UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934
For the Quarterly Period Ended June 30, 1998
or
[ ] Transition Report pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934
For the transition period from to
Commission File #33-79012
Inland Real Estate Corporation
(Exact name of registrant as specified in its charter)
Maryland #36-3953261
(State or other jurisdiction (I.R.S. Employer Identification Number)
of incorporation or organization)
2901 Butterfield Road, Oak Brook, Illinois 60523
(Address of principal executive office) (Zip code)
Registrant's telephone number, including area code: 630-218-8000
N/A
(Former name, former address and former fiscal
year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
As of August 10, 1998, there were 8,173,696 shares of common stock outstanding.
-1-
Part 1 - Financial Statements
Item 1. Financial Statements
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Balance Sheets
June 30, 1998 and December 31, 1997
(unaudited)
Assets
------
1998 1997
---- ----
Investment properties (Notes 1, 4 and 5):
Land............................................ $127,658,576 75,801,319
Building and improvements....................... 325,255,201 200,509,519
------------- -------------
452,913,777 276,310,838
Less accumulated depreciation................... 10,684,417 5,665,483
------------- -------------
Net investment properties....................... 442,229,360 270,645,355
Cash and cash equivalents including amounts
held by property manager (Note 1)............... 95,648,994 51,145,587
Restricted cash (Note 1).......................... 4,664,594 2,073,799
Accounts and rents receivable (Note 5)............ 8,600,822 4,926,643
Mortgage receivable (Note 6)...................... 929,239 -
Deposits and other assets......................... 1,229,963 3,924,431
Deferred organization costs (net of accumulated
amortization of $13,731 and $10,985 at June 30,
1998 and December 31, 1997, respectively)
(Note 1)........................................ 13,731 16,477
Loan fees (net of accumulated amortization
of $226,068 and $131,266 at June 30, 1998 and
December 31, 1997, respectively) (Note 1)....... 1,436,602 857,839
------------- -------------
Total assets.................................. $554,753,305 333,590,131
============= ============
See accompanying notes to financial statements.
-2-
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Balance Sheets
(continued)
June 30, 1998 and December 31, 1997
(unaudited)
Liabilities and Stockholders' Equity
------------------------------------
1998 1997
Liabilities: ---- ----
Accounts payable................................ $ 210,701 47,550
Accrued offering costs to Affiliates............ 695,700 544,288
Accrued offering costs to non-affiliates........ 32,876 36,574
Accrued interest payable to Affiliates.......... 4,600 4,641
Accrued interest payable to non-affiliates...... 965,614 560,821
Accrued real estate taxes....................... 11,254,363 7,031,732
Distributions payable (Note 8).................. 2,954,326 1,777,113
Security deposits............................... 1,142,129 754,359
Mortgages payable (Note 7)...................... 167,572,782 106,589,710
Unearned income................................. 560,113 495,535
Other liabilities............................... 2,511,406 493,116
Due to Affiliates (Note 2)...................... 596,588 337,825
------------- -------------
Total liabilities............................. 188,501,198 118,673,264
------------- -------------
Stockholders' Equity (Notes 1 and 2):
Preferred stock, $.01 par value, 6,000,000 Shares
authorized; none issued and outstanding at June
30, 1998 and December 31, 1997................ - -
Common stock, $.01 par value, 100,000,000 Shares
authorized; 41,823,725 and 24,973,340 Shares
issued and outstanding at June 30, 1998 and
December 31, 1997, respectively............... 418,237 249,733
Additional paid-in capital (net of offering
costs of $45,508,064 and $28,341,719 at June
30, 1998 and December 31, 1997, respectively of
which $40,148,112 and $24,172,634 was paid
to Affiliates, respectively).................. 377,330,643 220,640,345
Accumulated distributions in excess of
net income.................................... (11,496,773) (5,973,211)
------------- -------------
Total stockholders' equity.................... 366,252,107 214,916,867
------------- -------------
Total liabilities and stockholders' equity........ $554,753,305 333,590,131
============= ============
See accompanying notes to financial statements.
-3-
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Statements of Operations
For the three and six months ended June 30, 1998 and 1997
(unaudited)
Three months Six months
ended ended
June 30, June 30,
-------- --------
1998 1997 1998 1997
---- ---- ---- ----
Rental income (Notes 1 and 5).... $12,006,760 4,367,866 21,431,176 7,971,450
Additional rental income......... 4,164,116 2,348,354 7,185,041 3,409,861
Interest income.................. 1,058,501 318,367 1,834,865 474,803
Other income..................... 15,523 24,976 62,314 61,220
----------- ---------- ---------- ----------
17,244,900 7,059,563 30,513,396 11,917,334
Expenses: ----------- ---------- ---------- ----------
Professional services to
Affiliates..................... 25,023 9,970 43,023 19,470
Professional services to
non-affiliates................. 17,500 33,515 115,698 63,925
General and administrative
to Affiliates.................. 76,665 21,119 147,426 38,055
General and administrative
expenses to non-affiliates..... 29,152 34,376 60,208 62,688
Advisor asset management fee..... 548,193 289,663 980,376 523,000
Property operating expenses
to Affiliates.................. 654,591 243,793 1,149,119 416,330
Property operating expenses
to non-affiliates.............. 4,862,097 2,355,922 8,328,591 4,042,846
Mortgage interest to Affiliates.. 13,814 14,059 27,702 58,513
Mortgage interest to
non-affiliates................. 2,985,569 1,096,429 5,304,045 2,057,716
Depreciation..................... 2,817,980 897,599 5,018,934 1,639,519
Amortization..................... 55,041 21,895 97,548 60,259
Acquisition cost expenses to
Affiliates..................... 56,750 33,168 86,750 35,457
Acquisition cost expenses to
non-affiliates................. 8,115 10,591 22,151 17,392
----------- ---------- ---------- ----------
12,150,490 5,062,099 21,381,571 9,035,170
----------- ---------- ---------- ----------
Net income..................... $ 5,094,410 1,997,464 9,131,825 2,882,164
=========== ========== ========== ==========
Net income per weighted average
common stock shares outstanding,
basic and diluted (38,433,663 and
12,617,022 for the three months
ended June 30, 1998 and 1997,
respectively and 33,594,462 and
10,945,945 for the six months
ended June 30, 1998 and 1997,
respectively).................... $ .13 .16 .27 .26
=========== ========== ========== =========
See accompanying notes to financial statements.
-4-
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Statement of Stockholders' Equity
June 30, 1998
(unaudited)
Accumulated
Additional Distributions
Common Paid-in in excess of
Stock Capital net income Total
---------- ----------- ------------ ------------
Balance January 1, 1998..... $ 249,733 220,640,345 (5,973,211) 214,916,867
Net income.................. - - 9,131,825 9,131,825
Distributions declared
($.44 for the six months
ended June 30, 1998 per
weighted average common
stock shares outstanding). - - (14,655,387) (14,655,387)
Proceeds from Offering (net
of Offering costs of
$17,166,345).............. 168,696 156,864,076 - 157,032,772
Repurchases of Shares....... (192) (173,778) - (173,970)
---------- ----------- ------------ ------------
Balance June 30, 1998....... $ 418,237 337,330,643 (11,496,773) 366,252,107
========== =========== ============ ============
See accompanying notes to financial statements.
