<PAGE> 1
As filed with the Securities and Exchange Commission on May 8, 1997
Registration No. 333-_______
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------
FORM S-11
REGISTRATION STATEMENT
The Under 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
-----------------
Approximate date of commencement of proposed sale to public: As soon
as practicable after the Registration Statement becomes effective.
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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Proposed
Proposed maximum
Title of each class of Amount be- maximum aggregate Amount of
securities being ing regis- offering price offering registration
registered tered per Share price fee
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.01 par value . . . . . . . . 7,816,000.00 $10.00 $78,160,000.00 $23,684.82
Common Stock, $.01 par value (1). . . . . . . 184,000.00 12.00 2,208,000.00 669.10
Soliciting Dealer Warrants . . . . . . . . . 184,000.00 .0008 147.20 0.04
</TABLE>
(1) Represents 184,000 shares of common stock which are issuable upon
exercise of warrants issuable to Inland Securities Corporation or its
assignees pursuant to the Warrant Purchase Agreement dated May ___,
1997.
The registrant hereby amends this registration statement on such
date or dates as may be necessary to delay its effective date until the
registrant shall file a further amendment which specifically states that this
registration statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the registration
statement shall become effective on such date as the Commission, acting
pursuant to said Section 8(a), may determine.
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<PAGE> 2
Inland Real Estate Corporation
CROSS REFERENCE SHEET
Pursuant to Item 501(b) of Regulation S-K
<TABLE>
<CAPTION>
Item Number and Caption Location or Heading in Registration Statement
----------------------- ---------------------------------------------
<S> <C>
1. Forepart of Registration State- Registration Statement Cover Page and
ment and Outside Front Cover Prospectus Cover Page
Page of Prospectus
2. Inside Front and Outside Back Inside Front Cover Page of Prospectus; Outside Back
Cover Pages of Prospectus Cover Page of Prospectus
3. Summary Information, Risk Prospectus Cover Page; Prospectus Summary; Compensation
Factors and Ratio of Earnings Table; Risk Factors; Conflicts of Interest; Plan
to Fixed Charges of Distribution
4. Determination of Offering Price Not Applicable
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 and Capitalization; Management's Discussion and Analysis of
Analysis of Financial Condition the Financial Condition of the Company
and Results of Operations
11. General Information as to Prospectus Summary; Prior Performance of the Company's
Registrant Affiliates; Management; Summary of the Organizational
Documents; Prior Performance Tables
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
Item Number and Caption Location or Heading in Registration Statement
----------------------- ---------------------------------------------
<S> <C>
12. Policy with Respect to Certain Risk Factors; Conflicts of Interest; Investment Objectives
Activities and Policies; Real Property Investments; Summary of the
Organizational Documents; Reports to Stockholders
13. Investment Policies of Registrant Risk Factors; Conflicts of Interest; Investment Objectives
and Policies; Real Property Investments; Summary of the
Organizational Documents
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 Registrant and Risk Factors; Federal Income Tax Considerations; ERISA
Its Security Holders Considerations
17. Market Price of and Distributions Risk Factors
on the Registrant's Common Equity
and Related Stockholder Matters
18. Description of Registrant's Description of Securities
Securities
19. Legal Proceedings Not Applicable
20. Security Ownership of Certain Capitalization
Beneficial Owners and Man-
agement
21. Directors and Executive Of- Management
ficers
22. Executive Compensation Compensation Table; Management
23. Certain Relationships and Re- Conflicts of Interest; Management; Investment Objectives
lated Transactions and Policies; Real Property Investments
</TABLE>
ii
<PAGE> 4
<TABLE>
<CAPTION>
Item Number and Caption Location or Heading in Registration Statement
----------------------- ---------------------------------------------
<S> <C> <C>
24. Selection, Management and Prospectus Summary; Investment Objectives and Policies;
Custody of Registrant's Invest- Real Property Investments
ments
25. Policies with Respect to Cer- Conflicts of Interest; Investment Objectives and Policies;
tain Transactions Summary of the Organizational Documents
26. Limitations of Liability Fiduciary Responsibility of Directors and the Advisor;
Indemnification
27. Financial Statements and In- Financial Statements
formation
28. Interests of Named Experts Not Applicable
and Counsel
29. Disclosure of Commission Fiduciary Responsibility of Directors and the Advisor;
Position on Indemnification Indemnification; Plan of Distribution
for Securities Act Liabilities
</TABLE>
iii
<PAGE> 5
PROSPECTUS
INLAND REAL ESTATE CORPORATION
$10.00 PER SHARE
MINIMUM INITIAL PURCHASE - 300 SHARES
(100 SHARES FOR TAX-EXEMPT ENTITIES)
Inland Real Estate Corporation (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. The Company owns twenty-seven
properties comprised of 25 Neighborhood Retail Centers and two single-user
retail properties. The Company intends to use the Net Proceeds of this Offering
(after funding appropriate working capital reserves) to acquire additional
properties. See "Investment Objectives and Policies" and "Real Property
Investments."
Of the 8,000,000 shares of the Company's common stock, $.01 par value per
share (the "Shares") offered hereby, a total of 7,816,000 Shares are being
offered on a "best efforts" basis (the "Offering"), and up to 184,000 Shares may
be issued upon the exercise of warrants granted to the Dealer Manager. See
"Description of Securities - - Soliciting Dealer Warrants." The Company's
day-to-day operations are 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 THE FACT THAT:
- - 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 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. 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)
- - Although the Company intends to purchase properties, whenever possible, on
an all-cash basis, the Company utilized financing to acquire 15 of its 27
properties;
- - The Company may incur additional indebtedness on its existing properties or
properties acquired in the future. Defaults on this indebtedness could
cause the Company to lose its investment in such properties; (page 17)
- - Except for seven properties, the Company has not specified any additional
properties in which to invest; (page 16)
- - The Company relies on the Advisor and its Affiliates to operate the Company
on a daily basis and manage its assets and pays the Advisor and its
Affiliates substantial fees for rendering these services; (page 20)
- - No person may own more than 9.8% of the Shares; (page 17)
- - Affiliates of the Advisor are engaged in similar real estate
activities which subject them to various conflicts of interest in managing
the Company's operations. These conflicts include competition for the time
and services of these individuals which may not be on fair market terms 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; and (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)
========================================================================================================================
<S> <C> <C> <C>
Per Share $ 10.00 $ .70 $ 9.30
Minimum Purchase 300 Shares $ 3,000 $ 210.00 $ 2,790.00
Total Maximum if 7,816,000 Shares Sold(3) $ 78,160,000 $5,471,200.00 $ 72,688,800.00
========================================================================================================================
</TABLE>
The date of this Prospectus is May __, 1997
<PAGE> 6
(1) A total of 7,816,000 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, in certain instances,
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 certain
Soliciting Dealers unless prohibited by either federal or state securities
laws; provided that the Company will not issue more than 184,000 Soliciting
Dealer Warrants. See "Description of Securities - Soliciting Dealer
Warrants" for additional terms of the Soliciting Dealer Warrants. The
Dealer Manager will also 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. 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 $1,531,113.97 if 7,816,000 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 the excess expenses.
(3) In addition, assuming all 184,000 warrants are issued to the Dealer
Manager, a total of $147.20 of additional proceeds will be raised; assuming
these warrants are exercised at the warrant price of $12.00, a total of
$2,208,000 will be raised. No commission will be paid in connection with
the issuance of the warrants or the Shares issuable upon exercise thereof.
The Shares offered hereby 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 ________. Subscription proceeds received from investors
will be held in escrow by the Escrow Agent, pending release to the Company.
Since 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.
(end of cover page)
ii
<PAGE> 7
TABLE OF CONTENTS
PAGE
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 .......................................... 29
Subordinated Payments ............................................. 34
CONFLICTS OF INTEREST ..................................................... 38
Competition for the Time and Service of the
Advisor and Affiliates ......................................... 38
Process for Resolving Conflicting Opportunities ................... 38
Acquisition from Affiliates ....................................... 39
The Company may Purchase Properties from Persons with
whom Affiliates of the Advisor have Prior Business
Relationships .................................................. 39
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 ....................................... 40
The Company and the Advisor have the Same Legal Counsel ........... 40
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 .... 41
General ........................................................... 41
Limitation of Liability and Indemnification ....................... 41
Defenses Available ................................................ 42
PRIOR PERFORMANCE OF THE COMPANY'S AFFILIATES ............................. 43
Prior Investment Programs ......................................... 43
Summary Information ............................................... 43
Publicly Registered Limited Partnerships .......................... 45
Private Partnerships .............................................. 49
Private Placement Real Estate Equity Program ...................... 50
Private Placement Mortgage and Note Programs ...................... 50
Loan Modifications and Work-Outs .................................. 52
Effects of Property Exchanges on Investors ........................ 55
Additional Information ............................................ 56
MANAGEMENT ................................................................ 57
General ........................................................... 57
Directors and Executive Officers .................................. 58
Committees of the Board of Directors .............................. 60
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<PAGE> 8
Compensation of Directors .................................. 60
The Advisor ................................................ 61
The Advisory Agreement ..................................... 62
The Management Agent ....................................... 63
Other Services ............................................. 66
Independent Director Stock Option Plan ..................... 66
SELECTED FINANCIAL DATA ............................................ 68
INVESTMENT OBJECTIVES AND POLICIES ................................. 69
General .................................................... 69
Distributions .............................................. 70
Types of Investments ....................................... 70
Acquisition Standards ...................................... 71
Description of Leases ...................................... 72
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 ........................ 80
The Hartford/Naperville Plaza Property ..................... 81
Nantucket Square Shopping Center ........................... 83
Antioch Plaza .............................................. 86
The Mundelein Plaza Property ............................... 87
Regency Point Shopping Center .............................. 90
Prospect Heights Plaza ..................................... 92
Montgomery-Sears Shopping Center ........................... 93
The Zany Brainy Store ...................................... 95
Salem Square Shopping Center, Countryside, Illinois ........ 96
Hawthorn Village Commons, Vernon Hills, Illinois ........... 98
Six Corners Plaza, Chicago, Illinois ....................... 102
Spring Hill Fashion Corner, West Dundee, Illinois .......... 105
Grand & Hunt Club Outlot Center, Gurnee, Illinois .......... 107
The Quarry Outlot, Hodgkins, Illinois ...................... 109
Crestwood Plaza Shopping Center, Crestwood, Illinois ....... 111
Park St. Clair Plaza, Schaumburg, Illinois ................. 113
Lansing Square Shopping Center, Lansing, Illinois .......... 115
The Summit of Park Ridge, Park Ridge, Illinois ............. 118
Maple Park Place Shopping Center, Bolingbrook, Illinois .... 120
Aurora Commons Shopping Center, Aurora, Illinois ........... 123
Lincoln Park Place Shopping Center, Chicago, Illinois ...... 126
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<PAGE> 9
Niles Shopping Center, Niles, Illinois .......................... 128
Cobblers Mall.................................................... 132
Mallard Mall......................................................135
Potential Property Acquisitions ................................. 139
CAPITALIZATION .......................................................... 142
PRINCIPAL STOCKHOLDERS .................................................. 143
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION
AND RESULTS OF OPERATIONS ............................................. 144
Liquidity and Capital Resources ................................. 144
Cash Flows From Operating Activities ............................ 145
Cash Flows From Investing Activities ............................ 145
Cash Flows From Financing Activities ............................ 145
Results of Operations ........................................... 146
Impact of Accounting Principles ................................. 146
Inflation ....................................................... 146
FEDERAL INCOME TAX CONSIDERATIONS ....................................... 147
Taxation of the Company ......................................... 148
Taxation of Stockholders ........................................ 154
Other Tax Considerations ........................................ 157
ERISA CONSIDERATIONS .................................................... 157
DESCRIPTION OF SECURITIES ............................................... 158
General ......................................................... 158
Soliciting Dealer Warrants ...................................... 159
Issuance of Additional Securities and Debt Instruments .......... 160
Restrictions on Transfer ........................................ 161
SUMMARY OF THE ORGANIZATIONAL DOCUMENTS ................................. 163
Certain Article and Bylaw Provisions ............................ 164
Stockholders' Meetings .......................................... 164
Board of Directors .............................................. 164
Stockholder Voting Rights ....................................... 164
Stockholder Lists; Inspection of Books and Records .............. 165
Amendment of the Organizational Documents ....................... 166
Dissolution or Termination of the Company ....................... 166
Advance Notice of Director Nominations and New Business ......... 166
Restrictions on Certain Conversion Transactions and Roll-Ups..... 166
Limitation on Total Operating Expenses .......................... 168
Transactions with Affiliates .................................... 169
Restrictions on Borrowing ....................................... 169
Restrictions on Investments ..................................... 170
PLAN OF DISTRIBUTION .................................................... 171
General ......................................................... 171
Escrow Conditions ............................................... 172
Advisor Capital Contribution .................................... 172
Subscription Process ............................................ 172
Determination of Investor Suitability ........................... 173
Compensation .................................................... 173
Volume Discounts ................................................ 174
Transfer of Shares .............................................. 175
Indemnification ................................................. 176
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<PAGE> 10
HOW TO SUBSCRIBE .............................................. 176
SALES LITERATURE .............................................. 177
DISTRIBUTION REINVESTMENT AND SHARE REPURCHASE PROGRAMS ....... 177
Distribution Reinvestment Program ..................... 177
Share Repurchase Program .............................. 178
REPORTS TO STOCKHOLDERS ....................................... 179
LEGAL MATTERS ................................................. 181
EXPERTS ....................................................... 181
ADDITIONAL INFORMATION ........................................ 181
GLOSSARY ...................................................... 182
INDEX TO FINANCIAL STATEMENTS ................................. F-i
PRIOR PERFORMANCE TABLES ...................................... A-1
DISTRIBUTION REINVESTMENT PROGRAM ............................. B-1
SUBSCRIPTION AGREEMENT ........................................ I-1
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PROSPECTUS SUMMARY
The following summary is 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 The Company owns and operates 25 Neighborhood Retail Centers
(as hereinafter defined) and two single-user retail
properties. The Company intends to acquire additional
existing Neighborhood Retail Centers which are 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 may also acquire
single-user retail properties located throughout the United
States including single-user retail properties 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 $23,000,000
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 acquiring well-located Neighborhood Retail
Centers, as well as single-user retail properties,
triple-net leased by creditworthy tenants.
- Whenever possible, acquire properties on an all-cash
basis to provide the Company with a competitive
advantage over potential purchasers who must secure
financing. The Company may, however, acquire
properties subject to existing indebtedness if it is in
its best interest. The Company utilized financing to
acquire fifteen of its twenty-seven properties. The
financing for eight of the properties was obtained from
an Affiliate and was retired within 90 days of the date
of acquisition. See "Real Property Investments."
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.
1
<PAGE> 12
- Emphasize regular maintenance and
periodic renovation to meet the needs of
tenants and to maximize long-term
returns.
- Maintain a diversified tenant base at its
Neighborhood Retail Centers, 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
has elected to be treated as a real estate
investment trust ("REIT") for federal income
tax purposes. See, generally "Federal Income
Tax Considerations." The Company is located
at 2901 Butterfield Road, Oak Brook, Illinois
60521 (630) 218-8000.
SHARES OUTSTANDING A total of _____ Shares (including ______
BEFORE OFFERING Shares issued under the Company's Dividend
Reinvestment Program (the "DRP") and ______
Shares purchased by the Advisor) were
outstanding as of ______, 1997. The Company
previously sold 5,000,000 Shares (net of
3,000 Shares repurchased by the Company
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, and an
additional 11.0 million Shares in a best
efforts offering that commenced on July 24,
1996 and was completed on ________, 1997,
also at $10 per Share (collectively the
"Prior Offerings").
SHARES OUTSTANDING
POST OFFERING After giving effect to the Offering and
assuming the sale of the Maximum Offering,
the Company will have _____________ 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).
TERMS OF THE OFFERING The Company is offering 8,000,000 shares of
common stock, $.01 par value per share (the
"Shares"), of which 7,816,000 Shares are
being offered on a "best efforts" basis and
up to up to 184,000 Shares which may be
issued upon the exercise of warrants granted
to the Dealer Manager. A "best efforts"
offering is one in which the securities
dealers participating in the Offering are
under no obligation to purchase any of the
Shares being offered 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
2
<PAGE> 13
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
__________ (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 Shares constitute an
illiquid investment. In addition, 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.
- As of the date of this Prospectus, the Company had
approximately $23,000,000 available for additional
acquisitions, and, except for seven properties, 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 may be less advantageous to the Company than an
arm's-length transaction. The Company competes 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
properties which it desires and have an adverse impact
on the Company's business.
- 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
3
<PAGE> 14
adversely affect the Company's ability to acquire,
lease and dispose of such properties and, hence, the
Company's results of operations and financial
condition, including the Company's ability to pay
dividends.
- Defaults on any secured indebtedness may result in
foreclosure on the Company's assets which would result
in the Company losing its investment in the properties
securing the loan.
- 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. These limitations may discourage,
impede or prevent a merger, tender offer or proxy
contest, even if such an event would be favorable to
the interests of stockholder.
- Although the Company has a working capital reserve of
approximately $1.5 million (equal to 1% of the gross
offering proceeds from the Company's Prior Offerings)
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
cash needs of the Company and the Company may have to
obtain financing from either affiliated or unaffiliated
sources. Additional financing would increase the
Company's indebtedness and the risks associated
therewith.
_ Under certain circumstances, the Company may borrow
funds to maintain operations of one or more of its
properties or enable it to maintain its REIT status,
thus increasing the Company's indebtedness.
Company Risks:
- 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 which may not be on
market terms and the possibility that the Company may
do business with entities that have pre-existing
relationships with the Advisor or its Affiliates which
may result in a conflict between the ongoing business
relationship of the Advisor or its Affiliates and the
Company's business.
- The Company's ability to achieve its goals will depend,
to a large extent, on the quality of management
provided by the Advisor and its Affiliates. Since
January 1, 1987, Affiliates of the Advisor have
sponsored twenty-three programs. Certain of these
programs have
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<PAGE> 15
experienced setbacks, such as commercial tenant
defaults or move- outs, unfavorable changes in the
tax laws and higher than expected vacancies as
apartment markets weakened. These negative events,
which vary by program, have had the effect of
reducing the benefits which investors in those
programs have received. See "Prior Performance of the
Company's Affiliates" and "Prior Performance Tables."
- The Advisor and its Affiliates are paid 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 diluting the interest of
existing Stockholders, including investors in this
Offering, none of whom have preemptive rights.
- In most cases, matters requiring stockholder approval
may be approved by a vote of only a majority of the
Stockholders. 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 the Company's
results of operations and financial condition,
including the Company's ability to make Distributions.
This risk is borne by Stockholders in proportion to the
number of Shares owned by each Stockholder.
- 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 results
of operations and financial condition, including the
Company's ability to make Distributions.
- Violation of environmental and other governmental
regulations could result in substantial expenditures
by, or damages to, the Company and adversely affect the
Company's results of operations and financial
condition, including the Company's ability to make
Distributions.
- Unanticipated renovation or remodeling costs incurred
to re-lease the Company's properties could adversely
affect the Company's results of operations and
financial condition, including the Company's ability to
make Distributions.
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<PAGE> 16
Tax Risks:
- The Company's ability to qualify as a REIT involves the
applica tion 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 the Company will be able to satisfy
these 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, due to certain of the Code
provisions applicable to REITS, the Company does not
intend to hold property as Inventory Property even
though holding as Inventory Property may produce higher
selling prices.
- If the Company fails to qualify as a REIT, its
Distributions would not be deductible, which would
increase its tax liability and substantially reducing
the funds available for distribution to Stockholders.
The Company could be forced to borrow to pay these tax
liabilities, liquidate certain investments or take
other steps which could adversely affect the Company's
results of operations and financial conditions,
including its ability to pay Distributions.
- Shefsky & Froelich Ltd. ("Counsel") has rendered its
opinion that as of _________, 1997, and, based on
certain representations of the Company as described
throughout the Prospectus regarding the Company's
operations, 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 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. 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
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<PAGE> 17
changes to the federal income tax laws (or the
interpretation thereof) which could be applied
retroactively.
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."
Failure by the Company to effectively manage the impact
of these risks may impair the Company's ability to meet
its investment objectives and, therefore, the benefits
to the Stockholders from their investment in the
Company may be reduced or entirely eliminated. See
"Risk Factors" and "Prior Performance of the Company's
Affiliates."
INVESTMENT OBJECTIVES
AND POLICIES The Company's investment objectives are to:
- Provide regular Distributions to Stockholders; the
amount of these Distributions may exceed the Company's
taxable income, particularly in the early years of the
Company's operations, due to the "non-cash" nature of
depreciation expense and, to such extent, will
constitute a 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, these
Distributions would constitute a return of capital and
would be sheltered from current taxation for
Stockholders. This return of capital, however, will
reduce a Stockholder's tax basis in his Shares, which
will result in more taxable gain or less taxable loss
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 upon
sale of a property. 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;
- 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; and
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<PAGE> 18
- Preserve Stockholders' capital by acquiring
well-located Neighborhood Retail Centers and
single-user retail properties on an all-cash basis,
whenever possible. The Company will, in certain
instances, utilize borrowing to acquire properties. The
Company has utilized financing in connection with
acquisition of fifteen of its 27 properties. See "Real
Property Investments."
There can be no assurance the Company will achieve these
objectives.
To the extent possible, the Company seeks to avoid
fluctuations in Distributions which might result if
Distributions were based on actual cash received during the
Distribution period. To do this, 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 utilize this
policy is dependent upon the availability of Cash Flow and
the applicable REIT rules. The Company seeks, 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. Since inception through September
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 8.5% per annum on weighted average shares.
The Company intends, 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. The Company has,
however, utilized financing to acquire 15 of its 27
properties and may do so in the future where the Board deems
it to be in the Company's best interest. In addition, the
Company has also pledged properties purchased on an all-cash
basis to secure indebtedness incurred post-acquisition and
anticipates doing so in the future. The proceeds from these
loans have been, and will be, used primarily to acquire
additional properties. The Company may also incur
indebtedness to finance improvements to the acquired
properties. The Company anticipates that aggregate
borrowings secured by the Company's properties will not
exceed 50% of their combined fair market value.
Notwithstanding the foregoing, the maximum amount of
borrowings may not exceed 300% of Net Assets without
approval of a majority of the Stockholders. The Company
does not anticipate incurring indebtedness to fund
Distributions payable to Stockholders, unless necessary to
maintain its status as a REIT. See
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<PAGE> 19
"Investment Objectives and Policies--Borrowing" and
"Summary of the Organizational Documents--Restrictions
on Borrowing."
Affiliates of the Advisor have extensive experience in
acquiring and managing properties similar to those
which have been acquired, or which the Company
anticipates acquiring. There is no assurance that the
Company will achieve its investment objectives.
Although the Company owns 25 Neighborhood Retail
Centers and two single-user properties, except for
seven properties, it has not specified any other
properties to be acquired. 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 acquire
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"), serves as Advisor to the Company. The
Advisor is an Illinois corporation with its principal
place of business located at 2901 Butterfield Road, Oak
Brook, Illinois 60521 (630) 218-8000. As of June 30,
1996, IREIC had an audited net worth of approximately
$93 million, much of which is illiquid. Limited
partnerships for which IREIC is a responsible own
in excess of 11.9 million square feet of commercial
property. See "Management."
COMPENSATION TO BE The Advisor and its Affiliates will be paid
PAID TO THE ADVISOR substantial amounts for managing the Company's
AND ITS AFFILIATES business. The 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"),
some of which may be retained or reallowed to
Soliciting Dealers. As of December 31, 1996, the
Company had paid selling commissions and Marketing
Contribution and Due Diligence Expense Allowance Fees
totaling $7,403,965 in connection with the Prior
Offerings. A total of $270,365 was unpaid at December
31, 1996. Approximately $6,296,000 of this amount was
reallowed to Soliciting Dealers as of December 31,
1996. In certain cases, Soliciting Dealers will
receive one Soliciting Dealer Warrant for each 40
Shares sold by such Soliciting Dealer during the
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<PAGE> 20
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. See
"Compensation Table" and "Description of
Securities--Soliciting Dealer Warrants."
Acquisition Stage: Reimbursement for actual
out-of-pocket acquisition expenses are anticipated to
be equal 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 also
receives 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 this 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, 1996, the Company incurred
and paid Advisor Asset Management Fees of $238,108.
The Company incurred and paid Property Management Fees
of $229,307 for the year ended December 31, 1996. 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."
The Advisor and its Affiliates may receive a number of
other incidental fees for services or expense
reimbursement during the operational and liquidation
stages of the Company. See, generally, "Compensation
Table" and "Management--Other Services."
REAL PROPERTY The Company owns 25 Neighborhood Retail Centers and
INVESTMENTS two single-user retail properties. The Company
utilized $126,663,000 raised in the Prior Offerings to
acquire these properties. Seventeen of the properties
are encumbered by outstanding indebtedness of
approximately $43,600,000, as of the date of this
Prospectus. The Company has approximately $23,000,000
available for investment in additional properties. The
Company has not specified any additional properties.
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<PAGE> 21
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. With respect to investments made with
Affiliates, 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
SUMMARY years, has sponsored seven public and sixteen private
real estate programs which have raised in excess of
$206,000,000 from over 17,000 investors.
Two of the Inland-sponsored public programs and a
majority of the private programs have investment
objectives similar to the Company's. 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, which vary by program, have had the
effect of reducing the benefits which investors in
those programs have received from those originally
contemplated. See "Prior Performance of the Company's
Affiliates" and "Prior Performance Tables."
ARTICLES OF Investors should be particularly aware of the
AMENDMENT AND following provisions contained in the
RESTATEMENT Company's Second Articles of Amendment and
Restatement, as amended (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 as a REIT under
this test, the Articles contain restrictions on
the number of Shares that may be owned by a single
Stockholder. These restrictions may: (i)
discourage a change of control of the Company;
(ii) deter
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<PAGE> 22
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 are 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. These 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 Company's investment
objectives or policies may only be changed by
amending the Articles, which requires the
affirmative vote of Stockholders holding a
majority of the outstanding Shares.
- Distributions: Distributions are payable out
of funds legally available to pay
distributions.
See "Summary of the Organizational Documents" and
"Description of Securities."
DISTRIBUTION REINVESTMENT The Company provides the following programs
AND SHARE REPURCHASE to facilitate investment in the Shares and to
PROGRAMS provide limited liquidity for Stockholders:
- The Distribution Reinvestment Program (the
"DRP") allows Stockholders who have purchased
Shares in the Prior Offerings or who purchase
Shares in this Offering to automatically
reinvest
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<PAGE> 23
Distributions by purchasing additional Shares from the
Company, subject to the limitations on Share ownership
contained in the Articles. These purchases may be made
free of selling commissions or the Marketing
Contribution and Due Diligence Expense Allowance Fee
and at a price equal to $9.05 per Share. See
"Distribution Reinvestment and Share Repurchase
Programs -- Distribution Reinvestment Program."
- The Share Repurchase Program allows, subject to certain
restrictions, existing Stockholders to sell Shares back
to the Company at a price equal to $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).
The Company repurchases Shares on a first come, first
served basis, subject to the following limits: (i) not
more than $500,000 worth of the outstanding Shares may
be repurchased in any given year; and (ii) the funds
utilized to repurchase are 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 Company may terminate the Share Repurchase
Program if a secondary market for the Company's Shares
develops or if the Shares are listed on a national
securities exchange or included 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, income and other suitability
requirements which investors must satisfy prior to
subscribing for Shares. 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 for investors residing 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 through the fiscal year ended
December 31, 1997. There can be no assurance that: (i)
Stockholders will actually receive $10 per Share 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 would receive $10 per Share on sale of their
Shares; or (iii) this valuation would comply with the ERISA
requirements. The Company will cease providing these
annual
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<PAGE> 24
statements of value if the Shares become listed on a
national stock exchange or included for quotation on a
national market system. 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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<PAGE> 25
ORGANIZATIONAL CHART
____________THE INLAND GROUP, INC.________
| |
| |
| |
Inland Commercial Inland Real Estate
Property Management Inc. Investment Corporation
| | |
| | |
| | |
Property Management and Inland Real Estate Inland Securities
Related services Advisory Services Inc. Corporation
| | |
| | |
| | |
| | |
| | |
| 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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<PAGE> 26
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 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, if at all.
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. The Company owns 25 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 unanimous 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, only seven additional properties
have been specified for acquisition by the Company. 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 funds available for investment
($23,000,000) or with the Net Proceeds of this Offering (after funding of
appropriate working capital reserves). There may be a delay between the sale of
the Shares and the Company's purchase of other properties, which could result in
a delay in the benefits to investors, if any, of an investment in the Company.
The Advisor evaluates potential additional property acquisitions and
engages in discussions with sellers on behalf of the Company. During the
pendency of the Offering, as soon as the Advisor believes a reasonable
probability exists that a property will be acquired on specified terms 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 stage require negotiation of final binding agreements and there can be no
assurance that a property will be acquired on the same terms as described in the
relevant supplement or other disclosure document prepared with respect thereto.
In addition, properties which are identified for acquisition 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
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<PAGE> 27
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 the 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 $1.5 million (equal to 1% of the gross offering proceeds from the
Prior Offerings) and will supplement this reserve with an additional 1% of the
Gross Offering Proceeds from this Offering. However, if these reserves prove
insufficient to meet the Company's cash needs, the Company may have to obtain
financing from either affiliated or unaffiliated sources to fund these cash
requirements. 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. The Company intends to acquire properties free and clear of
permanent mortgage indebtedness by paying the entire purchase price of each
property in cash or shares of the Company's stock. However, if it is determined
to be in the best interests of the Company, the Company has and will continue,
in certain instances, to utilize borrowing to acquire properties and incur or
increase mortgage indebtedness by obtaining loans secured by selected
properties. The proceeds from these loans have been and will be used to acquire
additional properties. 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. The Company anticipates that aggregate borrowings
secured by all of the Company's properties will not exceed 50% of their combined
fair market values; provided that in the absence of the consent of a majority of
the Stockholders, indebtedness may not exceed 300% of Net Assets.
Incurring mortgage indebtedness increases the risk of loss since
defaults on indebtedness secured by the Company's properties may result in
foreclosure actions initiated by the lenders and loss by the Company of the
property securing the loan which is in default. 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. If the outstanding balance of the
debt secured by the mortgage exceeds the Company's basis in the property, the
Company would recognize taxable income on foreclosure, but would not receive any
cash proceeds. The Company seeks to limit its indebtedness to "non-recourse"
indebtedness 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."
Further, incurrence of indebtedness may decrease the amount of cash
available for distributions since the Company must pay debt service on the
indebtedness.
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 taxable year. To ensure that the Company
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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. The Company may, from time to time, make property investments in
joint ventures between the Company and Affiliates of the Advisor. Investments
in joint ventures which own properties may involve risks not otherwise present
when the Company purchases the property directly. For example, the Company's
co-venturer may file for bankruptcy protection, may have economic or business
interests or goals which are inconsistent with the interests or goals of the
Company or take actions 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 property 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 Stockholders after
satisfying creditor 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 sponsored seven public and sixteen private real estate
programs during the past ten years, raising in excess of $206,000,000. 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
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investment objectives since the Company's management, the Advisor and its
Affiliates have limited experience in managing and operating a REIT.
2. COMPANY RISKS
Prices Paid for Properties Acquired from Affiliates may Exceed Prices
that would have been 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: (i) 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 (ii) the price to the Company is no greater than the cost of the
asset to the Affiliate unless substantial justification for a greater price
exists and the additional price is reasonable. In no event may the cost to the
Company exceed the property's current appraised value. All of the Directors
(including all of the then Independent Directors) approved the purchases
described above. 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
operation and management of the Company may be influenced or affected by
conflicts of interest arising out of the Advisor's relationship with its
Affiliates on the one hand, and the Company on the other hand. For example, the
Company will compete with the Affiliates for the Advisor's time and services.
Further, the due diligence investigation of the Company by the Dealer Manager,
also an Affiliate, 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, including
sales commissions and due diligence expense allowances to the Dealer Manager,
and reimbursements to an Affiliate for costs related to organizing and offering
the Shares for sale. Further, an Advisor Asset Management Fee of not more than
1% per annum of the Average Invested Assets will be paid quarterly to the
Advisor and 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 to an Affiliate.
These fees may cause the Advisor to delay sale of properties or liquidation of
the Company. The Advisor and its Affiliates will receive substantial fees and
payments for services rendered to the Company irrespective of whether
Stockholders receive Distributions.
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 option to buy any Neighborhood Retail Centers placed
under contract by the Advisor or its Affiliates for a period of 60 days. The
Advisory Agreement also grants the Company the option 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 is 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 the property by the Advisor; (iii)
the property meets the Company's acquisition criteria; provided that more than
one real estate investment program sponsored by Affiliates of the Advisor has
funds available to make the purchase, the property will first be offered to the
program which has had funds available for the longest period of time. The
Board, in 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
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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. See "Compensation Table" and
"Management--The Advisory Agreement."
Dependence on the Directors and Advisor. The Board has supervisory
control over all aspects of the Company's operations. The Company's ability to
achieve its investment objectives 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 is 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 these 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 of their equity
investment in the Company. The Soliciting Dealer Warrants issued to the Dealer
Manager in connection with the Prior Offerings and to be issued in connection
with this Offering 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.
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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. Therefore, a substantial minority of
the Stockholders will 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 Articles, in the case of the Directors, and the
Advisory Agreement, in the case of the Advisor, require the Company to indemnify
these individuals of the Advisor for certain actions taken by them in good faith
and without negligence or misconduct. 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, neither the Directors nor the Advisor will be liable to the
Company or the Stockholders unless: (i) a court finds that the person actually
received an improper benefit or profit in money, property or services; and (ii)
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 are generally illiquid and, therefore, the
Company's ability to promptly vary its portfolio in response to changing
economic, financial and investment conditions is limited. Real property
investments are also subject to adverse changes in general economic conditions
or local conditions which reduce the demand for the goods or services of
tenants, as well as 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; (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
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Advisor's ability to successfully find a substitute tenant, have an adverse
effect on the Company's results of operations and financial condition. See
"Prior Performance of the Company's Affiliates--Loan Modifications and
Work-Outs."
Competition for Tenants and Customers. The Company could be
adversely affected if competitive types of properties 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. These statutes typically allow
liens to be placed on the affected property. In addition, there are various
local, state and federal health and safety regulations which the Company may,
under certain circumstances, be required to comply with, and liability in the
form of fines or damages for noncompliance. The Company's properties are
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 complying 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 indemnification. State and
federal laws in this area are constantly evolving, and the Company intends to
monitor these 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's
results of operations or financial condition will not be adversely affected by
these laws.
Costs Associated with Complying with the Americans with
Disabilities Act. Under the ADA, all public accommodations are required to
comply with 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
acquire properties which comply with the ADA or place the burden on the seller
to ensure compliance with the ADA, although there can be no assurance that the
Company will be able to acquire properties utilizing this criterion.
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 tenant fails to renew or defaults on its lease obligations, the property
may not be readily marketable to a new tenant without substantial capital
improvements or remodeling which may adversely affect the Company's results of
operation and financial condition.
Competition with Others for the Acquisition of Properties. The
Company competes 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.
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Reliance on Certain Tenants. The Company's results of operations
and financial condition and ability to make Distributions may be adversely
affected by 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"), including the decision by an Anchor Tenant not to
renew its lease. 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 terminate their leases at the center.
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 when due. 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 Company's results of operation and financial position, including
its ability to pay Distributions.
Restrictions on Re-leasing Space. In many cases, tenant leases
contain provisions giving the tenant the exclusive right to sell certain types
of merchandise or provide certain types of services within the particular
Neighborhood Retail Center, or limit the ability of other tenants to sell such
merchandise or provide such services. When re-leasing space after a vacancy
occurs, these provisions may limit the number and types of prospective tenants
for the vacant space.
Uninsured Losses; Unavailability of Insurance. Each lessee is
responsible for insuring its goods and premises and, in certain circumstances,
may be required to reimburse the Company for a share of the cost of acquiring
comprehensive insurance for the property, 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 typically are required
to pay all insurance costs associated with 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. If
such an event occurred to, or caused 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. 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
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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
Company may invest up to 10% of its assets in unimproved real property.
Investment in unimproved properties, in addition to the risks of real estate
investment in general, are also subject to risks and uncertainties associated
with re-zoning the land for a higher use or development and environmental
concerns of governmental entities and/or community groups.
4. TAX RISKS
General. There are various federal income tax risks associated
with investing 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 investing 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 investing in the Company. The continued treatment of the Company as a
REIT is dependent on laws 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 its 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, the Company may be required to borrow funds, liquidate certain of
its investments or take other steps which could affect its operating results
due to this tax liability. 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
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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 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 (as
defined herein) 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 should 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
requirements necessary to maintain status as a REIT, and Counsel will not
review compliance with the REIT Requirements on a continuing basis after the
initial effective 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. The deterimination of whether the Company will
constitute
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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."
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 with the accounts of the Advisor and its Affiliates. As of the
date of this Prospectus, the Company owned 27 properties comprised of 25
Neighborhood Retail Centers and two single-user retail properties and had
approximately $23,000,000 available for additional investments. The Company
estimates that 87.21% of Gross Offering Proceeds will be used to acquire
properties if the Maximum Offering is sold. If the Maximum Offering is sold,
2.89% of the Gross Offering Proceeds will be utilized to pay selling and due
diligence expenses to unaffiliated third parties and 8.40% 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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MAXIMUM OFFERING
<TABLE>
<CAPTION>
AMOUNT PERCENT
------ -------
<S> <C> <C>
Gross Offering Proceeds: $78,160,000 100.00%
----------- ------
Less Expenses:
Selling Commissions (2) 5,471,200 7.0%
Marketing Contribution and Due Diligence
Expense Allowance Fee (2) 1,954,000 2.5%
Organization and Offering Expenses (3) 1,399,064 1.79%
Total Public Offering Expenses 8,824,264 11.29%
Gross Amount Available for Investment 69,335,736 88.71%
Acquisition Expenses (4)(5) 390,800 0.5%
Working Capital Reserve (6) 781,600 1.00%
----------- ------
Net Cash Payments Relating to the
Purchase of Properties $68,163,336 87.21%
=========== ======
</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% or $5,471,200 of the Gross Offering Proceeds and, under
certain circumstances, one Soliciting Dealer Warrant for every 40 Shares sold,
all or part of which compensation may be retained or reallowed to Soliciting
Dealers; provided that the Company will not issue more than 184,000 Soliciting
Dealer Warrants. The Dealer Manager will also receive the Marketing
Contribution and Due Diligence Expense Allowance Fee equal up to 2.5% or
$1,954,000 of the Gross Offering Proceeds, some portion of which may be
reallowed to Soliciting Dealers. This category of expense includes 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 in respect
of these volume discounts; however, these discounts will not affect the amount
of proceeds to the Company. The Company will not pay any selling commission on
Shares purchased by the Advisor, its Affiliates, the Dealer Manager or
Soliciting Dealers. Any Shares purchased by the Advisor or its Affiliates will
be purchased for investment purposes only and not with a view toward resale.
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) Reflects the Advisor's best estimates of legal, accounting,
printing and other offering expenses, including amounts to reimburse the
Advisor for marketing, salaries and direct expenses of its employees while
directly engaged in registering and marketing the Shares and other 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.
27
<PAGE> 38
(4) The Advisor will be reimbursed for actual out-of-pocket
Acquisition Expenses in an amount estimated to be equal to 0.5% of the Gross
Offering Proceeds ($390,800, assuming the Maximum Offering). 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. Expenses
incurred in connection with incurring indebtedness will be payable from the
proceeds of such borrowings ($195,400, assuming the Maximum Offering 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 selecting, evaluating, acquiring and investing in the Company's properties,
whether or not acquired, including, but not limited to: surveys, appraisals,
title insurance and escrow fees, non-refundable option payments, 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 investors
resident in the State of Iowa where the minimum investment for IRAs will be 300
Shares ($3,000) and for investors resident in the State of 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.
In purchasing Shares, custodians or trustees of employee pension
benefits plans or IRAs may be subject to the fiduciary duties imposed 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/her
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."
28
<PAGE> 39
The agreements between the Dealer Manager and each of the Soliciting
Dealers requires each Soliciting Dealer 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 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 accepting confirmation of purchase or delivery of the Shares, an investor
represents that he or she 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 compensation arrangements between the Company and Advisor and its
Affiliates were not determined by arm's-length negotiations. See "Conflicts of
Interest." The following table discloses the significant compensation which
may be received by the Advisor and its Affiliates from the Company. 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."
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.
29
<PAGE> 40
<TABLE>
<CAPTION>
ESTIMATED MAXIMUM
TYPE OF COMPENSATION METHOD OF COMPENSATION DOLLAR AMOUNT
- -------------------- ---------------------- -----------------
<S> <C> <C>
UPON COMPLETION OF
OFFERING:
The Dealer Manager will Actual amount depends upon the
Selling Commissions (payable receive $0.70 per Share for number of Shares sold.
to the Dealer Manager and each Share sold and, under Selling commissions of
Soliciting Dealers) certain circumstances, a $10,500,000 were incurred in
Soliciting Dealer Warrant for the Prior Offerings, including
each 40 Shares sold; provided $7,454,358 incurred through
that the Company will not March 31, 1997. A total of
issue more than 184,000 of $5,471,200 in selling
these warrants. The Dealer commissions will be paid if
Manager may reallow the the Maximum Offering is sold.
selling commissions and
Soliciting Dealer Warrants to
Soliciting Dealers for each
Share they sell. (1)
Marketing Contribution and An amount equal to up to Actual amount depends upon
Due Diligence Expense 2.0% of the Gross Offering the number of Shares sold.
Allowance Fee (payable to the Proceeds, some portion of Expenses of $3,000,000 and
Dealer Manager and Soliciting which may be reallowed to $750,000 were incurred in the
Dealers) Soliciting Dealers to Prior Offerings for the
pay the expenses associated with Marketing Contribution and
the Marketing Contribution. An Due Diligence Expense Allowance
additional 0.5% of the Gross respectively, including
Offering Proceeds may be paid $2,129,348 and $531,720
to the Dealer Manager or incurred through March 31,
reallowed to the Soliciting 1997. A total of $1,954,000
Dealers for the Due Diligence will be paid for the
Expense Allowance Fee. Marketing Contribution and Due
Diligence Expense Allowance if the
Maximum Offering is sold.
</TABLE>
30
<PAGE> 41
<TABLE>
<CAPTION>
ESTIMATED MAXIMUM
TYPE OF COMPENSATION METHOD OF COMPENSATION DOLLAR AMOUNT
- -------------------- ---------------------- -----------------
<S> <C> <C>
Reimbursable Expenses (payable The Advisor or its Affiliates Reimbursable Expenses of
to the Advisor and its may advance Organization and approximately $3,455,000 were
Affiliates) Offering Expenses to the incurred through March 31,
Company and will be reimbursed 1997 in connection with the
for actual costs incurred in Prior Offerings (for
connection with the Offering Organization and Offering
on behalf of the Company, Expenses, but excluding
including legal and accounting selling commissions and the
fees, registration and filing Marketing Contributions and
fees, printing costs and Due Diligence Expense
selling expenses. However, if Allowance Fee). No estimate
the aggregate of all is available for the amount of
Organization and Offering reimbursable expenses that may
Expenses, including selling be incurred in this Offering.
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
the 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.
</TABLE>
31
<PAGE> 42
<TABLE>
<CAPTION>
ESTIMATED MAXIMUM
TYPE OF COMPENSATION METHOD OF COMPENSATION DOLLAR AMOUNT
- -------------------- ---------------------- -----------------
<S> <C> <C>
ACQUISITION STAGE:
Acquisition Expenses for the An amount estimated to be up Acquisition Expenses of
costs and expenses of the to 0.5% of the Gross Offering approximately $173,000 were
acquisition of properties Proceeds in connection with incurred through March 31,
including surveys, appraisals, the expenses associated with a 1997 in connection with the
title insurance and escrow property acquisition. (2) Prior Offerings. If the
fees, legal and accounting Maximum Offering is sold,
fees and expenses, computer Acquisition Expenses may not
use related expenses, exceed $390,800; however, the
architectural and engineering actual amounts cannot be
reports, environmental and determined at the present
asbestos audits, travel and time. In no event will such
communication expenses and amount exceed 6% of the
other related expenses purchase price of any single
(payable to the Advisor and property.
its Affiliates).
OPERATIONAL STAGE (3):
Property Management Fee A Property Management Fee Actual amounts are dependent
(payable to an Affiliate of equal to not more than 4.5% of upon results of operations.
the Advisor) the gross revenues from the Property Management Fees of
properties will be paid approximately $229,307 were
monthly to Inland Commercial incurred and paid through
Property Management, Inc., an December 31, 1996.
Affiliate of the Advisor (the
"Management Agent").
</TABLE>
32
<PAGE> 43
<TABLE>
<CAPTION>
ESTIMATED MAXIMUM
TYPE OF COMPENSATION METHOD OF COMPENSATION DOLLAR AMOUNT
- -------------------- ---------------------- -----------------
<S> <C> <C>
Compensation for Services In addition to property Actual amounts are dependent
management, the Advisor and upon results of operations
its Affiliates will provide and, therefore, cannot be
other property-level services determined at the present time.
to the Company, and may
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, this 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."
