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 September 30, 1999
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 November 12, 1999, there were 55,136,267 shares of common stock
outstanding.
-1-
Part I - Financial Statements
Item 1. Financial Statements
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Consolidated Balance Sheets
September 30, 1999 and December 31, 1998
(unaudited)
Assets
1999 1998
Investment properties (Note 3):
Land............................................ $262,454,806 193,093,898
Construction in progress........................ 2,122,528 1,230,448
Building and improvements....................... 633,057,149 452,885,969
------------- -------------
897,634,483 647,210,315
Less accumulated depreciation................... 31,311,682 17,161,998
------------- -------------
Net investment properties....................... 866,322,801 630,048,317
------------- -------------
Cash and cash equivalents including amounts
held by property manager........................ 41,699,875 123,056,702
Investment in securities (net of allowance for
unrealized loss of $948,253 at September 30, 1999
(Note 1)........................................ 7,649,440 -
Restricted cash................................... 23,127,298 15,613,197
Accounts and rents receivable (net of allowance
for doubtful accounts of $700,000 and $200,000
at September 30, 1999 and December 31, 1998,
respectively) (Note 4).......................... 20,192,634 12,720,962
Mortgage receivable (Note 5)...................... 5,295,623 -
Deposits and other assets......................... 627,135 2,854,836
Deferred organization costs (net of accumulated
amortization of $36,526 and $16,780 at September
30, 1999 and December 31, 1998, respectively)... - 19,746
Leasing fees (net of accumulated amortization of
$20,000 at September 30, 1999) (Note 1)......... 267,000 -
Loan fees (net of accumulated amortization of
$854,285 and $395,962 at September 30, 1999 and
December 31, 1998, respectively)................ 4,201,358 3,294,787
------------- -------------
Total assets...................................... $969,383,164 787,608,547
============= =============
See accompanying notes to consolidated financial statements.
-2-
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Consolidated Balance Sheets
(continued)
September 30, 1999 and December 31, 1998
(unaudited)
Liabilities and Stockholders' Equity
1999 1998
Liabilities:
Accounts payable................................ $ 806,297 917,483
Accrued offering costs to Affiliates............ - 890,786
Accrued offering costs to non-affiliates........ - 2,740
Accrued interest payable to Affiliates.......... 4,499 4,558
Accrued interest payable to non-affiliates...... 1,441,620 1,651,334
Accrued real estate taxes....................... 19,793,996 14,384,234
Distributions payable (Note 9).................. 4,133,564 3,844,649
Security deposits............................... 1,963,869 1,561,020
Mortgages payable (Note 6)...................... 422,296,612 288,982,470
Unearned income................................. 1,304,586 448,809
Other liabilities............................... 10,910,434 5,208,755
Due to Affiliates (Note 2)...................... 1,417,382 32,925
------------- -------------
Total liabilities................................. 464,072,859 317,929,763
------------- -------------
Minority interest (Note 1)........................ 27,472,519 5,214,298
------------- -------------
Stockholders' Equity (Notes 1 and 2):
Preferred stock, $.01 par value, 6,000,000 Shares
authorized; none issued and outstanding at
September 30, 1999 and December 31, 1998....... - -
Common stock, $.01 par value, 100,000,000 Shares
authorized; 54,971,500 and 52,394,500 issued
and outstanding at September 30, 1999 and
December 31, 1998, respectively............... 549,715 523,945
Additional paid-in capital (net of offering
costs of $58,816,092 and 57,536,374 at
September 30, 1999 and December 31, 1998,
respectively, of which $52,218,524 and
$51,108,966 was paid to Affiliates,
respectively)................................. 507,941,066 481,271,094
Accumulated distributions in excess of
net income.................................... (29,704,742) (17,330,553)
Accumulated other comprehensive income (loss)... (948,253) -
------------- -------------
Total stockholders' equity........................ 477,837,786 464,464,486
------------- -------------
Total liabilities and stockholders' equity........ $969,383,164 787,608,547
============= =============
See accompanying notes to consolidated financial statements.
-3-
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Consolidated Statements of Operations
For the three and nine months ended September 30, 1999 and 1998
(unaudited)
Three months Nine months
ended ended
September 30, September 30,
1999 1998 1999 1998
Income:
Rental income (Note 4)......... $22,273,180 13,532,908 61,345,482 34,964,084
Additional rental income....... 9,160,606 4,582,313 23,018,272 11,767,354
Interest income................ 957,611 1,435,950 3,705,402 3,270,815
Other income................... 61,970 53,118 350,234 115,432
------------ ---------- ----------- ----------
32,453,367 19,604,289 88,419,390 50,117,685
Expenses: ------------ ---------- ----------- ----------
Professional services to
Affiliates................... 35,083 20,180 84,134 63,203
Professional services to
non-affiliates............... 71,985 26,585 292,713 142,283
General and administrative
expenses to Affiliates....... 151,346 125,799 446,952 273,225
General and administrative
expenses to non-affiliates... 95,628 18,770 447,962 78,978
Advisor asset management fee... 1,400,000 272,439 2,575,000 1,252,815
Property operating expenses
to Affiliates................ 1,145,144 755,741 3,392,055 1,904,860
Property operating expenses
to non-affiliates............ 9,135,623 4,789,547 24,875,666 13,118,138
Mortgage interest to Affiliates 13,503 13,758 40,695 41,460
Mortgage interest to
non-affiliates............... 6,794,803 3,225,342 17,992,148 8,529,387
Depreciation................... 5,209,186 3,068,690 14,149,684 8,087,624
Amortization................... 29,390 60,344 63,881 157,892
Acquisition cost expenses to
Affiliates................... 52,857 80,593 334,958 167,343
Acquisition cost expenses to
non-affiliates............... 29,451 22,635 178,847 44,786
------------ ---------- ----------- ----------
24,163,999 12,480,423 64,874,695 33,861,994
------------ ---------- ----------- ----------
Income before minority interest.. 8,289,368 7,123,866 23,544,695 16,255,691
Minority interest................ (19,438) - 62,105 -
------------ ---------- ----------- ----------
Net income....................... 8,269,930 7,123,866 23,606,800 16,255,691
Other comprehensive income (loss):
Unrealized holding gain (loss)
on investment securities..... (948,253) - (948,253) -
------------ ---------- ----------- ----------
Comprehensive income............. $7,320,677 7,123,866 22,655,547 16,255,691
============ ========== =========== ==========
See accompanying notes to consolidated financial statements.
