PARCEL #23 ......... 4 0 360 360 0
MONTHLY INCOME FUND I -
SCHAUMBURG TERRACE, 22 BUILDINGS ........ 1,556 0 1,609 0 1,609
LAND I 3.44 ACRES OF PARCEL #23 .......... 0 0 33 33 0
MONTHLY INCOME FUND I -
SCHAUMBURG TERRACE, 16 BUILDINGS ........ 1,152 0 1,398 0 1,398
LAND II 60 ACRES OF PARCEL #23 ........... (80) 0 1,100 1,100 0
LAND II PARCEL #25 ....................... 60 0 1,562 0 1,562
CAPITAL FUND PARCEL #10A ................. (9) 0 67 67 0
CAPITAL FUND 17.742 ACRES OF PARCEL #2 ... 1 0 164 0 164
LAND I 27.575 ACRESOF PARCEL #4 .......... 14 0 311 0 311
</TABLE>
A-16
<PAGE> 416
TABLE V(CONTINUED)
SALES OR DISPOSALS OF PROPERTIES
(000'S OMITTED)
NOTES TO TABLE V
(A) The table includes all sales of properties by the partnerships during
the three years ended December 31, 1995. All sales have been made to parties
unaffiliated with the partnership.
(B) Consists of cash payments received from the buyers and the assumption
of certain liabilities by the buyers at the date of sale, less expenses of
sale.
(C) The stated principal amount of the notes is shown in the table under
"Secured Notes Received at Sale." All sales with notes received at sale are
being reported for tax purposes on the installment basis.
(D) Amounts represent the dollar amount raised from the offerings of
limited partnership units, less sales commissions and other offering expenses.
(E) Represents "Cash Available (Deficiency) from Operations (including
subsidies)" as adjusted for appli-cable "Fixed Asset Additions" through the
year of sale.
(F) The partnership provided financing in the amount of $828,000. The
amount financed earned interest at 8% annually, paid monthly, until maturity
and was paid off on October 27, 1993.
(G) As of December 31, 1995, the Partnership has sold all of the
thirty-eight six-unit condominium buildings comprising the Schaumburg Terrace
condominium complex to unaffiliated third parties. The Partnership received
$249,596 from one all cash sale in 1994. In addition, the Partnership received
$823,518 in down payment proceeds, and provided mortgage loans totaling
$8,701,439 to the purchasers for the thirty-seven additional sales. The
principal balances of these loans range from approximately $211,000 to
$256,000. These loans require monthly principal and interest payments totaling
$67,763 with an interest rate of 8.625% per annum for ten years (based on a
thirty year amortization) and payment of all remaining principal at the end of
that period.
A-17
<PAGE> 417
INLAND REAL ESTATE CORPORATION
DISTRIBUTION REINVESTMENT PROGRAM
Inland Real Estate Corporation, a Maryland corporation (the
"Company"), pursuant to its Articles of Incorporation, as amended and restated
to date (the "Articles") has adopted a Distribution Reinvestment Program (the
"DRP"), the terms and conditions of which are set forth below. Capitalized
terms shall have the same meaning as set forth in the Articles unless otherwise
defined herein.
1. As agent for the Stockholders who purchased Shares pursuant to
the Company's prior public offering which commenced October 14, 1994 and was
completed July 22, 1996 (the "Prior Offering") and the current offering of
Shares by the Company pursuant to the prospectus dated July 24, 1996 (the
"Offering") and elect to participate in the DRP (the "Participants"), the
Company will apply all distributions, paid with respect to the Shares held by
each Participant (the "Distributions"), including Distributions paid with
respect to any full or fractional Shares acquired under the DRP, to the
purchase of the Shares for said Participants directly, if permitted under state
securities laws and, if not, through the Dealer-Manager or Participating
Dealers registered in the Participant's state of residence. Neither the
Company nor its Affiliates will receive a fee for selling Shares under the DRP.
2. Procedure for Participation. Any Stockholder who purchased
Shares pursuant to the Company's Prior Offering or this Offering may elect to
become a Participant by completing and executing the Subscription Agreement or
other appropriate authorization form as may be available from the Company, the
Dealer-Manager or Soliciting Dealer. Participation in the DRP will begin with
the next Distribution payable after receipt of a Participant's subscription or
authorization. Shares will be purchased under the DRP on the record date for
the Distribution used to purchase the Shares. Distributions for Shares
acquired under the DRP are currently paid monthly and are calculated with a
daily record and Distribution declaration date. Each Participant agrees that
if, at any time prior to listing of the Shares on a national stock exchange or
inclusion of the Shares for quotation on a national market system, he fails to
meet the suitability requirements for making an investment in the Company or
cannot make the other representations or warranties set forth in the
Subscription Agreement, he will promptly so notify the Company in writing.
3. Purchase of Shares. Participants will acquire Shares from the
Company at a fixed price of $9.05 per Share until the termination of the
Offering. Participants in the DRP may also purchase fractional Shares so that
100% of the Distributions will be used to acquire Shares. However, a
Participant will not be able to acquire Shares under the DRP to the extent such
purchase would cause it to exceed the Ownership Limit.
It is possible that a secondary market will develop for the Shares,
and that the Shares may be bought and sold on the secondary market at prices
lower or higher than the $9.05 per Share price which will be paid under the
DRP.
The Company shall endeavor to acquire Shares on behalf of Participants
at the lowest price then available. However, the Company does not guarantee or
warrant that the Participant will be acquiring Shares at the lowest
possible price.
If the Company's Shares are listed on a national stock exchange or
included for quotation on a national market system, Shares purchased by the
Company for the DRP will be purchased on such exchange or market, at the
prevailing market price, and will be sold to Stockholders at such price. The
reservation of any Shares from this Offering remaining for issuance under the
DRP will be cancelled. The Shares will continue to have
B-1
<PAGE> 418
the status of authorized but unissued Shares. These Shares will not be issued
unless they are first registered with the Securities and Exchange Commission
(the "Commission") under the Act and under appropriate state securities laws or
are otherwise issued in compliance with such laws.
It is understood that reinvestment of Distributions does not relieve a
Participant of any income tax liability which may be payable on the
Distributions.
4. Share Certificates. Within 90 days after the end of the
Company's fiscal year, the Company will issue certificates evidencing ownership
of Shares purchased through the DRP during the prior fiscal year. The
ownership of the Shares will be in book-entry form prior to the issuance of
such certificates.
5. Reports. Within 90 days after the end of the Company's fiscal
year, the Company will provide each Participant with an individualized report
on his or her investment, including the purchase date(s), purchase price and
number of Shares owned, as well as the dates of distribution and amounts of
Distributions received during the prior fiscal year. The individualized
statement to Stockholders will include receipts and purchases relating to each
Participant's participation in the DRP including the tax consequences relative
thereto.
6. Termination by Participant. A Participant may terminate
participation in the DRP at any time, without penalty, by delivering to the
Company a written notice. Prior to listing of the Shares on a national stock
exchange or inclusion of the Shares for quotation on a national market system,
any transfer of Shares by a Participant to a non-Participant will terminate
participation in the DRP with respect to the transferred Shares. IF a
Participant terminates DRP participation, the Company will provide the
terminating Participant with a certificate evidencing the whole shares in his
or her account and a check for the cash value of any fractional share in such
account. Upon termination of DRP participation, Distributions will be
distributed to the Stockholder in cash.
7. Amendment or Termination of DRP by the Company. The Directors
of the Company may by majority vote (including a majority of the Independent
Directors) amend or terminate the DRP for any reason upon 30 days' written
notice to the Participants.
8. Liability of the Company. The Company shall not be liable for
any act done in good faith, or for any good faith omission to act, including,
without limitation, any claims or liability: (a) arising out of failure to
terminate a Participant's account upon such Participant's death prior to
receipt of notice in writing of such death; and (b) with respect to the time
and the prices at which Shares are purchased or sold for a Participant's
account. To the extent that indemnification may apply to liabilities arising
under the Act or the securities act of a state, the Company has been advised
that, in the opinion of the Commission and certain state securities
commissioners, such indemnification is contrary to public policy and,
therefore, unenforceable.
9. Governing Law. This DRP shall be governed by the laws of the
State of Maryland.
B-2
<PAGE> 419
EXHIBIT I
INLAND REAL ESTATE CORPORATION
SUBSCRIPTION AGREEMENT
[INLAND LOGO]
PLEASE MAIL THE WHITE COPY, THE YELLOW COPY, AND YOUR
CHECK MADE PAYABLE TO "LNB/ESCROW AGENT FOR IREC" TO: Inland
Securities Corporation, 2901 Butterfield Road, Oak Brook,
Illinois 60521, Attn: Investor Services. Please use ballpoint
pen or type the information.
INLAND REAL ESTATE CORPORATION INSTRUCTIONS TO PURCHASERS
INSTRUCTIONS Any Person desiring to subscribe for Shares should carefully
read and review the Prospectus and, if he/she desires to
subscribe for Shares, complete the Subscription
Agreement/Signature Page which follows these instructions.
Follow the appropriate instruction listed below for the items
indicated. Please print in ink or type the information.
INVESTMENT Item 1--Enter the number of Shares to be purchased and the
A dollars and cents amount of the purchase. Minimum purchase 300
Shares ($3,000). Qualified Plans 100 Shares ($1,000).
(Iowa requires 300 Shares ($3,000) for IRA accounts.) Item
2--Check if you desire to participate in Distribution
Reinvestment Program.
REGISTRATION Item 3--Enter the exact name in which the Shares are to be
INFORMATION held. For co-owners enter the names of all owners. For
B investments by qualified plans, include the exact name of the
plan. If this is an additional purchase by a qualified
plan, please use the same exact plan name as previously used.
Item 4--Enter mailing address, state of residence and
telephone number of owner.
Item 5--Check the appropriate box. If the owner is a
non-resident alien, he must apply to the United States
Internal Revenue Service for an identification number via Form
SS-4 for an individual or SS-5 for a corporation, and supply
the number to the Company as soon as it is available.
Item 6-- Check this box if the owner is an employee of
Inland or an individual who has been continuously affiliated
with Inland as an independent contractor. Item 7--Enter birth
date(s) or date of incorporation. Item 8--Enter the Social
Security number or Taxpayer I.D. number. The owner is
certifying that this number is correct.
C Item 9--The residence address if different.
D Item 10--Check the appropriate box to indicate the type of
entity which is subscribing. If additional purchase,
this should be exactly the same as previous investment.
SIGNATURE Item 11--The Subscription Agreement/Signature Page must be
E executed and initialed by the owner(s), or if applicable, the
trustee or custodian.
ALTERNATE ADDRESS Item 12--If owners desire direct deposit of his/her/their cash
FOR DISTRIBUTIONS distributions to an account or address other than as
(OPTIONAL) set forth in the Subscription Agreement/Signature Page,
F please complete. Please make sure account has been opened and
account number is provided, as well as informing recipient
that distribution will be forthcoming and is an asset
transfer.
BROKER/DEALER Item 13--Enter the name of the Broker/Dealer and the
REGISTERED name of the Registered Representative, along with the street
REPRESENTATIVE address, city, state, zip code and telephone number of the
G Registered Representative. By executing the Subscription
Agreement/Signature Page, the Registered Representative
substantiates compliance with the Conduct Rules of the NASD
by certifying that the Registered Representative has
reasonable grounds to believe, based on information obtained
from the investor concerning his, her or its investment
objectives, other investments, financial situation and needs
and any other information known by such Registered
Representative, that investment in the Company is suitable for
such investor in light of his, her or its financial position,
net worth and other suitability characteristics and that the
Registered Representative has informed the investor of all
pertinent facts relating to the liability, liquidity and
marketability of an investment in the Company during its term.
The Registered Representative (authorized signature) should
sign and date.
SUBMISSION OF The properly completed and executed White and Yellow
SUBSCRIPTION copies of the Subscription Agreement/ Signature Page together
with a CHECK MADE PAYABLE TO "LNB/ESCROW AGENT FOR IREC"
should be returned to the owner's Registered Representative or
the offices of Inland Securities Corporation, 2901 Butterfield
Road, Oak Brook, Illinois 60521.
NOTE: If a Person other than the Person in whose name the Shares will be held
is reporting the income received from the Company, you must notify the Company
in writing of that Person's name, address and Social Security number.
This Specimen Copy of the Subscription Agreement/Signature Page (Exhibit I
of the Prospectus) should not be executed.
ALL INVESTORS AND THEIR REGISTERED REPRESENTATIVES MUST SIGN THE SUBSCRIPTION
AGREEMENT/ SIGNATURE PAGE PRIOR TO TENDERING ANY FUNDS FOR INVESTMENT IN
SHARES.
CALIFORNIA INVESTORS
All Certificates representing Shares which are sold in the State of California
will bear the following legend conditions: IT IS UNLAWFUL TO CONSUMMATE A SALE
OR TRANSFER OF THIS SECURITY OR ANY INTEREST THEREIN, OR TO RECEIVE ANY
CONSIDERATION THEREFORE, WITHOUT THE PRIOR WRITTEN CONSENT OF THE COMMISSIONER
OF CORPORATIONS OF THE STATE OF CALIFORNIA, EXCEPT AS PERMITTED IN THE
COMMISSIONER'S RULES.
01-94-100-2
I-1
<PAGE> 420
[INLAND LOGO]
INLAND REAL ESTATE CORPORATION
SUBSCRIPTION AGREEMENT/SIGNATURE PAGE
PLEASE READ THIS SUBSCRIPTION AGREEMENT/SIGNATURE PAGE AND THE TERMS AND
CONDITIONS BEFORE SIGNING.
SUBSCRIBER MUST READ THE SUBSCRIPTION INSTRUCTIONS.
A
(1) INVESTMENT MAKE CHECK PAYABLE TO LNB/ESCROW AGENT FOR IREC
This subscription is in the amount of $_________________ for the purchase
of ______________ Shares of Inland Real Estate Corporation at $10 per
Share. Minimum initial investment: 300 Shares (100 Shares for IRA, Keogh
and qualified plan accounts-Iowa requires 300 Shares for IRA accounts)
This is an: / / INITIAL INVESTMENT / / ADDITIONAL INVESTMENT
(2) DISTRIBUTION REINVESTMENT PROGRAM: / / YES Subscriber elects to
participate in the Distribution Reinvestment Program described in the
Prospectus.
Distributions will be made by check unless box is marked.
B
<TABLE>
<S><C>
(3) REGISTERED OWNER
/ / Mr. / / Mrs. / / Ms. - -
- ----
CO-OWNER ---------------------------------------------------------- --------------------------
/ / Mr. / / Mrs. / / Ms. (AREA CODE) HOME TELEPHONE
- ---- ----------------------------------------------------------
(4) MAILING ADDRESS ----------------------------------------------------------
- ---- - -
-----------------------------
CITY, STATE & ZIP CODE ---------------------------------------------------------- (AREA CODE) BUSINESS TELEPHONE
- ----
STATE OF RESIDENCE (7) BIRTH DATE
- ---- ------------------ ----- ---- ---- ----- --- ----
MONTH DAY YEAR MONTH DAY YEAR
- ----
(5) PLEASE INDICATE
CITIZENSHIP STATUS
/ / U.S. CITIZEN
/ / RESIDENT ALIEN
/ / NON-RESIDENT ALIEN
(6) / / EMPLOYEE OR AFFILIATE
(8) SOCIAL SECURITY #
- -----------------------------------------
CO-OWNER
- ---- SOCIAL SECURITY #
CORPORATE OR CUSTODIAL
TAX IDENTIFICATION NUMBER
- -----------------------------------------
(9)
RESIDENCE ADDRESS IF DIFFERENT FROM ABOVE
- ------------------------------------------------------------------------------------------------------------------------------------
STREET CITY STATE ZIP CODE
(10) CHECK ONE--IMPORTANT--REFER TO REGISTRATION REQUIREMENTS ON BACK
A / / INDIVIDUAL OWNERSHIP H/ / IRA L/ / PENSION OR PROFIT SHARING PLAN
B / / JOINT TENANTS WITH RIGHT M/ / TRUST/DATE TRUST ESTABLISHED
OF SURVIVORSHIP I/ / QUALIFIED PLAN (KEOGH) ------------
C / / COMMUNITY PROPERTY NAME OF TRUSTEE OR OTHER ADMINISTRATOR
D / / TENANTS IN COMMON J/ /SIMPLIFIED EMPLOYEE PENSION/TRUST (S.E.P.)
E / / TENANTS BY THE ENTIRETY K/ / UNIFORM GIFTS TO MINORS ACT ----------------------------------------
F / / CORPORATE OWNERSHIP STATE OF A CUSTODIAN / / TAXABLE / / GRANTOR A OR B
G/ / PARTNERSHIP OWNERSHIP --------------- N/ / ESTATE
FOR O/ / OTHER (SPECIFY)
----------------------------- ------------------------
/ / TAXABLE / / NON-TAXABLE
</TABLE>
E
(11) The undersigned certifies, under penalties of perjury (i) that the
taxpayer identification number shown on the Subscription Agreement/Signature
Page is true, correct and complete, and (ii) is not subject to backup
withholding either because he has not been notified that he is subject to
backup withholding as a result of a failure to report all interest or
distributions, or the Internal Revenue Service has notified him that he is no
longer subject to backup withholding.
The undersigned futher acknowledges and/or represents (or in the case of
fiduciary accounts, the person authorized to sign on such Investor's behalf)
the following:
(a) acknowledges receipt of the Prospectus of the Company relating to the
Shares, wherein the terms and conditions of the offering of the Shares
are described.
(b) represents that I (we) either: (i) have a net worth (excluding home,
home furnishings and automobiles) of at least $45,000 and estimate that
(without regard to investment in the Company) I (we) have gross income
due in the current year of at least $45,000; or (ii) have a net worth
(excluding home, home furnishings and automobiles) of at least $150,000
or such higher suitability as may be required by certain states and set
forth on page I-3 herein; In the case of sales to fiduciary accounts,
the suitability standards must be met by the beneficiary, the fiduciary
account or by the donor or grantor who directly or indirectly supplies
the funds for the purchase of the Shares.
(c) represents that the investors purchasing the Shares for his or her
own account and if I am (we are) purchasing Shares on behalf of a trust
or other entity of which I am (we are) trustee(s) or authorized
agent(s) I (we) have due authority to execute the Subscription
Agreement/Signature Page and do hereby legally bind the trust or other
entity of which I am (we are) trustee(s) or authorized agent(s).
(d) acknowledges that the Shares are not liquid; (not required for
Minnesota residents)
(e) if an Affiliate of the Company, represents that the Shares are being
purchased for investment purposes only and not with a view toward
immediate resale.
<TABLE>
<S><C>
AGREEMENT DATED 19
-------------------------- -----
X X
- ----------------------------------------------------------- ----------------------------
SIGNATURE--REGISTERED OWNER SIGNATURE--CO-OWNER
- -----------------------------------------------------------
(PRINT NAME OF CUSTODIAN OF TRUSTEE)
- -----------------------------------------------------------
AUTHORIZED SIGNATURE (CUSTODIAN OR TRUSTEE)
</TABLE>
A sale of the Shares may not be completed by the Soliciting Dealers until
at least five business days after receipt of the Prospectus.
F
<TABLE>
<S><C>
(12) (OPTIONAL) DIRECTLY DEPOSIT CASH DISTRIBUTIONS TO:
--------------------------------
ACCOUNT NUMBER MUST BE FILLED IN
NAME OF BANK,
BROKERAGE FIRM
OR INDIVIDUAL X
------------------------------------------------------------------- ---------------------------------------
SIGNATURE--REGISTERED OWNER
MAILING ADDRESS
-------------------------------------------------------------------
CITY, STATE &
ZIP CODE X
------------------------------------------------------------------- ---------------------------------------
SIGNATURE--CO-OWNER
</TABLE>
(13) BROKER/DEALER DATA--COMPLETED BY SELLING REGISTERED REPRESENTATIVE (PLEASE
USE REP'S ADDRESS--NOT HEADQUARTERS)
NAME OF
SALESPERSON - -
------------------------------------ ---------------------
/ / Mr. / / Mrs. / / Ms. SALESPERSON'S TELEPHONE
IS THIS A NEW BROKER/DEALER?
MAILING ADDRESS
-------------------------------- / / YES / / NO
CITY, STATE &
ZIP CODE
--------------------------------
BROKER/DEALER
NAME X
MAILING ADDRESS -------------------------------- ----------------------------
SIGNATURE--REGISTERED
CITY, STATE & REPRESENTATIVE
ZIP CODE
---------------------------------
INLAND REAL ESTATE CORPORATION
I-2
<PAGE> 421
SUBSCRIPTION AGREEMENT/SIGNATURE PAGE
CERTAIN STATES HAVE IMPOSED SPECIAL FINANCIAL SUITABILITY STANDARDS FOR
INVESTORS WHO PURCHASE SHARES.
IF THE INVESTOR IS A RESIDENT OF CALIFORNIA, THE INVESTOR MUST HAVE
EITHER: (I) A NET WORTH (EXCLUDING HOME, HOME FURNISHINGS AND AUTOMOBILES) OF
$225,000; OR (II) A MINIMUM ANNUAL GROSS INCOME OF $60,000 AND A NET WORTH
(EXCLUSIVE OF HOME, HOME FURNISHINGS AND AUTOMOBILES) OF $60,000.
IF THE INVESTOR IS A RESIDENT OF MAINE, THE INVESTOR MUST HAVE EITHER: (I)
A NET WORTH (EXCLUDING HOME, HOME FURNISHINGS AND AUTOMOBILES) OF $200,000; OR
(II) A MINIMUM ANNUAL GROSS INCOME OF $50,000 AND A NET WORTH (EXCLUSIVE OF
HOME, HOME FURNISHINGS AND AUTOMOBILES) OF $50,000.
IF THE INVESTOR IS A RESIDENT OF MASSACHUSETTS, THE INVESTOR MUST HAVE
EITHER: (I) A NET WORTH (EXCLUDING HOME, HOME FURNISHINGS AND AUTOMOBILES) OF
$225,000; OR (II) A MINIMUM ANNUAL GROSS INCOME OF $60,000 AND A NET WORTH
(EXCLUSIVE OF HOME, HOME FURNISHINGS AND AUTOMOBILES) OF $60,000.
IF THE INVESTOR IS A RESIDENT OF TENNESSEE, THE INVESTOR MUST HAVE EITHER:
(I) A NET WORTH (EXCLUDING HOME, HOME FURNISHINGS AND AUTOMOBILES) OF $225,000;
OR (II) A MINIMUM ANNUAL GROSS INCOME OF $60,000 AND A NET WORTH (EXCLUSIVE OF
HOME, HOME FURNISHINGS AND AUTOMOBILES) OF $60,000.
THE COMPANY INTENDS TO ASSERT THE FOREGOING REPRESENTATIONS AS A DEFENSE
IN ANY SUBSEQUENT LITIGATION WHERE SUCH ASSERTION WOULD BE RELEVANT. THE
COMPANY SHALL HAVE THE RIGHT TO ACCEPT OR REJECT THIS SUBSCRIPTION IN WHOLE OR
IN PART, SO LONG AS SUCH PARTIAL ACCEPTANCE OR REJECTION DOES NOT RESULT IN AN
INVESTMENT OF LESS THAN THE MINIMUM AMOUNT SPECIFIED IN THE PROSPECTUS. AS USED
ABOVE, THE SINGULAR INCLUDES THE PLURAL IN ALL RESPECTS IF SHARES ARE BEING
ACQUIRED BY MORE THAN ONE PERSON. AS USED IN THIS AGREEMENT, "INLAND" REFERS TO
THE INLAND COMPANIES AND ITS AFFILIATES. THIS AGREEMENT AND ALL RIGHTS
HEREUNDER SHALL BE GOVERNED BY, AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF
THE STATE OF ILLINOIS.
OFFICE USE ONLY Investor Check Date _______________
Investor Check # ________________
Check Amount $ ________________
BROKER/DEALER
NUMBER ________________________________
OWNER ACCOUNT
NUMBER _________________
CO-OWNER _______________
ACCOUNT NUMBER
I-3
<PAGE> 422
No dealer, salesperson or any other person has been authorized to give any
information or to make any representations other than those contained in the
Prospectus and supplemental literature authorized by the Company and referred
to in this Prospectus, and, if given or made, such information and
representations must not be relied upon. This Prospectus does not constitute
an offer to sell or a solicitation of an offer to buy any of the securities
offered hereby in any state to any person to whom it is unlawful to make such
offer. Neither the delivery of this Prospectus nor any sale made hereunder
shall, under any circumstances, create any implication that there has been no
change in the affairs of the Company since the respective dates at which
information is given herein, or the date hereof. However, if any material
change in the affairs of the Company shall occur during the time when a copy of
this Prospectus is required to be delivered, the Company will amend or
supplement this Prospectus to reflect such change.
TABLE OF CONTENTS
Page
<TABLE>
<S> <C>
PROSPECTUS SUMMARY ............................. 1
ORGANIZATIONAL CHART ........................... 15
RISK FACTORS ................................... 16
ESTIMATED USE OF PROCEEDS OF OFFERING .......... 26
WHO MAY INVEST ................................. 28
COMPENSATION TABLE ............................. 29
CONFLICTS OF INTEREST .......................... 37
FIDUCIARY RESPONSIBILITY OF DIRECTORS AND
THE ADVISOR; INDEMNIFICATION ................... 40
PRIOR PERFORMANCE OF THE COMPANY'S AFFILIATES .. 42
MANAGEMENT ..................................... 56
SELECTED FINANCIAL DATA ........................ 67
INVESTMENT OBJECTIVES AND POLICIES ............. 69
REAL PROPERTY INVESTMENTS ...................... 76
CAPITALIZATION ................................. 96
PRINCIPAL STOCKHOLDERS ......................... 97
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
THE FINANCIAL CONDITION OF THE COMPANY ......... 98
FEDERAL INCOME TAX CONSIDERATIONS .............. 104
ERISA CONSIDERATIONS ........................... 114
DESCRIPTION OF SECURITIES ...................... 116
SUMMARY OF THE ORGANIZATIONAL DOCUMENTS ........ 119
PLAN OF DISTRIBUTION ........................... 127
HOW TO SUBSCRIBE ............................... 132
SALES LITERATURE ............................... 133
DISTRIBUTION REINVESTMENT AND SHARE REPURCHASE
PROGRAMS ....................................... 133
REPORTS TO STOCKHOLDERS ........................ 135
LEGAL MATTERS .................................. 137
EXPERTS ........................................ 137
ADDITIONAL INFORMATION ......................... 138
GLOSSARY ....................................... 139
INDEX TO FINANCIAL STATEMENTS .................. F-i
PRIOR PERFORMANCE TABLES ....................... A-1
DISTRIBUTION REINVESTMENT PROGRAM .............. B-1
SUBSCRIPTION AGREEMENT ......................... I-1
</TABLE>
Until October 21, 1996, all dealers effecting transactions in the
registered securities, whether or not participating in this distribution, may
be required to deliver a Prospectus. This is in addition to the obligation of
dealers to deliver prospectuses when acting as Soliciting Dealers with respect
to their unsold allotments or subscriptions.
INLAND
REAL ESTATE
CORPORATION
11,375,000 Shares
_________________
PROSPECTUS
July 24, 1996
_________________
Inland Securities
Corporation
_________________
<PAGE> 423
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 30. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
<TABLE>
<CAPTION>
<S> <C>
Securities and Exchange Commission Registration Fee $ 39,155
NASD Filing Fee 23,655
Printing and Mailing Expenses 383,000
Blue Sky Fees and Expenses (including counsel fees) 125,000
Legal Fees and Expenses 200,000
Accounting Fees and Expenses 40,000
Advertising and Sales Literature 400,000
Due Diligence 250,000
Miscellaneous 310,690
Total $ 1,771,500
============
</TABLE>
ITEM 31. SALES TO SPECIAL PARTIES.
Employees and associates of the company and its affiliates will be
permitted to purchase shares net of sales commissions. Prior to the time that
the minimum number of shares is sold, such persons may be required to pay $10
per share and will receive a return of the commission amount promptly upon the
receipt of subscriptions for the minimum number of shares.
