UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934
For the Quarterly Period Ended March 31, 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 May 14, 1998, there were 38,541,660 Shares of Common Stock outstanding.
-1-
PART I - Financial Information
Item 1. Financial Statements
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Balance Sheets
March 31, 1998 and December 31, 1997
(unaudited)
Assets
------
1998 1997
Investment properties (Notes 1, 4 and 5): ---- ----
Land............................................ $113,382,037 75,801,319
Building and improvements....................... 286,373,103 200,509,519
------------- -------------
399,755,140 276,310,838
Less accumulated depreciation................... 7,866,437 5,665,483
------------- -------------
Net investment properties....................... 391,888,703 270,645,355
------------- -------------
Cash and cash equivalents including amounts
held by property manager (Note 1)............... 77,208,219 51,145,587
Restricted cash (Note 1).......................... 3,181,123 2,073,799
Accounts and rents receivable (Notes 1 and 5)..... 8,052,881 4,926,643
Deposits and other assets........................ 1,033,920 3,924,431
Deferred organization costs (net of accumulated
amortization of $12,358 and $10,985 at March 31,
1998 and December 31, 1997, respectively)
(Note 1)........................................ 15,104 16,477
Loan fees (net of accumulated amortization
of $172,400 and $131,266 at March 31, 1998 and
December 31, 1997, respectively) (Note 1)....... 1,298,633 857,839
------------- -------------
Total assets.................................. $482,678,583 333,590,131
============= =============
See accompanying notes to financial statements.
-2-
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Balance Sheets
(continued)
March 31, 1998 and December 31, 1997
(unaudited)
Liabilities and Stockholders' Equity
------------------------------------
1998 1997
Liabilities: ---- ----
Accounts payable................................ $ 258,305 47,550
Accrued offering costs to Affiliates............ 794,033 544,288
Accrued offering costs to non-affiliates........ 86,331 36,574
Accrued interest payable to Affiliates.......... 4,627 4,641
Accrued interest payable to non-affiliates...... 865,699 560,821
Accrued real estate taxes....................... 9,209,918 7,031,732
Distributions payable (Note 7).................. 2,447,251 1,777,113
Security deposits............................... 1,035,016 754,359
Mortgages payable (Note 6)...................... 154,129,456 106,589,710
Unearned income................................. 966,508 495,535
Other liabilities............................... 1,506,433 493,116
Due to Affiliates (Note 2)...................... 501,319 337,825
------------- -------------
Total liabilities............................. 171,804,896 118,673,264
------------- -------------
Stockholders' Equity (Notes 1 and 2):
Common stock, $.01 par value, 106,000,000 Shares
authorized; 35,933,050 and 35,879,950, issued
and outstanding at March 31, 1998 and 25,026,140
and 24,973,340 issued and outstanding at
December 31, 1997, respectively............... 358,800 249,733
Additional paid-in capital (net of offering
costs of $38,866,440 and $28,341,719 at March
31, 1998 and December 31, 1997, respectively,
of which $34,001,630 and $24,172,634 was paid
to Affiliates, respectively).................. 318,713,814 220,640,345
Accumulated distributions in excess
of net income................................. (8,198,927) (5,973,211)
------------- -------------
Total stockholders' equity.................... 310,873,687 214,916,867
------------- -------------
Total liabilities and stockholders' equity........ $482,678,583 333,590,131
============= =============
See accompanying notes to financial statements.
-3-
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Statements of Operations
For the three months ended March 31, 1998 and 1997
(unaudited)
1998 1997
---- ----
Income:
Rental income (Notes 1 and 5)................... $ 9,424,416 3,603,584
Additional rental income........................ 3,020,925 1,061,507
Interest income................................. 776,364 156,436
Other income.................................... 46,791 36,244
------------ ------------
13,268,496 4,857,771
------------ ------------
Expenses:
Professional services to Affiliates............. 18,000 9,500
Professional services to non-affiliates......... 98,198 30,410
General and administrative expenses
to Affiliates................................. 70,761 16,936
General and administrative expenses
to non-affiliates............................. 31,056 28,312
Advisor asset management fee.................... 432,183 233,337
Property operating expenses to Affiliates....... 494,528 172,537
Property operating expenses to non-affiliates... 3,466,494 1,686,924
Mortgage interest to Affiliates................. 13,888 44,454
Mortgage interest to non-affiliates............. 2,318,476 961,287
Depreciation.................................... 2,200,954 741,920
Amortization.................................... 42,507 38,364
Acquisition cost expenses to Affiliates......... 30,000 2,289
Acquisition cost expenses to non-affiliates..... 14,036 6,801
------------ ------------
9,231,081 3,973,071
------------ ------------
Net income.................................... $ 4,037,415 884,700
============ ============
Net income per weighted average common stock shares
outstanding, basic and diluted (29,073,250 and
9,384,792 for the three months ended March 31,
1998 and 1997, respectively..................... $ .14 .09
============ ============
See accompanying notes to financial statements.
