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, 2000
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 #0-28382
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 12, 2000, there were 56,045,846 Shares of Common Stock outstanding.
-1-
PART I - Financial Information
Item 1. Financial Statements
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Consolidated Balance Sheets
March 31, 2000 and December 31, 1999
(unaudited)
Assets
------
2000 1999
Investment properties (Note 3): ---- ----
Land............................................ $278,176,349 271,905,942
Construction in progress........................ 2,015,466 1,699,356
Building and improvements....................... 693,084,787 671,201,002
------------- -------------
973,276,602 944,806,300
Less accumulated depreciation................... 43,688,384 37,424,871
------------- -------------
Net investment properties....................... 929,588,218 907,381,429
------------- -------------
Cash and cash equivalents including amounts
held by property manager........................ 10,185,680 19,424,343
Investment in securities (net of allowance for
unrealized loss of $1,526,839 and $2,088,633 at
March 31, 2000 and December 31,1999, respectively)
(Note 1)........................................ 7,904,502 8,570,656
Investment in marketable securities............... 260,000 260,000
Restricted cash................................... 13,577,318 15,340,902
Accounts and rents receivable (net of allowance for
doubtful accounts of $1,786,858 and $1,064,256
at March 31, 2000 and December 31, 1999,
respectively) (Note 4).......................... 24,473,485 19,794,687
Mortgage receivable (Note 5)...................... 7,684,291 6,495,541
Deposits and other assets......................... 247,531 358,986
Leasing fees (net of accumulated amortization of
$61,837 and $39,031 at March 31, 2000 and
December 31, 1999, respectively)................ 395,143 360,486
Loan fees (net of accumulated amortization of
$1,212,776 and $1,029,522 at March 31, 2000 and
December 31, 1999, respectively)................ 4,224,306 4,294,942
------------- -------------
Total assets...................................... $998,540,474 982,281,972
============= =============
See accompanying notes to consolidated financial statements.
-2-
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Consolidated Balance Sheets
(continued)
March 31, 2000 and December 31, 1999
(unaudited)
Liabilities and Stockholders' Equity
------------------------------------
2000 1999
Liabilities: ---- ----
Accounts payable................................ $ 1,578,985 384,665
Accrued interest payable to Affiliates.......... 4,444 4,468
Accrued interest payable to non-affiliates...... 1,967,511 1,786,331
Accrued real estate taxes....................... 19,089,163 18,829,084
Distributions payable (Note 11)................. 4,398,759 4,374,462
Security deposits............................... 1,955,822 1,976,082
Mortgages payable (Note 6)...................... 452,755,105 440,740,296
Prepaid rents and unearned income............... 1,846,279 1,536,008
Other liabilities............................... 7,568,092 8,525,986
Due to Affiliates (Note 2)...................... 2,813,969 1,517,775
------------- -------------
Total liabilities................................. 493,978,129 479,675,157
------------- -------------
Minority interest (Note 1)........................ 26,872,481 27,112,690
------------- -------------
Stockholders' Equity (Notes 1 and 2):
Preferred stock, $.01 par value, 6,000,000 Shares
authorized; none issued and outstanding at
March 31, 2000 and December 31, 1999.......... - -
Common stock, $.01 par value, 100,000,000 Shares
authorized; 55,935,158 and 55,398,888, issued
and outstanding at March 31, 2000 and December
31, 1999, respectively........................ 559,351 553,988
Additional paid-in capital (net of offering costs
of $58,816,092, of which $52,218,524 was paid
to Affiliates)................................ 518,168,296 512,567,043
Accumulated distributions in excess
of net income................................. (39,510,944) (35,538,273)
Accumulated other comprehensive income (loss)... (1,526,839) (2,088,633)
------------- -------------
Total stockholders' equity........................ 477,689,864 475,494,125
Commitments and contingencies ------------- -------------
(Notes 4, 6, 7 and 10)..........................
Total liabilities and stockholders' equity........ $998,540,474 982,281,972
============= =============
See accompanying notes to consolidated financial statements.
-3-
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Consolidated Statements of Operations
For the three months ended March 31, 2000 and 1999
(unaudited)
2000 1999
---- ----
Income:
Rental income (Notes 1 and 4)................... $ 25,854,196 18,626,079
Additional rental income........................ 12,889,549 6,920,571
Interest income................................. 385,914 1,526,372
Other income.................................... 407,335 117,339
------------- -------------
39,536,994 27,190,361
Expenses: ------------- -------------
Professional services to Affiliates............. 78,831 22,782
Professional services to non-affiliates......... 616,389 140,970
General and administrative expenses
to Affiliates................................. 137,122 146,401
General and administrative expenses
to non-affiliates............................. 297,757 83,908
General and administrative expenses -
bad debt expense.............................. 1,148,328 -
Advisor asset management fee.................... 1,203,000 325,000
Property operating expenses to Affiliates....... 1,490,273 1,071,754
Property operating expenses to non-affiliates... 11,501,435 7,948,188
Mortgage interest to Affiliates................. 13,357 13,629
Mortgage interest to non-affiliates............. 8,091,314 5,644,168
Depreciation.................................... 6,263,513 4,328,954
Amortization.................................... 38,982 27,119
Acquisition cost expenses to Affiliates......... 38,030 214,704
Acquisition cost expenses to non-affiliates..... (24,327) 119,458
------------- -------------
30,894,004 20,087,035
------------- -------------
Income before minority interest................... 8,642,990 7,103,326
Minority interest................................. (276,607) (438)
------------- -------------
Net income before comprehensive income............ 8,366,383 7,102,888
Other comprehensive income:
Unrealized holding gain on investment securities 561,794 -
------------- -------------
Comprehensive income.............................. $ 8,928,177 7,102,888
============= =============
Net income before comprehensive income per
common share, basic and diluted................. $ .15 .13
============= =============
Weighted average common stock Shares
outstanding, basic and diluted.................. 55,759,343 53,766,942
============= =============
See accompanying notes to consolidated financial statements.