-4-
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Consolidated Statements of Operations
(continued)
For the three and nine months ended September 30, 1999 and 1998
(unaudited)
Three months Nine months
ended ended
September 30, September 30,
1999 1998 1999 1998
Net income per common share,
basic and diluted.............. $ .15 .16 .45 .44
============ ========== =========== ==========
Weighted average common stock shares
outstanding, basic and diluted. 54,437,746 44,370,036 52,208,291 36,811,187
============ ========== =========== ==========
See accompanying notes to consolidated financial statements.
-5-
<TABLE>
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Consolidated Statement of Stockholders' Equity
September 30, 1999
(unaudited)
<CAPTION>
Accumulated Accumulated
Additional Distributions Other
Common Paid-in in excess of Comprehensive
Stock Capital net income Income (loss) Total
<S> <C> <C> <C> <C> <C>
Balance January 1, 1999..... $ 523,945 481,271,094 (17,330,553) - 464,464,486
Net income.................. - - 23,606,800 - 23,606,800
Comprehensive income........ - - - (948,253) (948,253)
Distributions declared
($.69 for the nine months
ended September 30, 1999
per weighted average common
stock shares outstanding). - - (35,980,989) - (35,980,989)
Proceeds from Offering (net
of Offering costs of
$1,279,718)............... 28,760 29,372,725 - - 29,401,485
Repurchases of Shares....... (2,990) (2,702,753) - - (2,705,743)
---------- ------------- ------------- -------------- ------------
Balance September 30, 1999.. $ 549,715 507,941,066 (29,704,742) (948,253) 477,837,786
========== ============= ============= ============== ============
See accompanying notes to consolidated financial statements.
</TABLE>
-6-
-6-
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Consolidated Statements of Cash Flows
For the nine months ended September 30, 1999 and 1998
(unaudited)
1999 1998
Cash flows from operating activities:
Net income...................................... $ 23,606,800 16,255,691
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation.................................. 14,149,684 8,087,624
Amortization.................................. 63,881 157,892
Minority interest............................. (62,105) -
Rental income under master lease agreements... 1,222,602 1,566,547
Straight line rental income................... (1,800,235) (1,435,055)
Interest on unamortized loan fees............. 434,188 -
Changes in assets and liabilities:
Accounts and rents receivable............... (5,671,437) (4,574,135)
Other assets................................ 2,227,701 (4,411,660)
Accrued interest payable.................... (209,773) 464,905
Accrued real estate taxes................... 5,409,762 5,827,891
Accounts payable............................ (111,186) 238,517
Unearned income............................. 855,777 767,736
Other liabilities........................... 5,701,679 1,804,014
Due to Affiliates........................... 1,384,457 482,807
Security deposits........................... 402,849 528,316
------------- -------------
Net cash provided by operating activities......... 47,604,644 25,761,090
Cash flows from investing activities: ------------- -------------
Restricted cash................................. (7,514,101) (11,230,043)
Purchase of investment in securities............ (8,597,693) -
Additions to investment properties.............. (3,544,668) (1,805,430)
Purchase of investment properties............... (209,403,827) (197,659,220)
Mortgage receivable............................. (5,295,623) (1,986,952)
Construction in progress........................ (892,080) -
Leasing fees.................................... (287,000) -
Proceeds from sale of land...................... 1,117,665 -
Deposits on investment properties............... - 1,918,530
------------- -------------
Net cash used in investing activities............. (234,417,327) (210,763,115)
------------- -------------
See accompanying notes to consolidated financial statements.
-7-
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Consolidated Statements of Cash Flows
(continued)
For the nine months ended September 30, 1999 and 1998
(unaudited)
1999 1998
Cash flows from financing activities:
Proceeds from offering.......................... $ 30,681,203 228,787,531
Repurchases of shares........................... (2,705,743) (301,543)
Payments of offering costs...................... (2,173,244) (22,692,010)
Loan proceeds................................... 127,254,000 58,902,000
Loan fees....................................... (1,364,894) (770,906)
Distributions paid.............................. (35,692,074) (22,981,479)
Principal payments of debt...................... (10,543,392) (809,300)
------------- -------------
Net cash provided by financing activities......... 105,455,856 240,134,293
Net increase (decrease) in cash and ------------- -------------
cash equivalents................................ (81,356,827) 55,132,268
Cash and cash equivalents at beginning of period.. 123,056,702 51,145,587
------------- -------------
Cash and cash equivalents at end of period........ $ 41,699,875 106,277,855
============= =============
Supplemental schedule of noncash investing and financing activities:
1999 1998
Purchase of investment properties............... $(248,327,687) (211,083,403)
Assumption of debt.............................. 16,603,534 13,424,183
Minority interest............................... 22,320,326 -
-------------- --------------
$(209,403,827) (197,659,220)
============== ==============
Distributions payable........................... $ 4,133,564 3,345,717
============== ==============
Cash paid for interest.......................... $ 17,808,428 8,105,942
============== ==============
See accompanying notes to consolidated financial statements.
-8-
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Notes to Consolidated Financial Statements
September 30, 1999
(unaudited)
The accompanying financial statements have been prepared in accordance with
generally accepted accounting principles ("GAAP") 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 GAAP for complete financial statements. Readers of this Quarterly
Report should refer to the audited financial statements of Inland Real Estate
Corporation (the "Company") for the fiscal year ended December 31, 1998, which
are included in the Company's 1998 Annual Report, as certain footnote
disclosures 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
in this quarterly report.
(1) Organization and Basis of Accounting
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, some 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 Internal Revenue Code of 1986, as amended
(the "Code"). 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") at $10 per Share. 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"). In order to maximize the
Company's flexibility in evaluating strategic alternatives, the Board of
Directors decided to terminate the Fourth Offering on December 31, 1998. The
Company received subscriptions for a total of 16,642,397 Shares in the Fourth
Offering. The Initial, Second, Third and Fourth are collectively called the
"Offerings." In addition, as of September 30, 1999, the Company has issued
3,825,312 Shares through the Company's Distribution Reinvestment Program. As of
September 30, 1999, the Company has repurchased a total of 497,875 Shares
through the Company's Share Repurchase Program, for an aggregate amount of
$4,505,769. As a result, gross offering proceeds from the Offerings ("Gross
Offering Proceeds") total $567,339,153, as of September 30, 1999.
-9-
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Notes to Consolidated Financial Statements
(continued)
September 30, 1999
(unaudited)
The preparation of consolidated financial statements in conformity with GAAP
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities as of the date of the consolidated financial statements and the
reported amounts of revenues and expenses during the reporting periods. Actual
results could differ from management's estimates.
The Company classifies its investment in securities in one of three categories:
trading, available-for-sale, or held-to-maturity. Trading securities are
bought and held principally for the purpose of selling them in the near term.
Held-to-maturity securities are those securities in which the Company has the
ability and intent to hold the security until maturity. All securities not
included in trading or held-to-maturity are classified as available for sale.