Reimbursable Expenses (payable Certain expenses of the Actual amounts are dependent
to the Advisor and its Advisor and its Affiliates upon results of operations;
Affiliates) will be reimbursed by the approximately $67,000 was
Company. (4) (5) (6) incurred through December 31,
1996 in connection with the
Prior Offerings.
</TABLE>
33
<PAGE> 44
<TABLE>
<CAPTION>
ESTIMATED MAXIMUM
TYPE OF COMPENSATION METHOD OF COMPENSATION DOLLAR AMOUNT
- -------------------- ---------------------- -----------------
<S> <C> <C>
LIQUIDATION STAGE:
Property Disposition Fee A property disposition fee, Actual amounts to be received
(payable to the Advisor and payable upon the sale of each depend upon the sale price of
its Affiliates) of the Company's properties, Company properties and, therefore,
in an amount equal to the cannot be determined at the
lesser of: (i) 3% of the present time.
contract 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
("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
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:
34
<PAGE> 45
<TABLE>
<CAPTION>
ESTIMATED MAXIMUM
TYPE OF COMPENSATION METHOD OF COMPENSATION DOLLAR AMOUNT
- -------------------- ---------------------- -----------------
<S> <C> <C>
OPERATIONAL STAGE (3):
Advisor Asset Management Fee An Advisor Asset Management Actual amounts are dependent
(payable to the Advisor) Fee of not more than 1% of the upon results of operations.
Average Invested Assets. The Advisor Asset Management Fees
fee will be payable quarterly of approximately $238,000 were
in an amount equal to 1/4 of incurred through December 31,
1% of the Average Invested 1996.
Assets of the Company, as of
the last day of the
immediately preceding quarter,
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.
</TABLE>
35
<PAGE> 46
<TABLE>
<CAPTION>
ESTIMATED MAXIMUM
TYPE OF COMPENSATION METHOD OF COMPENSATION DOLLAR AMOUNT
- -------------------- ---------------------- -----------------
<S> <C> <C>
LIQUIDATION STAGE (3):
Incentive Advisory Fee After the Stockholders have Actual amounts to be received
(payable to the Advisor) first received: (i) their 8% depend upon the sale price of
Cumulative Return; and (ii) a Company properties and,
return of their Invested therefore, cannot be determined
Capital, an Incentive Advisory at the present time.
Fee equal to 15% of 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
___________________. 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 may not 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 may not exceed 6% of the Contract Price for the Property.
(3) The Advisor and its Affiliates assist the Company in determining
the types of transactions entered into by the Company. The Advisor benefits, in
the form of fees, by the Company retaining ownership of its properties and
leveraging its properties, while Stockholders may be better served by sale or
disposition of the properties or not incurring indebtedness secured by the
properties. Furthermore, the Advisor's ability to receive or retain certain
fees and reimbursements is dependent upon the Company continuing to invest in
properties. Therefore, the interest of the Advisor in receiving such fees may
conflict with the
36
<PAGE> 47
interest of the 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 are 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, record keeping, preparing
and disseminating Company reports, preparing and maintaining
records regarding Stockholders, record keeping and
administration of the DRP and Share Repurchase Programs,
preparing and disseminating responses to Stockholder inquiries
and other communications with Stockholders and any other
record keeping required for the Company.
(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 is 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 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 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 may
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.
37
<PAGE> 48
(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.
The Company believes that the compensation payable 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, by its terms, may be terminated by a majority
vote of the Stockholders upon 60 days prior written notice. See
"Management--The Advisory Agreement."
2. Process for Resolving 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 the Company's. 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.
The Advisory Agreement grants 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 the property
within 60 days. The Advisory Agreement also grants the Company a right to
purchase 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 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 the property by the Advisor; (iii) the property meets the
Company's acquisition criteria; provided that if more than one real estate
program sponsored by Affiliates of the Advisor has funds available to make the
purchase, the 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 evaluating 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
38
<PAGE> 49
majority vote, approve all actions by the Advisor or its Affiliates which
present potential conflicts with the Company. See "Management--The Advisory
Agreement."
The Company believes that these factors, together with the
obligations of the Advisor and the Affiliates to present the Company with 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. The Company acquired two of its
properties from an Affiliate. The purchase prices for these properties were
not the subject of arm's-length negotiations. The Articles provide that the
purchase price of any property acquired from an Affiliate: (i) 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 (ii) must be approved by a majority of the Directors (including a majority
of the Independent Directors) not interested in the transaction 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 these which
would have been 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 third parties who have sold properties in the past or
who may sell properties in the future to the Advisor or its Affiliates. In the
event the Company purchases properties from these third parties, 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 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 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 Company.
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 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 sale or disposition or
not incurring indebtedness secured by the properties. Furthermore, the receipt
and retention of certain fees and reimbursements is dependent upon the
Company's continuing to invest 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 have represented to the Company 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 respective fiduciary duties. See also
"Risk Factors -- Dilution" regarding issuance of Soliciting Dealer Warrants to
the Dealer Manager.
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<PAGE> 50
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 are not the result of arm's-length negotiations, but
the Company believes that these agreements and arrangements approximate the
terms of arm's-length transactions.
While the Company does not make 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 funding 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 may provide services to, and
otherwise deal or do 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 provision of the Advisory Agreement.
8. The Company and the Advisor have the Same Legal Counsel. Shefsky &
Froelich Ltd. serves as general counsel to the Company, as well as to the
Advisor and some of its Affiliates. Shefsky & Froelich 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, Shefsky
& Froelich Ltd. may be precluded from representing any one or all of these
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 adequate
protection of their respective interests. 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 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 the Dealer Manager of the Offering and is
entitled to selling commissions and Soliciting Dealer Warrants, some or all of
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 an independent review and 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
joint ventures with Affiliates. In addition, the Articles require a majority
of the Directors (including a majority
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<PAGE> 51
of the Independent Directors) not otherwise interested in the transaction to
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 to the Company entering into the venture. 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
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 may not be held liable to the Company or its Stockholders for monetary
damages unless: (a) it is proven 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 assets of
the Stockholders. The Company may 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
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<PAGE> 52
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 advancement; and (iii) the
indemnified party receiving these advances undertakes to repay the monies
advanced to the Company, together with interest at the applicable legal rate
thereon, if the party is found not to be entitled to indemnification.
The Company may 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 may 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. As of the date of this
Prospectus, the Company has not purchased any insurance on behalf of an
indemnified party.
Neither the amendment nor the adoption of any other provision of the
Articles or the Bylaws will apply to or affect, in any respect, the
Indemnitee's right to indemnification for actions or failures 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.
DEFENSES AVAILABLE
There are certain defenses which may be raised by the Directors,
officers or the Advisor under Maryland law and 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 complaint 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 and counsel who were selected with reasonable care.
However, the Directors, officers and the Advisor may 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.
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PRIOR PERFORMANCE OF THE COMPANY'S AFFILIATES
PRIOR INVESTMENT PROGRAMS
The Inland organization, during the past ten years, has sponsored seven
public and 16 private real estate programs which have raised in excess in
$206,800,000. In excess of 17,100 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
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, 1987 through December 31, 1996, 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.
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<TABLE>
<CAPTION>
Prior Prior
Public Private
Programs Programs
-------- --------
<S> <C> <C>
Number of programs sponsored ................................. 7 16
Aggregate amount raised from investors ....................... $181,706,000 $ 25,112,454
Aggregate number of investors ................................ 16,500 656
Number of properties purchased ............................... 87 31 (1)
Aggregate cost of properties ................................. $163,913,000 (2) $118,233,000 (3)
Percentage of properties (based on cost) that were:
Commercial
Retail ................................................... 2.5% 0.0%
Single-user retail net-lease ............................. 8.7% 27.5%
Nursing homes ............................................ 8.7% 0.0%
Offices .................................................. 0.0% 0.0%
Industrial ............................................... 0.0% 0.0%
Health clubs ............................................. 4.7% 0.0%
Mini-storage ............................................. 0.0% 0.3%
Total commercial ....................................... 24.6% 28.5%
Multi-family residential ................................... 19.0% 72.2%
Land ....................................................... 56.4% 0.3%
Percentage of properties (based on cost) that were:
Newly constructed (within a year of acquisition) ........... 8.7% 4.9%
Existing ................................................... 91.3% 95.1%
Construction ............................................... 0.0% 0.0%
Number of properties sold .................................... 12 6
23.2% (4)
Number of properties exchanged ............................... 0 6
</TABLE>
(1) Includes 14 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 $32,479,315 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, 1996, and costs capitalized subsequent to acquisition.
During the three years prior to December 31, 1996, publicly registered
investment programs sponsored by IREIC purchased a total of 17 parcels of land
totaling 2,993 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.
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<PAGE> 55
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, 1996, cash distributions have been maintained at an 8%
level and on an accrual basis have totaled $374.65 per $500 unit or $21,224,485
including $18,281,897 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, Northern Federal Savings Bank, Merit
Medical Equipment and Family Entertainment Center. These tenants took
possession of their spaces at the center from 1990 through 1996, 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 80% of the property is
currently leased. Additional expenditures for build-out and leasing commissions
are anticipated as the remaining rentable space is leased. The lease-up of
McHenry Plaza will increase the cash flow available for distribution by Monthly
Income Fund I.
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<PAGE> 56
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, 1996 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.
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 Euro-Fresh
Market Plaza (formerly Eagle Plaza), a neighborhood retail center in Illinois,
for a total acquisition cost of $21,224,542. Through December 31, 1996, cash
distributions have been maintained at or above an 8% level and on an accrual
basis have totaled $372.44 per $500 unit or $17,982,890, including $13,587,325
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.
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<PAGE> 57
On January 21, 1994, the anchor tenant at Eagle Plaza neighborhood
retail center, Eagle Foods, closed its store. On February 4, 1994 and with the
approval of IREIC, Eagle Foods assigned its lease to Certified Grocers Midwest,
Inc. ("Certified") who vacated in August 1995. During May 1996, Euro-Fresh
Market ("Euro-Fresh") began its occupancy if the anchor store and the shopping
center has been renamed Euro-Fresh Market Plaza. Under the original lease, as
well as the assignment of the lease, Eagle Foods has guaranteed payments until
November 1998.
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 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,
1996 totaled $524.07 per $1,000 unit or $4,651,898, including $1,416,185 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.
As of January 1, 1997, the partnership has listed and is actively
marketing Scottsdale Sierra Apartments for sale at an amount in excess of its
carrying value and has suspended depreciation. As of the date of this report,
the partnership has received and is currently negotiating an offer for the
purchase of Scottsdale Sierra Apartments for an amount which exceeds the
carrying value of the property.
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<PAGE> 58
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 60% financed with 40%
equity. Cash distributions to limited partners through December 31, 1996
totaled $1,139.65 per $1,000 unit or $4,526,031, including $877,260 from
operations and $3,648,771 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 $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, 1996, Land Fund I
has had multiple sales transactions involving all or portions of 13 parcels
which generated $5,875,580 in net sales proceeds. Land Fund I's cost basis in
the land parcels sold was $3,222,163 resulting in a gain, net of selling
expenses and commissions, of $2,653,417 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
appreciation on the assets sold. Cash distributions to limited partners
through December 31, 1996 totaled $4,146,404, 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,
1996, Land Fund II has had multiple sales transactions involving all or
portions of eight parcels which generated $10,805,415 in net sales proceeds.
Land Fund II's cost basis in the land parcels sold was $6,726,047 resulting in
a gain, net of selling expenses and commissions, of $4,079,368 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
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appreciation on the assets sold. Cash distributions to limited partners
through December 31, 1996 totaled $2,836,963, including $2,115,963 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 $25,945,989. 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, 1996
totaled $646,474, all from the sale of land parcels.
PRIVATE PARTNERSHIPS
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, 281 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 1996, investors in Inland's private
partnerships have received total distributions in excess of $109,807,900
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
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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. Arguments were heard by
the Appellate Court in February 1997, but a decision has not yet been reached
by the court regarding this appeal.
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, 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
September 30, 1996 totaled $4,294,216, including $1,226,419 from operations and
subsidy income of $67,797 from IREIC, pursuant to the guarantee for that
program. $3,000,000 was a return of capital resulting from a payoff by the
Affiliate. This partnership was liquidated in 1996.
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 November
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30, 1996 totaled $2,878,335 of which $861,051 was interest earnings and $17,284
was from working capital reserves. $2,000,000 was a return of capital resulting
from a payoff by the Affiliate. This partnership was liquidated in 1996.
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,
1996 totaled $463,474, of which $366,176 was interest earnings, $97,240 was a
return of capital resulting from the amortization of mortgage loans and $9,539
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 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 May 31, 1996 totaled $502,198, of which
$99,769 was interest earnings and $2,429 was subsidy income from IREIC,
pursuant to the guarantee for that program. The balance of $400,000 was a
return of capital. This partnership was 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,
1996 totaled $1,259,231, of which $1,254,921 was interest earnings and $4,310
was 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, 1996 totaled $1,197,453, of which $1,194,260 was interest earnings
and $3,193 was from working capital reserves.
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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, 1996 totaled
$1,599,110, of which $1,579,654 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 the principal amount of $1,031,000
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 December 31, 1996 totaled $281,117, all of which
were interest earnings.
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. In February 1996, 20 limited partners exercised their put option and IMIC
bought their interests. Cash distributions through January 28, 1997 have
totaled $541,156, including $131,156 from interest earnings and $410,000 return
of capital from loan repayments. All capital has been returned and the
partnership will be liquidated in 1997.
LOAN MODIFICATIONS AND WORK-OUTS
Between 1990 and December 31, 1996, 40 Inland-sponsored partnerships
owning 27 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
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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 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
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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 40 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 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 40 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 40
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. 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 obtained 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.
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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 was subsequently 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 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
attempted 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 no agreement was reached. During August 1996, IREIC initiated a
tax-deferred exchange whereby the partnership acquired 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.
In October 1996, two limited partnerships owning contiguous apartment
buildings in south suburban Chicago ceased making payments on their respective
HUD-insured first mortgage loans. The Chateaux Versailles and Granoble Limited
Partnerships, through their General Partner, are attempting to negotiate with
the lenders to modify the terms of the loans to levels commensurate with the
operating performance of the properties. To date, no agreement has been
reached.
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
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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, 1996, 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, 1996, 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 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.
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MANAGEMENT
GENERAL
The Company operates under the direction of the Board of Directors that
is responsible for the overall management and control of the Company's affairs.
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 are reviewed and approved
by the Directors (including a majority of the Independent Directors) with
sufficient frequency (but not less than annually) to ensure 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 Company's total fees and expenses in light of the
Company's investment experience and the fees and expenses of companies
performing comparable services. Each determination, along with the supporting
rationale, is set forth in the minutes of the meetings of the Board.
The Independent Directors are required to determine, from time to time,
but not less than annually, that the compensation paid by the Company to the
Advisor is reasonable in relation to the nature and quality of the services
performed and within the limits prescribed by applicable state regulatory
authorities. The Independent Directors are also required to supervise the
Advisor's performance 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 must be based on at least the factors set forth below
and other factors that the Independent Directors may deem relevant. The
findings of the Independent Directors on each such factor must be recorded in
the minutes of the Board. These 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 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 comprised of five individuals, a majority of whom are
independent (the "Independent Directors"). Election of Board members is
conducted on an annual basis. Each individual elected to the Board serves a
one-year term or until his or her successor is elected. See "Summary of
Organizational Documents."
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DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information with respect to the
Company's Directors and executive officers:
Name Age Position and Office with the Company
---- --- ------------------------------------
Robert D. Parks 53 President, Chief Executive Officer,
Chief Operating Officer and
Affiliated Director
G. Joseph Cosenza 53 Affiliated Director
Roland W. Burris 59 Independent Director
Douglas R. Finlayson, M.D. 57 Independent Director
Heidi N. Lawton 35 Independent Director
Roberta S. Matlin 52 Vice President -- Administration
Kelly Tucek 34 Secretary, Treasurer and
Chief Financial Officer
Patricia A. Challenger 44 Assistant Secretary
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 and 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 eight
persons who engage in property acquisition. Mr. Cosenza has been 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, he taught at the LaGrange School District in Hodgkins, Illinois, and from
1968 to 1972, he served as Assistant Principal and taught in the Wheeling,
Illinois School District. Mr. Cosenza 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 the American
National Bank of DuPage and has served on the Board of Directors of Continental
Bank of Oakbrook Terrace. He is presently Chairman of the Board of Westbank in
Westchester, Illinois.
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
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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 presently in private practive as a consultant
in nutritional and preventative medicine in Chicago, Illinois. 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.
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.
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KELLY TUCEK. Secretary, Treasurer and Chief Financial Officer of the
Company since August 1996. Ms. Tucek joined Inland in 1989 and is an Assistant
Vice President of IREIC. Ms. Tucek 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. Tucek was on the audit staff of
Coopers and Lybrand since 1984. She received her B.A. Degree in Accounting and
Computer Science from North Central College.
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 broker,
NASD registered securities sales representative and is a member of the Urban
Land Institute.
COMMITTEES OF THE BOARD OF DIRECTORS
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 attending (in person or by
telephone) at each meeting of the Board or committee thereof. The Directors
who are affiliated with the Advisor or its affiliates (Messrs. Parks and
Cosenza) do not receive director fees. Each Independent Director has also been
granted options to purchase 3,000 Shares at a price of $9.05 per Share under
the Company's Independent Director Stock Option Plan. In addition, each year
on the date of the annual meeting of the Company's Stockholders, each
Independent Director then in office receives an additional grant of options to
purchase 500 Shares at an exercise price of $9.05 per Share. See
"--Independent Director Stock Option Plan" in this Section.
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THE ADVISOR
The Advisor, an Illinois corporation, is a wholly owned subsidiary of
IREIC. The following table sets forth information regarding the executive
officers and directors of the Advisor. The biographies of Robert D. Parks, G.
Joseph Cosenza, Roberta S. Matlin and Patricia A. Challenger 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
Patricia A. Challenger Vice President -- Asset Management
Catherine L. Lynch Treasurer and Secretary
NORBERT J. TREONIS (age 46) 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 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.
CATHERINE L. LYNCH (age 38) joined Inland in 1989 and is the Treasurer of
Inland Real Estate Investment Corporation. Ms. Lynch is responsible for
managing the Corporate Accounting Department. Prior to joining Inland, Ms.
Lynch worked in the field of public accounting for KPMG Peat Marwick LLP since
1980. She received her B.S. Degree in Accounting from Illinois State
University. Ms. Lynch is a Certified Public Accountant and a member of the
American Institute of Certified Public Accountants and the Illinois CPA
Society. She is registered with the National Association of Securities Dealers
as a Financial Operations Principal.
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
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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 December 31, 1996, owned a $57,593,602 loan portfolio, and IMSC serviced a
loan portfolio of 385 loans exceeding approximately $430,000,000.
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
performing 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 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
renewable for successive one-year terms upon the mutual consent of the parties.
The agreement 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. If the Advisory Agreement is terminated, the Advisor is required to
cooperate with the Company and to take all reasonable steps requested by the
Board to assist it 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 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 within 60 days.
The Advisory Agreement also provides the Company with the first opportunity to
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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; and (iii) the property meets the Company's acquisition
criteria; provided that if 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, the Company will compensate the Advisor or the
Affiliate at such rates and in such amounts as agreed by the Advisor and the
Independent Directors. The Directors (including a majority of its Independent
Directors) have 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, such as an advisor, to perform management functions on
its behalf. Accordingly, should the Company 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 on terms and conditions agreed to by the
Company and the Advisor. In the event the Advisor is merged into the Company,
certain key employees of the Advisor would become employees of the Company.
If the Advisory Agreement is terminated because the Shares are listed for
trading on a national stock exchange or market system, the Advisor will no
longer be paid any fees. 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 forgone 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 will also
terminate.
The Company has agreed to indemnify the Advisor and to 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 assets of 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 is an Illinois corporation and is a wholly-owned subsidiary
of Mid-America Management Corp. ("Mid-America"), which manages
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approximately 14,600 multi-family units, including approximately 13,600
units in the Chicago metropolitan area which Mid-America believes is 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 11.8 million square feet in May
1997.
ICPM is responsible for collecting, leasing and maintaining the
commercial properties which it manages. A substantial portion of the
portfolio, approximately 7.6 million square feet,[UPDATE] consists of
properties triple-net leased to creditworthy tenants, which means the tenant
operates and maintains the property and pays rent which 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.
Name Age Position and Office with ICPM
---- --- -----------------------------
Norbert J. Treonis 46 Chairman of the Board of Directors
Robert H. Baum 53 Director
Daniel L. Goodwin 53 Director
D. Scott Carr 31 President
Kristi Wells 31 Vice President
Robert M. Barg 43 Secretary/Treasurer
ROBERT H. BAUM has been with TIGI and its affiliates since 1968 and is
one of the four original principals. Mr. Baum is a Vice Chairman and
Executive Vice President-General Counsel of TIGI. In his capacity as General
Counsel, Mr. Baum is responsible for supervising the legal activities of TIGI
and its affiliates, including supervising the Inland Law Department and serving
as liaison with outside counsel. Mr. Baum has served as a member of the North
American Securities Administrators Association Real Estate Advisory Committee
and as a member of the Securities Advisory Committee to the Secretary of State
of Illinois. He is a member of the American Corporation Counsel Association
and has also been a guest lecturer for the Illinois State Bar Association. Mr.
Baum has been admitted to practice before the Supreme Court of the United
States, as well as the bars of several federal courts of appeals and federal
district courts and the State of Illinois. Mr. Baum has served as a director
of American National Bank of DuPage. Currently, he serves as a director of
Westbank and is a member of the Governing Council of Wellness House, a
charitable organization that provides emotional support for cancer patients and
their families.
DANIEL L. GOODWIN is Chairman of the Board of Directors of The Inland
Group, Inc., a billion-dollar real estate and financial organization located
in Oak Brook, Illinois. Among Inland'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 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.
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HOUSING
Mr. Goodwin has been in the housing industry for more than 28 years and
has demonstrated a lifelong interest in housing-related issues. He is a
licensed real estate broker and a member of the National Association of
Realtors. He has developed thousands of housing units in the Midwest, New
England, Florida and the Southwest. He is also the author of a nationally
recognized real estate reference book for managing residential properties.
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. Recently,
Governor Edgar appointed him Chairman of the Housing Production Committee for
the Illinois State Affordable Housing Conference. He 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 heeds. The City of Hope designated him as the
Man of the Year for the Illinois construction industry. In 1989, the Chicago
Metropolitan Coalition on Aging presented 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 The Inland Group as the leading corporate
provider of transitional housing for the homeless people of DuPage County. Mr.
Goodwin also serves as Chairman of New Directions Housing Corporation, a
leading provider of affordable housing in northern Illinois.
EDUCATION
Mr. Goodwin is a product of Chicago-area schools and obtained his
Bachelor's and Masters's Degrees from Illinois Universities. Following
graduation, he taught for five years in the Chicago Public Schools. His
commitment to education has continued through his work with the Better Boys
Foundation's Pilot Elementary School in Chicago and the development of the
Inland Vocational Training Center for the Handicapped located at Little City in
Palatine, Illinois. He personally established an endowment which funds a
perpetual scholarship program for inner-city disadvantaged youth. 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. More than 12 years ago, under Mr.
Goodwin's direction, Inland instituted a program to educate disabled students
about the workplace. Most of those original students are still employed at
Inland today, and Inland continues as one of the largest employers of the
disabled in DuPage County. Mr. Goodwin has served as a member of the Board of
Governors of Illinois State Colleges and Universities, and he is currently a
trustee of Benedictine University. He was elected Chairman of the Northeastern
Illinois University Board of Trustees in January 1996.
ACKNOWLEDGMENTS
Mr. Goodwin served as a member of Governor Jim Edgar's Transition Team.
In 1988, he received the Outstanding Business Leader Award from the Oak
Brook Jaycees and has been the General Chairman of the National Football League
Players Association Mackey Awards for the benefit of inner-city youth. He
served as the recent Chairman of the Speakers Club of the Illinois House of
Representatives. In March 1994, he won the Excellence in Business Award for
the DuPage Area Association of Business and Industry. Additionally, he was
honored by Little Friends on May 17, 1995 for rescuing their Parent-Handicapped
Infant
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Program when they lost their lease. He was the recipient of the 1995 March of
Dimes Life Achievement Award and was recently recognized as the 1997 Corporate
Leader of the Year by the Oak Brook Area Association of Commerce and Industry.
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, 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
management fees. However, under no circumstances will such compensation exceed
90% of that which would 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 has an Independent Director Stock Option Plan (the
"Independent Director Stock Option Plan") under which non-employee Directors
who are "disinterested persons" as defined under Rule 16b-3 of the Exchange Act
are eligible to participate.
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 will be made in the number and kind of shares that may be issued
pursuant to options. A corresponding adjustment to the exercise price of the
options granted prior to any change will also be made. Any such adjustment,
however, will 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 exercise price for each share.
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Under the Independent Director Stock Option Plan, the Independent
Director has been granted non-qualified stock options to purchase 11,500 Shares
at an exercise price of $9.05 per Share. In addition, each Independent
Director who is in office on the date of each annual meeting of stockholders
will receive an option to purchase an additional 500 Shares.
The purchase price of Common Stock (the "Option Price") under each option
granted to Independent Directors to date is equal to the price at which Shares
are issued under the DRP. The Option Price for subsequent options will be
equal to the fair market value of the Common Stock on the last business day
preceding the annual meeting.
Options granted under the Independent Director Stock Option Plan are
generally exercisable on the second anniversary of the date of grant. To
date, options to purchase 3,500 Shares have vested in Roland W. Burris and
options to purchase 4,000 Shares have vested in each of Douglas Finlayson and
Heidi Lawton. Options granted under the Independent Director Stock Option
Plan are 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 will terminate, and any outstanding
options will 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 exercise 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 will continue in the
manner and under the terms so provided; or (iii) for the payment in cash or
Shares in lieu of and in complete satisfaction of such options.
(Remainder of page intentionally left blank)
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SELECTED FINANCIAL DATA
The following table sets forth selected financial information derived from
the financial statements of the Company. Balance sheet data at December 31,
1996, 1995 and 1994 and income statement data for the years ended December 31,
1996, 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>
Year ended December 31,
-----------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Total assets. . . . . . . . . . . . $104,508,686 18,750,877 2,402,373
Mortgages payable . . . . . . . . . 30,838,233 750,727 -
Total income. . . . . . . . . . . . 6,327,734 1,180,422 -
Net income. . . . . . . . . . . . . 2,452,221 496,514 -
Net income per share (b) . . . . . .55 .53 -
Distributions declared. . . . . . . 3,704,943 736,627 -
Distributions per share (b) . . . . .82 .78 -
Funds from Operations (b)(c). . . . 3,391,365 666,408 -
Funds available for
distribution (c) . . . . . . . 3,709,818 787,011 -
Cash flows from operating
activities . . . . . . . . . . 5,529,709 978,350 -
Cash flows from investing
activities . . . . . . . . . . (68,976,841) (6,577,843) (1,703,498)
Cash flows from financing
activities . . . . . . . . . . 71,199,936 6,327,490 1,714,432
Weighted average number of common
shares outstanding . . . . . . 4,494,620 943,156 20,000
</TABLE>
(1) The above selected financial data should be read in conjunction
with the financial statements and related notes appearing elsewhere in
this Annual Report.
(2) The net income and distributions per share are based upon the
weighted average number of common shares outstanding. The $.82 per
share Distribution for the year ended December 31, 1996, represented
109.3% of the Company's Funds From Operations ("FFO") and 99.9% of funds
available for distribution for that period. 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
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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. For 1996, $611,418 (or 16.50% of the $3,704,943
Distribution paid for 1996 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
was approximately $2,938,800 (or 79.32% of the Distribution paid).
Taxable income does not include net capital gains. Under certain
circumstances, the Company may be required to make Distributions in excess
of cash available for distribution in order to meet the REIT distribution
requirements. Distributions are determined by the Company's Board of
Directors and are dependent on a number of factors, including the amount
of funds available for distribution, the Company's financial condition,
any decision by the Board of Directors to reinvest funds rather than to
distribute the funds, the Company's capital expenditures, the annual
distribution required to maintain REIT status under the Code and other
factors the Board of Directors may deem relevant.
(3) "FFO" means net income (computed in accordance with generally
accepted accounting principles), excluding gains (or losses) from debt
restructuring and sales of property, plus depreciation and amortization
and other non-cash items. FFO and funds available for distribution are
calculated as follows:
1996 1995
---- ----
Net income . . . . . . . . . . . . . $ 2,452,221 496,514
Depreciation . . . . . . . . . . . . 939,144 169,894
----------- -------
Funds from operations(1) . . . . 3,391,365 666,408
Deferred rent receivable (2) . . . . (119,225) (12,413)
Rental income received under
master lease agreements (3). . . 437,678 133,016
----------- -------
Funds available for
distribution . . . . . . . . . . $ 3,709,818 787,011
=========== =======
(a) FFO does not represent cash generated from operating activities
calculated 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.
(b) 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
$119,225 and $12,413 in 1996 and 1995, of rental income for the period of
occupancy for which stepped rent increases apply and $131,638 and $12,413
in related accounts receivable as of December 31, 1996 and 1995,
respectively. The Company anticipates collecting these amounts over the
terms of the related leases as scheduled rent payments are made.
(c) As part of several 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. The Company has recorded $437,678
and $133,016 of such payments as of December 31, 1996 and 1995,
respectively.
INVESTMENT OBJECTIVES AND POLICIES
1. General. The Company's investment objectives are to: (i) make
regular Distributions to the Stockholders, which may be 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; (ii) provide a
hedge against inflation by entering into leases which contain clauses for
scheduled rent escalations or participation in the growth of tenant sales,
permitting the Company to increase Distributions and realize capital
appreciation; and (iii) preserve Stockholders' capital.
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<PAGE> 80
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
8.5% per annum on weighted average Shares. The Company's ability to pay
Distributions and the size of these 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 and December 31, 1996
totalled $736,627 and $3,704,943, respectively, of which $42,414 and $611,418,
respectively constituted a return of capital for federal income tax purposes.
In addition, Distributions declared for the three months ended March 31, 1997
totalled $1,941,539, a portion of which may be a return of capital.
To the extent possible, the Company seeks 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 is dependent upon the Company's Cash Flow and
applicable REIT rules. There can be no assurance that there will be Cash Flow
available to pay Distributions, or that Distribution amounts 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. As a matter of
policy, the Company, subject to applicable REIT rules, seeks 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. The Company intends, whenever
possible, to acquire properties free and clear of permanent mortgage
indebtedness by paying the entire purchase price in cash or for shares of the
Company's stock. The Company has in the past incurred, and may in the future
incur, indebtedness to acquire properties where the Board determines that
incurring such indebtedness is in the Company's best interest. The Company
utilized financing to acquire 15 of its 27 properties. In addition, from time
to time, the Company has acquired properties on an all-cash basis and later
incurred mortgage indebtedness secured by the property if favorable financing
terms are available. The Company intends to continue this strategy. The
proceeds from such loans are used to acquire additional properties. Certain of
these properties may be subject to "net" leases. "Net" leases typically
require tenants to 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 are long-term (typically 15 to 25 years, but generally not
less than ten years) and require the lessee to pay a base minimum annual rent
with periodic increases. For purposes hereof, a creditworthy tenant is
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 purchases 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
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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 evaluating a property for acquisition, the Advisor
requires the seller to provide a current 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 by the Company. All acquisitions from
Affiliates must be approved 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 acquisition or financing by 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 the Advisor or its
Affiliates have held in excess of twelve months prior to commencement of this
Offering, except as specified herein.
4. Acquisition Standards. Through its experience gained through the
acquisition of approximately 750 properties by Company's Affiliates, the
Advisor believes the Company has the ability to identify quality properties
capable of meeting the investment objectives. In evaluating potential
acquisitions, the Company considers a number of factors, including a
property's: (i) geographic location and type; (ii) construction quality and
condition; (iii) current and projected cash flow; (iv) potential for capital
appreciation; (v) rent roll, including the potential for rent increases; (vi)
potential for economic growth in the tax and regulatory environment of the
community in which the property is located; (vii) potential for expanding the
physical layout of the property and/or the number of sites; (viii) occupancy
and demand by tenants for properties of a similar type in the same geographic
vicinity; (ix) prospects for liquidity through sale, financing or refinancing
of the property; (x) competition from existing properties and the potential for
the construction of new properties in the area; and (xi) treatment under
applicable federal, state and local tax and other laws and regulations.
Statistics in this section are excerpted from Woods & Poole
Economics, Inc., 1997 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 1992 "constant" dollars.
In 1994, Chicago had the third largest population among 315
metropolitan areas in the nation with more than 7.6 million people. The
Chicago metropolitan area is one of the nation's largest metropolitan areas and
retail market. While the rate of growth of this market from 1994 through 2020
is forecast to trail that of the nation as a whole, in absolute numbers Chicago
will likely still be a leader in increases in population, jobs, per capita
income and retail sales. Population is forecast to increase 0.32% per year in
the Chicago metropolitan area, compared to 1.02% for the nation as a whole; for
jobs, the forecasted annual increase is 0.93% for Chicago, compared to 1.05%
for the nation; for retail sales, the total forecasted increase from 1994 to
2020 is 33% for Chicago and 49% for the nation.
Woods & Poole Economics, Inc. projects that from 1994 through 2020,
the Chicago metropolitan area will add 867,850 persons, the 17th largest
increase among the nation's 315 metropolitan areas, with Chicago retaining its
current place as third largest metropolitan area in the nation.
For the same period, Woods & Poole projects that the Chicago area
will: (i) see a 43% rise in per capita income, improving the area's
ranking from 21st to 14th among the nation's 315 metropolitan areas; (ii) lead
the nation in the number of new jobs, with 1,225,860; and (iii) see a rise in
annual retail sales
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from $64.4 billion to $85.6 billion, the fourth largest increase among any
metropolitan area in the nation and will at that time be the largest retail
market in the nation.
5. Description of Leases. The Company anticipates that 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. The Company intends to include 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 in most of its leases. The leases with
most Anchor Tenants generally have initial terms of ten to twenty-five years,
with one or more renewal options available to the lessee. By contrast, smaller
tenant leases typically have three- to five-year terms.
During the initial term of a "net" lease, which generally covers
fifteen to twenty-five years (typically not less than ten years), the tenant is
required to 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 is required to pay its share of the cost of
the liability insurance covering the properties owned by the Company. The
third-party liability coverage insures, among others, the Company and the
Advisor. Each tenant is required to obtain, at its own expense, 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 must remain liable under the lease unless the assignee meets
certain income and net worth tests.
6. Property Acquisition. The Company has acquired to date, and in the
future anticipates acquiring, 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 25
Neighborhood Retail Centers and two single-user retail properties. A total of
two properties, the Eagle Crest Shopping Center and the Walgreen/Decatur
property, were acquired from an Affiliate. The prices paid for each of these
properties were not the subject of arm's-length negotiations. Under the
Articles, the Company is prohibited from purchasing 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. For example, the Company anticipates entering into
letter agreements to purchase two Neighborhood Retail Centers which will be
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redeveloped. See "Potential Property Acquisition - Oak Forest Commons, Oak
Park, Illinois -- Downers Grove Plaza, Downers Grove, Illinois" below. 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 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, 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.
7. Borrowing. The Company intends, 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, incur indebtedness to acquire
properties. With respect to 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. The Company
may also incur indebtedness to finance improvements to its properties. The
Company anticipates that aggregate borrowings secured by all of the Company's
properties will not exceed 50% of their combined fair market value; however,
the maximum amount of borrowings as a percentage of Net Assets will, in the
absence of the consent of a majority of the Stockholders, not exceed 300% of
Net Assets.
If the Company does incur indebtedness secured by its properties, it
intends to do so only on a non-recourse basis, which means that a lender's
rights on default will generally be limited to foreclosing 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. The Company also seeks 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 Board will determine whether
a particular property should be sold or otherwise disposed of after considering
the 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, the Company holds its properties prior to sale, for a
minimum of four years. See "Federal Income Tax Considerations--Taxation of the
Company--Prohibited Transactions." Furthermore, the Company generally reinvests
proceeds from the sale, financing, refinancing or other disposition of its
properties into additional properties or uses these proceeds to fund
maintenance or repair of existing properties or to increase reserves for such
purposes. The objective of reinvesting the sale, financing and
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refinancing proceeds in new properties is to increase the real estate assets
owned by the Company, and the Company's net income which the Board believes
will enhance the Company's chances of listing the Company's Shares on a
national securities exchange or market. 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 whether to distribute these proceeds 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 including the Shares for quotation on a national market system and
compliance with REIT regulations. Because the Company may reinvest 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." To date,
the Company has reinvested all sale or refinancing proceeds.
In selling a property, the Company generally seeks to obtain an
all-cash sale price. However, a purchase money obligation secured by a
mortgage on the property may be taken as partial 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 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. To date the Company has not sold any properties.
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. Appraisals are, however, 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 each
appraisal 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 investment within the later of: (i) twenty-four
months from the original effective date of this Prospectus; or (ii) twelve
months
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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 receipt until
expiration of the period discussed above and may be used to fund expenses
incurred to 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 calendar year 1999, the Board of Directors will determine whether it
is in the best interests of the Company to 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. The Company believes that an exchange listing may 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.
14. Joint Ventures. The Company is 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 is 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 has 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 is 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.
Investors should consider the potential risk of the Company and its
joint venture partner being 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 the
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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<PAGE> 86
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. These
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 twenty-five Neighborhood Retail Centers
and two single-user retail properties. In each case, the Company received an
appraisal of fair market value prior to acquiring the particular property.
Appraisals are, however, estimates of value and should not be relied on as a
measure of true worth or realizable value. The terms of the leases at each
property 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. These 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 Directors, including the Independent Directors, approved these
acquisitions as being fair and reasonable to the Company.
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
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<PAGE> 87
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.
The following table describes the formulation of the purchase price
paid by the Company:
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
==========
As of April 15, 1997, the balance of the assumed mortgage was
approximately $736,000. 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. 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 1996 were $26,851.
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 $84,340;
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.
Annual Rents
Year Ending Occupancy Received
December 31, Rate Per Sq. Ft.
------------ --------- ------------
1996 100% $9.47
1995 100 9.47
1994 100 9.47
1993 100 9.47
1992 100 9.47
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.
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<PAGE> 88
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 $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 determined, 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.
Eagle Crest aggregates 67,650 square feet of GLA and as of April 15, 1997
was 97% 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 $457,813, 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 $6.68
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 $50,761 and $23,048, respectively,
for 1996.
The following table describes the formulation of the purchase price
paid by the Company:
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 . . . . . . . . . . . . . . . . . . . . . . . 1,059
----------
Total Purchase Price. . . . . . . . . . . . . . . . . . . . . . $4,816,970
==========
* Amount of principal and accrued interest due as of July 1, 1994.
Interest accrued at the rate of $1,970 per month and this amount was
adjusted at the time of purchase by the Company.
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<PAGE> 89
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 and $17,340 was interest. The deferred portion
of the purchase price, totaling $1,212,427, was paid to IPS in full, including
accrued interest of $22,009, in May 1995. The interest was paid from Company
operations. For federal income tax purposes, the Company's basis in Eagle
Crest is $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 paid in 1996 for the tax year ended 1995 (the most recent tax
year for which information is available) totaled $75,979.
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 provided by IPS is unaudited.
<TABLE>
<CAPTION>
Annual
Year Ending Rents
December Occupancy Received
31, Rate Per Sq. Ft.
------------- -------------- -----------
<S> <C> <C>
1996 100% $8.84
1995 100 8.70
1994 100 8.16
1993 100 6.06
1992 100 6.11
</TABLE>
At April 15, 1997, Eagle Crest had a total of twelve 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>
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>
1997 3 3,510 57,758 579,495 16.46 5.19% 9.97%
1998 4 9,525 130,745 524,077 13.73 14.08 24.95
1999 2 5,533 59,078 392,445 10.68 8.18 15.02
2000 1 888 18,633 334,257 20.98 1.00 5.57
2001 1 18 7,536 315,624 418.66 - 2.00
2002-2006 - - - 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.
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<PAGE> 90
<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 18,633 20.98
Dental Office 900 7/1997 None 17,158 19.06
Pot Pourri Gifts 4,028 1/1999 1/5 years 42,294 10.50
La Cantina Lounge 2,000 12/1998 1/5 years 31,900 15.95
Pepe's Restaurant 2,000 12/1998 1/5 years 31,900 15.95
Prudential Real Estate 4,250 2/1998 None 44,625 10.50
The Grill 1,275 11/1998 1/5 years 19,125 15.00
Clothes Clean Center 1,700 6/1997 None 23,800 14.00
Hair Inc. 1,505 4/1999 3/3 years 16,780 11.15
Coffee Grinder (outlet) 18 6/2001 None 6,720 373.33
Vacant 2,080 -- -- -- --
</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.
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 $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 one of the Prior Offerings.
The promissory note was paid in full in October 1995. The total amount paid
was $604,260, of which $600,000 was principal and $4,260 was interest. For
federal income tax purposes, the Company's basis in the Montgomery-Goodyear
building is $827,390. Real estate taxes and insurance for the
Montgomery-Goodyear property paid in 1996 were $28,859.
Montgomery-Goodyear, built in 1991, aggregates 12,863 square feet of gross
leasable area ("GLA") and as of April 15, 1997 was 77% occupied. Its major
tenant is Goodyear Tire & Rubber Co. which leases 6,293 square feet and is
considered creditworthy by the Company. The other tenant is Merlin
Corporation, which leases approximately 28% 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
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<PAGE> 91
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>
1996 100% $11.39
1995 100 11.39
1994 100 11.39
1993 100 11.39
1992 100 11.39
</TABLE>
At April 15, 1997, Montgomery-Goodyear had a total of two 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>
1997-2000 -- -- -- 115,080 -- -- --
2001 -- -- -- 116,280 -- -- --
2002-2005 -- -- -- 121,428 -- -- --
2006 1 6,293 64,800 121,428 $10.30 48.7% 53.3%
</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 3,600 2/2007 3/5 years 51,480 14.30
Vacant 3,010 -- -- -- --
</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.
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 $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
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<PAGE> 92
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 one of the
Prior Offerings. The promissory note was paid in full in October 1995. The
total amount paid was $605,102, of which $600,000 was principal and $5,102 was
interest. For federal income tax purposes, the Company's basis in
Hartford/Naperville is $3,325,211. Real estate taxes for Hartford/Naperville
paid in 1996 for the tax year ended 1995 were $25,330.
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.
As of April 15, 1997 Hartford/Naperville was 94% leased and was
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 $14.76 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 $14.76 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.
The table below sets forth certain information with respect to the
occupancy rate at Hartford/ Naperville 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 Hartford/ Naperville to the Company.
<TABLE>
<CAPTION>
Annual Rents
Year Ending Occupancy Received
December 31, Rate Per Square Foot
---------------- ---------------- ---------------
<S> <C> <C>
1996 100% $11.60
</TABLE>
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<PAGE> 93
At April 15, 1997, Hartford/Naperville had a total of seven 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>
1997-1999 -- -- -- $ 548,170 -- -- --
2000 3 9,010 $137,758 563,425 $15.29 20.54% 24.45%
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%
2006 -- -- -- -- -- -- --
</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 90,900 14.76
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
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
Vacant 2,600 -- -- -- --
</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 of
$4,680,000.
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 one of the Prior Offerings. 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 and $62,011 was interest. 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
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<PAGE> 94
estate taxes for the shopping mall and the Burger King restaurant outlot were
$233,628 and $44,100, respectively, for 1996. Subsequent to the purchase of
the property, the Company paid $51,135 for tenant improvements, for two tenants
expanding their space, the expense of which was added to the Company's basis in
the property. For federal income tax purposes, the Company's basis in the
Nantucket Square building is $2,372,160.
