UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934
For the Quarterly Period Ended March 31, 1997
or
[ ] Transition Report pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934
For the transition period from to
Commission File #33-79012
Inland Real Estate Corporation
(Exact name of registrant as specified in its charter)
Maryland #36-3953261
(State or other jurisdiction (I.R.S. Employer Identification Number)
of incorporation or organization)
2901 Butterfield Road, Oak Brook, Illinois 60521
(Address of principal executive office) (Zip code)
Registrant's telephone number, including area code: 630-218-8000
N/A
(Former name, former address and former fiscal
year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
As of May 13, 1997, there were 12,462,632 Shares of Common Stock outstanding.
-1-
PART I - Financial Information
Item 1. Financial Statements
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Balance Sheets
March 31, 1997 and December 31, 1996
(unaudited)
Assets
------
1997 1996
Investment properties (Notes 1, 4 and 5): ---- ----
Land............................................ $ 31,859,748 24,705,743
Building and improvements....................... 91,746,576 69,927,238
------------- ------------
123,606,324 94,632,981
Less accumulated depreciation................... 1,850,958 1,109,038
------------- ------------
Net investment properties....................... 121,755,366 93,523,943
------------- ------------
Cash and cash equivalents including amounts
held by property manager (Note 1)............... 22,647,158 8,491,735
Restricted cash (Note 1).......................... 1,117,333 122,043
Accounts and rents receivable (Notes 1 and 5)..... 2,666,872 1,914,756
Deposits and other assets (Note 7)................ 2,808,079 95,828
Deferred organization costs (net of accumulated
amortization of $6,865 and $5,492 at March 31,
1997 and December 31, 1996, respectively)
(Note 1)........................................ 20,597 21,970
Loan fees (net of accumulated amortization
of $48,866 and $11,875 at March 31, 1997 and
December 31, 1996, respectively) (Note 1)....... 495,004 338,411
------------- ------------
Total assets.................................. $151,510,409 104,508,686
============= ============
See accompanying notes to financial statements.
-2-
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Balance Sheets
(continued)
March 31, 1997 and December 31, 1996
(unaudited)
Liabilities and Stockholders' Equity
------------------------------------
1997 1996
Liabilities: ---- ----
Accounts payable................................ $ 445,536 289,912
Accrued offering costs to Affiliates............ 838,302 298,341
Accrued offering costs to non-affiliates........ 29,926 4,236
Accrued interest payable to Affiliates.......... 4,699 4,718
Accrued interest payable to non-affiliates...... - 52,402
Accrued real estate taxes....................... 3,134,066 2,770,889
Distributions payable (Note 8).................. 749,856 548,947
Security deposits............................... 320,966 247,769
Mortgage payable (Note 6)....................... 53,182,067 30,838,233
Unearned income................................. 375,570 64,590
Other liabilities............................... - 32,820
Due to Affiliates (Note 2)...................... 247,191 255,591
------------- ------------
Total liabilities............................. 59,328,179 35,408,448
------------- ------------
Stockholders' Equity (Notes 1 and 2):
Common stock, $.01 par value, 24,000,000 Shares
authorized; 10,885,216 and 10,878,866, issued
and outstanding at March 31, 1997 and 8,144,116
and 8,137,766 issued and outstanding at
December 31, 1996, respectively............... 108,280 81,000
Additional paid-in capital (net of offering
costs of $13,568,479 and $10,500,108 at March
31, 1997 and December 31, 1996, respectively,
of which $10,926,010 and $8,096,213 was paid
to Affiliates, respectively).................. 94,623,475 70,512,073
Accumulated distributions in excess
of net income................................. (2,549,525) (1,492,835)
------------- ------------
Total stockholders' equity.................... 92,182,230 69,100,238
------------- ------------
Total liabilities and stockholders' equity........ $151,510,409 104,508,686
============= ============
See accompanying notes to financial statements.