-5-
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Statements of Cash Flows
For the six months ended June 30, 1998 and 1997
(unaudited)
Cash flows from operating activities: 1998 1997
---- ----
Net income...................................... $ 9,131,825 2,882,164
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation.................................. 5,018,934 1,639,519
Amortization.................................. 97,548 60,259
Rental income under master lease agreements... 1,069,655 139,874
Straight line rental income................... (611,079) (207,655)
Changes in assets and liabilities:
Accounts and rents receivable............... (3,063,100) (1,725,604)
Other assets................................ (324,062) (374,365)
Accrued interest payable.................... 404,752 (46,795)
Accrued real estate taxes................... 4,222,631 2,090,760
Accounts payable............................ 163,151 196,742
Unearned income............................. 64,578 304,545
Other liabilities........................... 2,018,290 253,277
Due to Affiliates........................... 258,763 70,315
Security deposits........................... 387,770 237,550
------------- ------------
Net cash provided by operating activities......... 18,839,656 5,520,586
------------- ------------
Cash flows from investing activities:
Restricted cash................................. (2,590,795) (1,379,399)
Additions to investment properties.............. (646,250) (520,939)
Purchase of investment properties............... (163,602,161) (69,320,114)
Mortgage receivable............................. (929,239) -
Deposits on investment properties............... 3,018,530 (2,494,140)
------------- ------------
Net cash used in investing activities............. (164,749,915) (73,714,592)
------------- ------------
Cash flows from financing activities:
Proceeds from offering.......................... 174,199,117 63,374,915
Repurchases of shares........................... (173,970) (183,381)
Payments of offering costs...................... (17,018,631) (6,570,761)
Loan proceeds................................... 48,302,000 32,848,379
Loan fees....................................... (673,565) (531,534)
Distributions paid.............................. (13,478,174) (4,202,698)
Repayment of notes from Affiliates.............. - (8,000,000)
Principal payments of debt...................... (743,111) (120,426)
------------- ------------
Net cash provided by financing activities......... 190,413,666 76,614,494
------------- ------------
Net increase in cash and cash equivalents......... 44,503,407 8,420,488
Cash and cash equivalents at beginning of period.. 51,145,587 8,491,735
------------- ------------
Cash and cash equivalents at end of period........ $ 95,648,994 16,912,223
============= ============
See accompanying notes to financial statements.
-6-
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Statements of Cash Flows
(continued)
For the six months ended June 30, 1998 and 1997
(unaudited)
Supplemental schedule of noncash investing and financing activities:
1998 1997
---- ----
Purchase of investment properties.......... $(177,026,344) (86,883,999)
Assumption of debt......................... 13,424,183 9,563,885
Note payable............................... - 8,000,000
-------------- -------------
$(163,602,161) (69,320,114)
============== =============
Distributions payable...................... $ 2,954,326 971,540
============== =============
Interest paid.............................. $ 4,926,995 2,163,024
============== =============
See accompanying notes to financial statements.
-7-
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Notes to Financial Statements
June 30, 1998
(unaudited)
The accompanying financial statements have been prepared in accordance with
generally accepted accounting principles for interim financial information and
with instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly,
they do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. Readers of
this Quarterly Report should refer to the Company's audited financial statements
for the fiscal year ended December 31, 1997, which are included in the Company's
1997 Annual Report, as certain footnote disclosures which would substantially
duplicate those contained in such audited financial statements have been omitted
from this Report. In the opinion of management, all adjustments (consisting of
normal recurring accruals) necessary for a fair presentation have been included.
(1) Organization and Basis of Accounting
Inland Real Estate Corporation (the "Company") was formed on May 12, 1994. The
Company may acquire existing Neighborhood Retail Centers and Community Centers
located primarily within an approximate 400-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. The Company is also
permitted to construct or develop properties, or render services in connection
with such development or construction, subject to the Company's compliance with
the rules governing real estate investment trusts under the Code, as amended.
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, ("Initial Offering") of 5,000,000 shares of common stock
("Shares"). 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 at
$10.00 per Share, on a best efforts basis, (the "Second Offering"). As of July
10, 1997, the Company had received subscriptions for a total of 10,000,000
Shares, thereby completing the Second Offering. On July 14, 1997, the Company
commenced an offering of an additional 20,000,000 Shares at $10.00 per Share, on
a best efforts basis, (the "Third Offering"). As of March 19, 1998, the Company
had received subscriptions for a total of 20,000,000 Shares, thereby completing
the Third Offering. On April 7, 1998, the Company commenced an offering of an
additional 27,000,000 Shares at $11.00 per Share, on a best efforts basis, (the
"Fourth Offering"). As of June 30, 1998, the Company had received subscriptions
for a total of 5,513,260 Shares from the Fourth Offering. In addition, as of
June 30, 1998, the Company has distributed 1,310,465 Shares through the
Company's Distribution Reinvestment Program ("DRP"). As of June 30, 1998, the
Company has repurchased a total of 72,023 Shares through the Share Repurchase
Program. As a result, as of June 30, 1998, Gross Offering Proceeds total
$423,256,944 net of Shares repurchased through the Share Repurchase Program.
-8-
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Notes to Financial Statements
(continued)
June 30, 1998
(unaudited)
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.
The Company considers all highly liquid investments purchased with a maturity of
three months or less to be cash equivalents and are carried at cost, which
approximates fair value.
Restricted cash at June 30, 1998 includes $771,682 held in escrow for the
principal payments on the Aurora Commons mortgage payable and $177,855 held in
escrow by the mortgagee for the payment of real estate taxes at Aurora Commons,
Shoppes at Mill Creek Shopping Center and Schaumburg Plaza. Restricted cash at
June 30, 1998 also includes amounts held as vacancy escrows on Cobblers
Crossing, Mallard Crossing, Shorecrest Shopping Center, Sequoia Shopping Center,
Shoppes at Coopers Grove, Prairie Square, Lake Park Plaza, Chestnut Court, St.
James Crossing, Oak Forest Commons, Shoppes of Mill Creek, Woodfield Plaza,
Bergen Plaza, Berwyn Plaza, High Point Center, Schaumburg Plaza and Woodland
Heights. The monthly amounts drawn for rent under the master lease escrows
decrease the basis of the respective properties. Restricted cash at June 30,
1998 also includes $556,025 held in escrow for the second phase of construction
at Oak Forest Commons and $95,985 held in escrow for possible vacancies upon
completion of the second phase at Oak Forest Commons. Restricted cash at June
30, 1998 also included $67,861 in escrows established by the Seller of Bergen
Plaza as a guarantee to cover possible unpaid expenses, an obligation to
complete a bike path for a new tenant and possible claims by tenants for
reimbursement of snowplowing expenses. Restricted cash at June 30, 1998 also
includes $500,000 deposited with the City of Oakdale as security for any
shortfall of taxes due to the tax increment financing used to develop the
property. This requirement expires in the year 2004.
-9-
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Notes to Financial Statements
(continued)
June 30, 1998
(unaudited)
Statement of Financial Accounting Standards No. 121 requires the Company to
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 operations and sale of properties. 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. As of June 30, 1998, the Company
does not believe any such impairments of its properties exists.
Depreciation expense is computed using the straight-line method. Buildings and
improvements are depreciated based upon estimated useful lives of 30 years for
the building and building improvements and 15 years for the site improvements.
Loan fees are amortized on a straight line basis over the life of the related
loans.
Deferred organization costs are amortized over a 60-month period.
Offering costs are offset against the Stockholders' equity accounts. Offering
costs consist principally of printing, selling and registration costs.
Rental income is recognized on a straight-line basis over the term of each
lease. The difference between rental income earned on a straight-line basis and
the cash rent due under the provisions of the lease agreements is recorded as
deferred rent receivable.
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.
Certain reclassifications were made to the 1997 financial statements to conform
with the 1998 presentation.
In the opinion of management, the financial statements contain all the
adjustments necessary, which are of a normal recurring nature, to present fairly
the financial position and results of operations for the period presented
herein. Results of interim periods are not necessarily indicative of results to
be expected for the year.