-4-
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Statements of Stockholders' Equity
March 31, 1998 and December 31, 1997
(unaudited)
Accumulated
Additional Distributions
Common Paid-in in excess of
Stock Capital net income Total
----------- ------------ ------------ -----------
Balance January 1, 1997..... $ 81,000 70,512,073 (1,492,835) 69,100,238
Net income.................. - - 8,647,221 8,647,221
Distributions declared
($.86 for the year ended
December 31, 1997 per
weighted average common
stock shares outstanding). - - (13,127,597) (13,127,597)
Proceeds from Offering (net
of Offering costs of
$17,841,611).............. 168,935 150,548,904 - 150,717,839
Repurchase of Shares........ (465) (420,369) - (420,834)
----------- ------------ ------------ ------------
Balance December 31, 1997... 249,470 220,640,608 (5,973,211) 214,916,867
Net income.................. - - 4,037,415 4,037,415
Distributions declared
($.22 for the three months
ended March 31, 1998 per
weighted average common
stock shares outstanding). - - (6,263,131) (6,263,131)
Proceeds from Offering (net
of Offering costs of
$10,524,721............... 108,975 98,076,276 - 98,185,251
Repurchases of Shares....... (3) (2,712) - (2,715)
----------- ------------ ------------ ------------
Balance March 31, 1998...... $ 358,442 318,714,172 (8,198,927) 310,873,687
=========== ============ ============ ============
See accompanying notes to financial statements.
-5-
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Statement of Cash Flows
For the three months ended March 31, 1998 and 1997
(unaudited)
1998 1997
Cash flows from operating activities: ---- ----
Net income.................................... $ 4,037,415 884,700
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation................................ 2,200,954 741,920
Amortization................................ 42,507 38,364
Rental income under master lease agreements. 542,940 71,599
Straight line rental income................. (289,037) (99,411)
Changes in assets and liabilities:
Accounts and rents receivable............. (2,837,201) (652,705)
Other assets.............................. (128,019) (218,111)
Accrued interest payable.................. 304,864 (52,421)
Accrued real estate taxes................. 2,178,186 363,177
Accounts payable.......................... 210,755 155,624
Unearned income........................... 470,973 310,980
Other liabilities......................... 1,013,317 (32,820)
Due to Affiliates......................... 163,494 (8,400)
Security deposits......................... 280,657 73,197
-------------- ------------
Net cash provided by operating activities....... 8,191,805 1,575,693
-------------- ------------
Cash flows from investing activities:
Restricted cash............................... (1,107,324) (995,290)
Additions to investment properties............ (49,282) (52,042)
Purchase of investment properties............. (114,437,960) (11,429,015)
Deposits on investment properties............. 3,018,530 (2,494,140)
-------------- ------------
Net cash used in investing activities........... (112,576,036) (14,970,487)
-------------- ------------
Cash flows from financing activities:
Proceeds from offering........................ 108,707,257 27,207,053
Payments of offering costs.................... (10,225,219) (2,502,720)
Loan proceeds................................. 38,702,000 12,840,000
Loan fees..................................... (481,928) (193,584)
Distributions paid............................ (5,592,993) (1,740,481)
Repayment of notes from Affiliates............ - (8,000,000)
Principal payments of debt.................... (662,254) (60,051)
-------------- ------------
Net cash provided by financing activities....... 130,446,863 27,550,217
-------------- ------------
Net increase in cash and cash equivalents....... 26,062,632 14,155,423
Cash and cash equivalents at beginning of period 51,145,587 8,491,735
-------------- ------------
Cash and cash equivalents at end of period...... $ 77,208,219 22,647,158
============== ============
See accompanying notes to financial statements.
-6-
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Statement of Cash Flows
(continued)
For the three months ended March 31, 1998 and 1997
(unaudited)
Supplemental schedule of noncash investing and financing activities:
1998 1997
---- ----
Purchase of investment properties................ $(123,937,960) (28,992,900)
Assumption of mortgage debt.................... 9,500,000 9,563,885
Note payable to Affiliate...................... - 8,000,000
-------------- -------------
$(114,437,960) (11,429,015)
============== =============
Distributions payable............................ $ 2,447,251 749,856
============== =============
Cash paid for interest........................... $ 2,027,500 1,058,162
============== =============
See accompanying notes to financial statements.
-7-
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Notes to Financial Statements
March 31, 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. In addition, as of March 31, 1998, the Company
has distributed 1,070,778 Shares through the Company's Distribution
Reinvestment Program ("DRP"). As of March 31, 1998, the Company has
repurchased a total of 53,100 Shares through the Share Repurchase Program. As
a result, as of March 31, 1998, Gross Offering Proceeds total $357,939,054 net
of Shares repurchased through the Share Repurchase Program.
-8-
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Notes to Financial Statements
(continued)
March 31, 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 March 31, 1998 includes $823,474 held in escrow for the
principal payments on the Aurora Commons mortgage payable and $146,465 held in
escrow by the mortgagee for the payment of real estate taxes at Aurora Commons
and Shoppes at Mill Creek Shopping Center. Restricted cash at March 31, 1998
also includes amounts held as vacancy escrows on Cobblers Crossing, Mallard
Crossing, Shorecrest Shopping Center, Sequoia Shopping Center, Shoppes at
Coopers Grove, Orland Park Retail, Prairie Square, Lake Park Plaza, Chestnut
Court and St. James Crossing. The monthly amounts drawn for rent under the
master lease escrows decrease the basis of the respective properties.