As of April 15, 1997 Nantucket Square was 94% leased and had 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 The Dental Store
requires a base rent of $9.00 per square foot per annum until September 30,
1999, $11.00 per square foot per annum payable monthly from October 1, 1999
until September 30, 2000, $11.50 per square foot per annum payable monthly from
October 1, 2000 until September 30, 2001, $12.00 per square foot per annum
payable monthly from October 1, 2001 until September 30, 2002, $12.50 per
square foot per annum payable monthly from October 1, 2002 until September 30,
2003, $12.75 per square foot per annum payable monthly from October 1, 2003
until September 30, 2004, $13.00 per square foot per annum payable monthly from
October 1, 2004 until September 30, 2005 and $13.25 per square foot per annum
payable monthly from October 1, 2005 until September 20, 2006. A 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, 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>
1996 85% $8.76
1995 81 8.54
1994 83 8.44
</TABLE>
84
<PAGE> 95
At April 15, 1997, Nantucket Square had a total of eighteen 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>
1997 -- -- -- $560,955 -- -- --
1998 6 9,228 $99,690 574,082 $10.80 16.20% 17.37%
1999 2 2,100 24,720 499,153 11.77 3.69 4.95
2000 5 17,218 203,753 478,087 11.83 30.22 42.62
2001 1 2,403 27,000 278,708 11.24 4.22 9.69
2002 2 4,461 86,500 255,422 19.39 7.83 33.87
2003 1 11,743 88,072 167,479 7.50 20.61 52.59
2004 -- -- -- 80,964 -- -- --
2005 -- -- -- 82,521 -- -- --
2006 1 6,228 82,521 82,521 13.25 10.93 100.00
</TABLE>
<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 $ 18,690 $ 15.00
Baskin-Robbins Ice Cream 900 11/2000 None 15,300 17.00
Express Services 1,050 2/1998 1/3 years 11,550 11.00
Travel Agency 1,050 7/1999 None 11,550 11.00
Imperial Cleaners 1,200 12/2002 1/10 years 18,900 15.75
Proof Positive Photo 1,200 4/1998 1/3 years 15,528 12.94
Nancy's Pizza 1,200 8/1998 2/5 years 12,600 10.50
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 31,350 9.50
Great Clips 1,428 9/1998 1/5 years 14,994 10.50
Radio Shack 2,403 2/2001 None 25,200 10.49
Once Upon A Child 2,703 7/2000 1/5 years 26,354 9.75
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
Nail Salon 1,050 12/1998 None 12,600 12.00
The Dental Store 6,228 9/2006 None 56,052 9.00
Premium Tobacco 1,050 12/1999 None 11,550 11.00
Vacant 3,600 -- -- -- --
</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 Nantucket Square as of September
14, 1995 in the range of $4,400,000 to $4,600,000.
85
<PAGE> 96
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 $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 aggregate principal 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 one of
the Prior Offerings. The loan to IREIC was repaid in full on January 9, 1996
including $1,163 in interest. 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. For
federal income tax purposes, the Company's basis in Antioch Plaza is
$1,480,648.
As of April 15, 1997 Antioch Plaza was 57% leased (100% leased when
including the master lease) and was anchored by Blockbuster Video. Currently
8,445 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.
The table below sets forth certain information with respect to the
occupancy rate at Antioch Plaza 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 Antioch Plaza to the Company.
<TABLE>
<CAPTION>
Annual Rents
Year Ending Occupancy Received
December 31, Rate Per Square Foot
------------ ---------------- ---------------
<S> <C> <C>
1996 57% $11.48
</TABLE>
86
<PAGE> 97
At April 15, 1997, Antioch Plaza had a total of four 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>
1997 1 10,160 $121,530 224,330 $11.96 51.29% 54.17%
1998 -- -- -- 102,800 -- -- --
1999 2 3,150 37,800 102,800 12.00 15.99 36.77
2000-2004 -- -- -- 71,500 -- -- --
2005 1 6,500 71,500 71,500 11.00 32.99 100.00
2006 -- -- -- -- -- -- --
</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 yr. $ 65,000 $ 10.00
Antioch Floral 1,650 12/1999 1/3 yr. 19,800 12.00
One Hour Cleaners 1,500 12/1999 1/3 yr. 18,000 12.00
Premium Tobacco 1,715 12/1997 None 20,190 11.77
Vacant* 8,445 6/1997 None 101,340 12.00
</TABLE>
- ---------------
* The vacancies currently total 8,445 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.
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 $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
87
<PAGE> 98
Life with 47,000 square feet. Sears Home Life is a nationally recognized home
furnishings chain and is considered creditworthy by the Company.
As of April 15, 1997 Mundelein Plaza was 97% 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 $8.72 per square foot
per annum until 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. 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 is
approximately $3,965,000. 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 1996 for the
tax year ended 1995 (the most recent tax year for which information is
available) were $93,384.
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>
1996 100% $9.68
1995 100 9.41
1994 97 9.22
1993 97 9.03
1992 97 8.93
</TABLE>
88
<PAGE> 99
At April 15, 1997, 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:
<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>
1997 3 10,728 144,678 723,646 13.49 15.80 19.99
1998 -- -- -- 593,228 -- -- --
1999 1 1,620 28,717 645,910 17.73 2.39 4.45
2000 3 51,620 524,396 583,676 10.16 76.03 89.84
2001-2004 -- -- -- 59,280 -- -- --
2005-2006 -- -- -- 63,364 -- -- --
</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 38,186 15.52
Cartel, Inc. 1,620 12/1998 None 27,068 16.71
C M C Music, Inc. 5,535 06/1997 1/5 yr. 66,420 12.00
Esterquest (Pet store) 3,100 12/1997 None 47,058 15.18
Sears Roebuck & Co.
(Sears Home Life) 47,000 10/2000 2/5 yr. 375,686 7.99
Tile World, Ltd. (1) (2) 2,093 Month to None 31,200 14.90
Month
Minnesota Fats 2,000 08/2000 3/5 yr. 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.
89
<PAGE> 100
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 $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 one of
the Prior Offerings. For federal income tax purposes, the Company's basis in
the Regency Point building is approximately $4,700,000. Property taxes paid in
1996 for the tax year ended 1995 (the most recent tax year for which
information is available) were $16,513. 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.
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.
As of April 15, 1997 Regency Point was 100% leased and was anchored by
Walgreens and Ace Hardware. 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 four 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>
1996 97% $10.33
1995(1) 93 9.83
1994 100 10.09
1993(2) 36 3.57
</TABLE>
(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.
90
<PAGE> 101
At April 15, 1997, Regency Point had a total of nineteen 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>
1997 2 3,390 $41,262 $630,936 $12.17 6.18% 6.54%
1998 3 3,575 56,099 586,502 15.69 6.51 9.57
1999 4 5,005 70,492 535,788 14.08 9.12 13.16
2000 1 985 15,244 466,404 15.48 1.79 3.27
2001 2 6,555 87,123 433,271 13.29 11.95 20.11
2002 1 1,040 16,948 366,920 16.30 1.90 4.62
2003 1 1,398 19,572 353,849 14.00 2.55 5.53
2004 1 2,503 31,913 339,643 12.75 4.56 9.40
2005 -- -- -- 307,730 -- -- --
2006 2 1,950 41,966 307,730 21.52 3.55 13.64
</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 6/5 yr. $142,740 $10.98
Cellular Center 1,820 8/1999 1/5 yr. 24,570 13.50
Body Basters 1,600 6/1997 1/3 yr. 23,362 14.60
Personal Finance 985 1/2000 1/5 yr. 14,368 14.59
J.C. Flick 5,265 11/1998 1/3 yr & 1/2 yr. 66,161 12.57
Ace Hardware 15,505 10/2008 1/5 yr. 116,280 7.49
Vet 1,300 10/1998 1/5 yr. 19,563 15.05
Subway 1,105 12/1998 1/5 yr. 17,268 15.63
Cost Cutters 975 12/1998 1/5 yr. 13,850 14.21
Little Ceasars 1,040 1/1999 2/5 yr. 13,520 13.00
Just $1 1,040 1/1999 1/5 yr. 14,560 14.00
Optometrist 1,040 4/2002 None 14,619 14.06
Brown's Chicken 1,398 12/2003 1/5 yr. 18,174 13.00
Cleaners 1,300 12/1998 1/5 yr. 20,473 15.75
U.S. Post Office 2,503 3/2004 2/5 yr. 30,036 12.00
Currency Exchange 550 1/2006 1/10 yr. 12,000 21.81
St. Joseph Medical 1,790 1/2002 None 26,850 15.00
Douglas Steen 1,290 4/2001 None 17,719 13.74
Dunkin Donuts 1,400 1/2006 2/5 yr. 21,700 15.49
</TABLE>
91
<PAGE> 102
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.
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>
<CAPTION>
Year Ending Occupancy Annual Rents Received
December 31, Rate Per Square Foot
------------ --------- ---------------------
<S> <C> <C>
1996 100% $ 7.45
1995 78 5.85
1994 100 7.53
1993 100 7.53
1992 100 7.53
</TABLE>
As of April 15, 1997, Prospect Heights was 83% leased. 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 common area
maintenance, real estate taxes and insurance. In 1996, no net percentage rent
was received. 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. 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.
For federal income tax purposes, the Company's depreciable basis in
the Prospect Heights buildings is 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 1996 for the tax year ended 1995 (the most recent tax
year for which information is available) were $121,822.
92
<PAGE> 103
At April 15, 1997, Prospect Heights had four 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 yr. 75,000 12.00
Power Motion 2,550 07/1998 1/3 yr. 28,800 11.29
Dr. W. Beck 2,000 12/1997 1/5 yr. 22,000 11.00
Vacant 4,680 -- -- -- --
</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>
1997 1 2,000 $ 22,000 $199,450 $11.00 7.12% 11.03%
1998 1 2,550 30,000 177,450 11.76 9.08 16.91
1999 1 6,250 75,000 147,450 12.00 22.26 50.86
2000-2005 -- -- -- 72,450 -- -- --
2006 -- -- -- 75,600 -- -- --
</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.
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>
1996 85% $9.13
1995 95 9.47
1994 95 10.48
1993 95 9.84
1992 95 9.50
</TABLE>
93
<PAGE> 104
As of April 15, 1997, 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 $11.44 per square foot
per annum until 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 is
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 is 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 paid in 1996 for the tax year ended 1995 (the most recent tax
year for which information is available) are $65,310.
At April 15, 1997, Montgomery-Sears had four 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 yr. $228,800 $11.44
Blockbuster 7,000 08/2000 1/5 yr. 92,400 13.20
Radio Shack 2,500 09/2000 1/5 yr. 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.
94
<PAGE> 105
<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>
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%
2001-2006 -- -- -- -- -- -- --
</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.
THE ZANY BRAINY STORE
On July 1, 1996, the Company acquired 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 facility aggregates 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 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 is 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 paid in 1996 for the tax year ended 1995 (the most recent tax year for
which information is available) are $1,292.
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 yr. $274,978 $22.00
</TABLE>
95
<PAGE> 106
<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>
1997-1999 -- -- -- $ 274,978 -- -- --
2000 -- -- -- 289,560(2) -- -- --
2001-2004 -- -- -- 299,976 -- -- --
2005 1 12,499 $299,976 299,976 $ 24.00 100% 100%
2006 -- -- -- -- -- -- --
</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.
SALEM SQUARE SHOPPING CENTER, COUNTRYSIDE, ILLINOIS
On August 2, 1996, the Company acquired a Neighborhood Retail Center
located at the intersection of Plainfield Road and Brainard Avenue in
Countryside, Illinois known as 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 $80,000 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.
96
<PAGE> 107
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.
<TABLE>
<CAPTION>
Occupancy Rate as of
Year Ending December 31 of Effective Annual Rental
December 31, each year Per Square Foot
------------ --------- ---------------
<S> <C> <C>
1996 97% $6.04
1995 100 6.40
1994 100 6.09
1993 100 6.09
1992 100 5.95
</TABLE>
As of April 15, 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 1996, 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 1996, 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 is 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 paid in 1996 for the tax year ended 1995 (the most recent tax
year for which information is available) were
97
<PAGE> 108
$270,730. 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%.
At April 15, 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>
<CAPTION>
Square Foot Renewal Current Annual Percentage Rent per
Lessee Leased Lease Ends Options Rent Rent Square Foot
------ ------- ---------- ------- ---- ---- -----------
<S> <C> <C> <C> <C> <C> <C>
Trak Auto 6,000 01/2000 1/5 yr. $ 66,000 none $ 11.00
Famous Footwear 5,500 08/1999 None 59,510 none 10.82
Dress Barn 3,706 06/1998 1/5 yr. 50,031 none 13.50
Marshalls 29,827 01/2002 2/4 yr. 141,678 none 4.75
T.J. Maxx 63,535 11/2004 3/5 yr. 365,326 none 5.75
</TABLE>
<TABLE>
<CAPTION>
Average Percent of Percent of
Base Rent Total Annual Base
Approx. GLA Annual Base Per Square Building GLA Rent
Number of of Expiring Rent of Foot Under Represented Represented
Year Ending Leases Leases 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>
1997 none none none $682,542 none none none
1998 1 3,706 $50,028 682,542 $13.50 3.33% 7.33%
1999 1 5,500 59,510 632,514 10.82 4.90 9.41
2000 1 6,000 66,000 573,004 11.00 5.34 11.52
2001 none none none 507,004 none none none
2002 1 29,827 141,678 507,004 4.75 26.56 27.94
2003 none none none 365,326 none none none
2004 1 63,535 365,326 365,326 5.75 56.57 100.00
2005-2006 none none none none 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 Salem Square property, as
of July 15, 1996, of $6,260,000.
HAWTHORN VILLAGE COMMONS, VERNON HILLS, ILLINOIS
On August 15, 1996, the Company acquired a Neighborhood Retail Center
located at the northeast corner of Town Line Road and Lakeview Parkway in
Vernon Hills, Illinois known as 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
98
<PAGE> 109
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 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>
<CAPTION>
Occupancy Rate as of
Year Ending December 31 of each Effective Annual Rental
December 31, each year Per Square Foot
------------ --------- ---------------
<S> <C> <C>
1996 98% $8.73
1995 100 9.10
1994 100 8.96
1993 98 8.49
1992 98 7.97
</TABLE>
As of April 15, 1997, Hawthorn Village was 98% 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.
99
<PAGE> 110
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 $228,641); minus (ii) 50% of real estate taxes
and common area maintenance expenses allocated to the leased property. In
1996, net percentage rent was $22,000.
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 1996, net
percentage rent was $9,924.
For federal income tax purposes, the Company's depreciable basis in
Hawthorn Village is 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 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%.
100
<PAGE> 111
At April 15, 1997, a total of 95,835 square feet was leased to
twenty-one 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 08/1997 none 28,962 18.00
One Hour Photo 668 06/1998 1/5 yr. 12,645 18.93
Ice Cream Oasis 895 12/1997 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
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 31,307 18.57
Zanie's Comedy 6,046 10/1997 2/5 yr. 66,506 11.00
Walgreens 11,974 12/2005 none 84,000 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
Starbuck's Coffee 1,744 10/2005 none 36,624 21.00
Temporary Personnel 1,403 08/1998 none 24,330 17.34
Oriental Rugs 1,448 09/1999 none 22,444 15.50
</TABLE>
101
<PAGE> 112
<TABLE>
<CAPTION>
Average Percent of Percent of
Base Rent Total Annual Base
Approx. GLA Annual Base Per Square Building GLA Rent
Number of of Expiring Rent of Foot Under Represented Represented
Year Ending Leases Leases 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>
1997 3 8,550 $116,053 $906,771 $13.57 8.66% 12.80%
1998 10 18,486 284,227 764,266 15.38 18.73 37.19
1999 3 4,705 73,008 492,655 15.52 4.77 14.82
2000 1 1,410 21,150 400,532 15.00 1.43 5.28
2001 none none none 383,742 none none none
2002 none none none 383,742 none none none
2003 1 46,984 228,642 385,486 4.87 47.61 59.31
2004 none none none 156,844 none none none
2005 3 15,384 156,844 156,844 10.20 15.59 100.00
2006 none none none none 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 Hawthorn Village upon
reaching stabilized occupancy as of July 15, 1996, of $8,560,000.
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 April 15, 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
102
<PAGE> 113
is 412,159, with an estimated average household income in excess of $45,400 per
year, higher than the 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 years ended December
31, 1995 and 1996. Information for prior years is not available to the
Company.
<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 92% $11.95
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 is 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 paid 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%.
103
<PAGE> 114
At April 15, 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 2/5 yr. $489,176 none $10.68
Illinois Masonic (1) 13,988 3/1999 none $258,582 none $18.49
Illinois Masonic
Optometry Space (1) 1,350 3/1999 none $24,956 none $18.49
One Hour Photo 1,001 2/1999 none $17,517 none $17.50
Weight Watchers 2,844 8/1998 1/5 yr. $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 $22,508 none $16.97
Vacant 4,825 none none none none none
</TABLE>
(1) Both spaces are leased to Illinois Masonic.
<TABLE>
<CAPTION>
Average Percent of Percent of
Base Rent Total Annual Base
Approx. GLA Annual Base Per Square Building GLA Rent
Number of of Expiring Rent of Foot Under Represented Represented
Year Ending Leases Leases 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>
1997 none none none $966,416 none none none
1998 1 2,844 $48,348 1,002,432 $17.00 3.53% 4.82%
1999 3 16,339 294,102 968,288 18.00 20.01 30.37
2000 1 6,975 69,750 689,172 10.00 8.65 10.12
2001 none none none 632,975 none none none
2002 1 2,538 47,080 648,856 18.55 3.15 7.26
2003 none none none 614,465 none none none
2004 none none none 629,470 none none none
2005 1 1,326 27,619 644,127 20.83 1.64 4.29
2006 -- -- -- 647,196 -- -- --
</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.
104
<PAGE> 115
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 April 15, 1997, Spring Hill
was 96% 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 was 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>
1996 95% $9.71
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.
105
<PAGE> 116
For federal income tax purposes, the Company's depreciable basis in
Spring Hill is 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 paid in 1996 for the tax year ended 1995 (the most recent tax
year for which information is available) were $123,315. 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 April 15, 1997, a total of 120,198 square feet were leased to
nineteen 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>
Square Feet Lease Renewal Current Rent per
Lessee Leased Ends Options Annual 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. 34,000 17.00
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 40,250 11.50
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
Nail Salon 1,000 2/2000 none 14,000 14.00
Vacant 5,000 none none none none
</TABLE>
106
<PAGE> 117
<TABLE>
<CAPTION>
Average Percent of Percent of
Base Rent Total Annual Base
Approx. GLA Annual Base Per Square Building GLA Rent
Number of of Expiring Rent of Foot Under Represented Represented
Year Ending Leases Leases 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>
1997 1 2,000 $24,000 $1,153,920 $12.00 1.60% 2.08%
1998 2 5,600 71,400 1,164,809 12.75 4.47 6.13
1999 1 2,000 21,500 1,109,174 10.75 1.60 1.94
2000 6 16,825 223,068 1,102,115 13.26 13.44 20.24
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 $9.38 million.
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 April 15, 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.
107
<PAGE> 118
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>
Year Ending Occupancy Rate as of Effective Annual Rental
December 31, December 31 Per Square Foot
------------ ------------ ---------------
<S> <C> <C>
1996 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 is 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 1997 for the tax year ended 1996 (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 April 15, 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>
108
<PAGE> 119
<TABLE>
<CAPTION>
Average Percent of Percent of
Base Rent Total Annual Base
Approx. GLA Annual Base Per Square Building GLA Rent
Number of of Expiring Rent of Foot Under Represented Represented
Year Ending Leases Leases 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>
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 $3.61 million.
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 April 15, 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.
109
<PAGE> 120
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>
Year Ending Occupancy Rate Effective Annual Rental
December 31, as of December 31 Per Square Foot
------------ ----------------- ---------------
<S> <C> <C>
1996 100% $20.88
</TABLE>
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 is 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 1997 for the tax year ended
1996 (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.
110
<PAGE> 121
At April 15, 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>
Current
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>
<TABLE>
<CAPTION>
Average Percent of Percent of
Base Rent Total Annual Base
Approx. GLA Annual Base Per Square Building GLA Rent
Number of of Expiring Rent of Foot Under Represented Represented
Year Ending Leases Leases 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>
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 $1.85 million.
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
111
<PAGE> 122
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 April 15, 1997, 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.
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 is 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.
112
<PAGE> 123
Real estate taxes paid 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 April 15, 1997, 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.
<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>
Average Percent of Percent of
Base Rent Total Annual Base
Approx. GLA Annual Base Per Square Building GLA Rent
Number of of Expiring Rent of Foot Under Represented Represented
Year Ending Leases Leases 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>
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 $1.85 million.
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 April 15, 1997, 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
113
<PAGE> 124
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.
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 is 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 paid 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%.
114
<PAGE> 125
At April 15, 1997, 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.
<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 Comm 4,190 09/1999 1/ 5 yr. 71,230 17.00
</TABLE>
<TABLE>
<CAPTION>
Average Percent of Percent of
Base Rent Total Annual Base
Approx. Annual Per Square Building GLA Rent
Number of GLA of Base Rent Foot Under Represented Represented
Year Ending Leases Expiring 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>
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.
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.
115
<PAGE> 126
Lansing Square was built in 1991 and consists of three one-story
buildings aggregating 233,508 rentable square feet. As of April 15, 1997,
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.
<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 89.0% $5.51
1995 76.0 5.81
1994 75.0 7.28
1993 92.0 7.38
1992 90.8 7.26
</TABLE>
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 is 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.
116
<PAGE> 127
Real estate taxes paid 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%.
At April 15, 1997, 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 Rent per
Square Feet Lease Renewal Annual Square
Lessee Leased Ends Options Rent 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. 19,875 13.25
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 18,600 15.50
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
Discus CD's 1,200 06/1999 1/3 yr. 18,000 15.00
Home Systems 1,200 02/1998 none 17,400 14.50
Happiness Is Pets 2,100 03/2007 none 29,400 14.00
Vacant 22,698 none none none none
</TABLE>
117
<PAGE> 128
<TABLE>
<CAPTION>
Percent
Approx. Average of Total Percent
GLA of Annual Base Rent Building of Annual
Number Expiring Base Rent Total Per Square GLA Base Rent
Year of Leases of Annual Foot Under Represented Represented
Ending Leases (square Expiring Base Expiring by Expiring by Expiring
December 31 Expiring feet) Leases Rent(1) 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 1 1,200 17,400 1,783,586 14.50 .51 1.00
1999 3 3,900 59,250 1,775,810 15.19 1.67 3.34
2000 3 7,500 127,663 1,727,680 17.02 3.21 7.39
2001 2 7,175 132,065 1,635,291 18.41 3.07 8.08
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.
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 April 15, 1997, The Summit was
81% leased (100% leased when including the master lease). 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.
118
<PAGE> 129
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 is 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 paid 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 April 15, 1997, a total of 26,844 square feet were leased to twelve
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.
<TABLE>
<CAPTION>
Rent
Square Current per
Feet Lease Renewal Annual Square
Lessee Leased Ends Options Rent Foot
------ ------ ------ ------- ------- ------
<S> <C> <C> <C> <C> <C>
Le Peep 3,621 12/2002 1/7 yr. $56,126 $15.50
Restaurant
Siam Thai 2,454 06/2000 1/4 yr. 43,482 17.72
Restaurant
Big Apple Bagels 1,124 10/2003 none 14,612 13.00
Sav-A-Lot 2,414 01/1999 none 26,554 11.00
Giappo's Pizza 3,683 07/2007 none 44,196 8.00
Fashion Media 2,142 08/2004 none 29,988 14.00
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 2,000 09/1997 1/2 yr. 18,000 9.00
Center
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 6,404 none none none none
</TABLE>
119
<PAGE> 130
<TABLE>
<CAPTION>
Percent of
Average Total Percent of
Approx. Base Rent Building Annual Base
GLA of Annual Per Square GLA Rent
Number 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>
1997 2 4,142 $46,917 $346,774 $11.33 12.45% 13.53%
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 Summit property,
as of December 17, 1996, of not less than $3.25 million.
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.
120
<PAGE> 131
Maple Park was built in 1992, with expansions made in 1994, and
consists of a one-story building aggregating 215,722 rentable square feet. As
of April 15, 1997, Maple Park was 99% 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% $8.18
1995 94 8.15
</TABLE>
Tenants leasing more than 10% of the total square footage are Kmart,
which leases 104,231 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.
For federal income tax purposes, the Company's depreciable basis in
Maple Park is 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 paid 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%.
121
<PAGE> 132
At April 15, 1997, a total 212,932 square feet were leased to nineteen
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 02/2002 none $22,400 $16.00
Jamaica Me Crazy 1,400 04/1999 none 19,600 14.00
One Hour Cleaners 1,400 03/2002 none 24,500 17.50
Cellular One 1,610 03/1998 1/5 yr. 20,930 13.00
Fantastic Sams 1,190 02/2002 2/5 yr. 19,635 16.50
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. 20,400 17.00
Prudential Properties 3,600 08/1999 1/5 yr. 46,800 13.00
Once Upon a Child 2,400 03/2000 1/5 yr. 36,000 15.00
Brueggers Bagels 2,295 01/2005 none 36,720 16.00
Prairie Paint, J.C.
Licht 2,400 11/1998 1/3 yr. 38,400 16.00
Eagle Foods 57,000 08/2017 none 576,133 10.16
Kmart 104,231 01/2020 none 589,157 5.65
Vacant 2,790 -- -- -- --
</TABLE>
122
<PAGE> 133
<TABLE>
<CAPTION>
Average Percent of Percent of
Base Rent Total Annual Base
Approx. GLA Annual Base Per Square Building 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 4 9,654 $ 89,502 $1,809,262 $12.45 4.39% 4.95%
1998 2 3,935 58,130 1,728,492 14.77 1.80 3.36
1999 6 15,012 217,386 1,676,871 14.48 6.82 12.96
2000 2 7,470 96,705 1,462,096 12.95 3.39 6.61
2001 none none none 1,363,455 none none none
2002 1 1,190 22,015 1,368,279 18.50 0.50 1.61
2003 none none none 1,358,219 none none none
2004 none none none 1,359,610 none none none
2005 2 3,895 74,923 1,359,610 19.24 1.77 5.51
2006 1 13,200 105,600 1,284,687 8.00 6.00 8.22
(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.
</TABLE>
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.
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 principal and interest 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 April 15, 1997, Aurora Commons
was 99% 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
123
<PAGE> 134
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 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 is 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 paid 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%.
124
<PAGE> 135
At April 15, 1997, a total of 126,012 square feet were leased to
twenty-three 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 1,954 11/1999 1/5 yr. 31,264 16.00
Supply
Fashions $10 1,954 10/1998 none 28,333 14.50
Modern Times 1,667 12/1999 none 24,338 14.60
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 15,734 18.19
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
Vacant 1,498 -- -- -- --
</TABLE>
125
<PAGE> 136
<TABLE>
<CAPTION>
Percent
Approx. Average of Total Percent of
GLA of Annual Base Rent Building Annual Base
Number Expiring Base Rent Total Per Square GLA Rent
Year of Leases of Annual Foot Under Represented Represented
Ending Leases (square Expiring Base Expiring by Expiring by Expiring
December 31, Expiring feet) Leases Rent(1) Leases Leases Leases
----------- -------- ----- ------ ---- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
1997 3 6,675 $94,929 $1,180,637 $14.22 8.04% 8.04%
1998 3 3,485 59,249 1,097,401 17.00 2.73 5.40
1999 11 25,431 358,406 1,047,421 14.09 19.94 34.22
2000 2 7,885 89,241 667,409 11.32 6.18 13.37
2001 2 10,520 114,045 581,396 10.84 8.25 19.62
2002 none none none 467,351 none none none
2003 none 472,052 none none none
none none
2004 none 474,402 none none none
none none
2005 none 474,402 none none none
none none
2006 none 474,402 none none 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.
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 April 15, 1997, Lincoln Park
was 100% leased. In evaluating Lincoln Park as a potential
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<PAGE> 137
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.
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 is 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 paid 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%.
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<PAGE> 138
At April 15, 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 Rent per
Square Feet Lease Renewal Annual Square
Lessee Leased Ends Options Rent 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>
<TABLE>
<CAPTION>
Approx. Average Percent of Percent of
GLA of Annual Base Rent Total Annual Base
Number Expiring Base Rent Total Per Square Building GLA Rent
Year of Leases of Annual Foot Under Represented Represented
Ending Leases (square Expiring Base Expiring by Expiring by Expiring
December 31, Expiring feet) Leases Rent(1) Leases Leases Leases
-------- ------- ----- ------ ---- ---------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
1997 none none none $235,633 none none none
1998 none none none 239,219 none none none
1999 1 4,303 $98,969 239,219 $23.00 40.3% 41.4%
2000 none none none 140,250 none none none
2001 1 6,375 140,250 140,250 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 $2.12 million.
NILES SHOPPING CENTER, NILES, ILLINOIS
On April 11, 1997, the Company acquired a Neighborhood Retail Center
located at 8351 West Golf Road in Niles, Illinois known as Niles Shopping
Center ("Niles Center") from American National Bank and Trust Company as
Trustee for Trust No. 77302, an unaffiliated third party, for approximately
$3.28 million. The purchase price was funded using cash and cash equivalents.
The purchase price was approximately $125.59 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.
Niles Center was built in 1982 and consists of a one-story building
aggregating 26,117 rentable square feet. As of April 15, 1997, Niles Center
was 100% leased. In evaluating Niles Center 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 occupancy. The Company believes that the center which is located
approximately thirteen miles northwest of the Central Business District known
as the "Loop" in Chicago, Illinois is located within a vibrant economic area.
Although approximately 90% of the rentable square feet at Niles Center is
leased to five tenants, the Company's management believes that
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<PAGE> 139
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 Niles Center over the next few years. Nevertheless, a
substantial portion of any cost of repairs and improvements would be paid by
the tenants.
The table below sets forth certain information with respect to the
occupancy rate at Niles Center 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% $16.08
1995 100% $15.90
1994 100% $14.16
1993 100% $14.10
1992 100% $13.93
</TABLE>
Tenants leasing more than 10% of the total square footage are:
Intermac Technologies, a computer equipment retailer, which leases 7,000 square
feet, or approximately 26.8% of the rentable square feet; Wolf Camera, a camera
and photographic supply retailer, which leases 6,600 square feet, or
approximately 25.3% of the rentable square feet; Jennifer Convertibles, a
retailer of convertible sofas, which leases 3,375 square feet, or approximately
12.9% of the rentable square feet; Crown Books, a national discount retailer of
books, which leases 3,367 square feet, or approximately 12.9% of the rentable
square feet and ACEL Cell Phones, a retailer of cellular phones, which leases
3,275 square feet, or approximately 12.5% of the rentable square feet. The
lease with Intermac Technologies requires Intermac Technologies to pay base
rent equal to $14.50 per square foot per annum payable monthly until October
31, 1997 and $15.00 from November 1, 1997 until October 31, 2003. The lease
contains no option to renew. The lease with Wolf Camera requires Wolf Camera
to pay base rent equal to $13.50 per square foot per annum payable monthly
until January 31, 2002. The lease with Wolf Camera also grants Wolf Camera 2
options to renew the lease for a 5-year term each. If this option is
exercised, Wolf Camera will be required to pay a base rent of $15.00 per square
foot per annum payable monthly from February 1, 2002 until January 31,2007 and
$16.00 per square foot per annum payable monthly from February 1, 2007 until
January 31, 2012. The lease with Jennifer Convertibles requires Jennifer
Convertibles to pay base rent equal to $20.72 per square foot per annum payable
monthly until September 30, 1997, $21.35 per square foot per annum payable
monthly from October 1, 1997 until September 30, 1998, $21.99 per square foot
per annum payable monthly from October 1, 1998 until September 30, 1999, $22.65
per square foot per annum payable monthly from October 1, 1999 until September
30, 2000 and $23.33 per square foot per annum payable monthly until September
30, 2001. The lease with Jennifer Convertibles also grants Jennifer
Convertibles two options to renew the lease for a five-year term each. If the
first option is exercised, Jennifer Convertibles will be required to pay a base
rent of
129
<PAGE> 140
$24.01 per square foot per annum payable monthly from October 1, 2001 until
September 30, 2002, $24.75 per square foot per annum payable monthly from
October 1, 2002 until September 30, 2003, $25.49 per square foot per annum
payable monthly from October 1, 2003 until September 30, 2004, $26.27 per
square foot per annum payable monthly from October 1, 2004 until September 30,
2005 and $27.04 per square foot per annum payable monthly from October 1, 2005
until September 30, 2006. If the second option is exercised, Jennifer
Convertibles will be required to pay a base rent of $27.86 per square foot per
annum payable monthly form October 1, 2006 until September 30, 2007, $28.69 per
square foot per annum payable monthly from October 1, 2007 until September 30,
2008, $29.55 per square foot per annum payable monthly from October 1, 2008
until September 30, 2009, $30.44 per square foot per annum payable monthly from
October 1, 2009 until September 30, 2010 and $30.35 per square foot per annum
payable monthly from October 1, 2010 until September 30, 2011. The lease with
Crown Books requires Crown Books to pay base rent equal to $11.50 per square
foot per annum payable monthly until December 31, 1998. This lease contains
no option to renew. Crown Books is planning on vacating this space prior to
the lease expiration and if this space is not relet, rent through the lease
period will be paid out of a $90,000 escrow fund created by the seller. The
lease with ACEL Cell Phones requires ACEL Cell Phones to pay base rent equal to
$12.00 per square foot per annum payable monthly until January 31, 2002. The
lease with ACEL Cell Phones also grants ACEL Cell Phones 2 options to renew the
lease for a 5-year term each. If the first option is exercised, ACEL Cell
Phones will be required to pay a base rent of $13.50 per square foot per annum
payable monthly from March 1, 2001 until February 28, 2006. If the Second
Option is exercised, ACEL Cell Phones will be required to pay a base rent of
$14.50 per square foot per annum payable monthly from March 1, 2006 until
February 28, 2011.
For federal income tax purposes, the Company's depreciable basis in
Niles Center will be approximately $2,448,000. 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) were $120,031. The real estate taxes payable were calculated by
multiplying Niles Center's assessed value by an equalizer of 2.1243 and a tax
rate of 8.574%.
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<PAGE> 141
On April 11, 1997, a total of 26,117 square feet were leased to seven
tenants at Niles Center. 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 Option Annual Rent Square Foot
------ ------ ---- ------ ----------- -----------
<S> <C> <C> <C> <C> <C>
1. Intermac 7,000 10/2003 No $101,500 $14.50
Technologies
2. Cigarettes 1,200 07/1999 1/3 yr. $ 30,000 $25.00
Cheaper
3. Crown Books 3,367 12/1997 No $ 38,720 $11.50
4. ACEL Cellular 3,275 02/2001 2/5 yr. $ 39,300 $12.00
5. Jennifer 3,375 10/2001 2/5 yr. $ 69,930 $20.72
Convertibles
6. Wolf Camera 6,600 01/2002 2/5 yr. $ 89,100 $13.50
7. Bo Rics Hair 1,300 04/2000 No $ 27,811 $21.39
</TABLE>
<TABLE>
<CAPTION>
Average Percent of Percent of
Base Rent Total Annual Base
Approx. GLA Annual Base Per Square Building 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 - - - $361,048 - - -
1998 1 3,367 $38,721 366,511 $11.50 12.89% 10.56%
1999 1 1,200 30,000 329,967 25.00 4.59% 7.09%
2000 1 1,300 27,807 302,212 21.39 4.98% 9.20%
2001 2 6,650 82,600 276,700 12.42 25.46% 29.85%
2002 1 6,600 89,100 194,100 13.50 25.27% 45.90%
2003 1 7,000 105,000 105,000 15.00 26.80% 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 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 Niles Center property, as
of February 26, 1997, of $3.35 million. Appraisals are estimates of value and
should not be relied on as a measure of true worth or realizable value.
131
<PAGE> 142
COBBLERS MALL, ELGIN, ILLINOIS
On May 5, 1997, the Company acquired a Neighborhood Retail Center
located at Summit Road and Route 58 in Elgin, Illinois known as Cobblers Mall
from Hamilton Partners, an unaffiliated third party, for approximately $10.953
million. The purchase price was funded using cash and cash equivalents. The
purchase price was approximately $106.71 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.
Cobblers Mall was built in 1993 and consists of a one-story,
multi-tenant retail facility aggregating 102,643 rentable square feet. As of
May 6, 1997, Cobblers Mall was 91% leased (100% leased if the master lease,
which lasts for one year, is considered). In evaluating Cobblers Mall 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 occupancy. The Company believes that the
center is located within a vibrant economic area. Although approximately 63%
of the rentable square feet at Cobblers Mall 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 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 Cobblers Mall over the next few years. Nevertheless, a
substantial portion of any cost of repairs and improvements would be paid by
the tenants.
The table below sets forth certain information with respect to the
occupancy rate at Cobblers Mall 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
Year Ending December 31, Effective Annual Rental
December 31, of Each Year Per Square Foot
------------ -------------------- ---------------
<S> <C> <C>
1996 90.65% $9.62
1995 90.80 9.26
1994 85.93 8.63
1993 79.93 5.62
</TABLE>
The sole tenant leasing more than 10% of the total square footage is
Jewel/Osco, a regional grocery/pharmacy chain, which leases 64,938 square feet,
or approximately 63.27% of the rentable square feet. The lease with Jewel/Osco
requires Jewel/Osco to pay base rent equal to $9.85 per square foot per annum
payable monthly until March 31, 2013. The lease with Jewel/Osco contains no
option to renew.
132
<PAGE> 143
For federal income tax purposes, the Company's depreciable basis in
Cobblers Mall will be approximately $10,900,000. 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) were $400,919. The real estate taxes payable were calculated by
multiplying Cobblers Mall's assessed value by an equalizer of 2.1243 and a tax
rate of 10.097%.
[The remainder of this page intentionally left blank]
133
<PAGE> 144
On May 6, 1997, a total of 93,043 square feet were leased to thirteen
tenants at Cobblers Mall. 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 Option Annual Rent Square Foot
------ ------ ---- ------ ----------- -----------
<S> <C> <C> <C> <C> <C>
1. Goodyear 6,464 04/2008 None $ 67,224 $10.40
2. Victory Beauty 1,920 09/2001 1/5 yr. 20,160 10.50
3. Baskin Robbins 1,220 11/2003 None 18,100 13.70
4. Panda Restaurant 1,900 11/2004 1/8 yr. 30,950 16.00
5. Carol Stream 1,600 05/2004 None 24,933 15.00
Dental
Association
6. Fantastic Sam's 1,120 11/1998 1/5 yr. 19,445 17.31
7. Mail Boxes etc. 1,280 09/1998 None 20,480 16.00
8. Stacey's 3,792 02/1999 1/6 yr. 47,400 12.50
Hallmark
9. Video Smideo 3,000 07/2000 1/5 yr. 47,580 15.60
10. Tropical 2,000 04/2000 None 29,700 14.85
Illusions
11. Jewel/Osco 64,938 03/2013 None 636,639 9.85
12. Bedding Expert 2,160 07/1997 None 25,920 12.00
13. Cleaners 1,649 11/1998 None 34,629 21.00
15. Vacant* 9,600 - - - -
</TABLE>
*master lease for the fist year in the amount of $169,080.
134
<PAGE> 145
<TABLE>
<CAPTION>
Percent of
Total
Average Building Percent of
Approx. Annual Base Rent GLA Annual Base
GLA of Base Rent Per Square Represente Rent
Number of Expiring of Total Foot Under d by Represented
Year Ending Leases Leases Expiring Annual Expiring Expiring by Expiring
December 31, Expiring (square feet) Leases Base Rent(1) Leases Leases Leases
------------ -------- ------------- ------ ------------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
1997 1 2,160 $25,920 $1,024,776 $12.00 2.10% 2.53%
1998 2 2,400 39,925 998,856 16.64 2.34 4.00
1999 1 3,792 47,400 924,302 12.50 3.69 5.13
2000 2 5,000 77,280 876,902 15.46 4.87 8.81
2001 1 1,920 20,160 799,622 10.50 1.87 2.52
2002 - - - 779,642 - - -
2003 1 1,220 16,714 779,462 13.70 1.19 2.14
</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 Cobblers Mall property,
as of April 22, 1997, of $11 million. Appraisals are estimates of value and
should not be relied on as a measure of true worth or realizable value.
MALLARD MALL, ELK GROVE VILLAGE, ILLINOIS
On May 5, 1997, the Company acquired a Neighborhood Retail Center located
at the northeast corner of Meacham Road and Nerge Road in Elk Grove Village,
Illinois known as Mallard Mall from Hamilton Partners, an unaffiliated third
party, for approximately $8.1 million. The purchase price was funded using cash
and cash equivalents. The purchase price was approximately $97.65 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.
Mallard Mall was built in 1993 and consists of a one-story, multi-tenant
retail facility aggregating 82,949 rentable square feet. As of May 6, 1997,
Mallard Mall was 95% leased (100% when the master lease, which lasts for one
year, is considered). In evaluating Mallard Mall 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 occupancy. The Company believes that the center which is located
within a vibrant economic area. Although approximately 68% of the rentable
square feet at Mallard Mall 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 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 Mallard Mall over the
135
<PAGE> 146
next few years. Nevertheless, a substantial portion of any cost of repairs and
improvements would be paid by the tenants.
The table below sets forth certain information with respect to the
occupancy rate at Mallard Mall 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
Year Ending December 31, Effective Annual Rental
December 31, of Each Year Per Square Foot
------------ -------------------- ---------------
<S> <C> <C>
1996 95.00% $11.74
1995 95.00 12.43
1994 94.57 11.93
1993 91.02 9.89
</TABLE>
The sole tenant leasing more than 10% of the total square footage is
Eagle Foods, a retail grocery chain, which leases 56,668 square feet, or
approximately 68.32% of the rentable square feet. The lease with Eagle Foods
requires Eagle Foods to pay base rent equal to $12.40 per square foot per annum
payable monthly until February 28, 2011. The lease with Eagle Foods also
grants Eagle Foods four options to renew the lease for a 5-year term each. The
base rent throughout all of these terms will be at the current rate of $12.40
per square foot per annum payable monthly.
For federal income tax purposes, the Company's depreciable basis in
Mallard Mall will be approximately $8,100,000. 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) were $361,057. The real estate taxes payable were calculated by
multiplying Mallard Mall's assessed value by an equalizer of 2.1243 and a tax
rate of 9.548%.
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<PAGE> 147
On May 6, 1997, a total of 79,128 square feet were leased to ten
tenants at Mallard Mall. 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 Option Annual Rent Square Foot
------ ------ ---- ------ ----------- -----------
<S> <C> <C> <C> <C> <C>
1. Payless Shoes 2,354 01/2002 None $ 37,075 $15.76
2. Family Bookstore 4,007 01/1999 None 61,942 15.50
3. Eagle Foods 56,668 01/2011 4/5 yr. 702,683 12.40
4. Hollywood Video 7,720 09/2006 2/5 yr. 123,200 16.00
5. Fannie May 1,128 03/2003 None 29,328 26.00
6. Jimmy Z Hair 1,200 05/1998 1/5 yr. 20,772 17.31
7. Taylor Street 2,112 12/2001 1/5 yr. 29,568 14.00
Bistro
8. Shike Dance 1,120 09/1999 1/3 yr. 15,781 14.09
School
9. Mallard Cleaners 1,360 09/2001 None 28,796 21.17
10. Gallary 1,459 08/1999 1/3 yr. 18,967 13.00
Americana
11. Vacant* 3,821 - - - -
</TABLE>
*master lease for the fist year in the amount of $169,080.
<TABLE>
<CAPTION>
Percent of
Total
Average Building Percent of
Approx. Annual Base Rent GLA Annual Base
GLA of Base Rent Per Square Represente Rent
Number of Expiring of Total Foot Under d by Represented
Year Ending Leases Leases Expiring Annual Expiring Expiring by Expiring
December 31, Expiring (square feet) Leases Base Rent(1) Leases Leases Leases
------------ -------- ------------- ------ ------------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
1997 - - - $1,068,112 - - -
1998 2 2,320 $36,553 1,068,112 $15.76 2.80% 3.42%
1999 2 5,466 80,909 1,031,559 14.80 6.59 7.84
2000 - - - 950,650 - - -
2001 2 3,472 58,364 950,650 16.81 4.19 6.14
2002 1 2,354 37,075 892,286 15.75 2.84 4.16
2003 1 1,128 29,328 855,211 26.00 1.36 3.43
</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.
137
<PAGE> 148
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 Mallard Mall property, as
of April 10, 1997, of $8.2 million. Appraisals are estimates of value and
should not be relied on as a measure of true worth or realizable value.
[Remainder of page intentionally left blank]
138
<PAGE> 149
POTENTIAL PROPERTY ACQUISITIONS
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 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.
SEQUOIA PLAZA SHOPPING CENTER, MILWAUKEE, WISCONSIN. The Company has
entered into a non-binding letter of intent to purchase a Neighborhood Retail
Center located at 6807 West Brown Deer Road in Milwaukee, Wisconsin known as
Sequoia Plaza Shopping Center ("Sequoia Plaza"). Under the proposed
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terms of the acquisition, the Company would purchase Sequoia Plaza from Hans
Stutte an unaffiliated third party, for approximately $3.01 million. The
Company anticipates funding the purchase using cash and cash equivalents.
Execution of a definitive agreement is subject to completion of due diligence,
which the Advisor is undertaking on behalf of the Company, receipt of the final
appraisal indicating the value of the property is not less than $3.01 million
and the 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 Sequoia Plaza. There can be no assurance that the
Company will complete the acquisition of Sequoia Plaza.
Sequoia Plaza was built in 1988 and consists of a one-story building
comprising a multi-tenant retail facility aggregating 35,447 rentable square
feet. Tenants leasing more than 10% of the rentable square feet are: Play It
Again Sports, U.S. Post Office and Kinko's.
DOMINICK'S FINER FOODS, SCHAUMBURG, ILLINOIS. The Company has entered
into a non-binding letter of intent to purchase a Neighborhood Retail Center
located at 1293 East Higgins Road in Schaumburg, Illinois known as Dominick's
Finer Foods from Rybachi, L.P., an unaffiliated third party, for approximately
$10.7 million. The Company anticipates funding the purchase using cash and
cash equivalents. Due to the nature of the property, the Asset Management Fee
charged by an Affiliate of the Advisor will be reduced from 4.5% of the gross
revenues of the property to 2.0% of the gross revenues of the property.