-4-
<TABLE> INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Consolidated Statements of Stockholders' Equity
March 31, 2000 and December 31, 1999
<CAPTION>
Accumulated Accumulated
Additional Distributions Other
Common Paid-in in excess of Comprehensive
Stock Capital net income Loss Total
---------- ------------- ------------- -------------- ------------
<S> <C> <C> <C> <C> <C>
Balance December 31, 1999......... $ 553,988 512,567,043 (35,538,273) (2,088,633) 475,494,125
Net income........................ - - 8,366,383 - 8,366,383
Other comprehensive income........ - - - 561,794 561,794
Distributions declared ($.89 for the
three months ended March 31, 2000
per weighted average common shares
outstanding).................... - - (12,339,054) - (12,339,054)
Proceeds from Offering including
DRP............................. 5,544 5,619,172 - - 5,624,716
Treasury stock.................... (181) (17,919) - - (18,100)
---------- ------------- ------------- -------------- -------------
Balance March 31, 2000............ $ 559,351 518,168,296 (39,510,944) (1,526,839) 477,689,864
========== ============= ============= ============== =============
</TABLE>
See accompanying notes to consolidated financial statements.
-5-
-5-
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Consolidated Statements of Cash Flows
For the three months ended March 31, 2000 and 1999
(unaudited)
2000 1999
Cash flows from operating activities: ---- ----
Net income.................................... $ 8,366,383 7,102,888
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation................................ 6,263,513 4,328,954
Amortization................................ 38,982 27,119
Minority interest........................... 276,607 438
Rental income under master lease agreements. 470,251 515,250
Straight line rental income................. (1,028,996) (437,795)
Interest on unamortized loan fees........... 167,078 108,972
Changes in assets and liabilities:
Accounts and rents receivable............. (3,649,802) (2,482,726)
Other assets.............................. 111,455 1,352,029
Accounts payable.......................... 1,194,320 310,191
Accrued interest payable.................. 181,156 46,021
Accrued real estate taxes................. 260,079 122,714
Security deposits......................... (20,260) 263,602
Other liabilities......................... (957,894) (668,256)
Due to Affiliates......................... 1,296,194 364,929
Prepaid rents and unearned income......... 310,271 1,308,747
--------------- --------------
Net cash provided by operating activities....... 13,279,337 12,263,077
--------------- --------------
Cash flows from investing activities:
Restricted cash............................... 1,763,584 357,257
Additions to investment properties............ (989,481) (1,257,077)
Purchase of investment properties............. (27,634,962) (63,268,526)
Construction in progress...................... (316,110) (243,960)
Proceeds from sale of land.................... - 1,117,151
Sale of investment securities................. 1,227,948 -
Mortgage receivable........................... (1,188,750) -
Leasing fees.................................. (57,463) -
--------------- --------------
Net cash used in investing activities........... (27,195,234) (63,295,155)
--------------- --------------
See accompanying notes to consolidated financial statements.
-6-
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Consolidated Statements of Cash Flows
(continued)
For the three months ended March 31, 2000 and 1999
(unaudited)
2000 1999
---- ----
Cash flows from financing activities:
Proceeds from offering........................ $ 5,624,716 19,325,055
Repurchase of Shares.......................... (18,100) (1,078,406)
Payments of offering costs.................... - (2,126,114)
Loan proceeds................................. 12,137,620 -
Loan fees..................................... (112,618) (37,236)
Distributions paid............................ (12,831,573) (11,574,925)
Principal payments of debt.................... (122,811) (839,934)
--------------- --------------
Net cash provided by financing activities....... 4,677,234 3,668,440
--------------- --------------
Net decrease in cash and cash equivalents....... (9,238,663) (47,363,638)
Cash and cash equivalents at beginning of period 19,424,343 123,056,702
--------------- --------------
Cash and cash equivalents at end of period...... $ 10,185,680 75,693,064
=============== ==============
Supplemental schedule of noncash investing and financing activities:
2000 1999
---- ----
Purchase of investment properties................ $ (27,634,962) (74,738,429)
Assumption of mortgage debt.................... - 11,469,903
-------------- -------------
$ (27,634,962) (63,268,526)
============== =============
Distributions payable............................ $ 4,398,759 4,040,698
============== =============
Cash paid for interest........................... $ 7,756,436 5,564,385
============== =============
See accompanying notes to consolidated financial statements.
-7-
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Notes to Consolidated Financial Statements
March 31, 2000
(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, 1999, which
are included in the Company's 1999 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
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, 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"). 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 March 31, 2000, the Company has issued 4,902,893 Shares through
the Company's Distribution Reinvestment Program ("DRP"). As of March 31, 2000,
the Company has repurchased a total of 610,132 Shares through the Company's
Share Repurchase Program, for an aggregate amount of $5,524,444. As a result,
gross offering proceeds from the Offerings ("Gross Offering Proceeds") total
$577,543,739, as of March 31, 2000.
-8-
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Notes to Consolidated Financial Statements
(continued)
March 31, 2000
(unaudited)
On March 7, 2000, the Company entered into an Agreement and Plan of Merger (the
"Merger Agreement"), pursuant to which it agreed to acquire the Advisor and the
Company's property manager and become a self-administered REIT, through a tax-
free, non-cash merger (the "Merger"). Pursuant to the Merger Agreement, upon
closing, the Company will issue an aggregate of 6,181,818 Shares, or
approximately eleven percent (11%) of its common stock taking into account such
issuance, to the respective parents of the Advisor and the Company's property
manager. The closing of the Merger is subject to numerous conditions including
(i) approval of the Merger Agreement by the Stockholders at the Company's
upcoming Annual Meeting; (ii) the delivery of an opinion of counsel that the
completion of the Merger will not result in the revocation of the Company's
status as a REIT for federal income tax purposes; and (iii) delivery of an
opinion of counsel that the transaction shall be treated as a tax free
reorganization under the Internal Revenue Code of 1986, as amended. During
March, 2000, the Company received an opinion that the Merger is fair to the
Company from a financial point of view and such is included within the proxy.
Concurrent with completing the Merger, the Board of Directors contemplates: (i)
appointing new officers and entering into employment agreements with these
individuals; (ii) entering into a lease agreement for office space with The
Inland Group, Inc.; and (iii) receiving a license from The Inland Group, Inc.
that gives to Company the right to the continued use of the name "Inland Real
Estate Corporation" and the corporate logo.