Investment in securities at September 30, 1999 consist of preferred stock
investments in various real estate investment trusts and are classified as
available-for-sale securities. Available-for-sale securities are recorded at
fair value. Unrealized holding gains and losses on available-for-sale
securities are excluded from earnings and reported as a separate component of
other comprehensive income until realized. Realized gains and losses from the
sale of available-for-sale securities are determined on a specific
identification basis. A decline in the market value of any available-for-sale
security below cost that is deemed to be other that temporary results in a
reduction in the carrying amount to fair value. The impairment is charged to
earnings and a new cost basis for the security is established. Dividend income
is recognized when earned. No sales of investment securities available-for-sale
were made during the three and nine months ended September 30, 1999.
Leasing fees are amortized on a straight line basis over the life of the
related lease.
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.
The consolidated financial statements include the accounts of the Company,
Joliet Commons LLC, Ryan LLC and Ryan Cliff Lake LLC.
In October 1998, the Company entered into the Joliet Commons LLC, an Illinois
limited liability company, with an unaffiliated third party in order to
purchase Joliet Commons Shopping Center. The transaction was structured such
that the Company contributed approximately $52,000 for a 1% interest in the
Joliet Commons LLC and the third party contributed a property with a fair
market value of approximately $19,733,000 and debt of approximately $14,569,000
to the Joliet Commons LLC for a 99% interest.
-10-
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Notes to Consolidated Financial Statements
(continued)
September 30, 1999
(unaudited)
In September 1999, the Company entered into the Ryan and Ryan Cliff Lake LLCs,
Delaware limited liability companies, with an unaffiliated third party in order
to purchase nine shopping centers: Bally's Total Fitness, Burnsville Crossing,
Byerly's Burnsville, Cliff Lake, Park Place Center, The Quarry, Rainbow Maple
Grove, Riverdale Commons and Shingle Creek. Ryan Cliff Lake LLC is owned 99%
by Ryan LLC and 1% by the Company. The transaction was structured such that
the Company contributed approximately $71,604,000 for an approximate 77%
interest in the Ryan LLC and the third party contributed the nine properties
with a fair market value of approximately $99,427,000 and debt of approximately
$65,500,000 to the Ryan LLC for an approximate 23% interest. The Company is
the managing member of the Joliet Commons LLC, Ryan LLC and Ryan Cliff Lake
LLC. The non-managing member (third party seller) has a right on or after
January 1, 2001 to tender up to 1/2 of its interest in the Inland Ryan LLC to
the managing member (the Company) to be paid in cash. The remaining interest
may be tendered to the managing member on or after June 30, 2002. If the non-
managing member has not tendered all of its interest by August 31, 2004, then
at any time after that date, the managing member, at its sole and exclusive
option, may require the tender of all remaining non-managing member interests.
Due to the Company's ability as managing member to directly control the LLCs,
they are consolidated for financial reporting purposes. The third parties'
interests are reflected as minority interest in the accompanying financial
statements.
(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 aggregate cost to Affiliates incurred and paid
relating to the Offerings was $2,349,336. In addition, an Affiliate of the
Advisor served as Dealer Manager of each of the Offerings and was entitled to
receive selling commissions, marketing contributions and due diligence expense
allowance fees from the Company in connection with each of the Offerings. Such
amounts incurred and paid by the Company were $49,869,188, of which
approximately $43,392,000 of these commissions were passed through from the
Affiliate to unaffiliated soliciting broker/dealers.
The Company incurred $58,852,618 of organization and offering costs to
Affiliates and non-affiliates in connection with the Offerings. Pursuant to
the terms of each of the Offerings, 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 Gross Offering Proceeds or all organization and offering expenses
(including selling commissions) which together exceed 15% of Gross Offering
Proceeds. At completion of the offerings, organizational and offering costs
expenses did not exceed the 5.5% and 15% limitations.
-11-
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Notes to Consolidated Financial Statements
(continued)
September 30, 1999
(unaudited)
The Advisor may receive an annual advisor asset management fee of not more than
1% of the average invested assets, paid quarterly. For any year in which the
Company qualifies as a REIT, the Advisor must reimburse the Company: (i) to
the extent that the advisor asset management fee plus other operating expenses
paid during the previous calendar year exceed 2% of the Company's average
invested assets for the calendar year or 25% of the Company's net income for
that calendar year; and (ii) to the extent that stockholders have not received
an annual distribution equal to or greater than the 8% current return. The
Company incurred $2,575,000 and $1,252,815 of advisor asset management fees for
the nine months ended September 30, 1999 and 1998, respectively. Amounts unpaid
at September 30, 1999 and December 31, 1998 were $1,400,000 and $32,925,
respectively.
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 $3,392,055 and $1,904,860 for the nine months ended
September 30, 1999 and 1998, respectively.
The Advisor and its Affiliates are entitled to reimbursement for salaries and
expenses of employees of the Advisor and its Affiliates relating to selecting,
evaluating and acquiring properties. The costs relating to properties
purchased are included in building and improvements. The costs relating to
properties that were not acquired are included in acquisition cost expenses to
Affiliates.
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 of $84,134, $446,952 and $334,958
are included in professional services to Affiliates, general and administrative
expenses to Affiliates and acquisition costs expensed to Affiliates,
respectively, for the nine months ended September 30, 1999.
(3) Investment Properties
As part of several purchases, the Company receives rent under master lease
agreements on 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 cumulative amount of such
payments was $4,185,431 and $2,962,829 as of September 30, 1999 and December
31, 1998, respectively.
-12-
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Notes to Consolidated Financial Statements
(continued)
September 30, 1999
(unaudited)
(4) Operating Leases
Certain tenant's 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 consolidated financial statements include increases of $1,800,235
and $1,435,055 for the nine months ended September 30, 1999 and 1998,
respectively, of rental income for the period of occupancy for which stepped
rent increases apply and $4,707,802 and $2,907,567 in related accounts and
rents receivable as of September 30, 1999 and December 31, 1998, respectively.
The Company anticipates collecting these amounts over the terms of the leases
as scheduled rent payments are made.
(5) Mortgage Receivable
On May 28, 1999, the Company entered into a construction loan agreement with an
unaffiliated third party, the borrower, for an aggregate loan of $15,500,000.
Disbursements will be made periodically as work progresses in connection with
the reconstruction of Thatcher Woods Shopping Center in River Grove, Illinois.
The construction loan matures on December 31, 2000. The loan requires the
borrower to make monthly interest-only payments on amounts disbursed at a rate
of 9%. The Company is not obligated, however, contingent upon certain criteria
stated in the contract, the Company, at its option, may elect to purchase this
property upon completion.