Restricted cash at March 31, 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 March 31, 1998 also includes $325,000 for tenant
improvement costs at Fashion Square.
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 March 31, 1998,
the Company does not believe any such impairments of its properties exists.
-9-
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Notes to Financial Statements
(continued)
March 31, 1998
(unaudited)
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.
(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 reimbursed at cost. The collective costs to Affiliates incurred relating
to the Offerings were $873,048 and $1,047,694 as of March 31, 1998 and December
31, 1997, respectively, of which all was paid as of March 31, 1998 and $24,374
was unpaid as of December 31, 1997. 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 $33,128,582 and $23,124,939 as of March 31, 1998 and
December 31, 1997, respectively, of which $794,033 and $519,914 was unpaid as
of March 31, 1998 and December 31, 1997, respectively. Approximately
$28,314,000 and $19,581,000 of these commissions had been passed through from
the Affiliate to unaffiliated soliciting broker/dealers as of March 31, 1998
and December 31, 1997, respectively.
-10-
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Notes to Financial Statements
(continued)
March 31, 1998
(unaudited)
As of March 31, 1998, the Company had incurred $38,893,902 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. Through the completion of the third Offering, 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
three months ended March 31, 1998, the Company has incurred $432,183 of such
fees, all of which remains unpaid at March 31, 1998.
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 $494,528 and $172,537 for the three months ended March 31,
1998 and 1997, respectively, all of which has been paid.
-11-
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Notes to Financial Statements
(continued)
March 31, 1998
(unaudited)
(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 March 31, 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 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 March 31, 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> <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 8,388,263 2,679 2,294,437 8,390,942 10,685,379
Dominicks-Highland Park
Highland Park, IL....... 06/97 3,200,000 9,593,565 2,200 3,200,000 9,595,765 12,795,765
Dominicks-Glendale Heights
Glendale Heights, IL.... 09/97 1,265,000 6,934,230 9,194 1,265,000 6,943,424 8,208,424
Party City
Oakbrook Terrace, IL.... 11/97 750,000 1,230,030 - 750,000 1,230,030 1,980,030
Eagle Country Market
Roselle, IL............. 11/97 966,667 1,935,350 1,150 966,667 1,936,500 2,903,167
Dominicks-West Chicago
West Chicago, IL........ 01/98 1,980,130 4,320,285 648 1,980,130 4,320,933 6,301,063
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 $16,902,182 46,953,107 (53,760) 16,902,182 46,899,348 63,801,530
-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 $16,902,182 46,953,107 (53,760) 16,902,182 46,899,348 63,801,530
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 (9,724) 494,300 1,674,031 2,168,331
Montgomery-Sears
Montgomery, IL.......... 06/96 768,000 2,714,173 (122,122) 768,000 2,592,052 3,360,052
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 8,318,661 3,901 3,220,000 8,322,562 11,542,562
------------ ------------- ------------ ------------- ------------- ------------
Subtotal $34,476,977 99,515,520 (23,615) 34,476,977 99,491,905 133,968,882
-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 $34,476,977 99,515,520 (23,615) 34,476,977 99,491,905 133,968,882
Lincoln Park Place
Chicago, IL............. 01/97 819,000 1,299,902 (36,530) 819,000 1,263,372 2,082,372
Niles Shopping Center
Niles, IL............... 04/97 850,000 2,408,467 (31,837) 850,000 2,376,630 3,226,630
Mallard Crossing
Elk Grove Village, IL... 05/97 1,778,667 6,331,943 (37,901) 1,778,667 6,294,042 8,072,709
Cobblers Crossing
Elgin, IL............... 05/97 3,200,000 7,763,940 (97,688) 3,200,000 7,666,252 10,866,252
Calumet Square
Calumet City, IL........ 06/97 527,000 1,537,316 6,664 527,000 1,543,980 2,070,980
Sequoia Shopping Center
Milwaukee, WI........... 06/97 1,216,914 1,802,336 (11,780) 1,216,914 1,790,556 3,007,470
Riversquare Shopping Center
Naperville, IL.......... 06/97 2,853,226 3,124,732 103,872 2,853,226 3,228,604 6,081,830
Shorecrest Plaza
Racine, WI.............. 07/97 1,150,000 4,749,758 (17,469) 1,150,000 4,732,289 5,882,289
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 2,966,411 14,903 1,435,000 2,981,314 4,416,314
Wilson Plaza
Batavia, IL............. 12/97 310,000 984,720 10,550 310,000 995,270 1,305,270
Iroquois Center
Naperville, IL.......... 12/97 3,668,347 8,258,584 11,500 3,668,347 8,270,084 11,938,431
Fashion Square
Skokie, IL.............. 12/97 2,393,534 6,822,071 23,045 2,393,534 6,845,116 9,238,650