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 March 31, 2000 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 than 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 and is included in other income in the accompanying
consolidated financial statements. Sales of investment securities available-
for-sale during the three months ended March 31, 2000 resulted in a gain on
sale of $46,650.
-9-
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Notes to Consolidated Financial Statements
(continued)
March 31, 2000
(unaudited)
The accompanying consolidated financial statements include the accounts of the
Company, Inland Joliet Commons LLC, Inland Ryan LLC and Inland Ryan Cliff Lake
LLC. 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
consolidated financial statements.
In October 1998, the Company formed the Inland Joliet Commons LLC, an Illinois
limited liability company, with an unaffiliated third party which purchased
Phase I of the Joliet Commons Shopping Center. The Company contributed
approximately $52,000 for a 1% interest in the Inland 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 Inland
Joliet Commons LLC for a 99% stated interest. The Company is the managing
member of the Inland Joliet Commons LLC. The non-managing member (third party
seller) has a right, on or after October 30, 2000 and prior to the time the
Company has listed its shares on a national securities exchange, to tender its
units in the Inland Joliet Commons LLC to the managing member for a cash
payment equal to the equity in the property at the time of its contribution to
the LLC. If the units are tendered after October 30, 1999 and the Company has
not listed its shares on a national securities exchange, the non-managing
member has a right to receive 469,480 shares of the Company's stock.
In September 1999, the Company formed the Inland Ryan LLC, a Delaware limited
liability company, with an unaffiliated third party which purchased nine
shopping centers. The Company contributed approximately $76,720,000 for an
approximate 77% interest in the Inland Ryan LLC. The third party seller
contributed nine properties with a fair market value of approximately
$99,427,000, debt of approximately $65,500,000 to the LLC and received a cash
payment of $11,175,000 from the Company for an approximate 23% interest. The
Company is the managing member of the Inland Ryan 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 for a cash
payment. 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. Generally, profit and loss allocations
and distributions are made in accordance with stated ownership interests.
-10-
In September 1999, the Company formed the Inland Ryan Cliff Lake LLC, a
Delaware limited liability company, with the Inland Ryan LLC in order to comply
with covenants of an assumed mortgage. The Company contributed approximately
$6,000 in cash for a 1% interest in the Inland Ryan Cliff Lake LLC. The Inland
Ryan LLC contributed one property with a fair market value of approximately
$5,554,000 and debt of approximately $5,134,000 to the LLC for an approximate
99% interest. The Company is the managing member of the Inland 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 for a cash payment. 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. Generally, profit
and loss allocations and distributions are made in accordance with stated
ownership interests.
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 at the date of the consolidated financial statements and the
reported amounts of revenues and expenses during the reporting periods. Actual
results could differ from those estimates.
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 Advisor to 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. The Advisor to
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, the Advisor 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.
(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 the
administration of the Company. Such costs of $78,831, $137,122 and $38,030 are
allocated among professional services to Affiliates, general and administrative
expenses to Affiliates and acquisition costs expensed to Affiliates,
respectively, for the three months ended March 31, 2000. Such costs of $22,782,
$146,401 and $214,704 are allocated among professional services to Affiliates,
general and administrative expenses to Affiliates and acquisition costs
expensed to Affiliates, respectively, for the three months ended March 31,
1999.
-11-
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Notes to Consolidated Financial Statements
(continued)
March 31, 2000
(unaudited)
An Affiliate of the Advisor holds the mortgage on the Walgreens/Decatur
property. As of March 31, 2000, the remaining balance of the mortgage is
$696,695. For the three months ended March 31, 2000, the Company paid principal
and interest payments totaling $17,067 on this mortgage.
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 of properties. Such amounts are included in building
and improvements for those costs relating to properties purchased. Such
amounts are included in acquisition cost expenses to Affiliates for costs
relating to properties not acquired.
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 an 8% current return. The Company
incurred $1,203,000 and $325,000 of Advisor Asset Management Fees for the three
months ended March 31, 2000 and 1999, respectively, of which $2,703,000
($1,203,000 from March 31, 2000 in addition to $1,500,000 still unpaid from
December 31, 1999) and $1,500,000 was unpaid at March 31, 2000 and December 31,
1999, respectively. Remaining Advisor Asset Management Fees are forfeited by
the Advisor and, accordingly, not accrued for in the accompanying consolidated
financial statements.
An Affiliate of the Advisor is entitled to receive Property Management Fees for
management and leasing services. Such fees may not exceed 4.5% of the gross
income earned by the Company on properties managed. The Company incurred and
paid Property Management Fees of $1,490,273 and $1,071,754 for the three months
ended March 31, 2000 and 1999, respectively.
If the merger is completed, the Company will become a self-administered real
estate investment trust and will no longer incur the Advisor Asset Management
Fee and Property Management Fees. The Company expects the expenses that the
Company will incur for an internalized management team will be less than these
fees and expenses.
-12-
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Notes to Consolidated Financial Statements
(continued)
March 31, 2000
(unaudited)
(3) Investment Properties
In connection with the purchase of several properties, the Company will receive
payments under master lease agreements covering spaces of several properties
vacant at the time of acquisition of these properties. The payments have and
will continue to be made to the Company for periods ranging from one to two
years from the date of acquisition of the property or until the spaces are
leased and tenants begin paying rent. GAAP requires the Company to reduce the
purchase price of the property as these payments are received, rather than
record the payments as rental income. The cumulative amount of such payments
was $5,618,910 and $5,148,659 as of March 31, 2000 and December 31, 1999,
respectively (Note 4).
(4) Operating Leases
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
consolidated financial statements include increases of $1,028,996 and $437,795
for the three months ended March 31, 2000 and 1999, respectively, of rental
income for the period of occupancy for which stepped rent increases apply and
$6,427,022 and $5,398,026 in related accounts and rents receivable as of March
31, 2000 and December 31, 1999, 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 amount of
$15,500,000 secured by Thatcher Woods Shopping Center in River Grove, Illinois.
The construction loan matures on December 31, 2000 and requires the borrower to
make monthly interest-only payments on amounts disbursed at a rate of 9%. The
Company, at its option, may elect to purchase this property, upon completion,
subject to certain fair-value-based criteria stated in the contract.
