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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
[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.
Part I - Financial Statements
Item 1. Financial Statements
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Consolidated Balance Sheets
March 31, 2000 and December 31, 1999
(unaudited)
Assets
|
March 31, 2000 |
|
December 31, 1999 |
|
|
|
|
Investment properties (Note 3): |
|
|
|
Land |
$ 278,176,349 |
|
271,905,942 |
Construction in progress (Note 7) |
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 (Note 1) |
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) |
21,410,802 |
|
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 |
$ 995,477,791 |
|
982,281,972 |
|
|||
See accompanying notes to consolidated financial statements.
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Consolidated Balance Sheets
(continued)
March 31, 2000 and December 31, 1999
(unaudited)
Liabilities and Stockholders' Equity
|
March 31, 2000 |
|
December 31, 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) |
26,653,447 |
|
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 Shares 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 |
(42,354,593) |
|
(35,538,273) |
Accumulated other comprehensive income (loss) |
(1,526,839) |
|
(2,088,633) |
|
|
|
|
Total stockholders' equity |
474,846,215 |
|
475,494,125 |
|
|
|
|
Commitments and contingencies (Notes 4, 6, 7 and 10) |
|
|
|
|
|
|
|
Total liabilities and stockholders' equity |
$ 995,477,791 |
|
982,281,972 |
|
|
|
|
See accompanying notes to consolidated financial statements.
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Consolidated Statements of Operations
For the three months ended March 31, 2000 and 1999
(unaudited)
|
Three months |
Three months |
|
ended |
ended |
|
March 31, 2000 |
March 31, 1999 |
Income: |
|
|
Rental income (Notes 1 and 4) |
$ 25,854,196 |
18,626,079 |
Additional rental income |
9,826,866 |
6,920,571 |
Interest income |
385,914 |
1,526,372 |
Other income |
407,335 |
117,339 |
|
36,474,311 |
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 |
5,580,307 |
7,103,326 |
Minority interest |
(57,573) |
(438) |
Net income before comprehensive income |
5,522,734 |
7,102,888 |
Other comprehensive income: |
|
|
Unrealized holding gain on investment securities |
561,794 |
- |
Comprehensive income |
$ 6,084,528 |
7,102,888 |
Net income before comprehensive income per common share, basic and diluted (Note 8) |
.10 |
.13 |
Weighted average common stock shares outstanding |
55,759,343 |
53,766,942 |
See accompanying notes to consolidated financial statements.
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Consolidated Statements of Stockholders' Equity
March 31, 2000 and December 31, 1999
(unaudited)
|
Common Stock |
Additional Paid-in Capital |
Accumulated Distributions in Excess of Net Income |
Accumulated Other Comprehensive Loss |
Total |
|
|
|
|
|
|
Balance December 31, 1999 |
$ 553,988 |
512,567,043 |
(35,538,273) |
(2,088,633) |
475,494,125 |
|
|
|
|
|
|
Net income |
- |
- |
5,522,734 |
- |
5,522,734 |
|
|
|
|
|
|
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 |
(42,354,593) |
(1,526,839) |
474,846,215 |
|
|
|
|
|
See accompanying notes to consolidated financial statements.
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Consolidated Statements of Cash Flows
For the three months ended March 31, 2000 and 1999
(unaudited)
|
Three months |
|
Three months |
|
ended |
|
ended |
|
March 31, 2000 |
|
March 31, 1999 |
Cash flows from operating activities: |
|
|
|
Net income |
$ 5,522,734 |
|
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 |
57,573 |
|
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 |
(587,119) |
|
(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 |
Sale of investment securities |
1,227,948 |
|
- |
Additions to investment properties |
(989,481) |
|
(1,257,077) |
Purchase of investment properties |
(27,634,962) |
|
(63,268,526) |
Mortgage receivable |
(1,188,750) |
|
- |
Construction in progress |
(316,110) |
|
(243,960) |
Proceeds from sale of land |
- |
|
1,117,151 |
Leasing fees |
(57,463) |
|
- |
|
|
|
|
Net cash used in investing activities |
(27,195,234) |
|
(63,295,155) |
See accompanying notes to consolidated financial statements.
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Consolidated Statements of Cash Flows
(continued)
For the three months ended March 31, 2000 and 1999
(unaudited)
|
Three months |
|
Three months |
|
ended |
|
ended |
|
March 31, 2000 |
|
March 31, 1999 |
Cash flows from financing activities: |
|
|
|
Proceeds from offering, including DRP |
$ 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: |
|
|
|
|
|
|
|
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.
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.
This filing revises the Company's financial statements as described below. The restatement is being done to correct an accounting error in the Company's real estate tax and common area maintenance accrual calculations. Accordingly, previously reported additional rental income was revised from $12,889,549 to $9,826,866 for the three months ended March 31, 2000. The revision, after adjusting for minority interest, decreased net income for the three months ended March 31, 2000 from $8,366,383 to $5,522,734, and decreased net income per share from $.15 to $.10. This amended quarterly report is filed solely to reflect this restatement.
(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.
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.
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.
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Notes to Consolidated Financial Statements
(continued)
March 31, 2000
(unaudited)
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.
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.
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.