ITEM 32. RECENT SALES OF UNREGISTERED SECURITIES.
On May 12, 1994, Inland Real Estate Advisory Services, Inc. (the
"advisor") acquired 100 shares at a price of $10 per share, paid in cash. No
sales commission or other consideration was paid in connection with such sale,
which was effective without registration under the Securities Act of 1933, as
amended (the "Act"), in reliance upon the exemption from registration in
Section 4(2) of the Act as a transaction not involving any public offering. On
May 25, 1994 the Advisor purchased an additional 19,900 shares at a price of
$10 per share, paid in cash. No sales commission or other consideration was
paid in connection with such sale, and the sale was made in reliance upon the
exemption from registration in Section 4(2) of the Act.
ITEM 33. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company's Second Articles of Amendment and Restatement and Bylaws
authorize it, to the fullest extent permitted by Maryland statutory or
decisional law, as amended or interpreted and, without limiting the generality
of the foregoing, in accordance with Section 2-418 of the Maryland General
Corporation Law, to indemnify and pay or reimburse reasonable expenses to: any
Director, Advisor or Affiliate (each an "Indemnified Party"), provided, that:
(i) the Director, Advisor or Affiliate have determined, in good faith, that
the course of conduct which caused the loss or liability was in the best
interest of the Company; (ii) the Director, the Advisor or Affiliate were
acting on behalf of or performing services on the part of the Company; (iii)
such liability or loss was not the result of negligence or misconduct on the
part of the Indemnified Party, except that in the event the Indemnified Party
is or was an Independent
II-1
<PAGE> 424
Director, such liability or loss shall not have been the result of gross
negligence or willful misconduct; and (iv) such indemnification or agreement to
be held harmless is recoverable only out of the assets of the Company and not
from the Stockholders. The Company shall not indemnify a Director, the Advisor
or Affiliate for losses, liabilities or expenses arising from or out of an
alleged violation of federal or state securities laws by such party unless one
or more of the following conditions are met: (i) there has been a successful
adjudication on the merits of each count involving alleged securities law
violations as to the particular indemnitee; (ii) such claims have been
dismissed with prejudice on the merits by a court of competent jurisdiction as
to the particular indemnitee; or (iii) a court of competent jurisdiction
approves a settlement of the claims and finds that indemnification of the
settlement and related costs should be made and the court considering the
request has been advised of the position of the Securities and Exchange
Commission (the "Commission") and the published opinions of the Tennessee
Securities Division and any other state securities regulatory authority in
which securities of the Company were offered and sold as to indemnification for
securities law violations.
The Company may advance amounts to persons entitled to indemnification
hereunder for legal and other expenses and costs incurred as a result of any
legal action for which indemnification is being sought only if all of the
following conditions are satisfied: (i) the legal action relates to acts or
omissions with respect to the performance of duties or services by the
indemnified party for or on behalf of the Company; (ii) the legal action is
initiated by a third party who is not a Stockholder or the legal action is
initiated by a Stockholder acting in his or her capacity as such and a court of
competent jurisdiction specifically approves such advancement; and (iii) the
indemnified party receiving such advances undertakes to repay the advanced
funds to the Company, together with the applicable legal rate of interest
thereon, in cases in which such party is found not to be entitled to
indemnification.
The Company shall have the power to purchase and maintain insurance on
behalf of an indemnified party against any liability asserted which was
incurred in any such capacity with the Company or arising out of such status;
provided, however, that the Company shall not incur the costs of any liability
insurance which insures any person against liability for which he, she or it
could not be indemnified under the Articles.
Neither the amendment nor the adoption of any other provision of the
Articles or the Bylaws shall apply to or affect in any respect the
applicability of indemnification with respect to any act or failure to act
which occurred prior to such amendment, repeal or adoption.
To the extent that the indemnification may apply to liabilities arising
under the Act, the Company has been advised that, in the opinion of the
Commission, such indemnification is contrary to public policy and, therefore,
unenforceable.
ITEM 34. TREATMENT OF PROCEEDS FROM STOCK BEING REGISTERED.
Inapplicable.
ITEM 35. FINANCIAL STATEMENTS AND EXHIBITS.
(See Exhibit Index)
ITEM 36. UNDERTAKINGS.
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<PAGE> 425
A. The Registrant undertakes:
(a) to file any prospectuses required by Section 10(a)(3) of the Act as
post-effective amendments to this Registration Statement;
(b) that for the purpose of determining any liability under the Act,
each such post-effective amendment may be deemed to be a new
registration statement relating to the securities offered therein
and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof;
(c) that all post-effective amendments will comply with the applicable
forms, rules and regulations of the Commission in effect at the
time such post-effective amendments are filed; and
(d) to remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
B. The Registrant undertakes to file, during any period in which offers or
sales are being made, a post-effective amendment to the Registration Statement
to: (a) include any prospectus required by Section 10(a)(3) of the Act; (b)
reflect in the prospectus any facts or events arising after the effective date
of the Registration Statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate, represent a fundamental
change in the information set forth in the Registration Statement; and (c)
include any material information with respect to the plan of distribution not
previously disclosed in the Registration Statement or any material change to
such information in the Registration Statement.
C. The Registrant undertakes to send to each Stockholder at least on an
annual basis a detailed statement of any transactions with the Advisor or its
Affiliates, and of fees, commissions, compensation and other benefits paid or
accrued to the Advisor or its Affiliates for the fiscal year completed, showing
the amount paid or accrued to each recipient and the services performed.
D. The Registrant undertakes to provide to the Stockholders the financial
statements required by Form 10-K for the first full fiscal year of operations
of the Company.
E. The Registrant hereby undertakes to send to the Stockholders, within 60
days after the close of each quarterly fiscal period, the information specified
by Form 10-Q, if such report is required to be filed with the Securities and
Exchange Commission.
F. The Registrant undertakes to file a sticker supplement pursuant to Rule
424(c) under the Act during the distribution period describing each property
not identified in the prospectus at such time as there arises a reasonable
probability that such property will be acquired and to consolidate all such
stickers into a post-effective amendment filed at least once every three
months, with the information contained in such amendment provided
simultaneously to the existing Stockholders. Each sticker supplement should
also disclose all compensation and fees received by the Advisor and its
Affiliates in connection with any such acquisition. The post-effective
amendment shall include audited financial statements meeting the requirements
of Rule 3-14 of Regulation S-X only for properties acquired during the
distribution period.
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<PAGE> 426
The Registrant also undertakes to file, after the end of the distribution
period, a current report on Form 8-K containing the financial statements and
any additional information required by Rule 3-14 of Regulation S-X, to reflect
each commitment (i.e., the signing of a binding purchase agreement) made after
the end of the distribution period involving the use of 10 % or more (on a
cumulative basis) of the net proceeds of the offering and to provide the
information contained in such report to the Stockholders at least once each
quarter after the distribution period of the offering has ended.
G. Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the Registrant
pursuant to the foregoing provisions, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the securities
being registered, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
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<PAGE> 427
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the registrant certifies that it has reasonable grounds to believe that it
meets all of the requirements for filing on Form S-11 and has duly caused this
Post-Effective Amendment No. 2 to the Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Oak
Brook, State of Illinois, on the 31st day of January, 1997.
INLAND REAL ESTATE CORPORATION
By: /s/ Robert D. Parks
------------------------------
Title: President, Chief Executive Officer,
Chief Operating Officer and Chairman of
the Board of Directors
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<PAGE> 428
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Post-Effective Amendment No. 2 to the Registration Statement has been
signed by the following persons in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
<S> <C> <C>
/s/ Robert D. Parks President, Chief Executive Officer, January 31, 1997
- -------------------- Chief Operating Officer and
Robert D. Parks Chairman of the Board of Directors
/s/ G. Joseph Cosenza Director January 31, 1997
- ---------------------
G. Joseph Cosenza
/s/ Kelly Tucek Secretary, Treasurer and Chief January 31, 1997
- --------------------- Financial Officer (Principal
Kelly Tucek Accounting Officer)
/s/ Douglas R. Finlayso Director January 31, 1997
- -----------------------
Douglas R. Finlayson, M.D.
/s/ Heidi N. Lawton Director January 31, 1997
- -------------------
Heidi N. Lawton
/s/ Roland W. Burris Director January 31, 1997
- --------------------
Roland W. Burris
</TABLE>
II-6
<PAGE> 429
EXHIBIT INDEX
(a)(1) FINANCIAL STATEMENTS INCLUDED IN THE PROSPECTUS:
INLAND REAL ESTATE CORPORATION
Balance Sheets at March 31, 1996 and December 31, 1995 (unaudited).
Statements of Operations for the three months ended March 31,
1996 and 1995 (unaudited).
Statements of Stockholders' Equity at March 31, 1996 and December 31,
1995.
Statement of Cash Flows for the three months ended March 31, 1996
and 1995 (unaudited).
Notes to Financial Statements March 31, 1996 (unaudited).
Independent Auditors' Report.
Balance Sheets as of December 31, 1995 and 1994.
Statement of Operations for the year ended December 31, 1995.
Statement of Stockholders' Equity for the year ended December 31,
1995 and for the period from May 12, 1994 (formation of the Company)
to December 31, 1994.
Statement of Cash Flows for the year ended December 31, 1995 and for
the period May 12, 1994 (formation of the Company) to December 31,
1994.
Notes to Financial Statements for the year ended December 31,
1995 and for the period from May 12, 1994 (formation of the Company)
to December 31, 1994.
Walgreens/Decatur Property Historical Summary of Gross Income
and Direct Operating Expenses for the six-month period ended
December 31, 1994 (unaudited).
Independent Auditor's Report.
Walgreens/Decatur Property Historical Summaries of Gross Income and
Direct Operating Expenses. Years ended June 30, 1994, 1993 and
1992.
Walgreens/Decatur Property Notes to Historical Summaries of Gross
Income and Direct Operating Expenses. Years ended June 30, 1994,
1993 and 1992.
Eagle Crest Shopping Center Historical Summary of Gross Income and
Direct Operating Expenses for the six-month period ended December
31, 1994 (unaudited).
Independent Auditor's Report.
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<PAGE> 430
Eagle Crest Shopping Center Historical Summaries of Gross
Income and Direct Operating Expenses for the years ended June 30,
1994, 1993 and 1992.
Eagle Crest Shopping Center Notes to the Historical Summary of Gross
Income and Direct Operating Expenses for the years ended June 30,
1994, 1993 and 1992.
Report of Independent Public Accountants.
Nantucket Square Shopping Center Statement of Gross Income and
Direct Operating Expenses for the year ended December 31, 1994.
Nantucket Square Shopping Center Notes to the Statement of Gross
Income and Direct Operating Expenses for the year ended December 31,
1994.
Nantucket Square Shopping Center Statement of Gross Income and
Direct Operating Expenses for the seven-month period ended July 31,
1995.
Report of Independent Public Accountants.
Mundelein Plaza Statement of Gross Income and Direct Operating
Expenses for the Year Ended December 31, 1995.
Mundelein Plaza Notes to the Statement of Income and Direct
Operating Expenses for the year ended December 31, 1995.
Independent Auditors' Report.
Regency Point Shopping Center Historical Summary of Gross Income and
Direct Operating Expenses for the year ended December 31, 1995.
Regency Point Shopping Center Notes to Historical Summary of
Gross Income and Direct Operating Expenses for the year ended
December 31, 1995.
Report of Independent Public Accountants.
Prospect Heights Plaza Statement of Gross Income and Direct
Operating Expenses for the year ended December 31, 1995.
Prospect Heights Plaza Notes to the Statement of Income and Direct
Operating Expenses for the year ended December 31, 1995.
Report of Independent Public Accountants.
Montgomery-Sears Shopping Center Statement of Gross Income and
Direct Operating Expenses for the year ended December 31, 1995.
II-8
<PAGE> 431
Montgomery-Sears Shopping Center Notes to the Statement of Income and
Direct Operating Expenses for the year ended December 31, 1995.
Inland Monthly Income Fund III Pro Forma Balance Sheet at December
31, 1995 (unaudited).
Inland Monthly Income Fund III Notes to Pro Forma Balance Sheet at
December 31, 1995 (unaudited).
Inland Monthly Income Fund III Pro Forma Statement of Operations for
the year ended December 31, 1995 (unaudited).
Inland Monthly Income Fund III Notes to Pro Forma Statement of
Operations of the Company for the year ended December 31, 1995
(unaudited).
Inland Monthly Income Fund III Pro Forma Balance Sheet at March 31,
1996 (unaudited).
Inland Monthly Income Fund III Notes to Pro Forma Balance Sheet at
March 31, 1996 (unaudited).
Inland Monthly Income Fund III Pro Forma Statement of Operations for
the three months ended March 31, 1996 (unaudited).
Inland Monthly Income Fund III Notes to Pro Forma Statement of
Operations for the three months ended March 31, 1996 (unaudited).
(a) (2) FINANCIAL STATEMENTS INCLUDED IN THE REGISTRATION STATEMENT
AS PART OF SUPPLEMENT NUMBER 10.
(See exhibit index to Supplement No. 10)
(b) EXHIBITS
1.1 Dealer Manager Agreement, dated July 16, 1996, by
and between Inland Real Estate Corporation and Inland
Securities Corporation(2)
1.1(a) Amendment No. 1 to the Dealer Manager Agreement dated October
15, 1996(3)
1.2 Form of Soliciting Dealers Agreement between Inland
Securities Corporation and Soliciting Dealers(2)
1.2(a) Form of Amendment No. 1 to the Soliciting Dealers Agreement(3)
1.3 Form of Warrant Purchase Agreement(2)
3.1 Inland Monthly Income Fund III, Inc. Second
Articles of Amendment and Restatement(1)
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<PAGE> 432
3.2 Amended and Restated Bylaws of Inland Real Estate
Corporation(2)
3.3 Articles of Amendment of Inland Monthly Income Fund III,
Inc.(2)
4.1 Specimen Stock Certificate(2)
5 Opinion of Shapiro and Olander as to the legality of the
securities being registered(2)
8 Opinion of Shefsky Froelich & Devine Ltd. as to tax
matters(2)
10.1 Escrow Agreement between Inland Monthly Income Fund III,
Inc. and LaSalle National Bank, N.A.2
10.2 Advisory Agreement between Inland Monthly Income Fund III
and Inland Real Estate Advisory Services dated October 14,
1994.(1)
10.2(a) Amendment No. 1 to the Advisory Agreement dated October 13,
1995(3)
10.2(b) Amendment No. 2 to the Advisory Agreement dated October 13,
1996(3)
10.3 Form of Management Agreement between the Company and Inland
Commercial Property Management, Inc.(2)
10.4 Amended and Restated Independent Director Stock Option
Plan(1)
10.5 Real Estate Purchase and Sale Agreement by and between Salem
Square, Ltd. and American National Bank and Trust Company of
Chicago, as trustee dated July 11, 1996(3)
10.6 Agreement of Purchase and Sale by and between LaSalle
National Trust, N.A., as trustee and Endowment and
Foundation Realty Partnership -- JMB I and Inland Monthly
Income Fund III, Inc. dated July 18, 1996(3)
10.7 Agreement to Purchase by and between JMB/Spring Hill
Associates and Inland Real Estate Corporation dated October
14, 1996(4)
10.8 Agreement of Sale by and between Lansing Square RPF II
Limited Partnership and Inland Real Estate Corporation
dated December 19, 1996
10.9 Agreement of Purchase and Sale by and between KBS Retail
Limited Partnership and Inland Real Estate Corporation
dated December 20, 1996(5)
10.10 Letter Agreement between Aurora Commons Limited Partnership
and Northpoint Two Limited Partnership, as seller, and
Inland Real Estate Corporation, dated November 7, 1996, as
amended November 15, 1996, December 16, 1996, December 20,
1996 and January 10, 1997.
23.1 Consent of KPMG Peat Marwick LLP dated January 31, 1997
23.2 Consent of Arthur Anderson, LLP dated October 1, 1996(3)
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<PAGE> 433
23.3 Consent of Bruce Gorlick, CPA, Ltd. dated January 31, 1997
23.4 Consent of Warady & Davis, dated January 31, 1997
23.5 Consent of Shefsky Froelich & Devine Ltd. dated July 17,
1996(2)
23.6 Consent of Shapiro and Olander1 (filed as part of Exhibit 5)
24 Power of Attorney(1) (included on signature page of
Registration Statement)
27 Financial Data Schedule(1)
99.1 Consent of Douglas R. Finlayson, M.D. to be named as an
Independent Director(1)
99.2 Consent of Heidi N. Lawton to be named as an Independent
Director(1)
- ---------------
(1) Previously filed by Registrant on June 20, 1996
(2) Previously filed by Registrant on July 18, 1996
(3) Previously filed by Registrant on November 1, 1996
(4) Previously filed by Registrant as Exhibit 10.1 to Current Report on Form
8-K dated November 13, 1996 as filed on November 27, 1996
(5) Previously filed by Registrant as Exhibit 10.1 to Current Report on Form
8-K dated January 9, 1997 as filed on January 24, 1997
II-11
<PAGE> 1
EXHIBIT 10.8
AGREEMENT OF SALE
by and between
LANSING SQUARE RPFII LIMITED PARTNERSHIP,
a Delaware limited partnership, Seller
and
INLAND REAL ESTATE CORPORATION,
a Maryland corporation, Buyer
Table of Contents
-----------------
<TABLE>
<CAPTION>
Paragraph Caption Page
- --------- ------- ----
<S> <C> <C>
1. Sale and Premises .................................. 1
2. Purchase Price ..................................... 1
3. Closing ............................................ 2
4. Condition of Title ................................. 2
5. Possession; Assignment of Agreements and
Leases ........................................... 4
6. Apportionments ..................................... 5
7. Transfer Taxes ..................................... 8
8. Municipal Improvements Relating to the
Premises ......................................... 8
9. Municipal Notices .................................. 8
10. Seller's Representations ........................... 9
11. Delivery of Premises Documents ..................... 10
12. Buyer Representations .............................. 11
13. Buyer's Obligation to Close ........................ 11
14. Deliveries at Closing .............................. 12
15. Default ............................................ 13
16. Notices; Computation of Periods .................... 14
17. Fire or Other Casualty ............................. 16
18. Assignability ...................................... 17
19. Inspection Period .................................. 18
20. Condemnation ....................................... 19
21. Brokers ............................................ 20
22. Condition of Premises .............................. 20
23. Survival of Provisions ............................. 22
24. Miscellaneous ...................................... 24
25. ERISA .............................................. 26
26. Limited Liability .................................. 26
</TABLE>
-i-
<PAGE> 2
Exhibits
--------
"A" Legal Description of Premises
"B" List of Personal Property
"C" Permitted Title Objections
"D" List of Existing Leases
"E" List of Existing Agreements To Be Assigned at Closing
"F" Assignment and Assumption Agreement
"G" List of Tenant Estoppel Certificates
"H" Form of Tenant Estoppel Certificate
"I-1" Form of Deed
"I-2" Form of Bill of Sale
"J" FIRPTA Certification
"K" Notice to Tenants
-ii-
<PAGE> 3
AGREEMENT OF SALE
AGREEMENT made this 19th day of December, 1996, by and between
LANSING SQUARE RPFII LIMITED PARTNERSHIP, a Delaware limited partnership
("Seller"), and INLAND REAL ESTATE CORPORATION, a Maryland corporation
("Buyer").
W I T N E S S E T H :
1. Sale and Purchase. Seller hereby agrees to sell and convey to Buyer,
and Buyer hereby agrees to purchase from Seller, upon the terms and conditions
hereinafter set forth:
(a) Real Property. All that certain lot or piece of
ground situate at the southeast corner of 176th Street and Torrence Avenue,
Lansing, Cook County, Illinois, which is more fully described by metes and
bounds on Exhibit "A" hereto and the buildings and improvements situate thereon
(the "Premises"), together with all the rights and appurtenances pertaining to
the Premises, including any right, title and interest of Seller (if any) in and
to adjacent streets and rights-of-way; and
(b) Personal Property. The fixtures, furnishings,
equipment and other items of personal property owned by Seller and located on,
and used in connection with the operation of, the Premises which are listed on
Exhibit "B", hereto (collectively the "Personal Property").
2. Purchase Price. The purchase price to be paid by Buyer to Seller for
the Premises and the Personal Property is the sum of Sixteen Million Three
Hundred Thousand and No/100 Dollars ($16,300,000.00) (the "Purchase Price").
The Purchase Price shall be paid as follows:
(a) Deposit. The sum of Five Hundred Thousand and No/100
Dollars ($500,000.00) (the "Deposit") upon the execution of this Agreement by
the delivery of Buyer's check drawn on Lasalle National Bank, subject to
collection, payable to the order of Near North National Title Corporation (the
"Escrowee"). The Escrowee shall immediately present Buyer's check for
collection, if applicable, and then, pending consummation of this transaction,
hold the Deposit in escrow in an interest bearing account at a national bank
approved by Seller and Buyer in accordance with applicable law. All interest
earned on the Deposit shall be added to and made a part of the Deposit. Buyer
shall bear the risk of loss of the Deposit. At closing the
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<PAGE> 4
Deposit shall be paid to Seller. The Escrowee shall not be liable to Buyer or
to Seller for any act or omission of Escrowee not committed or occurring in
bad faith. If Seller delivers to Escrowee a written notice ("Seller's
Notice") that (i) the Buyer has defaulted under this Agreement, (ii) Seller
demands payment of the Deposit to Seller and (iii) Seller is simultaneously
delivering to Buyer a copy of the Seller's Notice, Escrowee agrees to deliver
the Deposit to Seller if Escrowee has not received within five (5) business
days from Escrowee's receipt of the Seller's Notice, a written notice from
Buyer ("Buyer's Notice") addressed to both Escrowee and Seller in which Buyer
denies that Buyer is in default under this Agreement. If a dispute arises
between Buyer and Seller as to the payment of the Deposit, the Escrowee shall,
at its option, be entitled to pay the Deposit into the applicable Court of
record in Cook County, Illinois and to interplead both Seller and Buyer,
whereupon the Escrowee shall be released from any further liability or
obligation to either Seller or Buyer.
(b) Closing Payment. The sum of Fifteen Million Eight Hundred
Thousand and No/100 Dollars ($15,800,000.00), less the amount of the interest
which is part of the Deposit, if any, received by Seller, and less any net
prorations in favor of Buyer, at closing by wire transfer of immediately
available United States federal funds to the Escrowee's account at a bank
designated by the Escrowee and approved by Seller.
3. Closing. Closing shall be held and completed on December 30,
1996 (the "Closing Date"), commencing at 10:00 a.m at the offices of the
Escrowee. Buyer shall have the right, at its sole option, to cause closing to be
held on such date prior to the Closing Date as Buyer shall hereafter designate
by at least five (5) days' prior written notice to Seller.
4. Condition of Title.
(a) (i) Title to Premises. Fee simple title to the Premises
shall be conveyed by Seller to Buyer at the completion of closing by a deed
(the "Deed") containing Seller's special warranty, excluding from such warranty
the Permitted Encumbrances. Title to the Personal Property shall be conveyed by
Seller to Buyer at the completion of closing by a bill of sale ("Bill of Sale")
containing Seller's special warranty, excluding from such warranty the
Permitted Encumbrances. Title to the Premises shall be such as will be insured
as good and marketable by a title insurance company pursuant to the standard
stipulations and conditions of the most current form of ALTA Policy of Owner's
Title Insurance, with a 3.1 Zoning Endorsement, an Extended Coverage
Endorsement and a Restrictions Endorsement, free and clear of all liens and
encumbrances except for the Permitted Encumbrances. The term "Permitted
Encumbrances" shall mean the Existing Leases (as hereinafter defined), any
lien against Buyer's interest under this Agreement, and the additional title
objections set forth on Exhibit "C" attached hereto. Title
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<PAGE> 5
to the Personal Property shall also be subject to the Permitted Encumbrances.
(ii) Seller (at Seller's sole cost and expense) shall
deliver to Buyer promptly after the date of this Agreement the physical survey
of the Premises by Mackie Consultants, Inc. certified to Seller, Buyer, Lasalle
National Bank and the title company as of a current date (the "Survey").
(iii) Title Defects. Not later than December 23, 1996,
Seller shall submit to Buyer a current title commitment issued by Near North
National Title Corporation. Not later than the end of the Inspection Period (as
defined in Section 19), Buyer shall submit to Seller, if at all, a written
notice from Buyer ("Title Notice") Specifying any alleged defects in or
objections to the title to the Premises or the Survey which do not constitute
Permitted Encumbrances. Buyer shall be deemed to have waived its right to
object to any encumbrance or other title objection or survey defect existing at
the time of the Closing Date unless Buyer shall have timely given to Seller the
Title Notice which specified Buyer's objection unless such encumbrance or other
title objection or survey defect was not disclosed by the title commitment or
the Survey. Seller shall have no obligation to cure any alleged defect or
objection raised in the Title Notice, except that Seller shall cause the
existing first mortgage held by Nationwide Life Insurance Company, an Ohio
corporation (the "First Mortgagee"), to be discharged at closing. Upon Buyer's
failure to timely object, any encumbrance or other title objection or survey
defect disclosed by the title commitment or the Survey shall thereafter be
deemed a Permitted Encumbrance. Seller shall have the right, at its sole
option, to defer the Closing Date for a period not exceeding thirty (30) days
to give Seller an opportunity, at Seller's sole option, of either (i)
attempting to remove any encumbrance or other title objection or survey defect
which is not a Permitted Encumbrance or (ii) providing the title insurance
company such assurances as the title insurance company requires to insure Buyer
and Buyer's mortgagee against any loss arising from such encumbrances or other
title objections or survey defects, or (iii) electing to do neither (i) nor
(ii).
(b) Failure of Title. If on the Closing Date title to the
Premises is not insurable as set forth in subparagraph (a) above, Buyer may
elect, as its sole right and remedy, either (i) to take such title to the
Premises as Seller can convey, with abatement of the Purchase Price only to the
extent of monetary liens of a definite, fixed and ascertainable amount not in
excess of the Purchase Price or (ii) to receive on written demand by Buyer to
the Escrowee, with a copy to Seller, the return of the Deposit. Notwithstanding
the foregoing provisions, Buyer agrees to accept title to the Premises and
Personal Property subject to judgments against Seller if the Title Company
insures Buyer against loss by reason of such judgments. Upon the return of the
Deposit, pursuant to this
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Section 4(b), this Agreement shall be and become null and void, neither party
shall have any further rights or obligations hereunder (except for the
indemnity obligations of Buyer to Seller as set forth in this Agreement which
shall survive the cancellation of this Agreement), and all executed
counterparts of this Agreement shall be returned to Seller.
5. Possession, Assignment of Agreements and Leases.
(a) Existing Leases. Possession of the Premises and the
Personal Property is to be given by Seller to Buyer at the completion of
closing by delivery of the Deed and the Bill of Sale and by assignment of the
Existing Leases (as hereinafter defined). Seller shall, prior to closing,
submit any proposed lease or amendment to an Existing Lease to Buyer for
Buyer's approval. If Buyer does not disapprove in writing such a proposed lease
within five (5) days of Buyer's receipt of the proposed lease, Buyer shall be
deemed to have approved the proposed lease. All such new leases and the
presently existing leases listed on Exhibit "D" hereto are collectively herein
called the "Existing Leases". Seller represents that, at the time of closing,
Seller shall have accepted no prepayment of rent under any of the Existing
Leases (except for the current month) that Seller shall not have terminated any
of the Existing Leases by agreement with the tenant (except by reason of a
default by the tenant thereunder). Buyer acknowledges that prior to the end of
the Inspection Period that Buyer will have examined all copies of the Existing
Leases now in effect to determine whether or not the provisions thereof conform
to the data set out on Exhibit "D" hereto. The termination of any of the
Existing Leases prior to closing by reason of the expiration of its term shall
not excuse Buyer from its obligation to complete closing and to pay the full
Purchase Price.