-3-
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Statements of Operations
For the three months ended March 31, 1997 and 1996
(unaudited)
1997 1996
---- ----
Income:
Rental income (Notes 1 and 5)................... $ 3,603,584 475,038
Additional rental income........................ 1,061,507 242,290
Interest income................................. 156,436 43,751
Other income.................................... 36,244 -
------------ ------------
4,857,771 761,079
------------ ------------
Expenses:
Professional services to Affiliates............. 9,500 2,000
Professional services to non-affiliates......... 30,410 26,068
General and administrative expenses
to Affiliates................................. 16,936 7,903
General and administrative expenses
to non-affiliates............................. 28,312 2,197
Advisor asset management fee.................... 233,337 48,540
Property operating expenses to Affiliates....... 172,537 29,136
Property operating expenses to non-affiliates... 1,686,924 281,477
Mortgage interest to Affiliates................. 44,454 15,043
Mortgage interest to non-affiliates............. 961,287 -
Depreciation.................................... 741,920 103,091
Amortization.................................... 38,364 1,373
Acquisition costs expensed...................... 9,090 8,985
------------ ------------
3,973,071 525,813
------------ ------------
Net income.................................... $ 884,700 235,266
============ ============
Net income per weighted average common stock shares
outstanding (9,384,792 and 2,000,073 for the
three months ended March 31, 1997 and 1996,
respectively.................................... $ .09 .12
============ ============
See accompanying notes to financial statements.
-4-
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Statements of Stockholders' Equity
March 31, 1997 and December 31, 1996
(unaudited)
Accumulated
Additional Distributions
Common Paid-in in excess of
Stock Capital net income Total
----------- ----------- ----------- ------------
Balance January 1, 1996..... $ 19,996 16,835,183 (240,113) 16,615,066
Net income.................. - - 2,452,221 2,452,221
Distributions declared
($.82 for the year ended
December 31, 1996 per
weighted average common
stock shares outstanding). - - (3,704,943) (3,704,943)
Proceeds from Offering (net
of Offering costs of
$7,378,933................ 61,038 53,707,177 - 53,768,215
Repurchases of Shares....... (34) (30,287) - (30,321)
----------- ----------- ----------- ------------
Balance December 31, 1996... 81,000 70,512,073 (1,492,835) 69,100,238
Net income.................. - - 884,700 884,700
Distributions declared
($.21 for the three months
ended March 31, 1997 per
weighted average common
stock shares outstanding). - - (1,941,390) (1,941,390)
Proceeds from Offering (net
of Offering costs of
$3,068,371)............... 27,280 24,111,402 - 24,138,682
----------- ----------- ----------- ------------
Balance March 31, 1997...... $ 108,280 94,623,475 (2,549,525) 92,182,230
=========== =========== =========== ============
See accompanying notes to financial statements.
-5-
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Statement of Cash Flows
For the three months ended March 31, 1997 and 1996
(unaudited)
1997 1996
Cash flows from operating activities: ---- ----
Net income.................................... $ 884,700 235,266
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation................................ 741,920 103,091
Amortization................................ 38,364 1,373
Rental income under master lease agreements. 71,599 109,333
Changes in assets and liabilities:
Accounts and rents receivable............... (752,116) (158,258)
Other assets................................ (218,111) 135,814
Accrued interest payable.................... (52,421) (471)
Accrued real estate taxes................... 363,177 89,571
Accounts payable............................ 155,624 36,669
Unearned income............................. 310,980 (26,578)
Other current liabilities................... (32,820) -
Due to Affiliates........................... (8,400) 53,646
Security deposits........................... 73,197 16,650
------------ ------------
Net cash provided by operating activities......... 1,575,693 596,106
------------ ------------
Cash flows from investing activities:
Restricted cash................................. (995,290) -
Additions to investment properties.............. (52,042) (153,450)
Purchase of investment properties............... (11,429,015) (5,657,980)
Deposits on investment properties............... (2,494,140) -
------------ ------------
Net cash used in investing activities............. (14,970,487) (5,811,430)
------------ ------------
Cash flows from financing activities:
Repayment of note to Affiliate.................. - (360,000)
Proceeds from offering.......................... 27,207,053 9,084,592
Payments of offering costs...................... (2,502,720) (885,260)
Loan proceeds................................... 12,840,000 -
Loan fees....................................... (193,584) -
Distributions paid.............................. (1,740,481) (422,750)
Principal payments of debt...................... (8,060,051) (2,716)
------------ ------------
Net cash provided by financing activities......... 27,550,217 7,413,866
------------ ------------
Net increase in cash and cash equivalents......... 14,155,423 2,198,542
Cash and cash equivalents at beginning of period.. 8,491,735 738,931
------------ ------------
Cash and cash equivalents at end of period........ $22,647,158 2,937,473
============ ============
See accompanying notes to financial statements.
-6-
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Statement of Cash Flows
(continued)
For the three months ended March 31, 1997 and 1996
(unaudited)
Supplemental schedule of noncash investing and financing activities:
1997 1996
---- ----
Purchase of investment properties................ $(28,992,900) (5,657,980)
Assumption of mortgage debt.................... 9,563,885 -
Note payable to Affiliate...................... 8,000,000 -
------------- -------------
$(11,429,015) (5,657,980)
============= =============
Distributions payable............................ $ 749,856 183,457
============= =============
Cash paid for interest........................... $ 1,058,162 15,513
============= =============
See accompanying notes to financial statements.