-13-
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Notes to Consolidated Financial Statements
(continued)
September 30, 1999
(unaudited)
(6) Mortgages Payable
Current Current Balance at
Interest Maturity Monthly September 30, Dec. 31,
Rate Date Payment 1999 1998
Mortgage payable to Affiliate:
Inland Mortgage
Servicing Corp. (a) 7.65% 05/2004 $ 5,689 $ 703,998 714,443
Mortgages payable to non-affiliates:
Bank One (a) 7.03% 08/2000 (b) 4,260,411 4,312,036
LaSalle National Bank 7.85% 10/2003 57,992 8,865,000 8,865,000
LaSalle National Bank 7.85% 08/2003 25,872 3,955,000 3,955,000
LaSalle National Bank 7.59% 01/2004 81,277 12,850,000 12,850,000
LaSalle National Bank 7.80% 01/2004 83,460 12,840,000 12,840,000
John Hancock (a) (c) 9.00% 10/2001 85,423 9,053,294 9,205,252
LaSalle National Bank 7.65% 06/2004 65,133 10,216,880 10,216,880
LaSalle National Bank 7.49% 06/2004 61,116 9,791,500 9,791,500
LaSalle National Bank 7.23% 01/2005 28,183 4,677,796 4,677,795
Allstate 7.21% 12/2004 38,453 6,400,000 6,400,000
LaSalle National
Bank (d) 3.13% 12/2014 19,740 6,200,000 6,200,000
LaSalle National Bank 7.28% 03/2005 25,041 4,050,000 4,050,000
LaSalle National Bank 6.99% 04/2003 6,827 1,150,000 1,150,000
LaSalle National Bank 7.00% 04/2005 106,404 17,897,500 17,897,500
Allstate 7.00% 02/2005 31,946 5,476,500 5,476,500
Allstate 7.00% 01/2005 23,917 4,100,000 4,100,000
Allstate 7.15% 01/2005 18,173 3,050,000 3,050,000
Allstate 7.10% 03/2003 17,620 2,978,000 2,978,000
Nationwide Life
Insurance Co. (i) 8.00% 09/1999 63,333 - 9,500,000
Allstate 6.65% 05/2005 53,200 9,600,000 9,600,000
Allstate (e) 9.25% 12/2009 30,125 3,908,082 3,908,082
Allstate 6.82% 08/2005 60,243 10,600,000 10,600,000
LaSalle National Bank 6.50% 12/2005 72,123 13,500,000 13,500,000
Allstate 6.66% 10/2003 17,483 3,150,000 3,150,000
-14-
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Notes to Consolidated Financial Statements
(continued)
September 30, 1999
(unaudited)
Current Current Balance at
Interest Maturity Monthly September 30, Dec. 31,
Rate Date Payment 1999 1998
Allstate 7.00% 12/2003 65,333 11,200,000 11,200,000
Berkshire Mortgage (a) 7.79% 10/2007 105,719 14,479,401 14,569,482
Woodmen of the World 6.75% 06/2008 26,015 4,625,000 4,625,000
Lehman secured
financing (f) 6.36% 10/2008 299,025 54,600,000 54,600,000
Column secured
financing (g) 7.00% 11/2008 150,695 25,000,000 25,000,000
Principal Life Ins. 6.24% 09/2001 55,820 10,734,710 -
Bear, Stearns secured
financing (h) 6.86% 06/2004 328,662 57,450,000 -
LaSalle National
Bank (j) 6.70% 10/2004 189,928 34,017,000 -
Allstate (k) 7.03% 10/2004 209,652 35,787,000 -
Midland Loan Serv. (a) 7.86% 01/2008 37,649 5,129,540 -
------------ -----------
Mortgages Payable.................................... $422,296,612 288,982,470
============ ===========
(a) These loans require payments of principal and interest monthly, all other
loans listed are interest only.
(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) 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 3.13%. 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 and a trustee fee of $250 paid quarterly.
On January 15, 1998, the Company made a $600,000 paydown on the principal
outstanding.
-15-
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Notes to Consolidated Financial Statements
(continued)
September 30, 1999
(unaudited)
(e) 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.
(f) The Company paid $636,000 of loan fees and $503,295 of other costs
associated with this financing with Lehman Brothers Holdings, Inc. This
allowed the Company to secure a rate lock agreement to set the interest
rate at the time of execution of this financing, thus protecting the
Company from future interest rate increases.
(g) The Company paid $37,125 of loan fees and $267,884 of other costs
associated with this financing with Column Financial, Inc. This allowed the
Company to secure a rate lock agreement to set the interest rate at the
time of execution of this financing, thus protecting the Company from
future interest rate increases.
(h) The Company paid $415,766 of loan fees and $134,429 of other costs
associated with this financing with Bear, Stearns Funding, Inc. This
allowed the Company to secure a rate lock agreement to set the interest
rate at the time of execution of this financing, thus protecting the
Company from future interest rate increases.
(i) On September 10, 1999, the Company paid off the loan secured by the Shoppes
of Mill Creek Shopping Center.
(j) Payments on this mortgage are based on a floating interest rate of 130
basis points over the 90-day LIBOR rate, which adjusts monthly.
(k) Payments on this mortgage are based on a floating interest rate of 150
basis points over the 90-day LIBOR rate, which adjusts monthly.
-16-
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Notes to Consolidated Financial Statements
(continued)
September 30, 1999
(unaudited)
(7) Earnings per Share
Basic earnings per share ("EPS") is computed by dividing income available to
common stockholders by the weighted average number of common shares outstanding
for the period. Diluted EPS is computed by reflecting the potential dilution
that could occur if securities or other contracts to issue common stock were
exercised or converted into common stock or resulted in the issuance of common
stock that then shared in the earnings of the Company. As of September 30,
1999 and December 31, 1998, options to purchase 15,000 and 13,500 shares,
respectively, of common stock at prices ranging from $9.05 to $10.45 per share
were outstanding. These options were not included in the computation of diluted
EPS because the options' exercise price was equal to the average market prices
of common shares.
As of September 30, 1999, the Company has issued warrants to purchase 1,156,520
shares of common stock at a price of $12.00 per share to soliciting dealers
pursuant to its Offerings. These warrants were not included in the computation
of diluted EPS because the warrants' exercise price was greater than the
average market prices of common shares.
(8) Segment Reporting
The Company owns and seeks to acquire single-user retail centers, neighborhood
and community shopping centers in the Midwest, generally consisting of the
states of Illinois, Indiana, Michigan, Minnesota, Ohio and Wisconsin. All of
the Company's shopping centers are located within in these states. The
Company's shopping centers are typically anchored by grocery and drug stores
complemented with additional stores providing a wide range of other goods and
services to shoppers.