Additionally, this Property Management Fee will not be subordinated to
Distributions. Execution of a definitive agreement is subject to due
diligence, which the Advisor is undertaking on behalf of the Company, receipt
of the final appraisal indicating the value of the property is not less than
$10.7 million and the 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 Dominick's Finer Foods. There can be no
assurance that the Company will complete the acquisition of Dominick's Finer
Foods.
Dominick's Finer Foods was built in 1996 and consists of a one story,
single tenant retail facility aggregating 71,400 rentable square feet.
Dominick's Finer Foods leases 100% of the rentable square feet.
DOMINICK'S FINER FOODS, HIGHLAND PARK, ILLINOIS. The Company has
entered into a non-binding letter of intent to purchase a Neighborhood Retail
Center located at the intersection of West Park Avenue and Skokie Road in
Highland Park, Illinois known as Dominick's Finer Foods from Rybachi, L.P., an
unaffiliated third party, for approximately $12.8 million. The Company
anticipates funding the purchase using cash and cash equivalents. Due to the
nature of the property, the Property Management Fee charged by an Affiliate of
the Advisor will be reduced from 4.5% of the gross revenues of the property to
2.0% of the gross revenues of the property. Additionally, this Property
Management Fee will not be subordinated to Distributions. Execution of a
definitive agreement is subject to due diligence, which the Advisor is
undertaking on behalf of the Company, receipt of the final appraisal indicating
the value of the property is not less than $12.8 million and the 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 Dominick's Finer Foods. There can be no assurance that the
Company will complete the acquisition of Dominick's Finer Foods.
Dominick's Finer Foods was built in 1996 and consists of a one story,
single tenant retail facility aggregating 71,442 rentable square feet.
Dominick's Finer Foods leases 100% of the rentable square feet.
AMERITECH OUTLOT BUILDING, JOLIET, ILLINOIS. The Company has entered
into a non-binding letter of intent to purchase a Neighborhood Retail Center
located at 3330 West Mall Loop Drive in Joliet, Illinois known as Ameritech
Outlot Building ("Ameritech Outlot") from American National Bank & Trust
Company of Chicago as trustee of trust No. 118532-07, an unaffiliated third
party, for approximately $1.05 million.
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The Company anticipates funding the purchase using cash and cash equivalents.
Execution of a definitive agreement is subject to due diligence, which the
Advisor is undertaking on behalf of the Company, receipt of the final appraisal
indicating the value of the property is not less than $1.05 million and the
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 Ameritech Outlot. There can be no assurance that the Company
will complete the acquisition of Ameritech Outlot.
Ameritech Outlot was built in 1995 and consists of a one story, single
tenant retail outlot building aggregating 4,504 rentable square feet.
Ameritech Cellular leases 100% of the rentable square feet.
CALUMET SQUARE SHOPPING CENTER, CALUMET CITY, ILLINOIS. The Company
has entered into a non- binding letter of intent to purchase a Neighborhood
Retail Center located at 777 River Oaks Drive in Calumet City, Illinois, known
as Calumet Square Shopping Center ("Calumet Square"), from Lake River Oaks
Properties LTD Partnership, an unaffiliated third party, for approximately
$2.108 million. The Company anticipates funding the purchase using cash and
cash equivalents. The roof of Calumet Square will be replaced at an estimated
cost of $95,000 which the Company will receive as a credit at closing.
Execution of a definitive agreement is subject to due diligence, which the
Advisor is undertaking on behalf of the Company, receipt of the final appraisal
indicating the value of the property is not less than $2.108 million and the
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 Calumet Square. There can be no assurance that the Company will
complete the acquisition of Calumet Square.
Calumet Square was built in 1967 and was upgraded in 1987 and 1994.
Calumet Square consists of a one story, two tenant retail facility and an
outlot building aggregating 39,936 rentable square feet. Tenants leasing more
than 10% of the rentable square feet are Super Trak and Aronson Furniture.
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CAPITALIZATION
The following table sets forth the historical capitalization of the
Company as of December 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 Offerings and in this Offering (as if all 7,816,000 Shares are
sold), 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 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>
DECEMBER 31, 1996
-----------------
HISTORICAL PRO FORMA
---------- ---------
(IN THOUSANDS)
<S> <C> <C>
DEBT:
Mortgage notes payable . . . . . . . . . . . . . . . . . . . . . . . $ 30,838 $ 100,838
------ -------
STOCKHOLDER'S EQUITY:
Preferred Stock, $.01 par value, 6,000,000 authorized,
none outstanding . . . . . . . . . . . . . . . . . . . . . . . . . -- --
Common Stock, $.01 par value, 24,000,000 authorized,
8,144,116 shares issued and outstanding historical;
24,000,000 shares issued and outstanding pro forma (1) . . . . . . 81 240
Paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . 70,512 211,136
Accumulated Distributions in Excess of Net Income . . . . . . . . . . (1,493) (1,493)
Total stockholders' equity . . . . . . . . . . . . . . . . . . . . 69,100 209,883
------ -------
Total capitalization . . . . . . . . . . . . . . . . . . . . . . . 99,938 310,721
====== =======
</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.
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PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the
beneficial ownership of Shares 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; (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 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) 9,497.3952 * 9,497.3952 *
G. Joseph Cosenza (a)(b) 22,569.0610 * 22,569.0610 *
Roland W. Burris (c)(f) 1,000.00 * 1,000.00 *
Douglas R. Finlayson, M.D. (d)(f) -- * -- *
Heidi N. Lawton (e)(f) -- * -- *
Kelly Tucek(a) -- * -- *
Roberta S. Matlin (a) 132.5778 * 132.5778 *
Directors and Executive Officers as a Group
(seven persons)
</TABLE>
- ----------------------------
(a) The business address of each of Messrs. Parks and Cosenza, Ms. Tucek
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, as of the date
of this Prospectus.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
THE 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 Prospectus
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 December 31, 1996, the Company had received subscriptions for a
total of 8,137,776 Shares resulting in $81,150,311 in gross offering proceeds.
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 Second 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.
As of December 31, 1996, the Company had acquired twenty one
properties utilizing $95,015,721 of cash and cash equivalents. Cash and cash
equivalents consists of cash and short-term investments. Cash and cash
equivalents, including amounts held by property manager, were $8,491,735 and
$738,931 at December 31, 1996 and 1995, respectively. This increase was due to
the additional Offering proceeds raised and $25,670,000 in loan proceeds from
financing the properties. Partially offsetting the increase in cash and cash
equivalents was the purchase of fifteen 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.
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. The Company paid monthly
distributions of 8% per annum during the first, second and third quarters of
1996. Commencing with the fourth quarter of 1996, the Company increased the
monthly distributions to 8.3% per annum. Distributions declared for the year
ended December 31, 1996 were $3,704,943, of which $611,418 represents a return
of capital for federal income tax purposes. Beginning March 1, 1997, the
Company increased the monthly distribution paid to 8.5% per annum on weighted
average shares.
Management of the Company monitors the various qualification tests the
Company must meet to maintain its status as a real estate investment trust.
Ownership of the Company's stock is
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tested quarterly 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 reviews, on a quarterly basis, the
Company's compliance with 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". On an
ongoing basis, as due diligence is performed by 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, 1996, the Company qualified as
a REIT.
CASH FLOWS FROM OPERATING ACTIVITIES
Net cash provided by operating activities increased by approximately
$4,550,000 for the year ended December 31, 1996 to $5,529,709 from $978,350 for
the same period in 1995. This increase is due primarily to an increase in net
income, as a result of the purchase of additional properties, for the year
ended December 31, 1996 as compared to the year ended December 31, 1995. As of
December 31, 1996 the Company had acquired twenty-one properties, as compared
to six properties as of December 31, 1995. This increase is also due to
$437,678 of rental income received under master lease agreements for the year
ended December 31, 1996, as compared to $133,016 of rental income received
under master lease agreements for the year ended December 31, 1995.
CASH FLOWS FROM INVESTING ACTIVITIES
During the year ended December 31, 1996, the Company utilized
$68,976,841 in cash and cash equivalents for the purchase of and additions to
fifteen properties, as compared to the $6,577,843 utilized in the year ended
December 31, 1995 for the purchase of and additions to six properties. As part
of the purchases of the properties, the Company utilized $2,900,000 of
short-term notes payable from Affiliates, all of which had been repaid as of
December 31, 1996.
CASH FLOWS FROM FINANCING ACTIVITIES
For the year ended December 31, 1996, the Company generated
$71,199,936 of cash flows from financing activities as compared to $6,327,490
of cash flows generated from financing activities for the year ended December
31, 1995. This increase is due primarily to the increase in proceeds raised
from the Offering of $61,147,146 for the year ended December 31, 1996, as
compared to $19,803,163 of Offering proceeds raised for the year ended December
31, 1995. This increase is partially offset by an increase in the cash used
for the payment of Offering costs for the year ended December 31, 1996. The
increase is also partially offset by an increase in the amount of distributions
paid for the year ended December 31, 1996 of $3,285,528 as compared to the
distributions paid for the year ended December 31, 1995 of $607,095. The
Company placed financing on twelve of the Company's properties and received
$25,670,000 in loan proceeds. 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 December 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.
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RESULTS OF OPERATIONS
As of December 31, 1996, subscriptions for a total of 8,137,766 Shares
had been received from the public resulting in $81,150,311 in Gross Offering
Proceeds, which includes the Advisor's capital contribution of $200,000 and
Shares purchased through the DRP. At December 31, 1996, the Company owned
nineteen Neighborhood Retail Centers and two single-user retail properties.
Total income for the years ended December 31, 1996 and 1995 was
$6,327,734 and $1,180,422, respectively. This increase was due to the purchase
of additional properties in 1996. As of December 31, 1996, the Company had
acquired twenty-one properties, as compared to six properties as of December
31, 1995. The purchase of additional properties also resulted in increases in
property operating expenses paid or payable to Affiliates and non-affiliates
and depreciation expense.
The decrease in mortgage interest to Affiliates for the years ended
December 31, 1996, as compared to the years ended December 31, 1995, is due to
the payoff of the acquisition financing totaling $2,900,000. 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%. As of December 31,
1996, the Company continues to be indebted on a mortgage in the principal
amount of $739,543, 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 year ended
December 31, 1996, as compared to the year ended December 31, 1995, is due in
part to the mortgage which was assumed as part of the purchase of Regency
Point. The Company obtained $25,670,000 of financing from an unaffiliated
lender, using twelve properties previously acquired as collateral.
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 year ended December 31, 1996, as compared to the year
ended December 31, 1995, is due to the management of an increased number of
real estate assets.
IMPACT OF ACCOUNTING PRINCIPLES
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. This accounting pronouncement did not have a material
effect on the financial position or results of operations of 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. The Company's rental income and operating expenses for
those properties owned or to be owned and operated under triple-net leases,
like
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the Walgreens/Decatur property, are not likely to be directly affected by
future inflation, since rents are or will be fixed under the leases and
property expenses are the responsibility of the tenants. The capital
appreciation of triple-net leased properties is likely to be influenced by
interest rate fluctuations. To the extent that inflation determines interest
rates, future inflation may have an effect on the capital appreciation of
triple-net leased properties.
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 sets forth the rules with which the Company must comply in order to
qualify for treatment as a REIT for tax purposes, the federal income tax
consequences to the Company and its Stockholders from the Company's status as a
REIT 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 Ltd. has acted 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 to his particular
tax situation.
In general, a corporation that invests primarily in real estate can
qualify as a REIT, if it complies with the detailed REIT provisions in Code
Sections 856-860, and as a REIT can 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 to which a corporation is generally subject. 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 a reduction in cash available for distribution
to the Stockholders. 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 Ltd. is of the opinion that as of ___________,
1997, 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 and conditioned on various assumptions and representations as to
certain factual matters made by the Company and the Advisor to Shefsky &
Froelich
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Ltd. The Company's qualification and taxation as a REIT will depend upon the
Company's ability to meet the REIT Requirements, through the operation of its
current properties and those properties it acquires in the future. Shefsky &
Froelich 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 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 the 95% Test or the 75% 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. Any tax the Company pays due to any of the
aforementioned provisions will reduce the cash available to pay dividends.
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 asset in the Company's hands is determined by reference to the
basis of the asset (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
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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.
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 at least
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
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individuals (determined with attribution to the owners of any entity owning
Capital Stock). However, these two requirements do not apply until after the
first taxable year an entity seeks REIT status. The Company represents that
it: (i) has issued sufficient Capital Stock pursuant to the Offering to allow
the Company to satisfy these requirements; (ii) did not admit investors as
Stockholders until the admission allowed there to be sufficient Stockholders to
meet these requirements; and (iii) 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 if it did not acquire any additional assets and the failure
is due solely to changes in the value of its existing assets. 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 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 to reflect the fair market
value of such non-real estate assets. 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.
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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) 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 would
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 constitute "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
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revenue. The "independent contractor" requirement, however, does not
apply to the 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) It 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 operations 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, the
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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 property disposed of through 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 lower 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. 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.
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 by a REIT
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)
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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.
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 the adjustment in tax basis
will result in increased gain or decreased loss upon the sale of the Shares.
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. 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 adjusted tax 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 increase the gain or decrease the loss upon the sale
of Shares.
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 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
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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", Qualified Plans that hold 10% or more of the Shares could
recognize UBTI even without incurring debt to acquire 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 their own tax advisors to determine the
impact of United States, state, and local income tax laws on an investment in
the Company, including any reporting requirements, as well as the tax
consequences in other countries in which they are subject to tax.
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 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.
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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 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.
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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.
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.
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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. The DOL Regulations provide that 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 will not affect whether securities are freely transferable. 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.
DESCRIPTION OF SECURITIES
GENERAL
The Company is authorized to issue 30,000,000 Shares of capital stock
comprised of 24,000,000 shares of common stock, $.01 par value per share (the
"Common Stock"), and 6,000,000 shares of preferred stock, $.01 par value per
share (the "Preferred Stock"). The Company anticipates seeking the approval of
its Stockholders to increase the number of shares of Common Stock from
24,000,000 to 100,000,000 at its annual meeting of Stockholders to be held in
June, 1997. The Shares of Common Stock offered hereby will be duly authorized,
fully paid and nonassessable. As of the date of this
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Prospectus, the Company has issued ____ shares of common stock and reserved an
additional __ shares for issuance pursuant to the exercise of options or
warrants granted or issued by the Company.
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
of the Common Stock on a national securities exchange or market. The Company
does not intend to list the Common Stock prior to the termination of this
Offering. However, the Company anticipates that by 1999 it will apply to have
the Common Stock listed, or included on the Nasdaq National Market subject to
the Company meeting the applicable listing requirements and the Board
determining that such action is in the best interest of the Company.
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.
The Company intends to issue the Shares and Soliciting Dealer Warrants
(including the Shares issuable on exercise of the 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.
SOLICITING DEALER WARRANTS
The Company has agreed to issue and sell to the Dealer Manager, one
warrant to purchase one Share for every 40 Shares sold by the Dealer Manager
(the "Soliciting Dealer Warrants") up to a maximum of 184,000 warrants to
purchase an equivalent number of Shares. The Dealer Manager has agreed to pay
the Company $0.0008 for each Soliciting Dealer Warrant. These warrants will be
issued on a quarterly basis commencing 60 days after the date on which the
Shares are first sold pursuant to this
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Offering. The Dealer Manager may retain or reallow Soliciting Dealer Warrants
to Soliciting Dealers except where prohibited by either federal or state
securities laws. The Company will not issue Soliciting Dealer Warrants to the
Dealer Manager in connection with the sale of Shares to residents of the States
of Minnesota, South Carolina, Nebraska or Texas.
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 on _____________ (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 Company has previously issued ____ warrants to purchase _____
Shares in connection with the Prior Offerings. These warrants all are
exercisable at a price equal to $12.00 per Share and expire at various times
between __________ and __________.
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.
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.
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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 (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
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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.
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SUMMARY OF THE ORGANIZATIONAL DOCUMENTS
Each Stockholder is 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 the Board. 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.
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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 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 the 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 fifteen 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 must nominate a replacement. Vacancies occurring as a result of the
removal of a Director by Stockholders must 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 must have at least three years of relevant experience and
demonstrate the knowledge 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 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 may 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.
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All elections for Directors are 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 must 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 approval 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 qualification,
fiduciary duties, 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 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 (b) above, a sale of all or substantially all of the Company's
assets means 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 or by written proxy received by the Board prior to the meeting signed by
the Stockholder directing the manner in which he or she desires that his or her
vote be cast; or (ii) without a meeting by a consent in writing signed by the
Stockholder directing the manner in which he or she desires that his or her
vote be cast. The written consent 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, is
maintained as part of the books and records of the Company at the Company's
principal office. This list is updated at least quarterly and is open for
inspection by a Stockholder or his designated agent upon such Stockholder's
request. This list will 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 the list and may require the
Stockholder requesting the list to represent that the request is related to
Stockholders' voting rights under the Articles and the exercise of
Stockholders' rights under federal proxy laws.
Any Stockholder and any designated representative thereof is 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 are
open for inspection by state securities administrators upon reasonable notice
and during normal business hours at the principal place of business of the
Company.
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AMENDMENT OF THE ORGANIZATIONAL DOCUMENTS
The Articles may be amended by the affirmative vote of a majority of
the then outstanding Shares, without the concurrence of 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
any amendment 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.
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 subsequent offerings 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 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 be approved by all of the Independent Directors
and by the holders of 66_ of the Shares, 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.
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In connection with a proposed Roll-Up, as defined below, an appraisal
of all of the Company's assets must be obtained from a person with no current
or prior business or personal relationship with the Advisor or the Directors.
Further, the person must be engaged, to a substantial extent, in the business
of rendering valuation opinions of assets 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 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 will 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 must be appraised in a
consistent manner and the appraisal must be based on an evaluation of all
relevant information indicating the value of the Company's assets as of a date
immediately prior to the announcement of the proposed Roll-Up transaction. The
appraisal must 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 listed on a national
securities exchange or traded through the Nasdaq National Market for at least
twelve months; or (ii) a transaction involving the conversion of the Company to
corporate, trust or association form 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) reduce in the Stockholders' voting rights below 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);
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(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;
provided, however, that the Company may participate in a proposed Roll-Up if
the Stockholders would have rights and be subject to 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 must 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 may 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 these limitations. The Independent
Directors may, however, determine that a higher level of Total Operating
Expenses is justified for a particular period because of unusual and
non-recurring expenses. Any such finding by the Independent Directors and the
reasons in support thereof must be recorded in the minutes of the meeting of
Directors. If Total Operating Expenses exceed these limitations during any
fiscal quarter on a rolling twelve-month basis, then within 60 days after the
end of the fiscal quarter in question, the Company must send a written report
to the Stockholders, together with an explanation of the facts the Independent
Directors considered in arriving at the conclusion that the higher operating
expenses were justified. If the Total Operating Expenses exceed the limitations
described above and if the Independent Directors are unable to conclude that
the excess was justified then, within 60 days after the end of the Company's
fiscal year, the Advisor must reimburse the Company in the amount by which the
aggregate annual Total Operating Expenses paid or incurred by the Company
exceed the limitation.
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TRANSACTIONS WITH AFFILIATES
The Articles impose certain restrictions on transactions 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 the transaction determines that it is
fair and 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 the
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 permitted 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 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 borrowings of the Company, secured and unsecured, must
be reasonable in relation to the Net Assets of the Company and reviewed by the
Board at least quarterly. The Company anticipates that aggregate borrowings
secured by all of the Company's properties will not exceed 50% of their
combined fair market value. The maximum amount of indebtedness as a percentage
of Net Assets may not, in the absence of a satisfactory showing that a higher
level of borrowing is appropriate, exceed 300% of Net Assets. Any borrowings
in excess of 300% may only be incurred with the consent of a majority of the
Stockholders. See "Investment Objectives and Policies--Borrowing." The
Company may 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 the 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.
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RESTRICTIONS ON INVESTMENTS
The investment policies set forth in the Articles have been 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 observes the following restrictions on its investments set forth in
its Articles:
(i) Not more than 10% of the Company's total assets may 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. This limitation does not apply to interest rate
futures when used solely for hedging purposes;
(iii) The Company may not invest in or make mortgage loans unless an
appraisal of the underlying property is obtained.
Mortgage indebtedness on any property may not exceed the
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, the appraisal must be
obtained from an Independent Expert. The appraisal must be
maintained in the Company's records for at least five years,
and must 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
secured by 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 may not invest in equity securities unless a
majority of the Directors (including a majority of the
Independent Directors) not otherwise interested in the
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 national securities exchange or market, if a
majority of the Directors
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(including a majority of the Independent Directors) determine
such purchase to be in the best interests of the Company;
(vii) The Company may 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
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) 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) must determine that the
consideration paid for the real property is equal to fair
market value as determined by a qualified independent real
estate appraiser selected by the Independent Directors;
(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 the Junior Debt,
plus the outstanding amount of the Senior Debt, does not
exceed 90% of the appraised value of the property and, 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 these requirements is
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 a change is in the best
interests of the Company.
PLAN OF DISTRIBUTION
GENERAL
Of the 8,000,000 Shares offered by this Prospectus, the Company is
offering 7,816,000 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
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IRAs will be $3,000 and for Minnesota where the minimum investment for IRAs and
qualified plan accounts will be $2,000); 184,000 Soliciting Dealer Warrants to
purchase 184,000 Shares and the Shares underlying the Soliciting Dealer
Warrants. See "Description of Securities - - Soliciting Dealer Warrants."
"Best efforts" means that the Dealer Manager is not guaranteeing that any
specified amount of capital will be raised. The Offering will commence as of
the date of this Prospectus and will terminate not later than __________. 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 twenty-four 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 an offering of Shares by the Company which commenced on
October 14, 1994 and terminated on July 22, 1996. The Advisor received 20,000
Shares in consideration of this capital contribution. The Advisor may not sell
or otherwise transfer these Shares while it remains the Advisor except 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 outstanding Shares. Any purchases of Shares
by the Advisor during the Offering will be for investment purposes only and not
with a view toward distribution.
SUBSCRIPTION PROCESS
The Shares are being offered to the public by the Dealer Manager and
the Soliciting Dealers. The form of Soliciting Dealers Agreement between the
Dealer Manager and the Soliciting Dealers requires the Soliciting 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 the 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 business days after acceptance by the Company. 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.
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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 investors in the State of Iowa where the minimum
investment for IRAs will be 300 Shares ($3,000) and investors in the State of
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.
DETERMINATION OF INVESTOR SUITABILITY
The Company, the Dealer Manager and each Soliciting Dealer will make
every reasonable effort to determine that those persons being offered or sold
the Shares satisfy the suitability standards set forth herein and that an
investment in the Shares is an appropriate investment for the investor. The
Soliciting Dealers must ascertain that the investors can reasonably benefit
from an investment in the Company. In making the determination, the Soliciting
Dealers will consider whether: (i) the investor has the capability of
understanding the fundamental aspects of the Company based on the investor's
employment experience, education, access to advice from qualified sources such
as attorneys, accountants and tax advisors and 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 its determination that the Shares are a suitable investment for
the investor. Each Soliciting Dealer is required to represent and warrant that
it has complied with all applicable laws in determining the suitability of the
Shares as an investment for the subscriber. The Company and its Affiliates
will 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
must maintain a record of the information obtained to determine that an
investor meets the suitability standards 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 for at least six years.
COMPENSATION
The Company will pay the Dealer Manager selling commissions equal to
up to seven percent (7%) on all Shares sold for serving as the dealer manager
of the Offering and for the sale of Shares through its efforts. A portion of
these selling commissions may be retained or reallowed to Soliciting Dealers,
as compensation for their services in soliciting and obtaining subscribers for
the purchase of Shares. Up to an additional 2.0% of the Gross Offering
Proceeds, a portion of which may be reallowed to Soliciting Dealers, may be
paid to the Dealer Manager 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 by the Company 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
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wholesalers in connection with the distribution of the Shares, subject to the
overall restrictions on commissions described herein. The Dealer Manager may
also reallow commissions to Soliciting Dealers on an incentive basis. Any
incentive compensation will be paid quarterly and will not exceed 1% of the
price of the Shares. Marketing and due diligence costs paid by the Dealer
Manager on behalf of, or to, the Soliciting Dealers will be deducted from any
incentive compensation.
Except in the case of Shares sold to residents of the States of
Minnesota, Nebraska, South Carolina or Texas, Soliciting Dealers will also
receive one Soliciting Dealer Warrant for each forty (40) Shares sold by such
Soliciting Dealer during the Offering, subject to federal and state securities
laws subject to a maximum of 184,000 warrants. 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 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 Warrant will be
exercisable until one year from the date of issuance. Holders of the
Soliciting Dealer Warrants, therefore, have, at nominal cost, the opportunity
to profit from a rise in the market price for the Common Stock without assuming
the risk of ownership. Exercise of these warrants will dilute 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 may 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 that nothing herein shall prohibit the registered
broker-dealer or other properly licensed person from earning a sales commission
in connection with sale of the Shares.
VOLUME DISCOUNTS
Investors purchasing at least $250,000 worth of Shares (25,000 Shares)
will be entitled to a reduction in the selling commission payable in connection
with the sale of these Shares in accordance with the following schedule:
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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 in the selling commission in respect of volume discounts
otherwise payable to the Dealer Manager, some or all of which may be reallowed
to a Soliciting Dealer in respect of an investor's subscription will be
credited to the investor in the form of additional whole Shares or fractional
Shares purchased net of commissions.
Subscriptions may be combined for the purpose of crediting an investor
with additional Shares and determining commissions payable to the Dealer
Manager and reallowable to Soliciting Dealers so long as all combined purchases
are made through the same Soliciting Dealer. Investors which are Tax-Exempt
Entities may combine their subscriptions for purposes of computing a discount
of the entities seeking to combine subscriptions if investment decisions are
made by the same person. If the investor fails to mark the "Additional
Purchase" space on the Subscription Agreement/Signature Page, 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. An assignment will 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 delivered to the Company; (ii) reimbursement of the Company for
reasonable expenses and filing costs incurred in connection with such transfer
not to exceed $100; (iii) no assignment will 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 will 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 it 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 will
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 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.
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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 will 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) the
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 approves indemnification of the settlement and related costs
after being 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.
HOW TO SUBSCRIBE
Shares may be purchased by investors who meet 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 or
she meets the suitability standards as stated in the Subscription Agreement and
agrees to be bound by all of the terms of the Subscription Agreement.
Within ten days (and generally within twenty-four 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 made through 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") provides the
Company's Stockholders with an opportunity to purchase additional Shares by
reinvesting Distributions. Stockholders who elect to take part in the DRP
("Participants") will authorize the Company to use Distributions payable to
them to purchase additional Shares. 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 are made at a price equal to $9.05 per Share,
free from any selling commissions or the Marketing Contribution and Due
Diligence Expense Allowance Fee. Participants in the DRP may also purchase
fractional Shares, 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
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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 or she 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 or
she will promptly so notify the Company in writing.
Commencing with the first Distribution paid after the effective date
of the Offering 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 these 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 amount of Distributions received during the prior fiscal year. The
individualized statement to Participants 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. The Board anticipates amending or terminating the DRP
upon completion of this Offering.
Stockholders who participate in the DRP will recognize dividend
income, taxable to the extent of the Company's current or accumulated earnings
and profits, in the amount and as though they had 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.
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).
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Repurchases under the SRP are 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 may be repurchased in
any given year; and (ii) the funds available for repurchase are 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 is made at
the sole discretion of the Board. In making this determination, the Board
considers 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 are given 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: (i) 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. Since
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 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
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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 for the property; (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.
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
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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
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 Ltd. (counsel to the Company). Shefsky & Froelich 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 legality of the Shares offered
hereby will be passed upon for the Company by Shapiro and Olander, Baltimore,
Maryland.
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 Ltd.
EXPERTS
The statement of gross income and direct operating expenses for the
year ended December 31, 1996 for Aurora Commons Shopping Center and the
statement of gross income and direct operating expenses for the year ended
December 31, 1996 for Lincoln Park Place have been included herein in reliance
upon the report of Warady & Davis L.L.P., independent certified public
accountants, appearing elsewhere herein, and upon the authority of said firm as
experts in accounting and auditing
The financial statements of the Company as of December 31, 1996 and
1995, for the years ended 1996 and 1995 and for the period from May 12, 1994
(formation of the Company) to December 31, 1994 and the statement of gross
income and direct operating expenses of Maple Park Place Shopping Center for
the year ended December 31, 1996, the statement of gross income and direct
operating expenses of Niles Shopping Center for the year ended December 31,
1996, the statement of gross income and direct operating expenses of Cobblers
Mall for the year ended December 31, 1996, the statement of gross income and
direct operating expenses of Mallard Mall for the year ended December 31, 1996
and the statement of gross income and direct operating expenses of Sequoia
Shopping Center, 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.
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 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 ______________.
"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 public offering 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.
"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.
"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
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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 8,000,000 Shares (which includes 184,000 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.
"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
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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 7,816,000 Shares of the Company pursuant to
this Prospectus plus the Soliciting Dealer Warrants and 184,000 Shares which
are issuable on exercise of Soliciting Dealer Warrants.
"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 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: (i) Company's public offering of 6,000,000 Shares
(including 1,000,000 Shares available under the DRP) which commenced October
14, 1994 and was completed July 22, 1996; and (ii) the Company's public
offering of 11,375,000 Shares (including 1,000,000 Shares available under the
DRP and 375,000 Shares issuable on the exercise of warrants granted to
soliciting dealers) which commenced July 24, 1996 and was completed on
____________, 19__.
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"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: (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 dated June __, 1997 as
may be supplemented in connection with the registration of Shares offered
hereby.
"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 registration of the Shares and warrants
offered hereby on Form S-11 and related exhibits, as amended, filed by the
Company on May __, 1997 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
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(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.
"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
188
<PAGE> 199
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.
"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 ____________.
"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.
189
<PAGE> 200
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
INLAND REAL ESTATE CORPORATION
<S> <C>
Independent Auditors' Report . . . . . . . . . . . . . . . . . . . . . . . . . F-1
Balance Sheets at December 31, 1996 and 1995 . . . . . . . . . . . . . . . . . F-2
Statements of Operations for the years ended December 31, 1996 and 1995 . . . F-4
Statements of Stockholders' Equity for the years ended December 31, 1996 and
1995 and the period from May 12, 1994 (formation of the Company) to
December 31, 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-5
Statements of Cash Flows for the years ended December 31, 1996 and
1995 and the period from May 12, 1994 (formation of the Company) to
December 31, 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-6
Notes to Financial Statements for the years ended December 31, 1996
and 1995 and for the period from May 12, 1994 (formation of the Company)
to December 31, 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-8
Pro Forma Balance Sheet at December 31, 1996 (unaudited) . . . . . . . . . . . F-20
Notes to Pro Forma Balance Sheet at December 31, 1996 (unaudited) . . . . . . F-22
Pro Forma Statement of Operations for the year ended
December 31, 1996 (unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . F-27
Notes to Pro Forma Statement of Operations for the year
ended December 31, 1996 (unaudited) . . . . . . . . . . . . . . . . . . . . . F-29
MAPLE PARK PLACE SHOPPING CENTER
Independent Auditors' Report . . . . . . . . . . . . . . . . . . . . . . . . . F-46
Historical Summary of Gross Income and Direct Operating Expenses for the
year ended December 31, 1996 of Maple Park Place Shopping Center . . . . . . . F-47
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-48
AURORA COMMONS SHOPPING CENTER
Independent Auditors' Report . . . . . . . . . . . . . . . . . . . . . . . . . F-50
</TABLE>
F-i
<PAGE> 201
<TABLE>
<S> <C>
Historical Summary of Gross Income and Direct Operating Expenses for the
year ended December 31, 1996 of Aurora Commons Shopping Center . . . . . . . . . . . . . . . . F-51
Notes to Historical Summary of Gross Income and Direct Operating Expenses
for the year ended December 31, 1996 of Aurora Commons Shopping Center . . . . . . . . . . . . F-52
LINCOLN PARK PLACE SHOPPING CENTER
Independent Auditors' Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-54
Historical Summary of Gross Income and Direct Operating Expenses for the
year ended December 31, 1996 of Lincoln Park Place Shopping Center . . . . . . . . . . . . . . F-55
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-56
NILES SHOPPING CENTER
Independent Auditors' Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-58
Historical Summary of Gross Income and Direct Operating Expenses for the
year ended December 31, 1996 of Niles Shopping Center . . . . . . . . . . . . . . . . . . . . . F-59
Notes to Historical Summary of Gross Income and Direct Operating Expenses
for the year ended December 31, 1996 of Niles Shopping Center . . . . . . . . . . . . . . . . . F-60
COBBLERS MALL
Independent Auditors' Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-62
Historical Summary of Gross Income and Direct Operating Expenses for the
year ended December 31, 1996 of Cobblers Mall . . . . . . . . . . . . . . . . . . . . . . . . . F-63
Notes to Historical Summary of Gross Income and Direct Operating Expenses
for the year ended December 31, 1996 of Cobblers Mall . . . . . . . . . . . . . . . . . . . . . F-64
</TABLE>
F-ii
<PAGE> 202
<TABLE>
MALLARD MALL
<S> <C>
Independent Auditors' Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-66
Historical Summary of Gross Income and Direct Operating Expenses for the
year ended December 31, 1996 of Mallard Mall . . . . . . . . . . . . . . . . . . . . . . . . . F-67
Notes to Historical Summary of Gross Income and Direct Operating Expenses
for the year ended December 31, 1996 of Mallard Mall . . . . . . . . . . . . . . . . . . . . . F-68
SEQUOIA SHOPPING CENTER
Independent Auditors' Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-70
Historical Summary of Gross Income and Direct Operating Expenses for the
year ended December 31, 1996 of Sequoia Shopping Center . . . . . . . . . . . . . . . . . . . . F-71
Notes to Historical Summary of Gross Income and Direct Operating Expenses
for the year ended December 31, 1996 of Sequoia Shopping Center . . . . . . . . . . . . . . . . F-72
</TABLE>
F-iii
<PAGE> 203
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Inland Real Estate Corporation:
We have audited the financial statements of Inland Real Estate Corporation (the
Company) as listed in the accompanying index. In connection with the audits of
the financial statements, we also have audited the financial statement schedule
as listed in the accompanying index. These financial statements and financial
statement schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
financial statement schedule 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 Inland Real Estate Corporation
as of December 31, 1996 and 1995, and the results of its operations and its
cash flows for the years ended December 31, 1996 and 1995 and for the period
from May 12, 1994 (formation date) to December 31, 1994 in conformity with
generally accepted accounting principles. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.
KPMG Peat Marwick
Chicago, Illinois
January 23, 1997
except as to Note 7 which is as of March 24, 1997
F-1
<PAGE> 204
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Balance Sheets
December 31, 1996 and 1995
Assets
------
<TABLE>
<S> <C> <C>
1996 1995
---- ----
Investment properties (Notes 1 and 4):
Land............................................ $ 24,705,743 5,437,948
Building and improvements....................... 69,927,238 12,074,484
------------- -------------
94,632,981 17,512,432
Less accumulated depreciation................... 1,109,038 169,894
------------- -------------
Net investment properties....................... 93,523,943 17,342,538
------------- -------------
Cash and cash equivalents including amounts
held by property manager (Note 1)............... 8,491,735 738,931
Restricted cash (Note 1).......................... 122,043 150,000
Accounts and rents receivable (Note 5)............ 1,914,756 333,823
Deposits and other assets (Note 4)................ 95,828 158,123
Deferred organization costs (net of
accumulated amortization of $5,492 and $0 at
December 31, 1996 and 1995, respectively)
(Note 1)........................................ 21,970 27,462
Loan fees (net of accumulated amortization
of $11,875 at December 31, 1996) (Note 1)....... 338,411 -
------------- -------------
Total assets.................................. $104,508,686 18,750,877
============= =============
</TABLE>
See accompanying notes to financial statements.
F-2
<PAGE> 205
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Balance Sheets
(continued)
December 31, 1996 and 1995
Liabilities and Stockholders' Equity
------------------------------------
<TABLE>
<S> <C> <C>
1996 1995
Liabilities: ---- ----
Accounts payable................................ $ 289,912 6,875
Accrued offering costs to Affiliates (Note 2)... 298,341 222,353
Accrued offering costs to non-affiliates........ 4,236 6,444
Accrued interest payable to Affiliates.......... 4,718 5,242
Accrued interest payable to non-affiliates...... 52,402 -
Accrued real estate taxes....................... 2,770,889 374,180
Distributions payable (Note 7).................. 548,947 129,532
Security deposits............................... 247,769 54,483
Note payable to Affiliates (Note 6)............. - 360,000
Mortgages payable (Notes 4 and 6)............... 30,838,233 750,727
Unearned income................................. 64,590 39,846
Other liabilities............................... 32,820 178,852
Due to Affiliates (Note 2)...................... 255,591 7,277
------------- -------------
Total liabilities............................. 35,408,448 2,135,811
------------- -------------
Stockholders' Equity (Notes 1 and 2):
Common stock, $.01 par value, 24,000,000 Shares
authorized; 8,144,116 and 8,137,766 issued and
outstanding at December 31, 1996 and 2,003,073
and 2,000,073 Shares issued and outstanding
at December 31, 1995, respectively............ 81,000 19,996
Additional paid-in capital (net of offering
costs of $10,500,108 and $3,121,175 at
December 31, 1996 and 1995, respectively, of
which $8,096,213 and $2,129,264 was paid
to Affiliates, respectively).................. 70,512,073 16,835,183
Accumulated distributions in excess
of net income................................. (1,492,835) (240,113)
------------- -------------
Total stockholders' equity.................... 69,100,238 16,615,066
------------- -------------
Commitments and contingencies (Notes 3, 5 and 7)..
------------- -------------
Total liabilities and stockholders' equity........ $104,508,686 18,750,877
============= =============
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE> 206
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Statements of Operations
For the years ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Income:
Rental income (Notes 1 and 5).................. $ 4,467,903 869,485
Additional rental income....................... 1,336,809 228,024
Interest income................................ 438,188 82,913
Other income................................... 84,834 -
------------ ------------
6,327,734 1,180,422
------------ ------------
Expenses:
Professional services to Affiliates............ 16,476 7,277
Professional services to non-affiliates........ 46,790 1,615
General and administrative expenses to
Affiliates.................................... 42,904 -
General and administrative expenses
to non-affiliates............................. 77,389 13,880
Advisor asset management fee................... 238,108 -
Property operating expenses to Affiliates...... 229,307 46,791
Property operating expenses to non-affiliates.. 1,643,867 279,930
Mortgage interest to Affiliates................ 64,165 146,821
Mortgage interest to non-affiliates............ 533,320 17,340
Depreciation................................... 939,144 169,894
Amortization................................... 17,367 -
Acquisition costs expensed..................... 26,676 360
------------ ------------
3,875,513 683,908
------------ ------------
Net income.................................... $ 2,452,221 496,514
============ ============
Net income per weighted average
common stock shares outstanding
(4,494,620 and 943,156 for the years
ended December 31, 1996 and 1995,
respectively).................................. $ .55 .53
============ ============
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE> 207
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Statements of Stockholders' Equity
For the years ended December 31, 1996, 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
$3,121,175).............. 19,826 16,662,162 - 16,681,988
Repurchases of Shares....... (30) (26,779) - (26,809)
----------- ----------- ----------- ------------
Balance December 31, 1995... 19,996 16,835,183 (240,113) 16,615,066
Net income.................. - - 2,452,221 2,452,221
Distributions declared
($.82 per weighted average
common stock shares
outstanding).............. - - (3,704,943) (3,704,943)
Proceeds from Offering (net
of Offering costs of
$10,500,108).............. 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
=========== =========== =========== ============
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE> 208
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Statements of Cash Flows
For the years ended December 31, 1996 and 1995
and for the period from May 12, 1994 (formation of the Company)
to December 31, 1994
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income........................ $ 2,452,221 496,514 -
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation.................... 939,144 169,894 -
Amortization.................... 17,367 - -
Rental income under master
lease agreements.............. 437,678 133,016 -
Straight line rental income..... (119,225) (12,413) -
Changes in assets and liabilities:
Accounts and rents receivable. (1,461,708) (321,410) -
Deposits and other assets..... 62,295 (4,006) -
Accounts payable.............. 283,038 6,875 -
Accrued interest payable...... 51,878 5,242 -
Accrued real estate taxes..... 2,396,709 374,180 -
Security deposits............. 193,286 54,483 -
Other liabilities............. 3,968 28,852 -
Due to Affiliates............. 248,314 7,277 -
Unearned income............... 24,744 39,846 -
------------- ------------- -------------
Net cash provided by operating
activities........................ 5,529,709 978,350 -
------------- ------------- -------------
Cash flows from investing activities:
Escrowed funds.................... - - (1,699,381)
Payments for acquisition expenses. - - (4,117)
Purchase of investment properties. (68,717,979) (6,376,708) -
Tenant improvements............... (136,819) (51,135) -
Deposit for tenant improvements... (122,043) (150,000) -
------------- ------------- -------------
Net cash used in investing
activities........................ (68,976,841) (6,577,843) (1,703,498)
------------- ------------- -------------
Cash flows from financing activities:
Repayment of loan from Advisor.... - (193,300) 193,300
Proceeds from offering............ 61,147,147 19,803,163 200,000
Subscriptions received............ - - 1,699,381
Repurchase of Shares.............. (30,321) (26,809) -
Payments of offering costs........ (7,305,153) (2,514,129) (378,249)
Loan proceeds..................... 25,670,000 - -
Loan fees......................... (350,286) - -
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE> 209
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Statements of Cash Flows
(continued)
For the years ended December 31, 1996 and 1995
and for the period from May 12, 1994 (formation of the Company)
to December 31, 1994
<TABLE>
<CAPTION> 1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Distributions paid................ (3,285,528) (607,095) -
Repayment of notes from Affiliate. (3,271,185) - -
Principal payments of debt........ (1,374,738) (10,106,878) -
Payment of deferred organization
costs........................... - (27,462) -
------------- ------------- -------------
Net cash provided by financing
activities........................ 71,199,936 6,327,490 1,714,432
------------- ------------- -------------
Net increase in cash and
cash equivalents.................. 7,752,804 727,997 10,934
Cash and cash equivalents at
beginning of period............... 738,931 10,934 -
------------- ------------- -------------
Cash and cash equivalents at
end of period..................... $ 8,491,735 738,931 10,934
============= ============= =============
</TABLE>
Supplemental schedule of noncash investing and financing activities:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Purchase of investment properties.. $(77,421,408) (17,594,313) -
Assumption of mortgage debt...... 5,803,429 4,595,178 -
Note payable to Affiliate........ 2,900,000 6,622,427 -
------------- ------------- ------------
$(68,717,979) (6,376,708) -
============= ============= ============
Distributions payable.............. $ 548,947 129,532 -
============= ============= ============
Cash paid for interest............. $ 545,607 158,919 -
============= ============= ============
</TABLE>
See accompanying notes to financial statements.
F-7
<PAGE> 210
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Notes to Financial Statements
For the years ended December 31, 1996, 1995 and
for the period from May 12, 1994 (formation of the Company)
to December 31, 1994
(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 December 31, 1996, the Company
had received subscriptions for a total of 3,137,776 Shares from the Second
Offering, resulting in $81,150,311 in gross offering proceeds, which includes
$1,470,938 received for 162,534 Shares purchased through the Distribution
Reinvestment Program. As of December 31, 1996, 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.
F-8
<PAGE> 211
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Notes to Financial Statements
(continued)
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. Cash and equivalents include $865,521 and $142,720
at December 31, 1996 and 1995, respectively, which are held by the Company's
affiliated property manager. Such amounts are unrestricted and held in the
Company's name.
Restricted cash at December 31, 1996 represents 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. Restricted cash at December 31, 1995 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.
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 and the cash rent due under
the provisions of the lease agreements is recorded as deferred rent receivable.
F-9
<PAGE> 212
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Notes to Financial Statements
(continued)
The Company believes that the interest rates associated with the mortgages
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
mortgages 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 relatively short maturity of these
instruments.
Certain amounts in the 1995 financial statements have been reclassified to
conform with the 1996 presentation. Such reclassifications did not change the
1995 reported results.
(2) Transactions with Affiliates
As of December 31, 1996, the Company had incurred $10,500,108 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 December 31, 1996, organizational
and offering costs of the Second Offering did 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
$692,248 and $409,858 as of December 31, 1996 and 1995, respectively, of which
$27,976 and $120,269 were unpaid as of December 31, 1996 and 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 $7,403,965
and $1,719,406 for the years ended December 31, 1996 and 1995, respectively, of
which $270,365 and $102,084 was unpaid as of December 31, 1996 and 1995,
respectively. As of December 31, 1996, approximately $6,296,000 of these
commissions had been passed through from the Affiliate to unaffiliated
soliciting broker/dealers.
F-10
<PAGE> 213
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Notes to Financial Statements
(continued)
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 $749 remained unpaid at December 31, 1996.