(2) Transactions with Affiliates
The Advisor and its Affiliates are entitled to reimbursement for salaries and
expenses of employees of the Advisor and its Affiliates relating to each of the
Offerings. Such expenses include postage, data processing and marketing and are
-10-
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Notes to Financial Statements
(continued)
June 30, 1998
(unaudited)
reimbursed at cost. The collective costs to Affiliates incurred relating to the
Offerings were $1,084,177 and $1,047,694 as of June 30, 1998 and December 31,
1997, respectively, of which $41,756 and $24,374 was unpaid as of June 30, 1998
and December 31, 1997, respectively. In addition, an Affiliate of the Advisor
serves as dealer manager of each of the Offerings and is entitled to receive
selling commissions, a marketing contribution and a due diligence expense
allowance fee from the Company in connection with each of the Offerings. Such
amounts incurred were $39,063,935 and $23,124,938 as of June 30, 1998 and
December 31, 1997, respectively, of which $653,944 and $519,914 was unpaid as of
June 30, 1998 and December 31, 1997, respectively. Approximately $33,094,000
and $19,581,000 of these commissions had been passed through from the Affiliate
to unaffiliated soliciting broker/dealers as of June 30, 1998 and December 31,
1997, respectively.
As of June 30, 1998, the Company had incurred $45,535,526 of organization and
offering costs to Affiliates and non-affiliates. Pursuant to the terms of the
offering, the Advisor is required to pay organizational and offering expenses
(excluding sales commissions, the marketing contribution and the due diligence
expense allowance fee) in excess of 5.5% of the gross proceeds of the Offering
(the "Gross Offering Proceeds") or all organization and offering expenses
(including selling commissions) which together exceed 15% of gross offering
proceeds. As of June 30, 1998, organizational and offering expenses did not
exceed the 5.5% or 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
administration of the Company. Such costs are included in professional services
to Affiliates, general and administrative expenses to Affiliates and acquisition
costs expensed.
The Advisor has contributed $200,000 to the capital of the Company for which it
received 20,000 Shares.
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 six
months ended June 30, 1998, the Company has incurred $980,376 of such fees, of
which $548,193 remains unpaid at June 30, 1998.
-11-
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Notes to Financial Statements
(continued)
June 30, 1998
(unaudited)
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 $1,149,072 and $416,330 for the six months ended June 30,
1998 and 1997, respectively, all of which has been paid.
(3) Stock Option and Dealer Warrant Plan
The Company adopted an Independent Director Stock Option Plan which granted each
Independent Director an option to acquire 3,000 Shares as of the date they
become a Director 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 June 30, 1998, options for 1,000 Shares
have been exercised for $9.05 per Share.
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 stated in the Offering during the period commencing with the
first date upon which the Soliciting Dealer Warrants are issued and ending upon
the exercise period. Notwithstanding the foregoing no Soliciting Dealer Warrant
will be exercisable until one year from the date of issuance. As of June 30,
1998, none of these warrants were exercised.
-12-
<TABLE> INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Notes to Financial Statements
(continued)
(4) Investment Properties Initial Cost (A) Gross amount at which carried
<CAPTION> -------------------------- at end of period
Net -----------------------------------------
Buildings Adjustments Land Buildings
Date and to and and
Acq Land improvements Basis (B) improvements improvements Total
Single-user Retail ------- ------------ ------------- ------------ ------------- ------------- -------------
- ------------------ <S> <C> <C> <C> <C> <C> <C>
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 1,626,033 664 838,000 1,626,697 2,464,697
Ameritech
Joliet, IL.............. 05/97 170,000 883,293 2,544 170,000 885,837 1,055,837
Dominicks-Schaumburg
Schaumburg, IL.......... 05/97 2,294,437 8,392,661 2,679 2,294,437 8,395,340 10,689,777
Dominicks-Highland Park
Highland Park, IL....... 06/97 3,200,000 9,597,963 2,200 3,200,000 9,600,163 12,800,163
Dominicks-Glendale Heights
Glendale Heights, IL.... 09/97 1,265,000 6,942,997 9,194 1,265,000 6,952,191 8,217,191
Party City
Oakbrook Terrace, IL.... 11/97 750,000 1,231,271 - 750,000 1,231,271 1,981,271
Eagle Country Market
Roselle, IL............. 11/97 966,667 1,940,898 - 966,667 1,940,898 2,907,565
Dominicks-West Chicago
West Chicago, IL........ 01/98 1,980,130 4,325,331 - 1,980,130 4,325,331 6,305,461
Walgreens-Woodstock
Woodstock, IL........... 06/98 395,080 771,973 - 395,080 771,973 1,167,053
Neighborhood Retail Centers
Eagle Crest Shopping Center
Naperville, IL.......... 03/95 1,878,618 2,938,352 115,828 1,878,618 3,054,180 4,932,798
Montgomery-Goodyear
Montgomery, IL.......... 09/95 315,000 834,659 (11,158) 315,000 823,501 1,138,501
Hartford/Naperville Plaza
Naperville, IL.......... 09/95 990,000 3,427,961 13,002 990,000 3,440,963 4,430,963
Nantucket Square
Schaumburg, IL.......... 09/95 1,908,000 2,349,918 (69,881) 1,908,000 2,280,037 4,188,037
Antioch Plaza
Antioch, IL............. 12/95 268,000 1,360,445 (120,629) 268,000 1,239,816 1,507,816
------------ ------------- ------------ ------------- ------------- ------------
Subtotal $17,297,262 47,754,478 (55,557) 17,297,262 47,698,921 64,996,183
-13-
-13-
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Notes to Financial Statements
(continued)
(4) Investment Properties (continued) 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
------- ------------ ------------- ------------ ------------- ------------- -------------
Subtotal $17,297,262 47,754,478 (55,557) 17,297,262 47,698,921 64,996,183
Mundelein Plaza
Mundelein, IL........... 03/96 1,695,000 3,965,560 (53,429) 1,695,000 3,912,131 5,607,131
Regency Point
Lockport, IL............ 04/96 1,000,000 4,720,800 (19,377) 1,000,000 4,701,423 5,701,423
Prospect Heights
Prospect Heights, IL.... 06/96 494,300 1,683,755 32,061 494,300 1,715,816 2,210,116
Montgomery-Sears
Montgomery, IL.......... 06/96 768,000 2,655,181 (72,879) 768,000 2,582,302 3,350,302
Salem Square
Countryside, IL......... 08/96 1,735,000 4,449,217 (16,960) 1,735,000 4,432,257 6,167,257
Hawthorn Village
Vernon Hills, IL........ 08/96 2,619,500 5,887,640 46,891 2,619,500 5,934,531 8,554,031
Six Corners
Chicago, IL............. 10/96 1,440,000 4,538,152 3,638 1,440,000 4,541,790 5,981,790
Spring Hill Fashion Corner