-13-
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Notes to Consolidated Financial Statements
(continued)
March 31, 2000
(unaudited)
(6) Mortgages Payable
The Company's mortgages payable are secured by various of its investment
properties and consist of the following at March 31, 2000 and December 31,
1999:
Interest
Rate at Current Balance at
Mar. 31, Maturity Monthly Mar. 31, Dec. 31,
2000 Date Payment 2000 1999
---------- --------- --------- ------------ -----------
Mortgage payable to Affiliate:
Inland Mortgage
Servicing Corp. (a) 7.65% 05/2004 $ 5,689 $ 696,695 700,381
Mortgages payable to non-affiliates:
Bank One (a) 7.18% 08/2000 (b) 4,221,668 4,241,187
LaSalle Bank N.A. 7.85% 10/2003 57,992 8,865,000 8,865,000
LaSalle Bank N.A. 7.85% 09/2003 25,872 3,955,000 3,955,000
LaSalle Bank N.A. 7.59% 01/2004 81,277 12,850,000 12,850,000
LaSalle Bank N.A. 7.80% 02/2004 83,460 12,840,000 12,840,000
John Hancock (a) (c) 9.00% 10/2001 85,423 8,946,162 9,000,328
LaSalle Bank N.A. 7.65% 06/2004 65,133 10,216,880 10,216,880
LaSalle Bank N.A. 7.49% 06/2004 61,116 9,791,500 9,791,500
LaSalle Bank N.A. 7.23% 01/2005 28,183 4,677,795 4,677,795
Allstate 7.21% 12/2004 38,453 6,400,000 6,400,000
LaSalle Bank N.A.(d) 3.13% 12/2014 19,740 6,200,000 6,200,000
LaSalle Bank N.A. 7.28% 03/2005 25,041 4,050,000 4,050,000
LaSalle Bank N.A. 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
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 Bank N.A. 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
Allstate 7.00% 12/2003 65,333 11,200,000 11,200,000
Berkshire Mortgage (a) 7.79% 10/2007 105,719 14,414,309 14,447,153
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 10,734,710
-14-
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Notes to Consolidated Financial Statements
(continued)
March 31, 2000
(unaudited)
Interest
Rate at Current Balance at
Mar. 31, Maturity Monthly Mar. 31, Dec. 31,
2000 Date Payment 2000 1999
---------- --------- --------- ------------ -----------
Bear, Stearns secured
financing (h) 6.86% 06/2004 $328,662 $ 57,450,000 57,450,000
LaSalle Bank N.A. 7.18% 10/2004 (i) 34,017,000 34,017,000
Allstate 7.50% 10/2004 (i) 35,787,000 35,787,000
Midland Loan Serv. (a) 7.86% 01/2008 37,649 5,108,684 5,121,280
LaSalle Bank N.A. 7.18% 12/2004 (i) 8,910,000 8,910,000
LaSalle Bank N.A. 7.28% 12/2004 (i) 9,650,000 9,650,000
LaSalle Bank N.A. 7.18% 01/2005 (i) 9,737,620 -
LaSalle Bank N.A. 7.30% 03/2005 (i) 2,400,000 -
------------ -----------
Mortgages Payable.................................... $452,755,105 440,740,296
============ ===========
(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 rate at March 31, 2000 is 4.08%. 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.
(e) The Company received a subsidy at closing from the seller for a period of
five years, which together with interest earnings on the initial 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.
-15-
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Notes to Consolidated Financial Statements
(continued)
March 31, 2000
(unaudited)
(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) Payments on these mortgages are calculated using a floating rate of
interest based on LIBOR.
(7) Construction in Progress
On August 6, 1998, the Company acquired title to approximately 27 acres of land
in St. Charles, Illinois, to be developed into a 204,640 square foot shopping
center to be known as "Stuart's Crossing" from an unaffiliated third party. The
initial purchase price of $14,176,627 was funded with cash and cash
equivalents. The purchase price consisted of $5,351,744 for land and $8,824,883
which has been placed in a development escrow for infrastructure development,
construction, and a deposit on the final purchase price of a 70,640 square foot
Jewel Food Store and adjacent stores. In July 1999, the Jewel Food Store was
completed and $6,069,437 was released from escrow which represents the final
purchase price of the Jewel Food Store. Additionally, $1,434,037 of
construction in progress was recorded as operating property. In November 1999,
the Company funded an additional $1,221,750 to escrow for the construction of a
15,000 square foot store space adjacent to the Jewel Food Store. Contingent
upon the lease-up of the 15,000 square foot space, the Company is required to
deposit additional cash into the development escrow to fund the space's final
purchase price. As of March 31, 2000, $152,807 of this development escrow is
included in mortgage receivable and $1,815,828 is included in construction in
progress.
-16-
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Notes to Consolidated Financial Statements
(continued)
March 31, 2000
(unaudited)
(8) 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 March 31, 2000
and December 31, 1999, options to purchase 15,000 shares of common stock at
prices ranging from $9.05 to $10.45 per share were outstanding.
As of March 31, 2000, warrants to purchase 1,156,520 shares of common stock at
a price of $12.00 per share had been issued, but not exercised. These warrants
have no value.
The weighted average number of common shares outstanding were 55,759,343 and
53,766,942 for the three months ended March 31, 2000 and 1999, respectively.
(9) Segment Reporting
The Company owns and seeks to acquire single-user, neighborhood and community
retail shopping centers in the Midwest, generally within the states of
Illinois, Indiana, Michigan, Minnesota, Ohio and Wisconsin. All of the
Company's shopping centers are located within these states and 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)
March 31, 2000
(unaudited)
The property revenues, property net operations, and property assets of the
reportable segments are summarized in the following tables as of March 31, 2000
and 1999, and for the three month periods then ended, along with a
reconciliation to net income:
2000 1999
---- ----
Total property revenues......... $ 39,151,080 25,663,989
Total property operating
expenses...................... 12,991,708 9,019,942
Mortgage interest................ 8,104,671 5,657,797
------------- -------------
Net property operations.......... 18,054,701 10,986,250
------------- -------------
Interest income.................. 385,914 1,526,372
Less non property expenses:
Professional services.......... 695,221 163,752
General and administrative..... 1,583,207 30,309
Advisor asset management fee... 1,203,000 325,000
Depreciation and amortization.. 6,302,494 4,356,073
Acquisition cost expense....... 13,703 334,162
------------- -------------
Income before minority interest.. $ 8,642,990 7,103,326
============= =============
Net investment properties........ $929,588,218 699,574,696
============= =============
(10) Commitments and Contingencies
In connection with a tax increment financing district for three of the
Company's properties, the Company is contingently liable for any shortfalls in
the Tax Increment as defined. At March 31, 2000, the Company does not believe
any shortfall under the Tax Increment will be due.