-7-
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Notes to Financial Statements
March 31, 1997
(unaudited)
Readers of this Quarterly Report should refer to the Company's audited
financial statements for the fiscal year ended December 31, 1996, which are
included in the Company's 1996 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. Inland Real Estate Advisory Services, Inc. (the
"Advisor"), an Affiliate of the Company, is the advisor to the Company. On
October 14, 1994, the Company commenced an initial public offering, on a best
efforts basis, ("Offering") of 5,000,000 shares of common stock ("Shares") at a
price of $10 per Share and 1,000,000 Shares at a price of $9.05 per Share to be
distributed pursuant to the Company's distribution reinvestment program (the
"DRP"). As of July 24, 1996, the Company had received subscriptions for a
total of 5,000,000 Shares, thereby completing the initial Offering. On July
24, 1996, the Company commenced an offering of an additional 10,000,000 Shares,
on a best efforts basis, (the "Second Offering") plus an additional 1,000,000
Shares for distribution through the DRP. As of March 31, 1997, the Company had
received subscriptions for a total of 5,878,866 Shares from the Second
Offering, resulting in $108,357,364 in gross offering proceeds, including
Shares purchased through the Distribution Reinvestment Program. As of March
31, 1997, the Company has repurchased 6,350 Shares through the Share 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 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.
-8-
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Notes to Financial Statements
(continued)
March 31, 1997
(unaudited)
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.
Restricted cash at March 31, 1997 includes $995,290 held in escrow for the
principal payments on the Aurora Commons mortgage payable. Restricted cash at
March 31, 1997 and December 31, 1996 also includes amounts held in escrow for
tenant improvements, concessions and leasing commissions at Antioch Plaza.
Such amounts will be added to the basis of the property as tenant improvements
are completed.
The Partnership adopted Statement of Financial Accounting Standards No. 121
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed of" ("SFAS 121") as required in the first quarter of 1996. SFAS
121 requires that the Partnership record an impairment loss on its property to
be held for investment whenever its carrying value cannot be fully recovered
through estimated undiscounted future cash flows from their operations and
sale. The amount of the impairment loss to be recognized would be the
difference between the property's carrying value and the property's estimated
fair value. The adoption of SFAS 121 did not have any effect on the
Partnership's financial position, results of operations or liquidity.
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.
Loan fees are amortized on a straight line basis over the life of the related
loans.
Deferred organization costs are amortized over a 60-month period.
Offering costs are offset against the Stockholders' equity accounts. Offering
costs consist principally of printing, selling and registration costs.
Rental income is recognized on a straight-line basis over the term of each
lease. The difference between rental income earned on a straight-line basis
and the cash rent due under the provisions of the lease agreements is recorded
as deferred rent receivable.
-9-
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Notes to Financial Statements
(continued)
March 31, 1997
(unaudited)
(2) Transactions with Affiliates
As of March 31, 1997, the Company had incurred $13,568,479 of organization and
offering costs. 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 the completion of the
initial Offering, organizational and offering did not exceed the 5.5% or 15%
limitations. As of March 31, 1997, organizational and offering costs of the
Second Offering did not exceed the 5.5% and 15% limitations. The Company
anticipates that these costs will not exceed these limitations upon completion
of the offerings, 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. Such costs to Affiliates incurred relating to the offering were
$964,824 and $692,248 as of March 31, 1997 and December 31, 1996, respectively,
of which $260,555 and $120,269 were unpaid as of March 31, 1997 and December
31, 1996, 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 $9,961,186
and $7,403,965 as of March 31, 1997 and December 31, 1996, respectively, of
which $577,747 and $270,365 was unpaid as of March 31, 1997 and December 31,
1996, respectively. As of March 31, 1997, approximately $8,436,000 of these
commissions had been passed through from the Affiliate to unaffiliated
soliciting broker/dealers.
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 $13,854 remained unpaid at March 31, 1997.
As of March 31, 1997, the Advisor has contributed $200,000 to the capital of
the Company for which it received 20,000 Shares.
-10-
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Notes to Financial Statements
(continued)
March 31, 1997
(unaudited)
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. For the
three months ended March 31, 1997, the Company has incurred $233,337 of such
fees, all of which remains unpaid at March 31, 1997.