West Dundee, IL......... 11/96 1,794,000 7,415,396 3,955 1,794,000 7,419,351 9,213,351
Crestwood Plaza
Crestwood, IL........... 12/96 325,577 1,483,183 4,750 325,577 1,487,933 1,813,510
Quarry Outlot
Hodgkins, IL............ 12/96 522,000 1,278,431 8,872 522,000 1,287,303 1,809,303
Grand and Hunt Club
Gurnee, IL.............. 12/96 969,840 2,622,575 (52,811) 969,840 2,569,764 3,539,604
Summit of Park Ridge
Park Ridge, IL.......... 12/96 672,000 2,497,950 5,886 672,000 2,503,836 3,175,836
Park St. Claire
Schaumburg, IL.......... 12/96 319,578 986,920 226,674 319,578 1,213,594 1,533,172
Aurora Commons
Aurora, IL.............. 01/97 3,220,000 8,318,861 3,901 3,220,000 8,322,762 11,542,762
------------ ------------- ------------ ------------- ------------- ------------
Subtotal $34,872,057 100,258,099 65,615 34,872,057 100,323,714 135,195,771
-14-
-14-
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Notes to Financial Statements
(continued)
(4) Investment Properties (continued) 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
------- ------------ ------------- ------------ ------------- ------------- -------------
Subtotal $34,872,057 100,258,099 65,615 34,872,057 100,323,714 135,195,771
Lincoln Park Place
Chicago, IL............. 01/97 819,000 1,299,902 (61,272) 819,000 1,238,630 2,057,630
Niles Shopping Center
Niles, IL............... 04/97 850,000 2,466,389 (26,637) 850,000 2,439,752 3,289,752
Mallard Crossing
Elk Grove Village, IL... 05/97 1,778,667 6,331,943 (45,386) 1,778,667 6,286,557 8,065,224
Cobblers Crossing
Elgin, IL............... 05/97 3,200,000 7,763,940 (127,975) 3,200,000 7,635,965 10,835,965
Calumet Square
Calumet City, IL........ 06/97 527,000 1,540,046 6,664 527,000 1,546,710 2,073,710
Sequoia Shopping Center
Milwaukee, WI........... 06/97 1,216,914 1,806,734 (15,488) 1,216,914 1,791,246 3,008,160
Riversquare Shopping Center
Naperville, IL.......... 06/97 2,853,226 3,129,130 103,872 2,853,226 3,233,002 6,086,228
Shorecrest Plaza
Racine, WI.............. 07/97 1,150,000 4,775,119 (38,432) 1,150,000 4,736,687 5,886,687
Dominicks-Countryside
Countryside, IL......... 12/97 1,375,000 925,106 - 1,375,000 925,106 2,300,106
Terramere Plaza
Arlington Heights, IL... 12/97 1,435,000 2,981,314 88,482 1,435,000 3,069,795 4,504,795
Wilson Plaza
Batavia, IL............. 12/97 310,000 999,366 - 310,000 999,366 1,309,366
Iroquois Center
Naperville, IL.......... 12/97 3,668,347 8,276,041 - 3,668,347 8,276,041 11,944,388
Fashion Square
Skokie, IL.............. 12/97 2,393,534 6,847,769 109,153 2,393,534 6,956,922 9,350,456
------------ ------------- ------------ ------------- ------------- ------------
Subtotal $56,448,745 149,400,898 58,595 56,448,745 149,459,494 205,908,239
-15-
-15-
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Notes to Financial Statements
(continued)
(4) Investment Properties (continued) 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
------- ------------ ------------- ------------ ------------- ------------- -------------
Subtotal $56,448,745 149,400,898 58,595 56,448,745 149,459,494 205,908,239
Shops at Coopers Grove
Country Club Hills, IL.. 01/98 1,400,897 4,413,565 (17,427) 1,400,897 4,396,138 5,797,035
Maple Plaza
Downers Grove, IL....... 01/98 1,364,202 1,821,820 - 1,364,202 1,821,820 3,186,022
Orland Park Retail
Orland Park, IL......... 02/98 460,867 795,940 (22,296) 460,867 773,643 1,234,510
Wisner/Milwaukee Plaza
Chicago, IL............. 02/98 528,576 1,383,292 - 528,576 1,383,292 1,911,868
Homewood Plaza
Homewood, IL............ 02/98 534,599 1,398,042 - 534,599 1,398,042 1,932,641
Elmhurst City Center
Elmhurst, IL............ 02/98 2,050,217 2,810,339 (332,506) 2,050,217 2,477,833 4,528,050
Shoppes of Mill Creek
Palos Park, IL.......... 03/98 3,305,949 8,001,284 43,795 3,305,949 8,045,079 11,351,028
Prairie Square
Sun Prairie, WI......... 03/98 739,575 2,381,050 (10,152) 739,575 2,370,898 3,110,473
Oak Forest Commons
Oak Forest, IL.......... 03/98 2,795,519 9,030,068 (2,377) 2,795,519 9,027,691 11,823,210
Downers Grove Market
Downers Grove, IL....... 03/98 6,224,467 11,464,821 (6,305) 6,224,467 11,458,516 17,682,983
St. James Crossing
Westmont, IL............ 03/98 2,610,600 4,933,352 (18,531) 2,610,600 4,914,821 7,525,421
High Point Center
Madison, WI............. 04/98 1,449,560 8,808,272 (25,990) 1,449,560 8,782,283 10,231,843
Western & Howard
Chicago, IL............. 04/98 439,990 1,521,960 - 439,990 1,521,960 1,961,950
Wauconda Shopping Center
Wauconda, IL............ 05/98 454,500 2,065,324 - 454,500 2,065,324 2,519,824
Berwyn Plaza
Berwyn, IL.............. 05/98 769,073 1,072,777 - 769,073 1,072,777 1,841,850
------------ ------------- ------------ ------------- ------------- ------------
Subtotal $81,577,336 211,302,804 (333,193) 81,577,336 210,969,611 292,546,947
-16-
-16-
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Notes to Financial Statements
(continued)
(4) Investment Properties (continued) 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
------- ------------ ------------- ------------ ------------- ------------- -------------
Subtotal $81,577,336 211,302,804 (333,193) 81,577,336 210,969,611 292,546,947
Woodland Heights
Streamwood, IL.......... 06/98 2,976,000 6,874,031 (12,366) 2,976,000 6,861,665 9,837,665
Schaumburg Shopping Center
Schaumburg, IL.......... 06/98 2,445,555 4,548,297 - 2,445,555 4,548,297 6,993,852
Community Centers
Lansing Square
Lansing, IL............. 12/96 4,075,000 12,179,383 18,087 4,075,000 12,197,470 16,272,470
Maple Park Place
Bolingbrook, IL......... 01/97 3,665,909 11,669,428 10,603 3,665,909 11,680,031 15,345,940
Rivertree Court
Vernon Hills, IL........ 07/97 8,651,875 22,910,165 (14,120) 8,651,875 222,896,045 31,547,920
Naper West
Naperville, IL.......... 12/97 5,335,000 9,608,534 (129,113) 5,335,000 9,479,420 14,814,420
Woodfield Plaza
Schaumburg, IL.......... 01/98 4,612,277 15,159,792 (44,636) 4,612,277 15,115,155 19,727,432
Lake Park Plaza
Michigan City, IN....... 02/98 3,252,861 9,208,072 208,626 3,252,861 9,416,698 12,669,559
Chestnut Court
Darien, IL.............. 03/98 5,719,982 10,481,184 (125,409) 5,719,982 10,355,775 16,075,757
Bergen Plaza
Oakdale, MN............. 04/98 5,346,781 11,693,055 41,979 5,346,781 11,735,034 17,081,815
------------ ------------- ------------ ------------- ------------- ------------
Total $127,658,576 325,634,745 (379,544) 127,658,576 325,255,201 452,913,777
============ ============= =========== ============ ============ ============
</TABLE>
-17-
-17-
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Notes to Financial Statements
(continued)
June 30, 1998
(unaudited)
(4) Investment Properties (continued)
(A) The initial cost to the Company, represents the original purchase price of
the property, including amounts incurred subsequent to acquisition, which
were contemplated at the time the property was acquired.