(b) Existing Agreements. Seller shall also assign to Buyer at
the completion of closing, if assignable, the existing agreements, listed on
Exhibit "E" hereto (hereinafter collectively called the "Assigned Existing
Agreements). Buyer acknowledges that prior to the end of the Inspection Period
that Buyer will have examined all copies of the Assigned Existing Agreements
now in effect to determine whether or not the provisions thereof conform to the
data set forth on Exhibit "E". Seller shall, prior to closing, have the right
to enter into new service agreements, provided any such agreement shall be
terminable by the owner of the Premises on not more than thirty (30) days,
notice. All such service agreements shall also constitute Assigned Existing
Agreements. The termination of any of the Assigned Existing Agreements prior to
closing by reason of the expiration of its term or by reason of a default
thereunder shall not excuse Buyer from its obligation to complete closing and
to pay the full Purchase Price.
(c) Assignment and Assumption. At closing, Seller and Buyer
shall execute and acknowledge an agreement (the
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"Assignment and Assumption Agreement") in the form attached hereto as Exhibit
"F" wherein Buyer shall assume all of the obligations of Seller under the
Existing Leases and the Assigned Existing Agreements.
(d) Tenant Estoppel Certificates. Seller agrees to use its
reasonable efforts to cause those tenants of the Premises specifically
identified on Exhibit "G" hereto and made a part hereof to deliver to Buyer not
later than the business day prior to the Closing Date a written statement
("Tenant Estoppel Certificate") in substantially the form of, and as qualified
by, the form of tenant estoppel certificate set forth on Exhibit "H" attached
hereto and made a part hereof. Buyer agrees not to object to (i) any
non-material (as determined in Buyer's reasonable judgment) qualifications or
modifications which a tenant may make to the form of Tenant Estoppel
Certificate and (ii) any modification to a Tenant Estoppel Certificate to
conform it to the form of tenant estoppel the tenant is required to give under
its lease. To the extent a Tenant Estoppel Certificate contains conflicting
information from that contained on Exhibit "D" for that lease, Buyer shall have
the right either to give a Termination Notice in accordance with Section l9 (c)
as if the Inspection Period had not ended or to waive such conflicting
information, without abatement of the Purchase Price, whereupon, Exhibit "D"
shall be deemed automatically modified to include such differing information.
Buyer's obligations under this Agreement to complete Closing on the Closing
Date and pay the Purchase Price shall not be relieved if Seller is unable to
obtain any required Tenant Estoppel Certificate after using its reasonable
efforts to obtain it if Seller instead, at Seller's sole option, executes a
Tenant Estoppel Certificate for such tenants, which shall have the substance
and effect of an indemnity from Seller to Buyer from any claim by the tenant
which would have been precluded by a Tenant Estoppel Certificate by the tenant
in such form. If any such tenant does have a claim which would entitle it to
set-off the amount of the claim against rent due under the lease and the amount
of such claim is ascertainable, Seller shall have the right, at its sole
option, to give Buyer a credit against the cash portion of the Purchase Price
in the amount of the claim; and, in such event, Buyer shall complete closing
and take subject to such claim.
6. Apportionments.
(a) (i) Taxes and Assessments. Real estate taxes and annual
municipal or special district assessments or installments thereof (on the basis
of the actual fiscal years for which such taxes are assessed), lienable water
and sewer rentals, sums paid to or paid or payable by Seller under the Assigned
Existing Agreements, prepaid fees for licenses and permits to remain in effect
for Buyer's benefit after closing, and rentals and other sums paid to and
received by Seller under the Existing Leases shall be apportioned at closing
pro rata between Buyer and Seller on a per diem basis as of the date of
closing. All income
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and expenses for the Premises for the period from and after the Closing Date
shall belong to and shall be the responsibility of Buyer. If Seller has paid
the current year taxes during a discount period, the taxes shall be
apportioned as if they were paid during the non-discount period.
(ii) Rent Arrearages. Any payments received by Buyer
after the date of closing from a tenant under any of the Existing Leases which
are specified to be on account of rentals which are applicable to periods prior
to closing and on account of sums which are attributable to expenses incurred
by the lessor for periods of time prior to closing, shall be apportioned by
Buyer upon receipt and the portion thereof attributable to periods or expenses
prior to closing shall immediately be paid by Buyer to Seller. If, at closing,
any tenants are in arrears in the payment of rents or other sums, which were
payable prior to closing, all payments by such tenants after closing will be
deemed as being applicable, first, as against current rental due and, then, as
against any such arrearages.
(iii) Contract Arrearages. Any payments received by
Buyer after the date of closing under any of the Assigned Existing Agreements
which are specified to be on account of payments which are applicable to
periods prior to closing shall be apportioned by Buyer upon receipt and the
portion thereof attributable to periods prior to closing shall immediately be
paid by Buyer to Seller.
(iv) Accounting. Until such time as Seller shall have
received in full all sums which are potentially payable to it on account of any
of the Existing Leases or the Assigned Existing Agreements as provided in
subparagraphs (ii) and (iii) above, Buyer shall provide to Seller from time to
time (but not more than three (3) times) after closing an accounting of all
sums received by Buyer under any of the Assigned Existing Leases or Existing
Agreements pursuant to which Seller might be entitled to payments as provided
in said subparagraphs.
(v) No Tax Bill. There shall be no apportionment of the real
estate taxes imposed upon the Premises which are subject to payment or
reimbursement by the tenants under the Existing Leases to the tenants commonly
known as Sam's Wholesale Club #6489, Baby Superstore, Inc. and Blockbuster
Videos. All other real estate taxes (the "In-Line Taxes") imposed upon the
Premises for the tax fiscal years in which closing occurs shall be reasonably
ascertained by Seller and Buyer based upon the then current assessment and
anticipated tax rate and multiplier, and the portions of such taxes to be borne
by Seller shall be credited to Buyer; Seller shall be entitled to retain or to
receive all payments or reimbursements by tenants with respect to the In-Line
Taxes. If the actual In-Line Taxes or the actual In-Line Taxes paid by tenants
under Existing Leases vary from the amounts estimated, Seller or Buyer shall
pay to the
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other of them, within thirty (30) days of receipt of an invoice in reasonable
detail the variance due.
(vi) Tenant Pass-Throughs. If any percentage rents,
"escalation" payments relating to operating expenses or other payments (but not
real estate taxes and assessments) due under the Existing Leases after the date
of closing from a tenant under any of the Existing Leases on account of periods
prior to closing and on account of sums which are attributable to expenses
incurred by the lessor for periods of time prior to closing, cannot be
precisely determined at the time of closing, Seller shall reasonably estimate
the apportionment of such sums, and such estimated sums shall be apportioned at
closing pro-rata between Buyer and Seller on a per diem basis as of the date of
closing. A post closing adjustment shall be made, if necessary, between Buyer
and Seller for such apportioned items within thirty (30) days after the sums
can be precisely determined.
(vii) Percentage Rent. Notwithstanding the provisions
of this subparagraph (a) to the contrary, the apportionment of "percentage
rent", and the amounts due by Buyer to Seller, respectively, under each of the
Existing Leases, shall be made and paid on or before the thirtieth day
following the date when the last amount due on account of such percentage rent
shall have been paid by the tenants under their respective Existing Leases with
respect to the percentage rent lease year (as defined in each of the Existing
Leases) in which the closing date falls. The amount to be apportioned shall be
the total of the amounts collected by both Buyer and Seller as percentage rent
for such percentage rent lease year. Seller's portion thereof shall be an
amount which bears the same ratio to the total percentage rent for the
applicable percentage rent lease year as the number of days up to, but not
including the date of closing in such percentage rent lease year shall bear to
the full number of days in such percentage rent lease year; and Buyer shall be
entitled to the remaining portion. Buyer shall cause all percentage rent
payments for the percentage rent lease years with respect to which percentage
rent is to be apportioned between Buyer and Seller to be paid to Buyer's
property manager by all tenants under the Existing Leases, and Buyer's property
manager shall divide and distribute the amounts so collected between Buyer and
Seller in accordance with the provisions hereof.
(viii) Title Insurance. Seller shall pay the charge for
the title commitment and the premium for the ALTA Policy of Owner's Title
Insurance, without endorsement. Buyer shall pay the premium for any endorsement
to the ALTA Policy of Owner's Title Insurance.
(ix) Escrow. The escrow fees of the title insurance
company for the closing shall be paid one-half (1/2) by Seller and one-half
(1/2) by Buyer.
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(b) Tenant Security Deposits. At closing, Seller shall cause
its management agent to deliver to Buyer, without consideration, a check in the
amount of all security deposits, and accrued interest, then held by or for
Seller under the Existing Leases. Buyer will cause the security deposits to be
maintained after closing in accordance with the requirements of applicable law.
(c) Utility Readings. Seller shall use reasonable efforts to
obtain readings of the water and electric meters on the Premises to a date no
sooner than ten (10) days prior to the date of closing. At or prior to closing,
Seller shall pay all charges based upon such meter readings. However, if after
reasonable efforts Seller is unable to obtain readings of any meters prior to
closing, closing shall be completed without such readings and upon the
obtaining thereof after closing, Seller shall pay the charges incurred prior to
closing as reasonably determined by Seller and Buyer based upon such readings.
(d) Supplies. [INTENTIONALLY OMITTED]
(e) Reimbursements. Buyer shall have no obligation to reimburse
Seller for any leasing commissions and tenant costs actually paid by Seller for
the Existing Leases or any leases executed after the date of this Agreement
which comply with the criteria set forth in Paragraph 5(a) of this Agreement
(or are otherwise agreed to by Buyer).
7. Transfer Taxes. Seller shall pay all realty transfer taxes and
similar taxes imposed upon the delivery and/or recording of the Deed or upon
this transaction by the State of Illinois and Cook County, Illinois. Buyer
shall pay all other realty transfer taxes and similar taxes imposed upon the
delivery and/or recording of the Deed or upon this transaction.
8. Municipal Improvements Relating to the Premises. Buyer shall
pay all assessments or installments of assessments against the Premises or any
part thereof for improvements or other work, construction of which shall be
payable after the Closing Date (including any fines, interest or penalties
thereon due to the non-payment thereof), and shall indemnify, defend and
exonerate and save Seller harmless from any claims therefor or any liability,
loss, cost or expenses arising therefrom. Buyer shall have the same obligations
to Seller with respect to any such assessment made after the date of closing to
the extent that the assessing entity claims that Seller shall have personal
liability therefor.
9. Municipal Notices.
(a) Seller Representations. Seller represents to Buyer that, at
the date of this Agreement, it has no actual knowledge (without investigation
on Seller's part) of any
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outstanding written notice from any public authority concerning the existence
of any presently uncorrected violation of any ordinance, public regulation or
statute with respect to the Premises.
(b) Buyer Assumption. If there is any such notice concerning
the existence of an uncorrected violation of an ordinance, public regulation or
statute issued by any public authority after the date hereof and on or prior to
the Closing Date, Buyer shall have the option either (i) to close without
abatement of the Purchase Price and if Buyer so closes, Buyer shall be liable
to effect compliance for such violation or (ii) to give a Termination Notice in
accordance with Section 19(c) as if the inspection period had not ended.
10. Seller's Representations.
(a) Seller hereby represents to Buyer as follows:
(i) Organization. Seller is a limited partnership, duly
organized and validly existing under the laws of the State of Delaware and has
all requisite partnership power and authority to carry on its business as now
conducted.
(ii) Authorization. Seller has the partnership power
and authority to enter into and perform this Agreement, and Seller has duly
authorized the execution of this Agreement.
(iii) No Condemnation. To Seller's actual knowledge
(without investigation on Seller's part), there are no existing or pending
condemnation proceedings or deeds in lieu of condemnation affecting the
Premises, nor, to Seller's actual knowledge (without investigation on Seller's
part), have any such condemnation proceedings been overtly threatened.
(iv) Existing Leases. The information on the Existing
Leases attached hereto as Exhibit "D" (or actually disclosed in the Existing
Leases or other materials delivered or made available to Buyer prior to the
date hereof) is true and complete in all material respects; no tenants are, to
Seller's actual knowledge (without investigation on Seller's part), entitled to
any rebates, rent concessions or free rent except as may be expressly set forth
in the Existing Leases or on Exhibit "D"; no rents due under any of the
Existing Leases have been assigned, hypothecated or encumbered by Seller other
than to the First Mortgagee; and other than as shown on Exhibit "D" (or
actually disclosed in the Existing Leases or other materials delivered or made
available to Buyer prior to the date hereof) there are, to Seller's actual
knowledge (without investigation on Seller's part), no leasing commissions,
payable to any person or entity in regard to the Existing Leases which are in
effect on the date hereof.
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(v) Litigation. There is no pending litigation against
Seller with respect to the Premises.
(vi) Disclosure. To Seller's actual knowledge (without
investigation on Seller's part), (A) Buyer has been given access to all of
Seller's files held by the property manager of the Premises for Seller which
relate to the Premises other than files containing confidential documents such
as personnel documents, market analyses, appraisals, audits, projections,
income tax returns and correspondence between the property manager and Seller
with respect thereto, (B) such files are the general location for storing
documents related to the operation or management of the Premises, except for
engineering reports or environmental assessments prepared for Seller, (C) such
files contain all documents in the possession of Seller or Seller's property
manager which could have a material bearing on the value or operation of the
Premises, except for the engineering report(s) and the environmental
assessment(s) which have been delivered by Seller to Buyer, and (D) no
documents have been removed from such files in an effort to withhold
information from Buyer.
(b) All references in this Section 11 or elsewhere in this
Agreement to "Seller's knowledge" or "Seller's actual knowledge" shall refer
solely to the actual knowledge of Roland V. Siegl and shall not be construed to
refer to the knowledge of any other employee, officer, director, shareholder or
agent of Seller or any affiliate of Seller, and shall not include imputed or
constructive knowledge.
11. Delivery of Premises Documents.
(a) Deliveries. Seller has furnished or made available to
Buyer, and Buyer acknowledges receipt or the availability of, the following:
(i) Copies of plans and specifications, environmental
report, and engineering reports for the Premises, to the extent currently in
Seller's possession.
(ii) The current books and records (excluding, however,
internal memoranda, financial projections, appraisals and projected budgets)
customarily prepared by or at Seller's request with respect to the Premises,
including, without limitation, to the extent so prepared, all ledgers, records
of income, expense, capital expenditures, utility bills and the most recent
property tax bill.
(iii) Copies of all management, service, maintenance
and other contracts currently in force with respect to the Premises.
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(iv) Copies of all Existing Leases and other occupancy
agreements currently in force or under negotiation with respect to the
Premises.
(v) Copies of all operating permits and certificates of
occupancy issued with respect to the Premises to the extent currently in
Seller's possession.
(b) NO WARRANTY. NOTWITHSTANDING THE PRIOR PROVISIONS OF THIS
SECTION TO THE CONTRARY, BUYER ACKNOWLEDGES AND UNDERSTANDS THAT, EXCEPT FOR
THE REPRESENTATIONS AS TO THE EXISTING LEASES WHICH ARE SET FORTH IN SECTION
10(a)(IV), SELLER MAKES NO REPRESENTATION OR WARRANTY WHATSOEVER, EXPRESS OR
IMPLIED, AS TO THE COMPLETENESS, CONTENT OR ACCURACY OF THE DELIVERED MATERIALS
OR WHETHER BUYER IS ENTITLED TO RELY THEREON.
12. Buyer Representations. Buyer hereby represents to Seller as
follows:
(a) Organization. Buyer is a corporation duly organized and
validly existing under the laws of the State of Maryland and has all requisite
power and authority to carry on its business as now conducted.
(b) Authorization. Buyer has the corporate power and authority
to enter into and perform this Agreement and Buyer has duly authorized the
execution of this Agreement.
(c) ERISA. Buyer is not acquiring the Premises and the Personal
Property with the assets of an employee benefit plan as defined in Section 3(3)
of the Employee Retirement Income Security Act of 1974 ("ERISA").
(d) Source of Funds. The source of funds for payment by Buyer
of the Purchase Price is capital collected from investors purchasing shares of
stock of Buyer; none of such funds are funds which would be subject to 18
U.S.C. Sections 1956-1957 (Laudering of Money Instruments), 18 U.S.C.
Sections 981-986 (Federal Asset Forfeiture) or 21 U.S.C. Section 881
(Drug Property Seizure).
13. Buyer's Obligation to Close. Buyer shall not be obligated to
close under this Agreement unless each of the following conditions shall exist
on the Closing Date:
(a) Title Policy. A title insurance company shall commit in
writing to Buyer to issue an ALTA Title Policy as described in and in
accordance with Section 4(a) of this Agreement.
(b) Accuracy of Representations. The representations and
warranties made by Seller in this Agreement shall be true and correct as of the
Closing Date in all material respects.
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(c) No Taking. No material part of the Premises shall have
previously been acquired by any governmental agency in the exercise of any
power of eminent domain or by private purchase in lieu thereof, nor on the
Closing Date shall any such acquisition or purchase be pending.
14. Deliveries at Closing.
(a) Seller's Deliveries. On the Closing Date, Seller shall
deliver to the Escrowee the following:
(i) Deed. The Deed which shall be in substantially the
form attached hereto and incorporated herein as Exhibit "I-1". The Deed shall
be prepared by Seller, and the Deed will be recorded at the expense of Buyer.
(ii) Bill of Sale. The Bill of Sale which shall be in
substantially the form attached hereto and incorporated herein as Exhibit
"I-2".
(iii) Assignment and Assumption Agreement. The
Assignment and Assumption Agreement in the form of Exhibit "F".
(iv) Rent Roll. A Rent Roll in substantially the form
as Exhibit "D", certified as true and correct in all material respects by
Seller, made within five (5) business days prior to the Closing Date.
(v) Authority Documents. If requested by the title
insurance company, a corporate resolution or partnership resolution executed by
the general partner, as the case may be, and an incumbency certificate to
evidence the capacity of the signatory for Seller.
(vi) FIRPTA Certification and Title Affidavit. The
Affidavit in the form attached hereto as Exhibit "K" with respect to compliance
with the Foreign Investment in Real Property Tax Act (Internal Revenue Code
Sec. 1445, as amended, and the regulations issued thereunder) and an affidavit
in favor of the title insurance company (which affidavit shall in no event
expand the Seller's warranty contained in the Deed) that no mechanics' liens
are filed or may be filed against the Premises by reason of any act of Seller
(or, at Seller's option, or if they are filed or may be filed that Seller will
indemnify the title insurance company against loss by reason thereof).
(vii) Possession and Keys. Possession free and clear of
all parties in possession, except under the Existing Leases and the Permitted
Encumbrances, and except that Seller may continue to store at Seller's sole
risk in the vacant space in the Premises certain personal property in
accordance with a License Agreement reasonably acceptable to Seller and Buyer
until resolution of a dispute with a prior tenant or until Buyer
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advises Seller that Buyer requires possession of such vacant space, and (to
the extent in Seller's possession) all keys, codes and other security devices
for the Property.
(viii) Tenant Notices. Written notice from Seller to
each tenant of the Property under the Existing Leases in substantially the form
attached hereto as Exhibit "K".
(ix) Books and Records. Copies (to the extent in
Seller's possession) of all books and records for the orderly transition of
operation of the Premises.
(x) Original Documents. The originals (to the extent in
Seller's possession) of all Existing Leases, all Assigned Agreements, and all
plans and specifications and all other materials owned by Seller relating to
the maintenance and operation of the Property and which are currently in
Seller's possession.
(xi) Other Documents. Any other documents which Seller
is obligated to deliver to Buyer pursuant to this Agreement.
(b) Buyer's Deliveries. On the Closing Date, Buyer will deliver
to the Escrowee the following:
(i) Assignment and Assumption Agreement. The Assignment
and Assumption Agreement in the form of Exhibit "F".
(ii) Authority Documents. A corporate resolution and an
incumbency certificate to evidence the capacity of the signatory for Buyer.
(iii) Purchase Price. That portion of the Purchase
Price payable at closing.
(iv) Other Documents. Any other documents which Buyer
is obligated to deliver to Seller pursuant to this Agreement.
15. Default.
(a) Buyer Default. If Buyer defaults under this Agreement at or
prior to the Closing Date by failing to complete closing in accordance with the
terms of this Agreement or in any other respect, then on December 30, 1996, the
Deposit shall be paid to Seller by the Escrowee (and Buyer hereby irrevocably
directs the Escrowee to make such payment in such circumstance) and the Deposit
shall be retained by Seller as liquidated damages. The retention of the Deposit
shall be Seller's only remedy in the event of Buyer's default at or prior to
the Closing Date, and Seller in such event hereby waives any right, unless
closing is completed, to recover the balance of the Purchase
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<PAGE> 16
Price. Seller and Buyer agree that the actual damages to Seller in the event
of such breach are impractical to ascertain as of the date of this Agreement
and the amount of the Deposit is a reasonable estimate thereof. If Seller
shall retain the Deposit as liquidated damages, this Agreement shall be and
become null and void and all copies will be surrendered to Seller. Nothing in
this Paragraph shall limit Seller's rights against Buyer by reason of any
indemnity obligations of Buyer to Seller set forth in this Agreement all of
which shall survive the termination of this Agreement.
(b) Seller Default. The term "Event of Seller Default" shall
mean the occurrence of the following on the Closing Date: Either (i) Seller
shall have intentionally refused to complete closing in accordance with this
Agreement when Buyer shall have given written notice to Seller on the Closing
Date that Buyer is ready, willing and able to complete closing in accordance
with this Agreement and to tender the Purchase Price or (ii) Seller is
otherwise in default under this Agreement after Buyer has given written notice
to Seller of such default and Seller has failed to cure such default within ten
(10) business days of such default. Except upon the occurrence of the Event of
Seller Default, Buyer agrees that Buyer shall not (and hereby waives any right
to) ever file or assert any lis pendens against the Premises nor commence or
maintain any action against Seller for specific performance under this
Agreement nor for a declaratory judgment as to Buyer's rights under this
Agreement. If an Event of Seller Default shall occur, Buyer may elect either to
enforce this Agreement by an action for specific performance or to receive from
Seller the amount of $100,000.00 as liquidated damages, as Buyer's sole and
exclusive remedy. Seller and Buyer agree that the actual damages to Buyer in
the event of such breach are impractical to ascertain as of the date of this
Agreement and the amount of $100,000.00 is a reasonable estimate thereof.
16. Notices; Computation of Periods.
(a) Notices. All notices given by either party to the other
shall be in writing and shall be sent either (i) by United States Postal
Service registered or certified mail, postage prepaid, return receipt
requested, (ii) by nationally recognized overnight courier service for next
business day delivery, addressed to the other party at the following addresses
listed below or (iii) via telecopier or facsimile transmission to the facsimile
numbers listed below, provided, however, that if such communication is given
via telecopier or facsimile transmission, an original counterpart of such
communication shall concurrently be sent in the manner specified in clause (ii)
above. Addresses and facsimile numbers of the parties are as follows:
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As to Seller:
c/o GE Investment Corporation
3003 Summer Street
P.O. Box 7900
Stamford, Connecticut 06905
Attention: Mr. Raymond Owens
Fax: (203) 326-4169
with copies at the same time to:
GE Investment Corporation
3003 Summer Street
P.O. Box 7900
Stamford, Connecticut 06905
ATTENTION: Michael J. Strone, Esquire
Fax: (203) 326-2497
and
Thompson Hine & Flory LLP
2000 Courthouse Plaza, NE
Dayton, Ohio 45402
Attention: Timothy J. Hackert, Esquire
Fax: (937) 443-6635
As to Buyer:
Inland Real Estate Corporation
2901 Butterfield Road
Oakbrook, Illinois 60521
Attention: Mr. Robert Parks
Fax: (630) 218-4900
with a copy at the same time to:
The Inland Real Group, Inc.
2901 Butterfield Road
Oakbrook, Illinois 60521
Attention: Samuel Orticelli, Esquire
Fax: (630) 218-4900
or to such other address as the respective parties may hereafter designate by
notice in writing in the manner specified above. Any notice may be given on
behalf of any party by its counsel. Notices given in the manner aforesaid
shall be deemed sufficiently served or given for all purposes under this
Agreement upon the earliest of (i) actual receipt or refusal by the addressee,
or (ii) one business day following the date such notices, demands or requests
shall be deposited in any Post Office, or branch Post Office regularly
maintained by the United States Government or delivered to the overnight
courier service.
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(b) Computation of Periods. If the final day of any period of
time in any provision of this Agreement falls upon a Saturday, Sunday or a
holiday observed by federally insured banks in the State of Connecticut or the
State in which the Premises is located or by the United States Postal Service,
then, the time of such period shall be extended to the next day which is not a
Saturday, Sunday or holiday. Unless otherwise specified, in computing any
period of time described in this Agreement, the day of the act or event after
which the designated period of time begins to run is not to be included and the
last day of the period is so computed is to be included, unless such last day
is a Saturday, Sunday or holiday in which event the period shall run until the
end of the next day which is neither a Saturday, Sunday or holiday.
17. Fire or Other Casualty.
(a) Casualty Insurance. Seller agrees to maintain in effect
until the Closing Date the fire and extended coverage insurance policies now in
effect on the Premises.
(b) Casualty Damage. If the Premises or the Personal Property
shall be damaged by fire or other casualty between the date of this Agreement
and the Closing Date and the cost to repair such damage is reasonably estimated
by Seller and Buyer to be less than $500,000.00, subject to subparagraph (c)
below, the obligation of Buyer to complete closing under this Agreement shall
in no way be voided or impaired, and Buyer shall be required to accept the
Premises and the Personal Property in their then damaged conditioned without
abatement of the Purchase Price. If any such damage or destruction occurs on or
after the date of this Agreement, the proceeds of all fire and extended
coverage insurance policies attributable to the Premises or the Personal
Property received by Seller prior to the Closing Date and not used by Seller
for any emergency repair of the Premises and the Personal Property (and Buyer
hereby authorizes Seller to use the proceeds for such purpose) shall be
disbursed by Seller to Buyer at closing for the express purpose of Buyer using
these proceeds for repairing and restoring the Premises; and all unpaid claims
under such insurance policies attributable to the Premises and Personal
Property shall be assigned by Seller to Buyer on the date of closing, there
shall be no reduction in the Purchase Price by reason of such unpaid claim,
Buyer shall receive a credit to the Purchase Price in an amount equal to the
deductible under such insurance policies allocable to such damage, if any, and
Buyer shall reimburse Seller for the cost of any emergency repairs for which
Seller has not yet received reimbursement from such proceeds.
(c) Right of Termination. Notwithstanding any of the preceding
provisions of this Paragraph, if the buildings on the Premises shall be damaged
by fire or other insured casualty prior to the Closing Date, and the cost to
repair such damage is reasonably estimated by Seller and Buyer to be equal to
or more
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<PAGE> 19
than $500,000.00, either Seller or Buyer shall have the right to terminate this
Agreement by written notice to the other (unless in the case of Seller's
termination, Buyer shall give written notice to Seller within five (5) days of
Seller's termination notice that Buyer shall complete closing within fifteen
(15) days after the date of Seller's termination notice). Upon such
termination, the Deposit shall be returned by Seller to Buyer, neither party
shall have any further rights or obligations hereunder (except the indemnity
obligations of Buyer to Seller set forth in this Agreement which shall survive
the termination of this Agreement and for any default by Buyer which may have
occurred prior thereto), and this Agreement shall be null and void. If Buyer
desires to terminate this Agreement pursuant to this subparagraph (c), Buyer
must give a written notice of termination to Seller either within ten (10)
business days after the earlier of (i) Buyer's learning of the casualty or (ii)
Seller's notice to Buyer of the occurrence of the casualty or, in any event,
prior to the Closing Date.
18. Assignability.
(a) Limited Assignment. Subject to the further limitations in
subparagraph (b) below, this Agreement, and all, but not part, of Buyer's
rights under this Agreement, may be assigned by Buyer, without the prior
written consent of Seller, to any entity affiliated with the Inland Group,
Inc., a Delaware corporation, which is qualified to do business in the State of
Illinois, so long as there is no payment for such assignment; provided,
however, that such assignment shall not release or relieve Buyer of and from
any liability or obligation under this Agreement, and Buyer shall continue to
be primarily liable to Seller under this Agreement. No such assignment shall be
effective, however, unless and until Buyer shall have furnished to Seller (i)
an executed copy of the assignment plus a written assumption agreement, in form
satisfactory to Seller, by the assignee to assume, perform and be responsible,
jointly and severally with the Buyer named herein, for the performance of all
of the obligations of Buyer under this Agreement and to pay all additional
transfer or documentary taxes imposed as a result of such assignment, and which
contains a representation by the assignee that all of the representations and
warranties made by Buyer in this Agreement are true and correct with respect to
the assignee as of the date of the assumption agreement, and (ii) such
information as Seller may reasonably request to confirm that no payment has
made for such assignment. Seller shall have the right to rely in good faith on
the genuiness and validity of the notice from Buyer of an assignment and to
convey the Premises to the assignee without liability to Buyer or any other
person. Buyer shall indemnify and save Seller harmless from and against any
such liability in connection with such conveyance to the assignee.