------------ ------------- ------------ ------------- ------------- ------------
Subtotal $56,053,665 148,490,806 (86,286) 56,053,665 148,404,520 204,458,185
-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 $56,053,665 148,490,806 (86,286) 56,053,665 148,404,520 204,458,185
Shops at Coopers Grove
Country Club Hills, IL.. 01/98 1,400,897 4,398,797 879 1,400,897 4,399,676 5,800,573
Maple Plaza
Downers Grove, IL....... 01/98 1,364,202 1,803,779 9,120 1,364,202 1,812,899 3,177,101
Orland Park Retail
Orland Park, IL......... 02/98 460,867 789,133 (8,459) 460,867 780,674 1,241,541
Wisner/Milwaukee Plaza
Chicago, IL............. 02/98 528,576 1,361,490 13,115 528,576 1,374,605 1,903,181
Homewood Plaza
Homewood, IL............ 02/98 534,599 1,380,841 11,138 534,599 1,391,979 1,926,578
Elmhurst City Center
Elmhurst, IL............ 02/98 2,050,217 2,724,783 (250,927) 2,050,217 2,473,856 4,524,073
Shoppes of Mill Creek
Palos Park, IL.......... 03/98 3,305,949 7,989,051 421 3,305,949 7,989,472 11,295,421
Prairie Square
Sun Prairie, WI......... 03/98 739,575 2,361,425 10,994 739,575 2,372,419 3,111,994
Oak Forest Commons
Oak Forest, IL.......... 03/98 2,795,519 9,013,698 5,762 2,795,519 9,019,460 11,814,979
Downers Grove Market
Downers Grove, IL....... 03/98 6,224,467 11,456,000 (2,268) 6,224,467 11,453,732 17,678,199
St. James Crossing
Westmont, IL............ 03/98 2,610,600 4,866,890 - 2,610,600 4,866,890 7,477,490
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
------------ ------------- ------------ ------------- ------------- ------------
Subtotal $85,810,042 220,485,504 (267,821) 85,810,042 220,217,683 306,027,725
-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 $85,810,042 220,485,504 (267,821) 85,810,042 220,217,683 306,027,725
Rivertree Court
Vernon Hills, IL........ 07/97 8,651,875 22,861,547 6,233 8,651,875 22,867,780 31,519,655
Naper West
Naperville, IL.......... 12/97 5,335,000 9,584,779 (55,611) 5,335,000 9,529,168 14,864,168
Woodfield Plaza
Schaumburg, IL.......... 01/98 4,612,277 14,589,498 25,563 4,612,277 14,615,061 19,227,338
Lake Park Plaza
Michigan City, IN....... 02/98 3,252,861 9,023,805 (189,292) 3,252,861 8,834,513 12,087,374
Chestnut Court
Darien, IL.............. 03/98 5,719,982 10,424,898 (116,000) 5,719,982 10,308,898 16,028,880
------------ ------------- ------------ ------------- ------------- ------------
Total $113,382,037 286,970,031 (596,928) 113,382,037 286,373,103 399,755,140
============ ============ =========== ============ ============ ============
</TABLE>
-17-
-17-
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Notes to Financial Statements
(continued)
March 31, 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 $1,523,995 and $981,055
as of March 31, 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 $289,037 and $99,411 for the three
months ended March 31, 1998 and 1997, of rental income for the period of
occupancy for which stepped rent increases apply and $1,075,653 and $786,616 in
related accounts receivable as of March 31, 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)
March 31, 1998
(unaudited)
(6) Mortgages Payable
Mortgages payable consist of the following at March 31, 1998 and December 31,
1997:
Current Balance at
Property as Interest Maturity Monthly Mar. 31, Dec. 31,
Collateral Rate Date Payment(a) 1998 1997
- ------------- ---------- --------- ---------- ----------- -----------
Mortgage payable to Affiliate:
Walgreens 7.655% 05/2004 $ 5,689 $ 724,307 727,472
Mortgages payable to non-affiliates:
Regency Point 7.425% 08/2000 (b) 4,359,647 4,373,461
Eagle Crest 7.850% 10/2003 15,668 2,350,000 2,350,000
Nantucket Square 7.850% 10/2003 14,668 2,200,000 2,200,000
Antioch Plaza 7.850% 10/2003 5,834 875,000 875,000
Mundelein Plaza 7.850% 10/2003 18,735 2,810,000 2,810,000
Montgomery-Goodyear 7.850% 10/2003 4,200 630,000 630,000
Montgomery-Sears 7.850% 08/2003 10,967 1,645,000 1,645,000
Hartford/Naperville 7.850% 08/2003 15,401 2,310,000 2,310,000
Zany Brainy 7.590% 01/2004 8,026 1,245,000 1,245,000
Prospect Heights
Plaza 7.590% 01/2004 7,059 1,095,000 1,095,000
Hawthorn Village
Commons 7.590% 01/2004 27,590 4,280,000 4,280,000
Six Corners Plaza 7.590% 01/2004 19,984 3,100,000 3,100,000
Salem Square
Shopping Center 7.590% 01/2004 20,177 3,130,000 3,130,000
Lansing Square 7.800% 01/2004 53,991 8,150,000 8,150,000
Spring Hill Fashion
Mall 7.800% 01/2004 31,070 4,690,000 4,690,000
Aurora Commons (c) 9.000% 10/2001 70,556 9,347,327 9,392,602
Maple Park Place 7.650% 06/2004 49,704 7,650,000 7,650,000
Dominicks-Schaumburg 7.49% 06/2004 34,005 5,345,500 5,345,500
Summit Park Ridge 7.49% 06/2004 10,178 1,600,000 1,600,000
Lincoln Park Place 7.49% 06/2004 6,679 1,050,000 1,050,000
Crestwood Plaza 7.650% 06/2004 5,876 904,380 904,380
Park St. Claire 7.650% 06/2004 4,954 762,500 762,500
Quarry 7.650% 06/2004 5,848 900,000 900,000