(B) Adjustments to basis includes additions to investment properties and
payments received under master lease agreements. As part of several
purchases, the Company will receive rent under master lease agreements on
the spaces currently vacant for periods ranging from one to two years or
until the spaces are leased. Generally Accepted Accounting Principles
("GAAP") require that as these payments are received, they be recorded as a
reduction in the purchase price of the properties rather than as rental
income. The cumulative amount of such payments was $2,050,710 and $981,055
as of June 30, 1998 and December 31, 1997, respectively. (Note 5)
(5) Operating Leases
As part of the purchases of several of the properties, the Company will receive
rent under master lease agreements on spaces currently vacant for periods
ranging from one to two years or until the spaces are leased and tenants begin
paying rent. GAAP requires the Company to reduce the purchase price of the
properties as these payments are received, rather than record the payments as
rental income.
Certain tenant leases contain provisions providing for stepped rent increases.
GAAP requires the Company to record rental income for the period of occupancy
using the effective monthly rent, which is the average monthly rent for the
entire period of occupancy during the term of the lease. The accompanying
financial statements include increases of $611,079 and $207,655 for the six
months ended June 30, 1998 and 1997, of rental income for the period of
occupancy for which stepped rent increases apply and $1,397,695 and $786,616 in
related accounts receivable as of June 30, 1998 and December 31, 1997,
respectively. The Company anticipates collecting these amounts over the terms
of the related leases as scheduled rent payments are made.
-18-
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Notes to Financial Statements
(continued)
June 30, 1998
(unaudited)
(6) Mortgage Receivable
On April 22, 1998, the Company entered into a construction loan agreement with
an unaffiliated third party, the borrower, for an entire loan amount of
$2,507,038. Disbursements are to be made periodically a work progresses in
connection with the construction of a Staples Office Supply store to be built
in Freeport, Illinois. The construction loan matures on October 15, 1998 and,
prior to maturity, requires the borrower to make payments of interest only, on
amounts disbursed at a rate of 9.5%. The Company has agreed to purchase this
property upon completion, contingent upon certain criteria stated in the
contract.
(7) Mortgages Payable
Mortgages payable consist of the following at June 30, 1998 and December 31,
1997:
Current Current Balance at
Property as Interest Maturity Monthly June 30, Dec. 31,
Collateral Rate Date Payment(a) 1998 1997
- ------------ ---------- --------- ---------- ----------- -----------
Mortgage payable to Affiliate:
Walgreens 7.655% 05/2004 $ 5,689 $ 721,082 727,472
Mortgages payable to non-affiliates:
Regency Point 7.445% 08/2000 (b) 4,344,417 4,373,461
Eagle Crest 7.850% 10/2003 15,162 2,350,000 2,350,000
Nantucket Square 7.850% 10/2003 14,195 2,200,000 2,200,000
Antioch Plaza 7.850% 10/2003 5,646 875,000 875,000
Mundelein Plaza 7.850% 10/2003 18,130 2,810,000 2,810,000
Montgomery-Goodyear 7.850% 10/2003 4,065 630,000 630,000
Montgomery-Sears 7.850% 08/2003 10,614 1,645,000 1,645,000
Hartford/Naperville 7.850% 08/2003 14,904 2,310,000 2,310,000
Zany Brainy 7.590% 01/2004 7,767 1,245,000 1,245,000
Prospect Heights
Plaza 7.590% 01/2004 6,831 1,095,000 1,095,000
Hawthorn Village
Commons 7.590% 01/2004 26,700 4,280,000 4,280,000
Six Corners Plaza 7.590% 01/2004 19,339 3,100,000 3,100,000
Salem Square
Shopping Center 7.590% 01/2004 19,526 3,130,000 3,130,000
Lansing Square 7.800% 01/2004 52,249 8,150,000 8,150,000
Spring Hill Fashion
Mall 7.800% 01/2004 30,067 4,690,000 4,690,000
-19-
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Notes to Financial Statements
(continued)
June 30, 1998
(unaudited)
Current Current Balance at
Property as Interest Maturity Monthly June 30, Dec. 31,
Collateral Rate Date Payment(a) 1998 1997
- ------------ ---------- --------- ---------- ----------- -----------
Aurora Commons (c) 9.000% 10/2001 70,556 9,301,025 9,392,602
Maple Park Place 7.650% 06/2004 48,101 7,650,000 7,650,000
Dominicks-Schaumburg 7.490% 06/2004 32,909 5,345,500 5,345,500
Summit Park Ridge 7.490% 06/2004 9,850 1,600,000 1,600,000
Lincoln Park Place 7.490% 06/2004 6,464 1,050,000 1,050,000
Crestwood Plaza 7.650% 06/2004 5,686 904,380 904,380
Park St. Claire 7.650% 06/2004 4,794 762,500 762,500
Quarry 7.650% 06/2004 5,659 900,000 900,000
Grand/Hunt Club 7.490% 06/2004 11,056 1,796,000 1,796,000
Rivertree Court (d) 10.030% 11/1998 131,226 15,700,000 15,700,000
Niles Shopping Center 7.230% 01/2005 9,612 1,617,500 1,617,500
Ameritech 7.230% 01/2005 3,104 522,375 522,375
Calumet Square 7.230% 01/2005 6,138 1,032,920 1,032,920
Sequoia Shopping
Center 7.230% 01/2005 8,943 1,505,000 1,505,000
Dominick's Highland
Park 7.210% 12/2004 38,453 6,400,000 6,400,000
Fashion Square (e) 4.100% 12/2014 21,264 6,200,000 6,800,000
Mallard Crossing 7.280% 03/2005 24,233 4,050,000 -
Prairie Square 7.000% 03/2005 8,918 1,550,000 -
Orland Park Retail 7.000% 03/2005 3,596 625,000 -
Maple Plaza 7.000% 03/2005 9,105 1,582,500 -
Iroquois Center 7.000% 03/2005 34,233 5,950,000 -
Dominicks-Countryside 6.990% 03/2003 6,607 1,150,000 -
Wilson Plaza 7.000% 03/2005 3,740 650,000 -
Eagle Country Market 7.000% 03/2005 8,342 1,450,000 -
Terramere Plaza 7.000% 03/2005 12,672 2,202,500 -
Shops at Coopers
Grove 7.000% 03/2005 16,685 2,900,000 -
Party City 7.000% 03/2005 5,682 987,500 -
Cobbler Crossing 7.000% 02/2005 31,946 5,476,500 -
Dominicks-Glendale
Heights 7.000% 01/2005 23,917 4,100,000 -
Riversquare Shopping
Center 7.150% 01/2005 18,173 3,050,000 -
Shorecrest Plaza 7.100% 03/2003 17,620 2,978,000 -
Shoppes of Mill
Creek 8.000% 09/1999 63,333 9,500,000 -
Woodfield Plaza 6.650% 05/2005 53,200 9,600,000 -
Schaumburg Plaza (f) 9.250% 12/2009 30,125 3,908,081 -
------------ -----------
Mortgages Payable.................................... $167,572,782 106,589,710
============ ===========
-20-
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Notes to Financial Statements
(continued)
June 30, 1998
(unaudited)
(a) All payments are interest only, with the exception of the loans secured by
the Walgreens, Regency Point and Aurora Commons properties.
(b) Payments on this mortgage are based on a floating interest rate of 180
basis points over the 30-day LIBOR rate, which adjusts monthly, amortizing
over 25 years.
(c) The Company received a credit for interest expense on the debt at closing,
which is included in restricted cash along with an amount set aside by the
Company for principal payments on the debt. Interest income earned on the
restricted cash amounts, when netted with interest expense on the debt,
results in an adjusted interest rate on the debt of approximately 8.2%.
(d) The Company received a credit for interest expense on the debt at closing.