(11) Subsequent Events
In April 2000, the Company paid a distribution of $4,398,759 to the
Stockholders.
On May 10, 2000, the proxy and its related materials was mailed to all
stockholders of record as of April 30, 2000.
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 March 7, 2000, the Company entered into an Agreement and Plan of Merger (the
"Merger Agreement"), pursuant to which it agreed to acquire the Advisor and the
Company's property manager and become a self-administered REIT, through a tax-
free, non-cash merger (the "Merger"). Pursuant to the Merger Agreement, upon
closing, the Company will issue an aggregate of 6,181,818 Shares, or
approximately eleven percent (11%) of its common stock taking into account such
issuance, to the respective parents of the Advisor and the Company's property
manager. The closing of the Merger is subject to numerous conditions including
(i) approval of the Merger Agreement by the Stockholders at the Company's
upcoming Annual Meeting; (ii) the delivery of an opinion of counsel that the
completion of the Merger will not result in the revocation of the Company's
status as a REIT for federal income tax purposes; and (iii) delivery of an
opinion of counsel that the transaction shall be treated as a tax free
reorganization under the Internal Revenue Code of 1986, as amended. During
March, 2000, the Company received an opinion that the Merger is fair to the
Company from a financial point of view and such is included within the proxy.
Concurrent with completing the Merger, the Board of Directors contemplates: (i)
appointing new officers and entering into employment agreements with these
individuals; (ii) entering into a lease agreement for office space with The
Inland Group, Inc.; and (iii) receiving a license from The Inland Group, Inc.
that gives to Company the right to the continued use of the name "Inland Real
Estate Corporation" and the corporate logo.
Cash and cash equivalents consists of cash and short-term investments. Cash and
cash equivalents at March 31, 2000 and December 31, 1999 were $10,185,680 and
$19,424,343, respectively. The decrease in cash and cash equivalents since
December 31, 1999 resulted primarily from the use of cash resources to purchase
additional properties. Partially offsetting the decrease in cash and cash
equivalents was additional proceeds received through the Company's Distribution
Reinvestment Program ("DRP"). 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 proceeds from the Company's DRP.
-19-
As of March 31, 2000, the Company had acquired 119 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 three months ended March 31,
2000 were $12,339,054, 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.
Cash Flows From Operating Activities
Net cash provided by operating activities increased from $12,263,077 for the
three months ended March 31, 1999 to $13,279,337 for the three months ended
March 31, 2000. This increase is due primarily to the purchase of additional
properties in 2000 and a full three months of operations on properties acquired
during 1999. As of March 31, 2000, the Company had acquired 119 properties, as
compared to 93 properties as of March 31, 1999. The increase is also due to an
increase in accounts payable relating to property operating and merger expenses
unpaid as of March 31, 2000.
Cash Flows From Investing Activities
The Company used $27,195,234 in cash for investing activities for the three
months ended March 31, 2000 as compared to $63,295,155 for the three months
ended March 31, 1999. The decrease in cash used is due primarily to the Company
purchasing four additional properties during the three months ended March 31,
2000, as compared to eight additional properties during the three months ended
March 31, 1999.
Cash Flows From Financing Activities
For the three months ended March 31, 2000, the Company generated $4,677,234 of
cash flows from financing activities as compared to $3,668,440 for the three
months ended March 31, 1999. This increase was due primarily to an increase in
loan proceeds received during the three months ended March 31, 2000 of
$12,137,620, as compared to no loan proceeds received during the three months
ended March 31, 1999. This increase was partially offset by a decrease in
proceeds received from the offering. With the termination of the Fourth
Offering on December 31, 1998, proceeds were still being received from the
subscriptions during the three months ended March 31, 1999. During the three
months ended March 31, 2000, the proceeds received were solely from the DRP.
For the three months ended March 31, 2000, the Company had proceeds from the
DRP of approximately $5,600,000, compared to approximately $19,300,000 from the
offering for the three months ended March 31, 1999.
Results of Operations
At March 31, 2000, the Company owned 25 single-user retail properties, 74
Neighborhood Retail Centers and 20 Community Centers.
Rental and additional rental income for the three months ended March 31, 2000
and 1999 was $38,743,745 and $25,546,650, respectively. This increase was due
to the purchase of additional properties in 2000 and a full three months of
operations on properties acquired during 1999. As of March 31, 2000, the
Company had acquired 119 properties, as compared to 93 properties as of March
31, 1999. The purchase of additional properties also resulted in increases in
net investment properties, accrued real estate taxes, property operating
expenses to Affiliates and non-affiliates and depreciation expense.
-20-
Interest income decreased for the three months ended March 31, 2000, as
compared to the three months ended March 31, 1999. Cash and cash equivalents
being invested in short-term investments has decreased primarily from the use
of cash resources to purchase additional properties.
Other income increased for the three months ended March 31, 2000, as compared
to the three months ended March 31, 1999, due to the Company receiving dividend
income on the investment in securities held by the Company. The Company began
to purchase the investment in securities during July 1999. The Company had
purchased a total of approximately $10,660,000 of investment in securities, of
which approximately $1,228,000 was sold as of March 31, 2000.
Professional services and general and administrative expenses to Affiliates and
non-affiliates increased for the three months ended March 31, 2000, as compared
to the three months ended March 31, 1999, due to services required on the
increased number of investment properties and for services required for the
preparation of the Merger Agreement.
General and administrative expenses - bad debt expense increased for the three
months ended March 31, 2000, as compared to the three months ended March 31,
1999, due primarily to the increase in the allowance for doubtful accounts for
the three months ended March 31, 2000. The allowance was increased due to the
increased number of investment properties. In addition, Eagle Foods, a tenant
at six of the Company's properties filed for Chapter 11 bankruptcy protection
under the Federal bankruptcy law in February 2000. Eagle Foods is expected to
file a plan of reorganization during the second quarter of 2000. Of the six
stores affected, three remain open for business, one has a substitute tenant in
place, and two closed in April 2000. Management of the Company is in the
process of marketing these two spaces for replacement tenants and does not
expect the Eagle Foods bankruptcy to have a material effect on the operations
of the Company as a whole.