Grand/Hunt Club 7.49% 06/2004 11,425 1,796,000 1,796,000
Rivertree Court (d) 10.030% 11/1998 131,226 15,700,000 15,700,000
Niles Shopping Center 7.23% 01/2005 9,932 1,617,500 1,617,500
Ameritech 7.23% 01/2005 3,208 522,375 522,375
Calumet Square 7.23% 01/2005 6,343 1,032,920 1,032,920
-19-
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Notes to Financial Statements
(continued)
Current Balance at
Property as Interest Maturity Monthly Mar. 31, Dec. 31,
Collateral Rate Date Payment(a) 1998 1997
- ------------- ---------- --------- --------- ----------- -----------
Sequoia Shopping
Center 7.23% 01/2005 9,242 1,505,000 1,505,000
Dominick's Highland
Park 7.21% 12/2004 38,453 6,400,000 6,400,000
Fashion Square (e) 4.10% 12/2014 27,642 6,200,000 6,800,000
Mallard Crossing 7.28% 03/2005 25,041 4,050,000 -
Prairie Square 7.00% 03/2005 9,042 1,550,000 -
Orland Park Retail 7.00% 03/2005 3,646 625,000 -
Maple Plaza 7.00% 03/2005 9,231 1,582,500 -
Iroquois Center 7.00% 03/2005 34,708 5,950,000 -
Dominicks-Countryside 6.99% 03/2003 6,699 1,150,000 -
Wilson Plaza 7.00% 03/2005 3,792 650,000 -
Eagle Country Market 7.00% 03/2005 8,458 1,450,000 -
Terramere Plaza 7.00% 03/2005 12,848 2,202,500 -
Shops at Coopers
Grove 7.00% 03/2005 16,917 2,900,000 -
Party City 7.00% 03/2005 5,760 987,500 -
Cobbler Crossing 7.00% 02/2005 31,946 5,476,500 -
Dominicks-Glendale
Heights 7.00% 01/2005 23,917 4,100,000 -
Riversquare Shopping
Center 7.15% 01/2005 18,173 3,050,000 -
Shorecrest Plaza 7.10% 03/2003 17,620 2,978,000 -
Shoppes of Mill
Creek 8.00% 09/1999 63,333 9,500,000 -
------------ -----------
Mortgages Payable.................................... $154,129,456 106,589,710
============ ===========
(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%.
-20-
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Notes to Financial Statements
(continued)
(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 4.10%. 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.
(7) Subsequent Events
In January 1998, the Company paid a distribution of $2,447,251 to the
Stockholders.
On April 16, 1998, the Company purchased the Bergen Plaza Shopping Center from
an unaffiliated third party for approximately $17,248,000. The property is
located in Oakdale, Minnesota and contains approximately 270,610 square feet of
leasable space. Its anchor tenants include Rainbow Foods and Kmart.
On April 24, 1998, the Company purchased the High Point Centre Shopping Center
from an unaffiliated third party for approximately $10,354,000. The property
is located in Madison, Wisconsin and contains approximately 86,204 square feet
of leasable space. Its anchor tenant is Pier 1 Imports.
On April 29, 1998, the Company purchased the Western Howard Plaza Shopping
Center from an unaffiliated third party for approximately $1,913,000. The
property is located in Chicago, Illinois and contains approximately 12,784
square feet of leasable space. Its tenants are The Gap, Pearle Vision and
Payless Shoes.
On May 5, 1998, the Company purchased the Wauconda Shopping Center from an
unaffiliated third party for approximately $2,525,000. The property is located
in Wauconda, Illinois and contains approximately 31,357 square feet of leasable
space. Its anchor tenant is Sears Paint and Hardware.
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 as 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 made an initial advance of
$864,134 on April 22, 1998. The Company has agreed to purchase this property
upon completion, contingent upon certain criteria stated in the contract.
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 May 13, 1998, the Company had accepted subscriptions for 2,393,152
shares.
-21-
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Certain statements in this "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and elsewhere in this quarterly report on
Form 10-Q constitute "forward-looking statements" within the meaning of the
Federal Private Securities Litigation Reform Act of 1995. These forward-
looking statements involve known and unknown risks, uncertainties and other
factors which may cause the Company's actual results, performance or
achievements to be materially different from any future results, performance or
achievements expressed or implied by these forward-looking statements. These
factors include, among other things, limitations on the area in which the
Company may acquire properties; risks associated with borrowings secured by the
Company's properties; competition for tenants and customers; federal, state or
local regulations; adverse changes in general economic or local conditions;
competition for property acquisitions with third parties that have greater
financial resources than the Company; inability of lessees to meet financial
obligations; uninsured losses; risks of failing to qualify as a REIT; and
potential conflicts of interest between the Company and its affiliates
including the Advisor.