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<PAGE> 20
(b) Prohibited Assignments. Notwithstanding the foregoing
provisions of subparagraph (a), Buyer shall have no right to assign this
Agreement (i) to any entity owned or controlled by an employee benefit plan if
Seller's sale of the Premises to such entity would, in the reasonable judgment
of Seller or Seller's counsel, either create, otherwise cause, or raise a
material question as to whether it would create or otherwise cause, a
"prohibited transaction" under ERISA; (ii) to any person, or to any entity
which has as a direct or indirect owner or partial owner a person with a
criminal record, currently under a criminal indictment or who is not of good
moral character.
(c) Successors and Assigns. Except as provided in subparagraph
(a), Buyer may not assign or suffer an assignment of this Agreement and its
rights under this Agreement, without the prior written consent of Seller, which
consent Seller may deny in its sole and absolute discretion. Subject to the
foregoing limitations, this Agreement shall extend to, and shall bind, the
respective heirs, executors, personal representatives, successors and assigns
of Seller and Buyer.
19. Inspection Period.
(a) Right to Inspect. Buyer, and Buyer's agents and
representatives, shall have the right, from time to time, between the date of
this Agreement and December 24, 1996 ("Inspection Period"), during normal
business hours, to enter upon the Premises for the purpose of inspection of the
physical condition of the Premises (including a Phase I environmental
assessment report and a structural engineering report), testing of machinery
and equipment, taking of measurements and generally for the reasonable
ascertainment of the physical condition of the Premises; provided, however,
that Buyer shall (i) give Seller at least two (2) business days prior written
notice of the time and place of such entry and permit a representative of
Seller to accompany Buyer; (ii) restore any damage to the Premises or any
adjacent property caused by such actions; (iii) indemnify, defend and save
Seller and, as the case may be, its partners, trustees, shareholders,
directors, officers, employees and agents harmless of and from any and all
liabilities which Seller and its partners, trustees, shareholders, directors,
officers, employees and agents may suffer by reason of such entry and such
activities; (iv) not enter into any tenant's leased premises or communicate
with any tenant without Seller's prior written consent; and (v) prior to entry
onto the Premises, furnish Seller with a certificate of general liability and
property damage insurance maintained by Buyer with single occurrence coverage
of at least $2,000,000 and naming Seller and its management agent as additional
insureds. All such inspection rights shall be subject to the rights of tenants
under the Existing Leases.
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<PAGE> 21
(b) No Liens Permitted. Nothing contained in this Agreement
shall be deemed or construed in any way as constituting the consent or request
of Seller, express or implied by inference or otherwise, to any party for the
performance of any labor or the furnishing of any materials to the Premises or
any part thereof, nor as giving Buyer any right, power or authority to contract
for or permit the rendering of any services or the furnishing of any materials
that would give rise to the filing of any liens against the Premises or any
part thereof.
(c) Right of Termination. If Buyer determines that it is not
satisfied with any aspect of the condition of the Premises as a result of
Buyer's inspection (including, without limitation, the deliveries by Seller
pursuant to Section 11), Buyer shall have the right to terminate this agreement
by giving Seller written notice ("Termination Notice") on or prior to the end
of the Inspection Period. Upon giving the Termination Notice, except as set
forth in the following sentence, this Agreement shall immediately terminate
(except for the indemnity obligations of Buyer to Seller under this Agreement
which shall survive termination of this Agreement) and the Deposit shall be
returned to Buyer, as Buyer's sole and exclusive remedy. The Termination Notice
may set forth the reason for such termination and Buyer's suggested method,
timing, cost and means to cure such deficiencies, and in the event the
Termination Notice sets forth the reason for such termination, this Agreement
shall not be immediately terminated if Seller shall have given, at Seller's
option within ten (10) days after Seller's receipt of the Termination Notice,
written notice to Buyer that Seller elects to cure such specified items and
Seller shall have the right to postpone the Closing Date up to thirty (30) days
to effectuate such cure. Buyer's failure to deliver the Termination Notice on
or before the expiration of the Inspection Period shall be deemed a waiver of
Buyer's right to terminate this Agreement under this Section 19 or by reason of
the physical condition of the Premises.
20. Condemnation.
(a) Immaterial Taking. If any part of the Premises shall be
taken by exercise of the power of eminent domain after the date of this
Agreement and such taking (i) does not materially interfere with the use of the
Premises for the purposes for which it is currently used or (ii) does not have
a material adverse affect on the income from the Premises, this Agreement shall
continue in full force and effect and there shall be no abatement of the
Purchase Price. Seller shall be relieved, however, of its duty to convey title
to the portion so taken, but Seller shall, on the Closing Date, assign to Buyer
all rights and claims to any awards arising therefrom as well as any money
theretofore received by Seller on account thereof, net of any expenses to
Seller, including attorney's fees of collecting the same. Seller shall promptly
furnish Buyer with a copy of the declaration of taking property after Seller's
receipt thereof.
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<PAGE> 22
(b) Material Taking. If any such taking of a portion of the
Premises materially interferes with the use of the Premises for the purposes
for which it is currently used or has a material adverse affect on the income
from the Premises, either Seller or Buyer may terminate this Agreement by
written notice to the other party. Upon the giving of such termination notice,
this Agreement shall become null and void except for the indemnity obligations
of Buyer to Seller set forth in this Agreement which will survive termination
of this Agreement, and all executed counterparts of this Agreement shall be
returned to Seller.
21. Brokers. Buyer represents and warrants to Seller that Buyer has
dealt with no broker or other intermediary in connection with this transaction
or the Premises other than MidAmerican Real Estate and Tanguay-Burke-Stratton
(collectively, the "Disclosed Broker"). If any broker or other intermediary
other than the Disclosed Broker claims to have dealt with Buyer in connection
with this transaction or the Premises, to have introduced the Premises to Buyer
for sale, or to have been the inducing cause to the sale, Buyer shall
indemnify, defend and save Seller harmless of and from any claim for commission
or compensation by such broker or other intermediary. In consideration of the
foregoing, Seller agrees to pay all brokerage commissions due to the Disclosed
Broker if, as and when closing of the sale of the Premises is completed, and
Buyer shall have no liability or obligation in connection therewith.
22. CONDITION OF PREMISES.
(A) NO WARRANTIES. THE ENTIRE AGREEMENT BETWEEN THE SELLER AND
BUYER WITH RESPECT TO THE PREMISES AND THE PERSONAL PROPERTY AND THE SALE
THEREOF IS EXPRESSLY SET FORTH IN THIS AGREEMENT. THE PARTIES ARE NOT BOUND BY
ANY AGREEMENTS, UNDERSTANDINGS, PROVISIONS, CONDITIONS, REPRESENTATIONS OR
WARRANTIES (WHETHER WRITTEN OR ORAL AND WHETHER MADE BY SELLER OR ANY AGENT,
EMPLOYEE OR PRINCIPAL OF SELLER OR ANY OTHER PARTY) OTHER THAN AS ARE EXPRESSLY
SET FORTH AND STIPULATED IN THIS AGREEMENT. WITHOUT IN ANY MANNER LIMITING THE
GENERALITY OF THE FOREGOING, BUYER ACKNOWLEDGES THAT IT AND ITS REPRESENTATIVES
HAVE FULLY INSPECTED THE PREMISES, THE PERSONAL PROPERTY, THE EXISTING LEASES
AND ASSIGNED EXISTING AGREEMENTS, OR WILL BE PROVIDED WITH AN ADEQUATE
OPPORTUNITY TO DO SO, ARE OR WILL BE FULLY FAMILIAR WITH THE FINANCIAL AND
PHYSICAL (INCLUDING WITHOUT LIMITATION, ENVIRONMENTAL) CONDITION THEREOF, AND
THAT THE PREMISES, THE PERSONAL PROPERTY, THE EXISTING LEASES AND ASSIGNED
EXISTING AGREEMENTS HAVE BEEN PURCHASED BY BUYER IN AN "AS IS" AND "WHERE IS"
CONDITION AND WITH ALL EXISTING DEFECTS AS A RESULT OF SUCH INSPECTIONS AND
INVESTIGATIONS AND NOT IN RELIANCE ON ANY AGREEMENT, UNDERSTANDING, CONDITION,
WARRANTY (INCLUDING, WITHOUT LIMITATION, WARRANTIES OF HABITABILITY,
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE) OR REPRESENTATION MADE BY
SELLER OR ANY AGENT, EMPLOYEE OR PRINCIPAL OF SELLER OR ANY OTHER PARTY (EXCEPT
AS EXPRESSLY ELSEWHERE PROVIDED IN THIS AGREEMENT)
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<PAGE> 23
AS TO THE FINANCIAL OR PHYSICAL (INCLUDING, WITHOUT LIMITATION, ENVIRONMENTAL)
CONDITION OF THE PREMISES OR THE PERSONAL PROPERTY OR THE AREAS SURROUNDING
THE PREMISES, AS TO ANY MATTER, INCLUDING WITHOUT LIMITATION AS TO ANY
PERMITTED USE THEREOF, THE ZONING CLASSIFICATION THEREOF OR COMPLIANCE THEREOF
WITH FEDERAL, STATE OR LOCAL LAWS, AS TO THE INCOME OR EXPENSE IN CONNECTION
THEREWITH, OR AS TO ANY OTHER MATTER IN CONNECTION THEREWITH. BUYER
ACKNOWLEDGES THAT NEITHER SELLER, OR ANY AGENT OR EMPLOYEE OF SELLER NOR ANY
OTHER PARTY ACTING ON BEHALF OF SELLER HAS MADE OR SHALL BE DEEMED TO HAVE
MADE ANY SUCH AGREEMENT, CONDITION, REPRESENTATION OR WARRANTY EITHER
EXPRESSED OR IMPLIED, EXCEPT FOR THE REPRESENTATIONS OF SELLER, IF ANY,
EXPRESSLY SET FORTH IN THIS AGREEMENT. THIS PARAGRAPH SHALL SURVIVE CLOSING,
AND SHALL BE DEEMED INCORPORATED BY REFERENCE AND MADE A PART OF ALL DOCUMENTS
DELIVERED BY SELLER TO BUYER IN CONNECTION WITH THE SALE OF THE PREMISES AND
THE PERSONAL PROPERTY.
(b) CHANGE OF CONDITIONS. BUYER SHALL ACCEPT THE PREMISES AND
THE PERSONAL PROPERTY AT THE TIME OF CLOSING IN THE SAME CONDITION AS THE SAME
ARE AS OF THE END OF THE INSPECTION PERIOD, AS SUCH CONDITION SHALL HAVE
CHANGED BY REASON OF WEAR AND TEAR, DAMAGE BY FIRE OR OTHER CASUALTY. WITHOUT
LIMITING THE GENERALITY OF THE FOREGOING, BUYER SPECIFICALLY ACKNOWLEDGES THAT
THE FACT THAT ANY PORTION OF THE PREMISES OR THE PERSONAL PROPERTY OR ANY
EQUIPMENT OR MACHINERY THEREIN OR ANY PART THEREOF MAY NOT BE IN WORKING ORDER
OR CONDITION AT THE CLOSING DATE BY REASON OF WEAR AND TEAR OR DAMAGE BY FIRE
OR OTHER CASUALTY, OR BY REASON OF ITS PRESENT CONDITION, SHALL NOT RELIEVE
BUYER OF ITS OBLIGATION TO COMPLETE CLOSING UNDER THIS AGREEMENT AND PAY THE
FULL PURCHASE PRICE.
(c) Condition of Delivery. Seller has no obligation to deliver
the Premises in a "broom clean" condition if it is currently not in "broom
clean" condition, and at closing Seller may leave in the Premises all items of
personal property and equipment, partitions and debris as are now presently
therein.
(d) Seller Repairs. Between the date of the execution of this
Agreement and the Closing Date, Seller shall perform all customary repairs to
the Premises and the Personal Property as Seller has customarily previously
performed to maintain them in the same condition as they are as of the date of
the end of the Inspection Period, as said condition shall be changed by wear
and tear, damage by fire or other casualty.
(e) RELEASE. WITHOUT LIMITING THE PROVISIONS OF SUBPARAGRAPH
(a) ABOVE AND NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN THIS
AGREEMENT, BUYER HEREBY RELEASES SELLER AND (AS THE CASE MAY BE) SELLER'S
OFFICERS, DIRECTORS, SHAREHOLDERS, TRUSTEES, PARTNERS, EMPLOYEES, MANAGERS AND
AGENTS FROM ANY AND ALL CLAIMS, DEMANDS, CAUSES OF ACTIONS, LOSSES, DAMAGES,
LIABILITIES, COSTS AND EXPENSES (INCLUDING ATTORNEY'S FEES WHETHER THE SUIT IS
INSTITUTED OR NOT) WHETHER KNOWN OR
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<PAGE> 24
UNKNOWN, LIQUIDATED OR CONTINGENT (HEREINAFTER COLLECTIVELY CALLED THE
"CLAIMS") ARISING FROM OR RELATING TO (i) ANY DEFECTS, ERRORS OR OMISSIONS IN
THE DESIGN OR CONSTRUCTION OF THE PREMISES WHETHER THE SAME ARE THE RESULT OF
NEGLIGENCE OR OTHERWISE, OR (ii) ANY OTHER CONDITIONS, INCLUDING ENVIRONMENTAL
AND OTHER PHYSICAL CONDITIONS, AFFECTING THE PREMISES WHETHER THE SAME ARE A
RESULT OF NEGLIGENCE OR OTHERWISE. THE RELEASE SET FORTH IN THIS SECTION
SPECIFICALLY INCLUDES, WITHOUT LIMITATION, ANY CLAIMS UNDER ANY ENVIRONMENTAL
LAWS OF THE UNITED STATES, THE STATE IN WHICH THE PREMISES IS LOCATED OR ANY
POLITICAL SUBDIVISION THEREOF OR UNDER THE AMERICANS WITH DISABILITIES ACT OF
1990, AS ANY OF THOSE LAWS MAY BE AMENDED FROM TIME TO TIME AND ANY
REGULATIONS, ORDERS, RULES OF PROCEDURES OR GUIDELINES PROMULGATED IN
CONNECTION WITH SUCH LAWS, REGARDLESS OF WHETHER THEY ARE IN EXISTENCE ON THE
DATE OF THIS AGREEMENT. BUYER ACKNOWLEDGES THAT BUYER HAS BEEN REPRESENTED BY
INDEPENDENT LEGAL COUNSEL OF BUYER'S SELECTION AND BUYER IS GRANTING THIS
RELEASE OF ITS OWN VOLITION AND AFTER CONSULTATION WITH BUYER'S COUNSEL. THIS
PARAGRAPH SHALL NOT APPLY TO ANY BREACH OF ANY REPRESENTATION BY SELLER UNDER
THIS AGREEMENT.
(f) Seller Reports. Buyer acknowledges that Seller makes no
warranties or representations regarding the adequacy, accuracy or completeness
of Seller's environmental and engineering reports (collectively the "Reports")
or other documents relating to the Reports, and Buyer shall have no claim
against Seller based upon the Reports or such other documents relating to the
Reports. Buyer further acknowledges that Buyer has had full opportunity to
perform such environmental and engineering investigations as Buyer deems
appropriate prior to entering into this Agreement or shall have such
opportunity during the Inspection Period, and Buyer obtained or shall obtain
its own environmental and engineering reports of the Premises. If no Event of
Seller Default has occurred, Buyer agrees to provide Seller, upon the Closing
Date or within ten (10) days after termination of this Agreement, with copies
of all environmental and engineering reports ordered by Buyer with respect to
the Premises.
(g) Effect of Disclaimers. Buyer acknowledges and agrees that
the Purchase Price has been negotiated to take into account that the Premises
and Personal Property are being sold subject to the provisions of Section 22 of
this Agreement and that Seller would have charged a higher purchase price if
the provisions in this Section 22 were not agreed upon by Buyer.
23. Survival of Provisions.
(a) Acceptance by Buyer of the Deed at closing shall constitute
an acknowledgment by Buyer of full performance by Seller of all of Seller's
obligations under this Agreement.
(b) Buyer's obligations under this Agreement as shall possibly
imply performance or observance after the Closing
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<PAGE> 25
Date shall survive closing, notwithstanding any presumption to the contrary;
without in any manner limiting the generality of the foregoing provisions of
this sentence, the obligations of Buyer under Paragraphs 5(c), 6(a), 6(b),
9(b), l9(a), 21, and 22(e) above shall survive closing. Notwithstanding any
provision to the contrary set forth in this Agreement, the warranties and
representations of Buyer set forth in Sections 12(a) and 12(b) shall not
survive closing.
(c) (i) Notwithstanding any provision to the contrary set
forth in this Agreement, the warranties and representations of Seller set forth
in Sections 5(a), 9(a), lO(a)(iv) but only with respect to the Existing Leases
of or which a Tenant Estoppel Certificate is not delivered, and l0(a)(v) (all
herein called the "Surviving Warranties") shall survive closing under this
Agreement for a period of only six (6) months, and the warranties and
representations of Seller set forth in Sections l0(a)(i), l0(a)(ii),
l0(a)(iii), and l0(a)(iv) with respect to Existing Leases for which a Tenant
Estoppel Certificate is delivered (all herein called the "Non-Surviving
Warranties") shall not survive closing.
(ii) If Buyer determines that any of the Surviving
Warranties or any of the Non-Surviving Warranties are breached prior to the
Closing Date, Buyer's sole right and remedy shall be to terminate this
Agreement by giving to Seller written notice of such termination prior to the
closing. If Buyer fails to give such written termination notice to Seller
within such time period, Buyer shall be deemed to have waived any right or
remedy (including, without limitation, any right under this Agreement to
terminate this Agreement) against Seller by reason of the breach of such
warranty.
(iii) Seller shall have no liability to Buyer by reason
of a breach or default of any of the Surviving Warranties, unless Buyer shall
have given to Seller written notice ("Warranty Notice") of such breach or
default within twelve (12) months of the Closing Date, and shall have given to
Seller an opportunity to cure any such breach or default within a reasonable
period of time after Buyer's learning of such breach of warranty. In no event
shall Seller's liability to Buyer by reason of a breach or default of any of
the Surviving Warranties exceed the total aggregate amount of $1,630,000.00.
Any litigation to enforce any Surviving Warranty must be commenced within three
(3) months from the date of the Warranty Notice, and if not commenced within
such time period, Buyer shall be deemed to have waived its claims for such
breach or default.
(iv) Buyer shall, prior to the Closing Date, make its
own independent investigation and determination as to the truth and accuracy of
the Non-Surviving Warranties. If Buyer shall complete closing under this
Agreement, Buyer shall be deemed to have conclusively determined that the
Non-Surviving Warranties are true and correct, and Buyer shall be deemed to
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<PAGE> 26
have waived any claim against Seller by reason of a breach of any of the
Non-Surviving Warranties. If Buyer shall determine on or prior to the Closing
Date that any of the Non-Surviving Warranties shall have been breached or are
in default, Buyer's sole right and remedy shall be to terminate this Agreement
by written notice to Seller on or before the Closing Date. In the event Buyer
terminates this Agreement pursuant to any of the provisions set forth above in
this subparagraph, this Agreement shall be and become null and void (except
the indemnity obligations of Buyer to Seller set forth in this Agreement shall
survive the termination of this Agreement), neither Buyer nor Seller shall
have any further rights nor obligations hereunder, the Deposit shall be
returned to Buyer and all copies of this Agreement shall be returned to
Seller.
24. Miscellaneous.
(a) Captions or Headings; Interpretation. The captions or
headings of the Paragraphs and subparagraphs of this Agreement are for
convenience only, and shall not control or affect the meaning or construction
of any of the terms or provisions of this Agreement. Wherever in this Agreement
the singular number is used, the same shall include the plural and vice versa
and the masculine gender shall include the feminine gender and vice versa as
the context shall require.
(b) Amendments and Waivers. No change, alteration, amendment,
modification or waiver of any of the terms or provisions of this Agreement
shall be valid, unless the same shall be in writing and signed by Buyer and
Seller.
(c) No Rule of Construction. This Agreement has been negotiated
at arms length by both Seller and Buyer, and no rule of construction shall be
invoked against either party with respect to the authorship thereof or of any
of the documents to be delivered by the respective parties at the closing.
(d) Counterparts. This Agreement may be executed in multiple
counterparts each of which shall be deemed an original but together shall
constitute one agreement.
(e) Applicable Law. This Agreement shall be governed and
construed according to the laws of the State of Illinois.
(f) Right to Waive Conditions or Contingency. Either party may
waive any of the terms and conditions of this Agreement made for its benefit
provided such waiver is in writing and signed by the party waiving such term or
condition.
(g) Partial Invalidity. If any term, covenant, condition or
provision of this Agreement or the application thereof to any person or
circumstance shall be invalid or unenforceable, at any time or to any extent,
the remainder of
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<PAGE> 27
this Agreement, or the application of such term or provision to persons or
circumstances other than those as to which it is held invalid or unenforceable,
shall not be affected thereby. Each term, covenant, condition and provision of
this Agreement shall be valid and enforced to the fullest extent permitted by
law.
(h) Confidentiality. Seller and Buyer agree to keep this
Agreement confidential and not make any public announcements or disclosures
with respect to the subject matter of this Agreement without the written
consent of the other party. This provision shall survive Closing.
(i) Agreement Not To Be Recorded. This Agreement shall not be
filed of record by or on behalf of Buyer in any office or place of public
record. If Buyer fails to comply with the terms hereof by recording or
attempting to record this Agreement or a notice thereof, such act shall not
operate to bind or cloud the title to the Premises. Seller shall, nevertheless,
have the right forthwith to institute appropriate legal proceedings to have the
same removed from record. If Buyer or any agent, broker or counsel acting for
Buyer shall cause or permit this Agreement or a copy thereof to be filed in an
office or place of public record, Seller, at its option, and in addition to
Seller's other rights and remedies, may treat such act as a default of this
Agreement on the part of Buyer. However, the filing of this Agreement in any
lawsuit or other proceedings in which such document is relevant or material
shall not be deemed to be a violation of this Paragraph.
(j) Waiver of Tender of Deed and Purchase Monies. The tender of
an executed Deed by Seller and the tender by Buyer of the portion of the
Purchase Price payable at closing are hereby mutually waived; but nothing
herein contained shall be construed as a waiver of Seller's obligation to
deliver the Deed and/or of the concurrent obligation of Buyer to pay the
Purchase Price payable at closing.
(k) Time of the Essence. Time, wherever specified herein for
the performance by Seller or Buyer of any of their respective obligations
hereunder, is hereby made and declared to be of the essence of this Agreement.
(l) SEC Audit Requirement. Seller acknowledges that Buyer has
advised Seller that Buyer is required by the applicable regulations of the
Securities and Exchange Commission to obtain an audit of the operation of the
Premises prior to the acquisition of the Premises, that Buyer will obtain the
audit from KMPG Peat Marwick and that Seller or the property manager for the
Premises for Seller will be required to represent to such auditor to the effect
that the books and records for the Premises "fairly and accurately represent in
all material respects the operation of the Premises." Seller will provide to
such auditor a representation to such effect reasonably acceptable to Seller
and such auditor; Buyer waives any claim against Seller or the
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<PAGE> 28
property manager for the Premises for Seller if such representation is not true
or correct.
25. ERISA. Seller and Buyer hereby agree that if the transactions
contemplated by this Agreement are non-exempt prohibited transactions under
Section 406 of ERISA Seller shall not be obligated to sell the Premises to
Buyer. Within five (5) days from the date of this Agreement, Buyer shall
provide to Seller all information on the ownership of Buyer necessary or
desirable to enable Seller to determine whether the sale of the Premises will
be a non-exempt prohibited transaction. If Buyer fails to provide such
information, or if such information provided to Seller indicates, in Seller's
reasonable judgment, that the transactions contemplated hereby are, or raises a
material question whether it may be, prohibited under the foregoing provisions
of ERISA, Seller may, at its option exercised within ten (10) business days
after receipt of all such information from Buyer requested by Seller, terminate
this Agreement by written notice thereof to Buyer, whereupon Buyer shall be
entitled to the return of the Deposit, and upon such termination and return of
the Deposit, Buyer and Seller shall thereafter have no further liability or
obligations hereunder, or otherwise, and this Agreement shall be deemed of no
further force or effect, except that the indemnity obligations of Buyer to
Seller set forth in this Agreement shall survive such termination.
26. Limited Liabilitv. The obligations of Seller under this
Agreement or directly or indirectly arising out of this Agreement shall be
limited solely to Seller's interest in the Premises and Personal Property, and
neither Buyer nor any one else claiming by or through Buyer shall have any
claim against any other asset of Seller or any partner of Seller.
IN WITNESS WHEREOF, the parties hereto, intending legally to be
bound hereby, have executed this Agreement as of the date first above written.
SELLER: BUYER:
- ------- ------
LANSING SQUARE RPFII LIMITED INLAND REAL ESTATE
PARTNERSHIP, CORPORATION,
a Delaware limited partnership a Maryland corporation
By: Lansing Square RPFII Realty
Corporation, its general By:
partner --------------------
Name:
Title:
By: Raymond L. Owens
----------------------
Name: Raymond L. Owens
Title: Vice President
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<PAGE> 29
property manager for the Premises for Seller if such representation is not true
or correct.
25. ERISA. Seller and Buyer hereby agree that if the transactions
contemplated by this Agreement are non-exempt prohibited transactions under
Section 406 of ERISA Seller shall not be obligated to sell the Premises to
Buyer. Within five (5) days from the date of this Agreement, Buyer shall
provide to Seller all information on the ownership of Buyer necessary or
desirable to enable Seller to determine whether the sale of the Premises will
be a non-exempt prohibited transaction. If Buyer fails to provide such
information, or if such information provided to Seller indicates, in Seller's
reasonable judgment, that the transactions contemplated hereby are, or raises a
material question whether it may be, prohibited under the foregoing provisions
of ERISA, Seller may, at its option exercised within ten (10) business days
after receipt of all such information from Buyer requested by Seller, terminate
this Agreement by written notice thereof to Buyer, whereupon Buyer shall be
entitled to the return of the Deposit, and upon such termination and return of
the Deposit, Buyer and Seller shall thereafter have no further liability or
obligations hereunder, or otherwise, and this Agreement shall be deemed of no
further force or effect, except that the indemnity obligations of Buyer to
Seller set forth in this Agreement shall survive such termination.
26. Limited Liability. The obligations of Seller under this
Agreement or directly or indirectly arising out of this Agreement shall be
limited solely to Seller's interest in the Premises and Personal Property, and
neither Buyer nor any one else claiming by or through Buyer shall have any
claim against any other asset of Seller or any partner of Seller.
IN WITNESS WHEREOF, the parties hereto, intending legally to be bound
hereby, have executed this Agreement as of the date first above written.
SELLER: BUYER:
- ------- ------
LANSING SQUARE RPFII LIMITED INLAND REAL ESTATE
PARTNERSHIP, CORPORATION,
a Delaware limited partnership a Maryland corporation
By: Lansing Square RPFII Realty
Corporation, its general By:[signature]
partner ---------------------
Name:
By: Title: Agent
----------------------------
Name:
Title:
-26-
<PAGE> 30
EXHIBIT "A"
-----------
LEGAL DESCRIPTION OF PREMISES
-----------------------------
THE NORTH HALF OF THE SOUTH HALF OF THE
SOUTHWEST QUARTER (EXCEPT THE EAST 20 ACRES
THEREOF) OF SECTION 30, TOWNSHIP 36 NORTH,
RANGE 15, EAST OF THE THIRD PRINCIPAL MERIDIAN,
IN COOK COUNTY, ILLINOIS, (EXCEPT THOSE PARTS
TAKEN OR DEDICATED FOR STREETS AND HIGHWAYS),
IN COOK COUNTY, ILLINOIS.