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 $172,537 and $29,136 for the three months ended March 31,
1997 and 1996, respectively, all of which has been paid.
(3) Stock Option and Dealer Warrant Plan
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. As of March 31, 1997, options for 1,000
Shares have been exercised $9.05.
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 offerings, 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.
As of December 31, 1996, none of these warrants were exercised.
-11-
<TABLE> INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Notes to Financial Statements
(continued)
(4) Investment Properties
<CAPTION> Gross amount at which carried
Initial Cost (A) at end of period
-------------------------- Net -----------------------------------------
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
Zany Brainy
Wheaton, IL............. 07/96 838,000 1,626,033 - 838,000 1,626,033 2,464,033
Neighborhood Retail Centers
- ---------------------------
Eagle Crest Shopping Center
Naperville, IL.......... 03/95 1,878,618 2,938,352 - 1,878,618 2,938,352 4,816,970
Montgomery-Goodyear
Montgomery, IL.......... 09/95 315,000 834,659 (12,692) 315,000 821,967 1,136,967
Hartford/Naperville Plaza
Naperville, IL.......... 09/95 990,000 3,427,961 11,244 990,000 3,439,205 4,429,205
Nantucket Square
Schaumburg, IL.......... 09/95 1,908,000 2,349,918 (72,214) 1,908,000 2,277,704 4,185,704
Antioch Plaza
Antioch, IL............. 12/95 268,000 1,360,445 (161,464) 268,000 1,198,981 1,466,981
Mundelein Plaza
Mundelein, IL........... 03/96 1,695,000 3,965,560 (30,620) 1,695,000 3,934,940 5,629,940
Regency Point
Lockport, IL............ 04/96 1,000,000 4,720,800 (24,225) 1,000,000 4,696,575 5,696,575
Prospect Heights
Prospect Heights, IL.... 06/96 494,300 1,683,755 (11,989) 494,300 1,671,766 2,166,066
Montgomery-Sears
Montgomery, IL.......... 06/96 768,000 2,714,173 (46,150) 768,000 2,668,023 3,436,023
------------ ------------ ----------- ------------ ------------ ------------
Subtotal $10,233,248 26,752,379 (348,110) 10,233,248 26,404,269 36,637,517
</TABLE>
-12-
<TABLE>
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Notes to Financial Statements
(continued)
(4) Investment Properties (continued)
<CAPTION> Gross amount at which carried
Initial Cost (A) at end of period
-------------------------- Net -----------------------------------------
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>
Subtotal $10,233,248 26,752,379 (348,110) 10,233,248 26,404,269 36,637,517
Salem Square
Countryside, IL......... 08/96 1,735,000 4,449,217 (12,075) 1,735,000 4,437,142 6,172,142
Hawthorn Village
Vernon Hills, IL........ 08/96 2,619,500 5,887,640 - 2,619,500 5,887,640 8,507,140
Six Corners
Chicago, IL............. 10/96 1,440,000 4,538,152 - 1,440,000 4,538,152 5,978,152
Spring Hill Fashion Corner
West Dundee, IL......... 11/96 1,794,000 7,415,396 (3,500) 1,794,000 7,411,896 9,205,896
Crestwood Plaza
Crestwood, IL........... 12/96 325,577 1,483,183 750 325,577 1,483,933 1,809,510
Park St. Claire
Schaumburg, IL.......... 12/96 319,578 1,205,672 5,537 319,578 1,211,209 1,530,787
Lansing Square
Lansing, IL............. 12/96 4,075,000 12,179,383 3,158 4,075,000 12,182,541 16,257,541
Summit of Park Ridge
Park Ridge, IL.......... 12/96 672,000 2,497,950 187 672,000 2,498,137 3,170,137
Grand and Hunt Club
Gurnee, IL.............. 12/96 969,840 2,622,575 (53,343) 969,840 2,569,232 3,539,072
Quarry Outlot
Hodgkins, IL............ 12/96 522,000 1,278,431 5,099 522,000 1,283,530 1,805,530
Maple Park Place
Bolingbrook, IL......... 01/97 3,115,005 12,220,332 - 3,115,005 12,220,332 15,335,337
Aurora Commons
Aurora, IL.............. 01/97 3,220,000 8,318,661 - 3,220,000 8,318,661 11,538,661
Lincoln Park Place
Chicago, IL............. 01/97 819,000 1,299,902 - 819,000 1,299,902 2,118,902
------------ ------------ ----------- ------------ ------------ ------------
Total $31,859,748 92,148,873 (402,297) 31,859,748 91,746,576 123,606,324
============ ============ =========== ============ ============ ============
</TABLE>
-13-
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Notes to Financial Statements
(continued)
March 31, 1997
(unaudited)
(4) Investment Properties (continued)
(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
("GAAP") 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. The cumulative amount of such payments was $642,293 and $570,694
as of March 31, 1997 and December 31, 1996, respectively. (Note 5)
(5) Operating Leases
As part of the purchases of several of the properties, the Company will receive
rent under master lease agreements on spaces currently vacant for periods
ranging from one to two years or until the spaces are leased and tenants begin
paying rent. GAAP requires the Company to reduce the purchase price of the
properties as these payments are received, rather than record the payments as
rental income.