The Advisor may receive an annual Advisor Asset Management Fee of not more than
1% of the Average Invested Assets, paid quarterly. The Company paid an Advisor
Asset Management Fee which represented .50 of the 1% of the Average Invested
Assets for the three months ended March 31, 2000. Remaining Advisor Asset
Management Fees are forfeited by the Advisor and, accordingly, not accrued for
in the accompanying consolidated financial statements. For the three months
ended March 31, 2000, Advisor asset management fees were $1,203,000, as
compared to $325,000 for the three months ended March 31, 1999. This increase
is due to the increase number of investment properties the Company owns. As of
March 31, 2000, the Company had acquired 119 properties, as compared to 93
properties as of March 31, 1999.
If the merger is completed, the Company will become a self-administered real
estate investment trust and will no longer incur the Advisor Asset Management
Fee and Property Management Fees. The Company expects the expenses that the
Company will incur for an internalized management team will be less than these
fees and expenses.
Mortgage interest and accrued interest payable to non-affiliates increased for
the three months ended March 31, 2000, as compared to the three months ended
March 31, 1999, due to an increase in mortgages payable on additional
properties purchased to approximately $452,755,000 from approximately
$299,612,000.
-21-
Acquisition cost expenses to Affiliates and non-affiliates decreased for the
three months ended March 31, 2000, as compared to the three months ended March
31, 1999, due to the decrease in properties being considered for acquisition by
the Company.
Year 2000 Issues
As part of its year 2000 readiness plan, the Company had identified three areas
for compliance efforts: business computer systems, tenants and suppliers and
non-information technology systems. The Company has not experienced any
problems relating to year 2000 issues in any of these areas. Total costs
associated with year 2000 readiness were not material.
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 on real property 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:
March 31, March 31,
2000 1999
---- ----
Net income................................... $ 8,366,383 7,102,888
Depreciation, net of minority interest....... 5,939,180 4,167,794
------------ ------------
Funds From Operations (1).................... 14,305,563 11,270,682
Principal amortization of debt, net of
minority interest.......................... (26,102) (55,095)
Deferred rent receivable, net of minority
interest (2)............................... (981,316) (437,795)
Acquisition cost expenses (3)................ - 334,162
Rental income received under master lease
agreements, net of minority interest (4)... 469,622 515,250
------------ ------------
Funds available for distribution............. $13,767,767 11,627,204
============ ============
-22-
(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 three months
ended March 31, 2000 due to the termination of the Company's Offering on
December 31, 1998.
(4) In connection with the purchase of several properties, the Company will
receive payments under master lease agreements covering spaces vacant at
the time of acquisition of those properties. The payments have and will
continue to be made to the Company for periods ranging from one to two
years from the date of acquisition of the property 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.
-23-
<TABLE>
<CAPTION>
The following table lists the approximate physical occupancy levels for the Company's properties as of the
end of each quarter during 1999 and 2000. N/A indicates the property was not owned by the Company at the
end of the quarter.
Gross 1999 2000
--------------------------- ----------------------------
Leasable at at at at at at at at
Area 03/31 06/30 09/30 12/31 03/31 06/30 09/30 12/31
Properties (Sq Ft) (%) (%) (%) (%) (%) (%) (%) (%)
- --------------------------------------- ----------- ----- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Ameritech, Joliet, IL.................. 4,504 100 100 100 100 100
Antioch Plaza, Antioch, IL............. 19,810 68 68 67 67 52
Aurora Commons, Aurora, IL............. 127,302 94 94 94 93 93
Bakers Shoes, Chicago, IL.............. 20,000 100 100 100 100 100
Bally's Total Fitness, St Paul, MN..... 43,000 N/A N/A 100 100 100
Baytowne Square, Champaign, IL......... 118,842 97 97 98 97 97
Bergen Plaza, Oakdale, MN.............. 270,283 97 97 97 97 98(a)
Berwyn Plaza, Berwyn, IL............... 18,138 100 100 100 26 26(b)
Burnsville Crossing, Burnsville, MN.... 91,015 N/A N/A 100 100 99
Byerly's Burnsville, Burnsville, MN.... 72,365 N/A N/A 84 84 84
Calumet Square, Calumet City, IL....... 39,936 100 100 100 100 100
Carmax, Schaumburg, IL................. 93,333 100 100 100 100 100
Carmax, Tinley Park, IL................ 94,518 100 100 100 100 100
Chatham Ridge, Chicago, IL............. 175,730 N/A N/A N/A N/A 100
Chestnut Court, Darien, IL............. 170,027 86 95 95 95 95
Circuit City, Traverse City, MI........ 21,337 100 100 100 100 100
Cliff Lake Centre, Eagan, MN........... 74,215 N/A N/A 72 88 79(b)
Cobblers Crossing, Elgin, IL........... 102,643 92 92 98 100 100
Crestwood Plaza, Crestwood, IL......... 20,044 100 68 68 68 100
Cub Foods, Indianapolis, IN............ 67,541 100 100 100 100 100
Cub Foods, Plymouth, MN................ 67,510 100 100 100 100 100
Dominick's, Countryside, IL............ 62,344 100 100 100 100 100