<PAGE> 31
EXHIBIT "B"
-----------
LIST OF PERSONAL PROPERTY
-------------------------
1. Miscellaneous Christmas Decorations
<PAGE> 32
EXHIBIT "C"
-----------
TITLE OBJECTIONS
----------------
1. Taxes and assessments which are a lien, but which are not yet billed,
or are billed but are not yet due and payable.
2. Any laws, regulations or ordinances (including, but not limited to,
zoning, building and environmental matters) as to the use, occupancy,
subdivision or improvement of the Premises adopted or imposed by any
governmental agency.
3. State of facts which are shown on the Survey to which no objection is
made in the Title Notice.
4. Easements pursuant to the document recorded as number 91678318.
5. Easements pursuant to the document recorded as number 91492119.
<PAGE> 33
EXHIBIT "D"
LIST OF EXISTING LEASES
-----------------------
1. Lease Agreement dated June 25, 1995 between Lansing Square RPFII
Limited Partnership and Ameritech Mobile Communications, Inc.
2. Lease Agreement dated August 18, 1995 between Lansing Square RPFII
Limited Partnership and Baby Superstore, Inc.
3. Lease Agreement dated September 20, 1991 between WR Lansing Limited
Partnership and Blockbuster Videos, Inc., as amended by Amendment dated
December 12, 1991 and Second Amendment dated November 22, 1996, as
assigned to Lansing Square RPFII Limited Partnership.
4. Lease Agreement dated September 16, 1991 between WR Lansing Limited
Partnership and Prima Limited Partnership d/b/a Cost Cutters, as
amended by Letter Agreement dated April 19, 1996, and as assigned to
Lansing Square RPFII Limited Partnership.
5. Lease Agreement dated May 1, 1996 between Lansing Square RPFII Limited
Partnership and John Heintz, Lois Heintz, Mike McCreight and Elena
McCreight.
6. Lease Agreement dated August 28, 1995 between Lansing Square RPFII
Limited Partnership and M&M Bagels, Inc.
7. Lease Agreement dated May 29, 1996 between Lansing Square RPFII Limited
Partnership and Little Minds, Inc.
8. Lease Agreement dated September 7, 1993 between WR Lansing Limited
Partnership and Norwest Financial, Inc., as assigned to Lansing Square
RPFII Limited Partnership.
9. Lease Agreement dated February 7, 1992 between WR Lansing Limited
Partnership and Gayapri, Inc., as assigned to Lansing Square RPFII
Limited Partnership.
10. Lease Agreement dated October 20, 1996 between Lansing Square RPFII
Limited Partnership and Happiness is Pets of Lansing, Inc.
11. Lease Agreement dated October 21, 1996 between Lansing Square RPFII
Limited Partnership and Paulan Properties d/b/a Papa Johns Pizza.
12. Lease Agreement dated July 23, 1991 between WR Lansing Limited
Partnership and OfficeMax, Inc., as amended by First Amendment to Lease
dated November 15, 1995, and as assigned to Lansing Square RPFII
Limited Partnership.
Page 1 of 2
<PAGE> 34
13. Lease Agreement dated May 29, 1992 between WR Lansing Limited
Partnership and Pappy's Inc., as amended by an Assignment & Assumption
of Lease dated June 8, 1995, and as assigned to Lansing Square RPFII
Limited Partnership.
14. Lease Agreement dated August 18, 1995 between Lansing Square RPFII
Limited Partnership and Racers Row, Ltd.
15. Lease Agreement dated January 29, 1991 between WR Lansing Limited
Partnership and Sterling Visions Shops, Inc., as assigned to Lansing
Square RPFII Limited Partnership.
16. Lease Agreement dated November 1, 1991 between WR Lansing Limited
Partnership and Wolf Camera, Inc., as assigned to Lansing Square RPFII
Limited Partnership.
17. Lease dated January 29, 1991 between WR Lansing Limited Partnership and
PACE Membership Warehouse, Inc., as amended by First Amendment dated
July 24, 1991 and by Second Amendment dated May 13, 1991, as assigned
by Assignment and Assumption of Lease; Right of First Refusal (undated)
between PACE Membership Warehouse, Inc. and Wal-Mart Stores, Inc. and
pursuant to Notice of Assignment dated September 13, 1996, as assigned
to Lansing Square RPFII Limited Partnership.
Page 2 of 2
<PAGE> 35
EXHIBIT "E"
List of Existing Agreements
1. Monitoring Agreement dated February 9, 1995 between Pyramid Alarm,
Inc. and Lansing Square RPFII Limited Parternship (Blockbuster, 17601
Torrence Avenue, Lansing, Illinois).
2. Monitoring Agreement dated February 9, 1995 between Pyramid Alarm,
Inc. and Lansing Square RPFII Limited Partnership (Building A, 17627-17669
Torrence Avenue, Lansing, Illinois).
3. Monitoring Agreement dated February 9, 1995 between Pyramid Alarm,
Inc. and Lansing Square RPFII Limited Partnership (17675 Torrence Avenue,
Lansing, Illinois).
4. Service Contract dated September 19, 1996 between Tanguay-Burke-Stratton
Property Management Company and Arctic Snow & Ice Control, Inc.
5. Parking Lot Sweeping and Site Maintenance Contract dated April 30,
1996 between Tanguay-Burke-Stratton Property Management Company, Inc. and
Professional Cleaning Co., Inc.
6. Contingent Fee Agreement dated September 24, 1996 between Lansing Square
RPFII Limited Partnership and O'Keefe, Ashenden, Lyons & Ward.
7. Service Agreement (undated) between Lansing Square RPFII Limited
Partnership and Homewood Disposal Service, Inc.
<PAGE> 36
EXHIBIT "F"
ASSIGNMENT AND ASSUMPTION AGREEMENT
THIS ASSIGNMENT AND ASSUMPTION AGREEMENT (this "Assignment") is made as
of this __________ day of December, 1996, by LANSING SQUARE RPFII LIMITED
PARTNERSHIP, a Delaware limited partnership ("Assignor"), and ____________
("Assignee").
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties agree as follows:
1. Assignor hereby assigns to Assignee all of Assignor's interest in
and to those leases set forth on Exhibit A hereto (the "Leases") and those
contracts set forth on Exhibit B hereto (the "Contracts").
2. Assignee hereby accepts the assignment set forth in Section 1 hereof
and hereby agrees to assume all of Assignor's obligations under the Leases and
the Contracts, and shall perform, discharge, fulfill and observe all terms,
obligations, covenants, conditions and provisions of landlord or assignor, as
the case may be, in each case arising from or after the date hereof.
3. Assignee agrees to save and hold Assignor harmless from any and all
expenses, charges, claims and liabilities (including without limitation
reasonable attorneys' fees) incurred by Assignor arising under the Leases or
the Contracts as a result of any action or omission of Assignee from and after
the date hereof.
4. This Assignment shall be binding upon and inure to the benefit of
Assignor and Assignee and their respective successors and assigns.
5. This Assignment may be executed in one or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and all the same instrument.
IN WITNESS WHEREOF, the parties have executed this Assignment on this
the day and date first above written.
ASSIGNOR ASSIGNEE
LANSING SQUARE RPFII [NAME]
LIMITED PARTNERSHIP,
a Delaware limited partnership
By: LANSING SQUARE RPFII REALTY
CORPORATION, a Delaware By:
corporation, General Partner -------------------------
Name:
By: Title:
--------------------------
Name:
Title:
Exhibit A -- List of Existing Leases
Exhibit B -- List of Existing Agreements
<PAGE> 37
EXHIBIT "G"
Tenants for Which Tenant Estoppel Certificates are Required
1. Sam's Wholesale Club #6489
2. Office Max, Inc. #064/Furniture Max
3. Baby Superstore, Inc.
4. Blockbuster Videos
5. Tenants under other Existing Leases for not less than
15,200 square feet of space
<PAGE> 38
EXHIBIT "H"
TENANT ESTOPPEL CERTIFICATE
To: _______________________ ("Landlord")
and
_______________________ ("Buyer")
Re: Property Address:____________________________
Lease Date:__________________________________
Between ________________________, Landlord and
___________________________, Tenant
Square Footage Leased:_______________________
Suite No.:___________________________________
Floor:_______________________________________
The undersigned Tenant under the above-referenced lease ("Lease"),
certifies to Landlord and Buyer the following:
1) The above-described lease has not been cancelled, modified,
assigned, extended or amended except _______________________.
2) Rent has been paid to the first day of the current month and all
additional rent has been paid and collected in a current manner.
There is no prepaid rent except $ _________, and the amount of the
security deposit is $____________________ .
3) Tenant took possession of the leased premises on _______________,
199_ and commenced to pay rent on ________________, 199_. Rent is
currently payable in the amount of $____________ monthly exclusive
of Tenant's share of taxes and operating expenses.
4) The Lease terminates on __________, 199_ subject to any renewal
option(s) set forth in the Lease.
5) All work to be performed for Tenant under the Lease has been
performed as required and has been accepted by Tenant, except
______________________________.
6) The Lease is: (a) in full force and effect; (b) [to Tenant's actual
knowledge] free from default; and (c) [to Tenant's actual
knowledge] Tenant has no claims against the Landlord or offsets
against rent.
7) The undersigned has received no notice of prior sale, transfer or
assignment, hypothecation or pledge of the Lease or of the rents
received therein, except _______________________.
<PAGE> 39
8) The undersigned has no other interest in any other part of the
building of which the premises form a part or to any personal
property appurtenant thereto or used in connection therewith
except _______________________.
9) The undersigned has no right or option pursuant to the said lease
or otherwise to purchase all or any part of the leased premises or
the building of which the leased premises are a part.
10) There are no other agreements written or oral between the
undersigned and the Landlord with respect to the Lease and/or the
leased premises and building.
11) The statements contained herein may be relied upon by the Landlord
and by any prospective purchaser of the property of which the
premises is a part and its mortgage lender.
If a blank in this document is not filled in, the blank will be deemed
to read "none".
If Tenant is a corporation, the undersigned signatory is a duly
appointed Officer of the corporation.
Dated this ___ day of _____________, 199 _ .
Tenant: _________________________________
By: _____________________________________
NOTE: TO THE EXTENT A TENANT LEASE DOES NOT REQUIRE A TENANT TO CERTIFY TO
CERTAIN OF THESE ITEMS, THOSE ITEMS NEED NOT BE INCLUDED IN SUCH
TENANT'S ESTOPPEL CERTIFICATE.
-4-
<PAGE> 40
DEED IN TRUST - QUIT CLAIM EXHIBIT "I-1"
THIS INDENTURE, WITNESSETH,
THAT THE GRANTOR,
of the County of and
State of , for and in
consideration of the sum of
Dollars
($ ) in hand paid,
and of other good and valuable
considerations, receipt of
which is hereby duly
acknowledged,* convey and
QUIT-CLAIM unto AMERICAN
NATIONAL BANK AND TRUST
COMPANY OF CHICAGO, a National (Reserved for Recorders Use Only)
Banking Association whose --------------------------------------
address is 33 N. LaSalle St., *pursuant to authority given by the
Chicago, Illinois, as Trustee Board of Directors of said corporation
under the provisions of a
certain Trust Agreement
dated the day of , and known as Trust
Number , the following
described real estate
situated in
County, Illinois, to wit:
SEE ATTACHED LEGAL DESCRIPTION
Commonly Known As ___________________________________
Property Index Number _______________________________
TO HAVE AND TO HOLD the said real estate with the appurtenances, upon
the trusts, and for the uses and purposes herein and is said Trust Agreement
set forth.
THE TERMS AND CONDITIONS APPEARING ON THE REVERSE SIDE OF THIS
INSTRUMENT ARE MADE A PART HEREOF.
And the said grantor hereby expressly waive and release any
and all right or benefit under and by virtue of any and all statutes of the
State of Illinois, providing for exemption or homesteads from sale on execution
or otherwise.
In Witness Whereof, said Grantor has caused its corporate seal to be
hereto affixed, and has caused its name to be signed to these presents by its
____ President, and attested by its _______________ Secretary, this ________
day of __________, 19__.
__________________________________________________________
IMPRESS (NAME OF CORPORATION)
CORPORATE SEAL BY:
HERE ----------------------------------------------------------
PRESIDENT
ATTEST:
----------------------------------------------------------
SECRETARY
State of Illinois, County of _________ ss. I, the undersigned, a Notary
Public, in and for the County and State aforesaid, DO HEREBY CERTIFY,
that _________ personally known to me to be the ______________
President of the
corporation, and __________________ personally known to
me to be the ________________ Secretary of said corporation,
and personally known to me to be the same persons whose
names are subscribed to the foregoing instrument, appeared
before me this day in person and severally acknowledged that
as such _________ President and _____________ Secretary,
they signed and delivered the said instrument and caused the
corporate seal of said corporation to be affixed thereto,
pursuant to authority given by the Board of ____________ of
said corporation, as their free and voluntary act, and as
the free and voluntary act and deed of said corporation, for
the uses and purposes therein set forth.
Given under my hand and official seal, this _________ day of _____
19__.
Commission expires ________________ 19__ _________________________
NOTARY PUBLIC
Prepared By:
________________________________________________________________________________
American National Bank and Trust Company of Chicago
MAIL TO: Box 221
<PAGE> 41
Full power and authority is hereby granted to said Trustee to improve,
manage, protect and subdivide said real estate or any part thereof, to dedicate
parks, streets, highways or alleys, to vacate any subdivision or part thereof,
and to resubdivide said real estate as often as desired, to contract to sell,
to grant options to purchase, to sell on any terms, to convey either with or
without consideration, to convey said real estate or any part thereof to a
successor or successors in trust and to grant to such successor or successors
in trust all of the title, estate, powers and authorities vested in said
Trustee, to donate, to dedicate, to mortgage, pledge or otherwise encumber said
real estate, or any part thereof, to lease said real estate, or any part
thereof, from time to time, in possession or reversion, by leases to commence
in present or in future, and upon any terms and for any period or periods of
time, not exceeding in the case of any single demise the term of 198 years,
and to renew or extend leases upon any terms and for any period or periods of
time and to amend, change or modify leases and the terms and provisions thereof
at any time or times hereafter, to contract to make leases and to grant options
to lease and options to renew leases and options to purchase the whole or any
part of the reversion and to contract respecting the manner of fixing the
amount of present or future rentals, to partition or to exchange said real
estate, or any part thereof, for other real or personal property, to grant
easements or charges of any kind, to release, convey or assign any right title
or interest in or about or easement appurtenant to said real estate or any
part thereof, and to deal with said real estate and every part thereof in all
other ways and for such other considerations as it would be lawful for any
person owning the same to deal with the same, whether similar to or different
from the ways above specified, at any time or times hereafter.
In no case shall any party dealing with said Trustee, or any successor
in trust in relation to said real estate, or to whom said real estate or any
part thereof shall be conveyed, contracted to be sold, leased or mortgaged by
said Trustee, or any successor in trust, be obliged to see to the application
of any purchase money, rent or money borrowed or advanced on said real estate,
or be obliged to see that the terms of this trust have been complied with, or
be obliged to inquire into the authority, necessity or expediency of any act
of said Trustee, or be obliged or privileged to inquire into any of the terms
of said Trust Agreement; and every deed, trust deed, mortgage, lease or other
instrument executed by said Trustee, or any successor in trust, in relation to
said real estate shall be conclusive evidence in favor of every person
(including the Registrar of Titles of said county) relying upon or claiming
under any such conveyance, lease or other instrument, (a) that at the time of
the delivery thereof the trust created by this Indenture and by said Trust
Agreement was in full force and effect, (b) that such conveyance or other
instrument was executed in accordance with the trusts, conditions and
limitations contained in this Indenture and in said Trust Agreement or in all
amendments thereof, if any, and binding upon all beneficiaries thereunder, (c)
that said Trustee, or any successor in trust, was duly authorized and empowered
to execute and deliver every such deed, trust deed, lease, mortgage or other
instrument and (d) if the conveyance is made to a successor or successors in
trust, that such successor or successors in trust have been properly appointed
and are fully vested with all the title, estate, rights, powers, authorities,
duties and obligations of its, his or their predecessor in trust.
This conveyance is made upon the express understanding and condition
that neither American National Bank and Trust Company of Chicago, individually
or as Trustee, nor its successor or successors in trust shall incur any
personal liability or be subjected to any claim, judgment or decree for anything
it or they or its or their agents or attorneys may do or omit to do in or about
the said real estate or under the provisions of this Deed or said Trust
Agreement or any amendment thereto, or for injury to person or property
happening in or about said real estate, any and all such liability being
hereby expressly waived and released. Any contract, obligation or indebtedness
incurred or entered into by the Trustee in connection with said real estate may
be entered into by it in the name of the then beneficiaries under said Trust
Agreement as their attorney-in-fact, hereby irrevocably appointed for such
purposes, or at the election of the Trustee, in its own name, as Trustee of an
express trust and not individually (and the Trustee shall have no obligation
whatsoever with respect to any such contract, obligation, or indebtedness
except only so far as the trust property and funds in the actual possession of
the Trustee shall be applicable for the payment and discharge thereof.) All
persons and corporations whomsoever and whatsoever shall be charged with notice
of this condition form the date of the filing for record of this Deed.
The interest of each and every beneficiary hereunder and under said
Trust Agreement and of all persons claiming under them or any of them shall be
only in the earnings, avails and proceeds arising from the sale or any other
disposition of said real estate, and such interest is hereby declared to be
personal property, and no beneficiary hereunder shall have any title or
interest, legal or equitable, in or to said real estate as such, but only an
interest in earnings, avails and proceeds thereof as aforesaid, the
intention hereof being to vest in said American National Bank and Trust Company
of Chicago the entire legal and equitable title in fee simple, in and to all of
the real estate above described.
If the title to any of the above real estate is now or hereafter
registered, the Registrar of Titles is hereby directed not to register or note
in the certificate of title or duplicate thereof, or memorial, the words "in
trust," or "upon condition," or "with limitations," or words of similar
import, in accordance with the statute in such case made and provided.
<PAGE> 42
EXHIBIT "I-2"
BILL OF SALE
THIS BILL OF SALE is made as of the __ day of __________, 199_, from,
LANSING SQUARE RPFII LIMITED PARTNERSHIP, a Delaware limited partnership
("Seller"), to _____________________, a _________________ ("Buyer").
RECITALS:
WHEREAS, contemporaneously with the execution and delivery of this Bill
of Sale, Seller has sold and conveyed to Buyer all of Seller's right, title and
interest and estate in and to the real property described in Exhibit "A"
attached hereto and made a part hereof and all buildings, structures and
improvements located thereon by Special Warranty Deed of even date herewith
(all of such buildings, structures, improvements and real property collectively
hereinafter referred to as the "Real Property"); and
WHEREAS, as a part of the consideration for the conveyance of the Real
Property, Seller has agreed to convey to Buyer the items of personal property
described below which are owned by Seller and located in, on and used in
connection with, the Real Property;
NOW THEREFORE, in consideration of the sum of $10.00 and other good and
valuable consideration, the receipt and adequacy of which are hereby
acknowledged, Seller does hereby (a) sell, assign, and convey to Buyer all the
personal property described on Exhibit "B" (whether or not any of the items
listed on Exhibit "B" constitute "personal property" or "fixtures" as a matter
of state law) attached hereto and incorporated herein by reference
(collectively the "Personal Property"), and (b) quit claim and release to
Buyer, to the extent existing and assignable, Seller's right, title and
interest (if any) in the trade names, plans and specifications, construction
warranties and guaranties, tenant records, and like personal property, in the
possession of Seller which directly relate to the Real Property, subject in
both cases to matters of public record and to rights of tenants under written
leases in effect on the date hereof.
TO HAVE AND TO HOLD the same unto Buyer, its successors and assigns,
forever, and Seller hereby specially warrants title to the Personal Property
listed on Exhibit "B" subject to matters of public record including, without
limitation, the lien held by _____________________.
This Bill of Sale shall be binding upon and shall inure to the benefit
of Seller, Buyer and their respective successors and assigns.
This Bill of Sale shall be governed by and construed in accordance with
the laws of the State of ________________.
<PAGE> 43
NOTWITHSTANDING ANYTHING CONTAINED IN THIS BILL OF SALE TO THE
CONTRARY, THIS BILL OF SALE IS SUBJECT TO ALL DISCLAIMERS AND QUALIFICATIONS BY
SELLER AND ALL ENCUMBRANCES SET FORTH IN THE AGREEMENT OF SALE DATED ________,
199_ WITH RESPECT TO THE PERSONAL PROPERTY, AND SUCH DISCLAIMERS,
QUALIFICATIONS AND ENCUMBRANCES ARE HEREBY INCORPORATED HEREIN BY REFERENCE AND
MADE A PART HEREOF.
IN WITNESS WHEREOF, Seller has caused this Bill of Sale to be duly
signed as of the day and year first written above.
LANSING SQUARE RPFII LIMITED
PARTNERSHIP, a Delaware limited
partnership
By: Lansing Square RPFII Realty
Corp., a Delaware corporation,
General Partner
By:____________________________
Name:__________________________
Title:_________________________
<PAGE> 44
EXHIBIT "J"
FIRPTA CERTIFICATION
Section 1445 of the Internal Revenue Code provides that a transferee of
a U.S. real property interest must withhold tax if the transferor is a foreign
person. To inform the transferee that withholding of tax is not required upon
the disposition of a U.S. real property interest by ___________ ("Transferor"),
the undersigned hereby certifies the following on behalf of Transferor:
1. Transferor is not a foreign corporation, foreign partnership,
foreign trust, or foreign estate (as those terms are defined in the Internal
Revenue Code and Income Tax Regulations);
2. Transferor's U.S. taxpayer identification number is ___________; and
3. Transferor's office address is:
3003 Summer Street
P.O. Box 7900
Stamford, Connecticut 06905
Transferor understands that the above information may be disclosed to the
Internal Revenue Service by the transferee and that any false statement
contained herein could be punished by fine, imprisonment, or both.
Under penalties of perjury, I declare that I have examined this
instrument and to the best of my knowledge and belief it is true, correct, and
complete, and I further declare that I have authority to sign this document
on behalf of Transferor.
-----------------------
Name:
Title:
Dated:
----------------------------
<PAGE> 45
EXHIBIT "K"
TENANT LETTER
______________, 199_
To The Tenants:
Re:_________________________ ("Premises")
_________________________
Dear Tenant:
_________________ ("Buyer") has purchased the Premises from the
undersigned owner ("Seller").
Seller has transferred your security and/or deposit (if any) (the
"Security Deposit") to Buyer. Buyer has assumed full responsibility for the
Security Deposit including the return of the Security Deposit to you at the
time and upon the conditions set forth in your lease.
All rental and other payments that become due under your lease
subsequent to the date hereof should be payable to Buyer and sent to
____________ as Buyer's management agent, at the following address:
-----------------------------
-----------------------------
Very truly yours,
SELLER:
LANSING SQUARE RPFII LIMITED
PARTNERSHIP, a Delaware partnership
By: Lansing Square RPFII Realty
Corporation, a Delaware
corporation, its general
partner
By:
-------------------------------
Vice President
BUYER:
By:
-------------------------------
Name:
--------------------------
Title:
-------------------------
<PAGE> 1
[INLAND REAL ESTATE LETTERHEAD]
REVISED
Aurora Commons Partnership November 7, 1996
an Illinois Limited Partnership (Seller)
Beneficiary of Titleholding Trust
and Northpoint Two Limited Partnership
an Illinois Limited Partnership (Seller)
Beneficiary of Titleholding Trust
c/o Joseph J. Freed & Associates
Attn: Mr. Larry Freed
1400 S. Wolf Road
Wheeling, IL 60090
Re: Aurora Commons Shopping Center, Aurora, IL
Southpoint Shopping Center, Arlington Heights, IL
Dear Larry;
This letter represents this corporation's offer to purchase the Aurora
Commons Shopping Center consisting of 127,292 net rentable square feet,
situated on approximately 18 acres located at the southwest intersection of
Route 31 and Indian Trail Road, Aurora, IL and the Southpoint Shopping
Center containing 97,030 net rentable square feet situated on approximately
27 acres, located at the northeast corner of Palatine Road and Rand Road in
Arlington Heights, IL.
The above properties shall include all the land and buildings and
common facilities, as well as all personalty owned by Seller within the
buildings and common areas.
This corporation or its nominee will consummate this transaction on
the following basis:
1. The purchase price shall be $11,400,000.00 for Aurora Commons
Shopping Center, plus or minus prorations and $12,330,000.00 for
Southpoint Shopping Center, plus or minus Prorations, with no
mortgage contingencies, to be paid at closing on December 6, 1996
(see paragraph 12).
Purchaser understands and agrees that although Aurora Commons
Partnership and Northpoint Two partnership are entering into this
agreement together, that each of the representations, warranties and
covenants contained herein shall be deemed for each of such Sellers to
be independent representations, warranties and covenants for the
property owned by the respective Seller. In the event of a breach by
one Seller, Purchaser shall not look to the other Seller to remedy
such breach.
As part of the purchase price, Purchaser shall purchase the above
properties subject to two non-recourse purchase money wrap-around
mortgages in the principal amount of $9,577,475.00 for Aurora
Commons Shopping Center and $11,298,996.00 for Southpoint Shopping
Center and subject only to two cross-defaulted first mortgages
with John Hancock Life Insurance Company. The two wrap-around
mortgages shall require monthly interest only payments, in arrears,
in the amount of $64,613.89 for Aurora Commons Shopping Center and
$76,228.04 for Southpoint Shopping Center. Such payment shall
continue for 58 months through October 31, 2001, at which time the
entire amount of the purchase money wrap-around mortgages shall be
due and payable. The principal balance of the loans shall not be
able to be prepaid until January 1, 1998, after which date the
loans can be prepaid with a penalty equal to the prepayment
penalty charged by John Hancock on the underlying first mortgages.
Seller shall deposit release deeds for each wraparound mortgage at
closing with an escrowee of Purchaser's choice.
Purchaser shall be authorized to appoint a servicer or escrowee to
effect payments due on the wrap mortgages and the Hancock mortgages.
Deposits made by Purchaser to such servicers, escrowees or others to
hold funds for payment of the wraparound mortgages or the Hancock
mortgages are, and shall always be deemed, funds of the Purchaser and
not Seller nor Hancock, and neither Seller nor Hancock shall have a
security interest in such deposits, the wraparound mortgages and the
Hancock mortgages being non-recourse and Purchaser not assuming the
Hancock mortgages
<PAGE> 2
REVISED NOVEMBER 7, 1996
Page 2
- ------------------------
Interest earned on any such deposits shall accrue for the benefit of
Purchaser. In addition to other proration credits to be given to
Purchaser against cash, Purchaser shall be given an up-front $209,250
proration credit from Seller against cash ($96,000 for Aurora Commons
and $113,250 for Southpoint) for Purchaser effecting partial purchase
price payment through the wraparound mortgages in lieu of Purchasers
payment through other means. Purchaser shall also be given credit
against cash at closing for December interest on the Hancock mortgages
which credit shall be equal to the total interest portion of the last
monthly payment due on each of the Hancock mortgages in the amount of
$64,613.89 for Aurora Commons and $76,228.03 for Southpoint.
Said first mortgages subject to customary carve-outs as are contained
in the existing loan documents shall be absolutely non-recourse to
Purchaser. All of said documents for said mortgages shall be subject to
Purchaser's written approval by November 15, 1996 and said mortgages
shall be current and without default at closing.
It will be a condition of closing that the first mortgagee shall
approve this entire transaction and shall approve the future transfers
of said properties to Inland Real Estate Corporation, formerly known as
Inland Monthly Income Fund III, Inland Real Estate Acquisitions, Inc.
or any of its affiliates (as defined by IRS Code Section 1563). Any
fees or expenses or legal fees incurred other than Purchaser's counsel
in obtaining said first mortgages or assigning said first mortgages to
Purchaser shall be paid by Seller.