Liquidity and Capital Resources
As of July 24, 1996, the Company had received subscriptions for a total of
5,000,000 Shares, offered on a best efforts basis, at $10.00 per Share, thereby
completing the Company's initial Offering. On July 24, 1996, the Company
commenced an offering of an additional 10,000,000 Shares, the Second Offering,
at $10.00 per Share, on a best efforts basis. As of July 10, 1997, the Company
had received subscriptions for a total of 10,000,000 Shares, thereby completing
the Company's Second Offering. On July 14, 1997, the Company commenced an
offering of an additional 20,000,000 Shares, the Third Offering, at $10.00 per
Share, on a best efforts basis. As of March 19, 1998, the Company had received
subscriptions for a total of 20,000,000 Shares, thereby completing the Third
Offering. In addition, as of March 31, 1998, the Company has distributed
1,070,778 Shares through the Company's Distribution Reinvestment Program. As
of March 31, 1998, the Company has repurchased 53,100 Shares through the
Company's Share Repurchase Program. As a result, as of March 31, 1998, Gross
Offering Proceeds total $357,939,054 net of Shares repurchased through the
Share Repurchase Program.
The Company's capital needs and resources are expected to undergo changes as a
result of the completion of the Company's first follow-on public offering of
Shares, the commencement of the second follow-on Offerings 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 upon 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.
-22-
Cash and cash equivalents consists of cash and short-term investments. Cash
and cash equivalents at March 31, 1998 and December 31, 1997 were $77,208,219
and $51,145,587 respectively. The increase in cash and cash equivalents since
December 31, 1997 is due to the additional sales proceeds raised and
additional loan proceeds from financing secured by the Company's properties.
Partially offsetting the increase in cash and cash equivalents was the purchase
of additional properties since December 31, 1997 and the payment of Offering
Costs relating to the Second and Third Offerings. The Company intends to use
cash and cash equivalents to purchase additional properties, to pay
distributions and to pay Offering Costs.
As of March 31, 1998, the Company had acquired fifty-nine 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. Commencing with the fourth quarter of 1996, the
Company increased the monthly distributions from $.80 to $.83 per annum on
weighted average shares. Beginning March 1, 1997, the Company increased the
monthly distribution paid to $.85 per annum on weighted average shares.
Beginning August 1, 1997, the Company increased the monthly distribution paid
to $.87 per annum on weighted average shares. Distributions declared for the
three months ended March 31, 1998 were $6,263,131, a portion of which
represents a return of capital for federal income tax purposes. The return of
capital portion of the distributions cannot be determined at this time and will
be calculated at year end.
Management of the Company monitors the various qualification tests the Company
must meet to maintain its status as a real estate investment trust. Large
ownership of the Company's stock is tested upon purchase to determine that no
more than 50% in value of the outstanding stock is owned directly, or
indirectly, by five or fewer persons or entities at any time. Management of
the Company also determines, on a quarterly basis, that the Gross Income, Asset
and Distribution Tests as described in the section of the Prospectus entitled
"Federal Income Tax Considerations--Taxation of the Company--REIT Qualification
Tests" are met. On an ongoing basis, as due diligence is performed by
management of both the Company and the Advisor on potential real estate
purchases or temporary investment of uninvested capital, management of both
entities determines that the income from the new asset will qualify for REIT
purposes. For the three months ended March 31, 1998, the Company qualified as
a REIT.
Cash Flows From Operating Activities
Net cash provided by operating activities increased from $1,575,693 for the
three months ended March 31, 1997 to $8,191,805 for the three months ended
March 31, 1998. This increase is due primarily to the purchase of additional
properties. As of March 31, 1998, the Company had acquired fifty-nine
properties, as compared to twenty-four properties as of March 31, 1997.
-23-
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 three months ended March 31, 1998, the Company generated $130,446,863
of cash flows from financing activities as compared to $27,550,217 of cash
flows generated from financing activities for the three months ended March 31,
1997. This increase is due primarily to the increase in proceeds raised from
the Offering of $108,707,257 for the three months ended March 31, 1998, as
compared to $27,207,053 of Offering proceeds raised for the three months ended
March 31, 1997. This increase is also due to $38,702,000 in financing placed
on fifteen of the Company's properties for the three months ended March 31,
1998, as compared to $12,840,000 in financing placed on three of the Company's
properties for the three months ended March 31, 1997. This increase is
partially offset by an increase in the cash used for the payment of Offering
costs for the three months ended March 31, 1998 and 1997. The increase is also
partially offset by an increase in the amount of distributions paid for the
three months ended March 31, 1998 of $5,592,993 as compared to the
distributions paid for the three months ended March 31, 1997 of $1,740,481.
In February 1998, the Company committed to additional financing secured by
Woodfield Shopping Center property for $9,600,000 from an unaffiliated lender.
Loan fees total approximately $85,500 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 6.65%. Funding of the loan is expected to occur
during the second quarter 1998.
The Advisor has guaranteed payment of all public offering expenses (excluding
selling commissions, the marketing contribution and the due diligence expense
allowance fee) in excess of 5.5% of the Gross Offering Proceeds of the Offering
(the "Gross Offering Proceeds") or all organization and offering expenses
(including such selling expenses) which together exceed 15% of the Gross
Offering Proceeds. As of March 31, 1998, organizational and offering costs did
not exceed this limitation.