Certain tenant leases contain provisions providing for stepped rent increases.
GAAP requires the Company to record rental income for the period of occupancy
using the effective monthly rent, which is the average monthly rent for the
entire period of occupancy during the term of the lease. The accompanying
financial statements include increases of $99,411 and $7,295 for the three
months ended March 31, 1997 and 1996, of rental income for the period of
occupancy for which stepped rent increases apply and $230,732 and $131,638 in
related accounts receivable as of March 31, 1997 and December 31, 1996,
respectively. The Company anticipates collecting these amounts over the terms
of the related leases as scheduled rent payments are made.
-14-
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Notes to Financial Statements
(continued)
March 31, 1997
(unaudited)
(6) Mortgages and Note Payable
Mortgages payable consist of the following at March 31, 1997 and December 31,
1996:
Current Current Balance at
Property as Interest Maturity Monthly March 31, December 31,
Collateral Rate Date Payment(a) 1997 1996
- ----------- ---------- --------- ---------- ----------- ------------
Mortgage payable to Affiliate:
Walgreens 7.655% 05/2004 $ 5,689 $ 736,611 739,543
Mortgages payable to non-affiliates:
Regency Point 7.2375% 08/2000 (b) 4,412,963 4,428,690
Eagle Crest 7.850% 10/2003 15,373 2,350,000 2,350,000
Nantucket Square 7.850% 10/2003 14,392 2,200,000 2,200,000
Antioch Plaza 7.850% 10/2003 5,724 875,000 875,000
Mundelein Plaza 7.850% 10/2003 18,382 2,810,000 2,810,000
Montgomery-Goodyear 7.850% 10/2003 4,121 630,000 630,000
Montgomery-Sears 7.850% 08/2003 10,761 1,645,000 1,645,000
Hartford/Naperville 7.850% 08/2003 15,111 2,310,000 2,310,000
Zany Brainy 7.590% 01/2004 7,875 1,245,000 1,245,000
Prospect Heights
Plaza 7.590% 01/2004 6,926 1,095,000 1,095,000
Hawthorn Village
Commons 7.590% 01/2004 27,071 4,280,000 4,280,000
Six Corners Plaza 7.590% 01/2004 19,608 3,100,000 3,100,000
Salem Square
Shopping Center 7.590% 01/2004 19,797 3,130,000 3,130,000
Lansing Square 7.800% 01/2004 52,975 8,150,000 -
Spring Hill Fashion
Mall 7.800% 01/2004 30,485 4,690,000 -
Aurora Commons (c) 9.000% 10/2001 85,423 9,522,493 -
----------- ------------
Mortgages Payable.................................... $53,182,067 30,838,233
=========== ============
(a) All payments are interest only, with the exception of the loans secured by
the Walgreens, Regency Point and Aurora Commons properties.
(b) Payments on this mortgage are based on a floating interest rate of 180
basis points over the 30-day LIBOR rate, which adjusts monthly, amortizing
over 25 years.
(c) The Company received a credit for interest expense on the debt at closing,
which is included in restricted cash, along with an amount set aside by the
Company for principal payments on the debt. Interest income earned on the
restricted cash amounts, when netted with interest expense on the debt,
results in an adjusted interest rate on the debt of approximately 8.2%.
-15-
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Notes to Financial Statements
(continued)
March 31, 1997
(unaudited)
(7) Deposits on Investment Properties
On February 7, 1997, the Company made an initial deposit of $1,228,510 for the
purchase of Forest Commons. The balance of the purchase price, approximately
$10,607,000 will be paid upon completion of the redevelopement of the center
and when the anticipated main tenant, Dominick's Finer Foods, Inc., begins
paying rent under a lease agreement.