The balance of the purchase price, plus or minus prorations, shall be
paid in cash at closing. Notwithstanding anything to the contrary, the
cash from Purchaser shall not exceed $1,822,525.00, plus or minus
prorations, for Aurora Commons Shopping Center and $1,031,004.00, plus
or minus prorations, for Southpoint Shopping Center.
2. There are no real estate brokerage commissions involved in this
transaction.
3. This offer is subject to the occupancy of the above Centers being 100%
at the time of closing. Provided however, in the event that it is less
than 100% occupied and 100% gross rent collected, then the Seller shall
place into escrow an amount equal to the rent and all prorated expenses
for that vacancy and any tenant not paying full rent current based on the
attached rent roll (any tenant not paying full rent through November will
be considered delinquent) ATTACHED AS EXHIBIT D (AS TO DELINQUENCIES, IF
ANY) AND THE MASTER LEASE SCHEDULE ATTACHED AS EXHIBIT B (AS TO VACANCIES,
IF ANY). The amount of the escrow shall be equal to one year of these
payments. As an example, if 2,000 square feet were vacant or not paying
rent at closing and the rent for that space was $14 and the CAM, tax and
insurance were an additional $4, then the escrow would be equivalent to
$18 x 2000 square feet x 1 year, or $36,000. The escrow will be based on
the attached Master Lease schedule (which are to be updated at closing)
for Aurora Commons and Southpoint, see Exhibit B. However, in addition,
Seller shall execute a Master Lease by Joseph Freed & Associates and
personally guaranteed by Larry Freed, for two years following the closing
for all items covered above. Seller shall use its reasonable efforts for 2
years only following the closing to lease the space involved with the
above escrow and shall be responsible for any leasing commissions, tenant
improvements and any other similar costs associated with placing a third
party tenant into said space. Once a tenant reasonably acceptable to
Purchaser is placed into said space, and is paying rent current, then the
Seller shall be reimbursed from the escrow any amount of funds unused for
that space. Any interest derived from said escrow shall belong to Seller.
In the event a vacancy IDENTIFIED ON EXHIBIT B STILL EXISTS, on the 13th
month through the 24th month following the closing, Joseph Freed &
Associates shall pay to Purchaser on the first of the month on a monthly
basis all of what is required to be covered in this Paragraph 3. ANY
MONIES HELD IN ESCROW FOR A DELINQUENT TENANT WILL BE RELEASED TO SELLER
ONCE SUCH TENANT IS BROUGHT CURRENT.
<PAGE> 3
REVISED NOVEMBER 7,1996
Page 3
- -----------------------
In addition, any rent during the 24 month period of the Master Lease
that Purchaser receives during said 24 month period from: percentage
rent of Venture at Southpoint Shopping Center, any rental amount from
tenants that are covered by the Master Lease which pay more than the
amount originally projected during the 24 month period, any extra rent
from temporary renters which Purchaser may receive shall all be credited
to Seller (provided Seller is not then in default) on his Master Lease
at the end of the 24-month of the Master Lease.
Within 30 days following a new tenant being placed in a space covered by
the Master Lease and commencing rent payments to the landlord, then any
funds still in the Master Lease related to that space shall be released
to Joseph Freed & Associates AND NEITHER JOSEPH FREED AND ASSOCIATES,
INC. NOR LARRY FREED SHALL HAVE ANY FURTHER LIABILITY FOR SUCH SPACE.
4. Seller represents and warrants that the above referenced property is
leased to the tenants described on Exhibit D pursuant to leases under
which the tenants pay substantially all of their pro-rata portion of CAM
and taxes (except that the Jewel lease has some limitation on CAM)
covering the buildings and all of the land, parking areas, reciprocal
easements and REA agreements (if any), for the entire terms and option
periods. Any concessions given to any tenants (other than the tenants
covered under the Master Lease) that extend beyond the closing day that
would affect Purchaser shall be settled at closing by Seller giving a full
cash credit to Purchaser for any and all of those concessions.
5. Seller warrants and represents that at closing the property will be
free of violations, and the interior and exterior structures will be in a
good state of repair, free of leaks and structural problems, and the
property will be in full compliance with Federal, State, City and County
ordinances, environmental laws, and no one has a lease that exceeds the
lease term stated in said leases, nor does anyone have an option or right
of first refusal to purchase or extend (except such extensions provided in
the leases), nor is there as of the date hereof any knowledge of
contemplated condemnation of any part of the property, nor is there as of
the date hereof any knowledge of any current or contemplated special
assessments. Seller upon receipt of any notice thereof, will promptly
advise Purchaser of any contemplated condemnation of or any special
assessment against the property or any part thereof received by Seller
between the date hereof and closing and Purchaser shall have the right to
terminate this agreement by reason of such condemnation or special
assessment. Notwithstanding any other survival provisions herein, the
warranty of no violations of environmental laws shall survive
indefinitely.
6. Seller warrants and represents that as stated in the leases during the
term of the leases the tenants and guarantors are responsible for and pay
substantially all of their operating expenses relating to the property on
a prorata basis as stated In the leases, except that Jewel's lease has
some limitations on CAM.
Prior to closing, Seller shall not enter into or extend any agreements
which will survive closing without Purchaser's approval and any contract
presently in existence not accepted by Purchaser shall be terminated by
Seller. Seller represents and warrants that all of the existing contracts
are set forth on Exhibit C. Any work presently in progress on the property
shall be completed by Seller prior to closing or within 6 months from
closing.
7. As a condition to closing, ten (10) days prior to closing Seller shall
furnish Purchaser with estoppel letters dated after the date hereof per
the rent rolls ATTACHED AS EXHIBIT D acceptable to Purchaser from 90%
of the tenants. The Seller shall give a Master Estoppel Certificate
reasonably acceptable to Purchaser for the 10% of the tenants not
providing estoppel certificates. The form of estoppel certificate is
attached herewith as EXHIBIT A.
8. Seller is responsible for payment of any leasing brokerage fees or
commissions which are due any leasing brokers for the existing leases
stated above or for the renewal of same. Notwithstanding any other
survival provisions herein, this warranty shall survive for one year
following the exercise of the last renewal options under the existing
leases.
<PAGE> 4
REVISED NOVEMBER 7, 1996
Page 4
- ------------------------
9. This offer is subject to Seller supplying to Purchaser prior to
closing a certificate of insurance from the tenants and guarantors in the
form and coverage according to the terms of their leases to Purchaser for
the closing.
10. Seller has delivered to Purchaser an environmental report by
Mostardi-Platt Associates, Inc., dated October 14, 1994, and, at Sellers
cost prior to closing, shall deliver said report either re-certified and
updated to Purchaser or a reliance letter reasonably acceptable to
Purchaser from the above environmental company and Seller has also
delivered to Purchaser an environmental report by Mostardi-Platt and
Associates, Inc. dated October 19, 1994 for the Southpoint Shopping Center
and at Seller's cost prior to closing shall deliver said report either
recertified and updated to purchaser or a reliance letter reasonably
acceptable to Purchaser, from the environmental company.
11. The above sale of the real estate shall be consummated by conveyance of
full special warranty deeds from Seller (existing beneficiary of land
trust) to Purchaser's designee, with the Seller paying any city, state, or
county transfer taxes and all legal fees (except Purchaser's attorney's
fees) for the closing, and Seller agrees to reasonably cooperate with
Purchaser's lender, if any, and the money lender's escrow.
12. The closing shall occur through Chicago Title & Trust Company in
Chicago, Illinois, on December 6, at which time and as a condition of
closing title to the above properties shall be marketable; i.e., free and
clear of all liens, encroachments and encumbrances (except for the two
Hancock first mortgages described in Paragraph 1 above), and an ALTA form
B owner's title policy with complete extended coverage and reasonably
required endorsements, waiving off all construction, including 3.1 zoning
including parking and beneficial interest endorsements (if applicable),
paid by Seller, shall be issued, with all warranties and representations
surviving the closing, except as otherwise herein provided for two years
only. Prorations shall be calculated as of December 1, 1996, provided
that Purchaser shall receive from Seller a credit against cash, in
addition to other credits Purchaser shall receive, equal to the "cash
flow" for December 1996. Cash flow for December 1996 means all income due
on or after December 1, 1996 through December 31, 1996, less operating
expenses accrued on or after December 1, 1996, and through December 31,
1996 (excluding any tenant improvements or capital items) with debt
payments equal to $64,613.89 for Aurora Commons Shopping Center and
$76,228.04 for Southpoint Shopping Center. Prorations shall also include
prepaid rents, if any, for on or after January 1, 1997, security deposits,
tenant CAM and real estate escrow deposits, and similar items of
proration. In the absence of ascertainable proration credits, the parties
shall reasonably estimate prorations at closing with complete
reconciliation of all prorations in cash no later than March 31, 1997.
Seller shall be responsible for and pay all 1995 real estate taxes at or
prior to closing. 1996 real estate taxes shall be prorated based on 100%
of the 1995 bill, with a later reproration of the taxes 60 days after the
date when the actual bills are received (with the exception of the real
estate taxes for Jewel, Boston Market, Chili's and Olive Garden). During
such 60 day period, Purchaser shall use reasonable efforts to collect from
tenants any amounts owed by tenants for payment of 1996 taxes. Seller
shall credit Purchaser in cash, at the time of reproration, the amount of
any payments for 1996 taxes any tenants have not paid and vacancies for
which Seller Is responsible. If Purchaser shall receive any such payments
from tenants after the reproration date, Purchaser will remit the same to
Seller. At closing, no credit will be given to Seller for any past due,
unpaid or delinquent rents or reimbursements, but Seller shall have the
right to collect such amounts after the closing. Any credits owed to
tenants for 1995 taxes will either be paid by Seller directly to the
tenants or netted against any CAM expenses due Seller through DECEMBER 31,
1996. 1996 CAM expenses shall be reconciled with other prorations in
cash and Seller shall be entitled to collect any deficiencies in such CAM
collections from the tenants. Any over collection of such CAM expenses
shall be remitted to THE TENANTS. It is understood between Purchaser and
Seller that with regard to the percentage rent from Jewel Foods for the
period through August 31, 1997, when the percentage rent is paid, Seller
shall be entitled to 3-1/2 twelfth's of the percentage rent and Purchaser
is entitled to the balance. NOTWITHSTANDING THE FOREGOING, PURCHASER SHALL
NOT BE ENTITLED TO ANY CREDIT AND SELLER SHALL RETAIN ALL CAM COLLECTIONS
AND TAX
<PAGE> 5
REVISED NOVEMBER 7, 1996
Page 5
- ------------------------
COLLECTIONS FOR 1996 UNTIL FINAL RECONCILIATION AS DESCRIBED ABOVE.
13. If any third party reports are completed for Purchaser, then Purchaser
shall give Seller a copy of same prior to closing.
14. It shall be a condition to closing that neither Seller (Landlord) or
any tenant and guarantor shall be in default on any lease or agreement at
closing. As of the date hereof, Seller represents and warrants that it has
no knowledge of pending litigation or any knowledge of any threatened
litigation. Seller, upon receipt of any notice thereof, will promptly
advise Purchaser if any litigation is initiated or threatened between the
date hereof and closing and Purchaser shall have the right to terminate
this agreement by reason of such litigation.
15. Seller agrees to indemnify and hold Purchaser harmless with regard to
any unpaid Illinois Department of Revenue ("Department") tax lien by
producing the required certificate(s) and escrowing funds at closing, if
required by the Department, and prior to closing Seller shall be
responsible for and comply with the requirements of Illinois Revised
Statutes, Chapter 111-1/2 (Sections 1020 through 1022.19) regarding Land
and Refuse Disposal, Title V of the Environmental Protection Act, and
Chapter 30 (Sections 901 through 907) regarding the Responsible Property
Transfer Act of 1988.
Seller warrants and represents that he has paid all unemployment taxes to
date, if applicable.
16. Prior to closing, Seller shall furnish to Purchaser copies of all
unexpired guarantees and warranties which Seller received from any and all
contractors and sub-contractors pertaining to the properties.
17. Prior to closing, in addition to the title stated above, Seller must
provide an urban Class A ALTA spotted survey certified to purchaser for
each property according to current ALTA/ASCM Standards which shall spot
the improvements and disclose the number of acres, and detail and describe
easements, encroachments, roadways, building areas, etc. By November 15,
1996, Seller shall supply to Purchaser a current title commitment for the
title required in Paragraph 12, including all recorded documents and
including Seller's financing documents.
18. Seller agrees to put any and all vacant stores into a "vanilla box"
condition prior to closing.
19. The Purchaser shall have until November 30, 1996 to do his due diligence,
during which time the Purchaser can terminate this agreement for any
reason whatsoever. In addition, it is understood that the Seller is
working diligently to get an agreement from the first mortgagee, Hancock,
to be able to conclude this transaction in its entirety. It is understood
that this agreement is contingent upon Seller successfully concluding an
assumption arrangement SATISFACTORY TO SELLER IN ITS SOLE DISCRETION with
Hancock by November 15, 1996. If Seller is unable to conclude such
arrangement then Seller may terminate this agreement by November 15,
1996. If Purchaser and Seller are unable to come to an agreement on a more
detailed contract by November 15, 1996, then this agreement shall be the
only agreement between Purchaser and Seller for the closing.
20. The provisions of the Uniform Vendor and Purchaser Risk Act of the
State of Illinois shall be applicable to the Agreement.
21. Notwithstanding anything contained herein to the contrary, if a breach
of representation or warranty which was not willfully caused is discovered
prior to closing and the cost to cure same exceeds $200,000 per property,
Seller shall have the right to terminate this contract without any further
liability or at Purchaser's option, Purchaser may accept a $200,000 credit
per property and close waiving the right to pursue Seller with respect to
such breach of representation or warranty. Nothing herein shall be
construed so as to not require Seller to pay off all liens of record at
closing (except the two Hancock first mortgages).
<PAGE> 6
REVISED NOVEMBER 7, 1996
Page 6
- ------------------------
22. Prior to closing, it shall be the Seller's responsibility and at Seller's
cost to improve the parking lot at the Aurora Commons Shopping Center by
cutting and patching, where necessary, and striping the entire lot. All
costs are to be paid by Seller prior to closing and Seller shall be able
to bill-back the tenants for said improvements.
This offer is, of course, predicated upon the Purchaser's review and
written approval of the existing leases, new leases, lease modifications (if
any), REA agreements, tenants' and guarantors' financial statements, sales
figures, representations of income and expenses made by Seller, site
inspection, survey, title, etc., and at least one year (1995) of audited
operating statements from Warady & Davis on said property is required that can
be used in a public offering and in the form of the example set forth on
Exhibit E. Purchaser shall be responsible for the first $3,000 of said audit
costs for each property to be paid at closing. Purchaser shall be deemed to
have approved all said items if written notice of disapproval is not received
by Seller by fax or other method of written notice by 5:00 p.m. on November
30, 1996.
If this offer is acceptable, please have the Seller sign the original of
this letter and initial each page, keeping copies for your files and returning
the original to me by NOVEMBER 8, 1996.
ACCEPTED: Sincerely,
AURORA COMMONS LIMITED PARTNERSHIP INLAND REAL ESTATE ACQUISITIONS, INC.
an Illinois Limited Partnership or nominee
BY: AURORA COMMONS, INC.
By: [signature] /s/ G. Joseph Cosenza
-----------------------------
Date: 11/08/96 G. Joseph Cosenza
----------------------------- Vice Chairman
ACCEPTED:
NORTHPOINT TWO LIMITED PARTNERSHIP
an Illinois limited partnership
By: Northpoint II, Inc.
By: [signature]
-----------------------------
Date: 11/08/96
-----------------------------
smb
<PAGE> 7
TENANT'S ESTOPPEL CERTIFICATE "EXHIBIT A"
LESSOR: LaSalle National Trust N.A. U/T/A/ # 110886 dated February 27, 1986
TENANT:
PREMISES: Aurora Commons, southwest intersection of Rt. 31 and Indian Trail
Road, Aurora, Illinois
The undersigned tenant (hereinafter called "Tenant") hereby certifies to INLAND
REAL ESTATE CORPORATION as of the date hereof the following:
1. The original lease is for a term of beginning and ending
2. The fixed minimum rental is until the month, then adjusted to
3. There is $_________ security deposit being held by Landlord.
4. There is no default on the part of the Landlord or Tenant and no
conditions exist which, with the passage of time, would render a
default.
5. To the Tenant's knowledge, the Landlord has completed all work and
tenant improvements required to be completed.
6. The tenant has accepted the Premises and is in full and complete
possession thereof.
7. This Certificate shall be binding upon the tenant and its successors
and assigns and shall inure to the benefit of INLAND REAL ESTATE
CORPORATION, and or its successors and assigns.
_______________________
TENANT
BY: _________________
TITLE: _______________
DATE: ________________
<PAGE> 8
TENANT'S ESTOPPEL CERTIFICATE "Exhibit A"
LESSOR: LaSalle National Trust N.A. U/T/A/#111531 dated September 11, 1986
TENANT:
PREMISES: Southpoint, southeast corner of Rand & Palatine Roads,
Arlington Heights, Illinois
The undersigned tenant (hereinafter called "Tenant") hereby certifies to INLAND
REAL ESTATE CORPORATION as of the date hereof the following:
1. The original lease is for a term of beginning and ending
2. The fixed minimum rental is until the month, then adjusted
to
3. There is $ security deposit being held by Landlord.
----------
4. There is no default on the part of the Landlord or Tenant and no conditions
exist which, with the passage of time, would render a default.
5. To the Tenant's knowledge, the Landlord has completed all work and tenant
improvements required to be completed.
6. The tenant has accepted the Premises and is in full and complete
possession thereof.
7. This Certificate shall be binding upon the tenant and its successors
and assigns and shall inure to the benefit of INLAND REAL ESTATE
CORPORATION, and or its successors and assigns.
- --------------------------
TENANT
BY:
----------------------
TITLE:
-------------------
DATE:
--------------------
<PAGE> 9
JOSEPH FREED AND ASSOCIATES
MASTER LEASE OBLIGATIONS
AURORA COMMONS AND SOUTHPOINT SALES
EXHIBIT B
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
YEAR ONE TWO YEAR TOTAL
MINIMUM ---------------------- --------------------------
SPACE SQUARE RENT PER EXTRAS TOTAL MINIMUM TOTAL MINIMUM TOTAL
NUMER PROSPECTIVE TENANT FEET SQ. FT. PER SQ. FT. RENT RENT EXTRAS RENT RENT EXTRAS RENT
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SOUTHPOINT CENTER
2a Laser Quest 8,500 $8.00 $7.88 $15.88 68,000 66,980 134,980 136,000 133,960 269,960
2b Caribou Coffee 1,660 $19.00 $7.88 $26.88 31,540 13,081 44,621 63,080 26,162 89,242
15 Remaining Saxons 3,311 $17.00 $7.88 $24.88 56,287 26,091 82,378 112,574 52,181 164,755
- -----------------------------------------------------------------------------------------------------------------------------------
GRAND TOTAL 13,471 155,827 106,151 261,978 311,654 212,303 523,957
</TABLE>
<PAGE> 10
SERVICE CONTRACTS FOR
11/05/96 SOUTHPOINT SHOPPING CENTER
EXHIBIT C
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
BILING AMOUNT TERM
VENDOR TYPE OF SERVICE ---------------- ---------------- 30 DAY COMMENTS
ANNUAL MONTHLY START END CANCELLATION
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Anderson Pest Extermination
Security Link Fire Alarm Monitor (Center) $198.00 08/06/89 On Going Yes
Security Link Fire Alarm Monitor (Outlot) 08/06/89 On Going Yes
LV Tech Fire Alarm Testing $1,040.00 03/13/96 03/12/97 Yes
American Engineering HVAC Maint. 09/30/95 09/30/96 Yes Contract expired
R. Glass Landscape Landscaping $975.00 04/01/96 11/01/96 Yes Contract expired
BFI Scavenger $0.00 $0.00
Arlington Power Snow Removal 11/01/96 04/15/97 Yes
Sweep It Up Sweeping $1,450.00 08/01/94 On Going Yes
Red's Towing Towing Yes 125.00 per car
IDOT Traffic Signal Maint. N/A
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 11
SERVICE CONTRACTS FOR
11/05/96 AURORA COMMONS SHOPPING CENTER
EXHIBIT C
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
BILLING AMOUNT TERM
VENDOR TYPE OF SERVICE ---------------- ---------------- 30 DAY COMMENTS
ANNUAL MONTHLY START END CANCELLATION
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Wells Fargo Fire Alarm Monitor (Center) $645.69 11/05/86 On Going Yes Billed Quarterly
Wells Fargo Fire Alarm Monitor (Outlot) $298.87 11/05/86 On Going Yes Billed Quarterly
Wells Fargo Fire Alarm Monitor Testing N/A 11/05/86 On Going N/A Incl. in
monitoring
C & D Heating HVAC Maint. $3,845.00 01/01/96 12/31/96 Yes Billed Quarterly,
per unit
R. Glass Landscape Landscaping $4,970.00 04/01/96 11/01/96 Expired 7 month:
See contract
City of Aurora Police Ticketing $100.00 Waiting for
signed letter
BFI Scavenger $127.00 10/01/89 On Going No See term clause
Steven Cameron Snow Removal 11/01/96 04/15/97 No Per snow fall
Steven Cameron Sweeping $2,614.00 07/15/95 07/15/96 Yes 5 day notice
Ray's Towing Towing N/A 10/11/91 On Going Yes 125.00 per car
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 12
<TABLE>
<CAPTION>
EXHIBIT D 10/23/96
R705A SOUTHPOINT SHOPPING CENTER
RENT FOR 1996
Square Lease Lease Tenant See Annualized
Unit/S/Ten DBA NAME LSC Footage Expiration Commence Type Note Amount
- ---------- ---------------------------------------------- ------- ---------- -------- -------- ------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
500 9999 VACANT 1 11,960
610 A 6640 NAILS 2001 1,200 12/31/1998 12/21/95 LOCAL ** 20,400.00
610 B 7762 SALLY BEAUTY SUPPLY 1,668 12/31/20O0 12/11/95 PRIME ** 25,020.00
630 2334 CHILDREN'S ORCHARD 1,666 3/31/2000 3/18/95 LOCAL ** 24,990.00
650 9551 WE CARE HAIR-SUBLESSEE 1,066 4/30/2001 4/11/91 PRIME ** 24,720.60
110 4285 PAUL HARRIS 4,215 6/30/2003 6/15/93 PRIME ** 63,225.00
130 3875 CNC 1,038 11/30/2003 11/06/93 PRIME ** 20,116.44
140 3580 FLETCHER-LEE ART SUPPLY OUTLET 1,438 11/30/1997 11/15/89 LOCAL ** 26,646.12
150 7000 PAYLESS SHOESOURCE 2,630 10/31/1999 10/27/89 PRIME ** 54,000.00
160 0600 ALL FOR ONE 3,453 5/31/1997 5/18/92 PRIME ** 56,974.56
180 B 4237 HAMMETTS LEARNING WORLD 3,821 5/31/2001 4/13/90 PRIME ** 73,095.72
200 A 7151 PET CARE + 6,264 12/31/2001 11/24/89 PRIME ** 87,696.00
200 B 9999 VACANT 1 5,405
220 7370 THE PRUDENTIAL PREFERRED PROP. 9,406 2/28/2002 2/25/97 LOCAL ** 131,684.04
010 7296 PRESTIGE CLEANERS - ASSIGNEE 1,135 10/31/1999 11/01/89 LOCAL ** 19,295.04
020 6930 PAULOGRUTO'S REST. -ASSIGNEE 1,135 9/30/1999 9/04/90 LOCAL ** 17,247.72
030 6867 PAX-MAIL-ASSIGNEE 1,135 2/28/1999 2/26/90 PRIME ** 18,999.96
040 3700 FUNCOLAND 2,265 5/31/1997 11/19/92 9,060.00
060 9260 USED CD STORE 1,495 4/30/1997 5/01/96 LOCAL ** 15,697.56
070 7520 REALTY EXECUTIVES 2,623 8/31/1999 8/15/95 LOCAL ** 23,607.00
010 3387 PEARLE EXPRESS 4,658 12/31/1999 12/21/89 PRIME ** 135,081.96
020 2360 CIGARETTES CHEAPER 985 12/31/1998 12/02/95 ** 19,700.04
030 8779 SUBWAY 1,190 2/28/2000 3/01/90 PRIME ** 35,700.00
040 7635 RITZ CAMERA ONE HOUR PHOTO 1,359 2/28/2002 2/26/92 PRIME ** 28,500.00
060 1461 THE BEDDING EXPERTS 1,831 3/31/1999 3/23/96 LOCAL ** 33,873.48
070 1520 BLOCKBUSTER VIDEO 6,984 10/31/1999 10/29/89 PRIME ** 127,458.00
000 2365 CHILI'S 5,995 10/31/2009 10/02/89 PRIME ** 75,000.00
000 6750 OLIVE GARDEN 9,010 9/30/1999 9/28/89 PRIME ** 111,999.96
======== ==========
178,405 1,279,789.20
<CAPTION>
EXHIBIT D 10/23/96
R705A SOUTHPOINT SHOPPING CENTER
RENT FOR 1996
$ Per 05 12 14 29 35
Unit/S/Ten DBA NAME Sq Ft CAM SPRINKLER R.E. TAX FIRE INS. LIA INS.