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 certain of its investment properties and consist of the following at March 31, 2000 and December 31, 1999:
|
Interest Rate at March 31, 2000 |
Maturity Date |
Current Monthly Payment |
Balance at March 31, 2000 |
Balance at December 31, 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. |
6.99% |
04/2003 |
6,827 |
1,150,000 |
1,150,000 |
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 |
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)
Notes to Consolidated Financial Statements
(continued)
March 31, 2000
(unaudited)
|
Interest Rate at March 31, 2000 |
Maturity Date |
Current Monthly Payment |
Balance at March 31, 2000 |
Balance at December 31, 1999 |
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 |
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. |
7.94% |
12/2004 |
(i) |
8,910,000 |
8,910,000 |
LaSalle Bank N.A |
8.04% |
12/2004 |
(i) |
9,650,000 |
9,650,000 |
LaSalle Bank N.A. |
7.94% |
01/2005 |
(i) |
9,737,620 |
- |
LaSalle Bank N.A. |
8.04% |
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.
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.
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.
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 |
$ 36,088,397 |
|
25,663,989 |
Total property operating expenses |
12,991,708 |
|
9,019,942 |
Mortgage interest |
8,104,671 |
|
5,657,797 |
|
|
|
|
Net property operations |
14,992,018 |
|
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 |
|
230,309 |
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 |
$ 5,580,307 |
|
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.
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.
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.
The Company restated its previously filed quarterly report on Form 10-Q for the three months ended March 31, 2000 as filed with the Securities and Exchange Commission on May 12, 2000. The restatement is being done to correct an accounting error in the Company's real estate tax and common area maintenance accrual calculations. Accordingly, previously reported additional rental income was revised from $12,889,549 to $9,826,866 for the three months ended March 31, 2000. The revision, after adjusting for minority interest, decreased net income for the three months ended March 31, 2000 from $8,366,383 to $5,522,734, and decreased net income per share from $.15 to $.10. This amended quarterly report is filed solely to reflect this restatement.
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 $35,681,062 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.
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.
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:
|
Three months ended |
|
Three months ended |
|
March 31, 2000 |
|
March 31, 1999 |
|
|
|
|
Net income |
$ 5,522,734 |
|
7,102,888 |
Depreciation, net of minority interest |
5,939,180 |
|
4,167,794 |
|
|
|
|
Funds From Operations (1) |
11,461,914 |
|
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 (3) |
469,622 |
|
515,250 |
|
|
|
|
Funds available for distribution |
$ 10,924,118 |
|
11,627,204 |
(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.
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 |
|
|
|
|
|
|
|
|
|
Leasable |
|
|
|
|
|
|
|
|
|
Area |
03/31/99 |
06/30/99 |
09/30/99 |
12/31/99 |
03/31/00 |
06/30/00 |
09/30/00 |
12/31/00 |
Properties |
(Sq Ft) |
(%) |
(%) |
(%) |
(%) |
(%) |
(%) |
(%) |
(%) |
|
|
|
|
|
|
|
|
|
|
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, Buffalo Grove, IL |
56,192 |
N/A |
100 |
100 |
100 |
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 Mkt, 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 |
|
||
|
|
|
|
|
|
|
|
|
|
|
Gross |
|
|
|
|
|
|
|
|
|
Leasable |
|
|
|
|
|
|
|
|
|
Area |
03/31/99 |
06/30/99 |
09/30/99 |
12/31/99 |
03/31/00 |
06/30/00 |
09/30/00 |
12/31/00 |
Properties |
(Sq Ft) |
(%) |
(%) |
(%) |
(%) |
(%) |
(%) |
(%) |
(%) |
|
|
|
|
|
|
|
|
|
|
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) |
|
||
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) |
|
||
|
|
|
|
|
|
|
|
|
|
|
Gross |
|
|
|
|
|
|
|
|
|
Leasable |
|
|
|
|
|
|
|
|
|
Area |
03/31/99 |
06/30/99 |
09/30/99 |
12/31/99 |
03/31/00 |
06/30/00 |
09/30/00 |
12/31/00 |
Properties |
(Sq Ft) |
(%) |
(%) |
(%) |
(%) |
(%) |
(%) |
(%) |
(%) |
|
|
|
|
|
|
|
|
|
|
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 |
|
||
Schaumburg Plaza, Schaumburg, IL |
61,485 |
93 |
93 |
93 |
93 |
90 |
|
||
Schaumburg Prom, Schaumburg, IL |
91,825 |
N/A |
N/A |
N/A |
100 |
100 |
|
||
Sears, Montgomery, IL |
34,300 |
100 |
100 |
100 |
100 |
100 |
|
||
Sequoia Shopping Ctr, 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 |
|||
|
|
|
|
|
|
|
|
|
|
|
Gross |
|
|
|
|
|
|
|
|
|
Leasable |
|
|
|
|
|
|
|
|
|
Area |
03/31/99 |
06/30/99 |
09/30/99 |
12/31/99 |
03/31/00 |
06/30/00 |
09/30/00 |
12/31/00 |
Properties |
(Sq Ft) |
(%) |
(%) |
(%) |
(%) |
(%) |
(%) |
(%) |
(%) |
|
|
|
|
|
|
|
|
|
|
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 Ctr, 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 Comm 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.
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)
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
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/ NORBERT TREONIS
By: Norbert Treonis
Chief Executive Officer
Date: November 10, 2000
/S/ MARK E. ZALATORIS
By: Mark E. Zalatoris
Chief Financial and Accounting Officer
Date: November 10, 2000
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