As of December 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 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 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
year ended December 31, 1996, the Company has incurred $238,108 of such fees,
all of which remains unpaid at December 31, 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 $229,307 and $46,791 for the years ended December 31, 1996
and 1995, respectively, all of which has been paid.
The Company has incurred costs to Affiliates relating to the acquisition of the
properties, of which $16,734 is unpaid at December 31, 1996.
F-11
<PAGE> 214
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Notes to Financial Statements
(continued)
(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 December 31, 1996, 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.
F-12
<PAGE> 215
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Notes to Financial Statements
(continued)
<TABLE>
<CAPTION>
(4) Investment Properties
Initial Cost (A) Gross amount at which carried
-------------------------- 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 (130,984) 268,000 1,229,461 1,497,461
Mundelein Plaza
Mundelein, IL........... 03/96 1,695,000 3,965,560 (22,820) 1,695,000 3,942,740 5,637,740
Regency Point
Lockport, IL............ 04/96 1,000,000 4,720,800 (21,900) 1,000,000 4,698,900 5,698,900
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 (31,525) 768,000 2,682,648 3,450,648
------------ ------------- ------------ ------------- ------------- ------------
Subtotal $10,233,248 26,752,379 (292,880) 10,233,248 26,459,499 36,692,747
</TABLE>
F-13
<PAGE> 216
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Notes to Financial Statements
(continued)
<TABLE>
(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 (292,880) 10,233,248 26,459,499 36,692,747
Salem Square
Countryside, IL......... 08/96 1,735,000 4,449,217 (6,900) 1,735,000 4,442,317 6,177,317
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 (9,000) 1,794,000 7,406,396 9,200,396
Crestwood Plaza
Crestwood, IL........... 12/96 325,577 1,483,183 - 325,577 1,483,183 1,808,760
Park St. Claire
Schaumburg, IL.......... 12/96 319,578 1,205,672 (3,463) 319,578 1,202,209 1,521,787
Lansing Square
Lansing, IL............. 12/96 4,075,000 12,179,383 (9,800) 4,075,000 12,169,583 16,244,583
Summit of Park Ridge
Park Ridge, IL.......... 12/96 672,000 2,497,950 (2,364) 672,000 2,495,586 3,167,586
Grand and Hunt Club
Gurnee, IL.............. 12/96 969,840 2,622,575 (58,333) 969,840 2,564,242 3,534,082
Quarry Outlot
Hodgkins, IL............ 12/96 522,000 1,278,431 - 522,000 1,278,431 1,800,431
------------ ------------- ------------ ------------- ------------- ------------
Total $24,705,743 70,309,978 (382,740) 24,705,743 69,927,238 94,632,981
============ ============ =========== ============ ============ ============
</TABLE>
F-14
<PAGE> 217
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Notes to Financial Statements
(continued)
December 31, 1996
(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. As of December 31, 1996, the cumulative amount of such payments
was $570,694. (Note 5)
Cost and accumulated depreciation of the above properties are summarized as
follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Single User Retail Properties:
Cost.................................... $ 3,673,086 1,209,053
Less accumulated depreciation........... 112,871 34,550
------------ ------------
3,560,215 1,174,503
------------ ------------
Neighborhood Retail Centers:
Cost.................................... 90,959,895 16,303,379
Less accumulated depreciation........... 996,167 135,344
------------ ------------
89,963,728 16,168,035
------------ ------------
Total................................... $93,523,943 17,342,538
============ ============
</TABLE>
F-15
<PAGE> 218
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Notes to Financial Statements
(continued)
(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 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.
Minimum lease payments under operating leases to be received in the future,
excluding rental income under master lease agreements and assuming no expiring
leases are renewed:
<TABLE>
Number of
Minimum Lease Leases
Payments Expiring
------------- ------------
<S> <C> <C>
1997...................................... $ 10,796,526 20
1998...................................... 10,269,714 33
1999...................................... 9,264,471 23
2000...................................... 8,471,277 23
2001...................................... 6,891,348 17
Thereafter................................ 45,063,881 60
-------------
Total..................................... $ 90,757,217
=============
</TABLE>
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.
Remaining lease terms range from one year to thirty two years. Pursuant to the
lease agreements, tenants of the property are required to reimburse the Company
for some or all of their pro rata share of the real estate taxes and operating
expenses of the property. Such amounts are included in additional rental
income.
Certain tenant leases contain provisions providing for stepped rent increases.
GAAP requires the Company to record rental income for the period of occupancy
using the effective monthly rent, which is the average monthly rent for the
entire period of occupancy during the term of the lease. The accompanying
financial statements include increases of $119,225 and $12,413 in 1996 and
1995, of rental income for the period of occupancy for which stepped rent
increases apply and $131,638 and $12,413 in related accounts receivable as of
December 31, 1996 and 1995, respectively. The Company anticipates collecting
these amounts over the terms of the related leases as scheduled rent payments
are made.
F-16
<PAGE> 219
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Notes to Financial Statements
(continued)
(6) Mortgages and Note Payable
Mortgages payable consist of the following at December 31, 1996 and 1995:
<TABLE>
Balance at
December 31,
Property as Interest Maturity Monthly ------------
Collateral Rate Date Payment(a) 1996 1995
- ---------------- ---------- --------- ---------- -----------------------
Mortgage payable to Affiliate:
<S> <C> <C> <C> <C> <C>
Walgreens 7.655% 05/2004 $ 5,689 $ 739,543 750,727
Mortgages payable to non-affiliates:
Regency Point (b) 08/2000 (b) 4,428,690 -
Eagle Crest 7.850% 10/2003 15,373 2,350,000 -
Nantucket Square 7.850% 10/2003 14,392 2,200,000 -
Antioch Plaza 7.850% 10/2003 5,724 875,000 -
Mundelein Plaza 7.850% 10/2003 18,382 2,810,000 -
Montgomery-Goodyear 7.850% 10/2003 4,121 630,000 -
Montgomery-Sears 7.850% 08/2003 10,761 1,645,000 -
Hartford/Naperville 7.850% 08/2003 15,111 2,310,000 -
Zany Brainy 7.590% 01/2004 7,875 1,245,000 -
Prospect Heights
Plaza 7.590% 01/2004 6,926 1,095,000 -
Hawthorn Village
Commons 7.590% 01/2004 27,071 4,280,000 -
Six Corners Plaza 7.590% 01/2004 19,608 3,100,000 -
Salem Square
Shopping Center 7.590% 01/2004 19,797 3,130,000 -
----------- ------------
Mortgages Payable.................................... $30,838,233 750,727
=========== ============
</TABLE>
F-17
<PAGE> 220
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Notes to Financial Statements
(continued)
Note payable to Affiliates consists of the following at December 31, 1996 and
1995:
<TABLE>
<S> <C> <C>
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
=========== ============
</TABLE>
(a) All payments are interest only, with the exception of the loans secured by
the Walgreens and Regency Point 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.
As of December 31, 1996, the required future principal payments on the
Partnership's long-term debt over the next five years are as follows:
<TABLE>
<S> <C>
1997.................................... $ 71,495
1998.................................... 74,454
1999.................................... 84,911
2000.................................... 4,252,170
2001.................................... 16,380
</TABLE>
F-18
<PAGE> 221
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Notes to Financial Statements
(continued)
(7) Subsequent Events
As of March 24, 1997, subscriptions for a total of 10,628,676 Shares were
received, bringing total gross offering proceeds to $106,137,967.
In January 1997, the Company paid a distribution of $548,947 to the
Stockholders.
On January 9, 1997, the Company purchased the Maple Park Place Shopping Center
from an unaffiliated third party for approximately $15,260,000. The property
is located in Bolingbrook, Illinois and contains 220,095 square feet of
leasable space. Its anchor tenants include Kmart, Eagle Foods and Powerhouse
Gym.
On January 24, 1997, the Company purchased Lincoln Park Place from an
unaffiliated third party for approximately $2,100,000. The property is located
in Chicago, Illinois. It consists of a 10,678 square foot building occupied by
two tenants, Lechters and Nordic Track.
On January 24, 1997, the Company purchased Aurora Commons Shopping Center from
an unaffiliated third party for approximately $11,500,000. The property is
located in Aurora, Illinois and consists of three buildings comprising 127,292
square feet. Its anchor tenants include Jewel/Osco, Boston Market and
Blockbuster.
In January 1997, the Company obtained additional financing secured by the
Lansing Square and Spring Hill Fashion Corner properties totaling $12,840,000
from an unaffiliated lender. The Company paid a 1 1/4% fee in connection with
these mortgage loans. The mortgage loans have a term of seven years and, prior
to maturity date, require payments of interest only, at 7.8%, fixed for the
first five years with the remaining two years at prime plus 1/2%.
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 redevelopment 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 redevelopment of
the center and when the anticipated main tenant, Dominick's Finer Foods, Inc.,
begins paying rent under a lease agreement.
F-19
<PAGE> 222
Inland Real Estate Corporation
Pro Forma Balance Sheet
December 31, 1996
(unaudited)
The following unaudited Pro Forma Balance Sheet of the Company is presented to
effect the acquisition of the Maple Park Place Shopping Center, Aurora Commons
Shopping Center, Lincoln Park Place Shopping Center, Niles Shopping Center,
Cobblers Mall, Mallard Mall, Calumet Square, Ameritech Outlot, Sequoia Plaza,
Highland Park Dominicks and Schaumburg Dominicks as though these transactions
occurred December 31, 1996. This unaudited Pro Forma Balance Sheet should be
read in conjunction with the December 31, 1996 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, 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-20
<PAGE> 223
Inland Real Estate Corporation
Pro Forma Balance Sheet
December 31, 1996
(unaudited)
<TABLE>
December 31,
December 31, 1996
1996 Pro Forma Pro Forma
Historical(A) Adjustments(B) Balance Sheet
------------- ------------- --------------
Assets
- ------
<S> <C> <C> <C>
Net investment in
properties.................. $ 93,523,943 80,854,050 174,377,993
Cash and cash equivalents..... 8,491,735 - 8,491,735
Restricted cash............... 122,043 - 122,043
Accounts and rents
receivable.................. 1,914,756 1,514,537 3,429,293
Other assets.................. 456,209 45,201 501,410
------------- ------------- -------------
Total assets.................. $104,508,686 82,413,788 186,922,474
============= ============= =============
Liabilities and Stockholders' Equity
- ------------------------------------
Accounts payable and accrued
expenses.................... $ 649,609 - 649,609
Accrued real estate taxes..... 2,770,889 1,591,764 4,362,653
Distributions payable (C)..... 548,947 - 548,947
Security deposits............. 247,769 87,804 335,573
Mortgages payable............. 30,838,233 21,275,747 52,113,980
Unearned income............... 64,590 - 64,590
Other liabilities............. 32,820 - 32,820
Due to Affiliates............. 255,591 - 255,591
------------- ------------- -------------
Total liabilities............. 35,408,448 22,955,315 58,363,763
------------- ------------- -------------
Common Stock.................. 81,000 69,138 150,138
Additional paid in capital
(net of Offering costs)..... 70,512,073 59,389,335 129,901,408
Accumulated distributions in
excess of net income........ (1,492,835) - (1,492,835)
------------- ------------- -------------
Total Stockholders' equity.... 69,100,238 59,458,473 128,558,711
------------- ------------- -------------
Total liabilities and
Stockholders' equity........ $104,508,686 82,413,788 186,922,474
============= ============= =============
</TABLE>
See accompanying notes to pro forma balance sheet.
F-21
<PAGE> 224
Inland Real Estate Corporation
Notes to Pro Forma Balance Sheet
(continued)
December 31, 1996
(unaudited)
(A) The December 31, 1996 Historical column represents the historical balance
sheet as presented in the December 31, 1996 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, 1996. The
terms are described in the notes that follow.
<TABLE>
Pro Forma Adjustments
--------------------------------------
Maple Park Aurora Lincoln
Place Commons Park Place
------------ ------------ ------------
Assets
- ------
<S> <C> <C> <C>
Net investment in
properties............ $15,262,150 11,500,000 2,100,000
Accounts and rents
receivable............ 189,477 174,067 82,674
Other assets............ 20,000 - 25,201
------------ ------------ ------------
Total assets............ $15,471,627 11,674,067 2,207,875
============ ============ ============
Liabilities and Stockholders' Equity
- ------------------------------------
Accrued real estate
taxes................. $ 189,477 177,619 82,674
Security deposits....... 49,224 24,330 -
Mortgages payable....... 8,000,000 11,259,637 2,016,110
------------ ------------ ------------
Total liabilities....... 8,238,701 11,461,586 2,098,784
------------ ------------ ------------
Common Stock (D)........ 8,410 247 127
Additional paid in capital
(net of Offering
Costs)(D)............. 7,224,516 212,235 108,964
------------ ------------ ------------
Total Stockholders'
equity................ 7,232,926 212,481 109,091
------------ ------------ ------------
Total liabilities and
Stockholders' equity.. $15,471,627 11,674,067 2,207,875
============ ============ ============
</TABLE>
F-22
<PAGE> 225
Inland Real Estate Corporation
Notes to Pro Forma Balance Sheet
(continued)
December 31, 1996
(unaudited)
(B) Continued
<TABLE>
<CAPTION>
Pro Forma Adjustments
-----------------------------------------------------------------------------------------------------
Niles Highland
Shopping Cobblers Mallard Calumet Ameritech Sequoia Park Schaumburg
Center Mall Mall Square Outlot Plaza Dominicks Dominicks
------------ ----------- ----------- ----------- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Assets
- ------
Net investment in
properties........... $ 3,280,000 10,953,000 8,099,900 2,108,000 1,050,000 3,010,000 10,691,000 12,800,000
Accounts and rents
receivable........... 121,981 391,000 312,800 140,000 5,000 97,538 - -
Other assets........... - - - - - - - -
------------ ------------ ------------ ----------- ----------- ----------- ----------- ------------
Total assets........... $ 3,401,981 11,344,000 8,412,700 2,248,000 1,055,000 3,107,538 10,691,000 12,800,000
============ ============ ============ =========== =========== =========== =========== ============
Liabilities and Stockholders' Equity
- ------------------------------------
Accrued real estate
taxes................ $ 121,981 430,076 340,057 140,000 5,000 104,880 - -
Security deposits...... 14,250 - - - - - - -
Mortgages payable...... - - - - - - -
------------ ------------ ------------ ----------- ----------- ----------- ----------- ------------
Total liabilities...... 136,231 430,076 340,057 140,000 5,000 104,880 - -
------------ ------------ ------------ ----------- ----------- ----------- ----------- ------------
Common Stock (D)....... 3,797 12,691 9,387 2,451 1,221 3,491 12,431 14,884
Additional paid in capital
(net of Offering
Costs)(D)............ 3,261,953 10,901,233 8,063,256 2,105,549 1,048,779 2,999,167 10,678,569 12,785,116
------------ ------------ ------------ ----------- ----------- ----------- ----------- ------------
Total Stockholders'
equity............... 3,265,750 10,913,924 8,072,643 2,108,000 1,050,000 3,002,658 10,691,000 12,800,000
------------ ------------ ------------ ----------- ----------- ----------- ----------- ------------
Total liabilities and
Stockholders' equity. $ 3,401,981 11,344,000 8,412,700 2,248,000 1,055,000 3,107,538 10,691,000 12,800,000
============ ============ ============ =========== =========== =========== =========== ============
</TABLE>
<TABLE>
Total
Pro Forma
Adjustments
-----------
<S> <C>
Assets
- ------
Net investment in
properties........... 80,854,050
Accounts and rents
receivable........... 1,514,537
Other assets........... 45,201
-------------
Total assets........... 82,413,788
=============
Liabilities and
Stockholders' Equity
- ---------------------
Accrued real estate
taxes................ 1,591,764
Security deposits...... 87,804
Mortgages payable...... 21,275,747
-------------
Total liabilities...... 22,955,315
-------------
Common Stock (D)....... 69,138
Additional paid in capital
(net of Offering
Costs)(D)............ 59,389,335
-------------
Total Stockholders'
equity............... 59,458,473
-------------
Total liabilities and
Stockholders' equity. 82,413,788
=============
</TABLE>
F-23
<PAGE> 226
Inland Real Estate Corporation
Notes to Pro Forma Balance Sheet
(continued)
December 31, 1996
(unaudited)
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 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.
Acquisition of Niles Shopping Center, Niles, Illinois
On April 11, 1997, the Company acquired this property from an unaffiliated
third party for the purchase price of $3,280,000 on an all cash basis,
funded from cash and cash equivalents.
Acquisition of Cobblers Mall, Elgin, Illinois
On May 6, 1997, the Company acquired this property from an unaffiliated
third party for the purchase price of $10,953,000 on an all cash basis,
funded from cash and cash equivalents.
Acquisition of Mallard Mall, Elk Grove Village, Illinois
F-24
<PAGE> 227
Inland Real Estate Corporation
Notes to Pro Forma Balance Sheet
(continued)
December 31, 1996
(unaudited)
On May 6, 1997, the Company acquired this property from an unaffiliated
third party for the purchase price of $8,099,900 on an all cash basis,
funded from cash and cash equivalents.
F-25
<PAGE> 228
Probable Acquisitions
The Company anticipates acquiring the following properties from
unaffiliated third parties on an all cash basis, funded from cash and cash
equivalents: Calumet Square, Ameritech Outlot, Sequoia Plaza, Highland Park
Dominicks and Schaumburg Dominicks.
(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 $47,060,000, net of additional Offering
costs of $6,588,094 are reflected as received as of December 31, 1996,
prior to the purchase of the properties. Offering costs consist
principally of registration costs, printing and selling costs, including
commissions.
F-26
<PAGE> 229
Inland Real Estate Corporation
Pro Forma Statement of Operations
For the year ended December 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, 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, Lincoln Park Place Shopping Center, Niles
Shopping Center, Cobblers Mall, Mallard Mall, Calumet Square, Ameritech Outlot,
Sequoia Plaza, Highland Park Dominicks and Schaumburg Dominicks as though they
occurred the earlier of January 1, 1996 or the date operations commenced.
Grand and Hunt Club and the Quarry Outlot were constructed in 1996, and had not
commenced significant operations prior to acquisition, therefore, no operations
relating to these properties are presented on the unaudited Pro Forma Statement
of Operations for December 31, 1996. This unaudited Pro Forma Statement of
Operations should be read in conjunction with the December 31, 1996 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, 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-27
<PAGE> 230
Inland Real Estate Corporation
Pro Forma Statement of Operations
For the year ended December 31, 1996
(unaudited)
<TABLE>
Pro Forma Adjustments
------------------------------------
Acquisitions
1996 Probable
Historical 1996 1997 1997 1996
(A) (B) (C) (D) Pro Forma
----------- ----------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Rental income..... $4,467,903 6,127,326 5,796,643 2,221,142 18,613,014
Additional rental
income.......... 1,336,809 3,198,250 1,945,311 333,523 6,813,893
Interest
income(E)....... 438,188 - - - 438,188
Other income...... 84,834 - - - 84,834
----------- ----------- ----------- ------------ ------------
Total income.... 6,327,734 9,325,576 7,741,954 2,554,665 25,949,929
----------- ----------- ----------- ------------ ------------
Professional services
and general and
administrative
fees............ 183,559 - - - 183,559
Advisor asset
management fee.(I) 238,108 708,222 511,950 296,590 1,754,870
Property operating
expenses........ 1,873,174 3,656,698 2,316,784 427,991 8,274,647
Interest expense.. 597,485 949,958 1,784,433 - 3,331,876
Depreciation (F).. 939,144 1,448,017 1,339,661 741,200 4,468,022
Amortization (H).. 17,367 11,428 6,457 - 35,252
Acquisition costs
expensed........ 26,676 - - - 26,676
----------- ----------- ----------- ------------ ------------
Total expenses.... 3,875,513 6,774,323 5,959,285 1,465,781 18,074,902
----------- ----------- ----------- ------------ ------------
Net income...... $2,452,221 2,551,253 1,782,669 1,088,884 7,875,027
=========== =========== =========== ============ ============
Weighted average
common stock shares
outstanding (G). 4,494,620 11,408,420
=========== ============
Net income per weighted
average common stock
outstanding (G). $ .55 .69
=========== ============
</TABLE>
See accompanying notes to pro forma statement of operations.
F-28
<PAGE> 231
Inland Real Estate Corporation
Notes to Pro Forma Statement of Operations
For the year ended December 31, 1996
(unaudited)
(A) The 1996 Historical column represents the historical statement of
operations of the Company for the year ended December 31, 1996, as filed
with the SEC on Form 10-K.
(B) Total pro forma adjustments for the year ended December 31, 1996 are as
though the 1996 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.
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-29
<PAGE> 232
Inland Real Estate Corporation
Notes to Pro Forma Statement of Operations
(continued)
For the year ended December 31, 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%.
Total pro forma adjustments for 1996 acquisitions are as though they were
acquired the earlier of January 1, 1996 or date that operations commenced
(related to Zany Brainy).
<TABLE>
Mundelein Regency Prospect Montgomery- Zany
Plaza Point Heights Sears Brainy
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
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
----------- ----------- ----------- ----------- -----------
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
=========== =========== =========== =========== ===========
</TABLE>
F-30
<PAGE> 233
Inland Real Estate Corporation
Notes to Pro Forma Statement of Operations
(continued)
For the year ended December 31, 1996
(unaudited)
<TABLE>
Hawthorn
Salem Village Six Spring
Square Commons Corners Hill Crestwood
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Rental income..... $ 422,146 548,667 790,888 948,906 203,007
Additional rental
income.......... 260,832 270,570 517,804 234,837 69,315
----------- ----------- ----------- ----------- -----------
Total income...... 682,978 819,237 1,308,692 1,183,743 272,322
----------- ----------- ----------- ----------- -----------
Property operating
expenses........ 270,756 293,132 640,772 300,842 78,450
----------- ----------- ----------- ----------- -----------
Total expenses.... 270,756 293,132 640,772 300,842 78,450
----------- ----------- ----------- ----------- -----------
Net income........ $ 412,222 526,105 667,920 882,901 193,872
=========== =========== =========== =========== ===========
Total
1996
Park Lansing Park Pro Forma Acquisitions
St. Claire Square Ridge Adjustments Pro Forma
----------- ----------- ----------- ----------- ------------
Rental income..... $ 178,596 2,001,855 340,315 - 6,127,326
Additional rental
income.......... 62,194 1,332,149 236,791 - 3,198,250
----------- ----------- ----------- ----------- -----------
Total income...... 240,790 3,334,004 577,106 - 9,325,576
----------- ----------- ----------- ----------- -----------
Advisor asset
management fee.. - - - 708,222 708,222
Property operating
expenses........ 103,386 1,507,941 299,748 - 3,656,698
Interest Expense.. - - - 949,958 949,958
Depreciation...... - - - 1,448,017 1,448,017
Amortization...... - - - 11,428 11,428
----------- ----------- ----------- ----------- -----------
Total expenses.... 103,386 1,507,941 299,748 3,117,625 6,774,323
----------- ----------- ----------- ----------- -----------
Net income (loss). $ 137,404 1,826,063 277,358 (3,117,625) 2,551,253
=========== =========== =========== =========== ===========
</TABLE>
F-31
<PAGE> 234
Inland Real Estate Corporation
Notes to Pro Forma Statement of Operations
(continued)
For the year ended December 31, 1996
(unaudited)
(C) Total pro forma adjustments for 1997 acquisitions are as though they were
acquired the earlier of January 1, 1996.
<TABLE>
<CAPTION>
Total
Niles 1997
Maple Park Aurora Lincoln Shopping Cobblers Mallard Acquisitions
Place Commons Park Place Center Mall Mall Pro Forma
----------- ----------- ----------- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Rental income..... 1,844,314 1,341,448 228,218 375,349 1,014,342 992,972 5,796,643
Additional rental
income.......... 405,864 534,247 111,997 104,619 376,560 412,024 1,945,311
----------- ----------- ----------- ----------- ------------ ------------ -----------
Total income...... 2,250,178 1,875,695 340,215 479,968 1,390,902 1,404,996 7,741,954
----------- ----------- ----------- ----------- ------------ ------------ -----------
Advisor asset
management fee.. 152,621 115,000 21,000 32,800 109,530 80,999 511,950
Property operating
expenses........ 444,390 632,131 130,176 141,974 548,023 420,090 2,316,784
Interest expense.. 720,000 882,983 181,450 - - - 1,784,433
Depreciation...... 404,905 334,573 42,260 81,600 273,825 202,498 1,339,661
Amortization...... 2,857 - 3,600 - - - 6,457
----------- ----------- ----------- ----------- ------------ ------------ -----------
Total expenses.... 1,724,773 1,964,687 378,486 256,374 931,378 703,587 5,959,285
----------- ----------- ----------- ----------- ------------ ------------ -----------
Net income (loss). 525,405 (88,992) (38,271) 223,594 459,524 701,409 1,782,669
=========== =========== =========== =========== ============ ============ ===========
</TABLE>
F-32
<PAGE> 235
Inland Real Estate Corporation
Notes to Pro Forma Statement of Operations
(continued)
For the year ended December 31, 1996
(unaudited)
Acquisition of Maple Park Shopping Center, Bolingbrook, Illinois
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%.
Reconciliation of Gross income and Direct Operating Expenses for the year
ended December 31, 1996 prepared in accordance with Rule 3.14 of Regulation
S-X (*) to the Pro Forma Adjustments:
<TABLE>
Maple Park Place
-------------------------------------
*As Pro Forma
Reported Adjustments Total
----------- ----------- -----------
<S> <C> <C> <C>
Rental income.................... $1,844,314 - 1,844,314
Additional rental income......... 405,864 - 405,864
----------- ----------- -----------
Total income..................... 2,250,178 - 2,250,178
----------- ----------- -----------
Advisor asset management fee..... - 152,621 152,621
Property operating expenses...... 444,390 - 444,390
Interest expense................. - 720,000 720,000
Depreciation..................... - 404,905 404,905
Amortization..................... - 2,857 2,857
----------- ----------- -----------
Total expenses................... 444,390 1,280,383 1,724,773
----------- ----------- -----------
Net income (loss)................ $1,807,788 (1,280,383) 525,405
=========== =========== ===========
</TABLE>
F-33
<PAGE> 236
Inland Real Estate Corporation
Notes to Pro Forma Statement of Operations
(continued)
For the year ended December 31, 1996
(unaudited)
Acquisition of 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 loan bears interest at
a rate of 9% per annum with monthly payments of principal and interest on
the first day of each month.
Reconciliation of Gross income and Direct Operating Expenses for the year
ended December 31, 1996 prepared in accordance with Rule 3.14 of Regulation
S-X (*) to the Pro Forma Adjustments:
<TABLE>
Aurora Commons
-------------------------------------
*As Pro Forma
Reported Adjustments Total
----------- ----------- -----------
<S> <C> <C> <C>
Rental income.................... $1,314,448 - 1,341,448
Additional rental income......... 534,247 - 534,247
----------- ----------- -----------
Total income..................... 1,875,695 - 1,875,695
----------- ----------- -----------
Advisor asset management fee..... - 115,000 115,000
Property operating expenses...... 659,205 (27,074) 632,131
Interest expense................. - 882,983 882,983
Depreciation..................... - 334,573 334,573
----------- ----------- -----------
Total expenses................... 659,205 1,193,482 1,964,687
----------- ----------- -----------
Net income (loss)................ $1,216,490 (1,193,482) (88,992)
=========== =========== ===========
</TABLE>
F-34
<PAGE> 237
Inland Real Estate Corporation
Notes to Pro Forma Statement of Operations
(continued)
For the year ended December 31, 1996
(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.
Reconciliation of Gross income and Direct Operating Expenses for the year
ended December 31, 1996 prepared in accordance with Rule 3.14 of Regulation
S-X (*) to the Pro Forma Adjustments:
<TABLE>
Lincoln Park Place
-------------------------------------
*As Pro Forma
Reported Adjustments Total
----------- ----------- -----------
<S> <C> <C> <C>
Rental income.................... $ 228,218 - 228,218
Additional rental income......... 111,997 - 111,997
----------- ----------- -----------
Total income..................... 340,215 - 340,215
----------- ----------- -----------
Advisor asset management fee..... - 21,000 21,000
Property operating expenses...... 130,176 - 130,176
Interest expense................. - 181,450 181,450
Depreciation..................... - 42,260 42,260
Amortization..................... - 3,600 3,600
----------- ----------- -----------
Total expenses................... 130,176 248,310 378,486
----------- ----------- -----------
Net income (loss)................ $ 210,039 (248,310) (38,271)
=========== =========== ===========
</TABLE>
F-35
<PAGE> 238
Inland Real Estate Corporation
Notes to Pro Forma Statement of Operations
(continued)
For the year ended December 31, 1996
(unaudited)
Acquisition of Niles Shopping Center, Niles, Illinois
Reconciliation of Gross income and Direct Operating Expenses for the year
ended December 31, 1996 prepared in accordance with Rule 3.14 of Regulation
S-X (*) to the Pro Forma Adjustments:
<TABLE>
Niles Shopping Center
-------------------------------------
*As Pro Forma
Reported Adjustments Total
----------- ----------- -----------
<S> <C> <C> <C>
Rental income.................... $ 375,349 - 375,349
Additional rental income......... 104,619 - 104,619
----------- ----------- -----------
Total income..................... 479,968 - 479,968
----------- ----------- -----------
Advisor asset management fee..... - 32,800 32,800
Property operating expenses...... 141,974 - 141,974
Depreciation..................... - 81,600 81,600
----------- ----------- -----------
Total expenses................... 141,974 114,400 256,374
----------- ----------- -----------
Net income (loss)................ $ 337,995 (114,400) 223,594
=========== =========== ===========
</TABLE>
F-36
<PAGE> 239
Inland Real Estate Corporation
Notes to Pro Forma Statement of Operations
(continued)
For the year ended December 31, 1996
(unaudited)
Acquisition of Cobblers Mall, Elgin, Illinois
Reconciliation of Gross income and Direct Operating Expenses for the year
ended December 31, 1996 prepared in accordance with Rule 3.14 of Regulation
S-X (*) to the Pro Forma Adjustments:
<TABLE>
Cobblers Mall
-------------------------------------
*As Pro Forma
Reported Adjustments Total
----------- ----------- -----------
<S> <C> <C> <C>
Rental income.................... $1,014,342 - 1,014,342
Additional rental income......... 376,560 - 376,560
----------- ----------- -----------
Total income..................... 1,390,902 - 1,390,902
----------- ----------- -----------
Advisor asset
management fee................. - 109,530 109,530
Property operating
expenses....................... 548,023 - 548,023
Depreciation..................... - 273,825 273,825
----------- ----------- -----------
Total expenses................... 548,023 383,355 931,378
----------- ----------- -----------
Net income (loss)................ $ 842,879 (383,355) 459,524
=========== =========== ===========
</TABLE>
F-37
<PAGE> 240
Inland Real Estate Corporation
Notes to Pro Forma Statement of Operations
(continued)
For the year ended December 31, 1996
(unaudited)
Acquisition of Mallard Mall, Elk Grove Village, Illinois
Reconciliation of Gross income and Direct Operating Expenses for the year
ended December 31, 1996 prepared in accordance with Rule 3.14 of Regulation
S-X (*) to the Pro Forma Adjustments:
<TABLE>
Mallard Mall
-------------------------------------
*As Pro Forma
Reported Adjustments Total
----------- ----------- -----------
<S> <C> <C> <C>
Rental income.................... $ 992,972 - 992,972
Additional rental income......... 412,024 - 412,024
----------- ----------- -----------
Total income..................... 1,404,996 - 1,404,996
----------- ----------- -----------
Advisor asset
management fee................. - 80,999 80,999
Property operating
expenses....................... 420,090 - 420,090
Depreciation..................... - 202,498 202,498
----------- ----------- -----------
Total expenses................... 420,090 283,497 703,587
----------- ----------- -----------
Net income (loss)................ $ 984,906 (283,497) 701,409
=========== =========== ===========
</TABLE>
F-38
<PAGE> 241
Inland Real Estate Corporation
Notes to Pro Forma Statement of Operations
(continued)
For the year ended December 31, 1996
(unaudited)
(D) Total pro forma adjustments for 1997 probable acquisitions are as though
they were acquired the earlier of January 1, 1996 or date that operations
commenced (relating to Highland Park Dominicks and Schaumburg Dominicks).
<TABLE>
<CAPTION>
Total 1997
Highland Probable
Calumet Ameritech Sequoia Park Schaumburg Acquisitions
Square Outlot Plaza Dominicks Dominicks Pro Forma
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Rental income..... 222,072 106,283 361,986 883,976 646,825 2,221,142
Additional rental
income.......... 179,854 18,265 135,404 - - 333,523
----------- ----------- ----------- ----------- ----------- -----------
Total income...... 401,926 124,548 497,390 883,976 646,825 2,554,665
----------- ----------- ----------- ----------- ----------- -----------
Advisor asset
management fee.. 21,080 10,500 30,100 128,000 106,910 296,590
Property operating
expenses........ 214,748 18,500 164,126 17,680 12,937 427,991
Depreciation...... 52,700 26,250 75,250 320,000 267,000 741,200
----------- ----------- ----------- ----------- ----------- -----------
Total expenses.... 288,528 55,250 269,476 465,680 386,847 1,465,781
----------- ----------- ----------- ----------- ----------- -----------
Net income........ 113,398 69,298 227,914 418,296 259,978 1,088,884
=========== =========== =========== =========== =========== ===========
</TABLE>
F-39
<PAGE> 242
Inland Real Estate Corporation
Notes to Pro Forma Statement of Operations
(continued)
For the year ended December 31, 1996
(unaudited)
Probable Acquisition of Calumet Square Shopping Center, Calumet City,
Illinois
This pro forma adjustment reflects the purchase of Calumet Square as if the
Company had acquired the property as of January 1, 1996 and is based on
information provided by the Seller.
<TABLE>
<CAPTION>
Calumet Square
-------------------------------------
Year ended
December 31, Pro Forma
1996 Adjustments Total
----------- ----------- -----------
<S> <C> <C> <C>
Rental income............. $ 222,072 - 222,072
Additional rental income.. 179,854 - 179,854
----------- ----------- -----------
Total income.............. 401,926 - 401,926
----------- ----------- -----------
Advisor asset
management fee.......... - 21,080 21,080
Property operating
expenses................ 214,748 - 214,748
Depreciation.............. - 52,700 52,700
----------- ----------- -----------
Total expenses............ 214,748 73,780 288,528
----------- ----------- -----------
Net income (loss)......... $ 187,178 (73,780) 113,398
=========== =========== ===========
</TABLE>
F-40
<PAGE> 243
Inland Real Estate Corporation
Notes to Pro Forma Statement of Operations
(continued)
For the year ended December 31, 1996
(unaudited)
Probable Acquisition of Ameritech Outlot, Joliet, Illinois
This pro forma adjustment reflects the purchase of Ameritech as if the
Company had acquired the property as of January 1, 1996 and is based on
information provided by the Seller.
<TABLE>
<CAPTION>
Ameritech Outlot
-------------------------------------
Year ended
December 31, Pro Forma
1996 Adjustments Total
----------- ----------- -----------
<S> <C> <C> <C>
Rental income............. $ 106,283 - 106,283
Additional rental income.. 18,265 - 18,265
----------- ----------- -----------
Total income.............. 124,548 - 124,548
----------- ----------- -----------
Advisor asset
management fee.......... - 10,500 10,500
Property operating
expenses................ 18,500 - 18,500
Depreciation.............. - 26,250 26,250
----------- ----------- -----------
Total expenses............ 18,500 36,750 55,250
----------- ----------- -----------
Net income (loss)......... $ 106,048 (36,750) 69,298
=========== =========== ===========
</TABLE>
F-41
<PAGE> 244
Inland Real Estate Corporation
Notes to Pro Forma Statement of Operations
(continued)
For the year ended December 31, 1996
(unaudited)
Probable Acquisition of Sequoia Plaza, Milwaukee, Wisconsin
Reconciliation of Gross income and Direct Operating Expenses for the year
ended December 31, 1996 prepared in accordance with Rule 3.14 of Regulation
S-X (*) to the Pro Forma Adjustments:
<TABLE>
<CAPTION>
Sequoia Plaza
-------------------------------------
*As Pro Forma
Reported Adjustments Total
----------- ----------- -----------
<S> <C> <C> <C>
Rental income............. $ 361,986 - 361,986
Additional rental income.. 135,404 - 135,404
----------- ----------- -----------
Total income.............. 497,390 - 497,390
----------- ----------- -----------
Advisor asset
management fee.......... - 30,100 30,100
Property operating
expenses................ 164,126 - 164,126
Depreciation.............. - 75,250 75,250
----------- ----------- -----------
Total expenses............ 164,126 105,350 269,476
----------- ----------- -----------
Net income (loss)......... $ 333,264 (105,350) 227,914
=========== =========== ===========
</TABLE>
F-42
<PAGE> 245
Inland Real Estate Corporation
Notes to Pro Forma Statement of Operations
(continued)
For the year ended December 31, 1996
(unaudited)
Probable Acquisition of Dominicks, Highland Park, Illinois
This pro forma adjustment reflects the purchase of Highland Park Dominicks
as if the Company had acquired the property as of May 1, 1996, the date
operations commenced and is based on information provided by the Seller.
<TABLE>
<CAPTION>
Highland Park Dominicks
-------------------------------------
Year ended
December 31, Pro Forma
1996 Adjustments Total
----------- ----------- -----------
<S> <C> <C> <C>
Rental income............. $ 883,976 - 883,976
Additional rental income.. - - -
----------- ----------- -----------
Total income.............. 883,976 - 883,976
----------- ----------- -----------
Advisor asset
management fee.......... - 128,000 128,000
Property operating
expenses................ 17,680 - 17,680
Depreciation.............. - 320,000 320,000
----------- ----------- -----------
Total expenses............ 17,680 448,000 465,680
----------- ----------- -----------
Net income (loss)......... $ 866,296 (448,000) 418,296
=========== =========== ===========
</TABLE>
F-43
<PAGE> 246
Inland Real Estate Corporation
Notes to Pro Forma Statement of Operations
(continued)
For the year ended December 31, 1996
(unaudited)
Probable Acquisition of Dominicks, Schaumburg, Illinois
This pro forma adjustment reflects the purchase of Schaumburg Dominicks as
if the Company had acquired the property as of June 1, 1996, the date
operations commenced and is based on information provided by the Seller.
<TABLE>
<CAPTION>
Schaumburg Dominicks
-------------------------------------
Year ended
December 31, Pro Forma
1996 Adjustments Total
----------- ----------- -----------
<S> <C> <C> <C>
Rental income............. $ 646,825 - 646,825
Additional rental income.. - - -
----------- ----------- -----------
Total income.............. 646,825 - 646,825
----------- ----------- -----------
Advisor asset
management fee.......... - 106,910 106,910
Property operating
expenses................ 12,937 - 12,937
Depreciation.............. - 267,000 267,000
----------- ----------- -----------
Total expenses............ 12,937 373,910 386,847
----------- ----------- -----------
Net income (loss)......... $ 633,888 (373,910) 259,978
=========== =========== ===========
</TABLE>
F-44
<PAGE> 247
Inland Real Estate Corporation
Notes to Pro Forma Statement of Operations
(continued)
For the year ended December 31, 1996
(unaudited)
(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, 1996 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.
(I) Advisor Asset Management Fees are calculated as 1% of the Average Invested
Assets.
F-45
<PAGE> 248
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-46
<PAGE> 249
Maple Park Place
Historical Summary of Gross Income and Direct Operating Expenses
Year ended December 31, 1996
<TABLE>
<S> <C>
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
===========
</TABLE>
See accompanying notes to historical summary of gross income and direct
operating expenses.
F-47
<PAGE> 250
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-48
<PAGE> 251
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:
<TABLE>
<CAPTION>
Year Amount
---- ------
<S> <C>
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
============
</TABLE>
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-49
<PAGE> 252
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-50
<PAGE> 253
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
<TABLE>
<S> <C>
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
============
</TABLE>
See accompanying notes.
F-51
<PAGE> 254
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:
<TABLE>
<CAPTION>
Year Ending December 31,
<S> <C>
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
============
</TABLE>
F-52
<PAGE> 255
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-53
<PAGE> 256
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-54
<PAGE> 257
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
<TABLE>
<S> <C>
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
============
</TABLE>
See accompanying notes.
F-55
<PAGE> 258
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:
<TABLE>
<CAPTION>
Year Ending December 31
<S> <C>
1997................................ $ 235,633
1998................................ 239,219
1999................................ 222,724
2000................................ 140,250
2001................................ 35,063
Subsequent to 2001........................... -
------------
Aggregate Future Minimum Rentals............. $ 872,889
============
</TABLE>
F-56
<PAGE> 259
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-57
<PAGE> 260
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 Niles Shopping Center for the year
ended December 31, 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. The presentation is not intended to be a
complete presentation of Niles 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 Niles Shopping Center for the year ended December 31, 1996, in
conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Chicago, Illinois
March 13, 1997
F-58
<PAGE> 261
Niles Shopping Center
Historical Summary of Gross Income and Direct Operating Expenses
Year ended December 31, 1996
<TABLE>
<S> <C>
Gross income:
Base rental income.............................. $ 375,349
Operating expense and real estate
tax recoveries................................ 104,619
-----------
Total Gross Income.............................. 479,968
-----------
Direct operating expenses:
Real estate taxes............................... 121,981
Operating expenses.............................. 11,932
Insurance....................................... 6,808
Utilities....................................... 1,253
-----------
Total direct operating expenses................. 141,974
-----------
Excess of gross income over direct
operating expenses.............................. $ 337,995
===========
</TABLE>
See accompanying notes to historical summary of gross income and direct
operating expenses.
F-59
<PAGE> 262
Niles Shopping Center
Notes to Historical Summary of Gross Income and Direct Operating Expenses
Year ended December 31, 1996
1. Business
Niles Shopping Center (Niles Center) is located in Niles, Illinois. It
consists of approximately 26,092 square feet of gross leasable area and was
100% occupied at December 31, 1996. Inland Real Estate Corporation has
signed a sale and purchase agreement for the purchase of Niles Center 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 Niles
Center's revenues and expenses. The Historical Summary has been prepared
on the accrual basis of accounting and requires management of Niles Center
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
Niles Center leases retail space under various lease agreements with its
tenants. All leases are accounted for as operating leases. The leases
include provisions under which Niles Center is reimbursed for certain
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 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 $28,244 for the
year ended December 31, 1996.
F-60
<PAGE> 263
Niles Shopping Center
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 approximately as follows:
<TABLE>
<CAPTION>
Year Amount
---- ------
<S> <C>
1997 $ 387,032
1998 368,175
1999 352,750
2000 318,930
2001 279,197
Thereafter 199,925
------------
$ 1,906,009
============
</TABLE>
4. Direct Operating Expenses
Direct operating expenses include only those costs expected to be
comparable to the proposed future operations of Niles Center. Costs such
as mortgage interest, depreciation, amortization, management fees and
professional fees are excluded from the Historical Summary.
Niles Center has not received its final real estate tax bill for 1996.
Real estate tax expense is estimated based upon the 1995 bill. The
difference between this estimate and the final bill is not expected to
have a material impact on the Historical Summary.
F-61
<PAGE> 264
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 Cobblers Mall for the year ended
December 31, 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. The presentation is not intended to be a
complete presentation of Cobblers Mall'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 Cobblers Mall for the year ended December 31, 1996, in conformity
with generally accepted accounting principles.
KPMG Peat Marwick LLP
Chicago, Illinois
April 25, 1997
F-62
<PAGE> 265
Cobblers Mall
Historical Summary of Gross Income and Direct Operating Expenses
Year ended December 31, 1996
<TABLE>
<S> <C>
Gross income:
Base rental income.............................. $1,014,342
Operating expense and real estate
tax recoveries................................ 376,560
-----------
Total Gross Income.............................. 1,390,902
-----------
Direct operating expenses:
Real estate taxes............................... 430,076
Operating expenses.............................. 80,537
Utilities....................................... 32,225
Insurance....................................... 5,185
-----------
Total direct operating expenses................. 548,023
-----------
Excess of gross income over direct
operating expenses.............................. $ 842,879
===========
</TABLE>
See accompanying notes to historical summary of gross income and direct
operating expenses.
F-63
<PAGE> 266
Cobblers Mall
Notes to Historical Summary of Gross Income and Direct Operating Expenses
Year ended December 31, 1996
1. Business
Cobblers Mall (Cobblers) is located in Elgin, Illinois. It consists of
approximately 103,000 square feet of gross leasable area and was 91% leased
and occupied at December 31, 1996. Inland Real Estate Corporation has
signed a sale and purchase agreement for the purchase of Cobblers 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 Cobblers's
revenues and expenses. The Historical Summary has been prepared on the
accrual basis of accounting and requires management of Cobblers 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
Cobblers leases retail space under various lease agreements with its
tenants. All leases are accounted for as operating leases. The leases
include provisions under which Cobblers 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 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 $6,385 for the
year ended December 31, 1996.
F-64
<PAGE> 267
Cobblers Mall
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:
<TABLE>
<CAPTION>
Year Amount
---- ------
<S> <C>
1997 $ 1,002,043
1998 989,849
1999 930,840
2000 861,813
2001 817,835
Thereafter 7,893,319
------------
$12,495,699
============
</TABLE>
4. Direct Operating Expenses
Direct operating expenses include only those costs expected to be
comparable to the proposed future operations of Cobblers. Costs such as
mortgage interest, depreciation, amortization, management fees, and
professional fees are excluded from the Historical Summary.