- ---------- ---------------------------------------------- ------- ---------- -------- ---------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
500 9999 VACANT
610 A 6640 NAILS 2001 17.00 1,224.00 30.00 6,384.00 120.00 240.00
610 B 7762 SALLY BEAUTY SUPPLY 15.00 1,704.00 41.76 8,868.00 166.80 333.60
630 2334 CHILDREN'S ORCHARD 15.00 1,704.00 41.64 8,748.00 166.56 333.24
650 9551 WE CARE HAIR-SUBLESSEE 23.19 1,092.00 21.36 6,228.00 106.56 266.52
110 4285 PAUL HARRIS 15.00 3,552.00 105.00 24,636.00 421.56 1,053.72
130 3875 CNC 19.38 1,056.00 25.92 6,072.00 102.96 259.56
140 3580 FLETCHER-LEE ART SUPPLY OUTLET 18.53 1,464.00 28.80 8,400.00 143.76 503.28
150 7000 PAYLESS SHOESOURCE 20.53 2,688.00 52.56 15,372.00 263.04 920.52
160 0600 ALL FOR ONE 16.50 3,528.00 69.12 20,184.00 345.36 863.28
180 B 4237 HAMMETTS LEARNING WORLD 19.13 3,396.00 76.44 22,356.00 382.08 1,337.40
200 A 7151 PET CARE + 14.00 6,396.00 125.28 36,612.00 626.40 2,192.40
200 B 9999 VACANT
220 7370 THE PRUDENTIAL PREFERRED PROP. 14.00 10,344.00 376.20 57,852.00 940.56 4,703.04
010 7296 PRESTIGE CLEANERS - ASSIGNEE 17.00 1,236.00 22.68 6,636.00 113.52 397.20
020 6930 PAULOGRUTO'S REST. -ASSIGNEE 15.20 1,164.00 22.68 6,636.00 113.52 397.20
030 6867 PAX-MAIL-ASSIGNEE 16.74 1,008.00 22.68 6,636.00 113.52 397.20
040 3700 FUNCOLAND 4.00 2,316.00 118.92 13,236.00 226.56 566.28
060 9260 USED CD STORE 10.50 1,644.00 59.76 9,204.00 149.52 224.28
070 7520 REALTY EXECUTIVES 9.00 2,676.00 65.64 13,776.00 262.32 524.64
010 3387 PEARLE EXPRESS 29.00 4,632.00 93.12 27,228.00 465.84 1,630.32
020 2360 CIGARETTES CHEAPER 20.00 1,008.00 24.60 5,244.00 98.52 197.04
030 8779 SUBWAY 30.00 1,212.00 23.76 6,960.00 119.04 416.52
040 7635 RITZ CAMERA ONE HOUR PHOTO 20.97 1,392.00 27.24 7,944.00 135.96 339.72
060 1461 THE BEDDING EXPERTS 18.50 1,632.00 45.84 10,704.00 183.12 366.24
070 1520 BLOCKBUSTER VIDEO 18.25 7,140.00 139.68 40,812.00 698.40 2,444.40
000 2365 CHILI'S 12.51 6,444.00 .00 55,044.00 .00 .00
000 6750 OLIVE GARDEN 12.43 9,684.00 .00 105,648.00 .00 .00
========= ======== ========== ======== =========
81,336.00 1,661.04 537,420.00 6,465.48 20,907.60
</TABLE>
<PAGE> 13
<TABLE>
<CAPTION>
EXHIBIT D 10/23/96
AR705A AURORA COMMONS
RENT FOR 1996
Square Lease Lease Tenant See Annulaized
Unit/S/Ten DBA NAME LSC Footage Expiration Commence Type Note Amount
- ---------- ------------------------------------ ---------- ------- ---------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
2010 7570 REMCO, ASSIGNEE 2,396 10/31/1999 11/01/91 ** 34,741.92
2020 4232 H & R BLOCK 1,954 4/30/2001 1/09/89 PRIME ** 31,952.88
2030 2370 CHINA PLACE 1,954 0/00/0000 0/00/00 LOCAL 23,936.52
2050 7760 SALLY BEAUTY SUPPLY 1,954 11/30/1999 11/30/89 PRIME ** 31,263.96
2060 3520 FASHIONS UNDER S10 1,954 10/31/1998 11/01/88 LOCAL 28,332.96
2070 4800 INSURE ONE 1,667 8/31/1996 8/11/93 ** 28,005.60
2080 1544 BO RICS 1,498 2/28/1997 2/12/87 PRIME 26,964.00
2090 7145 INTERIM PERSONNEL 1,005 8/31/1998 10/26/88 LOCAL 15,848.88
2090 A 4502 HOLLYWOOD NAILS - ASSIGNEE 1,O39 5/31/l997 5/17/95 LOCAL 18,182.40
2110 7000 PAYLESS SHOE SOURCE 2,553 5/31/1997 5/02/87 PRIME 40,848.00
2120 6650 NORWEST FINANCIAL 1,593 10/31/2001 10/27/91 ** 23,496.72
2130 A 8506 SIZES UNLIMITED 6,833 4/30/2007 4/l6/95 PRIME ** 68,330.04
2130 C 2965 DOTS 3,455 1/31/1999 6/09/94 PRIME ** 43,187.52
2160 0986 AURORA TRAVEL- ASSIGNEE 666 1/31/1998 12/30/89 LOCAL ** 16,010.64
2170 8975 TRAX AUTO 5,931 1/31/1998 12/15/89 PRIME ** 62,270.28
218O 3421 FAMOUS FOOTWEAR 6,647 10/31/2001 10/15/91 PRIME ** 59,823.00
2190 2900 DOLLAR BILLS 3,873 1/31/2001 5/05/90 PRIME ** 46,476.00
2200 4880 JEWEL/OSCO 64,965 8/31/2009 8/24/89 PRIME ** 389,790.00
7510 2361 CIGARETTES CHEAPER! 1,023 2/28/1999 2/20/96 ** 16,879.44
7520 6806 1 HR. PHOTO 865 6/30/1998 6/29/90 LOCAL ** 15,734.40
7525 7525 RED WING SHOES 1,106 12/31/1999 12/05/94 PRIME ** 15,484 08
7530 7715 ROYAL JEWELERS 1,388 1/30/1999 11/11/89 LOCAL ** 26,371.92
7560 1520 BLOCKBUSTER VIDEO 7,890 11/30/1999 11/08/89 PRIME ** lO8,487.56
8500 1550 BOSTON MARKET 3,083 11/30/1999 11/16/94 ** 33,999.96
======== ===========
217,481 1,206,418.68
<CAPTION>
EXHIBIT D 10/23/96
R705A AURORA COMMONS
RENT FOR 1996
$ Per 05 12 14 29 35
Unit/S/Ten DBA NAME Sq Ft CAM SPRINKLER R.E. TAX FIRE INS. LIA INS.
- ---------- ------------------------------------ ------ ----------- ----------- --------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
2010 7570 REMCO, ASSIGNEE 14.50 3,060.00 131.76 6,348.00 239.64 599.04
2020 4232 H & R BLOCK 16.35 2,496.00 97.68 5,172.00 195.36 586.20
2030 2370 CHINA PLACE 12.25 .00 .00 .00 .00 .00
2050 7760 SALLY BEAUTY SUPPLY 16.00 2,496.00 97.68 5,172.00 195.36 586.20
2060 3520 FASHIONS UNDER S10 14.50 2,328.00 97.68 5,172.00 195.36 586.20
2070 4800 INSURE ONE 16.80 2,124.00 100.08 4,416.00 166.68 416.76
2080 1544 BO RICS 18.00 1,776.00 74.88 3,972.00 149.76 449.40
2090 7145 INTERIM PERSONNEL 15.77 1,200.00 50.28 2,664.00 100.56 301.56
2090 A 4502 HOLLYWOOD NAILS - ASSIGNEE 17.50 1,320.00 62.40 2,700.00 103.92 207.84
2110 7000 PAYLESS SHOE SOURCE 16.00 3,036.00 127.68 6,768.00 255.36 765.96
2120 6650 NORWEST FINANCIAL 14.75 2,028.00 87.60 4,224.00 159.36 398.28
2130 A 8506 SIZES UNLIMITED 10.00 4,848.00 410.04 17,760.00 683.28 1,366.56
2130 C 2965 DOTS 12.50 4,116.00 207.36 9,156.00 345.48 690.96
2160 0986 AURORA TRAVEL- ASSIGNEE 24.04 852.00 33.36 1,764.00 66.60 199.80
2170 8975 TRAX AUTO 10.50 7,296.00 298.08 15,708.00 593.04 1,779.12
218O 3421 FAMOUS FOOTWEAR 9.00 8,472.00 365.64 17,616.00 664.68 1,661.76
2190 2900 DOLLAR BILLS 12.00 4,932.00 193.68 10,260.00 387.36 1,164.00
2200 4880 JEWEL/OSCO 6.00 29,234.28 .00 .00 .00 .00
7510 2361 CIGARETTES CHEAPER! 16.50 864.00 61.44 2,664.00 102.36 204.60
7520 6806 1 HR. PHOTO 18.19 1,104.00 71.40 2,292.00 86.52 259.56
7525 7525 RED WING SHOES 14.00 1,404.00 66.36 2,928.00 110.64 221.16
7530 7715 ROYAL JEWELERS 19.00 1,764.00 114.48 3,672.00 138.84 416.40
7560 1520 BLOCKBUSTER VIDEO 13.75 10,056.00 651.00 20,904.00 789.00 2,367.00
8500 1550 BOSTON MARKET 11.03 3,324.00 .00 1,356.00 .00 .00
========== ======== ========== ========== ==========
104,954.28 3,400.56 152,688.00 5,729.16 15,228.36
</TABLE>
<PAGE> 14
[JOSEPH FREED AND ASSOCIATES, INC. Letterhead]
Writer's Direct Line: (847) 215-5347
November 15, 1996
Elliot B. Kamenear
Counsel
Inland Real Estate Acquisitions, Inc.
2901 Butterfield Road
Oak Brook IL 60521
Re: Aurora Commons Shoppping Center, Aurora, Illinois and
Southpoint Shopping Center, Arlington Heights, Illinois
Dear Elliot:
Reference is hereby made to that certain letter agreement ("Contract")
dated November 7, 1996 between the undersigned and Inland Real Estate
Acquisitions, Inc. ("Purchaser") relating to the sale of the captioned
properties.
Please confirm your agreement to extend the November 15, 1996 date
referred to in Section 19 of the Contract and the 5th Paragraph of Section 1 of
the Contract to Friday, November 22, 1996.
Also, confirm that the November 30, 1996 date (due diligence expiration)
in the second to the last paragraph is extended to December 6, 1996 and Closing
Date in Section 12 shall be December 20, 1996.
<PAGE> 15
Elliot B. Kamenear Page 2
Inland Realty Acquisitions, Inc.
Re: Aurora Commons/Southpoint
Extensions letter November 15, 1996
- --------------------------------------------------------------------------------
Please acknowledge your agreement to the foregoing by returning to me a
duly executed counterpart of this letter.
AURORA COMMONS PARTNERSHIP NORTHPOINT TWO LIMITED
LIMITED PARTNERSHIP, an Illinois PARTNERSHIP, an Illinois limited
limited partnership partnership
By: AURORA COMMONS, INC. By: NORTHPOINT II, INC.
By: /s/ By: /s/
------------------------------- -------------------------------
Name: Name:
--------------------------- ---------------------------
Title: Title:
-------------------------- --------------------------
ACCEPTED AND ACKNOWLEDGED
THIS 15th DAY OF NOVEMBER 1996:
INLAND REAL ESTATE ACQUISITIONS, INC.
By: /s/ G. Joseph Cosenza
-------------------------------
Name: G. Joseph Cosenza
---------------------------
Title: Vice Chairman
--------------------------
Date: 11/15/96
---------------------------
THF:cmf
<PAGE> 16
[INLAND LETTERHEAD]
December 16, 1996
Ms. Ellen Butor
JOSEPH FREED & ASSOCIATES, INC.
1400 S. Wolf Road
Bldg. 100
Wheeling, IL 60090-6524
RE: Aurora Commons Shopping Center, Aurora, Illinois
and Southpoint Shopping Center, Arlington Heights, Illinois
Dear Ellen:
Reference is hereby made to that certain letter agreement dated
November 7, 1996 as amended by a November 15, 1996 letter agreement
("Contract") between Aurora Commons Partnership Limited Partnership
and Northpoint Two Limited Partnership (collectively referred to as
"Seller") and Inland Real Estate Acquisitions, Inc. ("Purchaser")
relating to the sale of the captioned properties.
The contract was cancelled by Purchaser on December 5, 1996, as
permitted by the Contract. Effective today, the parties wish to
reinstate the Contract and amend the Contract as follows:
a) That the December 6, 1996 date (due diligence expiration) in
Paragraph 19 and in the second to the last paragraph of the
Contract, is extended to December 20, 1996 and that the December
20, 1996 Closing Date in Paragraph 12 shall be January 16, 1997.
Prorations shall be as of December 31, 1996 and Purchaser shall be
entitled to January 1997 cash flow in lieu of December 1996 cash
flow.
b) In connection with the master lease escrow under Paragraph 3,
if (i) a lease for a tenant reasonably acceptable to Purchaser is
obtained by Seller prior to closing and (ii) if under the terms of
such lease rent thereunder is not to commence until after Closing,
then in such event, the amount to be deposited by Seller into the
escrow as security for rent due for the leased space shall be
the amount of the rent otherwise due for such period of
non-payment at the rate of rent due under the lease when rent
commences. The attached Exhibit B (Revised) shall replace Exhibit
B to the Contract. The tenants listed on Exhibit B (Revised) as
Laser Quest, HFC and Prudential Preferred shall not be included in
the Master Lease but Purchaser shall receive the credits described
on such Exhibit B (Revised).
c) Seller reserves the right to engage in a simultaneous exchange
under Section 1031 of the Internal Revenue Code of 1986, as
amended, at Closing and in connection therewith Seller may assign
its rights, but not its obligations, under the Contract to
WE'RE BUYING REAL ESTATE
<PAGE> 17
JOSEPH FREED & ASSOCIATES, INC.
December 16, 1996
Page two
a Qualified Intermediary as provided in the appropriate IRS
Regulations; provided, however, such exchange shall be at Seller's
sole cost, Purchaser shall have no liability in connection with
such an exchange transaction, the John Hancock Life Insurance
Company loans shall not be affected thereby (or Seller at its cost
obtains Hancock's consent therefor) and the closing of Purchaser's
acquisition of the Shopping Centers shall not be delayed as a
result of Seller's exchange.
On or before December 19, 1996, provided Seller has executed this letter
agreement, Purchaser shall deposit the S250,000.00 earnest money with Chicago
Title and Trust Company and the attorneys for the parties shall execute the
escrow instructions attached hereto as Exhibit A. If the Contract is not
terminated by December 20, 1996, the earnest money shall be non-refundable
subject to any Seller default.
Please acknowledge your agreement to the foregoing by returning to me a
duly executed counterpart of this letter no later than December 17, 1996.
Cordially,
INLAND REAL ESTATE ACQUISITIONS, INC.
G. Joseph Cosenza
Vice Chairman
GJC:tmn
ACCEPTED AND ACKNOWLEDGED THIS 17TH DAY OF DECEMBER, 1996
AURORA COMMONS LIMITED NORTHPOINT TWO LIMITED
PARTNERSHIP, an Illinois limited PARTNERSHIP, an Illinois limited
partnership partnership
By: AURORA COMMONS, INC. By: NORTHPOINT II, INC.
By: By:
---------------------------- ---------------------------
Its: Its:
---------------------------- ---------------------------
<PAGE> 18
JOINT ORDER ESCROW TRUST
Escrow Trust No.________________ Chicago,IL ______________________19____
To: Chicago Title and Trust Company, Escrow Trustee:
THE ACCOMPANYING TWO HUNDRED FIFTY THOUSAND DOLLARS ($250,000.00)
---------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
ARE DEPOSITED WITH THE CHICAGO TITLE AND TRUST COMPANY AS ESCROW TRUSTEE TO BE
DELIVERED BY IT ONLY UPON THE JOINT ORDER OF THE UNDERSIGNED OR THEIR
RESPECTIVE LEGAL REPRESENTATIVES OR ASSIGNS except as below provided.
THE CHICAGO TITLE AND TRUST COMPANY AS ESCROW TRUSTEE IS HEREBY
EXPRESSLY AUTHORIZED TO DISREGARD IN ITS SOLE DISCRETION ANY AND ALL NOTICES OR
WARNINGS GIVEN BY ANY OF THE PARTIES HERETO OR BY ANY OTHER PERSON OR
CORPORATION, BUT THE SAID ESCROW TRUSTEE IS HEREBY EXPRESSLY AUTHORIZED TO
REGARD AND TO COMPLY WITH AND OBEY ANY AND ALL ORDERS JUDGMENTS OR DECREES
ENTERED OR ISSUED BY ANY COURT WITH OR WITHOUT JURISDICTION, AND IN CASE THE
SAID ESCROW TRUSTEE OBEYS OR COMPLIES WITH ANY SUCH ORDER JUDGMENT OR DECREE OF
ANY COURT IT SHALL NOT BE LIABLE TO ANY OF THE PARTIES HERETO OR ANY OTHER
PERSON, FIRM OR CORPORATION BY REASON OF SUCH COMPLIANCE NOTWITHSTANDING ANY
SUCH ORDER JUDGEMENT OR DECREE BE ENTERED WITHOUT JURISDICTION OR BE
SUBSEQUENTLY REVERSED, MODIFIED, ANNULLED, SET ASIDE OR VACATED IN CASE OF ANY
SUIT OR PROCEEDING REGARDING THIS ESCROW TRUST. TO WHICH SAID ESCROW TRUSTEE
IS OR MAY BE AT ANY TIME A PARTY IT SHALL HAVE A LIEN ON THE CONTENTS HEREOF FOR
ANY AND ALL COSTS ATTORNEYS AND SOLICITORS FEES WHETHER SUCH ATTORNEYS OR
SOLICITORS SHALL BE REGULARLY RETAINED OR SPECIALLY EMPLOYED AND OTHER EXPENSES
WHICH IT MAY HAVE INCURRED OR BECOME LIABLE FOR ON ACCOUNT THEREOF, AND IT SHALL
BE ENTITLED TO REIMBURSE ITSELF THEREFORE OUT OF SAID DEPOSIT AND THE
UNDERSIGNED JOINTLY AND SEVERALLY AGREE TO PAY TO SAID ESCROW TRUSTEE UPON
DEMAND ALL SUCH COSTS, FEES AND EXPENSES SO INCURRED.
ESCROW TRUSTEE WILL, UPON REQUEST, FURNISH INFORMATION CONCERNING ITS
PROCEDURES AND FEE SCHEDULES FOR INVESTMENT.
EXCEPT AS TO DEPOSITS OF FUNDS FOR WHICH ESCROW TRUSTEE HAS RECEIVED
EXPRESS WRITTEN DIRECTION CONCERNING INVESTMENT OR OTHER HANDLING THE PARTIES
HERETO AGREE THAT THE ESCROW TRUSTEE SHALL BE UNDER NO DUTY TO INVEST OR
REINVEST ANY DEPOSITS AT ANY TIME HELD BY IT HEREUNDER, AND FURTHER, THAT ESCROW
TRUSTEE MAY COMMINGLE SUCH DEPOSITS WITH OTHER DEPOSITS OR WITH ITS OWN FUNDS
IN THE MANNER PROVIDED FOR THE ADMINISTRATION OF FUNDS UNDER SECTION 3 OF THE
ILLINOIS TRUST COMPANIES ACT (C 32 1289 ILL REV STAT) AND MAY USE ANY PART OR
ALL SUCH FUNDS FOR ITS OWN BENEFIT WITHOUT OBLIGATION TO ANY PARTY FOR INTEREST
OR EARNINGS DERIVED THEREBY, IF ANY, PROVIDED HOWEVER NOTHING HEREIN SHALL
DIMINISH ESCROW TRUSTEE'S OBLIGATION TO APPLY THE FULL AMOUNT OF THE DEPOSITS
IN ACCORDANCE WITH THE TERMS OF THIS AGREEMENT.
IN THE EVENT THE ESCROW TRUSTEE IS REQUESTED TO INVEST DEPOSITS
HEREUNDER CHICAGO TITLE AND TRUST COMPANY IS NOT TO BE HELD RESPONSIBLE FOR ANY
LOSS OF PRINCIPAL OR INTEREST WHICH MAY BE INCURRED AS A RESULT OF MAKING THE
INVESTMENTS OR REDEEMING SAID INVESTMENT FOR THE PURPOSES OF THIS ESCROW TRUST.
IN NO CASE SHALL THE ABOVE MENTIONED DEPOSITS BE SURRENDERED EXCEPT ON
AN ORDER SIGNED BY THE PARTIES HERETO, THEIR RESPECTIVE LEGAL REPRESENTATIVES
OR ASSIGNS OR IN OBEDIENCE TO THE PROCESS OR ORDER OF A COURT AS AFORESAID
EXCEPT AS BELOW PROVIDED.
ESCROW TRUSTEE FEE IS TO BE CHARGED ONE HALF TO EACH PARTY. ESCROWED
FUNDS MAY BE INVESTED AT PURCHASER'S DIRECTION WITH ALL INTEREST PAYABLE TO,
AND INVESTMENT FEES PAID BY, PURCHASER.
ESCROW TRUSTEE IS DIRECTED, WITHOUT NOTICE OR ADDITIONAL DIRECTION FROM
SELLER, TO REFUND ALL FUNDS ON DEPOSIT, AND ANY INTEREST EARNED THEREON, TO
PURCHASER ON DEMAND IN THE EVENT ESCROW TRUSTEE IS SERVED ON OR BEFORE DECEMBER
20, 1996 WITH PURCHASER'S STATEMENT THAT PURCHASER HAS ELECTED TO TERMINATE THE
CONTRACT BETWEEN PURCHASER AND SELLER PURSUANT TO WHICH THIS ESCROW TRUST IS
ESTABLISHED AND THEREUPON THE ESCROW TRUSTEE SHALL BE RELEASED AND DISCHARGED
FROM ALL FURTHER DUTY OF LIABILITY IN RESPECT TO THE DEPOSITS OR ANY OF THEM.
ACCEPTED: PURCHASER: INLAND REAL ESTATE
ACQUISITIONS, INC.
Chicago Title and Trust Company, By:________________________________
Escrow Trustee Elliot B. Kamenear, attorney and
agent in fact, (630) 218-8000,
2901 Butterfield Road, Oak Brook,
Il 60521
By: ________________________
Trust Officer
SELLER:
AURORA COMMONS AND NORTHPOINT TWO
LIMITED PARTNERSHIPS
EXHIBIT A By: _____________________________
Thomas H. Fraerman, attorney and
agent in fact, (847) 215-5500,
1400 S. Wolf Road, Bldg. 100,
Wheeling, IL 60090
<PAGE> 19
JOSEPH FREED AND ASSOCIATES, INC.
SOUTHPOINT SHOPPING CENTER
1997 RENT ROLL
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------
LEASE ANNLZD RENT
SPACE TENANT SQ FT COMMENCE EXPIRE RENT PER SF
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1 CUB FOODS - NOT OWNED N/A N/A N/A N/A N/A
1A HFC 1,853 03/01/97 02/28/02 $42,619 $23.00
1B VACANT - MASTER LEASE 1,538 01/16/97 01/15/98 $29,222 $19.00
2 LASER QUEST 8,601 06/01/97 06/30/07 $68,808 $8.00
3 NAILS 2001 1,200 12/21/95 12/31/98 $21,000 $17.50
3A SALLY BEAUTY SUPPLY 1,668 12/11/95 12/31/00 $25,020 $15.00
4 CHILDREN'S ORCHARD 1,666 03/18/95 03/31/00 $24,990 $15.00
5 WE CARE HAIR 1,066 04/11/91 04/30/01 $23,996 $22.51
6 VENTURE 81,375 N/A N/A N/A N/A
7 PAUL HARRIS 4,215 06/15/93 06/30/03 $63,225 $15.00
8 GNC 1,038 11/06/93 11/30/03 $20,116 $19.38
9 FLETCH'S ART SUPPLY (a) 1,438 11/15/89 02/15/97 $26,646 $18.53
10 PAYLESS SHOE SOURCE 2,630 10/27/89 10/31/99 $53,994 $20.53
11 ALL FOR ONE 3,453 05/18/92 05/31/97 $56,975 $16.50
12/13 HAMMET'S 3,821 04/13/90 05/31/01 $73,096 $19.13
14 PET CARE + 6,264 11/24/89 12/31/01 $87,696 $14.00
15 FLETCH'S ART SUPPLY (a) 3,333 02/16/97 02/28/00 $46,662 $14.00
16 PRUDENTIAL PREFERRED 11,478 08/01/97 07/30/07 $160,692 $14.00
17 PRESTIGE CLEANERS 1,135 11/01/89 10/31/99 $19,295 $17.00
18 PIZZA KITS 1,135 09/04/90 09/30/99 $17,252 $15.20
19 PAK MAIL 1,135 02/26/90 02/28/99 $19,000 $16.74
20 FUNCOLAND 2,265 11/19/92 05/31/97 $9,060 $4.00
21 USED CD STORE 1,495 05/01/96 04/30/97 $15,698 $10.50
22 REALTY EXECUTIVES 2,623 08/15/95 08/31/99 $23,607 $9.00
23 OLIVE GARDEN 9,010 09/28/89 09/30/99 $111,994 $12.43
24 CHILI'S 5,995 10/02/89 10/31/09 $74,997 $12.51
25 PEARLE EXPRESS 4,658 12/21/89 12/31/99 $139,740 $30.00
26 CIGARETTES CHEAPER 985 12/02/95 12/31/98 $20,291 $20.60
27 SUBWAY 1,190 03/01/90 02/28/00 $35,700 $30.00
28 RITZ CAMERA 1,359 02/06/92 02/28/02 $28,498 $20.97
29 THE BEDDING EXPERTS 1,831 03/23/96 03/31/99 $33,874 $18.50
30 BLOCKBUSTER 6,984 10/29/89 10/31/99 $127,458 $18.25
------- ----------
TOTAL MINIMUM RENT 178,437 $1,501,220
======= ==========
</TABLE>
NOTES: (a) FLETCH'S ART SUPPLY IS MOVING FROM SPACE 9 TO SPACE 15 ON THE DATE
NOTED.
<PAGE> 20
JOSEPH FREED AND ASSOCIATES, INC.