On February 7, 1997, the Company made an initial deposit of $1,265,630 for the
purchase of Downers Grove Plaza. The balance of the purchase price,
approximately $15,382,000 will be paid upon completion of the redevelopement of
the center and when the anticipated main tenant, Dominick's Finer Foods, Inc.
begins paying rent under a lease agreement.
The Company earns interest on these deposits at the rate of 9.3% per annum.
(8) Subsequent Events
As of May 13, 1997, subscriptions for a total of 12,462,632 Shares were
received, bringing total gross offering proceeds to $124,445,135.
In April 1997, the Company paid a distribution of $749,856 to the Stockholders.
On April 11, 1997, the Company purchased the Niles Shopping Center from an
unaffiliated third party for approximately $3,280,000. The property is located
in Niles, Illinois and contains 26,117 square feet of leasable space.
On May 6, 1997, the Company purchased the Mallard Crossing Shopping Center from
an unaffiliated third party for approximately $8,000,000. The property is
located in Elk Grove Village, Illinois and contains 82,949 square feet of
leasable space. Its anchor tenant is Eagle Foods.
On May 6, 1997, the Company purchased Cobblers Crossing Shopping Center from an
unaffiliated third party for approximately $10,800,000. The property is
located in Elgin, Illinois and contains 102,642 square feet of leasable space.
Its anchor tenant is Jewel/Osco.
On May 9, 1997, the Company purchased Ameritech Outlot from an unaffiliated
third party for approximately $1,050,000. The property is located in Joliet,
Illinois. It consists of a 4,504 square foot building occupied solely by
Ameritech.
-16-
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Certain statements in this "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and elsewhere in this quarterly report on
Form 10-Q constitute "forward-looking statements" within the meaning of the
Federal Private Securities Litigation Reform Act of 1995. These forward-
looking statements involve known and unknown risks, uncertainties and other
factors which may cause the Company's actual results, performance or
achievements to be materially different from any future results, performance or
achievements expressed or implied by these forward-looking statements. These
factors include, among other things, limitations on the area in which the
Company may acquire properties; risks associated with borrowings secured by the
Company's properties; competition for tenants and customers; federal, state or
local regulations; adverse changes in general economic or local conditions;
competition for property acquisitions with third parties that have greater
financial resources than the Company; inability of lessees to meet financial
obligations; uninsured losses; risks of failing to qualify as a REIT; and
potential conflicts of interest between the Company and its affiliates
including the Advisor.
Liquidity and Capital Resources
As of July 24, 1996, the Company had received subscriptions for a total of
5,000,000 Shares, 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
March 31, 1997, the Company had received subscriptions for a total of 5,878,866
Shares of the follow-on Offering, resulting in $108,357,364 in Gross Offering
Proceeds. As of March 31, 1997, the Company has repurchased 6,350 Shares
through the Share 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.
-17-
As of March 31, 1997, the Company had acquired twenty-four properties utilizing
approximately $86,523,702 of cash and cash equivalents. Cash and cash
equivalents consists of cash and short-term investments. Cash and cash
equivalents at March 31, 1997 and December 31, 1996 were $22,647,158 and
$8,491,735 respectively. This increase was due to the additional sales
proceeds raised and $38,510,000 in loan proceeds from financing the properties.
Partially offsetting the increase in cash and cash equivalents was the purchase
of seventeen additional properties since March 31, 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.
The properties owned by the Company are currently generating sufficient cash
flow to cover operating expenses of the Company plus pay a monthly distribution
on weighted average shares. Commencing with the fourth quarter of 1996, the
Company increased the monthly distributions from 8.0% to 8.3% per annum on
weighted average shares. Beginning March 1, 1997, the Company increased the
monthly distribution paid to 8.5% per annum on weighted average shares.
Distributions declared for the three months ended March 31, 1997 were
$1,941,390, a portion of which represents a return of capital for federal
income tax purposes. The return of capital portion of the distributions cannot
be determined at this time and will be calculated at year end.
Management of the Company monitors the various qualification tests the Company
must meet to maintain its status as a real estate investment trust. Large
ownership of the Company's stock is tested upon purchase to determine that no
more than 50% in value of the outstanding stock is owned directly, or
indirectly, by five or fewer persons or entities at any time. Management of
the Company also determines, on a quarterly basis, that the Gross Income, Asset
and Distribution Tests as described in the section of the Prospectus entitled
"Federal Income Tax Considerations--Taxation of the Company--REIT Qualification
Tests" are met. On an ongoing basis, as due diligence is performed by
management of both the Company and the Advisor on potential real estate
purchases or temporary investment of uninvested capital, management of both
entities determines that the income from the new asset will qualify for REIT
purposes. Beginning with the year ended December 31, 1995, the Company
qualified as a REIT.