(e) As part of the purchase of this property, the Company assumed the existing
mortgage-backed Economic Development Revenue Bonds, Series 1994 offered by
the Village of Skokie, Illinois. The interest rate floats and is reset
weekly by a re-marketing agent. The current rate is 3.875%. The bonds are
further secured by an Irrevocable Letter of Credit, issued by LaSalle Bank
at a fee of 1.25% of the bond outstanding. In addition, there is a .125%
re-marketing fee paid annually.
(f) The seller deposited money into an escrow account, which together with
interest earnings on the deposit, will provide a sum that will be drawn
down on a monthly basis by the Company to reduce the effective interest
rate paid on the loan to 7% per annum for a period of five years.
(8) Subsequent Events
In July 1998, the Company paid a distribution of $2,954,326 to the
Stockholders.
On July 1, 1998, the Company purchased the Winnetka Commons Shopping Center
from an unaffiliated third party for approximately $4,435,000. The property is
located in New Hope, Minnesota and contains approximately 42,381 square feet of
leasable space. Its anchor tenants are Walgreens and Big Wheel Auto Store.
On July 7, 1998, the Company purchased the Eastgate Shopping Center from an
unaffiliated third party for approximately $7,732,000. The property is located
in Lombard, Illinois and contains approximately 132,519 square feet of leasable
space. Its anchor tenants are Ace Hardware and State of Illinois.
-21-
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Notes to Financial Statements
(continued)
June 30, 1998
(unaudited)
In July 1998, the Company obtained additional financing secured by the Downers
Grove Marketplace property totaling $10,600,000 from an unaffiliated lender.
Loan fees total approximately $80,000 in connection with this mortgage. The
mortgage loan has a term of seven years and prior to maturity date, requires
payment of interest only, at 6.82%.
On July 16, 1998, the Company disbursed an additional $335,681 in connection
with the construction loan secured by the Staples Office Supply store to be
built in Freeport, Illinois.
On August 6, 1998, the Company acquired title to approximately 27 acres of land
located at the northeast intersection of North Avenue and Kirk Road in St.
Charles, Illinois, to be developed into a 204,000 square foot shopping center
to be known as "Stuarts Crossing" from H.P. Kirk Partners, L.L.C., an
unaffiliated third party. The initial purchase price of $14,176,627, was
funded with cash and cash equivalents. Included in the purchase price paid by
the Company is $8,824,883 which has been placed in a development escrow for the
construction of a Jewel/Osco Food Store and adjacent stores. The Company will
receive interest at the rate of 9.0% per annum, paid monthly, on the
development escrow.
On August 11, 1998, the Company deposited $1,240,000 with Lehman Brothers
Holding, Inc. to lock a 6.36% interest rate on $62,000,000 in new financing to
be secured by twelve properties owned by the Company. These loans, which are
expected to close on October 1, 1998, will require monthly interest only
payments at a 6.36% interest rate for a period of ten years.
-22-
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Certain statements in this "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and elsewhere in this quarterly report on
Form 10-Q constitute "forward-looking statements" within the meaning of the
Federal Private Securities Litigation Reform Act of 1995. These forward-
looking statements involve known and unknown risks, uncertainties and other
factors which may cause the Company's actual results, performance or
achievements to be materially different from any future results, performance or
achievements expressed or implied by these forward-looking statements. These
factors include, among other things, limitations on the area in which the
Company may acquire properties; risks associated with borrowings secured by the
Company's properties; competition for tenants and customers; federal, state or
local regulations; adverse changes in general economic or local conditions;
competition for property acquisitions with third parties that have greater
financial resources than the Company; inability of lessees to meet financial
obligations; uninsured losses; risks of failing to qualify as a REIT; and
potential conflicts of interest between the Company and its affiliates
including the Advisor.
Liquidity and Capital Resources
On April 7, 1998, the Company commenced an offering of an additional 27,000,000
Shares at $11.00 per Share, on a best efforts basis, ("the Fourth Offering").
As of June 30, 1998, the Company had received subscriptions for a total of
5,513,260 Shares from the Fourth Offering. In addition, as of June 30, 1998,
the Company has distributed 1,310,465 Shares through the Company's Distribution
Reinvestment Program. As of June 30, 1998, the Company has repurchased 72,023
Shares through the Company's Share Repurchase Program. As a result, as of June
30, 1998, Gross Offering Proceeds total $423,256,944 net of Shares repurchased
through the Share Repurchase Program.
Cash and cash equivalents consists of cash and short-term investments. Cash
and cash equivalents at June 30, 1998 and December 31, 1997 were $95,648,994
and $51,145,587 respectively. The increase in cash and cash equivalents since
December 31, 1997 resulted primarily from the sale of shares and loan proceeds
from financing secured by the Company's properties. Partially offsetting the
increase in cash and cash equivalents was the use of cash resources to purchase
additional properties since December 31, 1997 and the payment of offering costs
associated with sale of shares. The Company intends to use cash and cash
equivalents to purchase additional properties, to pay distributions and to pay
Offering Costs.
As of June 30, 1998, the Company had acquired sixty-seven properties. The
properties owned by the Company are currently generating sufficient cash flow
to cover operating expenses of the Company plus pay a monthly distribution on
weighted average shares. Beginning June 1, 1998, the Company increased the
monthly distribution paid to $.88 per annum on weighted average shares.
Distributions declared for the six months ended June 30, 1998 were $14,655,387,
a portion of which represents a return of capital for federal income tax
purposes. The return of capital portion of the distributions cannot be
determined at this time and will be calculated at year end.
-23-
Management of the Company monitors the various qualification tests the Company
must meet to maintain its status as a real estate investment trust. Large
ownership of the Company's stock is tested upon purchase to determine that no
more than 50% in value of the outstanding stock is owned directly, or
indirectly, by five or fewer persons or entities at any time. Management of
the Company also determines, on a quarterly basis, that the Gross Income, Asset
and Distribution Tests imposed by the REIT requirements are met. On an ongoing
basis, as due diligence is performed by the Advisor on potential real estate
purchases or temporary investment of uninvested capital, management determines
that the income from the new asset will qualify for REIT purposes. Beginning
with the tax year ended December 31, 1995, the Company has qualified as a REIT.
Cash Flows From Operating Activities
Net cash provided by operating activities increased from $5,520,586 for the six
months ended June 30, 1997 to $18,839,656 for the six months ended June 30,
1998. This increase is due primarily to the purchase of additional properties
in 1998 and a full six months of operations on properties acquired during the
six months ended June 30, 1997. As of June 30, 1998, the Company had acquired
sixty-seven properties, as compared to thirty-three properties as of June 30,
1997.
Cash Flows From Investing Activities
Cash flows used in investing activities were utilized primarily for the
purchase of and additions to properties.
Cash Flows From Financing Activities
For the six months ended June 30, 1998, the Company generated $190,413,666 of
cash flows from financing activities as compared to $76,614,494 of cash flows
generated from financing activities for the six months ended June 30, 1997.
This increase is due primarily to the increase in proceeds raised from the sale
of $174,025,147 of Shares for the six months ended June 30, 1998, as compared
to the sale of $63,191,534 of Shares for the six months ended June 30, 1997.
This increase is also due to $48,302,000 in financing secured by sixteen of the
Company's properties for the six months ended June 30, 1998, as compared to
$32,848,379 in financing secured by ten of the Company's properties for the six
months ended June 30, 1997. This increase is partially offset by an increase in
the cash used to pay costs associated with selling Shares for the six months
ended June 30, 1998 as compared to the six months ended June 30, 1997. The
increase is also partially offset by an increase in the amount of distributions
paid for the six months ended June 30, 1998 of $13,478,174 as compared to the
distributions paid for the six months ended June 30, 1997 of $4,202,698.
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 June 30, 1998, organizational and offering costs did
not exceed these limitations.