AURORA COMMONS
1997 RENT ROLL
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------
LEASE ANNUAL RENT
SPACE TENANT SQ FT COMMENCE EXPIRE RENT PER SF
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1 VENTURE 90,189 N/A N/A 0 $0.00
2 COLORTYME 2,396 11/01/91 10/31/99 34,742 $14.50
3 H&R BLOCK 1,954 01/09/89 04/30/01 31,948 $16.35
4 LUCKY CHINA HOUSE REST 1,954 01/15/97 01/14/01 23,937 $12.25
5 SALLY BEAUTY SUPPLY 1,954 11/30/89 11/30/99 31,264 $16.00
6 FASHIONS UNDER $10 1,954 11/01/88 10/31/98 28,333 $14.50
7 MODERN TIMES 1,667 11/26/96 11/30/99 24,338 $14.60
8 BO RICS 1,498 02/12/87 02/28/97 26,964 $18.00
9 INTERIM PERSONNEL 1,005 10/26/88 08/31/98 15,849 $15.77
10 HOLLYWOOD NAILS 1,039 05/17/95 05/31/97 18,183 $17.50
11 PAYLESS SHOES 2,553 05/02/87 05/31/97 40,848 $16.00
12 NORWEST FINANCIAL 1,593 10/27/91 10/31/01 23,497 $14.75
13 SIZES UNLIMITED 6,833 04/16/95 04/30/07 68,330 $10.00
14 DOTS 3,455 06/09/94 01/31/99 43,188 $12.50
15 AURORA TRAVEL 666 12/30/89 01/31/98 16,011 $24.04
16 TRAK AUTO 5,931 12/15/89 01/31/98 62,276 $10.50
17 FAMOUS FOOTWEAR 6,647 10/15/91 10/31/01 59,823 $9.00
18 DOLLAR BILLS 3,873 05/05/90 01/31/01 46,476 $12.00
19 JEWEL/OSCO 64,965 08/24/89 08/31/09 389,790 $6.00
20 CIGARETTES CHEAPER 1,023 02/20/96 02/28/99 16,880 $16.50
21 1 HOUR PHOTO 865 06/29/90 06/30/98 15,734 $18.19
22 RED WING SHOES 1,106 12/05/94 12/31/99 15,484 $14.00
23 ROYAL JEWELERS 1,388 11/11/89 11/30/99 26,372 $19.00
24 BLOCKBUSTER VIDEO 7,890 11/08/89 11/30/99 108,488 $13.75
25 BOSTON MARKET 3,083 11/16/94 11/30/99 34,005 $11.03
26 HARRIS BANK 0 07/31/89 07/31/2088 0 $0.00
------- ---------
TOTAL MINIMUM RENT 217,481 1,202,757
======= =========
</TABLE>
<PAGE> 21
JOSEPH FREED AND ASSOCIATES
MASTER LEASE OBLIGATIONS
AURORA COMMONS AND SOUTHPOINT SALES
<TABLE>
<CAPTION>
EXHIBIT B
(Revised)
- -----------------------------------------------------------------------------------------------------------------------
SPACE NO. OF MTNS PROJECTED SQUARE
NUMBER PROSPECTIVE TENANT VACANT OPENING FEET
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------
SOUTHPOINT CENTER
MASTER LEASE OBLIGATIONS:
2C NEW RETAILER 1,538
9 NEW RETAILER (FORMERLY FLETCHERS-SEE NOTE A) 1,438
LESS CREDIT FOR FLETCHERS FOR JAN-FEB 15 RENT
22 REALTY EXECUTIVES-RENT NOT PAID (NOTE D) N/A 2,623
27 SUBWAY-RENT NOT PAID (NOTE D) N/A 1,190
- -----------------------------------------------------------------------------------------------------------------------
TOTAL MASTER LEASE OBLIGATIONS 6,789
- -----------------------------------------------------------------------------------------------------------------------
CASH CREDIT TO BUYER AT CLOSE FOR SIGNED DEALS: (Note C)
2a LASER QUEST 5 6/1/97 8,601
2b HFC 2 3/1/97 1,853
16 PRUDENTIAL PREFERRED EXPANSION (NOTE B) 7 8/6/97 2,072
20 FUNCOLAND ($12 PROFORMA VERSUS $4 REVISED) 4 5/1/97 2,265
(TERM DATE)
- -----------------------------------------------------------------------------------------------------------------------
TOTAL CASH CREDIT TO BUYER 14,791
=======================================================================================================================
GRAND TOTAL 21,580
=======================================================================================================================
EXHIBIT B
(Revised)
- -----------------------------------------------------------------------------------------------------------------------
MINIMUM
SPACE RENT PER EXTRAS TOTAL
NUMBER PROSPECTIVE TENANT SQ. FT. PER SQ FT RENT
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------
SOUTHPOINT CENTER
MASTER LEASE OBLIGATIONS:
2C NEW RETAILER $19.00 $7.88 $26.88
9 NEW RETAILER (FORMERLY FLETCHERS-SEE NOTE A) $18.53 $7.88 $26.41
LESS CREDIT FOR FLETCHERS FOR JAN-FEB 15 RENT
22 REALTY EXECUTIVES-RENT NOT PAID (NOTE D) $ 9.00 $7.88 $16.88
27 SUBWAY-RENT NOT PAID (NOTE D) $30.00 $7.88 $37.88
- ----------------------------------------------------------------------------------------------------------------------
TOTAL MASTER LEASE OBLIGATIONS
- ----------------------------------------------------------------------------------------------------------------------
CASH CREDIT TO BUYER AT CLOSE FOR SIGNED DEALS:
2a LASER QUEST $ 8.00 $7.88 $15.88
2b HFC $19.00 $7.88 $26.88
16 PRUDENTIAL PREFERRED EXPANSION (NOTE B) $14.00 $7.88 $21.88
20 FUNCOLAND ($12 PROFORMA VERSUS $4 REVISED) $ 8.00 N/A $8.00
- ----------------------------------------------------------------------------------------------------------------------
TOTAL CASH CREDIT TO BUYER
======================================================================================================================
GRAND TOTAL
======================================================================================================================
EXHIBIT B
(Revised)
- -----------------------------------------------------------------------------------------------------------------------
YEAR ONE
SPACE MINIMUM TOTAL
NUMBER PROSPECTIVE TENANT RENT EXTRAS RENT
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------
SOUTHPOINT CENTER
MASTER LEASE OBLIGATIONS:
2C NEW RETAILER 29,222 12,119 41,341
9 NEW RETAILER (FORMERLY FLETCHERS-SEE NOTE A) 26,646 11,331 37,978
LESS CREDIT FOR FLETCHERS FOR JAN-FEB 15 RENT (3,331) (1,416) (4,747)
22 REALTY EXECUTIVES-RENT NOT PAID (NOTE D) 23,607 20,669 44,276
27 SUBWAY-RENT NOT PAID (NOTE D) 35,700 9,377 45,077
- ----------------------------------------------------------------------------------------------------------------------
TOTAL MASTER LEASE OBLIGATIONS 111,844 52,081 163,925
- ----------------------------------------------------------------------------------------------------------------------
CASH CREDIT TO BUYER AT CLOSE FOR SIGNED DEALS:
2a LASER QUEST 28,670 28,240 56,910
2b HFC 5,868 2,434 8,302
16 PRUDENTIAL PREFERRED EXPANSION (NOTE B) 16,921 9,524 26,445
20 FUNCOLAND ($12 PROFORMA VERSUS $4 REVISED) 6,040 0 6,040
- ----------------------------------------------------------------------------------------------------------------------
TOTAL CASH CREDIT TO BUYER 57,499 40,198 97,697
======================================================================================================================
GRAND TOTAL 169,343 92,279 261,622
======================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
EXHIBIT B
(Revised)
- -----------------------------------------------------------------------------------------------------------------------
TWO YEAR TOTAL
SPACE MINIMUM TOTAL
NUMBER PROSPECTIVE TENANT RENT EXTRAS RENT
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------
SOUTHPOINT CENTER
MASTER LEASE OBLIGATIONS:
2C NEW RETAILER 58,444 24,239 82,683
9 NEW RETAILER (FORMERLY FLETCHERS-SEE NOTE A) 53,292 22,663 75,955
LESS CREDIT FOR FLETCHERS FOR JAN-FEB 15 RENT
22 REALTY EXECUTIVES-RENT NOT PAID (NOTE D) 47,214 41,338 88,552
27 SUBWAY-RENT NOT PAID (NOTE D) 71,400 18,754 90,154
- ----------------------------------------------------------------------------------------------------------------------
TOTAL MASTER LEASE OBLIGATIONS 230,350 106,955 337,345
- ----------------------------------------------------------------------------------------------------------------------
CASH CREDIT TO BUYER AT CLOSE FOR SIGNED DEALS:
2a LASER QUEST
2b HFC
16 PRUDENTIAL PREFERRED EXPANSION (NOTE B)
20 FUNCOLAND ($12 PROFORMA VERSUS $4 REVISED)
- ----------------------------------------------------------------------------------------------------------------------
TOTAL CASH CREDIT TO BUYER
======================================================================================================================
GRAND TOTAL 230,350 106,995 337,345
======================================================================================================================
NOTE A - FLETCHERS WILL VACATE SPACE 9 (1438 SQUARE FEET) ON FEBRUARY 15, 1997 AND OCCUPY SPACE 15.
NOTE B - THE RENT COMMENCEMENT DATE IS 248 DAYS AFTER THE TENDER OF THE EXPANSION SPACE TO PRUDENTIAL PREFERRED. THE EXPANSION
SPACE WAS TENDERED ON DECEMBER 2ND. THEREFOR, THE RENT COMMENCEMENT DATE IS AUGUST 6, 1997.
NOTE C - THE COMMENCEMENT DATES ARE ESTIMATES ONLY AND THE RENT ADJUSTMENT WILL BE REPORTED BASED ON ACTUAL COMMENCEMENT DATES.
NOTE D - MASTER LEASE OBLIGATION WILL BE RELEASED IF TENANT BRINGS ACCOUNT CURRENT. SELLER RESERVES THE RIGHT TO EVICT A TENANT AND
RELEASE A SPACE IN WHICH EVENT SPACE WILL BE CONSIDERED PART OF MASTER LEASE.
</TABLE>
<PAGE> 22
PAGE 1
JOSEPH FREED & ASSOCIATES, INC.
[FORM 1.1]
<TABLE>
<S> <C> <C>
REQUISITION FOR: X Lease Amendment
--- ---
1 SHOPPING CENTER: AURORA COMMONS
--------------------------------------------
DATE GENERATED: 10/17/96
----------
DATE TO LEGAL:
----------
FROM: Lee Wolfson
--------------------------------------------
OUTSIDE BROKER: N/A
--------------------------------------------
2 TENANT: CREATIVE HAIRDRESSERS, INC.
--------------------------------------------
3 IF INDIVIDUAL, SPOUSE NAME: N/A
--------------------------------------------
4 TRADE NAME: THE HAIRCUTTERY
--------------------------------------------
TYPE: Local Regional X National
----- ----- -----
SALES CATEGORY: N/A
--------------------------------------------
5 STATE OF INCORPORATION: VA.
--------------------------------------------
6 TENANT ADDRESS: 2815 HARTLAND RD.
--------------------------------------------
FALLS CHURCH, VA. 22043
--------------------------------------------
--------------------------------------------
ATTENTION:
------------------------------
PHONE: 703 698 7090
------------------------------
FAX:
------------------------------
BILLING ADDRESS: SAME
--------------------------------------------
--------------------------------------------
--------------------------------------------
ATTENTION: A/P
------------------------------
PHONE:
------------------------------
FAX:
------------------------------
7 GUARANTOR NAME: N/A
--------------------------------------------
8 GUARANTOR ADDRESS: N/A
--------------------------------------------
--------------------------------------------
--------------------------------------------
PHONE:
------------------------------
9 STATE OF INCORPORATION: N/A
--------------------------------------------
10 SPACE NUMBER: 2080
------
11 SQUARE FOOTAGE: 1,498 SF
------
CERTIFIED MEASUREMENT: Yes X No
----- -----
VERIFIED BY C. HOFFMAN:
-----
12 ADD: Mandatory Remeasurement Right to Remeasure X N/A
----- ----- -----
FORMERLY OCCUPIED BY: CURRENTLY BORICS
--------------------------------------------
LANDLORD HAS POSESSION Yes X No
----- -----
13 RADIUS RESTRICTION: SAME NP Miles From The Shopping Center
--------
14 PERMITTED USES: USE NP
--------------------------------------------
--------------------------------------------
--------------------------------------------
--------------------------------------------
--------------------------------------------
--------------------------------------------
--------------------------------------------
--------------------------------------------
HAVE YOU CHECKED FOR ANY
EXCLUSIVES OR RESTRICTIONS
IMPOSED ON LANDLORD AT CENTER? Yes X No
----- -----
LIST APPLICABLE EXCLUSIVES
OR RESTRICTIONS:
(ATTACH COPIES)
--------------------------------------------
--------------------------------------------
--------------------------------------------
--------------------------------------------
--------------------------------------------
--------------------------------------------
--------------------------------------------
</TABLE>
<PAGE> 23
<TABLE>
<S> <C> <C>
15 LEASE TERM: 5 Lease Years
-----
16 OPTIONS (IF ANY): ONE FIVE YEAR OPTION
------------------------------------------------------------
17 OPTION CONDITIONED ON: N/A
------------------------------------------------------------
------------------------------------------------------------
------------------------------------------------------------
------------------------------------------------------------
------------------------------------------------------------
18 PERCENTAGE RENT RATE: 4 % Natural Breakpoint
----- -----------------------------------------------
-----------------------------------------------------------
PRIMARY TERM PERC
19 FIXED MINIMUM RENT: MONTH THRU MONTH P&F MONTHLY ANNUALLY SALES BASE
-----------------------------------------------------------
1 thru 60 19.00 2,371.83 28,462.00 711,550
-----------------------------------------------------------
thru
-----------------------------------------------------------
thru
-----------------------------------------------------------
thru
-----------------------------------------------------------
thru
-----------------------------------------------------------
-----------------------------------------------------------
OPTION PERIOD PERC
20 FIXED MINIMUM RENT: MONTH THRU MONTH P&F MONTHLY ANNUALLY SALES BASE
-----------------------------------------------------------
1 thru 60 20.50 2,559.08 30,709.00 767,725
-----------------------------------------------------------
thru
-----------------------------------------------------------
thru
-----------------------------------------------------------
thru
-----------------------------------------------------------
thru
-----------------------------------------------------------
CONTRIBUTION TO -------------------------------------------------
ADVERTISING AND CPI
PROMOTIONAL SERVICE PER YEAR INCREASES
21 OR MERCHANTS ASSOC: MONTH THRU MONTH P&F LEASE (YES OR NO)
-------------------------------------------------
1 thru 60 250 NO
-------------------------------------------------
61 thru 120 500 NO
-------------------------------------------------
thru
-------------------------------------------------
thru
-------------------------------------------------
thru
-------------------------------------------------
GRAND OPENING
22 CONTRIBUTION $: N/A P&F Of Leased Premises
-----
23 SECURITY DEPOSIT $: N/A
-----
PLEASE USE ALL TERMS NEGOTIATED IN FF AND NP LEASES FOR
SPECIAL TERMS -----------------------------------------------------------
THE FOLLOWING ITEMS: SIGNAGE/EXCLUSIVE/ASSIGN & SUBLET/
-----------------------------------------------------------
ANCHOR PROTECTION IN JEWEL/OSCO.
-----------------------------------------------------------
-----------------------------------------------------------
-----------------------------------------------------------
-----------------------------------------------------------
24 SPECIAL PROVISIONS: TENANT INTENDS TO TAKE SPACE AND OPEN FOR BUSINESS WITHIN
-----------------------------------------------------------
5 DAYS OF POSSESSION AND THEY WILL REMODEL DURING THE
-----------------------------------------------------------
BUSINESS BEING OPEN.
-----------------------------------------------------------
-----------------------------------------------------------
-----------------------------------------------------------
-----------------------------------------------------------
-----------------------------------------------------------
-----------------------------------------------------------
-----------------------------------------------------------
-----------------------------------------------------------
-----------------------------------------------------------
-----------------------------------------------------------
-----------------------------------------------------------
-----------------------------------------------------------
TENTATIVE DATE FOR
DELIVERY OF LEASED
25 PREMISES TO TENANT 1 Days After Last To Occur Of: X Execution Of Lease By Landlord
----- -----
Permit Issued
-----
X Physical Or Legal Posession Of Space
-----
</TABLE>
<PAGE> 24
<TABLE>
<S> <C> <C>
26 TENANT NOT OBLIGATED
TO ACCEPT POSSESSION
BETWEEN: N/A And
----- -----
27 TENANT NOT OBLIGATED
TO OPEN FOR BUSINESS
BETWEEN: N/A And
----- -----
28 FIXED RENT COMMENCEMENT
DATE: 60 Days After Tender Upon Tender
----- -----
REGARDLESS OF OPENING? X YES NO
----- -----
29 PASS THRU CHARGES BEGIN Days After Tender X Upon Tender
----- -----
REGARDLESS OF OPENING: YES X NO
----- -----
30 TIME FOR TENANT TO
COMPLETE TENANT'S WORK 60 Days (Without Regard To When The Rent Or Term Begins)
-----
31 LEASE TERM COMMENCES
ON THE EARLIER OF 60 Days After Tender Or Opening For Business
-----
32 TENANT ALLOWANCE YES X NONE
----- -----
HOW MUCH: $ Total Per Square Foot
----- -----
PAYABLE IN: Cash Rent Asessment
----- -----
CONSTRUCTION ISSUES:
REAL ESTATE CONTACT: RICH BARBOUR Phone: SAME
------------------------- ----------
CONSTRUCTION CONTACT: DAVID GREEN Phone: SAME
------------------------- ----------
DATE TENANT NEEDS
SPACE DELIVERED BY: ASAP
-----
DELIVERY: "AS IS" LL W/B X OTHER
----- ----- -----
IF DELIVERY "LL W/B" OR
OTHER (AS ABOVE), CAN IT
BE "AS IS" WITH CONTRIBUTION
BY LL FOR WORK: YES NO
----- -----
HVAC CONDITION:
---------------------------------------------
---------------------------------------------
---------------------------------------------
---------------------------------------------
---------------------------------------------
---------------------------------------------
---------------------------------------------
WORK TO BE PERFORMED BY LL:
- --------------------------------------------------------------------------------------
PROJECTED
# TYPE: BUDGET ACTUAL
- --------------------------------------------------------------------------------------
1 OTHER...REPLACE OR REPAIR HVAC TO GOOD CONDITION
- --------------------------------------------------------------------------------------
2 IF NO REPLACEMENT WE NEED TO WARRANT HVAC FOR A
- --------------------------------------------------------------------------------------
3 60 MONTH PERIOD (HEAT EXCHANGER/COMPRESSOR
- --------------------------------------------------------------------------------------
4
- --------------------------------------------------------------------------------------
5 ROOF LEAK BY BACK SALES AREA NEEDS REPAIR
- --------------------------------------------------------------------------------------
6 REAR END OF STORE HAS A CORRIDOR WATER LEAK
- --------------------------------------------------------------------------------------
7
- --------------------------------------------------------------------------------------
8
- --------------------------------------------------------------------------------------
9
- --------------------------------------------------------------------------------------
10
- --------------------------------------------------------------------------------------
TOTALS
---------------------------------------
APPROVAL:
-----------------------------
</TABLE>
<PAGE> 25
<TABLE>
<S> <C>
FINANCIAL STATEMENTS:
TENANT: CREATIVE HAIRDRESSERS, INC.
------------------------------------------------------------
ATTACHED: YES NO
----- -----
ANTICIPATED ON: WE HAVE
---------
GUARANTOR: N/A
-----
ATTACHED ON: YES NO
----- -----
ANTICIPATED ON:
-----
APPROVED:
------------------------------
AL O'DONNELL
COMMISSION MEMORANDUM:
DATE: 10/17/96
------------------------------------------------------------
TO: Carla Hoffman
------------------------------------------------------------
FROM: Lee Wolfson
------------------------------------------------------------
RE: Leasing Commission
------------------------------------------------------------
SHOPPING CENTER: Aurora Commons
------------------------------------------------------------
TENANT NAME: CREATIVE HAIRDRESSERS, INC.
------------------------------------------------------------
TRADE NAME: THE HAIRCUTTERY
------------------------------------------------------------
RATE OF COMMISSION: 2.50 P&F x 1,498 SF = AMOUNT $3,745.00
----- ----- ---------
PAYABLE TO: X JOSEPH J FREED AND ASSOCIATES, INC. AMOUNT $3,745.00
----- 1400 S. WOLF ROAD, BLDG. 100 ---------
WHEELING, IL 60090
AMOUNT
----- ------------------------------------ ---------
------------------------------------------------------------
------------------------------------------------------------
------------------------------------------------------------
------------------------------------------------------------
------------------------------------------------------------
WRITTEN COMMISSION
AGREEMENT WITH
OUTSIDE BROKER
ORIGINAL IN FILE: YES NO
----- -----
APPROVED:
------------------------------
LARRY FREED
CONDITIONS PRECEDENT TO
LANDLORD'S EXECUTION OF
LEASE:
1: SATISFIED UNSATISFIED
----- -----
2: FINANCIAL STATEMENTS RECEIPT AND APPROVED BY AL O'DONNELL
-----
3: OTHER
----- --------------------------------------------
--------------------------------------------------------
--------------------------------------------------------
--------------------------------------------------------
--------------------------------------------------------
--------------------------------------------------------
--------------------------------------------------------
--------------------------------------------------------
</TABLE>
<PAGE> 26
<TABLE>
<S> <C>
DEAL SUMMARY:
Landlord's Out of Pocket Expenses
[Construction, Lease Commission, Outside Legal] - $ 6,000.00
---------
ANNUAL % RATE ADDED
Lease Terms: 5.0 Years Primary Term With % Rate - % 8.00
---------
EQUALS
Annual Adjustment To Fixed Rent - - $ 1,502.74
---------
SUBTRACTED FROM
Average Annual Rent - - - - $ 28,462.00
---------
EQUALS
Average Annual Net Effective Rent - - - $ 26,959.26
---------
DIVIDED BY
Square Footage - - - - - SF 1,498
---------
EQUALS
Average Annual Rent PSF - - - - $ 18.00
---------
SEND REVIEW COPY
OF LEASE TO: X Tenant At Above Tenant Address
-----
Or At: NOT TO ATTORNEY ONLY TO RICH BARBOUR
----------------------------------------------
AT 2800 N. RIVER RD. SUITE 180 DESPLAINES
----------------------------------------------
IL. 60018
----------------------------------------------
ATTENTION:
------------------------------
PHONE: 390 8504
------------------------------
FAX: 8545
------------------------------
Attorney
----- ----------------------------------------------
----------------------------------------------
----------------------------------------------
ATTENTION:
------------------------------
PHONE:
------------------------------
FAX:
------------------------------
Attorney
----- ----------------------------------------------
----------------------------------------------
----------------------------------------------
ATTENTION:
------------------------------
PHONE:
------------------------------
FAX:
------------------------------
FINAL APPROVAL:
-----------------------------------------
LARRY FREED
-----------------------------------------
DATE
</TABLE>
<PAGE> 27
[INLAND REAL ESTATE LETTERHEAD]
December 20, 1996
Ms. Ellen Butor
JOSEPH FREED & ASSOCIATES, INC.
1400 S. Wolf Road
Bldg. 100
Wheeling, IL 60090-6524
RE: Aurora Commons Shopping Center,
Aurora, Illinois and Southpoint Shopping Center,
Arlington Heights, Illinois
Dear Ellen:
Reference is hereby made to that certain letter agreement dated November
7, 1996 as amended by November 15, 1996 and December 16, 1996 letter
agreements ("Contract") between Aurora Commons Partnership Limited Partnership
and Northpoint Two Limited Partnership (collectively referred to as "Seller")
and Inland Real Estate Acquisitions, Inc. ("Purchaser") relating to the sale
of the captioned properties.
The parties wish to amend the Contract as follows:
That the December 20, 1996 date (due diligence expiration) in
Paragraph 19 and in the second to the last paragraph of the Contract, is
extended to January 15, 1997 (except that the right of Purchaser to
cancel the Contract based on Purchaser's examination and review of the
financial operations and financial projections of the properties shall
not extend beyond January 10, 1997) and that the January 16, 1997 Closing
Date in Paragraph 12 shall be January 21, 1997. Prorations shall be as of
December 31, 1996 and Purchaser shall be entitled to January 1997 cash
flow in lieu of December 1996 cash flow.
WE'RE BUYING REAL ESTATE
<PAGE> 28
Ms. Ellen Butor
December 20, 1996
Page two
Please acknowledge your agreement to the foregoing by returning to me a
duly executed counterpart of this letter by facsimile (hard copy to follow by
Federal Express) no later than 2:30 p.m. December 20, 1996.
Cordially,
INLAND REAL ESTATE ACQUISITIONS, INC.
G. Joseph Cosenza
Vice Chairman
GJC:tmn
ACCEPTED AND ACKNOWLEDGED THIS 20TH DAY OF DECEMBER, 1996
AURORA COMMONS LIMITED NORTHPOINT TWO LIMITED
PARTNERSHIP, an Illinois limited PARTNERSHIP, an Illinois limited
partnership partnership
By: AURORA COMMONS, INC. By: NORTHPOINT II, INC.
By: By:
----------------------- --------------------------
Its: Its:
------------------ ----------------
<PAGE> 29
[INLAND REAL ESTATE LETTERHEAD]
January 10, 1997
VIA: FACSIMILE AND FEDERAL EXPRESS (Priority)
Mr. Larry FREED and
Ms. Ellen Butor
JOSEPH FREED & ASSOCIATES, INC.
1400 S. Wolf Road
Bldg. 100
Wheeling, IL 60090-6524
RE: Aurora Commons Shopping Center, Aurora, Illinois and
Southpoint Shopping Center, Arlington Heights, Illinois
Dear Larry and Ellen:
Reference is hereby made to that certain letter agreement dated November
7, 1996 as amended by November 15, 1996, December 16, 1996 and December 20,
1996 letter agreements ("Contract") between Aurora Commons Partnership Limited
Partnership and Northpoint Two Limited Partnership (collectively referred to
as "Seller") and Inland Real Estate Acquisitions, Inc. ("Purchaser") relating
to the sale of the captioned properties.
The parties wish to amend the Contract as follows:
That the December 20, 1996 date (due diligence expiration) in
Paragraph 19 and in the second to the last paragraph of the
Contract, is extended to January 17, 1997 (except that the right
of Purchaser to cancel the Contract based on Purchaser's
examination and review of the financial operations and financial
projections of the properties shall not extend beyond January 15,
1997) and that the January 16, 1997 Closing Date in Paragraph 12
shall be January 23, 1997. Prorations shall be as of December 31,
1996 and Purchaser shall be entitled to January 1997 cash flow in
lieu of December 1996 cash flow.
The Purchase price of Aurora Commons Shopping Center is hereby
changed to $11,500,000.00 and the purchase price of
Southpoint Shopping Center is hereby changed to $12,050,000.00.
Accordingly, the cash from Purchaser shall not exceed
$1,922,525.00, plus or minus prorations, for Aurora Commons
Shopping Center and $750,004.00, plus or minus prorations, for
Southpoint Shopping Center.
With regard to the percentage rent from Jewel Foods
for the period through August 31, 1997 when the percentage
rent is paid, Purchaser is entitled to the entire amount
of the percentage rent payable by Jewel.
WE'RE BUYING REAL ESTATE
<PAGE> 30
Mr. LARRY FREED and Ms. ELLEN Butor
January 10, 1997
Page two
Seller shall be entitled at closing to a reimbursement from
Purchaser for parking lot lighting at Aurora Commons Shopping
Center in an amount not to exceed $37,000.00 based on actual bills
paid.
The purchase price for Aurora Commons Shopping Center shall be
reduced by an amount not less than $650,000.00 and not exceeding
$1,000,000.00 as specified by the Seller prior to the Closing Date
(allocated to the cash portion thereof payable on Closing) and
Purchaser shall on Closing assume and make concurrent payment in
such amount for and upon presentment of Secured Note aggregating
such amount issued by the Partnership to certain of its Partners,
all without any other cost, expense or obligation of Purchaser.
The attached revised Master Lease Obligations schedule shall be
Exhibit B of the Contract.
Please acknowledge your agreement to the foregoing by returning to me a
duly executed counterpart of this letter by facsimile (hard copy to follow by
Federal Express) no later than 5:00 p.m., January 13, 1997.
Cordially,
INLAND REAL ESTATE ACQUISITIONS, INC.
G. Joseph Cosenza
Vice Chairman
GJC:tmn
ACCEPTED AND ACKNOWLEDGED THIS 13TH DAY OF JANUARY, 1997
AURORA COMMONS LIMITED NORTHPOINT TWO LIMITED
PARTNERSHIP, an Illinois limited PARTNERSHIP, an Illinois limited
partnership partnership
By: AURORA COMMONS, INC. By: NORTHPOINT II, INC.
By: By:
------------------------- --------------------------
Its: President Its: President
---------------- --------------
<PAGE> 1
Exhibit 23.1
[KPMG PEAT MARWICK LLP LOGO]
The Board of Directors
Inland Real Estate Corporation
We consent to the use of our reports relating to the financial statements of
Inland Monthly Income Fund III, Inc. as of December 31, 1995 and 1994, and the
results of its operations and its cash flows for the year ended December 31,
1995 and for the period from May 12, 1994 (formation date) to December 31,
1994, the historical summaries of gross income and direct operating expenses of
the Walgreen/Decatur Property for each of the years in the three-year period
ended June 30, 1994, the historical summary of gross income and direct
operating expenses of the Eagle Crest Shopping Center for each of the years in
the three-year period ended June 30, 1994, the historical summary of gross
income and direct operating expenses of Regency Point Shopping Center for the
year ended December 31, 1995, the historical summary of gross income and
direct operating expenses of Salem Square Shopping Center for the year ended
December 31, 1995, the historical summary of gross income and direct operating
expenses of Hawthorne Village Commons for the year ended December 31, 1995, the
historical summary of gross income and direct operating expenses of Six Corners
Plaza for the year ended June 30, 1996, the historical summary of gross income
and direct operating expenses of Spring Hill Fashion Center for the year ended
December 31, 1995, the historical summary of gross income and direct operating
expenses of Crestwood Plaza Shopping Center for the year ended October 31,
1996, the historical summary of gross income and direct operating expenses of
Park St. Claire Plaza for the year ended December 31, 1995, the historical
summary of gross income and direct operating expenses of Lansing Square
Shopping Center for the year ended December 31, 1995, the historical summary
of gross income and direct operating expenses of The Summit of Park Ridge for
the period February 1, 1996 to November 30, 1996, and the historical summary
of gross income and direct operating expenses of Maple Park Place for the year
ended December 31, 1996 included herein and to the reference to our firm under
the heading "Experts" in this Registration Statement (No. 333-6459) on Form
S-11.
KPMG Peat Marwick LLP
Chicago, Illinois
January 31, 1997
<PAGE> 1
EXHIBIT 23.3
[BRUCE GORLICK, C.P.A., LTD. LETTERHEAD]
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports (and to all references to our Firm) on the Statement of Gross Income and
Direct Operating Expenses of the Mundelein Plaza, Prospect Heights Plaza and
Montgomery-Sears Shopping Center for the year ended December 31, 1995, included
in or made a part of this Registration Statement on Form S-11.
Bruce Gorlick, C.P.A., Ltd.
Bruce Gorlick, C.P.A., Ltd.
A Professional Corporation
Northbrook, Illinois
January 31, 1997
<PAGE> 1
[WARADY & DAVIS LETTERHEAD]
EXHIBIT 23.4
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports (and to all references to our Firm) on the (i) Historical Summary of
Gross Income and Direct Operating Expenses (Historical Summary) of Aurora
Commons Partnership (An Illinois Limited Partnership) D/B/A Aurora Commons
Shopping Center as of December 31, 1996; and (ii) Historical Summary of Gross
Income and Direct Operating Expenses (Historical Summary) of Clark & Diversey
Property Limited Partnership (An Illinois Limited Partnership) D/B/A Lincoln
Park Place as of December 31, 1996 included in or made part of this
Registration Statement on Form S-11.
By /s/ Warady Davis LLP
---------------------
Warady Davis LLP
Deerfield, Illinois
January 31, 1997