The Company assesses and measures operating results on an individual property
basis for each of its properties based on net property operations. Since all
of the Company's properties exhibit highly similar economic characteristics,
cater to the day-to-day living needs of their respective surrounding
communities, and offer similar degrees of risk and opportunities for growth,the
properties have been aggregated and reported as one operating segment.
-17-
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Notes to Consolidated Financial Statements
(continued)
September 30, 1999
(unaudited)
The property revenues and property net operations of the reportable segments
are summarized in the following tables as of September 30, 1999 and 1998, and
for the nine month periods then ended, along with a reconciliation to net
income. Property asset information is as of September 30, 1999 and December
31, 1998.
1999 1998
Total property revenues......... $ 84,713,988 46,846,870
Total property operating
expenses...................... 27,267,721 15,022,998
Mortgage interest................ 18,032,843 8,570,847
------------- -------------
Net property operations.......... 39,413,424 23,253,025
------------- -------------
Interest income.................. 3,705,402 3,270,815
Less non property expenses:
Professional services.......... 376,847 205,486
General and administrative..... 894,914 352,203
Advisor asset management fee... 2,575,000 1,252,815
Depreciation and amortization.. 14,213,565 8,245,516
Acquisition cost expense....... 513,805 212,129
------------- -------------
Income before minority interest.. $ 24,544,695 16,255,691
============= =============
Net investment properties........ $866,322,801 630,048,317
============= =============
(9) Subsequent Events
In October 1999, the Company paid a distribution of $4,133,564 to Stockholders.
Subsequent to September 30, 1999, the Company has purchased one additional
property from an unaffiliated third party for a purchase price of $18,490,000.
On behalf of the Company, the Advisor is currently exploring the purchase of
additional shopping centers from unaffiliated third parties.
-18-
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 September 28, 1998, the Board of Directors authorized the Company to engage
First Union Securities, Inc. (formerly known as Everen Securities, Inc.) to
advise the Company on strategic alternatives designed to maximize Stockholder
value. These alternative include, but are not limited to, evaluating whether
the Company should: (1) become internally advised and managed by acquiring the
Advisor and the Company's property manager; (2) list its common stock on an
exchange or other trading system; or (3) seek to merge with a third party that
is already listed on an exchange or other trading system. First Union
Securities has assisted in the determination by the Company that it desires to
become internally advised and managed and has provided valuation information to
the Company to help accomplish that goal. First Union Securities will continue
to advise the Company on the other aforementioned strategic alternatives.
Cash and cash equivalents consists of cash and short-term investments. Cash
and cash equivalents at September 30, 1999 and December 31, 1998 were
$41,699,875 and $123,056,702, respectively. The decrease in cash and cash
equivalents since December 31, 1998 resulted primarily from the use of cash
resources to purchase additional properties since December 31, 1998. The
Company intends to use cash and cash equivalents to purchase additional
properties, to pay distributions and for working capital requirements. The
source of future cash for investing in properties will be from financing
obtained on currently unencumbered properties and amounts raised through the
Company's Distribution Reinvestment Program.
-19-
As of September 30, 1999, the Company had acquired 112 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. Distributions declared for the nine months ended
September 30, 1999 were $35,980,989, 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 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 $25,761,090 for the
nine months ended September 30, 1998 to $47,604,644 for the nine months ended
September 30, 1999. This increase is due primarily to the purchase of
additional properties in 1999 and a full nine months of operations on
properties acquired during 1998. As of September 30, 1999, the Company had
acquired 112 properties, as compared to 72 properties as of September 30, 1998.
Cash Flows From Investing Activities
Cash flows used in investing activities were utilized primarily for the
purchase of and additions to properties. Additionally, during 1999 the Company
purchased investment securities.
Cash Flows From Financing Activities
For the nine months ended September 30, 1999, the Company generated
$105,455,856 of cash flows from financing activities as compared to
$240,134,293 of cash flows generated from financing activities for the nine
months ended September 30, 1998. This decrease is due primarily to the
termination of the Fourth Offering on December 31, 1998. For the nine months
ended September 30, 1998, the Company had proceeds from the Offerings, net of
offering costs paid, of approximately $206,100,000, compared to offering
proceeds received, net of offering costs paid, for the nine months ended
September 30, 1999 of approximately $28,500,000. The decrease is also due to an
increase in the distributions paid for the nine months ended September 30, 1999
of approximately $35,692,000, as compared to the distributions paid for the
nine months ended September 30, 1998 of approximately $22,981,000. This
decrease was partially offset by an increase in loan proceeds received from
financing placed on previously unencumbered properties during the nine months
ended September 30, 1999 of $127,254,000, as compared to the loan proceeds
received during the nine months ended September 30, 1998 of $58,902,000.
-20-
Results of Operations
At September 30, 1999, the Company owned 74 Neighborhood Retail Centers, 16
Community Centers and 22 single-user retail properties.
Total income for the nine months ended September 30, 1999 and 1998 was
$88,519,390 and $50,117,685, respectively. This increase was due to the
purchase of additional properties in 1999 and a full nine months of operations
on properties acquired during 1998. As of September 30, 1999, the Company had
acquired 112 properties, as compared to 72 properties as of September 30, 1998.
The purchase of additional properties also resulted in increases in additional
rental income, property operating expenses and depreciation expense.
During March 1999, the Company received a lease termination fee of $803,158 on a
lease at one of the Company's properties. This termination fee is included in
additional rental income for the nine months ended September 30, 1999. The
Company signed a lease with a new tenant for this space and began receiving rent
from the new tenant in April 1999.
The increase in mortgage interest to non-affiliates for the three and nine
months ended September 30, 1999, as compared to the three and nine months ended
September 30, 1998, is due to the Company obtaining additional financing secured
by previously acquired centers, as well as mortgages assumed as part of the
purchase of properties. The mortgages payable totaled $422,296,612 as of
September 30, 1999, as compared to $288,982,470 as of September 30, 1998.
Interest income is the result of cash and cash equivalents being invested in
short-term investments until a property is purchased.
The increase in other income for the nine months ended September 30, 1999, as
compared to the nine months ended September 30, 1998, is due to the increase in
dividend income on investment securities held by the Company.
The increase in professional services to Affiliates and non-affiliates and
general and administrative expenses to Affiliates for the three and nine months
ended September 30, 1999, as compared to the three and nine months ended
September 30, 1998, is due to the management of an increased number of real
estate assets and an increased number of stockholders.
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 consolidated financial statements include the accounts of the Company,
Joliet Commons LLC, Ryan LLC and Ryan Cliff Lake LLC.