-24-
Results of Operations
At June 30, 1998, the Company owned forty-nine neighborhood retail centers,
eight community centers and ten single-user retail properties.
Total income for the six months ended June 30, 1998 and 1997 was $30,513,396 and
$11,917,334 respectively. This increase was due to the purchase of additional
properties in 1998 and a full six months of operations on properties acquired
during the six months ended June 30, 1997. As of June 30, 1998, the Company had
acquired sixty-seven properties, as compared to thirty-three properties as of
June 30, 1997. The purchase of additional properties also resulted in increases
in property operating expenses including depreciation expense.
The decrease in mortgage interest to Affiliates for the six months ended June
30, 1998, as compared to the six months ended June 30, 1997, is due to the
payoff of the acquisition financing totaling $8,000,000. The Company continues
to have a mortgage collateralized by the Walgreens, Decatur property payable to
an Affiliate.
The increase in mortgage interest to non-affiliates for the three and six months
ended June 30, 1998, as compared to the three and six months ended June 30,
1997, is due to financing secured by previously acquired centers as well as
mortgages assumed as part of the purchases of Aurora Commons, Rivertree Court,
Fashion Square, Shoppes at Mill Creek and Schaumburg. The mortgages payable
totaled $167,572,782 as of June 30, 1998 as compared to $73,130,071 as of June
30, 1997.
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 for the three and six months
ended June 30, 1998, as compared to the three and six months ended June 30,
1997, is due to the management of an increased number of real estate assets and
an increased number of investors.
The Advisor may receive an annual Advisor Asset Management Fee of not more than
1% of the Average Invested Assets, paid quarterly. The Company paid an Advisor
Asset Management Fee of .50% and .75% as of June 30, 1998 and 1997,
respectively.
The increase in acquisition cost expenses is due to the increased number of
properties considered for acquisition by the Company and not purchased.
Year 2000
The Company has reviewed its current computer systems and does not anticipate
any future problems relating to the year 2000.
-25-
Funds from Operations
One of the Company's objectives is to provide cash distributions to its
Shareholders from cash generated by the Company's operations. Cash generated
from operations is not equivalent to the Company's net operating income as
determined under generally accepted accounting principals ("GAAP "). Due to
certain unique operating characteristics of real estate companies, the National
Association of Real Estate Investment Trusts ("NAREIT"), an industry trade
group, has promulgated a standard known as "Funds from Operations" or "FFO" for
short, which it believes more accurately reflects the operating performance of a
REIT such as the Company. As defined by NAREIT, FFO means net income computed
in accordance with GAAP, less extraordinary, unusual and non-recurring items,
excluding gains (or losses) from debt restructuring and sales of property plus
depreciation and amortization and after adjustments for unconsolidated
partnership and joint ventures in which the REIT holds an interest. The Company
has adopted the NAREIT definition for computing FFO because management believes
that, subject to the following limitations, FFO provides a basis for comparing
the performance and operations of the Company to those of other REITs. The
calculation of FFO may vary from entity to entity since capitalization and
expense policies tend to vary from entity to entity. Items which are
capitalized do not impact FFO, whereas items that are expensed reduce FFO.
Consequently, the presentation of FFO by the Company may not be comparable to
other similarly titled measures presented by other REITs. FFO is not intended
to be an alternative to "Net Income" as an indicator of the Company's
performance nor to "Cash Flows from Operating Activities" as determined by GAAP
as a measure of the Company's capacity to pay distributions. FFO and funds
available for distribution are calculated as follows:
June 30, June 30,
1998 1997
---- ----
Net income................................... $ 9,131,825 2,882,164
Depreciation................................. 5,018,934 1,639,519
------------ ------------
Funds from operations(1)................... 14,150,759 4,521,683
Normal amortizing principal payments of debt. (35,434) (36,705)
Deferred rent receivable (2)................. (611,079) (207,655)
Acquisition cost expenses (3)................ 108,901 52,849
Rental income received under
master lease agreements (4)................. 1,069,655 139,874
------------ ------------
Funds available for distribution............. $14,682,802 4,470,046
============ ============
(1) 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.
-26-
(2) 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.
(3) Acquisition costs expenses include costs and expenses relating to the
acquisition of properties. These costs are estimated to be up to .5% of
the Gross Offering Proceeds and are paid from the Proceeds of the
Offering.
(4) As part of several purchases, the Company will receive rent under master
lease agreements on some of the spaces currently vacant for periods
ranging from one to two years or until the spaces are leased. GAAP
requires 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 following table lists the approximate physical occupancy levels for the
Company's properties as of the end of each quarter during 1998 and 1997. N/A
indicates the property was not owned by the Company at the end of the quarter.
1997 1998
------------------------ ------------------------
at at at at at at at at
Properties 03/31 06/30 09/30 12/31 03/31 06/30 09/30 12/31
---------- ----- ----- ----- ----- ----- ----- ----- -----
Walgreens 100% 100% 100% 100% 100% 100%
Decatur, Illinois
Eagle Crest 97% 97% 97% 97% 95% 95%
Naperville, Illinois
Montgomery-Goodyear 77% 77% 77% 77% 77% 77%
Montgomery, Illinois
Hartford/Naperville Plaza 100% 100% 94% 100% 100% 100%
Naperville, Illinois
Nantucket Square 94% 94% 96% 96% 96% 98%
Schaumburg, Illinois
Antioch Plaza 59% 59% 68% 68% 68% 68%
Antioch, Illinois
Mundelein Plaza 100% 96% 97% 100% 95% 95%
Mundelein, IL
Regency Point 100% 100% 97% 97% 97% 97%
Lockport, IL
Prospect Heights 83% 83% 83% 83% 83% 92%
Prospect Heights, IL
Montgomery-Sears 85% 85% 85% 95% 95% 95%*
Montgomery, IL
Zany Brainy 100% 100% 100% 100% 100% 100%
Wheaton, IL
Salem Square 97% 97% 97% 97% 97% 97%
Countryside, IL
Hawthorn Village 97% 98% 99% 99% 100% 100%
Vernon Hills, IL
-27-
1997 1998
------------------------ ------------------------
at at at at at at at at
Properties 03/31 06/30 09/30 12/31 03/31 06/30 09/30 12/31
---------- ----- ----- ----- ----- ----- ----- ----- -----
Six Corners 94% 94% 94% 90% 93% 90%
Chicago, IL
Spring Hill Fashion Ctr. 96% 96% 96% 100% 98% 100%
West Dundee, IL
Crestwood Plaza 100% 100% 100% 100% 100% 100%
Crestwood, IL
Park St. Claire 100% 100% 100% 100% 100% 100%
Schaumburg, IL
Lansing Square 90% 90% 90% 90% 90% 90%
Lansing, IL
Summit of Park Ridge 82% 81% 84% 83% 83% 87%
Park Ridge, IL
Grand and Hunt Club 100% 100% 100% 100% 100% 100%
Gurnee, IL
Quarry Outlot 100% 100% 100% 100% 100% 100%