-18-
Cash Flows From Operating Activities
Net cash provided by operating activities increased by approximately $980,000
for the three months ended March 31, 1997 to $1,575,693 from $596,106 for the
same period in 1996. This increase is due primarily to an increase in net
income for the three months ended March 31, 1997, as compared to the net income
for the three months ended March 31, 1996. This increase in net income is due
to the purchase of additional properties. As of March 31, 1997, the Company
had acquired twenty-four properties, as compared to seven properties as of
March 31, 1996.
Cash Flows From Investing Activities
During the three months ended March 31, 1997, the Company utilized $11,429,015
in investing activities for the purchase of three properties, as compared to
the $5,657,980 utilized in the three months ended March 31, 1996 for the
purchase of one property.
Cash Flows From Financing Activities
For the three months ended March 31, 1997, the Company generated $27,550,217 of
cash flows from financing activities as compared to $7,413,866 of cash flows
generated from financing activities for the three months ended March 31, 1996.
This increase is due primarily to the increase in proceeds raised from the
Offering of $27,207,053 for the three months ended March 31, 1997, as compared
to $9,084,592 of Offering proceeds raised for the three months ended March 31,
1996. This increase is partially offset by an increase in the cash used for
the payment of Offering costs for the three months ended March 31, 1997. The
increase is also partially offset by an increase in the amount of distributions
paid for the three months ended March 31, 1997 of $1,740,481 as compared to the
distributions paid for the three months ended March 31, 1996 of $422,750.
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 March 31, 1997, organizational and offering costs did
not exceed this limitation.
-19-
Results of Operations
As of March 31, 1997, subscriptions for a total of 10,878,866 Shares were
received from the public resulting in $108,357,364 in Gross Offering Proceeds,
which includes the Advisor's capital contribution of $200,000 and Shares
purchased through the DRP.
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 three months ended
March 31, 1997 and 1996 are calculated as follows:
1997 1996
---- ----
Net income................................... $ 884,700 235,266
Depreciation................................. 741,920 103,091
------------ ------------
Funds from operations(1)................... 1,626,620 338,357
Deferred rent receivable (2)................. (99,411) (7,295)
Rental income received under
Master lease agreements (3)................. 71,599 109,333
------------ ------------
Funds available for distribution............. $ 1,598,808 440,395
============ ============
(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.
(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 three
months ended March 31, 1997 and 1996, the Company has recorded $71,599 and
$109,333, respectively of such payments. Reference is made to Note (5) of
the Notes to Financial Statements of the Company.
-20-
Total income for the three months ended March 31, 1997 and 1996 was $4,857,771
and $761,079, respectively. This increase was due to the purchase of additional
properties. As of March 31, 1997, the Company had acquired twenty-four
properties, as compared to seven properties as of March 31, 1996. The purchase
of additional properties also resulted in increases in property operating
expenses to Affiliates and non-affiliates and depreciation expense.
The increase in mortgage interest to Affiliates and non-affiliates for the three
months ended March 31, 1997, as compared to the three months ended March 31,
1996, is due to several factors. The Company assumed mortgages as part of the
purchases of Regency Point and Aurora Commons. The Company also obtained
$38,510,000 of financing from an unaffiliated lender, on fourteen properties
previously acquired. The Company continues to have a mortgage collateralized by
the Walgreens, Decatur property payable to an Affiliate.
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 non-affiliates and general and
administrative expenses to Affiliates and non-affiliates for the three months
ended March 31, 1997, as compared to the three months ended March 31, 1996, is
due to the management of an increased number of real estate assets.
The following is a list of approximate physical occupancy levels for the
Company's investment properties as of the end of each quarter during 1996 and
1997. N/A indicates the property was not owned by the Company at the end of the
quarter.