Cobblers has not received its final real estate tax bill for 1996. Real
estate tax expense is estimated based upon the 1995 bill. The difference
between this estimate and the final bill is not expected to have a
material impact on the Historical Summary.
F-65
<PAGE> 268
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 Mallard Mall for the year ended
December 31, 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. The presentation is not intended to be a
complete presentation of Mallard Mall'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 Mallard Mall for the year ended December 31, 1996, in conformity
with generally accepted accounting principles.
KPMG Peat Marwick LLP
Chicago, Illinois
April 25, 1997
F-66
<PAGE> 269
Mallard Mall
Historical Summary of Gross Income and Direct Operating Expenses
Year ended December 31, 1996
<TABLE>
<S> <C>
Gross income:
Base rental income.............................. $ 992,972
Operating expense and real estate
tax recoveries................................ 412,024
-----------
Total Gross Income.............................. 1,404,996
-----------
Direct operating expenses:
Real estate taxes............................... 340,057
Operating expenses.............................. 63,829
Utilities....................................... 11,804
Insurance....................................... 4,400
-----------
Total direct operating expenses................. 420,090
-----------
Excess of gross income over direct
operating expenses.............................. $ 984,906
===========
</TABLE>
See accompanying notes to historical summary of gross income and direct
operating expenses.
F-67
<PAGE> 270
Mallard Mall
Notes to Historical Summary of Gross Income and Direct Operating Expenses
Year ended December 31, 1996
1. Business
Mallard Mall (Mallard) is located in Elk Grove Village, Illinois. It
consists of approximately 83,000 square feet of gross leasable area and was
92% leased and occupied at December 31, 1996. Inland Real Estate
Corporation has signed a sale and purchase agreement for the purchase of
Mallard 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 Mallard's
revenues and expenses. The Historical Summary has been prepared on the
accrual basis of accounting and requires management of Mallard 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
Mallard leases retail space under various lease agreements with its
tenants. All leases are accounted for as operating leases. The leases
include provisions under which Mallard 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 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 $4,632 for the
year ended December 31, 1996.
F-68
<PAGE> 271
Mallard Mall
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:
<TABLE>
<CAPTION>
Year Amount
---- ------
<S> <C>
1997 $ 1,067,063
1998 1,002,188
1999 960,074
2000 933,976
2001 934,328
Thereafter 8,459,805
------------
$13,357,434
============
</TABLE>
4. Direct Operating Expenses
Direct operating expenses include only those costs expected to be
comparable to the proposed future operations of Mallard. Costs such as
mortgage interest, depreciation, amortization, management fees, and
professional fees are excluded from the Historical Summary.
Mallard has not received its final real estate tax bill for 1996. Real
estate tax expense is estimated based upon the 1995 bill. The difference
between this estimate and the final bill is not expected to have a
material impact on the Historical Summary.
F-69
<PAGE> 272
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 Sequoia Shopping Center for the year
ended December 31, 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. The presentation is not intended to be a
complete presentation of Sequoia 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 Sequoia Shopping Center for the year ended December 31, 1996, in
conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Chicago, Illinois
April 10, 1997
F-70
<PAGE> 273
Sequoia Shopping Center
Historical Summary of Gross Income and Direct Operating Expenses
Year ended December 31, 1996
<TABLE>
<S> <C>
Gross income:
Base rental income.............................. $ 361,986
Operating expense and real estate
tax recoveries................................ 135,404
-----------
Total Gross Income.............................. 497,390
-----------
Direct operating expenses:
Real estate taxes............................... 104,880
Operating expenses.............................. 32,526
Management fees................................. 16,094
Insurance....................................... 5,252
Utilities....................................... 5,374
-----------
Total direct operating expenses................. 164,126
-----------
Excess of gross income over direct
operating expenses.............................. $ 333,264
===========
</TABLE>
See accompanying notes to historical summary of gross income and direct
operating expenses.
F-71
<PAGE> 274
Sequoia Shopping Center
Notes to Historical Summary of Gross Income and Direct Operating Expenses
Year ended December 31, 1996
1. Business
Sequoia Shopping Center (Sequoia) is located in Milwaukee, Wisconsin. It
consists of approximately 35,000 square feet of gross leasable area and was
93% leased at December 31, 1996. Inland Real Estate Corporation has signed
a sale and purchase agreement for the purchase of Sequoia 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 Sequoia's
revenues and expenses. The Historical Summary has been prepared on the
accrual basis of accounting and requires management of Sequoia 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
Sequoia leases retail space under various lease agreements with its
tenants. All leases are accounted for as operating leases. The leases
include provisions under which Sequoia 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.
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 $15,079 for the
year ended December 31, 1996.
F-72
<PAGE> 275
Sequoia Shopping Center
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 approximately as follows:
<TABLE>
<CAPTION>
Year Amount
---- ------
<S> <C>
1997 $ 342,684
1998 332,688
1999 264,909
2000 252,985
2001 110,684
Thereafter 147,092
------------
$ 1,451,042
============
</TABLE>
4. Direct Operating Expenses
Direct operating expenses include only those costs expected to be
comparable to the proposed future operations of Sequoia. Costs such as
mortgage interest, depreciation, amortization, management fees and
professional fees are excluded from the Historical Summary.
Sequoia Center 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.
Sequoia is managed pursuant to the terms of a verbal management agreement
for an annual fee of 4% of gross revenues (as defined). Subsequent to the
sale of Sequoia (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-73
<PAGE> 276
PRIOR PERFORMANCE TABLES
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 return 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 partnership 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> 277
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, 1996. 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. All public partnership offerings
closed prior to the three years ended December 31, 1996.
A-2
<PAGE> 278
TABLE II
COMPENSATION TO IREIC AND AFFILIATES (A)
Table II summarizes the amount and type of compensation paid to IREIC
during the three years ended December 31, 1996 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-3
<PAGE> 279
TABLE II
COMPENSATION TO IREIC AND AFFILIATES (A)
(000'S OMITTED)
<TABLE>
<CAPTION>
Public
Programs
---------------
7 Programs
--------------
<S> <C>
Date offering commenced . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -
Dollar amount raised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 181,706
=============
Amounts paid or payable to general partner or affiliates from proceeds
of offerings:
Selling commissions and underwriting fees (B) . . . . . . . . . . . . . . . . . . . . . $ 6,058
Other offering expenses (C) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,474
Acquisition cost and expense (D) . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,035
=============
Dollar amount of cash available (deficiency) from operations before
deducting (adding) payments to (from) general partner or
affiliates (E) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 15,399
=============
Amounts paid to (received from) general partner or affiliates related
to operations:
Property management fees (F) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,013
Partnership subsidies received (G) . . . . . . . . . . . . . . . . . . . . . . . . . . (280)
Accounting services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 312
Data processing service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 220
Legal services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 192
Other administrative services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 825
Property upgrades . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 464
Property operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Dollar amount of property sales and refinancings before payments to general
partner and affiliates (H):
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 16,735
Equity in notes and undistributed sales proceeds . . . . . . . . . . . . . . . . . . . 8,858
Dollar amounts paid or payable to general partner or affiliates from sales and
refinancings (I):
Sales commissions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 467
Property upgrade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
Mortgage brokerage fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0
Participation in cash distributions . . . . . . . . . . . . . . . . . . . . . . . . . . 0
</TABLE>
A-4
<PAGE> 280
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, 1996 and the figures
relating to cash available from operations are for the three years
ending December 31, 1996. 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) The total amount of selling commissions paid to an affiliate of the
general partner include $2,711,791, which was in turn paid 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>
Public
Programs
--------------
7 Programs
--------------
<S> <C>
Acquisition fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 10,922
Reimbursement (at cost) for upgrades and acquisition due diligence . . . . . 113
Partnership down payments . . . . . . . . . . . . . . . . . . . . . . . . . . 44,585
Inland down payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . (44,585)
------------
Acquisition cost and expense . . . . . . . . . . . . . . . . . . . . . . . . $ 11,035
============
</TABLE>
(E) See Note (F) 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., IREIC receives an annual
asset management fee equal to one-quarter of 1% of the original cost to
the partnership of undeveloped land, limited to a cumulative total over
the life of the partnership of 2% of the land's original cost to the
partnership.
A-5
<PAGE> 281
TABLE II--(CONTINUED)
COMPENSATION TO IREIC AND AFFILIATES
(000'S OMITTED)
NOTES TO TABLE II
(G) The amounts shown in the table represents 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-6
<PAGE> 282
TABLE III
OPERATING RESULTS OF PRIOR PROGRAMS
Table III presents operating results for limited partnership the
offerings of which closed during each of the five years ended prior to December
31, 1996. 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-7
<PAGE> 283
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.
---------------------------------------------------------
1996 1995 1994 1993 1992 1991
----- ------ ------ ------ ----- ------
<S> <C> <C> <C> <C> <C> <C>
Gross revenues . . . . . . . . . . . . . . . . . . . . . $ 411 457 744 564 104 0
Profit on sale of properties . . . . . . . . . . . . . . 0 229 0 0 0 0
Less:
Operating expenses . . . . . . . . . . . . . . . . . 145 146 64 4 1 0
Interest expense . . . . . . . . . . . . . . . . . . 0 0 0 0 0 0
Partnership expenses . . . . . . . . . . . . . . . . 170 167 175 86 1 0
Depreciation and amortization . . . . . . . . . . . 2 5 4 3 3 1
Net income (loss)-GAAP basis . . . . . . . . . . . . . . $ 94 368 501 471 99 (1)
====== ===== ===== ===== ===== ====
Taxable income (loss) (A):
Allocated to investors from operations . . . . . . . 93 137 495 466 100 (1)
Allocated to general partner from
operations . . . . . . . . . . . . . . . . . . . 1 1 5 5 1 0
------ ----- ----- ----- ----- ----
Total from operations . . . . . . . . . . . . . . . . . . 94 138 500 471 101 (1)
From gain on sale:
Capital (allocated to investors) . . . . . . . . . . 0 231 0 0 0 0
Capital (allocated to general partner) . . . . . . . 0 0 0 0 0 0
Ordinary (recapture) . . . . . . . . . . . . . . . . 0 0 0 0 0 0
------ ----- ----- ----- ----- ----
$ 94 369 500 471 101 (1)
====== ===== ===== ===== ===== ====
Cash available (deficiency) from
operations (F) . . . . . . . . . . . . . . . . . . . 130 172 633 397 94 0
Cash available from sales (B) . . . . . . . . . . . 0 646 0 0 0 0
Cash (deficiency) from refinancings . . . . . . . . . . . 0 0 0 0 0 0
------ ----- ----- ----- ----- ----
Total cash available before distributions
and special items . . . . . . . . . . . . . . . . . 130 818 633 397 94 0
Less distributions to investors:
From operations . . . . . . . . . . . . . . . . . . 0 0 0 0 0 0
From sales and refinancings . . . . . . . . . . . . 0 646 0 0 0 0
From return of capital . . . . . . . . . . . . . . . 0 0 0 0 0 0
From supplemental capital contribution
(return on capital) . . . . . . . . . . . . . . . 0 0 0 0 0 0
</TABLE>
A-8
<PAGE> 284
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.
---------------------------------------------------------
1996 1995 1994 1993 1992 1991
----- ------ ------ ------ ----- ------
<S> <C> <C> <C> <C> <C> <C>
</TABLE>
A-9
<PAGE> 285
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.
--------------------------------------------------------
1996 1995 1994 1993 1992 1991
---- ----- ------ ----- ----- ----
<S> <C> <C> <C> <C> <C> <C>
Less distributions to general partner:
From operations . . . . . . . . . . . . . . . . . . . . . . . 0 0 0 0 0 0
From sales and refinancings . . . . . . . . . . . . . . . . . 0 0 0 0 0 0
----- ----- ----- ----- ---- ---
Cash available after distributions
before special items . . . . . . . . . . . . . . . . . . . . . 130 172 633 397 94 0
Special items:
Fixed asset additions (C) . . . . . . . . . . . . . . . . . . 0 0 0 0 0 0
Advances (repayments) from (to)
general partner or affiliates . . . . . . . . . . . . . . . (20) 23 2 1 (85) 85
Repurchase of units (G) . . . . . . . . . . . . . . . . . . . (20) 0 (2) 0 0 0
Use of partnership reserves . . . . . . . . . . . . . . . . . 0 0 2 0 0 0
Use of cash available for offering
purposes . . . . . . . . . . . . . . . . . . . . . . . . . 0 0 0 0 0 0
----- ----- ----- ----- ---- ---
Cash available after distributions
and special items . . . . . . . . . . . . . . . . . . . . . . $ 90 195 635 398 9 85
===== ===== ===== ===== ==== ===
Tax and distribution data per $1,000
invested (D):
Federal income tax results:
Ordinary income (loss):
From operations . . . . . . . . . . . . . . . . . . . . . . 3 4 15 14 3 0
From recapture . . . . . . . . . . . . . . . . . . . . . . 0 0 0 0 0 0
Capital gain . . . . . . . . . . . . . . . . . . . . . . . 0 7 0 0 0 0
Cash distributions to investors:
Source (on GAAP basis):
Investment income . . . . . . . . . . . . . . . . . . . . . 0 0 0 0 0 0
Return of capital . . . . . . . . . . . . . . . . . . . . . 0 20 0 0 0 0
Supplemental capital contributions
(return on capital) . . . . . . . . . . . . . . . . . . 0 0 0 0 0 0
Source (on cash basis):
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . 0 20 0 0 0 0
Refinancings . . . . . . . . . . . . . . . . . . . . . . . 0 0 0 0 0 0
Operations . . . . . . . . . . . . . . . . . . . . . . . . 0 0 0 0 0 0
Return of capital . . . . . . . . . . . . . . . . . . . . . 0 0 0 0 0 0
Supplemental capital contributions
(return on capital) . . . . . . . . . . . . . . . . . . 0 0 0 0 0 0
Percent of properties remaining unsold (E) . . . . . . . . . 98.43%
======
</TABLE>
A-10
<PAGE> 286
OPERATING RESULTS OF PRIOR PROGRAMS
(000'S INCLUDED)
NOTES TO TABLE III
(A) "Taxable income (loss)" represents the aggregate amounts shown on the
partnership's 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) Percent of properties remaining unsold represents original total
acquisition costs of properties retained divided by original total
acquisition cost of all properties in the program, plus the total of
uninvested offering proceeds (if any). (F) "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.
----------------------------------------------------------
1996 1995 1994 1993 1992 1991
------ ---- ---- ---- ----- ----
<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 . . . . . . . . . . . . . . . . . . . $ 110 195 635 398 9 85
Payments to (from) general partner
and affiliates . . . . . . . . . . . . . . . . . . . . . . . 20 (23) (2) (1) 85 (85)
Principal payments on long-term debt. . . . . . . . . . . . . . . 0 0 0 0 0 0
Payments for deferred loan fees . . . . . . . . . . . . . . . . . 0 0 0 0 0 0
------ ---- ---- ---- ----- ---
$ 130 172 633 397 94 0
====== ==== ==== ==== ===== ===
</TABLE>
A-11
<PAGE> 287
TABLE III--(CONTINUED)
OPERATING RESULTS OF PRIOR PROGRAMS
(000'S INCLUDED)
NOTES TO TABLE III
(G) 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.
A-12
<PAGE> 288
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, 1996 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 during the five years ended
prior to December 31, 1996.
A-13
<PAGE> 289
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, 1996. Since 1994, partnerships sponsored by Affiliates of the Advisor have
sold 11 properties in whole or in part. The table provides certain information
to evaluate property performance over the holding period such as:
-- Sales 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> 290
TABLE V (CONTINUED)
SALES OR DISPOSALS OF PROPERTIES (A)
(000'S OMITTED)
<TABLE>
<CAPTION>
Selling Price, net of closing costs
-------------------------------------------------------------------
Cash Selling
Received, Commissions
net of paid or Mortgage
Date Date of Closing payable to at Time
Acquired Sale Costs (B) Inland of Sale
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Land II 10 Acres of Parcel #22 . . . . . . . . . . . 10/30/92 01/06/94 166 0 0
Land II .258 Acres of Parcel #6 . . . . . . . . . . . 04/16/91 10/01/94 10 0 0
Land II 11 Acres of Parcel #15 . . . . . . . . . . . 09/04/91 12/01/94 274 0 0
Growth Fund I-Country Club, 31 Units . . . . . . . . 12/30/85 Var 94 2,432 0 0
Land I 35.88 Acres of Parcel #23 . . . . . . . . . . 05/08/90 Var 94 1,149 0 0
Monthly Income Fund I-
Schaumburg Terrace, 22 Buildings . . . . . . . . . 06/24/88 Var 94 701 0 0
Land I 3.44 Acres of Parcel #23 . . . . . . . . . . . 05/08/90 Var 95 139 0 0
Monthly Income Fund I-
Schaumburg Terrace, 16 Buildings . . . . . . . . . 06/24/88 Var 95 409 0 0
Land II 60 Acres of Parcel #23 . . . . . . . . . . . 10/30/92 Var 95 4,196 0 0
Land II Parcel #25 . . . . . . . . . . . . . . . . . 01/28/93 10/31/95 3,292 0 0
Capital Fund Parcel #10A . . . . . . . . . . . . . . 09/16/94 04/21/95 286 0 0
Capital Fund 17.742 Acres of Parcel #2 . . . . . . . 11/09/93 08/02/95 361 0 0
Land I 27.575 Acres of Parcel #4 . . . . . . . . . . 04/18/89 08/25/95 542 0 9
Land II 5.538 Acres of Parcel #22 . . . . . . . . . . 10/30/92 01/05/96 154 0 0
Land I 4.629 Acres of Parcel #24 . . . . . . . . . . 05/23/90 04/01/96 53 0 0
Land II .87 Acres of Parcel #8 . . . . . . . . . . . 06/14/91 04/03/96 10 0 0
Land I 3.52 Acres of Parcel #1 . . . . . . . . . . . 01/19/89 12/24/96 501 0 0
Land I 10.53 Acres of Parcel #15 . . . . . . . . . . 01/03/90 Var 96 533 0 0
Land II 8.25 Acres of Parcel #23 . . . . . . . . . . 10/30/92 Var 96 1,527 0 0
<CAPTION>
Selling Price, net of closing costs
--------------------------------------------------------------------------
Cost of Properties including closing
Secured costs and other cash expenditures
------------------------------------------------
Notes Net Original Partnership
Received Selling Mortgage Capital
at Sale(C) Price Financing Invested(D) Total
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Land II 10 Acres of Parcel #22 . . . . . . . . . . . 0 166 0 105 105
Land II .258 Acres of Parcel #6 . . . . . . . . . . . 0 10 0 4 4
Land II 11 Acres of Parcel #15 . . . . . . . . . . . 0 274 0 122 122
Growth Fund I-Country Club, 31 Units . . . . . . . . 0 2,432 658 843 1,501
Land I 35.88 Acres of Parcel #23 . . . . . . . . . . 156 1,305 0 971 971
Monthly Income Fund I-
Schaumburg Terrace, 22 Buildings . . . . . . . . . 4,912(F) 5,613 0 5,019 5,019
Land I 3.44 Acres of Parcel #23 . . . . . . . . . . . 0 139 0 98 98
Monthly Income Fund I-
Schaumburg Terrace, 16 Buildings . . . . . . . . . 3,790(F) 4,199 0 3,683 3,683
Land II 60 Acres of Parcel #23 . . . . . . . . . . . 0 4,196 0 2,900 2,900
Land II Parcel #25 . . . . . . . . . . . . . . . . . 0 3,292 0 1,730 1,730
Capital Fund Parcel #10A . . . . . . . . . . . . . . 0 286 0 221 221
Capital Fund 17.742 Acres of Parcel #2 . . . . . . . 0 361 0 196 196
Land I 27.575 Acres of Parcel #4 . . . . . . . . . . 0 542 0 231 231
Land II 5.538 Acres of Parcel #22 . . . . . . . . . . 0 154 0 60 60
Land I 4.629 Acres of Parcel #24 . . . . . . . . . . 0 53 0 23 23
Land II .87 Acres of Parcel #8 . . . . . . . . . . . 0 10 0 10 10
Land I 3.52 Acres of Parcel #1 . . . . . . . . . . . 0 501 0 281 281
Land I 10.53 Acres of Parcel #15 . . . . . . . . . . 0 533 0 265 265
Land II 8.25 Acres of Parcel #23 . . . . . . . . . . 0 1,527 0 1,104 1,104
</TABLE>
A-15
<PAGE> 291
TABLE V (CONTINUED)
SALES OR DISPOSALS OF PROPERTIES (A)
(000'S OMITTED)
<TABLE>
<CAPTION>
Excess
(deficiency)
of property
operating Amount of
cash subsidies Total
receipts included in Taxable Ordinary
over cash operating Gain Income Capital
expenditures(E) cash receipts from Sale from Sale Gain
-------------- ------------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
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 Acres of Parcel #4 . . . . . . . . 14 0 311 0 311
Land II 5.538 Acres of Parcel #22 . . . . . . . . 0 0 94 0 94
Land I 4.629 Acres of Parcel #24 . . . . . . . . 0 0 30 0 30
Land II .87 Acres of Parcel #8 . . . . . . . . . 0 0 0 0 0
Land I 3.52 Acres of Parcel #1 . . . . . . . . . 0 0 220 0 220
Land I 10.53 Acres of Parcel #15 . . . . . . . . 0 0 268 0 268
Land II 8.25 Acres of Parcel #23 . . . . . . . . 0 0 423 0 423
</TABLE>
A-16
<PAGE> 292
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, 1996. 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 applicable "Fixed Asset
Additions" through the year of sale.
(F) 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> 293
INLAND REAL ESTATE CORPORATION
DISTRIBUTION REINVESTMENT PROGRAM
Inland Real Estate Corporation, a Maryland corporation (the "Company"),
pursuant to its Second Articles of Amendment and Restatement, as amended (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 offerings, the first of which commenced October 14, 1994
and was completed on July 22, 1996 and the second of which commenced on July
24, 1996 (the "Prior Offerings") and the current offering of Shares by the
Company pursuant to the prospectus dated May 7, 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 Offerings 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 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
B-1
<PAGE> 294
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> 295
EXHIBIT I
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.
<TABLE>
<S><C>
(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
A 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; Minnesota requires 200 Shares for IRA and qualified plan 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.
(3) REGISTERED OWNER - -
___ / / Mr. / / Mrs. / / Ms. _______________________________________________ ______________________________
CO-OWNER (AREA CODE) HOME TELEPHONE
/ / Mr. / / Mrs. / / Ms. _______________________________________________ _______________________________
B ___ (AREA CODE) BUSINESS TELEPHONE
(4) MAILING ADDRESS _______________________________________________
___ (6) PLEASE INDICATE
CITY, STATE & ZIP CODE ________________________________________________ CITIZENSHIP STATUS
___ ___________________________________
STATE Of RESIDENCE ___ (5) BIRTH DATE _______________ ____________ / / U.S. CITIZEN
MONTH DAY YEAR MONTH DAY YEAR / / RESIDENT ALIEN
(8) SOCIAL SECURITY # ______________________ CORPORATE OR CUSTODIAL / / NON-RESIDENT ALIEN
TAX IDENTIFICATION NUMBER ___________________________________
CO-OWNER ______________________ (7) / / EMPLOYEE OR AFFILIATE
SOCIAL SECURITY # ______________________ __________________________
C (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) Name of Trustee or other Administrator
C / / Community Property _____________________________________
D D / / Tenants in Common J / / Simplified Employee Pension/Trust (S.E.P.) / / Taxable / / Grantor A or B
E / / Tenants by the Entirety K / / Uniform Gifts to Minors Act N / / Estate
F / / Corporate Ownership State of ______________ a Custodian O / / Other (Specify) __________________
G / / Partnership Ownership for _____________________________ / / Taxable / / Non-Taxable
(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) that he 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 E-2 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
E 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.
AGREEMENT DATED_______________________________19____________ X
____________________________________________________________
SIGNATURE--REGISTERED OWNER
____________________________________________________________ X
(PRINT NAME OF CUSTODIAN OF TRUSTEE) ____________________________________________________________
SIGNATURE--CO-OWNER
___________________________________________________________ A sale of the Shares may not be completed by the Soliciting
AUTHORIZED SIGNATURE (CUSTODIAN OR TRUSTEE) Dealers until at least five business days after receipt of
the Prospectus.
(12) (OPTIONAL) DIRECTLY DEPOSIT CASH DISTRIBUTIONS TO: _______________________________________________________________
ACCOUNT NUMBER--MUST BE FILLED IN
NAME OF BANK,
BROKERAGE FIRM x
F OR INDIVIDUAL _______________________________________________________ _________________________________________
SIGNATURE--REGISTERED OWNER
MAILING ADDRESS _______________________________________________________
X
CITY, STATE & _______________________________________________________ __________________________________________
ZIP CODE SIGNATURE--CO-OWNER
(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
MAILING ADDRESS _________________________________________
___
CITY, STATE & IS THIS A NEW BROKER/DEALER?
ZIP CODE __________________________________________
___ / / YES / / NO
G BROKER/DEALER __________________________________________ X
NAME ___________________________________
___ SIGNATURE-REGISTERED REPRESENTATIVE
MAILING ADDRESS __________________________________________
___
CITY, STATE &
ZIP CODE __________________________________________
</TABLE>
INLAND REAL ESTATE CORPORATION
I-1
<PAGE> 296
<TABLE>
<S><C>
[INLAND REAL ESTATE CORPORATION 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 dollars and cents amount of the purchase.
A Minimum purchase 300 Shares ($3,000). Qualified Plans 100 Shares ($1,000). (Iowa requires 300 Shares
($3,000) for IRA accounts; Minnesota requires 200 Shares ($2,000) for IRA and qualified 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 held. For co-owners enter the names of all
INFORMATION owners. For investments by qualified plans, include the exact name of the plan. If this is an
B 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-Enter birth date(s) or date of incorporation.
Item 6-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 7-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 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 executed and initialed by the owner(s), or if
E applicable, the trustee or custodian.
- ------------------------------------------------------------------------------------------------------------------------------------
ALTERNATE ADDRESS Item 12-If owners desire direct deposit of his/her/their cash distributions to an account or address
FOR DISTRIBUTIONS other than as set forth in the Subscription Agreement/Signature Page, please complete. Please make sure
(Optional) account has been opened and account number is provided, as well as informing recipient that distribution
F will be forthcoming and is an asset transfer.
- ------------------------------------------------------------------------------------------------------------------------------------
BROKER/DEALER Item 13-Enter the name of the Broker/Dealer and the name of the Registered Representative, along
REGISTERED with the street address, city, state, zip code and telephone number of the Registered Representative. By
REPRESENTATIVE executing the Subscription Agreement/Signature Page, the Registered Representative substantiates compliance
G 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 copies of the Subscription Agreement/ Signature
SUBSCRIPTION 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.
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.
</TABLE>
I-2
<PAGE> 297
<TABLE>
<S><C>
[INLAND REAL ESTATE CORPORATION 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 dollars and cents amount of the purchase.
A Minimum purchase 300 Shares ($3,000). Qualified Plans 100 Shares ($1,000). (Iowa requires 300 Shares
($3,000) for IRA accounts; Minnesota requires 200 Shares ($2,000) for IRA and qualified 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 held. For co-owners enter the names of all
INFORMATION owners. For investments by qualified plans, include the exact name of the plan. If this is an
B 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-Enter birth date(s) or date of incorporation.
Item 6-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 7-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 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 executed and initialed by the owner(s), or if
E applicable, the trustee or custodian.
- ------------------------------------------------------------------------------------------------------------------------------------
ALTERNATE ADDRESS Item 12-If owners desire direct deposit of his/her/their cash distributions to an account or address
FOR DISTRIBUTIONS other than as set forth in the Subscription Agreement/Signature Page, please complete. Please make sure
(Optional) account has been opened and account number is provided, as well as informing recipient that distribution
F will be forthcoming and is an asset transfer.
- ------------------------------------------------------------------------------------------------------------------------------------
BROKER/DEALER Item 13-Enter the name of the Broker/Dealer and the name of the Registered Representative, along
REGISTERED with the street address, city, state, zip code and telephone number of the Registered Representative. By
REPRESENTATIVE executing the Subscription Agreement/Signature Page, the Registered Representative substantiates compliance
G 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 copies of the Subscription Agreement/Signature
SUBSCRIPTION 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.
</TABLE>
I-3
<PAGE> 298
SUBSCRIPTION AGREEMENT/SIGNATURE PAGE
Certain states have imposed special financial suitability standards for
investors who purchase Shares.
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.
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.
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 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.
OFFICE USE ONLY Investor Check Date _______________
Investor Check # __________________ OWNER ACCOUNT
Check Amount $ ____________________ NUMBER __________
----
BROKER/DEALER CO-OWNER
NUMBER __________________________________ ACCOUNT NUMBER ________
I-4
<PAGE> 299
================================================================================
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
<TABLE>
<CAPTION>
Page
<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 . . . . . . . . . . . . . . . . 38
FIDUCIARY RESPONSIBILITY OF DIRECTORS AND THE
ADVISOR; INDEMNIFICATION . . . . . . . . . . . . 41
PRIOR PERFORMANCE OF THE COMPANY'S AFFILIATES . . . . 43
MANAGEMENT . . . . . . . . . . . . . . . . . . . . . 57
SELECTED FINANCIAL DATA . . . . . . . . . . . . . . . 68
INVESTMENT OBJECTIVES AND POLICIES . . . . . . . . . 69
REAL PROPERTY INVESTMENTS . . . . . . . . . . . . . . 76
CAPITALIZATION . . . . . . . . . . . . . . . . . . . 142
PRINCIPAL STOCKHOLDERS . . . . . . . . . . . . . . . 143
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FINANCIAL
CONDITION AND RESULTS OF OPERATIONS . . . . . . 144
FEDERAL INCOME TAX CONSIDERATIONS . . . . . . . . . . 147
ERISA CONSIDERATIONS . . . . . . . . . . . . . . . . 157
DESCRIPTION OF SECURITIES . . . . . . . . . . . . . . 158
SUMMARY OF THE ORGANIZATIONAL DOCUMENTS . . . . . . . 163
PLAN OF DISTRIBUTION . . . . . . . . . . . . . . . . 171
HOW TO SUBSCRIBE . . . . . . . . . . . . . . . . . . 176
SALES LITERATURE . . . . . . . . . . . . . . . . . . 177
DISTRIBUTION REINVESTMENT AND SHARE REPURCHASE
PROGRAMS . . . . . . . . . . . . . . . . . . . . 177
REPORTS TO STOCKHOLDERS . . . . . . . . . . . . . . . 179
LEGAL MATTERS . . . . . . . . . . . . . . . . . . . . 181
EXPERTS . . . . . . . . . . . . . . . . . . . . . . . 181
ADDITIONAL INFORMATION . . . . . . . . . . . . . . . 181
GLOSSARY . . . . . . . . . . . . . . . . . . . . . . 182
INDEX TO FINANCIAL STATEMENTS . . . . . . . . . . . . F-i
PRIOR PERFORMANCE TABLES . . . . . . . . . . . . . . A-1
DISTRIBUTION REINVESTMENT PROGRAM . . . . . . . . . . B-1
SUBSCRIPTION AGREEMENT . . . . . . . . . . . . . . . I-1
</TABLE>
================================================================================
Until ________________, 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
7,816,000 Shares
_________________
PROSPECTUS
_______, 1997
_________________
Inland Securities
Corporation
================================================================================
<PAGE> 300
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 30. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS.
The Company does not engage in hedging or like activities and therefore
does not have any material exposure to risk due to financial instruments,
derivative financial instruments or derivative commodity instruments.
ITEM 31. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee . . . . . . . . . . . . $ 24,353.96
NASD Filing Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,536.81
Printing and Mailing Expenses . . . . . . . . . . . . . . . . . . . . . . . 384,000.00*
Blue Sky Fees and Expenses . . . . . . . . . . . . . . . . . . . . . . . . 52,223.20
Legal Fees and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . 60,000.00*
Accounting Fees and Expenses . . . . . . . . . . . . . . . . . . . . . . . 41,000.00*
Advertising and Sales Literature . . . . . . . . . . . . . . . . . . . . . 400,000.00*
Due Diligence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 250,000.00*
Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 311,000.00*
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,531,113.97
=============
*estimated
</TABLE>
ITEM 32. 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 33. 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.
Options to purchase up to 11,500 Shares have been granted as of the date of
this Prospectus to the Independent Directors pursuant to the Independent
Director Stock Option Plan, 1,000 Shares of which have been issued in connection
with the exercise of options.
II-1
<PAGE> 301
ITEM 34. 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 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.
II-2
<PAGE> 302
ITEM 35. TREATMENT OF PROCEEDS FROM STOCK BEING REGISTERED.
Inapplicable.
ITEM 36. FINANCIAL STATEMENTS AND EXHIBITS.
(a) FINANCIAL STATEMENTS
Independent Auditors' Report.
Balance Sheets at December 31, 1996 and 1995.
Statements of Operations for the years ended December 31, 1996
and 1995.
Statements of Stockholders' Equity at December 31, 1996 and
1995 and the period from May 12, 1994 (formation of the
Company) to December 31, 1994.
Statement of Cash Flows for the years ended December 31, 1996
and 1995 and the period from May 12, 1994 (formation of the
Company) to December 31, 1994.
Notes to Financial Statements for the years ended December 31,
1996 and 1995 and the period from May 12, 1994 (formation of
the Company) to December 31, 1994.
Inland Real Estate Corporation Pro Forma Balance Sheet at
December 31, 1996 (unaudited).
Inland Real Estate Corporation Notes to Pro Forma Balance Sheet
at December 31, 1996 (unaudited).
Inland Real Estate Corporation Pro Forma Statement of
Operations for the year ended December 31, 1996 (unaudited).
Inland Real Estate Corporation Notes to Pro Forma Statement of
Operations of the Company for the year ended December 31, 1996
(unaudited).
Independent Auditors' Report.
Maple Park Place Shopping Center Historical Summary of Gross
Income and Direct Operating Expenses for the year ended
December 31, 1996.
Maple Park Place Shopping Center Notes to Historical Summary
of Gross Income and Direct Operating Expenses for the year
ended December 31, 1996.
Independent Auditors' Report
Aurora Commons Shopping Center Historical Summary of Gross
Income and Direct Operating Expenses for the year ended
December 31, 1996.
Aurora Commons Shopping Center Notes to Historical Summary of
Gross Income and Direct Operating Expenses for the year ended
December 31, 1996.
Independent Auditors' Report
II-3
<PAGE> 303
Lincoln Park Place Shopping Center Historical Summary of Gross
Income and Direct Operating Expenses for the year ended
December 31, 1996.
Lincoln Park Place Shopping Center Notes to Historical Summary
of Gross Income and Direct Operating Expenses for the year
ended December 31, 1996.
Independent Auditors' Report
Niles Shopping Center Historical Summary of Gross Income and
Direct Operating Expenses for the year ended December 31, 1996.
Niles Shopping Center Notes to Historical Summary of Gross
Income and Direct Operating Expenses for the year ended
December 31, 1996.
Independent Auditors' Report
Cobbler Mall Historical Summary of Gross Income and Direct
Operating Expense for the year ended December 31, 1996
Cobbler Mall Notes to Historical Summary of Gross Income and
Direct Operating Expenses for the year ended December 31, 1996
Independent Auditors' Report
Mallard Mall Historical Summary of Gross Income and Direct
Operating Expense for the year ended December 31, 1996
Mallard Mall Notes to Historical Summary of Gross Income and
Direct Operating Expenses for the year ended December 31, 1996
Independent Auditors' Report
Sequoia Shopping Center Historical Summary of Gross Income and
Direct Operating Expenses for the year ended December 31, 1996.
Sequoia Shopping Center Notes to Historical Summary of Gross
Income and Direct Operating Expenses for the year ended
December 31, 1996.
(b) EXHIBITS
(i) The following documents are filed as part of this
Registration Statement:
Exhibit
No. Description
------- -----------
1.1 Form of Dealer Manager Agreement by and between
Inland Real Estate Corporation and Inland Securities
Corporation.
1.2 Form of Soliciting Dealers Agreement between Inland
Securities Corporation and Soliciting Dealers.
1.3 Form of Warrant Purchase Agreement.
4 Specimen Stock Certificate.
5 Opinion of Shapiro and Olander ___ as to the legality
of the securities being registered.
8 Opinion of Shefsky & Froelich Ltd. as to tax
matters.*
10.1 Form of Escrow Agreement between Inland Real Estate
Corporation and LaSalle National Bank, N.A.
23.1 Consent of KPMG Peat Marwick LLP dated May 6, 1997.
23.2 Consent of Warady & Davis LLP dated May 7, 1997.
23.3 Consent of Shefsky & Froelich Ltd. dated May ___,
1997.*
II-4
<PAGE> 304
24 Power of Attorney (included on signature page of
Registration Statement).
27 Financial Data Schedule.
* to be filed subsequently
(ii) The following exhibits are incorporated herein by
reference:
Exhibit
No. Description
------- -----------
3.1 Inland Monthly Income Fund III, Inc. Second Articles
of Amendment and Restatement.(1)
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)
10.2 Advisory Agreement between Inland Real Estate
Corporation 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 Inland Real
Estate Corporation and Inland Commercial Property
Management, Inc.(2)
10.4 Amended and Restated Independent Director Stock
Option Plan.(1)
10.5 Agreement of Sale by and between Lansing Square RFPII
Limited Partnership and Inland Real Estate
Corporation dated December 19, 1996. (6)
10.6 Agreement of Purchase and Sale by and between KBS
Retail Limited Partnership and Inland Real Estate
Corporation dated December 20, 1996. (5)
--------------
1. Included in the Registrant's Registration Statement on Form S-11 (file
number 333-6459) as filed by Registrant on June 20, 1986.
2. Included in Pre-Effective Amendment No. 1 to the Registrant's
Registration Statement on Form S-11 (file number 333-6459) as filed by
the Registrant on July 18, 1996.
3. Included in Post Effective Amendment No. 1 to the Registrant's
Registration Statement on Form S-11 (file number 333-6459) as filed by
the Registrant on November 1, 1996.
4. Included in the Registrant's Current Report on Form 8-K, dated
November 13, 1996 as filed by the Registrant on November 27, 1996.
5. Included in the Registrant's Current Report on Form 8-K, dated January
9, 1997 as filed by the Registrant on January 24, 1997.
6. Included in Post-Effective Amendment No. 2 to the Registrant's
Registration Statement on Form S-11 (file number 333-6459) as filed by
the Registrant on January 31, 1997.
II-5
<PAGE> 305
ITEM 37. UNDERTAKINGS.
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.
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
II-6
<PAGE> 306
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.
II-7
<PAGE> 307
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
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 8th day of
May, 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
II-8
<PAGE> 308
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below hereby constitutes and appoints Robert D. Parks and Roberta S.
Matlin and each of them, his or her true and lawful attorneys-in-fact and
agents, with full power of substitution and resubstitution, for him or her and
his or her name, place and stead, in any and all capacities, to sign any and
all post-effective amendments to this Registration Statement, and to file the
same with all exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite or necessary to be done in
and about the premises, as fully to all intents and purposes as he or she might
or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, or their, his or her substitutes,
may lawfully do or cease to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as
amended, this Registration Statement has been signed by the following persons
in the capacities and on the dates indicated:
<TABLE>
<S> <C> <C>
/s/ Robert D. Parks President, Chief Executive Officer, May 8, 1997
- ------------------------------- Chief Operating Officer and Chairman
Robert D. Parks of the Board of Directors
/s/ G. Joseph Cosenza Director May 8, 1997
- -------------------------------
G. Joseph Cosenza
/s/ Kelly Tucek Secretary, Treasurer and May 8, 1997
- ------------------------------- Chief Financial Officer
Kelly Tucek (Principal Accounting Officer)
/s/ Douglas R. Finlayson Director May 8, 1997
- -------------------------------
Douglas R. Finlayson, M.D.
/s/ Heidi N. Lawton Director May 8, 1997
- -------------------------------
Heidi N. Lawton
/s/ Roland W. Burris Director May 8, 1997
- -------------------------------
Roland W. Burris
</TABLE>
II-9
<PAGE> 1
EXHIBIT 1.1
INLAND REAL ESTATE CORPORATION
7,816,000
SHARES OF COMMON STOCK
$.01 PAR VALUE
[FORM OF]
DEALER MANAGER AGREEMENT
_____________, 1997
Inland Securities Corporation
2901 Butterfield Road
Oak Brook, Illinois 60521
Ladies/Gentlemen:
Inland Real Estate Corporation (the "Company"), a Maryland corporation, is
qualified as a real estate investment trust (a "REIT") under federal income tax
laws. The Company was formed on May 12, 1994 and is governed by the Bylaws, as
amended (the "Bylaws") and the Articles of Amendment and Restatement (the
"Articles") in the form included as Exhibits to the Registration Statement, as
described in Section 1(a) hereof (such Bylaws and Articles being hereinafter
referred to as the "Organizational Documents"). The advisor to the Company is
Inland Real Estate Advisory Services, Inc., an Illinois corporation (the
"Advisor").
The Company is offering on a "best efforts" basis up to 7,816,000 shares
of common stock, $.01 par value per share (the "Shares") for a purchase price
of $10.00 per Share with a minimum initial investment of $3,000 ($1,000 in the
case of tax-exempt investors, except for residents of the State of Iowa where
Individual Retirement Accounts must have a minimum investment of $3,000 and for
residents of the State of Minnesota where Individual Retirement Accounts and
qualified plan accounts must have a minimum investment of $2,000) all upon the
other terms and conditions set forth in the Prospectus, as described in Section
1(a) hereof. The subscribers, each of whom will be required to enter into a
subscription agreement substantially similar to the form of Subscription
Agreement (the "Subscription Agreement") attached as Exhibit I to the
Prospectus, will, upon acceptance of their subscriptions by and in the
discretion of the Company, become stockholders of the Company (the
"Stockholders").
1. Representation and Warranties of the Company. The Company hereby
represents, warrants and agrees with you that:
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(a) Registration Statement and Prospectus. A registration statement
(File No. 333-____) on Form S-11 with respect to the Shares, as well as
warrants (and shares issuable on exercise of the warrants) which are
issuable in certain circumstances in connection with sale of the Shares
has been prepared by the Company pursuant to the Securities Act of 1933,
as amended (the "Act"), and the rules and regulations (the "Rules and
Regulations") of the Securities and Exchange Commission (the
"Commission") thereunder and has been filed with the Commission under the
Act; one or more amendments to such registration statement have been or
may be so prepared and filed. As used in this Agreement, the term
"Registration Statement" means such registration statement in the form in
which it becomes effective, the term "Effective Date" means the date upon
which the Registration Statement is or was first declared effective by
the Commission and the term "Prospectus" means the prospectus in the form
constituting a part of the Registration Statement as well as in the form
first filed with the Commission pursuant to its Rule 424 after the
Registration Statement becomes effective. The Commission has not issued
any stop order suspending the effectiveness of the Registration Statement
and no proceedings for that purpose have been instituted or are pending
before or threatened by the Commission under the Act.
(b) Compliance with the Act. From the time the Registration
Statement becomes effective and at all times subsequent thereto up to and
including the Termination Date (as defined in Section 2(c) hereof):
(i) the Registration Statement, the Prospectus and any
amendments or supplements thereto will contain all statements which
are required to be stated therein by the Act and the Rules and
Regulations and will comply in all material respects with the Act
and the Rules and Regulations; and
(ii) neither the Registration Statement nor the Prospectus
nor any amendment or supplement thereto will at any such time include
any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which
they were made, not misleading.
(c) No Subsequent Material Events. Subsequent to the respective
dates as of which information is given in the Registration Statement and
Prospectus and prior to the Termination Date, except as contemplated in
the Prospectus or as disclosed in a supplement or amendment thereto or in
the periodic financial statements of the Company, the Company has not and
will not have:
(i) incurred any material liabilities or obligations, direct
or contingent; or
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(ii) entered into any material transaction, not in the
ordinary course of business and, except as so disclosed, there has
not been and will not be any material adverse change in the
financial position or results of operations of the Company.
(d) Corporation Status. The Company is a corporation duly formed
and validly existing under the Maryland General Corporation Law (the
"MGCL").
(e) Authorization of Agreement. This Agreement has been duly and
validly authorized, executed and delivered by or on behalf of the Company
and constitutes the valid and binding agreement of the Company
enforceable in accordance with its terms (except as such enforceability
may be limited by bankruptcy, insolvency, reorganization, moratorium or
other similar laws of the United States, any state or any political
subdivision thereof which affect creditors' rights generally or by
equitable principles relating to the availability of remedies); the
performance of this Agreement and the Organizational Documents and the
consummation of the transactions contemplated herein and therein,
respectively, and the fulfillment of the terms hereof and thereof,
respectively, do not and will not result in a breach of any of the terms
and provisions of, or constitute a default under, any statute, indenture,
mortgage, deed of trust, voting trust agreement, note, lease or other
agreement or instrument to which the Company is a party or by which the
Company or its property is bound, or under any rule or regulation or
order of any court or other governmental agency or body with jurisdiction
over the Company or any of its properties; and no consent, approval,
authorization or order of any court or governmental agency or body has
been or is required for the performance of this Agreement or by the
Organizational Documents, or for the consummation of the transactions
contemplated hereby and thereby, respectively (except as have been
obtained under the Act, from the National Association of Securities
Dealers, Inc. (the "NASD") or as may be required under state securities
or blue sky laws in connection with the offer and sale of the Shares or
under the laws of states in which the Company may own real properties in
connection with its qualification to transact business in such states or
as may be required by subsequent events which may occur).