-24-
Results of Operations
As of March 31, 1998, subscriptions for a total of 35,933,050 Shares were
received from the public resulting in $357,939,054 in Gross Offering Proceeds,
which includes the Advisor's capital contribution of $200,000 and Shares
purchased through the DRP. At March 31, 1998, the Company owned forty-three
Neighborhood Retail Centers, seven Community Centers and nine Single-user
retail properties.
Funds from operations ("FFO") means net income (computed in accordance with
generally accepted accounting principles), excluding gains (or losses) from
debt restructuring and sales of property, plus depreciation of real property
and amortization and other non-cash items. FFO and funds available for
distribution are calculated as follows:
March 31, March 31,
1998 1997
---- ----
Net income................................... $ 4,037,415 884,700
Depreciation................................. 2,200,954 741,920
------------ ------------
Funds from operations(1)................... 6,238,369 1,626,620
Normal amortizing principal payments of debt. (16,980) (18,659)
Deferred rent receivable (2)................. (289,037) (99,411)
Acquisition cost expenses.................... 44,036 9,090
Rental income received under
Master lease agreements (4)................. 542,940 71,599
------------ ------------
Funds available for distribution............. $ 6,519,328 1,589,239
============ ============
(1) FFO does not represent cash generated from operating activities in
accordance with generally accepted accounting principles and is not
necessarily indicative of cash available to fund cash needs. FFO should
not be considered as an alternative to net income as an indicator of the
Company's operating performance or as an alternative to cash flow as a
measure of liquidity.
(2) 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. 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.
-25-
Total income for the three months ended March 31, 1998 and 1997 was $13,268,496
and $4,857,771, respectively. This increase was due to the purchase of
additional properties. As of March 31, 1998, the Company had acquired fifty-
nine properties, as compared to twenty-four properties as of March 31, 1997.
The purchase of additional properties also resulted in increases in property
operating expenses to Affiliates and non-affiliates and depreciation expense.
The decrease in mortgage interest to Affiliates for the three months ended March
31, 1998, as compared to the three months ended March 31, 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 months ended
March 31, 1998, as compared to the three months ended March 31, 1997, is due to
financing placed on previously acquired centers as well as mortgages assumed as
part of the purchases of Aurora Commons, Rivertree Court, Fashion Square and
Shoppes at Mill Creek. The mortgages payable totaled $154,129,456 as of March
31, 1998 as compared to $106,589,710 as of ended March 31, 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 and non-affiliates for the
three months ended March 31, 1998, as compared to the three months ended March
31, 1997, is due to the management of an increased number of real estate assets
and an increased number of investors.
The increase in acquisition cost expenses to Affiliates and non-affiliates is
due to the increased number of properties considered for acquisition by the
Company and not purchased.
The following table lists the approximate physical occupancy levels for the
Company's investment 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%
Decatur, Illinois
Eagle Crest 97% 97% 97% 97% 95%
Naperville, Illinois
Montgomery-Goodyear 77% 77% 77% 77% 77%
Montgomery, Illinois
Hartford/Naperville Plaza 100% 100% 94% 100% 100%
Naperville, Illinois
Nantucket Square 94% 94% 96% 96% 96%
Schaumburg, Illinois
-26-
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
---------- ----- ----- ----- ----- ----- ----- ----- -----
Antioch Plaza 59% 59% 68% 68% 68%
Antioch, Illinois
Mundelein Plaza 100% 96% 97% 100% 95%
Mundelein, IL
Regency Point 100% 100% 97% 97% 97%
Lockport, IL
Prospect Heights 83% 83% 83% 83% 83%
Prospect Heights, IL
Montgomery-Sears 85% 85% 85% 95% 95%*
Montgomery, IL
Zany Brainy 100% 100% 100% 100% 100%
Wheaton, IL
Salem Square 97% 97% 97% 97% 97%
Countryside, IL
Hawthorn Village 97% 98% 99% 99% 100%
Vernon Hills, IL
Six Corners 94% 94% 94% 90% 93%
Chicago, IL
Spring Hill Fashion Ctr. 96% 96% 96% 100% 98%
West Dundee, IL
Crestwood Plaza 100% 100% 100% 100% 100%
Crestwood, IL
Park St. Claire 100% 100% 100% 100% 100%
Schaumburg, IL
Lansing Square 90% 90% 90% 90% 90%
Lansing, IL
Summit of Park Ridge 82% 81% 84% 83% 83%
Park Ridge, IL
Grand and Hunt Club 100% 100% 100% 100% 100%
Gurnee, IL
Quarry Outlot 100% 100% 100% 100% 100%
Hodgkins, IL
Maple Park Place 99% 97% 98% 98% 98%
Bolingbrook, IL
Aurora Commons 99% 100% 100% 98% 98%*
Aurora, IL
Lincoln Park Place 100% 100% 100% 60% 60%*
Chicago, IL
Ameritech N/A 100% 100% 100% 100%
Joliet, IL
Dominicks-Schaumburg N/A 100% 100% 100% 100%