1996 1997
------------------------ ------------------------
at at at at at at at at
Properties 03/31 06/30 09/30 12/31 03/31 06/30 09/30 12/31
---------- ----- ----- ----- ----- ----- ----- ----- -----
Walgreens 100% 100% 100% 100% 100%
Decatur, Illinois
Eagle Crest 100% 100% 100% 100% 97%*
Naperville, Illinois
Montgomery-Goodyear 100% 100% 100% 100% 77%
Montgomery, Illinois
Hartford/Naperville Plaza 100% 100% 100% 100% 100%
Naperville, Illinois
Nantucket Square 81% 81% 94% 85% 94%
Schaumburg, Illinois
Antioch Plaza 49% 49% 49% 57% 59%*
Antioch, Illinois
Mundelein Plaza 100% 100% 100% 100% 100%
Mundelein, IL
Regency Point N/A 97% 97% 97% 100%
Lockport, IL
Prospect Heights N/A 78% 100% 100% 83%*
Prospect Heights, IL
Montgomery-Sears N/A 85% 85% 85% 85%*
Montgomery, IL
-21-
1996 1997
------------------------ ------------------------
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
---------- ----- ----- ----- ----- ----- ----- ----- -----
Zany Brainy N/A N/A 100% 100% 100%
Wheaton, IL
Salem Square N/A N/A 97% 97% 97%*
Countryside, IL
Hawthorn Village N/A N/A 99% 98% 97%
Vernon Hills, IL
Six Corners N/A N/A N/A 92% 94%
Chicago, IL
Spring Hill Fashion Ctr. N/A N/A N/A 95% 96%
West Dundee, IL
Crestwood Plaza N/A N/A N/A 100% 100%
Crestwood, IL
Park St. Claire N/A N/A N/A 100% 100%
Schaumburg, IL
Lansing Square N/A N/A N/A 89% 90%
Lansing, IL
Summit of Park Ridge N/A N/A N/A 81% 82%*
Park Ridge, IL
Grand and Hunt Club N/A N/A N/A 100% 100%
Gurnee, IL
Quarry Outlot N/A N/A N/A 100% 100%
Hodgkins, IL
Maple Park Place N/A N/A N/A N/A 99%
Bolingbrook, IL
Aurora Commons N/A N/A N/A N/A 99%
Aurora, IL
Lincoln Park Place N/A N/A N/A N/A 100%
Chicago, IL
* 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% economic occupancy at March 31, 1997 for
Antioch, Montgomery-Sears and Salem Square.
As part of the purchase of Summit of Park Ridge, a portion of the Seller's
proceeds were escrowed for the monthly release of master lease payments.
The master lease agreements along with credits for signed leases resulted in
93% economic occupancy at March 31, 1997.
The master lease agreements are for periods ranging from one to two years or
until the spaces are leased.
The Company has received termination fees resulting in 100% economic
occupancy for Eagle Crest and Prospect Heights.
-22-
Subsequent Events
On April 11, 1997, the Company purchased the Niles Shopping Center from an
unaffiliated third party for approximately $3,280,000. The property is located
in Niles, Illinois and contains 26,117 square feet of leasable space.
On May 6, 1997, the Company purchased the Mallard Crossing Shopping Center from
an unaffiliated third party for approximately $8,000,000. The property is
located in Elk Grove Village, Illinois and contains 82,949 square feet of
leasable space. Its anchor tenant is Eagle Foods.
On May 6, 1997, the Company purchased Cobblers Crossing Shopping Center from an
unaffiliated third party for approximately $10,800,000. The property is located
in Elgin, Illinois and contains 102,642 square feet of leasable space. Its
anchor tenant is Jewel/Osco.
On May 9, 1997, the Company purchased Ameritech Outlot from an unaffiliated
third party for approximately $1,050,000. The property is located in Joliet,
Illinois. It consists of a 4,504 square foot building occupied solely by
Ameritech.
On the behalf of the Company, the Advisor is currently exploring the purchase of
additional shopping centers from unaffiliated third parties.
-23-
PART II - Other Information
Items 1 through 5 are omitted because of the absence of conditions under which
they are required.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits: Required by the Securities and Exchange Commission
Regulations S-K. Item 601. The following documents are incorporated by
reference:
Registration Statement on Form S-11 and related exhibits, as amended,
File No. 33-79012, filed under the Securities Act of 1933.
(27) Financial Data Schedule
(b) Report on Form 8-K dated January 7, 1997
Item 2. Acquisition or Disposition of Assets
Item 7. Financial Statements and Exhibits
Report on Form 8-K dated January 24, 1997
Item 2. Acquisition or Disposition of Assets
Item 7. Financial Statements and Exhibits
Report on Form 8-K dated March 3, 1997
Item 2. Acquisition or Disposition of Assets
Item 7. Financial Statements and Exhibits
Report on Form 8-K dated March 5, 1997
Item 7. Financial Statements and Exhibits
-24-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
INLAND REAL ESTATE CORPORATION
/S/ ROBERT D. PARKS
By: Robert D. Parks
Chief Executive Officer
Date: May 14, 1997
/S/ KELLY TUCEK
By: Kelly Tucek
Chief Financial and Accounting Officer
Date: May 14, 1997
-25-
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