(f) Pending Actions. There is no material action, suit or
proceeding pending or, to the knowledge of the Company, threatened, to
which the Company is a party, before or by any court or governmental
agency or body which adversely affects the offering of the Shares.
(g) Required Filings. There are no contracts or other documents
required to be filed by the Act or the Rules and Regulations of the
Commission thereunder as exhibits to the Registration Statement which
have not been so filed.
(h) Federal Income Tax Laws. The Corporation has obtained an
opinion of Shefsky & Froelich Ltd. stating that, under existing federal
income tax laws and regulations, assuming the Company acts as described
in the "Federal Income Tax Considerations" section of the Prospectus and
timely files the requisite elections, counsel is of the opinion that the
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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 the Prospectus and represented by management) has
enabled and should enable it to satisfy the REIT Requirements (as defined
in the Prospectus).
(i) Independent Public Accountants. To the best of the Company's
knowledge, the accountants who have certified certain financial
statements appearing in the Prospectus are independent public accountants
within the meaning of the Act and the Rules and Regulations.
(j) Escrow Agreement. The Company has entered into an escrow
agreement (the "Escrow Agreement") with Inland Securities Corporation,
Oak Brook, Illinois (the "Dealer Manager"), and LaSalle National Bank,
N.A., Chicago, Illinois (the "Escrow Agent"), in the form included as an
exhibit to the Registration Statement, which provides for the
establishment of an escrow account (the "Escrow Account"). During the
period commencing with the Effective Date and ending on the Termination
Date, the Company will deposit subscribers funds in the Escrow Account as
described in Section 2 below.
(k) Sales Literature. In addition to and apart from the Prospectus,
the Company may use certain supplemental sales material in connection
with the offering of the Shares. This material, prepared by the Advisor,
would consist of a brochure describing the Advisor and its Affiliates and
the objectives of the Company and may also 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,
audio-visual materials and tape 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
(as hereinafter defined) and prospective investors. These materials
shall be hereinafter referred to collectively as the "sales literature."
No person has been authorized to prepared for, or furnish to, a
prospective investor any sales literature other than: (i) that described
herein; and (ii) newspaper advertisements or solicitations of interested
limited to identifying the Offering and the location of sources of
further information. Use of any sales literature 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 sales
materials. 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 the sales literature will not conflict with any of the
information set forth in the Prospectus, the sales literature will not
purport to be
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complete, and should not be considered as a part of the Prospectus, or as
incorporated in the Prospectus by reference, or as forming the basis of
the Offering.
(l) Authorization of the Shares. The Company has an authorized and
outstanding capitalization as set forth in the Registration Statement and
Prospectus. The sale of the Shares has been duly and validly authorized
by the Company, and when subscriptions for the Shares have been accepted
by the Company as contemplated in the Prospectus and the Shares have been
issued to the respective subscribers, the Shares will represent ownership
in the Company and will conform to the description thereof contained in
the Prospectus. Stockholders have no preemptive rights to purchase or
subscribe for securities of the Company, and the Shares are not
convertible or subject to redemption at the option of the Company. The
Shares are entitled to one vote per Share and 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
Shares, the Stockholders are entitled to distributions in such amounts as
may be declared by the Board of Directors 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 ranking prior to the Shares.
2. Offering and Sale of the Shares. On the basis of the representations,
warranties and agreements herein contained, and subject to the terms and
conditions herein set forth, the Company hereby appoints you as its exclusive
Dealer Manager to solicit and to cause other dealers (as described in
subparagraph (a) below) to solicit subscriptions for the Shares at the
subscription price and upon the other terms and conditions set forth in the
Prospectus and in the Subscription Agreement, and you agree to use your best
efforts as such Dealer Manager to procure subscribers for the Shares, during
the period commencing with the Effective Date and ending on the Termination
Date (the "Offering Period"). The number of Shares, if any, to be reserved for
sale by each Soliciting Dealer may be decided by the mutual agreement, from
time to time, of you and the Company. In the absence of such mutual agreement,
the Company shall, subject to the provisions of Section 2(b) hereof, accept
Subscription Agreements based upon a first-come, first accepted reservation or
other similar method.
(a) Soliciting Dealers. The Shares offered and sold through you
under this Agreement shall be offered and sold only by you and, at your
sole option, any other securities dealers (collectively the "Soliciting
Dealers"), each of whom are members of the NASD, executing agreements
with you substantially in the form of the Soliciting Dealers Agreement
attached hereto as Exhibit A.
(b) Subscription Agreements and Subscribers' Funds. Each person
desiring to purchase Shares through you or any other Soliciting Dealer
will be required to complete and execute the Subscription Agreement and
to deliver such document to you or such Soliciting
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Dealer, together with a check payable to the order of "LNB, Escrow Agent
for IREC" in the amount of $10 per Share.
Each Soliciting Dealer shall forward any such Subscription Agreement
and check to you not later than noon of the next business day after
receipt of such Subscription Agreement, if the Soliciting Dealer conducts
its internal supervisory procedures at the location where the
Subscription Agreement and check were initially received. When such
internal supervisory procedures are performed at a different location
(the "Final Review Office"), the Subscription Agreement and check must be
transmitted to the Final Review Office by the end of the next business day
following receipt of the Subscription Agreement and check by the
Soliciting Dealer. The Final Review Office will, by the next business day
following receipt of the Subscription Agreement and check, forward both to
you as processing broker-dealer in order that you may complete your
review of the documentation and process the Subscription Agreement and
check. The Company will have representatives available to review the
Subscription Agreement at your location in order to determine whether it
wishes to accept the proposed purchaser as a Stockholder, it being
understood that the Company reserves the unconditional right to reject the
tender of any Subscription Agreement and to reject all tenders after the
Shares have been sold (exclusive of the Company's distribution
reinvestment program). Any check received by you directly or as processing
broker-dealer from the Soliciting Dealers will, in all cases, be forwarded
to the Escrow Agent as soon as practicable, but in any event by the end of
the second business day following receipt by you of the Subscription
Agreement and check. The Company will promptly notify you or the
Soliciting Dealer of any rejection, and you shall send the check and the
Subscription Agreement to the Escrow Agent with directions to promptly
return both to the rejected subscriber. All subscription funds may be
deposited directly with the Company.
Nothing contained in this Section 2 shall be construed to impose
upon the Company the responsibility of assuring that prospective
purchasers meet the suitability standards contained in the Prospectus or
to relieve you or any of the Soliciting Dealers of the responsibility of
complying with the Conduct Rules of the NASD.
(c) Termination of the Offering. The Offering Period will terminate
on a date on or before one year from the date of the Prospectus (subject
to requalification in certain states, the Company may extend the Offering
Period from time to time, but no event for longer than two years from the
date of the original Prospectus), subject in any event to the Company's
right to terminate the Offering at any time (the "Termination Date") and
the proceeds will be applied as set forth in the Prospectus.
(d) Dealer-Manager Compensation.
(i) The Company agrees to pay to you a sales commission of up
to 7% of the sales price (or up to $.70) for each Share sold, as
set forth in the Prospectus
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under the caption "Plan of Distribution," subject to the limitation
described below, as well as one Soliciting Dealer Warrant for every
40 Shares sold, of which such compensation may be retained or
reallowed, subject to federal and state securities laws, to the
Soliciting Dealer who sold the Shares as described more fully in the
Soliciting Dealers Agreement; provided, however, that Soliciting
Dealer Warrants will not be issued in connection with the sale of
Shares to residents of the States of Minnesota, Nebraska, South
Carolina and Texas and provided further that the Company will not
issue more than 184,000 of these warrants. You will also receive a
marketing contribution and due diligence expense allowance fee equal
to 2.5% of the sale price, some portion of which may be reallowed to
the Soliciting Dealers.
Investors purchasing at least $250,000 worth of Shares (25,000
Shares) will be entitled to a reduction in selling commissions in
accordance with the following schedule:
<TABLE>
<CAPTION>
Maximum
Commission
Amount of Purchaser's Investment Per Share
-------------------------------------- --------------
From To
---- --
<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 amount otherwise payable to you and
reallowable to a Soliciting Dealer in respect of a purchaser's
subscription will be credited to the purchaser in the form of
additional whole 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 you and reallowable to Soliciting Dealers so long as all
such purchases are made through the same Soliciting Dealer and
approved by the Company. Tax-exempt entities may be combined in
computing amounts invested only if they each have the same person
who exercises investment discretion. The Subscription Agreement
Signature Page must indicate that subscriptions are to be combined.
The Company cannot be held responsible for failing to properly
combine subscriptions.
Notwithstanding the foregoing, it is understood and agreed
that no commission shall be payable with respect to particular
Shares if the Company rejects a proposed subscriber's Subscription
Agreement.
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(ii) All sales commissions due to you will be paid on a
monthly basis, substantially concurrently with the acceptance of a
subscriber as a Stockholder by the Company, in an amount equal to
the sales commissions payable with respect to such Shares.
3. Covenants of the Company. The Company covenants and agrees with you
as follows:
(a) Registration Statement. The Company will use its best efforts
to cause the Registration Statement and any subsequent amendments thereto
to become effective as promptly as possible and will not, at any time
after the Effective Date of the Registration Statement, file any
amendment to the Registration Statement or supplement to the Prospectus
of which you shall not previously have been advised and furnished a copy
at a reasonable time prior to the proposed filing or to which you shall
have reasonably objected or which is not, to the best of the Company's
knowledge, in compliance with the Act and the Rules and Regulations; the
Company will prepare and file with the Commission and will use its best
efforts to cause to become effective as promptly as possible:
(i) any amendments to the Registration Statement or
supplements to the Prospectus which may be required pursuant to the
undertakings in the Registration Statement; and
(ii) upon your reasonable request, any amendments to the
Registration Statement or supplements to the Prospectus which, in
the opinion of you or your counsel, may be necessary or advisable
in view of the requirements of the Act and the Rules and
Regulations in connection with the offer and sale of the Shares
during the Offering Period.
(b) SEC Orders. As soon as the Company is advised or obtains
knowledge thereof, it will advise you of any request made by the
Commission for amending the Registration Statement, supplementing the
Prospectus or for additional information, or of the issuance by the
Commission of any stop statement or of any order preventing or suspending
the use of the Prospectus or the institution of any proceedings for that
purpose, and will use its best efforts to prevent the issuance of any
such order and, if any such order is issued, to obtain the removal thereof
as promptly as possible.
(c) Blue Sky Qualifications. The Company will use its best efforts
to qualify the Shares for offering and sale under the securities or blue
sky laws of such jurisdictions as you may reasonably request and to make
such applications, file such documents and furnish such information as
may be reasonably required for that purpose. The Company will, at your
request, furnish you copies of all material documents and correspondence
sent to or received from such jurisdictions (including, but not limited
to, summaries of telephone calls and copies of telegrams) and will
promptly advise you as soon as the Company obtains knowledge thereof when
the Shares are qualified for offering and sale in each such
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jurisdiction. The Company will promptly advise you of any request made by
the securities administrators of each such jurisdiction for revising the
Registration Statement or the Prospectus or for additional information or
of the issuance by such securities administrators of any stop order
preventing or suspending the use of the Prospectus or of the institution
of any proceedings for that purpose, and will use its best efforts to
prevent the issuance of any such order and if any such order is issued, to
obtain the removal thereof as promptly as possible. The Company will
furnish you with a Blue Sky Survey dated as of the Effective Date, which
will be supplemented to reflect changes or additions to the information
disclosed in such survey.
(d) Amendments and Supplements. If at any time when a Prospectus
relating to the Shares is required to be delivered under the Act, any
event shall have occurred to the knowledge of the Company as a result of
which the Prospectus as then amended or supplemented would include any
untrue statement of a material fact, or omit to state a material fact
necessary to make the statements therein not misleading in light of the
circumstances existing at the time it is so required to be delivered to a
subscriber, or if it is necessary at any time to amend the Registration
Statement or supplement the Prospectus relating to the Shares to comply
with the Act, the Company will promptly notify you thereof and will
prepare and file with the Commission an amendment or supplement which
will correct such statement or effect such compliance.
(e) Copies of Registration Statement. The Company will furnish you
copies of the Registration Statement (only one of which need be signed and
need include all exhibits), the Prospectus and all amendments and
supplements thereto, including any amendment or supplement prepared after
the Effective Date, and such other information with respect to the Company
as you may from time to time reasonably request, in each case as soon as
available and in such quantities as you may reasonably request.
(f) Qualification to Transact Business. The Company will take all
steps necessary to ensure that at all times the Company will be validly
existing as a corporation and will be qualified to do business in all
jurisdictions in which the conduct of its business requires such
qualification and where such qualification is required under local law.
(g) Authority to Perform Agreements. The Company undertakes to
obtain all consents, approvals, authorizations or orders of any court or
governmental agency or body which are required for the performance of
this Agreement and under the Organizational Documents or the
consummation of the transactions contemplated hereby and thereby,
respectively, or the conducting by the Company of the business described
in the Prospectus.
(h) Copies of Reports. The Company will use its best efforts to
furnish to you as promptly as shall be practicable the following:
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(i) a copy of each report or general communication (whether
financial or otherwise) sent to the Stockholders;
(ii) a copy of each report (whether financial or otherwise)
filed with the Commission; and
(iii) such other information as you may from time to time
reasonably request regarding the financial condition and operations
of the Company including, but not limited to, copies of operating
statements of properties acquired by the Company.
(i) Use of Proceeds. The Company will apply the proceeds from the
sale of the Shares as stated in the Prospectus or, if for any reason
whatsoever all or a portion of the proceeds of the Offering are not
applied or committed for use as stated within 12 months of the
Termination Date, the Company shall promptly return those proceeds from
the sale of the Shares not so applied or committed as stated in the
Prospectus to the subscribers, each subscriber sharing in the return in
the ratio that the number of the Shares owned by such subscriber bears to
the total number of the Shares owned by all subscribers.
(j) Organization and Offering Expenses. In no event shall the total
of the organizational expenses and expenses of the Offering to be paid
directly by the Company exceed 15% of the gross proceeds of the Offering.
4. Covenants of the Dealer Manager. You covenant and agree with the
Company on your behalf and on behalf of the Soliciting Dealers as follows:
(a) Compliance with Laws. With respect to your participation and
the participation by each Soliciting Dealer in the offer and sale of the
Shares (including, without limitation, any resales and transfers of
Shares), you agree, and each Soliciting Dealer agrees, to comply and
shall comply with any applicable requirements of the Act, the Securities
Exchange Act of 1934, as amended, and the published rules and regulations
of the Commission thereunder, and the applicable state securities or blue
sky laws, the Conduct Rules of the NASD, specifically including, but not
in any way limited to, RulesE2440, 2730, 2740, and 2750 therein. In
particular, you agree not to deliver the sales literature to any person
prior to the Effective Date and, after the Effective Date, not to deliver
the sales literature to any person unless the sales literature is
accompanied or preceded by the Prospectus. In addition, you shall, in
accordance with applicable law or any state securities administrator,
provide or cause Soliciting Dealers to provide to any prospective
investor copies of any document which is part of the Registration
Statement; including, without limitation, the Articles and Bylaws to
investors resident in the States of Mississippi or Ohio.
With respect to your and each Soliciting Dealers' participation in
any resales or transfers of the Shares, you agree, and each Soliciting
Dealer agrees, to comply and shall
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comply with any applicable requirements, as set forth above. In
addition, you and each Soliciting Dealer agree that should you or they
assist with the resale or transfer of the Shares, you and each Soliciting
Dealer will fulfill the obligations pursuant to Sections 3(b) and 4(d) of
Rule 2810 of the Conduct Rules of the NASD.
(b) No Additional Information. In offering the Shares for sale, you
and each Soliciting Dealer shall not give or provide any information or
make any representation other than those contained in the Prospectus, the
sales literature or any other document provided to you for such purpose
by the Company.
(c) Sales of Shares. You and each Soliciting Dealer shall solicit
purchases of the Shares only in the jurisdictions in which you and such
Soliciting Dealer are legally qualified to so act and in which you and
each Soliciting Dealer have been advised by the Company that such
solicitations can be made.
(d) Subscription Agreement. Subscriptions will be submitted by you
and each Soliciting Dealer to the Company only on the form which is
included in Exhibit I to the Prospectus. You and each Soliciting Dealer
understand and acknowledge that the Subscription Agreement must be
executed and initialed by the subscriber.
(e) Suitability. In offering the Shares to any person, you and each
Soliciting Dealer shall have reasonable grounds to believe (based on such
information as the investment objectives, other investments, financial
situation and needs of the person or any other information known by you
after due inquiry) that: (i) such person 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 and tax advisors; and (D) prior
experience with investments of a similar nature; (ii) such person 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)
such person has the financial capability to invest in the Company and you
or each Soliciting Dealer (as the case may be) shall maintain records
disclosing the basis upon which you and each Soliciting Dealer determined
the suitability of any persons offered Shares. Notwithstanding the
foregoing, you and each Soliciting Dealer shall have reasonable grounds
to believe that such person has either: (a) a minimum annual gross
income of $45,000 and a net worth (exclusive of home, home furnishing and
automobiles) of $45,000; or (b) a net worth (determined with the
foregoing exclusions) of $150,000. Suitability standards may be higher
in certain states as set forth in the Subscription Agreement. You 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 the Shares (both at
the time of the initial subscription and at the time of any additional
subscriptions) and a representation of the investor that the investor is
investing for the
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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.
(f) Due Diligence. Prior to offering the Shares for sale, you and
each Soliciting Dealer shall have conducted an inquiry such that you have
reasonable grounds to believe, based on information made available to you
by the Company through the Prospectus or other materials, that all
material facts are adequately and accurately disclosed and provide a
basis for evaluating the purchase of the Shares. In determining the
adequacy of disclosed facts pursuant to the foregoing, you and each
Soliciting Dealer may obtain, upon request, information on material facts
relating at a minimum to the following:
(1) items of compensation;
(2) Company properties;
(3) tax aspects;
(4) conflicts and risk factors; and
(5) appraisals and other pertinent reports.
Notwithstanding the foregoing, you and each Soliciting Dealer may rely upon the
results of an inquiry conducted by another Soliciting Dealer, provided that:
(i) such Soliciting Dealer has reasonable grounds to believe that
such inquiry was conducted with due care;
(ii) the results of the inquiry were provided to you with the
consent of the Soliciting Dealer conducting or directing the
inquiry; and
(iii) no Soliciting Dealer that participated in the inquiry is an
affiliate of the Company or the Advisor.
Prior to the sale of the Shares, you and each Soliciting Dealer shall inform
the prospective purchaser of all pertinent facts relating to the liquidity and
marketability of the Shares during the term of the investment.
5. Expenses. The Company agrees with you that, whether or not the
transactions contemplated in this Agreement are consummated, the Company will
pay all fees and expenses incident to the performance of its obligations under
this Agreement, including, but not limited to:
(a) the Commission's registration fee;
(b) expenses of printing the Registration Statement, the Prospectus
and any amendment or supplement thereto and the expense of furnishing to
you copies of the Registration Statement, the Prospectus and any
amendment or supplement thereto as herein provided;
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(c) fees and expenses of its and your accountants and counsel in
connection with the Offering contemplated by this Agreement;
(d) fees and expenses incurred in connection with any required
filing with the NASD;
(e) all of your expenses in connection with the Offering subject to
the limitations contained in the Prospectus, including, but not limited
to, the salaries, fringe benefits, travel expenses and similar expenses
of your employees and personnel incurred in connection with the Offering;
and
(f) expenses of qualifying the Shares for offering and sale under
state blue sky and securities laws, and expenses in connection with the
preparation and printing of the Blue Sky Survey.
In no event, however, will the total of: (a)Ethe selling commissions paid
to the Soliciting Dealers; (b) the marketing contribution and due diligence
expense allowance fee paid to the Soliciting Dealers; and (c)Ereimbursement of
certain expenses to be paid to Soliciting Dealers for special incentive
marketing programs as described in the Prospectus, exceed 10.5% of the gross
proceeds of the Offering.
6. Conditions of Obligations. Your obligations hereunder shall be
subject to the accuracy of the representations and warranties on the part of the
Company contained in Section 1 hereof, the accuracy of the statements of the
Company made pursuant to the provisions hereof, to the performance by the
Company of its covenants, agreements and obligations contained in Sections 3
and 5 hereof, and to the following additional conditions:
(a) Effectiveness of Registration Statement. The Registration
Statement shall have become effective not later than 5:00 p.m., Chicago,
Illinois time, on the day following the date of this Agreement, or such
later time and date as you and the Company shall have agreed; no stop order
suspending the effectiveness of the Registration Statement shall have been
issued and, to the best knowledge of the Company or you, no proceedings for
that purpose shall have been instituted, threatened or contemplated by the
Commission; and any request by the Commission for additional information
(to be included in the Registration Statement or Prospectus or otherwise)
shall have been complied with to the reasonable satisfaction of you or your
counsel.
(b) Accuracy of Registration Statement. You shall not have advised
the Company that the Registration Statement or the Prospectus, or any
amendment or any supplement thereto, in the reasonable opinion of you or
your counsel, contains any untrue statement of fact which is material, or
omits to state a fact which is material and is required to be stated
therein or is necessary to make the statements therein not misleading.
13
<PAGE> 14
7. Indemnification.
(a) The Company agrees to indemnify and hold harmless you, each
Soliciting Dealer and each person, if any, who controls you or any
Soliciting Dealer within the meaning of the Act (collectively, the
"Indemnified Parties"), against any and all loss, liability, claim,
damage and expense whatsoever caused by any untrue statement or alleged
untrue statement of a material fact contained in the Registration
Statement, the Prospectus or any amendment or supplement thereto, or the
omission or alleged omission therefrom of a material fact required to be
stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading. Such
indemnification shall be subject to the provisions of Sections 7(b) and
(c) of this Agreement.
The Company shall not provide indemnification for any liability or
loss suffered by you, nor shall it provide that you be held harmless for
any loss or liability suffered by the Company unless all of the following
conditions are met: (i) the party seeking indemnification has
determined, in good faith, that its course of conduct, if such course of
conduct caused the loss or liability, was in the best interest of the
Company; (ii) the other person seeking indemnification was 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; 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.
In no case shall the Company be liable under this indemnity
agreement with respect to any claim made against any of the Indemnified
Parties unless the Company shall be notified in writing (as provided in
Section 10) of the nature of the claim within a reasonable time after the
assertion thereof, but failure to so notify the Company shall not relieve
the Company from any liability which the Company may have incurred
otherwise than on account of this indemnity agreement. The Company shall
be entitled to participate, at its own expense, in the defense of, or if
it so elects within a reasonable time after receipt of such notice, to
assume the defense of any claim or suit for which the Indemnified Parties
seek indemnification hereunder. If the Company elects to assume the
defense, such defense shall be conducted by counsel chosen by it and
reasonably satisfactory to the Indemnified Parties. In the event that
the Company elects to assume the defense of any such suit and retain such
counsel, the Company shall not be liable to the Indemnified Parties in
the suit under this Section 7 for any legal or other expenses
subsequently incurred by the Indemnified Parties, and the Indemnified
Parties shall bear the fees and expenses of any additional counsel
thereafter retained by the Indemnified Parties unless: (A) the employment
of counsel by the Indemnified Party has been authorized by the Company;
or (B) the Company shall not in fact have employed counsel to assume the
defense of such action, in any of which events such fees and expenses
shall be borne by the Company.
The Company may advance amounts to the Indemnified Parties for legal
and other expenses and costs incurred as a result of any legal action for
which indemnification is being
14
<PAGE> 15
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 and a court of competent jurisdiction specifically approves
such advancement; and (iii) the Indemnified Parties receiving such advances
undertake to repay the advanced funds to the Company, together with the
applicable legal rate of interest thereon, in cases in which such
Indemnified Parties are found not to be entitled to indemnification.
Notwithstanding the foregoing provisions of this Section 7, the
Company will not be liable in any such case to the extent that any loss,
liability, claim, damage or expense arises out of or is based upon an
untrue statement or alleged untrue statement or omission or alleged
omission made in reliance upon and in conformity with written information
furnished to the Company by or on behalf of you or any Soliciting Dealer
specifically for use with reference to you or such Soliciting Dealer in the
preparation of the Registration Statement (or any amendment thereof) or the
Prospectus (or any supplement thereto). The foregoing indemnity agreement
is subject to the condition that, insofar as it relates to any untrue
statement, alleged untrue statement, omission or alleged omission made in
the Prospectus but eliminated or remedied in any amendment or supplement
thereto, such indemnity agreement shall not inure to your benefit or any
Soliciting Dealer from whom the person asserting any loss, liability,
claim, damage or expense purchased the Shares which are the subject thereof
(or to the benefit of any person who controls you or any Soliciting
Dealer), if a copy of the Prospectus as so amended or supplemented was not
sent or given to such person at or prior to the time the subscription of
such person was accepted by the Company but only if a copy of the
Prospectus (as so amended or supplemented) has been supplied by the Company
to you or any Soliciting Dealer prior to such acceptance. This indemnity
agreement will be in addition to any liability which the Company may
otherwise have.
(b) The Company agrees to indemnify and hold harmless you and the
Soliciting Dealers in the manner and to the extent provided in subparagraph
(a) of this Section 7; provided, however, that no such indemnification by
the Company of you or a Soliciting Dealer shall be permitted under this
Agreement 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 by you or any Soliciting Dealer
and a court of competent jurisdiction has approved indemnification of the
litigation costs; (ii) such claims against you or any Soliciting Dealer
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 you or any
Soliciting Dealer 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 Commission and of the published positions
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.
15
<PAGE> 16
(c) You and each Soliciting Dealer agree to indemnify and hold
harmless the Company, and each person, if any, who controls the Company
within the meaning of the Act and any controlling person of the Company:
(i) to the same extent as in the foregoing indemnity from the Company to
you and each Soliciting Dealer but only with reference to statements or
omissions based upon the information relating to you or any Soliciting
Dealer furnished in writing by you or such Soliciting Dealer or on your
or their behalf expressly for use in the Registration Statement or the
Prospectus, or any amendment or supplement thereto; and (ii) for any
violation by you or any Soliciting Dealer, in the sale of the Shares, of
any applicable state or federal law or any rule, regulation or
instruction thereunder, provided that such violation is not in reliance
on any violation by the Company of such law, rule, regulation or
instruction.
You and each Soliciting Dealer further agree to indemnify and hold
harmless the Company and any controlling person of the Company against
any losses, liabilities, claims, damages or expenses to which the Company
or any such controlling person may become subject under the securities or
blue sky laws of any jurisdiction insofar as such losses, liabilities,
claims, damages or expenses (or actions, proceedings or investigations in
respect thereof) arise by reason of a sale of the Shares through the
efforts of you (with respect to sales effected without the assistance of
a Soliciting Dealer) or a Soliciting Dealer (with respect to sales
effected by such Soliciting Dealer) which is effected other than in
accordance with the Blue Sky Survey supplied to you by the Company (a
"Non-Permitted Sale"), whether such Non-Permitted Sale is caused by a
sale in a jurisdiction other than those specified in the Blue Sky Survey,
by a sale in a jurisdiction in which you or the Soliciting Dealer is not
registered to sell the Shares or which results in a sale in a
jurisdiction in excess of the number of Shares permitted to be sold in
such jurisdiction, and will reimburse the Company or any such controlling
person for any legal fees, monetary penalties or other expenses
reasonably incurred by any of them in connection with investigating,
curing or defending against any such losses, liabilities, claims,
damages, actions, proceedings or investigations. This indemnity
agreement will be in addition to any liability which you or any
Soliciting Dealer may otherwise have.
(d) The notice provisions contained in Section 7(a) hereof, relating
to notice to the Company, shall be equally applicable to you and each
Soliciting Dealer if the Company or any controlling person of the Company
seeks indemnification pursuant to Section 7(c) hereof. In addition, you
and each Soliciting Dealer may participate in the defense, or assure the
defense, of any such suit so brought under Section 7(c) hereof and have
the same rights and privileges as the Company enjoys with respect to such
suits under Section 7(a) hereof.
16
<PAGE> 17
8. Termination of this Agreement. This Agreement may be terminated by
you in the event that the Company shall have materially failed to comply with
any of the material provisions of this Agreement on its part to be performed at
or prior to the Effective Date or if any of the representations, warranties,
covenants or agreements of the Company herein contained shall not have been
materially complied with or satisfied within the times specified.
In any case, this Agreement shall terminate at the close of business on
the Termination Date. Termination of this Agreement pursuant to this Section 8
shall be without liability of any party to any other party other than as
provided in Sections 5 and 7 hereof which shall survive such termination.
9. Representations, Warranties and Agreements to Survive Delivery. All
representations, warranties and agreements contained in this Agreement or
contained in certificates of the Company submitted pursuant hereto shall remain
operative and in full force and effect, regardless of any investigation made by
or on behalf of you or any person who controls you, or by or on behalf of the
Company and shall survive the Termination Date.
10. Notices. All communications hereunder shall be in writing and, if
sent to you, shall be mailed by registered mail or delivered or telegraphed and
confirmed in writing to Inland Securities Corporation, 2901 Butterfield Road,
Oak Brook, Illinois 60521, (Attention: Ms. Roberta Matlin) and, if sent to the
Company, shall be mailed by registered mail or delivered or telegraphed and
confirmed in writing to Inland Real Estate Corporation, 2901 Butterfield Road,
Oak Brook, Illinois 60521 (Attention: Ms. Roberta S. Matlin).
11. Reference to Inland Securities Corporation. All references herein
to Inland Securities Corporation or the Dealer Manager hereunder shall be deemed
to include all successors and assigns of Inland Securities Corporation.
12. Parties. This Agreement shall inure to the benefit of and be
binding upon you, the Company and its successors and assigns. This Agreement
and the conditions and provisions hereof, are intended to be and shall be for
the sole and exclusive benefit of the parties hereto and their respective
successors and controlling persons, and for the benefit of no other person,
firm or corporation, and the term "successors and assigns," as used herein,
shall not include any purchaser of Shares as such.
13. Applicable Law. This Agreement and any disputes relative thereto
shall be governed by and construed under the laws of the State of Illinois.
14. Effectiveness of Agreement. This Agreement shall become effective
at 5:00 p.m., Chicago, Illinois time, on the Effective Date, or at such earlier
time as you and the Company agree.
17
<PAGE> 18
15. Not a Separate Entity. Nothing contained herein shall constitute you
and/or the Soliciting Dealers or any of them an association, partnership,
limited liability company, unincorporated business or other separate entity.
If the foregoing is in accordance with your understanding of our
agreement, kindly sign and return it to us, whereupon this instrument will
become a binding agreement between you and the Company in accordance with its
terms.
Inland Real Estate Corporation, Inc., a
Maryland corporation
By:____________________________________
Title:_________________________________
Accepted as of the date
first above written:
Inland Securities Corporation
By: ______________________________
Title:_________________________
18
<PAGE> 1
EXHIBIT 1.2
INLAND REAL ESTATE CORPORATION
[FORM OF]
SOLICITING DEALERS AGREEMENT
Ladies and Gentlemen:
We have entered into an agreement (the "Dealer Manager Agreement") which
is a part hereof and attached hereto, with Inland Real Estate Corporation, a
Maryland corporation (the "Company"), under which we have agreed to use our
best efforts to solicit subscriptions for the shares of Common Stock (the
"Shares") in the Company. The Company is offering to the public an aggregate
maximum of up to 7,816,000 Shares at a price of $10 per Share (the "Offering").
In connection with the performance of our obligations under Section 2 of
the Dealer Manager Agreement, we are authorized to use the services of
securities dealers who are members of the National Association of Securities
Dealers, Inc. (the "Soliciting Dealers") to solicit subscriptions. You are
hereby invited to become a Soliciting Dealer and, as such, to use your best
efforts to solicit subscribers for Shares, in accordance with the following
terms and conditions:
1. A registration statement (the "Registration Statement") with
respect to 7,816,000 Shares has been filed with the Securities and Exchange
Commission (the "Commission") under the Securities Act of 1933, as amended (the
"Act"), and has become effective. The 7,816,000 Shares and the Offering are
more particularly described in the enclosed prospectus (the "Prospectus") which
is part of the Registration Statement. Additional copies of the Prospectus
will be supplied to you in reasonable quantities upon request. We will also
provide you with reasonable quantities of any supplemental literature prepared
by the Company in connection with the offering of the Shares.
2. Solicitation and other activities by the Soliciting Dealers
hereunder shall be undertaken only in accordance with the Dealer Manager
Agreement, this Agreement, the Act, the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), the applicable rules and regulations of the
Commission, the Blue Sky Survey hereinafter referred to and the Conduct Rules
of the National Association of Securities Dealers, Inc. (the "NASD"),
specifically including, but not in any way limited to, Rules 2440, 2730, 2740,
and 2750. In offering the sale of Shares to any person, each Soliciting Dealer
shall have reasonable grounds to believe (based on such information as the
investment objectives, other investments, financial situation and needs of the
person or any other information known by you after due inquiry) that: (i) such
person is or will be in a financial position appropriate to enable such person
to realize to a significant extent the benefits described in the Prospectus and
has a net worth sufficient to sustain the risks inherent in the program,
including loss of investment and lack of liquidity; (ii) the purchase of the
Shares is otherwise suitable for such person, and each Soliciting Dealer shall
maintain records disclosing the basis upon which each Soliciting Dealer
determined the suitability of any persons offered Shares; and (iii) such person
has either: (a) a minimum annual gross income of $45,000 and a net worth
(exclusive of home, home
<PAGE> 2
furnishings and automobiles) of $45,000; or (b) a net worth (determined with
the foregoing exclusions) of $150,000.
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.
Each Soliciting Dealer agrees: (i) to deliver to each person who
subscribes for the Shares, a Prospectus, as then supplemented or amended, prior
to the tender of his subscription agreement (the "Subscription Agreement");
(ii) to comply promptly with the written request of any person for a copy of
the Prospectus during the period between the effective date of the Registration
Statement and the later of the termination of the distribution of the Shares or
the expiration of 40 days after the first date upon which the Shares were
offered to the public; (iii) deliver in accordance with applicable law or as
prescribed by any state securities administrator to any person a copy of any
document included within the Registration Statement, including delivering the
Articles and Bylaws (as each is defined in the Prospectus) to Mississippi and
Ohio investors; and (iv) to maintain in its files for at least six years,
documents disclosing the basis upon which the determination of suitability was
reached as to each purchaser of Shares.
3. Subject to the terms and conditions set forth herein and in the
Dealer Manager Agreement, the Company shall pay to you a selling commission of
up to 7% per Share for all Shares sold for which you have acted as Soliciting
Dealer pursuant to this Agreement. Soliciting Dealers will also receive,
subject to applicable federal and state securities laws, one Soliciting Dealer
Warrant for each 40 Shares sold by such Soliciting Dealer during the Offering
(the "Soliciting Dealer Warrants") provided that the Company will not issue
more than 184,000 of these warrants. The Soliciting Dealer Warrants will be
issued quarterly commencing 60 days after the date on which Sharers are first
sold pursuant to the Offering. Soliciting Dealer Warrants shall not be issued
to Soliciting Dealers registered in Minnesota, Nebraska, South Carolina or
Texas selling Shares to
2
<PAGE> 3
residents of Minnesota, Nebraska, South Carolina or Texas, respectively. All
Shares sold by the Company, except Shares sold to residents of the
above-referenced states, 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 one year from the date the
Soliciting Dealer Warrants are issued and ending [__________] (the "Exercise
Period"). If a Soliciting Dealer Warrant has not been exercised by the end of
the Exercise Period, it will terminate and the holder thereof will have no
further rights thereunder. Soliciting Dealers should consult their tax
advisors regarding the income tax aspects of receiving the Soliciting Dealer
Warrants.
Investors purchasing at least $250,000 worth of Shares (25,000
Shares) will be entitled to a reduction in selling commissions in accordance
with the following schedule:
<TABLE>
<CAPTION>
Amount of Maximum Commission
Purchaser's Investment Per Share
--------------------------------------------------------------
From To
<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 amount otherwise payable to you in respect of
a 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 reallowable to you
so long as all such purchases are made through you and approved by the Company.
Tax-exempt entities may be combined in computing accounts invested only if they
each have the same person who exercises investment discretion. The
Subscription Agreement Signature Page (as such term is defined in the
Prospectus) must indicate that subscriptions are to be combined. The Company
cannot be held responsible for failing to properly combine subscriptions.
You (and other Soliciting Dealers) also may receive up to an
additional 2.5% per Share sold by you as a marketing contribution and due
diligence expense allowance fee.
Employees and associates of the Company and its Affiliates will be
permitted to purchase Shares net of sales commissions.
3
<PAGE> 4
Notwithstanding the foregoing, it is understood and agreed that no
commission shall be payable with respect to particular Shares if the Company
rejects a proposed subscriber's Subscription Agreement.
4. We reserve the right to notify you by telegram or by other means of
the number of Shares reserved for sale by you. Such Shares will be reserved
for sale by you until the time specified in our notification to you. Sales of
any reserved Shares after the time specified in the notification to you or any
requests for additional Shares will be subject to rejection in whole or in
part.
5. Payments for Shares shall be made by checks payable to "LNB, Escrow
Agent for IREC" and forwarded together with a copy of the Subscription
Agreement, which is attached as Exhibit I to the Prospectus, executed by the
subscriber, to Inland Securities Corporation, 2901 Butterfield Road, Oak Brook,
Illinois 60521, not later than noon of the next business day after receipt of
such Subscription Agreement and check (when your internal supervisory
procedures are completed at the site at which the Subscription Agreement and
check were received by you) or, when your internal supervisory procedures are
performed at a different location (the "Final Review Office"), you shall
transmit the check and Subscription Agreement to the Final Review Office by the
end of the next business day following your receipt of the Subscription
Agreement and check. The Final Review Office will, by the end of the next
business day following its receipt of the Subscription Agreement and check,
forward both to the Dealer Manager as processing broker-dealer. If any
Subscription Agreement solicited by you is rejected by the Company, the
Subscription Agreement and check will be forwarded to the Escrow Agent for
prompt return to the rejected subscriber.
6. We will inform you as to the jurisdictions in which we have been
advised by the Company that the Shares have been qualified for sale or are
exempt under the respective securities or "blue sky" laws of such
jurisdictions; but we have not assumed and will not assume any obligation or
responsibility as to your right to act as a broker with respect to the Shares
in any such jurisdiction. You agree that you will not make any offers except
in states in which we may advise you that the Offering has been qualified or is
exempt and further agree to assure that each person to whom you sell Shares (at
both the time of the initial purchase as well as at the time of any subsequent
purchases) meets any special suitability standards which apply to sales in a
particular jurisdiction, as described in the Blue Sky Survey and the
Subscription Agreement. Neither we nor the Company assume any obligation or
responsibility in respect of the qualification of the Shares covered by the
Prospectus under the laws of any jurisdiction or your qualification to act as a
broker with respect to the Shares in any jurisdiction. The Blue Sky Survey
which has been or will be furnished to you indicates the jurisdictions in which
it is believed that the offer and sale of Shares covered by the Prospectus is
exempt from, or requires action under, the applicable blue sky or securities
laws thereof, and what action, if any, has been taken with respect thereto.
It is understood and agreed that under no circumstances will you, as
a Soliciting Dealer, engage in any activities hereunder in any jurisdiction in
which you may not lawfully so
4
<PAGE> 5
engage or in any activities in any jurisdiction with respect to the Shares in
which you may lawfully so engage unless you have complied with the provisions
hereof.
7. Neither you nor any other person is authorized by the Company or by
us to give any information or make any representations in connection with this
Agreement or the offer of Shares other than those contained in the Prospectus,
as then amended or supplemented, or any sales literature approved by us and the
Company. You agree not to publish, circulate or otherwise use any other
advertisement or solicitation material without our prior written approval. You
are not authorized to act as our agent in any respect, and you agree not to act
as such agent and not to purport to act as such agent.
8. We shall have full authority to take such action as we may deem
advisable with respect to all matters pertaining to the Offering or arising
thereunder. We shall not be under any liability (except for our own want of
good faith and for obligations expressly assumed by us hereunder) for or in
respect of the validity or value of or title to, the Shares; the form of, or
the statements contained in, or the validity of, the Registration Statement,
the Prospectus or any amendment or supplement thereto, or any other instrument
executed by Inland Real Estate Advisory Services, Inc., the Company's advisor
(the "Advisor"), the Company or by others; the form or validity of the Dealer
Manager Agreement or this Agreement; the delivery of the Shares; the
performance by the Advisor, the Company or by others of any agreement on its or
their part; the qualification of the Shares for sale under the laws of any
jurisdiction; or any matter in connection with any of the foregoing; provided,
however, that nothing in this paragraph shall be deemed to relieve the Company
or the undersigned from any liability imposed by the Act. No obligations on
the part of the Company or the undersigned shall be implied or inferred
herefrom.
9. Under the Dealer Manager Agreement, the Company has agreed to
indemnify you and us and each person, if any, who controls you or us, in
certain instances and against certain liabilities, including liabilities under
the Act in certain circumstances. You agree to indemnify the Company and each
person who controls it as provided in the Dealer Manager Agreement and to
indemnify us to the extent and in the manner that you agree to indemnify the
Company in such Dealer Manager Agreement.
10. Each Soliciting Dealer hereby authorizes and ratifies the execution
and delivery of the Dealer Manager Agreement by us as Dealer Manager for
ourselves and on behalf of the Soliciting Dealers and authorizes us to agree to
any variation of its terms or provisions and to execute and deliver any
amendment, modification or supplement thereto. Each Soliciting Dealer hereby
agrees to be bound by all provisions of the Dealer Manager Agreement relating
to Soliciting Dealers. Each Soliciting Dealer also authorizes us to exercise,
in our discretion, all the authority or discretion now or hereafter vested in
us by the provisions of the Dealer Manager Agreement and to take all such
action as we may believe desirable in order to carry out the provisions of the
Dealer Manager Agreement and of this Agreement.
5
<PAGE> 6
11. This Agreement, except for the provisions of Sections 8 and 9 hereof,
may be terminated at any time by either party hereto by two days' prior written
notice to the other party and, in all events, this Agreement shall terminate on
the termination date of the Dealer Manager Agreement, except for the provisions
of Sections 8 and 9 hereof.
12. Any communications from you should be in writing addressed to us at
Inland Securities Corporation, 2901 Butterfield Road, Oak Brook, Illinois
60521, Attention: Ms. Roberta Matlin. Any notice from us to you shall be
deemed to have been duly given if mailed, telegraphed or delivered by overnight
courier to you at your address shown below.
13. Nothing herein contained shall constitute the Soliciting Dealers or
any of them as an association, partnership, limited liability company,
unincorporated business or other separate entity.
14. Prior to offering the Shares for sale, each Soliciting Dealer shall
have conducted an inquiry such that you have reasonable grounds to believe,
based on information made available to you by the Company or the Advisor
through the Prospectus or other materials, that all material facts are
adequately and accurately disclosed and provide a basis for evaluating a
purchase of Shares. In determining the adequacy of disclosed facts pursuant to
the foregoing, each Soliciting Dealer may obtain, upon request, information on
material facts relating at a minimum to the following:
(1) items of compensation;
(2) physical properties;
(3) tax aspects;
(4) financial stability and experience of the Company and the
Advisor;
(5) conflicts and risk factors; and
(6) appraisals and other pertinent reports.
Notwithstanding the foregoing, each Soliciting Dealer may rely upon the results
of an inquiry conducted by another Soliciting Dealer, provided that:
(i) such Soliciting Dealer has reasonable grounds to believe that
such inquiry was conducted with due care;
(ii) the results of the inquiry were provided to you with the consent
of the Soliciting Dealer conducting or directing the inquiry; and
(iii) no Soliciting Dealer that participated in the inquiry is an
affiliate of the Company.
6
<PAGE> 7
Prior to the sale of the Shares, each Soliciting Dealer shall inform the
prospective purchaser of all pertinent facts relating to the liquidity and
marketability of the Shares during the term of the investment.
If the foregoing is in accordance with your understanding, please sign and
return the attached duplicate. Your indicated acceptance thereof shall
constitute a binding agreement between you and us.
Very truly yours,
INLAND SECURITIES CORPORATION
By:________________________________
Title:_____________________________
____________________, 199___
7
<PAGE> 8
We confirm our agreement to act as a Soliciting Dealer pursuant to all the
terms and conditions of the above Soliciting Dealer Agreement and the attached
Dealer Manager Agreement. We hereby represent that we will comply with the
applicable requirements of the Act and the Exchange Act and the published Rules
and Regulations of the Commission thereunder, and applicable blue sky or other
state securities laws. We confirm that we are a member in good standing of the
NASD. We hereby represent that we will comply with the Conduct Rules of the
NASD and all rules and regulations promulgated by the NASD.