Dominick's, Glendale Heights, IL....... 68,879 100 100 100 100 100
Dominick's, Hammond, IN................ 71,313 N/A 100 0 0 0(b)
Dominick's, Highland Park, IL.......... 71,442 100 100 100 100 100
Dominick's, Schaumburg, IL............. 71,400 100 100 100 100 100
Dominick's, West Chicago, IL........... 78,158 100 100 100 100 100
Downers Grove Market, Downers Grove, IL 104,445 100 100 100 100 100
Eagle Country Market, Roselle, IL...... 42,283 100 100 100 100 100
Eagle Crest, Naperville, IL............ 67,632 100 94 94 94 92
Eagle Foods, Buffalo Grove, IL......... 56,192 N/A 100 100 100 100
Eagle Ridge Center, Lindenhurst, IL.... 56,142 N/A 100 100 100 100
Eastgate Shopping Center, Lombard, IL.. 132,519 87 91 92 92 93(a)
Edinburgh Festival, Brooklyn Park, MN.. 91,536 100 100 100 100 100
Elmhurst City Center, Elmhurst, IL..... 39,481 100 100 66 62 62
Fairview Hts. Plaza, Fairview Hts., IL. 167,491 78 78 78 78 78(b)
Fashion Square, Skokie, IL............. 84,580 100 100 100 81 81(b)
Gateway Square, Hinsdale, IL........... 40,170 96 96 96 100 96
Goodyear, Montgomery, IL............... 12,903 77 77 77 28 28(b)
Grand and Hunt Club, Gurnee, IL........ 21,222 100 100 100 100 100
Hartford Plaza, Naperville, IL......... 43,762 100 100 100 100 100
Hawthorn Village, Vernon Hills, IL..... 98,806 100 100 100 100 100
Hickory Creek Market, Frankfort, IL.... 35,451 N/A N/A 88 65 82(a)
-24-
-24-
Gross 1999 2000
--------------------------- ----------------------------
Leasable at at at at at at at at
Area 03/31 06/30 09/30 12/31 03/31 06/30 09/30 12/31
Properties (Sq Ft) (%) (%) (%) (%) (%) (%) (%) (%)
- --------------------------------------- ----------- ----- ----- ----- ----- ----- ----- ----- -----
High Point Center, Madison, WI......... 86,009 94 82 87 92 89(b)
Hollywood Video, Hammond, IN........... 7,488 100 100 100 100 100
Homewood Plaza, Homewood, IL........... 19,000 100 100 100 100 100
Iroquois Center, Naperville, IL........ 140,981 73 65 66 69 67(b)
Joliet Commons, Joliet, IL............. 158,915 97 97 93 96 100
Joliet Commons Phase II, Joliet, IL.... 40,395 N/A N/A N/A N/A 100
Lake Park Plaza, Michigan City, IN..... 229,639 74 74 73 71 73(b)
Lansing Square, Lansing, IL............ 233,508 98 98 98 98 98
Lincoln Park Place, Chicago, IL........ 10,678 60 60 60 60 60
Loehmann's Plaza, Brookfield, WI....... 107,952 100 100 100 100 84
Mallard Crossing, Elk Grove Village, IL 82,929 97 97 98 97 97
Maple Grove Retail, Maple Grove, MN.... 79,130 N/A N/A 81 100 81
Maple Park Place, Bolingbrook, IL...... 220,095 99 97 97 97 97
Maple Plaza, Downers Grove, IL......... 31,298 100 100 100 87 83
Marketplace at Six Corners, Chicago, IL 117,000 100 100 100 100 100
Mundelein Plaza, Mundelein, IL......... 68,056 100 100 100 96 96
Nantucket Square, Schaumburg, IL....... 56,981 100 100 100 100 100
Naper West, Naperville, IL............. 164,812 91 92 92 93 92
Niles Shopping Center, Niles, IL....... 26,109 100 100 100 87 100
Oak Forest Commons, Oak Forest, IL..... 108,330 100 100 98 97 100
Oak Forest Commons III, Oak Forest, IL. 7,424 N/A 72 72 82 62(a)
Oak Lawn Town Center, Oak Lawn, IL..... 12,506 N/A 100 100 100 100
Orland Greens, Orland Park, IL......... 45,031 100 97 97 97 94
Orland Park Retail, Orland Park, IL.... 8,500 100 100 36 36 36
Park Center Plaza, Tinley Park, IL..... 193,179 72 84 84 72 90(a)
Park Place Plaza, St. Louis Park, MN... 84,999 N/A N/A 100 100 100
Park St. Claire, Schaumburg, IL........ 11,859 100 100 100 100 100
Party City, Oakbrook Terrace, IL....... 10,000 100 100 100 100 100
Pine Tree Plaza, Janesville, WI........ 187,413 N/A N/A N/A 93 93(a)
Plymouth Collection, Plymouth, MN...... 40,815 100 100 100 100 100
Prairie Square, Sun Prairie, WI........ 35,755 83 83 83 83 81
Prospect Heights, Prospect Heights, IL. 28,080 92 15 15 25 25(b)
Quarry Outlot, Hodgkins, IL............ 9,650 100 100 100 100 100
Quarry Retail, Minneapolis, MN......... 273,648 N/A N/A 99 99 99
Randall Square, Geneva, IL............. 205,164 N/A 87 82 94 93(a)
Regency Point, Lockport, IL............ 54,911 97 97 97 98 100
Riverdale Commons, Coon Rapids, MN..... 168,277 N/A N/A 98 99 97
Riverdale Outlot, Coon Rapids, MN...... 6,566 N/A N/A N/A N/A 100
Riverplace Center, Noblesville, IN..... 74,414 100 100 100 94 94
Riversquare Center, Naperville, IL..... 58,556 95 95 87 76 71(b)
Rivertree Court, Vernon Hills, IL...... 298,862 99 99 99 99 99
Rose Naper Plaza East, Naperville, IL.. 11,658 N/A N/A N/A N/A 100
Rose Naper Plaza West, Naperville, IL.. 14,335 N/A N/A 100 100 100
Rose Plaza, Elmwood Park, IL........... 24,204 100 100 100 100 100
Salem Square, Countryside, IL.......... 112,310 97 97 97 93 93
St. James Crossing, Westmont, IL....... 49,994 91 91 91 83 90
-25-
-25-
Gross 1999 2000
--------------------------- ----------------------------
Leasable at at at at at at at at
Area 03/31 06/30 09/30 12/31 03/31 06/30 09/30 12/31
Properties (Sq Ft) (%) (%) (%) (%) (%) (%) (%) (%)
- --------------------------------------- ----------- ----- ----- ----- ----- ----- ----- ----- -----
Schaumburg Plaza, Schaumburg, IL....... 61,485 93 93 93 93 90
Schaumburg Promenade, Schaumburg, IL... 91,825 N/A N/A N/A 100 100
Sears, Montgomery, IL.................. 34,300 100 100 100 100 100
Sequoia Shopping Center, Milwaukee, WI. 35,407 100 100 100 93 93
Shingle Creek, Brooklyn Center, MN..... 39,456 N/A N/A 66 73 75
Shops/Coopers Grv, Ctry Club Hills, IL. 72,518 100 100 100 100 23(b)
Shoppes of Mill Creek, Palos Park, IL.. 102,443 98 98 96 97 98
Shorecrest Plaza, Racine, WI........... 91,244 89 89 89 89 89