In October 1998, the Company entered into the Joliet Commons LLC, an Illinois
limited liability company, with an unaffiliated third party in order to purchase
Joliet Commons Shopping Center. The transaction was structured such that the
Company contributed approximately $52,000 for a 1% interest in the Joliet
Commons LLC and the third party contributed a property with a fair market value
of approximately $19,733,000 and debt of approximately $14,569,000 to the Joliet
Commons LLC for a 99% interest.
-21-
In September 1999, the Company entered into the Ryan and Ryan Cliff Lake LLCs,
Delaware limited liability companies, with an unaffiliated third party in order
to purchase nine shopping centers: Bally's Total Fitness, Burnsville Crossing,
Byerly's Burnsville, Cliff Lake, Park Place Center, The Quarry, Rainbow Maple
Grove, Riverdale Commons and Shingle Creek. Ryan Cliff Lake LLC is owned 99% by
Ryan LLC and 1% by the Company. The transaction was structured such that the
Company contributed approximately $71,604,000 for an approximate 77% interest in
the Ryan LLC and the third party contributed the nine properties with a fair
market value of approximately $99,427,000 and debt of approximately $65,500,000
to the Ryan LLC for an approximate 23% interest. The Company is the managing
member of the Joliet Commons LLC, Ryan LLC and Ryan Cliff Lake LLC. The non-
managing member (third party seller) has a right on or after January 1, 2001 to
tender up to 1/2 of its interest in the Inland Ryan LLC to the managing member
(the Company) to be paid in cash. The remaining interest may be tendered to the
managing member on or after June 30, 2002. If the non-managing member has not
tendered all of its interest by August 31, 2004, then at any time after that
date, the managing member, at its sole and exclusive option, may require the
tender of all remaining non-managing member interests. Due to the Company's
ability as managing member to directly control the LLCs, they are consolidated
for financial reporting purposes. The third parties' interests are reflected as
minority interest in the accompanying financial statements.
Year 2000 Issues
General
Many computer operating systems and software applications were designed such
that the year 1999 is the maximum date that can be processed accurately. In
conducting business, the Company relies on computers and operating systems
provided by equipment manufacturers, and also on application software developed
internally and, to a limited extent, by outside software vendors. The Company
has assessed its vulnerability to the so-called "Year-2000 Issue" with respect
to its equipment and computer systems.
State of Readiness
The Company has identified the following three areas for "Year-2000" compliance
efforts:
Business Computer Systems: The majority of the Company's information technology
systems were developed internally and include accounting, lease management,
investment portfolio tracking, and tax return preparation. The Company has
rights to the source code for these applications and employs programmers who are
knowledgeable regarding these systems. The process of testing these internal
systems to determine year 2000 compliance is nearly complete. The Company does
not anticipate any material costs relating to its business computer systems
regarding year 2000 compliance since the Company's critical hardware and
software systems use four digits to represent the applicable year. The Company
does use various computers, so-called "PC's", that may run software that may not
use four digits to represent the applicable year. The Company is in the process
of testing the PC hardware and software to determine year 2000 compliance, but
it must be noted that such PC's are incidental to the Company's critical
systems.
-22-
Tenants and Suppliers: The Company is in the process of surveying tenants,
suppliers and other parties with whom the Company does a significant amount of
business to identify the Company's potential exposure in the event such parties
are not year 2000 compliant in a timely manner. At this time, the Company is
not aware of any of these parties anticipating a material year 2000 compliance
issue. However, since this area involves some parties over which the Company
has no control, such as public utility companies, it is difficult, at best, to
judge the status of the outside companies' year 2000 compliance. The Company is
working closely with all suppliers of goods and services in an effort to
minimize the impact of the failure of any supplier to become year 2000 compliant
by December 31, 1999. The Company's investigations and assessments of possible
year 2000 issues are on-going, and currently the Company is not aware of any
material impact on its business, operations or financial condition due to year
2000 non-compliance by any of the Company's tenants or suppliers. The Company
will continue to investigate and assess its tenants through the year ended
December 31, 1999.
Non-Information Technology Systems: In the operation of its properties, the
Company has acquired equipment with embedded technology such as
microcontrollers, which operate heating, ventilation, and air conditioning
systems, fire alarms, security systems, telephones and other equipment utilizing
time-sensitive technology. The Company has evaluated its potential exposure and
costs if such non-information technology systems are not year 2000 compliant and
does not expect any costs or potential exposure to be material.
Year 2000 Costs
The Company's Advisor and its Affiliates estimate that costs to achieve year
2000 compliance will not exceed $100,000. However, only approximately 10% of
these costs will be directly allocated to and paid by the Company. The balance
of the year 2000 compliance costs, approximately 90%, will be paid by the
Advisor and its Affiliates. Total year 2000 compliance costs are not expected
to be material.
Year 2000 Risks
The most reasonable likely worst case scenario for the Company with respect to
the year 2000 non-compliance of its business computer systems would be the
inability to access information which could result in the failure to issue
financial reports. The most reasonable likely worst case scenario for the
Company with respect to the year 2000 non-compliance of its tenants is failure
to receive rental income which could result in the Company being unable to meet
cash requirements for monthly expenses and distributions. The most reasonable
likely worst case scenario for the Company with respect to the year 2000 non-
compliance of its suppliers is the failure to supply necessary utilities;
including, but not limited to heating, as a result of a malfunctioning of non-
information technology systems in some of the Company's properties.
-23-
Contingency Plan
The Company expects to be year 2000 compliant in advance of the year 2000. The
Company will continue to monitor its progress and state of readiness, and is in
the process of formulating a contingency plan which the Company will be prepared
to adopt with respect to areas in which evidence arises that it may not become
year 2000 compliant in sufficient time. As part of its contingency plan, the
Company may consider obtaining a line of credit to meet short term cash needs.
In the event of a failure of the Company's business computer systems, the
Company may also consider the need to delay distributions until its business
computer systems could again process distributions or its tenants could begin
payment of rents. As information is obtained that may indicate such parties may
not become year 2000 compliant in sufficient time, the Company is prepared to
develop contingency plans, accordingly.
Funds from Operations
One of the Company's objectives is to provide cash distributions to its
Stockholders 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 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:
September 30, September 30,
1999 1998
Net income................................... $23,606,800 16,255,691
Depreciation, net of minority interest....... 13,648,957 8,087,624
------------ ------------
Funds from operations (1).................... 37,255,757 24,343,315
Principal amortization of debt, net of
minority interest.......................... (66,120) (54,273)
Deferred rent receivable, net of minority
interest (2)............................... (1,713,490) (1,435,055)
Acquisition cost expenses (3)................ - 212,129
Rental income received under master lease
agreements, net of minority interest (4)... 1,157,511 1,566,547
------------ ------------
Funds available for distribution............. $36,633,658 24,632,663
============ ============
-24-
(1) FFO does not represent cash generated from operating activities calculated
in accordance with GAAP 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 cost 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. No acquisition costs have been included for the nine months
ended September 30, 1999 due to the termination of the Company's Offering
on December 31, 1998.