Hodgkins, IL
Maple Park Place 99% 97% 98% 98% 98% 98%
Bolingbrook, IL
Aurora Commons 99% 100% 100% 98% 98% 98%
Aurora, IL
Lincoln Park Place 100% 100% 100% 60% 60% 60%*
Chicago, IL
Ameritech N/A 100% 100% 100% 100% 100%
Joliet, IL
Dominicks-Schaumburg N/A 100% 100% 100% 100% 100%
Schaumburg, IL
Dominicks-Highland Park N/A 100% 100% 100% 100% 100%
Highland Park, IL
Niles Shopping Center N/A 100% 87% 60% 60% 100%
Niles, IL
Mallard Crossing N/A 95% 95% 95% 95% 95%*
Elk Grove Village, IL
Cobblers Crossing N/A 91% 89% 89% 89% 89%*
Elgin, IL
Calumet Square N/A 100% 100% 100% 100% 100%
Calumet City, IL
Sequoia Shopping Center N/A 96% 97% 93% 93% 96%*
Milwaukee, WI
Riversquare Shopping Ctr. N/A 100% 100% 95% 95% 100%
Naperville, IL
Rivertree Court N/A N/A 97% 99% 99% 99%*
Vernon Hills, IL
Shorecrest Plaza N/A N/A 96% 96% 96% 96%*
Racine, WI
Dominicks-Glendale Heights N/A N/A 100% 100% 100% 100%
Glendale Heights, IL
Party City Store N/A N/A N/A 100% 100% 100%
Oak Brook Terrace, IL
Eagle Country Market N/A N/A N/A 100% 100% 100%
Roselle, IL
-28-
1997 1998
------------------------ ------------------------
at at at at at at at at
Properties 03/31 06/30 09/30 12/31 03/31 06/30 09/30 12/31
---------- ----- ----- ----- ----- ----- ----- ----- -----
Dominicks-Countryside N/A N/A N/A 100% 100% 100%
Countryside, IL
Terramere Plaza N/A N/A N/A 80% 80% 86%
Arlington Heights, IL
Wilson Plaza N/A N/A N/A 100% 100% 100%
Batavia, IL
Iroquois Center N/A N/A N/A 81% 81% 81%
Naperville, IL
Fashion Square N/A N/A N/A 88% 80% 87%
Skokie, IL
Naper West N/A N/A N/A 86% 88% 88%*
Naperville, IL
Dominicks-West Chicago N/A N/A N/A N/A 100% 100%
West Chicago, IL
Shops at Coopers Grove N/A N/A N/A N/A 96% 100%
Country Club Hills, IL
Maple Plaza N/A N/A N/A N/A 100% 100%
Downers Grove, IL
Orland Park Retail N/A N/A N/A N/A 84% 84%*
Orland Park, IL
Wisner/Milwaukee Plaza N/A N/A N/A N/A 100% 100%
Chicago, IL
Homewood Plaza N/A N/A N/A N/A 100% 100%
Homewood, IL
Elmhurst City Center N/A N/A N/A N/A 99% 99%*
Elmhurst, IL
Shoppes of Mill Creek N/A N/A N/A N/A 97% 98%*
Palos Park, IL
Oak Forest Commons N/A N/A N/A N/A 99% 95%*
Oak Forest, IL
Prairie Square N/A N/A N/A N/A 94% 90%*
Sun Prairie, WI
Downers Grove Plaza N/A N/A N/A N/A 84% 100%
Downers Grove, IL
St. James Crossing N/A N/A N/A N/A 88% 91%*
Westmont, IL
Woodfield Plaza N/A N/A N/A N/A 97% 94%*
Schaumburg, IL
Lake Park Plaza N/A N/A N/A N/A 95% 93%*
Michigan City, IN
Chestnut Court N/A N/A N/A N/A 85% 86%*
Darien, IL
Western & Howard N/A N/A N/A N/A N/A 100%
Chicago, IL
High Point Center N/A N/A N/A N/A N/A 97%*
Madison, WI
Wauconda Shopping Center N/A N/A N/A N/A N/A 100%
Wauconda, IL
Berwyn Plaza N/A N/A N/A N/A N/A 100%
Berwyn, IL
-29-
1997 1998
------------------------ ------------------------
at at at at at at at at
Properties 03/31 06/30 09/30 12/31 03/31 06/30 09/30 12/31
---------- ----- ----- ----- ----- ----- ----- ----- -----
Woodland Heights N/A N/A N/A N/A N/A 86%*
Streamwood, IL
Schaumburg Shopping Center N/A N/A N/A N/A N/A 93%*
Schaumburg, IL
Bergen Plaza N/A N/A N/A N/A N/A 99%*
Oakdale, MN
Walgreens-Woodstock N/A N/A N/A N/A N/A 100%
Woodstock, IL
* As part of the purchase of these properties the Company receives rent under
master lease agreements on the vacant space, which results in 100% economic
occupancy at June 30, 1998 for each of these centers, except Six Corners and
Prairie Square where the master lease agreement results in economic
occupancy of 94% and 97%, respectively.
The master lease agreements are for periods ranging from one to two years
from the purchase date or until the spaces are leased.
On behalf of the Company, the Advisor is currently exploring the purchase of
additional shopping centers from unaffiliated third parties.
Subsequent Events
In July 1998, the Company paid a distribution of $2,954,326 to the Stockholders.
On July 1, 1998, the Company purchased the Winnetka Commons Shopping Center from
an unaffiliated third party for approximately $4,435,000. The property is
located in New Hope, Minnesota and contains approximately 42,381 square feet of
leasable space. Its anchor tenants are Walgreens and Big Wheel Auto Store.
On July 7, 1998, the Company purchased the Eastgate Shopping Center from an
unaffiliated third party for approximately $7,732,000. The property is located
in Lombard, Illinois and contains approximately 132,519 square feet of leasable
space. Its anchor tenants are Ace Hardware and State of Illinois.
In July 1998, the Company obtained additional financing secured by the Downers
Grove Marketplace property totaling $10,600,000 from an unaffiliated lender.
Loan fees total approximately $80,000 in connection with this mortgage. The
mortgage loan has a term of seven years and prior to maturity date, requires
payment of interest only, at 6.82%.
On July 16, 1998, the Company disbursed an additional $335,681 in connection
with the construction loan secured by the Staples Office Supply store to be
built in Freeport, Illinois.
On August 6, 1998, the Company acquired title to approximately 27 acres of land
located at the northeast intersection of North Avenue and Kirk Road in St.
Charles, Illinois, to be developed into a 204,000 square foot shopping center to
be known as "Stuarts Crossing" from H.P. Kirk Partners, L.L.C., an unaffiliated
third party. The initial purchase price of $14,176,627, was funded with cash
-30-
and cash equivalents. Included in the purchase price paid by the Company is
$8,824,883 which has been placed in a development escrow for the construction of
a Jewel/Osco Food Store and adjacent stores. The Company will receive interest
at the rate of 9.0% per annum, paid monthly, on the development escrow.
On August 11, 1998, the Company deposited $1,240,000 with Lehman Brothers
Holding, Inc. to lock a 6.36% interest rate on $62,000,000 in new financing to
be secured by twelve properties owned by the Company. These loans, which are
expected to close on October 1, 1998, will require monthly interest only
payments at a 6.36% interest rate for a period of ten years.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The Company does not engage in any hedge transactions or derivative financial
instruments.
PART II - Other Information
Items 1 through 5 are omitted because of the absence of conditions under which
they are required.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits: Required by the Securities and Exchange Commission
Regulations S-K. Item 601. The following documents are incorporated by
reference:
Registration Statement on Form S-11 and related exhibits, as amended,
File No. 33-79012, filed under the Securities Act of 1933.
The following documents are filed as part of this document:
27 Financial Data Schedule
(b) Report on Form 8-K dated April 9, 1998
Item 2. Acquisition or Disposition of Assets
Item 5. Other Events
Item 7. Financial Statements and Exhibits
Report on Form 8-K dated May 28, 1998
Item 2. Acquisition or Disposition of Assets
Item 7. Financial Statements and Exhibits
-31-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
INLAND REAL ESTATE CORPORATION
/S/ ROBERT D. PARKS
By: Robert D. Parks
Chief Executive Officer
Date: August 12, 1998
/S/ KELLY TUCEK
By: Kelly Tucek
Chief Financial and Accounting Officer
Date: August 12, 1998
-32-
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