Dated: ____________________, 199___
___________________________________
Name of Soliciting Dealer
___________________________________
Address of Soliciting Dealer
___________________________________
Federal Identification Number
By:________________________________
Authorized Signature
Kindly have checks representing commissions forwarded as follows (if different
than above):
(Please type or print)
Name of Firm: ______________________________
Address: ______________________________
Street
______________________________
City
______________________________
State and Zip Code
______________________________
(Area Code) Telephone No.
Attention: ______________________________
8
<PAGE> 1
EXHIBIT 1.3
INLAND REAL ESTATE CORPORATION
7,816,000 Shares of Common Stock
$.01 Par Value
[FORM OF]
WARRANT PURCHASE AGREEMENT
___________, 1997
This Warrant Purchase Agreement (the "Agreement") is made by and
between Inland Real Estate Corporation, a Maryland corporation (the
"Company"), and Inland Securities Corporation, an Illinois corporation (the
"Warrantholder").
The Company hereby agrees to issue and sell, and the Warrantholder
agrees to purchase, for the price of $.0008 per warrant, warrants as
hereinafter described (the "Soliciting Dealer Warrants") to purchase one
share of the Company's Common Stock, $.01 par value (the "Shares") for each
40 Shares sold by the Dealer Manager and/or Soliciting Dealers, up to a maximum
of 184,000 Soliciting Dealer Warrants. The price per Share at which the
Soliciting Dealer Warrants are exercisable and the number of Shares
purchasable per Soliciting Dealer Warrant are subject to adjustment pursuant
to Section 8 hereof. The Soliciting Dealer Warrants are being purchased in
connection with a public offering of an aggregate of 7,816,000 Shares (the
"Offering"), pursuant to that certain Dealer Manager Agreement (the
"Dealer Manager Agreement"), dated ________, 1997 between the Company and
the Warrantholder as the Dealer Manager and a representative of the
Soliciting Dealers who may receive warrants.
The issuance of the Soliciting Dealer Warrants shall occur quarterly
commencing 60 days after the date on which Shares are first sold pursuant to
the Offering and such issuances shall be subject to the terms and conditions
set forth in the Dealer Manager Agreement.
In consideration of the foregoing and for the purpose of defining
the terms and provisions of the Soliciting Dealer Warrants and the
respective rights and obligations thereunder, the Company and the
Warrantholder, for value received, hereby agree as follows:
1. FORM AND TRANSFERABILITY OF SOLICITING DEALER WARRANTS.
(A) REGISTRATION. The Soliciting Dealer Warrant(s)
shall be numbered and shall be registered on the books of the Company
when issued.
(B) FORM OF SOLICITING DEALER WARRANTS. The text and form of the
Soliciting Dealer Warrant and of the Election to Purchase shall be
substantially as set forth in Exhibit "A" and Exhibit "B" respectively,
attached hereto and incorporated herein. The price per Share (the "Warrant
Price") and the number of Shares issuable upon exercise of the Soliciting
Dealer Warrants are subject
<PAGE> 2
to adjustment upon the occurrence of certain events, all as hereinafter
provided. The Soliciting Dealer Warrants shall be dated as of the date
of signature thereof by the Company either upon initial issuance or upon
division, exchange, substitution or transfer.
(C) TRANSFER. The Soliciting Dealer Warrants shall be transferable
only on the books of the Company maintained at its principal office or that of
its designated transfer agent, if designated, upon delivery thereof duly
endorsed by the Warrantholder or by its duly authorized attorney or
representative, or accompanied by proper evidence of succession, assignment or
authority to transfer. Upon any registration of transfer, the Company shall
execute and deliver a new Soliciting Dealer Warrant to the person entitled
thereto. Assignments or transfers shall be made pursuant to the form of
Assignment attached as Exhibit "C" hereto.
(D) LIMITATIONS ON TRANSFER OF SOLICITING DEALER WARRANT. The
Soliciting Dealer Warrants shall not be sold, transferred, assigned,
exchanged or hypothecated (collectively a "Transfer") by the Warrantholder,
except to: (i) one or more persons, each of whom on the date of transfer
is an officer and director of the Warrantholder or an officer and director
or partner of a successor to the Warrantholder as provided in clause (iv) of
this Subsection (d); (ii) a partnership or partnerships, all of the partners
of which are a Warrantholder and one or more persons, each of whom on the
date of transfer is an officer (including an officer-director) of a
Warrantholder or an officer (including an officer-director) or partner of a
successor to a Warrantholder; (iii) broker-dealer firms which have executed,
and are not then in default of, a "Soliciting Dealers Agreement" entered
into with the Dealer Manager (the "Selling Group") and one or more persons,
each of whom on the date of transfer is an officer or partner of a member of
the Selling Group or an officer (including an officer-director) or partner of
a successor to a member of the Selling Group; provided that the Dealer Manager
may not Transfer Soliciting Dealer Warrants to members of the Selling
Group in connection with the sale of Shares to residents of the States of
Minnesota, Nebraska, South Carolina or Texas; (iv) a successor to a
Warrantholder through merger or consolidation; (v) a purchaser of all or
substantially all of a Warrantholder's assets; or (vi) stockholders of a
Warrantholder or the stockholders or partners of its transferee in the event of
liquidation or dissolution of a Soliciting Dealer; provided, however,
that commencing one year from the date of issuance, a Transfer may be made to
a third party solely for the purpose of immediate exercise of the Soliciting
Dealer Warrant and sale of the underlying Shares by such third party. The
Soliciting Dealer Warrant may be divided or combined, upon written request to
the Company by the Warrantholder, into a certificate or certificates
representing the right to purchase the same aggregate number of shares.
Unless the context indicates otherwise, the term "Warrantholder" shall
include any transferee of the Soliciting Dealer Warrant, and the term
"Warrant" shall include any and all Soliciting Dealer Warrants outstanding
pursuant to this Agreement, including those evidenced by a certificate or
certificates issued upon division, exchange, substitution or transfer
pursuant to this Agreement.
-2-
<PAGE> 3
(E) EXCHANGE OR ASSIGNMENT OF SOLICITING DEALER WARRANT.
Any Soliciting Dealer Warrant certificate may be assigned or exchanged
without expense for another certificate or certificates entitling the
Warrantholder to purchase a like aggregate number of Shares as the
certificate or certificates surrendered then entitled such Warrantholder to
purchase. Any Warrantholder desiring to exchange a Soliciting Dealer
Warrant certificate shall make a request in writing delivered to the
Company, and shall surrender, properly endorsed, the certificate evidencing
the Soliciting Dealer Warrant to be so assigned or exchanged. Thereupon,
the Company shall execute and deliver to the person entitled thereto a new
Soliciting Dealer Warrant certificate as so requested.
Any Warrantholder desiring to assign a Soliciting Dealer Warrant
shall make such request in writin delivered to the Company, and shall
surrender, properly endorsed, the certificate evidencing the Soliciting Dealer
Warrant to be so assigned, with an instrument of assignment duly executed
accompanied by proper evidence of assignment, succession or authority to
transfer, and funds sufficient to pay any transfer tax, whereupon the Company
shall, without charge, execute and deliver a new Soliciting Dealer
Warrant certificate in the name of the assignee named in such instrument of
assignment and the original Soliciting Dealer Warrant certificate shall
promptly be cancelled.
(F) Notwithstanding any provision in this Agreement to the contrary,
the Soliciting Dealer Warrants shall not be issued to Soliciting Dealers
registered in Minnesota, Nebraska, South Carolina or Texas selling Shares
to residents of Minnesota, Nebraska, South Carolina or Texas, respectively.
2. TERMS AND EXERCISE OF SOLICITING DEALER WARRANTS.
(A) EXERCISE PERIOD. Subject to the terms of this Agreement,
the Warrantholder shall have the right to purchase one Share from the Company
at a price of $12 (120% of the offering price per Share) during the time
period beginning one year from the date the Soliciting Dealer Warrants are
issued and ending on [________________] (the "Exercise Period"), or if any
such date is a day on which banking institutions are authorized by law to
close, then on the next succeeding day which shall not be such a day, to
purchase from the Company up to the number of fully paid and nonassessable
Shares which the Warrantholder may at the time be entitled to purchase
pursuant to the Soliciting Dealer Warrant, a form of which is attached
hereto as Exhibit "A."
(B) METHOD OF EXERCISE. The Soliciting Dealer Warrant shall be
exercised by surrender to the Company, at its principal office in Oak Brook,
Illinois or at the office of the Company's stock transfer agent, if any, or
at such other address as the Company may designate by notice in writing to
the Warrantholder at the address of the Warrantholder appearing on the books
of the Company, of the certificate evidencing the Soliciting Dealer
Warrant to be exercised, together with the form of Election to Purchase,
included as Exhibit "B" hereto, duly completed and signed, and upon payment
to the Company of the Warrant Price (as determined in accordance with the
-3-
<PAGE> 4
provisions of Sections 7 and 8 hereof), for the number of Shares with respect
to which such Soliciting Dealer Warrant is then exercised together with all
taxes applicable upon such exercise. Payment of the aggregate Warrant Price
shall be made in cash or by certified check or cashier's check, payable to
the order of the Company. A Soliciting Dealer Warrant may not be exercised if
the Shares to be issued upon the exercise of the Soliciting Dealer Warrant
have not been registered (or be 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. In addition, holders of Soliciting Dealer Warrants may
not exercise the Soliciting Dealer Warrant to the extent such exercise will
cause them to exceed the ownership limits set forth in the Company's
Articles of Incorporation, as amended. If any Soliciting Dealer Warrant has
not been exercised by the end of the Exercise Period, it will terminate and
the Warrantholder will have no further rights thereunder.
(C) PARTIAL EXERCISE. The Soliciting Dealer Warrants shall be
exercisable, at the election of the Warrantholder, either in full or from
time to time in part and, in the event that the Soliciting Dealer Warrant is
exercised with respect to less than all of the Shares specified therein at
any time prior to the Termination Date, a new certificate evidencing the
remaining Soliciting Dealer Warrants shall be issued by the Company.
(D) SHARE ISSUANCE UPON EXERCISE. Upon such surrender of the
Soliciting Dealer Warrant certificate and payment of such Warrant Price,
the Company shall issue and cause to be delivered with all reasonable dispatch
to the Warrantholder in such name or name as the Warrantholder may designate in
writing, a certificate of certificates for the number of full Shares so
purchased upon the exercise of the Soliciting Dealer Warrant, together with
cash, as provided in Section 9 hereof, with respect to any fractional
Shares otherwise issuable upon such surrender. Such certificate or
certificates shall be deemed to have been issued and any person so designated
to be named therein shall be deemed to have become a holder of such Shares
as of the close of business on the date of the surrender of the Soliciting
Dealer Warrant and payment of the Warrant Price, as hereinafter defined,
notwithstanding that the certificates representing such Shares shall not
actually have been delivered or that the stock transfer books of the Company
shall then be closed.
3. MUTILATED OR MISSING SOLICITING DEALER WARRANT.
In case the certificate or certificates evidencing the Soliciting
Dealer Warrant shall be mutilated, lost, stolen or destroyed, the Company
shall, at the request of the Warrantholder, issue and deliver in exchange and
substitution for and upon cancellation of the mutilated certificate of
certificates, or in lieu of and in substitution for the certificate or
certificates lost, stolen or destroyed, a new Soliciting Dealer Warrant
certificate or certificates of like tenor and date and representing an
equivalent right or interest, but only upon receipt of evidence satisfactory
to the Company of such loss, theft or destruction of such Soliciting
Dealer Warrant, and of reasonable bond of indemnity, if requested, also
satisfactory in form and amount and at the applicant's cost.
-4-
<PAGE> 5
4. RESERVATION OF SHARES.
There has been reserved, and the Company shall at all times keep
reserved so long as the Soliciting Dealer Warrant remains outstanding, out
of its authorized Common Stock, such number of Shares as shall be subject
to purchase under the Soliciting Dealer Warrant.
5. LEGEND ON SOLICITING DEALER WARRANT SHARES.
Each certificate for Shares initially issued upon exercise of
the Soliciting Dealer Warrant, unless at the time of exercise such Shares are
registered with the Securities and Exchange Commission (the "Commission"),
under the Securities Act of 1933, as amended (the "Act"), shall bear the
following legend:
NO SALE, TRANSFER, PLEDGE OR OTHER DISPOSITION OF THESE SHARES SHALL
BE MADE EXCEPT PURSUANT TO REGISTRATION UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, OR PURSUANT TO AN OPINION OF COUNSEL SATISFACTORY TO THE
COMPANY THAT REGISTRATION IS NOT REQUIRED.
Any certificate issued at any time in exchange or substitution
for any certificate bearing such legend (except a new certificate issued upon
completion of a public distribution pursuant to a registration statement under
the Act of the securities represented thereby) shall also bear the above legend
unless, in the opinion of such counsel as shall be reasonably approved by the
Company, the securities represented thereby need no longer be subject to
such restrictions.
6. PAYMENT OF TAXES.
The Company shall pay all documentary stamp taxes, if any,
attributable to the initial issuance of the Shares; provided, however,
that the Company shall not be required to pay any tax or taxes which may be
payable with respect to any secondary transfer of the Soliciting Dealer
Warrant or the Shares.
7. WARRANT PRICE.
The price per Share at which Shares shall be purchasable on the
exercise of the Soliciting Dealer Warrant shall be $12 (the "Warrant
Price").
8. ADJUSTMENT OF WARRANT PRICE AND NUMBER OF SHARES.
The number and kind of securities purchasable upon the
exercise of the Soliciting Dealer Warrant and the Warrant Price shall
be subject to adjustment from time to time upon the happening of certain
events, as follows:
-5-
<PAGE> 6
(a) In case the Company shall: (i) pay a dividend in Common Stock
or make a distribution in Common Stock; (ii) subdivide its outstanding
Common Stock; (iii) combine its outstanding Common Stock into a smaller
number of shares of Common Stock, or (iv) issue by reclassification of
its Common Stock other securities of the Company, the number and kind of
securities purchasable upon the exercise of the Soliciting Dealer Warrant
immediately prior thereto shall be adjusted so that the Warrantholder shall
be entitled to receive the number and kind of securities of the Company
which it would have owned or would have been entitled to receive after the
happening of any of the events described above had the Soliciting Dealer
Warrant been exercised immediately prior to the happening of such event
or any record date with respect thereto. Any adjustment made pursuant to
this Subsection (a) shall become effective on the effective date of such
event retroactive to the record date, if any, for such event.
(b) No adjustment in the number of securities purchasable hereunder
shall be required unless such adjustment would require an increase or
decrease of at least one percent (1%) in the number of securities
(calculated to the nearest full Share thereof) then purchasable upon the
exercise of the Soliciting Dealer Warrant or, if the Soliciting Dealer
Warrant is not then exercisable, the number of securities purchasable upon
the exercise of the Soliciting Dealer Warrant on the first date thereafter
that the Soliciting Dealer Warrant becomes exercisable; provided,
however, that any adjustment which by reason of this Subsection (b) is
not required to be made immediately shall be carried forward and taken
into account in any subsequent adjustment.
(c) Whenever the number of Shares purchasable upon the exercise of
the Soliciting Dealer Warrant is adjusted as herein provided, the Warrant
Price shall be adjusted by multiplying such Warrant Price immediately prior to
such adjustment by a fraction, of which the numerator shall be the number of
Shares purchasable upon the exercise of the Soliciting Dealer Warrant
immediately prior to such adjustment, and of which the denominator shall be
the number of Shares so purchasable immediately thereafter.
(d) For the purpose of this Section 8, the term "Common Stock"
shall mean: (i) the class of stock designated as the Common Stock of the
Company at the date of this Agreement; or (ii) any other class of stock
resulting from successive changes or reclassification of such Common Stock
consisting solely of changes in par value, or from par value to no par value,
or from no par value to par value. In the event that at any time, as a
result of an adjustment made pursuant to this Section 8, the Warrantholder
shall become entitled to purchase any shares of the Company other than Common
Stock, thereafter the number of such other shares so purchasable upon the
exercise of the Soliciting Dealer Warrant and the Warrant Price shall be
subject to adjustment from time to time in a manner and on terms
as nearly equivalent as practicable to the provisions with respect to the
Shares contained in this Section 8.
(e) Whenever the number of Shares and/or securities purchasable upon
the exercise of the Soliciting Dealer Warrant or the Warrant Price is adjusted
as herein provided, the Company shall cause to be promptly mailed to the
Warrantholder by first class mail, postage prepaid, notice of such
adjustment setting forth the number of Shares and/or securities purchasable
-6-
<PAGE> 7
upon the exercise of the Soliciting Dealer Warrant or the Warrant Price
after such adjustment, a brief statement of the facts requiring such
adjustment and the computation by which such adjustment was made.
(f) In case of any reclassification, capital reclassification, capital
reorganization or other change in the outstanding shares of Common Stock of
the Company (other than a change in par value, or from par value to no par
value, or from no par value to par value, or as a result of an issuance of
Common Stock by way of dividend or other distribution, or of a subdivision or
combination of the Common Stock), or in case of any consolidation or merger of
the Company with or into another corporation or entity (other than a merger
with a subsidiary in which merger the Company is the continuing corporation and
which does not result in any reclassification, capital reorganization or other
change in the outstanding shares of Common Stock of the Company) as a result
of which the holders of the Company's Common Stock become holders of other
shares of securities of the Company or of another corporation or entity, or
such holders receive cash or other assets, or in case of any sale or
conveyance to another corporation of the property, assets or business of the
Company as an entirety or substantially as an entirety, the Company or such
successor or purchasing corporation, as the case may be, shall execute with
the Warrantholder an agreement that the Warrantholder shall have the right
thereafter upon payment for the Warrant Price in effect immediately prior to
such action to purchase upon the exercise of the Soliciting Dealer Warrant the
kind and number of securities and property which it would have owned or have
been entitled to have received after the happening of such reclassification,
capital reorganization, change in the outstanding shares of shares of Common
Stock of the Company, consolidation, merger, sale or conveyance had the
Soliciting Dealer Warrant been exercised immediately prior to such action.
The agreement referred to in this Subsection (f) shall provide for
adjustments which shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Section 8. The provisions of this Subsection
(f) shall similarly apply to successive reclassification, capital
reorganizations, changes in the outstanding shares of Common Stock of the
Company, consolidations, mergers, sales or conveyances.
(g) Except as provided in this Section 8, no adjustment with respect
to any dividends shall be made during the term of the Soliciting Dealer Warrant
or upon the exercise of the Soliciting Dealer Warrant.
(h) No adjustments shall be made in connection with the public sale
and issuance of the Shares pursuant to the Dealer Manager Agreement or the sale
or issuance of Shares upon the exercise of the Soliciting Dealer Warrant.
(i) Irrespective of any adjustments in the Warrant Price or the number
or kind of securities purchasable upon the exercise of the Soliciting Dealer
Warrant, the Soliciting Dealer Warrant certificate or certificates theretofore
or thereafter issued may continue to express the same price or number or kind
of securities stated in the Soliciting Dealer Warrant initially issuable
pursuant to this Agreement.
-7-
<PAGE> 8
9. FRACTIONAL INTEREST.
The Company shall not be required to issue fractional Shares or
securities upon the exercise of the Soliciting Dealer Warrant. If any such
fractional Share would, except for the provisions of this Section 9, be
issuable upon the exercise of the Soliciting Dealer Warrant (or specified
portion thereof), the Company may, at its election, pay an amount in cash equal
to the then current market price multiplied by such fraction. For purposes of
this Agreement, the term "current market price" shall mean: (a) if the Shares
are traded in the over-the-counter market and not on the Nasdaq National Market
("NNM") or on any national securities exchange, the average between the per
share closing bid and asked prices of the Shares for the 30 consecutive trading
days immediately preceding the date in questions, as reported by the NNM or an
equivalent generally accepted reporting service; or (b) if the Shares are
traded on the NNM or on a national securities exchange, the average for the 30
consecutive trading days immediately preceding the date in question of the daily
per share closing prices of the Shares on the NNM or on the principal national
stock exchange on which it is listed, as the case may be. The closing price
referred to in clause (b) above shall be the last reported sales price or, in
case no such reported sale takes place on such day, the average of the reported
closing bid and asked prices on the NNM or on the principal national securities
exchange on which the Shares are then listed, as the case may be. If the Shares
are not publicly traded, then the "current market price" shall mean $10 for the
first three years following the termination of the Offering.
10. NO RIGHTS AS STOCKHOLDER; NOTICES OF WARRANTHOLDER.
Nothing contained in this Agreement or in the Soliciting Dealer
Warrant shall be construed as conferring upon the Warrantholder or its
transferee any rights as a stockholder of the Company, either at law or in
equity, including the right to vote, receive dividends, consent or notices as
stockholder with respect to any meeting of stockholders for the election of
directors of the Company or for any other matter.
11. REGISTRATION OF SOLICITING DEALER WARRANTS AND SHARES
PURCHASABLE THEREUNDER.
The Soliciting Dealer Warrants and the Shares purchasable
thereunder are being registered as part of the Offering. At the same
time, the Company also is registering certain Soliciting Dealer Warrants (and
the Shares purchasable thereunder) which were to be but have not been
issued to the Warrantholder pursuant to the Prior Offering. The Company
undertakes to make additional filings with the Commission to the extent
required to keep the Soliciting Dealer Warrants and Shares referenced in
this Section 11 registered through [________________].
12. INDEMNIFICATION.
In the event of the filing of any registration statement
with respect to the Soliciting Dealer Warrants or the Shares pursuant to
Section 11 above, the Company and the Warrantholder
-8-
<PAGE> 9
(and/or selling Warrantholder or such holder of Shares, as the case may be),
shall agree to indemnify and hold harmless the other to the same extent and
in the same manner as provided in the Dealer Manager Agreement.
13. CONTRIBUTION.
In order to provide for just and equitable contribution under the
Act in any case in which: (a) the Warrantholder or any holder of Shares makes a
claim for indemnification pursuant to Section 12 hereof, but it is judicially
determined (by the entry of a final judgment or decree by a court of competent
jurisdiction and the expiration of time to appeal or the denial of the last
right to appeal) that such indemnification may not be enforced in such case
notwithstanding the fact that the express provisions of Section 12 hereof
provide for indemnification in such case; or (b) contribution under the Act
may be required on the part of the Warrantholder or any holder of Shares, the
Company and the Warrantholder, or such holder of Shares, shall agree to
contribute to the aggregate losses, claims, damages or liabilities to which they
may be subject (which shall, for all purposes of this Agreement, including, but
not limited to, all costs of defense and investigation and all attorneys' fees),
in either such case (after contribution from others) on the basis of relative
fault as well as any other relevant equitable considerations in the same manner
as provided by the parties in the Dealer Manager Agreement.
14. NOTICES.
Any notice given pursuant to this Agreement by the Company or
by the Warrantholder shall be in writing and shall be deemed to have been
duly given if delivered or mailed by certified mail, return receipt
requested:
(a) If to the Warrantholder, addressed to:
Inland Securities Corporation
2901 Butterfield Road
Oak Brook, Illinois 60521
(b) If to the Company, addressed to:
Inland Real Estate Corporation
2901 Butterfield Road
Oak Brook, Illinois 60521
Each party hereto may, from time to time, change the address
to which notices to it are to be delivered or mailed hereunder by notice in
accordance herewith to the other party.
-9-
<PAGE> 10
15. PARTIES IN INTEREST.
Nothing in this Agreement shall be construed to give to any person
or corporation other than the Company, the Warrantholder and, to the extent
expressed, any holder of Shares, any person controlling the Company or the
Warrantholder or any holder of Shares, directors of the Company, nominees for
directors (if any) named in the Prospectus, or officers of the Company who have
signed the registration statement, any legal or equitable right, remedy or claim
under this Agreement, and this Agreement shall be for the sole an exclusive
benefit of the aforementioned parties.
16. SUCCESSORS.
All the covenants and provisions of this Agreement by or for the
benefit of the parties listed in Section 15 above shall bind and inure to the
benefit of their respective executors, administrators, successors and assigns
hereunder; provided, however, that the rights of the Warrantholder or holder of
Shares shall be assignable only to those persons and entities specified in
Section 1, Subsection (d) hereof, in which event such assignee shall be bound by
each of the terms and conditions of this Agreement.
17. MERGER OR CONSOLIDATION OF THE COMPANY.
The Company shall not merge or consolidate with or into any other
corporation or sell all or substantially all of its property to another
corporation, unless it complies with the provisions of Section 8, Subsection
(f).
18. SURVIVAL OF REPRESENTATIONS AND WARRANTIES.
All statements contained in any schedule, exhibit,
certificate or other instrument delivered by or on behalf of the parties
hereto, or in connection with the transactions contemplated by this
Agreement, shall be deemed to be representations and warranties
hereunder. Notwithstanding any investigations made by or on behalf of the
parties to this Agreement, all representations, warranties and agreements made
by the parties to this Agreement or pursuant hereto shall survive.
19. CHOICE OF LAW.
This Agreement and the rights of the parties hereunder shall be
governed by and construed in accordance with the laws of the State of Illinois,
including all matters of construction, validity, performance and enforcement,
and without giving effect to the principles of conflict of laws.
-10-
<PAGE> 11
20. JURISDICTION.
The parties submit to the jurisdiction of the Courts of the State
of Illinois or a Federal Court empaneled in the State of Illinois for the
resolution of all legal disputes arising under the terms of this Agreement.
21. ENTIRE AGREEMENT.
Except as provided herein, this Agreement, including exhibits,
contains the entire agreement of the parties, and supersedes all
existing negotiations, representations or agreements and all other oral,
written or other communications between them concerning the subject matter of
this Agreement.
22. SEVERABILITY.
If any provision of this Agreement is unenforceable, invalid
or violates applicable law, such provision shall be deemed stricken and
shall not affect the enforceability of any other provisions of this Agreement.
23. CAPTIONS.
The captions in this Agreement are inserted only as a matter of
convenience and for reference and shall not be deemed to define, limit,
enlarge or describe the scope of this Agreement or the relationship of the
parties, and shall not affect this Agreement or the construction of any
provisions herein.
-11-
<PAGE> 12
24. COUNTERPARTS.
This Agreement may be executed in one or more counterparts, each
of which shall be deemed an original, but all of which shall together constitute
one and the same instrument.
IN WITNESS WHEREOF, the parties have caused this Agreement
to be duly executed as ofthe date first above written.
Inland Real Estate Corporation, a
Maryland corporation
By:___________________________________
___________________________________
Name and Title
Inland Securities Corporation,
an Illinois corporation
By:___________________________________
___________________________________
Name and Title
-12-
<PAGE> 13
EXHIBIT A
INLAND REAL ESTATE CORPORATION
SOLICITING DEALER WARRANT NO. ______
NO SALE, TRANSFER, PLEDGE OR OTHER DISPOSITION
OF THIS WARRANT OR THE SHARES PURCHASABLE HEREUNDER
SHALL BE MADE EXCEPT PURSUANT TO REGISTRATION UNDER THE
SECURITIES ACT OF 1933 AS AMENDED, OR PURSUANT TO AN
OPINION OF COUNSEL SATISFACTORY TO THE ISSUER THAT
REGISTRATION IS NOT REQUIRED. TRANSFER OF THIS WARRANT IS
ALSO RESTRICTED BY THAT CERTAIN WARRANT PURCHASE
AGREEMENT DATED AS OF ________, 1997 A COPY OF
WHICH IS AVAILABLE FROM THE ISSUER.
WARRANT TO PURCHASE ________________ SHARES OF COMMON STOCK OF
INLAND REAL ESTATE CORPORATION
Exercisable commencing on ___________, 199__
Void after 5:00 P.M. Central Standard Time on [________________] (the
"Exercise Closing Date").
THIS CERTIFIES that, for value received, ______________________
(the "Warrantholder"), or registered assigns, is entitled, subject to the terms
and conditions set forth in this Warrant (the "Warrant"), to purchase from
Inland Real Estate Corporation, a Maryland corporation (the "Company"),
________ fully paid and nonassessable Shares of common stock (the "Shares") of
the Company at any time during the period commencing on ___________, 199__
and continuing up to 5:00 P.M. central standard time on _______________, 199__
at $12 per Share, and is subject to all the terms thereof, including the
limitations on transferability as set forth in that certain Warrant Purchase
Agreement between Inland Securities Corporation and the Company dated
___________, 1997.
THIS WARRANT may be exercised by the holder thereof, in whole or
in part, by the presentation and surrender of this Warrant with the form of
Election to Purchase duly executed, with signature(s) guaranteed, at the
principal office of the Company (or at such other address as the Company may
designate by notice to the holder hereof at the address of such holder
appearing on the books of the Company), and upon payment to the Company of the
purchase price in cash or by certified check or bank cashier's check. The
Shares so purchased
<PAGE> 14
EXHIBIT A
shall be registered to the holder (and, if requested, certificates
issued) promptly after this Warrant shall have been so exercised and unless
this Warrant has expired or has been exercised, in full, a new Warrant
identical in form, but representing the number of Shares with respect to
which this Warrant shall not have been exercised, shall also be issued to the
holder hereof.
NOTHING CONTAINED herein shall be construed to confer upon the
holder of this Warrant, as such, any of the rights of a Stockholder of the
Company.
Inland Real Estate Corporation, a
Maryland corporation
By:_________________________________
_________________________________
Name and Title
-2-
<PAGE> 15
EXHIBIT B
INLAND REAL ESTATE CORPORATION
ELECTION TO PURCHASE
SOLICITING DEALER WARRANT
Inland Real Estate Corporation
2901 Butterfield Road
Oak Brook, Illinois 60521
The undersigned hereby irrevocably elects to exercise the right of
purchase represented by the attached warrant (the "Warrant"), to purchase
thereunder ____ shares of the common stock of Inland Real Estate Corporation
(the "Shares") provided for therein and hereby tenders $_________ ($12.00 per
Share) in payment of the actual exercise price thereof, and requests that the
Shares be issued in the name of
_______________________________________________________________________________
(Please Print Name, Address and SSN or EIN of Stockholder below)
_______________________________________________________________________________
and, if said number of Shares shall not be the total possible number of Shares
purchasable hereunder, that a new Warrant certificate for the balance of the
Shares purchasable under the attached Warrant certificate be registered in the
name of the undersigned Warrantholder or his assignee as indicated below and
delivered at the address state below:
Dated: ____________________
Name of Warrantholder or Assignee:_____________________________________________
(Please Print)
Address:______________________________________________________________________
______________________________________________________________________________
Signature:____________________________________________________________________
<PAGE> 16
EXHIBIT C
INLAND REAL ESTATE CORPORATION
SOLICITING DEALER WARRANT
ASSIGNMENT
(To be signed only upon assignment of the Warrant)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and
transfers unto:
______________________________________________________________________________
(Please Print Name, Address and SSN or EIN of Assignee Below)
_____________________________________________________________________________
the attached Participating Dealer Warrant No. ____, to purchase ________
shares of common stock of Inland Real Estate Corporation (the "Company"), hereby
irrevocably constituting and appointing the Company and/or its transfer agent as
its attorney to transfer said Warrant on the books of the Company, with full
power of substitution.
Dated: ____________
_____________________________________
Signature of Registered Holder
Signature Guaranteed: _____________________________________
Note: The above signature must
correspond with the name as written
upon the face of the attached
Warrant certificate in every
particular respect, without
alteration, enlargement or any
change whatever, unless this
Warrant has been duly assigned.
<PAGE> 1
EXHIBIT 4
SPECIMEN STOCK CERTIFICATE
Non-Negotiable
Incorporated Under the Laws of Maryland
No. _______ Shares _______
Inland Real Estate Corporation
Authorized Common Stock 24,000,000 Shares, $.01 Par Value
This certifies that ___________________ is the owner of ____________ Shares of
Capital Stock of Inland Real Estate Corporation transferable on the books of
the Corporation in person or by duly authorized Attorney upon surrender of this
Certificate properly endorsed.
In Witness Whereof the said Corporation has caused this Certificate to be
signed by its duly authorized officers and sealed with this Seal of the
Corporation,
this _________ day of _____________ A.D. 19____
_______________________________ _______________________________
Kelly Tucek, Secretary Robert D. Parks, President
<PAGE> 2
LEGEND ON BACK OF CERTIFICATE
RESTRICTIONS RELATING TO QUALIFICATIONS
AS A REAL ESTATE INVESTMENT TRUST
The securities represented by this certificate are subject to restrictions
on transfer for the purpose of the Company's maintenance of its status as a real
estate investment trust under the Internal Revenue Code of 1986, as amended.
Except as otherwise provided pursuant to the Articles of Incorporation of the
Company, no Person may Beneficially Own shares of Equity Stock in excess of 9.8%
(or such greater percentage as may be determined by the Board of Directors of
the Company) of the number or value of the outstanding Equity Stock of the
Company (unless such Person is an Existing holder). Any Person who purports or
proposes to Beneficially Own shares of Equity Stock in excess of 9.8% (or such
greater percentage as may be determined by the Board of Directors of the
Company) of the number of value of the outstanding Equity Stock of the Company
(unless such Person is an Existing Holder) is in violation of the restrictions
on transfer and any securities so transferred shall be designated as Excess
Stock and held in trust by the Company. Any Person who purports or proposes to
Beneficially Own shares of Equity Stock in excess of the above limitations must
notify the Company in writing immediately, in the case of a purported Transfer,
and at least 15 days prior to a proposed Transfer. All capitalized terms in
this legend have the meanings defined in the Articles of Incorporation of the
Company, a copy of which, including the restrictions on transfer, will be sent
without charge to each stockholder who so requests. If the restrictions on
transfer are violated, the securities represented hereby will be designated and
treated as shares of Excess Stock which will be held in trust by the Company.
<PAGE> 1
EXHIBIT 5
[SHAPIRO AND OLANDER LETTERHEAD]
May ___, 1997
Inland Real Estate Corporation
2901 Butterfield Road
Oak Brook, Illinois 60521
Ladies and Gentlemen:
You have requested our opinion as Maryland counsel to Inland Real Estate
Corporation, a corporation organized under the laws of Maryland ("Company"), in
connection with the offering by the Company to the public of 8,000,000 shares of
the Company's common stock, $0.01 par value per share ("Shares").
We have reviewed the Registration Statement on Form S-11 (the "Registration
Statement") and the prospectus included therein ("Prospectus") relating to the
Company's issuance of the Shares, and in connection therewith, have examined and
relied upon the originals or copies of such records, agreements, documents and
other instruments, the Articles of Incorporation of the Company, as amended, the
Bylaws of the Company, as amended, and the minutes of the meetings of the board
of directors of the Company to date relating to the authorization and issuance
of the Shares. In such examination, we have assumed, without independent
verification, the genuineness of all signatures (whether original or photocopy),
the legal capacity of natural persons, the authenticity of all documents
submitted to us as originals, and the conformity to authenticate original
documents of all documents submitted to us as certified or photocopies. We have
assumed, without independent verification, the accuracy of the relevant facts
stated therein.
Based upon the foregoing and subject to the qualifications set forth below,
we are of the opinion that, on the basis of such examination, the Shares
referred to in the Registration Statement, when issued and sold as contemplated
in the Registration Statement, will be legally issued, fully paid and
non-assessable and no personal liability will attach to the ownership of such
Shares.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and we consent to the reference to our firm under the
caption "Legal Matters" in the Prospectus.
<PAGE> 2
The foregoing opinion is being furnished to, and is solely for the benefit
of, the addressee named above and except with our prior consent, is not to be
used, circulated, quoted, published or otherwise referred to or disseminated for
any other purpose or relied upon by any person or entity other than said
addressee.
Very truly yours,
SHAPIRO AND OLANDER
By: /s/ Christopher Dean Olander
----------------------------
Christopher Dean Olander
<PAGE> 1
EXHIBIT 10.1
ESCROW AGREEMENT
THIS AGREEMENT is made and entered into as of the ______ day of
_______________, 1997, by and among INLAND REAL ESTATE CORPORATION, a Maryland
corporation (the "Company"), INLAND SECURITIES CORPORATION, an Illinois
Corporation (the "Dealer Manager"), and LASALLE NATIONAL BANK, N.A., CHICAGO,
ILLINOIS (the "Escrow Agent").
1. The Company does hereby open this escrow and Escrow Agent's sole
concern and duties shall be as specifically set forth herein:
1.1 From time to time during the course of this escrow, in connection
with the Company's offering (the "Offering") of up to 7,816,000 shares of
Common Stock (the "Shares"), Escrow Agent will receive from subscribers
deposits to be held in escrow in accordance with the terms hereof. All
such funds received by Escrow Agent shall be placed into an
interest-bearing account entitled "Inland Real Estate Corporation Escrow
Account" (the "Escrow Account").
2. All deposits from each subscriber shall be accompanied by a subscription
agreement, stating among other things, subscriber name, current address and
investment amount.
3. Checks deposited in the Escrow Account from the various subscribers
shall be made payable to "LNB, Escrow Agent for IREC."
4. All parties understand and are aware that all funds received during the
course of the escrow and deposited in the Escrow Account must clear the normal
banking channels prior to the release of any funds.
5. The Company understands that it is not entitled to any funds received
into escrow in the event of cancellation of the Offering and in such event,
deposits shall be returned to the subscribers.
6. Subscribers named in any subscription for Shares clearly understand that
this is an impound escrow between the Company, the Dealer Manager, and the
Escrow Agent and that they are not a party to this escrow.
7. All documents, including any instrument necessary for the negotiation or
other transfer of escrow assets, deposited simultaneously with the execution of
this Agreement are approved by the Company, and the Escrow Agent shall not be
obligated to inquire as to the form, manner of execution or validity of these
documents or any document hereafter deposited pursuant to the provisions hereof,
nor shall the Escrow Agent be obligated to inquire as to the identity, authority
or rights of the persons executing the same. The Escrow Agent shall be liable
under this Agreement only for its failure to exercise due care in the
performance of its duties expressly set forth in this Agreement. The Escrow
Agent shall have a lien on all securities, monies and documents deposited in
this escrow by each subscriber to secure Escrow Agent's reasonable compensation
and
<PAGE> 2
expenses and for judgments, attorneys' fees and other liabilities which the
Escrow Agent may incur or sustain by reason of this escrow, and the
undersigned agrees to pay to Escrow Agent, upon demand, amounts to satisfy all
such liabilities, fees and expenses. In case of conflicting demands upon it,
the Escrow Agent may withhold performance of this escrow until such time as
the conflicting demands shall have been withdrawn or the rights of the
respective parties shall have been settled by court adjudication, arbitration,
joint order or otherwise.
8. Commencing with the date the Securities and Exchange Commission declares
the Company's Registration Statement on Form S-11 effective (the "Effective
Date"), and ending on the Termination Date (the "Offering Period"), the Escrow
Agent shall disburse (i) to the Dealer Manager on a monthly basis, pursuant to
that certain Dealer Manager Agreement dated __________, 1997 between the Company
and the Dealer Manager (the "Dealer Manager Agreement"), an amount equal to 7%
of the sales price (or up to $.70) for each Share sold by the Dealer Manager,
and (ii) the remainder of any funds received by the Escrow Agent to the Company
on a monthly basis, or otherwise in accordance with the Company's written
request, and any funds held in escrow shall be invested by the Escrow Agent,
subject to paragraph 9 hereof, in such instruments as the Company may direct.
Upon termination of the Offering, which shall occur not later than 12 months
after the Effective Date, provided however that, subject to requalification in
certain states, the Company may extend the Offering Period from time to time,
but in no event more than two years after the Effective Date (the "Termination
Date"), all amounts theretofore undistributed shall be distributed to the
Company and to the Dealer Manager, and this escrow shall close and be
consummated in its entirety.
9. The funds deposited herein shall be invested in federally insured bank
accounts (e.g., savings accounts), short-term certificates of deposit issued by
a bank, short-term securities issued or guaranteed by the United States
government and any other investments permitted under Rule 15c2-4 of the
Securities Exchange Act of 1934, as amended, at the direction of the Company.
The interest on such investments shall, on a monthly basis while subscribers'
deposits remain in escrow and, if all conditions herein are met, when such
deposits are disbursed to the Company, be disbursed by the Escrow Agent to the
Company in accordance with paragraph 8 hereof.
10. Any notices which are required or desired to be given hereunder to the
parties hereto shall be in writing and may be given by mailing the same to the
address indicated below (or to such other address as either of the parties may
have theretofore substituted therefor by written notification to the other party
hereto), by registered or certified United States mail, postage prepaid. For all
purposes hereof, any notice so mailed by the Escrow Agent shall be treated as
though served upon the party to whom it was mailed at the time it is deposited
in the United States mail by the Escrow Agent whether or not such party
thereafter actually receives such notice. Notices to the Escrow Agent shall be
in writing and shall not be deemed to be given until actually received by the
Escrow Agent's trust department. Whenever under the terms hereof the time for
giving a notice or performing an act falls upon a Saturday, Sunday or bank
holiday, such time shall be extended to the Escrow Agent's next business day.
11. The Escrow Agent, when acting as the Escrow Agent, undertakes to
perform only such duties as are expressly set forth herein and the Escrow Agent
shall not be subject to, nor obliged to recognize, any other agreement between,
or direction or instruction of, the Company even though
<PAGE> 3
reference thereto may be made herein; provided, however, this Agreement may be
amended at any time or times by an instrument in writing signed by the Company,
the Dealer Manager and Escrow Agent. In the event the Escrow Agent becomes
involved in or is threatened with litigation by reason hereof, it is hereby
authorized to and may deposit with the clerk of a court of competent
jurisdiction any and all funds held by it pursuant hereto, and thereupon the
Escrow Agent shall stand fully relieved and discharged of any further duties
hereunder.
12. If any property subject hereto is at any time attached, garnished or
levied upon, under any court order, or in case the payment, assignment,
transfer, conveyance or delivery of any such property shall be stayed or
enjoined by any court order, or in any case any order, judgment or decree shall
be made or entered by any court affecting such property, or any part thereof,
then in any of such events, the Escrow Agent is authorized, in its sole
discretion, to rely upon and comply with any such order, writ, judgment or
decree, which it is advised by legal counsel of its own choosing is binding upon
it, and if it complies with any such order, writ, judgment or decree, it shall
not be liable to any of the parties hereto or to any other person, firm or
corporation by reason of such compliance, even though such order, writ, judgment
or decree may be subsequently reversed, modified, annulled, set aside or
vacated.
13. This Agreement shall be construed, enforced and administered in
accordance with the laws of the State of Illinois.
14. The Escrow Agent shall be entitled to reasonable fees in connection
with this Escrow, which fees shall be payable by the Company.
15. The Escrow Agent may resign by giving five days written notice by
registered or first class mail sent to the undersigned at its address herein set
forth; and, thereafter, shall deliver all remaining deposits in said escrow upon
the written and signed order of the undersigned. If no such notice is received
by the Escrow Agent within 30 days after mailing such notice it is
unconditionally and irrevocably authorized and empowered to send any and all
items deposited hereunder by registered mail to the respective depositors
thereof or, at its sole option, to deliver such deposited items to the
respective depositors.
16. Any notice required to be given hereunder by any of the parties hereto
shall be addressed as follows:
<PAGE> 4
If to the Company:
Inland Real Estate Corporation
2901 Butterfield Road
Oak Brook, Illinois 60521
If to the Dealer Manager:
Inland Securities Corporation
2901 Butterfield Road
Oak Brook, Illinois 60521
If to Escrow Agent:
LaSalle National Bank, N.A.
135 South LaSalle Street
Chicago, Illinois 60603
Attn: Corporate Trust Department
* * *
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
INLAND REAL ESTATE CORPORATION
By:_______________________________________
Title:______________________________________
INLAND SECURITIES CORPORATION
By:_______________________________________
Title:______________________________________
LASALLE NATIONAL BANK, N.A.
CHICAGO, IL
By:_______________________________________
Title:______________________________________
<PAGE> 1
Exhibit 23.1
[KPMG Peat Marwick LLP LETTERHEAD]
The Board of Directors
Inland Real Estate Corporation:
We consent to the use of our reports relating to the balance sheets of Inland
Real Estate Corporation as of December 31, 1996 and 1995, and the results of
its operations and its cash flows for the years ended December 31, 1996 and
1995 and for the period from May 12, 1994 (formation date) to December 31,
1994, the historical summary of gross income and direct operating expenses of
Maple Park Place for the year ended December 31, 1996, the historical summary
of gross income and direct operating expenses of Niles Shopping Center for the
year ended December 31, 1996, the historical summary of gross income and direct
operating expenses of Sequoia Shopping Center for the year ended December 31,
1996, the historical summary of gross income and direct operating expenses of
Mallard Mall for the year ended December 31, 1996, and the historical summary
of gross income and direct operating expenses of Cobblers Mall for the year
ended December 31, 1996 included herein and to the reference to our firm under
the heading "Experts" in this Registration Statement on Form S-11.
KPMG Peat Marwick LLP
Chicago, Illinois
May 6, 1997
<PAGE> 1
EXHIBIT 23.2
[WARADY & DAVIS LLP 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 (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.
Deerfield, Illinois
May 7, 1997