(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 1999. N/A
indicates the property was not owned by the Company at the end of the quarter.
1998 1999
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% 100%
Decatur, IL
Eagle Crest 95% 95% 100% 100% 100% 94% 94%
Naperville, IL
Montgomery-Goodyear 77% 77% 77% 77% 77% 77% 77%
Montgomery, IL
Hartford/Naperville Plaza 100% 100% 100% 100% 100% 100% 100%
Naperville, IL
Nantucket Square 96% 98% 100% 100% 100% 100% 100%
Schaumburg, IL
Antioch Plaza 68% 68% 68% 68% 68% 68% 67%
Antioch, IL
Mundelein Plaza 95% 95% 92% 100% 100% 100% 100%
Mundelein, IL
Regency Point 97% 97% 97% 97% 97% 97% 97%
Lockport, IL
Prospect Heights 83% 92% 92% 92% 92% 15% 15%
Prospect Heights, IL
Montgomery-Sears 95% 95% 100% 100% 100% 100% 100%
Montgomery,IL
Zany Brainy 100% 100% 100% 100% 100% 100% 100%
Wheaton, IL
-25-
1998 1999
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
Salem Square 97% 97% 97% 97% 97% 97% 97%
Countryside, IL
Hawthorn Village 100% 100% 100% 100% 100% 100% 100%
Vernon Hills, IL
Six Corners 93% 90% 82% 82% 88% 90% 90%
Chicago, IL
Spring Hill Fashion Ctr. 98% 100% 100% 95% 95% 95% 100%
West Dundee, IL
Crestwood Plaza 100% 100% 100% 100% 100% 68% 68%
Crestwood, IL
Park St. Claire 100% 100% 100% 100% 100% 100% 100%
Schaumburg, IL
Lansing Square 90% 90% 88% 98% 98% 98% 98%
Lansing, IL
Summit of Park Ridge 83% 87% 91% 87% 93% 88% 88%
Park Ridge, IL
Grand and Hunt Club 100% 100% 100% 100% 100% 100% 100%
Gurnee, IL
Quarry Outlot 100% 100% 100% 100% 100% 100% 100%
Hodgkins, IL
Maple Park Place 98% 98% 94% 99% 99% 97% 97%
Bolingbrook, IL
Aurora Commons 98% 98% 95% 95% 94% 94% 94%
Aurora, IL
Lincoln Park Place 60% 60% 60% 60% 60% 60% 60%
Chicago, IL
Ameritech 100% 100% 100% 100% 100% 100% 100%
Joliet, IL
Dominicks-Schaumburg 100% 100% 100% 100% 100% 100% 100%
Schaumburg, IL
Dominicks-Highland Park 100% 100% 100% 100% 100% 100% 100%
Highland Park, IL
Niles Shopping Center 60% 100% 100% 100% 100% 100% 100%
Niles, IL
Mallard Crossing 95% 95% 100% 97% 97% 97% 98%
Elk Grove Village, IL
Cobblers Crossing 89% 89% 92% 91% 92% 92% 98%
Elgin, IL
Calumet Square 100% 100% 100% 100% 100% 100% 100%
Calumet City, IL
Sequoia Shopping Center 93% 96% 100% 100% 100% 100% 100%
Milwaukee, WI
Riversquare Shopping Ctr. 95% 100% 100% 97% 95% 95% 87%
Naperville, IL
Rivertree Court 99% 99% 99% 99% 99% 99% 99%*
Vernon Hills, IL
Shorecrest Plaza 96% 96% 96% 87% 89% 89% 89%
Racine, WI
Dominicks-Glendale Heights 100% 100% 100% 100% 100% 100% 100%
Glendale Heights, IL
Party City Store 100% 100% 100% 100% 100% 100% 100%
Oak Brook Terrace, IL
Eagle Country Market 100% 100% 100% 100% 100% 100% 100%
Roselle, IL
-26-
1998 1999
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 100% 100% 100% 100% 100% 100% 100%
Countryside, IL
Terramere Plaza 80% 86% 92% 95% 86% 86% 86%
Arlington Heights, IL
Wilson Plaza 100% 100% 100% 100% 100% 100% 100%
Batavia, IL
Iroquois Center 81% 81% 73% 73% 73% 65% 66%*
Naperville, IL
Fashion Square 80% 87% 97% 100% 100% 100% 100%
Skokie, IL
Naper West 88% 88% 90% 83% 91% 92% 92%
Naperville, IL
Dominicks-West Chicago 100% 100% 100% 100% 100% 100% 100%
West Chicago, IL
Shops at Coopers Grove 96% 100% 100% 100% 100% 100% 100%
Country Club Hills, IL
Maple Plaza 100% 100% 100% 100% 100% 100% 100%
Downers Grove, IL
Orland Park Retail 84% 84% 100% 100% 100% 100% 36%
Orland Park, IL
Wisner/Milwaukee Plaza 100% 100% 100% 100% 100% 100% 100%
Chicago, IL
Homewood Plaza 100% 100% 100% 100% 100% 100% 100%
Homewood, IL
Elmhurst City Center 99% 99% 99% 100% 100% 100% 66%
Elmhurst, IL
Shoppes of Mill Creek 97% 98% 98% 98% 98% 98% 96%
Palos Park, IL
Oak Forest Commons 99% 95% 100% 100% 100% 100% 98%
Oak Forest, IL
Prairie Square 94% 90% 90% 90% 83% 83% 83%*
Sun Prairie, WI
Downers Grove Plaza 84% 100% 100% 100% 100% 100% 100%
Downers Grove, IL
St. James Crossing 88% 91% 91% 91% 91% 91% 91%
Westmont, IL
Woodfield Plaza 97% 94% 94% 97% 97% 97% 82%*
Schaumburg, IL
Lake Park Plaza 95% 93% 76% 74% 74% 74% 73%
Michigan City, IN
Chestnut Court 85% 86% 88% 98% 86% 95% 95%
Darien, IL
Western & Howard N/A 100% 100% 100% 100% 100% 100%
Chicago, IL
High Point Center N/A 97% 97% 90% 94% 82% 87%*
Madison, WI
Wauconda Shopping Center N/A 100% 100% 100% 100% 100% 100%
Wauconda, IL
Berwyn Plaza N/A 100% 100% 100% 100% 100% 100%
Berwyn, IL
-27-
1998 1999
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 86% 86% 81% 81% 81% 81%*
Streamwood, IL
Schaumburg Shopping Center N/A 93% 93% 93% 93% 93% 93%
Schaumburg, IL
Bergen Plaza N/A 99% 98% 98% 97% 97% 97%*
Oakdale, MN
Walgreens-Woodstock N/A 100% 100% 100% 100% 100% 100%
Woodstock, IL
Winnetka Commons N/A N/A 100% 100% 100% 100% 100%
New Hope, MN
Eastgate Shopping Center N/A N/A 91% 91% 87% 91% 92%*
Lombard, IL
Fairview Heights Plaza N/A N/A 78% 78% 78% 78% 78%
Fairview Heights, IL
Orland Greens N/A N/A 100% 100% 100% 97% 97%