Schaumburg, IL
Dominicks-Highland Park N/A 100% 100% 100% 100%
Highland Park, IL
Niles Shopping Center N/A 100% 87% 60% 60%*
Niles, IL
Mallard Crossing N/A 95% 95% 95% 95%*
Elk Grove Village, IL
Cobblers Crossing N/A 91% 89% 89% 89%*
Elgin, IL
Calumet Square N/A 100% 100% 100% 100%
Calumet City, 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
---------- ----- ----- ----- ----- ----- ----- ----- -----
Sequoia Shopping Center N/A 96% 97% 93% 93%*
Milwaukee, WI
Riversquare Shopping Ctr. N/A 100% 100% 95% 95%
Naperville, IL
Rivertree Court N/A N/A 97% 99% 99%*
Vernon Hills, IL
Shorecrest Plaza N/A N/A 96% 96% 96%*
Racine, WI
Dominicks-Glendale Heights N/A N/A 100% 100% 100%
Glendale Heights, IL
Party City Store N/A N/A N/A 100% 100%
Oak Brook Terrace, IL
Eagle Country Market N/A N/A N/A 100% 100%
Roselle, IL
Dominicks-Countryside N/A N/A N/A 100% 100%
Countryside, IL
Terramere Plaza N/A N/A N/A 80% 80%
Arlington Heights, IL
Wilson Plaza N/A N/A N/A 100% 100%
Batavia, IL
Iroquois Center N/A N/A N/A 81% 81%
Naperville, IL
Fashion Square N/A N/A N/A 88% 80%
Skokie, IL
Naper West N/A N/A N/A 86% 88%*
Naperville, IL
Dominicks-West Chicago N/A N/A N/A N/A 100%
West Chicago, IL
Shops at Coopers Grove N/A N/A N/A N/A 96%*
Country Club Hills, IL
Maple Plaza N/A N/A N/A N/A 100%
Downers Grove, IL
Orland Park Retail N/A N/A N/A N/A 84%*
Orland Park, IL
Wisner/Milwaukee Plaza N/A N/A N/A N/A 100%
Chicago, IL
Homewood Plaza N/A N/A N/A N/A 100%
Homewood, IL
Elmhurst City Center N/A N/A N/A N/A 99%*
Elmhurst, IL
Shoppes of Mill Creek N/A N/A N/A N/A 97%*
Palos Park, IL
Oak Forest Commons N/A N/A N/A N/A 99%*
Oak Forest, IL
Prairie Square N/A N/A N/A N/A 94%*
Sun Prairie, WI
Downers Grove Plaza N/A N/A N/A N/A 84%*
Downers Grove, IL
St. James Crossing N/A N/A N/A N/A 88%*
Westmont, 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
---------- ----- ----- ----- ----- ----- ----- ----- -----
Woodfield Plaza N/A N/A N/A N/A 97%
Schaumburg, IL
Lake Park Plaza N/A N/A N/A N/A 95%*
Michigan City, IN
Chestnut Court N/A N/A N/A N/A 85%*
Darien, 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 March 31, 1998 for each of these centers, except Niles Shopping
Center where the master lease agreement results in 73% economic occupancy.
The master lease agreements are for periods ranging from one to two years
from the purchase date or until the spaces are leased.
-29-
Subsequent Events
In January 1998, the Company paid a distribution of $2,447,251 to the
Stockholders.
On April 16, 1998, the Company purchased the Bergen Plaza Shopping Center from
an unaffiliated third party for approximately $17,248,000. The property is
located in Oakdale, Minnesota and contains approximately 270,610 square feet of
leasable space. Its anchor tenants include Rainbow Foods and Kmart.
On April 24, 1998, the Company purchased the High Point Centre Shopping Center
from an unaffiliated third party for approximately $10,354,000. The property is
located in Madison, Wisconsin and contains approximately 86,204 square feet of
leasable space. Its anchor tenant is Pier 1 Imports.
On April 29, 1998, the Company purchased the Western Howard Plaza Shopping
Center from an unaffiliated third party for approximately $1,913,000. The
property is located in Chicago, Illinois and contains approximately 12,784
square feet of leasable space. Its tenants are The Gap, Pearle Vision and
Payless Shoes.
On May 5, 1998, the Company purchased the Wauconda Shopping Center from an
unaffiliated third party for approximately $2,525,000. The property is located
in Wauconda, Illinois and contains approximately 31,357 square feet of leasable
space. Its anchor tenant is Sears Paint and Hardware.
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 as 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 made an initial advance of
$864,134 on April 22, 1998.
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 May 13, 1998, the Company had accepted subscriptions for 2,393,152 shares.
On behalf of the Company, the Advisor is currently exploring the purchase of
additional shopping centers from unaffiliated third parties.
-30-
PART II - Other Information
Items 1 through 5 are omitted because of the absence of conditions under which
they are required.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits: Required by the Securities and Exchange Commission
Regulations S-K. Item 601. The following documents are incorporated by
reference:
Registration Statement on Form S-11 and related exhibits, as amended,
File No. 33-79012, filed under the Securities Act of 1933.
(b) Report on Form 8-K dated January 13, 1998
Item 2. Acquisition or Disposition of Assets
Item 5. Other Events
Report on Form 8-K/A dated March 16, 1998
Item 7. Financial Statements and Exhibits
Report on Form 8-K dated March 19, 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: May 15, 1998
/S/ KELLY TUCEK
By: Kelly Tucek
Chief Financial and Accounting Officer
Date: May 15, 1998
-32-
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