Six Corners, Chicago, IL............... 80,650 88 90 90 89 89
Springboro Plaza, Springboro, OH....... 154,034 100 100 100 100 100
Spring Hill Fashion Ctr, W. Dundee, IL. 125,198 95 95 100 97 97
Staples, Freeport, IL.................. 24,049 100 100 100 100 100
Stuart's Crossing, St. Charles, IL..... 70,529 N/A N/A N/A 100 93
Summit of Park Ridge, Park Ridge, IL... 33,252 93 88 88 84 88
Terramere Plaza, Arlington Heights, IL. 40,965 86 86 86 79 79(b)
Two Rivers Plaza, Bolingbrook, IL...... 57,900 100 100 100 100 100
United Audio Center, Schaumburg, IL.... 9,988 N/A N/A 100 100 100
Walgreens, Decatur, IL................. 13,500 100 100 100 100 100
Walgreens, Woodstock, IL............... 15,856 100 100 100 100 100
Wauconda Shopping Center, Wauconda, IL. 31,157 100 100 100 92 100
Western and Howard, Chicago, IL........ 12,784 100 100 100 38 38(b)
West River Crossing, Joliet, IL........ 31,132 N/A N/A 87 87 74(a)
Wilson Plaza, Batavia, IL.............. 11,160 100 100 100 100 100
Winnetka Commons, New Hope, MN......... 42,415 100 100 100 100 100
Wisner/Milwaukee Plaza, Chicago, IL.... 14,677 100 100 100 100 100
Woodfield Commons E/W, Schaumburg, IL.. 207,583 89 86 86 95 95(a)
Woodfield Plaza, Schaumburg, IL........ 177,160 97 97 82 82 82(a)
Woodland Commons, Buffalo Grove, IL.... 170,070 100 99 97 97 98
Woodland Heights, Streamwood, IL....... 120,436 81 81 81 81 82
Zany Brainy, Wheaton, IL............... 12,499 100 100 100 100 100
-----------
9,233,331
===========
(a) As part of the purchase of these properties the Company receives rent under master lease agreements on
the space which was vacant at the time of the purchase which results in economic occupancy ranging
from 90% to 100% at March 31, 2000 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.
(b) The Company received rent from tenants who have vacated but are still obligated under their lease
terms which results in economic occupancy ranging from 69% to 100% at March 31, 2000 for each of these
centers.
</TABLE>
-26-
-26-
Subsequent Events
In April 2000, the Company paid a distribution of $4,398,759 to the
Stockholders.
On May 10, 2000, the proxy and its related materials was mailed to all
stockholders of record as of April 30, 2000.
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 maintain liquidity and fund capital expenditures and
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 closely monitors its
variable rate debt and on each such debt it has the right to convert the
interest rate to a fixed rate.
Approximately $104,723,000, or 23% of the Company's mortgages payable at March
31, 2000, have variable interest rates averaging 7.3%. An increase in the
variable interest rate on certain mortgages payable constitutes a market risk.
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 exhibits are filed as part of this document:
Item No. Description
3.1 Inland Monthly Income Fund III, Inc. Second Articles of
Amendment and Restatement (2)
3.2 Amend and Restated bylaws of Inland Real Estate Corporation (3)
3.3 Inland Monthly Income Fund III, Inc. Articles of Amendment (3)
3.4 Inland Real Estate Corporation Articles of Amendment of Second
Articles of Amendment and Restatement (1)
4.1 Specimen Stock Certificate (1)
10.1 Advisory Agreement between Inland Real Estate Corporation and
Inland Real Estate Advisory Services dated October 14, 1994 (2)
-27-
10.1(a) Amendment No. 1 to the Advisory Agreement dated October 13, 1995
(4)
10.1(b) Amendment No. 2 to the Advisory Agreement dated October 13, 1996
(4)
10.1(c) Amendment No. 3 to the Advisory Agreement effective as of October
13, 1997 (1)
10.1(d) Amendment No. 4 to the Advisory Agreement dated March 27, 1998
(5)
10.1(e) Amendment No. 5 to the Advisory Agreement dated March 31, 1998
(5)
10.2 Form of Management Agreement Between Inland Real Estate
Corporation and Inland Commercial Property Management, Inc. (3)
10.3 Amended and Restated Independent Director Stock Option Plan (2)
10.4 Agreement and Plan of Merger by and among Inland Real Estate
Corporation, Inland Advisors, Inc., Inland Management
Corporation, Inland Real Estate Investment Corporation, Inland
Real Estate Advisory Services, Inc., The Inland Property
Management Group, Inc., Inland Commercial Property Management,
Inc., and The Inland Group, Inc. dated March 7, 2000 (6)
27 Financial Data Schedule
(1) Included in the Registrant's Registration Statement on Form S-11 as
filed by Registrant on January 30, 1998.
(2) Included in the Registrant's Registration Statement on Form S-11
(file number 333-6459) as filed by Registrant on June 20, 1996.
(3) Included in Pre-Effective Amendment No. 1 to the Registrant's
Registration Statement on Form S-11 (file number 333-6459) as filed
by the Registrant on July 18, 1996.
(4) Included in Pre-Effective Amendment No. 1 to the Registrant's
Registration Statement on Form S-11 (file number 333-6459) as filed
by the Registrant on November 1, 1996.
(5) Included in Pre-Effective Amendment No. 1 to the Registrant's
Registration Statement on Form S-11 (file number 333-45233) as filed
by the Registrant on April 6, 1998.
(6) Included in Registrant's Current Report on Form 8-K (file number 000-
28382) as filed by the Registrant on March 21, 2000.
(b) Report on Form 8-K dated March 7, 2000
Item 5. Other Events
-28-
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 12, 2000
/S/ KELLY TUCEK
By: Kelly Tucek
Chief Financial and Accounting Officer
Date: May 12, 2000
-29-
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