Orland Park, IL
Bakers Shoes N/A N/A 100% 100% 100% 100% 100%
Chicago, IL
Staples N/A N/A N/A 100% 100% 100% 100%
Freeport, IL
Two Rivers Plaza N/A N/A N/A 100% 100% 100% 100%
Bolingbrook, IL
Edinburgh Festival N/A N/A N/A 97% 100% 100% 100%
Brooklyn Park, MN
Woodfield Commons-East/West N/A N/A N/A 89% 89% 86% 86%*
Schaumburg, IL
Riverplace Center N/A N/A N/A 100% 100% 100% 100%
Noblesville, IN
Rose Plaza N/A N/A N/A 100% 100% 100% 100%
Elmwood Park, IL
Marketplace at Six Corners N/A N/A N/A 100% 100% 100% 100%
Chicago, IL
Joliet Commons N/A N/A N/A 97% 97% 97% 93%*
Joliet, IL
Springboro Plaza N/A N/A N/A 100% 100% 100% 100%
Springboro, OH
Carmax-Schaumburg N/A N/A N/A 100% 100% 100% 100%
Schaumburg, IL
Carmax-Tinley Park N/A N/A N/A 100% 100% 100% 100%
Tinley Park, IL
Hollywood Video-Hammond N/A N/A N/A 100% 100% 100% 100%
Hammond, IN
Park Center Plaza N/A N/A N/A 71% 72% 84% 84%*
Tinley Park, IL
Plymouth Collection N/A N/A N/A N/A 100% 100% 100%
Plymouth, MN
Circuit City N/A N/A N/A N/A 100% 100% 100%
Traverse City, MI
Loehmann's Plaza N/A N/A N/A N/A 100% 100% 100%
Brookfield, WI
Baytown Square & Shoppes N/A N/A N/A N/A 97% 97% 98%*
Champaign, IL
-28-
1998 1999
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 Commons N/A N/A N/A N/A 100% 99% 97%
Buffalo Grove, IL
Cub Foods-Plymouth N/A N/A N/A N/A 100% 100% 100%
Plymouth, MN
Cub Foods-Indianapolis N/A N/A N/A N/A 100% 100% 100%
Indianapolis, IN
Gateway Square N/A N/A N/A N/A 96% 96% 96%
Hinsdale, IL
Eagle Ridge Center N/A N/A N/A N/A N/A 100% 100%
Lindenhurst, IL
Dominicks-Hammond N/A N/A N/A N/A N/A 100% 0%
Hammond, IN
Randall Square N/A N/A N/A N/A N/A 87% 82%*
Geneva, IL
Eagle-Buffalo Grove N/A N/A N/A N/A N/A 100% 100%
Buffalo Grove, IL
Oak Forest Commons III N/A N/A N/A N/A N/A 72% 72%*
Oak Forest, IL
Oak Lawn Town Center N/A N/A N/A N/A N/A 100% 100%
Oak Lawn, IL
West River Crossing N/A N/A N/A N/A N/A N/A 87%*
Joliet, IL
Hickory Creek Marketplace N/A N/A N/A N/A N/A N/A 88%*
Frankfort, IL
Bally's N/A N/A N/A N/A N/A N/A 100%
St. Paul, MN
Burnsville Crossing N/A N/A N/A N/A N/A N/A 100%
Burnsville, MN
Byerly's Burnsville N/A N/A N/A N/A N/A N/A 84%
Burnsville, MN
Cliff Lake Centre N/A N/A N/A N/A N/A N/A 72%
Eagan, MN
Maple Grove Retail N/A N/A N/A N/A N/A N/A 81%
Maple Grove, MN
Park Place Plaza N/A N/A N/A N/A N/A N/A 100%
St. Louis Park, MN
Quarry Retail N/A N/A N/A N/A N/A N/A 99%
Minneapolis, MN
Riverdale Commons N/A N/A N/A N/A N/A N/A 98%
Coon Rapids, MN
Shingle Creek N/A N/A N/A N/A N/A N/A 66%*
Brooklyn Center, MN
United Audio N/A N/A N/A N/A N/A N/A 100%
Schaumburg, IL
Rose Naper Plaza West N/A N/A N/A N/A N/A N/A 100%
Naperville, IL
* As part of the purchase of these properties the Company receives rent under
master lease agreements on the vacant space, which results in economic
occupancy ranging from 88% to 100% at September 30, 1999 for each of these
centers. 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 October 1999, the Company paid a distribution of $4,133,564 to Stockholders.
Subsequent to September 30, 1999, the Company has purchased one additional
property from an unaffiliated third party for a purchase price of $18,490,000.
On behalf of the Company, the Advisor is currently exploring the purchase of
additional shopping centers from unaffiliated third parties.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The Company is exposed to interest rate changes primarily as a result of its
long-term debt used to fund capital expenditures and for expansion of the
Company's real estate investment portfolio and operations. The Company's
interest rate risk management objectives is to limit the impact of interest rate
changes on earnings and cash flows and to lower its overall borrowing costs. To
achieve its objectives the Company borrows primarily at fixed rates and may
enter into derivative financial instruments such as interest rate swaps, caps
and treasury locks in order to mitigate its interest rate risk on a related
financial instruments. The Company does not enter into derivative or interest
rate transactions for speculative purposes.
The fair value of the Company's debt approximates its carrying amount.
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. 333-45233, filed under the Securities Act of 1933.
27 Financial Data Schedule
(b) Report on Form 8-K dated May 12, 1999
Item 2. Acquisition or Disposition of Assets
Item 5. Other Events
Item 7. Financial Statements and Exhibits
Report on Form 8-K dated September 27, 1999
Item 2. Acquisition or Disposition of Assets
Item 5. Other Events
Item 7. Financial Statements and Exhibits
-30-
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: November 15, 1999
/S/ KELLY TUCEK
By: Kelly Tucek
Chief Financial and Accounting Officer
Date: November 15, 1999
-31-
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